<PAGE>
As filed with the Securities and Exchange Commission on July 6, 1999
Registration No. 333-78505
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 3
To
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
CHEMDEX CORPORATION
(Exact Name of Registrant as Specified in its Charter)
---------------
<TABLE>
<C> <C> <S>
Delaware 5169 77-0465469
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
3950 Fabian Way
Palo Alto, CA 94303
(650) 813-0300
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
David P. Perry
President and Chief Executive Officer
Chemdex Corporation
3950 Fabian Way
Palo Alto, CA 94303
(650) 813-0300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
Jeffrey Y. Suto David J. Segre
Sonya F. Erickson David R. Bowman
Kenneth D. Cramer Wilson Sonsini Goodrich & Rosati
Alissa L. Lee Professional Corporation
Venture Law Group 650 Page Mill Road
Professional Corporation Palo Alto, California 94304
2800 Sand Hill Road (650) 493-9300
Menlo Park, California 94025
(650) 854-4488
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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- ------------------------------------------------------------------------------
<CAPTION>
Title of Each Class of Maximum Aggregate Amount of
Securities to be Registered Proposed Offering Price(1) Registration Fee(2)
- ------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.0002....... $86,250,000 $23,978
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- ------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o).
(2) Previously paid.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS (Subject to Completion)
Issued July 6, 1999
7,500,000 Shares
[LOGO FOR CHEMDEX CORPORATION]
COMMON STOCK
-----------
Chemdex Corporation is offering 7,500,000 shares of its common stock. This is
our initial public offering and no public market currently exists for our
shares. We anticipate that the initial public offering price will be between $9
and $11 per share.
-----------
We have filed an application for the common stock to be quoted on the Nasdaq
National Market under the symbol "CMDX."
-----------
Investing in the common stock involves risks. See "Risk Factors" beginning on
page 5.
-----------
PRICE $ A SHARE
-----------
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Chemdex
-------- ------------- -----------
<S> <C> <C> <C>
Per Share........................ $ $ $
Total............................ $ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Chemdex has granted the underwriters the right to purchase up to an additional
1,125,000 shares of common stock to cover over-allotments. Morgan Stanley & Co.
Incorporated expects to deliver the shares of common stock to purchasers on
, 1999.
-----------
MORGAN STANLEY DEAN WITTER
BANCBOSTON ROBERTSON STEPHENS
VOLPE BROWN WHELAN & COMPANY
-----------
Internet Distribution Offered By
DISCOVER BROKERAGE DIRECT
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 5
Special Note Regarding Forward-
Looking Statements.................. 20
The Company.......................... 20
Use of Proceeds...................... 21
Dividend Policy...................... 21
Capitalization....................... 22
Dilution............................. 23
Selected Financial Data.............. 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business........................... 33
Management......................... 48
Related Party Transactions......... 59
Principal Stockholders............. 62
Description of Capital Stock....... 65
Shares Eligible for Future Sale.... 68
Underwriters....................... 70
Legal Matters...................... 72
Experts............................ 72
Change in Independent Accountants.. 73
Additional Information............. 73
Index to Financial Statements...... F-1
</TABLE>
----------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in those jurisdictions where offers and
sales are permitted. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or any sale of our common stock. In this prospectus, unless
the context otherwise requires, the "company," "Chemdex," "we," "us," and
"our" refer to Chemdex Corporation and not the underwriters.
2
<PAGE>
[Inside Front Cover--a foldout of graphics and text]
[Left Page]
[Artwork of screen shots illustrating the graphical user interface for
ordering products through the Chemdex Marketplace]
Chemdex
Chemdex enables life sciences enterprises, researchers and suppliers to
efficiently buy and sell research products through the Chemdex Marketplace, a
secure, Internet-based purchasing solution.
[Right Page]
Accelerating Science
[Artwork illustrating the benefits of the Chemdex Marketplace to enterprise
customers, researchers and suppliers of life sciences research products]
Enterprises
. Automated Purchasing
. Volume Discounts
. Standardized Approvals
Researchers
. Expanded Product Search
. Online Product Comparison
. Streamlined Ordering
Suppliers
. New Customers
. Timely Product Updates
. Supplier-neutral Marketplace
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding Chemdex and our common stock being sold in this offering
and our financial statements and notes appearing elsewhere in this prospectus.
Chemdex is a leading provider of e-commerce solutions to the life sciences
industry. We enable life sciences enterprises, researchers and suppliers to
efficiently buy and sell research products through the Chemdex Marketplace, a
secure, Internet-based purchasing solution. The Chemdex Marketplace utilizes an
advanced search engine and software to allow users to easily identify, locate
and purchase life sciences research products from a database of approximately
240,000 products from approximately 110 suppliers. We have agreements in place
with additional suppliers and distributors to add approximately 550,000
products to the Chemdex Marketplace during 1999. We attract suppliers by
providing them with a marketplace in which we do not favor any one supplier and
allowing them to reach new customers. We believe that a growing number of
suppliers and products in the Chemdex Marketplace will draw more enterprise
customers to adopt our purchasing solution and accelerate its usage by
researchers. To encourage adoption of our solution by enterprises, we minimize
the upfront commitment of time and capital required to install, maintain and
use our purchasing solution. We also educate users within our enterprise
customers about the benefits of our solution and provide training on its use,
thereby accelerating system usage.
Recently, the widespread adoption of intranets and the acceptance of the
Internet as a business communications platform has created a foundation for
business-to-business e-commerce that offers the potential for organizations to
streamline complex processes, lower costs and improve productivity. According
to Forrester Research, business-to-business e-commerce is expected to grow from
$43 billion in 1998 to $1.3 trillion in 2003, accounting for more than 90% of
the dollar value of e-commerce in the United States by 2003, though Chemdex may
not benefit from this growth. The life sciences research products industry is
particularly well suited for business-to-business e-commerce because of its
high degree of fragmentation and because of the inefficiencies inherent in its
traditional paper-based purchasing process. According to the Laboratory
Products Association, the North American life sciences research products market
was approximately $9.4 billion in 1998. Traditional industry suppliers and
distributors of research products have relationships with our current and
potential customers, and represent significant competition for the Chemdex
Marketplace.
We believe the Chemdex Marketplace and purchasing solution provide
significant benefits to enterprises, researchers and suppliers. Chemdex's
purchasing solution enables enterprises to obtain volume discounts, by
combining individual purchasers, and reduce purchasing costs by integrating
their business rules, processes and negotiated supplier pricing with the
Chemdex Marketplace. Our solution automates, consolidates and monitors the
approval and invoicing process as well as order placement and delivery
information for the enterprise. Researchers, research assistants and other
users within the enterprises benefit from the Chemdex Marketplace because it
offers them convenient one-stop-shopping. A researcher can use our automated
ordering and approval process to purchase and track orders, resulting in
significant time savings. We offer suppliers a cost-effective opportunity to
reach more customers and sell more products by establishing or enhancing their
Internet presence and providing links to existing online or electronic
catalogs. The Chemdex Marketplace also offers suppliers the capability to
implement customer-specific pricing, update product information and introduce
new products without being limited by catalog publication cycles.
Our strategic objective is to expand our position as a leading e-commerce
solution for the life sciences research products market. In order to implement
this objective, we intend to capitalize on the fact that we are one of the
first companies to offer an e-commerce solution to the life sciences research
products market and build recognition of the Chemdex brand name. To accomplish
this, we have entered into strategic relationships with VWR Scientific
Products, Inc., one of the laboratory supply industry's largest distributors,
and the Biotechnology Industry Organization, a leading industry organization.
Further, we intend to increase usage of the Chemdex Marketplace, increase our
productivity, maintain technological leadership and expand internationally.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered.............. 7,500,000 shares
Common stock to be outstanding
after the offering............... 31,775,514 shares
Use of proceeds................... For working capital and general corporate
purposes. See "Use of Proceeds."
Dividend policy................... We do not anticipate paying cash dividends.
Proposed Nasdaq National Market
symbol........................... CMDX
</TABLE>
The number of shares of our common stock to be outstanding immediately after
the offering is based on the number of shares outstanding at June 30, 1999.
This number does not take into account 1,993,632 shares of our common stock
subject to options issued at an average exercise price of $6.71 and 154,999
shares of common stock issuable upon the exercise of warrants with a weighted
average exercise price of $2.69 per share, or 1,897,348 shares of our common
stock subject to options reserved for issuance under our stock plans at June
30, 1999. Unless otherwise specifically stated, the information in this
prospectus has been adjusted to reflect the conversion of all outstanding
shares of our preferred stock into common stock upon the completion of this
offering, but does not take into account the possible issuance of additional
shares of common stock to the underwriters pursuant to their right to purchase
additional shares of common stock to cover over-allotments. In addition, the
information contained in this prospectus reflects a one-for-two reverse split
of our common stock and preferred stock, which will occur prior to this
offering.
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
Three Months
Ended
September 4, 1997 March 31,
(Inception) Year Ended (unaudited)
through December 31, --------------
December 31, 1997 1998 1998 1999
----------------- ------------ ----- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statements of Operations Data:
Net revenues................... $ -- $ 29 $ -- $ 165
Operating loss................. (403) (8,796) (795) (6,839)
Net loss....................... (403) (8,488) (793) (6,809)
Basic and diluted net loss per
share......................... $(.24) $ (4.79) $(.47) $ (3.38)
Weighted average common
shares--basic and diluted..... 1,704 1,772 1,704 2,016
Pro forma basic and diluted net
loss per share................ $ (.85) $ (.48)
Pro forma weighted average
common shares--basic and
diluted....................... 9,953 14,279
</TABLE>
The Actual column in the following table presents actual summary balance
sheet data as of March 31, 1999. The Pro Forma column reflects the issuance of
an aggregate of 3,125,797 shares of common and preferred stock and the
repurchase of 26,404 shares of common stock, all subsequent to March 31, 1999,
and the conversion of all outstanding shares of our preferred stock into
16,345,701 shares of common stock upon completion of this offering. The As
Adjusted column reflects our sale of 7,500,000 shares of our common stock in
this offering at an assumed initial public offering price of $10.00 per share
and the application of our estimated net proceeds. See "Use of Proceeds" and
"Capitalization."
<TABLE>
<CAPTION>
As of March 31, 1999
(unaudited)
-----------------------------
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents....................... $27,784 $30,042 $ 98,792
Working capital................................. 24,360 29,756 98,506
Total assets.................................... 32,636 50,584 119,335
Long-term debt and capital lease obligations,
net of current portion......................... 803 803 803
Total liabilities............................... 4,770 4,770 4,770
Total stockholders' equity...................... 27,866 45,814 114,565
</TABLE>
4
<PAGE>
RISK FACTORS
This offering and an investment in our common stock involve a high degree
of risk. You should carefully consider the following risks before making an
investment decision. The trading price of our common stock could decline due
to any of these risks, and you could lose all or part of your investment. You
also should refer to the other information appearing elsewhere in this
prospectus, including our combined financial statements and the related notes.
Our limited operating history makes it difficult for you to evaluate our
business and our prospects
We were founded in September 1997 and have a limited operating history.
Prior to investing in our common stock, you should consider the risks and
difficulties that we face as an early stage company in a new and rapidly
evolving market. Some of these specific risks and difficulties include:
. we may be unable to significantly increase and maintain customer
adoption and use of our Internet-based purchasing solution;
. we depend substantially on a purchasing solution that has been present
in the market for a limited time and may not be successful;
. we may be unable to develop and enhance the Chemdex brand;
. we may be unable to maintain existing or establish new relationships
with suppliers of life sciences research products;
. we depend substantially on revenues from product sales and we may be
unable to significantly increase revenues from product sales or generate
revenues from other sources;
. we may be unable to adapt to rapidly changing technologies and
developing markets;
. we may be unable to effectively manage our rapidly expanding operations
and the increasing use of our services;
. we may be unable to attract, retain and motivate qualified personnel,
particularly people who understand specialized life sciences research
products or the life sciences industry in general;
. we may be unable to compete in a highly competitive market dominated by
larger, more established companies with substantial financial resources
and significant customer relationships; and
. we may be unable to comply with applicable laws and regulations to
economically compete in a highly competitive market.
We have generated only immaterial revenues to date. In 1998, we generated
revenues of $29,000 and in the three months ended March 31, 1999 we generated
revenues of $165,000. Due to our limited operating history, we believe that
period-to-period comparisons of our revenues and results of operation are not
meaningful. As a result, you should not rely on our revenues or results of
operations for any prior period as an indication of future performance or
prospects.
We have a history of losses and anticipate continued losses for the
foreseeable future
We have had substantial losses since our inception. We currently expect our
losses to increase in the future and we cannot assure you that we will ever
achieve or sustain profitability. As of March 31, 1999, we had an accumulated
deficit of approximately $15.7 million. The extent of these losses will be
contingent, in part, on the amount of growth in our revenue, and we have only
recognized immaterial revenues to date. The extent of these losses will also
be contingent, in part, on the amount of growth in our operating expenses,
which we plan to increase. If our revenues fail to grow at anticipated rates
or our operating expenses increase without a commensurate increase in our
revenues, or we fail to adjust operating expense levels accordingly, the
imbalance
5
<PAGE>
between revenues and operating expenses will negatively affect our business,
revenues, results of operations and financial condition.
To date we have derived our revenues primarily from product sales. In order
to increase our revenues, we must, among other things:
. attract new enterprise customers and retain existing enterprise
customers;
. encourage researchers employed by our enterprise customers to adopt our
Internet-based purchasing solution and to use it frequently;
. increase our product offering by adding and maintaining supplier
relationships; and
. develop new sources of revenues beyond our existing revenue sources.
If we are unable to accomplish one or more of these objectives, our
revenues may not grow as we anticipate, if at all, and our business, revenues,
financial condition and results of operations will be negatively affected. We
may not be able to build on our current sources of revenues by adding
additional products or services. Even if we do add additional products or
services, there are economic, legal, regulatory and other risks associated
with adding these new revenue sources. For example, we may post advertisements
on our web site to generate advertising revenue. However, our supplier
relationships may be harmed if our suppliers associate advertisements posted
on our web site with a bias in our offering of life sciences research
products.
Our business model is not proven and may not be successful
Our business-to-business e-commerce model is based on the development of
the Chemdex Marketplace for the purchase and sale of life sciences research
products. This business model is new and not proven and depends upon our
ability to, among other things:
. sell our purchasing solution to pharmaceutical and biotechnology
companies and academic and research institutions;
. achieve high rates of adoption by researchers within enterprise
customers;
. maintain our current suppliers and enter into agreements with additional
suppliers;
. generate significant revenues from the use of our Internet-based
purchasing solution; and
. obtain higher transaction volumes and increase productivity.
We cannot be certain that our business model will be successful or that we
can achieve or sustain revenue growth or generate any profits. The success of
this business model will require, among other things, that we develop and
market solutions with broad market acceptance by our customers, suppliers,
users and strategic partners. We cannot be certain that business-to-business
commerce on the Internet generally, or our purchasing solution, services and
brand in particular, will achieve broad market acceptance. For example,
purchasers may continue purchasing products through their existing methods and
may not adopt an Internet-based purchasing solution because of their comfort
with existing purchasing habits and direct supplier relationships, the costs
and resources required to switch purchasing methods, the need for products not
offered through the Chemdex Marketplace, security and privacy concerns, or
general reticence about technology or the Internet.
Our gross margins are low and we will have to increase productivity in our
business to be profitable
Our gross margin for the three months ended March 31, 1999 was
approximately 5.8% and was trending downward. We are dependent on the price
discounts we receive from our suppliers, and thus we are vulnerable to any
decrease in these discount rates. Any decrease would have a significant
negative impact on our financial results. If we do not increase these
discounts, substantially increase our revenues, and scale our business in a
manner that generates increased productivity, including further automation of
our purchasing solution, we may
6
<PAGE>
never achieve profitability. Distributors, in general, operate with low
margins. This is especially true in the life sciences research products
market.
In addition, due to our low gross margins, unexpected costs or expenses we
incur would substantially affect our ability to achieve or maintain operating
profits. For example, we generally bear the risks of the loss of products upon
shipment by our suppliers to our customers, of product returns and refunds to
our customers, and of non-collection of accounts receivable. Although we
maintain insurance for claims related to products, we do not have insurance
coverage or established reserves for these risks.
Most of our revenues have come from one customer and our margins associated
with this customer have been small
Chemdex's initial enterprise customer, Genentech, Inc., accounted for
approximately 82% of our revenues in the three months ended March 31, 1999,
and we currently expect to continue to derive a significant portion of our
revenues from Genentech for the foreseeable future. Our agreement with
Genentech, in connection with its role as the initial test location for our
software, provides that Chemdex will not receive discounts on products of some
suppliers purchased by Genentech if Genentech purchases specified minimum
quantities of product through the Chemdex Marketplace. As a result, we receive
little or no gross margins on sales of these supplier products to Genentech.
The loss of revenues from Genentech, or the negotiation by other large
enterprise customers of similar programs, would have a significant negative
effect on our business, revenues, results of operations and financial
condition.
We rely on a limited number of enterprise customers, and any loss of an
enterprise customer could have a negative effect on us
We expect that for the foreseeable future we will generate a significant
portion of our revenues from a limited number of enterprise customers.
Further, our enterprise customers are not obligated to use our purchasing
solution exclusively or for any minimum number of transactions or dollar
amounts. We currently do not offer all of the life science research products
required by our customers, and we expect that our customers will continue to
use multiple sources to meet their needs. In addition, our contracts with our
customers are for limited terms and our customers may discontinue use of our
Chemdex Marketplace at any time upon short notice and without penalty. If we
lose any of our enterprise customers, or if we are unable to add new
enterprise customers, our revenues will not increase as expected, we will lose
access to the researchers employed by these enterprises, we could lose a
number of our product suppliers, and our brand name and customer and supplier
perceptions of our purchasing solution would be harmed.
We will be very dependent on our strategic relationship with VWR for the
foreseeable future
We recently entered into a strategic relationship agreement with VWR
Scientific Products Corporation to jointly market VWR laboratory products
using the Chemdex Marketplace. The agreement gives us the right to offer
approximately 350,000 VWR-distributed products to our customers through the
Chemdex Marketplace. VWR and Chemdex are also jointly developing an Internet
purchasing solution for VWR's existing and future customers that will provide
access to three categories of products:
. products distributed by VWR (VWR core products),
. products distributed by Chemdex (Chemdex core products), and
. products that are not distributed by either VWR or Chemdex but are
purchased from third parties (third party products).
The extent to which our operations are integrated with VWR and the
potential financial impact on us of this strategic relationship makes us very
dependent on VWR for the foreseeable future. We may experience technical
7
<PAGE>
or logistical difficulties in integrating VWR's suppliers, products and
services with the Chemdex Marketplace. If we are unable to do so in a timely
manner, our business, revenues, financial condition and results of operations
could be negatively affected. In addition, our agreement with VWR is
nonexclusive except as to the purchase of third party products by VWR and some
other provisions and has a limited term. We cannot be certain that VWR will
not enter into a similar relationship with one of our competitors, or that VWR
will renew our agreement at the end of its term.
We will receive no fee for orders for VWR core products through the Chemdex
Marketplace from VWR's 40 largest customers and we will receive a minimal fee
for all other orders for VWR core products forwarded to VWR. Under the terms
of the agreement, VWR will provide some support services for purchasing third
party products in exchange for a fee which approximates VWR's costs incurred.
Since we will receive minimal gross margins for sales of third party
products, our gross profit margins on these sales will be lower than our
margins on sales of Chemdex core products. To the extent sales of VWR core
products or third party products increase relative to, or displace our sales
of Chemdex core products, our revenues and gross margins will likely decline,
which would make it more difficult for us to achieve profitability. See
"Business--Strategic Relationship with VWR."
The Chief Executive Officer of VWR is a member of our Board of Directors,
which may lead to conflicts of interest that could be detrimental to us
Jerrold Harris, the Chief Executive Officer of VWR, is a member of our
board of directors. This may lead to conflicts of interest, as VWR is one of
the laboratory supply industry's largest distributors and is a potential
competitor of ours. In addition, VWR has entered into and may in the future
enter into relationships with our competitors, other suppliers or our
customers. Although we intend to have Mr. Harris excuse himself from Board
discussions that involve potential conflicts of interest, we cannot be sure
that this will minimize these conflicts of interests or that Mr. Harris'
position as a member of our Board of Directors will not operate to our
detriment.
If we cannot build a critical mass of suppliers and customers, we will not be
able to increase our product offering and draw more customers
Our business model depends in large part on our ability to build a critical
mass of products and suppliers. To attract and maintain suppliers, we must
build a critical mass of customers. However, customers must perceive value in
our purchasing solution which, in part, depends upon the breadth of our
product offerings from our suppliers. If we are unable to increase the number
of suppliers and draw more customers to the Chemdex Marketplace, we will not
be able to benefit from any network effect, where the value to each
participant in the Chemdex Marketplace increases with the addition of each new
participant. As a result, the overall value of the Chemdex Marketplace and our
purchasing solution would be harmed, which would negatively affect our
business, revenues, financial condition and results of operations.
The time it takes to sell and implement our solution is long, which could
negatively affect our revenue growth, if any, and make it difficult to predict
our revenues and results of operations
A key element of our strategy is to market our solution directly to life
sciences organizations, and to succeed we must satisfy the enterprise
purchasing departments, the information technology groups and the individual
researchers who are the users of our Internet-based purchasing solution. The
time it takes to sell and implement our solution is long and we devote
significant sales, marketing and management resources to the sales process
without any assurance that the customer will use the Chemdex Marketplace. We
are generally required to provide a significant level of education to our
customers and potential customers regarding the use and benefits of our
Internet-based purchasing solution. Furthermore, potential enterprise
customers and a number of their departments typically engage in extensive
internal reviews and analyses before making purchase decisions. The sale and
implementation of our solution are subject to delays due to our customers'
internal budgeting and
8
<PAGE>
procedures for approving capital expenditures and deploying new technologies
within their networks. These delays also could impair our ability to generate
revenue.
Even if enterprise customers adopt our purchasing solution, we may not
increase our revenues if researchers within these enterprises do not use the
Chemdex Marketplace
Our revenues are primarily derived from purchases of life sciences research
products by researchers, research assistants and other users within our
enterprise customers. These persons may or may not use our Chemdex Marketplace
to purchase their research products. Even if we successfully maintain existing
enterprise customers and add new enterprise customers, we may not be able to
increase revenues if researchers within our enterprise customers do not adopt
and use the Chemdex Marketplace. Once an enterprise customer adopts our
Internet-based purchasing solution, it takes time for researchers and other
users within the enterprise to become aware of, learn to use and begin using
our Chemdex Marketplace. The long sales cycle and the time it takes for
researchers to begin using our Internet-based purchasing solution could
negatively affect our revenue growth, if any, and makes it difficult to
predict our results of operations. Also, our efforts to attract researchers to
adopt and to increase their use of our solution may not be successful, which
would limit our ability to generate revenues from these customers.
Reductions in the research and development budgets and government research
funding of our customers will negatively affect our revenues
Our purchasing solution is used by researchers and their assistants and
staff at pharmaceutical and biotechnology companies, and academic and research
institutions. Changes in the research and development budgets of these
companies and institutions and the timing of spending under these budgets can
have a significant effect on the demand for life sciences research products.
These budgets are based on a wide variety of factors including the resources
available to make these expenditures, the spending priorities among various
types of research, and the policies regarding these expenditures during
recessionary periods. Any decrease in life sciences research and development
expenditures by these companies and institutions could have a negative effect
on our revenues.
A significant portion of our sales are expected to be to research
scientists and entities whose funding is dependent on grants from government
agencies such as the U.S. National Institutes of Health (NIH) and similar
domestic and international agencies. The funding associated with approved NIH
grants generally becomes available at particular times of the year, as
determined by the federal government, and may result in fluctuations in our
revenues and results of operations. Although NIH research funding has
increased during the past several years, grants have, in the past, been frozen
for extended periods or have otherwise become unavailable to various
institutions, sometimes without advance notice. Furthermore, recent government
proposals designed to reduce or eliminate budgetary deficits have included
reduced allocations to the NIH and other government agencies that fund
research and development activities. If government funding, especially NIH
grants, were to become unavailable to researchers for any extended period of
time, or if overall research funding were to decrease, there could be a
negative effect on our business, revenues, results of operations and financial
condition.
The success of our business depends on maintaining and expanding our supplier
base
Our future success depends in large part upon our ability to offer and
deliver a broad and deep life sciences research product offering to our
customers. We rely on independent suppliers and manufacturers for products
offered through our Chemdex Marketplace. To increase the breadth of our
product offering, including related products that we do not currently offer
such as laboratory equipment and supplies, we must establish relationships
with additional suppliers. Some potential suppliers may view us as detrimental
to their business, since suppliers compete with one another and with us for
sales and customers. Our agreements with suppliers are typically for one-year
terms and we cannot assure you that these agreements will be renewed beyond
the initial term. In addition, these suppliers are not required to accept
purchase orders from us. If we fail to secure products from our suppliers or
if a significant number of suppliers do not renew their agreements with us,
the
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breadth and depth of products that we can offer users would be decreased. In
addition, there are significant costs, difficulties and risks associated with
adding new products in related markets, such as the difficulty of signing up
new suppliers, obtaining necessary permits, complying with governmental
regulation, pressures on margins, new competition and integration of these new
products into the Chemdex Marketplace. These events could result in decreased
adoption and use of our purchasing solution and decreased revenues, which
could have a negative effect on our business, results of operations and
financial condition.
Our cost of revenues includes cost of goods payable to suppliers. We cannot
assure you that our suppliers will enter into or renew agreements with us on
the same or similar terms as those currently in effect or that the cost of
goods payable to our suppliers will remain the same. Less favorable terms will
make it difficult for us to achieve profitable operations. Any decreases in
our already low gross margins will have a significant negative effect on our
results of operations and financial condition.
Our supplier agreements are nonexclusive and many of our suppliers sell
their products directly to our customers. In addition, the growing reach and
use of the Internet has further intensified competition in this industry. Some
suppliers provide customers with direct access to products, and if suppliers,
including our current suppliers, provide products to enterprise customers and
their researchers at a cost lower than ours, our revenues, results of
operations and financial condition could be negatively affected.
If we cannot timely and accurately add supplier product data to our purchasing
solution database we may lose sales and customers, which would adversely
affect our revenues
Currently, we are responsible for loading supplier product information into
our database and categorizing the information for search purposes. This
process entails a number of risks, including dependence on our suppliers to
provide us in a timely manner with accurate, complete and current information
about their products, and to promptly update this information when it changes.
We currently have a backlog of approximately 550,000 products to be loaded in
our Chemdex Marketplace. We anticipate that a majority of these products,
which are related to VWR, will be loaded in the Chemdex Marketplace by the
third quarter of 1999 and that the remaining products will be loaded by the
end of the fourth quarter of 1999. We will not derive revenue from these
products until these data are loaded in our system. The time period in which
we estimate loading these supplier product data is a forward-looking statement
that is subject to risks and uncertainties and actual results may differ
materially from those described in these forward-looking statements. Timely
loading of these products in our database depends upon a number of factors,
including the file formats of the data provided to us by suppliers and our
ability to further automate and expand our operations to accurately load these
data in our product database, any of which could delay the actual loading of
these products beyond the dates estimated by us.
In addition, we are generally obligated under our supplier agreements to
load updated product data onto our database for access through the Chemdex
Marketplace within a specified period of time following their delivery from
the supplier. Our current supplier data backlog could make it difficult for us
to meet these data update obligations to our suppliers. While we intend to
further automate the loading and updating of supplier data on our system, we
cannot assure you that we will be able to do so in a timely manner, in part
because achieving the highest level of this automation is dependent upon our
suppliers' automating their delivery of product data to us. If our suppliers
do not provide us in a timely manner with accurate, complete and current
information about the products we offer, our database may be less useful to
our customers and users and may expose us to liability. Although we screen our
suppliers' information before we make it available to our customers and users,
we cannot guarantee that the product information available in our Chemdex
Marketplace will always be accurate, complete and current, or comply with
governmental regulations. This could expose us to liability or result in
decreased adoption and use of our Internet-based purchasing solution, which
could reduce our revenues and therefore have a negative effect on our results
of operations and financial condition.
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If our suppliers do not provide timely and professional delivery of products
to our customers our business will be harmed
We also rely on our suppliers and manufacturers to deliver life sciences
research products to our customers in a professional, safe and timely manner.
If our suppliers do not deliver the products to our customers in a
professional, safe and timely manner, then our service will not meet customer
expectations and our reputation and brand will be damaged. In addition,
deliveries that are nonconforming, late or are not accompanied by information
required by applicable law or regulations, could expose us to liability or
result in decreased adoption and use of our Internet-based purchasing
solution, which could have a negative effect on our business, results of
operations and financial condition. Further we, and not our suppliers,
typically bear the responsibility for product refunds and returns and the risk
of non-collectibility of accounts receivable from our customers.
To attract customers and suppliers to our Chemdex Marketplace, we must not
favor one supplier over another
The life sciences research products market consists of a complex set of
relationships among manufacturers, suppliers, distributors and customers.
Adoption of our solution by suppliers and customers is dependent on their
perception that we provide a neutral, unbiased marketplace to purchase and
sell life sciences research products. To the extent that we are perceived by
our customers or suppliers as favoring one supplier over another, customers
and suppliers may lose confidence in the Chemdex Marketplace as a fair and
neutral marketplace and choose alternative solutions. Our relationship with
VWR, including the fact that VWR is a stockholder and is represented on our
Board of Directors, may compromise the perception that we provide a neutral
and unbiased marketplace for life sciences research products. Any bias,
whether perceived or actual, could have a negative impact on our ability to
maintain or increase our supplier base, which in turn may limit our ability to
maintain or increase our customer base. This would reduce revenues and
therefore have a negative impact on our business, results of operations and
financial condition.
We face intense competition that could limit our ability to expand our base of
customers and users
The market for business-to-business e-commerce and Internet ordering and
purchasing is new and rapidly evolving, and competition is intense and is
expected to increase significantly in the future. We face competition from
four main areas: other companies with e-commerce offerings, traditional
suppliers and distributors of life sciences research products, life sciences
companies that have developed their own purchasing solutions and enterprise
software companies that offer, or may develop, alternative purchasing
solutions. We may not be able to compete successfully against our current or
future competitors and competition could have a material adverse effect on our
business, results of operations and financial condition. Our competitors and
potential competitors may develop superior Internet purchasing solutions that
achieve greater market acceptance than our solution. In addition,
substantially all of our prospective customers have established long-standing
relationships with some of our competitors or potential competitors, including
most of our suppliers. Accordingly, we cannot be certain that we will be able
to expand our customer list and user base, or retain our current customers or
suppliers. See "Business--Competition in our Industry."
Our solution and services are new and face rapid technological changes and if
we do not respond appropriately, we may lose customers
The market for our solution is characterized by rapid technological
advances, evolving standards in the Internet and software markets, changes in
customer requirements and frequent new product and service introductions and
enhancements. As a result, our future success depends upon our ability to
enhance our current Internet-based purchasing solution and services, to
develop and introduce new solutions and services that will achieve market
acceptance, and where necessary to integrate our Internet-based purchasing
solution with our customers' enterprise resource planning systems. If we do
not adequately respond to the need to develop and introduce new solutions or
services, or to integrate with our customers' enterprise resource planning
systems, then
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our business, revenues, results of operations and financial condition will be
negatively affected. For example, we may lose market share and ultimately
revenue as our customers switch to our competitors' offerings if:
. we are unable to develop technology that is a success in the
marketplace;
. our technology does not integrate with our customers' systems; and
. our technology is surpassed by the superior technology of a competitor.
Further, we may incur significant expense to integrate our purchasing
solution with our customers' enterprise resource planning systems and business
rules, and to maintain this integration as our customers' enterprise resource
planning systems evolve. Failure to provide this integration may delay or
altogether dissuade the market or a particular customer from adopting our
Internet-based purchasing solution, which could negatively affect our revenues
and therefore have a material adverse effect on our business, results of
operations and financial condition.
If we do not successfully develop and timely introduce new versions of our
purchasing solution in the next several months our business will be harmed
We are currently in the process of developing and integrating new
technology into our Internet-based purchasing solution as part of our planned
release of several enhanced versions of the Chemdex Marketplace over the next
few months. These new releases are planned to include significant enhancements
to the user interfaces, database management and search technology, and
security controls, and will allow us to offer VWR's products to our customers.
The planned timing of introduction of new releases of our purchasing solution
is a forward-looking statement that is subject to risks and uncertainties, and
actual timing may differ materially from that set forth in these forward-
looking statements as a result of a number of factors. Enhancing and
introducing new technology into our purchasing solution involves numerous
technical challenges and substantial personnel resources, and often takes many
months to complete. We cannot be certain that we will be successful at
enhancing or integrating this technology into our Internet-based purchasing
solution on a timely basis, or in accordance with our milestones or our
product release objectives. In addition, we cannot be certain that, once
integrated, this technology or our Internet-based purchasing solution will
function as expected. If we are unable to enhance and integrate this new
technology into our purchasing solution on a timely basis, we may lose
customers or experience difficulty obtaining new customers, which could
adversely affect our business, revenues, financial condition and results of
operations. Major enhancements and new solutions and services often require
long development and testing periods. In addition, our Internet-based
purchasing solution is complex and, despite vigorous testing and quality
control procedures, may contain undetected errors or "bugs" when first
introduced or updated. Any inability to timely deliver a quality solution and
services could have a negative effect on our business, revenues, financial
condition and results of operations.
We may not be able to determine or design the features and functionality that
our enterprise customers and researchers require or prefer
Our success depends upon our ability to accurately determine the features
and functionality that our enterprise and research customers require or prefer
in an e-commerce solution, and our ability to successfully design and
implement purchasing solutions that include these features and functionality.
If we are unable to determine or design in the features and functionality that
enterprise and research customers require or prefer in an e-commerce solution,
our business will be negatively affected. We have designed the Chemdex
Marketplace based upon internal development efforts and feedback from a
relatively limited number of enterprise and research customers. We cannot be
certain, however, that the features and functionality that we currently offer
in the Chemdex Marketplace, or those that we may offer in future releases of
our solution, will satisfy the requirements or preferences of our current or
potential enterprise and research customers.
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We will need to manage our expanding business effectively in order to meet
customer and investor expectations
We have rapidly and significantly expanded our operations and expect to
continue to do so. This growth has placed, and is expected to continue to
place, a significant demand on our sales, marketing, managerial, operational,
financial and other resources. If we cannot manage our growth effectively, it
is likely that our revenues and results of operations will not meet customer
and investor expectations. As of March 31, 1999, we had grown to 87 employees.
We expect to hire a significant number of new employees to support our
business.
Our current information systems, procedures and controls may not continue
to support our operations and may hinder our ability to exploit the market for
selling products to the life sciences industry. We are in the process of
implementing a new enterprise resource planning system that will replace our
existing accounting and management information systems and allow for future
scalability and enhancements. In addition, we anticipate requiring additional
space to accommodate our growth in the next six months. We could experience
interruptions to our business when we transition to the new enterprise
resource planning system and when we relocate to new facilities. Even after we
implement our new system and relocate to new facilities, our personnel,
systems, procedures, controls and facilities may be inadequate to support our
future operations.
We depend on our key personnel to manage our business effectively in a rapidly
changing market
Our performance is substantially dependent on the performance of our
executive officers and other key employees. We do not have any employment
agreements with our executive officers and key employees, although some of
them have severance arrangements. Our failure to successfully manage our
personnel requirements would have a negative effect on our business, revenues,
financial condition and results of operations. We have experienced difficulty
from time to time in hiring the personnel necessary to support the growth of
our business, and we may experience similar difficulty in hiring and retaining
personnel in the future. Six of our ten executive officers have only been
employed by us since January 1999 or later. Competition for senior management,
experienced sales and marketing personnel, software developers, qualified
engineers and other employees is intense, and we cannot be certain that we
will be successful in attracting and retaining our personnel. The loss of the
services of any of our executive officers or other key employees could have a
negative effect on our business. In particular, the loss of services of David
Perry, our President and Chief Executive Officer, and Pierre Samec, our Chief
Information Officer, would have a detrimental effect on our business.
Mr. Perry is one of the co-founders and is primarily responsible for our
vision and future direction, and Mr. Samec is responsible for all of our
technology systems and software.
The unpredictability of our quarterly results may negatively affect the
trading price of our common stock
Our revenues and results of operations may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside of our
control. As a result, you should not rely on period-to-period comparisons of
revenues and results of operations as an indication of our future performance.
Some of the factors that may affect our revenues and results of operations
include:
. demand for and market acceptance of our Internet-based purchasing
solution and services;
. introduction of new and enhanced purchasing solutions and services by us
or our competitors;
. budgeting cycles of customers and users;
. loss of one or more of our key suppliers, customers or strategic
relationships;
. changes in our pricing policy or those of our competitors or suppliers;
. amount and timing of capital expenditures and other costs relating to
the expansion of our operations;
. timing and number of new hires;
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. ability to comply with applicable laws and regulations or obtain
necessary permits and licenses to sell or ship products to customers;
. technical difficulties with our web site or Internet-based purchasing
solution;
. level of activity and funding in the life sciences industry; and
. general economic conditions.
We may from time to time make pricing, service or marketing decisions or
enter into strategic business combinations that could have a negative effect
on our business, revenues, financial condition or results of operations for
any number of quarterly periods. For example, we intend to significantly
expand our development and engineering expenses to improve our Internet-based
purchasing solution. In addition, in order to accelerate the promotion of the
Chemdex brand, we intend to increase our marketing budget significantly. These
increases in expenses may negatively affect our results of operations for a
number of quarterly periods and we cannot assure that these measures will
increase our revenues.
Due to our relatively short operating history we have limited meaningful
historical financial data upon which to base our planned operating expenses.
Accordingly, our expense levels are based in part on our expectations as to
future revenues from new customers and are relatively fixed in the short term.
We cannot be certain that we will be able to accurately predict our revenues,
particularly in light of our limited operating history, the intense
competition in the life sciences industry, and the resulting uncertainty as to
the success of our business model. If we fail to accurately predict revenues
in relation to fixed expense levels and we are unable to adjust our operating
expenses in a timely manner in response to lower-than-expected revenues, our
results of operations and financial condition could be negatively affected.
There has been no prior market for our common stock and we expect the price of
our common stock to be volatile
Prior to this offering, you could not buy or sell our common stock
publicly. An active public market for our common stock may not develop or be
sustained after the offering. Although the initial public offering price will
be determined based on several factors, the market price after the offering
may vary from the initial offering price. The market price of the common stock
may fluctuate significantly in response to a number of factors, some which are
beyond our control, including:
. quarterly variations in our operating results;
. changes in estimates of our financial performance by securities
analysts;
. changes in market valuation of Internet commerce companies generally;
. announcements by us of significant contracts, acquisitions, strategic
partnerships, joint ventures or capital commitments;
. loss of a major customer, supplier or strategic partner, or failure to
complete a sale of our purchasing solution to a significant customer;
. additions or departures of any of our key personnel;
. future sales of our common stock; and
. stock market price and volume fluctuations, which are particularly
common among highly volatile securities of Internet companies.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and divert
management's attention and resources, which could have a negative effect on
our business, results of operations and financial condition.
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Our business will suffer if the life sciences industry does not accept
Internet solutions
Business-to-business e-commerce is a new and emerging business practice
that remains largely untested in the marketplace. Growth in the demand for our
Internet-based purchasing solution and services depends on the adoption of e-
commerce and Internet solutions by life sciences industry participants, which
requires the acceptance of a new way of conducting business and purchasing
supplies. Our business could suffer dramatically if e-commerce and Internet
solutions are not accepted or not perceived to be effective.
The Internet may not prove to be a viable commercial marketplace for the
life sciences industry for a number of reasons, including:
. inadequate development of the necessary infrastructure for Internet-
based communications within life sciences organizations;
. security and confidentiality concerns of customers and suppliers;
. lack of development of complementary products, such as high-speed modems
and high-speed communication lines;
. implementation of competing purchasing solutions;
. lack of human contact that current, traditional suppliers provide; and
. governmental regulation.
The accelerated growth and increasing volume of Internet traffic may cause
performance problems which may slow adoption of our Internet-based purchasing
solution and the Chemdex Marketplace
The growth of Internet traffic to very high volumes of use over a
relatively short period of time has caused frequent periods of decreased
Internet performance, delays and, in some cases, system outages. This
decreased performance is caused by limitations inherent in the technology
infrastructure supporting the Internet and the internal networks of Internet
users. If Internet usage continues to grow rapidly, the infrastructure of the
Internet and its users may be unable to support the demands of growing e-
commerce usage, and the Internet's performance and reliability may decline. If
our existing or potential enterprise and research customers experience
frequent outages or delays on the Internet, the adoption or use of our
Internet-based, e-commerce purchasing solution may grow more slowly than we
expect or even decline. Our ability to increase the speed and reliability of
our Internet-based purchasing solution is limited by and depends upon the
reliability of both the Internet and the internal networks of our existing and
potential customers. As a result, if improvements in the infrastructure
supporting both the Internet and the internal networks of our enterprise
customers and their researchers are not made in a timely fashion, we may have
difficulty obtaining new customers, or maintaining our existing customers,
either of which could reduce our potential revenues and have a negative impact
on our business, results of operations and financial condition.
Security and disruption problems with the Internet or transacting business
over the Internet may inhibit the growth of our Internet-based purchasing
solution
The secure transmission of confidential information over the Internet is
essential to maintaining customer and supplier confidence in our Chemdex
Marketplace. Customers generally are concerned with security and privacy on
the Internet and any publicized security problems could inhibit the growth of
the Internet, and therefore our purchasing solution, as a means of conducting
transactions. Substantial security breaches on our system could significantly
harm our business. A party that is able to circumvent our security systems
could misappropriate proprietary information or cause interruptions in our
operations. We incur substantial expense to protect against and remedy
security breaches and their consequences. Despite the implementation of
security measures, our networks may be vulnerable to unauthorized and illegal
access, computer viruses and other disruptive problems. Eliminating computer
viruses and alleviating other security problems may require interruptions,
delays or cessation of service to users accessing our solution.
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Internet service providers and on-line service providers have in the past
experienced, and may in the future experience, interruptions in service as a
result of the accidental or intentional actions of Internet users, current and
former employees or others. We may be required to expend significant capital
or other resources to protect against the threat of security breaches or to
alleviate problems caused by these breaches. Although we intend to continue to
implement industry-standard security measures, we cannot be certain that
measures implemented by us will not be circumvented in the future.
If we experience a security breach that results in the misappropriation of
proprietary information maintained in our systems or if we experience
interruptions in our service, our reputation and brand may be damaged and we
may be exposed to a risk of loss or litigation and possible liability. Damage
to our reputation and brand could cause us to lose suppliers and customers and
negatively affect our business, results of operations and financial condition.
Our insurance policies may not be adequate to reimburse us for losses caused
by security breaches or service disruption.
System failure may cause interruption of our services
The performance of our server and networking hardware and software
infrastructure is critical to our business and reputation and our ability to
process transactions, provide high quality customer service, and attract and
retain customers, suppliers, users and strategic partners. Currently our
infrastructure and systems are located at one site at Exodus Communications in
Sunnyvale, California. We anticipate adding a mirror site at a different,
distant location. Until then, we depend on our single-site infrastructure and
any disruption to this infrastructure resulting from a natural disaster or
other event could result in an interruption in our service, fewer transactions
and, if sustained or repeated, could impair our reputation and the
attractiveness of our services.
Our systems and operations are vulnerable to damage or interruption from
human error, natural disasters, power loss, telecommunications failures,
break-ins, sabotage, computer viruses, intentional acts of vandalism and
similar events. We do not have a formal disaster recovery plan or alternative
provider of hosting services. In addition, we do not carry sufficient business
interruption insurance to compensate us for losses that could occur. Any
failure on our part to expand our system or Internet infrastructure to keep up
with the demands of our customers and users, or any system failure that causes
an interruption in service or a decrease in responsiveness of our Internet-
based purchasing solution or web site, could result in fewer transactions and,
if sustained or repeated, could impair our reputation and the attractiveness
of our brand name, which would adversely affect our business, revenues,
financial condition and results of operations.
We face year 2000 risks associated with our own systems and those of our
customers, suppliers and the Internet
Significant uncertainty exists concerning the potential costs and effects
associated with any year 2000 compliance problems. Any year 2000 compliance
problems faced by us, our customers, suppliers and strategic partners could
have a negative effect on our business, revenues, results of operations and
financial condition. In addition, our ability to operate is dependent upon
delivery of accurate, electronic information via the Internet. To the extent
year 2000 issues result in the long-term inoperability of the Internet, the
Chemdex Marketplace or the systems of VWR, our business, revenues, financial
condition and results of operations could be seriously harmed.
