<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 25, 2000
REGISTRATION NO. 333-94559
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
GENE LOGIC INC.
(Exact name of Registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE 8731 06-1411336
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
---------------------
708 QUINCE ORCHARD ROAD
GAITHERSBURG, MARYLAND 20878
(301) 987-1700
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------------
MICHAEL J. BRENNAN, M.D., PH.D.
CHIEF EXECUTIVE OFFICER
GENE LOGIC INC.
708 QUINCE ORCHARD ROAD
GAITHERSBURG, MARYLAND 20878
(301) 987-1700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
D. BRADLEY PECK, ESQ. FRODE JENSEN, ESQ.
CHRISTOPHER J. KEARNS, ESQ. ROBERT J. RAWN, ESQ.
JANE K. ADAMS, ESQ. WINTHROP, STIMSON, PUTNAM & ROBERTS
COOLEY GODWARD LLP FINANCIAL CENTRE
4365 EXECUTIVE DRIVE, SUITE 1100 695 EAST MAIN STREET
SAN DIEGO, CA 92121 STAMFORD, CONNECTICUT 06904-6760
(858) 550-6000 (203) 348-2300
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
possible after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
---------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
---------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
---------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS AMOUNT PROPOSED PROPOSED AMOUNT OF
OF SECURITIES TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PRICE PER SHARE OFFERING PRICE(2) FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value per share... 4,025,000 $56.44 $227,171,000 $59,973
</TABLE>
(1) Includes 525,000 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(2) Estimated in accordance with Rule 457(c) solely for the purpose of
calculating the amount of the registration fee based on the average of the
high and low prices of the Registrant's Common Stock as reported on the
Nasdaq National Market on January 24, 2000.
(3) Includes $30,019 paid as part of the Registrant's filing of January 13,
2000.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JANUARY 25, 2000
PROSPECTUS
3,500,000 SHARES
[GENE LOGIC INC. LOGO]
COMMON STOCK
------------------------
Gene Logic is selling 3,500,000 shares of common stock.
Our shares are listed for trading on the Nasdaq National Market under the
symbol "GLGC." On January 21, 2000, the last reported sale price of our common
stock on the Nasdaq National Market was $63.8125 per share.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" STARTING ON PAGE 7.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Public Offering Price....................................... $ $
Underwriting Discounts and Commissions......................
Gene Logic's proceeds.......................................
- -----------------------------------------------------------------------------------------
</TABLE>
The underwriters have an option to purchase up to an additional 395,000
shares from us and up to an additional 130,000 shares from certain selling
stockholders to cover over-allotments. The underwriters expect to deliver the
shares to purchasers on or about , 2000.
ING BARINGS
CHASE H&Q
ROBERTSON STEPHENS
DAIN RAUSCHER WESSELS
------------------------
, 2000
<PAGE> 3
[INSIDE COVER ART]
READS(TM), GeneExpress(TM), BioExpress(TM), ToxExpress(TM), PharmExpress(TM),
and Flow-thru Chip(TM) are trademarks of Gene Logic Inc. GeneChip(R) is a
registered trademark of Affymetrix Inc. Trade names and trademarks of other
companies appearing in this prospectus are the property of their respective
holders.
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully, including "Risk Factors" and our financial statements that
are incorporated by reference in this prospectus, before making an investment
decision. Unless the context requires otherwise, references in this prospectus
to "we," "us" and "our" refer to Gene Logic Inc. and its wholly owned
subsidiary.
GENE LOGIC INC.
Gene Logic has built and is commercializing what we believe to be the
world's most comprehensive survey of gene expression in human and animal
tissues. We market two types of gene expression database products to the global
pharmaceutical, healthcare and life science industries: our custom databases and
related software products, for which we currently have 13 customers, and our new
GeneExpress reference database suite, for which we currently have two customers.
Gene expression, which is the degree to which genes in a cell are switched on or
off, or regulated, is information critical to understanding the functions of
genes. Since genes direct all biological processes, gene expression information
is increasingly recognized by leading pharmaceutical companies as a fundamental
tool for all aspects of biomedical research, particularly drug discovery and
development.
Since 1997, we have developed custom gene expression databases designed for
each of our customers' internal programs and needs and targeted to specific
therapeutic areas of interest, including heart failure, kidney disease,
osteoporosis, psychiatric disorders and other major illnesses. Building on this
know-how, in March 1999 we began developing our GeneExpress database suite of
reference gene expression information. The GeneExpress databases contain
information from a broad range of normal and diseased human tissues, tissues
from experimental animals, human and animal cell lines and tissues that have
been treated with many different drugs. We completed development of the first
commercial version of the GeneExpress database suite in November 1999. We
currently market GeneExpress through nonexclusive subscriptions to customers in
the pharmaceutical, biotechnology and diagnostic industries, and are developing
versions of the database suite to market to the academic and government life
science research community and to physicians and patients. We sold our first
GeneExpress subscription in December 1999.
We generate our gene expression data in our own laboratories from tissues
we collect through our biorepository network using two complementary
technologies -- GeneChip microarrays produced by Affymetrix and our own patented
gene expression technology, Restriction Enzyme Analysis of
Differentially-expressed Sequences, or READS. The combination of GeneChip
microarrays and READS enables us to obtain comprehensive coverage of the genes
expressed in virtually all important tissue types. By the end of 1999, the
GeneExpress database contained gene expression profiles on over 1,000 tissue
samples representing more than 30 million gene expression data points. By the
end of 2003, we expect to have complete profiles on 30,000 tissue samples
representing an estimated 3 billion gene expression data points.
We have also developed sophisticated data management software in
conjunction with our database products to enable our customers to integrate our
information with their own in-house data, as well as with the gene sequence and
other biological information publicly available on the Internet. Our software
includes powerful tools for the analysis of this information, allowing users to
conduct a broad variety of electronic experiments designed to answer their
specific questions about mechanisms of disease and drug action.
The GeneExpress database suite can be used for many important research
applications, such as to discover and validate novel drug targets, develop
therapeutic compounds and facilitate clinical trials and patient management.
Because our gene expression information is warehoused in electronic form in a
relational database, we have the flexibility of repackaging the data into
different versions for customers requiring varying levels of information and
pricing such versions optimally. As a result, we can market the same information
to many different types of customers, thereby maximizing the revenue potential
of the
3
<PAGE> 5
underlying data. We believe our GeneExpress database suite will become a
fundamental reference source of gene expression information for many scientists
engaged in industrial and academic biological research. Because the information
is distributed over the Internet, we believe we can also establish a portal that
will create multiple e-commerce promotional and transactional revenue
opportunities. These may include the promotion and sale of third party products,
such as custom gene chips, research reagents and specialized genomic diagnostic
products.
Our customers for our custom databases, data management software and
GeneExpress database suite include:
<TABLE>
<S> <C> <C>
- - AGY Therapeutics - Organon (Akzo Nobel) - SmithKline Beecham
- - Aventis - PE Biosystems - Therapeutic Genomics
- - Aventis CropScience - Procter & Gamble - UCB Pharma
- - Fujisawa Pharmaceutical Pharmaceuticals - Wyeth-Ayerst
- - Japan Tobacco - Schering-Plough Research Laboratories
- - Merck & Co. Institute (American Home Products)
</TABLE>
These customers provide us with various combinations of technology and
database access fees, research fees, up-front payments, research and product
development milestone payments and royalties that could enable us to receive a
portion of our customers' revenues from sales of any products that result from
use of our technology or proprietary database information.
We have completed over 12,000 expression profiles in a wide variety of
tissues and identified over 2,700 genes involved in the onset and progression of
heart failure, kidney disease, infertility, psychiatric disorders and other
major illnesses as well as over 2,100 genes that predict drug toxicity and
agricultural crop characteristics. We are seeking patent protection for the most
important of these discoveries. Our customers are currently using 24 of these
genes in drug discovery programs from which we would be entitled to earn
milestone payments and royalties on sales of any resulting products.
Our goal is to be the world's leading source of gene expression
information. The key elements of our strategy are to:
- market our database information to the global pharmaceutical, healthcare
and life science industries;
- expand our gene expression databases to build the world's most
comprehensive gene expression resource;
- enhance functionality of our software to add further value to our data
content;
- include other types of biological data in our databases; and
- leverage our Internet distribution channel to earn additional e-commerce
revenues.
Our principal executive offices are located at 708 Quince Orchard Road,
Gaithersburg, Maryland 20878, and our telephone number is (301) 987-1700. Our
website is located at http://www.genelogic.com. Information contained on our
website is not part of this prospectus.
4
<PAGE> 6
THE OFFERING
<TABLE>
<S> <C>
Common stock offered...................... 3,500,000 shares
Common stock outstanding after the
offering................................ 23,505,688 shares
Use of proceeds........................... To fund product and technology development, to expand
our database product marketing efforts, to provide
working capital and for general corporate purposes,
including possible acquisitions. See "Use of Proceeds."
Nasdaq National Market symbol............. GLGC
</TABLE>
The number of shares of common stock offered assumes that the underwriters'
over-allotment option to purchase 395,000 shares from us and 130,000 shares from
certain selling stockholders is not exercised. See "Underwriting."
The outstanding share information is based upon our shares of common stock
outstanding as of December 31, 1999, and assumes that no options or warrants
have been exercised since December 31, 1999. In addition, this information
excludes:
- 3,929,014 shares of common stock reserved for issuance pursuant to
outstanding stock options at a weighted average exercise price of $4.41
per share, including 1,602,753 shares subject to options exercisable
within 60 days of December 31, 1999 at a weighted average exercise price
of $3.60 per share;
- 2,177,491 shares of common stock reserved for future issuance under our
employee benefit plans; and
- 476,505 shares of common stock reserved for issuance pursuant to
outstanding warrants with a weighted average exercise price of $25.46 per
share.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- -------------------
1995 1996 1997 1998 1998 1999
------ ------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues.......................... $ -- $ -- $ 2,047 $ 13,197 $ 8,618 $ 13,502
Operating expenses:
Research and development..... 486 1,741 6,061 16,605 11,234 21,506
General and administrative... 258 1,345 3,825 7,552 4,991 6,094
Acquired in-process research
and development(1)......... -- -- -- 35,196 35,196 --
Amortization of goodwill..... -- -- -- 381 -- 1,143
------ ------- ------- -------- -------- --------
Total operating expenses.......... 744 3,086 9,886 59,734 51,421 28,743
------ ------- ------- -------- -------- --------
Loss from operations.............. (744) (3,086) (7,839) (46,537) (42,803) (15,241)
Interest income, net.............. -- 221 745 1,844 1,527 589
Other income (expense)............ -- -- -- (80) (80) 30
Income tax expense................ -- -- 100 100 -- 100
------ ------- ------- -------- -------- --------
Net loss.......................... (744) (2,865) (7,194) (44,873) (41,356) (14,722)
Accretion of mandatory redemption
value of preferred stock........ 1 494 1,286 -- -- --
------ ------- ------- -------- -------- --------
Net loss attributable to common
stockholders.................... $ (745) $(3,359) $(8,480) $(44,873) $(41,356) $(14,722)
====== ======= ======= ======== ======== ========
Basic and diluted net loss per
common share.................... $(3.48) $ (5.87) $ (3.97) $ (2.86) $ (2.88) $ (0.74)
====== ======= ======= ======== ======== ========
Shares used in computing basic and
diluted net loss per common
share........................... 214 572 2,138 15,681 14,345 19,799
====== ======= ======= ======== ======== ========
OTHER DATA:
Loss from operations before
acquired in-process research and
development and amortization of
goodwill........................ $ (744) $(3,086) $(7,839) $(10,960) $ (7,607) $(14,098)
====== ======= ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------
ACTUAL AS ADJUSTED(2)
------- --------------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $16,592 $272,252
Working capital............................................. 11,739 222,399
Total assets................................................ 42,974 253,634
Total long-term debt and capital lease obligation........... 4,646 4,646
Total stockholders' equity.................................. 28,087 238,747
</TABLE>
- ---------------
(1) In connection with our acquisition of Oncormed, we incurred a non-recurring
charge of $35.2 million related to the write-off of acquired in-process
research and development.
(2) Adjusted to give effect to the sale by us of 3,500,000 shares of common
stock in this offering (assuming no exercise of the underwriters'
over-allotment option) at an assumed public offering price of $63.8125 per
share after deducting the underwriting discounts and commissions and
estimated expenses of the offering.
6
<PAGE> 8
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the following information about these risks, as well as the other information
contained or incorporated by reference in this prospectus, before you decide to
buy any of our common stock. Except for historical information, the information
contained in this prospectus and in our SEC reports are "forward-looking"
statements about our expected future business and performance. Our actual
operating results and financial performance may prove to be very different from
what we might have predicted as of the date of this prospectus. The risks
described below address some of the factors that may affect our future operating
results and financial performance.
TO GENERATE SIGNIFICANT REVENUES, WE MUST RETAIN EXISTING AND OBTAIN ADDITIONAL
DATABASE CUSTOMERS.
Our strategy depends on entering into agreements to provide gene expression
information products to pharmaceutical, biotechnology and other companies. Our
current customers include AGY Therapeutics, Inc., American Home Products Corp.'s
Wyeth-Ayerst Laboratories, Aventis, Fujisawa Pharmaceutical Co., Ltd., Japan
Tobacco, Inc., Merck & Co., Inc., N.V. Organon, a unit of Akzo Nobel NV, PE
Biosystems, Procter & Gamble Pharmaceuticals, Inc., Schering-Plough
Corporation's Schering-Plough Research Institute, SmithKline Beecham PLC,
Therapeutic Genomics, Inc., and UCB Research, Inc., a division of UCB Pharma. We
also have an agreement with Aventis CropScience to build a database of gene
expression for agricultural applications. Each of the agreements that we have
with our customers is for a specific term, and some of these agreements are
terminable without penalty by our customers prior to expiration. If any
agreements are terminated or expire and are not renewed, our business could
suffer.
In addition, we must obtain new customers for our products in order to be
successful. In particular, we have only recently commenced efforts to market our
GeneExpress database suite. If we are unsuccessful in selling our GeneExpress
database products, our business will suffer.
OUR SALES CYCLE IS LENGTHY AND WE MAY SPEND CONSIDERABLE RESOURCES ON
UNSUCCESSFUL SALES EFFORTS OR MAY NOT BE ABLE TO COMPLETE DEALS ON THE SCHEDULE
WE ANTICIPATE.
Our ability to obtain new customers for our database products depends upon
our customers' belief that our products can help accelerate their drug discovery
efforts. Our sales cycle is typically lengthy because we need to educate our
potential customers and sell the benefits of our products to a variety of
constituencies within such companies. In addition, each agreement involves the
negotiation of unique terms. We may expend substantial funds and management
effort with no assurance that an agreement will result. Actual and proposed
consolidations of pharmaceutical companies have affected and may in the future
affect the timing and progress of our sales efforts.
OUR TECHNOLOGIES ARE NEW AND UNPROVEN AND MAY NOT ALLOW US OR OUR CUSTOMERS TO
DEVELOP COMMERCIAL PRODUCTS.
Our technologies involve new and unproven approaches. They are based on the
assumption that information about gene expression and gene sequences may help
scientists better understand complex disease processes. There is limited
understanding of the roles of genes in these diseases. Few therapeutic products
based on gene discoveries have been developed and commercialized. Our
information and technologies may not enable us or our customers to identify drug
targets and drug leads. Even if they are successful in identifying drug targets
and drug leads based on their discoveries made using our databases, our
customers may not be able to discover or develop commercially viable products.
To date, no one has developed or commercialized any therapeutic, diagnostic or
agricultural products based on our technologies. If we fail to identify genes
useful for the discovery and development of such products, our current and
potential customers may lose confidence in our products and company and our
business may suffer as a result.
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<PAGE> 9
OUR CUSTOMERS MAY NOT BE SUCCESSFUL IN DEVELOPING OR COMMERCIALIZING
THERAPEUTIC, DIAGNOSTIC OR OTHER LIFE SCIENCE PRODUCTS USING OUR GENE EXPRESSION
INFORMATION.
Development of therapeutic, diagnostic and other life science products
based on our customers' discoveries will also be subject to other risks of
failure inherent in their development or commercial viability. These risks
include the possibility that any such products will:
- be found to be toxic;
- be found to be ineffective;
- fail to receive necessary regulatory approvals;
- be difficult or impossible to manufacture on a large scale;
- be uneconomical to market;
- fail to be developed prior to the successful marketing of similar
products by competitors; or
- be impossible to market because they infringe on the proprietary rights
of third parties or compete with products marketed by third parties that
are superior.
If our customers discover therapeutic, diagnostic or other life science
products using our custom databases, we will rely on them for product
development, regulatory approval, manufacturing and marketing of those products
before we can realize some of the milestone payments, royalties and other
payments we may be entitled to under the terms of some of our custom database
agreements. Our agreements with our customers typically allow the customers
significant discretion in electing whether to pursue any of these activities. We
cannot control the amount and timing of resources our customers may devote to
our programs or potential products. As a result, we cannot be certain that our
customers will choose to develop and commercialize such products. In addition,
if a customer is involved in a business combination, such as a merger or
acquisition or changes its business focus, its performance in its agreement with
us may suffer and, as a result, we may not generate any revenues from the
royalty, milestone and similar payment provisions of our custom database
agreement with that customer.
WE RELY ON GENECHIP PROBE ARRAYS SUPPLIED BY AFFYMETRIX TO BUILD OUR GENEEXPRESS
DATABASE SUITE.
Our ability to continue to build the GeneExpress database suite will depend
in part on the ability of Affymetrix to supply adequate quantities of high
quality GeneChip probe arrays, which are widely accepted as the state-of-the-art
in microarray technology. Affymetrix provides us with GeneChip probe arrays
under an agreement that expires on January 1, 2002, but which we have the option
to extend for up to two additional successive two-year terms. This agreement
provides us with nonexclusive access to GeneChip probe arrays for our use in
generating gene expression databases for license to multiple third parties and
custom databases for license to a single third party. If Affymetrix licenses
GeneChip probe arrays to others for similar uses, our business may suffer. The
agreement also prohibits us from buying microarrays from third parties if
Affymetrix can demonstrate that those third party microarrays materially
infringe Affymetrix's intellectual property rights. If Affymetrix is unable or
unwilling to supply us with GeneChip probe arrays or if such probe arrays are
not available, we will need to obtain access to alternative microarray
technologies or expand the use of our patented READS technology. Alternative
microarray technologies may not be available to us, or may only be available to
us on unfavorable terms. Restricted or curtailed access to GeneChip probe arrays
could cause our business to suffer by delaying or increasing the cost of
expansion of the GeneExpress database suite.
WE HAVE A HISTORY OF OPERATING LOSSES WHICH ARE LIKELY TO CONTINUE FOR SOME
TIME.
We have incurred operating losses in each year since our inception. At
September 30, 1999, we had accumulated operating losses of approximately $72.3
million. Our losses to date have resulted principally from costs incurred in the
development of our gene expression databases, the $35.2 million non-recurring
charge incurred in connection with our acquisition of Oncormed in 1998 and
general and administrative
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<PAGE> 10
costs associated with operations. We commenced development of our GeneExpress
database suite of products in March 1999 and released the first commercial
version in November 1999. We currently have only two customers for our
GeneExpress products and expect to dedicate substantially all of our resources
for the foreseeable future to further developing and maintaining our GeneExpress
products. While we recognize revenues from our custom database products and
expect to recognize revenues from subscriptions to our GeneExpress database
products in the near term, we also expect to incur additional losses this year
and in future years and cannot predict when, if ever, we will achieve
profitability. These losses may increase in the near future as we expand our
product development activities. In addition, our customers' product development
efforts which utilize our products are at an early stage and, accordingly, we do
not expect our losses to be substantially mitigated by revenues from milestone
payments or royalties under those agreements for a number of years, if ever.
IF OUR ACCESS TO NECESSARY TISSUE SAMPLES, INFORMATION OR LICENSED TECHNOLOGIES
IS RESTRICTED, WE WILL NOT BE ABLE TO CONTINUE TO DEVELOP OUR BUSINESS.
To continue to build our GeneExpress database suite and custom database
products, we need access to normal and diseased human and other tissue samples,
other biological materials and related clinical and other information. We
compete with many other companies for these materials and information. We may
not be able to obtain or maintain access to these materials and information on
acceptable terms, if at all. In addition, government regulation in the United
States and foreign countries could result in restricted access to, or use of,
human and other tissue samples. If we lose access to sufficient numbers or
sources of tissue samples, or if tighter restrictions are imposed on our use of
the information generated from tissue samples, our business will suffer. You
should read the other sections of this prospectus regarding government
regulation.
Some of our genomics and bioinformatics technologies have been acquired or
licensed from third parties, and we expect to acquire or license additional
technologies from third parties. Our product development activities could suffer
if we are not able to establish access to new or additional technologies that we
believe are important to our business.
ANY INADEQUACY IN THE PROTECTION OF OUR INTELLECTUAL PROPERTY COULD HURT OUR
BUSINESS.
Our success will depend in part on our ability to obtain commercially
valuable patent claims and to protect our intellectual property. Our patent
position is generally uncertain and involves complex legal and factual
questions. Legal standards relating to the validity and scope of claims in our
technology field are still evolving. Therefore, the degree of future protection
for our proprietary rights is uncertain. The risks and uncertainties that we
face with respect to our patents and other proprietary rights include the
following:
- the pending patent applications we have filed or to which we have
exclusive rights may not result in issued patents or may take longer than
we expect to result in issued patents;
- the claims of any patents which are issued may not provide meaningful
protection;
- we may not be able to develop additional proprietary technologies that
are patentable;
- the patents licensed or issued to us or our customers may not provide a
competitive advantage;
- other companies may challenge patents licensed or issued to us or our
customers;
- patents issued to other companies may harm our ability to do business;
- other companies may independently develop similar or alternative
technologies or duplicate our technologies; and
- other companies may design around technologies we have licensed or
developed.
We may apply for patent protection for methods relating to gene expression
and disease-specific patterns of gene expression that we identify and individual
disease genes and targets that we discover.
9
<PAGE> 11
These patent applications may include claims relating to novel genes and gene
fragments and to novel uses for known genes or gene fragments identified from
the use of our databases. We may not be able to obtain meaningful patent
protection for our discoveries. Even if patents are issued, their scope of
coverage or protection is uncertain.
We also rely on trade secret protection and confidentiality agreements to
protect our interests in proprietary know-how that is not patentable and for
processes for which patents are difficult to enforce. We have taken security
measures to protect our proprietary know-how and confidential data and continue
to explore further methods of protection. While we require all employees,
consultants, partners and customers to enter into confidentiality agreements, we
cannot be certain that we will be able to meaningfully protect our trade
secrets. Any material leak of confidential data into the public domain or to
third parties could cause our business, financial condition and results of
operations to suffer.
WE ARE CURRENTLY INVOLVED IN PATENT LITIGATION WITH INCYTE PHARMACEUTICALS, INC.
AND MAY IN THE FUTURE BE SUBJECT TO ADDITIONAL LITIGATION AND INFRINGEMENT
CLAIMS.
In December 1999, Incyte Pharmaceuticals, Inc. filed an action against us
in the United States District Court for the Northern District of California,
Case No. C99-5180 MJJ. In the action, Incyte asserts claims against us for
purported infringement of certain patent rights held by Incyte. The alleged
infringing activity involves our use of a wet chemistry process that Affymetrix
recommends be used in connection with the preparation of samples before the
sample is measured by an Affymetrix GeneChip. We must answer or otherwise
respond to the complaint by January 26, 2000. We believe that we have
meritorious defenses and intend to defend this suit vigorously. However, we may
not be successful. At this time, we cannot reasonably estimate the possible
range of any loss resulting from this suit due to uncertainty about the ultimate
outcome. We expect to continue to spend a significant amount of money and
management time on this litigation.
As illustrated by the Incyte litigation, the technologies that we use to
develop our products, and those that we incorporate in our products, may be
subject to claims that they infringe the patents or proprietary rights of
others. In particular, we are aware of a number of patents and patent
applications owned by others relating to the analysis of gene expression or the
manufacture and use of DNA chips. The risk of additional litigation will
increase as the genomics, biotechnology and software industries expand, more
patents are issued and other companies engage in other genomic-related
businesses. We anticipate that we will probably receive in the future additional
notices from third parties alleging patent infringement.
Litigation thus may be necessary to:
- assert claims of infringement;
- enforce our patents;
- protect our trade secrets or know-how; or
- determine the enforceability, scope and validity of the proprietary
rights of others.
We could incur substantial litigation costs to defend ourselves in patent suits
brought by other companies or to initiate such suits. Substantial litigation
costs and potential adverse outcomes could cause our business, financial
condition and results of operations to suffer. In addition, litigation could
cause disruption in our business activities and divert management's time and
attention from the operation of our business.
INTERNATIONAL PATENT PROTECTION IS UNCERTAIN.
Patent law outside the United States is uncertain and is currently
undergoing review and revision in many countries. Further, the laws of some
foreign countries may not protect our intellectual property rights to the same
extent as U.S. laws. We may participate in opposition proceedings to determine
the validity of our or our competitors' foreign patents, which could result in
substantial costs and diversion of our efforts. Finally, some of our patent
protection in the United States is not available to us in foreign countries due
to the laws of those countries.
10
<PAGE> 12
OUR BUSINESS AND THE PRODUCTS DEVELOPED USING THE INFORMATION IN OUR DATABASES
MAY BE SUBJECT TO GOVERNMENT REGULATION.
Any new drug developed by the efforts of our customers as a result of their
use of our GeneExpress database suite or our other products must undergo an
extensive regulatory review process in the United States and other countries
before it can be marketed. This regulatory process can take many years and
require substantial expense. Changes in FDA policies and the policies of similar
foreign regulatory bodies can increase the delay for each new drug, product
license and biological license application. We expect similar delays in the
regulatory review process for any diagnostic or agricultural product, where
similar review or other approval is required. Even if marketing clearance is
obtained, a marketed product and its manufacturer are subject to continuing
review. Discovery of previously unknown problems with a product may result in
withdrawal of the product from the market.
No product resulting from the use of our databases has been released for
commercialization in the United States or elsewhere. In addition, no
investigational new drug application has been submitted for any such product
candidate. We expect to rely on our customers to file such applications and
generally direct the regulatory review process. We cannot be certain if or when
our customers will submit any applications for regulatory review, or whether our
customers will be able to obtain marketing clearance for any products on a
timely basis, if at all. If our customers fail to obtain required governmental
clearances, it will prevent them from marketing drugs or diagnostic products
until such clearance can be obtained, if at all. This will in turn reduce the
chance of our ever receiving royalty payments from our customers. The occurrence
of any of these events may cause our business, financial condition and results
of operations to suffer.
In addition, our access to and use of human or other tissue samples in the
expansion of our GeneExpress database suite and the creation of custom databases
may become subject to government regulation, both in the United States and
abroad. United States and foreign government agencies may also impose
restrictions on the use of data derived from human or other tissue samples. If
our access to or use of human tissue samples, or our customers' use of data
derived from such samples, is restricted, our business will suffer.
Because our customers access our products primarily via the Internet, our
business is subject to government regulation relating to the Internet. Because
of the increasing use of the Internet as a communication and commercial medium,
the government has adopted and may adopt additional laws and regulations with
respect to the Internet covering such areas as pricing, content, taxation,
copyright protection, user privacy, distribution and characteristics and quality
of production and services. For a description of risks associated with
governmental regulation relating to the Internet, you should read the other
sections in this prospectus regarding governmental regulation.
WE MAY HAVE DIFFICULTY MANAGING OUR GROWTH.
We expect to continue to experience significant growth in the number of our
employees and customers and the scope of our operations. In particular, we plan
significant growth in our GeneExpress database suite business. This growth may
continue to place a significant strain on our management and operations. Our
ability to manage this growth will depend upon our ability to broaden our
management team and our ability to attract, hire and retain skilled employees.
Our success will also depend on the ability of our officers and key employees to
continue to implement and improve our operational and other systems, to manage
multiple, concurrent customer relationships and to hire, train and manage our
employees. Our future success is heavily dependent upon growth and acceptance of
our GeneExpress database products. If we cannot scale our business appropriately
or otherwise adapt to anticipated growth in this area, a key part of our
strategy may not be successful. In addition, we must continue to invest in
customer support resources as the number of database customers and their
requests for support increase. Our customers typically have worldwide operations
and may require support at multiple U.S. and foreign sites.
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<PAGE> 13
THE GENOMICS INDUSTRY IS INTENSELY COMPETITIVE AND EVOLVING RAPIDLY, AND WE MAY
FALL BEHIND OUR COMPETITORS.
There is intense competition among entities attempting to identify genes
associated with specific diseases and to develop products and services based on
these discoveries. We face competition in these areas from pharmaceutical,
biotechnology and diagnostic companies, academic and research institutions and
government or other publicly-funded agencies, both in the United States and
abroad. In particular, Incyte Pharmaceuticals has announced its intention to
develop a gene expression reference database that may compete with our
GeneExpress database suite, and there may be others developing competitive
products. In addition, other entities are attempting to identify and patent
randomly sequenced genes and gene fragments, while others are pursuing a gene
identification, characterization and product development strategy based on
positional cloning. We are aware that certain entities are using a variety of
gene expression analysis methodologies, including the use of chip-based systems,
to attempt to identify disease-related genes. In addition, numerous
pharmaceutical companies are developing genomic research programs, either alone
or in partnership with our competitors. Competition among such entities is
intense and is expected to increase. In order to compete against existing and
future technologies, we will need to demonstrate to potential customers that our
technologies and capabilities are superior to competing technologies.
Some of our competitors have substantially greater capital resources,
research and development staffs, facilities, manufacturing and marketing
experience, distribution channels and human resources than we do. These
competitors may discover, characterize or develop important genes, drug targets
or drug leads, drug discovery technologies or drugs in advance of us or our
customers or which are more effective than those developed by us or our
customers, or may obtain regulatory approvals of their drugs more rapidly than
we do or our customers do, any of which could have a material adverse effect on
any of our similar programs. Moreover, our competitors may obtain patent
protection or other intellectual property rights that would limit our rights or
our customers' ability to use our products to commercialize therapeutic,
diagnostic or agricultural products. We also face competition from these and
other entities in gaining access to cells, tissues and nucleic acid samples used
in our discovery programs.
We will rely on our customers for support of certain of our discovery
programs and intend to rely on our customers for preclinical and clinical
development of related potential products and the manufacturing and marketing of
these products. Each of our customers is conducting multiple product development
efforts within each disease area that is the subject of their agreement with us.
Generally, our agreements with our customers do not preclude the customer from
pursuing development efforts utilizing approaches distinct from that which is
the subject of our agreement with them. Any of our product candidates,
therefore, may be subject to competition with another potential product under
development by a customer.
Future competition will come from existing competitors as well as other
companies seeking to develop new technologies for drug discovery based on gene
sequencing, target gene identification, bioinformatics and related technologies.
In addition, certain pharmaceutical and biotechnology companies have significant
needs for genomic information and may choose to develop or acquire competing
technologies to meet such needs. Our agreement with Affymetrix provides us with
nonexclusive access to GeneChip probe arrays for our use in generating gene
expression databases for license to third parties. If Affymetrix licenses
GeneChip probe arrays to others for similar uses, our business may suffer.
Genomic technologies have undergone and are expected to continue to undergo
rapid and significant change. Our future success will depend in large part on
maintaining a competitive position in the genomics field. Rapid technological
development by us or others may result in products or technologies becoming
obsolete before we recover the expenses we incur in connection with our
development. Products offered by us could be made obsolete by less expensive or
more effective drug discovery technologies, including technologies that may be
unrelated to genomics. We may not be able to make the enhancements to our
technology necessary to compete successfully with newly emerging technologies.
For more information about our and our customers' competitors, you should read
the other sections of this prospectus regarding competition.
12
<PAGE> 14
OUR REVENUES ARE DERIVED PRIMARILY FROM, AND ARE SUBJECT TO RISKS FACED BY, THE
PHARMACEUTICAL AND BIOTECHNOLOGY INDUSTRIES.
We expect that our revenues in the foreseeable future will be derived
primarily from products provided to the pharmaceutical and biotechnology
industries. Accordingly, our success will depend directly upon their demand for
our products. Our operating results may fluctuate substantially due to
reductions and delays in research and development expenditures by companies in
these industries. These reductions and delays may result from factors such as:
- changes in economic conditions;
- changes in the regulatory environment affecting health care and health
care providers;
- pricing pressures and reimbursement policies;
- market-driven pressures on companies to consolidate and reduce costs; and
- other factors affecting research and development spending.
None of these factors is within our control.
OUR BUSINESS IS DEPENDENT ON THE CONTINUOUS, RELIABLE AND SECURE OPERATION OF
OUR INTERNET APPLICATIONS AND RELATED TOOLS AND FUNCTIONS WE PROVIDE.
