<PAGE>
As filed with the Securities and Exchange Commission on July 20, 1999
Registration No. 333-78505
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
AMENDMENT NO. 4
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....... $94,875,000 $26,376
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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) $23,978 of this fee has been 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 20, 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
-----------
, 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......... 58
Principal Stockholders............. 61
Description of Capital Stock....... 64
Shares Eligible for Future Sale.... 67
Underwriters....................... 69
Legal Matters...................... 71
Experts............................ 71
Change in Independent Accountants.. 72
Additional Information............. 72
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. 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.
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, in terms of the number of suppliers and products available through
our service. We enable life sciences enterprises, such as biotechnology and
pharmaceutical companies and academic and research institutions, researchers
and suppliers to efficiently buy and sell research products through the Chemdex
Marketplace. The Chemdex Marketplace is a database of laboratory research
products that may be sold and purchased through 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, such as chemicals and equipment used in laboratory
experiments, from a database of approximately 225,000 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 estimated to be 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 1,994,132 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 1,896,848 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 16,745,593
outstanding shares of our preferred stock into 16,745,593 shares of 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 $30,056 $ 98,806
Working capital................................. 24,360 26,633 95,383
Total assets.................................... 32,636 50,600 119,350
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 45,830 114,580
</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 for damages to our customers or others caused by
our products we do not have insurance coverage for the costs of products lost
during shipment, product returns or uncollectable accounts receivable.
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. 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 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. 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 governmental
regulatory requirements have not been, or are not being, fully met by our
suppliers or by us directly. Negative publicity, fines and liabilities 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. We do not
maintain any reserve for potential liabilities resulting from government
regulation.
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."
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.
7
<PAGE>
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 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."
Our strategic relationship with VWR may lead to conflicts that could be
detrimental to us
Our strategic relationship with VWR may lead to conflicts that could be
detrimental to us. For example, we plan to provide the greatest number and
variety of products from the greatest number of suppliers possible; however,
our strategic relationship with VWR may deter other suppliers, particularly
those that compete directly with VWR products, from entering into agreements
with us. In addition, as noted above, our agreement with VWR is nonexclusive,
and it is possible that VWR could enter into similar relationships with one or
more of our competitors, or develop its own purchasing solution that would
compete with ours.
8
<PAGE>
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 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.
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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
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.
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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.
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
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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 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
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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.
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
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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;
. 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.
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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.
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.
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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.
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.
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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 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.
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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 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
18
<PAGE>
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."
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 approximately 97% 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 has no current specific plans for the
proceeds of this offering, other than the $30 million to be spent on working
capital as described above. 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 in April 1999;
. the sale of 399,892 shares of Series C Preferred Stock for $2.858 per
share 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 $1.02;
. 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;
. 1,573,176 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 68,103 136,852
Deferred compensation.......................... (5,492) (5,492) (5,492)
Notes receivable from stockholders............. (1,085) (1,085) (1,085)
Accumulated deficit............................ (15,701) (15,701) (15,701)
-------- -------- --------
Total stockholders' equity................... 27,866 45,830 114,580
-------- -------- --------
Total capitalization........................ $ 28,669 $ 46,633 $115,383
======== ======== ========
</TABLE>
22
<PAGE>
DILUTION
The pro forma net tangible book value of Chemdex as of March 31, 1999 was
$30.1 million, or $1.24 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 stock issuances and repurchases listed in the
capitalization section and 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 $98.9 million, or $3.11 per share. This represents an immediate
increase in pro forma net tangible book value of $1.87 per share to existing
stockholders and an immediate dilution of $6.89 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................................................. $1.24
Increase in pro forma net tangible book value per share
attributable to new investors............................ 1.87
-----
Pro forma net tangible book value per share after the
offering................................................... 3.11
------
Dilution per share to new investors......................... $ 6.89
======
</TABLE>
The following table summarizes as of March 31, 1999 on the pro forma basis
described above, after giving effect to the stock issuances and repurchases
listed in the Capitalization section and the conversion of convertible
preferred stock into common stock, 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% $ 61,857,420 45.2% $ 2.55
New investors................... 7,500,000 23.6 75,000,000 54.8 10.00
---------- ----- ------------ -----
Totals........................ 31,775,514 100.0% $136,857,420 100.0%
========== ===== ============ =====
</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 $1.02;
. 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
. 1,573,176 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
approximately 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, $2.2 million, $2.2 million,
$1.8 million and $.1 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 three 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.
Our net revenues for the three months ended June 30, 1999 are approximately
$2.8 million.
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 for the quarter ended March 31,
1999 was approximately 5.8%. 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 three
years, the estimated useful life of this intangible asset. The annual
amortization will be approximately $4.6 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 combination of our software with other software or
hardware, unauthorized changes to the software or network
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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. The failure of
these vendors to address their Year 2000 issues may require us to seek
alternative vendors or, if possible, to develop our own solutions. The time
and resources required to find alternative vendors and to transition our
systems could increase our costs of doing business, require us to allocate our
own resources away from our core business, and delay development of our own
technology and operations. 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
estimated to be 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 225,000 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 225,000 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
225,000 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. Subsequent to March
31, 1999, we have entered into agreements with an additional 32 enterprise
customers. Sales to Genentech researchers accounted for approximately 82% of
our total revenue for the quarter ended March 31, 1999. None of our customers,
other than Genentech, has contributed more than 10% of our total revenue for
the quarter ended March 31, 1999.
The following is a list of our enterprise customers that had used the
Chemdex Marketplace to purchase life sciences research products as of March
31, 1999:
<TABLE>
<S> <C>
CV Therapeutics Maxygen, Inc.
Elan Pharmaceuticals Phyton, Inc.
Eos Raven Biotechnologies
Genentech, Inc. Roche Bioscience
Harvard University Telik, Inc.
HemaSure, Inc. University of Illinois
Immune Complex Corporation VaxGen, 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 225,000 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 eleven 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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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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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 listed in the bullet
points below, 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. These
suppliers were chosen as they are a representative cross-section of our
suppliers that we believe may sell regulated products. 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, and we do not have
any current plans to do so. 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 have
identified approximately 14,000 products that may be regulated, and we are
currently evaluating these products. All of these regulated products will
either be removed from our database, or be 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.
45
<PAGE>
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")
. 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
46
<PAGE>
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.
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 currently plan to relocate our executive,
administration and operating offices to new facilities that have approximately
twice the square footage of our current 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.
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<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.
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
52
<PAGE>
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%.
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 $1.50 per share value for value at fiscal year-end or the fair market
value as determined by the Board of Directors on the date of exercise for
value realized, less the applicable exercise price per share, multiplied by
the number of shares
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<PAGE>
underlying these options. All options granted by the Board of Directors prior
to February 16, 1999 allowed for early exercise. The number of securities
underlying unexercised options in the "Unexercisable" column and the related
value of these securities at year end reflects this information as it relates
to options that although are exercisable, would if exercised result in the
ownership of common stock subject to repurchase at cost by Chemdex.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Shares Options at In-the-Money Options
Acquired on December 31, 1998 (#) at December 31, 1998 ($)
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 1,896,848 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. 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.
54
<PAGE>
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.
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.
55
<PAGE>
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 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
56
<PAGE>
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.
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.
57
<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 $.6994 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 $.6994 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.
All of the Series A Preferred Stock will convert into 2,795,650 shares of
common stock upon consummation of this public offering.
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.
All of the Series B Preferred Stock will convert into 8,649,992 shares of
common stock upon consummation of this public offering.
58
<PAGE>
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;
. 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.
All of the Series C Preferred Stock will convert into 5,299,951 shares of
common stock upon consummation of this public offering.
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
59
<PAGE>
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 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.
60
<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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<PAGE>
(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 1,994,132 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 1,994,132 shares of
common stock were outstanding, and up to 1,896,848 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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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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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 1,994,132 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, is
acting as a selected dealer in connection with the offering and will be the
sole distributor of shares of common stock over the Internet to its eligible
account holders.
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.
An entity affiliated with Volpe Brown Whelan & Company, LLC purchased a
total of 17,495 shares of Series C preferred stock of Chemdex, which are
convertible into 17,495 shares of common stock on the same terms as other
investors in the private placement, for a total purchase price of $100,001. An
Entity affiliated with BancBoston Robertson Stephens, Inc. purchased a total
of 16,620 shares of Series C preferred stock of Chemdex, which are convertible
into 16,620 shares of common stock on the same terms as other investors in the
private placement, for a total purchase price of $95,000. These entities have
agreed that they will not sell, transfer, assign or hypothecate their shares
for a period of one year from the date of this prospectus except to officers
or partners, but not to directors, of the underwriters and members of the
selling group or their officers or partners. Additional entities and
individuals affiliated with BancBoston Robertson Stephens, Inc. purchased a
total of 5,247 shares of Series C preferred stock which are convertible into
5,247 shares of common stock on the same terms as other investors in the
private placement, for a total purchase price of $30,000.
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.
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. 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, including 16,292 shares of common stock held by Mr. Suto.
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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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 on the financial statements for
such period. 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.
72
<PAGE>
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 , 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 19, 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 1,771,508 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......... 1,771,508 2,016,176
Pro forma adjustment to
reflect weighted-average
effect of the assumed
conversion of
convertible preferred
stock................... 8,181,046 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................ $.6994 2,795,650 2,695,550 2,795,650 2,795,650
Series A-1.............. $.6994 2,795,650 -- -- --
Series B................ $ 1.50 8,791,666 -- 8,649,992 8,649,992
Series B-1.............. $ 1.50 8,791,666 -- -- --
Series C................ $5.716 5,300,000 -- -- 4,900,059
Series C-1.............. $5.716 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 978,396 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 term of the agreement is two years.
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 the common stock of $13.9 million
will be allocated to the customer list and will be amortized into sales and
marketing expense over three 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............................................. $ 26,376
NASD filing fee.................................................. 9,988
Nasdaq National Market listing fee............................... 25,000
Printing and engraving expenses.................................. 225,000
Legal fees and expenses.......................................... 350,000
Accounting fees and expenses..................................... 325,000
Blue Sky qualification fees and expenses......................... 10,000
Transfer Agent and Registrar fees................................ 25,000
Miscellaneous fees and expenses.................................. 3,636
----------
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 consideration for and 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 in consideration for a
II-2
<PAGE>
consulting agreement. 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 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 valued at $13.9 million to VWR in consideration for the
Strategic Relationship Agreement and the transfer to Chemdex of information
concerning VWR customers. 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 June 30, 1999, Chemdex has granted stock options to purchase a
total 4,565,117 shares of common stock at exercise prices ranging from $.10
to $10.00 per share to a total of approximately 180 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.
27.1* Financial Data Schedule.
</TABLE>
- --------
*Previously filed.
+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 20, 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 20, 1999
____________________________________ Officer and Director
David P. Perry (Principal Executive
Officer)
* Chief Financial Officer and July 20, 1999
____________________________________ Assistant Secretary
James G. Stewart (Principal Financial and
Accounting Officer)
* Director July 20, 1999
____________________________________
Charles R. Burke
* Director July 20, 1999
____________________________________
Brook H. Byers
* Director July 20, 1999
____________________________________
Jonathan D. Callaghan
* Director July 20, 1999
____________________________________
Jerrold B. Harris
* Director July 20, 1999
____________________________________
S. Joshua Lewis
* Director July 20, 1999
____________________________________
John A. Pritzker
* Director July 20, 1999
____________________________________
Robert A. Swanson
* Director July 20, 1999
____________________________________
L. John Wilkerson
* Director July 20, 1999
____________________________________
Naomi O. Seligman
</TABLE>
*By: /s/ David P. Perry
---------------------------
David P. Perry
Attorney-in-fact
II-7
<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.
27.1* Financial Data Schedule.
</TABLE>
- --------
* Previously filed.
+Confidential treatment requested as to portions of this Exhibit.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CHEMDEX CORPORATION
The undersigned, David P. Perry and Jeffrey Y. Suto, hereby certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of Chemdex Corporation, a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on September 4, 1997.
3. The Certificate of Incorporation of this corporation shall be amended
and restated to read in full as follows:
ARTICLE I
The name of this corporation is Chemdex Corporation (the "Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1013 Centre Road, in the City of Wilmington, County of New Castle. The name
of its registered agent at such address is Corporation Service Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law.
ARTICLE IV
Upon the effective date of the filing of this Amended and Restated
Certificate of Incorporation, every two(2) shares of this corporation's
outstanding Common Stock and Preferred Stock shall be converted and
reconstituted into one(1) share of the like and class and series of the
corporation's capital stock from which such shares were converted (the "Stock
-----
Split"). The number of shares to be issued shall be rounded down to the nearest
- -----
whole share. No fractional shares shall be issued. Each holder of shares who
would otherwise be entitled to a fractional share shall receive from the Company
an amount of cash (rounded up to the nearest whole cent) equal to the product of
(a) such fraction, multiplied by (b) the fair market value of a share of the
like class and series of stock at the effective time of the Stock Split, as
determined in good faith by the Board of Directors. All share amounts and
amounts per share set forth in this Amended and Restated Certificate of
Incorporation have been appropriately adjusted to reflect the Stock Split.
<PAGE>
(A) Classes of Stock. The Corporation is authorized to issue two classes
----------------
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
------------ ---------------
The total number of shares which the Corporation is authorized to issue is
Eighty Nine Million Seventy Four Thousand Six Hundred Thirty-Three (89,074,633)
shares, each with a par value of $0.0002 per share. Fifty Million (50,000,000)
shares shall be Common Stock and Thirty Nine Million Seventy Four Thousand Six
Hundred Thirty Three (39,074,633) shares shall be Preferred Stock.
(B) Rights, Preferences and Restrictions of Preferred Stock. The Preferred
-------------------------------------------------------
Stock authorized by this Amended and Restated Certificate of Incorporation may
be issued from time to time in one or more series. Two Million Seven Hundred
Ninety-Five Thousand Six Hundred Fifty (2,795,650) shares of Preferred Stock
shall be designated "Series A Preferred Stock"; Two Million Seven Hundred
------------------------
Ninety-Five Thousand Six Hundred Fifty (2,795,650) shares of Preferred Stock
shall be designated "Series A-1 Preferred Stock"; Eight Million Seven Hundred
--------------------------
Ninety-One Thousand Six Hundred Sixty-Seven (8,791,667) shares of Preferred
Stock shall be designated "Series B Preferred Stock"; and Eight Million Seven
------------------------
Hundred Ninety-One Thousand Six Hundred Sixty-Seven (8,791,667) shares of
Preferred Stock shall be designated "Series B-1 Preferred Stock." Five Million
--------------------------
Three Hundred Thousand (5,300,000) shares of Preferred Stock shall be designated
"Series C Preferred Stock" Five Million Three Hundred Thousand (5,300,000)
------------------------
shares of Preferred Stock shall be designated "Series C-1 Preferred Stock." The
--------------------------
rights, preferences, privileges, and restrictions granted to and imposed on the
Series A, Series A-1, Series B, Series B-1, Series C and Series C-1 Preferred
Stock are as set forth below in this Article IV(B). The Board of Directors is
hereby authorized to fix or alter the rights, preferences, privileges and
restrictions granted to or imposed upon additional series of Preferred Stock,
and the number of shares constituting any such series and the designation
thereof, or of any of them.
Subject to compliance with applicable protective voting rights which have
been or may be granted to the Preferred Stock or series thereof in Certificates
of Designations or the Corporation's Certificate of Incorporation ("Protective
----------
Provisions"), but notwithstanding any other rights of the Preferred Stock or any
- ----------
series thereof, the rights, privileges, preferences and restrictions of any such
additional series may be subordinated to, pari passu with (including, without
---- -----
limitation, inclusion in provisions with respect to liquidation and acquisition
preferences, redemption and/or approval of matters by vote or written consent),
or senior to any of those of any present or future class or series of Preferred
or Common Stock. Subject to compliance with applicable Protective Provisions,
the Board of Directors is also authorized to increase or decrease the number of
shares of any series (other than the Series A, Series A-1, Series B, Series B-1,
Series C or Series C-1 Preferred Stock), prior or subsequent to the issue of
that series, but not below the number of shares of such series then outstanding.
In case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status which they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
1. Dividend Provisions. Subject to the rights of series of Preferred
-------------------
Stock which may from time to time come into existence, the holders of shares of
Series A, Series A-1, Series B, Series B-1, Series C or Series C-1 Preferred
Stock shall be entitled to receive dividends, out of any assets legally
available therefor, prior and in preference to any declaration or payment of any
dividend (payable other than in Common Stock or other securities and rights
convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock of the Corporation) on the Common
Stock of the Corporation, at the rate of (a) $0.063 per share per annum on each
outstanding share of Series A and Series A-1 Preferred Stock (adjusted to
reflect subsequent stock dividends, stock splits or recapitalizations), (b)
$0.135 per share per annum on each outstanding share of Series B and Series B-1
Preferred Stock (adjusted to reflect subsequent stock dividends, stock splits or
recapitalizations), and (c)
-2-
<PAGE>
$0.5144 per share per annum on each outstanding share of Series C and Series C-1
Preferred Stock (adjusted to reflect subsequent stock dividends, stock splits or
recapitalizations) payable quarterly when, as and if declared by the Board of
Directors. Such dividends shall not be cumulative. In the event dividends are
paid on any share of Common Stock, an additional dividend shall be paid with
respect to all outstanding shares of Preferred Stock in an amount equal per
share (on an as-if-converted to Common Stock basis) to the amount paid or set
aside for each share of Common Stock. The provisions of the foregoing sentence
shall not, however, apply to (i) a dividend payable in Common Stock, (ii) the
acquisition of shares of any securities that have rights and preferences that
are subordinated to those of the Preferred Stock in exchange for shares of any
other subordinate securities, or (iii) any repurchase of any outstanding
securities of the Company, in all of the above instances, that is approved by at
least two-thirds of the Corporation's Board of Directors.
2. Liquidation.
-----------
(a) Preference. In the event of any liquidation, dissolution or
----------
winding up of the Corporation, either voluntary or involuntary, subject to the
rights of series of Preferred Stock that may from time to time come into
existence, the holders of the Series A, Series A-1, Series B, Series B-1, Series
C and Series C-1 Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of the Corporation to the
holders of Common Stock by reason of their ownership thereof, an amount per
share equal to (i) $0.6993 per share for each share of Series A or Series A-1
Preferred Stock then held by them (adjusted to reflect subsequent stock
dividends, stock splits or recapitalizations), (ii) $1.50 per share for each
share of Series B or Series B-1 Preferred Stock then held by them (adjusted to
reflect subsequent stock dividends, stock splits or recapitalizations), and
(iii) $5.716 per share for each share of Series C and Series C-1 Preferred Stock
then held by them (adjusted to reflect subsequent stock dividends, stock splits
or recapitalizations) plus declared but unpaid dividends. If, upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the Series A, Series A-1, Series B, Series B-1, Series C and Series
C-1 Preferred Stock shall be insufficient to permit the payment to such holders
of the full aforesaid preferential amounts, then, subject to the rights of
series of Preferred Stock that may from time to time come into existence, the
entire assets and funds of the Corporation legally available for distribution
shall be distributed ratably among the holders of the Series A, Series A-1,
Series B, Series B-1, Series C and Series C-1 Preferred Stock in proportion to
the preferential amount each such holder is otherwise entitled to receive.
(b) Remaining Assets. Upon the completion of the distribution
----------------
required by Section 2(a) above and any other distribution that may be required
with respect to series of Preferred Stock that may from time to time come into
existence, the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among the holders of the Series A, Series A-1,
Series B, Series B-1, Series C and Series C-1 Preferred Stock and the Common
Stock pro rata based on the number of shares of Common Stock held by each
(assuming conversion of all such Series A, Series A-1, Series B, Series B-1,
Series C and Series C-1 Preferred Stock) until (i) with respect to the holders
of Series A and Series A-1 Preferred Stock, such holders shall have received an
aggregate of $1.74825 per share (including amounts paid pursuant to both Section
2(a) above and this Section 2(b)), (ii) with respect to the holders of Series B
and Series B-1 Preferred Stock, such holders shall have received an aggregate of
$3.75 per share (including amounts paid pursuant to both Section 2(a) above and
this Section 2(b)) and (iii) with respect to the holders of Series C and Series
C-1 Preferred Stock, such holders shall have received an aggregate of $14.29 per
share (including amounts paid pursuant to both Section 2(a) above and this
Section 2(b)); thereafter, subject to the rights of series of Preferred Stock
that may from time to time come into existence, if assets remain in the
Corporation, the holders of the Common Stock of the
-3-
<PAGE>
Corporation shall receive all of the remaining assets of the Corporation pro
rata based on the number of shares of Common Stock held by each.
(c) Certain Acquisitions.
--------------------
(i) Deemed Liquidation. For purposes of this Section 2,
------------------
a liquidation, dissolution or winding up of the Corporation shall be deemed to
occur if the Corporation shall sell, convey, or otherwise dispose of or encumber
all or substantially all of its property or business or merge into or
consolidate with any other corporation (other than a wholly-owned subsidiary
corporation) or effect any other transaction or series of related transactions
in which more than fifty percent (50%) of the voting power of the Corporation is
disposed of, provided that this Section 2(c)(i) shall not apply to a merger
--------
effected exclusively for the purpose of changing the domicile of the
Corporation.
(ii) Valuation of Consideration. In the event of a deemed
--------------------------
liquidation as described in Section 2(c)(i) above, if the consideration received
by the Corporation is other than cash, its value will be deemed its fair market
value. Any securities shall be valued as follows:
(A) Securities not subject to investment letter or
other similar restrictions on free marketability:
(1) If traded on a securities exchange or
The Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty-day period
ending three (3) days prior to the closing:
(2) If actively traded over-the-counter, the
value shall be deemed to be the average of the closing bid or sale prices
(whichever is applicable) over the thirty-day period ending three (3) days prior
to the closing; and
(3) If there is no active public market, the
value shall be the fair market value thereof, as mutually determined by the
Corporation and the holders of at least a majority of the voting power of all
then outstanding shares of Preferred Stock.
(B) The method of valuation of securities subject
to investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in Section 2(c)(ii)(A) to reflect the approximate fair
market value thereof, as mutually determined by the Corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
Preferred Stock.
(iii) Notice of Transaction. The Corporation shall give
---------------------
each holder of record of Series A, Series A-1, Series B, Series B-1, Series C or
Series C-1 Preferred Stock written notice of such impending transaction not
later than ten (10) days prior to the stockholders' meeting called to approve
such transaction, or ten (10) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 2, and the Corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than ten (10) days after the Corporation has given the first notice
provided for herein or sooner than ten (10) days after the Corporation has given
notice of any material changes provided for herein; provided, however, that such
periods may be
-4-
<PAGE>
shortened upon the written consent of the holders of Preferred Stock that are
entitled to such notice rights or similar notice rights and that represent at
least a majority of the voting power of all then outstanding shares of such
Preferred Stock.
(iv) Effect of Noncompliance. In the event the
-----------------------
requirements of this Section 2(c) are not complied with, the Corporation shall
forthwith either cause the closing of the transaction to be postponed until such
requirements have been complied with, or cancel such transaction, in which event
the rights, preferences and privileges of the holders of the Series A, Series A-
1, Series B, Series B-1, Series C and Series C-1 Preferred Stock shall revert to
and be the same as such rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in Section 2(c)(iii) hereof.
3. Redemption. The Preferred Stock is not redeemable.
----------
4. Conversion. The holders of the Series A, Series A-1, Series
----------
B, Series B-1, Series C and Series C-1 Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):
-----------------
(a) Right to Convert. Subject to Section 4(c), each share
----------------
of Series A, Series B, Series B-1, Series C and Series C-1 Preferred Stock shall
be convertible, at the option of the holder thereof, at any time after the date
of issuance of such share, at the office of the Corporation or any transfer
agent for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing (i) $0.6993 in the case of the Series
A and Series A-1 Preferred Stock (as adjusted to reflect subsequent stock
dividends, stock splits or recapitalizations), (ii) $1.50 in the case of the
Series B and Series B-1 Preferred Stock (adjusted to reflect subsequent stock
dividends, stock splits or recapitalizations), and (iii) $5.716 in the case of
the Series C and Series C-1 Preferred Stock (adjusted to reflect subsequent
stock dividends, stock splits or recapitalizations), by the Conversion Price
applicable to such share, determined as hereafter provided, in effect on the
date the certificate is surrendered for conversion. The initial Conversion Price
per share shall be $0.6993 for shares of Series A Preferred Stock, $1.50 for
shares of Series B Preferred Stock and $5.716 for shares of Series C Preferred
Stock. The initial Conversion Price per share of Series A-1, Series B-1 or
Series C-1 Preferred Stock shall be determined in accordance with Section
4(d)(i)(B) below. Such initial Conversion Prices shall be subject to adjustment
as set forth in Section 4(d) below.
(b) Automatic Conversion. Each share of Series A, Series
--------------------
A-1, Series B, Series B-1, Series C or Series C-1 Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such share immediately upon, except as provided below
in Section 4(c), the Corporation's sale of its Common Stock in a firm commitment
underwritten public offering pursuant to a registration statement under the
Securities Act of 1933, as amended (the "Securities Act", the public offering
--------------
price of which is not less than $7.50 per share (appropriately adjusted for any
stock split, dividend, combination or other recapitalization) and which results
in gross aggregate cash proceeds to the Corporation and any selling stockholders
of $20,000,000. Each share of Series A and Series A-1 Preferred Stock shall
automatically be converted into shares of Common Stock at any time upon the
affirmative election of the holders of at least a majority of the outstanding
shares of the Series A and Series A-1 Preferred Stock, voting together as a
class. Each share of Series B and Series B-1 Preferred Stock shall automatically
be converted into shares of Common Stock at any time upon the affirmative
election of the holders of at least 66-2/3% of the outstanding shares of the
Series B and Series B-1 Preferred Stock, voting together as a class. Each share
of Series C and Series C-1 Preferred Stock shall automatically be converted into
shares of Common Stock at any time
-5-
<PAGE>
upon the affirmative election of the holders of at least 60% of the outstanding
shares of the Series C and Series C-1 Preferred Stock, voting together as a
class. Upon any automatic conversion, any declared and unpaid dividends shall be
paid in accordance with the provisions of Section 1.