Although we believe that our internally developed applications and systems
are designed to be year 2000 compliant, we use third party equipment and
software that may not be year 2000 compliant. In addition, until some of the
billing and cash collection functions for spot buying services are
transitioned to Chemdex, we are dependent upon VWR's systems for receiving
payment for products purchased using the spot buying services. Failure of our
applications and services, VWR's billing and collection system, or third party
equipment and software that we use, to be year 2000 compliant could result in
the Chemdex Marketplace not being used for purchasing life sciences research
products, the termination of our customer agreements or in liability for
damages, any of which could have a material adverse effect on our business,
results of operations and financial condition. Many of our customers' systems
with which the Chemdex Marketplace integrates may not yet be year
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2000 compliant. In addition, our suppliers' systems may not be year 2000
compliant. Any negative effects on our customers' or suppliers' systems as a
result of the year 2000 problem, or unknown, non-compliance of our own
systems, could have a negative effect on our business, results of operations
and financial condition and we do not have a formal contingency plan to
address year 2000 issues. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000 Compliance."
We may require additional capital for our operations that could have a
negative effect on your investment
We currently anticipate that the net proceeds of the offering, together
with our existing borrowing arrangements and available funds will be
sufficient to meet our anticipated needs for working capital and capital
expenditures for at least the next 12 months. This is a forward-looking
statement that is subject to risks and uncertainties and actual results may
differ materially from those described in this forward-looking statement. We
may need to raise additional funds in the future in order to fund rapid
expansion, to pursue customer sales and implementation, to develop new or
enhanced solutions and services, to respond to competitive pressures or to
acquire complementary businesses, technologies or services.
If we raise additional funds through the issuance of equity or convertible
debt securities, the percentage ownership of our stockholders will be reduced,
stockholders may experience additional dilution and these securities may have
powers, preferences and rights that are senior to those of the rights of our
common stock. We cannot be certain that additional financing will be available
on terms favorable to us, if at all. If adequate funds are not available or
not available on acceptable terms, we may be unable to fund our expansion,
promote our brand identity, take advantage of unanticipated acquisition
opportunities, develop or enhance services or respond to competitive
pressures. Any inability to do so could have a negative effect on our
business, revenues, financial condition and results of operations.
Our planned international expansion may make it more difficult to manage our
business
We expect to enter the international market. To do so, we plan to establish
international operations, hire additional personnel and establish
relationships with additional suppliers and partners. This expansion will
require significant management attention and financial resources and could
have a negative effect on our business, revenues, financial condition and
results of operations. We cannot assure you that we will be able to create or
sustain international demand for our Internet-based purchasing solution and
services. In addition, our international business may be subject to a variety
of risks, including applicable government regulation, difficulties in
collecting international accounts receivable, longer payment cycles, increased
costs associated with maintaining international marketing efforts, the
introduction of non-tariff barriers and higher duty rates and difficulties in
enforcement of contractual obligations and intellectual property rights. We
cannot assure you that these factors will not have a negative effect on any
future international sales and, consequently, on our business, results of
operations and financial condition.
We are subject to government regulation that exposes us to potential liability
and negative publicity
We currently rely upon our suppliers to meet all packaging, distribution,
labeling, hazard and health information notices to purchasers, record keeping
and licensing requirements applicable to our business during the entire
transaction. We are aware that some of our prior sales may have been made in
the absence of us having the requisite local, state, or federal license or
permit. We may be subject to potentially severe civil and criminal penalties
and fines for each of these sales, which could have a material adverse impact
on our business, revenues, results of operations and financial condition. In
addition to these prior sales, we are unable to verify that our suppliers have
in the past complied, or will in the future comply, with the applicable
governmental regulatory requirements, or that their actions are adequate or
sufficient to satisfy all governmental or other legal requirements that may be
applicable to our sales. We could be fined or exposed to civil or criminal
liability, including monetary fines and injunctions, and we could receive
potential negative publicity, if the applicable
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governmental regulatory requirements have not been, or are not being, fully
met by our suppliers or by us directly. Negative publicity, fines and
liabilties could also occur if an unqualified person, or even a qualified
customer, lacks the appropriate license or permits to sell, use or ship, or
improperly receives a dangerous or unlicensed product through the Chemdex
Marketplace.
It is also possible that a number of laws and regulations may be adopted or
interpreted in the United States and abroad with particular applicability to
the Internet. See "Business--Government Regulations."
We may be exposed to product liability claims
We face potential liability for claims based on the type and adequacy of
the information and data that we obtain from suppliers and make available, and
the nature of the products that we sell and distribute utilizing the Internet,
including claims for breach of warranty, product liability, misrepresentation,
violation of governmental regulations and other commercial claims. In
particular, we bear the risk of liability for product loss, spill, or release,
and resulting damages to persons and property during delivery by the supplier
to the customer and return by the customer to the supplier. We do not pass
through the manufacturers' warranties on the products we distribute. However,
we bear the risk of loss of revenue from the product sale if a purchaser does
not pay for a defective product. Although we maintain general liability
insurance, our insurance may not cover some claims, penalties, or spills, is
subject to policy limits and exclusions, and may not be adequate to fully
indemnify us or our employees for any civil, governmental or criminal
liability that may be imposed. Furthermore, this insurance may not be
available at commercially reasonable rates in the future. Any liability not
covered by our insurance or in excess of our insurance coverage could have a
negative effect on our business, results of operations and financial
condition. Our liability is potentially greater with respect to sales to
researchers and others who are not affiliated with an enterprise customer.
We also seek to obtain indemnification from our suppliers against some of
these claims. However, the scope of the indemnification is limited, a few of
our suppliers have not agreed to indemnify us and some suppliers may be unable
or unwilling to indemnify us in the future. In addition, we are not in a
position to monitor our suppliers' activities. Therefore, we are exposed to
liability and risk for these claims.
We depend on our intellectual property rights and are subject to the risk of
infringement
Our intellectual property is important to our business, and we seek to
protect our intellectual property through copyrights, trademarks, trade
secrets, confidentiality provisions in our customer, supplier and strategic
relationship agreements, nondisclosure agreements with third parties, and
invention assignment agreements with our employees and contractors. We cannot
assure that measures we take to protect our intellectual property will be
successful or that third parties will not develop alternative purchasing
solutions that do not infringe upon our intellectual property. In addition, we
could be subject to intellectual property infringement claims by others. Our
failure to protect against misappropriation of our intellectual property, or
claims that we are infringing the intellectual property of third parties could
have a negative effect on our business, revenues, financial condition and
results of operations. See "Business--Proprietary Rights and Licensing."
Officers and directors and their affiliates will continue to have substantial
control over Chemdex after the offering
Upon completion of this offering, our executive officers and directors and
their affiliates will beneficially own approximately 61.46% of the shares of
common stock (59.36% if the underwriters exercise the over-allotment option in
full). As a result, our officers, directors and their affiliates will have the
ability to influence the election of our Board of Directors and the outcome of
corporate actions requiring stockholder approval. This concentration of
ownership may have the effect of delaying or preventing a change in control of
Chemdex. See "Principal Stockholders."
18
<PAGE>
Regulation or taxation of the Internet or transacting business over the
Internet may inhibit the growth of our Internet-based purchasing solution
Due to the increasing popularity and use of the Internet and of e-commerce,
it is possible that a number of taxes, laws and regulations may be adopted in
the U.S. and abroad with particular applicability to the Internet and e-
commerce transactions. It is possible that governments will adopt taxes and
enact legislation that may be applicable to us in areas such as content,
product distribution, network security, encryption and the use of key escrow,
data and privacy protection, electronic authentication or "digital"
signatures, illegal and harmful content, access charges and re-transmission
activities. Moreover, the applicability to the Internet of existing laws
governing issues such as property ownership, content, taxation, defamation and
personal privacy is uncertain. Taxes, laws or regulations may limit the growth
of the Internet, dampen e-commerce and reduce the number of transactions,
increase our cost of doing business or increase our legal exposure. Any of
these factors could have a negative effect on our business, revenues, results
of operations and financial condition.
The trading market price of our stock may decline as a result of substantial
sales of our common stock after the offering
Sales of a substantial number of shares of our common stock after the
offering could negatively affect the market price of our common stock and
could impair our ability to raise capital through the sale of additional
equity securities. Upon completion of this offering, we will have 31,775,514
shares of common stock outstanding or subject to currently exercisable options
(32,900,514 shares if the underwriters' over-allotment option is exercised in
full). The 7,500,000 shares sold in this offering (8,625,000 shares if the
underwriters' over-allotment option is exercised in full) will be freely
tradable without restriction or further registration under the federal
securities laws unless purchased by our "affiliates" as that term is defined
in Rule 144. The remaining 24,275,514 shares of common stock outstanding upon
completion of the offering will be "restricted securities" as that term is
defined in Rule 144.
Stockholders holding more than 95% of the outstanding common stock and
options to purchase common stock exercisable within 180 days after the date of
this prospectus have executed lock-up agreements that limit their ability to
sell common stock. These stockholders and option holders have agreed not to
sell or otherwise dispose of any shares of common stock for a period of at
least 180 days after the date of this prospectus without the prior written
approval of Morgan Stanley & Co. Incorporated. When the lock-up agreements
expire, these shares and the shares underlying the options will become
eligible for sale, in some cases only pursuant to the volume, manner of sale
and notice requirements of Rule 144.
The exercise of registration rights may cause restricted securities to
become eligible for sale prior to the expiration of the 180-day period. All of
our outstanding preferred stock will automatically convert into our common
stock upon the closing of this offering. See "Description of Capital Stock."
19
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," and elsewhere in this prospectus are forward-looking
statements. Some of these forward-looking statements are attributed to third
parties and relate to their statements relating to the growth of Internet
users, e-commerce, and the life sciences research products market. These
statements involve known and unknown risks, uncertainties, and other factors
that may cause our or our industry's actual results, levels of activity,
performance, or achievements to be materially different from any future
results, levels of activity, performance, or achievements expressed or implied
by forward-looking statements. Such factors include, among other things, those
listed under "Risk Factors" and elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue" or the
negative of these terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, growth rates,
levels of activity, performance, or achievements. Moreover, neither we nor any
other person assumes responsibility for the accuracy and completeness of these
statements. We are under no duty to update any of the forward-looking
statements after the date of this prospectus to conform these statements to
actual results.
THE COMPANY
We were incorporated in Delaware in September 1997. Our principal executive
offices are located at 3950 Fabian Way, Palo Alto, California 94303, and our
telephone number is (650) 813-0300. We maintain a worldwide web site at
www.chemdex.com. The information in our web site is not incorporated by
reference into this prospectus.
Chemdex, Chemdex's logo, Chemdex Marketplace and chemdex.com are some of
our trademarks. Each other trademark, trade name or service mark of any other
company appearing in this prospectus is the property of its holder.
20
<PAGE>
USE OF PROCEEDS
The primary purposes of this offering are to obtain additional capital,
create a public market for the common stock and facilitate future access to
public markets. The net proceeds to Chemdex from the sale of the 7,500,000
shares of common stock offered hereby are estimated to be approximately $68.8
million after deducting estimated underwriting discounts and commissions and
estimated offering expenses of $1.0 million payable by Chemdex. Chemdex
intends to use the net proceeds for general corporate purposes, including
working capital to fund anticipated operating losses, expenses associated with
its advertising campaigns, brand-name promotions and other marketing efforts
and capital expenditures. Chemdex also could use a portion of the net proceeds
to acquire or invest in complementary businesses, technologies, products or
services, although no specific acquisitions are currently planned. Assuming
that this offering is consummated, Chemdex currently estimates that the amount
to be spent on working capital during the second half of 1999 will be
approximately $30 million. Chemdex's management will have broad discretion in
the application of the net proceeds. Pending these uses, Chemdex intends to
invest the net proceeds from this offering in short-term, interest-bearing,
investment-grade securities.
DIVIDEND POLICY
Chemdex has not declared or paid any cash dividends on its capital stock
since its inception and does not expect to pay any cash dividends in the
foreseeable future. Chemdex currently intends to retain future earnings, if
any, to finance the expansion of its business. The terms of one of Chemdex's
current credit agreements prohibit the payment of cash dividends on its
capital stock without the prior written consent of the creditor.
21
<PAGE>
CAPITALIZATION
The Actual column in the following table sets forth Chemdex's actual
capitalization as of March 31, 1999. The Pro Forma column in the following
table gives effect to:
. the filing of an amendment to Chemdex's Amended and Restated Certificate
of Incorporation to provide for authorized capital stock of 175,000,000
shares of common stock and 2,500,000 shares of undesignated preferred
stock;
. the issuance of 2,538,405 shares of common stock to VWR pursuant to the
Strategic Relationship Agreement;
. the issuance of 399,892 shares of Series C Preferred Stock in April
1999;
. the issuance of 187,500 shares of common stock to BIO pursuant to the
Joint Marketing Agreement;
. the repurchase of 26,404 shares of common stock subsequent to March 31,
1999; and
. the conversion of all outstanding shares of preferred stock into
16,345,701 shares of common stock upon the closing of this offering.
The As Adjusted column in the following table gives effect to the receipt
of the net proceeds from the sale by Chemdex of the shares of common stock
offered at an assumed initial public offering price of $10.00 per share, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses. See "Use of Proceeds."
The following table does not include:
. 439,852 shares of common stock issuable on exercise of options
outstanding as of March 31, 1999, with a weighted average exercise price
of $.61;
. 154,999 shares of common stock issuable upon the exercise of warrants
outstanding as of March 31, 1999 with a weighted average exercise price
of $2.69 per share;
. 1,576,180 shares of common stock issuable upon exercise of options
granted after March 31, 1999; and
. 2,750,000 additional shares of common stock reserved for issuance under
the 1998 Stock Plan.
See "Management--Employee Stock Plans" and Note 6 of Notes to Financial
Statements.
<TABLE>
<CAPTION>
March 31, 1999
--------------------------------
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except share
data)
<S> <C> <C> <C>
Long-term debt, net of current portion......... $ 803 $ 803 $ 803
Stockholders' equity:
Preferred stock, $.0002 par value; 34,074,632
shares authorized, 16,345,701 shares issued
and outstanding, actual; 2,500,000 shares
authorized, no shares issued or outstanding,
pro forma and as adjusted................... 3 -- --
Common stock, Chemdex, $.0002 par value;
50,000,000 shares authorized, 4,830,420
shares issued and outstanding, actual;
175,000,000 shares authorized, 24,275,514
shares issued and outstanding, pro forma;
175,000,000 shares authorized, 31,775,514
shares issued and outstanding, as adjusted.. 1 5 6
Additional paid-in capital..................... 50,140 70,615 139,365
Deferred compensation.......................... (5,492) (7,473) (7,473)
Notes receivable from stockholders............. (1,085) (1,085) (1,085)
Accumulated deficit............................ (15,701) (16,248) (16,248)
-------- -------- --------
Total stockholders' equity................... 27,866 45,814 114,565
-------- -------- --------
Total capitalization........................ $ 28,669 $ 46,617 $115,368
======== ======== ========
</TABLE>
22
<PAGE>
DILUTION
The pro forma net tangible book value of Chemdex as of March 31, 1999 was
$45.8 million, or $1.89 per share. Pro forma net tangible book value per share
is determined by dividing the pro forma number of shares of common stock,
after giving effect to the conversion of all outstanding shares of our
convertible preferred stock into 16,345,701 shares of common stock, into the
net tangible book value of Chemdex (total tangible assets less total
liabilities). Dilution per share represents the difference between the amount
per share paid by purchasers of shares of common stock in this offering and
the net tangible book value per share of common stock immediately after
completion of this offering. Assuming the sale by Chemdex of the 7,500,000
shares of common stock offered hereby, after deducting estimated underwriting
discounts and commissions and estimated offering expenses, the pro forma net
tangible book value of Chemdex as of March 31, 1999 would have been
approximately $114.6 million, or $3.61 per share. This represents an immediate
increase in pro forma net tangible book value of $1.72 per share to existing
stockholders and an immediate dilution of $6.39 per share to new investors
purchasing shares at the assumed initial public offering price. The following
table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $10.00
Pro forma net tangible book value per share as of March
31, 1999................................................. $1.89
Increase in pro forma net tangible book value per share
attributable to new investors............................ 1.72
-----
Pro forma net tangible book value per share after the
offering................................................... 3.61
------
Dilution per share to new investors......................... $ 6.39
======
</TABLE>
The following table summarizes as of March 31, 1999 on the pro forma basis
described above, the number of shares of common stock purchased from Chemdex,
the total consideration paid to Chemdex and the average price per share paid
by existing stockholders and by investors purchasing shares of common stock in
this offering (before deducting estimated underwriting discounts and
commissions and estimated offering expenses):
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Price
------------------ -------------------- Per
Number Percent Amount Percent Share
---------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 24,275,514 76.4% $ 44,044,283 37.0% $ 1.81
New investors................... 7,500,000 23.6 75,000,000 63.0 10.00
---------- ----- ------------ -----
Totals........................ 31,775,514 100.0% $119,044,283 100.0%
========== ===== ============ =====
</TABLE>
The foregoing discussion and tables exclude:
. 439,852 shares of common stock issuable on exercise of options
outstanding as of March 31, 1999, with a weighted average exercise price
of $.61;
. 2,750,000 additional shares of common stock reserved for issuance under
the 1998 Stock Plan;
. 154,999 shares of common stock issuable upon the exercise of warrants
outstanding as of March 31, 1999 with a weighted average exercise price
of $2.69 per share; and
. 1,576,180 shares of common stock issuable upon exercise of options
granted after March 31, 1999.
See "Management--Employee Stock Plans" and Note 6 of Notes to Financial
Statements.
23
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the financial statements of Chemdex and related notes thereto, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The statement of operations
data for the period from September 4, 1997 (inception) through December 31,
1997 and for the year ended December 31, 1998, and the balance sheet data at
December 31, 1997 and 1998, have been derived from financial statements that
have been audited by Ernst & Young LLP, independent auditors, included
elsewhere in this prospectus. The statements of operations data for the three-
month period ended March 31, 1998 and 1999 and the balance sheet data as of
March 31, 1999 are derived from unaudited financial statements included
elsewhere in this prospectus and, in the opinion of Chemdex's management,
include all adjustments, consisting only of normal recurring adjustments,
which are necessary for a fair presentation of the results of operations for
this period. See Note 1 of Notes to Financial Statements for an explanation of
the determination of the shares used in computing basic and diluted net loss
per common share.
<TABLE>
<CAPTION>
September 4,
1997
(Inception) Fiscal Year
Through Ended Three Months Ended
December 31, December 31, March 31,
------------ ------------ --------------------
1997 1998 1998 1999
------------ ------------ --------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues.................. $ -- $ 29 $ -- $ 165
Cost of revenues.............. -- 22 -- 156
------ ------- -------- ----------
Gross profit.................. -- 7 -- 9
Operating expenses:
Research and development.... 196 3,439 364 2,293
Sales and marketing......... 86 3,247 219 3,188
General and administrative.. 121 1,745 190 1,015
Amortization of deferred
compensation............... -- 372 22 352
------ ------- -------- ----------
Total operating expenses.... 403 8,803 795 6,848
------ ------- -------- ----------
Operating loss................ (403) (8,796) (795) (6,839)
Interest and other income,
net.......................... -- 308 2 30
------ ------- -------- ----------
Net loss...................... $ (403) $(8,488) $ (793) $ (6,809)
====== ======= ======== ==========
Basic and diluted net loss per
share........................ $ (.24) $ (4.79) $ (.47) $ (3.38)
====== ======= ======== ==========
Weighted average common shares
outstanding--basic and
diluted...................... 1,704 1,772 1,704 2,016
====== ======= ======== ==========
Pro forma basic and diluted
net loss per share........... $ (.85) $ (.48)
======= ==========
Pro forma weighted average
common shares--basic and
diluted...................... 9,953 14,279
======= ==========
Balance Sheet Data:
Cash and cash equivalents..... $1,346 $ 5,990 $27,784
Working capital............... 1,116 4,490 24,360
Total assets.................. 1,728 8,168 32,636
Long-term debt and capital
lease obligations, net of
current portion.............. 6 -- 803
Total liabilities............. 280 1,820 4,770
Total stockholders' equity.... 1,448 6,348 27,866
</TABLE>
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a leading provider of e-commerce solutions to the life sciences
research products market. The Chemdex Marketplace is a secure, Internet-based
purchasing solution that enables enterprises, researchers and suppliers to
efficiently buy and sell life sciences research products.
We were formed in September 1997 and began offering products for sale on
the Chemdex Marketplace in November 1998. During the period from September
1997 through November 1998, we were a development stage enterprise and did not
have significant sales. Our operating activities during this period were
related primarily to the design and development of the Chemdex Marketplace,
building our corporate infrastructure, establishing relationships with
suppliers and customers and raising capital. To date, revenues have been
derived from sales of life sciences research products through the Chemdex
Marketplace. In 1997 and 1998 we grew our organization by hiring personnel in
key areas, particularly sales, research and development and marketing.
We have generated only immaterial revenues to date and our ability to
generate significant revenues is uncertain. We have incurred significant
losses since inception and, as of March 31, 1999, we had an accumulated
deficit of approximately $15.7 million. We currently expect our losses to
increase in the future and we cannot assure you that we will ever achieve or
sustain profitability. We believe our success depends on establishing
additional key strategic supplier and customer relationships, enhancing the
features and functionality of the Chemdex Marketplace and enterprise
purchasing solution, and accelerating market awareness and demand for the
Chemdex Marketplace. Accordingly, we intend to continue to invest heavily in
sales, marketing and research and development activities. We have limited
operating history upon which to base an evaluation of our business and we
cannot assure you that our revenues will increase in future periods. Our
business and prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in early stages of
development, particularly companies in new and rapidly evolving markets such
as electronic commerce.
From inception, we have increased our level of spending to build our
infrastructure and to develop our Chemdex Marketplace. We intend to continue
to increase our marketing, sales, research and development and administrative
activities and to increase other operating expenses as required to integrate
the operations and technologies of any future acquisitions. We anticipate that
these expenses could significantly precede any revenues generated by this
increased spending.
Our gross margin for the three months ended March 31, 1999 was 5.8% and was
trending downward. Distributors in general operate on very low margins. This
is especially true in the life sciences research products market. Our gross
margins on sales of life sciences research products are small relative to the
margins earned by traditional distributors of life sciences research products.
If we are unable to increase our revenues at a greater rate than our related
costs, our margins may be reduced further, or possibly eliminated, which would
have a significant negative impact on our financial results. We are dependent
on the discounts we receive from our suppliers, and thus we are vulnerable to
any potential decrease in these discount rates. Any such decrease would have a
significant negative impact on our financial results. If we do not increase
these discounts, and substantially increase our revenues and scale our
business in a manner that generates significant operating efficiencies,
including further automation of our purchasing solution, we may not be able to
achieve profitability.
Our gross profit margins on sales of VWR-distributed products will be lower
than our margins on the other supplier products that we offer. We will
generate no gross margin on sales of VWR-distributed products purchased
through our Chemdex Marketplace by VWR's current top forty customers. In
addition, we will receive minimal margins on the sale of third party products.
To the extent sales of VWR-distributed products or third party products
increase relative to, or displace, our sales of other supplier products, our
average gross margins will likely decline, which would make it more difficult
to achieve profitability.
25
<PAGE>
Genentech, Inc. accounted for approximately 82% of our revenues in the
period ended March 31, 1999, and we currently expect to continue to derive a
significant portion of our revenues from Genentech for the forseeable future.
Our agreement with Genentech, in connection with its role as our initial test
location for our purchasing solution provides that Chemdex will not receive
price discounts on products of some suppliers purchased by Genentech if
Genentech purchases specified minimum quantities of product through the
Chemdex Marketplace. As a result, we receive little or no gross margins on
sales of these supplier products to Genentech. The loss of revenues from
Genentech, or the negotiation by other large enterprise customers for similar
programs, would have a significant negative effect on our business, revenues,
results of operations and financial condition.
A key element of our strategy is to market our solution directly to life
sciences organizations, and to succeed we must satisfy the purchasing
departments, information technology groups and the individual researchers who
are the users of our Internet-based purchasing solution. The time it takes to
sell and implement our solution is long and we devote significant sales,
marketing and management resources to the sales process without any assurance
that the customer will use the Chemdex Marketplace. We are generally required
to provide a significant level of education regarding the use and benefits of
our Internet-based purchasing solution, due in part to the significant
departure from traditional means of commerce and communications entailed by
its adoption and use. Further, potential enterprise customers and a number of
their departments typically engage in extensive internal reviews and analyses
before making purchase decisions. The sale and implementation of our solution
are subject to delays due to our customers' internal budgets and procedures
for approving capital expenditures and deploying new technologies within their
networks. These delays also impair our ability to generate revenue and could
negatively affect our results of operations. Once an enterprise customer
adopts our Internet-based purchasing solution, it takes time for researchers
and other users within the enterprise to become aware of, learn to use and
begin using our Chemdex Marketplace. The long sales cycle and the time it
takes for researchers to begin using our Internet-based purchasing solution,
could negatively affect our revenue growth, and makes it difficult to predict
our results of operations.
We recently entered into an agreement with VWR Scientific Products
Corporation to jointly market VWR laboratory products using the Chemdex e-
commerce platform. The agreement gives us the right to offer approximately
350,000 VWR-distributed products to our customers through the Chemdex
Marketplace. We currently expect to make these products available through the
Chemdex Marketplace in the third quarter of 1999. VWR and Chemdex are jointly
developing an Internet purchasing solution for VWR's existing and future
customers that will provide access to three categories of products:
. products distributed by VWR (VWR core products),
. products distributed by Chemdex (Chemdex core products), and
. products that are not distributed by either VWR or Chemdex but are
purchased from third parties (third party products).
We will act as an intermediary under this agreement and will forward orders
for VWR core products received through the Chemdex Marketplace to VWR for
fulfillment and customer service. We will receive no fee for orders from VWR's
40 largest customers and we will receive a minimal fee for all other orders
forwarded to VWR. We will be responsible for fulfillment and customer service
for all Chemdex core product orders and orders for third party products from
VWR customers received through the Chemdex Marketplace on similar terms and
conditions as our other enterprise customers. VWR will provide services in
connection with purchasing third party products for a processing fee paid by
Chemdex. VWR and Chemdex will jointly market the co-branded version of the
Chemdex Marketplace to VWR's existing and new customers, and will jointly
solicit several key existing VWR suppliers to distribute, market and sell
their products through the co-branded purchasing solution.
We have recorded deferred compensation for options granted in 1998 and the
three months ended March 31, 1999. As of March 31, 1999 we had recorded
aggregate deferred stock compensation of $6.2 million. The deferred stock
compensation is being amortized over the vesting periods of the stock options.
We recognized a
26
<PAGE>
total of $372,285 and $352,291 in stock compensation expense during 1998 and
the three months ended March 31, 1999, respectively. In addition to these
charges, we expect to record an additional $2.5 million of deferred stock
compensation in April 1999. The total charges to be recognized in future
periods from amortization of deferred stock compensation as of April 30, 1999
are anticipated to be approximately $1.6 million, $2.0 million, $2.0 million,
$1.8 million and $.5 million for the remaining nine months of 1999 and for
2000, 2001, 2002 and 2003, respectively.
In connection with the strategic relationship with VWR, Chemdex issued
2,538,405 shares of common stock valued at $13.9 million. The fair value of
the stock will be amortized, on a straight-line basis, into sales and
marketing expense over five years, the estimated useful life of this
intangible asset. Also, in connection with a five year, exclusive joint
marketing agreement with the Biotechnology Industry Organization (BIO), we
sold 187,500 shares of our common stock to BIO for a nominal amount of
consideration. We will record the difference between the nominal amount per
share price paid by BIO and the fair value as of the date of issuance, which
is approximately $1.8 million, on a straight-line basis over the five-year
term of the joint marketing agreement as a sales and marketing expense.
Quarterly Results of Operations
Because we were a development stage company during 1997 and 1998 and have a
short operating history, we believe that period-to-period comparisons prior to
1999 are less meaningful than an analysis of recent quarterly operating
results. Accordingly, we are providing a discussion and analysis of our
results of operations that is focused on the six quarters in the period ended
March 31, 1999.
The following table presents our unaudited quarterly operating results for
the six quarters in the period ended March 31, 1999. You should read the
following table together with our Financial Statements and related Notes in
this prospectus. We have prepared this unaudited information on the same basis
as the audited Financial Statements. This table includes all adjustments,
consisting only of normal recurring adjustments, that we consider necessary
for a fair presentation of our financial position and operating results for
the quarters presented. You should not draw any conclusions about our future
results from the operating results of any quarter.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------
June Sept. Dec. Mar.
Dec. 31, Mar. 31, 30, 30, 31, 31,
1997 1998 1998 1998 1998 1999
-------- -------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations
Data:
Net revenues............. $ -- $ -- $ 3 $ -- $ 26 $ 165
Cost of revenues......... -- -- -- -- 22 156
----- ----- ------- ------- ------- -------
Gross profit............. -- -- 3 -- 4 9
Operating expenses:
Research and
development........... 196 364 414 1,026 1,635 2,293
Sales and marketing.... 86 219 297 710 2,021 3,188
General and
administrative........ 121 190 422 489 644 1,015
Amortization of
deferred
compensation.......... -- 22 44 104 202 352
----- ----- ------- ------- ------- -------
Total operating
expenses.............. 403 795 1,177 2,329 4,502 6,848
----- ----- ------- ------- ------- -------
Operating loss........... (403) (795) (1,174) (2,329) (4,498) (6,839)
Interest and other
income, net............. -- 2 70 136 100 30
----- ----- ------- ------- ------- -------
Net loss................. $(403) $(793) $(1,104) $(2,193) $(4,398) $(6,809)
===== ===== ======= ======= ======= =======
</TABLE>
27
<PAGE>
Results of Operations
Net revenues
From inception through November 1998, Chemdex was in the development stage
and had only nominal net revenues. Net revenues increased to $165,000 in the
quarter ended March 31, 1999 as it was the first full quarter in which the
Chemdex Marketplace was operational. Net revenues consist primarily of product
sales to customers and charges to customers for outbound freight. Under most
of our supplier agreements we are acting as a principal in purchasing products
from our suppliers and reselling them to our customers so that we recognize
revenues equal to the amount paid by our customers and cost of revenues equal
to the amount we pay to our suppliers for these products. Under our principal-
based agreements, we are responsible for selling the products, collecting
payment from customers, ensuring that the shipment reaches customers and
processing returns. In addition, we take title to products upon shipment and
bear the risk of loss for collection, delivery and merchandise returns from
customers. Some of our agreements with our suppliers treat us as an agent of
the supplier, in which case we receive a percentage fee on product sales. We
recognize revenue from product sales, net of any discounts, and from fees
under our agency-based supplier agreements, when the products are shipped to
customers. Products are shipped directly to customers by suppliers based on
customer delivery date specifications.
Cost of Revenues
Cost of revenues consists primarily of the costs of acquiring products from
our suppliers for sale to our customers. During the quarter ended March 31,
1999, cost of revenues increased primarily due to the increase in revenues.
Cost of revenues is expected to increase in future periods reflecting
increases in sales volume. Our gross margin from inception through March 31,
1999 was approximately 6.8%. The low gross margin on product sales, primarily
all of which were recognized under principal-based agreements, was due to our
accepting low margins in order to increase early sales volume, customer
adoption, and awareness of the Chemdex brand. We expect margins to remain low
until we are able to negotiate larger discounts from our suppliers.
Operating Expenses
Research and Development. Research and development expenses consist of
personnel and other expenses associated with developing and enhancing software
in support of the Chemdex Marketplace. Our research and development expenses
have increased each quarter since inception primarily due to increased
staffing and associated costs related to the design and development and
maintenance of the Chemdex Marketplace, and content and design expenses. We
believe that our success is dependent in large part on continued enhancement
of the Chemdex Marketplace. Accordingly, we expect research and development
expenses to increase in future periods.
Sales and Marketing. Sales and marketing expenses consist primarily of
advertising and promotion in support of the development of our marketing
strategy and payroll and related expenses for personnel engaged in supplier
relations and sales activities. Sales and marketing expenses have increased
since inception as we have expanded our sales and marketing efforts. We intend
to aggressively expand our supplier and customer relationships and to increase
revenues and expand our brand awareness. Consequently, we expect to increase
the sales and marketing expenses in future periods. In addition, sales and
marketing expenses will increase significantly due to our recently established
relationships with BIO and VWR.
General and Administrative. General and administrative expenses consist
primarily of salaries, fees for professional services and lease expenses.
General and administrative expenses have increased primarily as a result of
the addition of finance and administrative personnel and the costs of leasing
additional office space to support our growth, as well as expenses related to
increased professional service fees. We expect general and administrative
expenses to increase in future periods to support our expanded operations and
the expenses of being a public company.
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Amortization of Deferred Compensation. We recorded aggregate deferred
compensation of $6.2 million in connection with some of the stock options we
granted through March 31, 1999. For the year ended December 31, 1998 and the
three months ended March 31, 1999, we amortized $372,000 and $352,000,
respectively, related to stock options. In April 1999, we recorded additional
deferred compensation of $2.5 million related to stock option grants. The
deferred compensation amounts are being amortized over the vesting period of
the stock options, generally four years. See Note 6 of Notes to Financial
Statements.
Interest and Other Income, Net
Interest and other income, net has been derived primarily from earnings on
cash investments, offset by interest expense associated with our capitalized
lease obligations for equipment purchases.
Income Taxes
We incurred operating losses and accordingly did not record a provision for
income taxes for any of the periods presented. At December 31, 1998, we had
net operating loss carryforwards and federal tax credits for federal income
tax purposes of $7.5 million and $100,000, respectively. In addition, we had
state net operating loss and research and development credit carryforwards of
approximately $7.4 million and $100,000, respectively. These net operating
losses and credits will expire in the years 2002 through 2018 if not utilized.
Certain future changes in our share ownership, as defined in the Tax Reform
Act of 1986 and similar state provisions, may restrict the utilization of
carryforwards. A valuation allowance has been recorded for the entire deferred
tax asset as a result of uncertainties regarding the realization of the assets
due to our lack of earnings history. See Note 8 of Notes to Financial
Statements.
VWR Transaction
In connection with our agreement with VWR, VWR transferred to us
information concerning VWR customers who purchased products from third party
suppliers outside of VWR's primary product offering, and in exchange we issued
shares of common stock to VWR. We intend to use this information to expand
sales of our purchasing solution to these customers and adoption of the
Chemdex Marketplace by these customers and suppliers. The deemed fair value of
the common stock will be amortized as sales and marketing expense over five
years, the estimated useful life of this intangible asset. The annual
amortization will be approximately $2.8 million. See "Business--Strategic
Relationship with VWR" and Note 9 of Notes to Financial Statements.
BIO Transaction
The Biotechnology Industry Organization (BIO) recently selected Chemdex as
its preferred supplier of electronic commerce purchasing solutions. As a
result, we entered into a five-year, exclusive joint marketing agreement. As
part of the joint marketing agreement, Chemdex will discount the fees we
charge to BIO members for our solution and contribute cash payments to a joint
marketing fund, to be used in connection with both parties' obligations under
the joint marketing agreement. In addition, we sold 187,500 shares of our
common stock to BIO for a nominal amount in consideration for BIO's
participation in these joint marketing activities. BIO has the right to use a
portion of the cash payments and any proceeds it receives from the sale of the
common stock to support activities which may be unrelated to BIO's obligations
under the agreement and which benefit its members and the biotechnology
industry. The charge for BIO marketing activities will be expensed to sales
and marketing as they are incurred. We will also record the difference between
the nominal amount per share price paid by BIO for the purchase of our common
stock and the fair value as of the date of issuance, which is approximately
$1.8 million, ratably over the five-year term of the joint marketing
agreement. See "Business--Relationship with BIO" and Note 9 of Notes to
Financial Statements.
Liquidity and Capital Resources
We have funded our operations primarily through the private sale of our
equity securities, through which we have raised net proceeds of approximately
$42.8 million through the quarter ended March 31, 1999. We have
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also financed our operations through equipment lease financing. As of March
31, 1999, our principal sources of liquidity included approximately $27.8
million of cash and cash equivalents and $4.1 million in equipment financing
arrangements. The arrangements include an agreement with Oracle Credit
Corporation for $1.1 million that provides for 12 equal quarterly payments of
the financed amount commencing May 1, 1999, with interest imputed at 13.24%
per year, and a $3.0 million equipment lease line agreement with a financial
institution for a term of 48 months, with interest imputed at 13.02% per year.
At March 31, 1999 there was $1.1 million in borrowings outstanding under the
equipment financing arrangements. Subsequent to March 31, 1999, in April 1999,
we raised an additional approximately $2.3 million in net proceeds from the
private sale of our Series C Preferred Stock.
Cash used in operating activities totaled $6.8 million in 1998 and $4.6
million for the quarter ended March 31, 1999, primarily due to our net losses,
which were partially offset by non-cash charges of depreciation and
amortization of deferred compensation and sales and marketing and interest
expense related to warrants and increases in accounts payable and accrued
expenses.
Cash used in investing activities totaled $1.6 million in 1998 and $1.5
million for the quarter ended March 31, 1999. We have made substantial
investments in computer equipment, computer software, office furniture and
leasehold improvements.
Net cash provided by financing activities was $13.0 million in 1998 and
$27.9 million for the quarter ended March 31, 1999. Net cash from financing
activities during 1998 and for the quarter ended March 31, 1999 resulted
primarily from the sale of preferred stock. We expect to fund future operating
expenses from revenues received from the sale of our products, public or
private financing and the proceeds of this offering.
We currently anticipate that the net proceeds from this offering, together
with our current cash, cash equivalents, and equipment lease line, will be
sufficient to meet our anticipated cash needs for working capital and capital
expenditures for at least the next 12 months. However, we may need to raise
additional funds in future periods through public or private financings, or
other arrangements to fund our operations and potential acquisitions, if any,
over a long-term basis until we achieve profitability, if ever. Any additional
financings, if needed, might not be available on reasonable terms or at all.
Failure to raise capital when needed could seriously harm our business and
results of operations. If additional funds are raised through the issuance of
equity securities, the percentage of ownership of our stockholders would be
reduced. Furthermore, these equity securities might have rights, preferences
or privileges senior to our common stock.
Year 2000 Compliance
Many currently installed computer systems and software products are unable
to distinguish year 2000 dates. This situation could result in system failures
or miscalculations causing disruptions in the operations of any business. As a
result, many companies' software and computer systems may need to be upgraded
or replaced to comply with year 2000 requirements. Our ability to operate is
dependent upon delivery of accurate, electronic information via the Internet.
To the extent year 2000 issues result in the long-term inoperability of the
Internet or the Chemdex Marketplace, our business, results of operations and
financial condition could be seriously harmed.
We completed an assessment of our information technology systems for year
2000 problems in April 1999. We have not replaced any of our systems based on
the results of our assessment. However, we have made modifications to some
systems based on our assessment of year 2000 problems.
Representations and Warranties to Our Customers
We generally represent and warrant to our customers that the occurrence of
the date January 1, 2000 and any related leap-year issues will not cause the
Chemdex Marketplace application software to fail to operate properly. Our
warranty generally applies only to our software and excludes failures
resulting from the
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combination of our software with other software or hardware, unauthorized
changes to the software or network connectivity problems, including, without
limitation, problems connecting to the Internet or problems relating to
Internet service providers. If we breach this warranty, the recourse that our
customers may seek is limited to the prompt correction by us at our own
expense of any failure of our software to the reasonable satisfaction of the
customer.
Our Testing of Our Online Marketplace Application Software
We have internally reviewed the Chemdex Marketplace application software.
We have performed industry-standard procedures to test our internally
developed applications for year 2000 compliance. Based on our testing, we
believe that our internally developed applications and systems are designed to
be year 2000 compliant. In addition, we hired a consultant to perform
additional testing, including a year 2000 readiness audit of our internally
developed online application software. The consultant's audit report concluded
that our online application software is year 2000 compliant.
Assessment of Third-Party Equipment and Software. We utilize third-party
equipment and software that may not be year 2000 compliant. Failure of third
party equipment or software, or the interface of our applications with this
equipment or software, could result in a material adverse effect on our
business, results of operations and financial condition. We are currently
assessing the year 2000 risks of our third-party desktop systems that are
unrelated to the Chemdex Marketplace. We have contacted the vendors of most of
our third-party software and equipment to assess the year 2000 risks of our
third-party systems that are unrelated to the Chemdex Marketplace. We have
received year 2000 compliance letters from some of these vendors. We are also
in the process of contacting the few remaining vendors with whom we have not
yet spoken in order to assess their year 2000 compliance. Based on these
vendors' representations, we believe that there are a number of third-party
hardware and software systems, some of which are material to our operations,
that require some upgrade in order to be year 2000 compliant. We plan to
complete our assessment of the risk posed by these third-party systems to our
operations by the end of September 1999.
Interaction of Our Marketplace with Supplier and Customer
Systems. Furthermore, the success of our efforts may depend on the success of
our suppliers, customers and strategic partners in dealing with their year
2000 issues. Many of these organizations' systems may not yet be year 2000
compliant, and the impact of failure of these systems on the Chemdex
Marketplace is difficult to determine. The availability of products from our
suppliers and the purchasing patterns of our customers or potential customers
may be affected by year 2000 issues.
In addition, until some of the billing and cash collection functions for
the sale of third party products are transitioned to us, we are dependent upon
VWR's systems, which may not be year 2000 compliant, for receiving payment for
third party products. If the systems of any of our suppliers or customers, and
particularly, if VWR's billing and cash collection systems, are not year 2000
compliant, our business, revenues, results of operations and financial
condition could be severely harmed.
According to its public filings, VWR is implementing enhancements to its
computer systems to satisfy its future requirements. During 1997, VWR
purchased an enterprise-wide computer system package that is replacing many of
VWR's systems, including order entry, purchasing, and financial systems. VWR
completed the initial rollout of the new systems during the fourth quarter of
1998. VWR had an external review conducted by an independent information
technology-consulting firm to identify legacy computer systems that could be
affected by the year 2000 issue, when they would be affected, and how the year
2000 issues may be remedied. The extent of Year 2000 remediation performed by
VWR was coordinated with the new systems implementation timetable. VWR is
transitioning to the new system on a regional basis and expects to be
completed in the third quarter of 1999. VWR's new system, together with other
planned system changes, is intended to address its year 2000 issues.
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Our Contingency Planning Effort
We are engaged in an ongoing year 2000 assessment and are gathering
information for the development of contingency plans. We are in the process of
contacting our strategic partners and major customers to gauge their year 2000
compliance and request year 2000 compliance information and letters. We expect
to receive responses from our critical suppliers, strategic partners and major
customers by the end of September 1999. The nature and extent of our
contingency plans will depend on the responses received from our critical
suppliers, strategic partners and major customers. We have not yet identified
our worst-case scenario resulting from a year 2000 failure. Without a worst-
case scenario contingency plan we may not have enough time to implement
contingency planning and complete remedial measures. We do not have any
contingency plans to date and intend to develop and complete contingency plans
in the fourth quarter of 1999.
Costs of Addressing Year 2000 Compliance
To date, our costs to address year 2000 compliance have been approximately
$500,000 and are included in operating expenses funded from working capital.
We anticipate the additional costs to address year 2000 compliance will be
approximately $800,000. We currently have not deferred other information
technology projects due to our year 2000 efforts. Significant uncertainty
exists concerning the potential costs and effects associated with year 2000
compliance. Any year 2000 compliance problem experienced by us, our customers,
suppliers or strategic partners could decrease the demand for or availability
of products, which could seriously harm our business, operating results and
financial condition.
Recent Accounting Pronouncements
In June 1998, the FASB issued FAS 133, Accounting for Derivative
Instruments and Hedging Activities, which we will be required to adopt for the
year ending December 31, 2000. This statement establishes a new model for
accounting for derivatives and hedging activities. FAS 133 establishes methods
of accounting for derivative financial instruments and hedging activities
related to those instruments as well as other hedging activities. Because we
currently hold no derivative financial instruments and do not currently engage
in hedging activities, adoption of FAS 133 is expected to have no material
impact on our financial condition or results of operations.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) No. 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use. SOP No. 98-1
requires entities to capitalize some of the costs related to internal-use
software once the applicable criteria have been met. We expect that the
adoption of SOP No. 98-1 will not have a material impact on our financial
position or results of operations. We will be required to implement SOP No.
98-1 for the year ending December 31, 1999.