Because our customers access our products primarily via the Internet, we
depend upon the continuous, reliable and secure operation of Internet servers
and related hardware and software. To the extent that our customers' access to
our products via the Internet is interrupted, our business could suffer. Our
computer and communications hardware is protected through physical and software
safeguards. However, they are still vulnerable to fire, storm, flood, power
loss, earthquakes, telecommunications failures, physical or software break-ins
and similar events. In addition, our database products are complex and
sophisticated and could contain erroneous data, design defects or software
errors that could be difficult to detect and correct. Software bugs and viruses
may be found in current products or any future products that we develop. If we
fail to maintain and further develop the necessary data to support our
customers' drug discovery efforts, it could result in loss of or delay in our
revenues and market acceptance. We also depend upon third parties to provide our
customers with web browsers and Internet and on-line services necessary for
access to our website. Any sustained disruption in Internet access provided by
third parties could adversely impact our business.
MULTIPLE FACTORS BEYOND OUR CONTROL MAY CAUSE FLUCTUATIONS IN OUR OPERATING
RESULTS AND MAY CAUSE OUR BUSINESS TO SUFFER.
Our revenues and results of operations may fluctuate significantly,
depending on a variety of factors, including the following:
- our success in selling, and changes in the demand for, our products;
- variations in the timing of payments from customers and the recognition
of these payments as revenues;
- the pricing of our products;
- the timing of our new product introductions, if any;
- changes in the research and development budgets of our customers and
potential customers;
- the introduction of new products and services by our competitors;
- regulatory actions;
- expenses related to, and the results of, litigation and other proceedings
relating to intellectual property rights;
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<PAGE> 15
- the cost and timing of our adoption of new technologies; and
- the cost, quality and availability of cell and tissue samples, reagents
and related components and technologies, including those supplied to us
pursuant to contractual arrangements.
In particular, revenues from our database business are unpredictable
because:
- the sales cycle for our database products is lengthy;
- we are dependent upon continued commercial demand for the information we
gather and provide; and
- the time required to develop custom databases can vary significantly.
We will not be able to control many of these factors. In addition, if our
revenues in a particular period do not meet expectations, we may not be able to
adjust our expenditures in that period, which could cause our business to
suffer. We believe that period-to-period comparisons of our financial results
will not necessarily be meaningful. You should not rely on these comparisons as
an indication of our future performance. If our operating results in any future
period fall below the expectations of securities analysts and investors, our
stock price may fall, possibly by a significant amount.
ANY FUTURE ACQUISITIONS WILL CREATE RISKS AND UNCERTAINTIES.
As part of our business strategy, we may acquire other assets, technologies
and businesses. We cannot be sure, however, that acquisition candidates will be
available or will be available on terms acceptable to us. Future acquisitions
that we may complete involve risks such as the following:
- we may be exposed to unknown liabilities of acquired companies;
- our acquisition and integration costs may be higher than we anticipated
and may cause our quarterly and annual operating results to fluctuate;
- combining the operations and personnel of the acquired businesses with
our own may be difficult and costly, and integrating or completing the
development and application of acquired technologies may disrupt our
business and divert management's time and attention;
- our relationships with key customers of acquired businesses may be
impaired due to changes in management and ownership of the acquired
businesses;
- we may be unable to retain key employees of the acquired businesses or
hire enough qualified technical personnel to staff new or expanded
operations;
- we may incur amortization expenses if an acquisition results in
significant goodwill or other intangible assets; and
- our stockholders may be diluted if we pay for the acquisition with equity
securities.
WE DEPEND ON KEY EMPLOYEES IN A COMPETITIVE MARKET FOR SKILLED PERSONNEL.
We are highly dependent on the principal members of our management,
operations and scientific staff. The loss of any of these persons' services
would have a material adverse effect on our business. Although we have entered
into employment agreements with many of these persons, we do not maintain a key
person life insurance policy on the life of any employee, except several members
of our senior management.
Our future success also will depend in part on the continued service of our
key scientific, software, bioinformatics and management personnel and our
ability to identify, hire and retain additional personnel. We experience intense
competition for qualified personnel. We may not be able to continue to attract
and retain personnel necessary for the development of our business.
14
<PAGE> 16
OUR ACTIVITIES INVOLVE HAZARDOUS MATERIALS AND MAY SUBJECT US TO ENVIRONMENTAL
LIABILITY.
Our research and development involves the controlled use of hazardous and
radioactive materials and biological waste. We are subject to federal, state and
local laws and regulations governing the use, manufacture, storage, handling and
disposal of these materials and certain waste products. Although we believe that
our safety procedures for handling and disposing of these materials comply with
legally prescribed standards, we cannot completely eliminate the risk of
accidental contamination or injury from these materials. In the event of an
accident, we could be held liable for damages or penalized with fines, and this
liability could exceed our resources.
We believe that we are in compliance in all material respects with
applicable environmental laws and regulations and currently do not expect to
make material additional capital expenditures for environmental control
facilities in the near term. However, we may have to incur significant costs to
comply with current or future environmental laws and regulations.
WE ARE EXPOSED TO PRODUCT LIABILITY AND RELATED RISKS.
We may be exposed to claims of liability from the use of products that
either we or our customers provide. For example, we may be subject to product
liability if our GeneExpress or custom database products contain inaccurate
information or if any of our customers develops or commercializes a product
discovered through the use of our technology which results in injury or death to
clinical trial participants or patients. In addition, genetic testing and
information services that were provided by Oncormed prior to our acquisition of
Oncormed could expose us to the risk of certain types of litigation, including
medical malpractice claims, negligence claims or contract disputes. In
particular, we are involved in a litigation matter relating to Oncormed
described in the other sections of this prospectus regarding legal proceedings.
We currently maintain product liability and medical malpractice insurance. Our
insurance coverage may not be adequate to protect us against future claims.
Furthermore, our customers may not indemnify us against these types of claims or
may not themselves be adequately insured or, in the case of smaller companies,
have a net worth sufficient to satisfy any product liability claims. A product
liability claim, product recall or a medical malpractice claim could cause our
business, financial condition and results of operations to suffer.
WE MAY NEED TO RAISE ADDITIONAL FUNDS IN THE FUTURE.
We believe that the net proceeds of this offering together with existing
cash and marketable securities, borrowings under equipment financing
arrangements and anticipated cash flow from operations will be sufficient to
support our operations at least until the end of 2003. We may choose to raise
additional capital due to market conditions or strategic considerations even if
we have sufficient funds for our operating plan. We could require additional
funding in the future. In particular, we may need additional funds to expand the
content of our databases and to increase our marketing efforts. We may seek
funding through additional public or private equity offerings, debt financings
or agreements with customers. If we raise additional capital by issuing equity
or convertible debt securities, the issuances may dilute share ownership and
future investors may be granted rights superior to those of current
shareholders. Additional financing may not be available when needed, or, if
available, may not be available on favorable terms. If we cannot obtain adequate
financing on acceptable terms when such financing is required, our business will
be adversely affected.
OUR STOCK PRICE IS HIGHLY VOLATILE.
The market price of our common stock is likely to continue to be highly
volatile due to risks and uncertainties described in this section of the
prospectus, as well as other factors, including:
- conditions and publicity regarding the genomics or life sciences
industries generally;
- sales of substantial amounts of our stock by existing stockholders;
15
<PAGE> 17
- price and volume fluctuations in the stock market at large which do not
relate to our operating performance; and
- comments by securities analysts, or our failure to meet analysts'
expectations.
Furthermore, the stock market has from time to time experienced extreme
price and volume fluctuations that may be unrelated to the operating performance
of particular companies. In addition, in the past, class action lawsuits have
been initiated against biotechnology and pharmaceutical companies following
periods of volatility in the market prices of these companies' stock. In
general, decreases in our stock price would reduce the value of our
stockholders' investments and could limit our ability to raise necessary capital
or make acquisitions of assets or businesses. If litigation were instituted on
this basis, it could result in substantial costs and would divert management's
attention and resources. This could have a material adverse effect on our
business, financial condition and results of operations.
YOUR INVESTMENT WILL BE IMMEDIATELY DILUTED, AND IF WE RAISE ADDITIONAL FUNDING
BY ISSUING EQUITY SECURITIES, THE VOTING POWER OF YOUR INVESTMENT WILL BE
DILUTED FURTHER.
Assuming an offering price of $63.8125 per share, your investment will
suffer immediate and substantial dilution of approximately $53.97 per share in
the net tangible book value of the shares purchased. In addition, if we raise
additional funding by issuing more equity securities, the new shares will dilute
the voting power of your investment on a percentage basis. Any additional
issuance of equity securities may also result in the value of your investment
declining.
IF WE HAVE NOT ADEQUATELY PREPARED FOR THE TRANSITION TO THE YEAR 2000, OUR
BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION COULD SUFFER.
We have executed a plan designed to make our computer systems,
applications, equipment and facilities Year 2000 ready. To date, none of our
systems, applications, equipment or facilities have experienced material
difficulties from the transition to Year 2000, but complete testing of those
systems by our normal business operations have been limited so far. In the first
several months of 2000, it is possible that material difficulties could be
discovered or could arise. We cannot guarantee that our Year 2000 readiness plan
has been successfully implemented, and actual results could still differ
materially from our plan. In addition, we have communicated with our critical
external suppliers to determine the extent to which we may be vulnerable to such
parties' failure to resolve their own Year 2000 issues. Where practicable, we
have attempted to mitigate our risks with respect to the failure of these
entities to be Year 2000 ready. The effect, if any, on our results of operations
from any failure of such parties to be Year 2000 ready cannot yet be determined.
WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS THAT MAY REDUCE THE MARKET PRICE OF
OUR COMMON STOCK.
Provisions of our Certificate of Incorporation and By-laws and Delaware law
could make it more difficult for a third party to acquire us, even if the
acquisition would be beneficial to our stockholders. This could prevent the
consummation of a transaction in which our stockholders could receive a
substantial premium over the current market price for their shares.
Our Certificate of Incorporation gives our board of directors the authority
to issue up to 10,000,000 shares of preferred stock and to determine the price,
rights, preferences and privileges and restrictions, including voting rights, of
those shares without any further vote or action by our stockholders. The rights
of the holders of common stock will be subject to, and may harmed by, the rights
of the holders of any shares of preferred stock that may be issued in the
future. The issuance of preferred stock may delay, defer or prevent a change in
control, as the terms of the preferred stock that might be issued could
potentially prohibit our consummation of any merger, reorganization, sale of
substantially all of our assets, liquidation or other extraordinary corporate
transaction without the approval of the holders of the outstanding shares of
preferred stock. In addition, the issuance of preferred stock could have a
dilutive effect on our stockholders.
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<PAGE> 18
We also have a classified board of directors serving staggered three-year
terms. This could delay or limit the removal of incumbent directors or the
assumption of control by stockholders, even if such removal or assumption of
control would be beneficial to stockholders, and also could discourage or make
more difficult a merger, tender offer or proxy contest, even if such events
would be beneficial, in the short term, to the interests of stockholders.
OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN OUR
FORWARD-LOOKING STATEMENTS.
This prospectus, including the documents that we incorporate by reference,
contains forward-looking statements that involve risks and uncertainties. These
include statements about our expectations, plans, objectives, assumptions or
future events. Discussions containing forward-looking statements may be found in
the material set forth under the sections entitled "Business" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations," as
well as in this prospectus generally. We generally use words such as
"anticipate," "estimate," "plans," "projects," "continuing," "ongoing,"
"expects," "management believes," "we believe," "we intend" and similar
expressions to indicate when we are making forward-looking statements. These
statements involve estimates, assumptions and uncertainties that could cause
actual results to differ materially from those expressed for the reasons
described in this prospectus. You should not place undue reliance on these
forward-looking statements.
The forward-looking statements speak only as of the date on which they are
made, and we undertake no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which the statement is made or
to reflect the occurrence of unanticipated events. In addition, we cannot assess
the impact of each factor on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
17
<PAGE> 19
USE OF PROCEEDS
The net proceeds we will receive from the sale of the 3,500,000 shares of
common stock offered by us are estimated to be $210.7 million, assuming a public
offering price of $63.8125 per share and after deducting the underwriting
discounts and commissions and estimated offering expenses payable by us. If the
underwriters' over-allotment option is exercised in full, we estimate that the
net proceeds to us would be $234.5 million. Certain selling stockholders will
use a portion of the net proceeds that they receive from the sale of their
shares if the underwriters' over-allotment option is exercised to repay loans
from us. Otherwise, we will not receive any portion of the proceeds from any
sale of the shares of common stock by the selling stockholders.
We intend to use the net proceeds from this offering as follows:
- to fund our product and technology development activities, including
scale-up of our laboratory, database and business development operations;
- to provide working capital; and
- for general corporate purposes, including possible acquisitions.
We have not yet determined the amount of net proceeds to be used for each
of the purposes indicated. Accordingly, our management will retain broad
discretion in the allocation of the net proceeds and may use a portion of the
net proceeds to fund acquisitions of complementary technologies, products or
businesses, although we have no current agreements or commitments for any such
acquisitions. Pending such uses, we intend to invest the net proceeds of this
offering in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain earnings, if any, to support the development of our
business and do not anticipate paying cash dividends for the foreseeable future.
Payment of future dividends, if any, will be at the discretion of our board of
directors after taking into account various factors, including our financial
condition, operating results and current and anticipated cash needs.
18
<PAGE> 20
PRICE RANGE OF COMMON STOCK
Our common stock has been traded on the Nasdaq National Market under the
symbol GLGC since November 21, 1997. The following table sets forth for the
periods indicated the high and low closing prices for our common stock, as
reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Fourth Quarter (from November 21, 1997)..................... $ 8.375 $7.500
YEAR ENDED DECEMBER 31, 1998
First Quarter............................................... 9.250 7.625
Second Quarter.............................................. 8.500 6.000
Third Quarter............................................... 10.125 3.688
Fourth Quarter.............................................. 6.969 3.000
YEAR ENDED DECEMBER 31, 1999
First Quarter............................................... 8.000 4.375
Second Quarter.............................................. 5.219 3.438
Third Quarter............................................... 6.906 3.688
Fourth Quarter.............................................. 28.125 5.438
YEAR ENDING DECEMBER 31, 2000
First Quarter (through January 21, 2000).................... $63.813 24.750
</TABLE>
On January 21, 2000, the last reported sale price of our common stock on
the Nasdaq National Market was $63.8125. As of December 31, 1999, there were
20,005,688 shares of our common stock outstanding held by approximately 223
holders of record.
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<PAGE> 21
CAPITALIZATION
The following table sets forth on an unaudited basis our capitalization as
of September 30, 1999:
- on an actual basis; and
- on an as adjusted basis after giving effect to the sale of the 3,500,000
shares of common stock we are offering at an assumed public offering
price of $63.8125 per share, after deducting the underwriting discounts
and commissions and estimated offering expenses.
You should read this table in conjunction with the consolidated financial
statements and notes incorporated by reference herein and "Selected Consolidated
Financial Data" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt and capital lease
obligation.................................................. $ 1,439 $ 1,439
======== ========
Noncurrent portion of long-term debt and capital lease
obligation................................................ $ 3,207 $ 3,207
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized, no shares issued and outstanding.......... -- --
Common stock, $.01 par value, 60,000,000 shares
authorized, actual and as adjusted; 19,905,994 shares
issued and outstanding, actual; 23,405,994 shares
issued and outstanding, as adjusted................... 199 234
Additional paid-in capital............................. 103,140 313,765
Deferred compensation, net............................. (2,934) (2,934)
Accumulated other comprehensive loss................... (49) (49)
Accumulated deficit.................................... (72,269) (72,269)
-------- --------
Total stockholders' equity........................ 28,087 238,747
-------- --------
Total capitalization......................... $ 31,294 $241,954
======== ========
</TABLE>
The number of shares outstanding excludes:
- 3,719,813 shares of common stock reserved for issuance pursuant to
outstanding stock options at a weighted average exercise price of $3.94
per share;
- 2,486,386 shares of common stock reserved for future issuance under our
employee benefit plans; and
- 476,505 shares of common stock reserved for issuance pursuant to
outstanding warrants with a weighted average exercise price of $25.46 per
share.
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<PAGE> 22
DILUTION
Our net tangible book value as of September 30, 1999 was approximately
$19.6 million, or $0.98 per share. After the sale of the 3,500,000 shares of
common stock at an assumed public offering price of $63.8125 per share and after
deducting the underwriting discounts and commissions and estimated offering
expenses, our pro forma net tangible book value as of September 30, 1999 would
have been approximately $230.2 million, or $9.84 per share. This represents an
immediate increase in net tangible book value of $8.86 per share to existing
stockholders and an immediate dilution in net tangible book value of $53.97 per
share to purchasers in this offering. Net tangible book value represents the
amount of tangible assets less total liabilities. Dilution represents the
difference between the amount per share paid by purchasers in this offering and
the pro forma net tangible book value per share upon completion of this
offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $63.81
Net tangible book value per share as of September 30,
1999.................................................. $ 0.98
Increase in book value per share attributable to new
investors............................................. $ 8.86
------
Net tangible book value per share after this offering....... $ 9.84
------
Dilution per share to new investors......................... $53.97
======
</TABLE>
To the extent outstanding options and warrants are exercised, there will be
further dilution to new investors. See "Capitalization."
21
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this prospectus and the
consolidated financial statements and notes thereto and the unaudited
consolidated financial statements and notes thereto incorporated by reference
herein. The selected consolidated financial data set forth below with respect to
our consolidated statements of operations for the years ended December 31, 1996,
1997 and 1998 and with respect to the consolidated balance sheets at December
31, 1997 and 1998 have been derived from audited consolidated financial
statements incorporated by reference herein. The statement of operations data
for the year ended December 31, 1995 and the balance sheet data at December 31,
1995 and 1996 are derived from audited financial statements not included or
incorporated by reference herein. The unaudited consolidated statement of income
data for the nine months ended September 30, 1998 and 1999 and the unaudited
consolidated balance sheet data at September 30, 1999 are derived from, and are
qualified by reference to, the unaudited consolidated financial statements
incorporated by reference herein that include, in the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information set forth therein. The results of
operations for the nine months ended September 30, 1999 are not necessarily
indicative of the results to be expected for the full year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- -------------------
1995 1996 1997 1998 1998 1999
------ ------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ -- $ -- $ 2,047 $ 13,197 $ 8,618 $ 13,502
Operating expenses:
Research and development.................... 486 1,741 6,061 16,605 11,234 21,506
General and administrative.................. 258 1,345 3,825 7,552 4,991 6,094
Acquired in-process research and
development(1)........................... -- -- -- 35,196 35,196 --
Amortization of goodwill.................... -- -- -- 381 -- 1,143
------ ------- ------- -------- -------- --------
Total operating expenses........................ 744 3,086 9,886 59,734 51,421 28,743
------ ------- ------- -------- -------- --------
Loss from operations............................ (744) (3,086) (7,839) (46,537) (42,803) (15,241)
Interest income, net............................ -- 221 745 1,844 1,527 589
Other income (expense).......................... -- -- -- (80) (80) 30
Income tax expense.............................. -- -- 100 100 -- 100
------ ------- ------- -------- -------- --------
Net loss........................................ (744) (2,865) (7,194) (44,873) (41,356) (14,722)
Accretion of mandatory redemption value of
preferred stock............................... 1 494 1,286 -- -- --
------ ------- ------- -------- -------- --------
Net loss attributable to common stockholders.... $ (745) $(3,359) $(8,480) $(44,873) $(41,356) $(14,722)
====== ======= ======= ======== ======== ========
Basic and diluted net loss per common share..... $(3.48) $ (5.87) $ (3.97) $ (2.86) $ (2.88) $ (0.74)
====== ======= ======= ======== ======== ========
Shares used in computing basic and diluted net
loss per common share......................... 214 572 2,138 15,681 14,345 19,799
====== ======= ======= ======== ======== ========
OTHER DATA:
Loss from operations before acquired in-process
research and development and amortization of
goodwill...................................... $ (744) $(3,086) $(7,839) $(10,960) $ (7,607) $(14,098)
====== ======= ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------- SEPTEMBER 30,
1995 1996 1997 1998 1999
----- ------- -------- -------- -------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities......... $ 348 $ 5,671 $ 46,621 $ 30,982 $16,592
Working capital.......................................... 246 4,581 42,455 26,573 11,739
Total assets............................................. 424 7,819 53,972 55,566 42,974
Total long-term debt and capital lease obligation........ -- 446 1,551 5,305 4,646
Total stockholders' equity (deficit)..................... (833) (4,187) 46,067 41,288 28,087
</TABLE>
- ---------------
(1) In connection with our acquisition of Oncormed, we incurred a non-recurring
charge of $35.2 million related to the write-off of acquired in-process
research and development.
22
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We were incorporated in September 1994 and have devoted substantially all
of our resources to the development of our genomics technologies, bioinformatics
systems and database products for use in pharmaceutical, diagnostic and
agricultural product research and development. Our current customers include AGY
Therapeutics, Inc., the American Home Products Corp.'s Wyeth-Ayerst Research
unit, Aventis, Aventis CropScience, Fujisawa Pharmaceutical Co., Ltd., Japan
Tobacco Inc., Merck & Co., Inc., N.V. Organon, a unit of Akzo Nobel NV, PE
Biosystems, Procter & Gamble Pharmaceuticals, Inc., Schering-Plough
Corporation's Schering-Plough Research Institute, SmithKline Beecham PLC,
Therapeutic Genomics, Inc. and UCB Research Inc., a division of UCB Pharma.
Since 1997, we have developed custom gene expression databases designed for
each of our customers' internal programs and needs and targeted to specific
therapeutic areas of interest, including heart failure, kidney disease,
osteoporosis, psychiatric disorders and other major illnesses. Building on this
know-how, in March 1999 we began developing our GeneExpress database suite of
reference gene expression information. The GeneExpress databases contain
information from a broad range of normal and diseased human tissues, tissues
from experimental animals, human and animal cell lines and tissues that have
been treated with many different drugs. We completed development of the first
commercial version of the GeneExpress database suite in November 1999. We
currently market GeneExpress through nonexclusive subscriptions to customers in
the pharmaceutical, biotechnology and diagnostic industries, and are developing
versions of the database suite to market to the academic and government life
science research community and to physicians and patients. We sold our first
GeneExpress subscription in December 1999.
Customers for our custom database and related software products provide us
with various combinations of recurring technology and database access fees,
research fees, certain additional payments upon the attainment of research and
product development milestones, royalty payments based on sales of any products
resulting from their use of our products, and nonrefundable upfront payments.
Subscribers to our GeneExpress database suite will pay us varying database
access fees depending upon the level and type of information they obtain.
Technology and database access fees are recognized evenly over the term of
each customer agreement. We recognize revenues from research and development
support when they are earned which is ordinarily when the work is performed or
costs are incurred. 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 agreements are recognized as revenue upon execution of
the agreements.
Our future profitability will depend in part on the successful
establishment of agreements with additional customers which include various
combinations of genomic databases, bioinformatics software and genomics
technology and the successful commercialization of our GeneExpress database
suite. Payments for access to custom databases and the GeneExpress database
suite are expected to be our primary source of revenue for the foreseeable
future. We have not received and do not expect to receive significant royalty or
other revenues from development and commercialization of products by our
customers using our databases and other technology for several years, if at all.
Revenues from our customers may be subject to significant fluctuation in both
timing and amount, and, therefore, our results of operations for any period may
not be comparable to the results of operations for any other period.
23
<PAGE> 25
We have incurred operating losses in each year since our inception. At
September 30, 1999, we had accumulated operating losses of approximately $72.3
million. Our losses have resulted principally from costs incurred in the
development of our gene expression databases, the $35.2 million non-recurring
charge incurred in connection with our acquisition of Oncormed and general and
administrative costs associated with our operations. These costs have exceeded
our revenues which, to date, have been generated principally from agreements for
our custom database and related software products. We expect to incur additional
operating losses in future years.
UPDATE ON IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with the acquisition of Oncormed in September 1998, we
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.
At December 31, 1999, we had substantially completed the technology
projects that were underway as of the acquisition. In general, we believe these
research and development projects are on track with management's plans at the
time the acquisition occurred. Through December 31, 1999, no significant
adjustments have been made in the overall economic assumptions or expectations
that underlie our acquisition decision and related purchase accounting. All
in-process research and development projects acquired as a result of the
Oncormed acquisition have been incorporated in our existing products or
technologies.
Although we have substantially completed the projects, we cannot assure you
that products or technologies resulting from those projects will achieve
commercial success. If these products or technologies are not successfully
developed or commercially successful, future results of operations of ours may
be adversely affected.
RECENT PRONOUNCEMENT
In December 1999, the Securities and Exchange Commission issued SEC Staff
Accounting Bulletin: No. 101- Revenue Recognition (SAB 101) in Financial
Statements. The bulletin draws on existing accounting rules and provides
specific guidance on how those accounting rules should be applied and
specifically addresses revenue recognition for non-refundable technology access
fees in the biotechnology industry. SAB 101 is effective for fiscal years
beginning after December 15, 1999. The Company is currently in the process of
evaluating SAB 101 and what effect it may have on the Company's financial
statements. Accordingly, the Company has not determined whether SAB 101 will
have a material impact on the financial position or results of operations of the
Company.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Revenues increased to $13.5 million for the nine months ended September 30,
1999, from $8.6 million for the same period in 1998. The increase in revenues
was the result of the expansion of our relationships with Japan Tobacco and
Procter & Gamble in late 1998, offset partially by the timing of revenue
recognized under other existing partner and customer relationships. Payments
from each of Aventis CropScience, Japan Tobacco, Organon and Procter & Gamble
accounted for 10% or more of revenues for the nine months ended September 30,
1999 and the nine months ended September 30, 1998.
24
<PAGE> 26
Research and development expenses increased to $21.5 million for the nine
months ended September 30, 1999 from $11.2 million for the same period in 1998.
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. This increase
primarily relates to our efforts in building our GeneExpress database suite
which started in 1999, expansion of our custom database and bioinformatics
software businesses to accommodate new and expanded relationships with
customers, and further development of our Flow-thru Chip program. We expect
research and development expenses to increase as we expand our GeneExpress
database suite, maintain new and expanding custom database development programs
with customers, and further develop the Flow-thru Chip.
General and administrative expenses increased to $6.1 million for the nine
months ended September 30, 1999 from $5.0 million for the same period in 1998.
These costs include the costs of corporate operations, finance and accounting,
human resources and other general operations. For the nine months ended
September 30, 1999 as compared to the same period in 1998, the increase of $1.1
million was primarily attributable to an approximate increase of $800,000 in
personnel expenses and $300,000 in professional fees. This increase primarily
relates to the expansion of our business development efforts, marketing costs of
new products, and other general costs necessary to support the expansion of our
operations. We expect that general and administrative expenses will increase as
we expand our product lines and our sales and marketing efforts.
Amortization of goodwill was $1.1 million for the nine months ended
September 30, 1999, as a result of the acquisition of Oncormed in September
1998.
Acquired in-process research and development was $35.2 million for the nine
months ended September 30, 1998, as a result of the non-recurring charge for the
acquisition of Oncormed in September 1998.
Net interest income decreased to $589,000 for the nine months ended
September 30, 1999, from $1.5 million for the same period in 1998 primarily due
to smaller cash and investment balances as a result of funding our operating
losses through September 30, 1999 and additional interest expense paid on
equipment loans.
YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
Revenues increased to $13.2 million in 1998 from $2.0 million in 1997. The
increase in revenues resulted primarily from a full-year of custom database
development activities under existing customer relationships in addition to new
and expanded relationships in 1998. Payments from each of Aventis CropScience,
Japan Tobacco, Organon and Procter & Gamble accounted for 10% or more of
revenues for the year ended December 31, 1998, and payments from each of Procter
& Gamble and Japan Tobacco accounted for 10% or more of revenues for the year
ended December 31, 1997.
Research and development expenses increased to $16.6 million in 1998 from
$6.1 million in 1997. Excluding the increase in research and development costs
of approximately $815,000 as a result of our acquisition of Oncormed, the
remaining increase in research and development expenses was primarily
attributable to approximate increases of $4.6 million in personnel expenses,
$1.0 million in research agreement expenses and $1.0 million in facility costs.
We also had general increases in laboratory supplies and depreciation expense.
During 1998, we further expanded our custom database and bioinformatics software
businesses and our Flow-thru Chip development program.
General and administrative expenses increased to $7.6 million in 1998 from
$3.8 million in 1997. Excluding the increase in general and administrative
expenses of approximately $496,000 as a result of our acquisition of Oncormed,
the remaining increase in general and administrative expenses was primarily
25
<PAGE> 27
attributable to approximate increases of $1.2 million in personnel expenses,
$486,000 in amortization of deferred compensation on stock options and $465,000
in facility costs. We also had general increases in costs due to becoming a
public company and depreciation expense. In 1998, we continued to expand our
operations and business development efforts.
Amortization of goodwill was $381,000 in 1998 as a result of the
acquisition of Oncormed.
Acquired in-process research and development was $35.2 million for the year
ended December 31, 1998, as a result of the non-recurring charge for the
acquisition of Oncormed in September 1998.
Net interest income increased to $1.8 million in 1998 from $745,000 in 1997
due to a full-year of investment income in 1998 relating to the investment of
proceeds from our 1997 private placement of equity securities and initial public
offering.
YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
Revenue under agreements with customers was approximately $2.0 million in
1997. We received no revenues in 1996. Substantially all of our 1997 revenues
were from Procter & Gamble and Japan Tobacco. Revenues from other sources were
not material.
Research and development expenses increased to $6.1 million in 1997 from
$1.7 million in 1996. The increase in research and development expenses was
primarily attributable to approximate increases of $1.9 million in personnel
expenses, $882,000 in laboratory supplies and $465,000 in depreciation expense
as a result of our expanding our custom database and bioinformatics software
businesses and our Flow-thru Chip development program.
General and administrative expenses increased to $3.8 million in 1997 from
$1.3 million in 1996. The increase in general and administrative expenses was
primarily attributable to approximate increases of $690,000 in personnel
expenses, $376,000 in legal costs and $249,000 in facility costs in connection
with the overall scale-up of our operations and business development efforts and
$279,000 in amortization of deferred compensation on stock options.
Net interest income increased to $745,000 in 1997 from $221,000 in 1996.
The increase was primarily due to the larger cash and investment balance on hand
during 1997 as a result of private placements of equity securities and the
completion of our initial public offering.
LIQUIDITY AND CAPITAL RESOURCES
From inception through September 30, 1999, we financed our operations
through the sale of equity securities, payments under agreements with partners
and customers, and equipment and tenant improvement financing. As of September
30, 1999, we had obtained $471,000 of capital lease financing and $6.3 million
under equipment and tenant improvement loans. As of September 30, 1999, we had
approximately $16.6 million in cash and marketable securities, compared to $31.0
million as of December 31, 1998.
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. We primarily used cash during 1999 and 1998 to fund our
operating losses in addition to expenditures relating to intangibles and other
assets.
During the nine months ended September 30, 1999 and 1998, we 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. We amortize such patent costs to research and development
26
<PAGE> 28
expense over the useful life of the underlying patent upon issuance. License
fees are amortized to research and development expense over periods of one to
seventeen years. These expenditures are necessary and are expected to increase
as a result of continuing efforts to protect our intellectual property and to
secure rights to current technology.
Our 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 of our
officers 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 our new facility.
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, we 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, we entered into a $5.0 million loan agreement for the
financing of laboratory, computer and office equipment. At September 30, 1999,
we had borrowed approximately $4.8 million. In November 1999, we entered into a
capital lease to purchase laboratory equipment for $300,000.
In January 1999, we entered into a three-year agreement with Affymetrix,
pursuant to which Affymetrix supplies its GeneChip probe arrays to us for the
development of gene expression databases. Under the terms of the agreement, we
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. Our
commitments under other research and license agreements do not represent a
significant expenditure in relation to our total research and development
expense.
In September 1999 and January 2000, we signed amendments to a Collaboration
and License Agreement we entered into in 1997 with Organon, one of our
significant custom database customers. The amendments enable both parties to
limit the scope and accelerate the date of termination of the original
agreement. At the time of the first amendment, we discontinued recognizing
revenue related to the agreement, pending a determination by Organon whether to
terminate the agreement. As amended, the customer can terminate our agreement
effective as of September 15, 2000. In consideration for our agreement to allow
early termination by Organon, which would result in the elimination of its
obligation to provide future financial and other support for the collaboration,
Organon agreed to grant us an exclusive perpetual license upon any such early
termination for data developed pursuant to such agreement by Organon and us. We
believe this data has significant value and would significantly enhance our
GeneExpress database suite. If Organon terminates the agreement early, Organon
must pay $2.0 million owed to us, $1.7 million of which has been previously
recognized as revenue, and we must simultaneously purchase, for $2.0 million,
the exclusive license. At this time, we believe it is unlikely that the
agreement will be terminated as permitted by the amendments but cannot be
certain of the ultimate outcome. If the agreement is not terminated, the parties
will remain obligated to perform in accordance with the terms of the agreement,
as amended.
To date, all revenue received by us has been generated principally from our
agreements with customers. We expect that substantially all revenue for the
foreseeable future will come from subscribers to our GeneExpress database suite.
Furthermore, our ability to achieve profitability will be dependent upon our
ability to enter into additional arrangements with customers and successfully
commercialize our GeneExpress database suite.
