<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INVITROGEN CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 2836 33-0373077
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification
Organization) Number)
</TABLE>
------------------------
INVITROGEN CORPORATION
1600 FARADAY AVENUE
CARLSBAD, CA 92008
(760) 603-7200
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
JAMES R. GLYNN
CHIEF FINANCIAL OFFICER
INVITROGEN CORPORATION
1600 FARADAY AVENUE
CARLSBAD, CALIFORNIA 92008
(760) 603-7200
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
CAMERON JAY RAINS, ESQ. DAVID E. MCCARTY HAYDEN J. TRUBITT, ESQ.
JEFFREY T. BAGLIO, ESQ. NOVEX THOMAS E. HORNISH, ESQ.
GRAY CARY WARE & FREIDENRICH LLP 11040 ROSELLE STREET BROBECK PHLEGER & HARRISON LLP
4365 EXECUTIVE DRIVE, SUITE 1600 SAN DIEGO, CALIFORNIA 92121 550 WEST C STREET, SUITE 1300
SAN DIEGO, CA 92121-2189 SAN DIEGO, CA 92101
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
POSSIBLE AFTER THIS REGISTRATION STATEMENT IS DECLARED EFFECTIVE AND THE
EFFECTIVE TIME OF THE PROPOSED MERGER OF INVO MERGER CORPORATION WITH AND INTO
NOVEX, AS DESCRIBED IN THE AGREEMENT AND PLAN OF MERGER, DATED AS OF JUNE 14,
1999, ATTACHED AS APPENDIX A TO THE JOINT PROXY STATEMENT/PROSPECTUS FORMING A
PART OF THIS REGISTRATION STATEMENT.
------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
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. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMU AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
OF SECURITIES TO BE REGISTERED BE REGISTERED(1) PER UNIT OFFERING PRICE FEE(2)
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value............... 3,000,000 shares N/A N/A $19,807.50
</TABLE>
(1) This Registration Statement relates to common stock of Invitrogen
Corporation issuable to holders of common stock, no par value of NOVEX in
the proposed merger of a wholly owned subsidiary of Invitrogen with and into
NOVEX. The amount of Invitrogen common stock to be registered is based on
the maximum aggregate number of shares of Invitrogen common stock to be
issued by Invitrogen in connection with the merger.
(2) The registration fee was calculated pursuant to Rule 457(f)(1) as 0.000278
of $23.75 (the average of the high and low prices of Invitrogen Common Stock
on the Nasdaq National Market on July 2, 1999), multiplied by 3,000,000
shares.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INVITROGEN CORPORATION
1600 FARADAY AVENUE
CARLSBAD, CALIFORNIA 92008
------------------------
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
---------------------
TO THE STOCKHOLDERS OF INVITROGEN:
The Board of Directors of Invitrogen Corporation has unanimously agreed on a
merger in which Invitrogen Corporation will acquire NOVEX. We believe the merger
will allow Invitrogen to continue to develop its molecular biology research
products while giving us access to the technical resources and existing sales
force of NOVEX. The completion of the merger is subject to a number of
conditions, including the approval by Invitrogen stockholders of the merger. To
this end, you are cordially invited to attend a special meeting of stockholders
of Invitrogen to be held on , 1999, commencing at 9:00 a.m. local
time, at our offices located at 1600 Faraday Avenue, Carlsbad, California. At
this meeting you will be asked to approve the merger and approve an increase in
the number of shares available for Invitrogen to issue under its 1997 Stock
Option Plan.
Upon completion of the merger, each share of NOVEX stock will be converted
into the right to receive a fraction of a share of Invitrogen common stock equal
to an exchange ratio and each outstanding option to purchase NOVEX common stock
will be converted into the right to purchase a fraction of a share of Invitrogen
common stock equal to the same exchange ratio. The exchange ratio is calculated
by dividing 3,000,000 by the sum of (i) the total number of shares of NOVEX
common stock outstanding immediately prior to the effective time of the merger
and (ii) the number of shares of NOVEX common stock issuable upon exercise of
all NOVEX stock options outstanding on the day immediately preceding the
effective time of the merger. Invitrogen expects to issue approximately
2,500,000 shares of its stock to NOVEX shareholders in the merger and expects to
assume NOVEX's outstanding options which will be converted into options to
purchase approximately 500,000 shares of Invitrogen common stock in the merger.
Based on the number of shares of NOVEX common stock (assuming the conversion of
all preferred stock to common stock) and options outstanding on June 14, 1999,
the exchange ratio would be 0.23154.
The merger requires the approval of holders of a majority of the outstanding
Invitrogen common stock who are present in person or represented at the special
meeting. Holders of record of Invitrogen common stock at the close of business
on , 1999 are entitled to notice of, and to vote at, the special meeting.
The merger represents a significant strategic move for Invitrogen. NOVEX is
a premier producer and supplier of protein and nucleic acid electrophoresis,
detection and analysis products used in molecular biology research. We believe
that NOVEX's knowledge of, and strong presence in, this market will enable
Invitrogen to bring more new and innovative research products to our customers.
Details of the proposed merger, the proposed increase in the number of
shares available for issuance under its 1997 Stock Option Plan and other
important information concerning Invitrogen and NOVEX appear in the accompanying
Joint Proxy Statement/Prospectus. Please read this material carefully before you
vote. After reading the Joint Proxy Statement/Prospectus, please promptly mark,
sign and return the enclosed proxy card in the prepaid envelope to assure that
your shares will be represented. YOUR SHARES CANNOT BE VOTED UNLESS YOU DATE,
SIGN AND RETURN THE ENCLOSED PROXY CARD OR ATTEND THE SPECIAL MEETING IN PERSON.
<PAGE>
Regardless of the number of shares you own or whether you plan to attend the
meeting, it is important that your shares be represented and voted. Your prompt
attention to this matter is appreciated.
Very truly yours
Lyle C. Turner
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CHAIRMAN OF THE BOARD OF DIRECTORS
Invitrogen Corporation
<PAGE>
INVITROGEN CORPORATION
1600 FARADAY AVENUE
CARLSBAD, CALIFORNIA 92008
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD , 1999
------------------------
To the Stockholders of
Invitrogen Corporation:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Invitrogen
Corporation will be held on , 1999, at Invitrogen's offices located
at 1600 Faraday Avenue, Carlsbad, California, commencing at 9:00 a.m., local
time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the merger
agreement, dated as of June 14, 1999, among Invitrogen Corporation, a
Delaware corporation, Invo Merger Corporation, a California corporation
and a wholly owned subsidiary of Invitrogen, and NOVEX, a California
corporation, pursuant to which, among other things (a) Invo Merger
Corporation will be merged with and into NOVEX, and NOVEX will become a
wholly owned subsidiary of Invitrogen (b) each outstanding share of
common stock of NOVEX will be converted into the right to receive from
Invitrogen a fraction of a share of Invitrogen common stock which will be
newly issued by Invitrogen and (c) each outstanding option to purchase a
share of common stock of NOVEX will be converted into a right to purchase
a fraction of a share of Invitrogen common stock;
2. To consider and vote upon a proposal to amend Invitrogen's 1997 Stock
Option Plan to increase the number of shares reserved for issuance under
the plan by 1,000,000 shares (subject to adjustments specified in the
plan) for a total of 5,485,479 shares of common stock; and
3. To transact such other business as may properly be brought before the
special meeting or any adjournment or postponement of the special
meeting.
A copy of the merger agreement is attached as Annex A to the accompanying
Joint Proxy Statement/Prospectus.
Stockholders of record at the close of business on , 1999, are
entitled to notice of, and to vote at, the special meeting and any adjournment
or postponement of the special meeting. A complete list of stockholders entitled
to vote at the special meeting will be available for inspection by any
stockholder for any purpose germane to the special meeting for ten days prior to
the special meeting during ordinary business hours at Invitrogen's headquarters
located at 1600 Faraday Avenue, Carlsbad, California 92008.
THE INVITROGEN BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE
MERGER AND THE AMENDMENT TO THE 1997 STOCK OPTION PLAN AND RECOMMENDS THAT YOU
VOTE TO APPROVE THE MERGER AGREEMENT, THE MERGER AND THE AMENDMENT TO THE 1997
STOCK OPTION PLAN.
All stockholders are cordially invited to attend the meeting in person.
HOWEVER, STOCKHOLDERS ARE URGED TO VOTE THEIR PROXY PROMPTLY, WHETHER OR NOT
THEY EXPECT TO ATTEND THE SPECIAL MEETING. Stockholders can vote their shares:
(1) By completing, signing, dating and returning the enclosed proxy card as
promptly as possible in the enclosed postage-prepaid envelope; or
(2) Via a toll-free telephone call in the U.S. and Canada.
<PAGE>
FOR A DISCUSSION OF CERTAIN RISK FACTORS WHICH YOU SHOULD CONSIDER IN
EVALUATING THE MERGER, SEE "RISK FACTORS" BEGINNING ON PAGE 20.
Neither the Securities and Exchange Commission nor any state securities
regulator has approved the Invitrogen common stock to be issued in the merger or
determined whether this Joint Proxy Statement/Prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The accompanying Joint Proxy Statement/Prospectus is dated ,
1999, and is first being mailed to shareholders on or about , 1999.
By Order of the Board of Directors,
Warner R. Broaddus, SECRETARY
Carlsbad, California
, 1999
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD BE SIGNED, DATED AND PROMPTLY
RETURNED IN THE ENCLOSED ENVELOPE OR THAT YOU REGISTER YOUR VOTE BY TELEPHONE BY
FOLLOWING THE INSTRUCTIONS ON YOUR PROXY CARD, SO THAT YOUR SHARES WILL BE
REPRESENTED WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
<PAGE>
NOVEX
11040 ROSELLE STREET
SAN DIEGO, CALIFORNIA 92121
------------------------
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
---------------------
TO THE SHAREHOLDERS OF NOVEX:
The Board of Directors of NOVEX has unanimously agreed on a merger in which
Invitrogen Corporation will acquire NOVEX. We believe the merger will allow
NOVEX to continue to develop its business of producing and supplying protein and
nucleic acid electrophoresis, detection and analysis products used in molecular
biology, while giving NOVEX greater access to the financial and technical
resources of Invitrogen. The completion of the merger is subject to a number of
conditions, including the approval by NOVEX shareholders of the merger. To this
end, you are cordially invited to attend a special meeting of shareholders of
NOVEX to be held on , 1999, commencing at 9:00 a.m. local time, at
our offices located at 11040 Roselle Street, San Diego, California, where you
will be asked to approve the merger.
Upon completion of the merger, each share of your NOVEX common stock will be
converted into the right to receive a fraction of a share of Invitrogen common
stock equal to an exchange ratio and each outstanding option to purchase NOVEX
common stock will be converted into the right to purchase a fraction of a share
of Invitrogen common stock equal to the same exchange ratio. The exchange ratio
is calculated by dividing 3,000,000 by the sum of (i) the total number of shares
of NOVEX common stock outstanding immediately prior to the effective time of the
Merger and (ii) the number of shares of NOVEX common stock issuable upon
exercise of all NOVEX stock options outstanding on the day immediately preceding
the effective time of the merger. Based on the number of shares of NOVEX common
stock (assuming the conversion of all preferred stock to common stock) and
options outstanding on June 14, 1999, the exchange ratio would be 0.23154.
The Invitrogen common stock is traded on the Nasdaq National Market under
the symbol "IVGN." Invitrogen expects to issue approximately 2,500,000 shares of
its stock to NOVEX shareholders in the merger and expects to assume NOVEX's
outstanding options which will be converted into options to purchase
approximately 500,000 shares of Invitrogen common stock in the merger.
The merger is expected to be treated as a tax-free reorganization for
federal income tax purposes. NOVEX shareholders should not recognize tax gain or
loss in the merger, other than taxes due on cash, if any, that you receive in
lieu of fractional shares or to the extent you receive cash as a result of the
exercise of dissenters' rights.
The merger requires the approval of holders of a majority of the outstanding
NOVEX stock who are present in person or represented at the special meeting. We
have scheduled a special meeting of the NOVEX shareholders to vote on the merger
on , 1999, commencing at 9:00 a.m. local time, at NOVEX's offices located
at 11040 Roselle Street, San Diego, California. Holders of record of NOVEX stock
at the close of business on , 1999 are entitled to notice of, and to vote
at, the special meeting.
Regardless of the number of shares you own or whether you plan to attend the
meeting, it is important that your shares be represented and voted. Voting
instructions are inside.