In April 1998, the AICPA issued SOP 98-5, Reporting for the Costs of Start-
Up Activities. SOP No. 98-5 requires that all start-up costs related to new
operations to be expensed as incurred. In addition, all start-up costs that
were capitalized in the past must be written off when SOP No. 98-5 is adopted.
We expect that the adoption of SOP No. 98-5 will not have a material impact on
our financial position or results of operations. We will be required to
implement SOP No. 98-5 for the year ending December 31, 1999.
Qualitative and Quantitative Disclosures about Market Risk
Our sales from inception to date have been made to U.S. customers and, as a
result, we have not had any exposure to factors such as changes in foreign
currency exchange rates or weak economic conditions in foreign markets.
However, in future periods, we expect to sell in foreign markets, including
Europe and Asia. As our sales are made in U.S. dollars, a strengthening of the
U.S. dollar could make our products less competitive in foreign markets. At
March 31, 1999, we did not hold any short or long-term investments and,
therefore, did not have any market risk exposure related to changes in
interest rates. Therefore, no quantitative tabular disclosures are required.
At March 31, 1999, our cash and cash equivalents consisted primarily of money
market funds and commercial paper held by large institutions in the U.S.
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BUSINESS
Overview
Chemdex is a leading provider of e-commerce solutions to the highly
fragmented life sciences industry. We enable life sciences enterprises,
researchers and suppliers to efficiently buy and sell research products
through the Chemdex Marketplace, a secure, Internet-based purchasing solution.
The Chemdex Marketplace utilizes an advanced search engine and software to
allow users to easily identify, locate and purchase life sciences research
products. We believe the Chemdex Marketplace and purchasing solution provide
significant benefits to enterprises, researchers and suppliers.
Industry Background
Growth of Business-to-Business Commerce on the Internet
The Internet has emerged as the fastest growing communications medium in
history and is dramatically changing how businesses and individuals
communicate and share information. International Data Corporation estimates
that the number of Internet users will grow from 97 million at the end of 1998
to 320 million by 2002, though Chemdex may not benefit from this growth. The
Internet has created new opportunities for conducting commerce, such as
business-to-consumer and person-to-person e-commerce. Recently, the widespread
adoption of intranets and the acceptance of the Internet as a business
communications platform has created a foundation for business-to-business e-
commerce that offers the potential for organizations to streamline complex
processes, lower costs and improve productivity. Internet-based business-to-
business e-commerce is poised for rapid growth and is expected to represent a
significantly larger opportunity than business-to-consumer or person-to-person
e-commerce. According to Forrester Research, business-to-business e-commerce
is expected to grow from $43 billion in 1998 to $1.3 trillion in 2003,
accounting for more than 90% of the dollar value of e-commerce in the United
States by 2003, though Chemdex may not benefit from this growth.
The dynamics of business-to-business e-commerce relationships differ
significantly from those of other e-commerce relationships. Business-to-
business e-commerce solutions frequently automate or otherwise impact
workflows or processes that are fundamental to a business's operations by
replacing various paper-based transactions with electronic communications. In
addition, business-to-business e-commerce solutions must often be integrated
with an enterprise's existing information systems, a process that can be
complex, time-consuming and expensive. Finally, personnel throughout the
enterprise must be trained to use the solution. Consequently, selection and
implementation of a business-to-business e-commerce solution represents a
significant commitment by the enterprise, and the costs of switching solutions
are high. In addition, because business transactions are typically recurring
and non-discretionary, the average order size and lifetime value of a
business-to-business e-commerce customer is generally greater than that of a
business-to-consumer e-commerce customer.
Business-to-business e-commerce solutions that offer improved efficiency
through the automation of business processes and workflows are being targeted
toward a variety of industries. These solutions are likely to be most readily
accepted by industries characterized by a large number of buyers and sellers,
a high degree of fragmentation among buyers, sellers or both, significant
dependence on information exchange, large transaction volume and user
acceptance of the Internet.
The Life Sciences Research Products Market
The life sciences research products market is large and growing, with a
myriad of customers and suppliers. According to the Laboratory Products
Association, the North American life sciences research products market was
approximately $9.4 billion in 1998. Outside of North America, the life
sciences research products market is concentrated in Europe and Japan. The
growth in the life sciences research products market is driven by increasing
research and development expenditures by pharmaceutical and biotechnology
companies, as well as an increase in the level of research funding available
for grant by the National Institutes of Health, similar international
government agencies and private foundations. Research and development budgets
have been
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increasing as new discovery tools, such as genomics, combinatorial chemistry
and high-throughput screening, are developed and utilized. These new
technologies allow researchers to experiment with thousands of chemical
compounds simultaneously, which requires extensive use of reagents and other
life sciences research products.
The life sciences research products market is highly fragmented. There are
over 5,000 suppliers offering more than one million products, many of which
are highly specialized. Life sciences research products include reagents,
chemical compounds, specialty chemicals, consumables, research instruments and
other equipment. The primary purchasers and users of life sciences research
products are research scientists working in pharmaceutical and biotechnology
companies, and academic and research institutions.
Limitations of Traditional Purchasing Methods for Life Sciences Research
Products
Traditional purchasing methods in the life sciences industry are
inefficient, costly and time consuming for both the researcher and the
enterprise. Product orders are traditionally handled through an internal,
paper-based purchasing process that requires manual preparation of a purchase
order, written approval by the researcher's purchasing manager and manual
order tracking, billing and reporting across multiple departments within the
enterprise. Researchers, or their purchasing agents, place orders by
telephone, fax or e-mail and typically must place orders with multiple
suppliers to obtain all products related to a single research experiment.
Additionally, the paper-based orders are costly for purchasers and suppliers
to track and bill, and the decentralized order process does not facilitate
data collection, which is required to take full advantage of volume discounts
or other economies of scale. In addition, given the specialized and complex
nature of life sciences research products, the researchers have specific and
unique knowledge regarding product selection. Therefore it is difficult to
integrate these purchases with the enterprise's purchasing policies and
business rules.
The fragmentation of the life sciences supplier base also creates
inefficiencies for researchers. Since the researcher is often searching for a
specific product to meet the parameters of a research experiment, the current
paper-based purchasing process is complex, cumbersome and time-consuming. For
example, a life sciences researcher studying intracellular communications
related to cancer cells may need to purchase select antibodies for use in a
research experiment. There are numerous suppliers of antibodies, and product
specificity, reactivity, purity and other characteristics vary among
suppliers. Researchers may spend several hours examining multiple paper
product catalogs and other information from different suppliers to identify
the most appropriate product.
Traditional purchasing methods also present a number of challenges to
suppliers trying to reach life sciences researchers with product information.
Due to the high cost of printing and distributing paper catalogs, suppliers
cannot cost-effectively manage frequent updates and distribution of time-
sensitive information. In addition, individual researchers frequently move
from enterprise to enterprise, making it difficult for suppliers to maintain
contact with them. While some suppliers have developed Internet websites to
communicate with individual researchers, few have invested the significant
time and money required to establish an effective e-commerce channel with
their customer base. Most suppliers, often very small in size, have limited
resources available to support the growing challenge of marketing and selling
to the fragmented, worldwide life sciences research products market.
Opportunity for Business-to-Business E-commerce Solution
Recognizing the limitations of traditional purchasing methods, several
large pharmaceutical and biotechnology companies have developed automated
purchasing systems. These systems attempt to streamline the purchasing process
and leverage purchasing volumes, but often have limitations. These solutions
may only offer access to the products of a limited number of suppliers and may
not be scalable. In addition, enterprises incur significant costs developing
internal solutions, integrating them with other enterprise systems and
maintaining their compliance with the enterprise's business rules and
purchasing policies.
Despite efforts by these enterprises, the fragmentation and complexities of
the life sciences industry and the current paper-based purchasing process
create the need for a business-to-business e-commerce solution
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that seamlessly links suppliers and purchasers of research products. To
effectively address the needs of the life sciences enterprise, a solution must
be cost-effective, easily implemented and maintained, enable the enterprise to
enforce its particular purchasing policies and business rules, enable the
collection of data to maximize volume purchase discounts and interface to
multiple suppliers. To effectively address the needs of the researcher, a
solution must be easy to use and provide comprehensive product selection, in-
depth product information, specialized search capabilities and an efficient
order and order-tracking mechanism. To effectively address the needs of
customers and suppliers, it is important that the solution offer a neutral and
fair marketplace with full catalog descriptions of products and retail product
pricing information. Such information must also be fairly and accurately
presented to researchers. In addition, the solution should offer suppliers an
opportunity for incremental sales, the ability to offer customer-specific
pricing and an opportunity to leverage any existing electronic catalogs that
may have been implemented by the supplier.
The Chemdex Solution
Chemdex is a leading provider of e-commerce solutions to the life sciences
research products market. The Chemdex Marketplace is a secure, Internet-based
purchasing solution that enables life sciences enterprises, researchers and
suppliers to efficiently buy and sell life sciences research products. The
Chemdex Marketplace utilizes a database of approximately 240,000 life sciences
research products, advanced search engines and transaction software that
enable users to easily identify, locate and purchase the products they need.
We also provide applications that enable our customers and suppliers to
interface with the Chemdex Marketplace to automate their transactions. In
addition to the Chemdex Marketplace, we provide professional and
implementation services to enable our customers to take full advantage of the
capabilities of the Chemdex Marketplace.
Benefits to the Enterprise
Chemdex's purchasing solution enables enterprises to integrate their
business rules and processes, and negotiated supplier pricing with the Chemdex
Marketplace. We also provide enterprises the option of tailoring our solution
to meet their needs. Our purchasing solution requires minimal investment of
time and capital by our enterprise customers to install, maintain and use. Our
solution automates, consolidates and monitors the approval and invoicing
process as well as the order placement and delivery information for the
enterprise. In addition to reducing the cost of purchasing, our solution
allows our enterprise customers to enforce their particular business rules and
aggregate purchases to obtain volume discounts and other economies of scale.
The Chemdex Marketplace resides entirely on our servers, is accessible by
standard browsers and requires minimal software installation or integration at
the customer site.
Benefits to the Researcher
Researchers, research assistants and other users within enterprises benefit
from the Chemdex Marketplace because it offers them convenient and easy one-
stop shopping. A researcher can use our advanced search engine to identify and
locate products from a broad product database and can use our automated
ordering and approval process to purchase products. For example, our solution
allows a researcher to personalize a list of product favorites to facilitate
product selection and recurring orders. The Chemdex Marketplace offers other
advantages over the traditional paper catalog alternative, including the
online ability to compare various products from a single or multiple suppliers
and track the progress of an order. These features result in significant time
savings for the researcher.
Benefits to the Supplier
We offer suppliers a cost-effective opportunity to reach more customers and
sell more products by establishing or enhancing their Internet presence and
providing links to existing online or electronic catalogs. The Chemdex
Marketplace also offers suppliers the capability to implement customer-
specific pricing, update product information and introduce new products
without being limited by specific catalog publication cycles. In
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many cases, the Chemdex Marketplace will appeal to suppliers as being less
costly than traditional distribution or representation arrangements because,
among other factors, our purchasing discounts may be less than those of
traditional distributors. We plan to provide tools to our suppliers that
enable the online update and modification of their product databases hosted on
our servers, or to integrate the Chemdex Marketplace directly with their
systems. The Chemdex Marketplace is neutral in that its search capability
identifies products that meet the researchers' search criteria, and provides
an unbiased comparison of product characteristics and pricing to allow the
researcher to make a reasoned choice based upon the information provided by
suppliers.
The Chemdex Strategy
Our objective is to expand upon our position as a leading e-commerce
solution for the life sciences industry. Our strategy to achieve this
objective includes the following key elements:
Capitalize on Market Position and Build Customer Brand Recognition. We
intend to capitalize on the fact that we are one of the first companies to
offer an e-commerce solution to the life sciences research products market by
offering the most comprehensive e-commerce solution to the life sciences
research products market. We also intend to pursue strategic relationships
with industry leaders, such as those we have established with VWR Scientific
Products Corporation (VWR) and the Biotechnology Industry Organization (BIO),
to accelerate market awareness and demand for our e-commerce solution. We
intend to leverage our strategic relationship with VWR to gain entry into and
establish relationships with their enterprise customers and life sciences
research product suppliers. We also intend to pursue an aggressive brand
development strategy through targeted advertising and promotions, press
coverage and participation in trade associations and industry events.
Expand Product Offering and Increase Adoption of the Chemdex Marketplace.
We believe our breadth of products and purchasing solution provide us with an
essential foundation for a comprehensive e-commerce solution for the life
sciences industry. We currently offer approximately 240,000 products from
approximately 110 suppliers. We have agreements with suppliers that provide us
access to approximately 550,000 additional products that we plan to add to the
Chemdex Marketplace, including approximately 350,000 VWR-distributed products.
We intend to advance our market leadership by continuing to expand the
selection of life sciences research products offered through the Chemdex
Marketplace. A growing number of suppliers and products in the Chemdex
Marketplace will potentially draw more enterprise customers and accelerate
adoption by researchers. As the Chemdex Marketplace attracts a critical mass
of enterprise customers and researchers, we believe the buying power of these
customers will attract additional suppliers to our marketplace. We also
believe this growth cycle will help create a network effect, where the value
to each in the network increases with the addition of each new participant,
increasing the overall value of the Chemdex Marketplace.
Increase Usage of Chemdex Marketplace and Increase Our Productivity. We
intend to aggressively increase the base of enterprise customers using the
Chemdex Marketplace, and drive rapid adoption within current and future
enterprise customers. Our hosted, Internet-based purchasing solution can be
quickly and easily installed at the enterprise, reducing the initial
commitment of time and capital for new enterprises adopting our solution. To
encourage implementation throughout the enterprise, we charge minimal initial
fees, and in some cases waive initial fees if customers achieve minimum
purchase volumes. Additionally, we will continue to educate users within our
existing and future enterprise customers about the benefits of our solution
and provide training on its use, thereby accelerating adoption. The cost of
processing individual transactions will drop as the volume of transactions
processed by the Chemdex Marketplace continues to grow, and through increased
volumes and further automation of our solution, we will strive to increase
productivity across our business.
Maintain Technological Leadership. We intend to continue to improve our
technology to meet the evolving needs of our customers. We will continue to
expend substantial efforts to develop, purchase or license technological
advancements to our purchasing solution to enhance its reliability,
functionality and ease of integration with existing or newly developed
enterprise resource planning applications and other purchasing systems. We
intend to further automate the collection of product information from key
suppliers, which will
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enable timely updates of product information, as well as inventory
availability. We also intend to improve our customer- and supplier-specific
pricing flexibility and to enable purchasing in multiple foreign currencies.
Expand Internationally. We believe the international scope of the Internet,
the global reach of many of our customers and the worldwide demand for life
sciences research products present opportunities to expand our Chemdex
Marketplace internationally. The non-U.S. life sciences research products
market is highly concentrated in Europe and Japan, and U.S. suppliers have a
substantial presence in these markets. We plan to leverage our technology,
expertise and existing supplier relationships to expand our Chemdex
Marketplace to Europe and Asia.
The Chemdex Marketplace
Our Chemdex Marketplace consists of a broad database of approximately
240,000 life sciences research products and advanced search engine and
transaction software that enable users to easily identify, locate and purchase
the products they need. We also provide applications that enable our customers
and suppliers to interface and automate the information exchange with the
Chemdex Marketplace. In addition to our Chemdex Marketplace and Internet-based
applications, we provide professional and implementation services to enable
our customers to take full advantage of the capabilities of the Chemdex
Marketplace. We believe that our business model, which is based on negotiated
price discounts from our suppliers rather than transaction fees payable by the
customer, will further drive usage of the Chemdex Marketplace. In addition,
our customer support and sales group helps customers understand both the
business and technical benefits of the Chemdex Marketplace and provides one-
on-one education and training to increase user adoption.
The following chart summarizes the key services supported by the Chemdex
Marketplace and the features of these services.
<TABLE>
<CAPTION>
Services Supported Chemdex Features
- -------------------------------------------------------------------------------------
<C> <C> <S>
Enterprise . Purchasing system management . Interface to existing enterprise
network and ERP software
. Automated order approval process
. Approval and purchase of life . Summary invoicing and reporting
sciences research products
. Enforcement of business rules
. Customized supplier pricing
. Comparative price/product
shopping
- -------------------------------------------------------------------------------------
Researcher . Identification, comparison and . One-stop shopping
purchase of life sciences . Search engine to identify,
research products locate and compare products
. Current, detailed product
information
. Automated order submission and
status
. Recurring order form
- -------------------------------------------------------------------------------------
Supplier . Sale of life sciences research . Support integration with
products supplier sales order flow
. Automated order submission and
tracking
. Automated process for updating
and adding product/price
information
. Customer support services
</TABLE>
How it works for the enterprise. The enterprise customer interface with the
Chemdex Marketplace varies based upon the customer's existing purchasing
system. Our applications and services can be implemented as a stand-alone
solution, or can be integrated with existing systems or other commercially
available purchasing solutions. Our applications are designed to be easily
customized to match the workflow requirements and business rules of the
enterprise. We also provide access to the Chemdex Marketplace through our web
site. In most cases, the most important impact of our solution is paperless
automation of the purchasing approval process. Purchasing limits are most
often applied on an individual researcher or project basis, and the Chemdex
Marketplace interfaces with the enterprise's system to ensure compliance with
defined limits. Our solution can
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be integrated with enterprise financial accounting systems to further automate
specific product purchase information. The enterprise's information technology
group has few support requirements beyond the initial installation, since the
Chemdex Marketplace is entirely hosted on our client servers with all
recurring product upgrades managed and installed by us.
How it works for the researcher. The researcher most often interfaces with
the Chemdex Marketplace to order specific products for research experiments.
In many cases, the researcher needs the same items on a regular basis and our
solution allows a researcher to personalize a list of "favorites" to
facilitate product selection and recurring orders. The Chemdex Marketplace
also provides robust product search capabilities that help researchers
identify new products needed to meet the specific characteristics required for
an experiment. Researchers have password access to the system, and can easily
process their recurring orders, as well as orders for new products. The system
allows the researcher to identify the incremental shipping costs for expedited
processing, and provides for automated paperless processing of an order once
the product selection is complete. The researcher is also able to track the
status of individual orders within the system, reducing the time required to
communicate with purchasing personnel or suppliers.
How it works for the supplier. Electronic versions of product catalogs are
provided to us in a variety of file formats. These files are converted to
searchable data which is loaded into the Chemdex Marketplace using a number of
sophisticated product loading algorithms. Our content engineering staff then
reviews the data as loaded in the Chemdex Marketplace to ensure proper
classification for purposes of product searches. The ability to process large
volumes of complex catalog information is an important core competency which
allows us to afford maximum flexibility to our suppliers in loading data and
updating information. We also provide suppliers the ability to readily update
their product information to include revised pricing, new product
introductions or additional product details of interest to the customers. We
send product order information to suppliers in a number of electronic media
forms, including electronic data interchange, e-mail, HTML or flat file, to
maximize automation and integration with existing supplier software systems.
Future Services. Chemdex anticipates that aggregated product purchasing and
sales information will ultimately be valuable to both suppliers and customers.
After accumulating significant historical data regarding buying patterns, we
intend to make non-confidential, aggregated information available to both
suppliers and customers as an additional service.
Our Customers
Our target customers are pharmaceutical and biotechnology companies and
academic and research institutions. As of March 31, 1999, we have entered into
agreements to provide our purchasing solution to 17 enterprise customers and
sold life sciences research products to over 250 users. Sales to Genentech
researchers accounted for approximately 82% of our total revenue for the
quarter ended March 31, 1999.
The following is a list of our enterprise customers that have used the
Chemdex Marketplace to purchase life sciences research products or signed
agreements with us as of March 31, 1999:
<TABLE>
<S> <C>
CV Therapeutics Phyton, Inc.
Elan Pharmaceuticals Raven Biotechnologies
Eos Roche Bioscience
Genentech, Inc. Telik, Inc.
Harvard University University of California, San Francisco
HemaSure, Inc. University of Illinois
Immune Complex Corporation VaxGen, Inc.
Maxygen, Inc.
</TABLE>
We also sell life sciences research products to registered users who are
not affiliated with our enterprise customers through our web site at
www.chemdex.com. Because of the nature of some of the products we sell,
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we are taking steps to register unaffiliated users to our web site to ensure
that they are associated with pharmaceutical or biotechnology companies, or
academic or research institutions.
Although we intend to increase our sales and marketing efforts, we expect
that we will continue to generate a significant portion of our revenue from a
limited number of customers for the foreseeable future. If we do not increase
the number of our customers, or if we lose any of our current customers or do
not generate as much revenue from them as we expect, our business would be
significantly harmed.
Our Suppliers
We believe the value and benefit to our customers of our purchasing
solution is directly related to the breadth and depth of life sciences
research products offered through our Chemdex Marketplace. We currently offer
approximately 240,000 products from approximately 110 suppliers. We have
agreements for approximately 550,000 additional products which we plan to add
to our Chemdex Marketplace, including approximately 350,000 VWR-distributed
products. We anticipate that a majority of these products, which are related
to VWR, will be loaded in the Chemdex Marketplace by the third quarter of 1999
and that the remaining products will be loaded by the end of the fourth
quarter of 1999. The following is a list of our largest product suppliers
based on our revenues for the quarter ended March 31, 1999;
<TABLE>
<S> <C>
Accurate Surgical and Scientific Molecular Probes, Inc.
Amersham Life Science Inc. New England BioLabs Inc.
Biosource International, Inc. PeproTech, Inc.
CN Biosciences, Inc. PharMingen
CHEMICON International, Inc. Pierce Chemical Company
Clontech Laboratories, Inc. Research Organics, Inc.
Dako Corporation Spectrum Quality Products, Inc.
Endogen, Inc. Stratagene
Kirkegaard & Perry Laboratories, Inc. United States Biological
Lancaster Synthesis Ltd.
</TABLE>
We currently have seven employees who are responsible for maintaining
existing relationships and establishing new relationships with suppliers.
Strategic Relationship with VWR
We recently entered into a strategic relationship agreement with VWR
Scientific Products Corporation to jointly market VWR laboratory products
using the Chemdex Marketplace. VWR is one of the laboratory supply industry's
largest distributors. The agreement gives us the right to offer approximately
350,000 VWR-distributed products to our customers through the Chemdex
Marketplace. We currently expect to make the majority of these products
available through the Chemdex Marketplace in the third quarter of 1999. VWR
and Chemdex are jointly developing a hosted, co-branded Internet purchasing
solution for VWR's existing and future customers that will provide access to
three categories of products:
. products distributed by VWR (VWR core products),
. products distributed by Chemdex (Chemdex core products) and
. products that are not distributed by either VWR or Chemdex but are
purchased from third parties (third party products).
With respect to sales of VWR core products, we will act as an intermediary
and will forward orders received through the Chemdex Marketplace to VWR for
fulfillment and customer service. We will receive no fee for orders for VWR
core products from VWR's 40 largest customers and we will receive a minimal
fee for all other orders for VWR core products forwarded to VWR. We will be
responsible for fulfillment and customer service
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for all Chemdex core product and orders for third party products received from
VWR customers through the Chemdex Marketplace. Under the terms of the
agreement, VWR will provide support for the purchase of third party products
in return for a fee which approximates VWR's costs incurred.
VWR and Chemdex will jointly market VWR core products and Chemdex core
products to VWR's existing and new customers and will jointly solicit several
key existing VWR suppliers to distribute, market and sell their products
through the Chemdex Marketplace. We believe the VWR strategic relationship
will enhance and broaden the Chemdex Marketplace, and the availability of
third party products will enable us to offer complete fulfillment capability
to current and future VWR customers through the co-branded Chemdex
Marketplace. We believe the VWR strategic relationship will accelerate
adoption of the Chemdex Marketplace by VWR customers, which include major U.S.
pharmaceutical and biotechnology companies, and will enable us to establish
relationships with additional key suppliers and customers.
As part of the strategic relationship, Jerrold Harris, the President and
Chief Executive Officer of VWR, joined our board. In addition, VWR received
2,538,405 shares of our common stock. VWR is subject to contractual limits on
their percentage ownership of our stock, except in connection with the
acquisition of our stock by specified companies. See "Related Party
Transactions."
Relationship with BIO
The Biotechnology Industry Organization (BIO) recently selected us as its
preferred supplier of electronic commerce solutions. As a result, we entered
into a five-year, exclusive joint marketing agreement with BIO. We believe
this agreement will significantly facilitate the selection and adoption of the
Chemdex solution by BIO's members and provide us with a significant
competitive advantage. Under the agreement, BIO will endorse us as the
preferred provider of electronic commerce purchasing solutions to the
biotechnology industry and engage with us in joint marketing activities,
including endorsement of Chemdex through BIO-sponsored speaking engagements,
in BIO publications and direct marketing materials, at BIO shows and
conferences, and on the BIO web site. As part of the joint marketing
agreement, we will discount the fees we charge to BIO members and contribute
cash payments to a joint marketing fund, to be used in connection with both
parties' obligations under the joint marketing agreement. In addition, we sold
187,500 shares of our common stock to BIO for a nominal amount in
consideration for BIO's participation in these joint marketing activities. BIO
is an industry organization that serves and represents the biotechnology
industry, including more than 850 biotechnology companies, academic
institutions, and state biotechnology centers, with 25 state affiliates and
related organizations in 47 states and more than 26 countries. In addition to
other industry supporting activities, BIO provides strategic purchasing
services for its members through BIOPurchasing, BIO's national group
purchasing division.
Our Technology
The Chemdex Marketplace is a purchasing solution that resides entirely on
our servers and is accessible by standard browsers, requiring minimal software
installation at the customer site, and enabling rapid deployment of
applications, enhancements and updates. Our production data center is hosted
at Exodus Communication in Sunnyvale, California. This data center provides us
with conditioned space and high bandwidth Internet connectivity.
System Architecture. The Chemdex Marketplace includes three layers of
technology:
. Process and Communication Layer. This layer integrates our system with
our customers' client applications using Internet technology protocols
that can pass through an enterprise's network security wall, such as
http, ftp and EDI, to provide a seamless operation of the Chemdex
Marketplace and purchasing solution. This layer is implemented using
standard web servers, and supports standard Internet protocols such as
http, ftp and XML.
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. Electronic Services Layer. This layer delivers all of our system's
functionality. The Chemdex Marketplace and purchasing solution uses
existing and proprietary software to deliver proprietary services
including Internet catalog development and maintenance tools, search
functionality, workflow integration, product pricing and estimated
shipping, handling and freight charges.
. Enterprise Services Layer. This layer delivers some of the services
required to run Chemdex's system, including financial services,
development and maintenance of the product master database, customer
service systems and the data warehouse. To meet our unique scale
requirements for product information management, we developed a
proprietary data warehouse system.
Customer Integration. The Chemdex Marketplace can be configured and
integrated to meet an enterprise customer's needs, including:
. Customer View. The purchasing solution graphical user interface may be
tailored for each enterprise customer, allowing an enterprise customer
to select specific suppliers from our supplier list, and to customize
the user's view in accordance with business rules and policies
implemented by the purchasing department.
. Login and Authentication. For enterprises that do not have a single
authoritative directory services system enabling single login
functionality across the enterprise, the Chemdex purchasing solution
provides an authoritative enterprise authentication and authorization
list along with the user roles, credit limits, and approval workflow.
For enterprises that have a single authoritative directory services
system, the Chemdex purchasing solution directly integrates with the
enterprise's authoritative data source to maintain the current permitted
user list, and provides seamless access by the user and simple
management for the enterprise.
. Purchasing Application Integration. The Chemdex purchasing solution
integrates with commercial purchasing applications, such as Ariba or
Commerce One, as well as internally developed purchasing applications,
through Open Buying on the Internet, commonly known as OBI, an industry
standard protocol for Internet purchasing, or by integrating directly
with a proprietary format such as Ariba's cXML protocol.
. Custom Pricing. We have developed algorithms to support existing
contract pricing agreements between customers and suppliers. This custom
pricing can be implemented either by (a) pricing contract tables that
list discount rates for a specific product, buyer or supplier
relationship; or (b) direct integration with the supplier systems to
extract real time pricing and availability information.
Search Services. Our search software leverages a combination of full text
search and relational technology to deliver a unique search tool customized to
the life sciences industry. Our search engine is customized to 11 levels of
specific search categories associated with life sciences research products
such as antibodies, enzymes, or other compounds. Each of the product specific
search levels also includes parametric searching capabilities to search for
products with specific attributes, or ranges of attributes.
Product Pricing Estimation. We have developed algorithms to estimate
shipping, handling and freight charges associated with any customer order.
These algorithms integrate customer requirements for shipping delivery time,
product weight, and product type (including requirements for hazardous
materials and product packaging such as blue ice). These algorithms provide
our users with estimated shipping, handling and freight cost, and make
appropriate decisions given their delivery timing requirements.
Workflow. We have developed simple workflow technology to implement each
enterprise customer's business rules and processes. These workflow rules
include credit limit checks, multilevel approval and e-mail based notification
of any order changes. This system streamlines the purchasing process by
automating approval routing, and enables real time customer service through
direct customer notification.
Technical Support. We offer technical support to respond to any customer
service disruption. In addition to off-the-shelf site instrumentation and
monitoring software, we have developed custom monitoring agents that
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<PAGE>
measure key Chemdex application parameters. This proprietary software enables
us to provide high quality technical support.
Sales, Marketing and Support
We market and sell the Chemdex Marketplace and purchasing solution through
a combination of our direct sales force, internal telemarketing sales and
strategic relationships with partners such as VWR and BIO. Since our potential
customers and users fall within a defined market segment, we are able to
identify and target the purchasing decision makers and potential users who
will influence the decision to adopt a purchasing solution.
Our sales and marketing approach is designed to help customers and
suppliers understand both the business and technical benefits of the Chemdex
Marketplace and purchasing solution, and to promote user adoption through one-
on-one education and training. Our field sales force focuses on large
pharmaceutical and biotechnology companies and large academic and research
institutions. Our telephone sales group focuses on small biotechnology
companies and smaller research institutions. We are building an experienced
professional services organization to facilitate the successful deployment of
our purchasing solution, including integration with any enterprise resource
planning software and customization with the enterprise's business rules. We
intend to expand our direct sales force and professional services organization
and to establish additional sales offices domestically and internationally.
Competition for sales personnel is intense, and we may not be able to attract,
assimilate or retain additional qualified personnel in the future.
We conduct a variety of marketing programs to educate our target market,
create awareness and attract customers to our Chemdex Marketplace. To achieve
these goals, we leverage our existing customer base and engage in marketing
activities such as seminars, direct mailings, trade shows, speaking
engagements and web site marketing. We also conduct comprehensive public
relations programs that include establishing and maintaining relationships
with key trade press, business press and industry analysts. In addition, we
engage in marketing programs within our enterprise customers to educate,
convert and train researchers and purchasing agents to use the Chemdex
Marketplace for their life sciences research product orders.
We believe that we can establish and maintain long-term relationships with
our customers and suppliers, and encourage repeat visits and purchases by our
customers if, among other things, we have good account management, customer
support and service. Our customer support and service personnel handle general
customer inquiries and basic technical questions, answer customer questions
about the ordering process and investigate the status of orders, shipments and
payments. We have automated some of the tools used by our customer support and
service staff, such as tracking screens that let our support staff track a
transaction by any of a variety of information sources. At any time in the
purchasing process, a customer can access our support staff by fax or e-mail
by following prompts located throughout our web site or by calling our call
center through our toll free telephone line. Our support staff is
knowledgeable in life sciences research products and the life sciences
industry.
Our worldwide sales and marketing group consisted of 39 individuals as of
March 31, 1999, 29 of whom were located at our Palo Alto, California
headquarters and 10 of whom were located in regional offices in Ann Arbor,
Michigan; Cambridge, Massachusetts; Princeton, New Jersey; and Columbia,
Maryland.
Research and Development
Our development organization is focused on developing and enhancing our
enterprise purchasing solution, developing applications for and supporting the
Chemdex Marketplace, and maintaining and improving our technology,
infrastructure and database. The development group is supported by our quality
assurance group, which implements a process designed to identify defects
through the entire development cycle. We are currently in the process of
developing and integrating new technology into our Internet-based purchasing
solution as part of our planned release of several enhanced versions of the
Chemdex Marketplace over the next few months. These new releases are planned
to include significant enhancements to the user interfaces, database
management
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and search technology, and security controls, and will allow us to offer VWR's
products to our customers. As of March 31, 1999, our research and development
group was comprised of 34 employees responsible for development and quality
assurance.
Research and development expenses were $196,000 in 1997 and $3.4 million in
1998. To date, substantially all software development costs related to the
Chemdex Marketplace have been expensed as incurred by our employees. We
believe that significant investments in research and development are required
to remain competitive, and will be made in the areas listed above.
Proprietary Rights and Licensing
Our success and ability to compete are dependent on our ability to develop
and maintain the proprietary aspects of our technology. We rely on a
combination of copyright, trademark and trade secret laws and contractual
restrictions to establish and protect the proprietary aspects of our
technology. We seek to protect our source code for our software, documentation
and other written materials under trade secret and copyright laws. Finally, we
seek to avoid disclosure of our intellectual property by requiring employees
and consultants with access to our proprietary information to execute
confidentiality agreements with us and by restricting access to our source
code.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Litigation may be necessary in the future to
enforce our intellectual property rights, to protect our trade secrets, and to
determine the validity and scope of the proprietary rights of others. Any
resulting litigation could result in substantial costs and diversion of
resources and could have a material adverse effect on our business operating
results.
Our success and ability to compete are also dependent on our ability to
operate without infringing upon the proprietary rights of others. In the event
of a successful claim of infringement against us and our failure or inability
to license the infringed technology, our business and operating results would
be significantly harmed.
Competition in our Industry
The market for business-to-business e-commerce and Internet ordering and
purchasing is new and rapidly evolving, and competition is intense and is
expected to increase significantly in the future. Barriers to entry are
relatively insubstantial. We believe that the critical success factors for
companies seeking to create Internet business-to-business e-commerce solutions
include the following:
. quality and reliability of the Internet purchasing solution;
. breadth and depth of product offerings;
. brand recognition;
. installed base of customers; and
. ease of use and convenience.
We face competition from four main areas: other companies with e-commerce
offerings, traditional suppliers and distributors of life sciences research
products, life sciences companies that have developed their own purchasing
solutions and enterprise software companies that offer, or may develop,
alternative purchasing solutions. Companies primarily focused on creating
Internet purchasing solutions for the life sciences industry include
SciQuest.com and Anderson Unicom Group, Inc. Traditional suppliers and
distributors including Sigma Aldrich Corp., Fisher Scientific International,
Inc., Merck KGaA Darmstaadt and VWR currently sell life sciences research
products through paper catalogs and web sites. We could face further
competition in the future from traditional suppliers and distributors that
enter into business-to-business e-commerce over the Internet either on their
own or by partnering with other companies. In addition, life sciences
companies may already
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<PAGE>
have, or may develop, their own purchasing solutions. Traditional enterprise
software companies, such as SAP, IBM and Oracle, could in the future develop
and offer a competitive purchasing solution that our customers could customize
to link to their suppliers. Additionally, emerging enterprise software
companies, such as Ariba, Inc. and Commerce One, Inc. offer purchasing
solutions that could be customized to link to suppliers of life sciences
research products.
Our current and potential competitors may develop superior Internet
purchasing solutions that achieve greater market acceptance than our solution.
Many of our existing and potential competitors, including large traditional
distributors, have longer operating histories in the life sciences research
products market, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than we do.
Such competitors can undertake more extensive marketing campaigns for their
brands, products and services, adopt more aggressive pricing policies and make
more attractive offers to customers, potential employees, distribution
partners, commerce companies and third-party suppliers.
In addition, substantially all of our prospective customers have
established long-standing relationships with some of our competitors or
potential competitors. Accordingly, we cannot be certain that we will be able
to expand our customer list and user base, or retain our current customers. We
may not be able to compete successfully against our current or future
competitors and competition could have a material adverse effect on our
business, results of operations and financial condition.
Government Regulations
In addition to regulations applicable to businesses generally, we are
subject to direct regulation by governmental agencies, which includes numerous
laws and regulations generally applicable to the chemical, pharmaceutical,
controlled substances, human and biological reagents, and nuclear chemical
businesses, and environmental spills, as well as U.S. export controls, and
import controls of other countries, including controls on the use and
distribution of chemical reagents. We receive orders from purchasers for
research chemicals and other laboratory products that we then electronically
transmit to the appropriate suppliers. The suppliers then package, label and
ship laboratory products directly to these purchasers. We take legal title to
the products, but do not take physical possession of a shipment during any
part of the transaction. Legal title generally passes to the purchaser at the
time of product shipment; however, if the chemicals or other products are
returned we also have legal title during the shipment of the returned
products.
We have been and intend to continue relying upon our suppliers to
appropriately package and label and maintain records on the products according
to local, state and federal laws. We have been and also intend to continue
relying upon suppliers to hold all appropriate licenses. We rely on the
suppliers' regulatory staff to confirm that the purchasers also have the
appropriate governmental licenses and permits and expertise needed to order,
receive and use any regulated substances. We are unable to verify the accuracy
of our suppliers' regulatory staff determinations and their decisions whether
or not to ship a product to a purchaser.
Our reliance on suppliers' regulatory due diligence assessment of
purchasers and the compliance by suppliers and purchasers with applicable
governmental regulations may not be sufficient if we are held to need our own
licenses. For example, if we are held to be a seller or a distributor of
regulated products because we did take legal title, we may have inadvertently
violated some governmental regulations by not having the appropriate license
or permit and may be subject to potentially severe civil or criminal penalties
and fines for each offense. A review of these sales found that they were
generally made to academic or commercial purchasers and not to individuals. As
described below, our suppliers have indicated to us that they regularly check
the requisite licenses of purchasers. These facts could minimize the potential
severity of any civil or criminal penalties and fines that could be imposed on
us for each of these sales.
We intend to continue to investigate our sales of regulated chemicals and
may in the future voluntarily discuss with various governmental regulatory
agencies whether these sales required us to obtain a license or permit. We may
also seek clarification of whether our prior sales of these products will
subject us to any civil or
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criminal penalties, including monetary fines and injunctions or other
enforcement action. No assurance can be given by us that any penalties or
fines will not result in a material adverse effect on our business, results of
operations or financial condition. In addition, we may discover that we had
inadvertently sold other regulated products without a requisite license or
permit or failed to fully comply with other local, state or federal laws
governing these sales.
In addition to reviewing our past sales, we have conducted interviews with
those suppliers that account for approximately 75% of prior sales. We asked if
they verify that the purchasers have the necessary federal licenses before
making shipments and if they comply with applicable labeling and packaging
requirements. We also asked the suppliers whether they are aware of any
diversions or chemical spills, or of any past, pending, or threatened fines,
violations, penalties, litigation, complaints or investigations regarding
their shipment of products to our customers. In the course of these
discussions, the suppliers informed us they have appropriate licenses and
permits, and they routinely, as a matter of practice, verify whether the
purchasers have the relevant licenses or permits, comply with labeling and
packaging requirements, and are not aware of any diversions, or past, pending
or threatened fines, violations, penalties, proceedings or investigations
regarding their shipment of products to our customers. However, some suppliers
have had small spills and been subject to fines for these spills and for
failure to provide information on hazards or health risks presented by
products, but they could not identify whether orders to Chemdex customers
involved. Furthermore, we are unable to verify the accuracy of suppliers'
statements that they have in the past complied, or will in the future comply,
with laws applicable to these sales. In addition, we did not conduct
investigations of all suppliers in the Chemdex database. We could be
significantly fined or exposed to significant civil or criminal liability, or
suffer negative publicity, if these licensing, packaging, labeling,
informational and other regulatory requirements have not been fully met by our
suppliers or by us directly.
We have reviewed the list of products in our current database to identify
any products for which we may need a license or permit to sell. We believe
that all of these regulated products have either been removed from our
database, or have been flagged so that we will not in the future sell them,
but instead will refer the purchasers of these flagged products directly to
suppliers. We cannot be sure that all regulated products have been removed
from, or flagged in the database. In addition, new products that require us to
obtain governmental licenses or permits may be inadvertently added to our
database. We intend to begin instituting new quality control procedures,
including the hiring of a regulatory compliance officer, to routinely screen
our growing database, as well as increase the scrutiny of new products
proposed to be added to the database to eliminate those products for which we
are required to have licenses or permits to sell or distribute.
Under the terms of our agreement with VWR, VWR provides support for the
purchase of third party products, where purchasers may order products not
listed in our database. The type and nature of these products cannot be
anticipated. To help avoid inadvertent future sales of products for which
governmental licenses or permits are required, we intend to institute a new
screening procedure to identify any requests for purchases of regulated
products and refer the purchaser directly to the suppliers, so that we are not
involved in sales of these third party products. We cannot be sure that we may
not inadvertently sell or cause to be sold and shipped products for which
governmental licenses or permits are required.
We have also relied on our suppliers to comply with applicable local, state
and federal laws regarding the labeling and the dissemination of information
on any products sold that may be hazardous or present a health threat to the
user. If these suppliers have failed, or fail in the future, to adequately
comply with labeling and information dispensing requirements of local, state
or federal laws, then we may be held legally responsible since we briefly held
title to these products, and could be subject to governmental penalties or
fines, as well as private lawsuits to enforce these laws.
We intend to offer for sale products that are intended solely for research
uses to qualified purchasers. Unless we have the necessary licenses, permits
and authorizations, or an exemption or exclusion applies, we do not intend to
offer for sale or cause to be sold products that are, for example:
. prescription or over-the-counter human or animal drugs that are
regulated by the U.S. Food and Drug Administration ("FDA")
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. radioactive materials that are regulated by the Nuclear Regulatory
Commission or state and local governmental authorities unless we have
appropriate licenses or permits
. biological products intended for the treatment of humans or animals, and
that are regulated respectively by the FDA and U.S. Department of
Agriculture ("USDA")
. pathogenic bacteria, viruses or etiologic agents that may introduce any
contagious or infectious disease of man or animal and which are
regulated respectively by the Centers for Disease Control and USDA
. controlled substances that are regulated by the Drug Enforcement Agency
. biological agents, chemicals or toxins that are regulated under the
Chemical Weapons Convention or the Centers for Disease Control
. products to be imported or exported (no products are currently exported)
that are regulated by the U.S. Department of Commerce or other
regulatory agencies
. explosive materials for which a license, permit or authorization is
required under Bureau of Alcohol, Tobacco and Firearms regulations
. newly-produced or imported ozone-depleting substances that are subject
to production and importation bans under the Federal Clean Air Act and
the Montreal protocol.
We intend to continue to sell products for which we do not need a license,
permit or authorization, or an exemption or exclusion applies, and will seek
to comply with applicable local, state and federal laws and regulations
governing the sale, packaging and labeling of these products, dispensing of
information on health risks and hazards about a chemical, and record keeping
concerning these products. However, our suppliers and we may inadvertently
fail to comply with applicable laws in the future. Noncompliance could have a
materially adverse impact on our business, results of operations and financial
condition because of civil or criminal penalties and fines and negative
publicity.
For sales of VWR core products under our agreement with VWR and under
agreements with a limited number of other suppliers, we act as a sales agent.
In these situations, we do not take title to, or have possession of these
suppliers' products. We rely on VWR and these other suppliers to comply with
all applicable local, state and federal laws. Although we are acting as a
sales agent for these suppliers and do not take legal title to, or possession
of, these products, we may still be held liable if we cause to be sold
regulated products to purchasers who lack required licenses to use, store and
receive these products and if the suppliers of these products have failed to
adequately comply with local, state or federal laws.
Researchers and others who are not affiliated with an enterprise customer
may register to purchase through our website, www.chemdex.com. Although we
require unaffiliated users to provide information about themselves, we do not
independently verify the accuracy of this information. Because we do not
generally meet unaffiliated users in person or visit their work sites, we are
even less able to gauge whether they have appropriate storage facilities,
permits or licenses compared to enterprise customers with whom we generally
have some direct contact or knowledge of their reputations. Therefore, we
cannot be sure that we will not inadvertently sell, cause to be sold or
delivered, products for which the purchasers lack appropriate local, state or
federal licenses or permits or expertise or experience to handle or use these
products. We may also be subject to significant civil or criminal penalties,
fines or monetary judgments as well as negative publicity, if purchasers
misuse or spill, or injure themselves or third parties with, the products
purchased from us.