(c) Mechanics of Conversion. Before any holder of Series A,
-----------------------
Series A-1, Series B, Series B-1, Series C or Series C-1 Preferred Stock shall
be entitled to convert the same into shares of Common Stock, he shall surrender
the certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for such series of Preferred Stock, and
shall give written notice to the Corporation at its principal corporate office,
of the election to convert the same and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Preferred Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of such series of Preferred
Stock to be converted, and the person or persons entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock as of such date.
If the conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act the conversion may, at the option of
any holder tendering such Preferred Stock for conversion, be conditioned upon
the closing with the underwriters of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive Common Stock upon
conversion of such Preferred Stock shall not be deemed to have converted such
Preferred Stock until immediately prior to the closing of such sale of
securities.
(d) Conversion Price Adjustments of Preferred Stock for Certain
-----------------------------------------------------------
Dilutive Issuances, Splits and Combinations. The Conversion Price of the Series
- -------------------------------------------
A, Series A-1, Series B, Series B-1, Series C and Series C-1 Preferred Stock
shall be subject to adjustment from time to time as follows:
(i) Issuance of Additional Stock below Purchase Price. If
-------------------------------------------------
the Corporation shall issue, after the date upon which any shares of Series A,
Series B or Series C Preferred Stock were first issued (the "Purchase Date" with
-------------
respect to such series), any Additional Stock (as defined below) without
consideration or for a consideration per share less than the Conversion Price
for such series in effect immediately prior to the issuance of such Additional
Stock, the Conversion Price for such series in effect immediately prior to each
such issuance shall automatically be adjusted as set forth in this Section 4(d)
(i), unless otherwise provided in this Section 4(d)(i).
(A) Adjustment Formula. Whenever the Conversion Price
------------------
is adjusted pursuant to this Section (4)(d)(i), the new Conversion Price shall
be determined by multiplying the Conversion Price then in effect by a fraction,
(x) the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issuance (the "Outstanding Common") plus
------------------
the number of shares of Common Stock that the aggregate consideration received
by the Corporation for such issuance would purchase at such Conversion Price;
and (y) the denominator of which shall be the number of shares of Outstanding
Common plus the number of shares of such Additional Stock. For purposes of the
foregoing calculation, the term "Outstanding Common" shall include shares of
Common Stock issuable upon conversion of all outstanding Preferred Stock.
(B) Definition of "Additional Stock". For purposes of
--------------------------------
this Section 4(d)(i), "Additional Stock" shall mean any shares of Common Stock
----------------
issued (or deemed to have
-6-
<PAGE>
been issued pursuant to Section 4(d)(i)(F)) by the Corporation after the
Purchase Date for the Series C Preferred Stock) other than
(1) Common Stock issued pursuant to a transaction
described in Section 4(d)(ii) hereof,
(2) Up to 6,125,000 shares of Common Stock issuable or
issued to employees, consultants or directors of the Corporation directly or
pursuant to a stock option plan or restricted stock plan approved by at least
two-thirds of the Board of Directors of the Corporation or a committee of the
Board of Directors that has been authorized by at least two-thirds of the Board
of Directors, including all issuances made since the date of incorporation of
the Corporation,
(3) Capital stock, or options or warrants to purchase
capital stock, issued to financial institutions or lessors in connection with
commercial credit arrangements, equipment financings or similar transactions
approved by at least two-thirds of the Board of Directors of the Corporation or
a committee of the Board of Directors that has been authorized by at least two-
thirds of the Board of Directors,
(4) Shares of Common Stock or Preferred Stock issuable
upon exercise of warrants outstanding as of the date of this Amended and
Restated Certificate of Incorporation,
(5) Capital stock or warrants or options to purchase
capital stock issued in connection with bona fide acquisitions, mergers or
similar transactions, the terms of which are approved by at least two-thirds of
the Board of Directors of the Corporation or a committee of the Board of
Directors that has been authorized by at least two-thirds of the Board of
Directors,
(6) Shares of Common Stock issued or issuable upon
conversion of the Series A, Series A-1, Series B, Series B-1, Series C or Series
C-1 Preferred Stock,
(7) Shares of Common Stock issued or issuable in a
public offering prior to or in connection with which all outstanding shares of
Series A, Series A-1, Series B, Series B-1, Series C and Series C-1 Preferred
Stock will be converted to Common Stock,
(8) Shares of Common Stock issued or issuable to VWR
Scientific Products Corporation pursuant to that certain Common Stock Purchase
Agreement dated March 5, 1999, and
(9) Up to 187,500 shares of Common Stock issued or
issuable to Biotechnology Industry Organization.
(C) Conversion Price of Series A-1, Series B-1 and Series
-----------------------------------------------------
C-1 Preferred Stock. From and after such time as any share of Series A-1
- -------------------
Preferred Stock is issued and outstanding, the Conversion Price for the Series
A-1 Preferred Stock shall be the Series A Conversion Price in effect immediately
prior to such issuance and shall not thereafter be subject to adjustment
pursuant to Section 4(d)(i)(A). From and after such time as any share of Series
B-1 Preferred Stock is issued and outstanding, the Conversion Price for the
Series B-1 Preferred Stock shall be the Series B Conversion Price in effect
immediately prior to such issuance and shall not thereafter be subject to
adjustment pursuant to Section 4(d)(i)(A). From and after such time as any share
of Series C-1 Preferred Stock is issued and outstanding, the Conversion Price
for the Series C-1 Preferred Stock shall be the
-7-
<PAGE>
Series C Conversion Price in effect immediately prior to such issuance and shall
not thereafter be subject to adjustment pursuant to Section 4(d)(i)(A).
(D) No Fractional Adjustments. No adjustment of the
-------------------------
Conversion Price for the Series A, Series A-1, Series B, Series B-1, Series C or
Series C-1 Preferred Stock shall be made in an amount less than one cent per
share, provided that any adjustments which are not required to be made by reason
of this sentence shall be carried forward and shall be either taken into account
in any subsequent adjustment made prior to three years from the date of the
event giving rise to the adjustment being carried forward, or shall be made at
the end of three years from the date of the event giving rise to the adjustment
being carried forward.
(E) Determination of Consideration. In the case of the
------------------------------
issuance of Common Stock for cash, the consideration shall be deemed to be the
amount of cash paid therefor before deducting any reasonable discounts,
commissions or other expenses allowed, paid or incurred by the Corporation for
any underwriting or otherwise in connection with the issuance and sale thereof.
In the case of the issuance of the Common Stock for a consideration in whole or
in part other than cash, the consideration other than cash shall be deemed to be
the fair value thereof as determined by the Board of Directors irrespective of
any accounting treatment.
(F) Deemed Issuances of Common Stock. In the case of the
--------------------------------
issuance (whether before, on or after the applicable Purchase Date) of options
to purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options to purchase or
rights to subscribe for such convertible or exchangeable securities, the
following provisions shall apply for all purposes of this Section 4(d)(i):
(1) The aggregate maximum number of shares of Common
Stock deliverable upon exercise (assuming the satisfaction of any conditions to
exercisability, including without limitation, the passage of time, but without
taking into account potential antidilution adjustments) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been
issued at the time such options or rights were issued and for a consideration
equal to the consideration (determined in the manner provided in Sections
4(d)(i)(E) if any, received by the Corporation upon the issuance of such options
or rights plus the minimum exercise price provided in such options or rights
(without taking into account potential antidilution adjustments) for the Common
Stock covered thereby.
(2) The aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange (assuming the satisfaction
of any conditions to convertibility or exchangeability, including, without
limitation, the passage of time, but without taking into account potential
antidilution adjustments) for any such convertible or exchangeable securities or
upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal to
the consideration, if any, received by the Corporation for any such securities
and related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional consideration, if
any, to be received by the Corporation (without taking into account potential
antidilution adjustments) upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in each case to
be determined in the manner provided in Sections 4(d)(i)(E)).
-8-
<PAGE>
(3) In the event of any change in the number of shares of
Common Stock deliverable or in the consideration payable to the Corporation upon
exercise of such options or rights or upon conversion of or in exchange for such
convertible or exchangeable securities, including, but not limited to, a change
resulting from the antidilution provisions thereof, the Conversion Price of each
of the Series A, Series A-1, Series B, Series B-1, Series C and Series C-1
Preferred Stock, to the extent in any way affected by or computed using such
options, rights or securities, shall be recomputed to reflect such change, but
no further adjustment shall be made for the actual issuance of Common Stock or
any payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.
(4) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Conversion Price of each of the Series A, Series A-1, Series B, Series B-1,
Series C and Series C-1 Preferred Stock, to the extent in any way affected by or
computed using such options, rights or securities or options or rights related
to such securities, shall be recomputed to reflect the issuance of only the
number of shares of Common Stock (and convertible or exchangeable securities
which remain in effect) actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities or upon the exercise
of the options or rights related to such securities.
(5) The number of shares of Common Stock deemed issued and
the consideration deemed paid therefor pursuant to Sections 4(d)(i)(F)(1) and
4(d)(i)(F)(2) shall be appropriately adjusted to reflect any change, termination
or expiration of the type described in either Section 4(d)i)(F)(3) or
4(d)(i)(F)(4).
(G) No Increased Conversion Price. Notwithstanding any other
-----------------------------
provisions of this Section (4)(d)(i), except to the limited extent provided for
in Sections 4(d)(i)(F)(3) and 4(d)(i)(F)(4), no adjustment of the Conversion
Price pursuant to this Section 4(d)(i) shall have the effect of increasing the
Conversion Price above the Conversion Price in effect immediately prior to such
adjustment.
(ii) Stock Splits and Dividends. In the event the Corporation should
--------------------------
at any time or from time to time after the Purchase Date fix a record date for
the effectuation of a split or subdivision of the outstanding shares of Common
Stock or the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
---------------------------
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of each of the Series A, Series A-1, Series B, Series B-1,
Series C and Series C-1 Preferred Stock shall be appropriately decreased so
that the number of shares of Common Stock issuable on conversion of each share
of such series shall be increased in proportion to such increase of the
aggregate of shares of Common Stock outstanding and those issuable with respect
to such Common Stock Equivalents with the number of shares issuable with respect
to Common Stock Equivalents determined from time to time in the manner provided
for deemed issuances in Section 4(d)(i)(F).
-9-
<PAGE>
(iii) Reverse Stock Splits. If the number of shares of Common
--------------------
Stock outstanding at any time after the Purchase Date is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price for each of the Series A,
Series A-1, Series B, Series B-1, Series C and Series C-1 Preferred Stock shall
be appropriately increased so that the number of shares of Common Stock issuable
on conversion of each share of such series shall be decreased in proportion to
such decrease in outstanding shares.
(e) Other Distributions. In the event the Corporation shall declare a
-------------------
distribution payable in securities of other persons, evidences of indebtedness
issued by the Corporation or other persons, assets (excluding cash dividends)
or options or rights not referred to in Section 4(d)(ii), then, in each such
case for the purpose of this Section 4(e), the holders of Series A, Series A-1,
Series B, Series B-1, Series C and Series C-1 Preferred Stock shall be entitled
to a proportionate share of any such distribution as though they were the
holders of the number of shares of Common Stock of the Corporation into which
their shares of Preferred Stock are convertible as of the record date fixed for
the determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
(f) Recapitalizations. If at any time or from time to time there
-----------------
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Section 4 or Section 2) provision shall be made so that the holders of the
Series A, Series A-1, Series B, Series B-1, Series C and Series C-1 Preferred
Stock shall thereafter be entitled to receive upon conversion of such Preferred
Stock the number of shares of stock or other securities or property of the
Corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4 with respect to the rights of the holders of such Preferred Stock
after the recapitalization to the end that the provisions of this Section 4
(including adjustment of the Conversion Price then in effect and the number of
shares purchasable upon conversion of such Preferred Stock) shall be applicable
after that event and be as nearly equivalent as practicable.
(g) No Impairment. Without the consent of the holders of the then
-------------
outstanding Preferred Stock as required under Section 6 below, the Corporation
will not, by amendment of its Certificate of Incorporation or through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Corporation, but will at all times in good faith
assist in the carrying out of all the provisions of this Section 4 and in the
taking of all such action as may be necessary or appropriate in order to protect
the Conversion Rights of the holders of Preferred Stock against impairment.
-10-
<PAGE>
(h) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon the conversion
of any share or shares of the Series A, Series A-1, Series B, Series B-1, Series
C or, Series C-1 Preferred Stock, and the number of shares of Common Stock to be
issued shall be rounded to the nearest whole share. The number of shares
issuable upon such conversion shall be determined on the basis of the total
number of shares of Series A, Series A-1, Series B, Series B-1, Series C or
Series C-1 Preferred Stock the holder is at the time converting into Common
Stock and the number of shares of Common Stock issuable upon such aggregate
conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Conversion Price of Series A, Series A-1, Series B, Series B-1, Series C or
Series C-1 Preferred Stock pursuant to this Section 4, the Corporation, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of such Preferred
Stock a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of Series
A, Series A-1, Series B, Series B-1, Series C or Series C-1 Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting forth
(A) such adjustment and readjustment, (B) the Conversion Price for such series
of Preferred Stock at the time in effect, and (C) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of a share of such series of Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the
----------------------
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Series A, Series A-1, Series B, Series B-1, Series
C or Series C-1 Preferred Stock, at least ten (10) days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or right, and the amount
and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The Corporation
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A, Series A-1, Series B, Series B-1, Series C and
Series C-1 Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of such series of Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the coversion of all then outstanding shares of such series of Preferred Stock,
in addition to such other remedies as shall be available to the holder of such
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes, including, without limitation, engaging in best efforts to obtain the
requisite stockholder approval of any necessary amendment to this Certificate.
(k) Notices. Any notice required by the provisions of this Section 4
-------
to be given to the holders of shares of Series A, Series A-1, Series B, Series
B-1, Series C or Series C-1 Preferred Stock shall be deemed given if deposited
in the United States mail, postage prepaid, and addressed to each holder of
record at his address appearing on the books of the Corporation.
-11-
<PAGE>
5. Voting Rights. The holder of each share of Series A, Series A-1,
-------------
Series B, Series B-1, Series C or Series C-1 Preferred Stock shall have the
right to one vote for each share of Common Stock into which such Preferred
Stock could then be converted, and with respect to such vote, such holder shall
have full voting rights and powers equal to the voting rights and powers of the
holders of Common Stock, and shall be entitled, notwithstanding any provision
hereof, to notice of any stockholders' meeting in accordance with the bylaws of
the Corporation, and shall be entitled to vote, together with holders of Common
Stock, with respect to any question upon which holders of Common Stock have the
right to vote. Fractional votes shall not, however, be permitted and any
fractional voting rights available on an as-converted basis (after aggregating
all shares into which shares of Series A, Series A-1, Series B, Series B-1,
Series C or Series C-1 Preferred Stock held by each holder could be converted)
shall be rounded to the nearest whole number (with one-half being rounded
upward). The holders of Series C and Series C-1 Preferred Stock, voting as a
separate class, shall be entitled to elect one (1) member of the Company's Board
of Directors at each meeting or pursuant to each consent of the Company's
stockholders for the election of directors, and to remove from office such
director and to fill any vacancy caused by the resignation, death or removal of
such director. The holders of Series B and Series B-1 Preferred Stock, voting as
a separate class, shall be entitled to elect two (2) members of the Company's
Board of Directors at each meeting or pursuant to each consent of the Company's
stockholders for the election of directors, and to remove from office such
directors and to fill any vacancy caused by the resignation, death or removal of
such directors. The holders of Series A and Series A-1 Preferred Stock, voting
as a separate class, shall be entitled to elect two (2) members of the Company's
Board of Directors at each meeting or pursuant to each consent of the Company's
stockholders for the election of directors, and to remove from office such
directors and to fill any vacancy caused by the resignation, death or removal of
such directors. The holders of Common Stock and Preferred Stock, voting together
as a single class on an as-converted basis, shall be entitled to elect all
remaining members of the Board of Directors at each meeting or pursuant to each
consent of the Company's stockholders for the election of directors, and to
remove from office such directors and to fill any vacancy caused by the
resignation, death or removal of such directors.
6. Protective Provisions. Subject to the rights of series of
---------------------
Preferred Stock which may from time to time come into existence, so long as any
share of Preferred Stock is outstanding (as adjusted for stock splits, stock
dividends or recapitalizations), the Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of Preferred
Stock, voting together as a class:
(a) effect a transaction described in Section 2(c)(i);
(b) alter or change the rights, preferences or privileges of the
shares of Series A, Series A-1, Series B, Series B-1, Series C or Series C-1
Preferred Stock so as to affect adversely the shares of such series; provided,
that in the case of an adverse effect on the Series A Preferred Stock, such vote
shall also require the vote of at least a majority of the Series A Preferred
Stock; in the case of an adverse effect on the Series B Preferred Stock, such
vote shall also require the vote of at least 66-2/3% of the Series B Preferred
Stock; in the case of an adverse effect on the Series C Preferred Stock, such
vote shall also require the vote of at least 60% of the Series C Preferred
Stock;
(c) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series A, Series A-1,
Series B, Series B-1, Series C or Series C-1 Preferred Stock;
-12-
<PAGE>
(d) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security, having a preference over, or being on a parity with,
the Series A, Series A-1, Series B, Series B-1, Series C or Series C-1 Preferred
Stock with respect to voting, dividends, conversion or upon liquidation, except
for shares of Preferred Stock authorized or issued pursuant to Section 8(c)
below;
(e) redeem, purchase or otherwise acquire (or pay into or set
aside funds for a sinking fund for such purpose) any share or shares of
Preferred Stock or Common Stock; provided, however, that this restriction shall
-------- -------
not apply to the repurchase of shares of Common Stock from employees, officers,
directors, consultants or other persons performing services for the Corporation
or any subsidiary pursuant to agreements approved by the Board of Directors
under which the Corporation has the option to repurchase such shares at cost
upon the occurrence of certain events, such as the termination of employment, or
through the exercise of any right of first refusal;
(f) amend the Certificate of Incorporation or Bylaws of the
Corporation;
(g) license or transfer all or substantially all of the
Corporation's assets to a third party; or
(h) increase the authorized number of the Board of Directors of
the Corporation.
7. Status of Converted Stock. In the event any shares of Preferred
-------------------------
Stock shall be converted pursuant to Section 4 hereof, the shares so converted
shall be canceled and shall not be issuable by the Corporation. The Certificate
of Incorporation of the Corporation shall be appropriately amended to effect the
corresponding reduction in the Corporation's authorized capital.
8. Special Mandatory Conversion.
----------------------------
(a) At any time following the Purchase Date, if (i) any holder
of shares of Series A, Series B or Series C Preferred Stock is entitled to
exercise the right of first refusal (the "Right of First Refusal") as set forth
----------------------
in Section 2.1 of that certain Amended and Restated Investors' Rights Agreement
among the Corporation and the holders of the Series A, Series B and Series C
Preferred Stock, as such agreement may from time to time be amended (the
"Agreement") with respect to an equity financing of the Corporation at a price
---------
per share which is less than the original issue price for the Series A Preferred
Stock or the Series B Preferred Stock or the Series C Preferred Stock (each as
adjusted for stock dividends, stock spilts, subdivisions or stock combinations)
(an "Equity Financing"), (ii) the Corporation has complied with its obligations
----------------
under the Agreement with respect to the Right of First Refusal, and (iii) such
holder does not by exercise of such holder's Right of First Refusal acquire the
amount of securities offered in such Equity Financing to which such holder is
entitled pursuant to Section 2.1(b) of the Agreement (a "Non Participating
Holder"), then effective immediately prior to the consummation of such Equity
Financing, each Non Participating Holder's shares of Series A Preferred Stock
shall automatically and without further action on the part of such holder be
converted into an equivalent number of shares of Series A-1 Preferred Stock,
each Non Participating Holder's shares of Series B Preferred Stock shall
automatically and without further action on the part of such holder be converted
into an equivalent number of shares of Series B-1 Preferred Stock, and each Non
Participating Holder's shares of Series C Preferred Stock shall automatically
and without further action on the part of such holder be converted into an
equivalent number of shares of Series C-1 Preferred Stock; provided, however,
-------- -------
that no such conversion shall occur in connection with a particular Equity
Financing if,
-13-
<PAGE>
pursuant to the written request of the Corporation, the Right of First Refusal
with respect to such Equity Financing is waived by 80% of the Preferred Stock
voting together as a single class. Upon conversion pursuant to this Section 8,
the shares of Serries A, Series B or Series C Preferred Stock so converted shall
be canceled and not subject to reissuance.
(b) The holder of any shares of Series A, Series B or Series C
Preferred Stock converted pursuant to this Section 8 shall deliver to the
Corporation during regular business hours at the office of any transfer agent of
the Corporation for such series of Preferred Stock, or at such other place as
may be designated by the Corporation, the certificate or certificates
representing the shares so converted, duly endorsed or assigned in blank or to
the Corporation. As promptly thereafter as is practicable, the Corporation shall
issue and deliver to such holder, at the place designated by such holder, a
certificate or certificates for the number of full shares of the Series A-1,
Series B-1 or Series C-1 Preferred Stock to which such holder is entitled. The
person in whose name the certificate for such shares of Series A-1, Series B-1
or Series C-1 Preferred Stock is to be issued shall be deemed to have become a
stockholder on the effective date of the conversion of the Series A, Series B or
Series C Preferred Stock, unless the transfer books of the Corporation are
closed on that date, in which case such person shall be deemed to have become a
stockholder of record on the next succeeding date on which the transfer books
are open.
(c) In the event that any shares of Series A-1, B-1 or C-1
Preferred Stock are issued, concurrently with such issuance, the Corporation
shall use its best efforts to take all such action as may be required, including
amending its Certificate of Incorporation, (i) to cancel all authorized shares
of such series that remain unissued after such issuance, (ii) to create and
reserve with respect to each series a new series of Preferred Stock equal in
number to the number of shares of such series so canceled and designated Series
A-2 Preferred Stock (to the extent the canceled shares are shares of Series A-1
Preferred Stock), Series B-2 Preferred Stock (to the extent the canceled shares
are shares of Series B-1 Preferred Stock) or Series C-2 Preferred Stock (to the
extent the canceled shares are shares of Series C-1 Preferred Stock), with the
same designations, powers, preferences and rights and be subject to the same
qualifications, limitations and restrictions identical as are then applicable to
the Series A Preferred Stock (with respect to the Series A-2 Preferred Stock),
the Series B Preferred Stock (with respect to the Series B-2 Preferred Stock)
and the Series C Preferred Stock (with respect to the Series C-2 Preferred
Stock), except that (A) the conversion price for shares of Series A-2 once
initially issued shall be the Conversion Price for Series A Preferred Stock in
effect immediately prior to such issuance and shall not after such issuance be
subject to adjustment under Section 4(d)(i)(A) hereof, (B) the conversion price
for shares of Series B-2 once initially issued shall be the Conversion Price for
Series B Preferred Stock in effect immediately prior to such issuance and shall
not after such issuance be subject to adjustment under Section 4(d)(i)(A) hereof
and (C) the conversion price for shares of Series C-2 once initially issued
shall be the Conversion Price for Series C Preferred Stock in effect immediately
prior to such issuance and shall not after such issuance be subject to
adjustment under Section 4(d)(i)(A) hereof, and (iii) to amend the provisions of
this Section 8 to provide that any subsequent special mandatory conversion
pursuant hereto will be into shares of Series A-2, Series B-2 or Series C-2
Preferred Stock rather than Series A-1, Series B-1 or Series C-1 Preferred
Stock. The Corporation shall take the same actions with respect to the Series A-
2, Series B-2 and Series C-2 Preferred Stock and each series of Preferred Stock
subsequently authorized pursuant to this Section 8 upon initial issuance of
shares of the last such series to be so authorized.
-14-
<PAGE>
(C) Common Stock.
------------
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the Corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding
------------------
up of the Corporation, the assets of the Corporation shall be distributed as
provided in Section 2 of Article IV(B).
3. Redemption. The Common Stock is not redeemable.
----------
4. Voting Rights. The holder of each share of Common Stock shall
-------------
have the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the bylaws of the Corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
ARTICLE V
The Board of Directors of the Corporation is expressly authorized to make,
alter or repeal Bylaws of the Corporation.
ARTICLE VI
Elections of directors need not be by written ballot unless otherwise
provided in the Bylaws of the Corporation.
ARTICLE VII
(A) To the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or as may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
(B) The Corporation shall indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director or officer of the
Corporation or any predecessor of the Corporation, or serves or served at any
other enterprise as a director or officer at the request of the Corporation or
any predecessor to the Corporation.
(C) Neither any amendment nor repeal of this Article VII, nor the adoption
of any provision of the Corporation's Certificate of Incorporation inconsistent
with this Article VII, shall eliminate or reduce the effect of this Article VII
in respect of any matter occurring, or any action or proceeding accruing or
arising or that, but for this Article VII, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision."
***
-15-
<PAGE>
The foregoing Amended and Restated Certificate of Incorporation has been
duly adopted by this corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
Executed at Palo Alto, California, on __________, 1999.
__________________________
David P. Perry, President
__________________________
Jeffrey Y. Suto, Secretary
-16-
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CHEMDEX CORPORATION
The undersigned, David P. Perry and Jeffrey Y. Suto, hereby certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of Chemdex Corporation, a Delaware corporation.