27
<PAGE> 29
We believe that the net proceeds of this offering together with existing
cash and marketable securities, borrowings under equipment financing
arrangements and anticipated cash flow from operations will be sufficient to
support our operations at least until the end of 2003. These estimates are
forward-looking statements that involves risks and uncertainties. Our actual
future capital requirements and the adequacy of our available funds and the
proceeds from this offering will depend on many factors, including those
discussed under "Risk Factors" and the following:
- progress of our discovery programs;
- the number and breadth of these programs;
- our ability to establish and maintain additional arrangements with
customers;
- the commercial success of the in-process technologies we acquired in our
acquisition of Oncormed;
- the progress of the development and commercialization efforts of our
customers;
- the level of our activities relating to our independent discovery
programs and to the development and commercialization rights we retain in
our arrangements with customers;
- 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.
We could require additional financing in the future, which we may seek to
raise through public or private equity offerings or debt financings. Additional
financing may not be available when needed, or if available, we might not be
able to obtain them on terms favorable to us and our stockholders. To the extent
that we raise additional capital by issuing equity or convertible debt
securities, ownership dilution to stockholders will result. If adequate
financing is not available when needed, we may be required to:
- curtail significantly one or more of our research and development
programs;
- obtain funds through arrangements with customers that may require us to
relinquish rights to certain of our technologies, discoveries or
potential products; or
- grant licenses on terms that are not favorable to us.
28
<PAGE> 30
BUSINESS
OVERVIEW
Gene Logic has built and is commercializing what we believe to be the
world's most comprehensive survey of gene expression in human and animal
tissues. We market two types of gene expression database products to the global
pharmaceutical, healthcare and life science industries: our custom databases and
related software products, for which we currently have 13 customers, and our new
GeneExpress reference database suite, for which we currently have two customers.
Gene expression, which is the degree to which genes in a cell are switched on or
off, or regulated, is information critical to understanding the functions of
genes. Since genes direct all biological processes, gene expression information
is increasingly recognized by leading pharmaceutical companies as a fundamental
tool for all aspects of biomedical research, particularly drug discovery and
development.
Since 1997, we have developed custom gene expression databases designed for
each of our customers' internal programs and needs and targeted to specific
therapeutic areas of interest, including heart failure, kidney disease,
osteoporosis, psychiatric disorders and other major illnesses. Building on this
know-how, in March 1999 we began developing our GeneExpress database suite of
reference gene expression information. The GeneExpress databases contain
information from a broad range of normal and diseased human tissues, tissues
from experimental animals, human and animal cell lines and tissues that have
been treated with many different drugs. We completed development of the first
commercial version of the GeneExpress database suite in November 1999. We
currently market GeneExpress through nonexclusive subscriptions to customers in
the pharmaceutical, biotechnology and diagnostic industries, and are developing
versions of the database suite to market to the academic and government life
science research community and to physicians and patients. We sold our first
GeneExpress subscription in December 1999.
We generate our gene expression data in our own laboratories from tissues
we collect through our biorepository network using two complementary
technologies -- GeneChip microarrays produced by Affymetrix and our own patented
READS technology. The combination of GeneChip microarrays and READS enables us
to obtain comprehensive coverage of the genes expressed in virtually all
important tissue types. By the end of 1999, the GeneExpress database contained
gene expression profiles on over 1,000 tissue samples representing more than 30
million gene expression data points. By the end of 2003, we expect to have
complete profiles on 30,000 tissue samples representing an estimated 3 billion
gene expression data points.
We have also developed sophisticated data management software in
conjunction with our database products to enable our customers to integrate our
information with their own in-house data, as well as with the gene sequence and
other biological information publicly available on the Internet. Our software
includes powerful tools for the analysis of this information, allowing users to
conduct a broad variety of electronic experiments designed to answer their
specific questions about mechanisms of disease and drug action.
The GeneExpress database suite can be used for many important research
applications, such as to discover and validate novel drug targets, develop
therapeutic compounds and facilitate clinical trials and patient management.
Because our gene expression information is warehoused in electronic form in a
relational database, we have the flexibility of repackaging the data into
different versions for customers requiring varying levels of information and
pricing such versions optimally. As a result, we can market the same information
to many different types of customers, thereby maximizing the revenue potential
of the underlying data. We believe our GeneExpress database suite will become a
fundamental reference source of gene expression information for many scientists
engaged in industrial and academic biological research. Because the information
is distributed over the Internet, we believe we can also establish a portal that
will create multiple e-commerce promotional and transactional revenue
opportunities. These may include the promotion and sale of third party products,
such as custom gene chips, research reagents and specialized genomic diagnostic
products.
29
<PAGE> 31
Our customers for our custom databases, data management software and
GeneExpress database suite include:
<TABLE>
<S> <C> <C>
- - AGY Therapeutics - Organon (Akzo Nobel) - SmithKline Beecham
- - Aventis - PE Biosystems - Therapeutic Genomics
- - Aventis CropScience - Procter & Gamble - UCB Pharma
- - Fujisawa Pharmaceutical Pharmaceuticals - Wyeth-Ayerst Laboratories
- - Japan Tobacco - Schering-Plough Research (American Home Products)
- - Merck & Co. Institute
</TABLE>
These customers provide us with various combinations of technology and
database access fees, research fees, up-front payments, research and product
development milestone payments, and royalty payments that could enable us to
receive a portion of our customers' revenues from sales of any products that
result from use of our technology or proprietary database information.
We have completed over 12,000 expression profiles in a wide variety of
tissues and identified over 2,700 genes involved in the onset and progression of
heart failure, kidney disease, infertility, psychiatric disorders and other
major illnesses and over 2,100 genes that predict drug toxicity and agricultural
crop characteristics. We are seeking patent protection for the most important of
these discoveries. Our customers are currently using 24 of these genes in drug
discovery programs from which we would be entitled to earn milestone payments
and royalties on sales of any resulting products.
THE IMPORTANCE OF GENE EXPRESSION INFORMATION
Diseases result when the physiological pathways that regulate the
functioning of cells become abnormal or disturbed. The main components of these
pathways are proteins, the synthesis of which is directed by genes within the
cells. Genes translate their instructions for protein synthesis into messenger
RNA, or mRNA; the amount of mRNA present in any given cell, which is termed gene
expression, is thus a measure of the gene's activity. While each cell of the
human body contains all of the approximately 100,000 genes, only about 10-20% of
the genes are active in any particular cell type. By analyzing which genes are
expressed in a cell or tissue and to what level, it can be determined which
physiological pathways are active in the cell and to what degree. By
understanding when and where abnormal gene expression occurs and the changes in
expression that a drug can cause, the physiological pathways implicated in
disease and drug action can be pinpointed. This knowledge can be used to help
discover drug targets, screen drug leads, predict toxic effects of compounds,
anticipate pharmacological responses to drug leads, and tailor clinical trials
to the specific needs of subgroups within a population. By understanding the
gene expression patterns of relevant tissues from patients with a disease,
physicians may also be able to determine which treatments are likely to be
effective for that condition and which may be ineffective or harmful.
We believe that the GeneExpress database suite is the world's largest
reference set of gene expression information and that it enables our customers
to exploit the power of gene expression information to reduce the time, risk and
cost involved in their product development efforts.
OUR STRATEGY
Our goal is to be the world's leading source of gene expression
information. The key elements of our strategy are to:
- MARKET OUR DATABASE INFORMATION TO THE GLOBAL PHARMACEUTICAL, HEALTHCARE
AND LIFE SCIENCE INDUSTRIES. We market our gene expression database
products to a variety of customers that require different levels of
information and support depending upon their gene expression data needs.
Initially, we are marketing full-access subscriptions to our GeneExpress
database suite to the global pharmaceutical industry and large
biotechnology companies for use in their drug discovery, development and
commercialization efforts. We also market less expensive subscriptions to
versions of the GeneExpress database suite, which we call "data marts,"
to smaller biotechnology companies
30
<PAGE> 32
and academic research centers for specific product development or
research applications. We will also continue to develop custom gene
expression databases as requested by major customers, for which we expect
to earn database access fees, and may earn milestone and royalty payments
as products are developed and commercialized using our data.
- EXPAND OUR GENE EXPRESSION DATABASES TO BUILD THE WORLD'S MOST
COMPREHENSIVE GENE EXPRESSION RESOURCE. We are continually expanding the
breadth and depth of our gene expression information with the intent of
maintaining the GeneExpress database suite as the largest and most
comprehensive gene expression database in the world. By the end of 1999,
the database contained gene expression profiles on over 1,000 tissue
samples representing more than 30 million gene expression data points. By
the end of 2003, we expect to have complete profiles on 30,000 tissue
samples representing an estimated 3 billion gene expression data points.
- ENHANCE FUNCTIONALITY OF OUR SOFTWARE TO ADD FURTHER VALUE TO OUR DATA
CONTENT. We introduced the first version of our GeneExpress database
suite in November 1999 and plan to introduce new versions of GeneExpress
over the next several months. Planned upgrades include expansion of the
GeneExpress Index and enhanced data-analysis algorithms and other tools.
- INCLUDE OTHER TYPES OF BIOLOGICAL DATA IN OUR DATABASES. As gene
expression information becomes more widely used, we expect that our
customers will demand various types of biological data complementary to
the gene expression information we provide. These include, for example,
single nucleotide polymorphism, or SNP, and protein expression profile
information. Because we have designed our databases with leading-edge
functionality, we believe that we will be able to readily generate and/or
incorporate such data either into our existing products or into separate,
specialized databases and become a source of an increasingly broad range
of information.
- LEVERAGE OUR INTERNET DISTRIBUTION CHANNEL TO EARN ADDITIONAL E-COMMERCE
REVENUES. We intend to use the Internet distribution channels
established to deliver our database information to sell other products to
our database subscribers. We also intend to build promotional and
transactional revenue streams derived from sales of third party products
to our installed customer base. We believe that if we develop a respected
Internet portal for genomics and research products, we will be able to
sell a number of research products to our current customers, as well as
new potential customers such as physicians and patients.
OUR PRODUCTS
We generate the gene expression data in our own laboratories from tissues
we collect through our biorepository network using two complementary
technologies -- the GeneChip microarrays produced by Affymetrix Inc. and our own
proprietary READS gene expression technology. The GeneChips currently provide
quantitative expression levels for 40,000 human genes for which either full or
partial sequences are known. During 2000, we expect that this number will grow
significantly as Affymetrix releases new GeneChip microarrays. Currently
GeneChip microarrays are also available for 19,000 mouse and 24,000 rat genes
and we use these to profile experimental animals and disease models and in
toxicology studies. Our READS technology does not depend on any prior knowledge
of gene sequence, is applicable to all animal types, and is extremely sensitive.
We use READS to determine the expression levels of novel genes that are not
represented on the GeneChip microarrays and genes that are expressed at low
abundance. The combination of GeneChip microarrays and READS enables us to
obtain comprehensive coverage of the genes expressed in virtually all important
tissue types.
The GeneExpress Database Suite
The content of the GeneExpress database suite is organized into three
modules:
- THE BIOEXPRESS DATABASE allows subscribers to use gene expression
information to study normal physiology, elucidate the mechanisms of
disease, identify disease-associated pathways and select and prioritize
potential drug targets. This database represents a survey of gene
expression in a broad
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range of normal and diseased human tissues, tissues from experimental
animals and also human and animal cell lines. We are also building more
in-depth profiles of samples specifically related to therapeutic areas in
which the pharmaceutical industry spends the majority of its research
dollars. These include central nervous system (or CNS), oncological and
cardiovascular disease, diabetes, osteoporosis and inflammatory and
immunological diseases.
- THE TOXEXPRESS DATABASE contains gene expression profiles produced by
drugs and other compounds associated with known classes of toxicity in
the organs typically subject to such toxic effects, like the liver. These
toxicity profiles can be used as references against which new drug leads
can be screened to assess their toxic potentials. Screening early in the
drug discovery and development process allows researchers to potentially
reject compounds having unacceptable toxicity profiles before incurring
the substantial expenses of traditional animal toxicology studies and
clinical trial failures. We also have cases which indicate that gene
expression profiling may predict human toxicity where traditional animal
toxicity screening failed to reveal such effects. The database currently
contains gene expression data from liver tissue from experimental animals
treated in vivo at various dosages for varying time periods and primary
rat and human hepatocytes treated in vitro. During 2000, we intend to
expand the database to include toxicity profiles in CNS tissues, bone
marrow, kidney and heart tissue.
- THE PHARMEXPRESS DATABASE is analogous to the ToxExpress database and
contains gene expression profiles produced by a wide range of marketed
drugs across many human and animal tissue samples. Subscribers can use
this information to analyze mechanisms of drug action at the molecular
level, to re-engineer compounds to have more specific effects and,
potentially, to identify new indications for existing products. At the
end of 1999, there were approximately 400 drugs represented in the
database. We expect that the content of the PharmExpress database will
grow in parallel with the number of tissue samples accrued and processed.
During 2000, we will also profile important categories of drugs in
experimental animals in vivo and in cellular systems in vitro at a range
of dosages and treatment periods.
For each human sample in the GeneExpress suite, there is a variety of
information, including biographical data, clinical history and diagnosis,
laboratory values, medication history, drug treatment outcomes and social and
family histories. Experimental animal samples are annotated with the details of
the applicable experimental protocols, such as types and durations of
treatments. This information can be used to define the samples that are relevant
to specific biological questions. A user of our database conducting an
electronic experiment begins by constructing a sample set relevant to the query,
choosing among more than 150 attributes to define the set. For example, one
might select all normal liver samples from males aged 20 to 50 years who have
normal serum cholesterol levels and are not taking medications
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and compare this set with those having elevated cholesterol, as shown in Figure
1, which is representative of a sample search page of the database.
FIGURE 1
[HUMAN SAMPLE SEARCH GRAPHIC]
Within such a comparison a user could decide to look at all the genes or
any subset, defined again by a wide choice of attributes. For example, one could
choose only genes encoding a certain family of enzymes or all the genes on
chromosome 22, as shown in Figure 2.
FIGURE 2
[SEQUENCE BLAST QUERY GRAPHIC]
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The results of these queries may be displayed in many ways. For instance,
they may, at the click of a button, be exported to sophisticated visualization
and statistical analysis packages, or automatically mapped to the biological
pathways with which they are associated by clicking on a button, as shown in
Figure 3.
FIGURE 3
[C4-DICARBOXYLIC ACID CYCLE GRAPHIC]
The GeneExpress database suite also incorporates a GeneExpress Index, which
serves as the link between the genes identified by a query and comprehensive
information available about those genes from publicly available sources and our
own proprietary annotations. This includes sequences and sequence clusters, gene
homologies, gene classification and gene family data, gene function and pathway
maps, chromosome location, single nucleotide polymorphism, or SNP, information,
protein structures and relevant medical and scientific literature. These data
sources are refreshed weekly. By selecting among these elements, a user can
bring up on the computer screen an up-to-date customized report for genes of
interest, as shown in Figure 4.
FIGURE 4
[KNOWN GENE NAME GRAPHIC]
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In December 1999, we entered into our first subscription agreement for the
GeneExpress database suite with Therapeutic Genomics, Inc. In January 2000, we
entered into our second subscription agreement for the GeneExpress database
suite with another customer. We expect to enter into additional subscription
agreements for our GeneExpress database suite of products in the near future.
During 2000, we plan to introduce enhanced features and functionality in
versions of our database planned for release in the second and third quarters.
Among these is expansion of the GeneExpress Index to rat and mouse sequences
with associated homology links to human sequences. Also, we plan to introduce a
feature, which we call an "electronic Northern blot," that allows profiling of a
gene across multiple tissues at a single click. In addition, we expect to
provide enhanced algorithms for clustering and statistical analysis, multiple
new visualization tools and a pathway constructor that allows users to define
their own proprietary biological pathways based on their discoveries.
Custom Databases and Software Products
Gene Logic has been developing customized databases tailored to specific
customers' internal programs and needs since 1997. We currently have 13
customers for our custom gene expression and other genomic databases and data
management software. Eleven are major pharmaceutical and life science technology
companies, one a major agricultural company and one a biotechnology company.
Five of these agreements provide us with various technology and database access
fees, research funding and up-front payments. These five agreements also provide
for additional payments upon attainment of research and product development
milestones and royalty payments based on sales of any products that result from
use of our technology or proprietary database information. We also have an
agreement with a pharmaceutical company for the development of a database for
predicting drug toxicity. Under that agreement, we may license the database and
other products developed pursuant to the agreement to third party customers. In
addition, we have agreements with a major pharmaceutical company, a life science
technology company and a biotechnology company for bioinformatics software,
database development, and data integration. Under those agreements, we receive
annual software license fees and development fees. We have an additional four
agreements with major pharmaceutical companies in which we receive fees for gene
expression and genomic analysis of samples for the profiling of drugs both at
the preclinical and clinical trial stages of development.
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The following table summarizes our relationships with our current custom
database and bioinformatics software customers:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
DATE OF CUSTOM BIOINFORMATICS
CUSTOMER INITIATION DATABASES SOFTWARE APPLICATIONS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Procter & Gamble May 1997 X Drug discovery for heart
Pharmaceuticals failure and osteoporosis
- ----------------------------------------------------------------------------------------------------------
Japan Tobacco Sept. 1997 X Drug discovery for renal and
other diseases
- ----------------------------------------------------------------------------------------------------------
Organon(1) Dec. 1997 X Drug discovery for fertility
and psychiatric disorders
- ----------------------------------------------------------------------------------------------------------
Wyeth-Ayerst Laboratories(2) June 1998 X Predictive toxicology
- ----------------------------------------------------------------------------------------------------------
Aventis CropScience June 1998 X Identification of genes for
agricultural products
- ----------------------------------------------------------------------------------------------------------
Merck & Co. Sept. 1998 X Clinical trial profiling
- ----------------------------------------------------------------------------------------------------------
SmithKline Beecham Sept. 1998 X Custom database development
- ----------------------------------------------------------------------------------------------------------
Schering Plough Research Sept. 1998 X Clinical trial profiling
Institute
- ----------------------------------------------------------------------------------------------------------
Aventis Sept. 1998 X Clinical trial profiling
- ----------------------------------------------------------------------------------------------------------
AGY Therapeutics Feb. 1999 X Custom database development
- ----------------------------------------------------------------------------------------------------------
PE Biosystems Mar. 1999 X Custom database development
- ----------------------------------------------------------------------------------------------------------
UCB Pharma Sept. 1999 X Drug discovery for asthma and
allergies
- ----------------------------------------------------------------------------------------------------------
Fujisawa Pharmaceutical Dec. 1999 X Proprietary and reference drug
profiling for diabetes
- ----------------------------------------------------------------------------------------------------------
(1) A unit of Akzo Nobel
(2) A division of American Home Products
- ----------------------------------------------------------------------------------------------------------
</TABLE>
MARKET SEGMENTS
Since release of the first commercial version of the GeneExpress database
suite in November 1999, our sales and marketing efforts have concentrated
principally on the largest pharmaceutical companies. We are expanding our
marketing group and hiring field specialists to service what we see as rapidly
increasing interest in and demand for our products from this first target
market. Because of the flexible, modular nature of the GeneExpress database
suite, we also plan to create smaller, less expensive databases, which we call
data marts, containing segments or versions of the data from GeneExpress which
we believe will make our products more accessible to potential customers lacking
the resources of the largest pharmaceutical companies. Accordingly, during 2000,
we will broaden our marketing efforts to include other market segments;
specifically, we are assembling sales teams to focus on the smaller
pharmaceutical, biotechnology and diagnostic sectors and have recently recruited
a senior executive with wide experience in Internet-based business and
e-commerce strategies. In addition, we may establish relationships with several
major companies in the healthcare and life science industries that could link
into our GeneExpress database suite as a portal for the promotion and sales of
their goods and services over the Internet to a broad group of high value
database users.
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The following table summarizes our business and marketing strategy for
these market segments:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
MARKET SEGMENT REVENUE MODEL CUSTOMER ACCESS ADDITIONAL REVENUE OPPORTUNITIES
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Largest Pharmaceutical and Annual subscription to full Internet Products:
Biotechnology Companies GeneExpress database suite In-house server Custom databases
Custom chips
Software
e-Commerce:
Research reagents
- ---------------------------------------------------------------------------------------------------------------------
Other Pharmaceutical and Annual subscription to target Internet Products:
Biotechnology Companies gene expression data marts In-house server Custom databases
Custom chips
Software
e-Commerce:
Research reagents
- ---------------------------------------------------------------------------------------------------------------------
Academic Research Inexpensive basic Internet Products:
data/subscription access to Custom chips
specialized gene expression e-Commerce:
data marts Research reagents
- ---------------------------------------------------------------------------------------------------------------------
Diagnostic Companies Annual subscription to full Internet Products:
GeneExpress database suite In-house server Custom databases
Annual subscription to gene Diagnostic chips
expression data marts Software
e-Commerce:
Specialized gene probes
- ---------------------------------------------------------------------------------------------------------------------
Clinical Research Annual subscription to clinical Internet Products:
Organizations gene expression data marts In-house server Custom databases
Custom chip
Software
- ---------------------------------------------------------------------------------------------------------------------
Biomedical Companies Promotional, advertising and Internet e-Commerce:
Targeting Physicians and transaction-based revenues from Pharmaceutical promotion:
Patients Via the Internet biomedical and other companies -- to physicians
-- direct-to-consumer
e-Health direct-to-consumer
Specialized diagnostics
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
CORE PROCESSES USED TO CREATE OUR DATABASES
To build our gene expression information products we have developed
quality-controlled and quality-assured processes by which we acquire the
appropriate human and animal tissues samples and related information and enter
them into our biorepository, measure the level of gene expression in the samples
under standardized conditions and manage, analyze and distribute to customers
the massive amounts of resulting data.
Biorepository
Over the past three years, we have established an international network of
clinical centers where we have agreements to collect human tissue samples. We
believe this established network provides us with a significant competitive
advantage because it has enabled us to acquire comprehensive data and gives us
what we believe is superior access to tissue samples for genomic analysis
purposes. The network currently consists of six major sites, four in the United
States and two in the United Kingdom, which provide a broad range of normal and
diseased human tissues; and nine other centers for the accrual of specialized
tissue types. During 2000 we intend to add additional clinical centers to this
network.
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At each center we have approvals and patient informed consent processes in
place allowing us free and clear use of the tissues and related information.
Tissues are obtained directly from the operating rooms according to protocols we
have established to preserve their quality and shipped to our headquarters
together with extracts from the clinical records. To obtain normal and treated
experimental animal tissues we have contracted with a clinical research
organization that specializes in this area. At our facilities every human and
animal sample undergoes rigorous quality control and examination by a
board-certified pathologist on our staff before accession into the
biorepository. The process includes taking photomicrographs of each sample which
are captured in the GeneExpress database suite and may be examined by users.
There thus exists a complete audit trail from the clinical center to entry into
the database. We have also set up a laser capture micro-dissection unit to allow
us to separate certain complex tissues into their constituent cell types, each
of which may then be analyzed independently.
As of December 31, 1999, we had accrued over 3,000 human tissues samples,
approximately one-third being normal and two-thirds diseased, and 4,000
experimental animal samples in the biorepository. Our human tissue collection
comprises at least five samples from each of the major organ systems, because we
believe multiple samples helps assure statistical accuracy and account for
aberrational samples and inter-individual variation. By the end of 2000, our
goal is to have 20 samples of each organ type. The animal samples consist of
tissues from normal rats and mice and animals that have been treated with drugs
of interest for the ToxExpress and PharmExpress databases. We have also
collected tissues from experimental animal disease models and cell lines that
are widely used in drug discovery research.
Gene Expression Data Production
The expression levels of the genes in each sample is measured using
Affymetrix GeneChip microarrays. The current GeneChip set comprises five glass
chips to which are attached small pieces of DNA from 5,600 full-length genes and
35,000 gene fragments. We expect that these numbers will be significantly
expanded during 2000 and eventually cover the entire human genome. Our agreement
with Affymetrix requires Affymetrix to supply us with GeneChip microarrays on a
nonexclusive basis and provides us with price concessions, quality assurances
and negotiated delivery requirements, which we believe give us an advantage not
shared by other companies using gene expression technologies for commercial
purposes.
Fluorescent-labeled DNA sequences from a tissue sample bind to their
complements on the GeneChip array. By detecting the positions of the fluorescent
spots on the chip, researchers can determine which genes were expressed in the
sample. The brightness of the spot represents a precise, quantitative measure of
the level of expression of the gene. This measure is permanently stored and can
be compared across all the samples in the GeneExpress database suite. Currently
GeneChip microarrays are also available for 19,000 mouse and 24,000 rat genes
and we use these to profile experimental animals and disease models and in
toxicology studies.
GeneChip microarrays are capable of measuring the expression levels of only
those genes for which sequence information is available and for which probes
have been placed on the chips. Currently this number is approximately 40,000. In
order to obtain comprehensive coverage of all the genes expressed in important
tissue types, we use our patented READS technology. The READS process does not
depend on any prior knowledge of gene sequence, is applicable to all animal
types, and is extremely sensitive. We use READS to determine the expression
levels of novel genes that are not represented on the GeneChip microarrays and
genes that are expressed at low abundance.
The protocols and procedures we have developed for tissue accrual and for
running both GeneChip microarrays and the READS process have been highly
automated and extensively validated to the level of good laboratory practices,
or GLP. We conduct regular audits of all key steps of these processes and the
results of these audits are available to database subscribers.
Our current production capacity is 400 samples, a throughput of 2,000
GeneChip microarrays, per month. During 2000, we expect to increase production
to 800 samples per month. By December 2000, we
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expect to be adding approximately 50 million gene expression data points to the
GeneExpress database suite every month.
Data Management, Analysis and Distribution
The production process generates very large amounts of gene expression
data, which must be managed effectively and integrated with data from
subscribers' in-house databases and a growing number of public domain genomic
and medical databases available on the Internet. These various databases often
have different, incompatible structures, but our proprietary Object Protocol
Model, or OPM, data management software allows us and our customers to manage,
integrate, and query them as if they were part of a single database. A major
advantage of OPM is that it is easier to use for genomic applications than
conventional database management software. Using OPM, a bioinformatics
specialist can view the structure of the underlying database on a computer
screen and interact with it by pointing and clicking. OPM software thus allows
expert users to customize their version of the GeneExpress database suite
rapidly.
The GeneExpress database suite consists of three inter-related data
sets -- the biological descriptions of the tissue samples and the associated
clinical data, the quantitative measurements of gene expression in the samples,
and the GeneExpress Index -- contained within an open Oracle 8.1 data warehouse
core. Running on top of the data warehouse, through a structure known as a
"run-time engine," is a layer of analysis applications. These applications allow
a user to define sample and gene sets and to generate extensive reports about
the genes expressed in the samples within the data warehouse. As examples, a
user can ask for a:
- gene signature -- the genes that are consistently expressed in samples of
a given tissue type;
- gene signature differential -- how gene expression changes from one type
of sample to another, for example, from a normal tissue to its diseased
state;
- gene fold-change report -- a quantification of changes, for instance,
from a normal to a diseased tissue, or from various tissues across stages
of disease progression; and
- cluster tree report -- a clustering of genes into functional pathways
based on similar patterns in their gene expression profiles.
Then, through the GeneExpress Index, the user can call up comprehensive
on-screen reports on any or all of the genes of interest.
From their desktops, users of the GeneExpress database suite log on over
secure Internet connections to servers located at Gene Logic's main computer
facility. This brings them to a user-friendly web interface inside their
browsers. Each page offers them a variety of choices for searching the database
and analyzing the data. The results may be saved in a dedicated workspace
management area and may be shared with other members of a team or workgroup
across the globe. Over time, the users in a major pharmaceutical company can
construct and save the results of thousands of electronic experiments, such as
normal gene expression profiles of important cell and tissue types, comparisons
of diseased versus normal samples, animals versus human, pathway maps and sets
of valuable patient data, and integrate these information sets into their
discovery and development programs. We believe that with each use of these
growing sets of legacy information, the value of the database to its users is
increased, strengthening customer loyalty.
FLOW-THRU CHIP PROBE ARRAYS
The GeneExpress database suite allows a researcher to rapidly identify a
subset of genes that may be relevant to a specific disease, research program or
drug discovery effort. The next step is to be able to profile the expression of
that subset of genes under specific experimental conditions. For example, one
might wish to screen a chemical library looking for those compounds that affect
expression of the genes in a beneficial way, or develop a screening system to
assess the toxicological potential of a series of new drug leads.
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To fill this market need, we have developed and received patents on a
three-dimensional chip technology, called the Flow-thru Chip. The Flow-thru Chip
is a glass or silicon wafer traversed by hundreds of thousands of discrete
microscopic channels. Probes for the subset of genes of interest are attached to
the inner surfaces of these channels, and molecules from the samples to be
tested flow through the channels, coming into close proximity with the probes,
thus facilitating binding.
The Flow-thru Chip offers several features that make it well-suited to high
throughput applications:
- Speed. The small channels create a reaction vessel, causing molecules
from the samples to bind rapidly to their complementary probes.
- Sensitivity. Because of its three-dimensional structure, the Flow-thru
Chip has greater surface area for attachment of probes than conventional
flat chips. This allows detection of smaller quantities of molecules.
- Cost. The process by which the Flow-thru Chips are manufactured is
simple and cost-effective for smaller quantities as compared to
high-density chips.
- Versatility. The close proximity of probes and sample molecules may
facilitate, in addition to the binding of DNA to DNA, a wide range of
other reactions. For example, the Flow-thru Chip may be useful in
analyzing interactions between two proteins, between proteins and DNA, or
between proteins and small molecules.
Although we will continue to use the Flow-thru Chip internally, Gene Logic
does not itself intend to manufacture and market the Flow-thru Chip for
commercial sale. We are currently in discussions with third parties to establish
commercialization partnerships through which we could receive technology
transfer payments and profit-sharing or royalties on Flow-thru Chip sales.
INTELLECTUAL PROPERTY
We seek United States and international patent protection for major
components of our technology platform, including elements of our READS,
Flow-thru Chip and bioinformatic technologies. We also rely on trade secret
protection for certain of our confidential and proprietary information, and we
use license agreements both to access external technologies and assets and to
convey certain intellectual property rights to others. Our commercial success
will be dependent in part on our ability to obtain commercially valuable patent
claims and to protect our intellectual property portfolio.
As of December 31, 1999, we had exclusive rights to 13 issued patents, 11
of which are United States patents, and 62 patent applications, 47 of which are
United States patent applications, relating to our technologies. We have
exclusive rights to United States patents covering key aspects of READS gene
expression analysis, gene expression analysis using restriction enzymes, and the
Flow-thru Chip technology.
The patent positions of pharmaceutical, biopharmaceutical and biotechnology
companies, including ours, are generally uncertain and involve complex legal and
factual questions. Our business could be hurt by any of the following:
- the pending patent applications to which we have exclusive rights may not
result in issued patents;
- the claims of any patents which are issued may not provide meaningful
protection;
- we may not be successful in developing additional proprietary
technologies that are patentable;
- patents licensed or issued to us or our customers may not provide a basis
for commercially viable products or provide us with any competitive
advantages and may be challenged by third parties; and
- others may have patents that relate to our technology or business.
In addition, patent law relating to the scope of claims in the technology
field in which we operate is still evolving. The degree of future protection for
our proprietary rights, therefore, is uncertain. Furthermore, others may
independently develop similar or alternative technologies, duplicate any of our
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<PAGE> 42
technologies, and if patents are licensed or issued to us, design around the
patented technologies licensed to or developed by us. In addition, we could
incur substantial costs in litigation if we are required to defend ourselves in
patent suits brought by third parties or if we initiate such suits.
We are aware of a number of United States patents and patent applications
and related foreign patents and patent applications owned by third parties
relating to the analysis of gene expression or the manufacture and use of DNA
probe arrays. These other technologies may provide third parties with
competitive advantages over us and may hurt our business. In addition, third
party patent applications contain broad claims, and it is not possible to
determine whether or not such claims will be narrowed during prosecution and/or
will be allowed and issued as patents, even if such claims appear to cover prior
art or have other defects. An owner or licensee of a patent in the field may
threaten or file an infringement action and we may or may not prevail in any
such action. The cost of defending an infringement action may be substantial,
which could significantly increase our expenses and increase our losses.
Furthermore, required licenses may not be made available on commercially viable
terms, if at all. Failure to obtain any required license could prevent us from
utilizing or commercializing one or more of our technologies.
We have applied, and intend to make additional applications, for patent
protection for methods relating to gene expression, for the disease-specific
patterns of gene expression we identify and for the individual disease genes and
targets we discover. Such patents may include claims relating to novel genes and
gene fragments and to novel uses for known genes or gene fragments identified
through our discovery programs. We may not be able to obtain meaningful patent
protection for our discoveries; even if patents are issued, the scope of the
coverage or protection they would afford is uncertain. Failure to secure such
meaningful patent protection would endanger our competitive position.