We are unaware of any current investigations, inquiries, citations, fines,
or allegations of violations or noncompliance pending by government agencies
or by third parties against us. It is possible that there may be
investigations or allegations we are not aware of or future investigations or
allegations. We are currently reviewing applicable requirements with regard to
past, present and continuing compliance, particularly concerning various
licensing and sales issues. The risk that any noncompliance may be discovered
in the future is currently unknown. Although any potential impact on us for
noncompliance cannot currently be established, it could result in significant
civil or criminal penalties, including monetary fines and injunctions, for
noncompliance and negative publicity, and have a material adverse impact on
our business, revenues, results of operations and financial condition.
46
<PAGE>
Due to the increasing popularity and use of the Internet, it is possible
that a number of laws and regulations may be adopted or interpreted in the
United States and abroad with particular applicability to the Internet. It is
also possible in addition to the above-listed examples of existing laws and
regulations, as well as new tax laws and regulations, that new laws and
regulations may be adopted or interpreted by the United States and foreign
governments, to address the sale and distribution of life sciences research
products utilizing the Internet. In addition, it is possible that governments
will enact legislation that may be applicable to us in areas such as content,
product distribution, network security, encryption and the use of key escrow,
data and privacy protection, electronic authentication or "digital"
signatures, illegal and harmful content, access charges and re-transmission
activities. Moreover, the applicability to the Internet of existing laws
governing issues such as property ownership, content, taxation, defamation,
personal privacy, product liability and environmental protection, as well as
the necessity for governmental permits, labeling, certifications and the need
to supply information to relevant parties, is uncertain. Most of these laws
were adopted before the widespread use and commercialization of the Internet
and, as a result, do not contemplate or address the unique issues of the
Internet and related technologies. Any export or import restrictions, new
legislation or regulation or governmental enforcement of existing regulations
may limit the growth of the Internet, increase our cost of doing business or
increase our legal exposure. Any of these factors could have a negative effect
on our business, revenues, results of operations and financial condition.
Employees
As of March 31, 1999, we had 87 full-time employees, including 34 in
engineering, 39 in sales and marketing and 14 in general and administrative
functions. We also employ independent contractors to support our engineering,
marketing, sales and support, and administrative organizations.
Facilities
Our executive, administrative and operating offices are located in
approximately 33,000 square feet of leased office space located in Palo Alto,
California under a lease expiring in December, 2003. We also maintain sales
offices in Ann Arbor, Michigan; Cambridge, Massachusetts; Princeton, New
Jersey; and Columbia, Maryland. We are in the process of identifying new
facilities to accommodate our growth and currently plan to relocate our
executive, administration and operating offices to new facilities within the
next six months.
47
<PAGE>
MANAGEMENT
Directors and Executive Officers
Set forth below is information regarding the directors and executive
officers of Chemdex as of June 30, 1999.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
David P. Perry................... 31 President, Chief Executive Officer and
Director
Pierre V. Samec.................. 36 Chief Information Officer
Robin A. Abrams.................. 48 Chief Operating Officer
James G. Stewart................. 46 Chief Financial Officer and Assistant
Secretary
Martha D. Greer.................. 45 Vice President, Marketing
Thomas P. Kudrycki............... 40 Vice President, Engineering
Derek McCall..................... 40 Vice President, Special Projects
Robert W. Perreault.............. 41 Vice President, Professional Services
James S. Wambach................. 45 Vice President, Worldwide Sales
David A. Weber................... 45 Vice President, Supplier Relations
Charles R. Burke(1).............. 56 Director
Brook H. Byers(1)................ 53 Director
Jonathan D. Callaghan(1)......... 30 Director
Jerrold B. Harris................ 56 Director
S. Joshua Lewis(2)............... 35 Director
John A. Pritzker................. 45 Director
Naomi O. Seligman................ 66 Director
Robert A. Swanson................ 51 Director
L. John Wilkerson(2)............. 55 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
David P. Perry co-founded Chemdex in September 1997 and has served as its
President, Chief Executive Officer and a director since September 1997. From
December 1995 to April 1997, he co-founded and served in various positions,
including Chief Executive Officer, of Virogen, Inc., a biotechnology company.
Mr. Perry has also held various positions at Exxon Corporation, including as a
Refinery Operations Supervisor from January 1994 to May 1995, a financial
analyst from March 1993 to January 1994, a project manager from September 1992
to March 1993 and an engineer from September 1990 to March 1992. Mr. Perry
holds an M.B.A. from Harvard University and a B.S. in chemical engineering
from the University of Tulsa.
Pierre V. Samec joined Chemdex as its Chief Information Officer in July
1998. He previously held various positions at Charles Schwab and Co., Inc., a
financial services company, including as its Senior Vice President, Retail
Technology from January 1998 to July 1998, its Vice President, Software
Engineering from July 1996 to February 1998 and its Vice President and
Architect from January 1996 to June 1996. Mr. Samec also served as the Vice
President, Software Engineering of Quintus Corporation, a software company,
from August 1993 to December 1995. Mr. Samec holds an engineering degree from
Ecole des Mines de Paris and a Ph.D. from Stanford University.
Robin A. Abrams has served as the Chief Operating Officer of Chemdex since
June 1999. Prior to joining Chemdex, Ms. Abrams served as the President of
Palm Computing Inc. and the Senior Vice President of 3Com Corporation from
February 1999 to June 1999. Ms. Abrams served as the President of VeriFone
Inc., a secured payment systems company and a subsidiary of Hewlett-Packard,
from March 1998 to February 1999, and as the Vice President of the Americas of
VeriFone from February 1997 to March 1998. From June 1996 to February 1997,
Ms. Abrams was the Senior Vice President of Apple Computer, Inc. and the
President of Apple Americas,
48
<PAGE>
and from December 1994 to June 1996, Ms. Abrams served as the Vice President
and General Manager of Apple Asia. Ms. Abrams holds a B.S. and a J.D. degree
from the University of Nebraska.
James G. Stewart joined Chemdex as its Chief Financial Officer in February
1999. Previously, Mr. Stewart served as the Chief Financial Officer of CN
Biosciences, Inc., a chemical manufacturing and distribution company, from
June 1995 to March 1999, and the President of CN Corporation, the principal
operating division of CN Biosciences, Inc., from March 1998 to March 1999.
From April 1994 to April 1995, Mr. Stewart served as the Chief Financial
Officer of Fightertown Entertainment, Inc., a virtual reality entertainment
company. From November 1988 to April 1994, Mr. Stewart held various positions
at Verteq, Inc., a semiconductor equipment company, including most recently as
its Chief Financial Officer. Mr. Stewart was formerly an Audit Partner of
Arthur Young & Co. and holds a B.S. from the University of Southern
California.
Martha D. Greer joined Chemdex as its Vice President, Marketing in January
1999. Previously, she served as the Vice President, Merchandise Management of
Onsale, Inc., an electronic commerce company, from December 1996 to November
1998. Ms. Greer was employed as an independent consultant from January to
December 1996. From 1992 to 1996, Ms. Greer served in various positions at PC
Connection, a computer direct marketing company, including as its Vice
President, Product Management from September 1994 to February 1996, as its
Vice President, Marketing from September 1993 to September 1994, as its
Director, Marketing from May 1993 to September 1993 and as its Director,
Business Development from November 1992 to May 1993. Ms. Greer holds a B.A. in
linguistics from Macalester College and a Ph.D. in experimental psychology
from Harvard University.
Thomas P. Kudrycki joined Chemdex as its Vice President, Engineering in
September 1998. Previously, from January 1996 to July 1998, Mr. Kudrycki
served as the Vice President, Content Technology of CNET, an online publishing
company. From September 1988 to December 1995, he served as a technical
manager at AT&T Corporation, a voice and data communications company. Mr.
Kudrycki holds a B.Eng. in Physics from Warsaw Polytechnic, a B.S. in computer
science from Central State University and a M.S. in electrical and computer
engineering from University of Cincinnati.
Derek McCall joined Chemdex as its Vice President, Special Projects in June
1999. Previously, he served as the President of Alfa Aesar, a research
chemicals company and wholly-owned subsidiary of Johnson Matthey PLC, from
January 1992 to May 1999. Previously, from April 1990 to December 1991, he
served as the Sales and Marketing Director of the Catalysts and Chemicals
Division of Johnson Matthey Inc., an advanced materials company. Mr. McCall
holds a B.Sc. Joint Honours degree in Zoology and Oceanography from the
University of Swansea, South Wales, and is a member of the Institute of
Marketing.
Robert W. Perreault joined Chemdex as its Vice President, Professional
Services in April 1999. From February 1998 to April 1999, he served as Vice
President of Worldwide Professional Services at Inprise Corporation, an
enterprise software and services company. From August 1995 to February 1998,
Mr. Perreault was Vice President of Professional Services and Vice President
of Engineering at Visigenic Software, Inc., which was acquired by Inprise in
March 1998. Prior to 1990, Mr. Perreault held various senior management
positions at Compuware Corporation, Uniface Corporation and Hewlett-Packard
Company, most recently serving as Vice President of Client Server Technology.
Mr. Perreault holds a B.A. from Stanford and an M.B.A. from the University of
Michigan.
James S. Wambach has served as the Vice President, Worldwide Sales of
Chemdex since September 1998. From January 1997 to June 1998, Mr. Wambach
served as the Senior Vice President of North American Sales Operations of
Forte Software, Inc., a software company. From January 1990 to December 1996,
Mr. Wambach served in various positions at Sybase, Inc., a software products
and services company, including most recently as its Vice President and
General Manager from October 1995 to December 1996. Mr. Wambach has also
served in various positions at Oracle Corporation, a database management and
business applications company. Mr. Wambach holds a B.S. degree in business
administration from Ohio State University.
49
<PAGE>
David A. Weber joined Chemdex in February 1999 as its Vice President,
Supplier Relations. Previously, Mr. Weber served as the Vice President,
Marketing at Amersham Pharmacia Biotech, a scientific services and tools
company, from October 1997 to February 1999. He also served as the Vice
President, Direct Marketing from 1995 to 1997 and as Area Director from 1990
to 1995, of Pharmacia Biotech, a division of Pharmacia & Upjohn, Inc. He holds
a B.S. in biochemistry from Rutgers University.
Charles R. Burke has served as a director of Chemdex since January 1998.
Mr. Burke has served as the President of Monument Partners, Inc., a consulting
firm, since January 1998. From January 1994 to December 1997, he served as the
Chief Executive Officer of Research Biochemicals Incorporated, a research
reagent supply company. Mr. Burke is also a director of Endogen, Inc. Mr.
Burke holds an A.B. in Chemistry from Cornell University, a M.A. with honors
in Biology from Colgate University and a Ph.D. in Biochemistry from the
University of Illinois.
Brook H. Byers has served as a director of Chemdex since May 1998. Mr.
Byers is a general partner of Kleiner Perkins Caufield & Byers, a venture
capital firm which he joined in 1977. He was the founding president and
chairman of four lifesciences companies: Hybritech Inc., IDEC Pharmaceuticals
Corporation, InSite Vision Inc. and Ligand Pharmaceuticals Inc. Mr. Byers
currently serves as a director of Nanogen, Inc. and a number of privately-held
technology companies. Mr. Byers serves on the Board of Directors of the
University of California, San Francisco Foundation and the California
Healthcare Institute. Mr. Byers holds a B.S. in electrical engineering from
Georgia Institute of Technology and an M.B.A. from the Stanford Graduate
School of Business.
Jonathan D. Callaghan has served as a director of Chemdex since September
1997. Mr. Callaghan has been a general partner of CMG@Ventures, a venture
capital firm, since September 1997. Previously, from June 1991 to June 1995,
Mr. Callaghan was an associate of Summit Partners, a venture capital firm. He
holds a B.A. from Dartmouth College and an M.B.A. with Distinction from
Harvard University.
Jerrold B. Harris has served as a director of Chemdex since April 1999. Mr.
Harris has been the President and Chief Executive Officer of VWR Scientific
Products Corporation, a scientific supplies and products company, since March
1990. Mr. Harris is a director of VWR and of the Provident Institutional
Funds.
S. Joshua Lewis has served as a director of Chemdex since May 1998. Mr.
Lewis is a Managing Director of E.M. Warburg, Pincus & Co., LLC and a director
of a number of privately held companies. Mr. Lewis holds a D.Phil. from Oxford
University and an A.B. from Princeton University.
John A. Pritzker has served as a director of Chemdex since March 1998. Mr.
Pritzker served as a Divisional Vice President of Hyatt Hotels and Resorts
from 1984 to 1988. In 1988, he founded Red Sail Merchandising/The Corporate
Choice, a sports, retail and entertainment company, and Mandara Spa LLC, a spa
company. Mr. Pritzker currently serves as President of Red Sail Sports,
Mandara Spa LLC and Hyatt Ventures, Inc., a venture capital firm. Mr. Pritzker
served as director of Ticketmaster Group, Inc. for five years. He holds an
A.A. from Menlo College.
Naomi O. Seligman has served as a director of Chemdex since June 1999. Ms.
Seligman is a co-founder and has served as a senior partner of the Research
Board, Inc., an information technology research group, since 1975. Ms.
Seligman currently serves as a director of The Dun and Bradstreet Corporation,
a financial services company. Ms. Seligman holds a B.A. in economics with high
honors from Vassar College and a MBA from the London School of Economics.
Robert A. Swanson has served as a director of Chemdex since May 1998. Mr.
Swanson has served as the Chairman and Chief Executive Officer of K&E
Management, a private investment company since October 1996. Previously, Mr.
Swanson co-founded and served as the Chief Executive Officer of Genentech,
Inc., a biotechnology company, from April 1976 to February 1990 and served as
its Chairman from February 1990 to December 1996. Prior to forming Genentech,
Mr. Swanson was a partner of Kleiner & Perkins, a venture capital firm. Mr.
Swanson holds a S.B. in chemistry from Massachusetts Institute of Technology
and a S.M. in management from the Alfred P. Sloan School of Management at
Massachusetts Institute of Technology.
50
<PAGE>
L. John Wilkerson has served as a director of Chemdex since March 1999. Dr.
Wilkerson is a co-founder and has been a general partner of Galen Associates,
a venture capital firm, since May 1990, and has been a consultant to The
Wilkerson Group, a health care products consulting firm, since May 1996.
Previously, Dr. Wilkerson served as a Vice President of Smith Barney. He is
currently a director of British Biotech Plc, Stericycle, Inc. and TheraTX,
Incorporated. Dr. Wilkerson holds a Ph.D. in economics from Cornell University
and a B.S. in plant science from Utah State University.
Board of Directors
Directors are elected annually at the annual meeting of Chemdex
stockholders, and serve for the term for which they are elected and until
their successors are duly elected and qualified. Chemdex's Bylaws currently
provide for a Board of Directors comprised of ten directors.
Board Committees
Chemdex's Board of Directors has an Audit Committee and a Compensation
Committee. The Audit Committee of the Board of Directors consists of Mr. Lewis
and Mr. Wilkerson. The Audit Committee reviews Chemdex's financial statements
and accounting practices and makes recommendations to the Board of Directors
regarding the selection of independent auditors. Mr. Lewis is the Chairman of
the Audit Committee. The Compensation Committee of the Board of Directors
consists of Messrs. Burke, Byers and Callaghan. The Compensation Committee
makes recommendations to the Board of Directors concerning salaries and
incentive compensation for Chemdex's officers and employees and administers
Chemdex's employee benefit plans. Mr. Byers is Chairman of the Compensation
Committee.
Director Compensation
None of the directors is paid any fee or other compensation for acting as a
director, although directors are reimbursed for reasonable expenses incurred
in attending Board or committee meetings. Officers of Chemdex are appointed by
the Board of Directors and serve at its discretion. Directors who are
employees of Chemdex are eligible to participate in Chemdex's 1998 Stock Plan
and, as of the offering, they will also be eligible to participate in
Chemdex's 1999 Employee Stock Purchase Plan. Mr. Burke was granted an option
to purchase 7,500 shares of common stock under the 1998 Stock Plan at an
exercise price of $.10 per share in February 1998 and an additional option to
purchase 17,500 shares of common stock under the 1998 Stock Plan at an
exercise price of $.15 per share in July 1998. These options vest over a four-
year period. Mr. Swanson was granted an option to purchase 75,000 shares of
common stock under the 1998 Stock Plan at an exercise price of $.10 per share
in May 1998. Fifty percent of these option shares were vested as of the date
of grant and the remaining 50% of these option shares vest over a four-year
period. Beginning in 1999, directors who are not employees of Chemdex will be
eligible to participate in Chemdex's 1999 Directors' Stock Plan. See "Stock
Plans."
Chemdex has entered into indemnification agreements with each member of the
Board of Directors and certain of its officers providing for the
indemnification of these persons to the fullest extent authorized, permitted
or allowed by law.
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee of the Board of Directors
is an officer or employee of Chemdex. No executive officer of Chemdex serves
as a member of the Board of Directors or compensation committee of any entity
that has one or more executive officers serving on Chemdex's Compensation
Committee.
51
<PAGE>
Executive Compensation
The following table sets forth information concerning compensation earned
in the fiscal year ended December 31, 1998 paid to Chemdex's Chief Executive
Officer and Chemdex's next most highly compensated executive officers who
earned more than $100,000 during the fiscal year ended December 31, 1998
("Named Officers"). All options granted by the Board of Directors prior to
February 16, 1999 allowed for early exercise. The number of securities
underlying options in the "Long-Term Compensation" column includes securities
issued upon the exercise of options subject to repurchase at cost by Chemdex.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------------------- ------------
Other Number of
Annual Securities All Other
Name and Principal Salary Bonus Compensation Underlying Compensation
Position(1) Year ($) ($) ($) Options (#) ($)
------------------ ---- ------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
David P. Perry(2)...... 1998 $98,375 $20,000 $-- -- $--
President, Chief
Executive Officer and
Director
Pierre V. Samec(3)..... 1998 83,333 150,000 -- 225,000 --
Chief Information
Officer
Scott Waterhouse(4).... 1998 150,070 27,237 -- 132,890 --
Vice President,
Supplier Relations
</TABLE>
- --------
(1) Ms. Abrams, Chemdex's Chief Operating Officer, commenced employment with
Chemdex in June 1999. Ms. Abrams' salary on an annualized basis for 1999
is $300,000, which does not include a signing bonus of $50,000 paid upon
commencement of employment with Chemdex or any quarterly cash bonuses of
$20,000 payable upon the achievement of performance goals. Mr. Stewart,
Chemdex's Chief Financial Officer, commenced employment with Chemdex in
February 1999. Mr. Stewart's salary on an annualized basis for 1999 is
$200,000, which does not include a bonus of $50,000 payable upon the
achievement of performance goals, housing expenses or an annual life
insurance premium of approximately $9,000 per year paid for by Chemdex on
behalf of Mr. Stewart. Ms. Greer, Chemdex's Vice President, Marketing,
commenced employment with Chemdex in January 1999. Ms. Greer's salary on
an annualized basis for 1999 is $200,000, which does not include a signing
bonus of $75,000 paid upon commencement of employment with Chemdex or a
bonus of $50,000 payable upon the achievement of performance goals.
(2) Mr. Perry founded Chemdex in September 1997. His salary on an annualized
basis is currently $180,000. His salary was increased from $55,000 to
$125,000 on May 11, 1998 to $180,000 on March 1, 1999. As of December 31,
1998, Mr. Perry held 1,725,854 shares of common stock valued at $2,588,781
based on a per share price of $1.50.
(3) Mr. Samec commenced his employment with Chemdex in July 1998. His salary
on an annualized basis is $200,000. Mr. Samec earned a total bonus of
$150,000 in 1998, $25,000 of which was paid in 1999.
(4) Mr. Waterhouse terminated his employment with Chemdex in January 1999.
52
<PAGE>
Stock Options
The following table sets forth information concerning the grant of stock
options to the Named Officers during the fiscal year ended December 31, 1998.
The individual grants consist of options granted pursuant to Chemdex's 1998
Stock Plan. For the purposes of calculating the percent of total options
granted to employees during the last fiscal year, Chemdex granted options to
purchase 1,978,835 shares of common stock to employees and consultants. The
exercise price per share of each option was equal to the fair market value of
common stock on the date of grant as determined by the Board of Directors. In
determining the fair market value of the common stock on each grant date, the
Board of Directors considered, among other things, Chemdex's absolute and
relative levels of revenues and operating results, the state of Chemdex's
technology development, increases in operating expenses, the absence of a
public trading market for Chemdex's securities, the intensely competitive
nature of Chemdex's market and the appreciation of stock values of generally
comparable companies. The potential realizable value is based on the
assumption that the common stock of Chemdex appreciates at the annual rate
shown, compounded annually, from the date of grant until the expiration of the
ten-year term. These numbers are calculated based on Securities and Exchange
Commission requirements and do not reflect Chemdex's projections or estimates
of future stock price growth. Potential realizable values are computed by:
. Multiplying the number of shares of common stock subject to a given
option by the exercise price;
. Assuming that the total stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table for the entire
ten-year term of the option; and
. Subtracting from that result the total option exercise price.
Option Grants in Fiscal Year ended December 31, 1998
<TABLE>
<CAPTION>
Individual Grants(1)
---------------------------------
Potential Realizable
Number of Value At Assumed
Securities % of Annual Rates of Stock
Underlying Total Options Price Appreciation
Options Granted to Exercise for Option Term
Granted Employees in Price Expiration ----------------------
Name (#) Fiscal Year ($/Sh) Date 5% 10%
- ---- ---------- ------------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
David P. Perry.......... -- -- % $ -- -- $ -- $ --
Pierre V. Samec(2)...... 225,000 11.37 .15 9/1/08 21,225 53,789
Scott Waterhouse........ 132,890 6.72 .10 1/21/08 8,357 21,179
</TABLE>
- --------
(1) Ms. Abrams was granted an option to purchase 250,000 shares of common
stock on June 25, 1999 pursuant to Chemdex's 1998 Stock Plan. The exercise
price per share is $10.00; the expiration date of the option is June 24,
2009 and the potential realizable values at assumed rates of stock
appreciation for the option term are $1,572,237 at 5% and $3,984,356 at
10%, Mr. Stewart was granted an option to purchase 225,000 shares of
common stock on February 16, 1999 pursuant to Chemdex's 1998 Stock Plan.
The exercise price per share of the option is $1.50; the expiration date
of the option is February 15, 2009 and the potential realizable values at
assumed rates of stock appreciation for the option term are $212,252 at 5%
and $537,888 at 10%.
Ms. Greer was granted an option to purchase 225,000 shares of common stock
on January 27, 1999 pursuant to Chemdex's 1998 Stock Plan. The exercise
price per share of the option is $1.50; the expiration date of the option
is January 26, 2009 and the potential realizable values at assumed rates
of stock appreciation for the option term are $212,252 at 5% and $537,888
at 10%. Ms. Greer was granted an additional option to purchase 10,000
shares of common stock on April 27, 1999 pursuant to Chemdex's 1998 Stock
Plan. The exercise price per share of the option is $5.00; the expiration
date of the option is April 26, 2009 and the potential realizable values
at assumed rates of stock appreciation for the option term are $31,445 at
5% and $79,687 at 10%.
(2) Mr. Samec was granted an additional option to purchase 75,000 shares of
common stock on April 27, 1999 pursuant to Chemdex's 1998 Stock Plan. The
exercise price per share of the option is $5.00; the expiration date of
the option is April 26, 2009 and the potential realizable values at
assumed rates of stock appreciation for the option term are $235,835 at 5%
and $597,653 at 10%.
53
<PAGE>
Exercise of Options and Year-End Values
The following table sets forth information concerning the exercise of stock
options during the fiscal year ended December 31, 1998 by the Named Officers
and the fiscal year-end value of unexercised options. Since there was no
public trading market for Chemdex's common stock as of December 31, 1998, the
values of unexercised options at December 31, 1998 are based on a fair market
value of common stock of $1.50 per share as determined by the Board of
Directors on January 27, 1999. Therefore, these values are calculated based on
the $1.50 per share value for value at fiscal year-end or the fair market
value as determined by the Board of Directors on the date of exercise for
value realized, less the applicable exercise price per share, multiplied by
the number of shares underlying these options. All options granted by the
Board of Directors prior to February 16, 1999 allowed for early exercise. The
number of securities underlying unexercised options in the "Unexercisable"
column and the related value of these securities at year end reflects this
information as it relates to options that although are exercisable, would if
exercised result in the ownership of common stock subject to repurchase at
cost by Chemdex.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at In-the-Money Options
Acquired on December 31, 1998 (#) at December 31, 1998 ($)
Exercise Value ------------------------- -------------------------
Name(1) (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ------- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David P. Perry.......... -- $-- -- -- $-- $--
Pierre V. Samec(2)...... 225,000 -- -- -- -- --
Scott Waterhouse(3)..... 132,890 -- -- -- -- --
</TABLE>
- --------
(1) Ms. Abrams has not exercised any of her options. Mr. Stewart has not
exercised any of his options. Ms. Greer exercised an option to purchase
225,000 shares of common stock in February 1999 at an exercise price per
share of $1.50.
(2) Does not include an option to purchase 75,000 shares of common stock
granted to Mr. Samec in April 1999 at an exercise price per share of
$5.00.
(3) Mr. Waterhouse exercised an option to purchase 132,890 shares of common
stock in May 1998 at an exercise price per share of $.10.
Employee Stock Plans
1998 Stock Plan
General. Our 1998 Stock Plan provides for the granting of stock options and
stock purchase rights to eligible employees, officers, directors, including
non-employee directors, and consultants of Chemdex. Stock options granted
under the 1998 Stock Plan may be either "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or
nonstatutory stock options, which are options not intended to qualify as
incentive stock options. Stock purchase rights granted under the 1998 Stock
Plan allow a recipient to purchase shares of common stock directly from
Chemdex. Incentive stock options may be granted to employees, officers and
employee directors of Chemdex and nonstatutory stock options and stock
purchase rights may be granted to employees, officers, directors and
consultants.
As of June 30, 1999, an aggregate of 6,125,000 shares of common stock had
been reserved for issuance under the 1998 Stock Plan. As of June 30, 1999,
134,251 shares of common stock were issuable upon the exercise of outstanding
options granted under the 1998 Stock Plan at a weighted average exercise price
of $1.34, 2,490,335 shares of common stock have been issued upon exercise of
options or pursuant to stock purchase rights at exercise or purchase prices
ranging between $.10 and $1.50, net of repurchases, and 1,897,348 shares of
common stock remained available for future issuance under the 1998 Stock Plan.
The 1998 Stock Plan was originally adopted by the Board of Directors in
January 1998 and approved by the stockholders in March 1998.
54
<PAGE>
The 1998 Stock Plan was amended by our Board of Directors in April 1999 to
increase the total number of shares reserved for issuance by 1,500,000 shares.
In May 1999 the Board of Directors amended the 1998 Stock Plan to increase the
total number of shares reserved for issuance by 1,250,000 shares plus an
automatic annual increase on the first day of each of our fiscal years
beginning in 2000, 2001, 2002, 2003 and 2004 equal to the lesser of 1,250,000
shares, 3% of our outstanding common stock on the last day of the preceding
fiscal year or a lesser number determined by our Board of Directors. The
amendment to the 1998 Stock Plan will be submitted for approval by our
stockholders prior to the completion of this offering. Unless terminated
earlier by our Board of Directors, the 1998 Stock Plan will terminate in
January 2008.
Stock options granted under the 1998 Stock Plan may not have a term of more
than ten years and generally remain exercisable for a period of three months
following termination of the optionee's employment or consulting relationship
with Chemdex, with longer periods applying in the event this termination
occurs as a result of death or disability. The exercise price of all incentive
stock options must be at least equal to the fair market value of the common
stock at the time of grant, except in the case of incentive stock options
granted to persons owning stock that represents more than 10% of the total
combined voting power of all classes of the outstanding capital stock of
Chemdex, in which case the exercise price must equal at least 110% of the fair
market value of the common stock at the time of grant. The exercise price of
nonstatutory stock options will be determined by the Administrator, except
that for grants to certain executive officers of Chemdex, the exercise price
must be at least 100% of the fair market value if the option is intended to
qualify as performance-based compensation under tax rules. Options granted
under the 1998 Stock Plan are generally subject to vesting at a rate of
twenty-five percent at the end of the first year and 1/48th of the original
number of shares subject to the option per month thereafter. The Administrator
has the authority to grant options which are exercisable prior to vesting, in
which case the unvested portion of the exercised shares are subject to a right
of repurchase in favor of Chemdex at the optionee's original cost. Options
granted under the 1998 Stock Plan are generally not transferable, although the
Administrator has the discretion to allow limited transferability of
nonstatutory stock options. In the event of a merger or consolidation of
Chemdex with or into another corporation where the successor corporation
issues its securities to Chemdex stockholders or the sale of all or
substantially all of Chemdex's assets, each outstanding option or stock
purchase right shall be assumed or an equivalent option or stock purchase
right shall be substituted by the successor corporation. If the successor
corporation refuses to do an assumption or substitution, each outstanding
option and stock purchase right shall terminate upon completion of the
transaction. In the event of a proposed dissolution or liquidation of Chemdex,
each outstanding option or stock purchase right granted under the 1998 Stock
Plan shall terminate. The Administrator has the authority to amend or
terminate the 1998 Stock Plan provided that no action that impairs the rights
of any holder of an outstanding option may be taken without the holders'
consent. In addition, stockholder approval will be obtained for any amendment
to the extent required by applicable law.
In addition to stock options, the Administrator may issue stock purchase
rights under the 1998 Stock Plan to employees, directors and consultants. The
Administrator determines the number of shares, price, term and condition and
restrictions related to a grant of stock purchase rights.
The purchase price of common stock purchased pursuant to stock purchase
rights granted under the 1998 Stock Plan shall be the price determined by the
Administrator. These shares of common stock are generally subject to a right
of repurchase in favor of Chemdex at the holder's original purchase price,
which repurchase right generally lapses at a rate of 25% percent at the end of
the first year and 1/48th of the original number of shares per month
thereafter.
Administration. The 1998 Stock Plan may be administered by the Board of
Directors or a committee appointed by the Board of Directors to administer the
1998 Stock Plan. The Administrator has the authority to grant options and
stock purchase rights and to determine the terms of these awards, provided
these grants are not inconsistent with the terms of the 1998 Stock Plan. In no
event, however, may an individual receive option and stock purchase right
grants for more than 5,000,000 shares under the 1998 Stock Plan in any fiscal
year. Decisions of the Administrator are final and binding on all 1998 Stock
Plan participants.
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<PAGE>
1999 Directors' Stock Plan
Our 1999 Directors' Stock Plan was adopted by the Board of Directors in May
1999 and is expected to be approved by the stockholders prior to the closing
of this offering. A total of 250,000 shares of common stock has been reserved
for issuance under the Directors' Plan. The Directors' Plan provides for the
grant of nonstatutory stock options to nonemployee directors of Chemdex. The
Directors' Plan is designed to work automatically without administration;
however, to the extent administration is necessary, it will be performed by
the Board of Directors. To the extent they arise, it is expected that
conflicts of interest will be addressed by abstention of any interested
director from both deliberations and voting regarding matters in which this
director has a personal interest.
The Directors' Plan provides that each person who is or becomes a
nonemployee director of Chemdex will be granted a nonstatutory stock option to
purchase 12,500 shares of common stock on the later of the date on which the
optionee first becomes a nonemployee director of Chemdex or the effective date
of the registration statement for this offering. Thereafter, on the date of
Chemdex's Annual Stockholders Meeting each year, each nonemployee director of
Chemdex will be granted an additional option to purchase 5,000 shares of
common stock if, on that date, he or she has served on Chemdex's Board of
Directors for at least six months.
The Directors' Plan sets neither a maximum nor a minimum number of shares
for which options may be granted to any one non-employee director, but does
specify the number of shares that may be included in any grant and the method
of making a grant. No option granted under the Directors' Plan is transferable
by the optionee other than by will or the laws of descent or distribution or
pursuant to a qualified domestic relations order, and each option is
exercisable, during the lifetime of the optionee, only by the optionee. The
Directors' Plan provides that each option granted under the Directors' Plan
shall vest and become exercisable in full immediately upon grant of the
option. If a nonemployee director ceases to serve as a director for any reason
other than death or disability, he or she may, but only within 90 days after
the date he or she ceases to be a director of Chemdex, exercise options
granted under the Directors' Plan. If he or she does not exercise the option
within this 90 day period, this option shall terminate. The exercise price of
all stock options granted under the Directors' Plan shall be equal to the fair
market value of a share of Chemdex's common stock on the date of grant of the
option. Options granted under the Directors' Plan have a term of ten years.
In the event of a sale of all or substantially all of the assets of
Chemdex, the merger of Chemdex with or into another corporation or any other
reorganization of Chemdex in which more than 50% of the shares of Chemdex
entitled to vote are exchanged, each nonemployee director shall have the right
to exercise each option immediately prior to completion of the transaction.
The Board of Directors may amend or terminate the Directors' Plan; provided,
however, that no these actions may not adversely affect any outstanding
option. We will obtain stockholder approval for any amendment to the extent
required by applicable law. If not terminated earlier, the Directors' Plan
will have a term of ten years.
1999 Employee Stock Purchase Plan
Chemdex's 1999 Employee Stock Purchase Plan was adopted by the Board of
Directors in May 1999 and is expected to be approved by the stockholders prior
to the closing of this offering. A total of 750,000 shares of common stock has
been reserved for issuance under the Purchase Plan, as well as an automatic
annual increase on the first day of each of Chemdex's fiscal years beginning
in 2000, 2001, 2002, 2003 and 2004 equal to the lesser of 200,000 shares, 1/2%
of Chemdex's outstanding common stock on the last day of the immediately
preceding fiscal year or a lesser number of shares determined by the Board of
Directors. The Purchase Plan becomes effective upon the effective date of the
registration statement for this offering.
The Purchase Plan, which is intended to qualify under Section 423 of the
Code, will be implemented by a series of overlapping offering periods of
approximately 24 months' duration, with new offering periods (other than the
first offering period) commencing on February 1st and August 1st of each year.
Each offering period will generally consist of four consecutive purchase
periods of six months' duration, at the end of which an
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<PAGE>
automatic purchase will be made by the participant. The initial offering
period is expected to begin on the date of this offering and end on July 31,
2001; the initial purchase period is expected to end on January 31, 2000. The
Purchase Plan will be administered by the Board of Directors or by a committee
appointed by the Board of Directors. The Purchase Plan will be administered by
the Compensation Committee (comprised of Messrs. Burke, Byers and Callaghan,
outside directors of Chemdex who are not eligible to participate in the
Purchase Plan). Employees (including officers and employee directors) of
Chemdex, or of any majority-owned subsidiary designated by the Board of
Directors, are eligible to participate in the Purchase Plan if they are
employed by Chemdex or any majority-owned subsidiary for at least 20 hours per
week and more than five months per year. The Purchase Plan permits eligible
employees to purchase common stock through payroll deductions, which may not
exceed 20% of an employee's compensation, at a price equal to the lower of 85%
of the fair market value of Chemdex's common stock at the beginning of each
offering period or at the end of each purchase period. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of employment. If not
terminated earlier, the Purchase Plan will have a term of 20 years.
An employee cannot be granted an option under the Purchase Plan if
immediately after the grant the employee would own stock and/or hold
outstanding options to purchase stock equaling 5% or more of the total voting
power or value of all classes of our stock or stock of our subsidiaries, or if
this option would permit an employee to purchase stock under the Purchase Plan
at a rate that exceeds $25,000 of fair market value of this stock for each
calendar year in which the option is outstanding. In addition, no employee may
purchase more than 1,250 shares of Common Stock under the Purchase Plan in any
one purchase period. If the fair market value of the Common Stock on a
purchase date is less than the fair market value at the beginning of the
offering period, each participant in that offering period shall automatically
be withdrawn from the offering period as of the end of the purchase date and
re-enrolled in the new twenty-four month offering period beginning on the
first business day following the purchase date. In the event of a merger of
Chemdex with or into another corporation or a sale of all or substantially all
of Chemdex's assets, each right to purchase stock under the Purchase Plan will
be assumed or an equivalent right substituted by the successor corporation.
However, the Board of Directors will shorten any ongoing offering period so
that participants' rights to purchase stock under the Purchase Plan are
exercised prior to the transaction in the event the successor corporation
refuses to assume each purchase right or to substitute an equivalent right of
the successor corporation. The Board of Directors has the power to amend or
terminate the Purchase Plan as long as the action does not adversely affect
any outstanding rights to purchase stock thereunder. However, the Board of
Directors may amend or terminate the Purchase Plan or an offering period even
if it would adversely affect outstanding options in order to avoid our
incurring adverse accounting charges.
Limitation of Liability and Indemnification Matters
As permitted by the Delaware General Corporation Law, Chemdex has included
in its Amended and Restated Certificate of Incorporation a provision to
eliminate the personal liability of its officers and directors for monetary
damages for breach or alleged breach of their fiduciary duties as officers or
directors, respectively, subject to exceptions. In addition, Chemdex's Bylaws
provide that Chemdex is required to indemnify its officers and directors,
including under circumstances in which indemnification would otherwise be
discretionary, and Chemdex is required to advance expenses to its officers and
directors as incurred in connection with proceedings against them for which
they may be indemnified. Chemdex has entered into indemnification agreements
with its officers and directors containing provisions that are in some
respects broader than the specific indemnification provisions contained in the
Delaware General Corporation Law. The indemnification agreements require
Chemdex, among other things, to indemnify its officers and directors against
liabilities that may arise by reason of their status or service as officers
and directors (other than liabilities arising from willful misconduct of a
culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' insurance if available on reasonable terms. Chemdex
has also obtained directors' and officers' liability insurance.
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<PAGE>
At present, Chemdex is not aware of any pending or threatened litigation or
proceeding involving a director, officer, employee or agent of Chemdex in
which indemnification would be required or permitted. Chemdex is not aware of
any threatened litigation or proceeding that might result in a claim for
indemnification. Chemdex believes that its charter provisions and
indemnification agreements are necessary to attract and retain qualified
persons as directors and officers.
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<PAGE>
RELATED PARTY TRANSACTIONS
Equity Transactions
In September 1997, Chemdex issued and sold 2,570,000 shares of common stock
to the founders of Chemdex, including 1,905,854 shares of common stock to Mr.
Perry, 25,700 shares of common stock to Mr. Callaghan, a director of Chemdex,
3,161 shares of common stock to Marc Kaschke and 635,285 shares of common
stock to Jeffrey Leane. In consideration for the receipt of assets contributed
to Chemdex, Mr. Callaghan paid $514.00 to Chemdex, Mr. Kaschke paid $63.22 to
Chemdex and Mr. Leane contributed $12,705.70 in the form of assets contributed
to Chemdex.
In September 1997, Chemdex issued and sold 800,800 shares of its Series A
Preferred Stock at a price of $.694 per share, including:
. 357,000 shares to CMG@Ventures II, LLC (formerly CMG@Ventures, L.P.), an
entity with which Mr. Callaghan, a director of Chemdex, is affiliated;
. 357,500 shares to a partnership affiliated with Mr. Swanson, a director
of Chemdex; and
. two other private investors.
In December 1997 and March 1998, Chemdex issued and sold 1,994,850 shares
of its Series A Preferred Stock at a price of $.694 per share, including:
. 1,115,400 shares to The Bay City Capital Fund I, L.P., an entity with
which Mr. Pritzker, a director of Chemdex, is affiliated;
. 14,300 shares to Mr. Burke, a director of Chemdex;
. 715,000 shares to CMG@Ventures; and
. other private investors.
In October 1997, Chemdex loaned $10,000 to Mr. Perry pursuant to a
promissory note bearing interest at a rate of 8% per annum which matures on
October 15, 1999. This note has been forgiven by the Board of Directors of
Chemdex.
In May 1998, Chemdex issued and sold 8,649,992 shares of its Series B
Preferred Stock at a price of $1.50 per share, including:
. 2,666,666 shares to entities affiliated with Kleiner Perkins Caufield &
Byers, an entity with which Mr. Byers, a director of Chemdex, is
affiliated;
. 2,666,666 shares to Warburg, Pincus Ventures L.P., an entity with which
Mr. Lewis, a director of Chemdex, is affiliated;
. 1,236,526 shares to CMG@Ventures II, LLC, an entity with which Mr.
Callaghan, a director of Chemdex, is affiliated;
. 1,285,987 shares to The Bay City Capital Fund I, L.P., an entity with
which Mr. Pritzker is affiliated;
. 16,487 shares to Mr. Burke;
. 266,666 shares to a partnership affiliated with Mr. Swanson; and
. other private investors.
In March 1999 and April 1999, Chemdex issued and sold 5,299,951 shares of
its Series C Preferred Stock at a price of $5.716 per share, including:
. 1,749,474 shares to entities affiliated with Galen Associates, an entity
with which Dr. Wilkerson, a director of Chemdex, is affiliated;
. 393,631 shares to entities affiliated with Kleiner Perkins Caufield &
Byers, an entity with which Mr. Byers, a director of Chemdex, is
affiliated;
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<PAGE>
. 393,631 shares to Warburg, Pincus Ventures L.P., an entity with which Mr.
Lewis, a director of Chemdex, is affiliated;
. 393,631 shares to CMG@Ventures II, LLC, an entity with which Mr.
Callaghan, a director of Chemdex, is affiliated;
. 393,631 shares to The Bay City Capital Fund I, L.P., an entity with which
Mr. Pritzker, a director of Chemdex, is affiliated;
. 6,997 shares to Mr. Burke; and
. other private investors. In addition, in March 1999, Chemdex issued
warrants to purchase a total of 49,999 shares of common stock at an
exercise price of $5.20 per share to entities affiliated with Galen
Associates, an entity with which Dr. Wilkerson, a director of Chemdex, is
affiliated.
Chemdex recently entered into a strategic relationship agreement with VWR
Scientific Products Corporation to jointly market VWR laboratory products
using the Chemdex Marketplace. The agreement gives us the right to offer
approximately 350,000 VWR core products to our customers through the Chemdex
Marketplace. VWR and Chemdex are jointly developing a hosted, co-branded
Internet purchasing solution for VWR's existing and future customers that will
provide access to VWR core products, Chemdex core products and products that
are not distributed by either VWR or Chemdex, but are purchased from third
parties. In connection with the strategic relationship agreement, VWR
transferred to Chemdex information concerning VWR customers who purchased
products from third party suppliers outside VWR's primary product offering and
in exchange Chemdex issued 2,538,405 shares of common stock valued at $13.9
million to VWR. VWR also entered into a standstill agreement limiting its
ownership in Chemdex to 10% of Chemdex's outstanding securities, including
outstanding options and warrants. This percentage can be exceeded if any one
company from a specified list of companies acquires more than 10% of Chemdex's
outstanding securities, including outstanding options and warrants.
Mr. Harris, a director of Chemdex, is President and Chief Executive Officer of
VWR. Mr. Harris became a director of Chemdex concurrent with the entrance into
the strategic relationship agreement.
Other Transactions
In January 1998, Chemdex entered into an Electronic Commerce Agreement with
Genentech, Inc., a company of which Mr. Swanson, a director of Chemdex, is a
founder and the former Chief Executive Officer and Chairman.
In May 1998, Chemdex entered into a Stock Restriction Agreement with Mr.
Perry, pursuant to which shares held by Mr. Perry are subject to a repurchase
option in favor of Chemdex in accordance with the terms therein.
In January 1999, Chemdex entered into a Separation Agreement with Scott
Waterhouse, pursuant to which Mr. Waterhouse received severance benefits upon
the termination of his employment with Chemdex.
Some of the officers of Chemdex, including Ms. Abrams, Ms. Greer, Mr.
Samec, Mr. Wambach and Mr. Weber, will receive six months of accelerated
vesting of stock then held in the event of their termination without cause. In
addition, in the event of a termination with or without cause, Ms. Greer will
receive the greater of six months of then-current salary or $100,000, Ms.
Abrams and Mr. Samec will receive six months of then-current salary, Mr.
Stewart and Mr. Weber will receive the greater of six months of then-current
salary or an amount equal to salary for 15 months less the time they have been
employed by Chemdex and Mr. Wambach will receive the greater of six months of
then-current salary or $87,500. If Mr. Stewart is terminated without cause or
resigns due to pressing family concerns during the first six months of his
employment, he will receive an additional six months of vesting for his stock,
and if after the first six months, but during the first twelve months of
employment, his stock will vest in an amount equal to what he would have
vested had he been employed for the full twelve months. If Mr. Stewart is
terminated without cause or resigns due to pressing family concerns after the
first twelve months but during the first 24 months of his employment, his
stock will vest in an amount equal to what he would have vested
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had he been employed for the full 24 months. In addition, Chemdex has entered
into Change of Control Agreements with Ms. Abrams, Ms. Greer, Mr. Kudrycki,
Mr. Perreault, Mr. Perry, Mr. Samec, Mr. Stewart, Mr. Wambach, Mr. Weber and
other employees of Chemdex, where the shares held by these employees shall
become fully vested if (a) Chemdex is merged into another entity or sold and
(b) this employee is terminated by the surviving entity without cause or
within twelve months of the closing of the transaction.