This document provides you with detailed information about the proposed
merger. We encourage you to read this entire document carefully. After reading
this Joint Proxy Statement/Prospectus, please promptly mark, sign and return the
enclosed proxy card in the prepaid envelope to assure that your
<PAGE>
shares will be represented. YOUR SHARES CANNOT BE VOTED UNLESS YOU DATE, SIGN
AND RETURN THE ENCLOSED PROXY CARD OR ATTEND THE SPECIAL MEETING IN PERSON.
David E. McCarty
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NOVEX
<PAGE>
NOVEX
11040 ROSELLE STREET
SAN DIEGO, CALIFORNIA 92121
------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1999
------------------------
To the Shareholders of
NOVEX:
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of NOVEX will
be held on , 1999, at the offices of NOVEX located at 11040 Roselle
Street, San Diego, California, at 9:00 a.m., local time, for the following
purposes:
1. To consider and vote upon a proposal to approve and adopt the merger
agreement, dated as of June 14, 1999, among Invitrogen Corporation, a
Delaware corporation, Invo Merger Corporation, a California corporation
and a wholly owned subsidiary of Invitrogen, and NOVEX, a California
corporation, pursuant to which, among other things (a) Invo Merger
Corporation will be merged with and into NOVEX, and NOVEX will become a
wholly owned subsidiary of Invitrogen (b) each outstanding share of
common stock of NOVEX will be converted into the right to receive from
Invitrogen a fraction of a share of Invitrogen common stock and (c) each
outstanding option to purchase a share of common stock of NOVEX will be
converted into the right to purchase a fraction of a share of Invitrogen
common stock.
2. To transact such other business as may properly be brought before the
special meeting or any adjournment or postponement of the special
meeting.
A copy of the merger agreement is attached as Annex A to the accompanying
Joint Proxy Statement/Prospectus.
Shareholders of record at the close of business on , 1999, are
entitled to notice of, and to vote at, the special meeting and any adjournment
or postponement of the special meeting. A complete list of shareholders entitled
to vote at the special meeting will be available for inspection by any
shareholder for any purpose germane to the special meeting for ten days prior to
the special meeting during ordinary business hours at NOVEX's headquarters
located at 11040 Roselle Street, San Diego, California 92121.
THE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER AND
RECOMMENDS THAT YOU VOTE TO APPROVE THE MERGER AGREEMENT AND THE MERGER.
All shareholders are cordially invited to attend the meeting in person.
HOWEVER, SHAREHOLDERS ARE URGED TO VOTE THEIR PROXY PROMPTLY, WHETHER OR NOT
THEY EXPECT TO ATTEND THE SPECIAL MEETING. Shareholders can vote their shares by
completing, signing, dating and returning the enclosed proxy card as promptly as
possible in the enclosed postage-prepaid envelope.
FOR A DISCUSSION OF CERTAIN RISK FACTORS WHICH YOU SHOULD CONSIDER IN
EVALUATING THE MERGER, SEE "RISK FACTORS" BEGINNING ON PAGE 20.
Neither the Securities and Exchange Commission nor any state securities
regulator has approved the Invitrogen stock to be issued in the merger or
determined whether this Joint Proxy Statement/ Prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
<PAGE>
The accompanying Joint Proxy Statement/Prospectus is dated ,
1999, and is first being mailed to shareholders on or about , 1999.
By Order of the Board of Directors,
William F. Alpenfels, SECRETARY
San Diego, California
, 1999
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD BE SIGNED, DATED AND PROMPTLY
RETURNED IN THE ENCLOSED ENVELOPE BY FOLLOWING THE INSTRUCTIONS ON YOUR PROXY
CARD, SO THAT YOUR SHARES WILL BE REPRESENTED WHETHER OR NOT YOU PLAN TO ATTEND
THE SPECIAL MEETING.
SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARD.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 4
SUMMARY................................................................... 7
SELECTED CONSOLIDATED FINANCIAL DATA...................................... 13
Invitrogen Selected Consolidated Financial Data......................... 14
NOVEX Selected Consolidated Financial Data.............................. 15
INVITROGEN SELECTED PRO FORMA COMBINED FINANCIAL DATA..................... 16
Invitrogen Selected Pro Forma Combined Financial Data................... 17
COMPARATIVE PER SHARE DATA................................................ 18
MARKET PRICE AND DIVIDEND DATA............................................ 19
RISK FACTORS.............................................................. 20
Risks Relating to the Merger............................................ 20
Risks Relating to Invitrogen's Business................................. 22
Risks Relating to NOVEX's Business...................................... 27
THE SPECIAL MEETINGS...................................................... 34
General; Date, Time and Place........................................... 34
Purposes of the Special Meeting......................................... 34
Recommendation of the NOVEX Board and Invitrogen Board.................. 34
Shareholders Entitled to Vote; Vote Required............................ 34
Proxies................................................................. 36
Dissenters' Rights...................................................... 37
THE MERGER................................................................ 38
General................................................................. 38
Background of the Merger................................................ 38
NOVEX's Reasons for the Merger; Recommendation of the NOVEX Board....... 39
Invitrogen's Reasons for the Merger; Recommendation of the Invitrogen
Board................................................................. 40
Opinion of Invitrogen's Financial Advisor............................... 41
Material Federal Income Tax Consequences................................ 44
Accounting Treatment.................................................... 46
Federal Securities Laws Consequences.................................... 46
Nasdaq National Market Listing.......................................... 47
Dissenters' Rights...................................................... 47
INTERESTS OF CERTAIN PERSONS IN THE MERGER................................ 49
THE MERGER AGREEMENT...................................................... 50
Closing and Effective Time of the Merger................................ 50
Exchange of NOVEX Stock Options......................................... 51
Conditions to the Merger................................................ 51
Representations and Warranties of Invitrogen and NOVEX.................. 53
Conduct of Business of NOVEX Prior to the Merger........................ 53
No Solicitation of Acquisition Transactions............................. 55
Conduct of the Business of the Combined Companies Following the
Merger................................................................ 55
Affiliate Agreements.................................................... 55
Termination, Amendment or Waiver........................................ 55
Expenses................................................................ 56
Indemnification and Escrow.............................................. 56
INVITROGEN BUSINESS....................................................... 58
INVITROGEN UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS.............. 78
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INVITROGEN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 85
Forward-Looking Statements.............................................. 91
MANAGEMENT................................................................ 92
Directors and Executive Officers........................................ 92
Board Committees........................................................ 94
Compensation Committee Interlocks and Insider Participation............. 94
Compensation of Directors............................................... 94
Limitations on Liability and Indemnification Matters.................... 94
Executive Compensation.................................................. 95
CERTAIN TRANSACTIONS...................................................... 97
PRINCIPAL STOCKHOLDERS.................................................... 98
NOVEX BUSINESS............................................................ 100
NOVEX MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................... 109
Forward-Looking Statements.............................................. 114
EXECUTIVE OFFICER OF NOVEX JOINING INVITROGEN............................. 114
Executive Compensation.................................................. 115
Year-End Values......................................................... 115
Employment and Severance Arrangements................................... 115
PRINCIPAL STOCKHOLDERS.................................................... 116
DESCRIPTION OF INVITROGEN CAPITAL STOCK................................... 118
COMPARISON OF SHAREHOLDER RIGHTS.......................................... 119
ADDITIONAL MATTERS FOR CONSIDERATION OF INVITROGEN STOCKHOLDERS........... 123
Amendment of 1997 Stock Option Plan..................................... 123
LEGAL MATTERS............................................................. 128
EXPERTS................................................................... 128
WHERE YOU CAN FIND MORE INFORMATION....................................... 128
FINANCIAL STATEMENTS...................................................... F-1
ANNEX A - Merger Agreement
ANNEX B - Fairness Opinion of Houlihan Lokey Howard & Zukin
ANNEX C - California Dissenters' Rights Law
</TABLE>
3
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY ARE THE TWO COMPANIES PROPOSING TO MERGE?
A: Invitrogen and NOVEX are proposing to merge because each believes that the
resulting combination will provide its shareholders with substantial
benefits, and will increase each company's ability to pursue the development
and distribution of its core products.
Q: AS A NOVEX SHAREHOLDER OR OPTIONHOLDER, WHAT WILL I RECEIVE IN THE MERGER?
A: If the merger is approved, each share of NOVEX common stock will be converted
into the right to receive from Invitrogen a fraction of a share of Invitrogen
common stock equal to the exchange ratio and each outstanding option to
purchase NOVEX common stock will be converted into the right to purchase a
fraction of a share of Invitrogen common stock equal to the same exchange
ratio. The exchange ratio is calculated by dividing 3,000,000 by the sum of
(i) the total number of shares of NOVEX common stock outstanding immediately
prior to the effective time of the merger and (ii) the number of shares of
NOVEX common stock issuable upon exercise of all NOVEX stock options that are
outstanding at the close of business on the day immediately preceding the
effective time of the merger.
You will not receive fractional shares. Instead, if you are a shareholder
you will receive cash, without interest, for any fractional share of
Invitrogen common stock you might otherwise have been entitled to receive on
the date the merger occurs.
For example, based on the number of shares of NOVEX common stock and options
outstanding on June 14, 1999, if you currently own 100 shares of NOVEX
common stock, the following table shows what you will receive in the merger:
<TABLE>
<CAPTION>
APPROXIMATE
EXCHANGE RATIO YOU RECEIVE
- -------------- ----------------------------
<C> <S>
0.23154..... 23 shares of Invitrogen
common stock and a check for
the market value of the
0.154 fractional share
</TABLE>
All options to purchase NOVEX common stock assumed by Invitrogen and
converted to options to purchase Invitrogen common stock will be rounded
down to the nearest whole number of shares of Invitrogen common stock.
Shareholders of NOVEX or Invitrogen who wish to find out the exact number of
Invitrogen shares to be issued on a per share basis may call Cheri Manis at
(760) 603-7200 after , 1999.
Q: AS AN INVITROGEN STOCKHOLDER, WILL I RECEIVE ADDITIONAL SHARES OF INVITROGEN
COMMON STOCK IN THE MERGER?
A: No. You will continue to hold the same number of shares of Invitrogen common
stock after the merger. Additional shares of Invitrogen common stock will be
issued only to NOVEX shareholders in the merger.
Q: WHAT DO I NEED TO DO NOW?
A: After you have read and considered the information in this document, just
indicate on your proxy card how you want to vote, and sign and mail it in the
enclosed return envelope as soon as possible, so that your shares may be
represented at the special meeting. If you sign and send in your proxy and do
not indicate how you want to vote, your proxy will be counted as a vote in
favor
4
<PAGE>
of the merger. Alternatively, if you are an Invitrogen stockholder, you may
vote via a toll-free telephone call in the U.S. and Canada. If you do not
vote or you abstain, it will have the effect of a vote against the merger.
The special meetings will take place on , 1999. You may attend
the special meeting of the company in which you own shares and vote your
shares in person, rather than signing and mailing your proxy card.
THE NOVEX BOARD AND INVITROGEN BOARD EACH UNANIMOUSLY RECOMMENDS VOTING IN
FAVOR OF THE PROPOSED MERGER.
Q: IF I AM NOVEX SHAREHOLDER, SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, NOVEX will send you written instructions
for exchanging your share certificates.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD OR CONSENT
FORM?
A: Yes. You can change your vote at any time before your proxy is voted at the
special meeting. You can do this in one of the following three ways:
First, you can send a written notice stating that you would like to revoke
your proxy.
Second, you can complete and submit a new proxy card. If you choose either
of these two methods, you must submit your notice of revocation or your new
proxy card to your company's secretary at the address indicated below.
Third, you can attend the special meeting and vote in person. Simply
attending the special meeting, however, will not revoke your proxy; you must
vote at the special meeting.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: Invitrogen and NOVEX are working toward completing the merger as quickly as
possible. Both Invitrogen and NOVEX must obtain shareholder approval and hope
to complete the merger as soon as possible after their respective special
meetings.
Q: AS A NOVEX SHAREHOLDER, WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: The exchange of your shares for Invitrogen common stock should be tax-free to
you for federal income tax purposes. However, you will have to pay taxes on
cash received in lieu of any fractional share. To review the tax consequences
to shareholders in greater detail, see "The Merger--Material Federal Income
Tax Consequences" on page 44.
Q: AS A NOVEX SHAREHOLDER, WHAT WILL MY TAX BASIS BE IN THE INVITROGEN COMMON
STOCK RECEIVED IN THE MERGER?
A: Your tax basis in your total shares of Invitrogen common stock will equal
your current tax basis in your NOVEX common stock, reduced by the amount of
basis which would have been allocable to fractional shares for which you
receive a cash payment.