Several groups are attempting to identify and patent gene fragments and
full-length genes, the functions of which have not been characterized, as well
as fully characterized genes. There is substantial uncertainty regarding the
possible patent protection for gene fragments or genes without known function or
correlation with specific diseases. To the extent any patents issue to other
parties on such partial or full-length genes, the risk increases that our
potential products and processes and those of our customers may give rise to
claims of patent infringement. The public availability of partial or full
sequence information or the existence of patent applications related thereto,
even if not accompanied by relevant function or disease association, prior to
the time we apply for patent protection on a corresponding gene could hinder our
ability to obtain patent protection with respect to such gene or to the related
expression patterns. Furthermore, others may have filed, and in the future are
likely to file, patent applications covering genes or gene products that are
similar, or identical to, any for which we may seek patent protection. These
patent applications may have priority over patent applications filed by us. Any
legal action against us or our customers claiming damages and seeking to enjoin
commercial activities relating to the affected products and processes could, in
addition to subjecting us to potential liability for damages, require us and our
customers to obtain a license in order to continue to manufacture or market the
affected products and processes. We and our customers may not prevail in any
such action and any license required under any patent may not be available on
commercially acceptable terms, if at all. We believe that there is likely to be
significant litigation in the industry regarding patent and other intellectual
property rights. If we become involved in such litigation, it could consume a
substantial portion of our managerial and financial resources and negatively
impact our financial results.
Enactment of legislation implementing the General Agreement on Tariffs and
Trade has resulted in certain changes to United States patent laws that became
effective on June 8, 1995. Most notably, the term of patent protection for
patent applications filed on or after June 8, 1995 is no longer a period of 17
years from the date of grant. The new term of United States patents will
commence on the date of issuance and terminate 20 years from the earliest
effective filing date of the application. Because the time from filing to
issuance of biotechnology patent applications is often more than three years, a
20-year term from the effective date of filing may result in a substantially
shortened period of patent protection which may harm our patent position. If
this change results in a shorter period of patent coverage, our business could
be harmed to the extent that the duration and level of the royalties we are
entitled to receive from
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our customers are based on the existence of a valid patent covering the product
subject to the royalty obligation.
With respect to proprietary know-how that is not patentable and for
processes for which patents are difficult to enforce, we rely on trade secret
protection and confidentiality agreements to protect our interests. We believe
that several elements of our drug discovery system involve proprietary know-how,
technology or data that are not covered by patents or patent applications. In
addition, we have developed a proprietary index of gene and gene fragment
sequences which we update on an ongoing basis. Some of this data will be the
subject of patent applications, whereas other data will be maintained as
proprietary trade secret information. We have taken security measures to protect
our proprietary know-how and technologies and confidential data and continue to
explore further methods of protection. While we require all employees,
consultants and customers to enter into confidentiality agreements, we cannot be
certain that proprietary information will not be disclosed, that others will not
independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets, or that we can
meaningfully protect our trade secrets. In the case of arrangements with our
customers that require the sharing of data, our policy is to make available to
our customers only such data as is relevant to our agreements with such
customers, under controlled circumstances, and only during the contractual term
of those agreements, and subject to a duty of confidentiality on the part of our
customer. However, such measures may not adequately protect our data. Any
material leak of confidential data into the public domain or to third parties
may cause our business, financial condition and results of operations to be
harmed.
We are a party to various license agreements that give us rights to use
technologies and biological materials in our research and development processes.
We may not be able to maintain such rights on commercially reasonable terms, if
at all. Failure by us to maintain such rights could harm our business.
COMPETITION
Competition among entities attempting to identify the genes associated with
specific diseases and to develop products based on such discoveries is intense.
We face, and will continue to face, competition from pharmaceutical,
biotechnology and diagnostic companies, academic and research institutions, and
government agencies, both in the United States and abroad. Several entities are
attempting to identify and patent randomly sequenced genes and gene fragments,
while others are pursuing a gene identification, characterization and product
development strategy based on positional cloning. We are aware that certain
entities, including Incyte Pharmaceuticals, Inc. and the Celera Genomics Group
of PE Corporation, are using a variety of gene expression analysis
methodologies, including the use of chip-based systems, to attempt to identify
disease-related genes. In addition, numerous pharmaceutical companies are
developing genomic research programs, either alone or in partnership with our
competitors. Competition among such entities is intense and is expected to
increase. In order to compete against existing and future technologies, we will
need to demonstrate to potential customers that our technologies and
capabilities are superior to competing technologies.
Some of our competitors have substantially greater capital resources,
research and development staffs, facilities, manufacturing and marketing
experience, distribution channels and human resources than we do. These
competitors may discover, characterize or develop important genes, drug targets
or drug leads, drug discovery technologies or drugs in advance of us or our
customers or which are more effective than those developed by us or our
customers, or may obtain regulatory approvals of their drugs more rapidly than
we do or our customers do, any of which could have a material adverse effect on
any of our similar programs. Moreover, our competitors may obtain patent
protection or other intellectual property rights that could limit our rights or
our customers' ability to use our technologies or commercialize therapeutic,
diagnostic or agricultural products. We also face competition from these and
other entities in gaining access to cells, tissues and nucleic acid samples used
in our discovery programs.
We will rely on our customers for support of certain of our discovery
programs and intend to rely on our customers for preclinical and clinical
development of related potential products and the manufacturing
42
<PAGE> 44
and marketing of these products. Each of our customers is conducting multiple
product development efforts within each disease area that is the subject of its
agreement with us. Generally, our agreements with customers do not preclude the
customer from pursuing development efforts utilizing approaches distinct from
that which is the subject of our agreement with them. Any of our product
candidates, therefore, may be subject to competition with a potential product
under development by a customer.
Future competition will come from existing competitors as well as other
companies seeking to develop new technologies for drug discovery based on gene
sequencing, target gene identification, bioinformatics and related technologies.
In addition, certain pharmaceutical and biotechnology companies have significant
needs for genomic information and may choose to develop or acquire competing
technologies to meet such needs. Our agreement with Affymetrix provides us with
nonexclusive access to GeneChip probe arrays for our use in generating gene
expression databases for license to multiple third parties and custom databases
for license to a single third party. Accordingly, our competitors could obtain
licenses to use GeneChip probe arrays to develop their own gene expression
databases for internal use or may use other technologies to develop competitive
products and services.
Genomic technologies have undergone and are expected to continue to undergo
rapid and significant change. Our future success will depend in large part on
maintaining a competitive position in the genomics field. Rapid technological
development by us or others may result in products or technologies becoming
obsolete before we recover the expenses we incur in connection with our
development. Products offered by us could be made obsolete by less expensive or
more effective drug discovery technologies, including technologies that may be
unrelated to genomics. We may not be able to make the enhancements to our
technology necessary to compete successfully with newly emerging technologies.
GOVERNMENT REGULATION
Regulation of Drug Development and Commercialization
We do not plan to conduct clinical trials in humans or commercialize
therapeutic products discovered as a result of our gene, drug target and drug
lead discovery programs but intend to rely on our customers to conduct such
activities. Any new drug developed by the efforts of our customers as a result
of their use of our GeneExpress database suite or other products must undergo an
extensive regulatory review process in the United States and other countries
before it can be marketed. This regulatory process, which includes preclinical
studies and clinical trials, and may include post-marketing surveillance of each
compound to establish its safety and efficacy, can take many years and require
the expenditure of substantial resources. Data obtained from preclinical studies
and clinical trials are subject to varying interpretations that could delay,
limit or prevent marketing. Delays or rejections may also be encountered based
on changes in United States Food and Drug Administration policies for drug
review during the period of product development and FDA regulatory review of
each submitted new drug application, or NDA, in the case of new pharmaceutical
agents; or product license application, or PLA, or biologics license
application, or BLA, in the case of biological therapeutics. Delays may also be
encountered in the regulatory review of any diagnostic or agricultural product,
where such review is required, and in obtaining regulatory clearance in foreign
countries. Delays in obtaining marketing clearance could delay the
commercialization of any drugs or diagnostic or agricultural products developed
by our customers, impose costly procedures on our customers' activities,
diminish any competitive advantages that our customers may attain and lessen our
potential royalties.
Even if regulatory clearance is obtained, a marketed product and its
manufacturer are subject to continuing review. Discovery of previously unknown
problems with a product may result in withdrawal of the product from the market,
which could reduce our revenue sources and hurt our financial results.
Violations of regulatory requirements at any stage during the process, including
preclinical studies and clinical trials, the review process, post-marketing
approval or in good manufacturing practices or manufacturing requirements, may
result in various adverse consequences to us, including:
- the FDA's delay in granting marketing clearance of or refusal to grant
marketing clearance a product;
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<PAGE> 45
- withdrawal of a product from the market; or
- the imposition of criminal penalties against the manufacturer and NDA,
PLA or BLA holder.
No product resulting from the use of our databases has been released for
commercialization in the United States or elsewhere. In addition, no
investigational new drug application has been submitted for any such product
candidate. We expect to rely on our customers to file such applications and
generally direct the regulatory review process. We cannot be certain if or when
our customers will submit an application for regulatory review, or whether our
customers will be able to obtain marketing approval for any products on a timely
basis, if at all. If our customers fail to obtain required governmental
approvals, it will prevent us from marketing drugs or diagnostic products. The
occurrence of any of these events may cause our business, financial condition
and results of operations to suffer.
Regulation of Use of Human Tissue
Our access to and use of human or other tissue samples in the expansion of
our GeneExpress database suite and the creation of custom databases may become
subject to government regulation, both in the United States and abroad. U.S. and
foreign government agencies may also impose restrictions on the use of data
derived from human or other tissue samples. If our access to or use of human
tissue samples, or our customers' use of data derived from such samples, is
restricted, our business will suffer.
Environmental Regulation
Our research and development activities in some cases involve the
controlled use of biological and other hazardous materials, chemicals and
various radioactive materials. We are subject to federal, state and local laws
and regulations governing the use, storage, handling and disposal of such
materials and certain waste products. The risk of accidental contamination or
injury from these materials cannot be eliminated. In the event of an accident,
we could be held liable for any damages that result, and any liability could
exceed our resources. Other than such laws and regulations governing the
generation, use and disposal of hazardous materials and wastes, and limiting
workplace exposures to these materials, we do not believe our current and
proposed activities are subject to any specific government regulation other than
regulations affecting the operations of companies generally.
Regulation of the Internet
There is an increasing body of law and regulation pertaining to the
Internet. In addition, a number of legislative and regulatory proposals are
under consideration by federal, state, local and foreign governments and
agencies. Laws or regulations may be adopted with respect to the Internet
relating to liability for information retrieved from or transmitted over the
Internet, on-line content regulation, user privacy, taxation and quality of
products and services. Moreover, it may take years to determine whether and how
existing laws such as those governing issues such as intellectual property
ownership and infringement, privacy, copyright, trademark, trade secret,
taxation and the regulation of the sale of other specified goods and services
apply to the Internet. The requirement that we comply with any new legislation
or regulation, or any unanticipated application or interpretation of existing
laws, may decrease the growth in the use of the Internet, which could in turn
decrease the demand for our products, increase our cost of doing business or
otherwise have a material adverse effect on our business, results of operations
and financial condition.
Due to the global reach of the Internet, it is possible that, although our
transmissions over the Internet originate primarily in the State of Maryland,
the governments of other states and foreign countries might attempt to regulate
Internet activity and our transmissions or take action against us for violations
of their laws. There can be no assurance that violations of such laws will not
be alleged or charged by state or foreign governments and that such laws will
not be modified, or new laws enacted, in the future. Any of the foregoing could
have a material adverse effect on our business, results of operations and
financial condition.
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<PAGE> 46
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. Oncormed sold its testing business to a
third-party company prior to our acquisition of Oncormed. We are not engaged in
any type of genetic testing, nor do we have plans to enter such markets. We
maintain insurance coverage against such claims, and do not believe this action
will have a material adverse impact on our business, financial condition or
results of operations.
In December 1999, Incyte Pharmaceuticals, Inc. filed an action against us
in the United States District Court for the Northern District of California,
Case No. C99-5180 MJJ. In the action, Incyte asserts claims against us for
purported infringement of certain patent rights held by Incyte. The alleged
infringing activity involves our use of a wet chemistry process that Affymetrix
recommends be used in connection with the preparation of samples before the
sample is measured by an Affymetrix GeneChip. We must answer or otherwise
respond to the complaint by January 26, 2000. We believe that we have
meritorious defenses and intend to defend this suit vigorously. However, we may
not be successful. At this time, we cannot reasonably estimate the possible
range of any loss resulting from this suit due to uncertainty about the ultimate
outcome. We expect to continue to spend a significant amount of money and
management time on this litigation.
EMPLOYEES
As of December 31, 1999, we had 176 full-time employees, 57 of whom hold
doctoral degrees and 36 of whom hold other advanced degrees. Of these, 148 were
engaged in research and development, including bioinformatics, and 28 were
engaged in business development, finance, and general administration. None of
our employees is represented by a labor union or covered by a collective
bargaining agreement. We have not experienced any work stoppages and consider
our relations with our employees to be good. Our future success depends in
significant part on the continued service of our key scientific, technical and
senior management personnel and our continuing ability to attract and retain
highly qualified technical and managerial personnel. There is intense
competition for such qualified personnel in the areas of our activities and we
may not be able to continue to attract and retain the personnel necessary for
the development of our business. Failure to attract and retain key personnel
could cause our business, financial condition and results of operations to be
harmed.
FACILITIES
Gene Logic's headquarters consist of approximately 50,000 square feet of
office and research laboratory space located in Gaithersburg, Maryland under a
lease which expires in 2007. Gene Logic also leases approximately 19,000 square
feet of additional office and research laboratory space in Gaithersburg,
Maryland and 8,000 square feet of office space in Berkeley, California under
lease agreements with terms expiring in 2001 and 2004, respectively. During
early 2000, we expect to evaluate several alternatives for additional space to
meet our current and projected needs.
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<PAGE> 47
MANAGEMENT
Our executive officers and directors, and their ages and positions as of
January 11, 2000, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael J. Brennan, M.D., 41 Chief Executive Officer and Director
Ph.D. ...........................
Mark D. Gessler.................. 38 President and Chief Operating Officer
Y. Douglas Dolginow, M.D. ....... 45 Senior Vice President, Pharmacogenomics
Gregory G. Lennon, Ph.D. ........ 42 Senior Vice President, Research and
Development and Chief Scientific Officer
Victor M. Markowitz, D.Sc. ...... 46 Senior Vice President, Data Management Systems
David S. Murray.................. 52 Senior Vice President, Marketing and Sales
Philip L. Rohrer, Jr. ........... 43 Chief Financial Officer
Alan G. Walton, Ph.D., D.Sc. .... 64 Chairman of the Board of Directors
Jules Blake, Ph.D. .............. 75 Director
Charles L. Dimmler III........... 58 Director
G. Anthony Gorry, Ph.D. ......... 59 Director
Jeffrey D. Sollender............. 40 Director
</TABLE>
Michael J. Brennan, M.D., Ph.D., has served as our Chief Executive Officer
and as a director since December 1995. From December 1995 through January 1999,
Dr. Brennan also served as our President. From October 1993 to November 1995, he
was Vice President, Business Development for Corange International Limited's
worldwide therapeutics business, Boehringer Mannheim Therapeutics. From June
1990 to October 1993, Dr. Brennan was a director and the general manager of
Boehringer Mannheim, South Africa. Dr. Brennan received a Ph.D. in neurobiology
and an M.D. from the University of the Witwatersrand, Johannesburg, South
Africa. In 1985, he completed his residency in neurology at Boston City
Hospital.
Mark D. Gessler has served as our President and Chief Operating Officer
since January 1999. From June 1996 to October 1999, Mr. Gessler served as our
Chief Financial Officer and, from June 1996 to January 1999, was our Senior Vice
President, Corporate Development. From February 1993 to June 1996, he was with
GeneMedicine Inc., a gene therapy company, most recently as Vice President,
Corporate Development. From 1988 until January 1993, he was Director of Business
Development at BCM Technologies Inc., the venture and technology subsidiary of
Baylor College of Medicine. While in that position, Mr. Gessler co-founded three
biotechnology companies and a software company. Mr. Gessler holds an MBA from
the University of Tennessee and was an Adjunct Professor of Business
Administration at Rice University from 1991 to 1996.
Y. Douglas Dolginow, M.D., joined us as Senior Vice President,
Pharmacogenomics in September 1998. Dr. Dolginow served as President and Chief
Operating Officer of Oncormed Inc. from October 1993 and as a director of
Oncormed from May 1994 until joining us. Dr. Dolginow was Vice President of
Regional Operations for Nichols Institute, a clinical laboratory company, from
May 1991 to October 1993. From 1983 to 1991, he served as medical director for
multiple clinical laboratories including Highland General Hospital, Oakland,
California and Mt. Zion Hospital, San Francisco, California. Since 1984, he has
been an active member of the Clinical Faculty at the University of California,
San Francisco. Dr. Dolginow received an M.D. from the University of Kansas.
Gregory G. Lennon, Ph.D., has served as our Senior Vice President, Research
and Development and Chief Scientific Officer since June 1998. From September
1997 to June 1998, he was our Vice President, Genomics Research. Prior to
joining us, Dr. Lennon was a senior scientist of the Human Genome Center at
Lawrence Livermore National Laboratory from October 1991 to August 1997 and
manager of the functional genomics research portfolio for the Department of
Energy's Joint Genome Institute from January 1997 to August 1997. Dr. Lennon is
a founder and the director of the I.M.A.G.E. (Integrated Molecular Analysis of
Gene Expression) Consortium funded by the Department of Energy. He was a
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<PAGE> 48
participant in both the Merck Gene Index project and the National Cancer
Institute's Cancer Genome Anatomy Project. Dr. Lennon holds a Ph.D. in genetics
from the University of Pennsylvania. He is an adviser to the National Cancer
Institute of the National Institutes of Health.
Victor M. Markowitz, D.Sc., has served as our Senior Vice President, Data
Management Systems, since September 1998. He joined us in September 1997 as Vice
President, Data Management Systems. Prior to joining us, Dr. Markowitz was a
staff scientist at Lawrence Berkeley National Laboratory and project leader in
the laboratory's Data Management Research and Development Group. He is the
principal architect of the Object Protocol Model software. Dr. Markowitz
received his M.Sc. and D.Sc. degrees in computer science from Technion, the
Israel Institute of Technology.
David S. Murray has served as our Senior Vice President, Marketing and
Sales, since January 2000. From 1968 until January 2000, Mr. Murray held various
positions with Dun & Bradstreet Corporation, a business information provider,
including Executive Vice President, U.S., from 1994 until January 2000, and
President, Asia/Pacific-Latin America, from 1991 until 1994. Mr. Murray served
as Senior Vice President, Asia/Pacific-Latin America, from 1990 until 1991,
President, Japan, from 1989 until 1990, and Managing Director, Hong Kong, from
1987 until 1989. Mr. Murray holds a B.S. in business administration from Murray
State University.
Philip L. Rohrer, Jr., has served as our Chief Financial Officer since
October 1999. From May 1978 until August 1999, Mr. Rohrer held various positions
with BioWhittaker Inc., a biotechnology supply company, including Chief
Financial Officer from 1988 until December 1992 and again from September 1993
until 1999. Mr. Rohrer served as Vice President and General Manager for
Diagnostic Products from September 1992 to September 1993. Mr. Rohrer holds an
A.B. in biology from Hood College and an M.S.M. from Frostburg State University.
Alan G. Walton, Ph.D., D.Sc., has served as our Chairman of the Board of
Directors since our inception in September 1994. He has been a General Partner
of Oxford Bioscience Partners, a private equity investment firm, since 1991 and
a member of the Board of Directors of Collaborative Clinical Research since 1994
and Alexandria Real Estate Equities, Inc., a public company, since 1998. In
1981, Dr. Walton co-founded University Genetics Co., a public corporation
specializing in technology transfer from academic institutions to industry and
in the seed financing of high-technology start-ups, and served as its President
and Chief Executive Officer until 1987. He has lectured extensively at various
universities, including Harvard Medical School, Indiana University and Case
Western Reserve University, where he was Professor of Macromolecular Science and
Director of the Laboratory for Biological Macromolecules. Dr. Walton received a
Ph.D. in chemistry and a D.Sc. in biological chemistry from Nottingham
University, England.
Jules Blake, Ph.D., has served as a director since our inception in
September 1994. From 1973 until his retirement in 1989, Dr. Blake served as Vice
President of Research and Development and Vice President, Corporate Scientific
Affairs, for Colgate-Palmolive, Inc., a consumer products company. Dr. Blake was
appointed as an Industrial Research Institute Fellow at the United States Office
of Science and Technology Policy, Executive Office of the President, where he
served until 1991. Dr. Blake serves on the boards of directors of the public
companies Martek Biosciences Corporation and ProCyte Corporation. Dr. Blake
holds a Ph.D. in organic chemistry from the University of Pennsylvania.
Charles L. Dimmler III has served as a director since May 1996. Mr. Dimmler
has been a Managing Director of Burrill & Company, a private merchant banking
firm specializing in the life science industries, since January 2000. From July
1994 to December 1999, Mr. Dimmler was an investment officer of the Cross
Atlantic Partners Funds and an operating officer of Cross Atlantic Partners,
Inc., a unit of Investec Group Investments Limited. Since 1988, Mr. Dimmler has
been a General Partner of Hambro International Equity Fund. He serves as a
director of several private companies. Mr. Dimmler earned his undergraduate
degree from the University of California at Davis.
G. Anthony Gorry, Ph.D., has served as a director since January 1997. Since
April 1992, Dr. Gorry has been Vice President, Information Technology and
Professor of Computer Science at Rice University.
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<PAGE> 49
Presently he is also Professor of Management and Director of the Center for
Technology in Teaching and Learning at Rice. Dr. Gorry is also a Director of the
W.M. Keck Center for Computational Biology, a joint endeavor of Rice, Baylor
College of Medicine and the University of Houston. He directs a training grant
on computational biology funded by the National Library of Medicine. He is also
Adjunct Professor of Neuroscience at Baylor College of Medicine. Dr. Gorry holds
a B.Eng. from Yale University, an M.S. in chemical engineering from the
University of California (Berkeley) and a Ph.D. in computer science from the
Massachusetts Institute of Technology. He is a Member of the Institute of
Medicine of the National Academy of Sciences and a Fellow of the American
College of Medical Informatics.
Jeffrey D. Sollender has served as a director since July 1997. Mr.
Sollender is a founder of and advisor to Biotechvest L.P., a venture capital
investment firm formed in 1993. From 1994 through December 1995, Mr. Sollender
served as an advisor to Forward Ventures, a venture capital investment firm. Mr.
Sollender became a venture partner of Forward Ventures in 1996 and a general
partner in September 1997. Mr. Sollender co-founded Triangle Pharmaceuticals,
Inc., a biopharmaceutical company, in 1995, CombiChem Inc., a combinatorial
chemistry company, in 1994 and GenQuest, Inc., a functional genomics company, in
1995. He served as Vice President of Operations and Business Development for
CombiChem Inc. and GenQuest, Inc. until January 1995 and February 1996,
respectively. Mr. Sollender co-founded AriZeke Pharmaceuticals, an oral drug
delivery company, in 1997 and continues to serve as Chairman and Chief Executive
Officer of the company. Mr. Sollender received his MBA from the University of
Chicago Graduate School of Business.
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<PAGE> 50
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership
of common stock as of December 31, 1999 by:
- each person who is known by us to own beneficially more than five percent
of the outstanding shares of our common stock;
- each of our directors;
- each of our executive officers; and
- all directors and executive officers as a group.
<TABLE>
<CAPTION>
PERCENT OF
COMMON
STOCK(1)
AMOUNT AND -------------------
NATURE OF BENEFICIAL BEFORE AFTER
NAME AND ADDRESS OWNERSHIP(1) OFFERING OFFERING
---------------- -------------------- -------- --------
<S> <C> <C> <C>
Wellington Management Company, LLP(2)....................... 1,359,400 6.8% 5.8%
Alan G. Walton, Ph.D., D.Sc.(3)............................. 1,015,571 5.1% 4.3%
Michael J. Brennan, M.D., Ph.D.(4).......................... 773,561 3.8% 3.3%
Mark D. Gessler(5).......................................... 413,847 2.1% 1.8%
Gregory G. Lennon, Ph.D.(6)................................. 228,476 1.1% *
Victor M. Markowitz, D.Sc.(7)............................... 149,773 * *
Y. Douglas Dolginow, M.D.(8)................................ 141,679 * *
G. Anthony Gorry, Ph.D.(9).................................. 61,688 * *
Charles L. Dimmler III(10).................................. 43,169 * *
Jules Blake, Ph.D.(11)...................................... 30,750 * *
Jeffrey D. Sollender(12).................................... 29,500 * *
Philip L. Rohrer, Jr.(13)................................... 13,020 * *
David S. Murray(14)......................................... -- -- --
All directors and executive officers as a group (12 2,901,034 13.8% 11.9%
persons)(15)..............................................
</TABLE>
- ---------------
* Less than 1%.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D, 13F and 13G filed with the SEC.
Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to
securities. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table above have
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them. Percentage of beneficial ownership is
based on 20,005,688 shares of common stock outstanding as of December 31,
1999 and 23,505,688 shares of common stock outstanding after the completion
of this offering.
(2) Wellington Management Company, LLP's offices are located at 75 State
Street, Boston, Massachusetts 02109.
(3) Includes an aggregate of 947,577 shares held of record by Oxford Bioscience
Partners, of which Dr. Walton is a general partner, and by entities related
thereto. Also includes 30,000 shares subject to options held by Dr. Walton
exercisable within 60 days of December 31, 1999. Oxford Bioscience
Partners' offices are located at 315 Post Road West, Westport, Connecticut
06880.
(4) Includes 100,000 shares held of record by the Brennan Family Limited
Partnership and 228,561 shares subject to options held by Dr. Brennan
exercisable within 60 days of December 31, 1999. If the underwriters'
over-allotment option is exercised in full, Dr. Brennan will sell 60,000
shares in the offering, in which case he would beneficially own 713,561
shares or 3.0% of the common stock after the offering.
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<PAGE> 51
(5) Includes 30,000 shares held of record by the Gessler Family Limited
Partnership, and 137,822 shares subject to options held by Mr. Gessler
exercisable within 60 days of December 31, 1999. If the underwriters'
over-allotment option is exercised in full, Mr. Gessler will sell 40,000
shares in the offering, in which case he would beneficially own 373,847
shares or 1.6% of the common stock after the offering.
(6) Includes 172,635 shares subject to options held by Dr. Lennon exercisable
within 60 days of December 31, 1999. If the underwriters' over-allotment
option is exercised in full, Dr. Lennon will sell 5,000 shares in the
offering, in which case he would beneficially own 223,476 shares, which
would be less than 1% of the common stock after the offering.
(7) Includes 149,773 shares subject to options held by Dr. Markowitz
exercisable within 60 days of December 31, 1999.
(8) Includes 72,917 shares subject to options held by Dr. Dolginow exercisable
within 60 days of December 31, 1999. If the underwriters' over-allotment
option is exercised in full, Dr. Dolginow will sell 25,000 shares in the
offering, in which case he would beneficially own 116,679 shares, which
would be less than 1% of the common stock after the offering.
(9) Includes 59,688 shares subject to options held by Dr. Gorry exercisable
within 60 days of December 31, 1999.
(10) Includes 30,000 shares subject to options held by Mr. Dimmler exercisable
within 60 days of December 31, 1999. Does not include 346,507 shares held
of record by Cross Atlantic Partners K/S, 193,738 shares held of record by
Cross Atlantic Partners II K/S and 104,154 shares held of record by Cross
Atlantic Partners III K/S. Until December 31, 1999, Mr. Dimmler was an
operating officer of Cross Atlantic Partners, Inc. and an investment
officer of Cross Atlantic Partners Funds. Mr. Dimmler no longer has either
voting power or power of disposition with respect to the 644,399 shares
held of record by Cross Atlantic Partners K/S and related entities and
disclaims beneficial ownership of such shares.
(11) Includes 30,750 shares subject to options held by Dr. Blake exercisable
within 60 days of December 31, 1999.
(12) Includes 27,500 shares subject to options held by Mr. Sollender exercisable
within 60 days of December 31, 1999.
(13) Includes 13,020 shares subject to options held by Mr. Rohrer exercisable
within 60 days of December 31, 1999.
(14) Mr. Murray joined our company in January 2000.
(15) Includes 952,666 shares subject to options held by all directors and
executive officers as a group exercisable within 60 days of December 31,
1999. If the underwriters' over-allotment option is exercised in full,
certain officers will sell an aggregate of 130,000 shares in the offering,
in which case all directors and executive officers as a group would
beneficially own 2,771,034 shares, or 11.3% of the common stock after the
offering.
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<PAGE> 52
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, who are represented by ING Barings LLC, Hambrecht &
Quist LLC, FleetBoston Robertson Stephens Inc. and Dain Rauscher Incorporated,
have severally agreed to purchase from us the following respective number of
shares of common stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
ING Barings LLC.............................................
Hambrecht & Quist LLC.......................................
FleetBoston Robertson Stephens Inc. ........................
Dain Rauscher Incorporated..................................
---------
Total............................................. 3,500,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to certain conditions precedent and that the
underwriters will purchase all shares of the common stock offered hereby if any
of such shares are purchased.
We have been advised by the underwriters that the underwriters propose to
offer the shares of common stock to the public at the public offering price set
forth on the cover page of this prospectus and to certain dealers at such price
less a concession not in excess of $ per share. The underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share to
certain other dealers. After the public offering, the public offering price and
other selling terms may be changed by the underwriters.
The following table shows the fees to be paid to the underwriters by us
and, if the underwriters' over-allotment option is exercised, by the selling
stockholders in connection with this offering. These amounts are shown assuming
both no exercise and full exercise of the underwriters' option to purchase
additional shares of common stock:
<TABLE>
<CAPTION>
PER NO FULL
SHARE EXERCISE EXERCISE
------- ------------- -------------
<S> <C> <C> <C>
Payable by Gene Logic Inc........................... $ $ $
Payable by the selling stockholders................. $ $ 0 $
</TABLE>
Other expenses of this offering (including the registration fees and the
fees of financial printers, counsel and accountants) to be paid by us are
expected to be approximately $400,000.
We and the selling stockholders have granted the several underwriters an
option, exercisable not later than 30 days after the date of this prospectus, to
purchase up to 525,000 additional shares of common stock at the public offering
price less the underwriting discounts and commissions set forth on the cover
page of this prospectus (consisting of up to 395,000 shares offered by us and up
to 130,000 shares offered by certain selling stockholders). To the extent that
the underwriters exercise such option, each of the underwriters will have a firm
commitment to purchase approximately the same percentage of the additional
shares that the number of shares of common stock to be purchased by it shown in
the table above bears to 3,500,000. To the extent the underwriters exercise such
option, we and the selling stockholders will be obligated, pursuant to the
option, to sell the additional shares to the underwriters. The underwriters may
exercise such option only to cover over-allotments, if any, made in connection
with the sale of the common stock offered hereby. If purchased, the underwriters
will offer such additional shares on the same terms as those on which the
3,500,000 shares of common stock are being offered.
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<PAGE> 53
In connection with this offering, certain underwriters may engage in
passive market making transactions in the common stock on Nasdaq immediately
prior to the commencement of sales in this offering in accordance with Rule 103
of Regulation M. Passive market making consists of displaying bids on Nasdaq
limited by the bid prices of independent market makers and making purchases
limited by such prices and effected in response to order flow. Net purchases by
a passive market maker on each day are limited to a specified percentage of the
passive market maker's average daily trading volume in the common stock during a
specified period and must be discontinued when such limit is reached. Passive
market making may stabilize the market price of the common stock at a level
above that which might otherwise prevail and, if commenced, may be discontinued
at any time.
Subject to applicable limitations, the underwriters, in connection with
this offering, may place bids for or make purchases of the common stock in the
open market or otherwise, for long or short account, or cover short positions
incurred, to stabilize, maintain or otherwise affect the price of the common
stock, which may be higher than the price that might otherwise prevail in the
open market. We cannot assure you that the price of the common stock will be
stabilized, or that stabilizing, if commenced, will not be discontinued at any
time. Subject to applicable limitations, the underwriters may also place bids,
or make purchases on behalf of the underwriting syndicate to reduce a short
position created in connection with this offering. The underwriters are not
required to engage in these activities and may end these activities at any time.
Other than in the United States, neither we nor the underwriters have taken
any action that would permit a public offering of the shares of common stock
offered hereby in any jurisdiction where action for that purpose is required.
The shares of common stock offered hereby may not be offered or sold, directly
or indirectly, nor may this prospectus or any other offering material or
advertisements in connection with the offer and sale of any such shares of
common stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this prospectus
comes are advised to inform themselves about, and to observe, any restrictions
relating to the offering of the common stock and the distribution of this
prospectus. This prospectus is not an offer to sell or a solicitation of an
offer to buy any shares of common stock offered hereby in any jurisdiction in
which such an offer or solicitation is unlawful.
The underwriting agreement contains covenants of indemnity among the
underwriters, us and the selling stockholders against certain civil liabilities,
including liabilities under the Securities Act.