2. The Certificate of Incorporation of this corporation was originally
filed with the Secretary of State of Delaware on September 4, 1997.
3. The Certificate of Incorporation of this corporation shall be
amended and restated to read in full as follows:
ARTICLE I
"The name of this corporation is Chemdex Corporation (the "Corporation").
-----------
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, Wilmington, County of New Castle. The name of its
registered agent at such address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
(A) The Corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
------------ ---------------
number of shares which the Corporation is authorized to issue is three hundred
fifty-five million (355,000,000) shares, each with a par value of $0.0001 per
share. Three hundred fifty million (350,000,000) shares shall be Common Stock
and five million (5,000,000) shares shall be Preferred Stock.
(B) The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, within the limitations and
restrictions stated in this Certificate of Incorporation, to determine or alter
the rights, preferences, privileges and restrictions granted to or imposed upon
any wholly unissued series of Preferred Stock and the number of shares
constituting any such series and the designation thereof, or any of them; and to
increase or decrease the number of shares of any series subsequent to the
issuance of shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution originally fixing the number of
shares of such series.
<PAGE>
ARTICLE V
The Corporation is to have perpetual existence.
ARTICLE VI
The Board of Directors of the Corporation is expressly authorized to make,
adopt, alter, amend or repeal the Bylaws of the Corporation.
ARTICLE VII
The number of directors which shall constitute the whole Board of Directors
of the Corporation shall be as specified in the Bylaws of the Corporation.
ARTICLE VIII
The election of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.
ARTICLE IX
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statute) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE X
If at any time this Corporation shall have a class of stock registered
pursuant to the provisions of the Securities Exchange Act of 1934, for so long
as such class is so registered, any action by the stockholders of such class
must be taken at an annual or special meeting of stockholders and may not be
taken by written consent. This provision shall supersede any provision to the
contrary in the Bylaws of the Corporation.
ARTICLE XI
Advance notice of new business and stockholder nominations for the election
of directors shall be given in the manner and to the extent provided in the
Bylaws of the Corporation.
ARTICLE XII
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
ARTICLE XIII
To the fullest extent permitted by the Delaware General Corporation Law as
the same exists or as may hereafter be amended, a director of the Corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. Neither any
-2-
<PAGE>
amendment nor repeal of this Article XIII, nor the adoption of any provision of
this Amended and Restated Certificate of Incorporation inconsistent with this
Article XIII, shall eliminate or reduce the effect of this Article XIII in
respect of any matter occurring, or any cause of action, suit or claim that, but
for this Article XIII, would accrue or arise, prior to such amendment, repeal or
adoption of any inconsistent provision.
ARTICLE XIV
In the election of directors, each holder of shares of any class or series
of capital stock of the Corporation shall be entitled to one vote for each share
held. No stockholder will be permitted to cumulate votes at any election of
directors.
-3-
<PAGE>
The foregoing Amended and Restated Certificate of Incorporation has been
duly adopted by this Corporation's Board of Directors and stockholders in
accordance with the applicable provisions of Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
Executed at Palo Alto on, California, on _______________, 1999.
__________________________________
David P. Perry, President
__________________________________
Jeffrey Y. Suto, Secretary
-4-
<PAGE>
EXHIBIT 10.5
CHEMDEX CORPORATION
1998 STOCK PLAN
1. PURPOSES OF THE PLAN. The purposes of this 1998 Stock Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be Incentive Stock Options (as
defined under Section 422 of the Code) or Nonstatutory Stock Options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
-----------
(a) "ADMINISTRATOR" means the Board or any of its Committees appointed
-------------
pursuant to Section 4 of the Plan.
(b) "APPLICABLE LAWS" means the legal requirements relating to the
---------------
administration of stock option and restricted stock purchase plans under
applicable U.S. state corporate laws, U.S. federal and applicable state
securities laws, the Code, any stock exchange rules or regulations and the
applicable laws of any other country or jurisdiction where Options or Stock
Purchase Rights are granted under the Plan, as such laws, rules, regulations and
requirements shall be in place from time to time.
(c) "BOARD" means the Board of Directors of the Company.
-----
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
----
(e) "COMMITTEE" means the Committee appointed by the Board of
---------
Directors in accordance with Paragraph 4(a) of Section 4 of the Plan.
(f) "COMMON STOCK" means the Common Stock of the Company.
------------
(g) "COMPANY" means Chemdex Corporation, a Delaware corporation.
-------
(h) "CONSULTANT" means any person, including an advisor, who is
----------
engaged by the Company or any Parent or Subsidiary to render services and is
compensated for such services, and any director of the Company whether
compensated for such services or not.
(i) "CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT" means the
----------------------------------------------
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Administrator, provided that
such leave is for a period of not more than 90 days, unless reemployment upon
the expiration of
<PAGE>
such leave is guaranteed by contract or statute, or unless provided otherwise
pursuant to Company policy adopted from time to time; or (iv) in the case of
transfers between locations of the Company or between the Company, its
Subsidiaries or their respective successors. For purposes of this Plan, a change
in status from an Employee to a Consultant or from a Consultant to an Employee
will not constitute an interruption of Continuous Status as an Employee or
Consultant.
(j) "DIRECTOR" means a member of the Board.
--------
(k) "EMPLOYEE" means any person (including if appropriate, any Named
--------
Executive, Officer or Director) employed by the Company or any Parent or
Subsidiary of the Company, with the status of employment determined based upon
such minimum number of hours or periods worked as shall be determined by the
Administrator in its discretion, subject to any requirements of the Code. The
payment by the Company of a director's fee to a director shall not be sufficient
to constitute "employment" of such director by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "FAIR MARKET VALUE" means, as of any date, the fair market value
-----------------
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market of the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") System, its Fair Market Value shall be the closing sales
------
price for such stock (or the closing bid, if no sales were reported), as quoted
on such system or exchange, or the exchange with the greatest volume of trading
in Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the Nasdaq System (but not
on the National Market thereof) or regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high bid and low asked prices for the Common Stock for the last
market trading day prior to the time of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(n) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
----------------------
incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable written Option Agreement.
(o) "LISTED SECURITY" means any security of the Company that is listed
---------------
or approved for listing on a national securities exchange or designated or
approved for designation
<PAGE>
as a national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc.
(p) "NAMED EXECUTIVE" means any individual who, on the last day of
---------------
the Company's fiscal year, is the chief executive officer of the Company (or is
acting in such capacity) or among the four most highly compensated officers of
the Company (other than the chief executive officer). Such officer status shall
be determined pursuant to the executive compensation disclosure rules under the
Exchange Act.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option, as designated in the applicable written
Option Agreement.
(r) "OFFICER" means a person who is an officer of the Company within
-------
the meaning of Section 16(a) of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "OPTION" means a stock option granted pursuant to the Plan.
------
(t) "OPTION AGREEMENT" means a written agreement between an Optionee
----------------
and the Company reflecting the terms of an Option granted under the Plan and
includes any documents attached to such Option Agreement, including, but not
limited to, a notice of stock option grant and a form of exercise notice.
(u) "OPTIONED STOCK" means the Common Stock subject to an Option or a
--------------
Stock Purchase Right.
(v) "OPTIONEE" means an Employee or Consultant who receives an Option
--------
or a Stock Purchase Right.
(w) "PARENT" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code, or any successor provision.
(x) "PLAN" means this 1998 Stock Plan.
----
(y) "REPORTING PERSON" means an Officer, Director, or greater than
----------------
10% stockholder of the Company within the meaning of Rule 16a-2 under the
Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the
Exchange Act.
(z) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant
----------------
to a grant of a Stock Purchase Right under Section 11 below.
(aa) "RESTRICTED STOCK PURCHASE AGREEMENT" means a written agreement
-----------------------------------
between a holder of a Stock Purchase Right and the Company reflecting the terms
of a Stock Purchase Right granted under the Plan and includes any documents
attached to such agreement.
(bb) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act,
----------
as the same may be amended from time to time, or any successor provision.
<PAGE>
(cc) "SHARE" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(dd) "STOCK PURCHASE RIGHT" means the right to purchase Common Stock
--------------------
pursuant to Section 10 below.
(ee) "SUBSIDIARY" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
(ff) "TEN PERCENT HOLDER" means a person who owns stock representing
------------------
more than ten percent (10%) of the voting power of all classes of stock of the
Company or any Parent or Subsidiary.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is 6,125,000 shares of Common Stock, plus an automatic annual
increase on the first day of each of the Company's fiscal years beginning in
2000 and ending in 2004 equal to the lesser of (i) 1,250,000 shares, (ii)
three percent (3%) of the shares outstanding on the last day of the
immediately preceding fiscal year, or (iii) such lesser number of shares as is
determined by the Board of Directors. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares that were subject thereto
shall, unless the Plan shall have been terminated, become available for future
grant under the Plan. In addition, any Shares of Common Stock which are
retained by the Company upon exercise of an Option or Stock Purchase Right in
order to satisfy the exercise or purchase price for such Option or Stock
Purchase Right or any withholding taxes due with respect to such exercise shall
be treated as not issued and shall continue to be available under the Plan.
Shares repurchased by the Company pursuant to any repurchase right which the
Company may have shall not be available for future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
--------------------------
(a) GENERAL. The Plan shall be administered by the Board or a
-------
Committee, or a combination thereof, as determined by the Board. The Plan may
be administered by different administrative bodies with respect to different
classes of Optionees and, if permitted by the Applicable Laws, the Board may
authorize one or more officers (who may (but need not) be Officers) to grant
Options or Stock Purchase Rights to Employees and Consultants.
(b) ADMINISTRATION WITH RESPECT TO REPORTING PERSONS. With respect
------------------------------------------------
to Options granted to Reporting Persons and Named Executives, the Plan may (but
need not) be administered so as to permit such Options to qualify for the
exemption set forth in Rule 16b-3 and to qualify as performance-based
compensation under Section 162(m) of the Code.
<PAGE>
(c) COMMITTEE COMPOSITION. If a Committee has been appointed
---------------------
pursuant to this Section 4, such Committee shall continue to serve in its
designated capacity until otherwise directed by the Board. From time to time the
Board may increase the size of any Committee and appoint additional members
thereof, remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies (however caused) and remove all members of
a Committee and thereafter directly administer the Plan, all to the extent
permitted by the Applicable Laws and, in the case of a Committee administering
the Plan pursuant to Section 4(b) above, to the extent permitted or required by
Rule 16b-3 and Section 162(m) of the Code.
(d) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
---------------------------
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any Stock Exchange, the Administrator
shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(m) of the Plan;
(ii) to select the Consultants and Employees to whom Options
and Stock Purchase Rights or any combination thereof may from time to time be
granted hereunder;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder, which terms and
conditions include but are not limited to the exercise or purchase price, the
time or times when Options or Stock Purchase Rights may be exercised (which may
be based on performance criteria), any vesting acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding any Option,
Optioned Stock, Stock Purchase Right or Restricted Stock, based in each case on
such factors as the Administrator, in its sole discretion, shall determine;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 10(f) instead of Common Stock;
(viii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(ix) to determine the terms and restrictions applicable to
Stock Purchase Rights and the Restricted Stock purchased by exercising such
Stock Purchase Rights; and
<PAGE>
(x) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan; and
(xi) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options or Stock Purchase Rights to
participants who are foreign nationals or employed outside of the United States
in order to recognize differences in local law, tax policies or customs.
(e) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
----------------------------------
determinations and interpretations of the Administrator shall be final and
binding on all holders of Options or Stock Purchase Rights.
5. ELIGIBILITY.
-----------
(a) RECIPIENTS OF GRANTS. Nonstatutory Stock Options and Stock
--------------------
Purchase Rights may be granted to Employees and Consultants. Incentive Stock
Options may be granted only to Employees. An Employee or Consultant who has
been granted an Option or Stock Purchase Right may, if he or she is otherwise
eligible, be granted additional Options or Stock Purchase Rights.
(b) TYPE OF OPTION. Each Option shall be designated in the Option
--------------
Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 5(b), Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of the Shares subject to an Incentive Stock Option shall
be determined as of the date of the grant of such Option.
(c) The Plan shall not confer upon the holder of any Option or Stock
Purchase Right any right with respect to continuation of employment or
consulting relationship with the Company, nor shall it interfere in any way with
such holder's right or the Company's right to terminate his or her employment or
consulting relationship at any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company as described in Section 19 of the Plan. It shall
continue in effect for a term of ten years unless sooner terminated under
Section 16 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that the term shall be no more than ten
years from the date of grant thereof or such shorter term as may be provided in
the Option Agreement and provided further that, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Option is granted, is a
Ten Percent Holder, the term of the Option shall be five years from the date of
grant thereof or such shorter term as may be provided in the Option Agreement.
<PAGE>
8. LIMITATION ON GRANTS TO EMPLOYEES. Subject to adjustment as provided
---------------------------------
in Section 14 below, the maximum number of Shares which may be subject to
Options and Stock Purchase Rights granted to any one Employee under this Plan
for any fiscal year of the Company shall be 5,000,000 Shares.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
---------------------------------------
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board and
set forth in the applicable agreement, but shall be subject to the following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, is a Ten Percent Holder, the per Share exercise
price shall be no less than 110% of the Fair Market Value per Share on the date
of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option that is:
(A) granted prior to the date, if any, on which the Common
Stock becomes a Listed Security to a person who, at the time of the grant of
such Option, is a Ten Percent Holder, the per Share exercise price shall be no
less than 110% of the Fair Market Value per Share on the date of the grant.
(B) granted to a person who, at the time of the grant of
such Option, is a Named Executive of the Company, the per share Exercise Price
shall be no less than 100% of the Fair Market Value on the date of grant if such
Option is intended to qualify as performance-based compensation under Section
162(m) of the Code; or
(C) granted prior to the date, if any, on which the Common
Stock becomes a Listed Security to any person other than a Named Executive or a
Ten Percent Holder, the per Share exercise price shall be no less than 85% of
the Fair Market Value per Share on the date of grant if required by the
Applicable Laws and, if not so required, shall be such price as is determined by
the Administrator.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note (subject to the provisions of Section 153 of the
Delaware General Corporation Law), (4) other Shares that (x) in the case of
Shares acquired upon exercise of an Option, have been owned by the Optionee for
more than six months on the date of surrender or such other period as may be
required to avoid a charge to the Company's earnings, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate
<PAGE>
exercise price of the Shares as to which such Option shall be exercised, (5)
authorization for the Company to retain from the total number of Shares as to
which the Option is exercised that number of Shares having a Fair Market Value
on the date of exercise equal to the exercise price for the total number of
Shares as to which the Option is exercised, (6) delivery of a properly executed
exercise notice together with such other documentation as the Administrator and
the broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay the
exercise price and any applicable income or employment taxes, (7) delivery of an
irrevocable subscription agreement for the Shares that irrevocably obligates the
option holder to take and pay for the Shares not more than twelve months after
the date of delivery of the subscription agreement, (8) any combination of the
foregoing methods of payment, or (9) such other consideration and method of
payment for the issuance of Shares to the extent permitted under the Applicable
Laws. In making its determination as to the type of consideration to accept, the
Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
10. EXERCISE OF OPTION.
------------------
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator and reflected in the Option Agreement, which
may include vesting requirements and/or performance criteria with respect to the
Company and/or the Optionee; provided, however, that if required by the
Applicable Laws, any Option granted prior to the date, if any, upon which the
Common Stock becomes a Listed Security shall become exercisable at the rate of
at least 20% per year over five years from the date the Option is granted. In
the event that any of the Shares issued upon exercise of an Option (which
exercise occurs prior to the date, if any, upon which the Common Stock becomes a
Listed Security) should be subject to a right of repurchase in the Company's
favor, such repurchase right shall, if required by the Applicable Laws, lapse at
the rate of at least 20% per year over five years from the date the Option is
granted. Notwithstanding the above, in the case of an Option granted to an
officer (including but not limited to Officers), Director or Consultant of the
Company or any Parent or Subsidiary of the Company, the Option may become fully
exercisable, and a repurchase right, if any, in favor of the Company shall
lapse, at any time or during any period established by the Administrator.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares with respect to which the Option is
exercised. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
not withstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment
<PAGE>
will be made for a dividend or other right for which the record date is prior to
the date the stock certificate is issued, except as provided in Section 13 of
the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares that thereafter may be available, both for purposes of the Plan
and for sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) TERMINATION OF EMPLOYMENT OR CONSULTING RELATIONSHIP. In the
----------------------------------------------------
event of termination of an Optionee's Continuous Status as an Employee or
Consultant with the Company, such Optionee may, but only within three months (or
such other period of time not less than 30 days as is determined by the
Administrator, with such determination in the case of an Incentive Stock Option
being made at the time of grant of the Option and not exceeding three months)
after the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
his or her Option to the extent that the Optionee was entitled to exercise it at
the date of such termination. To the extent that the Optionee was not entitled
to exercise the Option at the date of such termination, or if the Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate. No termination shall be deemed to occur and
this Section 10(b) shall not apply if (i) the Optionee is a Consultant who
becomes an Employee, or (ii) the Optionee is an Employee who becomes a
Consultant.
(c) DISABILITY OF OPTIONEE.
----------------------
(i) Notwithstanding Section 10(b) above, in the event of
termination of an Optionee's Continuous Status as an Employee or Consultant as a
result of his or her total and permanent disability (within the meaning of
Section 22(e)(3) of the Code), such Optionee may, but only within twelve months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. To the extent that the Optionee was not entitled to exercise the
Option at the date of termination, or if the Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate.
(ii) In the event of termination of an Optionee's Continuous
Status as an Employee or Consultant as a result of a disability which does not
fall within the meaning of total and permanent disability (as set forth in
Section 22(e)(3) of the Code), such Optionee may, but only within six months
from the date of such termination (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), exercise
the Option to the extent otherwise entitled to exercise it at the date of such
termination. However, to the extent that such Optionee fails to exercise an
Option which is an Incentive Stock Option ("ISO") (within the meaning of Section
---
422 of the Code) within three months of the date of such termination, the Option
will not qualify for ISO treatment under the Code. To the extent that the
Optionee was not entitled to exercise the Option at the date of termination, or
if the Optionee does not exercise such Option to the extent so entitled within
six months from the date of termination, the Option shall terminate.
<PAGE>
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee
-----------------
during the period of Continuous Status as an Employee or Consultant since the
date of grant of the Option, or within 30 days following termination of the
Optionee's Continuous Status as an Employee or Consultant, the Option may be
exercised, at any time within six months following the date of death (but in no
event later than the expiration date of the term of such Option as set forth in
the Option Agreement), by such Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
of the right to exercise that had accrued at the date of death or, if earlier,
the date of termination of the Optionee's Continuous Status as an Employee or
Consultant. To the extent that the Optionee was not entitled to exercise the
Option at the date of death or termination, as the case may be, or if the
Optionee does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(e) EXTENSION OF EXERCISE PERIOD. The Administrator shall have full
----------------------------
power and authority to extend the period of time for which an Option is to
remain exercisable following termination of an Optionee's Continuous Status as
an Employee or Consultant from the periods set forth in Sections 10(b), 10(c)
and 10(d) above or in the Option Agreement to such greater time as the Board
shall deem appropriate, provided that in no event shall such Option be
exercisable later than the date of expiration of the term of such Option as set
forth in the Option Agreement.
(f) RULE 16B-3. Options granted to Reporting Persons shall comply
----------
with Rule 16b-3 and shall contain such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption for Plan
transactions.
11. STOCK PURCHASE RIGHTS.
---------------------
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid, and the time within which such person must
accept such offer, which shall in no event exceed 30 days from the date upon
which the Administrator made the determination to grant the Stock Purchase
Right. In the case of a Stock Purchase Right granted prior to the date, if any,
on which the Common Stock becomes a Listed Security and if required by the
Applicable Laws at such time, the purchase price of Shares subject to such Stock
Purchase Rights shall not be less than 85% of the Fair Market Value of the
Shares as of the date of the offer, or, in the case of a Ten Percent Holder, the
price shall not be less than 100% of the Fair Market Value of the Shares as of
the date of the offer. If the Applicable Laws do not impose the requirements
set forth in the preceding sentence and with respect to any Stock Purchase
Rights granted after the date, if any, on which the Common Stock becomes a
Listed Security, the purchase price of Shares subject to Stock Purchase Rights
shall be as determined by the Administrator. The offer shall be accepted by
execution of a Restricted Stock Purchase Agreement in the form determined by the
Administrator.
<PAGE>
(b) REPURCHASE OPTION. Unless the Administrator determines otherwise,
-----------------
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment with the Company for any reason (including death or
disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original purchase price paid by
the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to the Company. The repurchase option shall lapse at such rate as the
Administrator may determine; provided, however, that with respect to a Stock
Purchase Right granted prior to the date, if any, on which the Common Stock
becomes a Listed Security to a purchaser who is not an officer (including an
Officer), Director or Consultant of the Company or of any Parent or Subsidiary
of the Company, it shall lapse at a minimum rate of 20% per year if required by
the Applicable Laws.
(c) OTHER PROVISIONS. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock Purchase Agreements need not be the
same with respect to each purchaser.
(d) RIGHTS AS A STOCKHOLDER. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 12
of the Plan.
12. TAXES.
-----
(a) As a condition of the exercise of an Option or Stock Purchase
Right granted under the Plan, the Participant (or in the case of the
Participant's death, the person exercising the Option or Stock Purchase Right)
shall make such arrangements as the Administrator may require for the
satisfaction of any applicable federal, state, local or foreign withholding tax
obligations that may arise in connection with the exercise of Option or Stock
Purchase Right and the issuance of Shares. The Company shall not be required to
issue any Shares under the Plan until such obligations are satisfied.
(b) In the case of an Employee and in the absence of any other
arrangement, the Employee shall be deemed to have directed the Company to
withhold or collect from his or her compensation an amount sufficient to satisfy
such tax obligations from the next payroll payment otherwise payable after the
date of an exercise of the Option or Stock Purchase Right.
(c) This Section 12(c) shall apply only after the date, if any, upon
which the Common Stock becomes a Listed Security. In the case of Participant
other than an Employee (or in the case of an Employee where the next payroll
payment is not sufficient to satisfy such tax obligations, with respect to any
remaining tax obligations), in the absence of any other arrangement and to the
extent permitted under the Applicable Laws, the Participant shall be deemed to
have elected to have the Company withhold from the Shares to be issued upon
<PAGE>
exercise of the Option or Stock Purchase Right that number of Shares having a
Fair Market Value determined as of the applicable Tax Date (as defined below)
equal to the amount required to be withheld. For purposes of this Section 12,
the Fair Market Value of the Shares to be withheld shall be determined on the
date that the amount of tax to be withheld is to be determined under the
Applicable Laws (the "Tax Date").
--------
(d) If permitted by the Administrator, in its discretion, a
Participant may satisfy his or her tax withholding obligations upon exercise of
an Option or Stock Purchase Right by surrendering to the Company Shares that (i)
in the case of Shares previously acquired from the Company, have been owned by
the Participant for more than six (6) months on the date of surrender, and (ii)
have a Fair Market Value determined as of the applicable Tax Date equal to the
amount required to be withheld.
(e) Any election or deemed election by a Participant to have Shares
withheld to satisfy tax withholding obligations under Section 12(c) or (d) above
shall be irrevocable as to the particular Shares as to which the election is
made and shall be subject to the consent or disapproval of the Administrator.
Any election by a Participant under Section 12(d) above must be made on or prior
to the applicable Tax Date.
(f) In the event an election to have Shares withheld is made by a
Participant and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Participant shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but such Participant shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the applicable Tax
Date.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR CERTAIN OTHER
-------------------------------------------------------------------
TRANSACTIONS.
- ------------
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
-------------------------
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or that have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, the numbers of Shares set forth described in Sections 3(a)(i)
and 8 above, as well as the price per share of Common Stock covered by each such
outstanding Option or Stock Purchase Right, shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination,
recapitalization or reclassification of the Common Stock, or any other increase
or decrease in the number of issued shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into
<PAGE>
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Common Stock
subject to an Option or Stock Purchase Right.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least 15 days prior to such proposed action. To the extent it has not been
previously exercised, the Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) MERGER OR SALE OF ASSETS. In the event of a proposed sale of all
------------------------
or substantially all of the Company's assets or a merger of the Company with or
into another corporation where the successor corporation issues its securities
to the Company's stockholders, each outstanding Option or Stock Purchase Right
shall be assumed or an equivalent option or right shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation,
unless the successor corporation does not agree to assume the Option or Stock
Purchase Right or to substitute an equivalent option or right, in which case
such Option or Stock Purchase Right shall terminate upon the consummation of the
merger or sale of assets. For purposes of this Section 13(c), an Option or a
Stock Purchase Right shall be considered assumed, without limitation, if, at the
time of issuance of the stock or other consideration upon such merger or sale of
assets, each holder of an Option or a Stock Purchase Right would be entitled to
receive upon exercise of the Option or Stock Purchase Right the same number and
kind of shares of stock or the same amount of property, cash or securities as
such holder would have been entitled to receive upon the occurrence of such
transaction if the holder had been, immediately prior to such transaction, the
holder of the number of Shares of Common Stock covered by the Option or the
Stock Purchase Right at such time (after giving effect to any adjustments in the
number of Shares covered by the Option or Stock Purchase Right as provided for
in this Section 13).
(d) CERTAIN DISTRIBUTIONS. In the event of any distribution to the
---------------------
Company's stockholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
14. NON-TRANSFERABILITY OF OPTIONS AND STOCK PURCHASE RIGHTS. Options and
--------------------------------------------------------
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution, provided that, after the date, if any, upon which the
Common Stock becomes a Listed Security, the Administrator may in its discretion
grant transferable Nonstatutory Stock Options pursuant to Option Agreements
specifying (i) the manner in which such Nonstatutory Stock Options are
transferable and (ii) that any such transfer shall be subject to the Applicable
Laws. The designation of a beneficiary by an Optionee will not constitute a
transfer. An Option or Stock Purchase Right may be exercised, during the
lifetime of the holder of Option or Stock Purchase Right, only by such holder or
a transferee permitted by this Section 14.