5
<PAGE>
WHO CAN HELP ANSWER YOUR QUESTIONS
If you would like additional copies of this Joint Proxy Statement/Prospectus,
or if you have questions about the merger:
if you are a NOVEX shareholder you should contact:
NOVEX
11040 Roselle Street
San Diego, CA 92121
Andrea Cline
Phone Number: (619) 452-6634
e-mail: [email protected]
or, if you are an Invitrogen stockholder, you should contact:
Invitrogen Corporation
1600 Faraday Avenue
Carlsbad, CA 92008
Cheri Manis
Phone number: (760) 603-7200
e-mail: [email protected]
TRADEMARKS AND TRADENAMES
Discovery Line-TM-, DNA DipStick-TM-, Gene Pool-TM-, Hybrid Hunter-TM-,
Micro-FastTrack-TM-, Northern Territory-TM- and Zero Background-TM- are
trademarks of Invitrogen. The Invitrogen logo, MaxBac-Registered Trademark-,
FastTrack-Registered Trademark-, One Shot-Registered Trademark-, TA
Cloning-Registered Trademark-, TOPO-Registered Trademark- and Zero
Blunt-Registered Trademark- are Invitrogen trademarks which have been registered
with the United States Patent and Trademark Office. FastTrack-TM-,
GeneStorm-TM-, Invitrogenomics-TM-, Morphagen-TM- and Morphatides-TM- are
trademarks of Invitrogen for which registration applications have been filed
with the United States Patent and Trademark Office.
XCell II, Blue Horizon, Mark12 and Coomassie are trademarks of NOVEX.
NOVEX-Registered Trademark-, Serva-Registered Trademark-,
Quickpoint-Registered Trademark-, NuPAGE-Registered Trademark-,
Powerease-Registered Trademark-, SeeBlue-Registered Trademark-,
Multi-Mark-Registered Trademark- and SilverXpress-Registered Trademark- are
trademarks of NOVEX which have been registered with the United States Patent and
Trademark Office. WesternBreeze-TM- is a trademark of NOVEX for which an
application for registration has been filed with the United States Patent and
Trademark Office.
All other trademarks or trade names referred to in this Joint Proxy
Statement/Prospectus are the property of their respective owners.
6
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
MERGER FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
MERGER, YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AND THE DOCUMENTS TO
WHICH WE HAVE REFERRED YOU. SEE "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE
128. THE MERGER AGREEMENT IS ATTACHED AS ANNEX A TO THIS DOCUMENT. WE ENCOURAGE
YOU TO READ THE MERGER AGREEMENT, AS IT IS THE LEGAL DOCUMENT THAT GOVERNS THE
MERGER. INVITROGEN HAS PROVIDED THE INFORMATION IN THE JOINT PROXY STATEMENT/
PROSPECTUS ABOUT INVITROGEN AND NOVEX HAS PROVIDED THE INFORMATION IN THE JOINT
PROXY STATEMENT/ PROSPECTUS ABOUT NOVEX.
THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS.
THESE STATEMENTS RELATE TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF
INVITROGEN AND NOVEX. 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 SUCH TERMS AND OTHER COMPARABLE TERMINOLOGY. THESE STATEMENTS
ONLY REFLECT MANAGEMENT'S EXPECTATIONS AND ESTIMATES. ACTUAL EVENTS OR RESULTS
MAY DIFFER MATERIALLY. IN EVALUATING THESE STATEMENTS, YOU SHOULD SPECIFICALLY
CONSIDER THAT VARIOUS EVENTS OR RESULTS MAY DIFFER MATERIALLY. IN EVALUATING
THESE STATEMENTS, YOU SHOULD SPECIFICALLY CONSIDER VARIOUS FACTORS, INCLUDING
THE RISKS OUTLINED ON PAGE 20 UNDER "RISK FACTORS." THESE FACTORS MAY CAUSE OUR
ACTUAL RESULTS TO DIFFER MATERIALLY FROM ANY FORWARD-LOOKING STATEMENTS. WE ARE
NOT UNDERTAKING ANY OBLIGATIONS TO UPDATE ANY FORWARD-LOOKING STATEMENTS
CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO REFLECT ANY FUTURE EVENTS
OR DEVELOPMENTS.
THE COMPANIES
INVITROGEN CORPORATION
1600 Faraday Avenue
Carlsbad, CA 92008
(760) 603-7200
Invitrogen develops, manufactures and markets research tools in kit form and
provides research services to corporate, academic and government entities. Its
research kits simplify and improve gene cloning, gene expression and gene
analysis techniques as well as other molecular biology activities. These
techniques and activities are used to study how a cell is regulated by its
genetic material, known as functional genomics, and to search for drugs that can
treat diseases. Invitrogen's kits allow researchers to perform the activities
more accurately, efficiently and with greater reproducibility compared to
conventional research methods.
NOVEX
11040 Roselle Street
San Diego, CA 92121
(858) 452-6634
NOVEX develops, manufactures and markets research electrophoresis products
in pre-made or kit form to corporate, academic and government entities. NOVEX's
products simplify and improve polyacrylamide gel electrophoresis of proteins and
nucleic acids, a technique that is an integral part of the molecular biology
activities that underlie functional genomics and gene-based drug discovery.
NOVEX's products allow researchers to perform experiments more accurately,
efficiently and with greater reproducibility compared to traditional
electrophoresis methods. NOVEX's pre-cast gels eliminate the time required to
make gels in the laboratory, resulting in savings of 1-2 hours every time a gel
is purchased from NOVEX rather than made by a researcher.
INVO MERGER CORPORATION
1600 Faraday Avenue
Carlsbad, CA 92008
(760) 603-7200
Invo Merger Corporation, a wholly owned subsidiary of Invitrogen, is a
California corporation formed for use in the merger. This is the only business
of Invo Merger Corporation.
OWNERSHIP OF INVITROGEN FOLLOWING THE MERGER
NOVEX stockholders and optionholders will receive a total of 3,000,000
shares of Invitrogen
7
<PAGE>
common stock in the merger. Based on the number of shares of Invitrogen common
stock outstanding on May 31, 1999 (assuming the exercise of all outstanding
options to purchase Invitrogen common stock) existing NOVEX shareholders and
optionholders will own approximately 15.6% of the Invitrogen common stock after
the merger.
REASONS FOR THE MERGER (PAGE 39)
The Invitrogen board believes that the merger is in the best interests of
Invitrogen and its shareholders. In reaching its decision to approve the merger,
the Invitrogen board considered a number of factors, including the following:
- The complementary nature of the products produced by NOVEX and the
opportunity to incorporate NOVEX products into Invitrogen's existing
product line;
- The opportunity for Invitrogen to expand its product line and widen the
market for its molecular biology research products beyond that in which
Invitrogen has established a presence;
- The access to NOVEX's strong position in the commercial pharmaceutical and
biotechnology market segments;
- The access to the manufacturing, marketing and sales infrastructure of
NOVEX which will support the development and commercial goals of
Invitrogen; and
- The experience, depth and competence of NOVEX's operating team.
The NOVEX board believes that the merger is in the best interests of NOVEX
and its shareholders. In reaching its decision to approve the merger, the NOVEX
board considered a number of factors, including the following:
- The increased ability of NOVEX to pursue the development of its protein
and nucleic acid electrophoresis, detection and analysis products;
- The opportunity for NOVEX to market its products with those of Invitrogen
and take advantage of Invitrogen's established market share for molecular
biology research products, especially in the academic arena;
- Direct access to the global manufacturing, marketing and sales
infrastructure of Invitrogen which will support the development and
commercial goals of NOVEX;
- Access to greater financial and technical resources;
- The opportunity for NOVEX's shareholders to become stockholders of
Invitrogen, which the NOVEX board views as a larger, stronger, better
capitalized and more commercially diversified company than NOVEX, and to
receive Invitrogen common stock which has significantly greater liquidity
than NOVEX common stock;
- The financial condition, competitive position and prospects of NOVEX and
Invitrogen both on an historical and future basis and as separate and
combined entities;
- The experience, depth and competence of Invitrogen's operating team; and
- The structure of the merger, which is designed to not result in the
recognition of taxable gain and to be accounted for as a pooling of
interests. For a more comprehensive description of the accounting
treatment and the federal income tax consequences of the merger, see page
44.
RECOMMENDATION OF THE NOVEX AND INVITROGEN BOARDS (PAGE 34)
The NOVEX and Invitrogen boards have unanimously approved the merger
agreement and the transactions contemplated thereby, including the merger, and
unanimously recommend that the NOVEX shareholders and Invitrogen stockholders
vote in favor of the approval and adoption of the merger agreement. The
Invitrogen board has unanimously approved the amendment to its 1997 Stock Option
Plan and recommends that the Invitrogen stockholders approve the amendment to
the 1997 Stock Option Plan.
8
<PAGE>
PURPOSES OF THE INVITROGEN AND NOVEX SPECIAL MEETINGS (PAGE 34)
The purposes of the Invitrogen special meeting are to consider and vote
upon:
- A proposal to approve and adopt the merger agreement and approve the
issuance of Invitrogen common stock pursuant to the merger agreement;
- A proposal to increase the number of shares available for Invitrogen to
issue under its 1997 Stock Option Plan; and
- Such other business as may properly be brought before the special meeting.
The purposes of the NOVEX special meeting are to consider and vote upon:
- A proposal to approve and adopt the merger agreement; and
- Such other business as may properly be brought before the special meeting.
DATES, TIMES AND PLACES OF THE INVITROGEN AND NOVEX SPECIAL MEETINGS (PAGE 34)
The special meeting of NOVEX shareholders will be held on ,
, 1999, at the offices of NOVEX located at 11040 Roselle Street, San
Diego, California, at 9:00 a.m., local time.
The special meeting of Invitrogen stockholders will be held on ,
, 1999, at the offices of Invitrogen located at 1600 Faraday Avenue,
Carlsbad, California, at 9:00 a.m., local time.
SHAREHOLDERS ENTITLED TO VOTE AT THE SPECIAL MEETING; VOTE REQUIRED (PAGE 34)
NOVEX
The close of business on , 1999 is the record date for the NOVEX
special meeting. Only NOVEX shareholders on the record date are entitled to
notice of and to vote at the special meeting. On the record date, there were
shares of NOVEX common stock and shares of NOVEX preferred
stock outstanding. Each share of NOVEX common stock will be entitled to one vote
on each matter to be acted upon at the special meeting and each share of NOVEX
preferred stock will be entitled to one hundred votes on each matter to be acted
upon at the special meeting.
A majority vote of the shares of NOVEX common stock and preferred stock
outstanding on the record date, voting together as a single class (the preferred
stock voting as if converted into common stock), is required to adopt the merger
agreement. In addition, a majority vote of the shares of NOVEX common stock and
preferred stock outstanding on the record date, each voting as a separate class,
is required to adopt the merger agreement. The presence, in person or by
properly executed proxy, of the holders of a majority of the outstanding shares
of each of NOVEX common stock and preferred stock as separate classes entitled
to vote at the special meeting is necessary to constitute a quorum at the
special meeting.
Subject to certain conditions, NOVEX shareholders may demand dissenters'
rights under California law as discussed under "The Merger--Dissenters' Rights"
on page 46.
INVITROGEN
The close of business on , 1999 is the record date for the
Invitrogen special meeting. Only Invitrogen stockholders on the record date are
entitled to notice of and to vote at the special meeting. On the record date,
there were shares of Invitrogen common stock outstanding. Each share
of Invitrogen stock will be entitled to one vote on each matter to be acted upon
at the special meeting.
A majority vote of the shares of Invitrogen common stock outstanding on the
record date is required to adopt the merger agreement, approve the issuance of
Invitrogen common stock pursuant to the merger and approve the amendment to the
1997 Stock Option Plan.
INTERESTS OF CERTAIN PERSONS/STOCK OWNERSHIP BY DIRECTORS AND EXECUTIVE OFFICERS
OF NOVEX (PAGE 49)
In determining how to vote at the special meeting, you should be aware that
certain officers and directors of NOVEX may have
9
<PAGE>
interests in the merger that are different from the interests of other
shareholders. These include the following:
Pursuant to the merger agreement, Invitrogen will assume NOVEX's obligations
under the employment agreement for David McCarty, President and Chief Executive
Officer of NOVEX. Additionally, the officers and senior executives of NOVEX will
enter into severance agreements with Invitrogen, which become effective when the
merger is completed. Pursuant to Mr. McCarty's employment agreement and the
severance agreements, each executive is provided with certain protections,
compensation and benefits in the event that the executive's employment is
terminated without cause.