We and each of our directors and executive officers and certain of our
security holders, who in the aggregate will beneficially own, following this
offering (assuming no exercise of the underwriters' over-allotment option),
2,332,133 shares of common stock and options, and warrants to purchase 952,666
shares of common stock exercisable within 60 days of December 31, 1999, have
agreed that they will not directly or indirectly, without the prior written
consent of ING Barings LLC, offer, sell, offer to sell, contract to sell, or
otherwise dispose of any shares of common stock or securities exchangeable for
or convertible into common stock for a period of 90 days after the date of this
prospectus, except that we may issue, and grant options to purchase, shares of
common stock under our current stock option and purchase plans and other
currently outstanding options and warrants.
LEGAL MATTERS
The validity of the shares of common stock being sold in this offering and
other legal matters relating to the offering will be passed upon for us by
Cooley Godward LLP, San Diego, California. Certain legal matters relating to the
offering will be passed upon for the underwriters by Winthrop, Stimson, Putnam &
Roberts, Stamford, Connecticut.
52
<PAGE> 54
EXPERTS
The audited financial statements and schedules incorporated by reference in
this prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement on Form S-3 that we
filed with the SEC. Certain information in the registration statement has been
omitted from this prospectus in accordance with the rules of the SEC. We file
proxy statements and annual, quarterly and special reports and other information
with the SEC. You can inspect and copy the registration statement as well as the
reports, proxy statements and other information we have filed with the SEC at
the public reference room maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can call the SEC at 1-800-SEC-0330 for further
information about the public reference rooms. We are also required to file
electronic versions of these documents with the SEC, which may be accessed from
the SEC's World Wide Web site at http://www.sec.gov. Reports, proxy and
information statements and other information concerning Gene Logic Inc. may be
inspected at The Nasdaq Stock Market at 1735 K Street, N.W., Washington, D.C.
20006.
The SEC requires us to "incorporate by reference" certain of our
publicly-filed documents into this prospectus, which means that information
included in those documents is considered part of this prospectus. Information
that we file with the SEC after the effective date of this prospectus will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings made with the SEC under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until we terminate the
effectiveness of this registration statement.
The following documents filed with the SEC are incorporated by reference in
this prospectus:
1. Our Annual Report on Form 10-K for the year ended December 31,
1998, as amended on April 20, 1999.
2. Our Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999, June 30, 1999 and September 30, 1999.
3. The description of our common stock in our Registration Statement
on Form 8-A filed with the SEC on November 4, 1997 including any amendments
or reports filed for the purpose of updating such description.
4. All of the filings pursuant to the Exchange Act after the date of
filing the original Registration Statement and prior to the effectiveness
of the Registration Statement.
We will furnish without charge to you, on written or oral request, a copy
of any or all of the documents incorporated by reference, other than exhibits to
those documents. You should direct any requests for documents to the following
address: Gene Logic Inc., 708 Quince Orchard Road, Gaithersburg, Maryland 20878,
Attention: Robert Burrows, Director of Corporate Communications.
53
<PAGE> 55
------------------------------------------------------
------------------------------------------------------
YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH
WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE
ACCURATE ON THE DATE OF THIS DOCUMENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT
IS LEGAL TO SELL THESE SECURITIES.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 7
Use of Proceeds....................... 18
Dividend Policy....................... 18
Price Range of Common Stock........... 19
Capitalization........................ 20
Dilution.............................. 21
Selected Consolidated Financial
Data................................ 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 29
Management............................ 46
Principal Stockholders................ 49
Underwriting.......................... 51
Legal Matters......................... 52
Experts............................... 53
Where You Can Find More Information... 53
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
3,500,000 SHARES
[GENE LOGIC INC. LOGO]
COMMON STOCK
--------------------
PROSPECTUS
--------------------
ING BARINGS
CHASE H&Q
ROBERTSON STEPHENS
DAIN RAUSCHER WESSELS
, 2000
------------------------------------------------------
------------------------------------------------------
<PAGE> 56
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by the Registrant in
connection with the sale of the Securities being registered. All the amounts
shown are estimates except for the SEC registration fee and the Nasdaq National
Market listing fee.
<TABLE>
<S> <C>
SEC Registration fee........................................ $ 59,973
NASD filing fee............................................. 23,218
Nasdaq National Market listing application fee.............. 17,500
Blue sky qualification fees and expenses.................... 5,000
Legal fees and expenses..................................... 135,000
Accounting fees and expenses................................ 70,000
Printing and engraving expenses............................. 70,000
Transfer agent and registrar fees........................... 10,000
Miscellaneous............................................... 9,309
--------
Total............................................. $400,000
========
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of underwriting agreement.
4.1 Amended and Restated Certificate of Incorporation.(1)
4.2 By-laws, as amended and restated.(1)
4.3 Specimen stock certificate.(1)
5.1 Opinion of Cooley Godward LLP.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1.
24.1 Power of Attorney.*
</TABLE>
- ---------------
* Previously filed.
(1) Filed as an exhibit to Registrant's Registration Statement on Form S-1 (No.
333-37317), filed October 7, 1997, as amended, and incorporated herein by
reference.
II-1
<PAGE> 57
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized on January 24, 2000.
GENE LOGIC INC.
By: /s/ PHILIP L. ROHRER, JR.
--------------------------------------
Philip L. Rohrer, Jr.
Chief Financial Officer
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer and Director January 24, 2000
- ------------------------------------ (Principal Executive Officer)
Michael J. Brennan, M.D., Ph.D.
/s/ PHILIP L. ROHRER, JR. Chief Financial Officer (Principal January 24, 2000
- ------------------------------------ Financial and Accounting Officer)
Philip L. Rohrer, Jr.
* Chairman of the Board of Directors January 24, 2000
- ------------------------------------
Alan G. Walton, Ph.D., D.Sc.
* Director January 24, 2000
- ------------------------------------
Jules Blake, Ph.D.
* Director January 24, 2000
- ------------------------------------
Charles L. Dimmler III
* Director January 24, 2000
- ------------------------------------
G. Anthony Gorry, Ph.D.
* Director January 24, 2000
- ------------------------------------
Jeffrey Sollender
*By: /s/ PHILIP L. ROHRER, JR.
- ------------------------------------
(Philip L. Rohrer, Jr.)
(Attorney-in-Fact)
</TABLE>
II-2
<PAGE> 58
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of underwriting agreement.
4.1 Amended and Restated Certificate of Incorporation.(1)
4.2 By-laws, as amended and restated.(1)
4.3 Specimen stock certificate.(1)
5.1 Opinion of Cooley Godward LLP.
23.1 Consent of Arthur Andersen LLP.
Consent of Cooley Godward LLP. Reference is made to Exhibit
23.2 5.1.
24.1 Power of Attorney.*
</TABLE>
- ---------------
* Previously filed.
(1) Filed as an exhibit to Registrant's Registration Statement on Form S-1 (No.
333-37317), filed October 7, 1997, as amended, and incorporated herein by
reference.
<PAGE> 1
EXHIBIT 1.1
Gene Logic Inc.
3,500,000 Shares of Common Stock*
(par value $.01 per share)
UNDERWRITING AGREEMENT
New York, New York
January __, 2000
ING Barings LLC
Hambrecht & Quist LLC
FleetBoston Robertson Stephens Inc.
Dain Rauscher Incorporated
As Representatives of the Several Underwriters
c/o ING Barings LLC
55 East 52nd Street
New York, New York 10055
Ladies and Gentlemen:
Gene Logic Inc., a Delaware corporation (the "Company"), proposes, subject
to the terms and conditions stated herein, to issue and sell to the several
underwriters named in Schedule I hereto (the "Underwriters") for whom you are
acting as representatives an aggregate of 3,500,000 shares (the "Firm Shares")
of its common stock, par value $0.01 per share (the "Common Stock"), and for the
sole purpose of covering over-allotments in connection with the sale of the Firm
Shares, at the option of the Underwriters, up to an additional 395,000 shares of
Common Stock (the "Company Option Shares"). Each selling stockholder named in
Schedule II hereto (each, a "Selling Stockholder" and together, the "Selling
Stockholders") proposes, subject to the terms and conditions stated herein, to
sell to the Underwriters, for the sole purpose of covering over-allotments in
connection with the sale of the Firm Shares, at the option of the Underwriters,
the number of shares of Common Stock which appears opposite the name of such
Selling Stockholder on Schedule II hereto (the "Selling Stockholder Option
Shares"). The aggregate amount of Selling Stockholder Option Shares is 130,000.
The Company Option Shares and the Selling Stockholder Option Shares are
collectively referred to as the "Option Shares." The Firm Shares and the Option
Shares are collectively referred to as the "Shares".
1. Representations and Warranties of the Company. The Company represents
and warrants to and agrees with each of the Underwriters that:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-3 (No.
333-94559), for the registration of the Shares under the Securities Act of 1933,
as amended (the "Act"). Such registration statement, including the prospectus,
financial statements and schedules, exhibits and all other documents filed as a
part thereof, as amended through the time of
- --------
* Plus an option to purchase from the Company up to an additional 395,000 shares
of Common Stock, and an option to purchase from certain selling
stockholders up to 130,000 shares of Common Stock, to cover over-allotments.
<PAGE> 2
effectiveness of the registration statement, including any information deemed to
be a part thereof as of the time of effectiveness pursuant to Rule 430A or Rule
434 of the Rules and Regulations of the Commission under the Act (the
"Regulations"), is herein called the "Registration Statement". Any registration
statement filed by the Company pursuant to Rule 462(b) under the Act is herein
called the "Rule 462(b) Registration Statement", and from and after the date and
time of filing of the Rule 462(b) Registration Statement the term "Registration
Statement" shall include the Rule 462(b) Registration Statement. The prospectus,
in the form first filed with the Commission pursuant to Rule 424(b) of the
Regulations or filed as part of the Registration Statement at the time of
effectiveness if no Rule 424(b) or Rule 434 filing is required, is herein called
the "Prospectus". The term "preliminary prospectus" as used herein means a
preliminary prospectus included in the Registration Statement at the time it is
declared effective as described in Rule 430A of the Regulations; provided,
however, if the Company has, with the consent of ING Barings LLC, elected to
rely upon Rule 434 under the Act, the term "Prospectus" shall mean the Company's
prospectus subject to completion dated January 18, 2000 (such preliminary
prospectus is herein called the "Rule 434 preliminary prospectus"), together
with the applicable term sheet (the "Term Sheet") prepared and filed by the
Company with the Commission under Rules 434 and 424(b) under the Act and all
references in this Agreement to the date of the Prospectus shall mean the date
of the Term Sheet. All references in this Agreement to the Registration
Statement, the Rule 462(b) Registration Statement, a preliminary prospectus, the
Prospectus or the Term Sheet, or any amendments or supplements to any of the
foregoing, shall include any copy thereof filed with the Commission pursuant to
its Electronic Data Gathering, Analysis and Retrieval System ("EDGAR").
(b) Each preliminary prospectus and the Prospectus, if filed by
electronic transmission pursuant to EDGAR (except as may be permitted by
Regulation S-T under the Securities Act), was identical to the copy thereof
delivered to the Underwriters for use in connection with the offer and sale of
the Shares. At the time of the effectiveness of the Registration Statement or
the effectiveness of any Rule 462(b) Registration Statement and any
post-effective amendment thereto, when the Prospectus is first filed with the
Commission pursuant to Rule 424(b) or Rule 434 of the Regulations, when any
supplement to or amendment of the Prospectus is filed with the Commission and at
the Closing Date and the Additional Closing Date, if any (as defined in Section
3), the Registration Statement and the Prospectus and any amendments thereof and
supplements thereto complied (and, in the event of any of the aforementioned
filings that may occur in the future will, at the time of such filing(s),
comply) in all material respects with the applicable provisions of the Act and
the Regulations, did not and will not contain an untrue statement of a material
fact and did not and will not omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. When any related preliminary prospectus was first filed with the
Commission (whether filed as part of the Registration Statement for the
registration of the Shares or any amendment thereto or pursuant to Rule 424(a)
of the Regulations) and when any amendment thereof or supplement thereto was
first filed with the Commission, such preliminary prospectus and any amendments
thereof and supplements thereto complied in all material respects with the
applicable provisions of the Act and the Regulations and did not contain an
untrue statement of a material fact and did not omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading. No representation and warranty is made in this
subsection (b), however, with respect to the statements set forth in the first
(including the table), third, seventh and eighth paragraphs under the caption
"Underwriting" in, and the last paragraph on the cover page of, the Prospectus.
If Rule 434 is used, the Company will comply
2
<PAGE> 3
with the requirements of Rule 434. The Commission has not issued any stop order
suspending the effectiveness of the Registration Statement or any order
preventing or suspending the use of the Prospectus or any preliminary prospectus
or, to the knowledge of the Company, instituted proceedings for that purpose.
(c) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with full
corporate power and authority to own, lease and operate its properties and
engage in the business in which it is engaged or in which it proposes to engage
as described in the Registration Statement, the preliminary prospectus and the
Prospectus. The Company is duly registered and qualified to do business as a
foreign corporation in good standing in each jurisdiction where the character,
location, ownership or leasing of its properties (owned, leased or licensed) or
the nature or conduct of its business requires such registration or
qualification, except where the failure to be so qualified would not,
individually or in the aggregate, result in a material adverse effect on or
affecting the business, operations, assets, properties, condition (financial or
other), stockholders' equity, prospects or results of operations of the Company
and its subsidiaries taken as a whole (a "Material Adverse Effect").
(d) The Company has no subsidiaries (as defined in the Regulations),
other than Gene Logic Acquisition Corp. (the "Subsidiary"), which is a
wholly-owned subsidiary of the Company. The Company does not own or control,
directly or indirectly, any shares of stock or any other equity or long-term
debt securities of any corporation or have any equity interest in any firm,
partnership, joint venture, association, or other entity other than the
Subsidiary except for the Company's security holdings in Therapeutic Genomics,
Inc. All the outstanding shares of capital stock of the Subsidiary have been
duly and validly authorized and issued and are fully paid and nonassessable, are
owned solely by the Company and are free and clear of any security interest,
pledge, claim (legal or equitable), lien, charge, equity, mortgage, encumbrance
or other restriction (each a "Lien"), shareholders' agreements, voting trusts or
defects of title. The Subsidiary has been duly organized and is validly existing
as a corporation in good standing under the laws of its jurisdiction of
organization, with full power and authority to own, lease and operate its
properties and conduct the business in which it is engaged or in which it
proposes to engage. The Subsidiary is duly registered and qualified as a foreign
corporation in good standing in each jurisdiction where the character, location,
ownership or leasing of its properties or the nature or conduct of its business
requires such registration or qualification, except where the failure to be so
qualified would not have a Material Adverse Effect. The Subsidiary is not
currently prohibited, directly or indirectly, from paying any dividends to the
Company, from making any other distribution on its capital stock, from repaying
to the Company any loans or advances to it from the Company or from transferring
any of its property or assets to the Company or any other subsidiary of the
Company.
(e) Arthur Andersen LLP, the accountants who have expressed their
opinion with respect to the consolidated financial statements (including the
related notes and supporting schedules) of the Company and the Subsidiary filed
with the Commission as a part of the Registration Statement, the preliminary
prospectus and the Prospectus, are, with respect to the Company and the
Subsidiary, independent public accountants as required by the Act, the
Regulations and the Securities Exchange Act of 1934, as amended (the "1934
Act").
3
<PAGE> 4
(f) As of the date hereof, the Company has an authorized
capitalization as set forth in the Registration Statement, the preliminary
prospectus and the Prospectus and there has been no material change in its
capitalization since that date. All outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws and were not issued in violation of any preemptive right, resale
right, right of first refusal or similar right. The authorized and outstanding
capital stock of the Company conforms to the description thereof contained in
the Registration Statement, the preliminary prospectus and the Prospectus (and
such description correctly states, in all material respects, the substance of
the provisions of the instruments defining the capital stock of the Company).
Except as described in the Registration Statement, the preliminary prospectus
and the Prospectus, there are no authorized or outstanding rights (including,
without limitation, preemptive rights, co-sale rights, resale rights, rights of
first refusal or similar rights), warrants or options to acquire, or instruments
convertible into or exercisable or exchangeable for, any share of capital stock
or other equity interest or ownership interest in the Company or the Subsidiary
or any contract, commitment, agreement, understanding or arrangement of any kind
relating to the issuance of any capital stock or other equity interest or
ownership interest in the Company or the Subsidiary or any such convertible or
exercisable or exchangeable securities or instruments or any such rights,
warrants or options, except for any such rights that have been effectively
waived in writing so as not to be exercisable in connection with the
registration, offer or sale of the Shares. The Shares to be issued pursuant to
this Agreement will not be issued in violation of any preemptive right, co-sale
right, resale right, right of first refusal or similar right. The description of
the Company's stock option, stock bonus and other stock plans or arrangements,
and the options or other rights granted thereunder, set forth in the
Registration Statement, the preliminary prospectus and the Prospectus accurately
and fairly presents, in all material respects, the information required to be
shown with respect to such plans, arrangements, options and rights. The Shares
have been duly authorized for issuance and, when issued and delivered to and
paid for by the Underwriters pursuant to this Agreement, will be validly issued,
fully paid and nonassessable, good title to the Shares will be transferred to
the Underwriters free and clear of any Liens and the certificates representing
the Shares will be in valid and sufficient form.
(g) Other than the action filed by Incyte Pharmaceuticals, Inc. in
the United Stated District Court for the Northern District of California on
December 6, 1999 (the "Incyte Litigation") and the action filed on October 19,
1999 against Oncormed, Inc. and the Company in the Circuit Court of Cook County,
Illinois, there is (i) no action, suit or proceeding or, to the knowledge of the
Company, no investigation, before or by any court, arbitrator or governmental
agency, body or official, domestic or foreign, pending or, to the knowledge of
the Company, threatened or contemplated, as to which the Company or the
Subsidiary is (or, to the extent threatened or contemplated, will be) a party or
as to which the business, assets or property of the Company or the Subsidiary
(or, to the extent threatened or contemplated, will be) subject, (ii) no
statute, rule, regulation or order that has been enacted, adopted or issued by
any governmental agency, body or official, and (iii) no injunction, restraining
order or order of any nature that has been issued by a federal or state court or
foreign court of competent jurisdiction to which the Company or the Subsidiary
is or will be subject or affecting the business, assets or property of the
Company or the Subsidiary, that could reasonably be expected to (in the case of
clauses (i), (ii) and (iii)), individually or in the aggregate, whether or not
arising from transactions in the ordinary course of business, have a Material
Adverse Effect, be required to be disclosed in the
4
<PAGE> 5
Registration Statement, the preliminary prospectus or the Prospectus or
materially and adversely affect the ability of the Company to perform its
obligations under this Agreement. There are no legal or administrative
proceedings, Contracts (as defined below) or documents concerning the Company or
the Subsidiary of a character that would be required to be described in or filed
as an exhibit to a registration statement on Form S-3 under the Act that are not
described or filed, as required, in the Registration Statement, the preliminary
prospectus and the Prospectus.
(h) The consolidated financial statements of the Company and the
Subsidiary, together with the related notes thereto, which are a part of the
Registration Statement, the preliminary prospectus and the Prospectus, present
fairly the consolidated financial position and the consolidated results of
operations, changes in stockholders' equity and changes in cash flows of the
Company and the Subsidiary as of the respective dates and for the respective
periods specified therein. All of such financial statements and related notes
have been prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved and comply as to
form in all material respects with the applicable accounting requirements
included in Regulation S-X under the Act. The supporting schedules, the "Summary
Consolidated Financial Data", the "Selected Consolidated Financial Data" and the
tables included in the Registration Statement, the preliminary prospectus and
the Prospectus fairly present the information purported to be shown thereby at
the respective dates thereof and for the respective periods covered thereby and
have been presented on a basis consistent with that of the audited financial
statements therein. No other financial statements or supporting schedules are
required by the Act or Regulation S-X to be included therein.
(i) Subsequent to the respective dates as of which information is
given in the Registration Statement, the preliminary prospectus and the
Prospectus, there has not been (i) any loss or adverse change, or any
development which could reasonably be expected to result in a loss or adverse
change, in or affecting the business, properties, management, assets, prospects,
stockholders' equity, operations, condition (financial or other), or results of
operations of the Company and its subsidiaries taken as a whole, (ii) any
transaction entered into by the Company or the Subsidiary, except transactions
in the ordinary course of business; (iii) any obligation, direct or contingent,
incurred by the Company or the Subsidiary which is material to the Company and
the Subsidiary taken as a whole, except for liabilities or obligations which are
reflected in the Registration Statement, the preliminary prospectus and the
Prospectus, (iv) any change in the capital stock or outstanding indebtedness of
the Company, or (v) any dividend or distribution of any kind declared, paid or
made on the capital stock of the Company, which in any case described in clauses
(i), (ii), (iii), (iv) or (v) above, could reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect on the Company
and its subsidiaries taken as a whole or materially and adversely affect the
ability of the Company to perform its obligations under this Agreement.
(j) The Company and the Subsidiary have good and marketable title to
all properties and assets described in the Registration Statement, the
preliminary prospectus and the Prospectus as being owned by them, free and clear
of all Liens except Liens for taxes not yet due and payable. The Company and the
Subsidiary have valid and enforceable leases for the properties leased by them,
the Company and the Subsidiary enjoy peaceful and undisturbed possession under
all such leases with such exceptions as do not materially interfere with the use
thereof made by the Company and the Subsidiary, and such leases conform in all
material
5
<PAGE> 6
respects to the descriptions thereof, if any, set forth in the Registration
Statement, the preliminary prospectus and the Prospectus. The Company and the
Subsidiary own, lease or otherwise have rights to use all properties and assets
as are important to their respective operations as now conducted and as proposed
to be conducted.
(k) The Company and the Subsidiary have all requisite corporate
power and authority, and all licenses, certificates, approvals, consents,
concessions, qualifications, orders, registrations, authorizations and permits
from all federal, state, foreign and other governmental and regulatory agencies,
bodies and authorities ("Permits") that are material to and necessary for the
conduct of the business of the Company and the Subsidiary as such business is
currently conducted. The Company reasonably believes that it will be able to
obtain Permits that are material to and necessary for the conduct of the
business of the Company and the Subsidiary as such business is proposed to be
conducted as described in the Registration Statement, the preliminary prospectus
and the Prospectus. All such Permits are valid and in full force and effect and
there is no proceeding pending or, to the best knowledge of the Company,
threatened, which could reasonably be expected to cause any such Permit to be
withdrawn, canceled, suspended or not renewed. The Company and the Subsidiary
are not in violation of, or in default under, and have fulfilled and performed
all their obligations with respect to, such Permits, except as would not have a
Material Adverse Effect. No event has occurred which allows or would allow
revocation or termination of any such Permit or result in any material
impairment of the rights of the holder of any such Permit. The Contracts to
which the Company or the Subsidiary is a party are valid and binding agreements,
enforceable against the Company and the Subsidiary in accordance with their
terms and, to the best of the Company's knowledge, the other contracting party
or parties thereto are not in breach or default under any of such Contracts,
except in each case as would not have a Material Adverse Effect.
(l) The Company and the Subsidiary are not (i) in violation of their
respective certificates of incorporation, as amended, or bylaws, as amended or
(ii) in breach of or default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture, mortgage,
loan agreement, franchise, joint venture, deed of trust, bond, note, lease,
Permit or other agreement or instrument to which the Company or the Subsidiary
is a party or by which the Company or the Subsidiary may be bound or to which
any of the property or assets of the Company or the Subsidiary is subject (each
a "Contract"), or in violation of any law, order, rule, regulation, writ,
injunction or decree of any court or governmental agency, body or authority,
except in the case of this clause (ii) for such breaches, defaults or violations
that could not reasonably be expected to, individually or in the aggregate, have
a Material Adverse Effect on the Company and its subsidiaries taken as a whole
or materially and adversely affect the ability of the Company to perform its
obligations under this Agreement.
(m) The Company and the Subsidiary own, possess, license or have
rights to use all patents, patent applications, trademarks, trademark
applications, service marks, service mark applications, tradenames, inventions,
discoveries, concepts, ideas, techniques, methods, source codes, object codes,
copyrights, manufacturing processes, formulae, computer software, databases,
works of authorship, technology, trade secrets, know-how, and other unpatented
and/or unpatentable proprietary or confidential information, collaborative
research agreements, systems or procedures and material intangible property and
assets (collectively, "Intellectual Property") necessary to the conduct of their
business as currently conducted and as proposed to
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<PAGE> 7
be conducted. The Company reasonably believes that the Company and the
Subsidiary will be able to own or possess adequate licenses or other rights to
use all Intellectual Property necessary to the conduct of their business as
proposed to be conducted as described in the Registration Statement. The Company
has no knowledge that it lacks or will be unable to obtain any rights or
licenses to use any of such Intellectual Property. The Registration Statement,
the preliminary prospectus and the Prospectus fairly and accurately describe the
Company's rights with respect to Intellectual Property. Other than the Incyte
Litigation, neither the Company nor the Subsidiary have received any notice of,
and otherwise have no knowledge of, any infringement of or conflict with
asserted rights or claims of others with respect to any Intellectual Property
and the Company is unaware of any fact which could form a reasonable basis for
any such claim.
(n) Rights that any other party may have in the Patent Rights (as
defined in Schedule 1(n)) will not have a Material Adverse Effect on the Company
and the Subsidiary taken as a whole or materially and adversely affect the
ability of the Company to perform its obligations under this Agreement. There
are no outstanding licenses or other agreements that relate to or restrict the
Company's use of the Patent Rights in a manner that could reasonably be expected
to have a Material Adverse Effect. No Patent has been or is now involved in any
interference, reissue, reexamination or opposition proceeding in the United
States Patent and Trademark Office. Except for the Incyte Litigation, to the
knowledge of the Company, there is no patent or patent application of any person
that conflicts in any material respect with any Patent or invalidates any claim
the Company has in any Patent or Patent application. With regard to the Patent
Rights, the Company has no knowledge of unpaid maintenance fees, patents that
have lapsed, or abandonment of applications, and knows of no reason why any
patent applications should not be allowed. Except for the Incyte litigation,
there are no claims, actions, or proceedings, pending or to the Company's best
knowledge, threatened, challenging the validity of any of its claims in any of
the Intellectual Property. To the knowledge of the Company, there is no prior
art that may render any Patent Right invalid or a Patent Application (as defined
in Schedule 1(n)) unpatentable.
(o) The Company is the sole and exclusive owner of all right, title
and interest in the registered trademarks and service marks listed on Schedule
1(n) (collectively, "Registered Marks"). The Company has applied for the United
States trademarks and service marks listed on Schedule 1(n) (collectively,
"Applied Marks"). The Company has not allowed any Applied Marks or Registered
Marks to be abandoned, canceled, or to lapse. The Company has no knowledge of
any claims, actions, or proceedings, pending or threatened, challenging the
validity of any of the Registered Marks or the registration of any Applied
Marks. The Company has no knowledge of the existence of trademarks or service
marks, or trademark or service mark applications, owned by third parties that
may have, individually or in the aggregate, a Material Adverse Effect on the
Company and its subsidiaries taken as a whole or materially and adversely affect
the ability of the Company to perform its obligations under this Agreement. The
Company has registered with Network Solutions, Inc. the Internet domain name
www.genelogic.com. The Company has no knowledge of a registered trademark held
by a third party that may be used to prevent the Company from using this domain
name. The Company has taken all reasonable steps to secure, protect, and
maintain the Registered Marks and Applied Marks listed on Schedule 1(n) and the
Internet domain name www.genelogic.com.
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<PAGE> 8
(p) The Software owned or purported to be owned by the Company or
the Subsidiary, was either (i) developed by employees of the Company or the
Subsidiary within the scope of their employment; (ii) developed by independent
contractors who have assigned their rights to the Company or the Subsidiary
pursuant to written agreements; or (iii) otherwise acquired by the Company or
the Subsidiary from a third party. The Software does not contain any programming
code, documentation or other materials or development environments that embody
Intellectual Property rights of any person other than the Company except for
such materials or development environments obtained by the Company or the
Subsidiary from other persons who make such materials or development
environments generally available on non-discriminatory commercial terms.
"Software" means any and all (i) computer programs, including any and all
software implementations of algorithms, models and methodologies, whether in
source code or object code, (ii) databases and compilations, including any and
all data and collections of data, whether machine readable or otherwise, (iii)
descriptions, schematics, flow-charts and other work product used to design,
plan, organize and develop any of the foregoing, and (iv) all documentation,
including user manuals and training materials, relating to any of the foregoing.
(q) The Company and the Subsidiary have filed on a timely basis with
the appropriate taxing authorities (or have received an extension for filing
with respect to) all necessary federal, state and foreign income and franchise
tax returns, reports and other information required to be filed by them. Each
such tax return, report or other information was, when filed, accurate and
complete in all material respects. The Company and the Subsidiary have duly
paid, or have made adequate charges, accruals and reserves in the financial
statements for, all such taxes required to be paid by them and any other
assessment, fine or penalty levied against them, for all periods as to which the
tax liability of the Company or the Subsidiary has not been finally determined.
No tax deficiency has been or, to the best of the Company's knowledge, might be
asserted or contemplated against the Company or the Subsidiary.
(r) The Company and the Subsidiary are insured by recognized,
financially sound and reputable institutions with policies in such amounts and
with such deductibles and covering such risks as are generally deemed adequate
and customary for their business including, but not limited to, policies
covering real and personal property owned or leased by the Company and the
Subsidiary against theft, damage, destruction, acts of vandalism and
earthquakes, general liability and directors and officers liability, all of
which insurance is in full force and effect. The Company has no reason to
believe that it or the Subsidiary will not be able to (i) renew its existing
insurance coverage as and when such policies expire or (ii) obtain comparable
coverage from similar institutions as may be necessary or appropriate to conduct
its business as now conducted and at a cost that would not result in a Material
Adverse Effect on the Company and its subsidiaries taken as a whole or
materially and adversely affect the ability of the Company to perform its
obligations under this Agreement. Neither of the Company nor the Subsidiary has
been denied any insurance coverage which it has sought or for which it has
applied.
(s) Neither the Company nor the Subsidiary is involved in any labor
dispute, disturbance, lockout, slowdown or stoppage of employees, and, to the
best knowledge of the Company, no such dispute or disturbance is threatened or
imminent. The Company is not aware of any existing or imminent labor disturbance
by the employees of any of its principal suppliers, subassemblers, value added
resellers, subcontractors, original equipment manufacturers,
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<PAGE> 9
authorized dealers or international distributors that could reasonably be
expected to result in a Material Adverse Effect on the Company and its
subsidiaries taken as a whole or materially and adversely affect the ability of
the Company to perform its obligations under this Agreement.
(t) In the ordinary course of its business, the Company periodically
reviews the effect of Environmental Laws (as defined below) on the business,
operations and properties of the Company and the Subsidiary, in the course of
which it identifies and evaluates associated costs and liabilities (including,
without limitation, any capital or operating expenditures required for clean-up,
closure of properties or compliance with Environmental Laws, or any Permit, any
related constraints on operating activities and any potential liabilities to
third parties). On the basis of such review, the Company has reasonably
concluded that the Company and the Subsidiary (i) are in compliance in all
material respects with all applicable foreign, United States federal, state and
local environmental laws, rules, regulations, treaties, statutes and codes
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all Permits required of them under
applicable Environmental Laws to conduct their business as currently conducted,
(iii) are in compliance in all material respects with all terms and conditions
of any such Permit and (iv) have not received notice of any actual or potential
liability for the investigation or remediation of any disposal or release of
hazardous or toxic substances or wastes, pollutants or contaminants. No action,
proceeding, revocation proceeding, writ, injunction or claim is pending or, to
the knowledge of the Company, threatened, relating to the Environmental Laws or
to the Company's or the Subsidiary's activities involving Hazardous Materials.
"Hazardous Materials" means any material or substance (i) that is prohibited or
regulated by any Environmental Law or (ii) that has been designated or regulated
by any governmental body or authority as radioactive, toxic, hazardous or
otherwise a danger to health, reproduction or the environment. Neither the
Company nor the Subsidiary has been named as a "potentially responsible party"
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended.
(u) Neither the Company nor the Subsidiary has engaged in the
generation, use, manufacture, transportation or storage of any Hazardous
Materials on any of the Company's or the Subsidiary's properties or former
properties, except in compliance in all material respects with all applicable
Environmental Laws. No Hazardous Materials have been treated or disposed of on
any of the Company's or the Subsidiary's properties or on properties formerly
owned or leased by the Company or the Subsidiary during the time of such
ownership or lease, except in compliance in all material respects with
Environmental Laws.
(v) No payments or inducements have been made or given, directly or
indirectly, to any federal or local official or candidate for, any federal or
state office in the United States or foreign offices by the Company or the
Subsidiary, by any of their officers, directors, employees or agents or, to the
best knowledge of the Company, by any other person in connection with any
opportunity, Contract, Permit, certificate, consent, order, approval, waiver or
other authorization relating to the business of the Company or the Subsidiary,
except for such payments or inducements as were lawful under applicable written
laws, rules and regulations. Neither the Company nor the Subsidiary, nor any
director, officer, agent, employee or, to the knowledge of the Company, other
person associated with or acting on behalf of the Company or the Subsidiary, (i)
has used any corporate funds for any unlawful contribution, gift, entertainment
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<PAGE> 10
or other unlawful expense relating to political activity; (ii) made any direct
or indirect unlawful payment to any government official or employee from
corporate funds; (iii) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977; or (iv) made any bribe, unlawful rebate,
payoff, influence payment, kickback or other unlawful payment in connection with
the business of the Company or the Subsidiary.