<PAGE>
15. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of grant
--------------------------------------------------
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Board; provided,
however, that in the case of any Incentive Stock Option, the grant date shall be
the later of the date on which the Administrator makes the determination
granting such Incentive Stock Option or the date of commencement of the
Optionee's employment relationship with the Company. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
16. AMENDMENT AND TERMINATION OF THE PLAN.
-------------------------------------
(a) AUTHORITY TO AMEND OR TERMINATE. The Board may at any time amend,
-------------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation (other than an adjustment under pursuant to Section 13 above)
shall be made that would impair the rights of any Optionee under any grant
theretofore made, without his or her consent. In addition, to the extent
necessary and desirable to comply with the Applicable Laws, the Company shall
obtain stockholder approval of any Plan amendment in such a manner and to such a
degree as required
(b) EFFECT OF AMENDMENT OR TERMINATION. No amendment or termination
----------------------------------
of the Plan shall adversely affect Options already granted, unless mutually
agreed otherwise between the Optionee and the Board, which agreement must be in
writing and signed by the Optionee and the Company.
17. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with the Applicable Laws.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by law.
18. RESERVATION OF SHARES. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
<PAGE>
19. AGREEMENTS. Options and Stock Purchase Rights shall be evidenced by
----------
written Option Agreements and Restricted Stock Purchase Agreements,
respectively, in such form(s) as the Administrator shall approve from time to
time.
20. STOCKHOLDER APPROVAL. If required by the Applicable Laws, continuance
--------------------
of the Plan shall be subject to approval by the stockholders of the Company
within twelve months before or after the date the Plan is adopted. Such
stockholder approval shall be obtained in the manner and to the degree required
under the Applicable Laws.
21. INFORMATION AND DOCUMENTS TO OPTIONEES AND PURCHASERS. Prior to the
-----------------------------------------------------
date, if any, upon which the Common Stock becomes a Listed Security and if
required by the Applicable Laws, the Company shall provide financial statements
at least annually to each Optionee and to each individual who acquired Shares
Pursuant to the Plan, during the period such Optionee or purchaser has one or
more Options or Stock Purchase Rights outstanding, and in the case of an
individual who acquired Shares pursuant to the Plan, during the period such
individual owns such Shares. The Company shall not be required to provide such
information if the issuance of Options or Stock Purchase Rights under the Plan
is limited to key employees whose duties in connection with the Company assure
their access to equivalent information. In addition, at the time of issuance of
any securities under the Plan, the Company shall provide to the Optionee or the
Purchaser a copy of the Plan and any agreement(s) pursuant to which securities
granted under the Plan are issued.
<PAGE>
CHEMDEX CORPORATION
1998 STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
Optionee
OptioneeAddress1
OptioneeAddress2
You have been granted an option to purchase Common Stock "Common Stock" of
------------
Chemdex Corporation (the "Company") as follows:
-------
Board Approval Date: BoardApproveDate
Date of Grant (Later of Board
Approval Date or Commencement
of Employment/Consulting): GrantDate
Vesting Commencement Date: VestingCommenceDate
Exercise Price per Share: $ ExercisePrice
Total Number of Shares Granted: NoofShares
Total Exercise Price: $ TotalExercisePrice
Type of Option: __________ Incentive Stock Option
__________ Nonstatutory Stock Option
Term/Expiration Date: ExpirDate
Vesting Schedule: This Option may be exercised, in whole
or in part, in accordance with the
following schedule: 25% of the Shares
subject to the Option shall vest on
the one year anniversary of the
Vesting Commencement Date and 1/48 of
the total number of Shares subject to
the Option shall vest each month
thereafter.
Termination Period: This Option may be exercised for three
months after termination of employment
or consulting relationship except as
set out in Sections 6 and 7 of the
Stock Option Agreement (but in no
event later than the Expiration Date
<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the 1998 Stock Option Plan and the Stock Option
Agreement, both of which are attached and made a part of this document.
OPTIONEE: CHEMDEX CORPORATION
___________________________ By: _______________________________
Signature
____________________________ _______________________________
Print Name Print Name and Title
-17-
<PAGE>
CHEMDEX CORPORATION
1998 STOCK OPTION PLAN
STOCK OPTION AGREEMENT
----------------------
1. GRANT OF OPTION. Chemdex Corporation a Delaware corporation (the
---------------
"Company"), hereby grants to Optionee ("Optionee"), an option (the "Option")
------- -------- ------
to purchase a total number of shares of Common Stock (the "Shares") set forth in
------
the Notice of Stock Option Grant, at the exercise price per share set forth in
the Notice of Stock Option Grant (the "Exercise Price") subject to the terms,
--------------
definitions and provisions of the 1998 Stock Option Plan (the "Plan") adopted
----
by the Company, which is incorporated herein by reference. Unless otherwise
defined herein, the terms defined in the Plan shall have the same defined
meanings in this Option.
If designated an Incentive Stock Option, this Option is intended to qualify as
an Incentive Stock Option as defined in Section 422 of the Code.
2. EXERCISE OF OPTION. This Option shall be exercisable during its Term
------------------
in accordance with the Vesting Schedule set out in the Notice of Stock Option
Grant and with the provisions of Section 9 of the Plan as follows:
(a) RIGHT TO EXERCISE.
-----------------
(i) This Option may not be exercised for a fraction of a share.
(ii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 5, 6 and 7 below, subject to the limitation contained in Section
2(a)(i).
(iii) In no event may this Option be exercised after the
Expiration Date of this Option as set forth in the Notice of Stock Option Grant.
(b) METHOD OF EXERCISE. This Option shall be exercisable by
------------------
execution and delivery of the Exercise Notice and Restricted Stock Purchase
Agreement attached hereto as Exhibit A (the "Exercise Agreement") or of any
--------- ------------------
other form of written notice approved for such purpose by the Company which
shall state the election to exercise the Option, the number of Shares in respect
of which the Option is being exercised, and such other representations and
agreements as to the holder's investment intent with respect to such shares of
Common Stock as may be required by the Company pursuant to the provisions of the
Plan. Such written notice shall be signed by Optionee and shall be delivered in
person or by certified mail to the Secretary of the Company. The written notice
shall be accompanied by payment of the Exercise Price. This Option shall be
deemed to be exercised upon receipt by the Company of such written notice
accompanied by the Exercise Price.
<PAGE>
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of
applicable law and the requirements of any stock exchange upon which the Shares
may then be listed. Assuming such compliance, for income tax purposes the
Shares shall be considered transferred to Optionee on the date on which the
Option is exercised with respect to such Shares.
3. METHOD OF PAYMENT. Payment of the Exercise Price shall be by cash,
-----------------
check or any other method permitted under the Plan; provided however that the
Administrator may refuse to allow Optionee to tender a particular form of
payment (other than cash or check) if, in the Administrator's sole discretion,
acceptance of such form of consideration would not be in the best interests of
the Company at such time.
4. RESTRICTIONS ON EXERCISE. This Option may not be exercised until such
------------------------
time as the Plan has been approved by the stockholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
5. TERMINATION OF RELATIONSHIP. In the event of termination of
---------------------------
Optionee's Continuous Status as an Employee or Consultant, Optionee may, to the
extent otherwise so entitled at the date of such termination (the "Termination
-----------
Date"), exercise this Option during the Termination Period set forth in the
- ----
Notice of Stock Option Grant. To the extent that Optionee was not entitled to
exercise this Option at such Termination Date, or if Optionee does not exercise
this Option within the Termination Period, the Option shall terminate.
6. DISABILITY OF OPTIONEE.
----------------------
(a) Notwithstanding the provisions of Section 5 above, in the event of
termination of Optionee's Continuous Status as an Employee or Consultant as a
result of Optionee's total and permanent disability (as defined in Section
22(e)(3) of the Code), Optionee may, but only within twelve months from the
Termination Date (but in no event later than the Expiration Date set forth in
the Notice of Stock Option Grant), exercise this Option to the extent Optionee
was entitled to exercise it as of such Termination Date. To the extent that
Optionee was not entitled to exercise the Option as of the Termination Date, or
if Optionee does not exercise such Option (to the extent so entitled) within the
time specified in this Section 6(a), the Option shall terminate.
(b) Notwithstanding the provisions of Section 5 above, in the event of
termination of Optionee's consulting relationship or Continuous Status as an
Employee as a result of disability not constituting a total and permanent
disability (as set forth in Section 22(e)(3) of the Code), Optionee may, but
only within six months from the Termination Date (but in no event later than the
Expiration Date set forth in the Notice of Stock Option Grant), exercise the
Option to the extent Optionee was entitled to exercise it as of such Termination
Date;
<PAGE>
provided, however, that if this is an Incentive Stock Option and Optionee fails
to exercise this Incentive Stock Option within three months from the Termination
Date, this Option will cease to qualify as an Incentive Stock Option (as defined
in Section 422 of the Code) and Optionee will be treated for federal income tax
purposes as having received ordinary income at the time of such exercise in an
amount generally measured by the difference between the Exercise Price for the
Shares and the Fair Market Value of the Shares on the date of exercise. To the
extent that Optionee was not entitled to exercise the Option at the Termination
Date, or if Optionee does not exercise such Option to the extent so entitled
within the time specified in this Section 6(b), the Option shall terminate.
7. DEATH OF OPTIONEE. In the event of the death of Optionee (a) during
-----------------
the Term of this Option and while an Employee or Consultant of the Company and
having been in Continuous Status as an Employee or Consultant since the date of
grant of the Option, or (b) within 30 days after Optionee's Termination Date,
the Option may be exercised at any time within six months following the date of
death (but in no event later than the Expiration Date set forth in the Notice of
Stock Option Grant), by Optionee's estate or by a person who acquired the right
to exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the Termination Date.
8. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by him or her. The terms
of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of Optionee.
9. TERM OF OPTION. This Option may be exercised only within the Term set
--------------
forth in the Notice of Stock Option Grant, subject to the limitations set forth
in Section 7 of the Plan.
10. TAX CONSEQUENCES. Set forth below is a brief summary as of the date
----------------
of this Option of certain of the federal and California tax consequences of
exercise of this Option and disposition of the Shares under the laws in effect
as of the Date of Grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX
LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) EXERCISE OF INCENTIVE STOCK OPTION. If this Option qualifies as
----------------------------------
an Incentive Stock Option, there will be no regular federal or California income
tax liability upon the exercise of the Option, although the excess, if any, of
the Fair Market Value of the Shares on the date of exercise over the Exercise
Price will be treated as an adjustment to the alternative minimum tax for
federal tax purposes and may subject Optionee to the alternative minimum tax in
the year of exercise.
(b) EXERCISE OF NONSTATUTORY STOCK OPTION. If this Option does not
-------------------------------------
qualify as an Incentive Stock Option, there may be a regular federal income tax
liability and a California income tax liability upon the exercise of the Option.
Optionee will be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the Fair Market Value
of the Shares on the date of exercise over the Exercise Price. If Optionee is an
<PAGE>
employee, the Company will be required to withhold from Optionee's compensation
or collect from Optionee and pay to the applicable taxing authorities an amount
equal to a percentage of this compensation income at the time of exercise.
(c) DISPOSITION OF SHARES. In the case of a Nonstatutory Stock
---------------------
Option, if Shares are held for more than one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
and California income tax purposes. In the case of an Incentive Stock Option,
if Shares transferred pursuant to the Option are held for more than one year
after exercise and are disposed of at least two years after the Date of Grant,
any gain realized on disposition of the Shares will also be treated as long-term
capital gain for federal and California income tax purposes. In either case,
the long-term capital gain will be taxed for federal income tax and alternative
minimum tax purposes at a maximum rate of 20% if the Shares are held more than
one year after exercise. If Shares purchased under an Incentive Stock Option
are disposed of within one year after exercise or within two years after the
Date of Grant, any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent of the
difference between the Exercise Price and the lesser of (i) the Fair Market
Value of the Shares on the date of exercise, or (ii) the sale price of the
Shares.
(d) NOTICE OF DISQUALIFYING DISPOSITION OF INCENTIVE STOCK OPTION
-------------------------------------------------------------
SHARES. If the Option granted to Optionee herein is an Incentive Stock Option,
- ------
and if Optionee sells or otherwise disposes of any of the Shares acquired
pursuant to the Incentive Stock Option on or before the later of (i) the date
two years after the Date of Grant, or (ii) the date one year after the date of
exercise, Optionee shall immediately notify the Company in writing of such
disposition. Optionee acknowledges and agrees that he or she may be subject to
income tax withholding by the Company on the compensation income recognized by
Optionee from the early disposition by payment in cash or out of the current
earnings paid to Optionee.
11. WITHHOLDING TAX OBLIGATIONS.
---------------------------
(a) GENERAL WITHHOLDING OBLIGATIONS. As a condition to the exercise
-------------------------------
of Option granted hereunder, Optionee shall make such arrangements as the
Administrator may require for the satisfaction of any federal, state, local or
foreign withholding tax obligations that may arise in connection with the
exercise, receipt or vesting of the Option. The Company shall not be required
to issue any Shares under the Plan until such obligations are satisfied.
Optionee understands that, upon exercising a Nonstatutory Stock Option, he or
she will recognize income for tax purposes in an amount equal to the excess of
the then Fair Market Value of the Shares over the Exercise Price. If Optionee
is an employee, the Company will be required to withhold from Optionee's
compensation, or collect from Optionee and pay to the applicable taxing
authorities an amount equal to a percentage of this compensation income.
Additionally, Optionee may at some point be required to satisfy tax withholding
obligations with respect to the disqualifying disposition of an Incentive Stock
Option. Optionee shall satisfy his or her tax withholding obligation arising
upon the exercise of this Option by one or some combination of the following
methods: (i) by cash or check payment, (ii) out of Optionee's current
compensation, (iii) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares which (A) in the case of Shares previously
acquired from the Company, have
-4-
<PAGE>
been owned by Optionee for more than six months on the date of surrender, and
(B) have a Fair Market Value determined as of the applicable Tax Date (as
defined in Section 11(c) below) on the date of surrender equal to the amount
required to be withheld, or (iv) by electing to have the Company withhold from
the Shares to be issued upon exercise of the Option that number of Shares having
a Fair Market Value determined as of the applicable Tax Date equal to the amount
required to be withheld.
(b) STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. In the
--------------------------------------------------------
event the Administrator allows Optionee to satisfy his or her tax withholding
obligations as provided in Section 11(a)(iii) or (iv) above, such satisfaction
must comply with the requirements of this Section (11)(b) and all applicable
laws. All elections by Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(i) the election must be made on or prior to the applicable Tax
Date (as defined in Section 11(c) below);
(ii) once made, the election shall be irrevocable as to the
particular Shares of the Option as to which the election is made; and
(iii) all elections shall be subject to the consent or
disapproval of the Administrator.
In the event the election to have Shares withheld is made by Optionee and
the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, Optionee shall receive the full number of
Shares with respect to which the Option is exercised but Optionee shall be
unconditionally obligated to tender back to the Company the proper number of
Shares on the Tax Date.
(c) DEFINITIONS. For purposes of this Section 11, the Fair Market
-----------
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined under the applicable laws (the
"Tax Date").
--------
12. MARKET STANDOFF AGREEMENT. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Optionee agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any securities of the Company (other
than those included in the registration) without the prior written consent of
the Company or such underwriters, as the case may be, for such period of time
(not to exceed 180 days) from the effective date of such registration as may be
requested by the Company or such managing underwriters and to execute an
agreement reflecting the foregoing as may be requested by the underwriters at
the time of the Company's initial public offering.
[Signature Page Follows]
-5-
<PAGE>
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original and all of which together shall constitute one
document.
CHEMDEX CORPORATION
By: _______________________________
_______________________________
(Print name and title)
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT OR CONSULTANCY AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO
TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT
CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Dated: ________________________ ______________________________
Optionee
-6-
<PAGE>
EXHIBIT A
---------
CHEMDEX CORPORATION
1998 STOCK OPTION PLAN
EXERCISE NOTICE AND RESTRICTED STOCK PURCHASE AGREEMENT
-------------------------------------------------------
This Agreement ("Agreement") is made as of ______________, by and between
---------
Chemdex Corporation, a Delaware corporation (the "Company"), and Optionee~
-------
("Purchaser"). To the extent any capitalized terms used in this Agreement are
---------
not defined, they shall have the meaning ascribed to them in the Stock Option
Plan.
1. EXERCISE OF OPTION. Subject to the terms and conditions hereof,
------------------
Purchaser hereby elects to exercise his or her option to purchase __________
shares of the Common Stock (the "Shares") of the Company under and pursuant to
------
the Company's 1998 Stock Option Plan (the "Plan") and the Stock Option Agreement
----
dated ______________, (the "Option Agreement"). The purchase price for the
----------------
Shares shall be $ExercisePrice~ per Share for a total purchase price of
$_______________. The term "Shares" refers to the purchased Shares and all
------
securities received in replacement of the Shares or as stock dividends or
splits, all securities received in replacement of the Shares in a
recapitalization, merger, reorganization, exchange or the like, and all new,
substituted or additional securities or other properties to which Purchaser is
entitled by reason of Purchaser's ownership of the Shares.
2. TIME AND PLACE OF EXERCISE. The purchase and sale of the Shares under
--------------------------
this Agreement shall occur at the principal office of the Company simultaneously
with the execution and delivery of this Agreement in accordance with the
provisions of Section 2(b) of the Option Agreement. On such date, the Company
will deliver to Purchaser a certificate representing the Shares to be purchased
by Purchaser (which shall be issued in Purchaser's name) against payment of the
exercise price therefor by Purchaser by (a) check made payable to the Company,
(b) cancellation of indebtedness of the Company to Purchaser, (c) delivery of
shares of the Common Stock of the Company in accordance with Section 3 of the
Option Agreement, or (d) a combination of the foregoing.
3. LIMITATIONS ON TRANSFER. In addition to any other limitation on
-----------------------
transfer created by applicable securities laws, Purchaser shall not assign,
encumber or dispose of any interest in the Shares except in compliance with the
provisions below and applicable securities laws.
(a) RIGHT OF FIRST REFUSAL. Before any Shares held by Purchaser or
----------------------
any transferee of Purchaser (either being sometimes referred to herein as the
"Holder") may be sold or otherwise transferred (including transfer by gift or
------
operation of law), the Company or its assignee(s) shall have a right of first
refusal to purchase the Shares on the terms and conditions set forth in this
Section 3(a) (the "Right of First Refusal").
----------------------
(i) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall
---------------------------
deliver to the Company a written notice (the "Notice") stating: (i) the
------
Holder's bona fide
<PAGE>
intention to sell or otherwise transfer such Shares; (ii) the name of each
proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number
-------------------
of Shares to be transferred to each Proposed Transferee; and (iv) the terms and
conditions of each proposed sale or transfer. The Holder shall offer the Shares
at the same price (the "Offered Price") and upon the same terms (or terms as
-------------
similar as reasonably possible) to the Company or its assignee(s).
(ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within 30 days
----------------------------------
after receipt of the Notice, the Company and/or its assignee(s) may, by giving
written notice to the Holder, elect to purchase all, but not less than all, of
the Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection
(iii) below.
(iii) PURCHASE PRICE. The purchase price ("Purchase Price") for
-------------- --------------
the Shares purchased by the Company or its assignee(s) under this Section 3(a)
shall be the Offered Price. If the Offered Price includes consideration other
than cash, the cash equivalent value of the non-cash consideration shall be
determined by the Board of Directors of the Company in good faith.
(iv) PAYMENT. Payment of the Purchase Price shall be made, at the
-------
option of the Company or its assignee(s), in cash (by check), by cancellation of
all or a portion of any outstanding indebtedness of the Holder to the Company
(or, in the case of repurchase by an assignee, to the assignee), or by any
combination thereof within 30 days after receipt of the Notice or in the manner
and at the times set forth in the Notice.
(v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed in
--------------------------
the Notice to be transferred to a given Proposed Transferee are not purchased by
the Company and/or its assignee(s) as provided in this Section 3(a), then the
Holder may sell or otherwise transfer such Shares to that Proposed Transferee at
the Offered Price or at a higher price, provided that such sale or other
transfer is consummated within 60 days after the date of the Notice and provided
further that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section 3 shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, or if the Holder
proposes to change the price or other terms to make them more favorable to the
Proposed Transferee, a new Notice shall be given to the Company, and the Company
and/or its assignees shall again be offered the Right of First Refusal before
any Shares held by the Holder may be sold or otherwise transferred.
(vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the
--------------------------------------
contrary contained in this Section 3(a) notwithstanding, the transfer of any or
all of the Shares during Purchaser's lifetime or on Purchaser's death by will or
intestacy to Purchaser's Immediate Family (as defined below) or a trust for the
benefit of Purchaser's Immediate Family shall be exempt from the provisions of
this Section 3(a). "Immediate Family" as used herein shall mean spouse, lineal
----------------
descendant or antecedent, father, mother, brother or sister. In such case, the
transferee or other recipient shall receive and hold the Shares so transferred
subject to the
-2-
<PAGE>
provisions of this Section, and there shall be no further transfer of such
Shares except in accordance with the terms of this Section 3.
(b) INVOLUNTARY TRANSFER.
--------------------
(i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY TRANSFER. In
-----------------------------------------------------
the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including divorce or death, but
excluding, in the event of death, a transfer to Immediate Family as set forth in
Section 3(a)(vi) above) of all or a portion of the Shares by the record holder
thereof, the Company shall have the right to purchase all of the Shares
transferred at the greater of the purchase price paid by Purchaser pursuant to
this Agreement or the Fair Market Value of the Shares on the date of transfer.
Upon such a transfer, the person acquiring the Shares shall promptly notify the
Secretary of the Company of such transfer. The right to purchase such Shares
shall be provided to the Company for a period of 30 days following receipt by
the Company of written notice by the person acquiring the Shares.
(ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to any stock
------------------------------
to be transferred pursuant to Section 3(b)(i), the price per Share shall be a
price set by the Board of Directors of the Company that will reflect the current
value of the stock in terms of present earnings and future prospects of the
Company. The Company shall notify Purchaser or his or her executor of the price
so determined within 30 days after receipt by it of written notice of the
transfer or proposed transfer of Shares. However, if the Purchaser does not
agree with the valuation as determined by the Board of Directors of the Company,
the Purchaser shall be entitled to have the valuation determined by an
independent appraiser to be mutually agreed upon by the Company and the
Purchaser and whose fees shall be borne equally by the Company and the
Purchaser.
(c) ASSIGNMENT. The right of the Company to purchase any part of the
----------
Shares may be assigned in whole or in part to any stockholder or stockholders of
the Company or other persons or organizations.
(d) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of Shares
-----------------------------------
or any interest therein will receive and hold such Shares or interest subject to
the provisions of this Agreement. Any sale or transfer of the Shares shall be
void unless the provisions of this Agreement are satisfied.
(e) TERMINATION OF RIGHTS. The Right of First Refusal and the
---------------------
Company's right to repurchase the Shares in the event of an involuntary transfer
pursuant to Section 3(b) above shall terminate upon the first sale of Common
Stock of the Company to the general public pursuant to a registration statement
filed with and declared effective by the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act").
--------------
(f) MARKET STANDOFF AGREEMENT. In connection with the initial public
-------------------------
offering of the Company's securities and upon request of the Company or the
underwriters managing such underwritten offering of the Company's securities,
Purchaser agrees not to sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any
-3-
<PAGE>
securities of the Company (other than those included in the registration)
without the prior written consent of the Company or such underwriters, as the
case may be, for such period of time (not to exceed 180 days) from the effective
date of such registration as may be requested by the Company or such managing
underwriters and to execute an agreement reflecting the foregoing as may be
requested by the underwriters at the time of the Company's initial public
offering.
4. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the
---------------------------------------
purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the Shares. Purchaser is
purchasing the Shares for investment for his or her own account only and not
with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act.
(b) Purchaser understands that the Shares have not been registered
under the Securities Act by reason of a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of Purchaser's
investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities"
under applicable U.S. federal and state securities laws and that, pursuant to
these laws, Purchaser must hold the Shares indefinitely unless they are
registered with the Securities and Exchange Commission and qualified by state
authorities, or an exemption from such registration and qualification
requirements is available. Purchaser acknowledges that the Company has no
obligation to register or qualify the Shares for resale. Purchaser further
acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares, and
requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax
consequences as a result of Purchaser's purchase or disposition of the Shares.
Purchaser represents that Purchaser has consulted any tax consultants Purchaser
deems advisable in connection with the purchase or disposition of the Shares and
that Purchaser is not relying on the Company for any tax advice.
5. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
--------------------------------------------
(a) LEGENDS. The certificate or certificates representing the Shares
-------
shall bear the following legends (as well as any legends required by applicable
state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A
-4-
<PAGE>
VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION
THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT
AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF
1933.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH
THE SECRETARY OF THE COMPANY.
(b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to ensure
---------------------
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to
-------------------
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
(d) REMOVAL OF LEGEND. When all of the following events have
-----------------
occurred, the Shares then held by Purchaser will no longer be subject to the
legend referred to in Section 5(a)(ii): (i) the termination of the Right of
First Refusal; and (ii) the expiration or termination of the market standoff
provisions of Section 3(f) (and of any agreement entered pursuant to Section
3(f)). After such time, and upon Purchaser's request, a new certificate or
certificates representing the Shares not repurchased shall be issued without the
legend referred to in Section 5(a)(ii), and delivered to Purchaser.