The foregoing interests of certain members of the management of NOVEX in the
merger may mean that they have a personal interest in the merger which may not
be identical to the interests of the other NOVEX shareholders.
As of July 2, 1999, all executive officers and directors of NOVEX, as a
group, owned approximately 77% of the shares of NOVEX common stock, 100% of
NOVEX preferred stock and 86% of all stock (assuming conversion of all preferred
stock into common stock) entitled to vote at the special meeting.
THE MERGER
THE MERGER AGREEMENT (PAGE 50)
In the merger, a subsidiary of Invitrogen will be merged with and into
NOVEX. NOVEX will be the surviving corporation and will become a wholly owned
subsidiary of Invitrogen. As a result of the merger, each holder of NOVEX common
stock will be entitled to receive from Invitrogen, in exchange for each share of
NOVEX common stock, a fraction of a share of Invitrogen common stock equal to
the exchange ratio. Each option to purchase a share of NOVEX common stock
outstanding at the time of the completion of the merger will be assumed by
Invitrogen and will become an option to purchase a fraction of a share of
Invitrogen common stock equal to the exchange ratio. The exchange ratio is
calculated by dividing 3,000,000 by the sum of (i) the total number of shares of
NOVEX common stock outstanding immediately prior to the effective time of the
merger and (ii) the number of shares of NOVEX common stock issuable upon
exercise of all NOVEX stock options outstanding on the day immediately preceding
the effective time of the merger. Based on the number of shares of NOVEX common
stock (assuming conversion of all preferred stock to common stock) and options
outstanding on June 14, 1999, the exchange ratio would be 0.23154.
CONDITIONS TO THE MERGER (PAGE 51)
Invitrogen's and NOVEX's obligations to complete the merger are subject to
the satisfaction or waiver of several conditions, including the following:
- Both NOVEX and Invitrogen shareholders must approve and adopt the merger
agreement;
- No court order or law can be in effect that prohibits the merger or makes
the merger illegal;
- The shares of Invitrogen to be issued in the merger must be authorized for
listing on the Nasdaq National Market;
- Ernst & Young LLP, independent accountants for NOVEX and Arthur Andersen
LLP, independent accountants for Invitrogen, must deliver opinions that
both companies are eligible to account for the merger as a pooling of
interests;
- Each of Invitrogen and NOVEX must certify to the other that its
representations and warranties contained in the merger agreement are true
and correct. Each must also certify to the other that it has materially
performed all of its obligations under the merger agreement;
- Each of Invitrogen and NOVEX must receive an opinion from their respective
tax counsel that the merger will qualify as a tax-free reorganization;
- Invitrogen must receive an opinion from its financial advisor that the
terms of the merger are fair to Invitrogen and its stockholders from a
financial point of view; and
10
<PAGE>
- Holders of not more than 5% of the outstanding shares of NOVEX common
stock shall have demanded dissenters' rights.
If Invitrogen or NOVEX waives the condition of receipt of an opinion from
tax counsel and there is a change in the tax consequences of the transaction,
NOVEX will amend this Joint Proxy Statement/Prospectus and recirculate it to its
shareholders.
CONSEQUENCES OF A "NO" VOTE ON THE MERGER
If NOVEX shareholders and Invitrogen stockholders vote against the merger in
the absence of an announced alternative transaction, no termination fee would be
payable to Invitrogen, but Invitrogen would be entitled to recover from NOVEX
reimbursement for fifty percent of the expense incurred in filing, printing and
mailing this Joint Proxy Statement/ Prospectus.
TERMINATION OF THE MERGER AGREEMENT AND EXPENSES (PAGE 55)
Invitrogen and NOVEX can agree to terminate the merger agreement without
completing the merger, and either company can terminate the merger agreement if
any of the following occurs:
- The merger is not completed by December 31, 1999;
- A court or governmental agency order permanently prohibits the merger;
- NOVEX's or Invitrogen's shareholders fail to approve the merger; or
- The other party breaches any representation or warranty or any covenant in
the merger agreement and such breach would reasonably be expected to have
a material adverse effect on the other party, and such breach is not cured
within fifteen days after receiving written notice of such breach.
All costs and expenses will be paid by the party incurring them, provided,
however, that (i) payment of legal and accounting fees of NOVEX over $100,000
will be paid by the shareholders of NOVEX as a group, and (ii) the cost incurred
in filing, printing and mailing this Joint Proxy Statement/Prospectus (other
than the registration fee payable under this Joint Proxy Statement/Prospectus)
will be shared equally by Invitrogen and NOVEX.
DISSENTERS' RIGHTS (PAGE 47)
Under California law, NOVEX shareholders who demand dissenters' rights may
be entitled to payment by NOVEX of the value of their dissenting shares of NOVEX
common stock instead of the merger consideration of exchanged Invitrogen common
stock.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (PAGE 44)
It is a condition to the merger that each of Invitrogen and NOVEX has
received an opinion of tax counsel to the effect that the exchange of shares in
the merger will constitute a reorganization. The exchange of shares of NOVEX
common stock for Invitrogen common stock in the merger should not result in the
recognition of taxable gain to NOVEX shareholders for federal income tax
purposes. NOVEX shareholders will, however, have to pay taxes with respect to
any cash received in lieu of any fractional share. The tax basis for a NOVEX
shareholder in the Invitrogen common stock they will receive in the merger will
equal their current tax basis in their NOVEX common stock reduced by the basis
which would have been allocable to any fractional share interest.
ACCOUNTING TREATMENT (PAGE 46)
Invitrogen and NOVEX expect the merger to qualify as a pooling of interests
for accounting and financial reporting purposes, which means that Invitrogen and
NOVEX will be treated as if they had always been combined for accounting and
financial reporting purposes.
RISK FACTORS (PAGE 20)
There are risk factors that should be considered by you in evaluating how to
vote at the
11
<PAGE>
special meeting. Such risk factors include, but are not limited to, the
following:
- The ability of Invitrogen and NOVEX to successfully integrate their
businesses is uncertain;
- Failure to achieve beneficial synergies could result in increased future
operating costs;
- Invitrogen may be required to spend more of its cash reserves because of
the merger than anticipated;
- The value of Invitrogen common stock to be received in the merger is not
fixed and may decline from its current value;
- NOVEX shareholders will have reduced ownership and voting interests after
the merger; and
- Substantial sales of Invitrogen common stock could adversely affect its
market price.
WE ENCOURAGE YOU TO READ CLOSELY, AND IN ITS ENTIRETY, THE DISCUSSION OF
CERTAIN RISK FACTORS TO BE CONSIDERED BY YOU BEGINNING ON PAGE 20.
FAIRNESS OPINION OF FINANCIAL ADVISOR (PAGE 41)
In deciding to approve the merger, Invitrogen's board of directors
considered the opinion of its financial advisor as to the fairness of the merger
to Invitrogen and its stockholders from a financial point of view. This opinion
is attached as Appendix B to this Joint Proxy Statement/Prospectus. We encourage
you to read this opinion carefully.
Invitrogen's financial advisor performed several analyses in connection with
delivering its opinion. These analyses included comparing Invitrogen and NOVEX
to other companies which Invitrogen's financial advisor considers to be
comparable to Invitrogen and NOVEX and estimating the relative values and
contributions of Invitrogen and NOVEX to the combined entity based on past
performance.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
We are providing the following financial information to aid you in your
analysis of the financial aspects of the merger. This information is only a
summary and you should read it in conjunction with the historical financial
statements of Invitrogen and NOVEX and the related notes contained in their
annual, quarterly and other reports and other information that Invitrogen has
filed with the SEC and NOVEX has included in this Joint Proxy
Statement/Prospectus. See "Where You Can Find More Information" on page 128.
Invitrogen has a fiscal year ending December 31, and NOVEX has a fiscal year
ending March 31. Accordingly, the selected consolidated financial data for the
periods presented corresponds to each company's applicable fiscal year end. We
derived this information from the audited consolidated financial statements for
the years ended December 31, 1994, 1995, 1996, 1997 and 1998 for Invitrogen and
for the fiscal years ended March 31, 1995, 1996, 1997, 1998 and 1999 for NOVEX.
13
<PAGE>
INVITROGEN SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
--------- ---------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................. $ 31,414 $ 24,965 $ 19,121 $ 14,342 $ 11,754
Cost of revenues.......................................... 8,642 7,989 5,818 4,743 4,554
--------- ---------- --------- --------- ---------
Gross margin.......................................... 22,772 16,976 13,303 9,599 7,200
Operating expenses:
Sales and marketing..................................... 6,976 4,959 4,236 3,646 2,685
General and administrative.............................. 4,428 3,932 3,880 2,542 2,245
Research and development................................ 7,209 4,416 2,659 2,043 1,623
--------- ---------- --------- --------- ---------
Total operating expenses.............................. 18,613 13,307 10,775 8,231 6,553
--------- ---------- --------- --------- ---------
Income from operations.............................. 4,159 3,669 2,528 1,368 647
Other income (expense), net............................... 457 268 155 (6) (83)
--------- ---------- --------- --------- ---------
Income before taxes....................................... 4,616 3,937 2,683 1,362 564
Benefit (provision) for income taxes...................... (1,638) (1,413) (939) (206) 45
--------- ---------- --------- --------- ---------
Net income.......................................... $ 2,978 $ 2,524 $ 1,744 $ 1,156 $ 609
Less: Preferred stock dividends.......................... (900) (475) -- -- --
Accretion of non-voting redeemable common stock..... (204) (175) (171) (110) --
Accretion of beneficial conversion feature related
to convertible preferred stock.................... -- (15,000) -- -- --
--------- ---------- --------- --------- ---------
Net income (loss) applicable to common shares....... $ 1,874 $ (13,126) $ 1,573 $ 1,046 $ 609
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
Earnings (loss) per share:
Basic................................................... $ 0.19 $ (1.47) $ 0.19 $ 0.11 $ 0.07
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
Diluted................................................. $ 0.17 $ (1.47) $ 0.16 $ 0.11 $ 0.07
--------- ---------- --------- --------- ---------
--------- ---------- --------- --------- ---------
Weighted average shares used in per share calculation:
Basic................................................... 9,626 8,939 8,356 9,602 9,268
Diluted................................................. 11,208 8,939 10,080 9,602 9,268
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.............. $ 6,011 $ 9,152 $ 1,381 $ 587 $ 631
Total assets................................................... 22,815 18,056 8,258 5,992 4,642
Long-term capital leases....................................... 83 143 110 433 838
Non-voting redeemable common stock of Invitrogen B.V........... 1,599 1,295 1,306 1,143 --
Convertible preferred stock.................................... 16,141 15,242 -- -- --
Total stockholders' equity (deficit)........................... 585 (1,853) 3,779 2,298 1,111
</TABLE>
14
<PAGE>
NOVEX SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues.................................................... $ 24,478 $ 17,133 $ 14,154 $ 10,977 $ 9,195
Cost of revenues............................................ 11,941 8,189 6,385 5,535 4,523
--------- --------- --------- --------- ---------
Gross Margin.............................................. 12,537 8,944 7,769 5,442 4,672
Operating expenses:
Sales and marketing....................................... 5,166 3,260 2,683 1,519 1,383
General and administrative................................ 3,604 3,469 2,660 2,208 1,840
Research and development.................................. 1,555 1,500 1,293 1,051 1,279
--------- --------- --------- --------- ---------
Total operating expenses.................................... 10,325 8,229 6,636 4,778 4,502
--------- --------- --------- --------- ---------
Income from operations.................................... 2,212 715 1,133 664 170
Other income (expense), net................................. (244) (194) (118) (102) (59)
--------- --------- --------- --------- ---------
Income before provision for income taxes.................... 1,968 521 1,015 562 111
Benefit (provision) for income taxes........................ (744) (202) (459) (239) 3
--------- --------- --------- --------- ---------
Net income................................................ 1,224 319 556 323 114
Less Preferred stock dividends accrued...................... (155) (155) (32) -- --
--------- --------- --------- --------- ---------
Net income available to common shareholders............... $ 1,069 $ 164 $ 524 $ 323 $ 114
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings per share:
Basic..................................................... $ 0.16 $ 0.02 $ 0.08 $ 0.03 $ 0.01
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted................................................... $ 0.11 $ 0.02 $ 0.05 $ 0.03 $ 0.01
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares used in per share calculation:
Basic..................................................... 6,692 6,678 6,522 9,811 10,000
Diluted................................................... 11,306 6,776 10,722 10,628 10,000
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash............................................................. $ 306 $ 188 $ 65 $ 38 $ 80
Total assets..................................................... 9,679 6,389 5,474 4,751 3,048
Deferred Rent.................................................... 52 71 82 66 --
Long-term debt, less current portion............................. 975 407 481 869 --
Redeemable convertible preferred stock........................... 2,900 2,745 2,590 2,558 --
Total stockholders' equity (deficit)............................. 1,645 527 410 (310) 1,269
</TABLE>
15
<PAGE>
INVITROGEN SELECTED PRO FORMA COMBINED FINANCIAL DATA
We expect that the merger will be accounted for as a "pooling of interests,"
which means that for accounting and financial reporting purposes, we will treat
the companies as if they had always been combined. For a more detailed
description of pooling of interests accounting see "The Merger-- Accounting
Treatment" on page 46.