Chemdex has also entered into a Change of Control Agreement with each of
Mr. Burke and Mr. Swanson, under which any options subject to vesting or
shares subject to a right of repurchase of Chemdex then held by Mr. Burke or
Mr. Swanson will become fully vested upon the closing of a merger in which
more than 50% of the total voting power of Chemdex is transferred or a sale of
all or substantially all of Chemdex's assets in a complete liquidation or
dissolution of Chemdex.
Since inception, Chemdex from time to time has issued and sold shares of
its common stock and granted options to purchase common stock to its
employees, directors and consultants.
The following executive officers have executed full-recourse promissory
notes in the amounts set forth after their names in connection with their
purchases of shares of Chemdex's common stock:
<TABLE>
<CAPTION>
Principal
Name Amount Rate Date
- ---- --------- ---- --------
<S> <C> <C> <C>
Martha D. Greer........................................ $337,455 4.71% 2/26/99
Thomas P. Kudrycki..................................... 22,470 4.64 1/22/99
Pierre V. Samec........................................ 33,705 5.12 10/21/98
James S. Wambach....................................... 33,705 4.64 1/22/99
David A. Weber......................................... 299,970 4.71 2/26/99
</TABLE>
These notes become due the earlier of five years after the date of issuance
or nine months after the date of this offering. They bear interest at the
lowest rate allowed under federal tax law to avoid the imputation of interest,
compounded annually.
Chemdex has entered into compensation arrangements with some of its
directors and officers. See "Management--Executive Compensation" and "--Stock
Plans."
Except for the forgiveness of $10,000 promissory note held by Mr. Perry,
the related transactions were on terms that are no more favorable than those
that would have been agreed upon by third parties on an arm's length basis.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to Chemdex with respect to
the beneficial ownership of Chemdex's common stock as of May 12, 1999 by the
following individuals or groups:
. each stockholder known by Chemdex to be the beneficial owner of more
than 5% of Chemdex's common stock;
. each director of Chemdex;
. the "Named Officers"; and
. all executive officers and directors as a group.
Except as otherwise noted, the address of each person listed in the table
is c/o Chemdex Corporation, 3950 Fabian Way, Palo Alto, CA 94303. The table
includes all shares of common stock issuable within 60 days of May 12, 1999
upon the exercise of options and other rights beneficially owned by the
indicated stockholders on that date. These shares, however, are not deemed
outstanding for the purposes of computing the percentage of ownership of each
other person. Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission and includes voting and investment
power with respect to these shares. To the knowledge of Chemdex, except under
applicable community property laws or as otherwise indicated, the persons
named in this table have sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them. The applicable
percentage of ownership for each stockholder is based on 24,275,514 shares of
common stock outstanding as of May 12, 1999, together with applicable options
for that stockholder. The table assumes that the underwriters' over-allotment
to purchase 1,125,000 shares of common stock is not exercised. In addition,
the table assumes that the outstanding shares of preferred stock were
converted into shares of common stock. Percentage ownership figures after the
offering do not include shares that may be purchased by each person in the
offering.
<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned
Number of Shares -------------------------
Beneficially Before After
Name of Beneficial Owner Owned Offering Offering
- ------------------------ ---------------- ---------- ----------
<S> <C> <C> <C>
Entities affiliated with Kleiner
Perkins Caufield & Byers(1) ... 3,060,297 12.6% 9.6%
2750 Sand Hill Road
Menlo Park, CA 94025
Entities affiliated with
Warburg, Pincus Ventures(2) ... 3,060,297 12.6 9.6
466 Lexington Avenue
New York, New York 10017-3147
The Bay City Capital Fund I,
L.P.(3)........................ 2,795,018 11.5 8.8
750 Battery Street
San Francisco, CA 94104
Entities affiliated with
CMG@Ventures(4)................ 2,728,357 11.2 8.6
3000 Alpine Road
Menlo Park, CA 94028
VWR Scientific Products
Corporation.................... 2,538,405 10.5 8.0
1310 Goshen Parkway
West Chester, PA 19380
Entities affiliated with Galen
Associates(5).................. 1,799,473 7.4 5.7
610 Fifth Avenue, 5th Floor
Rockefeller Center
New York, NY 10020
David P. Perry.................. 1,725,854 7.1 5.4
Pierre V. Samec(6).............. 225,000 * *
Scott P. Waterhouse............. 63,119 * *
Charles R. Burke(7)............. 62,784 * *
Brook H. Byers(8)............... 3,060,297 12.6 9.6
S. Joshua Lewis(9).............. 3,060,297 12.6 9.6
John A. Pritzker(10)............ 2,795,018 11.5 8.8
Jonathan D. Callaghan(11)....... 2, 728,357 11.2 8.6
Jerrold B. Harris(12)........... 2,547,152 10.5 8.0
L. John Wilkerson(13)........... 1,799,473 7.4 5.7
Robert A. Swanson(14)........... 699,166 2.9 2.2
All executive officers and
directors as a group (19
persons)....................... 19,529,640 80.4% 61.5%
</TABLE>
- --------
* Less than 1%
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(1) Includes:
. 2,748,148 shares held by Kleiner Perkins Caufield & Byers VIII, L.P.
. 153,014 shares held by KPCB Life Sciences Zaibatsu Fund II, L.P. and
. 159,135 shares held by KPCB VIII Founders Fund, L.P.
The general partner of Kleiner Perkins Caufield & Byers VIII, L.P. and
KPCB VIII Founders Fund is KPCB VIII Associates. The general partner of
KPCB Life Sciences Zaibatsu Fund II, L.P. is KPCB VII Associates. Brook
H. Byers, a director of Chemdex, is a general partner of the Kleiner
Perkins Caufield & Byers funds. Mr. Byers disclaims beneficial ownership
of the shares held by Kleiner Perkins Caufield & Byers VIII, L.P., KPCB
Life Sciences Zaibatsu Fund II, L.P. and KPCB VIII Founders Fund, L.P.,
except to the extent of his pecuniary interest therein arising from his
general partnership interest in these funds.
(2) Warburg, Pincus & Co. is the sole general partner of Warburg, Pincus
Ventures, L.P., which is managed by E.M. Warburg, Pincus & Co., LLC.
Lionel I. Pincus is the managing partner of Warburg, Pincus & Co. and the
managing member of E. M. Warburg, Pincus & Co., LLC, and may be deemed to
control both entities.
(3) Trusts for the benefit of members of the Pritzker family (including Mr.
Pritzker) are indirect investors in The Bay City Capital Fund I, L.P. Mr.
Pritzker a director of Chemdex, disclaims any beneficial ownership in
shares held by The Bay City Capital Fund I, L.P.
(4) Includes:
. 2,702,657 shares held by CMG@Ventures II, LLC and
. 25,700 shares held by Johnathan D. Callaghan, a general partner of
CMG@Ventures and a director of Chemdex.
Mr. Callaghan disclaims beneficial ownership of the shares held by
CMG@Ventures II, LLC except to the extent of his pecuniary interest
therein arising from his general partnership interest in these funds.
(5) Includes:
. 1,598,260 shares and a warrant to purchase 45,678 shares of common stock
exercisable within 60 days of May 1, 1999 held by Galen Partners III,
L.P.
. 144,670 shares and a warrant to purchase 4,134 shares of common stock
exercisable within 60 days of May 1, 1999 held by Galen Partners
International III, L.P. and
. 6,544 shares and a warrant to purchase 187 shares of common stock
exercisable within 60 days of May 1, 1999 held by Galen Employee Fund
III, L.P.
Dr. Wilkerson, a co-founder of Galen Associates and a director of
Chemdex, disclaims beneficial ownership of the shares held by Galen
Partners III, L.P., Galen Partners International III, L.P., and Galen
Employee Fund III, L.P., except to the extent of his pecuniary interest
therein arising from his general partnership interest in these funds.
(6) All shares held by Mr. Samec are subject to repurchase by Chemdex within
60 days of May 12, 1999 in the event of a termination of his employment
with Chemdex.
(7) Includes 17,656 shares held by Mr. Burke subject to repurchase by Chemdex
within 60 days of May 12, 1999.
(8) Includes:
. 2,748,148 shares held by Kleiner Perkins Caufield & Byers VIII, L.P.
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. 153,014 shares held by KPCB Life Sciences Zaibatsu Fund II, L.P. and
. 159,135 shares held by KPCB VIII Founders Fund, L.P.
Mr. Byers, a Senior Partner of Kleiner Perkins Caufield & Byers,
disclaims beneficial ownership of the shares held by Kleiner Perkins
Caufield & Byers VIII, L.P., KPCB Life Sciences Zaibatsu Fund II, L.P.
and KPCB VIII Founders Fund, L.P., except to the extent of his pecuniary
interest therein arising from his general partnership interest in these
funds.
(9) Mr. Lewis, a director of Chemdex, is a managing director and member of
E.M. Warburg, Pincus & Co., LLC, the manager of Warburg, Pincus Ventures
L.P. Mr. Lewis may be deemed to have an indirect pecuniary interest
(within the meaning of Rule 16a-1 of the Securities Exchange Act of 1934,
as amended) in an indeterminate portion of the shares beneficially owned
by Warburg, Pincus Ventures, L.P. Mr. Lewis disclaims beneficial
ownership of all shares held by Warburg, Pincus entities.
(10) Includes 2,795,018 shares held by The Bay City Capital Fund I, L.P.
Trusts for the benefit of members of the Pritzker family (including Mr.
Pritzker) are indirect investors in The Bay City Capital Fund I, L.P.
Mr. Pritzker disclaims any beneficial ownership in shares held by The Bay
City Capital Fund I, L.P.
(11) Includes:
. 2,702,657 shares held by CMG@Ventures II, LLC and
. 25,700 shares held by Mr. Callaghan, a General Partner of CMG@Ventures
and a director of Chemdex.
Mr. Callaghan disclaims beneficial ownership of the shares held by
CMG@Ventures II, LLC, except to the extent of his pecuniary interest
therein arising from his general partnership interest in these funds.
(12) Includes 2,538,405 shares held by VWR Scientific Products Corporation, a
company of which Mr. Harris is the President and Chief Executive Officer
and 8,747 shares held by Mr. Harris. Mr. Harris disclaims beneficial
ownership of the shares held by VWR Scientific Products Corporation,
except to the extent of his pecuniary interest therein.
(13) Includes 1,799,473 shares held by entities affiliated with Galen
Associates, an entity with which Dr. Wilkerson is affiliated. Dr.
Wilkerson disclaims beneficial ownership of the shares held by entities
affiliated with Galen Associates, except to the extent of his pecuniary
interest therein arising from his general partnership interest in these
funds.
(14) Includes 27,344 shares held by Mr. Swanson as trustee of an irrevocable
trust and subject to repurchase by Chemdex within 60 days of May 12, 1999
in the event of termination of his relationship with Chemdex. Also
includes 624,166 shares held by a partnership affiliated with Mr.
Swanson.
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DESCRIPTION OF CAPITAL STOCK
Immediately following the consummation of this offering, the authorized
capital stock of Chemdex will consist of 175,000,000 shares of common stock,
$.0002 par value, and 2,500,000 shares of undesignated preferred stock, $.0002
par value. Upon completion of this offering, there will be 31,775,514
outstanding shares of common stock outstanding, no outstanding shares of
preferred stock, options to purchase 1,993,632 shares of common stock and
outstanding warrants to purchase 154,999 shares of common stock.
Common Stock
As of June 30, 1999, there were 24,275,514 shares of common stock
outstanding that were held of record by approximately 233 stockholders. There
will be 31,775,514 shares of common stock outstanding (assuming no exercise of
the underwriters' over-allotment option and assuming no exercise after June
30, 1999 of outstanding options) after giving effect to the sale of the shares
of common stock to the public offered hereby and the conversion of our
preferred stock into common stock at a one-to-one ratio.
Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available therefor at
times and in amounts as the board of directors may determine. See "Dividend
Policy." Each stockholder is entitled to one vote for each share of common
stock held on all matters submitted to a vote of the stockholders. Cumulative
voting is not provided for in the Chemdex's Amended and Restated Certificate
of Incorporation, which means that the majority of the shares voted can elect
all of the directors then standing for election. The common stock is not
entitled to preemptive rights and is not subject to conversion or redemption.
Upon the occurrence of a liquidation, dissolution or winding-up, the holders
of shares of common stock are entitled to share ratably in all assets
remaining after payment of liabilities and satisfaction of preferential rights
of any outstanding preferred stock. There are no sinking fund provisions
applicable to the common stock. The outstanding shares of common stock are,
and the shares of common stock to be issued upon completion of this offering
will be, fully paid and non-assessable.
Preferred Stock
Upon filing our Amended and Restated Certificate of Incorporation after the
closing of this offering, we will authorize 2,500,000 shares of preferred
stock. The Board of Directors has the authority, within the limitations and
restrictions in the Amended and Restated Certificate of Incorporation, to
provide by resolution for the issuance of shares of preferred stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and
the number of shares constituting any series or the designation of any series,
without further vote or action by the stockholders. The issuance of preferred
stock may have the effect of delaying, deferring or preventing a change in
control of Chemdex without further action by the stockholders. The issuance of
preferred stock with voting and conversion rights may adversely affect the
voting power of the holders of common stock, including voting rights, of the
holders of common stock. In some circumstances, this issuance could have the
effect of decreasing the market price of the common stock. As of the closing
of the offering, no shares of preferred stock will be outstanding and Chemdex
currently has no plans to issue any shares of preferred stock.
Options
As of June 30, 1999, options to purchase a total of 1,993,632 shares of
common stock were outstanding, and up to 1,897,348 additional shares of common
stock may be subject to options granted in the future under the 1998 Stock
Plan. See "Management--Employee Stock Plans--1998 Stock Plan."
Warrants
As of June 30, 1999, Chemdex had the following outstanding warrants:
warrants to purchase a total of 49,999 shares of common stock at an exercise
price of $5.20 that are held by entities affiliated with Galen
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Associates; and a warrant to purchase 105,000 shares of Series B Preferred
Stock at an exercise price of $1.50 that is held by Comdisco, Inc. All of the
warrants contain standard anti-dilution provisions.
Anti-takeover Effects of Provisions of the Certificate of Incorporation,
Bylaws and Delaware Law
Certificate of Incorporation and Bylaws. Our Amended and Restated
Certificate of Incorporation provides that, effective on the closing of this
offering, all stockholder actions must be effected at a duly called meeting
and not by a consent in writing. Further, provisions of the Bylaws and the
Amended and Restated Certificate of Incorporation provide that the
stockholders may amend the Bylaws or provisions of the Amended and Restated
Certificate of Incorporation only with the affirmative vote of more than 50%
of our capital stock. These provisions of the Amended and Restated Certificate
of Incorporation and Bylaws could discourage potential acquisition proposals
and could delay or prevent a change in control of Chemdex. These provisions
are intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors and in the policies formulated by the
Board of Directors and to discourage types of transactions that may involve an
actual or threatened change of control of Chemdex. These provisions are
designed to reduce our vulnerability to an unsolicited acquisition proposal.
The provisions also are intended to discourage tactics that may be used in
proxy fights. However, these provisions could have the effect of discouraging
others from making tender offers for our shares and, as a consequence, they
also may inhibit fluctuations in the market price of our shares that could
result from actual or rumored takeover attempts. These provisions also may
have the effect of preventing changes in our management.
Delaware Takeover Statute. We are subject to Section 203 of the Delaware
General Corporation Law, or DGCL Section 203, which regulates corporate
acquisitions. DGCL Section 203 prevents Delaware corporations, including those
whose securities are listed for trading on the Nasdaq National Market, from
engaging, in some cases in a "business combination" with any "interested
stockholder" for three years following the date that the stockholder became an
interested stockholder. For purposes of DGCL Section 203, a "business
combination" includes, among other things, a merger or consolidation involving
Chemdex and the interested stockholder and the sale of more than ten percent
(10%) of Chemdex's assets. In general, DGCL Section 203 defines an "interested
stockholder" as any entity or person beneficially owning 15% or more the
outstanding voting stock of Chemdex and any entity or person affiliated with
or controlling or controlled by this entity or person. A Delaware corporation
may "opt out" of DGCL Section 203 with an express provision in its original
certificate of incorporation or an express provision in its certificate of
incorporation or bylaws resulting from amendments approved by the holders of
at least a majority of the corporation's outstanding voting shares. We have
not "opted out" of the provisions of DGCL Section 203.
Registration Rights
As of the completion of this offering, the holders of 19,626,497 shares of
common stock and common stock issuable upon exercise of warrants held by
Comdisco, Inc. and entities affiliated with Galen Associates or their
transferees are entitled to rights with respect to the registration of these
shares under the Securities Act. These rights are provided under the terms of
an agreement between Chemdex and the holders of the registrable securities.
Pursuant to this Agreement, on the written demand of holders of more than 20%
of the then outstanding registrable securities, Chemdex shall use its best
efforts to register these shares and those of any other stockholders who, by
prompt notice, request registration, subject to cutbacks in participation made
by the managing underwriter. Chemdex is not required to effect more than two
demand registrations on Form S-1 at any time and more than one demand
registration on Form S-3 in any twelve-month period. These holders are also
entitled to unlimited piggyback registration rights, subject to cutbacks in
participation made by the managing underwriter. All offering expenses in
connection with this registration will be borne by Chemdex, excluding
underwriting discounts and commissions.
Effect of Amended and Restated Certificate of Incorporation and Bylaw
Provisions
Our Amended and Restated Certificate of Incorporation to be effective upon
the closing of this offering provides, among other things, that directors of
Chemdex will be elected without the application of cumulative
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<PAGE>
voting. This Amended and Restated Certificate of Incorporation also provides
that after the closing of the offering contemplated hereby, any action
required or permitted to be taken by the stockholders of Chemdex may be taken
only at a duly called annual or special meeting of the stockholders. Our
Bylaws to be effective upon the closing of this offering also establish
procedures, including advance notice procedures with regard to the nomination,
other than by or at the direction of the Board of Directors, of candidates for
election as directors. See "Description of Capital Stock -- Common Stock."
The foregoing provisions could have the effect of making it more difficult
for a third party to effect a change in the control of the Board of Directors.
In addition, these provisions could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, a majority of the outstanding voting stock of Chemdex.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the common stock is Boston EquiServe
LP. The Transfer Agent's telephone number is (781) 575-2000.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the common stock of
Chemdex. Future sales of substantial amounts of common stock in the public
market could adversely affect prevailing market prices. Furthermore, since
only a limited number of shares will be available for sale shortly after this
offering because of contractual and legal restrictions on resale (as described
below), sales of substantial amounts of common stock of Chemdex in the public
market after the restrictions lapse could adversely affect the prevailing
market price and the ability of Chemdex to raise equity capital in the future.
Upon completion of the offering, Chemdex will have outstanding 31,775,514
shares of common stock. Of these shares, the 7,500,000 shares sold in the
offering (plus any shares issued upon exercise of the underwriters' over-
allotment option) will be freely tradeable without restriction under the
Securities Act, unless purchased by "affiliates" of Chemdex as that term is
defined in Rule 144 under the Securities Act.
The remaining 24,275,514 shares of common stock outstanding are "restricted
securities" within the meaning of Rule 144 under the Securities Act.
Restricted securities may be sold in the public market only if registered or
if they qualify for an exemption from registration under Rules 144, 144(k) or
701 promulgated under the Securities Act, which are summarized below. Sales of
the restricted securities in the public market, or the availability of these
shares for sale, could adversely affect the market price of the common stock.
The stockholders of Chemdex have entered into lock-up agreements generally
providing that they will not offer, sell, contract to sell or grant any option
to purchase or otherwise dispose of the shares of common stock of Chemdex or
any securities exercisable for or convertible into Chemdex's common stock
owned by them for a period of 180 days after the effective date of the
registration statement filed pursuant to this offering without the prior
written consent of Morgan Stanley & Co. Incorporated. As a result of these
contractual restrictions, notwithstanding possible earlier eligibility for
sale under the provisions of Rules 144, 144(k) and 701, shares subject to
lock-up agreements will not be saleable until these agreements expire or are
waived by Morgan Stanley & Co. Incorporated. Taking into account the lock-up
agreements, and assuming Morgan Stanley & Co. Incorporated does not release
stockholders from these agreements, the following shares will be eligible for
sale in the public market at the following times: beginning on the effective
date, only the shares sold in the offering will be immediately available for
sale in the public market; beginning 180 days after the effective date,
approximately 999,400 shares will be eligible for sale pursuant to Rule 701
and approximately 13,835,642 additional shares will be eligible for sale
pursuant to Rule 144, of which all but 7,380,336 shares are held by affiliates
of Chemdex. Shares eligible to be sold by affiliates pursuant to Rule 144 are
subject to volume restrictions as described below.
In general, under Rule 144 as currently in effect, and beginning after the
expiration of the lock-up agreements (180 days after the effective date of the
offering), a person (or persons whose shares are aggregated) who has
beneficially owned restricted securities for at least one year would be
entitled to sell within any three-month period a number of shares that does
not exceed the greater of:
. one percent of the number of shares of common stock then outstanding
(which will equal approximately 344,509 shares immediately after the
offering); or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information
about Chemdex. Under Rule 144(k), a person who is not deemed to have been an
affiliate of Chemdex at any time during the three months preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least two
years, is entitled to sell these shares without complying with the manner of
sale, public information, volume limitation or notice provisions of Rule 144.
Pursuant to the lock-up agreements, all Chemdex employees holding common
stock or stock options may not sell shares acquired upon exercise until after
180 days following the effective date. Beginning after 180 days following the
effective date of the registration statement for this offering, any employee,
officer or director of or consultant to Chemdex who purchased his or her
shares pursuant to a written compensatory plan or contract may
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<PAGE>
be entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates to sell their Rule 701 shares under Rule 144 without complying with
the holding period requirements of Rule 144. Rule 701 further provides that
non-affiliates may sell their shares in reliance on Rule 144 without having to
comply with the holding period, public information, volume limitation or
notice provisions of Rule 144. In addition, Chemdex intends to file
registration statements under the Securities Act as promptly as possible after
the effective date to register shares to be issued pursuant to Chemdex's
employee benefit plans. As a result, any options exercised under the Stock
Plan or any other benefit plan after the effectiveness of this registration
statement will also be freely tradeable in the public market, except that
shares held by affiliates will still be subject to the volume limitation,
manner of sale, notice and public information requirements of Rule 144 unless
otherwise resaleable under Rule 701. As of June 30, 1999, there were
outstanding options for the purchase of 1,993,632 shares, of which options to
purchase 134,251 shares were exercisable. No shares have been issued to date
under Chemdex's Purchase Plan or Directors Plan. See "Management--Stock Plans"
and "Description of Capital Stock--Registration Rights."
Morgan Stanley & Co. Incorporated may choose to release some or all of the
shares subject to the lockup restrictions described above prior to the
expiration of the 180-day period with or without prior public notice, although
it has no current intention to do so.
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UNDERWRITERS
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, the underwriters named below, for whom
Morgan Stanley & Co. Incorporated, BancBoston Robertson Stephens Inc. and
Volpe Brown Whelan & Company, LLC are acting as representatives, have
severally agreed to purchase, and Chemdex has agreed to sell to them, the
respective number of shares of common stock set forth opposite the names of
the underwriters below:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated..................................
BancBoston Robertson Stephens Inc..................................
Volpe Brown Whelan & Company, LLC..................................
---------
Total............................................................ 7,500,000
=========
</TABLE>
The underwriters are offering the shares of common stock subject to their
acceptance of the shares from Chemdex and subject to prior sale. The
underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares of common stock
offered hereby are subject to the approval of legal matters by their counsel
and to other conditions. The underwriters are obligated to take and pay for
all of the shares of common stock offered hereby, other than those covered by
the overallotment option described below, if any shares are taken. Discover
Brokerage Direct Inc., an affiliate of Morgan Stanley & Co. Incorporated and
facilitator of internet distribution, is acting as a selected dealer in
connection with the offering.
The underwriters initially propose to offer part of the shares of the
common stock directly to the public at the public offering price set forth on
the cover page hereof and part to dealers at a price that represents a
concession not in excess of $ a share under the public offering price. Any
underwriter may allow, and these dealers may reallow, a concession not in
excess of $ a share to other underwriters or to other dealers. After the
initial offering of the shares of common stock, the offering price and other
selling terms may from time to time be varied by the representatives.
The underwriters have informed Chemdex that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
common stock offered by them.
At the request of Chemdex, the underwriters have reserved up to 600,000
shares of common stock offered hereby for sale at the initial public offering
price to employees of Chemdex, friends and families of employees of Chemdex,
service providers, employees of customers and others. The number of shares
available for sale to the general public will be reduced to the extent that
these persons purchase reserved shares. Any reserved shares not so purchased
will be offered by the underwriters to the general public on the same basis as
other shares of common stock offered hereby.
Chemdex has submitted an application to have its common stock approved for
quotation on the Nasdaq National Market under the symbol "CMDX."
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Each of Chemdex and the directors, officers and substantially all other
stockholders of Chemdex has agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the underwriters, it will not,
during the period ending 180 days after the effective date of the registration
statement filed for this offering:
. offer, pledge, sell, contract to sell, engage in any short sale, sell
any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise
transfer or dispose of, directly or indirectly, any shares of common
stock or any securities convertible into or exercisable or exchangeable
for common stock;
. enter into any swap or similar agreement that transfers, in whole or in
part, the economic consequences of ownership of the common stock;
whether any transaction described above is to be settled by delivery of common
stock or other securities, in cash or otherwise.
The restrictions described in the previous paragraph do not apply to some
circumstances, including:
. the sale of the shares to the underwriters;
. the issuance by Chemdex of shares of restricted stock awards under
Chemdex's existing employee benefit plans or of common stock upon the
exercise of an option or a warrant or the conversion of a security
outstanding on the date of this prospectus subject to a lock up period
at least 180 days after the effective date of the registration statement
for this offering; or
. the grant of options by Chemdex to officers, directors, employees or
consultants provided the options are subject to a lock up period at
least 180 days after the effective date of the registration statement
for this offering; or
. transactions by any person other than Chemdex relating to shares of
common stock or other securities acquired in open market transactions
after the completion of the offering of the shares.
In addition, the stockholders of Chemdex have agreed that, without the
prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
underwriters, neither it nor any of its affiliates will, during the period
ending 180 days after the date of this prospectus, make any demand for, or
exercise any right with respect to, the registration of any shares of common
stock or any security convertible into or exercisable or exchangeable for
common stock.
Morgan Stanley & Co. Incorporated may choose to release some or all of the
shares subject to the lock up restrictions described above prior to the
expiration of the 180 day period with or without prior public notice, although
it has no current intention to do so.
Chemdex has granted to the underwriters an option, exercisable for 30 days
from the date of this prospectus, to purchase up to 1,125,000 additional
shares of common stock at the public offering price set forth on the cover
page hereof, less underwriting discounts and commissions. The underwriters may
exercise this option solely for the purpose of covering over-allotments, if
any, made in connection with the offering of the shares of common stock
offered hereby. To the extent this option is exercised, each underwriter will
become obligated, subject to conditions, to purchase approximately the same
percentage of these additional shares of common stock as the number set forth
next to the underwriter's name in the preceding table bears to the total
number of shares of common stock set forth next to the names of all
underwriters in the preceding table.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock
for their own account. In addition, to cover over-allotments or to stabilize
the price of the common stock, the underwriters may bid for, and purchase,
shares of common stock in the open market. Finally, the underwriting syndicate
may reclaim
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selling concessions allowed to an underwriter or a dealer for distributing the
common stock in the offering if the syndicate repurchases previously
distributed common stock in transactions to cover syndicate short positions,
in stabilization transactions or otherwise. Any of these activities may
stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these
activities, and may end any of these activities at any time.
Chemdex and the underwriters have agreed to indemnify each other against
liabilities, including liabilities under the Securities Act.
Some of the underwriters from time to time perform various investment
banking services for Chemdex, for which these underwriters receive customary
compensation.
Pricing of the Offering
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
between Chemdex and the underwriters. The principal factors that will be
considered in determining the initial public offering price include the future
prospects of Chemdex and its industry in general, the ability of Chemdex's
management, sales, earnings and other financial and operating information of
Chemdex in recent periods, the prospects for Chemdex's future earnings, and
the price-earnings ratios, price-sales ratios, market prices of securities and
financial and operating information of companies engaged in activities similar
to those of Chemdex. The estimated initial public offering price range set
forth on the cover page of this preliminary prospectus is subject to change as
a result of market conditions and other factors.
Until , 1999, 25 days after the date of this prospectus, all dealers
that buy, sell or trade in our common stock, whether or not participating in
this offering, may be required to deliver a prospectus. This delivery
requirement is in addition to the dealers' obligation to deliver a prospectus
when acting as underwriters and with respect to their unsold allotments or
subscriptions.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Chemdex by Venture Law Group, a Professional Corporation, Menlo Park,
California. Jeffrey Y. Suto, a director of Venture Law Group, is the Secretary
of Chemdex. Legal matters in connection with this offering will be passed upon
for the Underwriters by Wilson Sonsini Goodrich & Rosati, Professional
Corporation. As of the date of this prospectus, employees of Venture Law Group
and an investment partnership affiliated with Venture Law Group own a total of
72,785 shares of Chemdex's common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements and schedule at December 31, 1997 and 1998, and for the period from
September 4, 1997 (inception) through December 31, 1997 and for the year ended
December 31, 1998, as set forth in their report. We have included our
financial statements and schedule in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
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<PAGE>
CHANGE IN INDEPENDENT ACCOUNTANTS
Effective September 2, 1998, Ernst & Young LLP was engaged as our
independent auditors and replaced other auditors who were dismissed as our
independent accountants on the same date. The decision to change auditors was
approved by our Board of Directors on September 2, 1998. Prior to September 2,
1998, our former auditors issued a report on the period from September 4, 1997
(inception) to December 31, 1997. The report of our former auditors did not
contain an adverse opinion or disclaimer of opinion qualified or modified as
to any uncertainty, audit scope or accounting principle. In connection with
the audit for the period from September 4, 1997 (inception) through December
31, 1997 and through September 2, 1998, there were no disagreements with our
former auditors on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements if
not resolved to the satisfaction of our former auditors, would have caused
them to make reference thereto in their report. Our former auditors have not
audited or reported on any of the financial statements or information included
in this prospectus. Prior to September 2, 1998, we had not consulted with
Ernst & Young LLP on items that involved our accounting principles or the form
of audit opinion to be issued on our financial statements. We have requested
that our former auditors furnish us with a letter addressed to the SEC stating
whether or not they agree with the above statements. A copy of this letter,
dated June 23, 1999, is filed as Exhibit 16.1 to this Form S-1.
ADDITIONAL INFORMATION
Chemdex has filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act with respect to
the common stock offered under this prospectus. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits. For further information with respect to Chemdex and the common stock
offered under this prospectus, reference is made to the registration statement
and the exhibits. Statements contained in this prospectus regarding the
contents of any contract or any other document to which reference is made are
not necessarily complete. In each instance where a copy of a contract or other
document has been filed as an exhibit to the registration statement, reference
is made to the exhibit for a more complete description of the matter involved.
A copy of the registration statement and the exhibits may be inspected without
charge at the Public Reference Room of the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part of
the registration statement may be obtained from the Public Reference Section
of the Commission upon the payment of the fees prescribed by the Commission.
The public may obtain information on the operation of the Public Reference
Room by calling the Commission at 1-800-SEC-0330. The Commission also
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants, such as
Chemdex, that file electronically with the Commission.
Chemdex intends to provide its stockholders with annual reports containing
combined financial statements audited by an independent accounting firm and
quarterly reports containing unaudited combined financial data for the first
three quarters of each fiscal year.
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CHEMDEX CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................... F-2
Balance Sheets.............................................................. F-3
Statements of Operations.................................................... F-4
Statements of Stockholders' Equity.......................................... F-5
Statements of Cash Flows.................................................... F-6
Notes to Financial Statements............................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Chemdex Corporation
We have audited the accompanying balance sheets of Chemdex Corporation as
of December 31, 1997 and 1998, and the related statements of operations,
stockholders' equity, and cash flows for the period from September 4, 1997
(inception) through December 31, 1997 and for the year ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Chemdex Corporation at
December 31, 1997 and 1998, and the results of its operations and its cash
flows for the period from September 4, 1997 (inception) through December 31,
1997 and for the year ended December 31, 1998, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
San Jose, California
May 7, 1999,
except for Note 9,
as to which the date is
July 2, 1999
------------------------------------------
The foregoing report is in the form that will be signed upon the
effectiveness of the stock split as discussed in Note 9 to the financial
statements.
/s/ Ernst & Young LLP
San Jose, California
July 2, 1999
F-2
<PAGE>
CHEMDEX CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
December 31, Equity as of
----------------------- March 31, March 31,
1997 1998 1999 1999
---------- ----------- ------------ -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents............. $1,346,478 $ 5,990,188 $ 27,783,684
Accounts receivable, net
of allowances for bad
debt of $0, $2,000 and
$4,000 at December 31,
1997 and 1998 and March
31, 1999................ -- 32,259 126,354
Other current assets..... 43,137 286,991 416,973
---------- ----------- ------------
Total current assets... 1,389,615 6,309,438 28,327,011
Property and equipment:
Furniture and fixtures... 9,719 298,591 551,843
Computer hardware and
software................ 245,826 1,498,220 3,805,930
Leasehold improvements... 12,911 46,470 139,105
---------- ----------- ------------
268,456 1,843,281 4,496,878
Less accumulated
depreciation and
amortization............ 7,337 285,036 495,090
---------- ----------- ------------
261,119 1,558,245 4,001,788
Other assets.............. 77,278 300,472 307,087
---------- ----------- ------------
Total assets.............. $1,728,012 $ 8,168,155 $ 32,635,886
========== =========== ============
Liabilities and
stockholders' equity
Current liabilities:
Accounts payable......... $ 181,671 $ 543,141 $ 1,042,656
Accrued compensation..... 31,621 511,578 692,545
Accrued expenses......... 54,120 759,654 1,902,725
Current obligations
under capital leases.... 6,483 5,425 --
Current portion of note
payable................. -- -- 328,833
---------- ----------- ------------
Total current
liabilities........... 273,895 1,819,798 3,966,759
Obligations under
capital leases.......... 5,982 -- --
Note payable, less
current portion......... -- -- 803,028
---------- ----------- ------------
Total liabilities...... 279,877 1,819,798 4,769,787
Commitments and
contingencies
Stockholders' equity:
Convertible preferred
stock, $.0002 par
value:
Authorized shares --
34,074,632 in 1999 and
none pro forma
Issued and outstanding
shares -- 2,695,550 in
1997, 11,445,642 in
1998, 16,345,701 in
1999 and none pro
forma (liquidation
preference of
$21,469,506 at March
31,1999)............... 539 2,289 3,269 $ --
Common stock, $.0002 par
value:
Authorized shares --
9,500,000 in 1997,
17,500,000 in 1998 and
50,000,000 in 1999 ....
Issued and outstanding
shares--2,570,000 in
1997, 3,921,835 in
1998, 4,830,420 in
1999, and 21,176,121
pro forma.............. 514 784 966 4,235
Additional paid-in
capital................. 1,850,475 18,378,907 50,139,579 50,139,579
Deferred compensation.... -- (2,992,099) (5,491,688) (5,491,688)
Notes receivable from
stockholders............ -- (149,717) (1,085,374) (1,085,374)
Accumulated deficit...... (403,393) (8,891,807) (15,700,653) (15,700,653)
---------- ----------- ------------ ------------
Total stockholders'
equity................ 1,448,135 6,348,357 27,866,099 $ 27,866,099
---------- ----------- ------------ ============
Total liabilities and
stockholders' equity..... $1,728,012 $ 8,168,155 $ 32,635,886
========== =========== ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
CHEMDEX CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
Inception
(September 4, 1997) Year Ended Three Months Ended
through December March 31,
December 31, 31, ----------------------
1997 1998 1998 1999
------------------- ----------- --------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Net revenues............ $ -- $ 29,355 $ -- $ 165,552
Cost of revenues........ -- 22,105 -- 155,960
--------- ----------- --------- -----------
Gross profit............ -- 7,250 -- 9,592
Operating expenses:
Research and
development.......... 196,388 3,439,135 363,745 2,293,311
Sales and marketing... 86,346 3,247,136 219,086 3,188,058
General and
administrative....... 120,659 1,744,898 189,896 1,014,748
Amortization of
deferred
compensation......... -- 372,285 22,434 352,291
--------- ----------- --------- -----------
Total operating
expenses............. 403,393 8,803,454 795,161 6,848,408
--------- ----------- --------- -----------
Operating loss.......... (403,393) (8,796,204) (795,161) (6,838,816)
Interest expense........ -- (2,620) (754) (24,928)
Interest income and
other, net............. -- 310,410 3,319 54,898
--------- ----------- --------- -----------
Net loss................ $(403,393) $(8,488,414) $(792,596) $(6,808,846)
========= =========== ========= ===========
Basic and diluted net
loss per share......... $ (.24) $ (4.79) $ (.47) $ (3.38)
========= =========== ========= ===========
Weighted average shares
of common stock
outstanding used in
computing basic and
diluted net loss per
share.................. 1,704,412 1,771,508 1,704,412 2,016,176
========= =========== ========= ===========
Pro forma basic and
diluted net loss per
share.................. $ (.85) $ (.48)
=========== ===========
Weighted average shares
used in computing pro
forma basic and diluted
net loss per share..... 9,952,554 14,278,540
=========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
CHEMDEX CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional Total
----------------- ----------------- Paid-in Deferred Notes Accumulated Stockholders'
Shares Amount Shares Amount Capital Compensation Receivable Deficit Equity
---------- ------ --------- ------ ----------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series
A preferred stock
at $0.6994 per
share, net of
issuance costs... 2,695,550 $ 539 -- $ -- $ 1,850,475 $ -- $ -- $ -- $ 1,851,014
Issuance of common
stock to founders
on
incorporation.... -- -- 2,570,000 514 -- -- -- -- 514
Net loss.......... (403,393) (403,393)
---------- ------ --------- ---- ----------- ----------- ----------- ------------ -----------
Balance at
December 31,
1997............. 2,695,550 539 2,570,000 514 1,850,475 -- -- (403,393) 1,448,135
Issuance of Series
A preferred stock
at $0.6994 per
share, net of
issuance costs... 100,100 20 -- -- 44,847 -- -- -- 44,867
Issuance of Series
B preferred stock
at $1.50 per
share, net of
issuance costs... 8,649,992 1,730 -- -- 12,928,827 -- -- -- 12,930,557
Exercise of stock
options.......... -- -- 1,419,335 284 197,486 -- (156,843) -- 40,927
Repurchase of
unvested shares.. -- -- (67,500) (14) (7,112) -- 7,126 -- --
Deferred
compensation
relating to stock
options.......... -- -- -- -- 3,364,384 (3,364,384) -- -- --
Amortization of
deferred
compensation
relating to stock
options.......... -- -- -- -- -- 372,285 -- -- 372,285
Net loss.......... -- -- -- -- -- -- -- (8,488,414) (8,488,414)
---------- ------ --------- ---- ----------- ----------- ----------- ------------ -----------
Balance at
December 31,
1998............. 11,445,642 2,289 3,921,835 784 18,378,907 (2,992,099) (149,717) (8,891,807) 6,348,357
Issuance of Series
C preferred stock
at $5.716 per
share, net of
issuance costs
(unaudited)...... 4,900,059 980 -- -- 27,934,075 -- -- -- 27,935,055
Exercise of stock
options
(unaudited)...... -- -- 1,071,000 214 958,303 -- (956,964) -- 1,553
Repurchase of
unvested shares
(unaudited)...... -- -- (162,415) (32) (17,959) -- 17,991 -- --
Payments of
stockholders'
notes receivable
(unaudited)...... -- -- -- -- -- -- 3,316 -- 3,316
Issuance of
warrants
(unaudited)...... -- -- -- -- 34,373 -- -- -- 34,373
Deferred
compensation
relating to stock
options
(unaudited)...... -- -- -- -- 2,851,880 (2,851,880) -- -- --
Amortization of
deferred
compensation
relating to stock
options
(unaudited)...... -- -- -- -- -- 352,291 -- -- 352,291
Net loss
(unaudited)...... -- -- -- -- -- -- -- (6,808,846) (6,808,846)
---------- ------ --------- ---- ----------- ----------- ----------- ------------ -----------
Balance at March
31, 1999
(unaudited)...... 16,345,701 $3,269 4,830,420 $966 $50,139,579 $(5,491,688) $(1,085,374) $(15,700,653) $27,866,099
========== ====== ========= ==== =========== =========== =========== ============ ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
CHEMDEX CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
Inception
(September 4, Three Months Ended
1997) through Year Ended March 31,
December 31, December 31, ----------------------
1997 1998 1998 1999
------------- ------------ --------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Operating activities
Net loss.................... $ (403,393) $(8,488,414) $(792,596) $(6,808,846)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization.............. 7,337 301,201 31,093 210,054
Amortization of deferred
compensation and sales and
marketing and interest
expense related to
warrants.................. -- 372,285 22,434 386,664
Loss on disposal of
property and equipment.... -- 7,925 -- --
Changes in operating assets
and liabilities:
Accounts receivable........ -- (32,259) (15,454) (94,095)
Other current assets....... (43,137) (243,854) (5,101) (129,982)
Other assets............... (67,064) (239,812) (14,521) (6,615)
Accounts payable........... 181,671 361,470 (11,534) 499,515
Accrued compensation....... 31,621 479,957 28,891 180,967
Accrued expenses........... 54,120 705,534 94,757 1,143,071
---------- ----------- --------- -----------
Net cash used in operating
activities................. (238,845) (6,775,967) (662,031) (4,619,267)
---------- ----------- --------- -----------
Investing activities
Sales of short-term
investments................ -- 6,593,495 -- --
Purchases of short-term
investments................ -- (6,593,495) -- --
Purchases of property and
equipment.................. (255,545) (1,614,129) (181,130) (1,521,736)
Proceeds from sales of
property and equipment..... -- 24,495 -- --
Purchase of other assets.... (10,214) -- -- --
---------- ----------- --------- -----------
Net cash used in investing
activities................. (265,759) (1,589,634) (181,130) (1,521,736)
---------- ----------- --------- -----------
Financing activities
Principal payments on
capital lease obligations.. (446) (7,040) (1,854) (5,425)
Net proceeds from issuance
of preferred stock......... 1,851,014 12,975,424 -- 27,935,055
Issuance of common stock.... 514 40,927 9,867 1,553
Payments of stockholders'
notes receivable........... -- -- -- 3,316
---------- ----------- --------- -----------
Net cash provided by
financing activities....... 1,851,082 13,009,311 8,013 27,934,499
---------- ----------- --------- -----------
Net increase (decrease) in
cash and cash equivalents.. 1,346,478 4,643,710 (835,148) 21,793,496
Cash and cash equivalents at
beginning of period........ -- 1,346,478 1,346,478 5,990,188
---------- ----------- --------- -----------
Cash and cash equivalents at
end of period.............. $1,346,478 $ 5,990,188 $ 511,330 $27,783,684
========== =========== ========= ===========
Supplemental disclosures of
noncash activities:
Issuance of shares in
exchange for stockholders'
notes receivable........... $ -- $ 156,843 $ -- $ 956,964
========== =========== ========= ===========
Repurchase of common stock
issued in exchange for
stockholders' notes
receivable................. $ -- $ 7,126 $ -- $ 17,991
========== =========== ========= ===========
Equipment purchased under
capital lease and note
payable.................... $ 12,911 $ -- $ -- $ 1,131,861
========== =========== ========= ===========
Supplemental disclosure of
cash flow information:
Cash paid for interest...... $ 207 $ 2,620 $ 754 $ 165
========== =========== ========= ===========
Cash paid for taxes......... $ -- $ 1,991 $ 1,973 $ 1,700
========== =========== ========= ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
CHEMDEX CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 1999 and for the three months ended March 31,
1998 and 1999 is unaudited)
1. Description of Business
Chemdex is a provider of e-commerce solutions to the life sciences research
products market. Chemdex enables life sciences enterprises, researchers and
suppliers to efficiently buy and sell research products through the Chemdex
Marketplace, a secure, Internet-based purchasing solution.