6. NO EMPLOYMENT RIGHTS. Nothing in this Agreement shall affect in any
--------------------
manner whatsoever the right or power of the Company, or a Parent or Subsidiary
of the Company, to terminate Purchaser's employment or consulting relationship,
for any reason, with or without cause.
7. MISCELLANEOUS.
-------------
(a) GOVERNING LAW. This Agreement and all acts and transactions
-------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
-5-
<PAGE>
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets
---------------------------------------
forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) SEVERABILITY. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(d) CONSTRUCTION. This Agreement is the result of negotiations
------------
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(e) NOTICES. Any notice required or permitted by this Agreement shall
-------
be in writing and shall be deemed sufficient when delivered personally or sent
by telegram or fax or 48 hours after being deposited in the U.S. mail, as
certified or registered mail, with postage prepaid, and addressed to the party
to be notified at such party's address as set forth below or as subsequently
modified by written notice.
(f) COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(g) SUCCESSORS AND ASSIGNS. The rights and benefits of this Agreement
----------------------
shall inure to the benefit of, and be enforceable by the Company's successors
and assigns. The rights and obligations of Purchaser under this Agreement may
only be assigned with the prior written consent of the Company.
(H) CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES
-----------------------------------
WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE
SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR
PRIOR TO THE QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
-6-
<PAGE>
[Signature Page Follows]
-7-
<PAGE>
The parties have executed this Exercise Notice and Restricted Stock
Purchase Agreement as of the date first set forth above.
COMPANY:
CHEMDEX CORPORATION
By: __________________________________
Name: ________________________________
(print)
Title: _______________________________
PURCHASER:
OPTIONEE
_____________________________________
(Signature)
____________________________________
(Print Name)
Address:
OptioneeAddress1
OptioneeAddress2
I, ______________________, spouse of Optionee, have read and hereby approve the
foregoing Agreement. In consideration of the Company's granting my spouse the
right to purchase the Shares as set forth in the Agreement, I hereby agree to be
bound irrevocably by the Agreement and further agree that any community property
or similar interest that I may have in the Shares shall hereby be similarly
bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with
respect to any amendment or exercise of any rights under the Agreement.
_____________________________________
Spouse of Optionee
-8-
<PAGE>
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
----------------------------------------------------
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: Restriction on Transfer.
---------- -----------------------
(a) The issuer of any security upon which a restriction on transfer has been
imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 shall cause a copy
of this section to be delivered to each issuee or transferee of such security at
the time the certificate evidencing the security is delivered to the issuee or
transferee.
(b) It is unlawful for the holder of any such security to consummate a sale
or transfer of such security, or any interest therein, without the prior written
consent of the Commissioner (until this condition is removed pursuant to Section
260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of the
Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants, or spouse; or to a transferee by a trustee or custodian
for the account of the transferee or the transferee's ancestors, descendants or
spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either acting
as such or as a finder) to a resident of a foreign state, territory or country
who is neither domiciled in this state to the knowledge of the broker-dealer,
nor actually present in this state if the sale of such securities is not in
violation of any securities law of the foreign state, territory or country
concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien given
by the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or
25121 of the Code, of the securities to be transferred, provided that no order
under Section 25140 or Subdivision (a) of Section 25143 is in effect with
respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such corporation,
or by a wholly owned subsidiary of a corporation to such corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or 25113
of the Code, provided that no order under Section 25140 or Subdivision (a) of
Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who
are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or to
the administrator of the unclaimed property law of another state;
(15) by the State Controller pursuant to the Unclaimed Property Law or by
the administrator of the unclaimed property law of another state if, in either
such case, such person (i) discloses to potential purchasers at the sale that
transfer of the securities is restricted under this rule, (ii) delivers to each
purchaser a copy of this rule, and (iii) advises the Commissioner of the name of
each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities; or
(17) by way of an offer and sale of outstanding securities in an issuer
transaction that is subject to the qualification requirement of Section 25110 of
the Code but exempt from that qualification requirement by subdivision (f) of
Section 25102;
provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the legend
required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
<PAGE>
RECEIPT
-------
The undersigned hereby acknowledges receipt of Certificate No. _____ for
__________ shares of Common Stock of CHEMDEX CORPORAITON
Dated: _______________ ______________________________
Optionee
<PAGE>
RECEIPT
-------
CHEMDEX CORPORATION hereby acknowledges receipt of a check in the
amount of $_____________ given by Optionee~ as consideration for Certificate No.
_________ for ____________ shares of Common Stock of.
Dated: ______________
CHEMDEX CORPORATION
By: ___________________________________
Name: _________________________________
(print)
Title: ________________________________
-11-
<PAGE>
EXHIBIT 10.6
CHEMDEX CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
---------------------------------
The following constitute the provisions of the 1999 Employee Stock Purchase
Plan of Chemdex Corporation
1. PURPOSE. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. DEFINITIONS.
-----------
(a) "BOARD" means the Board of Directors of the Company.
-----
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
----
(c) "COMMON STOCK" means the Common Stock of the Company.
------------
(d) "COMPANY" means Chemdex Corporation, a Delaware corporation.
-------
(e) "COMPENSATION" means total cash compensation received by an
------------
Employee from the Company or a Designated Subsidiary. By way of illustration,
but not limitation, Compensation includes regular compensation such as salary,
wages, overtime, shift differentials, bonuses, commissions and incentive
compensation, but excludes relocation, expense reimbursements, tuition or other
reimbursements and income realized as a result of participation in any stock
option, stock purchase, or similar plan of the Company or any Designated
Subsidiary.
(f) "CONTINUOUS STATUS AS AN EMPLOYEE" means the absence of any
--------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of (i) sick leave; (ii)
military leave; (iii) any other leave of absence approved by the Administrator,
provided that such leave is for a period of not more than 90 days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) in the case of transfers between locations of the Company
or between the Company and its Designated Subsidiaries.
(g) "CONTRIBUTIONS" means all amounts credited to the account of a
-------------
participant pursuant to the Plan.
(h) "CORPORATE TRANSACTION" means a sale of all or substantially all
---------------------
of the Company's assets, or a merger, consolidation or other capital
reorganization of the Company with or into another corporation, or any other
transaction or series of related transactions in
<PAGE>
which the Company's stockholders immediately prior thereto own less than 50% of
the voting stock of the Company (or its successor or parent) immediately
thereafter.
(i) "DESIGNATED SUBSIDIARIES" means the Subsidiaries which have been
-----------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan; provided however that the Board shall only have the
discretion to designate Subsidiaries if the issuance of options to such
Subsidiary's Employees pursuant to the Plan would not cause the Company to incur
adverse accounting charges.
(j) "EMPLOYEE" means any person, including an Officer, who is
--------
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
------------
amended.
(l) "OFFERING DATE" means the first business day of each Offering
-------------
Period of the Plan.
(m) "OFFERING PERIOD" means a period of twenty-four (24) months
---------------
commencing on February 1 and August 1 of each year, except for the first
Offering Period as set forth in Section 4(a).
(n) "OFFICER" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(o) "PLAN" means this Employee Stock Purchase Plan.
----
(p) "PURCHASE DATE" means the last day of each Purchase Period of the
-------------
Plan.
(q) "PURCHASE PERIOD" means a period of six (6) months within an
---------------
Offering Period, except for the Purchase Periods in the first Offering Period as
set forth in Section 4(b).
(r) "PURCHASE PRICE" means with respect to a Purchase Period an amount
--------------
equal to 85% of the Fair Market Value (as defined in Section 7(b) below) of a
Share of Common Stock on the Offering Date or on the Purchase Date, whichever is
lower; provided, however, that in the event (i) of any increase in the number of
Shares available for issuance under the Plan as a result of a stockholder-
approved amendment to the Plan, and (ii) all or a portion of such additional
Shares are to be issued with respect to one or more Offering Periods that are
underway at the time of such increase ("Additional Shares"), and (iii) the Fair
-----------------
Market Value of a Share of Common Stock on the date of such increase (the
"Approval Date Fair Market Value") is higher than the Fair Market Value on the
- --------------------------------
Offering Date for any such Offering Period, then in such instance the Purchase
Price with respect to Additional Shares shall be 85% of the Approval Date Fair
Market Value or the Fair Market Value of a Share of Common Stock on the Purchase
Date, whichever is lower.
-2-
<PAGE>
(s) "SHARE" means a share of Common Stock, as adjusted in accordance
-----
with Section 19 of the Plan.
(t) "SUBSIDIARY" means a corporation, domestic or foreign, of which
----------
not less than 50% of the voting shares are held by the Company or a Subsidiary,
whether or not such corporation now exists or is hereafter organized or acquired
by the Company or a Subsidiary.
3. ELIGIBILITY.
-----------
(a) Any person who is an Employee as of the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period under
the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code; provided however that eligible Employees
may not participate in more than one Offering Period at a time.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or any other person whose stock would be attributed to
such Employee pursuant to Section 424(d) of the Code) would own capital stock of
the Company and/or hold outstanding options to purchase stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Company or of any subsidiary of the Company, or (ii) if such
option would permit his or her rights to purchase stock under all employee stock
purchase plans (described in Section 423 of the Code) of the Company and its
Subsidiaries to accrue at a rate which exceeds Twenty-Five Thousand Dollars
($25,000) of the Fair Market Value (as defined in Section 7(b) below) of such
stock (determined at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
4. OFFERING PERIODS AND PURCHASE PERIODS.
-------------------------------------
(a) OFFERING PERIODS. The Plan shall be generally implemented by a
----------------
series of Offering Periods of twenty-four (24) months' duration, with new
Offering Periods (other than the first Offering Period) commencing on or about
February 1 and August 1 of each year (or at such other time or times as may be
determined by the Board of Directors). The first Offering Period shall commence
on the beginning of the effective date of the Registration Statement on Form S-1
for the initial public offering of the Company's Common Stock (the "IPO Date")
--------
and continue until July 31, 2001. The Plan shall continue until terminated in
accordance with Section 19 hereof. The Board of Directors of the Company shall
have the power to change the duration and/or the frequency of Offering Periods
with respect to future offerings without stockholder approval if such change is
announced at least five (5) days prior to the scheduled beginning of the first
Offering Period to be affected.
(b) PURCHASE PERIODS. Each Offering Period shall generally consist of
----------------
four (4) consecutive purchase periods of six (6) months' duration. The last day
of each Purchase Period shall be the "Purchase Date" for such Purchase Period.
-------------
A Purchase Period commencing on February 1 shall end on the next July 31. A
Purchase Period commencing on August 1 shall end on the next January 31. The
first Purchase Period of the first Offering Period shall
-3-
<PAGE>
commence on the IPO Date and shall end on January 31, 2000. The Board of
Directors of the Company shall have the power to change the duration and/or
frequency of Purchase Periods with respect to future purchases without
stockholder approval if such change is announced at least five (5) days prior to
the scheduled beginning of the first Purchase Period to be affected.
5. PARTICIPATION.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's payroll office prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given Offering Period. The
subscription agreement shall set forth the percentage of the participant's
Compensation (subject to Section 6(a) below) to be paid as Contributions
pursuant to the Plan.
(b) Payroll deductions shall commence on the first payroll following
the Offering Date and shall end on the last payroll paid on or prior to the last
Purchase Period of the Offering Period to which the subscription agreement is
applicable, unless sooner terminated by the participant as provided in Section
10.
6. METHOD OF PAYMENT OF CONTRIBUTIONS.
----------------------------------
(a) A participant shall elect to have payroll deductions made on each
payday during the Offering Period in an amount not less than one percent (1%)
and not more than TWENTY percent (20%) (or such other percentage as the Board
may establish from time to time before an Offering Date) of such participant's
Compensation on each payday during the Offering Period. All payroll deductions
made by a participant shall be credited to his or her account under the Plan. A
participant may not make any additional payments into such account.
(b) A participant may discontinue his or her participation in the Plan
as provided in Section 10, or, on one occasion only during the Offering Period
may increase and on one occasion only during the Offering Period may decrease
the rate of his or her Contributions with respect to the Offering Period by
completing and filing with the Company a new subscription agreement authorizing
a change in the payroll deduction rate. The change in rate shall be effective
as of the beginning of the next calendar month following the date of filing of
the new subscription agreement, if the agreement is filed at least ten (10)
business days prior to such date and, if not, as of the beginning of the next
succeeding calendar month.
(c) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) herein, a participant's
payroll deductions may be decreased during any Offering Period scheduled to end
during the current calendar year to 0%. Payroll deductions shall re-commence at
the rate provided in such participant's subscription agreement at the beginning
of the first Offering Period which is scheduled to end in the following calendar
year, unless terminated by the participant as provided in Section 10.
-4-
<PAGE>
7. GRANT OF OPTION.
---------------
(a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on each Purchase Date a number of Shares of the Company's Common Stock
determined by dividing such Employee's Contributions accumulated prior to such
Purchase Date and retained in the participant's account as of the Purchase Date
by the applicable Purchase Price; provided however that the maximum number of
Shares an Employee may purchase during each Purchase Period shall be 1,250
Shares (subject to any adjustment pursuant to Section 19 below), and provided
further that such purchase shall be subject to the limitations set forth in
Sections 3(b) and 13.
(b) The fair market value of the Company's Common Stock on a given
date (the "Fair Market Value") shall be determined by the Board in its
-----------------
discretion based on the closing sales price of the Common Stock for such date
(or, in the event that the Common Stock is not traded on such date, on the
immediately preceding trading date), as reported by the National Association of
Securities Dealers Automated Quotation (Nasdaq) National Market or, if such
price is not reported, the mean of the bid and asked prices per share of the
Common Stock as reported by Nasdaq or, in the event the Common Stock is listed
on a stock exchange, the Fair Market Value per share shall be the closing sales
price on such exchange on such date (or, in the event that the Common Stock is
not traded on such date, on the immediately preceding trading date), as reported
in The Wall Street Journal. For purposes of the Offering Date under the first
-----------------------
Offering Period under the Plan, the Fair Market Value of a share of the Common
Stock of the Company shall be the Price to Public as set forth in the final
prospectus filed with the Securities and Exchange Commission pursuant to Rule
424 under the Securities Act of 1933, as amended.
8. EXERCISE OF OPTION. Unless a participant withdraws from the Plan as
------------------
provided in Section 10, his or her option for the purchase of Shares will be
exercised automatically on each Purchase Date of an Offering Period, and the
maximum number of full Shares subject to the option will be purchased at the
applicable Purchase Price with the accumulated Contributions in his or her
account. No fractional Shares shall be issued. The Shares purchased upon
exercise of an option hereunder shall be deemed to be transferred to the
participant on the Purchase Date. During his or her lifetime, a participant's
option to purchase Shares hereunder is exercisable only by him or her.
9. DELIVERY. As promptly as practicable after each Purchase Date of each
--------
Offering Period, the Company shall arrange the delivery to each participant, as
appropriate, of a certificate representing the Shares purchased upon exercise of
his or her option. Any payroll deductions accumulated in a participant's
account which are not sufficient to purchase a full Share shall be retained in
the participant's account for the subsequent Purchase Period or Offering Period,
subject to earlier withdrawal by the participant as provided in Section 10
below. Any other amounts left over in a participant's account after a Purchase
Date shall be returned to the participant.
-5-
<PAGE>
10. VOLUNTARY WITHDRAWAL; TERMINATION OF EMPLOYMENT.
-----------------------------------------------
(a) A participant may withdraw all but not less than all the
Contributions credited to his or her account under the Plan at any time prior to
each Purchase Date by giving written notice to the Company. All of the
participant's Contributions credited to his or her account will be paid to him
or her promptly after receipt of his or her notice of withdrawal and his or her
option for the current period will be automatically terminated, and no further
Contributions for the purchase of Shares will be made during the Offering
Period.
(b) Upon termination of the participant's Continuous Status as an
Employee prior to the Purchase Date of an Offering Period for any reason,
including retirement or death, the Contributions credited to his or her account
will be returned to him or her or, in the case of his or her death, to the
person or persons entitled thereto under Section 14, and his or her option will
be automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan and the Contributions credited to his
or her account will be returned to him or her and his or her option terminated.
(d) A participant's withdrawal from an offering will not have any
effect upon his or her eligibility to participate in a succeeding offering or in
any similar plan which may hereafter be adopted by the Company.
11. AUTOMATIC WITHDRAWAL. If the Fair Market Value of the Shares on any
--------------------
Purchase Date of an Offering Period is less than the Fair Market Value of the
Shares on the Offering Date for such Offering Period, then every participant
shall automatically (i) be withdrawn from such Offering Period at the close of
such Purchase Date and after the acquisition of Shares for such Purchase Period,
and (ii) be enrolled in the Offering Period commencing on the first business day
subsequent to such Purchase Period. Participants shall automatically be
withdrawn as of July 31, 1999 from the Offering Period beginning on the IPO Date
and re-enrolled in the Offering Period beginning on August 1, 1999 if the Fair
Market Value of the Shares on the IPO Date is greater than the Fair Market Value
of the Shares on July 31, 1999, unless a participant notifies the Administrator
prior to July 31, 1999 that he or she does not wish to be withdrawn and re-
enrolled.
12. INTEREST. No interest shall accrue on the Contributions of a
--------
participant in the Plan.
13. STOCK.
-----
(a) Subject to adjustment as provided in Section 19, the maximum
number of Shares which shall be made available for sale under the Plan shall be
750,000 Shares, plus an automatic annual increase on the first day of each
of the Company's fiscal years beginning in 2000, 2001, 2002, 2003 and 2004 equal
to the lesser of (i) 200,000 shares, (ii)
-6-
<PAGE>
one-half of one percent (.5%) of the shares outstanding on the last day of
the immediately preceding fiscal year or (iii) a lesser amount determined by the
Board. If the Board determines that, on a given Purchase Date, the number of
shares with respect to which options are to be exercised may exceed (i) the
number of shares of Common Stock that were available for sale under the Plan on
the Offering Date of the applicable Offering Period, or (ii) the number of
shares available for sale under the Plan on such Purchase Date, the Board may in
its sole discretion provide (x) that the Company shall make a pro rata
allocation of the Shares of Common Stock available for purchase on such Offering
Date or Purchase Date, as applicable, in as uniform a manner as shall be
practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Purchase Date, and continue all Offering Periods then in effect, or (y) that the
Company shall make a pro rata allocation of the shares available for purchase on
such Offering Date or Purchase Date, as applicable, in as uniform a manner as
shall be practicable and as it shall determine in its sole discretion to be
equitable among all participants exercising options to purchase Common Stock on
such Purchase Date, and terminate any or all Offering Periods then in effect
pursuant to Section 20 below. The Company may make pro rata allocation of the
Shares available on the Offering Date of any applicable Offering Period pursuant
to the preceding sentence, notwithstanding any authorization of additional
Shares for issuance under the Plan by the Company's stockholders subsequent to
such Offering Date.
(b) The participant shall have no interest or voting right in Shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. ADMINISTRATION. The Board, or a committee named by the Board, shall
--------------
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan.
15. DESIGNATION OF BENEFICIARY.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any Shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of a
Purchase Period but prior to delivery to him or her of such Shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to the Purchase Date of an Offering Period.
If a participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
(and his or her spouse, if any) at any time by written notice. In the event of
the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of
-7-
<PAGE>
such participant's death, the Company shall deliver such Shares and/or cash to
the executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the Company),
the Company, in its discretion, may deliver such Shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Company, then to such other
person as the Company may designate.
16. TRANSFERABILITY. Neither Contributions credited to a participant's
---------------
account nor any rights with regard to the exercise of an option or to receive
Shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 15) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 10.
17. USE OF FUNDS. All Contributions received or held by the Company under
------------
the Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such Contributions.
18. REPORTS. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of Contributions,
the per Share Purchase Price, the number of Shares purchased and the remaining
cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.
------------------------------------------------------------------
(a) ADJUSTMENT. Subject to any required action by the stockholders of
----------
the Company, the number of Shares covered by each option under the Plan which
has not yet been exercised and the number of Shares which have been authorized
for issuance under the Plan but have not yet been placed under option
(collectively, the "Reserves"), as well as the maximum number of shares of
--------
Common Stock which may be purchased by a participant in a Purchase Period, the
number of shares of Common Stock set forth in Section 13(a)(i) above, and the
price per Share of Common Stock covered by each option under the Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common Stock
(including any such change in the number of Shares of Common Stock effected in
connection with a change in domicile of the Company), or any other increase or
decrease in the number of Shares effected without receipt of consideration by
the Company; provided however that conversion of any convertible securities of
the Company shall not be deemed to have been "effected without receipt of
consideration." Such adjustment shall be made by the Board, whose determination
in that respect shall be final, binding and conclusive. Except as expressly
provided herein, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares subject to an option.
(b) CORPORATE TRANSACTIONS. In the event of a dissolution or
----------------------
liquidation of the Company, any Purchase Period and Offering Period then in
progress will terminate
-8-
<PAGE>
immediately prior to the consummation of such action, unless otherwise provided
by the Board. In the event of a Corporate Transaction, each option outstanding
under the Plan shall be assumed or an equivalent option shall be substituted by
the successor corporation or a parent or Subsidiary of such successor
corporation. In the event that the successor corporation refuses to assume or
substitute for outstanding options, each Purchase Period and Offering Period
then in progress shall be shortened and a new Purchase Date shall be set (the
"New Purchase Date"), as of which date any Purchase Period and Offering Period
-----------------
then in progress will terminate. The New Purchase Date shall be on or before the
date of consummation of the transaction and the Board shall notify each
participant in writing, at least ten (10) days prior to the New Purchase Date,
that the Purchase Date for his or her option has been changed to the New
Purchase Date and that his or her option will be exercised automatically on the
New Purchase Date, unless prior to such date he or she has withdrawn from the
Offering Period as provided in Section 10. For purposes of this Section 19, an
option granted under the Plan shall be deemed to be assumed, without limitation,
if, at the time of issuance of the stock or other consideration upon a Corporate
Transaction, each holder of an option under the Plan would be entitled to
receive upon exercise of the option the same number and kind of shares of stock
or the same amount of property, cash or securities as such holder would have
been entitled to receive upon the occurrence of the transaction if the holder
had been, immediately prior to the transaction, the holder of the number of
Shares of Common Stock covered by the option at such time (after giving effect
to any adjustments in the number of Shares covered by the option as provided for
in this Section 19); provided however that if the consideration received in the
transaction is not solely common stock of the successor corporation or its
parent (as defined in Section 424(e) of the Code), the Board may, with the
consent of the successor corporation, provide for the consideration to be
received upon exercise of the option to be solely common stock of the successor
corporation or its parent equal in Fair Market Value to the per Share
consideration received by holders of Common Stock in the transaction.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per Share
of Common Stock covered by each outstanding option, in the event that the
Company effects one or more reorganizations, recapitalizations, rights offerings
or other increases or reductions of Shares of its outstanding Common Stock, and
in the event of the Company's being consolidated with or merged into any other
corporation.
20. AMENDMENT OR TERMINATION.
------------------------
(a) The Board may at any time and for any reason terminate or amend
the Plan. Except as provided in Section 19, no such termination of the Plan may
affect options previously granted, provided that the Plan or an Offering Period
may be terminated by the Board on a Purchase Date or by the Board's setting a
new Purchase Date with respect to an Offering Period and Purchase Period then in
progress if the Board determines that termination of the Plan and/or the
Offering Period is in the best interests of the Company and the stockholders or
if continuation of the Plan and/or the Offering Period would cause the Company
to incur adverse accounting charges as a result of a change after the effective
date of the Plan in the generally accepted accounting rules applicable to the
Plan. Except as provided in Section 19 and in this
-9-
<PAGE>
Section 20, no amendment to the Plan shall make any change in any option
previously granted which adversely affects the rights of any participant. In
addition, to the extent necessary to comply with Rule 16b-3 under the Exchange
Act, or under Section 423 of the Code (or any successor rule or provision or any
applicable law or regulation), the Company shall obtain stockholder approval in
such a manner and to such a degree as so required.
(b) Without stockholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to change the Offering Periods and Purchase
Periods, limit the frequency and/or number of changes in the amount withheld
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable which are consistent with the Plan.
21. NOTICES. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such Shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, applicable state securities laws and the requirements of
any stock exchange upon which the Shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
23. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective upon
----------------------------
the IPO Date. It shall continue in effect for a term of twenty (20) years
unless sooner terminated under Section 20.
24. ADDITIONAL RESTRICTIONS OF RULE 16B-3. The terms and conditions of
-------------------------------------
options granted hereunder to, and the purchase of Shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the Shares issued upon exercise thereof
-10-
<PAGE>
shall be subject to, such additional conditions and restrictions as may be
required by Rule 16b-3 to qualify for the maximum exemption from Section 16 of
the Exchange Act with respect to Plan transactions.
-11-
<PAGE>
CHEMDEX CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
----------------------
New Election ______
Change of Election ______
1. I, ________________________, hereby elect to participate in the
Chemdex Corporation 1999 Employee Stock Purchase Plan (the "Plan") for the
----
Offering Period ______________, ____ to _______________, ____, and subscribe to
purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the Plan.
2. I elect to have Contributions in the amount of ____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that this amount must not be less than 1% and not more than 20% of
my Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan. I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on the Purchase
Date of each Offering Period unless I otherwise withdraw from the Plan by giving
written notice to the Company for such purpose.
4. I understand that I may discontinue at any time prior to the Purchase
Date my participation in the Plan as provided in Section 10 of the Plan. I also
understand that I can increase or decrease the rate of my Contributions on one
occasion only with respect to any increase and one occasion only with respect to
any decrease during any Offering Period by completing and filing a new
Subscription Agreement with such increase or decrease taking effect as of the
beginning of the calendar month following the date of filing of the new
Subscription Agreement, if filed at least ten (10) business days prior to the
beginning of such month. Further, I may change the rate of deductions for
future Offering Periods by filing a new Subscription Agreement, and any such
change will be effective as of the beginning of the next Offering Period. In
addition, I acknowledge that, unless I discontinue my participation in the Plan
as provided in Section 10 of the Plan, my election will continue to be effective
for each successive Offering Period.