(w) Neither the Company nor the Subsidiary has any liability for any
prohibited transaction (within the meaning of Section 4975(c) of the Internal
Revenue Code of 1986, as amended (the "Code") or Part 4 of Title I of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")) (or an
accumulated funding deficiency within the meaning of Section 412 of the Code or
Section 302 of ERISA) or any complete or partial withdrawal liability (within
the meaning of Section 4201 of ERISA), with respect to any pension, profit
sharing or other plan which is subject to ERISA, to which the Company and the
Subsidiary make or ever have made a contribution and in which any employee of
the Company and Subsidiary is or has ever been a participant. With respect to
such plans, the Company and the Subsidiary are in compliance in all material
respects with all applicable provisions of ERISA.
(x) The Company and the Subsidiary maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization, (ii) transactions are appropriately recorded to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences and (v) assets are properly accounted for and
safeguarded against loss from unauthorized use. The Company has not received
from its independent public accountants a letter describing or been informed by
them of, a substantial or material deficiency in the Company's internal
accounting controls in connection with their audit of the Company's financial
statements incorporated by reference in the Registration Statement, the
preliminary prospectus and the Prospectus.
(y) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company or the Subsidiary to or for the benefit of any of
the officers or directors or shareholders of the Company or the Subsidiary or
any of the members of the families of any of them, except as disclosed in the
Registration Statement, the preliminary prospectus and the Prospectus.
(z) No consent, approval, registration, authorization, filing,
qualification, Permit or order of or with any court or supervisory, regulatory,
administrative or governmental agency, body or authority, arbitrator or others
(including securityholders) is required in connection with the execution and
delivery of this Agreement, the issuance, sale or delivery of the Shares to be
issued, sold and delivered by the Company hereunder, or the consummation of any
other of the transactions contemplated herein or the fulfillment of the terms
hereof, except the registration under the Act of the Shares and such consents,
approvals, registrations, authorizations, filings, qualifications, Permits or
orders, as may be required under the state securities or "blue sky" laws or the
bylaws and rules of the National Association of Securities
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<PAGE> 11
Dealers, Inc. (the "NASD") or as have been obtained and which are in full force
and effect in connection with the offer, purchase and distribution by the
Underwriters of the Shares.
(aa) The execution, delivery and performance by the Company of this
Agreement and the issuance and sale of the Shares and the consummation of the
transactions contemplated herein have been duly authorized by all necessary
corporate action. Neither the issuance, offer, sale or delivery of the Shares,
the execution, delivery and performance by the Company of this Agreement nor the
compliance by the Company with all the provisions hereof nor the consummation of
the transactions contemplated hereby (i) conflicts with or will conflict with,
or constitutes or will constitute a breach or violation of or a default under
(or an event that, with notice or lapse of time or both, would constitute such a
breach, violation or default), or results in or will result in the imposition of
a Lien upon any property or assets of the Company or the Subsidiary, under, any
of the terms or provisions of the certificate of incorporation or by-laws or
other organizational or constitutive documents of the Company or the Subsidiary,
nor (ii) conflicts with or will conflict with or constitutes or will constitute
a breach or violation of, or a default under (or an event that with notice or
the lapse of time or both would constitute a default) or the loss of any
material benefit under, or the termination of, or results in or will result in
the creation or imposition of any Lien upon any property or assets of the
Company or the Subsidiary pursuant to, any Contract, nor (iii) violates or
conflicts with or will violate or conflict with any law, statute, rule or
regulation applicable to the Company or the Subsidiary or any judgment, decree
or order applicable to the Company or the Subsidiary of any court or
supervisory, regulatory, administrative or governmental agency, body or
authority, or arbitrator having jurisdiction over the Company or the Subsidiary
or any of their respective properties or assets.
(bb) The Company has full corporate power and authority to enter
into this Agreement and to perform the transactions contemplated hereby. This
Agreement and the transactions contemplated herein have been duly and validly
authorized, executed and delivered by the Company and this Agreement constitutes
the legal, valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms, except as the enforceability thereof may
be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium
or other laws now or hereafter in effect relating to or affecting creditors'
rights generally and (ii) general principles of equity (regardless of whether
such enforcement is considered in a proceeding in equity or at law) and except
to the extent that the provisions of Section 7 hereof may be limited by
applicable federal or state securities laws or unenforceable as against public
policy.
(cc) The Company has duly and validly authorized the issuance and
sale of the Shares. The description of the Shares in the Registration Statement,
the preliminary prospectus and the Prospectus is accurate in all material
respects.
(dd) The Company is not now, and as a result of the offer and sale
of the Shares in the manner contemplated in this Agreement, the Registration
Statement, the preliminary prospectus and the Prospectus and the application of
the net proceeds of such sale as described in the section entitled "Use of
Proceeds" of the Registration Statement, the preliminary prospectus and the
Prospectus, will not be, an "investment company" or an "affiliated person" of,
or "promoter" or "principal underwriter" for, an "investment company" within the
meaning
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<PAGE> 12
of the Investment Company Act of 1940, as amended (the "Investment Company
Act"), without taking account of any exemption arising out of the number or type
of holders of the Company's securities.
(ee) The Company has not incurred any liability for a fee,
commission, or other compensation on account of the employment of a broker or
finder in connection with the transactions contemplated by this Agreement other
than the discount contemplated hereby.
(ff) Neither the Company nor the Subsidiary nor, to the Company's
best knowledge, any of its or their officers, directors or affiliates (as
defined in Rule 501(b) of Regulation D ("Regulation D") under the Act) has taken
or will take, directly or indirectly, any action designed to cause or to result
in or that has constituted, or might reasonably be expected to cause or result
in or constitute, under the Securities Exchange Act of 1934, as amended (the
Exchange Act"), or otherwise, the stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the Shares.
(gg) The Company has not distributed and will not distribute prior
to the later of (A) the Additional Closing Date and (B) the completion of the
distribution of the Shares by the Underwriters and dealers, any offering
material (including, without limitation, content on its Website, if any, that
may be deemed to be offering material) in connection with the offering and sale
of the Shares other than the preliminary prospectus and the Prospectus.
(hh) There are no holders of securities of the Company which by
reason of the filing of the Registration Statement or otherwise in connection
with the sale of the Shares contemplated hereby, have the right to request or
demand that the Company register under the Act any of their securities in
connection with the Registration Statement, except for any such rights that have
been effectively waived in writing so as not to be exercisable in connection
with the registration, offer or sale of the Shares.
(ii) There is no tax, duty, levy, impost, deduction, charge or
withholding imposed by any political subdivision or taxing authority by virtue
of the execution, delivery, performance or enforcement, or to ensure the
legality, validity or admissibility into evidence, of this Agreement, and
neither is it necessary that the Shares be submitted to, or filed or recorded
with, any court or other authority to ensure such legality, validity,
enforceability or admissibility into evidence. There are no transfer taxes or
other similar fees or charges under federal law or the laws of any state, or any
political subdivision thereof, required to be paid in connection with the
execution and delivery of this Agreement or the issuance and sale by the Company
of the Shares.
(jj) All necessary actions, authorizations, conditions and things
reasonably required to be taken, given, fulfilled and done by the Company and
the Subsidiary on or prior to the date of this Agreement, have been, or on the
Closing Date or the Additional Closing Date, if any, will have been taken,
given, fulfilled and done in connection with (i) the issue of the Prospectus,
(ii) the execution and delivery of this Agreement, (iii) the execution, delivery
and issuance of the Shares, (iv) the compliance with all provisions of this
Agreement to be performed or complied with by such date, and (v) the right of
any holders of securities of the Company to
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<PAGE> 13
request or demand that the Company register under the Act any of their
securities in connection with the Registration Statement.
(kk) There are no issues related to the Company's or the
Subsidiary's preparedness for or reaction to the arrival of the Year 2000 that
(i) are of a character required to be described or referred to in the
Registration Statement, the preliminary prospectus or Prospectus which have not
been accurately described therein or (ii) could result in any Material Adverse
Effect on the Company and its subsidiaries taken as a whole or that might
materially affect their properties, assets or rights. The Company and the
Subsidiary have inquired of all their material vendors as to their preparedness
for the Year 2000 and the Company has disclosed in the Registration Statement,
the preliminary prospectus or Prospectus any issues that could result in a
Material Adverse Effect on the Company and its subsidiaries taken as a whole or
adversely affect the ability of the Company to perform its obligations under
this Agreement or be otherwise important in the context of the sale of the
Shares.
(ll) The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act and is quoted on the Nasdaq National Market, and the Company has
taken no action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from the Nasdaq National Market, nor has the Company received any
notification that the Commission or the Nasdaq National Market is contemplating
terminating such registration or listing.
(mm) The Company has timely and properly filed with the Commission
all reports and other documents required to have been filed by it with the
Commission pursuant to the Act, the Exchange Act and the Regulations. True and
complete copies of all such reports and other documents have been delivered to
you or your counsel.
(nn) Except as described in the Registration Statement, the
preliminary prospectus and the Prospectus, and except in connection with
exercises of outstanding options and warrants to acquire not more than 223,127
shares of Common Stock, the Company has not sold or issued any shares of capital
stock within the six month period preceding the date of the Prospectus, all of
which sales and issuances were made in compliance with the Act and the
Regulations.
(oo) The information contained in the Registration Statement
regarding (i) the number of tissue samples on which the Company's Gene Express
database suite contains gene expression profiles, (ii) the number of gene
expression data points represented by such gene expression profiles, (iii) the
number of genes for which GeneChip provides quantitative expression levels, (iv)
the various numbers of genes identified or discovered by the Company, (v) the
number of genes for which GeneChip microarrays are available, (vi) the number of
tissue samples and GeneChip microarrays which can be produced by the Gene
Express database suite per month, and (vii) the number of tissue samples
acquired by the Company, are, in each case, true, accurate and complete in all
material respects. All statements in the Registration Statement regarding the
Company's expectations, plans and intentions for improvement in any number
referred to in clauses (i) - (vii) above constitute forward looking statements
as defined in Rule 175(c) under the Act and were made by the Company on a
reasonable basis and reflect the Company's good faith estimate of the matters
described therein.
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(pp) Each officer and director of the Company named under the
heading "Management" in the Prospectus, and each of the following stockholders
of the Company: Cross Atlantic Partners K/S; Cross Atlantic Partners II K/S;
Cross Atlantic Partners III K/S; Oxford Bioscience Partners II, L.P.; Oxford
Bioscience Partners (Bermuda) II, L.P.; Oxford Bioscience Partners (GS-Adjunct)
II, L.P.; Oxford Bioscience Partners (Adjunct) II, L.P.; Oxford Bioscience
Management Partners I; Oxford Bioscience Partners, L.P.; Oxford Bioscience
(Bermuda) Limited Partnership; and Oxford Bioscience Partners (Adjunct) L.P.
(such stockholders of the Company, together with each officer and director of
the Company named under the heading "Management" in the Prospectus, to be
referred to collectively as the "Locked-Up Parties"), has agreed to sign an
agreement substantially in the form attached hereto as Exhibit A (the "Lock-up
Agreements"). The Company also has provided to counsel for the Underwriters
true, accurate and complete copies of all of the Lock-up Agreements presently in
effect or effected hereby. The Company has given "no transfer" instructions to
its transfer agent and registrar with respect to such securities.
Any certificate signed by an officer of the Company and delivered to
the Representative or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
2. Representations and Warranties of the Selling Stockholders.
(a) Each Selling Stockholder, severally and not jointly, represents
and warrants to each Underwriter that:
(i) Such Selling Stockholder is the lawful owner of the Shares
to be sold by such Selling Stockholder pursuant to this Agreement and has,
and on the Closing Date and the Additional Closing Date, if any, will
have, good and clear title to such Shares, free of all restrictions on
transfer, liens, encumbrances, security interests, equities and claims
whatsoever. Upon delivery of and payment for the Shares to be sold by such
Selling Stockholder pursuant to this Agreement on the Closing Date and the
Additional Closing Date, if any, good and clear title to such Shares will
pass to the Underwriters, free of all restrictions on transfer, liens,
encumbrances, security interests and claims whatsoever.
(ii) Such Selling Stockholder has, and on the Closing Date and
the Additional Closing Date, if any, will have, full legal right, power
and authority to enter into this Agreement and to sell, assign, transfer
and deliver the Shares in the manner provided herein. This Agreement has
been duly executed and delivered by such Selling Stockholder, and is a
valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms, except as rights to indemnification thereunder
may be limited by applicable law and except as the enforcement thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by
general equitable principles.
(iii) The execution, delivery and performance of this
Agreement by such Selling Stockholder, the compliance by such Selling
Stockholder with all the provisions hereof and the consummation of the
transactions contemplated hereby and
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<PAGE> 15
thereby will not (i) require any consent, approval, authorization or other
order of, or qualification with, any court or governmental body or agency
(except such as may be required under the securities or Blue Sky laws of
the various states), (ii) conflict with or constitute a breach of any of
the terms or provisions of, or a default under, any indenture, loan
agreement, mortgage, lease or other material agreement or instrument to
which such Selling Stockholder is a party or by which such Selling
Stockholder or any property of such Selling Stockholder is bound or (iii)
violate or conflict with any applicable law or any rule, regulation,
judgment, order or decree of any court or any governmental body or agency
having jurisdiction over such Selling Stockholder or any property of such
Selling Stockholder.
(iv) Neither such Selling Stockholder, nor any person acting
on behalf of such Selling Stockholder, has taken, directly or indirectly,
any action designed to stabilize or manipulate the price of any security
of the Company, or which has constituted or which might in the future
reasonably be expected to cause or result in stabilization or manipulation
of the price of any security of the Company, to facilitate the sale or
resale of the Shares or otherwise.
(v) Each certificate signed by or on behalf of such Selling
Stockholder and delivered to the Underwriters or counsel for the
Underwriters shall be deemed to be a representation and warranty by such
Selling Stockholder to the Underwriters as to the matters covered thereby.
(b) Each Selling Stockholder listed as a Group A Selling Stockholder
on Schedule II hereto (each a "Group A Selling Stockholder"), severally, and not
jointly, represents and warrants to each Underwriter that:
At the time of the effectiveness of the Registration
Statement or the effectiveness of any Rule 462(b) Registration Statement
and any post-effective amendment thereto, when the Prospectus is first
filed with the Commission pursuant to Rule 424(b) or Rule 434 of the
Regulations, when any supplement to or amendment of the Prospectus is
filed with the Commission and at the Closing Date and the Additional
Closing Date, if any, the Registration Statement and the Prospectus and
any amendments thereof and supplements thereto did not and will not omit
to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading. When any related
preliminary prospectus was first filed with the Commission (whether filed
as part of the Registration Statement for the registration of the Shares
or any amendment thereto or pursuant to Rule 424(a) of the Regulations)
and when any amendment thereof or supplement thereto was first filed with
the Commission, such preliminary prospectus and any amendments thereof and
supplements thereto did not contain an untrue statement of a material fact
and did not omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. No
representation and warranty is made in this subsection (b), however, with
respect to the statements set forth in the first (including the table),
third, seventh and eighth paragraphs under the caption "Underwriting" in,
and the last paragraph on the cover page of, the Prospectus.
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(c) Each Selling Stockholder listed as a Group B Selling Stockholder
on Schedule II hereto (each a "Group B Selling Stockholder"), severally, and not
jointly, represents and warrants to each Underwriter that:
At the time of the effectiveness of the Registration
Statement or the effectiveness of any Rule 462(b) Registration Statement
and any post-effective amendment thereto, when the Prospectus is first
filed with the Commission pursuant to Rule 424(b) or Rule 434 of the
Regulations, when any supplement to or amendment of the Prospectus is
filed with the Commission and at the Closing Date and the Additional
Closing Date, if any, the Registration Statement and the Prospectus and
any amendments thereof and supplements thereto did not and will not omit
to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading. When any related
preliminary prospectus was first filed with the Commission (whether filed
as part of the Registration Statement for the registration of the Shares
or any amendment thereto or pursuant to Rule 424(a) of the Regulations)
and when any amendment thereof or supplement thereto was first filed with
the Commission, such preliminary prospectus and any amendments thereof and
supplements thereto did not contain an untrue statement of a material fact
and did not omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. No
representation and warranty is made in this subsection (b), however, with
respect to any statements or omissions in the Registration Statement, the
Prospectus, any preliminary prospectus or in any amendments thereof or
supplements thereto, other than statements or omissions made therein in
reliance upon and in conformity with written information relating to such
Group B Stockholder furnished to the Company by or on behalf of such Group
B Stockholder for use therein.
3. Purchase, Sale and Delivery of the Shares.
(a) The Company agrees to issue and sell to the several Underwriters
the Firm Shares upon the terms herein set forth. On the basis of the
representations, warranties, covenants and agreements herein contained, but
subject to the terms and conditions herein set forth, the Underwriters,
severally and not jointly, agree to purchase from the Company, at a purchase
price per share of $ , the number of Firm Shares set forth opposite the
respective names of the Underwriters in Schedule I hereto plus an additional
number of Firm Shares which such Underwriter may become obligated to purchase
pursuant to the provisions of Section 10 hereof.
(b) Payment of the purchase price for, and delivery of, the Firm
Shares and the Option Shares (if the option provided for in Section 3(c) below
shall have been exercised on or before the third full business day prior to the
Closing Date) shall be made at the offices of Winthrop, Stimson, Putnam &
Roberts, 695 East Main Street, Stamford, Connecticut, or at such other place as
shall be agreed upon by ING Barings LLC and the Company, at 10:00 A.M. on the
third full business day (as permitted under Rule 15c6-1 under the Exchange Act)
(unless postponed in accordance with the provisions of Section 10 hereof)
following the date of the effectiveness of the Registration Statement (or, if
the Company has elected to rely upon Rule 430A of the Regulations, the third or
fourth full business day (as permitted under Rule 15c6-1 under the Exchange Act)
after the determination of the public offering price of the Firm Shares), or
such other time not later than five business days after such date as shall be
agreed upon by you
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and the Company (such time and date of payment and delivery being herein called
the "Closing Date"); provided, however, that if the Company has not made
available to the Underwriters copies of the Prospectus in such quantities and at
such places requested by the Underwriters, no later than noon on the business
day following the execution of this Agreement, ING Barings LLC may, in its sole
discretion, postpone the Closing Date until no later than two full business days
following the delivery of such copies of the Prospectus. Payment for the Firm
Shares shall be made to the Company by wire transfer in immediately available
funds to the order of the Company, against delivery to you for the respective
accounts of the Underwriters of the Firm Shares to be purchased by them.
Certificates for the Firm Shares shall be registered in such name or names and
in such authorized denominations as you may request on or before noon on the
business day prior to the Closing Date. The Company will permit you to examine
and package such certificates at or before noon on the business day prior to the
Closing Date. "Business day" shall mean any day other than a Saturday, Sunday or
a legal holiday or a day on which banking institutions or trust companies are
authorized or obligated by law to close in New York City."
(c) In addition, the Company hereby grants to the Underwriters the
option to purchase, severally and not jointly, up to 395,000 Company Option
Shares, and the Selling Stockholders hereby grant to the Underwriters the option
to purchase, severally and not jointly, up to 130,000 Selling Stockholder Option
Shares (each Selling Stockholder granting such option with respect to the number
of shares of Common Stock which appears opposite the name of such Selling
Stockholder on Schedule II hereto), each at the same purchase price per share to
be paid by the Underwriters to the Company for the Firm Shares as set forth in
this Section 3, for the sole purpose of covering over-allotments in the sale of
Firm Shares by the Underwriters. This option may be exercised from time to time
and at any time, in whole or in part, on or before the thirtieth day following
the date of the Prospectus, by notice from ING Barings LLC to the Company and
the Selling Stockholders. Such notice shall set forth the aggregate number of
Option Shares as to which the option is being exercised and the date and time,
as reasonably determined by ING Barings LLC, when the Option Shares are to be
delivered (such date and time being herein sometimes referred to as the
"Additional Closing Date"); provided, however, that the Additional Closing Date
shall not be earlier than the Closing Date or earlier than the second full
business day after the date on which the option shall have been exercised nor
later than the fifth full business day after the date on which the option shall
have been exercised (unless such time and date are postponed in accordance with
the provisions of Section 10 hereof). Payment for the Company Option Shares
shall be made to the Company by wire transfer in immediately available funds to
the order of the Company, against delivery to you for the respective accounts of
the Underwriters of the Company Option Shares to be purchased by them. Payment
for the Selling Stockholder Option Shares shall be made to the Selling
Stockholders by wire transfer in immediately available funds to the order of the
Selling Stockholders, against delivery to you for the respective accounts of the
Underwriters of the Selling Stockholder Option Shares to be purchased by them.
Certificates for the Option Shares shall be registered in such name or names and
in such authorized denominations as you may request on or before noon on the
business day prior to the Closing Date. The Company will permit you to examine
and package such certificates at or before noon on the business day prior to the
Closing Date.
The number of Option Shares to be sold to each Underwriter shall be
the number which bears the same ratio to the aggregate number of Option Shares
being purchased as the
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<PAGE> 18
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule I hereto (or such number increased as set forth in Section 10 hereof)
bears to the total number of Firm Shares being purchased from the Company,
subject, however, to such adjustments to eliminate any fractional shares as ING
Barings LLC in its sole discretion shall make.
(d) Time shall be of the essence and delivery at the time and place
specified in this Agreement is a further condition to the obligations of the
Underwriters.
4. Offering. It is understood that the several Underwriters propose to
offer the Shares for sale to the public upon the terms set forth in the
Prospectus.
5. Covenants of the Company. The Company covenants and agrees with each
Underwriter that:
(a) If the Registration Statement has not been declared effective at
the time of the execution of this Agreement, the Company will use its best
efforts to cause the Registration Statement and any amendments thereto to become
effective as promptly as possible. If Rule 430A is used or the filing of the
Prospectus is otherwise required under Rule 424(b) or Rule 434, the Company will
file the Prospectus (properly completed if Rule 430A has been used) pursuant to
Rule 424(b) or Rule 434 within the prescribed time period and will provide
evidence satisfactory to you of such timely filing. If the Company elects to
rely on Rule 434, the Company will prepare and file a term sheet that complies
with the requirements of Rule 434. If the Company elects to rely on Rule 462(b)
under the Act, the Company shall file a Rule 462(b) Registration Statement with
the Commission in compliance with Rule 462(b) under the Act prior to the time
confirmations are sent or given, as specified by Rule 462(b)(2) under the Act,
and shall pay the applicable fees in accordance with Rule 111 under the Act.
The Company will notify you immediately (and, if requested by you,
will confirm such notice in writing) (i) when the Registration Statement and any
amendments thereto become effective, (ii) of any request by the Commission for
any amendment of or supplement to the Registration Statement, any preliminary
prospectus or the Prospectus or for additional information, (iii) of the mailing
or the delivery to the Commission for filing of any amendment of or supplement
to the Registration Statement or the Prospectus, (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment thereto or of the initiation, or the
threatening, of any proceedings therefor, (v) of the receipt of any comments
from the Commission, and (vi) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Shares for sale in
any jurisdiction or the initiation or threatening of any proceeding for that
purpose. If a stop order or suspension of qualification is proposed at any time,
the Company will use its best efforts to prevent the issuance of any such stop
order and, if issued, to obtain the lifting thereof as soon as possible. The
Company will not file any amendment to the Registration Statement or any
amendment of or supplement to, any preliminary prospectus or the Prospectus
(including the prospectus required to be filed pursuant to Rule 424(b) or Rule
434) that differs from the prospectus on file at the time of the effectiveness
of the Registration Statement before or after the effective date of the
Registration Statement to which you shall reasonably object in writing after
being timely furnished in advance a copy thereof.
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<PAGE> 19
(b) If at any time when a prospectus relating to the Shares is
required to be delivered under the Act by an Underwriter or dealer any event
shall have occurred as a result of which the Prospectus as then amended or
supplemented would, in the reasonable judgment of ING Barings LLC, counsel to
the Underwriters or the Company, include an untrue statement of a material fact
or omit to state any material fact required to be stated therein, or necessary
to make the statements therein, not misleading, or if it shall be necessary at
any time to amend or supplement the Registration Statement, the preliminary
prospectus or the Prospectus to comply with any law, the Company promptly will
notify ING Barings LLC and prepare and file with the Commission and furnish at
its own expense to the Underwriters and dealers, an appropriate amendment or
supplement (in form and substance reasonably satisfactory to ING Barings LLC)
which will correct such untrue statement or omission or so that the Registration
Statement, any preliminary prospectus and the Prospectus will comply with the
law and will use its best efforts to have any amendment to the Registration
Statement declared effective as soon as possible.
(c) As soon as practicable, but not later than 45 days after the end
of its fiscal quarter in which the first anniversary date of the effective date
of the Registration Statement occurs, the Company will make generally available
(within the meaning of Section 11(a) of the Act) to its securityholders and to
you an earnings statement or statements of the Company which will satisfy the
provisions of Section 11(a) of the Act and Rule 158 of the Regulations, covering
a period of at least twelve consecutive months beginning after the effective
date of the Registration Statement; and will, during the period of five years
from the date of the Prospectus, make generally available (within the meaning of
Section 11(a) of the Act) to its securityholders as soon as practicable after
the end of each fiscal year, an annual report (including a balance sheet and
statements of financial condition, operations, cash flows and changes in
stockholders' equity of the Company, certified by the Company's independent
public accountants) and, as soon as practicable after the end of each of the
first three quarters of each fiscal year (beginning with the fiscal quarter
ending after the effective date of the Registration Statement), consolidated
summary financial information of the Company for such quarter in reasonable
detail.
(d) The Company will furnish without charge to you and counsel to
the Underwriters three complete signed copies of the Registration Statement
(including exhibits thereto), and to each other Underwriter a copy of the
Registration Statement (without exhibits thereto) and, so long as, in the
reasonable opinion of counsel to the Underwriters, delivery of a prospectus by
an Underwriter or dealer may be required by the Act, as many copies of each
preliminary prospectus and the Prospectus and any amendment or supplement
thereto as you may request.
(e) The Company will arrange for the qualification of the Shares for
sale under the laws of such jurisdictions (both national and foreign) as ING
Barings LLC may designate and will make such applications, file such documents
and furnish such information as may be required for that purpose and will
maintain such qualifications in effect for so long as required for the
distribution of the Shares; provided, however, that in no event shall the
Company be required to qualify to do business in any such jurisdiction in which
it is not already qualified or to file a general consent to service of process
in any jurisdiction in which it is not now so required, other than in respect of
suits arising out of the offering or sale of the Shares. The Company will, from
time to time, prepare and file such statements, reports and other documents, as
are or may be required to continue such qualifications in effect for so long a
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<PAGE> 20
period as ING Barings LLC may request for the distribution of the Shares. The
Company will cooperate with ING Barings LLC and counsel to the Underwriters in
connection with the filings required to be made by ING Barings LLC with the NASD
and will pay the fee of the NASD in connection with its review of the offering
of the Shares and will use its best efforts to maintain quotation of its shares
on the Nasdaq National Market System.
(f) During the period of five years from the effective date of the
Registration Statement, the Company will furnish to you and, upon request, to
each of the several Underwriters, without charge, copies of, in such quantities
as you or the Underwriters may request from time to time, (i) as soon as
available, all reports or other communications (financial or other) furnished
generally by the Company to its securityholders, (ii) as soon as practicable
after the end of each fiscal year, copies of the Annual Report of the Company
containing the balance sheet of the Company as of the close of such fiscal year
and statements of income, stockholders' equity and cash flows for the year then
ended and the opinion thereon of the Company's independent public or certified
public accountants; and (iii) as soon as practicable after the filing thereof,
copies of each proxy statement, Annual Report on Form 10-K, Quarterly Report on
Form 10-Q, Current Report on Form 8-K or other report filed by the Company with
the Commission, the NASD, any other supervisory, regulatory, administrative or
governmental agency, body or authority whether pursuant to the Exchange Act or
otherwise or any national securities exchange or system on which any class of
securities of the Company is listed or quoted.
(g) For a period of 90 days from the date of the Prospectus (the
"Lock-Up Period"), without the prior written consent of ING Barings LLC, neither
the Company nor any Locked-Up Party shall, directly or indirectly: (1) issue,
offer for sale, contract to sell, sell, pledge or otherwise dispose of (or enter
into any transaction or device which is designed to, or could be expected to,
result in the disposition (whether by actual disposition or effective economic
disposition due to cash settlement or otherwise) by any person at any time in
the future of) any shares of Common Stock or securities convertible into,
exercisable or exchangeable for, or represent the right to receive, Common Stock
or sell or grant options, rights or warrants with respect to any shares of
Common Stock or any of the foregoing or announce the offering of or register for
sale any of the foregoing or any outstanding shares of Common Stock; provided
however, that the Company may grant options and issue and sell Common Stock
pursuant to any directors' and employees' stock plan (including any employees'
stock purchase plan), stock ownership plan, dividend reinvestment plan or
warrants of the Company in effect at the effective date of the Registration
Statement and which are described in the Prospectus so long as none of those
shares that may be issued to any Locked-Up Party may be transferred during the
Lock-Up Period and the Company shall enter stop transfer instructions with its
transfer agent and registrar against any such transfer; or (2) enter into any
swap, repurchase agreement, pledge, transfer or other transaction that transfers
to another, in whole or in part, any of the economic benefits or risks of
ownership of such shares of Common Stock or other securities, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Common Stock or other securities, in cash or otherwise. In addition, during such
period, the Company and the Subsidiary also agree not to file any registration
statement (other than a Form S-8 registration statement filed in connection with
shares of Common Stock received under a Company directors' and employees' stock
plan, stock ownership plan, employment agreement or dividend reinvestment plan)
with respect to, and each of the executive officers, directors and certain
securityholders of the Company has agreed not to make any
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<PAGE> 21
demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock without the prior written consent of ING Barings
LLC.
(h) During the period when, in the opinion of counsel to the
Underwriters, the delivery of a Prospectus by an Underwriter or dealer may be
required by the Act, the Company will comply, at its own expense, with all
requirements imposed upon it by the Commission, the Act and the Exchange Act,
and the rules and regulations of the Commission promulgated thereunder, so far
as necessary to permit the continuance of sales of or dealing in the Shares
during such period in accordance with the provisions hereof and the Prospectus.
In addition, during such period the Company shall file, on a timely basis, with
the Commission and the Nasdaq National Market all reports and documents required
to be filed under the Exchange Act.
(i) Each of the Company and the Subsidiary will conduct its business
in compliance in all material respects with all applicable laws, rules,
regulations, decisions, directives and orders. The Company will do and perform
all things required or necessary to be done and performed under this Agreement
by the Company on or prior to the Closing Date and to comply or cause to be
satisfied, to the extent such are within its control, the conditions precedent
to the several obligations of the Underwriters specified in Section 9 hereof.
(j) Neither the Company nor any of its affiliates (as defined in
Regulation D under the Act), will take, directly or indirectly, any action
designed to cause or result in, or which constitutes or which might reasonably
be expected to cause, result in, or constitute, under the Exchange Act, or
otherwise, stabilization or manipulation of the price of the shares of Common
Stock of the Company to facilitate the offering and distribution of the Shares
or any other action prohibited by Regulation M under the Exchange Act.
(k) The Company will apply the net proceeds to the Company from the
offering and sale of the Shares to be sold by the Company in the manner set
forth in the Prospectus under "Use of Proceeds."
(l) The Company shall engage and maintain, at its expense, a
registrar and transfer agent for the Shares.
(m) The Company will use its best efforts to maintain listing of its
shares of Common Stock on the Nasdaq National Market.
(n) The Company is familiar with the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder, and has in the past
conducted its affairs, and will in the future conduct its affairs, in such a
manner so as to ensure that the Company was not and will not be an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder.
(o) The Company shall cause to be prepared and delivered, at its
expense, within one business day from the date hereof, to the Underwriters an
"electronic Prospectus" to be used by the Underwriters in connection with the
offering and sale of the Shares . As used herein, the term "electronic
Prospectus" means a form of Prospectus, and any amendment or supplement thereto,
that meets each of the following conditions: (i) it shall be encoded in an
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electronic format, satisfactory to you, that may be transmitted electronically
by the Underwriters to offerees and purchasers of the Shares for at least during
the period when, in the opinion of counsel to the Underwriters, the Prospectus
is required to be delivered under the Act or the Exchange Act; (ii) it shall
disclose the same information as the paper Prospectus and Prospectus filed
pursuant to EDGAR, except to the extent that graphic and image material cannot
be disseminated electronically, in which case such graphic and image material
shall be replaced in the electronic Prospectus with a fair and accurate
narrative description or tabular representation of such material, as
appropriate; and (iii) it shall be in or convertible into a paper format or an
electronic format, satisfactory to you, that will allow investors to store and
have continuously ready access to the Prospectus at any future time, without
charge to investors (other than any fee charged for subscription to the system
as a whole and for on-line time).