Chemdex was incorporated in Delaware on September 4, 1997. During the
period from inception through November 1998, Chemdex was a development stage
company and did not have significant sales. During this period, operating
activities related primarily to the design and development of Chemdex's online
marketplace and corporate infrastructure and the establishment of
relationships with suppliers and customers. Chemdex has incurred operating
losses to date and had an accumulated deficit of approximately $15.7 million
at March 31, 1999. Chemdex's activities have been primarily financed through
private placements of equity securities. Chemdex is no longer in the
development stage.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Interim Financial Information
The financial information as of March 31, 1999 and for the three months
ended March 31, 1998 and 1999 is unaudited and includes all adjustments,
consisting only of normal recurring adjustments, that Chemdex's management
considers necessary for a fair presentation of Chemdex's operating results and
cash flows for the period. Results for the three month period ended March 31,
1999 are not necessarily indicative of results to be expected for the full
fiscal year of 1999 or for any future period.
Revenue Recognition
Net revenues consist primarily of product sales to customers and charges to
customers for outbound freight. Under most supplier agreements, Chemdex acts
as a principal when purchasing products from suppliers and reselling them to
customers. Products are shipped directly to customers by suppliers based on
customer delivery date specifications. Under principal-based agreements,
Chemdex is responsible for selling products, collecting payment from
customers, ensuring that the shipment reaches customers and processing
returns. In addition, Chemdex takes title to products upon shipment and bears
the risk of loss for collection, delivery and product returns from customers.
Chemdex provides an allowance for sales returns, which has been insignificant
to date, at the time of sale. Chemdex recognizes revenues from product sales
when products are shipped to customers.
To date, an insignificant amount of revenue is from agreements with
suppliers for which Chemdex is acting as an agent. Under agency-based supplier
agreements, Chemdex recognizes a percentage share of revenues generated by
suppliers when products are shipped to customers.
For the year ended December 31, 1998 and the three months ended March 31,
1999, one customer accounted for 79% and 82% of net revenues, respectively.
For the year ended December 31, 1998, another
F-7
<PAGE>
CHEMDEX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
customer accounted for 14% of net revenues. There were no sales to customers
outside the United States since inception through March 31, 1999.
Cash and Cash Equivalents
Cash equivalents consist of financial instruments which are readily
convertible to cash and have original maturities of three months or less at
the time of acquisition. Chemdex's cash and cash equivalents as of December
31, 1997 and 1998 and March 31, 1999 consisted primarily of commercial paper
and money market funds held by large financial institutions in the United
States, and their carrying value approximated fair value.
Property and Leasehold Improvements
Chemdex records property and equipment at cost and calculates depreciation
using the straight-line method over estimated useful lives of three to five
years. Property under capital leases is depreciated over the lesser of the
useful lives of the assets or lease term.
Stock-Based Compensation
Chemdex has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, ("APB Opinion No. 25"), and related
interpretations in accounting for its employee stock options because, as
discussed in Note 6, the alternative fair value accounting provided for under
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation, ("FAS 123"), requires use of option valuation models that
were not developed for use in valuing employee stock options. Under APB
Opinion No. 25, when the exercise price of Chemdex's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized. See pro forma disclosures of applying
FAS 123 included in Note 6.
Advertising Costs
Advertising costs are charged to expense when incurred. No advertising
expense was incurred for the period from September 4, 1997 (inception) through
December 31, 1997. Advertising expense was $786,520 and $1.2 million for the
year ended December 31, 1998 and the three months ended March 31, 1999,
respectively.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued FAS 130,
Reporting Comprehensive Income. FAS 130 establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements and is effective for fiscal years
beginning after December 15, 1997. Chemdex adopted FAS 130 in the year ended
December 31, 1998. Chemdex had no comprehensive income items to report for the
year ended December 31, 1998 and the three months ended March 31, 1999.
Segment Information
In June 1997, the Financial Accounting Standards Board issued FAS 131,
Disclosures about Segments of an Enterprise and Related Information ("FAS
131"). FAS 131 changes the way companies report selected segment information
in annual financial statements and requires companies to report selected
segment information in interim financial reports to stockholders. Chemdex
adopted FAS 131 in the year ended December 31, 1998.
Chemdex operates solely in one operating segment, the development and
marketing of an online marketplace for the purchasing and distribution of
products and, therefore there is no impact to Chemdex's financial statements
of adopting FAS 131.
F-8
<PAGE>
CHEMDEX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
Net Loss Per Share
Basic and diluted net loss per common share is presented in conformity with
FAS No. 128, Earnings Per Share ("FAS 128"), for all periods presented.
Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin
No. 98, common stock and convertible preferred stock issued or granted for
nominal consideration prior to the anticipated effective date of Chemdex's
initial public offering must be included in the calculation of basic and
diluted net loss per common share as if they had been outstanding for all
periods presented. To date, Chemdex has not had any issuances or grants for
nominal consideration.
In accordance with FAS 128, basic and diluted net loss per share has been
computed using the weighted-average number of shares of common stock
outstanding during the period, less shares subject to repurchase. Pro forma
basic and diluted net loss per share, as presented in the statements of
operations, has been computed as described above and also gives effect, under
Securities and Exchange Commission guidance, to the conversion of the
convertible preferred stock (using the if-converted method) from the original
date of issuance.
The following table presents the calculation of basic and diluted and pro
forma basic and diluted net loss per share:
<TABLE>
<CAPTION>
Period from
Inception
(September 4, Three Months Ended
1997) through Year Ended March 31,
December 31, December 31, ----------------------
1997 1998 1998 1999
------------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Net loss.................. $(403,393) $(8,488,414) $(792,596) $(6,808,846)
========= =========== ========= ===========
Basic and diluted:
Weighted-average shares
of common stock
outstanding............. 2,570,000 3,242,795 2,570,000 4,523,065
Less weighted-average
shares subject to
repurchase.............. (865,588) (1,471,286) (865,588) (2,506,889)
--------- ----------- --------- -----------
Weighted-average shares
used in computing basic
and diluted net loss per
common share............ 1,704,412 1,771,509 1,704,412 2,016,176
========= =========== ========= ===========
Basic and diluted net
loss per common share... $ (.24) $ (4.79) $ (.47) $ (3.38)
========= =========== ========= ===========
Pro forma:
Shares used above......... 1,771,509 2,016,176
Pro forma adjustment to
reflect weighted-average
effect of the assumed
conversion of
convertible preferred
stock................... 8,181,045 12,262,364
----------- -----------
Shares used in computing
pro forma basic and
diluted net loss per
share................... 9,952,554 14,278,540
=========== ===========
Pro forma basic and
diluted net loss per
share................... $ (.85) $ (.48)
=========== ===========
</TABLE>
Chemdex has excluded all outstanding stock options and shares subject to
repurchase by Chemdex from the calculation of diluted loss per share because
these securities are antidilutive for all periods presented. Weighted-average
options outstanding to purchase -0-, 508,750 and 439,852 shares of common
stock for the period from inception through December 31, 1997, the year ended
December 31, 1998 and the three months ended March 31, 1999, respectively,
were not included in the computation of diluted net loss per share because the
effect would be antidilutive. Such securities, had they been dilutive, would
have been included in the computation of diluted net loss per share using the
treasury stock method.
F-9
<PAGE>
CHEMDEX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
Unaudited Pro Forma Stockholders' Equity
If the offering contemplated by this prospectus is consummated, each share
of convertible preferred stock outstanding will automatically be converted
into one share of common stock. Unaudited pro forma stockholders' equity at
March 31, 1999, as adjusted for the assumed conversion of convertible
preferred stock based on the shares of convertible preferred stock outstanding
at March 31, 1999, is disclosed on the balance sheet.
Recent Accounting Pronouncements
In June 1998, the FASB issued FAS 133, Accounting for Derivative
Instruments and Hedging Activities ("FAS 133"), which Chemdex will be required
to adopt for the year ending December 31, 2000. This statement establishes a
new model for accounting for derivatives and hedging activities. FAS 133
establishes methods of accounting for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. Because Chemdex currently holds no derivative financial
instruments and does not currently engage in hedging activities, adoption of
FAS 133 is expected to have no material impact on Chemdex's financial
condition or results of operations.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued SOP 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use, ("SOP 98-1"). SOP 98-1 requires that
entities capitalize certain costs related to internal use software once
certain criteria have been met. Chemdex is required to implement SOP 98-1 for
the year ending December 31, 1999. Adoption of SOP 98-1 is not expected to
have a material impact on Chemdex's financial condition or results of
operations.
In April 1998, the AICPA issued SOP No. 98-5, Reporting on the Costs of
Start-Up Activities, ("SOP 98-5"). SOP No. 98-5 requires that all start-up
costs related to new operations must be expensed as incurred. In addition, all
start-up cost that were capitalized in the past must be written off when SOP
No. 98-5 is adopted. Chemdex implemented SOP No. 98-5 on January 1, 1999. The
adoption of SOP No. 98-5 did not have a material impact on its financial
position or results of operations.
3. Concentrations of Credit Risk and Other Risks
Financial instruments that potentially subject Chemdex to credit risk
consist primarily of uninsured cash and cash equivalents. Cash and cash
equivalents are deposited with a federally insured commercial bank in the
United States.
Chemdex sells primarily to pharmaceutical and biotechnology companies and
academic and research institutions. Chemdex performs ongoing credit
evaluations of its customers but does not require collateral. Chemdex analyzes
the need for reserves for potential credit losses and records reserves when
necessary. These losses have been within management's expectations. To date,
Chemdex has not had significant write-offs of bad debt.
F-10
<PAGE>
CHEMDEX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
4. Commitments
Chemdex leases its office facilities under noncancelable operating leases
expiring through 2003. Minimum annual operating lease commitments at December
31, 1998 were as follows:
<TABLE>
<S> <C>
1999.......................................................... $1,080,184
2000.......................................................... 1,094,662
2001.......................................................... 1,127,501
2002.......................................................... 1,161,331
2003.......................................................... 1,196,165
----------
Total minimum payments........................................ $5,659,843
==========
</TABLE>
Rental expense for the period from Inception through December 31, 1997 and
the year ended December 31, 1998 was $13,939 and $342,977, respectively.
5. Financing Arrangements
In February 1998, Chemdex entered into a line of credit with a bank, which
provides for borrowings of up to $400,000 with interest at the bank's prime
rate plus 1.0%. The aggregate credit line has a compensating balance
requirement of $210,000. Borrowings under the line are secured by
substantially all of the Chemdex's assets. At December 31, 1998, Chemdex had
no outstanding borrowings under this line of credit. The line of credit
expired on February 17, 1999.
In 1997, Chemdex entered into a noncancelable capital lease agreement for
equipment. Aggregate future minimum capital lease payments under this lease
were $5,425 at December 31, 1998. The lease expires in October 1999.
In January 1999, Chemdex entered into a $3.0 million equipment lease line
agreement with a financial institution for a term of 48 months, with interest
imputed at 13.02% per year. At December 31, 1998 and March 31, 1999, Chemdex
had no outstanding borrowings under the equipment lease line.
In February 1999, Chemdex entered into a financing arrangement in the
amount of $1,131,861 for the purchase of certain computer software and related
support. This arrangement provides for 12 equal quarterly payments of the
financed amount commencing May 1, 1999, with interest imputed at 13.24% per
year.
As of March 31, 1999, aggregate future minimum payments under this
financing agreement were as follows:
<TABLE>
<S> <C>
1999........................................................... $ 270,977
2000........................................................... 366,973
2001........................................................... 418,623
2002........................................................... 75,288
---------
Total payments................................................. 1,131,861
Less current portion........................................... (328,833)
---------
Long-term portion.............................................. $ 803,028
=========
</TABLE>
F-11
<PAGE>
CHEMDEX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
6. Stockholders' Equity
Convertible Preferred Stock
Convertible preferred stock at December 31, 1997 and 1998 and March 31,
1999 is as follows:
<TABLE>
<CAPTION>
Shares Issued and Outstanding
-------------------------------
Shares
Authorized December 31, March 31,
Liquidation March 31, -------------------- ----------
Preference 1999 1997 1998 1999
----------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Series A................ $.3497 2,795,650 2,695,550 2,795,650 2,795,650
Series A-1.............. $.3497 2,795,650 -- -- --
Series B................ $ .75 8,791,666 -- 8,649,992 8,649,992
Series B-1.............. $ .75 8,791,666 -- -- --
Series C................ $2.858 5,300,000 -- -- 4,900,059
Series C-1.............. $2.858 5,300,000 -- -- --
Undesignated............ 300,000 -- -- --
---------- --------- ---------- ----------
Total convertible
preferred stock........ 34,074,632 2,695,550 11,445,642 16,345,701
========== ========= ========== ==========
</TABLE>
To date, shares have been designated as Series A and A-1, Series B and B-1
and Series C and C-1 (collectively, "the Series A, B and C preferred stock").
Chemdex is authorized to issue additional preferred stock with such
designations, rights, and preferences as may be determined from time to time
by the Board of Directors provided, however, that any such preferred stock
must be subordinate to, or in parity with, the Series A, B and C preferred
stock.
Series A, B and C preferred stockholders have voting rights equal to the
common shares issuable upon conversion of the Series A, B and C preferred
stock.
Each share of Series A, B and C preferred stock is convertible, at the
option of the holder, into one share of common stock, subject to certain
adjustments for dilutive issuances. Outstanding shares of Series A, B and C
preferred stock automatically convert into common stock upon the closing of an
underwritten public offering of Chemdex's common stock with gross proceeds to
Chemdex of at least $20,000,000 and a per share price of at least $7.50, or at
the election of the holders of more than 50%, at least 66 2/3% and at least
60% of outstanding Series A, B and C preferred stock, respectively.
Holders of Series A, B and C preferred stock are entitled to noncumulative
dividends of $.063 and $.135 and $.5144 per annum per outstanding share.
Dividends will be paid only when declared by the Board of Directors out of
legally available funds. No dividends have been declared or accrued as of
March 31, 1999.
Series A, B and C preferred stockholders are entitled to receive, upon a
liquidating event, an amount per share equal to the issuance price, plus all
declared but unpaid dividends. The remaining assets and funds, if any, shall
be distributed among the holders of Series A, B and C preferred stock and
common stock pro rata based on the number of shares of common stock held by
each (assuming conversion of all such Series A, B and C preferred stock). If
any assets remain after the holders of Series A, B and C preferred stock have
received an aggregate of $1.748, $3.75 and $14.29 per share, the remaining
assets will be distributed to the holders of the common stock pro rata based
on the number of shares of common stock held by each.
F-12
<PAGE>
CHEMDEX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
Warrants
In January 1999, in connection with an equipment lease line, Chemdex issued
a fully vested warrant that entitles the holder to purchase 105,000 shares of
the Chemdex's Series B preferred stock at an exercise price of $1.50 per
share. This warrant is exercisable, through the later of the initial public
offering of Chemdex's common stock or January 2006. The fair value of this
warrant, approximately $195,300, will be expensed as a cost of financing over
the four year period of the lease line. The fair value of this warrant was
calculated using the Black-Scholes option pricing model.
In March 1999, Chemdex issued a fully vested, non-forfeitable warrant in
exchange for consulting services. The warrant entitles the holder to purchase
49,999 shares of Chemdex's common stock at an exercise price of $5.20 per
share. This warrant is exercisable through the earlier of two years from the
date of the initial public offering of Chemdex's common stock or March 2006.
The fair value of this warrant, approximately $133,000, will be expensed over
the six month period of the consulting agreement. The fair value of this
warrant was calculated using the Black-Scholes option pricing model.
Common Stock
Each share of common stock is entitled to one vote. The holders of common
stock are also entitled to receive dividends from legally available funds when
and if declared by the Board of Directors, subject to the prior rights of
holders of Series A, B and C preferred stock.
Certain shares of common stock issued to founders of Chemdex, totaling
865,588 shares, are subject to repurchase by Chemdex. The stock vests over a
period of four years. As of December 31, 1998 and March 31, 1999, 730,136 and
677,521 shares, respectively, were subject to repurchase.
At March 31, 1999, common stock was reserved for future issuance as
follows:
<TABLE>
<S> <C>
Conversion of Series A preferred stock......................... 2,795,650
Conversion of Series B preferred stock......................... 8,649,992
Conversion of Series C preferred stock......................... 4,900,059
Warrants....................................................... 154,999
Stock Option Plan.............................................. 1,114,580
----------
17,615,280
==========
</TABLE>
Stock Option Plans
In January 1998, the Board of Directors terminated the 1997 Option Plan,
under which no options had been granted, and adopted the 1998 Stock Plan (the
"1998 Plan") for issuance of common stock to eligible participants. The Plan
provides for the granting of incentive stock options and non-qualified stock
options. Incentive stock options and non-qualified stock options may be
granted under the 1998 Plan at prices not less than 100% and 85% of the fair
value at the date of grant, or at prices not less than 110% for individuals
owning more than 10% of the combined voting power of all classes of stock at
the date of grant. Options generally expire after ten years. Certain options
under the plan are immediately exercisable; however, these shares issued are
subject to Chemdex's right to repurchase at the original issuance price, which
right lapses in a series of installments measured from the vesting
commencement date of the option. As of December 31, 1998 and March 31, 1999,
1,104,713 and 1,891,493 shares, respectively, were subject to repurchase.
Options generally vest, and the repurchase rights lapse ratably, over a period
of four years from the date of grant.
F-13
<PAGE>
CHEMDEX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
Pro forma information regarding net loss and net loss per share is required
by FAS 123, and has been determined as if Chemdex had accounted for its
employee stock options under the fair value method provided for in FAS 123.
The fair value of options was estimated at the date of grant using a minimum
value option pricing model with the following weighted-average assumptions for
options granted during the year ended December 31, 1998: risk-free interest
rate of 5.42%, an expected life of four years and no dividends.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options using a
graded vesting method. The effects of applying FAS 123 for pro forma
disclosures are not likely to be representative of the effects on reported net
loss for future years.
The option valuation models were developed for use in estimating the fair
value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
Chemdex's employee stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
<TABLE>
<CAPTION>
Period from
Inception Three Months
(September 4, Ended
1997) through Year Ended March 31,
December 31, December 31, --------------
1997 1998 1998 1999
------------- ------------ ----- -------
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
Net loss:
As reported...................... $(403) $(8,488) $(793) $(6,809)
Pro forma........................ $(403) $(8,495) $(793) $(6,818)
Pro forma basic and diluted net
loss per share:
As reported...................... $ (.85) $ (.48)
Pro forma........................ $ (.85) $ (.48)
</TABLE>
Activity under the 1998 Stock Plan was as follows:
<TABLE>
<CAPTION>
Options Outstanding
Shares ---------------------------------------
Available Number of Price per Weighted-Average
for Grant Shares Share Exercise Price
---------- ---------- ---------- ----------------
<S> <C> <C> <C> <C>
Authorized.............. 3,375,000 -- -- --
Granted................. (1,978,835) 1,978,835 $.10-$1.00 $ .16
Exercised............... -- (1,419,335) $.10-$ .15 $ .12
Canceled................ 50,750 (50,750) $.10-$1.00 $ .12
Repurchased............. 67,500 -- $.10-$ .15 $ .11
---------- ----------
Balance at December 31,
1998..................... 1,514,415 508,750 $.10-$1.00 $ .14
Granted................. (1,010,102) 1,010,102 $1.50 $1.50
Exercised............... -- (1,071,000) $.15-$1.50 $ .90
Canceled................ 8,000 (8,000) $1.50 $1.50
Repurchased............. 162,415 -- $.10-$ .15 $ .10
---------- ----------
Balance at March 31,
1999..................... 674,728 439,852 $.10-$1.50 $1.02
========== ==========
</TABLE>
F-14
<PAGE>
CHEMDEX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding and Exercisable
-----------------------------------------------------------------
Weighted-
Weighted- Average
Range of Number Average Remaining
Exercise of Exercise Contractual
Prices Shares Price Life
-------- ------- --------- -----------
(In Years)
<S> <C> <C> <C>
$.10--$1.00 508,750 $.14 9.14
</TABLE>
Certain grants of options to employees to purchase common stock under
Chemdex's 1998 Stock Option Plan were exercised in exchange for full recourse
notes receivable. These notes receivable generally bear interest at a rate
equal to the minimum rate necessary to avoid the imputation of interest income
to the Company and compensation income to the maker under the Internal Revenue
Code and are collateralized by the underlying common stock. At December 31,
1998 and March 31, 1999, notes receivable in exchange for exercises of options
totaled $149,717 and $1,085,374, respectively. These shares are subject to
right of repurchase that generally lapse over four years.
The weighted-average fair value of options granted during 1998 with an
exercise price equal to the fair value of common stock on the date of grant
was $.16. The weighted-average fair value of options granted during 1998 with
an exercise price below the deemed fair value of Chemdex's common stock on the
date of grant was $.16.
In connection with the grant of share options to employees through March
31, 1999, Chemdex recorded deferred compensation of $6,216,264 for the
aggregate differences between the exercise prices of options at their dates of
grant and the deemed fair value for accounting purposes of the common shares
subject to these options. Such amount is included as a reduction of
stockholders' equity and is being amortized on a straight-line vesting method
over the option vesting periods, which are generally four years. The
compensation expense of $724,576 through March 31, 1999 relates to options
awarded to employees in all operating expense categories. This amount has not
been separately allocated to these categories.
7. Employee Savings and Retirement Plan
Chemdex has a 401(k) plan that allows eligible employees to contribute up
to 15% of their salary, subject to annual limits. Under the plan, eligible
employees may defer a portion of their pretax salaries but not more than
statutory limits. Chemdex may make discretionary contributions to the plan
based on profitability as determined by the Board of Directors. Chemdex did
not make any contributions to the plan during the year ended December 31,
1998, and the three months ended March 31, 1999.
8. Income Taxes
The difference between the amount of income tax benefit recorded and the
amount of income tax benefit calculated using the federal statutory rate of
34% is due to net operating losses having a valuation allowance, due to past
operating results and uncertainties regarding Chemdex's future results of
operations. Accordingly, there is no provision for income taxes for the period
from September 4, 1997 (inception) through December 31, 1997 and for the year
ended December 31, 1998.
As of December 31, 1998, Chemdex had federal and state net operating loss
carryforwards of approximately $7,500,000 and $7,400,000, respectively.
Chemdex also had federal and state research credit carryforwards of
F-15
<PAGE>
CHEMDEX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
approximately $100,000 and $100,000, respectively. The net operating loss and
credit carryforwards will expire at various dates beginning in 2002 through
2018, if not utilized. The net operating loss carryforwards differ from the
accumulated deficit primarily as a result of certain reserves and accruals not
currently deductible for tax purposes.
Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986, as amended, and similar state
provisions. The annual limitation may result in the expiration of net
operating losses and credits before utilization.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Chemdex's deferred tax assets are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1998
-------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................. $157,000 $3,000,000
Research credit carryforwards..................... 13,000 200,000
Reserves and accruals............................. 3,000 300,000
-------- ----------
Total deferred tax assets....................... 173,000 3,500,000
Valuation Allowance................................. (173,000) (3,500,000)
-------- ----------
Net deferred tax assets............................. $ -- $ --
======== ==========
</TABLE>
Under FAS 109, Accounting for Income Taxes, deferred tax assets and
liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse. Based upon the weight of available evidence, which includes Chemdex's
historical operating performance, the reported net losses for the period from
inception through December 31, 1997 and for the year ended December 31, 1998,
and the uncertainties regarding Chemdex's future results of operations, a full
valuation allowance has been provided against its net deferred tax assets. It
is more likely than not that the deferred tax assets will not be realized. The
valuation allowance increased by $173,000 for the period from inception
through December 31, 1997 and $3,327,000 during 1998.
9. Events Subsequent To Date Of Auditor's Report
1999 Employee Stock Purchase Plan
On May 11, 1999, Chemdex's Board of Directors approved, subject to
stockholder approval, the adoption of the 1999 Employee Stock Purchase Plan
(the "Purchase Plan"). A total of 750,000 shares of common stock has been
reserved for issuance under the 1999 Purchase Plan, as well as an automatic
annual increase on the first day of each of Chemdex's fiscal years beginning
in 2000, 2001, 2002, 2003 and 2004 equal to the lesser of 200,000 shares, 1/2%
of Chemdex's outstanding common stock on the last day of the immediately
preceding fiscal year or a lesser number of shares determined by the Board of
Directors. Each offering period will consist of four consecutive purchase
periods of six months' duration. The initial offering period is expected to
begin on the date of this offering and end on July 31, 2001; the initial
purchase period is expected to end on January 31, 2000.
F-16
<PAGE>
CHEMDEX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
The Purchase Plan permits eligible employees to purchase common stock
through payroll deductions, which may not exceed 20% of an employee's
compensation, at a price equal to the lower of 85% of the fair market value of
Chemdex's common stock at the beginning of each offering period or at the end
of each purchase period. If not terminated earlier, the Purchase Plan has a
term of 20 years.
Series C Preferred Stock
In April 1999, Chemdex issued an additional 399,892 shares of Series C
preferred stock to investors, resulting in net proceeds of $2,286,063.
Deferred Compensation
In April 1999, Chemdex granted to employees options to purchase 594,780
shares of common stock at an exercise price of $5.00 per share. On May 17,
1999, June 2, 1999 and June 25, 1999 Chemdex granted a total of 981,400 shares
of common stock at an exercise price of $10.00 per share. We estimate that we
will record additional deferred compensation of approximately $2.5 million
with regard to the April 1999 grants.
1998 Stock Plan
On April 27, 1999, Chemdex's Board of Directors approved an increase in the
number of shares reserved for issuance under the 1998 Plan of 1,500,000 shares
and, on May 11, 1999 an additional increase of 1,250,000 shares. The 1998 Plan
was also amended to provide for automatic annual increases on the first day of
each fiscal year beginning in 2000, 2001, 2002, 2003 and 2004 equal to the
lesser of 1,250,000 shares, 3% of Chemdex's outstanding common stock on the
last day of the immediately preceding fiscal year or a lesser number of shares
as determined by the Board of Directors.
Authorization of Shares
On May 11, 1999, Chemdex's Board of Directors authorized 175,000,000 shares
of common stock and 2,500,000 shares of preferred stock, each with a par value
of $.0002 per share, effective in connection with this offering. The preferred
stock may be issued from time to time in one or more series. The Board of
Directors has the authority, within the limitations and restrictions in the
certificate of incorporation, to provide by resolution for the issuance of
shares of preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares
constituting any series or the designation of such series, without further
vote or action by the stockholders.
1999 Directors' Plan
On May 11, 1999, Chemdex's Board of Directors approved, subject to
stockholder approval, the 1999 Directors' Stock Plan (the "Directors' Plan").
A total of 250,000 shares of common stock has been reserved under the
Directors' Plan.
BIO Agreement
In May 1999, the Biotechnology Industry Organization (BIO) selected Chemdex
as its preferred supplier of e-commerce purchasing solutions. As a result, we
entered into a five-year, exclusive joint marketing agreement with BIO. As
part of the joint marketing agreement, Chemdex will discount the fees we
charge to BIO members
F-17
<PAGE>
CHEMDEX CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 is unaudited)
for our solution and will contribute cash payments to a joint marketing fund,
to be used in connection with both parties' obligations under the joint
marketing agreement. In addition, we sold 187,500 shares of our common stock
to BIO for a nominal amount in consideration for BIO's participation in these
joint marketing activities. BIO has the right to use a portion of the cash
payments and any proceeds it receives from the sale of the common stock for
the benefit of its members and the biotechnology industry. The charge for BIO
marketing activities will be expensed to sales and marketing as they are
incurred. We will also record the difference between the nominal amount per
share price paid by BIO for the purchase of our common stock and the fair
value as of the date of issuance, which is approximately $1.8 million, ratably
over the five-year term of the joint marketing agreement.
VWR Agreement
In March 1999, Chemdex entered into a strategic relationship agreement with
VWR, which was consummated in April 1999, pursuant to which Chemdex and VWR
agreed to market jointly VWR laboratory products using the Chemdex
Marketplace.
The agreement gives Chemdex the right to offer approximately 350,000 VWR-
distributed products to Chemdex customers and both parties agreed to jointly
develop an online purchasing solution for VWR's existing customers. In
connection with the strategic relationship agreement, VWR transferred to
Chemdex information concerning VWR customers who purchased products from third
party suppliers outside VWR's primary product offering and Chemdex issued
2,538,405 shares of common stock valued at $13.9 million to VWR.
We intend to use this information to expand sales of our purchasing
solution to these customers and adoption of the Chemdex Marketplace by these
customers and suppliers. The fair value of $13.9 million will be amortized
into sales and marketing expense over five years, the estimated useful life of
this intangible asset.
Reverse Stock Split
On June 28, 1999, the Company's Board of Directors approved, subject to
shareholder approval, a one-for-two reverse stock split of the Company's
common and preferred stock. In addition, the par value of the common stock was
changed to $.0002 per share. All share and per share amounts in the
accompanying financial statements have been adjusted retroactively.
F-18
<PAGE>
[CHEMDEX LOGO APPEARS HERE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Chemdex in connection with
the sale of common stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fee and the Nasdaq National
Market listing fee.
<TABLE>
<CAPTION>
Amount
to be Paid
----------
<S> <C>
SEC registration fee............................................. $ 23,978
NASD filing fee.................................................. 9,125
Nasdaq National Market listing fee............................... 25,000
Printing and engraving expenses.................................. 225,000
Legal fees and expenses.......................................... 350,000
Accounting fees and expenses..................................... 250,000
Blue Sky qualification fees and expenses......................... 10,000
Transfer Agent and Registrar fees................................ 25,000
Miscellaneous fees and expenses.................................. 81,897
----------
Total.......................................................... $1,000,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law (the "Delaware Law")
authorizes a court to award, or a corporation's Board of Directors to grant,
indemnity to directors and officers in terms sufficiently broad to permit
indemnification for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the
"Securities Act"). Article Seven of Chemdex's Certificate of Incorporation
(Exhibit 3.1 hereto) and Article VI of Chemdex's Bylaws (Exhibit 3.3 hereto)
provide for indemnification of Chemdex's directors, officers, employees and
other agents to the maximum extent permitted by Delaware Law. In addition,
Chemdex has entered into Indemnification Agreements (Exhibit 10.1 hereto) with
its officers and directors. The Underwriting Agreement (Exhibit 1.1) also
provides for cross-indemnification among Chemdex and the Underwriters with
respect to some matters, including matters arising under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
Since inception (September 1997), Chemdex has sold and issued the following
securities:
1. On September 25, 1997, Chemdex issued and sold 2,570,000 shares of
its common stock at a price of $0.02 per share to four individuals,
including 1,905,854 shares of common stock to David Perry, 635,285 shares
of common stock to Jeffrey S. Leane, 25,700 shares of common stock to Jon
Callaghan and 3,161 shares of common stock to Marc Kaschke. The issuance of
the securities was deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act as
transactions by an issuer not involving any public offering. Based on
representations made to Chemdex by the investors, information supplied by
Chemdex to the investors and the relationship between Chemdex and the
investors, all investors had adequate access to information about Chemdex.
In addition, based on representations made to Chemdex by the investors, the
investors were able to bear the financial risk of their investment. The
investors represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the
securities. Chemdex did not make any offer to sell the securities by means
of any general solicitation or general advertising within the meaning of
Rule 502 of Regulation D under the Securities Act.
II-1
<PAGE>
2. On September 25, 1997, Chemdex issued and sold 800,800 shares of its
Series A Preferred Stock at a price of $.694 per share to a total of 4
purchasers, including CMG@Ventures II, LLC (formerly CMG@Ventures, L.P.),
an entity with which Mr. Callaghan, a director of Chemdex, is affiliated, a
partnership affiliated with Mr. Swanson, a director of Chemdex, Mr. Kaschke
and Stanford University. On December 23, 1997 and March 23, 1998, Chemdex
issued and sold 1,994,850 shares of its Series A Preferred Stock at a price
of $.694 per share to The Bay City Capital Fund I, L.P., Mr. Burke, a
director of Chemdex, CMG@Ventures, Kevin Bove, Mr. Kaschke, John Rodakis,
Jeffrey Y. Suto and VLG Investments 1998. The issuance of the securities
was deemed to be exempt from registration under the Securities Act in
reliance on Section 4(2) of the Securities Act as transactions by an issuer
not involving any public offering. Based on representations made to Chemdex
by the investors, information supplied by Chemdex to the investors and the
relationship between Chemdex and the investors, the investors were
accredited investors within the meaning of Rule 501 of Regulation D under
the Securities Act and were able to bear the financial risk of their
investment. The investors represented their intentions to acquire the
securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were
affixed to the securities. Chemdex did not make any offer to sell the
securities by means of any general solicitation or general advertising
within the meaning of Rule 502 of Regulation D under the Securities Act.
3. On May 15, 1998, Chemdex issued and sold 8,649,992 shares of its
Series B Preferred Stock at a price of $1.50 per share to entities
affiliated with Kleiner Perkins Caufield & Byers, an entity with which Mr.
Byers is affiliated, Warburg, Pincus Ventures L.P., an entity with which
Mr. Lewis is affiliated, CMG@Ventures II, LLC, an entity with which Mr.
Callaghan, a director of Chemdex, is affiliated, The Bay City Capital Fund
I, L.P., an entity with which Mr. Pritzker is affiliated, Mr. Burke, a
partnership affiliated with Mr. Swanson, Bove Family Living Trust, Scott
Glenn, John Rodakis, Jan and Lotte Leschly, Josh Olshansky, Kenneth
Olshansky, Summerbell-Kosnik Living Revocable Trust, Mr. Suto, Steven J.
Tonsfeldt, VLG Investments 1998, Scott Waterhouse and John Young. The
issuance of the securities was deemed to be exempt from registration under
the Securities Act in reliance on Section 4(2) of the Securities Act as
transactions by an issuer not involving any public offering. Based on
representations made to Chemdex by the investors, information supplied by
Chemdex to the investors and the relationship between Chemdex and the
investors, all investors had adequate access to information about Chemdex.
Based on representations made to Chemdex by the investors, the investors
were accredited investors within the meaning of Rule 501 of Regulation D
under the Securities Act and were able to bear the financial risk of their
investment. The investors represented their intentions to acquire the
securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were
affixed to the securities. Chemdex did not make any offer to sell the
securities by means of any general solicitation or general advertising
within the meaning of Rule 502 of Regulation D under the Securities Act.
4. On January 20, 1999, Chemdex issued a warrant to purchase 105,000
shares of Series B Preferred Stock at an exercise price of $1.50 per share
to Comdisco, Inc. in connection with a Master Lease Agreement dated as of
January 20, 1999. The issuance of the securities was deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of
the Securities Act as a transaction by an issuer not involving any public
offering. Based on representations made to Chemdex by the investor,
information supplied by Chemdex to the investor and the relationship
between Chemdex and the investor, the investor had adequate access to
information about Chemdex. In addition, based on representations made to
Chemdex by the investor, the investor was an accredited investor within the
meaning of Rule 501 of Regulation D under the Securities Act and was able
to bear the financial risk of its investment. The investor represented its
intention to acquire the securities for investment only and not with a view
to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the securities. Chemdex did not make any offer to
sell the securities by means of any general solicitation or general
advertising within the meaning of Rule 502 of Regulation D under the
Securities Act.
5. On March 1, 1999, Chemdex issued warrants to purchase a total of
49,999 shares of common stock at an exercise price of $5.20 per share to
entities affiliated with Galen Associates. The issuance of the
II-2
<PAGE>
securities was deemed to be exempt from registration under the Securities
Act in reliance on Section 4(2) of the Securities Act as transactions by an
issuer not involving any public offering. Based on representations made to
Chemdex by the investors, information supplied by Chemdex to the investors
and the relationship between Chemdex and the investors, all investors had
adequate access to information about Chemdex. In addition, based on
representations made to Chemdex by the investors, the investors were
accredited investors within the meaning of Rule 501 of Regulation D under
the Securities Act and were able to bear the financial risk of their
investment. The investors represented their intentions to acquire the
securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were
affixed to the securities. Chemdex did not make any offer to sell the
securities by means of any general solicitation or general advertising
within the meaning of Rule 502 of Regulation D under the Securities Act.
6. On March 5, 1999, Chemdex entered into a Strategic Relationship
Agreement and a Common Stock Purchase Agreement with VWR Scientific
Products Corporation, pursuant to which Chemdex issued 2,538,405 shares of
Common Stock to VWR. The issuance of the securities was deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of
the Securities Act as transactions by an issuer not involving any public
offering. Based on representations made to Chemdex by the investor,
information supplied by Chemdex to the investor and the relationship
between Chemdex and the investor, the investor had adequate access to
information about Chemdex. In addition, based on representations made to
Chemdex by the investor, the investor is an accredited investor within the
meaning of Rule 501 of Regulation D under the Securities Act and was able
to bear the financial risk of its investment. The investor represented its
intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the securities. Chemdex did not make
any offer to sell the securities by means of any general solicitation or
general advertising within the meaning of Rule 502 of Regulation D under
the Securities Act.
7. On March 24, 1999 and April 30, 1999, Chemdex issued and sold
5,299,951 shares of its Series C Preferred STock at a price of $5.716 per
share to Mr. Burke, The Bay City Capital Fund I, L.P., CMG@Ventures II,
LLC, Galen Employee Fund III, L.P., Galen Partners III, L.P., Galen
Partners International III, L.P., Genentech, Inc., Kleiner Perkins Caufield
& Byers VII, L.P., KPCB Life Sciences Zaibatsu Fund II, L.P., KPCB VIII
Founders Fund, L.P. Warburg, Pincus Ventures L.P., Mr. Harris,
Mr. Waterhouse and 125 other private investors. The issuance of the
securities was deemed to be exempt from registration under the Securities
Act in reliance on Rule 506 promulgated under Regulation D of the
Securities Act as transactions by an issuer not involving any public
offering within the meaning of Section 4(2) for the following reasons:
. Based on representations made to Chemdex by the investors, information
supplied by Chemdex to the investors and the relationship between
Chemdex and the investors, all investors had adequate access to
information about Chemdex.
. Chemdex did not make any offer to sell the securities by means of any
general solicitation or general advertising within the meaning of Rule
502 of Regulation D under the Securities Act.
. The investors represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with
any distribution thereof and appropriate legends were affixed to the
securities.
. Based on representations made to Chemdex by the investors, the investors
were accredited investors within the meaning of Rule 506 of Regulation D
under the Securities Act. There were no more than 35 purchasers of
securities, as the number is calculated in Rule 501(e) of Regulation D.
Based on representations made to Chemdex by the investors, the investors
were able to bear the financial risk of their investment.
II-3
<PAGE>
8. On May 11, 1999, Chemdex entered into a Common Stock Purchase
Agreement with Biotechnology Industry Organization, pursuant to which
Biotechnology Industry Organization purchased 187,500 shares of Common
Stock at a price per share of $.0002. The issuance of the securities was
deemed to be exempt from registration under the Securities Act in reliance
on Section 4(2) of the Securities Act as a transaction by an issuer not
involving any public offering. Based on representations made to Chemdex by
the investor, information supplied by Chemdex to the investor and the
relationship between Chemdex and the investor, the investor had adequate
access to information about Chemdex. In addition, based on representations
made to Chemdex by the investor, the investor is an accredited investor
within the meaning of Rule 501 of Regulation D under the Securities Act and
was able to bear the financial risk of its investment. The investor
represented its intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof
and appropriate legends were affixed to the securities. Chemdex did not
make any offer to sell the securities by means of any general solicitation
or general advertising within the meaning of Rule 502 of Regulation D under
the Securities Act.
9. As of May 12, 1999, Chemdex has granted stock options to purchase a
total 2,538,405 shares of common stock at exercise prices ranging from $.10
to $5.00 per share to a total of 123 employees, consultants and directors
pursuant to its 1998 Stock Plan. The issuances described were deemed exempt
from registration under the Securities Act in reliance upon Rule 701
promulgated under the Securities Act.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Amended and Restated Certificate of Incorporation of Chemdex.
3.2* Amended and Restated Certificate of Incorporation of Chemdex
(proposed).
3.3* Amended and Restated Bylaws of Chemdex.
3.4* Amended and Restated Bylaws of Chemdex (proposed).
4.1 Specimen Stock Certificate.
4.2* Third Amended and Restated Investors' Rights Agreement dated March
24, 1999.
4.3* Amendment dated May 12, 1999 to Third Amended and Restated Investors'
Rights Agreement.
5.1* Opinion of Venture Law Group, A Professional Corporation.
10.1* Form of Indemnification Agreement between Chemdex and each of its
officers and directors.
10.2* Form of Change of Control Agreement between Chemdex, each of its
officers and certain employees.
10.3* Change of Control Agreement between Chemdex and Robert A. Swanson.
10.4* Change of Control Agreement between Chemdex and Charles R. Burke.
10.5* 1998 Stock Plan, as amended, and form of option agreement.
10.6* 1999 Employee Stock Purchase Plan and form of subscription agreement.
10.7* 1999 Directors' Stock Plan.
10.8* Standard Office Lease dated June 11, 1998 between Chemdex and Fabian
Partners II, a California General Partnership, as amended.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.9* Master Lease Agreement dated January 20, 1999, as amended, between
Chemdex and Comdisco, Inc.
10.10* Starter Kit Loan and Security Agreement dated February 18, 1998
between Chemdex and Imperial Bank.
10.11* Warrant Agreement to Purchase Shares of the Series B Preferred Stock
of Chemdex dated January 20, 1999 between Chemdex and Comdisco, Inc.
10.12* Common Stock Purchase Warrant to Purchase Shares of Common Stock of
Chemdex dated March 24, 1999 between Chemdex and Galen Partners III,
L.P.
10.13* Common Stock Purchase Warrant to Purchase Shares of Common Stock of
Chemdex dated March 24, 1999 between Chemdex and Galen Partners
International III, L.P.
10.14* Common Stock Purchase Warrant to Purchase Shares of Common Stock of
Chemdex dated March 24, 1999 between Chemdex and Galen Employee Fund
III, L.P.
10.15+* Electronic Commerce Agreement dated January 5, 1998 between Chemdex
and Genentech, Inc.
10.16+* Standstill Agreement dated April 23, 1999 between Chemdex and VWR
Scientific Products Corporation.
10.17+* Strategic Relationship Agreement dated April 30, 1999 between
Chemdex and VWR Scientific Products Corporation.
10.18+* Joint Marketing Agreement dated May 11, 1999 between Chemdex and
Biotechnology Industry Organization.
10.19 Payment Plan Agreement dated February 22, 1999 and related
agreements between Chemdex and Oracle Credit Corporation.
16.1 Letter re change in certifying accountant.
23.1 Independent Auditors' Consent.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney (see II-8).
27.1* Financial Data Schedule.
</TABLE>
- --------
*Previously filed.
**To be filed by amendment.
+Confidential treatment requested as to portions of this Exhibit.
(b) Financial Statement Schedules
II - Valuation and Qualifying Accountants
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in
denominations and registered in names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
II-5
<PAGE>
registrant has been advised that in the opinion of the Securities and Exchange
Commission indemnification is against public policy as expressed in the Act,
and is, therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the registrant
of expenses incurred or paid by a director, officer, or controlling person of
the registrant in the successful defense of any action, suit or proceeding) is
asserted by a director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether indemnification by it
is against public policy as expressed in the Act and will be governed by the
final adjudication of this issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of any securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amenndment to registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Palo
Alto, State of California on July 6, 1999.
CHEMDEX CORPORATION
/s/ David P. Perry
By: _________________________________
David P. Perry
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David P. Perry President, Chief Executive July 6, 1999
____________________________________ Officer and Director
David P. Perry (Principal Executive
Officer)
* Chief Financial Officer and July 6, 1999
____________________________________ Assistant Secretary
James G. Stewart (Principal Financial and
Accounting Officer)
* Director July 6, 1999
____________________________________
Charles R. Burke
* Director July 6, 1999
____________________________________
Brook H. Byers
* Director July 6, 1999
____________________________________
Jonathan D. Callaghan
* Director July 6, 1999
____________________________________
Jerrold B. Harris
* Director July 6, 1999
____________________________________
S. Joshua Lewis
* Director July 6, 1999
____________________________________
John A. Pritzker
* Director July 6, 1999
____________________________________
Robert A. Swanson
* Director July 6, 1999
____________________________________
L. John Wilkerson
* Director July 6, 1999
____________________________________
Naomi O. Seligman
</TABLE>
*By: /s/ David P. Perry
---------------------------
David P. Perry
Attorney-in-fact
II-7
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David P. Perry, Pierre V. Samec and
James G. Stewart, and each of them, his or her attorney-in-fact, each with the
power of substitution, for him or her in any and all capacities, to sign any
and all amendments to this Registration Statement (including post-effective
amendments), and any and all Registration Statements filed pursuant to Rule
462 under the Securities Act of 1933, as amended, in connection with or
related to the offering contemplated by this Registration Statement and its
amendments, if any, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be
signed by our said attorney to any and all amendments to said Registration
Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Naomi Seligman Director July 6, 1999
____________________________________
Naomi Seligman
</TABLE>
II-8
<PAGE>
CHEMDEX CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTANTS
December 31, 1997 and December 31, 1998
<TABLE>
<CAPTION>
Amounts
Charged to
Balance Revenue, Write-offs Balance
Beginning Costs or and at End
Description of Year Expenses Recoveries of Year
----------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C>
1997
Allowance for Doubtful Accounts....... $-- $ -- $-- $ --
1998
Allowance for Doubtful Accounts....... $-- $2,000 $-- $2,000
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Amended and Restated Certificate of Incorporation of Chemdex.