We have presented below the unaudited pro forma combined condensed statement
of income data that reflects the pooling of interests method of accounting and
is intended to give you a better picture of what the businesses might have
looked like had NOVEX always been combined with Invitrogen, i.e., giving effect
to the merger between Invitrogen and NOVEX as if it had occurred on January 1,
1996. The selected pro forma combined financial data for the years ended
December 31, include Invitrogen's financial data for the three years ended
December 31, 1998 and NOVEX's financial data for the three fiscal years ended
March 31, 1999. The pro forma combined balance sheet data assumes that the
combination occurred on March 31, 1999. The companies may have performed
differently if they had been combined. You should not rely on the pro forma
information as being indicative of the historical results that would have
occurred or the future results that will result after the merger.
16
<PAGE>
INVITROGEN PRO FORMA COMBINED SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- ---------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
PRO FORMA COMBINED STATEMENT OF INCOME DATA:
Revenues........................................................................ $ 55,840 $ 42,072 $ 33,262
Cost of revenues................................................................ 20,570 16,170 12,199
--------- ---------- ---------
Gross Margin.................................................................. 35,270 25,902 21,063
Operating expenses:
Sales and marketing........................................................... 12,142 8,219 6,919
General and administrative.................................................... 8,032 7,401 6,540
Research and development...................................................... 8,725 5,898 3,943
--------- ---------- ---------
Total operating expenses.................................................... 28,899 21,518 17,402
--------- ---------- ---------
Income from operations.................................................... 6,371 4,384 3,661
Other income (expense), net..................................................... 213 74 37
--------- ---------- ---------
Income before provision for income taxes........................................ 6,584 4,458 3,698
Provision for income taxes...................................................... 2,382 1,615 1,398
--------- ---------- ---------
Net income.................................................................. $ 4,202 $ 2,843 $ 2,300
Less: Preferred stock dividends accrued........................................ (900) (475) --
Accretion of non-voting redeemable common stock........................... (204) (175) (171)
Accretion of beneficial conversion feature related to convertible
preferred stock......................................................... -- (15,000) --
--------- ---------- ---------
Net income (loss) applicable to common shares............................... $ 3,098 $ (12,807) $ 2,129
--------- ---------- ---------
--------- ---------- ---------
Earnings (loss) per share:
Basic......................................................................... $ 0.26 $ (1.12) $ 0.20
--------- ---------- ---------
--------- ---------- ---------
Diluted....................................................................... $ 0.22 $ (1.12) $ 0.17
--------- ---------- ---------
--------- ---------- ---------
Weighted average shares used in per share calculation:
Basic......................................................................... 12,149 11,457 10,839
Diluted....................................................................... 13,826 11,457 12,562
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1999
(IN THOUSANDS)
--------------
<S> <C>
PRO FORMA COMBINED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments................................................. $ 39,310
Total assets...................................................................................... 66,653
Long-term capital leases, less current portion.................................................... 74
Deferred Rent..................................................................................... 52
Long-term debt, less current portion.............................................................. 975
Non-voting redeemable common stock of Invitrogen B.V.............................................. 1,526
Total stockholders' equity........................................................................ 55,246
</TABLE>
17
<PAGE>
COMPARATIVE PER SHARE DATA
We are providing the following comparative per share information to aid you
in your analysis of the financial aspects of the merger. You should read this
information in conjunction with the historical financial statements and pro
forma combined financial statements of Invitrogen and NOVEX and the related
notes contained in reports that Invitrogen has previously filed with the SEC and
those that are included elsewhere in this Joint Proxy Statement/Prospectus. The
Invitrogen pro forma combined per share data presented below reflects the
pooling of interests method of accounting of the per share results of the
businesses of Invitrogen and NOVEX as if they had always been combined. The
results may have been different if the companies had been combined. Invitrogen
has a fiscal year ending December 31, and NOVEX has a fiscal year ending March
31. The NOVEX pro forma equivalent per share data equals an exchange ratio of
0.23154 multiplied by the Invitrogen pro forma combined per share data (the
final exchange ratio will be determined by dividing 3,000,000 by the sum of (i)
the total number of shares of NOVEX common stock outstanding immediately prior
to the effective time of the merger, and (ii) the total number of shares of
NOVEX common stock issuable upon the exercise of NOVEX stock options outstanding
on the day immediately preceding the effective time of the merger). For purposes
of providing the information in this Joint Proxy Statement/Prospectus the
exchange ratio of 0.23154 was calculated based on the number of shares of NOVEX
common stock (assuming conversion of all preferred stock to common stock) and
the number of options to purchase shares of NOVEX common stock outstanding on
June 14, 1999. The NOVEX historical book value per share set forth below assumes
the conversion of 42,000 shares of redeemable convertible preferred stock into
4,200,000 shares of NOVEX common stock. The pro forma per share data are not
necessarily indicative of the results that would have occurred, your financial
interests in such results, or the future results that will occur after the
merger. See "Invitrogen Selected Pro Forma Combined Financial Data."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Basic earnings (loss) per common share:
Invitrogen historical................................................................. $ 0.19 $ (1.47) $ 0.19
NOVEX historical...................................................................... $ 0.16 $ 0.02 $ 0.08
Invitrogen pro forma combined......................................................... $ 0.26 $ (1.12) $ 0.20
NOVEX pro forma equivalent............................................................ $ 0.06 $ (0.26) $ 0.05
Diluted earnings (loss) per common share:
Invitrogen historical................................................................. $ 0.17 $ (1.47) $ 0.16
NOVEX historical...................................................................... $ 0.11 $ 0.02 $ 0.05
Invitrogen pro forma combined......................................................... $ 0.22 $ (1.12) $ 0.17
NOVEX pro forma equivalent............................................................ $ 0.05 $ (0.26) $ 0.04
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1999
-----------------
<S> <C>
Book value per common share:
Invitrogen historical........................................................................... $ 3.83
NOVEX historical................................................................................ $ 0.42
Invitrogen pro forma combined................................................................... $ 3.51
NOVEX pro forma equivalent...................................................................... $ 0.81
</TABLE>
18
<PAGE>
MARKET PRICE AND DIVIDEND DATA
NOVEX. The NOVEX common stock is not traded on an established public
market.
INVITROGEN. The Invitrogen common stock began trading on the Nasdaq
National Market under the symbol "IVGN" on February 26, 1999. The following
tables set forth, for the quarters indicated, the high and low market prices of
shares of Invitrogen common stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
INVITROGEN STOCK
--------------------
<S> <C> <C>
HIGH LOW
--------- ---------
1999
Quarter ended March 31, 1999............................................... $ 15.50 $ 12.00
Quarter ended June 30, 1999................................................ $ 26.00 $ 12.88
</TABLE>
On June 11, 1999, the last trading day prior to the announcement by
Invitrogen and NOVEX that they had reached an agreement concerning the merger,
the closing price of Invitrogen common stock as reported on the Nasdaq National
Market was $21.94 per share. As of July 2, 1999 there were approximately 212
shareholders of record of Invitrogen common stock.
Because the market price of Invitrogen common stock is subject to
fluctuation, the market value of the shares of Invitrogen common stock that
holders of NOVEX common stock will receive in the merger may increase or
decrease. NOVEX shareholders are urged to obtain a current market quotation for
Invitrogen common stock.
Invitrogen has never paid cash dividends and NOVEX has not paid cash
dividends in its last four fiscal years. If the merger is not consummated, the
board of directors of NOVEX presently intends to continue a policy of retaining
all earnings to finance the expansion of its business. Following the merger, it
is expected that the board of directors of Invitrogen will continue the policy
of not paying cash dividends in order to retain earnings for reinvestment in the
business of the combined companies.
19
<PAGE>
RISK FACTORS
You should consider the following risk factors in determining how to vote at
the special meeting.
THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS.
THESE STATEMENTS RELATE TO FUTURE EVENTS OR THE FUTURE FINANCIAL PERFORMANCE OF
INVITROGEN AND NOVEX. IN SOME CASES, YOU CAN IDENTIFY FORWARD-LOOKING STATEMENTS
BY TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD," "EXPECTS," "PLANS,"
"ANTICIPATES," "BELIEVES," "ESTIMATED," "PREDICTS," "POTENTIAL," OR "CONTINUE"
OR THE NEGATIVE OF SUCH TERMS AND OTHER COMPARABLE TERMINOLOGY. THESE STATEMENTS
ONLY REFLECT MANAGEMENT'S EXPECTATIONS AND ESTIMATES. ACTUAL EVENTS OR RESULTS
MAY DIFFER MATERIALLY. IN EVALUATING THESE STATEMENTS, YOU SHOULD SPECIFICALLY
CONSIDER VARIOUS FACTORS, INCLUDING THE RISKS OUTLINED BELOW. THESE FACTORS MAY
CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM ANY FORWARD-LOOKING
STATEMENTS. WE ARE NOT UNDERTAKING ANY OBLIGATIONS TO UPDATE ANY FORWARD-LOOKING
STATEMENTS CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO REFLECT ANY
FUTURE EVENTS OR DEVELOPMENTS.
THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY BY THE NOVEX
SHAREHOLDERS AND INVITROGEN STOCKHOLDERS IN EVALUATING WHETHER TO ADOPT THE
MERGER AGREEMENT AND APPROVE THE MERGER. THESE FACTORS SHOULD BE CONSIDERED IN
CONJUNCTION WITH ANY ADDITIONAL RISK FACTORS IN DOCUMENTS INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND ANY OTHER INFORMATION
INCLUDED OR INCORPORATED BY REFERENCE HEREIN, INCLUDING IN CONJUNCTION WITH
FORWARD-LOOKING STATEMENTS MADE HEREIN. SEE "WHERE YOU CAN FIND MORE
INFORMATION" ON PAGE 128.
RISKS RELATING TO THE MERGER
THE ABILITY OF INVITROGEN AND NOVEX TO SUCCESSFULLY INTEGRATE THEIR BUSINESSES
IS UNCERTAIN
After the merger, Invitrogen and NOVEX, each of which previously operated
independently, will have to integrate their operations. The integration will
require significant efforts from each company, including the coordination of
their research and development and sales and marketing efforts. Invitrogen may
find it difficult to integrate the operations of NOVEX. NOVEX personnel may
leave NOVEX because of the merger. NOVEX customers, distributors or suppliers
may terminate their arrangements with NOVEX, or demand amended terms to these
arrangements. Invitrogen management may have their attention diverted while
trying to integrate the two companies. Such diversion of management's attention
or difficulties in the transition process could have an adverse impact on
Invitrogen. If Invitrogen is not able to successfully integrate the operations
of NOVEX, Invitrogen's expectations of its future results of operations may not
be met.
FAILURE TO ACHIEVE BENEFICIAL SYNERGIES COULD RESULT IN INCREASED FUTURE
OPERATING COSTS
Invitrogen and NOVEX have entered into the merger agreement with the
expectation that the merger will result in beneficial synergies. Achieving these
anticipated synergies and the potential benefits underlying the two companies'
reasons for the merger will depend on a number of factors, some of which
include:
- Changes in the favorable market reaction to NOVEX's and Invitrogen's
significant products;
- Competitive factors, including technological advances attained by
competitors and patents granted to or contested by competitors, which
would result in their ability to compete against the companies more
effectively;
- The expiration of patents with respect to the companies' products;
- Changes in economic conditions such as inflation, interest rates and
foreign currency exchange rates in the global marketplace where Invitrogen
and NOVEX have significant businesses;
- Significant litigation adverse to NOVEX and Invitrogen, including,
particularly, product liability litigation, antitrust litigation and
patent and trademark litigation;
20
<PAGE>
- The ability of the combined company to increase sales of NOVEX products;
and
- The ability of the combined company to increase sales of Invitrogen's
products.