6. Payment of Expenses.
(a) Whether or not the transactions contemplated by this Agreement
are consummated or this Agreement is terminated, the Company will pay, or
reimburse ING Barings LLC if paid by the Underwriters, all costs, fees and
expenses incident to the performance of the obligations of the Company and the
Selling Stockholders under this Agreement, including but not limited to costs,
fees and expenses of or relating to (i) the preparation by the Company, printing
and filing of the Registration Statement and exhibits to it, each preliminary
prospectus, the Prospectus and any amendment or supplement to the Registration
Statement or the Prospectus (including, without limitation, the fees and
expenses of the Company's counsel, accountants and other advisors), (ii) the
preparation and delivery of certificates representing the Shares, (iii) the
printing of this Agreement and Underwriter's Questionnaires, Underwriter's
Powers of Attorney, Blue Sky Memoranda, Master Agreements Among Underwriters and
Master Selling Agreements, and all other documents relating to the public
offering of the Shares (including those documents supplied to the Underwriters
in quantities as hereinabove stated) and furnishing (including costs of shipping
and mailing) such copies of the Registration Statement, the Prospectus and any
preliminary prospectus, and all exhibits, schedules, consents, certificates of
experts, amendments and supplements thereto, as may be requested for use in
connection with the offering and sale of the Shares by the Underwriters or by
dealers to whom Shares may be sold, (iv) the quotation of the Shares on the
Nasdaq National Market, (v) any filings required to be made with, and the review
by, the NASD and the fees, disbursements and other charges of the Underwriters'
counsel in connection therewith, (vi) the registration or qualification (or
obtaining exemptions from such registration or qualification) of the Shares for
offer and sale under the securities or Blue Sky laws of such jurisdictions
designated pursuant to Section 5(e), including the fees, disbursements and other
charges of the Underwriters' counsel in connection therewith, and the
preparation and printing of preliminary, supplemental and final Blue Sky
memoranda, (vii) the issuance, transfer and delivery of the Shares to the
Underwriters and the Selling Stockholders, including any issue, transfer, stamp
or other taxes payable thereon, (viii) the transfer agent or registrar for the
Shares, (ix) the costs and expenses of the Underwriters incident to the
preparation and undertaking of "road show" preparations to be made to
prospective investors (but, in the case of this clause (ix), only to the extent
specifically approved by the Company), and (x) all other fees, costs and
expenses referred to in Part II of the Registration Statement. Except as
otherwise provided herein, the Underwriters shall pay their own expenses,
including the fees and disbursement of their counsel.
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(b) If this Agreement shall be terminated by the Company otherwise
than as explicitly permitted by this Agreement, or if any condition to the
obligations of the Underwriters set forth in Section 9 hereof is not satisfied,
or if this Agreement shall be terminated by ING Barings LLC as permitted
hereunder pursuant to Section 9, Section 10 or Section 12, or if the sale to the
Underwriters of the Shares on the Closing Date is not consummated because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein or to comply with any provision hereof, the Company agrees to
reimburse ING Barings LLC and the other Underwriters (or such Underwriters as
have terminated this Agreement with respect to themselves), severally, upon
demand for all out-of-pocket expenses that shall have been incurred by ING
Barings LLC and the Underwriters in connection with the proposed purchase and
the offering and sale of the Shares, including but not limited to fees and
disbursements of counsel, printing expenses, travel expenses, postage, facsimile
and telephone charges.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Underwriter, its directors, officers, employees, and agents and each person, if
any, who controls any Underwriter within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against any and all losses, liabilities,
claims, damages, actions and expenses whatsoever, as incurred (including but not
limited to attorneys' fees and any and all expenses whatsoever incurred in
investigating, preparing, compromising or defending against any litigation,
commenced or threatened, or any claim whatsoever, and any and all amounts paid
in settlement of any claim or litigation), joint or several, to which they or
any of them may become subject under the Act, the Exchange Act or other federal
or state statutory law or regulation, or at common law or otherwise, insofar as
such losses, liabilities, claims, damages or expenses (or actions in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement for
the registration of the Shares, as originally filed or any amendment thereof, or
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; or
(ii) upon any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto), or the omission or alleged omission to state therein a
material fact necessary in order to make statements therein, not misleading; or
(iii) in whole or in part upon any inaccuracy in the representations and
warranties of the Company contained herein; or (iv) in whole or in part upon any
failure of the Company to perform its obligations hereunder or under law; or (v)
any act or failure to act or any alleged act or failure to act by an Underwriter
in connection with, or relating in any manner to, the Shares or the offering
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon any matter
covered by clause (i), (ii), (iii) or (iv) above, provided that the Company will
not be liable under this clause (v) to the extent that a court of competent
jurisdiction shall have determined by a final judgment that such loss, claim,
damage, liability or action resulted directly from any such acts or failures to
act undertaken or omitted to be taken by such Underwriter through its bad faith
or willful misconduct; and provided, however, that the Company will not be
liable in any such case covered by clauses (i), (ii), (iii), (iv) or (v) above
to the extent but only to the extent that any such loss, liability, claim,
damage, action or expense arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information
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<PAGE> 24
relating to an Underwriter furnished to the Company by or on behalf of any
Underwriter through you expressly for use therein; and provided, further, that
with respect to any preliminary prospectus, the foregoing indemnity in this
clause 7(a) shall not inure to the benefit of any Underwriter from whom the
person asserting any loss, claim, damage, liability or expense purchased Shares,
or any of its directors, officers or employees or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter and a copy of the Prospectus (as then amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) was not sent
or given by or on behalf of such Underwriter to such person, if required by law
so to have been delivered, at or prior to the written confirmation of the sale
of the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability, action or expense. The Company acknowledges that the
statements set forth in the first (including the table), third, seventh and
eighth paragraphs under the captain "Underwriting" in, and in the last paragraph
on the cover page of, the Prospectus constitute the only information furnished
in writing relating to an Underwriter by or on behalf of any Underwriter
expressly for use in the Registration Statement relating to the Shares as
originally filed or in any amendment thereof, any related preliminary prospectus
or the Prospectus or in any amendment thereof or supplement thereto, as the case
may be. This indemnity agreement will be in addition to any liability which the
Company may otherwise have, including under this Agreement.
(b) Each Group A Selling Stockholder, severally and not jointly,
agrees to indemnify and hold harmless each Underwriter, its directors, officers,
employees, and agents and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, against any and all losses, liabilities, claims, damages, actions and
expenses whatsoever, as incurred (including but not limited to attorneys' fees
and any and all expenses whatsoever incurred in investigating, preparing,
compromising or defending against any litigation, commenced or threatened, or
any claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or other federal or state statutory law or
regulation, or at common law or otherwise, insofar as such losses, liabilities,
claims, damages or expenses (or actions in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement for the registration of the Shares,
as originally filed or any amendment thereof, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; or (ii) upon any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission to state therein a material fact
necessary in order to make statements therein, not misleading; or (iii) in whole
or in part upon any inaccuracy in the representations and warranties of the
Company or such Group A Selling Stockholder contained herein; or (iv) in whole
or in part upon any failure of the Company or such Group A Selling Stockholder
to perform its obligations hereunder or under law; or (v) any act or failure to
act or any alleged act or failure to act by an Underwriter in connection with,
or relating in any manner to, the Shares or the offering contemplated hereby,
and which is included as part of or referred to in any loss, claim, damage,
liability or action arising out of or based upon any matter covered by clause
(i), (ii), (iii) or (iv) above, provided that no Group A Selling Stockholder
will be liable under this clause (v) to the extent that a court of competent
jurisdiction shall have determined by a final judgment that such loss, claim,
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<PAGE> 25
damage, liability or action resulted directly from any such acts or failures to
act undertaken or omitted to be taken by such Underwriter through its bad faith
or willful misconduct; and provided, however, that no Group A Selling
Stockholder will be liable in any such case covered by clauses (i), (ii), (iii),
(iv) or (v) above to the extent but only to the extent that any such loss,
liability, claim, damage, action or expense arises out of or is based upon any
such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information relating to an Underwriter furnished to the Company by or on behalf
of any Underwriter through you expressly for use therein; and provided, further,
that with respect to any preliminary prospectus, the foregoing indemnity in this
clause 7(b) shall not inure to the benefit of any Underwriter from whom the
person asserting any loss, claim, damage, liability or expense purchased Shares,
or any of its directors, officers or employees or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter and a copy of the Prospectus (as then amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) was not sent
or given by or on behalf of such Underwriter to such person, if required by law
so to have been delivered, at or prior to the written confirmation of the sale
of the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability, action or expense. Each Group A Selling Stockholder
acknowledges that the statements set forth in the first (including the table),
third, seventh and eighth paragraphs under the captain "Underwriting" in, and in
the last paragraph on the cover page of, the Prospectus constitute the only
information furnished in writing relating to an Underwriter by or on behalf of
any Underwriter expressly for use in the Registration Statement relating to the
Shares as originally filed or in any amendment thereof, any related preliminary
prospectus or the Prospectus or in any amendment thereof or supplement thereto,
as the case may be. Notwithstanding the foregoing, (y) the aggregate liability
of any Group A Selling Stockholder pursuant to this paragraph (b) and for any
breach of any representation or warranty contained in this Agreement by such
Group A Selling Stockholder shall be limited to an amount equal to the proceeds
(after deducting underwriting discounts and commissions) received by such Group
A Selling Stockholder from the Underwriters for the sale of the Shares sold by
such Group A Selling Stockholder hereunder, and (z) to the extent the Company is
also liable for indemnification under Section 7(a) above, no Group A Selling
Stockholder shall be liable for indemnification under this Section 7(b) until,
and then only to the extent that, the indemnified party has made demand for
indemnification pursuant to Sections 7(a) and 7(e) from the Company and the
Company shall have rejected such demand or shall not have made payment to
satisfy in full such indemnification claim within thirty days of the date of
such original demand. This indemnity agreement will be in addition to any
liability which the Company and the Selling Stockholders may otherwise have,
including under this Agreement.
(c) Each Group B Selling Stockholder severally, and not jointly,
agrees to indemnify and hold harmless each Underwriter, its directors, officers,
employees, and agents and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, against any and all losses, liabilities, claims, damages, actions and
expenses whatsoever, as incurred (including but not limited to attorneys' fees
and any and all expenses whatsoever incurred in investigating, preparing,
compromising or defending against any litigation, commenced or threatened, or
any claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation), joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or other federal or state
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<PAGE> 26
statutory law or regulation, or at common law or otherwise, insofar as such
losses, liabilities, claims, damages or expenses (or actions in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement for the
registration of the Shares, as originally filed or any amendment thereof, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; or
(ii) upon any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto), or the omission or alleged omission to state therein a
material fact necessary in order to make statements therein, not misleading, in
the case of clause (i) above and this clause (ii) to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company or any Underwriter by such Group B Selling
Stockholder, directly or through such Group B Selling Stockholder's
representatives, specifically for use in the preparation thereof; or (iii) in
whole or in part upon any inaccuracy in the representations and warranties of
such Group B Selling Stockholder contained herein; or (iv) in whole or in part
upon any failure of such Group B Selling Stockholder to perform its obligations
hereunder or under law; and provided, however, that no Group B Selling
Stockholder will be liable in any such case covered by clauses (i), (ii), (iii)
or (iv) above to the extent but only to the extent that any such loss,
liability, claim, damage, action or expense arises out of or is based upon any
such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information relating to an Underwriter furnished to the Company by or on behalf
of any Underwriter through you expressly for use therein; and provided, further,
that with respect to any preliminary prospectus, the foregoing indemnity in this
clause 7(c) shall not inure to the benefit of any Underwriter from whom the
person asserting any loss, claim, damage, liability or expense purchased Shares,
or any of its directors, officers or employees or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter and a copy of the Prospectus (as then amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) was not sent
or given by or on behalf of such Underwriter to such person, if required by law
so to have been delivered, at or prior to the written confirmation of the sale
of the Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability, action or expense. Each Group B Selling Stockholder
acknowledges that the statements set forth in the first (including the table),
third, seventh and eighth paragraphs under the captain "Underwriting" in, and in
the last paragraph on the cover page of, the Prospectus constitute the only
information furnished in writing relating to an Underwriter by or on behalf of
any Underwriter expressly for use in the Registration Statement relating to the
Shares as originally filed or in any amendment thereof, any related preliminary
prospectus or the Prospectus or in any amendment thereof or supplement thereto,
as the case may be. Notwithstanding the foregoing, (y) the aggregate liability
of any Group B Selling Stockholder pursuant to this paragraph (c) and for any
breach of any representation or warranty contained in this Agreement by such
Group B Selling Stockholder shall be limited to an amount equal to the proceeds
(after deducting underwriting discounts and commissions) received by such Group
B Selling Stockholder from the Underwriters for the sale of the Shares sold by
such Group B Selling Stockholder hereunder and (z) to the extent the Company is
also liable for indemnification under Section 7(a) above, no Group B Selling
Stockholder shall be liable for indemnification under this Section 7(c) until,
and
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<PAGE> 27
then only to the extent that, the indemnified party has made demand for
indemnification pursuant to Sections 7(a) and 7(e) from the Company and the
Company shall have rejected such demand or shall not have made payment to
satisfy in full such indemnification claim within thirty days of the date of
such original demand. This indemnity agreement will be in addition to any
liability which the Company and the Selling Stockholders may otherwise have,
including under this Agreement.
(d) Each Underwriter severally, and not jointly, agrees to indemnify
and hold harmless the Company, each Selling Stockholder, each of the directors
of the Company, each of the officers of the Company who shall have signed the
Registration Statement, and each other person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, against any losses, liabilities, claims, damages and expenses whatsoever as
incurred (including but not limited to attorneys' fees and any and all expenses
whatsoever incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever, and any and all
amounts paid in settlement of any claim or litigation), joint or several, to
which they or any of them may become subject under the Act, the Exchange Act or
otherwise, insofar as such losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement for the registration of the Shares, as originally filed or any
amendment thereof, or any related preliminary prospectus or the Prospectus, or
in any amendment thereof or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that any such loss,
liability, claim, damage or expense arises out of or is based upon any such
untrue statement or alleged untrue statement or omission or alleged omission
made therein in reliance upon and in conformity with written information
relating to an Underwriter furnished to the Company by or on behalf of any
Underwriter through you expressly for use therein; provided, however, that in no
case shall any Underwriter be liable or responsible for any amount in excess of
the underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter hereunder. This indemnity will be in addition to any liability
which any Underwriter may otherwise have, including under this Agreement. The
Company and each Selling Stockholder acknowledge that the statements set forth
in the first (including the table), third, seventh and eighth paragraphs under
the captain "Underwriting" in, and in the last paragraph on the cover page of,
the Prospectus constitute the only information furnished in writing relating to
an Underwriter by or on behalf of any Underwriter expressly for use in the
Registration Statement relating to the Shares as originally filed or in any
amendment thereof, any related preliminary prospectus or the Prospectus or in
any amendment thereof or supplement thereto, as the case may be.
(e) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against an indemnifying
party under such subsection, notify each party against whom indemnification is
to be sought in writing of the commencement thereof (but the failure so to
notify an indemnifying party shall not relieve it from any liability or
obligation which it may have under this Section 7 or otherwise (i) unless the
failure to notify shall result in the forfeiture by the indemnifying party of
substantial rights and defenses and (ii) will not in any event relieve the
indemnifying party from any obligations other than the indemnification
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<PAGE> 28
obligation provided in paragraph (a) or (b) above). In case any such action is
brought against any indemnified party, and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein, and to the extent it may elect by written notice delivered to the
indemnified parties promptly after receiving the aforesaid notice from an
indemnified party, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified parties. Notwithstanding the foregoing, the
indemnified party or parties shall have the right to employ its or their own
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by one of the indemnifying parties in connection
with the defense of such action, (ii) the indemnifying parties shall not have
employed counsel to have charge of the defense of such action within a
reasonable time after notice of commencement of the action, or (iii) such
indemnified party or parties shall have reasonably concluded that a conflict may
arise between the positions of the indemnifying party or parties in conducting
the defense of any such action or that there may be one or more legal defenses
available to it or them which are different from or additional to those
available to one or all of the indemnifying parties (in which case the
indemnifying party or parties shall not have the right to direct the defense of
such action on behalf of the indemnified party or parties), in any of which
events such fees and expenses shall be borne by the indemnifying parties, it
being understood, however, that the indemnifying party or parties shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (plus separate local counsel, if retained by the
indemnified party or parties) at any time for all such indemnified parties. An
indemnifying party shall not be liable for any settlement of any claim or action
effected without its written consent; provided, however, that such consent was
not unreasonably withheld. Notwithstanding the foregoing, if at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated in this
Section 7, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such indemnifying
party of the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to the
date of such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement, compromise or consent
to the entry of judgment in any pending or threatened action, suit or proceeding
in respect of which any indemnified party is or could have been a party and
indemnity was or could have been sought hereunder by such indemnified party,
unless such settlement, compromise or consent is for money damages only and
includes (i) an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
Any losses, claims, damages, liabilities, expenses or actions for
which an indemnified party is entitled to indemnification or contribution under
this Section 7 or under Section 8 below shall be paid by the indemnifying party
to the indemnified party as such losses, claims, damages, liabilities or
expenses are incurred, but in all cases, no later than thirty (30) days of
invoice to the indemnifying party.
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The indemnity and contribution agreements contained in this Section
7 and in Section 8 below and the representation and warranties of the Company
and the Selling Stockholders set forth in this Agreement shall remain operative
and in full force and effect, regardless of (i) any investigation made by or on
behalf of any Underwriter or any director, officer or employee of or person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, or any Selling Stockholder, (ii) acceptance of
any Shares and payment therefor hereunder, and (iii) any termination of this
Agreement. A successor to any Underwriter, or to the Company, shall be entitled
to the benefits of the indemnity, contribution and reimbursement agreements
contained in this Section 7 and Section 8 below.
The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 7 and Section 8 below and are fully informed
regarding said provisions. They further acknowledge that the provisions of this
Section 7 and Section 8 below fairly allocate the risks in light of the ability
of the parties to investigate the Company and its business in order to assure
that adequate disclosure is made in the Registration Statement, the preliminary
prospectus and Prospectus as required by the Act and the Exchange Act.
8. Contribution. In order to provide for contribution in
circumstances in which the indemnification provided for in Section 7 hereof is
for any reason held to be unavailable from any indemnifying party or is
insufficient to hold harmless a party indemnified thereunder, each indemnifying
party shall severally contribute to the aggregate losses, claims, damages,
liabilities and expenses of the nature contemplated by such indemnification
provision (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claims asserted, but after deducting in the case of losses,
claims, damages, liabilities and expenses suffered by the Company any
contribution received by the Company from persons, other than the Underwriters,
who may also be liable for contribution, including persons who control the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, officers of the Company who signed the Registration Statement and
directors of the Company) as incurred to which the Company, one or more of the
Selling Stockholders and one or more of the Underwriters may be subject, in such
proportions as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholders (relative as to each other), on the one
hand, and the Underwriters, severally, on the other hand, from the offering of
the Shares or, if such allocation is not permitted by applicable law or
indemnification is not available as a result of the indemnifying party not
having received notice as provided in Section 7 hereof, in such proportion as is
appropriate to reflect not only the relative benefits referred to above but also
the relative fault of the Company and the Selling Stockholders (relative as to
each other), on the one hand, and the Underwriters, severally, on the other
hand, in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Stockholders, on the one hand, and the Underwriters, severally, on the
other and the Company and the Selling Stockholders relative to each other, shall
be deemed to be in the same proportion as the total proceeds from the offering
of the Shares (net of underwriting discounts and commissions but before
deducting expenses) received by the Company and the Selling Stockholders bears
to the
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<PAGE> 30
underwriting discounts and commissions received by the Underwriters,
respectively. The relative fault of the Company and the Selling Shareholders, on
the one hand, and of the Underwriters, severally, on the other and the Company
and the Selling Stockholders relative to each other, shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, the Selling Stockholders or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company,
the Underwriters and the Selling Stockholders agree that it would not be just
and equitable if contribution pursuant to this Section 8 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this Section 8, (i) in no case shall any Underwriter be liable or responsible
for any amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter hereunder, and (ii) no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Further notwithstanding the
provisions of this Section 8 and the preceding sentence, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. For purposes of this Section 8, each
director, officer, employee and agent of an Underwriter and each person, if any,
who controls an Underwriter within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act shall have the same rights to contribution as
such Underwriter, and each person, if any, who controls the Company or a Selling
Stockholder within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, each officer of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to clauses (i) and (ii) of
this Section 8. Any party entitled to contribution will, promptly after receipt
of notice of commencement of any action, suit or proceeding against such party
in respect of which a claim for contribution may be made against another party
or parties, notify each party or parties from whom contribution may be sought,
but the omission to so notify such party or parties shall not relieve the party
or parties from whom contribution may be sought from any obligation it or they
may have under this Section 8 or otherwise. No party shall be liable for
contribution with respect to any action or claim settled without its consent,
provided that such consent was not unreasonably withheld.
The Underwriters' obligations in this Section 8 to contribute are several
in proportion to their respective underwriting obligations and not joint. The
remedies provided for in this Section 8 are not exclusive and shall not limit
any rights or remedies which may otherwise be available to any indemnified party
at law or in equity.
9. Conditions to the Obligations of the Underwriters. The several
obligations of the Underwriters to purchase and pay for the Firm Shares and the
Option Shares, as provided herein, shall be subject to the accuracy of the
representations and warranties on the part of the Company and the Selling
Stockholders contained herein as of the date hereof, the Closing Date and any
Additional Closing Date, to the absence from any certificates, opinions, written
statements or
30
<PAGE> 31
letters furnished to you or to Underwriters' counsel pursuant to this Section 9
of any misstatement or omission, to the timely performance by the Company and
the Selling Stockholders of its covenants and other obligations hereunder and to
each of the following additional conditions:
(a) The Registration Statement shall have become effective not later
than, if pricing pursuant to Rule 430A, 5:30 P.M., New York time on the date of
this Agreement, and if pricing pursuant to a pricing amendment, 12:00 P.M., New
York time on the date an amendment to the Registration Statement containing the
public offering price has been filed with the Commission, or at such later time
and date as shall have been consented to in writing by ING Barings LLC; if the
Company shall have elected to rely upon Rule 430A or Rule 434 of the
Regulations, the Prospectus shall have been filed with the Commission in a
timely fashion in accordance with Section 5(a) hereof; and, at or prior to the
Closing Date no stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment thereof shall have been issued and no
proceedings for such purpose shall have been initiated or threatened by the
Commission; no order suspending the qualification or registration of the Shares
under the securities or Blue Sky laws of any jurisdiction shall be in effect and
no proceeding for such purpose shall be pending before or threatened or
contemplated by the authorities of any such jurisdiction; any request for
additional information on the part of the staff of the Commission or any such
authorities shall have been complied with to the satisfaction of the staff of
the Commission or such authorities and to the satisfaction of counsel to the
Underwriters; after the date hereof no amendment or supplement to the
Registration Statement or the Prospectus shall have been filed unless a copy
thereof was first submitted to you and you did not reasonably object thereto;
and the NASD, upon review of the terms of the public offering of the Shares,
shall not have raised any objection to the fairness or reasonableness of the
underwriting terms and arrangements.
(b) The Company shall have furnished to you the opinion of Cooley
Godward LLP, counsel for the Company, dated the Closing Date and the Additional
Closing Date, if applicable, addressed to the Underwriters and in form and
substance reasonably satisfactory to Winthrop, Stimson, Putnam & Roberts,
Underwriters' counsel, to the effect that:
(i) Each of the Company and the Subsidiary has been duly
incorporated and is validly existing and in good standing under the laws
of Delaware, with the corporate power and authority to own, lease and
operate its properties and engage in the business in which it is engaged
or proposes to engage as described in the Registration Statement and the
Prospectus. To such counsel's knowledge, each of the Company and the
Subsidiary is duly registered and qualified to do business as a foreign
corporation in good standing in each jurisdiction where the character or
location of its properties (owned, leased or licensed) or the nature or
conduct of its business requires such registration or qualification,
except where the failure to so register or qualify, individually or in the
aggregate, would not have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole. To such counsel's knowledge, except as set
forth in the Registration Statement and the Prospectus, or the
Underwriting Agreement, the Company does not own or control, directly or
indirectly, any shares of stock or any other equity or long-term debt
securities of any corporation or have an
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<PAGE> 32
equity interest in any firm, partnership, association, joint venture or
other entity, other than the Subsidiary.
(ii) All the outstanding shares of capital stock of the
Subsidiary have been duly authorized and validly issued, are fully paid
and nonassessable, are owned by the Company, free and clear of any Liens,
shareholders' agreements, voting trusts or defects of title, and were not
issued in violation of statutory or, to such counsel's best knowledge,
other preemptive rights, co-sale rights, resale rights, rights of first
refusal, or similar rights.
(iii) The Company's authorized equity capitalization is as set
forth in the Registration Statement and the Prospectus; the Common Stock,
the Firm Shares, the Option Shares and all others shares of capital stock
of the Company conform to the description thereof contained in the
Registration Statement (as incorporated by reference therein from the
Company's Registration Statement Form 8-A filed with the Commission on
November 4, 1997). The outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessible. The Shares to be issued and sold to the Underwriters
pursuant to the Underwriting Agreement have been duly authorized, and when
issued and delivered to and paid for by the Underwriters pursuant to the
Underwriting Agreement, will be validly issued and fully paid and
nonassessable, and to such counsel's knowledge will be transferred to the
Underwriters free and clear of any Liens and will not have been issued in
violation of or subject to any statutory or, to such counsel's best
knowledge, other preemptive rights, resale rights, co-sale rights, rights
of first refusal, or similar rights. The certificates for the Shares are
in valid and sufficient form. The holders of outstanding shares of capital
stock of the Company are not entitled to statutory or, to such counsel's
best knowledge, other preemptive rights, co-sale rights, rights of first
refusal, resale rights or similar rights in respect of the Shares. Except
as described in the Registration Statement and the Prospectus, to such
counsel's best knowledge, there are no authorized or outstanding rights,
warrants or options to acquire, or instruments convertible into or
exercisable or exchangeable for, any share of capital stock or other
equity interest or ownership interest in the Company or the Subsidiary or
any contract, commitment, agreement, understanding or arrangement of any
kind relating to the issuance of any capital stock or other equity
interest or ownership interest in the Company or the Subsidiary or any
such convertible or exercisable or exchangeable securities or instruments
or any such rights, warrants or options. To such counsel's knowledge, the
only holders of securities of the Company which have any rights to the
registration of securities of the Company because of the filing of the
Registration Statement or otherwise in connection with the sale of the
Shares contemplated by the Underwriting Agreement are listed on Schedule
1(hh) to the Underwriting Agreement, and all such rights of such holders
have been effectively waived as of the date thereof.
(iv) To the best knowledge of such counsel, there are no legal
or governmental actions, suits, proceedings or investigations pending or
threatened against the Company or the Subsidiary, or as to which the
business, assets or property of the Company or the Subsidiary would be
subject or bound, that are of a character required to be disclosed in the
Registration Statement or the Prospectus which have not been disclosed
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therein. The statements in the Registration Statement and the Prospectus
under the caption "Business--Legal Proceedings", insofar as such
statements constitute a summary of matters of law, relating to pending
litigation fairly summarize, in all material respects, the matters
referred to therein.
(v) The Registration Statement has become effective under the
Act; all filings required by Rule 424(b) of the Regulations have been made
in the manner and within the time period required by Rule 424(b). To the
best knowledge of such counsel, no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings for that
purpose have been instituted or threatened. The Registration Statement and
the Prospectus (other than the financial statements and supporting
schedules, financial data and statistical data, as to which such counsel
need not express any opinion) and each amendment or supplement thereto
comply as to form in all material respects with the applicable
requirements of the Act and the Regulations.
(vi) The Underwriting Agreement has been duly authorized,
executed and delivered by the Company, and is the valid and binding
agreement of the Company. The Company has the corporate power and
authority to enter into the Underwriting Agreement and to issue, sell and
deliver to the Underwriters the Shares to be issued and sold by it
thereunder.
(vii) To the best knowledge of such counsel, the Company and
the Subsidiary are not in violation of their respective certificates of
incorporation, as amended.
(viii) Neither the issuance, offer, sale or delivery of the
Shares, the execution, delivery and performance by the Company of the
Underwriting Agreement nor the compliance by the Company with all the
provisions thereof nor the consummation of the transactions contemplated
thereby (other than performance of the Company's indemnification and
contribution obligations thereunder, concerning which no opinion is
expressed), (A) constitutes or will constitute a breach or violation of or
a default (or an event that with notice or the lapse of time or both would
constitute such a breach, violation or default) under, any of the terms or
provisions of the certificate of incorporation or by-laws of the Company
or the Subsidiary, (B) constitutes or will constitute a breach or
violation of, or a default (or an event that with notice or the lapse of
time or both would constitute such a breach, violation or default), or the
termination of any Contract filed as an exhibit to any of the Company's
filings with the Commission pursuant to the 1934 Act, nor (C) violates or
will violate any law, statute, rule or regulation applicable to the
Company or the Subsidiary (other than state securities or blue sky laws
concerning which no opinion need be expressed) or any judgment, decree or
order known to such counsel and applicable to the Company or the
Subsidiary of any court or governmental agency, body or authority, having
jurisdiction over the Company or the Subsidiary or any of their property
or assets, the default under or the breach or violation of which, in the
case of clauses (B) and (C) above, individually or in the aggregate, could
have a Material Adverse Effect on the Company and the Subsidiary taken as
a whole.
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(ix) The Company is not now, and as a result of the offer and
sale of the Shares in the manner contemplated in the Underwriting
Agreement, the Registration Statement, the preliminary prospectus and the
Prospectus and the application of the net proceeds of such sale as
described in the Registration Statement, the preliminary prospectus and
the Prospectus, will not be, an "investment company" or an "affiliated
person" of, or "promoter" or "principal underwriter" for, an "investment
company" within the meaning of the Investment Company Act, without taking
account of any exemption arising out of the number or type of holders of
the Company's securities.
(x) No consent, approval, authorization, filing,
qualification, Permit or order of any court or governmental agency, body
or authority, or, to the knowledge of such counsel, from the Company's
securityholders is required for the Company's execution, delivery and
performance of the Underwriting Agreement, the issuance, sale or delivery
of the Shares thereunder or the consummation of any other of the
transactions contemplated in the Underwriting Agreement or the fulfillment
of the terms thereof, except such as have been obtained under the Act and
the Exchange Act and such as may be required under the blue sky laws of
any jurisdiction in connection with the purchase and distribution of the
Shares by the Underwriters and such other approvals (specified in such
opinion) as have been obtained and which are in full force and effect.
(xi) The Common Stock is registered pursuant to Section 12(g)
of the Exchange Act and is quoted on the Nasdaq National Market, and to
the best of such counsel's knowledge, the Company has not received any
notification that the Commission or the Nasdaq National Market is
contemplating the termination of such registration or listing.
(xii) To such counsel's knowledge, each Selling Stockholder is
the lawful owner of the Shares to be sold by such Selling Stockholder
pursuant to the Underwriting Agreement and has good and clear title to
such Shares, free of all restrictions on transfer, liens, encumbrances,
security interests, equities and claims whatsoever, and upon delivery of
and payment for the Shares sold by each Selling Stockholder pursuant to
the Underwriting Agreement on the Closing Date, good and clear title to
such Shares will pass to the Underwriters, free of all restrictions on
transfer, liens, encumbrances, security interests and claims whatsoever.
(xiii) Each Selling Stockholder had, at the time of entering
into the Underwriting Agreement, and on the Closing Date, has full legal
right, power and authority to enter into this Agreement and to sell,
assign, transfer and deliver the Shares in the manner provided herein.
This Agreement has been duly executed and delivered by each Selling
Stockholder, and is a valid and binding agreement of each Selling
Stockholder, enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except as
the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(xiv) To such counsel's knowledge, the execution, delivery and
performance of the Underwriting Agreement by each Selling Stockholder, the
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compliance by each Selling Stockholder with all the provisions thereof and
the consummation of the transactions contemplated thereby do not (i)
require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such
as may be required under the securities or Blue Sky laws of the various
states), (ii) conflict with or constitute a breach of any of the terms or
provisions of, or a default under, any indenture, loan agreement,
mortgage, lease or other material agreement or instrument to which any
Selling Stockholder is a party or by which any Selling Stockholder or any
property of any Selling Stockholder is bound or (iii) violate or conflict
with any applicable law or any rule, regulation, judgment, order or decree
of any court or any governmental body or agency having jurisdiction over
any Selling Stockholder or any property of any Selling Stockholder.