3.2* Amended and Restated Certificate of Incorporation of Chemdex
(proposed).
3.3* Amended and Restated Bylaws of Chemdex.
3.4* Amended and Restated Bylaws of Chemdex (proposed).
4.1 Specimen Stock Certificate.
4.2* Third Amended and Restated Investors' Rights Agreement dated March 24,
1999.
4.3* Amendment dated May 12, 1999 to Third Amended and Restated Investors'
Rights Agreement.
5.1* Opinion of Venture Law Group, A Professional Corporation.
10.1* Form of Indemnification Agreement between Chemdex and each of its
officers and directors.
10.2* Form of Change of Control Agreement between Chemdex, each of its
officers and certain employees.
10.3* Change of Control Agreement between Chemdex and Robert A. Swanson.
10.4* Change of Control Agreement between Chemdex and Charles R. Burke.
10.5* 1998 Stock Plan, as amended, and form of option agreement.
10.6* 1999 Employee Stock Purchase Plan and form of subscription agreement.
10.7* 1999 Directors' Stock Plan.
10.8* Standard Office Lease dated June 11, 1998 between Chemdex and Fabian
Partners II, a California General Partnership, as amended.
10.9* Master Lease Agreement dated January 20, 1999, as amended, between
Chemdex and Comdisco, Inc.
10.10* Starter Kit Loan and Security Agreement dated February 18, 1998
between Chemdex and Imperial Bank.
10.11* Warrant Agreement to Purchase Shares of the Series B Preferred Stock
of Chemdex dated January 20, 1999 between Chemdex and Comdisco, Inc.
10.12* Common Stock Purchase Warrant to Purchase Shares of Common Stock of
Chemdex dated March 24, 1999 between Chemdex and Galen Partners III,
L.P.
10.13* Common Stock Purchase Warrant to Purchase Shares of Common Stock of
Chemdex dated March 24, 1999 between Chemdex and Galen Partners
International III, L.P.
10.14* Common Stock Purchase Warrant to Purchase Shares of Common Stock of
Chemdex dated March 24, 1999 between Chemdex and Galen Employee Fund
III, L.P.
10.15+* Electronic Commerce Agreement dated January 5, 1998 between Chemdex
and Genentech, Inc.
10.16+* Standstill Agreement dated April 23, 1999 between Chemdex and VWR
Scientific Products Corporation.
10.17+* Strategic Relationship Agreement dated April 30, 1999 between Chemdex
and VWR Scientific Products Corporation.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
10.18+* Joint Marketing Agreement dated May 11, 1999 between Chemdex and
Biotechnology Industry Organization.
10.19 Payment Plan Agreement and related agreements dated February 22, 1999
between Chemdex and Oracle Credit Corporation.
16.1 Letter re change in certifying accountant.
23.1 Independent Auditors' Consent.
23.2* Consent of Counsel (included in Exhibit 5.1).
24.1 Power of Attorney. (See II-8)
27.1* Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
** To be filed by amendment.
+Confidential treatment requested as to portions of this Exhibit.
<PAGE>
SUBJECT TO NEGOTIATION
DRAFT
Exhibit 1.1
Draft 7/2/99
__________________________ Shares
CHEMDEX CORPORATION
Common Stock
par value $_________ per share
UNDERWRITING AGREEMENT
July ___, 1999
<PAGE>
July ___, 1999
Morgan Stanley & Co. Incorporated
BancBoston Robertson Stephens Inc.
Volpe Brown Whelan & Company, LLC
as representatives of the several Underwriters
named in Schedule I hereto
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Ladies and Gentlemen:
Chemdex Corporation, a Delaware corporation (the "Company"), proposes to
issue and sell to the several Underwriters named in Schedule I hereto (the
"Underwriters"), an aggregate of ____________ shares of its common stock, par
value $____ per share (the "Firm Shares").
The Company also proposes to issue and sell to the several Underwriters not
more than an additional ________________ shares of its common stock, par value
$____ per share (the "Additional Shares"), if and to the extent that you, as
Managers of the offering, shall have determined to exercise, on behalf of the
Underwriters, the right to purchase such shares of common stock granted to the
Underwriters in Section 2 hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares." The shares of common
stock, par value $____ per share, of the Company to be outstanding after giving
effect to the sales contemplated hereby are hereinafter referred to as the
"Common Stock."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement." The prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "Prospectus."
If the Company has filed an abbreviated registration statement to register a
portion of the Shares pursuant to Rule 462(b) under the Securities Act (the
"Rule 462 Registration Statement"), then any reference herein to the term
"Registration Statement" shall be deemed to include such Rule 462 Registration
Statement.
Morgan Stanley & Co. Incorporated ("Morgan Stanley") has agreed to
reserve a portion of the Shares to be purchased by it under this agreement for
sale to the Company's directors, officers, employees and business associates
and other parties related to the Company (collectively, "Participants"), as
set forth in the Prospectus under the heading "Underwriters" (the "Directed
Share Program"). The Shares to be sold by Morgan Stanley pursuant to the
Directed Share Program
<PAGE>
are referred to hereinafter as the "Directed Shares." Any Directed Shares not
orally confirmed for purchase by any Participants by the end of the business
day after the day on which this Agreement is executed will be offered to the
public by the Underwriters as set forth in the Prospectus.
1. Representations and Warranties of the Company. The Company represents
and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective, no stop order
suspending the effectiveness of the Registration Statement is in effect, and
no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) The Registration Statement, when it became effective, did not
contain and, as amended or supplemented, if applicable, will not contain 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, (ii) the Registration Statement and the Prospectus comply and, as
amended or supplemented, if applicable, will comply in all material respects
with the Securities Act and the applicable rules and regulations of the
Commission thereunder and (iii) the Prospectus does not contain and, as
amended or supplemented, if applicable, will not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties set forth
in this paragraph do not apply to statements or omissions in the Registration
Statement or the Prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has the
corporate power and authority to own its property and to conduct its business
as described in the Prospectus and is duly qualified to transact business and
is in good standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification, except to
the extent that the failure to be so qualified or be in good standing would
not have a material adverse effect on the Company.
(d) The Company does not own or control, directly or indirectly, any
interest in any other corporation, association, or other business entity.
(e) The Company has good and marketable title in fee simple to all
real property and good and marketable title to all personal property owned by
it which is material to the business of the Company, in each case free and
clear of all liens, encumbrances and defects except such as are described in
the Prospectus or such as do not materially affect the value of such property
and do not interfere with the use made and proposed to be made of such
property by the Company; and any real property and buildings held under lease
by the Company are held by it under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use
made and proposed to be made of such property and buildings by the Company, in
each case except as described in the Prospectus.
-2-
<PAGE>
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully paid and
non-assessable. Except as set forth in the Prospectus, the Company does not
have outstanding any options to purchase, or any preemptive rights or other
rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. All outstanding shares of capital stock of the Company, and
options and other rights to acquire capital stock of the Company, have been
issued in compliance with the registration and prospectus delivery
requirements and qualification provisions of all applicable securities laws,
and were not issued in violation of any preemptive rights, rights of first
refusal or other similar rights.
(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive rights, rights of first refusal or other
similar rights.
(i) This Agreement has been duly authorized, executed and delivered by
the Company.
(j) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene
any provision of applicable law or the certificate of incorporation or bylaws
of the Company, or any agreement or other instrument binding upon the Company
that is material to the Company, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company, and
no consent, approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the Company of
its obligations under this Agreement, except such as may be required by the
securities or Blue Sky laws of the various states in connection with the offer
and sale of the Shares.
(k) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company, from that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement).
(l) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) the Company has
not incurred any material liability or obligation, direct or contingent, nor
entered into any material transaction not in the ordinary course of business;
(ii) the Company has not purchased any of its outstanding capital stock other
than the repurchase of shares of its capital stock in connection with employee
terminations, nor declared, paid or otherwise made any dividend or
distribution of any kind on its capital stock other than ordinary and
customary dividends; and (iii) there has not been any material change in the
capital stock, short-term debt or long-term debt of the Company, except in
each case as described in the Prospectus.
-3-
<PAGE>
(m) There are no legal or governmental proceedings pending or
threatened to which the Company is a party or to which any of the properties
of the Company is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described, or any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required.
(n) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 or Rule 462 under the Securities Act, complied when so
filed in all material respects with the Securities Act and the rules and
regulations of the Commission thereunder.
(o) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be an "investment company" or an entity "controlled"
by an "investment company" as such terms are defined in the Investment Company
Act of 1940, as amended.
(p) There is no owner of any securities of the Company who has any
rights, not effectively satisfied or waived, to require registration of any
shares of capital stock of the Company in connection with the filing of the
Registration Statement or the sale of any shares of capital stock of the
Company thereunder.
(q) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent and customary in the businesses in which it is engaged; the Company
has not been refused any insurance coverage sought or applied for; and the
Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a material adverse effect on the
Company, except as described in the Prospectus.
(r) The Company (i) is in compliance with any and all applicable
foreign, federal, state and local laws and regulations relating to the
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants (collectively, "Environmental
Laws"), (ii) has received all permits, licenses or other approvals required of
it under applicable Environmental Laws to conduct its business and (iii) is in
compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to comply
with the terms and conditions of such permits, licenses or approvals would
not, singly or in the aggregate, have a material adverse effect on the
Company.
(s) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties) which could, singly
or in the aggregate, have a material adverse effect on the Company.
-4-
<PAGE>
(t) The Company owns or possesses adequate licenses or other rights to
use all patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary
or confidential information, systems or procedures), trademarks, service
marks, trade names, and technology necessary to conduct its business in the
manner described in the Prospectus, the Company is not obligated to pay any
material royalty, grant a material license, or provide other material
consideration to any third party in connection with its patents, copyrights,
trademarks, service marks, trade names, or technology other than as disclosed
in the Prospectus, and, except as disclosed in the Prospectus, the Company has
not received any notice of infringement or conflict with (and the Company
knows of no infringement or conflict with) asserted rights of others with
respect to any patents, copyrights, trademarks, service marks, trade names,
technology or know-how which could result in any material adverse effect upon
the Company and, except as disclosed in the Prospectus, the discoveries,
inventions, products or processes of the Company referred to in the Prospectus
do not, to the best knowledge of the Company, infringe or conflict with any
right or valid and enforceable patent of any third party, or any discovery,
invention, product or process which is the subject of a patent application
filed by any third party, known to the Company which could have a material
adverse effect on the Company. Except as described in the Prospectus, no third
party, including any academic or governmental organization, possesses rights
to the Company's patents, copyrights, trademarks, service marks, trade names,
or technology which, if exercised, could enable such third party to develop
products which compete with those of the Company in a manner which could have
a material adverse effect on the Company or a material adverse effect on the
ability of the Company to conduct its business in the manner described in the
Prospectus.
(u) The Company possesses all consents, approvals, orders,
certificates, authorizations and permits issued by, and has made all
declarations and filings with, all appropriate federal, state or foreign
governmental or regulatory authorities and all courts and other tribunals
necessary to conduct its business and to own, lease, license and use its
properties in the manner described in the Prospectus, and the Company has not
received any notice of proceedings relating to the revocation or modification
of any such consent, appeal, order, certificate, authorization or permit
which, singly or in the aggregate, if the subject of any unfavorable decision,
ruling or finding, or failure to obtain or file, would have a material adverse
effect on the Company, except as described in the Prospectus.
(v) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(w) No material labor dispute with the employees of the Company
exists, except as described in the Prospectus, or, to the best knowledge of
the Company, is imminent; and the Company is not aware of any existing,
threatened or imminent labor disturbance by the employees of
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any of its principal suppliers, manufacturers or contractors that could have a
material adverse effect on the Company.
(x) All outstanding shares of Common Stock, and all shares of Common
Stock, par value $_____ per share, of the Company issuable upon the
conversion, exercise or exchange of all outstanding securities convertible
into or exercisable or exchangeable for shares of Common Stock, including,
without limitation, outstanding options issued under the Company's 1998 Stock
Plan, are subject to valid, binding and enforceable agreements (collectively,
the "Lock-up Agreements") that restrict the holders thereof from (1) offering,
pledging, selling, contracting to sell, selling any option or contract to
purchase, purchasing any option or contract to sell, granting any option,
right, or warrant for the purchase of, or otherwise transferring or disposing
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, or (2)
entering into any swap or similar agreement that transfers to another, in
whole or in part, any of the economic consequences of ownership of Common
Stock prior to the expiration of 180 days after the date of the Prospectus,
whether any such transaction described in clause (1) or (2) above is to be
settled by delivery of Common Stock or such other securities, in cash or
otherwise, otherwise than (i) the sale of any Shares to the Underwriters
pursuant to this Underwriting Agreement, (ii) transactions relating to shares
of Common Stock or other securiteis acquired in open market transactions after
the completion of the Public Ofering, or (iii) with the prior written consent
of Morgan Stanley and further that such holders will not make any demand for
or exercise any right with respect to the registration of any shares of Common
Stock, or any security convertible into or exercisable or exchangeable for
Common Stock, prior to the expiration of 180 days after the date of the
Prospectus.
(y) As of the date the Registration Statement becomes effective, the
Common Stock will be authorized for quotation on the Nasdaq National Market
upon official notice of issuance.
(z) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida), relating to doing business
with the Government of Cuba or with any person or affiliate located in Cuba.
(aa) The Company has not offered, or caused the Underwriters to offer,
Shares to any person pursuant to the Directed Share Program with the specific
intent to unlawfully influence (i) a customer or supplier of the Company to
alter the customer's or supplier's level or type of business with the Company,
or (ii) a trade journalist or publication to write or publish favorable
information about the Company or its products.
(bb) (i) The Registration Statement, the Prospectus and any
preliminary prospectus comply, and any amendments or supplements
thereto will comply, with any applicable laws or regulations of foreign
jurisdictions in which the Prospectus or any preliminary prospectus, as
amended or supplemented, if applicable, are distributed in connection with the
Directed Share Program.
(cc) No consent, approval, authorization or order of, or qualification
with, any governmental body or agency, other than those obtained, is required in
connection with the offering of Directed Shares in any jurisdiction where the
Directed Shares are being offered.
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<PAGE>
(dd) The Company has reviewed its operations and the operations of any
third parties with which the Company has a material relationship to evaluate
the extent to which the business or operations of the Company will be effected
by the Year 2000 Problem. As a result of such review, the Company has no
reason to believe, and does not believe, that the Year 2000 Problem will have
a material adverse effect on the Company. The "Year 2000 Problem" as used
herein means any significant risk that the computer hardware or software used
in the receipt, transmission, storage, retrieval, retransmission or other
utilization of data or in the operation of mechanical or electrical systems of
any kind will not, in the case of dates or time periods occurring after
December 31, 1999, function at least as effectively as in the case of dates or
time periods occurring prior to January 1, 2000.
2. Agreements to Sell and Purchase. The Company hereby agrees to sell to
the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective number of Firm Shares (subject to such adjustments to
eliminate fractional shares as you may determine) set forth in Schedule I
hereto opposite the name of such Underwriter at $___________ a share (the
"Purchase Price").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company hereby agrees to
issue and sell to the Underwriters the Additional Shares, and the Underwriters
shall have a one-time right to purchase, severally and not jointly, up to
____________________ Additional Shares at the Purchase Price. If you, on
behalf of the Underwriters, elect to exercise such option, you shall so notify
the Company in writing not later than 30 days after the date of this Agreement,
which notice shall specify the number of Additional Shares to be purchased by
the Underwriters and the date on which such shares are to be purchased. Such
date may be the same as the Closing Date (as defined below) but not earlier than
the Closing Date nor later than ten business days after the date of such notice.
Additional Shares may be purchased as provided in Section 4 hereof solely for
the purpose of covering over-allotments made in connection with the offering of
the Firm Shares. If any Additional Shares are to be purchased, each Underwriter
agrees, severally and not jointly, to purchase the number of Additional Shares
(subject to such adjustments to eliminate fractional shares as you may
determine) that bears the same proportion to the total number of Additional
Shares to be purchased as the number of Firm Shares set forth in Schedule I
hereto opposite the name of such Underwriter bears to the total number of Firm
Shares.
The Company hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period ending 180
days after the date of the Prospectus, (1) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, lend, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock,
or (2) enter into any swap or
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similar arrangement that transfers to another, in whole or in part, the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise, other than (i)
the Shares to be sold hereunder and as otherwise disclosed in the Prospectus,
(ii) any shares of Common Stock sold by the Company upon the exercise of an
option or warrant or other right to acquire shares of capital stock of the
Company or the conversion of a security outstanding on the date hereof
described in the Prospectus, (iii) any options or other rights to purchase or
acquire any shares of Common Stock or any shares of Common Stock issuable upon
exercise of such options or other rights granted in connection with any
compensatory arrangement with a director, officer, employee, consultant or
advisor, so long as such person is otherwise subject to a Lock-Up Agreement,
or (iv) any shares of Common Stock or other right to acquire shares of capital
stock of the Company issued pursuant to equipment or lease financing
activities entered into in the ordinary course of the Company's business, so
long as each person or entity acquiring shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock is
otherwise subject to a Lock-Up Agreement.
3. Terms of Public Offering. The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that the Shares are to be offered to the public initially at
$_______ per share (the "Public Offering Price") and to certain dealers selected
by you at a price that represents a concession not in excess of $_____ per share
under the Public Offering Price, and that any Underwriter may allow, and such
dealers may reallow, a concession, not in excess of $_______ per share, to any
Underwriter or to certain other dealers.
4. Payment and Delivery. Payment for the Firm Shares shall be made to the
Company in Federal or other funds immediately available in New York City against
delivery of such Firm Shares for the respective accounts of the several
Underwriters, at 7:00 a.m., California time, on June ____, 1999, or at such
other time on the same or such other date, not later than June ___, 1999, as
shall be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "Closing Date."
Payment for any Additional Shares shall be made to the Company in Federal
or other funds immediately available in New York City against delivery of such
Additional Shares for the respective accounts of the several Underwriters, at
7:00 a.m., California time, on the date specified in the notice described in
Section 2 hereof, or at such other time on the same or on such other date, in
any event not later than _______________, 1999 as shall be designated in writing
by you. The time and date of such payment are hereinafter referred to as the
"Option Closing Date."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the
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<PAGE>
several Underwriters, with any transfer taxes payable in connection with the
transfer of the Shares to the Underwriters duly paid, against payment of the
purchase price therefor.
5. Conditions to the Underwriters' Obligations. The obligations of the
Company to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than the date hereof.
The several obligations of the Underwriters hereunder are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of any
review for a possible change that does not indicate the direction of the
possible change, in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) under the Securities Act, and
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or otherwise, or
in the earnings, business or operations, of the Company from that set forth in
the Prospectus (exclusive of any amendments or supplements thereto subsequent
to the date of this Agreement) that, in your judgment, is material and adverse
and that makes it, in your judgment, impracticable to market the Shares on the
terms and in the manner contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by the chief executive officer
and the chief financial officer of the Company, to the effect set forth in
Section 5 (a)(i) above, and to the effect that the representations and
warranties of the Company contained in this Agreement are true and correct as
of the Closing Date and that the Company has complied with all of the
agreements and satisfied all of the conditions on its part to be performed or
satisfied hereunder on or before the Closing Date.
The officers signing and delivering such certificate may rely upon the
best of their knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Venture Law Group, a Professional Corporation, outside counsel for
the Company, dated the Closing Date, to the effect that
(i) the Company has been duly incorporated, is validly existing as
a corporation in good standing under the laws of the State of Delaware, has
the corporate power and authority to own its property and to conduct its
business as described in the Prospectus and is duly qualified to transact
business and is in good standing in each jurisdiction in which the conduct of
its
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<PAGE>
business or its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company;
(ii) the authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus;
(iii) the shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully paid and
non-assessable;
(iv) the Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive rights, rights of first refusal or other
similar rights;
(v) the Company has corporate power and authority to enter into this
Agreement and to issue, sell and deliver to the Underwriters the Shares;
(vi) this Agreement has been duly authorized, executed and delivered
by the Company;
(vii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement will not
contravene any provision of applicable law or the certificate of incorporation
or bylaws of the Company or, to the best knowledge of such counsel, any
agreement or other instrument binding upon the Company that is material to the
Company, or, to the best of such counsel's knowledge, any judgment, order or
decree of any governmental body, agency or court having jurisdiction over the
Company, and no consent, approval, authorization or order of, or qualification
with, any governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares;
(viii) the statements (1) in the Prospectus, (a) in the first
and fifth sentences, including the three bullet points, of the first
paragraph; the second paragraph; the first sentence of the third paragraph;
and the last paragraph under the caption "Business--Strategic Relationship
with VWR," (b) in the second, fourth, fifth, and sixth sentences of the
paragraphs under the caption "Business --Relationship with BIO," (c) under the
caption "Management," (d) under the caption "Certain Transactions," (e) under
the caption "Description of Capital Stock," and (f) under the caption "Shares
Eligible for Future Sale" and (2) in the Registration Statement in Items 14
and 15, in each case insofar as such statements constitute summaries of the
legal matters, documents or proceedings referred to therein, do not contain
any mistatements with respect to such legal matters, documents and proceedings
and fairly summarize the matters referred to therein;
(ix) after due inquiry, such counsel does not know of any legal,
regulatory or governmental proceedings pending or threatened to which the
Company is a party or to which any of the properties of the Company is subject
that is required to be described in the Registration Statement or the
Prospectus and are not so described, or of any statutes, regulations,
contracts or
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<PAGE>
other documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required;
(x) the Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be, an "investment company" as such term is defined
in the Investment Company Act of 1940, as amended;
(xi) to the knowledge of such counsel, there is no legal or beneficial
owner of any securities of the Company who has any rights, not effectively
satisfied or waived, to require registration of any shares of capital stock of
the Company in connection with the filing of the Registration Statement or the
sale of any shares of capital stock of the Company thereunder;
(xii) to the knowledge of such counsel: (1) the Registration
Statement has become effective under the Securities Act, no stop order
proceedings with respect thereto have been instituted or are pending or
threatened under the Securities Act, and nothing has come to such counsel's
attention to lead it to believe that such proceedings are contemplated; and
(2) any required filing of the Prospectus and any supplement thereto pursuant
to Rule 424(b) under the Securities Act has been made in the manner and within
the time period required by such Rule 424(b);
(xiii) the Shares to be sold under this Agreement to the Underwriters
are duly authorized for quotation on the Nasdaq National Market; and
(xiv) Such counsel shall also state that (1) they believe the
Registration Statement and the Prospectus (except for financial statements and
schedules and other financial or statistical data included therein, as to
which such counsel need not express any opinion) comply as to form in all
material respects with the Securities Act and the rules and regulations of the
Commission thereunder, (2) such counsel has no reason to believe that (except
for financial statements and schedules and other financial or statistical data
included therein, as to which such counsel need not express any opinion) the
Registration Statement and the prospectus included therein as of time the
Registration Statement became effective contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and (3)
such counsel has no reason to believe that (except for financial statements
and schedules and other financial or statistical data included therein, as to
which such counsel need not express any opinion) the Prospectus contains any
untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
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<PAGE>
(d) The Underwriters shall have received on the Closing Date an
opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel
for the Underwriters, dated the Closing Date, covering the matters referred to
in Sections 5(c)(iv), 5(c)(vi) and 5(c)(viii) (but only as to the statements
in the Prospectus under "Description of Capital Stock"), stating that such
counsel has read the first four paragraphs and the sixth paragraph of the
portion of the Registration Statement and the Prospectus entitled
"Underwriters" (the "Underwriter Portion"), and 5(c)(xiv).
With respect to Section 5(c)(xiv) above, Venture Law Group, a
Professional Corporation, and Wilson Sonsini Goodrich & Rosati, Professional
Corporation, may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto and review and discussion of the
contents thereof, but is without independent check or verification, except as
specified.
(e) You shall have received on the Closing Date an opinion of Heller
Ehrman White & McAuliffe, a Partnership of Professional Corporations, special
regulatory counsel to the Company, dated the Closing Date, to the effect that:
(i) in connection with this offering, such counsel represents the
Company with respect to regulatory matters;
(ii) such counsel has read the portions of the Registration
Statement and the Prospectus entitled "Risk Factors -- We are subject to
government regulation that exposes us to potential liability and negative
publicity," "Risk Factors -- We may be exposed to product liability claims"
and "Business -- Government Regulation" (the "Regulatory Portion"), and in
such counsel's opinion, the descriptions of the laws, rules and regulations
set forth in the Regulatory Portion are fair and accurate summaries of such
laws, rules and regulations; and
(iii) nothing has come to such counsel's attention that leads it
to believe that the statements contained in the Regulatory Portion of the
Registration Statement or the Prospectus at the time it became effective
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading or that, at the Closing Date, the
information contained in the Regulatory Portion of the Prospectus or any
amendment or supplement to the Regulatory Portion of the Prospectus contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
The opinion of Venture Law Group, a Professional Corporation,
described in Section 5(c) above and the opinion of Heller Ehrman White &
McAuliffe, a Partnership of Professional Corporations described in Section 5(e)
above, shall each be rendered to the Underwriters at the request of the Company
and shall so state therein.
(f) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date, as
the case may be, in form and substance satisfactory to the Underwriters, from
Ernst & Young LLP, independent public
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accountants, containing statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
(g) The Lock-up Agreements between the Underwriters and certain
stockholders, officers and directors of the Company relating to sales of
shares of Common Stock of the Company or any securities convertible into or
exercisable or exchangeable for such Common Stock, delivered to Morgan Stanley
on or before the date hereof, shall be in full force and effect on the Closing
Date.
(h) The shares of Common Stock of the Company shall have received
approval for listing, upon official notice of issuance, on the Nasdaq National
Market.
(i) The Company shall have complied with the provisions of paragraph
(a) of Section 6 hereof with respect to the furnishing of Prospectuses on the
business day next succeeding the date of this Agreement in such quantities as
you may reasonably request.
(j) The Company shall have delivered all other certificates as may be
reasonably requested by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, counsel for the Underwriters.
All the agreements, opinions, certificates and letters mentioned above or
elsewhere in this Agreement shall be deemed in compliance with the provisions
hereof only if Wilson Sonsini Goodrich & Rosati, Professional Corporation,
counsel for the Underwriters, shall be reasonably satisfied that they comply in
form and scope.
The several obligations of the Underwriters to purchase Additional Shares
hereunder are subject to the delivery to you on the Option Closing Date of such
documents as you may reasonably request with respect to the good standing of the
Company, the due authorization and issuance of the Additional Shares, other
matters related to the issuance of the Additional Shares and an opinion or
opinions of Venture Law Group, a Professional Corporation, and Heller Ehrman
White & McAuliffe, a Partnership of Professional Corporations in form and
substance satisfactory to Wilson Sonsini Goodrich & Rosati, Professional
Corporation, counsel for the Underwriters.
6. Covenants of the Company. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, four (4) signed copies of the
Registration Statement (including exhibits thereto) and for delivery to each
other Underwriter a conformed copy of the Registration Statement (without
exhibits thereto) and to furnish to you in New York City, without charge,
prior to 10:00 a.m. New York City time on the business day next succeeding the
date of this Agreement and, during the period mentioned in Section 6(c) below,
as many copies of the Prospectus and any supplements and amendments thereto or
to the Registration Statement as you may reasonably request.
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<PAGE>
(b) Before amending or supplementing the Registration Statement or the
Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to which
you reasonably object, and to file with the Commission within the applicable
period specified in Rule 424(b) under the Securities Act any prospectus
required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public offering
of the Shares, as in the opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, counsel for the Underwriters, the Prospectus is
required by law to be delivered in connection with sales by an Underwriter or
dealer, any event shall occur or condition exist as a result of which it is
necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances when the Prospectus is
delivered to a purchaser, not misleading, or if, in the opinion of Wilson
Sonsini Goodrich & Rosati, Professional Corporation, counsel for the
Underwriters, it is necessary to amend or supplement the Prospectus to comply
with law, forthwith to prepare, file with the Commission and furnish, at its
own expense, to the Underwriters and to the dealers (whose names and addresses
you will furnish to the Company) to which Shares may have been sold by you on
behalf of the Underwriters and to any other dealers upon request, either
amendments or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be misleading
or so that the Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request and to pay all expenses (including fees and disbursements of counsel)
in connection with such qualification and in connection with any review of the
offering of the Shares by the National Association of Securities Dealers, Inc.,
(the "NASD").
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earnings statement covering the twelve-month
period ending June 30, 2000 that satisfies the provisions of Section 11(a) of
the Securities Act and the rules and regulations of the Commission thereunder.
(f) During a period of three years from the effective date of the
Registration Statement, the Company will furnish to you copies of (i) all
reports to its stockholders, and (ii) all reports, financial statements and
proxy or information statements filed by the Company with the Commission or
any national securities exchange.
(g) The Company will apply the proceeds from the sale of the Shares in
the manner set forth under in "Use of Proceeds" in the Prospectus.
(h) The Company will use its best efforts to obtain and maintain in
effect the quotation of the Shares on the Nasdaq National Market and will take
all necessary steps to cause the Shares to be included on the Nasdaq National
Market as promptly as practicable and to maintain such inclusion for a period
of three years after the date hereof or until such earlier date as the Shares
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shall be listed for regular trading privileges on the Nasdaq National Market
or another national securities exchange approved by you.
(i) The Company will comply with all registration, filing and
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which may from time to time be applicable to the Company.
(j) The Company will comply with all provisions of all undertakings
contained in the Registration Statement.
(k) Prior to the Closing Date or the Option Closing Date, as the case
may be, the Company will not, directly or indirectly, issue any press release
or other communication directly or indirectly and will not hold any press
conference with respect to the Company, or its financial condition, results of
operations, business, properties, assets or prospects, or this offering,
without your prior written consent.
(l) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you, responding
to or commenting on such rumor, publication or event.
(m) The Company hereby agrees: (i) to issue stop-transfer instructions
to the transfer agent for the Common Stock with respect to any transaction or
contemplated transaction that would constitute a breach of or default under
the applicable Lock-up Agreement, and (ii) upon written request of Morgan
Stanley, to release from the Lock-up Agreements those shares of Common Stock
held by those holders set forth in such request. In addition, except with the
prior written consent of Morgan Stanley, the Company hereby agrees (i) not to
amend or terminate, or waive any right under, any Lock-up Agreement or take
any other action that would directly or indirectly have the same effect as an
amendment or termination, or waiver of any right under, any Lock-up Agreement
that would permit any holder of shares of Common Stock, or securities
convertible into or exercisable or exchangeable for Common Stock, to offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, make any short sale of, grant any
option, right, or warrant for the purchase of, enter into any swap or similar
agreement that transfers, in whole or in part, the economic risk of ownership
of Common Stock, or otherwise transfer or dispose of, directly or indirectly,
any of such shares of Common Stock or other securities prior to the expiration
of 180 days after the date of the Prospectus, (ii) not to release any such
stop-transfer instruction as described in clause (ii) above prior to the
expiration of 180 days after the date of the Prospectus, and (iii) not to
consent to any sale, short sale, grant of an option for the purchase of, or
other disposition or transfer of shares of Common Stock, or securities
convertible into or exercisable or exchangeable for Common Stock, subject to a
Lock-up Agreement.
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(n) The Company will place a restrictive legend on any shares of
Common Stock acquired pursuant to the exercise, after the date hereof and
prior to the expiration of the 180-day period after the date of the initial
public offering of the Shares, of any option granted under the 1998 Stock Plan
or pursuant to the exercise of any warrant, which legend shall restrict the
transfer of such shares prior to the expiration of such 180-day period. In
addition, the Company hereby agrees that, without the prior written consent of
Morgan Stanley, it will not release any stockholder, option holder or warrant
holder from the market standoff provision imposed by the Company pursuant to
the terms of the 1998 Stock Plan, or earlier than 180 days after the date of
the initial public offering of the Shares.
(o) To place stop transfer orders on any Directed Shares that have been
sold to Participants subject to the three month restriction on sale, transfer,
assignment, pledge or hypothecation imposed by NASD Regulation, Inc. under its
Interpretive Material 2110-1 on free riding and withholding to the extent
necessary to ensure compliance with the three month restrictions.
(p) To pay fees and disbursements of counsel incurred by the
Underwriters in connection with the Directed Share Program and stamp duties,
similar taxes or duties or other taxes, if any, incurred by the Underwriters
in connection with the Directed Share Program.
(q) The Company will comply with all applicable securities and other
applicable laws, rules and regulations in each foreign jurisdiction in which
the Directed Shares are offered in connection with the Directed Share Program.
7. Expenses. Whether or not the transactions contemplated by this
Agreement is terminated, the Company agrees to pay or cause to be paid all
costs and expenses incident to the performance of the obligations of the
Company under this Agreement, including, but not limited to, all expenses
incident to (i) the fees, disbursements and expenses of the Company's counsel
and the Company's accountants in connection with the registration and delivery
of the Shares under the Securities Act and all other fees or expenses in
connection with the preparation and filing of the Registration Statement, any
preliminary prospectus, the Prospectus and amendments and supplements to any
of the foregoing, including all printing costs associated therewith, and the
mailing and delivering of copies thereof to the Underwriters and dealers, in
the quantities hereinabove specified, (ii) all costs and expenses related to
the transfer and delivery of the Shares to the Underwriters, including any
transfer or other taxes payable thereon, (iii) the cost of printing or
producing any Blue Sky or Legal Investment memorandum in connection with the
offer and sale of the Shares under state securities laws and all expenses in
connection with the qualification of the Shares for offer and sale under state
securities laws as provided in 6(d) hereof, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky or
Legal Investment memorandum, (iv) all filing fees and the reasonable fees and
disbursements of counsel to the Underwriters incurred in connection with the
review and qualification of the offering of the Shares by the NASD, (v) all
fees and
-16-
<PAGE>
expenses in connection with the preparation and filing of the registration
statement on Form 8-A relating to the Common Stock and all costs and expenses
incident to listing the Shares on the Nasdaq National Market, (vi) the cost of
printing certificates representing the Shares, (vii) the costs and charges of
any transfer agent, registrar or depositary, (viii) the costs and expenses of
the Company relating to investor presentations on any "road show" undertaken
in connection with the marketing of the offering of the Shares, including,
without limitation, expenses associated with the production of road show
slides and graphics, fees and expenses of any consultants engaged in
connection with the road show presentations with the prior approval of the
Company, travel and lodging expenses of the representatives and officers of
the Company and any such consultants, and the cost of any aircraft chartered
in connection with the road show, (ix) all fees and disbursements of counsel
incurred by the Underwriters in connection with the Directed Share Program and
stamp duties, similar taxes or duties or other taxes, if any, incurred by the
Underwriters in connection with the Directed Share Program, and (x) all other
costs and expenses incident to the performance of the obligations of the
Company hereunder for which provision is not otherwise made in this Section.
It is understood, however, that except as provided in this Section, 8 entitled
"Indemnity and Contribution", and the last paragraph of 10 below, the
Underwriters will pay all of their costs and expenses, including fees and
disbursements of their counsel, stock transfer taxes payable on resale of any
of the Shares by them and any advertising expenses connected with any offers
they make.
8. Indemnity and Contribution.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and Discover Brokerage Direct Inc. ("Discover") and each person, if any, who
controls any Underwriter or Discover within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act, or is under common
control with, or is controlled by, any Underwriter or Discover, from and
against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim) caused by
any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by
any such untrue statement or omission or alleged untrue statement or omission
based upon information relating to any Underwriter or Discover furnished to
the Company in writing by such Underwriter or Discover through you expressly
for use therein.
-17-
<PAGE>
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, the directors of the Company, the officers of
the Company who sign the Registration Statement and each person, if any, who
controls the Company within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act to the same extent as the foregoing
indemnity from the Company to such Underwriters, but only with reference to
information relating to such Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use in the Registration
Statement, any preliminary prospectus, the Prospectus or any amendments or
supplements thereto.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Section 8(a) or 8(b) hereof, such person (the "Indemnified
Party") shall promptly notify the person against whom such indemnity may be
sought (the "Indemnifying Party") in writing and the Indemnifying Party, upon
request of the Indemnified Party, shall retain counsel reasonably satisfactory
to the Indemnified Party to represent the Indemnified Party and any others the
Indemnifying Party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the Indemnifying Party and the Indemnified Party and representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
Indemnifying Party shall not, in respect of the legal expenses of any
Indemnified Party in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for (a) the fees and expenses of more than
one separate firm (in addition to any local counsel) for all such Indemnified
Parties and that all such fees and expenses shall be reimbursed as they are
incurred. Such firm shall be designated in writing by
-18-
<PAGE>
Morgan Stanley, in the case of parties indemnified pursuant to Section 8(a)
hereof, and by the Company, in the case of parties indemnified pursuant to
Section 8(b) hereof. The Indemnifying Party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
Indemnifying Party agrees to indemnify the Indemnified Party from and against
any loss or liability by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, 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 by the second and third sentences of this paragraph,
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 of any pending or threatened
proceeding in respect of which any Indemnified Party is or could have been a
party and indemnity could have been sought hereunder by such Indemnified Party,
unless such settlement includes an unconditional release of such Indemnified
Party from all liability on claims that are the subject matter of such
proceeding.
(d) To the extent the indemnification provided for in Section 8(a) or
8(b) hereof is unavailable to an Indemnified Party or insufficient in respect of
any losses, claims, damages or liabilities referred to therein, then each
Indemnifying Party under such paragraph, in lieu of indemnifying such
Indemnified Party thereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Indemnifying Party or parties on the one hand and the
Indemnified Party or parties on the other hand from the offering of the Shares
or (ii) if the allocation provided by Section 8(d)(i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in Section 8(d)(i) above but also the relative
fault of the Indemnifying Party or parties on the one hand and of the
Indemnified Party or parties on the other hand in connection with the statements
or omissions that resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative benefits
received by the Company on the one hand and the Underwriters on the other hand
in connection with the offering of the Shares shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by the Company and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate Public
Offering Price of the Shares. The relative fault of the Company on the one hand
-19-
<PAGE>
and the Underwriters on the other hand 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 or by the Underwriters and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Underwriters' respective
obligations to contribute pursuant to this Section 8 are several in proportion
to the respective number of Shares they have purchased hereunder, and not
joint.
(e) The Company and the Underwriters agree that it would not be just
or 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 that does not take account of
the equitable considerations referred to in Section 8(d). The amount paid or
payable by an Indemnified Party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8, 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. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation. 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.
(f) The indemnity and contribution provisions contained in this
Section 8 and the representations, warranties and other statements of the
Company contained in this Agreement shall remain operative and in full force
and effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, or by or on behalf of the Company, its officers
or directors or any person controlling the Company and (iii) acceptance of and
payment for any of the Shares.
9. Termination. This Agreement shall be subject to termination by notice
given by you to the Company, if (a) after the execution and delivery of this
Agreement and prior to the Closing Date (i) trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the NASD, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of
Trade, (ii) trading of any securities of the Company shall have been suspended
on any exchange or in any over-the-counter market, (iii) a general moratorium
on commercial banking activities in New York shall have been declared by
either Federal or New York State authorities, or (iv) there shall have
occurred any outbreak or escalation of hostilities or any change in financial
markets or any calamity or crisis that, in your sole judgment, is material and
adverse and (b) in the case of any of the events specified in clauses 9(a)(i)
through 9(iv), such event, singly or together with any other such event,
-20-
<PAGE>
makes it, in your sole judgment, impracticable to market the Shares on the
terms and in the manner contemplated in the Prospectus.
10. Directed Share Program Indemnification.
(a) The Company agrees to indemnify and hold harmless Morgan Stanley
and each person, if any, who controls Morgan Stanley within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act
("Morgan Stanley Entities"), from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) (i) caused by any untrue statement or alleged untrue
statement of a material fact contained in any material prepared by or with the
consent of the Company for distribution to Participants in connection with the
Directed Share Program, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; (ii) caused by the failure of any Participant
to pay for and accept delivery of Directed Shares that the Participant has
agreed to purchase; or (iii) related to, arising out of, or in connection with
the Directed Share Program other than losses, claims, damages or liabilities (or
expenses relating thereto) that are finally judicially determined to have
resulted from the bad faith or gross negligence of Morgan Stanley Entities.
(b) In case any proceeding (including any governmental investigation)
shall be instituted involving any Morgan Stanley Entity in respect of which
indemnity may be sought pursuant to Section 10(a), the Morgan Stanley Entity
seeking indemnity shall promptly notify the Company in writing and the Company,
upon request of the Morgan Stanley Entity, shall retain counsel reasonably
satisfactory to the Morgan Stanley Entity to represent the Morgan Stanley Entity
and any other the Company may designate in such proceeding and shall pay the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any Morgan Stanley Entity shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Morgan Stanley Entity unless (I) the Company shall have agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the Company and the Morgan
Stanley Entity and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. The
Company shall not, in respect of the legal expenses of the Morgan Stanley
Entities in connection with any proceeding or related proceedings the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all Morgan Stanley Entities. Any such
firm for the Morgan Stanley Entities shall be designated in writing by Morgan
Stanley. The Company shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the Company agrees to indemnify the
Morgan Stanley Entities from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
a Morgan Stanley Entity shall have requested the Company to reimburse it for
fees and expenses of counsel as contemplated by the second and third sentences
of this paragraph, the Company 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 the Company of the aforesaid
request and (ii) the Company shall not have reimbursed the Morgan Stanley Entity
in accordance with such request prior to the date of such settlement. The
Company shall not, without the prior written consent of Morgan Stanley, effect
any settlement of any pending or threatened proceeding in respect of which any
Morgan Stanley Entity is or could have been a party and indemnity could have
been sought hereunder by such Morgan Stanley Entity, unless such settlement
includes an unconditional release of the Morgan Stanley Entities from all
liability on claims that are the subject matter of such proceeding.
-21-
<PAGE>
(c) To the extent the indemnification provided for in Section 10(a) is
unavailable to a Morgan Stanley Entity or insufficient in respect of any losses,
claims, damages or liabilities referred to therein, then the Company, in lieu of
indemnifying the Morgan Stanley Entity thereunder, shall contribute to the
amount paid or payable by the Morgan Stanley Entity as a result of such losses,
claims, damages or liabilities (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Morgan Stanley Entities on the other hand from the offering of the Directed
Shares or (ii) if the allocation provided by clause 10(c)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 10(c)(i) above but also the
relative fault of the Company on the one hand and of the Morgan Stanley Entities
on the other hand in connection with the statements or omissions that resulted
in such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and of the Morgan Stanley Entities on the other hand in connection with
the offering of the Directed Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Directed Shares (before
deducting expenses) and the total underwriting discounts and commissions
received by the Morgan Stanley Entities for the Directed Shares, bear to the
aggregate Public Offering Price of the Shares. If the loss, claim, damage or
liability is caused by an untrue or alleged untrue statement of a material fact,
the relative fault of the Company on the one hand and the Morgan Stanley
Entities on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement or the omission or
alleged omission relates to information supplied by the Company or by the Morgan
Stanley Entities and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(d) The Company and the Morgan Stanley Entities agree that it would
not be just or equitable if contribution pursuant to this Section 10 were
determined by pro rata allocation (even if the Morgan Stanley Entities were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in
Section 10(c). The amount paid or payable by the Morgan Stanley Entities as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
the Morgan Stanley Entities in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section 10, no
Morgan Stanley Entity shall be required to contribute any amount in excess of
the amount by which the total price at which the Directed Shares distributed to
the public were offered to the public exceeds the amount of any damages that
such Morgan Stanley Entity has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. The
remedies provided for in this Section 10 are not exclusive and shall not limit
any rights or remedies which may otherwise be available to any Morgan Stanley
Entity at law or in equity.
(e) The indemnity and contribution provisions contained in this
Section 10 shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of any Morgan Stanley Entity or the Company, its officers or directors or any
person controlling the Company and (iii) acceptance of and payment for any of
the Directed Shares.