Even if the two companies are able to integrate operations, there can be no
assurance that the anticipated synergies will be achieved. The failure to
achieve such synergies could have a material adverse effect on the business,
results of operations and financial condition of the combined company.
INVITROGEN MAY BE REQUIRED TO SPEND MORE OF ITS CASH RESERVES BECAUSE OF THE
MERGER THAN IT ANTICIPATED
Even if Invitrogen is able to integrate the operations of NOVEX
successfully, there is no assurance that such integration will result in the
realization of the full benefits of the cost savings, efficiencies or revenue
enhancements that Invitrogen currently anticipates. The cost savings and other
benefits of the merger may be offset by costs incurred in integrating NOVEX's
operations, as well as by increases in other expenses, or by problems in the
business unrelated to the merger.
THE VALUE OF THE SHARES OF INVITROGEN COMMON STOCK TO BE RECEIVED IS NOT FIXED
AND MAY DECLINE FROM ITS CURRENT VALUE
The number of shares of Invitrogen common stock to be issued in the merger
is fixed and each shareholder of NOVEX will receive a fixed number of shares of
Invitrogen common stock in exchange for their NOVEX common stock in the merger.
However, because Invitrogen common stock is publicly traded, the value of a
share of Invitrogen common stock may change on a daily basis. Therefore, the
value of the shares of Invitrogen common stock each NOVEX shareholder is to
receive in the merger may decline from the value as of the date of this Joint
Proxy Statement/Prospectus. Consequently, at the time of the special meeting,
you will not know the exact value of the Invitrogen common stock NOVEX
shareholders will receive when the merger is completed.
NOVEX SHAREHOLDERS WILL HAVE REDUCED OWNERSHIP AND VOTING INTERESTS AFTER THE
MERGER
After the merger's completion, NOVEX shareholders will own a significantly
smaller percentage of Invitrogen than they currently hold of NOVEX.
Consequently, they may be able to exercise less influence over the management
and policies of Invitrogen than they currently exercise over NOVEX.
SUBSTANTIAL SALES OF INVITROGEN COMMON STOCK COULD ADVERSELY AFFECT ITS MARKET
PRICE
Invitrogen cannot predict the effect, if any, that future sales of shares of
Invitrogen common stock or the availability of such shares for future sale will
have on its market price from time to time. Sales of substantial amounts of
Invitrogen common stock, or the perception that such sales could occur, could
adversely affect prevailing market prices for the stock. In particular,
agreements between the underwriters of Invitrogen's initial public offering and
certain of Invitrogen's stockholders and optionholders which restrict sales of
Invitrogen common stock and which were entered into in connection with
Invitrogen's initial public offering will expire in August 1999.
RIGHTS OF HOLDERS OF NOVEX COMMON STOCK FOLLOWING THE MERGER
Following the merger, holders of NOVEX common stock outstanding on the date
of the merger's completion will become holders of Invitrogen common stock.
Certain differences exist between the rights of NOVEX stockholders under NOVEX's
Articles of Incorporation, as amended, and NOVEX's bylaws and the rights of
Invitrogen shareholders under Invitrogen's Certificate of Incorporation, as
amended, and Invitrogen's bylaws. See "Comparison of Rights of Holders of
Invitrogen Common Stock and Holders of NOVEX Common Stock" on page 119.
21
<PAGE>
RISKS RELATING TO INVITROGEN'S BUSINESS
FAILURE TO MANAGE GROWTH COULD IMPAIR INVITROGEN'S BUSINESS
Invitrogen's business has grown rapidly. Invitrogen's net revenues increased
from $19.1 million in 1996 to $31.4 million in 1998. During that same period
Invitrogen significantly expanded its operations in the United States and in the
Netherlands, headquarters for its European operations. The number of Invitrogen
employees has increased from approximately 100 at December 31, 1996 to
approximately 221 as of December 31, 1998.
It is very difficult to manage this rapid growth, and Invitrogen's future
success depends on its ability to implement:
- Research and product development;
- Sales and marketing programs;
- Customer support programs;
- Operational and financial control systems; and
- Recruiting and training new personnel.
Invitrogen's ability to successfully offer products and services and
implement its business plan in a rapidly evolving market requires an effective
planning and management process. Invitrogen expects that it will need to
continue to improve its financial and managerial controls, reporting systems and
procedures and to expand and train its work force worldwide.
Invitrogen is in the process of implementing a new, enterprise-wide
financial and manufacturing information system. It expects to begin using its
new system sometime in the first half of 2000. If Invitrogen fails to
successfully complete implementation of its new system it could experience
manufacturing and shipping delays which, in turn, could cause increased
manufacturing costs and deferred or lost sales.
Invitrogen has recently developed a high-throughput gene cloning and
expression system by scaling up its TOPO TA Cloning technology. It is
commercializing this technology under the name Invitrogenomics. Invitrogen's
future business growth depends in part on the success of its Invitrogenomics
products and services. In order to succeed in this business Invitrogen may need
to hire additional senior managers. Moreover, operation of Invitrogenomics may
present unfamiliar management challenges that it might not successfully address.
Invitrogen may not be able to locate or hire the necessary managers or
successfully address the potentially unfamiliar management issues that may occur
in Invitrogenomics or other areas of its business.
REDUCTION IN RESEARCH AND DEVELOPMENT BUDGETS AND GOVERNMENT FUNDING MAY IMPACT
SALES
Invitrogen's customers include researchers at pharmaceutical and
biotechnology companies, academic institutions and government and private
laboratories. Fluctuations in the research and development budgets of these
researchers and their organizations could have a significant effect on the
demand for Invitrogen's products. Research and development budgets fluctuate due
to changes in available resources, spending priorities and institutional
budgetary policies. Invitrogen's business could be seriously damaged by any
significant decrease in life sciences research and development expenditures by
pharmaceutical and biotechnology companies, academic institutions or government
and private laboratories.
A significant portion of Invitrogen's sales have been to researchers,
universities, government laboratories and private foundations whose funding is
dependent upon grants from government agencies such as the U.S. National
Institutes of Health and similar domestic and international agencies. Also, a
portion of Invitrogen's direct revenues comes from NIH Small Business Innovation
Research grant funds. Although the level of research funding has increased
during the past several years, Invitrogen
22
<PAGE>
cannot assure you that this trend will continue. Government funding of research
and development is subject to the political process, which is inherently fluid
and unpredictable. Also, government proposals aiming to reduce or eliminate
budgetary deficits have sometimes included reduced allocations to the NIH and
other government agencies that fund research and development activities. A
reduction in government funding for the NIH or other government research
agencies could seriously damage Invitrogen's business.
Invitrogen's customers generally receive funds from approved grants at
particular times of the year, as determined by the federal government. Grants
have, in the past, been frozen for extended periods or have otherwise become
unavailable to various institutions without advance notice. The timing of the
receipt of grant funds affects the timing of purchase decisions by Invitrogen's
customers and, as a result, can cause fluctuations in its sales and operating
results.
FAILURE TO LICENSE NEW TECHNOLOGIES COULD IMPAIR NEW PRODUCT DEVELOPMENT
Invitrogen's business model of providing products to researchers working on
a variety of genetic projects requires it to develop a wide spectrum of
products. To generate broad product lines it is advantageous to license
technologies from the scientific community at large rather than depending
exclusively on its own employees. As a result Invitrogen believes its ability to
in-license new technologies from third parties is and will continue to be
critical to its ability to offer new products. About 90% of Invitrogen's
products are manufactured or sold under license agreements.
Invitrogen's ability to develop new products and services depends in part on
its ability to convince inventors that it can successfully commercialize their
new technologies. Further, Invitrogen cannot assure you that it will be able to
continue to identify new technologies developed by others. Even if Invitrogen is
able to identify new technologies of interest, Invitrogen may not be able to
negotiate a license on favorable terms, or at all.
LOSS OF LICENSES COULD HURT PERFORMANCE
Some of Invitrogen's licenses do not run for the length of the patent.
Invitrogen may not be able to renew its existing licenses on favorable terms, or
at all. If Invitrogen loses the rights to a patented technology, Invitrogen may
need to stop selling certain of its products or redesign its products or lose a
competitive advantage. Potential competitors could in-license technologies that
Invitrogen fails to license and potentially erode its market share for certain
products.
Invitrogen's licenses typically subject it to various commercialization,
sublicensing and other obligations. If Invitrogen fails to comply with these
requirements Invitrogen could lose important rights under a license, such as the
right to exclusivity in a certain market. In some cases, Invitrogen could also
lose all rights under a license. In addition, certain rights granted under the
license could be lost for reasons out of Invitrogen's control. For example, the
licensor could lose patent protection for a number of reasons, including
invalidity of the licensed patent. Invitrogen typically does not receive
significant indemnification from a licensor against third party claims of
intellectual property infringement. See "Business--Technology Licensing"
regarding its current licenses.
INVITROGEN'S MARKET SHARE DEPENDS ON NEW PRODUCT INTRODUCTIONS AND ACCEPTANCE
The market for Invitrogen's products and services is only about fifteen
years old. Rapid technological change and frequent new product introductions are
typical for the market. For example, prepackaged kits to perform research in
particular cell lines and already-isolated genetic material are only now coming
into widespread use among researchers. Invitrogen's future success will depend
in part on continuous, timely development and introduction of new products that
address evolving market requirements. Invitrogen believes successful new product
introductions provide a significant competitive advantage because customers make
an investment of time in selecting and learning to use a new product, and
23
<PAGE>
are reluctant to switch thereafter. To the extent Invitrogen fails to introduce
new and innovative products Invitrogen will probably lose market share to its
competitors, which will be difficult or impossible to regain. An inability, for
technological or other reasons, to successfully develop and introduce new
products could reduce Invitrogen's growth rate or damage its business.
Invitrogen has made a substantial investment in developing the technology
underlying Invitrogenomics products and services. The products portion of
Invitrogenomics was launched commercially in 1998, and has not achieved
significant revenues. Invitrogen expects to launch the services portion of the
business in the near future. Invitrogen cannot be sure that Invitrogenomics will
achieve any commercial success or that revenues will equal or exceed the cost of
its investment.
In the past Invitrogen has experienced, and it is likely to experience in
the future, delays in the development and introduction of products. Invitrogen
cannot assure you that it will keep pace with the rapid rate of change in life
sciences research, or that its new products will adequately meet the
requirements of the marketplace or achieve market acceptance. Factors affecting
the market acceptance of its new products include:
- Citation of the product in published research;
- The timing of introduction of the product relative to competitive
products; and
- General trends in life sciences research.
LOSS OF KEY PERSONNEL COULD HURT INVITROGEN'S BUSINESS
Invitrogen's products and services are highly technical in nature. In
general only highly qualified and trained scientists have the necessary skills
to develop and market Invitrogen's products and provide its services. Invitrogen
faces intense competition for these professionals from its competitors and its
customers, marketing partners and companies throughout its industry. Any failure
on Invitrogen's part to hire, train and retain a sufficient number of qualified
professionals would seriously damage its business. Invitrogen does not generally
enter into employment agreements requiring these employees to continue in its
employment for any period of time. See "Management" on page 92.
COMPETITION IN THE LIFE SCIENCES RESEARCH MARKET COULD REDUCE SALES
The markets for Invitrogen's products are very competitive. Many other life
sciences research products suppliers have greater financial, operational, sales
and marketing resources, and more experience in research and development than
Invitrogen. These and other companies may have developed or could in the future
develop new technologies that compete with Invitrogen's products or even render
its products obsolete.
Invitrogen believes that customers in its markets display a significant
amount of loyalty to their initial supplier of a particular product. Therefore,
it may be difficult to generate sales to customers who have purchased products
from competitors. To the extent Invitrogen is unable to be the first to develop
and supply new products, its competitive position will suffer. See "Invitrogen
Business--Competition" for more information.
LARGE DISTRIBUTORS MAY FORCE THE USE OF MORE EXPENSIVE MARKETING AND
DISTRIBUTION CHANNELS
Certain of Invitrogen's academic and commercial customers have developed
purchasing initiatives to reduce the number of vendors they purchase from in
order to lower their supply costs. In some cases these accounts have established
agreements with large distributors, which include discounts and the
distributors' direct involvement with the purchasing process. These activities
may force Invitrogen to supply the large distributors with its products at a
discount to reach those customers. For more information, see "Invitrogen
Business--Competition."
24
<PAGE>
INTERNATIONAL UNREST OR FOREIGN CURRENCY FLUCTUATIONS COULD ADVERSELY AFFECT
RESULTS
Invitrogen's products are currently marketed in over 30 countries throughout
the world. Invitrogen's international revenues, which include revenues from its
Netherlands subsidiary and export sales, represented 37% of product revenues in
1998, 35% in 1997 and 33% in 1996. Invitrogen expects that international
revenues will continue to account for a significant percentage of its revenues
for the foreseeable future, in part because it intends to expand its
international operations.