<PAGE>
5. I have received a copy of the Company's most recent description of the
Plan and a copy of the complete "Chemdex Corporation 1999 Employee Stock
Purchase Plan." I understand that my participation in the Plan is in all
respects subject to the terms of the Plan.
6. Shares purchased for me under the Plan should be issued in the name(s)
of (name of employee or employee and spouse only):
____________________________________
____________________________________
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print) ____________________________________
(First) (Middle) (Last)
_______________________ ____________________________________
(Relationship) (Address)
____________________________________
8. I understand that if I dispose of any shares received by me pursuant
to the Plan within 2 years after the Offering Date (the first day of the
Offering Period during which I purchased such shares) or within 1 year after the
Purchase Date, I will be treated for federal income tax purposes as having
received ordinary compensation income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares on the
Purchase Date over the price which I paid for the shares, regardless of whether
I disposed of the shares at a price less than their fair market value at the
Purchase Date. The remainder of the gain or loss, if any, recognized on such
disposition will be treated as capital gain or loss.
I hereby agree to notify the Company in writing within 30 days after the
------------------------------------------------------------------------
date of any such disposition, and I will make adequate provision for federal,
- -----------------------------------------------------------------------------
state or other tax withholding obligations, if any, which arise upon the
- ------------------------------------------------------------------------
disposition of the Common Stock. The Company may, but will not be obligated to,
- -------------------------------
withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to
the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me.
9. If I dispose of such shares at any time after expiration of the 2-year
and 1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received compensation income only to the extent of
an amount equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase price which I paid for
the shares under the option, or (2) 15% of the fair market value of the
-2-
<PAGE>
shares on the Offering Date. The remainder of the gain or loss, if any,
recognized on such disposition will be treated as capital gain or loss.
I understand that this tax summary is only a summary and is subject to
----------------------------------------------------------------------
change. I further understand that I should consult a tax advisor concerning the
- ------
tax implications of the purchase and sale of stock under the Plan.
10. I hereby agree to be bound by the terms of the Plan. The
effectiveness of this Subscription Agreement is dependent upon my eligibility to
participate in the Plan.
SIGNATURE: ________________________
SOCIAL SECURITY #:_________________
DATE:______________________________
SPOUSE'S SIGNATURE (necessary
if beneficiary is not spouse):
___________________________________
(Signature)
___________________________________
(Print name)
-3-
<PAGE>
CHEMDEX CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
--------------------
I, __________________________, hereby elect to withdraw my participation in
the Chemdex Corporation 1999 Employee Stock Purchase Plan (the "Plan") for the
----
Offering Period that began on _________ ___, _____. This withdrawal covers all
Contributions credited to my account and is effective on the date designated
below.
I understand that all Contributions credited to my account will be paid to
me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period.
The undersigned further understands and agrees that he or she shall be
eligible to participate in succeeding offering periods only by delivering to the
Company a new Subscription Agreement.
Dated:___________________ ___________________________________
Signature of Employee
___________________________________
Social Security Number
<PAGE>
EXHIBIT 10.7
CHEMDEX CORPORATION
1999 DIRECTORS' STOCK OPTION PLAN
---------------------------------
1. PURPOSES OF THE PLAN. The purposes of this Directors' Stock Option
--------------------
Plan are to attract and retain the best available personnel for service as
Directors of the Company, to provide additional incentive to the Outside
Directors of the Company to serve as Directors, and to encourage their continued
service on the Board.
All options granted hereunder shall be nonstatutory stock
options.
2. DEFINITIONS. As used herein, the following definitions shall apply:
-----------
(a) "BOARD" means the Board of Directors of the Company.
-----
(b) "CHANGE OF CONTROL" means a sale of all or substantially all of
-----------------
the Company's assets, or any merger or consolidation of the Company with or into
another corporation other than a merger or consolidation in which the holders of
more than 50% of the shares of capital stock of the Company outstanding
immediately prior to such transaction continue to hold (either by the voting
securities remaining outstanding or by their being converted into voting
securities of the surviving entity) more than 50% of the total voting power
represented by the voting securities of the Company, or such surviving entity,
outstanding immediately after such transaction.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
----
(d) "COMMON STOCK" means the Common Stock of the Company.
------------
(e) "COMPANY" means Chemdex Corporation, a Delaware corporation.
-------
(f) "CONTINUOUS STATUS AS A DIRECTOR" means the absence of any
-------------------------------
interruption or termination of service as a Director.
(g) "CORPORATE TRANSACTION" means a dissolution or liquidation of the
---------------------
Company, a sale of all or substantially all of the Company's assets, or a
merger, consolidation or other capital reorganization of the Company with or
into another corporation.
(h) "DIRECTOR" means a member of the Board.
--------
(i) "EMPLOYEE" means any person, including any officer or Director,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
------------
amended.
<PAGE>
(k) "OPTION" means a stock option granted pursuant to the Plan. All
------
options shall be nonstatutory stock options (i.e., options that are not intended
to qualify as incentive stock options under Section 422 of the Code).
(l) "OPTIONED STOCK" means the Common Stock subject to an Option.
--------------
(m) "OPTIONEE" means an Outside Director who receives an Option.
--------
(n) "OUTSIDE DIRECTOR" means a Director who is not an Employee.
----------------
(o) "PARENT" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(p) "PLAN" means this 1999 Directors' Stock Option Plan.
----
(q) "SHARE" means a share of the Common Stock, as adjusted in
-----
accordance with Section 11 of the Plan.
(r) "SUBSIDIARY" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section
-------------------------
11 of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 250,000 Shares of Common Stock (the "Pool"). The
----
Shares may be authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan has been terminated, become available for future grant
under the Plan. In addition, any Shares of Common Stock that are retained by the
Company upon exercise of an Option in order to satisfy the exercise price for
such Option, or any withholding taxes due with respect to such exercise, shall
be treated as not issued and shall continue to be available under the Plan. If
Shares that were acquired upon exercise of an Option are subsequently
repurchased by the Company, such Shares shall not in any event be returned to
the Plan and shall not become available for future grant under the Plan.
4. ADMINISTRATION OF AND GRANTS OF OPTIONS UNDER THE PLAN.
------------------------------------------------------
(a) ADMINISTRATOR. Except as otherwise required herein, the Plan
-------------
shall be administered by the Board.
(b) PROCEDURE FOR GRANTS. All grants of Options hereunder shall be
--------------------
automatic and nondiscretionary and shall be made strictly in accordance with the
following provisions:
-2-
<PAGE>
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted an Option
to purchase Shares (the "First Option") as follows: (A) with respect to persons
who are Outside Directors on the effective date of this Plan, as determined in
accordance with Section 6 hereof, 12,500 shares on such effective date, and (B)
with respect to any person who becomes an Outside Director after the effective
date of this Plan, 12,500 shares on the date on which such person first becomes
an Outside Director, whether through election by the shareholders of the Company
or appointment by the Board of Directors to fill a vacancy.
(iii) Each Outside Director shall thereafter be automatically
granted an Option to purchase 5,000 Shares (the "Subsequent Option") on the
date of each Annual Meeting of the Company's stockholders immediately following
which such Outside Director is serving on the Board, provided that, on such
date, he or she shall have served on the Board for at least six (6) months prior
to the date of such Annual Meeting.
(iv) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, in the event that a grant would cause the number of Shares subject to
outstanding Options plus the number of Shares previously purchased upon exercise
of Options to exceed the Pool, then each such automatic grant shall be for that
number of Shares determined by dividing the total number of Shares remaining
available for grant by the number of Outside Directors receiving an Option on
the automatic grant date. Any further grants shall then be deferred until such
time, if any, as additional Shares become available for grant under the Plan
through action of the stockholders to increase the number of Shares which may be
issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
(v) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, any grant of an Option made before the Company has obtained stockholder
approval of the Plan in accordance with Section 17 hereof shall be conditioned
upon obtaining such stockholder approval of the Plan in accordance with Section
17 hereof.
(vii) The terms of each option granted hereunder shall be as
follows:
(1) each option shall be exercisable only while the Outside
Director remains a Director of the Company, except as set forth in Section 9
below;
(2) the exercise price per Share shall be 100% of the fair
market value per Share on the date of grant of each option, determined in
accordance with Section 8 hereof,;
(3) each Option shall be fully vested and exercisable on the
date of grant.
-3-
<PAGE>
(c) POWERS OF THE BOARD. Subject to the provisions and restrictions
-------------------
of the Plan, the Board shall have the authority, in its discretion: (i) to
determine, upon review of relevant information and in accordance with Section
8(b) of the Plan, the fair market value of the Common Stock; (ii) to determine
the exercise price per Share of Options to be granted, which exercise price
shall be determined in accordance with Section 8 of the Plan; (iii) to interpret
the Plan; (iv) to prescribe, amend and rescind rules and regulations relating to
the Plan; (v) to authorize any person to execute on behalf of the Company any
instrument required to effectuate the grant of an Option previously granted
hereunder; and (vi) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(d) EFFECT OF BOARD'S DECISION. All decisions, determinations and
--------------------------
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
(e) SUSPENSION OR TERMINATION OF OPTION. If the Chief Executive
-----------------------------------
Officer or his or her designee reasonably believes that an Optionee has
committed an act of misconduct, such officer may suspend the Optionee's right to
exercise any option pending a determination by the Board (excluding the Outside
Director accused of such misconduct). If the Board (excluding the Outside
Director accused of such misconduct) determines an Optionee has committed an act
of embezzlement, fraud, dishonesty, nonpayment of an obligation owed to the
Company, breach of fiduciary duty or deliberate disregard of the Company rules
resulting in loss, damage or injury to the Company, or if an Optionee makes an
unauthorized disclosure of any Company trade secret or confidential information,
engages in any conduct constituting unfair competition, induces any Company
customer to breach a contract with the Company or induces any principal for whom
the Company acts as agent to terminate such agency relationship, neither the
Optionee nor his or her estate shall be entitled to exercise any Option
whatsoever. In making such determination, the Board of Directors (excluding the
Outside Director accused of such misconduct) shall act fairly and shall give the
Optionee an opportunity to appear and present evidence on Optionee's behalf at a
hearing before the Board or a committee of the Board.
5. ELIGIBILITY. Options may be granted only to Outside Directors. All
-----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) above. An Outside Director who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his or her directorship at any time.
6. TERM OF PLAN; EFFECTIVE DATE. The Plan shall become effective on the
----------------------------
effectiveness of the registration statement under the Securities Act of 1933, as
amended, relating to the Company's initial public offering of securities. It
shall continue in effect for a term of ten (10) years unless sooner terminated
under Section 13 of the Plan.
-4-
<PAGE>
7. TERM OF OPTIONS. The term of each Option shall be ten (10) years from
---------------
the date of grant thereof unless an Option terminates sooner pursuant to Section
9 below.
8. EXERCISE PRICE AND CONSIDERATION.
--------------------------------
(a) EXERCISE PRICE. The per Share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be 100% of the fair market value
per Share on the date of grant of the Option.
(b) FAIR MARKET VALUE. The fair market value shall be determined by
-----------------
the Board; provided however that in the event the Common Stock is traded on the
Nasdaq National Market or listed on a stock exchange, the fair market value per
Share shall be the closing sales price on such system or exchange on the date of
grant of the Option (or, in the event that the Common Stock is not traded on
such date, on the immediately preceding trading date), as reported in The Wall
--------
Street Journal, or if there is a public market for the Common Stock but the
- --------------
Common Stock is not traded on the Nasdaq National Market or listed on a stock
exchange, the fair market value per Share shall be the mean of the bid and asked
prices of the Common Stock in the over-the-counter market on the date of grant,
as reported in The Wall Street Journal (or, if not so reported, as otherwise
------------------------
reported by the National Association of Securities Dealers Automated Quotation
("Nasdaq") System). For purposes of the First Options granted on the effective
date of this Plan, the fair market value per Share shall be the Price to Public
as set forth in the final prospectus filed with the Securities Exchange
Commission pursuant to Rule 424 under the Securities Act of 1933, as amended.
(c) FORM OF CONSIDERATION. The consideration to be paid for the
---------------------
Shares to be issued upon exercise of an Option shall consist entirely of cash,
check, other Shares of Common Stock having a fair market value on the date of
surrender equal to the aggregate exercise price of the Shares as to which the
Option shall be exercised (which, if acquired from the Company, shall have been
held for at least six months), or any combination of such methods of payment
and/or any other consideration or method of payment as shall be permitted under
applicable corporate law.
9. EXERCISE OF OPTION.
------------------
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4(b) above; provided however that no Options shall be exercisable prior to
stockholder approval of the Plan in accordance with Section 17 below has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 8(c) of the Plan. Until the
-5-
<PAGE>
issuance (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company) of the stock certificate
evidencing such Shares, no right to vote or receive dividends or any other
rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. A share certificate for the number
of Shares so acquired shall be issued to the Optionee as soon as practicable
after exercise of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock certificate is
issued, except as provided in Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF CONTINUOUS STATUS AS A DIRECTOR. If an Outside
----------------------------------------------
Director ceases to serve as a Director, he or she may, but only within ninety
(90) days after the date he or she ceases to be a Director of the Company,
exercise his or her Option to the extent that he or she was entitled to exercise
it at the date of such termination. Notwithstanding the foregoing, in no event
may the Option be exercised after its term set forth in Section 7 has expired.
To the extent that such Outside Director was not entitled to exercise an Option
at the date of such termination, or does not exercise such Option (to the extent
he or she was entitled to exercise) within the time specified above, the Option
shall terminate and the Shares underlying the unexercised portion of the Option
shall revert to the Plan.
(c) DISABILITY OF OPTIONEE. Notwithstanding Section 9(b) above, in
----------------------
the event a Director is unable to continue his or her service as a Director with
the Company as a result of his or her total and permanent disability (as defined
in Section 22(e)(3) of the Code), he or she may, but only within twelve (12)
months from the date of such termination, exercise his or her Option to the
extent he or she was entitled to exercise it at the date of such termination.
Notwithstanding the foregoing, in no event may the Option be exercised after its
term set forth in Section 7 has expired. To the extent that he or she was not
entitled to exercise the Option at the date of termination, or if he or she does
not exercise such Option (to the extent he or she was entitled to exercise)
within the time specified above, the Option shall terminate and the Shares
underlying the unexercised portion of the Option shall revert to the Plan.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee: (A)
-----------------
during the term of the Option who is, at the time of his or her death, a
Director of the Company and who shall have been in Continuous Status as a
Director since the date of grant of the Option, or (B) three (3) months after
the termination of Continuous Status as a Director, the Option may be exercised,
at any time within twelve (12) months following the date of death, by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
had accrued at the date of death or the date of termination, as applicable.
Notwithstanding the foregoing, in no event may the Option be exercised after its
term set forth in Section 7 has expired. To the extent that an Optionee was not
entitled to exercise the Option at the date of death or termination or if he or
she does not exercise such Option (to the extent he or she was entitled to
exercise) within the time specified above, the
-6-
<PAGE>
Option shall terminate and the Shares underlying the unexercised portion of the
Option shall revert to the Plan.
10. NONTRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
-----------------------------
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent or distribution or pursuant to a qualified
domestic relations order (as defined by the Code or the rules thereunder). The
designation of a beneficiary by an Optionee does not constitute a transfer. An
Option may be exercised during the lifetime of an Optionee only by the Optionee
or a transferee permitted by this Section.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.
------------------------------------------------------------------
(a) ADJUSTMENT. Subject to any required action by the stockholders of
----------
the Company, the number of shares of Common Stock covered by each outstanding
Option, the number of Shares of Common Stock set forth in Sections 4(b)(ii),
(iii) and (iv) above, and the number of Shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price per Share of Common Stock covered by each
such outstanding Option, shall be proportionately adjusted for any increase or
decrease in the number of issued Shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock (including any such change in the number of Shares of Common
Stock effected in connection with a change in domicile of the Company) or any
other increase or decrease in the number of issued Shares of Common Stock
effected without receipt of consideration by the Company; provided however that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to an
Option.
(b) CORPORATE TRANSACTIONS; CHANGE OF CONTROL. In the event of a
-----------------------------------------
Corporate Transaction, each outstanding Option shall be assumed or an equivalent
option shall be substituted by the successor corporation or a Parent or
Subsidiary of such successor corporation, unless the successor corporation does
not agree to assume the outstanding Options or to substitute equivalent options,
in which case the Options shall terminate upon the consummation of the
transaction; provided however that in the event of a Change of Control, each
optionee shall have the right to exercise all of his or her options to purchase
Shares, immediately prior to the consummation of the transaction.
For purposes of this Section 11(b), an Option shall be considered
assumed, without limitation, if, at the time of issuance of the stock or other
consideration upon such Corporate Transaction or Change of Control, each
Optionee would be entitled to receive upon exercise of an Option the same number
and kind of shares of stock or the same amount of property, cash or securities
as the Optionee would have been entitled to receive upon the
-7-
<PAGE>
occurrence of such transaction if the Optionee had been, immediately prior to
such transaction, the holder of the number of Shares of Common Stock covered by
the Option at such time (after giving effect to any adjustments in the number of
Shares covered by the Option as provided for in this Section 11); provided
however that if such consideration received in the transaction was not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon exercise of the Option to be solely common stock of the
successor corporation or its Parent equal to the Fair Market Value of the per
Share consideration received by holders of Common Stock in the transaction.
(c) CERTAIN DISTRIBUTIONS. In the event of any distribution to the
---------------------
Company's stockholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per Share of Common Stock covered by each
outstanding Option to reflect the effect of such distribution.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
-------------------------------------
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate the
-------------------------
Plan from time to time in such respects as the Board may deem advisable;
provided that, to the extent necessary and desirable to comply with Rule 16b-3
under the Exchange Act (or any other applicable law or regulation), the Company
shall obtain approval of the stockholders of the Company to Plan amendments to
the extent and in the manner required by such law or regulation.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
----------------------------------
termination of the Plan that would impair the rights of any Optionee shall not
affect Options already granted to such Optionee and such Options shall remain in
full force and effect as if this Plan had not been amended or terminated, unless
mutually agreed otherwise between the Optionee and the Board, which agreement
must be in writing and signed by the Optionee and the Company.
14. CONDITIONS UPON ISSUANCE OF SHARES. Notwithstanding any other
----------------------------------
provision of the Plan or any agreement entered into by the Company pursuant to
the Plan, the Company shall not be obligated, and shall have no liability for
failure, to issue or deliver any Shares under the Plan unless such issuance or
delivery would comply with the legal requirements relating to the administration
of stock option plans under applicable U.S. state corporate laws, U.S. federal
and applicable state securities laws, the Code, any stock exchange or Nasdaq
rules or regulations to which the Company may be subject and the applicable laws
of any other country or jurisdiction where Options are granted under the Plan,
as such laws, rules, regulations and requirements shall
-8-
<PAGE>
be in place from time to time (the "Applicable Laws"). Such compliance shall be
---------------
determined by the Company in consultation with its legal counsel.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
16. OPTION AGREEMENT. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
17. STOCKHOLDER APPROVAL. If required by the Applicable Laws, continuance
--------------------
of the Plan shall be subject to approval by the stockholders of the Company.
Such stockholder approval shall be obtained in the manner and to the degree
required under the Applicable Laws.
-9-
<PAGE>
CHEMDEX CORPORATION
1999 DIRECTORS' STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANT
----------------------------
.Optionee.
.OptioneeAddress1.
.OptioneeAddress2.
You have been granted an option to purchase Common Stock of Chemdex
Corporation (the "Company") as follows:
-------
Date of Grant .GrantDate.
Vesting Commencement Date .VestingStartDate.
Exercise Price per Share .ExercisePrice.
Total Number of Shares Granted .SharesGranted.
Total Exercise Price .TotalExercisePrice.
Expiration Date .ExpirDate.
Vesting Schedule This Option may be exercised, in whole
or in part, in accordance with the
following schedule: 100% of the Option
Shares shall be vested and exercisable
in full as of the Date of Grant.
Termination Period This Option may be exercised for 90 days
after termination of Optionee's
Continuous Status as a Director, or such
longer period as may be applicable upon
death or Disability of Optionee as
provided in the Plan, but in no event
later than the Expiration Date as
provided above.
-10-
<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this option is granted under and governed by the
terms and conditions of the 1999 Directors' Stock Option Plan and the
Nonstatutory Stock Option Agreement, all of which are attached and made a part
of this document.
OPTIONEE: CHEMDEX CORPORATION
____________________________ By:___________________________
Signature
Title:________________________
____________________________
Print Name
-11-
<PAGE>
CHEMDEX CORPORATION
NONSTATUTORY STOCK OPTION AGREEMENT
-----------------------------------
1. GRANT OF OPTION. The Board of Directors of the Company hereby grants
---------------
to the Optionee named in the Notice of Stock Option Grant attached as Part I of
this Agreement (the "Optionee"), an option (the "Option") to purchase a number
-------- ------
of Shares, as set forth in the Notice of Stock Option Grant, at the exercise
price per share set forth in the Notice of Stock Option Grant (the "Exercise
--------
Price"'), subject to the terms and conditions of the 1999 Directors' Stock
- -----
Option Plan (the "Plan"), which is incorporated herein by reference.
----
(Capitalized terms not defined herein shall have the meanings ascribed to such
terms in the Plan.) In the event of a conflict between the terms and conditions
of the Plan and the terms and conditions of this Nonstatutory Stock Option
Agreement, the terms and conditions of the Plan shall prevail.
2. EXERCISE OF OPTION.
------------------
(a) RIGHT TO EXERCISE. This Option is exercisable during its term in
-----------------
accordance with the Vesting Schedule set out in the Notice of Stock Option Grant
and the applicable provisions of the Plan and this Nonstatutory Stock Option
Agreement. In the event of Optionee's death, disability or other termination of
Optionee's employment or consulting relationship, the exercisability of the
Option is governed by the applicable provisions of the Plan and this
Nonstatutory Stock Option Agreement.
(b) METHOD OF EXERCISE. This Option is exercisable by delivery of an
------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
--------- ---------------
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
----------------
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The Exercise Notice shall be accompanied by payment
of the aggregate Exercise Price as to all Exercised Shares. This Option shall
be deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with all relevant provisions of law
and the requirements of any stock exchange or quotation service upon which the
Shares are then listed. Assuming such compliance, for income tax purposes the
Exercised Shares shall be considered transferred to the Optionee on the date the
Option is exercised with respect to such Exercised Shares.
3. METHOD OF PAYMENT. Payment of the aggregate Exercise Price shall be
-----------------
by any of the following, or a combination thereof, at the election of the
Optionee:
(a) cash;
<PAGE>
(b) check;
(c) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price; or
(d) surrender of other Shares which (i) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (ii) have a Fair Market Value
on the date of surrender equal to the aggregate Exercise Price of the Exercised
Shares.
4. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution or
pursuant to a domestic relations order (as defined by the Code or the rules
thereunder) and may be exercised during the lifetime of Optionee only by the
Optionee or a transferee permitted by Section 10 of the Plan. The terms of the
Plan and this Nonstatutory Stock Option Agreement shall be binding upon the
executors, administrators, heirs, successors and assigns of the Optionee.
5. TERM OF OPTION. This Option may be exercised only within the term set
--------------
out in the Notice of Stock Option Grant, and may be exercised during such term
only in accordance with the Plan and the terms of this Nonstatutory Stock Option
Agreement.
6. TAX CONSEQUENCES. Set forth below is a brief summary of certain
----------------
federal tax consequences relating to this Option under the law in effect as of
the date of grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND
REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS OR HER OWN TAX
ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) EXERCISING THE OPTION. Since this Option does not qualify as an
---------------------
incentive stock option under Section 422 of the Code, the Optionee may incur
regular federal income tax liability upon exercise. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the fair market value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price.
(b) DISPOSITION OF SHARES. If the Optionee holds the Option Shares
---------------------
for more than one year, gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. The long-
term capital gain will be taxed for federal income tax purposes as a maximum
rate of 20 percent.
-13-
<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Nonstatutory Stock Option Agreement.
Optionee has reviewed the Plan and this Nonstatutory Stock Option Agreement in
their entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Nonstatutory Stock Option Agreement and fully understands all
provisions of the Plan and Nonstatutory Stock Option Agreement. Optionee hereby
agrees to accept as binding, conclusive and final all decisions or
interpretations of the Administrator upon any questions relating to the Plan and
Nonstatutory Stock Option Agreement.
CHEMDEX CORPORATION
_________________________________ By:__________________________________
.Optionee.
Title:_______________________________
-14-
<PAGE>
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Nonstatutory Stock Option Agreement. In
consideration of the Company's granting his or her spouse the right to purchase
Shares as set forth in the Plan and this Nonstatutory Stock Option Agreement,
the undersigned hereby agrees to be irrevocably bound by the terms and
conditions of the Plan and this Nonstatutory Stock Option Agreement and further
agrees that any community property interest shall be similarly bound. The
undersigned hereby appoints the undersigned's spouse as attorney-in-fact for the
undersigned with respect to any amendment or exercise of rights under the Plan
or this Nonstatutory Stock Option Agreement.