In addition, such opinion shall also contain a statement that such counsel
has participated in conferences with officers and representatives of the
Company, representatives of the independent public accountants for the Company
and the Underwriters at which the contents of the Prospectus and related matters
were discussed and no facts have come to the attention of such counsel which
cause such counsel to believe that the Registration Statement (other than
financial statements and supporting schedules, other financial data and
statistical data, as to which such counsel need not express any opinion) at the
time it became effective (including all information deemed to be part of the
Registration Statement (other than financial statements and supporting
schedules, other financial data and statistical data, as to which such counsel
need not express any opinion) at the time of effectiveness pursuant to Rule
430A, Rule 462 or Rule 434, if applicable) contained an untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus (other than financial statements and supporting schedules, other
financial data and statistical data, as to which such counsel need not express
any opinion) as of its date and as of the Closing Date contained or contains an
untrue statement of a material fact or omitted or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
In rendering such opinion, such counsel (A) need not opine as to laws of
any jurisdiction other than the States of California and Delaware (only as to
the Delaware General Corporation Law), and the federal laws of the United
States, or as to whether the laws of any particular jurisdiction apply, and (B)
may rely as to matters of fact, to the extent they deem proper, on certificates
of responsible officers of the Company and certificates or other written
statements of officers of departments of various jurisdictions having custody of
documents respecting the corporate existence or good standing of the Company and
the Subsidiary and on certificates from the Selling Stockholders, provided that
copies of any such statements or certificates shall be delivered to
Underwriters' counsel upon request. Moreover, except to the extent set forth in
the immediately preceding paragraph, such counsel need not render any opinion as
to compliance with any antifraud provisions of any law, rule or regulation
relating to (i) securities or (ii) the sale or issuance thereof.
(c) The Company shall have furnished to the Underwriters the
opinions of Morgan, Lewis & Bockius, Foley & Lardner and Larry S. Millstein,
Esq., intellectual property counsel to the Company, dated the Closing Date (and
the
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<PAGE> 36
Additional Closing Date, if applicable), each in a form reasonably acceptable to
the Underwriters and their counsel.
(d) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement, preliminary prospectus
or Prospectus, and the registration, authorization, issue, sale and delivery of
the Shares as herein contemplated shall be satisfactory in form and substance to
you and to Underwriters' counsel in your and your counsel's reasonable
discretion. The Underwriters shall have received from Winthrop, Stimson, Putnam
& Roberts, Underwriters' counsel, a favorable opinion, dated the Closing Date
(and the Additional Closing Date, if applicable), with respect to the issuance
and sale of the Shares, the Registration Statement, the Prospectus and other
related matters as you may reasonably require, and the Company, the Subsidiary
and the Selling Stockholders shall have furnished to Underwriters' counsel such
documents as they reasonably request for the purpose of enabling them to pass
upon the matters referred to in this Section.
(e) At the Closing Date (and the Additional Closing Date, if
applicable) you shall have received a certificate of the Chief Executive Officer
and Chief Financial Officer of the Company, dated the Closing Date (and the
Additional Closing Date, if applicable), to the effect that (i) the condition
set forth in subsection (a) of this Section 9 has been satisfied, (ii) as of the
date hereof and as of the Closing Date (and the Additional Closing Date, if
applicable) all the representations and warranties of the Company set forth in
this Agreement are accurate with the same force and effect as if made on each of
such dates, (iii) as of the Closing Date (and the Additional Closing Date, if
applicable) the agreements and obligations of the Company to be performed
hereunder on or prior thereto have been duly performed, (iv) when the
Registration Statement became effective and at all times subsequent thereto up
to the delivery of such certificate, the Registration Statement and the
Prospectus, and any amendments or supplements thereto, contained the information
required to be included therein by the Act and the applicable rules and
regulations of the Commission thereunder, and conformed to the requirements of
the Act and the applicable rules and regulations of the Commission thereunder;
the Registration Statement and the Prospectus, and any amendments or supplements
thereto, did not and do not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading; and since the effective date of the
Registration Statement, there has occurred no event required to be set forth in
an amended or supplemented Prospectus which has not been so set forth; and (v)
subsequent to the respective dates as of which information is given in the
Registration Statement and the Prospectus, the Company and the Subsidiary have
not sustained any material loss or interference with their respective business
or properties from fire, flood, hurricane, accident or other calamity, whether
or not covered by insurance, or from any labor dispute or any legal or
governmental proceeding, and there has not been any material adverse change, or
any development involving a prospective material adverse change, in the
business, management, properties, operations, prospects, condition (financial or
otherwise), or results of operations of the Company and the Subsidiary taken as
a whole, or any transaction that is material to the Company and its subsidiaries
taken as a whole, except transactions entered into in the ordinary course of
business, or any obligation, direct or contingent, that is material to the
Company and its
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subsidiaries, taken as a whole, incurred by the Company or its subsidiaries,
except obligations incurred in the ordinary course of business, or any change in
the capital stock or outstanding indebtedness of the Company or any of its
subsidiaries that is material to the Company and its subsidiaries, taken as a
whole, or any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company or any of its subsidiaries.
(f) All the representations and warranties of each Selling
Stockholder contained in this Agreement shall be true and correct on the Closing
Date and the Additional Closing Date, if any, with the same force and effect as
if made on the Closing Date and the Additional Closing Date and you shall have
received on the Closing Date and the Additional Closing Date, if any, a
certificate dated the Closing Date and the Additional Closing Date from each
Selling Stockholder to such effect and to the effect that such Selling
Stockholder has complied with all of the agreements and satisfied all of the
conditions herein contained and required to be complied with or satisfied by
such Selling Stockholder on or prior to the Closing Date.
(g) At the time this Agreement is executed and at the Closing Date
and the Additional Closing Date, if applicable, Arthur Andersen, LLP shall have
furnished to you a letter or letters, dated respectively as of the time this
Agreement is executed and as of the Closing Date (and the Additional Closing
Date, if applicable), addressed to you and based upon the procedures described
in such letter, but carried out to a date not more than five (5) days prior to
the Closing Date or the Additional Closing Date, as the case may be, and
otherwise in form and substance satisfactory to you, confirming that they are
independent public accountants with respect to the Company within the meaning of
the Act and Regulation S-X, stating that the answer to item 10 of the
Registration Statement is correct as it relates to them and that:
(i) in their opinion the audited consolidated financial
statements, the related consolidated financial statement schedules and the
audited financial statements of the Company included in the Registration
Statement and the Prospectus and reported on by them comply in form in all
material respects with the applicable accounting requirements of the Act
and the related published rules and regulations;
(ii) on the basis of a reading of the latest unaudited
financial statements made available by the Company and the Subsidiary;
carrying out certain specified procedures (but not an examination in
accordance with generally accepted auditing standards) which would not
necessarily reveal matters of significance with respect to the comments
set forth in such letter; a reading of the minutes of the meetings of the
stockholders and the board of directors of the Company and the Subsidiary;
and inquiries of certain officials of the Company and the Subsidiary who
have responsibility for financial and accounting matters of the Company
and the Subsidiary as to transactions and events subsequent to December
31, 1998, nothing came to their attention which caused them to believe
that:
(1) any unaudited financial statements included in the
Registration Statement and the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the Act
and with the published rules and regulations of the Commission with
respect to registration statements on Form S-3; and said unaudited
financial statements are not in conformity with generally accepted
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accounting principles applied on a basis substantially consistent with
that of the audited financial statements included in the Registration
Statement and the Prospectus;
(2) at December 31, 1999 there was any change in the capital
stock, stockholders' equity, long-term debt and working capital of the
Company or any decreases in current assets or net assets as compared
with amounts shown in the September 30, 1999 financial statements, or for
the period from October 1, 1999 to December 31, 1999 there were any
decreases, compared with the corresponding period in the preceding year,
in net sales or in total or per share amounts of net income, except in all
instances for changes or decreases set forth in such letter, in which case
the letter shall be accompanied by an explanation by the Company as to the
significance thereof unless said explanation is not deemed necessary by
ING Barings LLC;
(3) the information included in the Registration Statement
and Prospectus in response to Regulation S-K, Item 301 (Selected Financial
Data), Item 302 (Supplementary Financial Information) and Item 402
(Executive Compensation) is not in conformity with the applicable
disclosure requirements of Regulation S-K; or
(4) there was any change at January 25, 2000 in the capital
stock, stockholders' equity, long-term debt and working capital of the
Company or any decreases in current assets, net assets or working
capital as compared with the amounts shown in the December 31, 1999
financial statements or, for the period from January 1, 2000 to a date
within five days of the date of such letter, there were any decreases as
compared with the corresponding period in the preceding year in net sales
or total or per share amounts of net income, except for changes or
decreases that the registration statement discloses have occurred or as
set forth in such letter;
(iii) they have performed the procedures specified by the
American Institute of Certified Public Accountants for a review of Interim
financial information as described in Statement of Auditing Standards No.
71 ("SAS 71"), Interim Financial Information, on the unaudited financial
statements included in the Registration Statement and the Prospectus; and
(iv) they have performed certain other specified procedures as
a result of which they determined that certain information of an
accounting, financial or statistical nature (which is limited to
accounting, financial or statistical information derived from the general
accounting records of the Company and the Subsidiary) set forth in the
Registration Statement and the Prospectus, which have been specified by
you prior to the date of such letter, agrees with the accounting records
of the Company and its subsidiaries, excluding any questions of legal
interpretation.
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In addition, ING Barings LLC shall have received from Arthur Andersen LLP
a letter addressed to the Company and made available to you for the use of the
Underwriters stating that their review of the Company's system of internal
accounting controls, to the extent they deemed necessary in establishing the
scope of their examination of the Company's consolidated financial statements as
of December 31, 1998, did not disclose any weaknesses in internal controls that
they considered to be substantial or material weaknesses.
In the event that the letters to be delivered referred to above set forth
note any changes, decreases or increases in the financial information included
in the Registration Statement and the Prospectus, it shall be a further
condition to the obligations of the Underwriters hereunder that ING Barings LLC
shall have determined in its sole judgment, that such changes, decreases or
increases as are set forth in such letters do not reflect a material adverse
change in the stockholders' equity or long-term debt of the Company as compared
with the amounts shown in the latest balance sheet of the Company included in
the Prospectus, or a material adverse change in total net revenues or net income
of the Company, in each case as compared with the corresponding period of the
prior year.
(h) Subsequent to the date this Agreement is executed or, if
earlier, the dates as of which information is given in the Registration
Statement (exclusive of any amendment thereof) and the Prospectus (exclusive of
any supplement thereto), there shall not have been (i) any change or decrease
specified in the letter or letters referred to in paragraph (f) of this Section
9 or (ii) any change, or any development involving a prospective change, in or
affecting the condition (financial or other), earnings, business or properties
of the Company and the Subsidiary, whether or not arising in the ordinary course
of business, the effect of which, in any case referred to in clause (i) or (ii)
above, is, in ING Barings LLC's sole judgment, material and adverse and that
makes it impracticable or inadvisable to proceed with the offering or delivery
of the Shares as contemplated by the Registration Statement (exclusive of any
amendment thereof) and the Prospectus (exclusive of any supplement thereto).
(i) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, (i) there shall not have been a
material adverse change, or any development involving a prospective material
adverse change, in the general affairs, business, prospects, properties,
management, key personnel, condition (financial or other) or results of
operations of the Company and the Subsidiary, whether or not arising from
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<PAGE> 40
transactions in the ordinary course of business, in each case other than as set
forth in the Registration Statement and the Prospectus (or, in the case of a
prospective change, other than as contemplated by the Registration Statement and
the Prospectus), and (ii) the Company shall not have sustained any material loss
or interference with its business or properties from fire, explosion, flood,
hurricane or other casualty or calamity, whether or not covered by insurance, or
from any labor dispute or any court or legislative or other governmental action,
order or decree, which is not set forth in the Registration Statement and the
Prospectus, if in your reasonable judgment any such development makes it
impracticable or inadvisable to consummate the sale and delivery of the Shares
at the public offering price.
(j) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there shall have been no
litigation or other proceeding instituted against the Company or any of its
officers or directors in their capacities as such, before or by any federal,
state, or local court, commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, in which litigation or proceeding
an unfavorable ruling, decision or finding could reasonably be expected to have
a Material Adverse Effect on the Company and its subsidiaries taken as a whole.
(k) At the time of execution of this Agreement, except as may have
otherwise been consented to in writing by ING Barings LLC, the Company shall
have furnished to you a letter addressed to you from each Locked-Up Party, in
which each such person agrees not to (1) offer for sale, contract to sell, sell,
pledge or otherwise dispose of (or enter into any transaction or device which is
designed to, or could be expected to, result in the disposition by any person at
any time in the future of) any shares of Common Stock or securities convertible
into, exercisable or exchangeable for, or represent the right to receive, Common
Stock or sell or grant options, rights or warrants with respect to any shares of
Common Stock or register for sale any outstanding shares of Common Stock; or (2)
enter into any swap or other derivatives transaction that transfers to another,
in whole or in part, any of the economic benefits or risks of ownership of such
shares of Common Stock or securities, whether any such transaction described in
clause (1) or (2) above is to be settled by delivery of Common Stock or other
securities, in cash or otherwise for a period of 90 days following the time of
execution of this Agreement without your prior written consent, other than
shares of Common Stock disposed of as gifts or transfers to immediate family
members or trusts or partnerships, the beneficiaries and sole partners of which
are immediate family members, provided that the donee or transferee agrees in
writing to be bound in the same manner.
(l) The Shares shall be qualified for sale in such jurisdictions as
you shall have requested subject to the terms hereof, each such qualification
shall be in effect and not subject to any stop order or other proceeding on the
Closing Date and the Additional Closing Date, if applicable.
(m) The Company shall have timely filed with the Nasdaq National
Market a notification form for the listing of additional shares on the Nasdaq
National Market with respect to the Firm Shares and the Option Shares, if any.
Such Firm Shares and such Option Shares, if any, shall have been approved for
designation upon notice of issuance on the Nasdaq National Market prior to the
Effective Date.
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(n) The Company and the Selling Stockholders shall have furnished to
you such certificates, in addition to those specifically mentioned herein, as
you may have reasonably requested (i) as to the accuracy and completeness (to
the extent required under applicable law) at the Closing Date and the Additional
Closing Date, if applicable, of any statement in the Registration Statement, the
preliminary prospectus or the Prospectus, (ii) as to the accuracy at the Closing
Date and the Additional Closing Date, if applicable, of the representations,
warranties and covenants of the Company and the Selling Stockholders herein,
(iii) as to the performance by the Company and the Selling Stockholders of its
obligations hereunder, or (iv) as to the fulfillment of the conditions
concurrent and precedent to your obligations hereunder.
(o) Prior to the Closing Date and the Additional Closing Date, if
applicable, the Company and the Selling Stockholders shall have furnished to the
Underwriters such further information and documents as you may reasonably
request.
If any of the conditions specified in this Section shall not have
been fulfilled in all respects when and as required to be satisfied, or if any
of the opinions and certificates mentioned above or elsewhere in this Agreement
shall not be reasonably satisfactory in form and substance to you and counsel
for the Underwriters, this Agreement and all obligations of the Underwriters
hereunder may be terminated at, or at any time on or prior to, the Closing Date
(and Additional Closing Date, if applicable) by ING Barings LLC. Notice of such
termination shall be given to the Company promptly in writing or by telephone
confirmed in writing.
10. Default by an Underwriter.
(a) If any Underwriter or Underwriters shall default in its or their
obligations to purchase Firm Shares or Option Shares hereunder, and if the Firm
Shares or Option Shares with respect to which such default relates do not (after
giving effect to arrangements, if any, made by you pursuant to subsection (b)
below) exceed in the aggregate 10% of the number of Firm Shares or Option
Shares, the Shares to which the default relates shall be purchased by the
non-defaulting Underwriters in proportion to the respective proportions which
the numbers of Firm Shares set forth opposite their respective names in Schedule
I hereto bear to the aggregate number of Firm Shares set forth opposite the
names of the non-defaulting Underwriters.
(b) In the event that such default relates to more than 10% of the
Firm Shares or Option Shares, as the case may be, you may in your discretion
arrange for yourself or for another party or parties (including any
non-defaulting Underwriter or Underwriters who so agree) to purchase such Firm
Shares or Option Shares, as the case may be, to which such default relates on
the terms contained herein. In the event that within 5 calendar days after such
a default you do not arrange for the purchase of the Firm Shares or Option
Shares, as the case may be, to which such default relates as provided in this
Section 10, this Agreement or, in the case of a default with respect to the
Option Shares, the obligations of the Underwriters to purchase and of the
Company to sell the Option Shares shall thereupon terminate, without liability
on the part of the Company with respect thereto (except in each case as provided
in Section 6, 7(a) and 8 hereof) or the Underwriters, but nothing in this
Agreement shall relieve a defaulting Underwriter or Underwriters of its or their
liability, if any, to the other Underwriters and the Company for damages
occasioned by its or their default hereunder. Notwithstanding the foregoing, if
any
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default occurs with respect to the Additional Closing, this Agreement will not
terminate with respect to the Firm Shares purchased prior to such time.
(c) In the event that the Firm Shares or Option Shares to which the
default relates are to be purchased by the non-defaulting Underwriters, or are
to be purchased by another party or parties as aforesaid, you or the Company
shall have the right to postpone the Closing Date or Additional Closing Date, as
the case may be, for a period not exceeding five business days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus or in any other documents and arrangements, and the
Company agrees to file promptly any amendment or supplement to the Registration
Statement or the Prospectus which, in the opinion of Underwriters' counsel, may
thereby be made necessary or advisable. The term "Underwriter" as used in this
Agreement shall include any party substituted under this Section 9 with like
effect as if it had originally been a party to this Agreement with respect to
such Firm Shares and Option Shares.
11. Survival of Representations and Agreements. All representations and
warranties, covenants and agreements of the Underwriters, the Company and the
Selling Stockholders contained in this Agreement, including the agreements
contained in Section 5 and Section 6, the indemnity agreements contained in
Section 7 and the contribution agreements contained in Section 8, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Underwriter or any controlling person thereof or by or on
behalf of the Company, any of its officers and directors or any controlling
person thereof or by or on behalf of any Selling Stockholder or any controlling
person of any Selling Stockholder, and shall survive delivery of and payment for
the Shares to and by the Underwriters. The representations contained in Sections
1 and 2 and the agreements contained in Sections 6, 7, 8 and 12(d) hereof also
shall survive the termination of this Agreement, including termination pursuant
to Section 10 or 12 hereof.
12. Effective Date of Agreement; Termination.
(a) This Agreement shall become effective upon the later of when (i)
you and the Company shall have received notification of the effectiveness of the
Registration Statement or (ii) the execution of this Agreement. If either the
public offering price or the purchase price per Share has not been agreed upon
prior to 5:00 P.M., New York time, on the fifth full business day after the
Registration Statement shall have become effective, this Agreement shall
thereupon terminate without liability to the Company or the Underwriters except
as herein expressly provided. Until this Agreement becomes effective as
aforesaid, it may be terminated by the Company and the Selling Stockholders by
notifying you or by you notifying the Company. Notwithstanding the foregoing,
the provisions of this Section 12 and of Sections 1, 2, 6, 7 and 8 hereof shall
at all times be in full force and effect.
(b) ING Barings LLC shall have the right to terminate this Agreement
at any time on or prior to the Closing Date, or the obligations of the
Underwriters to purchase the Option Shares at any time on or prior to the
Additional Closing Date, as the case may be (but in any event prior to delivery
of and payment for the Shares), if (A) any domestic or international event or
act or occurrence has materially disrupted, or in your opinion will in the
immediate future materially disrupt, the market for the Company's securities or
securities in general; or (B)
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if trading on the New York or American Stock Exchanges or Nasdaq National Market
shall have been suspended, or limited, minimum or maximum prices for trading
shall have been fixed, or maximum ranges for prices for securities shall have
been required, on the New York Stock Exchange or the Nasdaq National Market by
the New York Stock Exchange or the Nasdaq National Market or by order of the
Commission or any other governmental authority having jurisdiction; or (C) if a
banking moratorium has been declared by a state or federal authority or if any
new restriction materially adversely affecting the distribution of the Firm
Shares or the Option Shares, as the case may be, shall have become effective; or
(D)(i) there shall have occurred any outbreak or escalation of hostilities or
there is an outbreak or escalation of national or international hostilities or
there is a declaration by the United States of a national emergency or war or
(ii) if there has been any crisis or calamity or any change or development in
United States' or international political, financial or economic conditions, if
the effect of any such event in (D)(i) or (D)(ii), in the sole judgment of ING
Barings LLC makes it impracticable or inadvisable to proceed with the offering,
sale and delivery of the Firm Shares or the Option Shares, as the case may be,
on the terms contemplated by the Prospectus (exclusive of any supplement
thereto) or to enforce contracts for the sale of securities; or (E) in the sole
judgment of ING Barings LLC there shall have occurred any Material Adverse
Effect on the Company and its subsidiaries taken as a whole or (F) the Company
shall have sustained a loss by strike, fire, flood, earthquake, accident or
other calamity of such character as in the sole judgment of ING Barings LLC may
interfere materially with the conduct of the business and operations of the
Company regardless of whether or not such loss shall have been insured. Any
termination pursuant to this Section shall be without liability on the part of
(a) the Company to any Underwriter, except that the Company shall be obligated
to reimburse the expenses of ING Barings LLC and the underwriters to the extent
required pursuant to Sections 6, 7 and 8 hereof, (b) any Underwriter to the
Company or (c) of any party hereto to any other party except that the provisions
of Sections 6, 7 and 8 shall at all times be effective and shall survive such
termination.
(c) Any notice of termination pursuant to this Section 12 shall be
by telephone or facsimile and confirmed in writing by letter.
13. Agreements of the Selling Stockholders. Each Selling Stockholder
agrees with you and the Company:
(a) To pay or to cause to be paid all transfer taxes payable in
connection with the transfer of the Shares to be sold by such Selling
Stockholder to the Underwriters.
(b) To do and perform all things to be done and performed by such
Selling Stockholder under this Agreement prior to the Closing Date and to
satisfy all conditions precedent to the delivery of the Shares to be sold by
such Selling Stockholder pursuant to this Agreement.
14. Notices. Any notice or notification in any form to be given hereunder
shall be in writing and shall be delivered in person or sent by telephone or
facsimile transmission (but in the case of a notification by telephone, with
subsequent confirmation by letter or facsimile transmission).
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Any notice or notification to you shall be addressed to:
ING Barings LLC
55 East 52nd Street
New York, New York 10055
Attention: H. Gill Sawhney
With a copy to:
Winthrop, Stimson Putnam & Roberts
Financial Centre
695 East Main Street
Stamford, CT 06904-6760
Attention: Frode Jensen, Esq.
Any notice or notification to the Company shall be addressed to the
Company at:
Gene Logic Inc.
708 Quince Orchard Road
Gaithersburg, Maryland 20878
Attention: Chief Executive Officer
With a copy to:
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121-2128
Attention: D. Bradley Peck, Esq.
Any notice or notification to either Selling Stockholder shall be
addressed to such Selling Stockholder, care of the Company at:
Gene Logic Inc.
708 Quince Orchard Road
Gaithersburg, Maryland 20878
With a copy to:
Cooley Godward LLP
4365 Executive Drive, Suite 1100
San Diego, CA 92121-2128
Attention: D. Bradley Peck, Esq.
Any notice or notification shall (subject to confirmation when required)
take effect at the time of receipt.
15. Parties. This Agreement shall inure solely to the benefit of, and
shall be binding upon, the Underwriters, the Company, the Selling Stockholders
and the controlling persons,
44
<PAGE> 45
directors, officers, employees and agents referred to in Section 7 and 8, and
their respective successors and assigns, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained. The
term "successors and assigns" shall not include a purchaser, in its capacity as
such, of Shares from any of the Underwriters. Notwithstanding the foregoing,
this Agreement and the terms and provisions hereof are, unless otherwise
specified herein, for the sole benefit of only those persons, except that (a)
the representations, warranties, indemnities and agreements of the Company
contained in this Agreement shall also be deemed to be for the benefit of each
Purchaser Indemnified Party and (b) the indemnity agreement of the Underwriters
contained in Section 7 hereof shall be deemed to be for the benefit of each
Company Indemnified Party.
16. Consent to Jurisdiction. Any legal suit, action or proceeding arising
out of or based upon this Agreement or the transactions contemplated hereby
("Related Proceedings") may be instituted in the federal courts of the United
States of America located in the City and County of New York or the courts of
the State of New York in each case located in the City and County of New York
(collectively, the "Specified Courts"), and each party irrevocably submits to
the exclusive jurisdiction (except for proceedings instituted in regard to the
enforcement of a judgment of any such court (a "Related Judgment"), as to which
such jurisdiction is non-exclusive) of such courts in any such suit, action or
proceeding. Service of any process, summons, notice or document by mail to such
party's address set forth above shall be effective service of process for any
suit, action or other proceeding brought in any such court. The parties
irrevocably and unconditionally waive any objection to the laying of venue of
any suit, action or other proceeding in the Specified Courts and irrevocably and
unconditionally waive and agree not to plead or claim in any such court that any
such suit, action or other proceeding brought in any such court has been brought
in an inconvenient forum. Each party not located in the United States
irrevocably appoints CT Corporation System, which currently maintains an office
at New York, New York, United States of America, as its agent to receive service
of process or other legal summons for purposes of any such suit, action or
proceeding that may be instituted in any state or federal court in the City and
County of New York.
With respect to any Related Proceeding, each party irrevocably waives, to
the fullest extent permitted by applicable law, all immunity (whether on the
basis of sovereignty or otherwise) from jurisdiction, service of process,
attachment (both before and after judgment) and execution to which it might
otherwise be entitled in the Specified Courts or any other court of competent
jurisdiction, and will not raise or claim or cause to be pleaded any such
immunity at or in respect of any such Related Proceeding or Related Judgment,
including, without limitation, any immunity pursuant to the United States
Foreign Sovereign Immunities Act of 1976, as amended.
17. Miscellaneous. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York applicable to
contracts made and to be performed within the State of New York. This Agreement
may be executed in one or more counterparts, and if executed in more than one
counterpart, the executed counterparts shall together constitute a single
instrument. The descriptive headings in this Agreement are for convenience of
reference only and shall not define or limit the provisions hereof.
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<PAGE> 46
Time shall be of the essence of this Agreement.
This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof.
If any provision or portion of any provision of the Agreement, or the
application of any such provision or any portion thereof to any party or
circumstances, shall be held invalid or unenforceable, the remaining portion of
such provision and the remaining portion of such provision and the remaining
provisions of this agreement, and the application of such provision or portion
of such provision as is held invalid or unenforceable to any parties or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and such remaining portion of such provision and
the remaining provisions of this Agreement shall continue to be valid and in
full force and effect.
If the foregoing is in accordance with the Underwriters' understanding of
our agreement, kindly sign and return to us one of the counterparts hereof,
whereupon it will become a binding agreement between the Company and the
Underwriters in accordance with its terms.
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<PAGE> 47
This Agreement may be signed in counterparts which together shall
constitute one and the same instrument.
Very truly yours,
Gene Logic Inc.
By: __________________________________
Name:
Title:
______________________________________
Michael J. Brennan, M.D., Ph.D.
______________________________________
Mark D. Gessler
______________________________________
Y. Douglas Dolginow, M.D.
______________________________________
Gregory G. Lennon, Ph.D.
The foregoing Underwriting Agreement is hereby confirmed and accepted as
of the date first above written.
ING Barings LLC
By: __________________________________
Name:
Title:
For itself and the other several Underwriters named in Schedule I to the
foregoing Agreement.
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<PAGE> 48
SCHEDULES
I - Underwriters
II - Selling Stockholders
1(n) - Intellectual Property
Exhibits
A - Form of Lock-Up Agreement
<PAGE> 49
SCHEDULE I
<TABLE>
<CAPTION>
Number of Firm
Shares to be
Underwriter Purchased
----------- ---------
<S> <C>
ING Barings LLC...............................
Hambrecht & Quist LLC.........................
FleetBoston Robertson Stephens Inc............
Dain Rauscher Incorporated....................
---------
Total............................. 3,500,000
=========
</TABLE>
<PAGE> 50
SCHEDULE II
<TABLE>
<CAPTION>
Number of Selling
Stockholder Option
Selling Stockholder Type of Selling Stockholder Shares to be Sold
------------------- --------------------------- -----------------
<S> <C> <C>
Michael J. Brennan, M.D., Ph.D. Group A Selling Stockholder 60,000
Mark D. Gessler Group A Selling Stockholder 40,000
Y. Douglas Dolginow, M.D. Group B Selling Stockholder 25,000
Gregory G. Lennon, Ph.D. Group B Selling Stockholder 5,000
-------
Total............................................ 130,000
=======
</TABLE>
<PAGE> 51
Exhibit A
Form of Lock-Up Agreement
ING Barings LLC
Hambrecht & Quist LLC
FleetBoston Robertson Stephens Inc.
Dain Rauscher Wessels
As Representatives of the Several Underwriters
c/o ING Barings LLC
55 East 52nd Street
New York, New York 10055
Re: Gene Logic Inc.
Dear Sirs:
The undersigned is the record owner of shares of common stock, par value
$.01 per share, and/or warrants or options to purchase shares of common stock
and/or shares of preferred stock, par value $.01 per share (such shares of
common stock, warrants and options herein referred to as the "Securities"), of
Gene Logic Inc., a Delaware corporation (the "Company"). The undersigned
understands that the Company currently intends to file with the Securities and
Exchange Commission a Registration Statement on Form S-3 (the "Registration
Statement"), for the registration of the Company's common stock, which will be
underwritten by a group of underwriters for whom ING Barings LLC, Hambrecht &
Quist LLC, FleetBoston Robertson Stephens Inc. and Dain Rauscher Wessels will
act as representatives.
The undersigned agrees that the undersigned will not, without the prior
consent of ING Barings LLC, directly or indirectly for a period of 90 days from
the date the Registration Statement has been declared effective: (1) offer for
sale, contract to sell, sell, pledge or otherwise dispose of (or enter into any
transaction or device which is designed to, or could be expected to, result in
the disposition by any person at any time in the future of) any Securities or
securities convertible into, exercisable or exchangeable for, or represent the
right to receive, Securities or sell or grant options, rights or warrants with
respect to any Securities or register for sale any outstanding Securities; or
(2) enter into any swap or other derivatives transaction that transfers to
another, in whole or in part, any of the economic benefits or risks of ownership
of such Securities or securities, whether any such transaction described in
clause (1) or (2) above is to be settled by delivery of Securities or other
securities, in cash or otherwise.
Notwithstanding the foregoing, (i) gifts or (ii) transfers to (A) the
undersigned's immediate family or (B) a trust or partnership the beneficiaries
and sole partners of which are members of the undersigned's immediate family
and/or the undersigned, shall not be prohibited by this agreement if the donee
or transferee agrees in writing to be bound by the foregoing in the same manner
as it applies to the undersigned. "Immediate family" shall mean spouse, lineal
descendants, father, mother, brother or sister to the transferor. This agreement
shall not prohibit
<PAGE> 52
the exercise of any stock options, except that the Securities obtained upon any
such exercise shall be subject to the limitations on disposition herein.
Very truly yours,
________________________________ By: _____________________________________
Legal name of Stockholder as it Name:
appears on the Corporate Records Title:
2
<PAGE> 1
EXHIBIT 5.1
[COOLEY GODWARD LLP LETTERHEAD]
January 25, 2000
GENE LOGIC INC.
708 Quince Orchard Road
Gaithersburg, Maryland 20878
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by GENE LOGIC INC., a Delaware corporation (the "Company"), of a
Registration Statement on Form S-3, as amended (the "Registration Statement"),
with the Securities and Exchange Commission, covering an underwritten public
offering of up to 4,025,000 shares of Common Stock, including 525,000 shares
subject to the Underwriters' over-allotment option of which up to 130,000 shares
may be sold by certain selling stockholders (collectively, the "Shares").
In connection with this opinion, we have examined and relied upon the
Registration Statement and related Prospectus, the Company's Certificate of
Incorporation and Bylaws, as amended, and the originals or copies certified to
our satisfaction of such records, documents, certificates, memoranda and other
instruments as in our judgment are necessary or appropriate to enable us to
render the opinion expressed below. We have assumed the genuineness and
authenticity of all documents submitted to us as originals, the conformity to
originals of all documents submitted to us as copies thereof and the due
execution and delivery of all documents where due execution and delivery are a
prerequisite to the effectiveness thereof.
On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Shares to be sold by the selling stockholders are validly issued, fully
paid and nonassessable and that the Shares to be sold by the Company, when sold
and issued in accordance with the Registration Statement and related Prospectus,
will be validly issued, fully paid and nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.
Sincerely,
Cooley Godward LLP
By: /s/ Christopher J. Kearns
-------------------------------
Christopher J. Kearns
<PAGE> 1
EXHIBIT 23.1
[ARTHUR ANDERSEN LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
included in this registration statement and to the incorporation by reference in
this registration statement of our report dated March 26, 1999 included in
Gene Logic Inc.'s Form 10-K for the year ended December 31, 1998 and to all
references to our Firm included in this registration statement.
Baltimore, Maryland
January 24, 2000