There are a number of risks arising from Invitrogen's international
business, including:
- General economic and political conditions in the markets in which it
operates;
- Potential increased costs associated with overlapping tax structures;
- Potential trade restrictions and exchange controls;
- More limited protection for intellectual property rights in some
countries;
- Difficulties and costs associated with staffing and managing foreign
operations;
- Uncertain effects of the movement in Europe to a unified currency;
- Slower growth in the European market before the unified currency is
adopted;
- Unexpected changes in regulatory requirements;
- The difficulties of compliance with a wide variety of foreign laws and
regulations;
- Longer accounts receivable cycles in certain foreign countries; and
- Import and export licensing requirements.
A significant portion of Invitrogen's business is conducted in currencies
other than the U.S. dollar, which is its reporting currency. Invitrogen
recognizes foreign currency gains or losses arising from its operations in the
period incurred. As a result, currency fluctuations among the U.S. dollar and
the currencies in which it does business have caused and will continue to cause
foreign currency transaction gains and losses. Invitrogen cannot predict the
effects of exchange rate fluctuations upon its future operating results because
of the number of currencies involved, the variability of currency exposures and
the potential volatility of currency exchange rates. Invitrogen engages in
foreign exchange hedging transactions to manage its foreign currency exposure,
but Invitrogen can not assure you that its strategies will adequately protect
its operating results from the effects of exchange rate fluctuations. For more
information see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Currency Hedging and Foreign Currency Translation" on
page 89.
The Asia/Pacific region has recently experienced unstable economic
conditions and significant devaluation in its currencies. The economic situation
in the region may result in slower payments of outstanding receivable balances.
To date this region has not represented a significant portion of Invitrogen's
revenues. However, to the extent the Asia/Pacific region becomes increasingly
important, or to the extent the factors affecting the region begin to affect
other geographic locations, its business could be damaged.
OUR LIFE SCIENCE PATENTS AND PROPRIETARY TECHNOLOGIES COULD AFFECT ABILITY TO
COMPETE
Invitrogen's success depends to a significant degree upon its ability to
develop proprietary products and technologies. However, Invitrogen cannot assure
you that patents will be granted on any of its patent applications. Invitrogen
also cannot assure you that the scope of any of its issued patents will be
sufficiently broad to offer meaningful protection. In addition, Invitrogen's
issued patents or patents licensed to Invitrogen could be successfully
challenged, invalidated or circumvented so that its patent rights would not
create an effective competitive barrier. See "Business--Patents and Proprietary
Technologies" for more information regarding Invitrogen's existing and pending
patents.
25
<PAGE>
PUBLICITY OF TRADE SECRETS COULD AID COMPETITORS
Invitrogen attempts to protect its trade secrets by entering into
confidentiality agreements with third parties, employees and consultants.
However, these agreements can be breached and, if they are, there may not be an
adequate remedy available to Invitrogen. If Invitrogen's trade secrets become
known it may lose its competitive position.
INTELLECTUAL PROPERTY LITIGATION COULD HARM INVITROGEN'S BUSINESS
Litigation regarding patents and other intellectual property rights is
extensive in the biotechnology industry. Invitrogen is aware that patents have
been applied for and in some cases issued to others claiming technologies which
are closely related to Invitrogen's. As a result, and in part due to the
ambiguities and evolving nature of intellectual property law, Invitrogen
periodically receives notices of potential infringement of patents held by
others. Although Invitrogen has to date successfully resolved these types of
claims, it may not be able to do so in the future.
In the event of an intellectual property dispute Invitrogen may be forced to
litigate. Such litigation could involve proceedings declared by the U.S. Patent
and Trademark Office or the International Trade Commission, as well as
proceedings brought by affected third parties. Intellectual property litigation
can be extremely expensive, and such expense, as well as the consequences should
Invitrogen not prevail, could seriously harm its business.
If a third-party claimed an intellectual property right to technology
Invitrogen uses, Invitrogen might need to discontinue an important product or
product line, alter its products and processes, pay license fees or cease
certain activities. Although Invitrogen might under these circumstances attempt
to obtain a license to such intellectual property, it may not be able to do so
on favorable terms, or at all.
YEAR 2000 COMPLICATIONS MAY DISRUPT INVITROGEN'S OPERATIONS AND HARM ITS
BUSINESS
We are aware that many currently installed information technology systems,
such as computer systems and software products, as well as non-information
technology systems that include imbedded technology, were not designed to
correctly process dates after December 31, 1999.
Invitrogen is heavily dependent upon the proper functioning of its own
computer and data dependent systems. Invitrogen cannot assure you that
Invitrogen will successfully identify and address all Year 2000 issues. Any
failure on the part of these or other systems could materially adversely affect
Invitrogen's business in ways Invitrogen cannot anticipate. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
page 85.
ACCIDENTS RELATED TO HAZARDOUS MATERIALS COULD ADVERSELY AFFECT INVITROGEN'S
BUSINESS
Portions of Invitrogen's operations require the controlled use of hazardous
and radioactive materials. Although Invitrogen believes its safety procedures
comply with the standards prescribed by federal, state and local regulations,
the risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of such an accident, Invitrogen could be
liable for any damages that result, which could seriously damage its business.
Additionally, an accident could damage Invitrogen's research and manufacturing
facilities and operations.
POTENTIAL PRODUCT LIABILITY CLAIMS COULD AFFECT EARNINGS AND FINANCIAL CONDITION
Invitrogen faces a potential risk of liability claims based on its products
or services. Invitrogen carries product liability insurance coverage which is
limited in scope and amount but which it believes to be adequate. Invitrogen
cannot assure you, however, that it will be able to maintain this insurance at
reasonable cost and on reasonable terms. Invitrogen also cannot assure you that
this insurance will be adequate to protect it against a product liability claim,
should one arise.
26
<PAGE>
RISKS RELATING TO NOVEX'S BUSINESS
NOVEX'S OPERATING RESULTS MAY FLUCTUATE
NOVEX's operating results may vary significantly from quarter to quarter and
from year to year as a result of a variety of factors. These factors include:
- Level of demand for NOVEX products;
- Timing of acquisitions and investments in infrastructure;
- Timing of NOVEX's development and introduction of new products;
- Competitive conditions;
- Timing and extent of intellectual property litigation;
- Exchange rate fluctuations; and
- General economic conditions.
Quarterly comparisons of NOVEX's financial results may not necessarily be
meaningful and should not be relied upon as an indication of future performance.
NOVEX's continued investments in product development and sales and marketing
are significant ongoing expenses. If revenue in a particular period falls short
of expectations, NOVEX may not be able to reduce significantly its expenditures
for that period, which would materially adversely affect NOVEX's operating
results for that period.
NOVEX's product development activities often focus on unproven technologies
and undeveloped markets. As a result, NOVEX may experience difficulty in
forecasting operating expenditures, and NOVEX cannot know when or whether its
efforts will result in commercially successful products. The expenses or losses
associated with these product development activities could materially adversely
affect NOVEX's operating results.
NOVEX DEPENDS ON NEW PRODUCTS FOR GROWTH
NOVEX's future success depends on its ability to develop and introduce, on a
timely basis, products that address the evolving needs of scientists. NOVEX has
experienced delays and technical difficulties in the development, introduction
and marketing of products, such as its WesternBreeze blotting kits and
QuickPoint system, and it may experience delays and technical difficulties in
the future. NOVEX cannot assure you that its new products will meet the
requirements of scientists or achieve market acceptance.
If NOVEX's products fail to achieve market acceptance, it may endure periods
of slower growth. Factors affecting product acceptance include:
- Perceived utility by scientists;
- Availability and price of competitive products;
- Technological changes;
- Citations of the product in published research; and
- General trends in life science research.
NOVEX believes that customers in its markets display a significant amount of
loyalty to their initial supplier of a particular product. Therefore, it may be
difficult to generate sales to customers who have historically purchased
products from competitors. Further, there is a significant competitive advantage
in being the first to introduce a new product to market. Accordingly, NOVEX
believes that to
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compete effectively, it consistently needs to be the first to market with
important new research products. If NOVEX is not the first to develop and supply
new products, its competitive position may suffer. If it is unable to develop
and introduce products in a timely manner, or if its products do not obtain
market acceptance, its business, financial condition and results of operations
could be materially adversely affected.
NOVEX NEEDS TO EXPAND ITS OPERATIONS AND MANAGE ITS GROWTH
NOVEX has recently experienced, and continues to experience, significant
growth in the number of employees and the scope of NOVEX's operations. This
growth places a significant strain on its management and operations. Its ability
to manage growth effectively will depend upon, among other things, its ability
to:
- Attract, hire and retain skilled scientists, managers and other employees;
- Increase its international presence and its North American sales force;
- Implement and improve its operational, information and financial control
systems;
- Expand its manufacturing capabilities; and
- Grow its customer service and technical service resources.
Such expansion could result in significant burdens on its systems and resources.
Additionally, NOVEX's growth plan may include acquisitions. If NOVEX
acquires a company, it could have difficulty assimilating its operations, or
assimilating and retaining its key personnel. Further, if the demand for NOVEX's
products exceeds its ability to provide its products on a timely basis, NOVEX
could lose customers. There can be no assurance that NOVEX's systems, procedures
or controls will be adequate to support its operations or that its management
will be capable of exploiting fully the market for its products. If NOVEX is
unable to manage its growth effectively, its business, financial condition and
results of operations could be materially adversely affected.
DOWNSIZING AND CONSOLIDATION IN THE UNITED STATES PHARMACEUTICAL INDUSTRY COULD
ADVERSELY IMPACT NOVEX'S RESULTS
In recent years, the United States pharmaceutical industry has undergone
substantial downsizing and consolidation. In the last year, NOVEX has
experienced a drop in sales at two key accounts due to cutbacks in customer
operations. Further mergers or corporate consolidations in the pharmaceutical
industry could cause NOVEX to lose existing customers and potential future
customers, which could have a material adverse effect on its business, financial
condition and results of operations.
NOVEX MAY NOT BE ABLE TO GROW ITS MAJOR ACCOUNTS
NOVEX has based its sales forecasts on, among other things, estimates of the
demand for its products and the products of its competitors by certain key
customers. NOVEX may have overestimated this demand and misallocated resources
by focusing on accounts that are already saturated. Such a misallocation of
resources could have a material adverse effect of NOVEX's business, financial
condition and results of operations.
NOVEX'S INDUSTRY IS HIGHLY COMPETITIVE AND IS SUBJECT TO RAPID TECHNOLOGICAL
CHANGE
The market for NOVEX's products is highly competitive, and NOVEX expects
competition to increase. NOVEX competes with many other life science research
product suppliers. NOVEX has significantly fewer research and development,
marketing, financial and other resources than many of its competitors. These
competitors may have developed or could in the future develop new technologies
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that compete with NOVEX's products or render its products obsolete. The
principal competitive factors in NOVEX's markets include the following:
- Product performance, features and reliability;
- Price;
- Timing of product introduction;
- Sales and distribution capability;
- Technical support and service; and
- Breadth of product line.
There are limited barriers to entry into NOVEX's markets, and new
competitors frequently enter its markets. Of particular concern is the
anticipated sale by FMC of its BioProducts division to a competitor of NOVEX,
which may result in additional market and pricing pressure on NOVEX. Further,
NOVEX recently increased its prices, which may be met with customer resistance
and could give NOVEX's competition an additional opening into NOVEX's markets.
Some of NOVEX's competitors have in the past and may in the future compete
by lowering prices on certain products. In certain cases, NOVEX may respond by
lowering its prices. In addition, if NOVEX fails to anticipate, recognize and
implement new marketing and distribution strategies based upon the Internet or
other marketing trends, NOVEX's business may be materially adversely affected.
NOVEX currently benefits from sales in emerging niche research markets,
which, as they expand, may also attract the attention of its competitors. NOVEX
believes that customers in its markets display a significant amount of loyalty
to their initial supplier of a particular product. Therefore, it may be
difficult to generate sales to customers who have purchased products from
competitors. To the extent NOVEX is unable to be the first to develop and supply
new products, its competitive position will suffer.
NOVEX HAS LIMITED PRICING FLEXIBILITY
NOVEX has entered into pricing agreements with a number of larger customers,
including blanket purchase agreements with a number of government agencies.