_______________________________
Spouse of Optionee
<PAGE>
EXHIBIT A
---------
NOTICE OF EXERCISE
------------------
To: Chemdex Corporation
Attn: Stock Option Administrator
Subject: Notice of Intention to Exercise Stock Option
--------------------------------------------
This is official notice that the undersigned ("Optionee") intends to
--------
exercise Optionee's option to purchase __________ shares of Chemdex Corporation
Common Stock, under and pursuant to the Company's 1999 Directors' Stock Option
Plan and the Nonstatutory Stock Option Agreement dated _______________, as
follows:
Grant Number: _______________________________
Date of Purchase: _______________________________
Number of Shares: _______________________________
Purchase Price: _______________________________
Method of Payment of
Purchase Price: _______________________________
Social Security No.: _______________________________
The shares should be issued as follows:
Name: _______________________________
Address: _______________________________
_______________________________
_______________________________
Signed: _______________________________
Date: _______________________________
<PAGE>
EXHIBIT 10.15
ELECTRONIC COMMERCE AGREEMENT
This Electronic Commerce Agreement ("Agreement") is entered into between
Chemdex Corporation ("Chemdex"), having an address at 470 San Antonio Road, Palo
Alto, CA 94306, and Genentech, Inc., having an address at 1 DNA Way, South San
Francisco, CA 94080 ("Customer").
1. Definitions:
-----------
"System" shall refer to the Chemdex on-line ordering system.
"Term" shall refer to the time period from the date of this Agreement until
one (1) year from the date of this Agreement.
2. Term and Termination
--------------------
The Term shall automatically renew at each anniversary of the effective
date of this Agreement, unless a party provides written notice to the other
party of its intention to terminate this Agreement at least ten (10) days' prior
to such anniversary. This Agreement may be terminated by either party at any
time upon ten (10) days' prior written notice to the other party.
3. Payment Terms
-------------
Use of the System will be provided at no cost in consideration of the
obligations contained herein. Chemdex does not guarantee a ready date, but
currently expects to be able to provide Customer with access to the System
between January 15, 1998 and March 1, 1998.
4. Acknowledgment of Beta Testing
------------------------------
Customer and Chemdex acknowledge and agree that the System is a beta
version that may contain bugs, defects and errors. Customer and Chemdex further
acknowledge and agree that use of the System is being provided to Customer free
of charge during the Term in exchange for Customer's evaluation of the System
during the Term and information that results from the evaluation, as well as the
additional undertakings of Customer provided below.
5. Role of Chemdex
---------------
Chemdex wishes there to be open collaboration and encourages Customer to
interact freely with members of Chemdex's staff. In order to assure that
Customer receives prompt and effective assistance, if requested by the customer,
Chemdex will provide Customer with full-time access to a phone contact, free of
charge. Should service or technical support be required, the phone contact will
inform the appropriate people and ensure that Customer's needs are addressed.
On-site assistance shall be available, free of charge, upon request by Customer.
[....]CONFIDENTIAL TREATMENT REQUESTED
OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
<PAGE>
6. Role of Customer
----------------
Customer agrees that it will test the System with a small, select group of
its employees for a reasonable period of time. After this testing period,
Customer agrees that it will make every effort to encourage the rapid adoption
and use of the System throughout Customer's organization. While Chemdex
recognizes that adoption of the System is dependent upon the performance and
utility of the System and the number of products available for purchase through
the System, Customer agrees to use its best efforts to meet the following
milestones:
a. [.............] of Customer's purchases of products, the general type
of which are available for purchase through the System, will be made through the
System by the date which is [............] from the completion of the testing
period as mutually agreed by both parties. Customer estimates that this equates
to approximately [........] per month.
b. [...............] of Customer's purchases of products, the type of
which are available for purchase through the System, will be made through the
System by the date which is [.........] from the completion of the testing
period as mutually agreed by both parties. Customer estimates that this equates
to approximately [........] per month.
Customer agrees to provide Chemdex with (i) the results of Customer's use
and evaluation of the System, including any defects found in the System and any
information necessary for Chemdex to evaluate such defects and (ii) any
recommendations for changes or modification to the System. All data obtained
during the Term shall be available for inspection and analysis by Chemdex
personnel.
7. Right to Use Customer's Evaluation
Customer agrees that Chemdex shall have the right to use, in any manner and
for any purpose, any information (excluding Genentech proprietary information)
that pertains to the operation of the System gained as a result of Customer's
use and evaluation of the System during the Term. Such information shall
include but not be limited to changes, modifications and corrections to the
System. With prior written consent Chemdex shall have the right to release
information that Customer has used the system and cite Customer as a reference.
8. Notice to Suppliers
Recognizing that it is to the mutual benefit of Customer and Chemdex,
Customer agrees to communicate in writing directly with its existing suppliers,
notifying such suppliers that Customer is testing the System and is considering
using the System on an ongoing basis. Customer further agrees to encourage its
suppliers, in writing, or by other such means that customer may deem to be more
effective, to participate voluntarily in selling their products through the
System.
[....]CONFIDENTIAL TREATMENT REQUESTED
OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
<PAGE>
9. Confidentiality
---------------
1. Chemdex Proprietary Information. Customer and Chemdex agree that
certain information Customer may receive from Chemdex or that Customer may
develop under this Agreement will be Proprietary Information of Chemdex. Such
information includes but is not limited to (i) the design of the System; (ii)
data and/or conclusions regarding the performance and operation of the System;
(iii) the terms of this Agreement or any agreement Chemdex may have (or may be
negotiating) with any third party; and (iv) non-public information concerning
the System and the business or finances of Chemdex (all of (i) through (iv)
shall be referred to as "Chemdex Proprietary Information"). Customer shall not,
either directly or indirectly, disclose or use any Chemdex Proprietary
Information without prior written authorization from Chemdex. Customer
understands and agrees that the unauthorized disclosure of any Chemdex
Proprietary Information will cause irreparable harm for which there is no
adequate remedy at law.
2. Genentech Proprietary Information. Customer and Chemdex agree that
certain information Chemdex may receive from Customer by virtue of performing
this Agreement will be Proprietary Information of Customer. Such information
includes, but is not limited to (i) vendor and customer lists; (ii) financial
information of any type (iii) other information regarding the business or the
products of Customer. Such information shall be referred to as the "Genentech
Proprietary Information". Chemdex shall not, either directly or indirectly,
disclose or use any Genentech Proprietary Information without prior written
authorization from Customer. Chemdex understands that the unauthorized
disclosure or any Genentech Proprietary Information will cause irreparable harm
for which there is no adequate remedy at law.
3. Exceptions. This Agreement shall impose no obligation upon Chemdex or
Customer with respect to any information which (i) that party is authorized in
writing by the other party to disclose; (ii) becomes publicly available; (iii)
is subsequently rightly furnished to that party by a third party without
restriction on disclosure; or (iv) is rightfully known by that party as shown by
written records in existence at the time of receiving such information.
10. No Warranty
-----------
Customer and Chemdex agree that the System is provided "AS IS" and that
Chemdex makes no warranty as to the System. No warranty with respect to
performance specifications of the System is made. CHEMDEX DISCLAIMS ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, RELATED TO
THE SYSTEM, ITS USE OR ANY INABILITY TO USE IT, THE RESULTS OF ITS USE AND THIS
AGREEMENT.
11. Limitations of Liability
------------------------
In no event shall Chemdex or Customer be liable for any damages, whether in
contract or tort (including negligence), including but not limited to direct,
consequential, special, exemplary, incidental and indirect damages, arising out
of or in connection with this Agreement or the use, the results of use, or the
inability to use the System.
<PAGE>
12. Other Provisions
----------------
1. Independent Parties. Nothing contained in this Agreement shall be
construed as creating a joint venture, partnership, agent or employment
relationship between Customer and Chemdex.
2. No Assignment. Neither party may assign or otherwise transfer in any
way any of its rights and obligations arising out of this Agreement without the
prior written consent of the other party.
3. Waiver. The waiver or failure of either party to exercise in any
respect any rights provided for in this Agreement shall not be deemed a waiver
of any further right under this Agreement.
4. Severability. If any term or provision of this Agreement should be
declared invalid or unenforceable by a court of competent jurisdiction or by
operation of law, the remaining terms and provisions of this Agreement shall
remain in full force and effect.
5. Notices. Any notice or other communication required or permitted in
this Agreement shall be in writing and shall be deemed to have been duly given
three (3) days after mailing by first class certified mail, postage prepaid, to
addresses set forth above.
6. Integration. This Agreement and its exhibits and schedules, if any,
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all prior proposals, negotiations, conversations,
discussions and agreements between the parties concerning the subject matter
hereof.
7. Amendments. No amendment or modification of any provision of this
Agreement shall be effective unless the same shall be in writing and signed by
both parties.
8. Applicable Law. This Agreement shall be governed by the laws of the
State of California without regard to conflict of law provisions.
9. Headings. The headings contained herein are for the convenience of
reference only and are not intended to define, limit, expand, or describe the
scope of intent of any Section or other provision in this Agreement.
<PAGE>
10. Effective Date. This Agreement shall take effect on the date that the
last party executes this Agreement.
AGREED:
Genentech, Inc. Chemdex Corporation
/s/ J.E. Latimer /s/ David P. Perry
- -------------------------- -------------------------
Signature Signature
J. E. Latimer David P. Perry
- -------------------------- -------------------------
Name Name
Director, Purchasing President
- -------------------------- -------------------------
Title Title
1/5/98 1/5/98
- -------------------------- -------------------------
Date Date
<PAGE>
EXHIBIT 10.18
JOINT MARKETING AGREEMENT
-------------------------
This Joint Marketing Agreement ("Agreement") is made this 11th day of May,
---------
1999 (the "Effective Date"), by and between the Biotechnology Industry
--------------
Organization, a not-for-profit industry organization with offices at 1625 K.
Street NW, Suite 1100, Washington, D.C. 20006 ("BIO"), and Chemdex Corporation,
---
a Delaware corporation with offices at 3950 Fabian Way, Palo Alto, CA 94303
("Chemdex").
-------
RECITALS
--------
Whereas BIO is a not-for-profit industry organization chartered with providing
leadership and service-oriented guidance and services to its members in order to
advance the industry and bring the benefits of biotechnology to the people of
the world; and
Whereas BIO has developed a network of biotechnology professionals supporting a
common goal of increasing their effectiveness through group purchasing
arrangements; and
Whereas BIO has been fostering the development of electronic commerce and
procurement of biotechnology supplies through a common interface; and
Whereas Chemdex has developed and is currently marketing and supporting a
comprehensive electronic commerce and procurement solution for the life sciences
industry; and
Whereas Chemdex has determined that BIO maintains strong relationships with
biotechnology customers; and
Whereas BIO, BIO's board of directors, and representatives of BIO's member
companies conducted an industry survey and request for proposal process to
evaluate electronic commerce options for its members; and
Whereas, as a result of the above described process, the parties have agreed to
cooperate as set forth in this Agreement in the marketing of Chemdex's
electronic commerce and procurement solution for biotechnology companies.
AGREEMENT
---------
In consideration of the mutual promises contained in this Agreement, the
parties agree as follows:
1. Definitions.
-----------
"BIO/Chemdex Interface" means the first WWW page which is viewed by an
---------------------
Enterprise Customer when such customer first accesses the Chemdex System.
<PAGE>
"BIO Trademarks" means the trademarks owned or controlled by BIO.
--------------
"Chemdex Enterprise Customer Agreement" means the agreement pursuant to
-------------------------------------
which Chemdex authorizes customers to purchase Products through the Chemdex
System.
"Chemdex System" means Chemdex's online ordering system for life science
--------------
supplies currently located on the World Wide Web at www.chemdex.com and which
---------------
shall conform with, when commercially reasonable, the guidelines set forth on
Exhibit A.
- ---------
"Chemdex Trademarks" means the trademarks owned or controlled by Chemdex.
------------------
"Confidential Information" shall mean (i) any information disclosed by one
------------------------
party to the other pursuant to this Agreement which is in written, graphic,
machine readable or other tangible form and is marked "Confidential",
"Proprietary" or in some other manner to indicate its confidential nature, (ii)
oral information disclosed by one party to the other pursuant to this Agreement,
provided that such information is designated as confidential at the time of
disclosure, (iii) other information disclosed by one party to the other which
the receiving party should reasonably know that the disclosing party would
regard as confidential, and (iv) the terms and conditions of this Agreement.
"Enterprise Customer" means a Member that enters into a Chemdex Enterprise
-------------------
Customer Agreement with Chemdex in order to use the Chemdex System to purchase
Products.
"Intellectual Property Rights" means any trade secrets, patents,
----------------------------
copyrights, trademarks, know-how, moral rights and similar rights of any type
under the laws of any governmental authority, domestic or foreign, including all
applications and registrations relating to any of the foregoing.
"Joint Marketing Fund" means the fund the parties will establish, in
--------------------
accordance with Section 2(k), to fund BIO's marketing obligations hereunder.
"Marketing Plans(s)" will have the meaning set forth in Section 4(a) below.
------------------
"Member(s)" means the biotechnology companies which have registered with
---------
BIO to be represented by BIO.
"Products" means the products offered for sale through the Chemdex System.
--------
"WWW" means the World Wide Web.
---
2. BIO Obligations.
---------------
(a) Pilot Users. Immediately after the Effective Date, BIO will
-----------
provide Chemdex with access to the Members that previously have expressed to BIO
an interest in becoming pilot users of the Chemdex System, and will make
commercially reasonable efforts to enlist each such potential Enterprise
Customers in a pilot program on terms mutually agreeable to the parties.
<PAGE>
(b) Personnel. BIO will provide sales and marketing personnel (at
---------
the minimum, the equivalent of one hundred percent (100%) of [.......] full time
employees) reasonably sufficient to enable BIO to fulfill its obligations under
this Agreement. BIO will provide the names and credentials of such personnel to
Chemdex within thirty (30) days after the Effective Date of this Agreement, and
will provide Chemdex with thirty (30) days written notice prior to replacing
such personnel. Such personnel shall be subject to the prior written approval
of Chemdex; provided, however, that Chemdex shall not unreasonably withhold or
delay such approval.
(c) White Paper. BIO, at Chemdex's request, will edit and provide
-----------
other reasonable assistance in the preparation by Chemdex or its representatives
of a white paper on electronic commerce in the biotechnology industry. BIO will
use commercially reasonable efforts to cooperate with Chemdex in the preparation
of a white paper of a quality which BIO, in the exercise of its reasonable
discretion, would endorse, and upon completion of the white paper, will consider
in good faith endorsing the same.
(d) Speaking Engagements. Upon Chemdex's reasonable request
--------------------
consistent with the applicable Marketing Plan, BIO will provide qualified
personnel to speak on and endorse the Chemdex System at sales meetings and
industry trade shows, conferences, and other related events. BIO will also, upon
Chemdex's request, provide reasonable opportunities for Chemdex to speak at
appropriate BIO events. BIO will provide opportunities for significant
participation by Chemdex at BIO meetings and events, including, without
limitation, speaking engagements, exhibitions, and the BIO show to be held in
Seattle, Washington, between May 16 and May 20, 1999.
(e) Trademark License.
-----------------
(i) Subject to the provisions of this Section 2(e), BIO hereby
grants to Chemdex a non-exclusive worldwide license under BIO's Intellectual
Property Rights in the BIO Trademarks to use and reproduce the BIO Trademarks
solely as is necessary to fulfill its branding and marketing obligations set
forth under this Agreement. Chemdex will comply with any usage guidelines which
may be provided to Chemdex by BIO from time to time, and upon BIO's request,
shall provide BIO with samples of Chemdex's usage of such BIO Trademarks. BIO
will provide the BIO Trademarks to Chemdex in a format reasonably acceptable to
Chemdex no later than thirty (30) days after the Effective Date. Chemdex shall
not challenge BIO's ownership of the BIO Trademarks or use or adopt any
trademarks that might be confusingly similar to such BIO Trademarks.
(ii) Chemdex shall comply with all instructions, standards,
specifications, quality criteria and procedures that BIO may reasonably and in
good faith prescribe from time to time for the purpose of assuring that the
products and services offered in conjunction with any BIO Trademark meet the
quality standards prevailing in the industry at the time. In the event Chemdex
fails to comply with such requirements and standards and, in BIO's
[.....] CONFIDENTIAL TREATMENT REQUESTED
OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMMISSION
<PAGE>
reasonable view, such failure causes or is likely to cause Chemdex's products or
services to be substandard, then BIO shall notify Chemdex of the same and if
Chemdex fails to cure the same within sixty (60) days then BIO may require
Chemdex by written notice to suspend its use of the applicable BIO Trademark(s)
until the failure is remedied to BIO's reasonable satisfaction.
(f) Mailing List. Subject to the limitations set forth in this
------------
Section 2(f), BIO hereby grants to Chemdex a non-exclusive, worldwide license to
use BIO's mailing list containing the names and contact information of Members
and prospective Members, as such list is amended and updated from time to time
during the term of this Agreement ("Mailing List"). BIO will provide such
------------
Mailing List to Chemdex on the first day of each calendar quarter during the
term of this Agreement. The Mailing List shall be deemed BIO Confidential
Information. Notwithstanding any other provision of this Agreement, Chemdex
shall use the mailing list (i) only as necessary to perform its obligations
under this Agreement, and (ii) only to distribute information and materials BIO
has approved in advance, such approval not to be unreasonably withheld or
delayed. Chemdex will not sell or distribute the Mailing List without the prior
written consent of BIO.
(g) Exclusivity. During the term of this Agreement, BIO will not
-----------
market or promote an online ordering system for life science supplies, other
than the Chemdex System. Notwithstanding the foregoing, nothing in this
Agreement shall be construed to prevent BIO from negotiating discounts and other
benefits for BIO members with any supplier, irrespective of whether such
supplier participates in the Chemdex System.
(h) Linking. BIO will include links to certain Chemdex WWW sites on
-------
the BIO WWW sites. Chemdex and BIO will mutually agree upon the quantity,
placement, and design of such links in the Marketing Plans.
(i) Publications. BIO will market and endorse Chemdex and the
------------
Chemdex System in direct mailings and in other BIO publications, including
publishing advertisements created by Chemdex and approved by BIO (such approval
not to be unreasonably withheld or delayed) in BIO News, BIO Alerts, BIO
Bulletins, and the BIO Member directory.
(j) Other. BIO will provide opportunities for Chemdex to participate
-----
in appropriate BIO purchasing road shows, Member meetings, and meetings held by
organizations, that are affiliates of BIO. BIO, at its option, may undertake
other activities that BIO reasonably deems necessary or appropriate to market
the Chemdex System, subject to the prior approval of Chemdex, which approval
Chemdex will not unreasonably withhold or delay.
(k) Joint Marketing Fund.
--------------------
(i) Formation. BIO will form a Joint Marketing Fund (subject
---------
to the prior written approval of Chemdex, which approval shall not be
unreasonably withheld or delayed) to receive the contributions to the Joint
Marketing Fund set forth in Section 3(d). BIO shall use such Joint Marketing
Fund (other than the Common Stock which BIO purchases
<PAGE>
pursuant to Section 3(d)(ii) below, which BIO will have the right to use to fund
its obligations set forth in this Agreement and the Marketing Plans or for the
general benefit of its Members and the biotechnology industry) solely to fund
its obligations set forth in this Agreement and in the Marketing Plans;
provided, however, that (A) BIO's obligations under this Agreement will be
funded by the Joint Marketing Fund only to the extent BIO withdraws monies from
the Joint Marketing Fund to fund such obligations, and documents such activities
in accordance with Section 2(k)(ii) below, and (B) BIO will have the right to
use up to [...................] of such Joint Marketing Funds to support
activities, which activities may be unrelated to BIO's obligations under this
Agreement, for the benefit of its Members and the biotechnology industry.
(ii) Reports. Within thirty (30) days after the end of each
-------
calendar quarter, BIO will submit to Chemdex a detailed report containing the
following information: (A) withdrawals from and deposits to the Joint Marketing
Fund during such calendar quarter, (B) expenditures during such calendar quarter
that relate to joint marketing activities, (C) reasonable documentation to
support such expenditures, and (D) funds remaining in the Joint Marketing Fund
as of the last day of such calendar quarter.
(iii) Audits. BIO shall maintain full and complete records
------
related to the use of the Joint Marketing Fund, including copies of the reports
described in Section 2(k)(ii) above, for at least three (3) years after the
creation of such reports. Chemdex shall be entitled to audit such records upon
thirty (30) days written notice, in order to confirm the accuracy of the reports
described in Section 2(k)(ii), provided, that Chemdex may conduct no more than
one such audit in any six (6) month period. Any such audit shall be performed at
Chemdex's expense during normal business hours; provided, that the cost of such
audit (and in addition, the full amount of any Joint Marketing Funds used by BIO
in breach of any provision of this Agreement) shall be promptly paid by BIO if
such audit reveals that BIO used of more than five percent (5%) of the amounts
paid by Chemdex into the Joint Marketing Fund in any six (6) month period for
purposes other than those contemplated by this Agreement.
3. Chemdex Obligations.
-------------------
(a) Chemdex System. Chemdex will provide Enterprise Customers with
--------------
online ordering services through the BIO/Chemdex Interface. Chemdex will use
reasonable best efforts to execute Chemdex Enterprise Customer Agreements with
Members who desire to become Enterprise Customers of the Chemdex System.
(b) Trademarks.
----------
(i) Chemdex hereby grants to BIO a non-exclusive, royalty-free,
worldwide license under Chemdex's Intellectual Property Rights in the Chemdex
Trademarks to use and reproduce the Chemdex Trademarks solely as is necessary to
fulfill BIO's branding and marketing obligations set forth under this Agreement.
BIO will comply with any usage guidelines which may be provided to BIO by
Chemdex from time to time, and upon Chemdex's
[.....] CONFIDENTIAL TREATMENT REQUESTED
OMMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
<PAGE>
request, shall provide Chemdex with samples of BIO's usage of such Chemdex
Trademarks. Chemdex will provide the Chemdex Trademarks to BIO in a format
reasonably acceptable to BIO no later than thirty (30) days after the Effective
Date. BIO shall not challenge Chemdex's ownership of the Chemdex Trademarks or
use or adopt any trademarks that might be confusingly similar to such Chemdex
Trademarks.
(ii) BIO shall comply with all instructions, standards,
specifications, quality criteria and procedures that Chemdex may reasonably and
in good faith prescribe from time to time for the purpose of assuring that the
products and services offered in conjunction with any Chemdex Trademark meet the
quality standards prevailing in the industry at the time. In the event BIO fails
to comply with such requirements and standards, then Chemdex shall notify BIO of
the same and if BIO fails to cure the same within sixty (60) days then Chemdex
may require BIO, by written notice, to suspend its use of the applicable Chemdex
Trademark(s) until the failure is remedied to Chemdex's reasonable satisfaction.
(c) Discount. In the event that Chemdex charges a fee for connecting
--------
Enterprise Customers to the Chemdex System, such Enterprise Customers will
receive a discount of [...................] or [......] whichever is greater,
off of the fees which Chemdex generally charges its customers with respect to
such customers' use of the Chemdex System: provided, however, that during the
term of this Agreement, the parties will re-negotiate such discount in good
faith within thirty (30) days after Chemdex notifies BIO in writing that
Chemdex's business model and/or revenue sources have substantially changed. In
addition, any fee which becomes standard to the majority of Chemdex Enterprise
Customer Agreements will be eligible for such discount.
(d) Joint Marketing Fund Contributions.
----------------------------------
(i) Payments. At the beginning of each calendar quarter, and
--------
provided that BIO meets its obligations set forth in the applicable Marketing
Plan, Chemdex will make the following contributions to the Joint Marketing Fund:
(A) [........] per quarter during the first twelve (12) month term of this
Agreement, (B) [........] per quarter during the second and third twelve (12)
month terms of this Agreement, and (C) [........] per quarter during the fourth
and fifth twelve (12) month terms of this Agreement. Chemdex may, in its sole
discretion, make contributions to the Joint Marketing Fund in advance of the due
dates set forth in this Section 3(d), which advances shall be fully creditable
against future contributions to the Joint Marketing Fund required by this
Section 3(d) (but which advances shall not be creditable against amounts already
paid to the Joint Marketing Fund by Chemdex prior to the date of such advance),
in the event that the budget for any Marketing Plan exceeds the funds then-
available in the Joint Marketing Fund. The parties will use reasonable best
efforts to promptly settle any dispute arising under this Section 3(d) in
accordance with the procedures set forth in Section 10(d) below.
(ii) Royalty. As a one-time royalty and in consideration for
-------
the licenses granted to Chemdex pursuant to Sections 2(e) and 2(f), the parties
shall enter into a Stock
[.....] CONFIDENTIAL TREATMENT REQUESTED
OMMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
<PAGE>
Purchase Agreement of even date, pursuant to which BIO will purchase 375,000
shares of the Common Stock of Chemdex, which Common Stock shall be deemed to be
a part of the Joint Marketing Fund and its uses as described in section 2(k)(i)
above.
(e) Data. Within fifteen (15) days following the end of each
----
calendar quarter falling in whole or part within the term of this Agreement, and
provided that Chemdex obtains the Enterprise Customers' prior written consent,
Chemdex will provide BIO with data regarding the use of the Chemdex System by
Enterprise Customers (collectively, "Customer Data"), such data to be
-------------
provided electronically in a format mutually agreed upon by the parties. Neither
party shall disclose Customer Data without the prior written consent of the
other party (which approval such party shall not unreasonably withhold or delay)
except as required by law; Chemdex will have the right to approve any form or
letter which is used to obtain the consent of Enterprise Customers to the
disclosure of such Enterprise Customers' data to BIO hereunder; provided,
however, that Chemdex will not unreasonably withhold or delay approval of such
form or letter.
(f) Linking. Chemdex will include links to the BIO WWW sites on the
-------
Chemdex WWW site. Chemdex and BIO will mutually agree upon the quantity,
placement, and design of such links in the Marketing Plans.
(g) Exclusivity. During the term of this Agreement, Chemdex will not
-----------
enter into a joint marketing arrangement with any other biotechnology or life
science trade organization or professional association, in accordance with
Section 4(c) hereof, whose membership is more than [....] biotechnology
companies or whose charter includes specific reference to the representation of
biotechnology companies ("Biotechnology Organizations") without first making, in
---------------------------
good faith, all commercially reasonable efforts to obtain the participation of
BIO in such joint marketing arrangement.