-22-
<PAGE>
11. Effectiveness; Defaulting Underwriters. This Agreement shall become
effective upon execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be, any
one or more of the Underwriters shall fail or refuse to purchase Shares that it
has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule I bears to the aggregate number of
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date; provided, however, that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased pursuant to this Section 11 by an amount in excess of
one-ninth of such number of Shares without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares
with respect to which such default occurs is more than one-tenth of the
aggregate number of Firm Shares to be purchased, and the arrangements
satisfactory to you and the Company for the purchase of such Firm Shares are not
made within 36 hours after such default, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter or the Company. In any
such case either you or the Company shall have the right to postpone the Closing
Date, but in no event for longer than seven days, in order that the required
changes, if any, in the Registration Statement and in the Prospectus or in any
other documents or arrangements may be effected. If, on the Option Closing
Date, any Underwriter or Underwriters shall fail or refuse to purchase
Additional Shares and the aggregate number of Additional Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of
Additional Shares to be purchased, the non-defaulting Underwriters shall have
the option to (i) terminate their obligation hereunder to purchase Additional
Shares or (ii) purchase not less than the number of Additional Shares that such
non-defaulting Underwriters would have been obligated to purchase in the absence
of such default. Any action taken under this paragraph shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them,
because of any failure or refusal on the part of the Company to comply with the
terms or to fulfill any of the conditions of this Agreement, or if for any
reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
-23-
<PAGE>
12. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
13. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York.
14. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
Very truly yours,
CHEMDEX CORPORATION
By:
--------------------------------------
David Perry
President and Chief Executive Officer
Accepted as of the date hereof:
Morgan Stanley & Co. Incorporated
BancBoston Robertson Stephens Inc.
Volpe Brown Whelan & Company, LLC
Acting severally on behalf of themselves
and the several Underwriters named
Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By:
---------------------------------------
William R. Salisbury
Principal
-24-
<PAGE>
SCHEDULE I
Name Number of Firm Shares
---- ---------------------
Morgan Stanley & Co. Incorporated
BancBoston Robertson Stephens Inc.
Volpe Brown Whelan & Company, LLC
<PAGE>
===============================================================================
COMMON STOCK [LOGO OF CHEMDEX CORPORATION] COMMON STOCK
NUMBER SHARES
CMD
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE SEE REVERSE FOR CERTAIN
IN BOSTON, MA OR NEW YORK, NY DEFINITIONS AND A STATEMENT
AS TO THE RIGHTS,
PREFERENCES, PRIVILEGES AND
RESTRICTIONS ON SHARES
CUSIP 163595 10 1
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK,
$.0002 PAR VALUE PER SHARE, OF
CHEMDEX CORPORATION
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid until countersigned by a Transfer Agent
and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ James G. Stewart [CORPORATE SEAL /s/ David P. Perry
OF CHEMDEX CORPORATION]
CHIEF FINANCIAL OFFICER AND PRESIDENT AND
ASSISTANT SECRETARY CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
BankBoston, N.A.
TRANSFER AGENT AND REGISTRAR
BY /s/
AUTHORIZED SIGNATURE
================================================================================
<PAGE>
CHEMDEX CORPORATION
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights as established, from time to time, by the Certificate
of Incorporation of the Corporation and by any certificate of determination,
the number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge
from the Secretary of the Corporation at the principal office of the
Corporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT-.........Custodian.........
TEN ENT - as tenants by the (Cust) (Minor)
entireties under Uniform Gifts to
JT TEN - as joint tenants with Minors Act..................
right of survivorship (State)
and not as tenants in UNIF TRF MIN ACT- .....Custodian (until age..)
common (Cust)
......under Uniform Transfer
(Minor)
to Minors Act...............
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _____________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
_____________________________
_____________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ Shares
of the common stock represented by the within Certificate,
and do hereby irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named
Corporation with full power of substitution in the premises.
Dated ____________________________
X___________________________________
X___________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By___________________________________
THE SIGNATURE(S) MUST BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
Exhibit 10.19
ORACLE(R) CREDIT CORPORATION Payment Schedule
Page of (Oracle Product) No. ____
- -----------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------- ---------------------------------------------------------------
<S> <C> <C>
Customer: Chemdex Corporation Executed by Customer (authorized signature):
-----------------------------------------------
By: /s/ Cindy Vindasius
_______________________________________________ ----------------------------------------------
Address: 3590 Fabian Way Name: Cindy Vindasius
----------------------------------------------- ----------------------------------------------
Palo Alto, CA 94306 Title: Controller
----------------------------------------------- ----------------------------------------------
Contact: Cindy Vindasius Executed by Oracle Credit Corporation:
-----------------------------------------------
Phone: (650) 813-0300 By: ______________________________________________
-----------------------------------------------
Order: dated Name: ______________________________________________
-----------------------------------------------
Agreement: dated Title: ______________________________________________
-----------------------------------------------
PPA No.:: dated P/D/N Interest rates was calculated to be 3.24% based
----------------------------------------------- upon the payment value of all future payments.
Payment Schedule Effective Date:
_______________________________________________ ___________________
- ---------------------------------------------------------------- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
System Payment Schedule:
- ------ ----------------
<S> <C> <C> <C> <C>
Payment Amount Due Date:
Software: $ 967,446.00 12 @ $ 114,805.00 Due 01-May-99 through
---------------------------------
01-Feb-02
Support: $ 148,410.00 one year
---------------------------------
Education: $ 16,000.00
---------------------------------
Consulting: _________________________________
Other: $ 1,600.00 Doc. Fees Twelve (12) equal quarterly payments due as
---------------------------------
System Price: $1,133,456.00 set forth above.
=================================
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Optional (if this box is checked):
--------
[_] The System was ordered from an alliance member/agent of Oracle Corporation,
whose name and address is specified below, by executing an Order. Customer has
directly licensed the Software from Oracle Corporation as Supplier pursuant to
the Agreement For this Payment Schedule, the alliance member/agent is also a
Supplier, and the Order and Agreement shall each be considered a separate
Agreement hereunder. OCC shall be provided with an Order executed by Customer.
Alliance member/agents are not authorized to waive or alter any term or
condition of this PPA. Neither OCC nor Assignee shall be responsible to
Customer for any claim or liability pertaining to the actions or statements of
any alliance member/agent.
OCC may add the applicable Taxes due on the System Price to each Payment
Amount, based on the applicable tax rate invoiced by Supplier at shipment, but
only if OCC is provided with invoices between Customer and alliance
member/agent for the System (specifying applicable Taxes) within ten days of
the Payment Schedule Effective Date.
Alliance Member/Agent: ___________________________________________________
Address: ___________________________________________________
Contact: Phone:
---------------------------------------------------
This Oracle Payment Schedule constitutes a separate agreement, and incorporates
by reference the terms and conditions of the above Payment Plan Agreement
("PPA") between Oracle Credit Corporation ("OCC") and Customer for the
acquisition of the System from Oracle Corporation or any other party providing
any portion of the System, Including an alliance member/agent of Oracle
Corporation ("Supplier"), and acids the following additional terms.
A. PAYMENTS: This PPA shall replace Customer's payment obligation under the
Order and Agreement to Supplier, to the extent of the System Price listed above,
upon Customer's delivery of a fully executed Order; ????ement, PPA, and any
other documentation required by OCC, and ?????ution of the PPA by OCC. Customer
agrees that OCC may add the Applicable Taxes due on the System Price to each
Payment Amount based on the applicable tax rate invoiced by Supplier at
shipment. OCC may adjust subsequent Payment Amounts to reflect any change or
correction in Taxes due. If the System Price Includes support fees for a support
period that begins after the first support period, such fees and the then
relevant Taxes will be paid to Supplier In the applicable support period as
invoiced from the Payment Amounts received in that period. The balance of each
Payment Amount, unless otherwise stated, includes a proportional amount of the
remaining components of the System Price.
B. SYSTEM: Software shall be accepted, and the services shall be deemed ordered
pursuant to the terms of the Agreement. Customer agrees that any software
acquired from Supplier to replace any part of the System shall be subject to the
terms of the PPA.
C. ADMINISTRATIVE: Customer agrees that OCC or its Assignee may treat faxes or
photocopies delivered to OCC as original documents; however. Customer agrees to
deliver original signed documents if requested. Customer agrees that OCC may
insert the appropriate administrative information to complete the above form.
OCC will provide a copy of the final PPA upon request.
<PAGE>
ORACLE(R) CREDIT CORPORATION Payment Plan Agreement
<TABLE>
<CAPTION>
- -------------------------------------------------------------- ----------------------------------------------------------------
<S> <C> <C>
Customer: Chemdex Corporation Executed by Customer (authorized signature):
-------------------------------------------
By: /s/ Cindy Vindasius
___________________________________________ ---------------------------------------------------
Address: 3590 Fabian Way Name: Cindy Vindasius
------------------------------------------- ---------------------------------------------------
Palo Alto, CA 94306 Title: Controller
------------------------------------------- ---------------------------------------------------
Executed by Oracle Credit Corporation:
___________________________________________
Phone: (650) 813-0300 By: ___________________________________________________
-------------------------------------------
PPA No.: ___________________________________________ Name: ___________________________________________________
Effective Date: ___________________________________________ Title: ___________________________________________________
- ------------------------------------------------------------ ----------------------------------------------------------------
</TABLE>
This Payment Plan Agreement is entered into by Customer and Oracle Credit
Corporation ("OCC") to provide for the payment of the System Price specified in
a Payment Schedule on an installment basis. Each Payment Schedule shall specify
the Software and other incidental products and services (which items, together
with any upgrade, transfer or substitution of the foregoing, collectively are
the "System"), the System Price, and the Order and Agreement covered by the
Payment Schedule. Each Payment Schedule shall incorporate the terms and
conditions of this Payment Plan Agreement (together referred to as a "PPA"). The
System shall be licensed or provided by Oracle directly pursuant to the terms of
the Order and Agreement. Except as otherwise provided under this PPA, Customer's
rights and remedies under the Order and Agreement, including Oracle's warranty
and refund provisions, shall not be affected.
1. PAYMENT SCHEDULE: Customer agrees to pay OCC the Payment Amounts in
accordance with this PPA, with each payment due and payable on the applicable
Due Date. If full payment of each Payment Amount and other amounts payable is
not received by OCC within 10 days of each Due Date, Customer agrees to pay to
OCC interest on the overdue amount at the rate equal to the lesser of one and
one-half percent (1.5%) per month, or the maximum amount allowed by law. Unless
stated otherwise, Payment Amounts exclude any applicable sales, use, property or
any other tax allocable to the System, Agreement or any PPA ("Taxes"). Any
amounts or any Taxes payable Under the Agreement which are not added to the
Payment Amounts due under this PPA are due and payable by Customer, and Customer
shall remain liable for any filing obligations. Customer's obligation to remit
Payment Amounts to OCC or its assignee in accordance with this PPA is absolute,
unconditional, noncancellable, independent, and shall not be subject to any
abatement, set-off, claim, counterclaim, adjustment, reduction, or defense for
any reason, including but not limited to, any termination of any Agreement, or
performance of the System.
2. ASSIGNMENT: Customer hereby consents to OCC's assignment of all or a portion
of its rights and interests in and to this PPA to third-parties ("Assignee").
OCC shall provide Customer notice thereof. Customer and OCC agree that Assignee
shall not, because of such assignment, assume any of OCC's or Oracle's
obligations to Customer. Customer shall not assert against Assignee any claim,
defense, counterclaim or setoff that Customer may have against OCC or Oracle.
Customer wanes all rights to make any claim against Assignee for any loss or
damage of the System or breach of any warranty, express or implied, as to any
matter whatsoever, including but not limited to the System and service
performance, functionality, features, merchantability or fitness for a
particular purpose, or any indirect, incidental or consequential damages or loss
of business. Customer shall pay Assignee all amounts due and payable under this
PPA, but shall pursue any claims under any Agreement against Oracle. Except as
provided for a Customer default below, neither OCC nor its Assignees will
interfere with Customer's quiet enjoyment or use of System in accordance with
the Agreement's terms and conditions.
3. DEFAULT; REMEDIES: Any of the following shall constitute a Default under this
PPA: (i) Customer fails to pay when due any sums due under any PPA; (ii)
customer breaches any representation or fails to perform any obligation in any
PPA; (iii) Customer materially breaches or terminates the license relating to
the Software; (iv) Customer defaults under a material agreement with Assignee;
or (v) Customer becomes insolvent or makes an assignment for the benefit of
creditors, or a trustee or receiver is appointed for Customer or for a
substantial part of its assets, or bankruptcy, reorganization or insolvency
proceedings shall be instituted by or against Customer.
In the event of a Default that is not cured within thirty (30) days of its
occurrence, OCC may: (i) require all outstanding Payment Amounts and other sums
due and scheduled to become due (discounted at the lesser of the rate in this
PPA or five percent 5%) per annum simple interest) to become immediately due and
payable by Customer; (it) pursue any rights provided under any Agreement,
including terminating all of Customer's rights to use the System and related
services; and (iii) pursue any other rights or remedies available at law or in
equity. In the event OCC institutes any action for the enforcement of the
collection of Payment Amounts, there shall be due from Customer, in addition to
the amounts due above, all costs and expenses of such action, including
reasonable attorneys' fees. No failure or delay on the part of OCC to exercise
any right or remedy hereunder shall operate as a waiver thereof, or as a waiver
of any subsequent breach. All remedies are cumulative and not exclusive.
Customer acknowledges that upon a default under this PPA, no party shall be
required to license, lease, transfer or use any Software in mitigation of any
damages resulting from Customer's default.
4. CUSTOMER'S REPRESENTATIONS AND COVENANTS: Customer represents that,
throughout the term of this PPA, this PPA has been duly authorized and
constitutes a legal, valid, binding and enforceable agreement of Customer. Any
transfer or assignment of Customer's rights or obligations in the System, or
under the Agreements or this PPA shall require Oracle's and Assignee's prior
written consent. A transfer shall include a change in majority ownership of
Customer. Customer agrees to promptly execute any ancillary documents and take
further actions as OCC or Assignee may reasonably request, including, but not
limited to, assignment notifications, acceptance certificates, certificates of
authorization, registrations, and filings. Customer agrees to provide OCC or
Assignee copies of Customer's balance sheet, income statement, and other
financial reports as OCC or Assignee may reasonably request.
5. MISCELLANEOUS: This PPA shall constitute the entire agreement between
Customer and OCC regarding the subject matter herein and shall supersede any
inconsistent terms set forth in the Order, Agreement or any related agreements,
Customer purchase orders and all prior oral and written understandings. If any
provision of this PPA is invalid, such invalidity shall not affect the
enforceability of the remaining terms of this PPA. Customer's obligations under
this PPA shall commence on the Effective Date specified therein. Except for
payment terms specified in this PPA, Customer remains responsible for all the
obligations under each Agreement. Each Payment Schedule, and any changes to a
PPA or any related document, shall take effect when executed by OCC. This PPA
shall be governed by the laws of the State of California and shall be deemed
executed in Redwood Shores, CA as of the PPA Effective Date.
<PAGE>
Page 1 of 5
================================================================================
ORACLE(R) NETWORK LICENSE ORDER FORM
<TABLE>
<CAPTION>
<S> <C>
Customer Name: Chemdex Corporation Contract Administrator: Pierre Stance
Customer LocatioN: 3950 Fabian Way Phone: 650-813-0300
Palo Alto, CA 94303 Fax: 650-813-0304
Technical Contact: same as above
</TABLE>
================================================================================
ORACLE CONTRACT INFORMATION
AGREEMENT: Software License and Services Agreement
AGREEMENT NAME: SLSA-
This Network License Order Form and attachment(s) ('Order
Form') are placed ill accordance with the agreement specified
above ('Agreement').
Customer hereby orders the Program licenses described herein
for use in the United Slates, unless otherwise specified.
The 'Network' is defined as any number of Computers of the
Designated Systems listed in this Order Form, except for
Computer-based or Processor-based licenses or other similar
licenses as specified herein.
- --------------------------------------------------------------------------------
A. DESIGNATED SYSTEMS/PROGRAMS
Make/Model: SUN SPARC Make/Model: PC COMPATIBLE
Operating System: Solaris 2 Operating System: Windows NT
Media: CD Media: CD
CSI: ______ CSI: ______
<TABLE>
<CAPTION>
Net
Description Quantity License Level License Type License Fee
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTERNAL LICENSED PROGRAMS
Per User Licenses:
- -----------------
For use in the U.S.
Oracle8 Enterprise Edition 85 Full Use Named $47,685
Oracle Express Server 20 Full Use Named $22,500
Oracle Workflow Cartridge 65 Full Use Named $ 7,215
Oracle Developer Server 50 Full Use Named $ 3,750
</TABLE>
<PAGE>
Page 2 of 5
<TABLE>
<CAPTION>
Net
Description Quantity License Level License Type License Fee
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTERNAL LICENSED PROGRAMS
Per User Licenses:
- -----------------
For use in the U.S.
Application Server Enterprise Edition 15 Full Use Named $ 1,125
Enterprise Developer Suite 15 Full Use Developer $89,955
Application Object Library 1 Full Use Named $ 1,197
Oracle Applications Licenses:
- ----------------------------
For use in the U.S.
Oracle Financials* 20 Full Use Named $47,940
Oracle Order Management* 24 Full Use Named $57,528
Oracle Purchasing* 5 Full Use Named $11,985
Oracle Project* 1 Full Use Named $ 2,397
Oracle Web Customers 1 Full Use Module $89,997
Oracle Financial Analyzer 20 Full Use Named $23,040
Per Client Licenses:
- -------------------
For use in the U.S.
Oracle Discoverer End User Edition 50 Full Use Named $29,850
Oracle Discoverer Administration Edition 5 Full Use Named $ 5,985
</TABLE>
<PAGE>
Page 3 of 5
<TABLE>
<CAPTION>
Net
Description Quantity License Level License Type License Fee
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EXTERNAL LICENSED PROGRAMS
Per Computer Licenses:
- ----------------------
For use in the U.S.
Oracle8 Enterprise Edition 8 Web Specific Processor $358,800
Application Server Enterprise Edition 4 Web Specific Processor $ 23,400
Oracle Web Customers 1 Web Specific Computer $ 89,997
Workflow Cartridge 6 Web Specific Processor $ 53,1O0
Net License Fees: $ 967,446
Initial Year Annual Technical Support Fee: $ 148,410
Technical Support Type: Silver
Number of Education Units: 40
Education Units Fee: $ 16,000
Technical Reference Manuals Fee: $ 1,600
---------
Total Fees: $1,133,456
---------
</TABLE>
* For purposes of this Order Form, Named Users of the Applications Programs
above shall be counted based on Primary Usage.
* The Internal Oracle Web Customers Program shall only be used for Customer's
internal development purposes.
Customer may make all unlimited number of copies of such Program for
development use on any of the Designated
Systems acquired under this Order Form.
<PAGE>
ORACLE
Enabling the Information Age
B. GENERAL TERMS
1. Technical Support. Annual Technical Support services ordered by Customer will
-----------------
be provided under Oracle's Technical Support policies and pricing in effect
on the date Technical Support is ordered and shall be effective upon shipment
(or upon Order Form Effective Date for products not requiring shipment);
first year Technical Support is quoted above, if ordered. Fees for Technical
Support are due and payable annually in advance.
Customer estimates it will deploy Program licenses ordered hereunder over a
period of 3 years. In light of this, for the fees below Customer may receive
annual Silver Technical Support for Program licenses ordered hereunder
(except for license grants modified or added hereto after the Effective Date,
or for which Technical Support is not available). Technical Support consists
of Updates for such licenses as well as support services, pursuant to the
Technical Support Policies in effect, as such licenses are deployed.
Technical Support fees shall be paid annually in advance. After the Support
Years below, Customer may obtain Technical Support under Oracle's Technical
Support fees in effect at the time of order.
<TABLE>
<CAPTION>
Support Year Technical Support Fee
------------ ---------------------
<S> <C>
First Year $148,410
Second Year $188,886
Third Year $229,361
Fourth Year $269,837
</TABLE>
2. Miscellaneous. Oracle shall deliver to the Customer Location, for use in the
-------------
U.S., I copy of the software media ("Master Copy") and 3 sets of
Documentation (in the form generally available) for each Program currently
available in product release as of the Effective Date below for use on the
Network. Customer shall have the right to make up to I copy of the
Program(s), including Documentation, for each license of the Program(s) and
the Customer shall be responsible for installation of the software. All fees
under this Order Form shall be due and payable net 30 days from date of
invoice, and shall be non-cancellable and the sums paid nonrefundable.
Customer agrees to pay applicable sales/use tax, media and shipping charges.
If Customer loses or damages the media containing a Program licensed
hereunder; upon Customer's written notice Oracle will provide a replacement
copy thereof, under Oracle's then-current Technical Support policies, for a
media and shipping charge. The following shipping terms shall apply' FOB
Destination, Prepaid, and Add. These terms shall also apply to any options
exercised by Customer. Oracle may refer to Customer as a customer in sales
presentations, marketing vehicles and activities.
C. OTHER
1. Device Conversion. Until I year from the Effective Date and provided Customer
-----------------
has continuously maintained Technical Support, Customer shall have a onetime
right to exchange at no further charge to Customer all of the Full Use
Computer Licenses of Web Customer, or Web Customers and Application Server
licensed under Section A into Web Specific Processor Licenses of the Oracle8
Enterprise Edition licensed under Section A operating on the Designated
Systems specified in the Shipment Summary. If Customer elects this option
Customer shall exchange one (1) Full Use Computer License of Web Customers or
one (1) Full Use Computer License of Web Customers and four (4) Web Specific
Processor Licenses of Application Server under Section A of this Order
<PAGE>
Form for two (2) Web Specific Processor Licenses of the Oracle8 Enterprise
Edition licensed under Section A of this Order Form. If Customer elects this
Device Conversion option, Customer shall also exchange one (1) Development
Environment License of Web Customers or one (1) Development Environment
License of Web Customer and fifteen (15) Named Full Use Users of Application
Server licensed under Section A of this Order Form for two (2) Web Specific
Processor Licenses of the Oracle8 Enterprise Edition licensed under Section A
of this Order Form running on the Designated Systems as specified on the
Shipment Summary.
In order to elect this option, Customer shall notify Oracle in writing of the
election. Customer may exercise this conversion option on only one occasion
during the I-year option period.
Oracle shall have no shipment obligation under this Section. No refunds shall
be made to Customer. Oracle shall provide Silver Technical Support services
for the additional Processor Licenses acquired under this option as specified
in Section B.3 above.
3. Additional Designated Systems. Until 2 years from the Effective Date,
-----------------------------
Customer shall have the option to add 3 additional Designated System(s) types
("Additional Designated System{s)") to this Order Form at no charge, if: (i)
the Programs licensed herein are available in production release status on
the Additional Designated System at the time Customer elects to add the
Additional Designated System; and (ii) Customer has continuously maintained
Technical Support for such Programs.
Oracle shall ship to the Customer Location a single Master Copy of the
Programs licensed herein for the Additional Designated System added. These
Programs may only be copied and installed in accordance with the terms of
this Order Form; Oracle has no further shipment obligation other than as
specified above. Programs licensed herein for use on Additional Designated
System(s) may not be currently available. Customer has not relied on
potential availability in entering into the payment obligations in this Order
Form. Oracle is under no obligation to change current availability. Customer
and Oracle agree that the terms and pricing of this Order Form shall not be
disclosed without the prior written consent of the other party.
4. Year 2000. Oracle warrants that the production version of the Programs which
---------
are current at the time of an order will fully comply with the following
millennium compliance statement when configured and used according to the
documented instructions. The definition of compliance is the ability to:
1. correctly handle date information before, during and after I January 2000
accepting date input, providing date output and performing calculation on
dates or portions of dates;
2. function according to the Documentation, during and after I January 2000
without changes in operation resulting from the advent of the new century
assuming correct configuration;
3. where appropriate, respond to two digit date input in a way that resolves
the ambiguity as to century in a disclosed, defined and predetermined manner;
4. store and provide output of date information in ways that are unambiguous
as to century;
5. manage the leap year occurring in the year 2000, following the quad-
centennial rule.
Any breach of this warranty is subject to the exclusive remedies as set forth
in Section 5.3 of the Agreement.
<PAGE>
- --------------------------------------------------------------------------------
Customer and Oracle agree that the terms and pricing of the Order Form shall not
be disclosed without the prior written consent of the other party. This quote is
valid through February 23, 1999 and shall become binding upon execution by
Customer and acceptance by Oracle.
CHEMDEX CORPORATION ORACLE CORPORATION
Signature:/s/ David P. Perry Signature:_______________________
------------------------
Name:David P. Perry Name:____________________________
-----------------------------
Title:CEO Title:___________________________
----------------------------
Effective Date:2/22/99
-------------------
- --------------------------------------------------------------------------------
<PAGE>
SHIPMENT SUMMARY:
<TABLE>
<CAPTION>
PROGRAMS DESIGNATED SYSTEMS MEDIA TYPE
-------- ------------------ ----------
<S> <C> <C>
Oracle8 Enterprise Edition SUN SPARC./SOLARIS 2 CD
Application Server Enterprise Edition
Oracle Application Object Library
Oracle Express Server
Oracle Workflow Cartridge
Oracle Developer Server
Enterprise Developer Suite
Oracle Financials
Oracle Order Management
Oracle Purchasing
Oracle Projects
Oracle Web Customers
Oracle Financial Analyzer
Oracle8 Enterprise Edition PC COMPATIBLE/WINDOWS NT CD
Application Server Enterprise Edition
Oracle Application Object Library
Oracle Express Server
Oracle Workflow Cartridge
Oracle Developer Server
Enterprise Developer Suite
Oracle Financials
Oracle Order Management
Oracle Purchasing
Oracle Projects
Oracle Web Customers
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Oracle Financial Analyzer
Oracle Discoverer End User Edition
Oracle Discoverer Administration Edition
Oracle Discoverer End User Edition PC COMPATIBLE/WINDOWS 95 CD
Oracle Discoverer Administration Edition
PC COMPATIBLE/WINDOWS
Oracle Discoverer End User Edition CD
Oracle Discoverer Administration Edition
</TABLE>
<PAGE>
[LOGO]
SEPTEMBER 1998 PRICE LIST DEFINITIONS
"Concurrent Devices" (or "Concur Dev"): is the maximum number of input devices
accessing the Programs at any given point in time. If multiplexing software or
hardware (e.g. a TP monitor, webserver product) is used, this number must be
measured at the multiplexing front-end.
"Named User" (or "Named") or "Developer": is defined as an individual who is
authorized by Customer to use the Oracle Programs, regardless of whether the
individual is actively using Programs at any given time.
"Casual User" is defined as an individual authorized by the Customer to only run
queries or reports against Oracle Applications Programs. Casual Users are
licensed to use any of the above Oracle Applications Programs for which Customer
has acquired Named User licenses.
"Primary Usage" is defined as each licensed user being counted only once as a
designated Named or Casual User of the Oracle Application he will use most.
However, a licensed Named or Casual User may access all Oracle Applications
licensed under the Agreement which have been licensed under the same licensing
methodology, regardless of the designated Oracle Application of primary use.
"Mailbox" is defined as a point from which to send or receive electronic mail.
It is created when a user account or application is created in Oracle Office
"Computer": licensed for use on a single specified computer.
"Processor": shall be defined as the actual number of processors installed in
the licensed Computer and running the Oracle Programs. regardless of the number
of processors which the Computer is capable of running.
"Client": a computer which (1) is used by only one person at a time. and (2)
executes Oracle software in local memory or stores the software on a local
storage device.
"Full Use Programs" are unaltered versions of the Programs with all functions
intact.
"Deployment Programs" may be used only to execute existing applications or
reports. They may not be used to build or modify reports or applications.
Deployment Programs are to be generated by Customer from Full Use Programs.
"Application Specific Programs" (or "App Specific"): shall mean Programs which
are limited to use solely for Customer's application software defined on the
Order Form. Application Specific Programs are to be generated by Customer from
Full Use programs.
"Web Specific Program(s)" (or "Web Specific"): shall mean Program licenses which
may only be accessed by Clients via Interact networking protocols.
Notwithstanding any use restrictions in the Agreement or Oracle Program License
Terms. Customer's applications may only allow third party web access to a
licensed Web Specific Program for viewing, querying, or adding data only, so
long as such use is in accordance with the other terms of the Agreement.
For Oracle Human Resources and Oracle Training Administration, "Employee" is
defined as an individual who is actively managed by the Programs. The term
"Employee" includes, without limitation. Customer employees, contractors,
retirees, and COBRA dependents.
For Oracle Payroll. "Employee" is defined as an individual whose payment, or
payment calculations, are generated by the Programs. The term "Employee"
includes, without limitation, Customer employees, contractors, retirees, and
employees covered by workers compensation laws or regulations.
For Oracle Time Management, "Employee" is defined as an individual who submits
timecards or other time records for payroll processing.
For Oracle Self-Service Human Resources, Oracle Self-Service Purchasing, and
Oracle Self-Service Expenses, "Employee" is defined as an active employee of
Customer.
"Foundation Services": This is limited support, and any license for which it is
purchased is not a Supported Program License.
An "Education Unit" entitles Customer to acquire education products and services
as specified in the Oracle Education catalogue in effect at the time an
Education Unit is utilized. Education Units are only valid for 12 months from
the Effective Date of the Order or as specifically stated in the applicable
Order. Education Units may only be used in the country where the Education Units
were acquired or within the Territory defined in the applicable Order. Customer
may be required to execute standard Oracle ordering materials in conjunction
with utilizing Education Units.
"Organizational Change Management Services" are services for assisting Customers
in managing change in their organizations. Customer's discounts for consulting
or training do not apply to such Organizational Change Management Services.
A "Suite" consists of all the functional software components described in the
Documentation.
"Module": shall mean a functional software component of a Suite or bundle.
<PAGE>
[LOGO]
SOFTWARE LICENSE AND SERVICES AGREEMENT
This Software License and Service Agreement ("Agreement") is between Oracle
Corporation ("Oracle") and the Customer identified below. The terms of this
Agreement shall apply to each Program license granted and to all services
provided by Oracle under this Agreement, which will be identified on one or more
Order Forms.
I. DEFINITIONS
1.1. "Program" means the software in object code form distributed by Oracle for
which Customer is granted a license pursuant to this Agreement, and the
media, Documentation and Updates therefor.
1.2. "Documentation" means the user guides and manuals for installation and use
of the Program software. Documentation is provided in CD-ROM or bound form,
whichever is generally available.
1.3. "Update" means a subsequent release of the Program which Oracle generally
makes available for Program licenses at no additional license fee other
than media and handling charges, provided Customer has ordered Technical
Support for such licensee for the relevant time period. Update shall not
include any release, option or future product which Oracle licenses
separately.
1.4. "Order Form" means the document in hard copy or electronic form by which
Customer orders Program licenses and services, and which Is agreed to by
the parties. The Order Form shall reference the Effective Date of this
Agreement.
1.5. "Designated System" means the computer hardware and operating system
designated on the relevant Order Form.
1.6. "Technical Support" means Program support provided under Oracle's policies
in effect on the date Technical Support is ordered.
1.7. "Commencement Date" means the date on which the Programs are delivered by
Oracle to Customer, or if no delivery is necessary, the Effective Date set
forth on the relevant Order Form.
II. PROGRAM LICENSE
2.1. Rights Granted
A. Oracle grants to Customer a nonexclusive license to use the Programs
specified on an Order Form under this Agreement, as follows:
i. to use the Programs solely for Customer's operations on the
Designated System or on a backup system if the Designated System
is inoperative, consistent with the use :: limitations specified
or referenced in this Agreement, an Order Form, or the
Documentation, Customer may not relicense, rent or lease the
Programs or use the Programs for third-party training,
commercial time sharing or service bureau use;
ii. to use the Documentation provided with the Programs in support
of Customer's authorized use of the Programs;
iii. to copy the Programs for archival or backup purposes, and to
make a sufficient number of copies for the use specified in the
Order Form. All titles, trademarks, and copyright and restricted
rights notices shall be reproduced in such copies;
iv. to modify the Programs and combine them with other software
products; and
v. to allow third parties to use the Programs for Customer's
operations so long as Customer ensures that use of the Programs
is in accordance with the terms of this Agreement.
Customer shall not copy or use the Programs (including the
Documentation) except as specified in this Agreement or an Order Form.
Customer shell have no right to use any other software program that
may be delivered with ordered Programs.
B. Customer agrees not to cause or permit the reverse engineering,
disassembly or decompilation of the Programs, except to the extent
required to obtain interoperability with other independently created
software or as specified by law.
C. Oracle shall retain all title, copyright and other proprietary rights
In the Programs. Customer does not acquire any rights, express or
implied, in the Programs, other than those specified in this
Agreement.
2.2. Transfer and Assignment
A. Customer may transfer a Program license within its organization upon
notice to Oracle; transfers are subject to the terms and fees
specified in Oracle's transfer policy in effect at the time of the
transfer.
B. Customer may not assign this Agreement or transfer a Program License
to a legal entity separate from Customer without the prior written
consent of Oracle, Oracle shall not unreasonably withhold or delay
such consent.
<PAGE>
2.3. Verification
At Oracle's written request, not more frequently than annually, Customer
shall furnish Oracle with a signed certification verifying that the
Programs are being used pursuant to the provisions of this Agreement and
applicable Order Forms.
Oracle may audit Customer's use of the Programs. Any such audit shall be
conducted during regular business hours at Customer's facilities and shall
not unreasonably interfere with Customer's business activities. If an audit
reveals that Customer has underpaid fees to Oracle, Customer shall be
invoiced for such underpaid fees. Audits shall be conducted no more than
once annually.
III. TECHNICAL SERVICES
3.1. Technical Support Services
Technical Support services ordered by Customer will be provided under
Oracle's Technical Support policies in effect on the date Technical Support
is ordered.
3.2. Consulting and Training Services
Oracle will provide consulting and training services agreed to by the
parties under the terms of this Agreement. All consulting services shall be
billed on a time and materials basis unless the parties expressly agree
otherwise in writing.
3.3. Incidental Expenses
For any on-site services requested by Customer, Customer shall reimburse
Oracle for actual, reasonable travel and out-of-pocket expenses incurred.
IV. TERM AND TERMINATION
4.1. Term
If not otherwise specified on the Order Form, this Agreement and each
Program license granted under this Agreement shall continue perpetually
unless terminated under this Article IV.
4.2. Termination by Customer
Customer may terminate any Program license at any time; however,
termination shall not relieve Customer's obligations specified in Section
4.4.
4.3. Termination by Oracle
Oracle may terminate this Agreement or any license upon written notice if
Customer materially breaches this Agreement and fails to correct the breach
within 30 days following written notice specifying the breach.
4.4. Effect of Termination
Termination of this Agreement or any license shall not limit either party
from pursuing other remedies available to it, including injunctive relief,
nor shall such termination relieve Customer's obligation to pay all fees
that have accrued or are otherwise owed by Customer under any Order Form.
The parties' rights and obligations under Sections 2.1.B, 2.1.C, and 2.2.B,
and Articles IV, V, VI and VII shall survive termination of this Agreement.
Upon termination, Customer shall cease using, and shall return or destroy,
any copies of the applicable Programs.
V. INDEMNITY, WARRANTIES, REMEDIES
5.1. Infringement Indemnity
Oracle will defend and indemnify Customer against a claim that the Programs
infringe a copyright or patent or other intellectual property right,
provided that: (a) Customer notifies Oracle in writing within 30 clays of
the claim; (b) Oracle has sole control of the defense and all related
settlement negotiations; and (c) Customer provides Oracle with the
assistance, information and authority necessary to perform Oracle's
obligations under this Section. Oracle will reimburse Customer's reasonable
out-of- pocket expenses incurred in providing such assistance. Oracle shall
have no liability for any claim of infringement based on use of &
superseded or altered release of Programs If the infringement would have
been avoided by the use of a current unaltered release of the Programs
which Oracle provides to Customer.
If the Programs are held or are believed by Oracle to infringe, Oracle
shall have the option, at its expense, to (a) modify the Programs to be
noninfringing; or (b) obtain for Customer a license to continue using the
Programs. If it is not commercially reasonable to perform either of the
above options, then Oracle may terminate the license for the infringing
Programs and refund the license fees paid for those Programs. This Section
5.1 states Oracle's entire liability and Customer's exclusive remedy for
infringement.
5.2. Warranties and Disclaimers
A. Program Warranty
Oracle warrants for a period of one year from the Commencement Date that
each unmodified Program license will perform the functions described in
the Documentation.
B. Media Warranty
Oracle warrants the tapes, diskettes or other media to be free of
defects in materials and workmanship under normal use for 90 days from
the Commencement Date.
C. Services Warranty
Oracle warrants that its Technical Support, training and consulting
services will be performed consistent with generally accepted industry
standards. This warranty shall be valid for 90 clays from performance of
service.
D. Disclaimers
THE WARRANTIES ABOVE ARE EXCLUSIVE AND IN LIEU OF ALL OTHER WARRANTIES,
WHETHER EXPRESS OR IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABlLITY AND FITNESS FOR A PARTICULAR PURPOSE.
<PAGE>
Oracle does not warrant that the Programs will operate in combinations
other than as specified In the Documentation or that the operation of
the Programs will be uninterrupted or error-free. Pre-production
releases of Programs and computer, based training products are
distributed "AS IS."
5.3. Exclusive Remedies
For any breach of the warranties contained in Section 5.2, Customer's
exclusive remedy and Oracle's entire liability, shall be:
A. For Programs
The correction of Program errors that cause breach of the warranty, or
if Oracle is unable to make the Program operate as warranted, Customer
shall be entitled to terminate the Program license and recover the fees
paid to Oracle for the Program license.
B. For Media
The replacement of defective media returned within 90 days of the
Commencement Date.
C. For Services
The reperformance of the services, or if Oracle is unable to perform
the services as warranted, Customer shall be entitled to recover the
fees paid to Oracle for the unsatisfactory services.
VI. PAYMENT PROVISIONS
6.1. Invoicing and Payment
All lees shall be due and payable 30 days from the invoice date. Any
amounts payable by Customer hereunder which remain unpaid after the due
date shall be subject to a late charge equal to 1.5% per month from the
clue date until such amount is paid. Customer agrees to pay applicable
media anti shipping charges, Customer shall issue a purchase order, or
alternative document acceptable to Oracle, on or before the Effective Date
of the applicable Order Form.
6.2. Taxes
The fees listed in this Agreement do not include taxes; if Oracle is
required to pay sales, use, property, value-added or other taxes based on
the licenses or services granted in this Agreement or on Customer's use off
Programs or services, then such taxes Shall be billed to and paid by
Customer. This Section shall not apply to taxes based on Oracle's income.
VII. GENERAL TERMS
7.1. Nondisclosure
By virtue of this Agreement, the parties may have access to information
that is confidential to one another ("Confidential Information").
Confidential Information shall be limited to the Programs, the terms and
pricing under this Agreement. and all information clearly identified as
confidential.
A party's Confidential Information shall not include information that: (a)
is or becomes a part of the public domain through no act or omission of the
other party; (b) was in the other party's lawful possession prior to the
disclosure and had not been obtained by the other party either directly or
Indirectly from the disclosing party; (c) is lawfully disclosed to the
other party by a third party without restriction on disclosure; or (d) is
independently developed by the other party. Customer Shall not disclose the
results of any benchmark tests of the Programs to any third party without
Oracle's prior written approval.
The parties agree to hold each other's Confidential Information in
confidence during the term of this Agreement and for a period of two years
after termination of this Agreement, The parties agree, unless required by
law, not to make each other's Confidential Information available in any
form to any third party for any purpose other than the implementation of
this Agreement. Each party agrees to take all reasonable steps to ensure
that Confidential Information is not disclosed or distributed by its
employees or agents in violation of the terms of this Agreement.
7.2. Governing Law
This Agreement, and all matters arising out of or relating to this
Agreement, shall be governed by the laws of the State of California.
7.3. Jurisdiction
Any legal action or proceeding relating to this Agreement shall be
instituted in a state or federal court in San Francisco or San Mateo
County, California. Oracle and Customer agree to submit to the jurisdiction
of, and agree that venue Is proper in, these courts in any such legal
action or proceeding.
7.4. Notice
All notices, including notices of address change, required to be sent
hereunder shall be in writing and shall be deemed to have been given when
mailed by first class mail to the first address listed in the relevant
Order Form (if to Customer) or to the Oracle address on the Order Form (if
to Oracle).
To expedite order processing, Customer agrees that Oracle may treat
documents faxed by Customer to Oracle as original documents; nevertheless,
either party may require the other to exchange original signed documents.
7.5. Limitation of Liability
In no event shall either party be liable for any indirect, Incidental,
special or consequential damages, or damages for loss of profits, revenue,
data or use, Incurred by either party or any third party, whether in an
action In contract or tort, even if the other party has been advised of the
possibility of such damages. Oracle's liability for damages hereunder shall
in no event exceed the amount of fees paid by Customer under this
Agreement, and if such damages
<PAGE>
result from Customer's use of the Program or services, such liability shell
be limited to fees paid for the relevant Program or services giving rise to
the liability.
The provisions of this Agreement allocate The risks between Oracle and
Customer. Oracle's pricing reflects this allocation of risk and the
limitation of liability specified herein.
7.6. Severability
If any provision of this Agreement is held to be invalid or unenforceable,
the remaining provisions of this Agreement will remain in full force.
7.7. Waiver
The waiver by either party of any default or breach of this Agreement shall
not constitute a waiver of any other or subsequent default or breach,
Except for actions for nonpayment or breach of Oracle's proprietary rights
in the Programs, no action, regardless of form, arising out of this
Agreement may be brought by either party more than two years after the
cause of action has accrued.
7.8. Export Administration
Customer agrees to comply fully with all relevant export laws and
regulations of the United States ("Export Laws") to assure that neither the
Programs nor any direct product Thereof are (1) exported, directly or
indirectly, in violation of Export Laws; or (2) are intended to be used for
any purposes prohibited by the Export Laws, including, without limitation,
nuclear, chemical, or biological weapons proliferation.
7.9. Entire Agreement
This Agreement constitutes the complete agreement between the parties and
supersedes all prior or contemporaneous agreements or representations,
written or oral, concerning the subject matter of this Agreement, This
Agreement may not be modified or amended except in a writing signed by a
duly authorized representative of each party;, no other act, document,
usage or custom shall be deemed to amend or modify this Agreement.
It is expressly agreed that the terms of this Agreement and any Order Form
shall supersede the terms in any Customer purchase order or other ordering
document. This Agreement shall also supersede all terms of any unsigned or
"shrinkwrap" license included in any package, media, or electronic version
of Oracle-furnished software and any such software shall be licensed under
the terms of this Agreement, provided that the use limitations contained in
an unsigned ordering document shell be effective for the specified
licenses.
The Effective Date of this Agreement shall be 2/2/99.
<TABLE>
<S> <C>
Executed by Customer: /s/ [SIGNATURE ILLEGIBLE]^^ Executed by Oracle Corporation:
---------------------------
Authorized Signature: /s/ [SIGNATURE ILLEGIBLE]^^ Authorized Signature: _______________________________
---------------------------
Name:____________________________________________ Name: _______________________________________________
Title:___________________________________________ Title:_______________________________________________
Address:_________________________________________ Address: 500 Oracle Parkway, Redwood City, CA
</TABLE>
Oracle is a registered trademark of Oracle Corporation
<PAGE>
June 23, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Commissioners:
We have read the statements made by Chemdex Corporation (the "Company") under
the caption "Change in Independent Accountants" included in its Registration
Statement on Form S-1 dated May 14, 1999 as amended, and we agree with such
statements concerning our Firm, except that we are not in a position to agree
or disagree with the Company's statements that (i) the change in independent
accountants was approved by the Company's Board of Directors and (ii) prior to
September 2, 1998, the Company had not consulted with Ernst & Young LLP on
items that involved its accounting principles or the form of audit opinion to
be issued on its financial statements.
Very truly yours,
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our report dated May 7, 1999
(except for Note 9, as to which the date is July 2, 1999) in Amendment No. 3 to
the Registration Statement (Form S-1 No. 333-78505) and the related Prospectus
of Chemdex Corporation.
Our audits also included the financial statement schedule of Chemdex
Corporation listed in Item 16(b). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
San Jose, California
July 2, 1999
The foregoing consent is in the form that will be signed upon the
effectiveness of the stock split as discussed in Note 9 to the financial
statements.
/s/ Ernst & Young LLP
San Jose, California
July 2, 1999