(h) Suppliers. Chemdex shall make best efforts to make available
---------
through the BIO/Chemdex Interface the full line of products and services
reasonably required by Enterprise Customers. If Chemdex fails to provide
products and services reasonably required by Enterprise Customers, BIO will have
the right to provide links to suppliers providing such products and services on
BIO's WWW site located at www.bio.org.
(i) Reports. Within thirty (30) days following the end of each
-------
calendar quarter, Chemdex will submit to BIO a detailed report containing the
following information: (i) names of Members executing a Chemdex Enterprise
Customer Agreement during the applicable quarter and (ii) contact information
(contact name, address, telephone, fax and electronic mail address) for each
such Member. Subject to the prior written consent of the applicable Enterprise
Customer, Chemdex will also provide to BIO (iii) a copy of the Chemdex
Enterprise Customer Agreement between Chemdex and such Enterprise Customer, and
(iv) the fees and charges paid by the Enterprise Customer to Chemdex pursuant to
such agreement.
[.....] CONFIDENTIAL TREATMENT REQUESTED
OMMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
<PAGE>
(j) Publications. Chemdex will market and endorse BIO in direct
------------
mailings and in other Chemdex publications, including publications related to
the promotion of the relationship of the parties established by this Agreement.
4. Mutual Obligations.
------------------
(a) Marketing Plans. During the term of this Agreement, Chemdex and
---------------
BIO will enter into twelve (12) month marketing plans, which plans shall
describe in detail the obligations of each of the parties with respect to the
marketing and endorsement of the Chemdex System to Members (including, but not
limited to, the obligations outlined in Section 2 and other mutually beneficial
activities), within forty-five (45) days after the Effective Date, and upon each
annual anniversary thereof ("Marketing Plan"); provided, however, that if the
--------------
parties fail to enter into any new Marketing Plan prior to the expiration of the
then-current Marketing Plan, and unless otherwise agreed upon by the parties in
writing, the previous Marketing Plan will remain in effect. Each party will use
reasonable best efforts to fulfill its obligations set forth in each Marketing
Plan during the twelve (12) month term of such Marketing Plan. Martha Greer (or
a successor designated in writing to BIO) will coordinate the efforts of
Chemdex, and Kaye Kirk (or a successor designated in writing to Chemdex) will
coordinate the efforts of BIO, under each such Marketing Plan.
(b) Co-Branding. Chemdex and BIO will cooperate and will mutually
-----------
agree upon the branding of (i) the BIO/Chemdex Interface, (ii) a section of the
BIO WWW site which will be devoted exclusively to communications regarding the
Chemdex System and the relationship of the parties established by this Agreement
and which will be located at www.bio.org/chemdex, and (iii) a section of the
Chemdex WWW site which will be devoted exclusively to communications regarding
the Chemdex System and the relationship of the parties established by this
Agreement, and which will be located at www.chemdex.com/BIO. Chemdex and BIO
-------------------
will, in good faith, work with other Chemdex partners, including without
limitation VWR Scientific Products Corporation, to form and implement co-
branding strategies which are agreed upon by all involved parties.
(c) Other Partners. Chemdex and BIO will jointly recruit relevant
--------------
partners to participate with Chemdex and BIO in the endorsement of the Chemdex
System to biotechnology companies. Josh Olshansky (or a successor designated in
writing to BIO) will coordinate the efforts of Chemdex, and Carl Feldbaum (or an
alternate designated in writing to Chemdex) will coordinate the efforts of BIO
with respect to such recruitment. If reasonably necessary, Chemdex and BIO
agree to allocate funds from the Joint Marketing Fund to provide
[.....................] of the funding required to involve new partners in joint
marketing activities. Within thirty (30) days after the Effective Date, Chemdex
and BIO will establish a plan to recruit partners for joint marketing activities
("Partner Recruitment Plan"). Chemdex will be responsible for up to
------------------------
[..............] of the costs explicitly set forth in such Partner Recruitment
Plan; provided, however, that all additional costs incurred by the parties to
recruit partners which are not set forth in the Partner Recruitment Plan shall
be the sole responsibility of BIO.
[.....] CONFIDENTIAL TREATMENT REQUESTED
OMMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
<PAGE>
(d) Expenses. Except as otherwise set forth in this Agreement, each
--------
party shall bear the entire cost and expense of fulfilling such party's
obligations under this Agreement.
(e) Publicity. The parties will jointly issue a press release
---------
announcing the relationship of the parties established hereunder by May 16,
1999, or by a date mutually agreed by BIO and Chemdex. The parties will
individually and jointly pursue mutually agreed upon media and press relations
activities during the term of this Agreement; provided, however, that all such
media and press relations activities, whether individually or jointly pursued,
shall be subject to the prior approval of both parties, which approval shall not
be unreasonably withheld or delayed.
(f) Participation Goals. The parties will use their reasonable best
-------------------
efforts to obtain new Enterprise Customers in accordance with the table set
forth below:
<TABLE>
<CAPTION>
Term Cumulative Large Cumulative Small Total Cumulative
Enterprise Customers Enterprise Customers Enterprise Customers
[......] employees) by [......] employees) by by the end of the Term
the end of the Term the end of the Term
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First twelve month [...] [...] [...]
term of Agreement
- -------------------------------------------------------------------------------------------------
Second twelve month [...] [...] [...]
term of Agreement
- -------------------------------------------------------------------------------------------------
Third twelve month [...] [...] [...]
term of Agreement
- -------------------------------------------------------------------------------------------------
Fourth twelve month [...] [...] [...]
term of Agreement
- -------------------------------------------------------------------------------------------------
Fifth twelve month [...] [...] [...]
term of Agreement
- -------------------------------------------------------------------------------------------------
</TABLE>
The performance goals set forth in the above table assumes that the number
of potential Enterprise Customers is [......................]. At the end of
each twelve (12) month term of this Agreement, Chemdex and BIO will review and
adjust the number of potential Enterprise Customers. If the number of potential
Enterprise Customers increases or decreases by [.................] or more, the
performance goals set forth in the above table will be increased or decreased by
such percentage with respect to the subsequent twelve (12) month term of this
Agreement. If, at any point during the term of this Agreement, it appears that
BIO will fail to
[.....] CONFIDENTIAL TREATMENT REQUESTED
OMMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
<PAGE>
achieve the performance goals set forth in the above table, Chemdex and BIO
will, in good faith, discuss mutually agreeable adjustments to the above table
or alternative solutions.
5. Ownership. Chemdex shall own all right, title, and interest in and to
---------
the Chemdex System and the Chemdex Trademarks. BIO shall own all right, title,
and interest in and to the BIO Trademarks. Upon completion of the white paper
described in Section 2(c), the parties shall jointly own all United States and
international copyrights in such white paper, and neither party shall have a
duty to account to the other party with respect to such party's use of such
white paper; provided, however, that BIO will not distribute or otherwise use
such white paper without the prior written consent of Chemdex.
6. Term and Termination.
--------------------
(a) Term. This Agreement shall be effective for a term of five (5)
----
years after the Effective Date, unless terminated earlier in accordance with
this Section 6.
(b) Termination for Failure to Achieve Participation Goals. After
------------------------------------------------------
the expiration of the first twelve (12) month term of this Agreement, either
party will have the right to terminate this Agreement upon written notice to the
other party (which notice shall be received no later than forty-five (45) days
after each twelve (12) month anniversary of this Agreement) in the event that
the parties fail to achieve at least [................................] of the
participation goals for the previous twelve (12) month term of this Agreement
set forth in Section 4(f).
(c) Termination for Cause. If either party defaults in the
---------------------
performance of any provision of this Agreement, then the non-defaulting party
may give written notice to the defaulting party that if the default is not cured
within thirty (30) days the Agreement will be terminated. If the non-defaulting
party gives such notice and the default is not cured during the thirty (30) day
period, then the Agreement shall automatically terminate at the end of that
period.
(d) Termination for Insolvency. This Agreement shall terminate,
--------------------------
without notice, (i) upon the institution by or against either party of
insolvency, receivership or bankruptcy proceedings or any other proceedings for
the settlement of such party's debts, which, if involuntary, are not dismissed
within ninety (90) days, (ii) upon either party's making an assignment for the
benefit of creditors, or (iii) upon either party's dissolution.
(e) Return of Materials. Within thirty (30) days after the
-------------------
termination of this Agreement, each party either shall destroy or return to
other party all Confidential Information (excluding Customer Data) and all
materials bearing the other party's trademarks, or shall destroy such items.
Neither party shall retain any copies of any Confidential Information or items
that may have been entrusted to it by the other party. Effective upon the
termination of this Agreement, each party shall cease to use all trademarks of
the other party. Upon termination, BIO will have the right to retain all
payments received by BIO prior to the termination of this Agreement.
[.....] CONFIDENTIAL TREATMENT REQUESTED
OMMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION
<PAGE>
(f) Survival of Certain Terms. The provisions of Sections 1,
-------------------------
2(k)(iii), 5, 6(e), 6(f), 6(g), 7, 9, and 10, and the last sentence of Sections
2(e) and 3(b), shall survive the termination of this Agreement for any reason.
Section 8 will survive any termination or expiration of this Agreement for a
period of five (5) years. All other rights and obligations of the parties shall
cease upon termination of this Agreement.
(g) Limitation on Liability. IN THE EVENT OF TERMINATION BY EITHER
-----------------------
PARTY IN ACCORDANCE WITH ANY OF THE PROVISIONS OF THIS AGREEMENT, NEITHER PARTY
SHALL BE LIABLE TO THE OTHER, BECAUSE OF SUCH TERMINATION, FOR COMPENSATION,
REIMBURSEMENT OR DAMAGES ON ACCOUNT OF THE LOSS OF PROSPECTIVE PROFITS OR
ANTICIPATED SALES OR ON ACCOUNT OF EXPENDITURES, INVESTMENTS, LEASES OR
COMMITMENTS IN CONNECTION WITH THE BUSINESS OR GOODWILL OF CHEMDEX OR BIO.
7. Warranties; Limitation on Liability.
-----------------------------------
(a) Power and Authority. Each party represents and warrants that (i)
-------------------
it has the full right, power and authority to enter into this Agreement and to
discharge its obligations hereunder, and (ii) it has not entered into any
agreement inconsistent with this Agreement or otherwise granted any third party
any rights inconsistent with the rights granted to the other party under this
Agreement. Chemdex provides no warranty hereunder to BIO with respect to the
Chemdex System or the Products. Each User receives a warranty on the Chemdex
System or Products, if any, solely pursuant to the Chemdex Enterprise Customer
Agreement which such User executes with Chemdex.
(b) No Other Warranties. EXCEPT FOR THE FOREGOING WARRANTIES,
-------------------
CHEMDEX AND BIO MAKE NO OTHER WARRANTIES, EXPRESS OR IMPLIED, BY STATUTE OR
OTHERWISE, RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT. EACH PARTY
EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY, NONINFRINGEMENT,
AND FITNESS FOR A PARTICULAR PURPOSE.
(c) Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE
-----------------------
LIABLE TO THE OTHER FOR ANY CONSEQUENTIAL, SPECIAL, INCIDENTAL, OR INDIRECT
DAMAGES OF ANY KIND UNDER ANY CAUSE OR ACTION (INCLUDING NEGLIGENCE), WHETHER OR
NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THESE
LIMITATIONS SHALL APPLY NOTWITHSTANDING THE FAILURE OF THE ESSENTIAL PURPOSE OF
ANY LIMITED REMEDY. THE LIABILITY OF EACH PARTY UNDER THIS AGREEMENT (OTHER THAN
CHEMDEX'S LIABILITY FOR CONTRIBUTIONS OF CASH AND STOCK TO THE JOINT MARKETING
FUND PURSUANT TO SECTION 3(d)) WILL IN NO EVENT EXCEED FIVE HUNDRED THOUSAND
DOLLARS ($500,000).
[....] CONFIDENTIAL TREATMENT REQUESTED
OMITTED PORTIONS FILED SEPARATELY WITH THE SECURITIES AND SECURITIES
COMMISSION
<PAGE>
8. Confidentiality.
---------------
(a) Nondisclosure. Each party shall treat as confidential all
-------------
Confidential Information of the other party, shall not use such Confidential
Information except as set forth herein, and shall use reasonable efforts not to
disclose such Confidential Information to any third party. Without limiting the
foregoing, each of the parties shall use at least the same degree of care which
it uses to prevent the disclosure of its own confidential information of like
importance to prevent the disclosure of Confidential Information disclosed to it
by the other party under this Agreement. Each party shall promptly notify the
other party of any actual or suspected misuse or unauthorized disclosure of the
other party's Confidential Information.
(b) Exceptions. Notwithstanding the above, neither party shall have
----------
liability to the other with regard to any Confidential Information of the other
which the receiving party can prove: (i) was in the public domain at the time it
was disclosed or has entered the public domain through no fault of the receiving
party; (ii) was known to the receiving party, without restriction, at the time
of disclosure, as demonstrated by files in existence at the time of disclosure;
(iii) is disclosed with the prior written approval of the disclosing party; (iv)
was independently developed by the receiving party without any use of the
Confidential Information, as demonstrated by files created at the time of such
independent development; (v) becomes known to the receiving party, without
restriction, from a source other than the disclosing party without breach of
this Agreement by the receiving party and otherwise not in violation of the
disclosing party's rights; or (vii) is disclosed pursuant to the order or
requirement of a court, administrative agency, or other governmental body;
provided, however, that the receiving party shall provide prompt notice thereof
to the disclosing party to enable the disclosing party to seek a protective
order or otherwise prevent or restrict such disclosure. In addition, Chemdex
shall have the right to disclose the terms and conditions of this Agreement in
documents filed with the Securities and Exchange Commission if Chemdex deems
such disclosure to be advisable; provided, however, that Chemdex will make such
documents available to BIO for review by BIO from time to time during the term
of this Agreement.
(c) Return of Confidential Information. Upon expiration or
----------------------------------
termination of this Agreement, each party shall return all Confidential
Information received from the other party.
(d) Remedies. Any breach of the restrictions contained in this
--------
Section 8 is a breach of this Agreement that may cause irreparable harm to the
nonbreaching party. Any such breach shall entitle the nonbreaching party to
injunctive relief in addition to all legal remedies.
9. Indemnification. Each party shall be solely responsible for, and
---------------
shall indemnify and hold the other party free and harmless from, any and all
claims, damages or lawsuits (including attorneys' fees) arising out of the
negligent or wrongful acts of such party, its employees or its agents under this
Agreement, including, without limitation, claims by third parties against such
party as a result of such party's (a) representation of the Chemdex System in
<PAGE>
a manner inconsistent with the Chemdex's published descriptions and warranties,
or (b) marketing of the Chemdex System inconsistent with the terms of this
Agreement; provided, that such party is provided with (i) prompt written notice
of such claim or action, (ii) sole control and authority over the defense or
settlement of such claim or action and (iii) proper and full information and
reasonable assistance to defend and/or settle any such claim or action.
10. Miscellaneous.
-------------
(a) Amendments and Waivers. Any term of this Agreement may be
----------------------
amended or waived only with the written consent of the parties or their
respective permitted successors and assigns. Any amendment or waiver effected in
accordance with this Section 10(a) shall be binding upon the parties and their
respective successors and assigns.
(b) Successors and Assigns. Neither party will have the right to
----------------------
assign this Agreement without the prior written consent of the other party;
provided, that Chemdex shall have the right to assign its rights, obligations
and privileges hereunder to a successor in business or an acquirer of all or
substantially all of its business or assets to which this Agreement pertains
without obtaining the consent of BIO. Subject to the foregoing, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
(c) Governing Law. This Agreement shall be governed, construed and
-------------
interpreted in accordance with the laws of the State of California, without
giving effect to principles of conflicts of law.
(d) Dispute Resolution.
-------------------
(i) Negotiation. No arbitration or other proceeding with
-----------
respect to any claim, dispute or controversy arising out of or in connection
with or relating to this Agreement or the breach or alleged breach thereof shall
arise until the following procedures have been completed. Representatives from
each party will meet within ten (10) business days after receipt of a request
from either party to review in good faith any dispute with respect to the
interpretation of any provision of this Agreement or with respect to the
performance of either party under this Agreement. In the event a disagreement or
dispute under this Agreement is not resolved by the designated representatives
of each party by mutual agreement within five (5) business days after a meeting
to discuss the disagreement, which resolution shall be evidenced by a document
signed by both parties, either party may within five (5) business days
thereafter provide the other written notice specifying the terms of such
disagreement in reasonable detail. Upon receipt of such notice, the chief
executive officer of each party shall meet at a mutually-agreed place and time
(but no later than ten (10) business days after receipt of such notice) for
<PAGE>
the purpose of resolving such disagreement. Such officers shall make a good
faith effort to resolve the disagreement or negotiate an acceptable revision of
this Agreement acceptable to both parties, without the necessity of formal
procedures relating thereto. During the course of such discussion, the parties
will reasonably cooperate and provide information that is not confidential to
the end that each party may be fully informed with respect to the issues in
dispute. The institution of arbitration to resolve the disagreement may occur
only after the earlier of the following events: (a) the chief executive officers
mutually agree that resolution of the disagreement through continued negotiation
is not likely to occur, or (b) ten (10) business days after the initial meeting
between such chief executive officers.
(ii) Arbitration. Subject to the provisions of paragraph (i)
-----------
above, any dispute or claim arising out of or in connection with this Agreement
will be finally settled by binding arbitration in a location mutually agreed
upon by the parties in accordance with the then-current Commercial Arbitration
Rules of the American Arbitration Association by three arbitrators appointed in
accordance with said rules. Each party shall select one such arbitrator, and the
two arbitrators so chosen shall select the third arbitrator. The arbitrators
shall apply California law, without reference to rules of conflicts of law or
rules of statutory arbitration, to the resolution of any dispute. Judgment on
the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to
any court of competent jurisdiction for preliminary or interim equitable relief,
or to compel arbitration in accordance with this paragraph, without breach of
this arbitration provision.
(e) Attorney's Fees. If any action at law or in equity (including
---------------
arbitration) is necessary to enforce or interpret the terms of this Agreement,
the prevailing party shall be entitled to reasonable attorney's fees, costs and
necessary disbursements in addition to any other relief to which such party may
be entitled.
(f) Notices. Any notice required or permitted by this Agreement
-------
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by courier, overnight delivery service or confirmed facsimile or
electronic mail transmission, or forty-eight (48) hours after being deposited in
the regular mail as certified or registered mail (airmail if sent
internationally) with postage prepaid, if such notice is addressed to the party
to be notified at such party's address, facsimile number or electronic mail
address as set forth below, or as subsequently modified by written notice.
Chemdex: BIO:
Chemdex Corporation Biotechnology Industry Organization
3950 Fabian Way 1625 K Street, N.W., Suite 1100
Palo Alto, CA 94303 Washington, DC 20006
Tel: (650) 813-0300 Tel: (202) 857-0244
Fax: (650) 813-0304 Fax: (202) 887-9001
Email:[email protected] Email:[email protected]
<PAGE>
With a copy to: With a copy to:
[email protected] [email protected]
----------------------
(g) Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith, in order to maintain the economic position enjoyed
by each party as close as possible to that under the provision rendered
unenforceable. In the event that the parties cannot reach a mutually agreeable
and enforceable replacement for such provision, then (i) such provision shall be
excluded from this Agreement, (ii) the balance of the Agreement shall be
interpreted as if such provision were so excluded and (iii) the balance of the
Agreement shall be enforceable in accordance with its terms.
(h) Entire Agreement. This Agreement is the product of both of the
----------------
parties hereto, and constitutes the entire agreement between such parties
pertaining to the subject matter hereof, and merges all prior negotiations and
drafts of the parties with regard to the transactions contemplated herein. Any
and all other written or oral agreements existing between the parties hereto
regarding such transactions are expressly canceled.
(i) Foreign Corrupt Practices Act. In conformity with the United
-----------------------------
States Foreign Corrupt Practices Act, neither party, nor such party's employees
and agents, shall directly or indirectly make an offer, payment, promise to pay,
or authorize payment, or offer a gift, promise to give, or authorize the giving
of anything of value for the purpose of (A) influencing an act or decision of an
official of any government (including a decision not to act) or (B) inducing
such a person to use his influence to affect any such governmental act or
decision in order to assist such party in obtaining, retaining or directing any
such business.
(j) Advice of Legal Counsel. Each party acknowledges and represents
-----------------------
that, in executing this Agreement, it has had the opportunity to seek advice as
to its legal rights from legal counsel and that the person signing on its behalf
has read and understood all of the terms and provisions of this Agreement. This
Agreement shall not be construed against any party by reason of the drafting or
preparation thereof.
(k) Independent Contractors. Notwithstanding the use of the term
-----------------------
"Partner" in this Agreement or in any use of the word "partner" in marketing
materials, the relationship of Chemdex and BIO is that of independent
contractors, and nothing contained in this Agreement shall be construed to (i)
give either party the power to direct or control the day-to-day activities of
the other, (ii) constitute the parties as partners, joint venturers, co-owners
or otherwise as participants in a joint undertaking, or (iii) allow either party
to create or assume any obligation on behalf of the other party for any purpose
whatsoever.
<PAGE>
CHEMDEX CORPORATION BIOTECHNOLOGY INDUSTRY
ORGANIZATION
By: /s/ David P. Perry By: /s/ Carl B. Feldbaum
-------------------- --------------------
Title: President and CEO Title: President
----------------- -----------------
Date: 5/11/99 Date: 5/11/99
------------------ ------------------
<PAGE>
Exhibit A
System Requirements, Performance Standards, and Product Offering
System Requirements:
. Beginning-to-end purchasing solution which clearly improves the entire
procurement chain from aggregation of information, placement of an order,
receipt of product and reconciliation of shipping documents, through the
payment of the invoice.
. Easy to use so that any BIO Members will find it "friendly", whether they
are a large multi-national or a small, emerging company. . Provide
commercially reasonable interfaces to Member's legacy purchasing systems.
. Allow for customization based on Members' current purchasing protocols and
supplier relationships.
. Scalable for use by hundreds of suppliers and end-users and must be
compatible with other e-commerce systems available for non-lab related
purchases.
. BIO will not administer orders or invoices. Chemdex or the appropriate
supplier will administer invoices and offer a variety of formats for
receipt of invoices.
. Easy to access and download with searches and request response time of no
more than three seconds on top of any Internet connection delays.
. Link to PO systems for requisitioning and have the ability to tie into a
G/L software package with expense and department codes.
. Reporting capabilities for tracking and sorting purchase orders.
. Ability to highlight preferred suppliers.
. Ability to block certain suppliers.
. Ability to consolidate vendor orders.
. Verification of order, shipment, delivery, backorders, etc.
. Ability for buyers to log in and get a summary of transactions.
. Ability to limit orders for hazardous or controlled materials.
. Ability for built in dollar volume order limits and purchase dollar
authorization codes.
. Ability to support approval routing system.
. Ability to compare real-time inventory from chosen suppliers where
available and commercially feasible.
. Order tracking post shipment.
. Ability to select form of shipment (list shippers available).
. Provide levels of security consistent with industry standards.
. Compatible with Mac's and PC's running Netscape 4.0 or higher and IE 4.0 or
higher.
. Linkable into internal e-mail system for ease of communication with end-
users.
. Ability to add suppliers of choice by Members subject to suppliers
contracting with Chemdex to offer their products for sale on the Chemdex
System under terms acceptable to both the supplier and Chemdex.
. Compatibility with other business applications (i.e. GL, AP, Receiving).
<PAGE>
. Ability for suppliers to update their catalog information on a reasonably
consistent basis and existence of a reasonable process for measuring
compliance of supplier updates.
. Incorporation of BIO and/or customer pricing from individual suppliers.
Performance Requirements:
. Confirmations on customer contract pricing, availability, packaging
charges, tax, inventory and final shipment via email or fax.
. Process for cancellation of orders.
. Customer service for drop-shipments and back orders.
. AP customer support.
. Shipper tracking support.
. Customer service support.
. Technical support for customers.
. Supplier technical support.
. Must be able to obtain credit for unwanted merchandise subject to Chemdex's
return policies.
. Must be able to return unwanted product subject to Chemdex's return
policies.
. No charge for damaged or faulty merchandise, subject to Chemdex's return
policies.
Product Offering:
The following lists the products that BIO would like to feature in the interface
and within the Chemdex product line for offer to BIO members. Chemdex will make
its best efforts to accommodate these vendors for inclusion in the system,
subject to the supplier's willingness to enter into a supplier contract with
Chemdex on terms agreeable to the supplier and to Chemdex
. Chemicals, molecular biology and related equipment (Sigma, Aldrich, Fluka
(SAF), Amersham Pharmacia Biotech, Boehringher Manneheim, ABI Perkin Elmer,
Life Technologies, Promega, NEN, Roche Molecular, Merck, Millipore and
Tosho).
. General laboratory supplies, chemicals and equipment through VWR and Fisher
Scientific featuring the BIO agreement or member company agreement with VWR
or Fisher.
. Office Supplies and equipment from BIO's preferred provider (subject to
assessment and approval by Chemdex).
. Computers and related supplies and software if BIO develops a preferred
provider agreement (subject to assessment and approval by Chemdex).
Contract Management
. Chemdex will respond to all BIO and customer leads within a commercially
reasonable period of time.
<PAGE>
. Chemdex will train all Chemdex sales and customer service employees on BIO
and the nature and terms of the BIO-Chemdex Agreement.
. BIO or Chemdex may request quarterly review meetings with the other party
to assess progress of the partnership.
<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. 4 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
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 19, 1999