Those agreements may limit NOVEX's pricing flexibility during their respective
terms, which could materially adversely affect NOVEX's business, financial
condition and results of operations.
NOVEX RELIES ON THIRD-PARTY MANUFACTURERS TO MANUFACTURE CERTAIN PRODUCTS
NOVEX relies on third-party manufacturers to manufacture many of its
products and just recently contracted with an outside vendor for the production
of its PowerEase instrument products. In particular, NOVEX purchases all of the
cassettes used in its pre-cast gels from a single third-party manufacturer. It
is possible that production problems may occur with such outsourced
manufacturing. If such manufacturing problems occur, there can be no assurance
that NOVEX will be able to manufacture its products on a commercial scale or
that such products can be manufactured by NOVEX or any other party on behalf of
NOVEX at costs or in quantities to make such products commercially viable.
NOVEX DEPENDS ON PATENTS AND PROPRIETARY TECHNOLOGY
Patent protection for compositions of matter, processes and methods is
prevalent in the life science industry and continues to expand. As more patents
are issued to third parties, NOVEX expects that more of these third party
patents will cover aspects of its products. From time to time, NOVEX expects to
receive invitations to license patented technology from these parties or be sued
for patent infringement. For example, NOVEX is aware of patents and pending
applications held by third parties that
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may relate to its array technology. NOVEX cannot assure you that it will not
infringe these patents or other proprietary rights belonging to other parties.
NOVEX may not be able to license certain technology on acceptable terms, or at
all, and, as a result, NOVEX may need to discontinue the sale of certain
products or engage in patent litigation.
NOVEX relies upon a combination of patents and trade secrets to establish
and protect its own proprietary rights to its technologies. As of July 2, 1999,
NOVEX owned six issued patents in the United States, had one pending patent
application in the United States and had four pending foreign patent
applications. NOVEX believes that the success of its business, in part, depends
on its ability to obtain and maintain patent protection for its technology.
However, its patent position is generally uncertain. Any patent issued or
licensed to NOVEX may not provide protection that has commercial significance.
NOVEX's competitors may independently develop technologies similar to NOVEX's
technologies, duplicate the technology owned or licensed to NOVEX, or design
around patented aspects of NOVEX's technology. In addition, it may be necessary
to engage in litigation to protect NOVEX's intellectual property position.
Intellectual property litigation generally is expensive, involves complex
legal and factual questions and requires a significant commitment of
management's time. If NOVEX is forced to participate in patent litigation, its
business, financial condition and results of operations could be materially
adversely affected.
NOVEX relies upon trade secrets in the development and manufacture of many
of its principal products. NOVEX attempts to protect its trade secrets by
entering into confidentiality agreements with all of its employees, consultants
and advisors. However, these agreements cannot prevent the unauthorized use or
disclosure of such trade secrets or know-how. In addition, others may obtain
access to or independently develop similar or equivalent trade secrets or
know-how.
NOVEX RELIES ON RESEARCH AND DEVELOPMENT BUDGETS AND GOVERNMENT RESEARCH FUNDING
NOVEX's customers include scientists at pharmaceutical and biotechnology
companies, academic institutions and government laboratories. Fluctuations in
the research and development budgets of these companies and institutions may
have a significant effect on the demand for NOVEX's products. Research and
development budgets fluctuate due to changes in available resources, spending
priorities, institutional budgetary policies and other factors outside of its
control. The funding associated with grants from government agencies, including
the United States National Institutes of Health, generally becomes available at
particular times of the year, the timing of which may result in fluctuations in
NOVEX's operating results. In the past, grants have been frozen for extended
periods or have otherwise become unavailable to various institutions, sometimes
without advance notice. Any decrease in life science research and development
expenditures or availability of government funding could materially adversely
affect NOVEX's business, financial condition and results of operations.
Additionally, many European pharmaceutical companies have begun outsourcing
research projects to academic institutions. Because academic institutions
traditionally have been more price sensitive and reluctant to convert to
pre-cast gels than European pharmaceutical companies, this shift may reduce
NOVEX's gel sales in European markets, which could materially adversely affect
NOVEX's business, financial condition and results of operations.
THERE ARE MANY RISKS RELATING TO INTERNATIONAL SALES AND OPERATIONS
During the fiscal year ended March 31, 1999, sales to customers outside
North America accounted for approximately 36% of the revenue of NOVEX and its
subsidiaries, the majority of which was to customers in Europe. NOVEX expects
that international sales will continue to account for a significant and
increasing percentage of its revenues for the foreseeable future, in part
because NOVEX intends
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to expand its international operations. However, foreign markets for its
products may develop more slowly than NOVEX currently anticipates.
NOVEX's international sales are subject to a number of risks, including the
following:
- Foreign currency devaluation and fluctuation in exchange rates;
- Difficulties and costs associated with staffing and managing foreign
operations;
- Unexpected changes or difficulties in compliance with legislative or
regulatory requirements;
- Delays resulting from difficulty in obtaining export and import licenses
for certain technology; delays in collecting accounts receivable;
- Tariffs, quotas and other trade restrictions;
- Uncertain effects of the movement in Europe to a unified currency;
- Slower growth in the European market before the unified currency is
adopted;
- Limited protection for intellectual property rights in some countries;
- Potential increased costs associated with overlapping tax structures; and
- General economic and political conditions.
NOVEX has established international subsidiaries in Germany and, in the
process, incurred significant costs. Future openings of new international
offices, if any, and the accompanying increase in NOVEX's work force, would
result in additional expenses and burdens on its systems and resources. Further,
NOVEX's international direct sales force and its international distributors,
such as its Japanese distributor, Iatron, may not be able to compete
successfully against local competitors or established international distributors
that represent the products of competing companies.
NOVEX anticipates that during the next twelve months, NOVEX's Vice President
of European Operations will return to the United States and the day to day
management of NOVEX's Frankfurt and Heidelberg operations will be passed to the
German management team. If the transition does not proceed as planned,
additional resources will be required for management of NOVEX's European
operations.
The Asia/Pacific region has experienced unstable economic conditions and
significant devaluation in its currencies during the last six months of 1997 and
throughout 1998. The economic situation in the region may result in slower
payments of outstanding receivable balances. To date this region has not
represented a significant portion of NOVEX's revenues. However, to the extent
the Asia/Pacific region becomes increasingly important, or to the extent the
factors affecting the region begin to affect other geographic locations, its
business could be damaged.
NOVEX MAY BE FORCED TO USE MORE EXPENSIVE MARKETING AND DISTRIBUTION CHANNELS
Certain of NOVEX's academic and commercial customers have developed
purchasing initiatives to reduce the number of vendors they purchase from in
order to lower their supply costs. In some cases these accounts have established
agreements with large distributors, which include discounts and the
distributors' direct involvement with the purchasing process. These activities
may force NOVEX to supply the large distributors, such as VWR, with its products
at an increased discount to reach those customers. Additionally, sales through
Internet vendors, such as SciQuest and Chemdex, are expected to increase. The
increase in Internet sales may negatively impact NOVEX's gross margins as the
commission paid on Internet sales is an additional cost not incurred through the
use of non-Internet vendors.
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NOVEX DEPENDS ON KEY PERSONNEL AND NEEDS ADDITIONAL PERSONNEL
NOVEX is highly dependent upon its ability to attract and retain certain key
managerial, scientific, and technical personnel. NOVEX competes for such
personnel with academic institutions, pharmaceutical companies and NOVEX's
competitors, among others. In addition, NOVEX's success depends on its ability
to hire qualified marketing and sales personnel. NOVEX currently intends to
increase its North American sales and marketing force. The loss of key personnel
or the inability to hire and retain qualified personnel could materially
adversely affect NOVEX's product development efforts, revenues and business.
NOVEX DEPENDS ON KEY SUPPLIERS
NOVEX purchases certain key raw materials from a limited number of suppliers
and purchases all of its cassette parts from a single vendor. NOVEX believes
there are relatively few alternative sources of supply for certain of these raw
materials. Although NOVEX maintains significant inventories, if NOVEX's current
suppliers become unable or unwilling to supply raw materials when needed and
NOVEX is unable to obtain alternative suppliers, NOVEX may be unable to
manufacture and market certain products. Resulting delays or reductions in
product shipments could damage relationships with NOVEX's customers. Further, a
significant increase in the price of one or more of these raw materials by its
suppliers could materially adversely affect NOVEX's gross margin or operating
results.
YEAR 2000 COMPLICATIONS MAY DISRUPT NOVEX'S OPERATIONS AND HARM ITS BUSINESS
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, in less than one year,
computer systems and software used by many companies will experience operating
difficulties unless they are modified or upgraded to adequately process
information involving the century change.
NOVEX is heavily dependent upon the proper functioning of its own computer
and data-dependent systems.
NOVEX cannot assure you that NOVEX will successfully identify and address
all Year 2000 issues. Even if NOVEX acts in a timely manner to complete all of
its assessments and identify, develop and implement remediation plans believed
to be adequate, some problems may not be identified or corrected in time to
prevent material adverse consequences to NOVEX's business. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
page 109.
NOVEX RELIES ON THIRD-PARTY DISTRIBUTORS
A substantial portion of NOVEX's revenues are generated by sales made
through third-party distributors. Many of these distributors also represent the
products of competing companies. There can be no assurance that such
distributors will devote adequate resources to selling NOVEX's products or that
NOVEX will be able to maintain its distributor relationships. If NOVEX fails to
maintain successful relationships with its distributors, its business, financial
condition and results of operations could be materially adversely affected.
NOVEX'S BUSINESS USES HAZARDOUS MATERIALS AND SUBJECTS NOVEX TO ENVIRONMENTAL
LAWS AND REGULATIONS
NOVEX's research, development and manufacturing activities involve the
controlled use of hazardous materials, chemicals and radioactive compounds.
NOVEX believes that it is in compliance in all material respects with applicable
federal, state and local laws and regulations governing the storage, use, and
disposal of such materials and certain waste products. However, NOVEX's safety
procedures for handling and disposing of hazardous materials may not fully
comply with these standards. In the
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future, regulators may require NOVEX to incur significant costs to comply with
environmental laws and regulations. In addition, NOVEX's employees may be
accidentally contaminated or injured from these materials. In the event of such
an accident, NOVEX could be held liable for any damages that result.
POTENTIAL PRODUCT LIABILITY CLAIMS COULD AFFECT NOVEX'S EARNINGS AND FINANCIAL
CONDITION
NOVEX faces a potential risk of liability claims based on its products or
services. NOVEX carries product liability insurance coverage which is limited in
scope and amount but which it believes to be adequate. NOVEX cannot assure you,
however, that it will be able to maintain this insurance at reasonable cost and
on reasonable terms. NOVEX also cannot assure you that this insurance will be
adequate to protect it against a product liability claim, should one arise.
NOVEX MAY BECOME INVOLVED IN COSTLY TIME CONSUMING LITIGATION
From time to time NOVEX has been and expects to be involved in legal
proceedings arising from NOVEX's ordinary business operations. For example, a
claim was asserted by ict-Wien, an Austrian distributor, alleging that NOVEX had
not given ict-Wien sufficient notice of a change relating to the parties'
distribution arrangement and also alleging that NOVEX hired a key employee of
ict-Wien. Although no legal action has been filed by ict-Wein in connection with
this claim, this claim and other claims may result in litigation in the future,
which could require NOVEX to expend significant financial resources and to
divert management's time and efforts to address the claims. See "NOVEX
Business-- Legal Proceedings."
NOVEX NEEDS TO LEASE ADDITIONAL BUILDING SPACE
NOVEX leases two buildings with approximately 41,000 square feet in San
Diego for its headquarters, as well as the base for marketing and product
support operations, research and development and manufacturing activities. Based
on NOVEX's current rate of expansion, NOVEX will need to lease additional
building space by the end of 2000 fiscal year. NOVEX is currently in
negotiations to lease building space in a building near its existing San Diego
facilities, but there can be no assurance that it will be able to lease this
space on favorable terms, or at all. Additionally, leases for NOVEX's existing
facilities in San Diego expire in the fall of 2000 and NOVEX has the option to
extend those leases until the fall of 2002. There can be no assurance that NOVEX
will be able to renew its existing leases for the San Diego facilities on
favorable terms, or at all. If NOVEX is unsuccessful in its leasing efforts, it
may need to relocate, which would cause a disruption to NOVEX's operations and
could materially adversely affect NOVEX's business.
NOVEX'S SAN DIEGO FACILITIES ARE SUBJECT TO FLOODING.
NOVEX's San Diego facilities are located in a low lying drainage area. In
recent years, local street flooding has occurred and water has entered into some
buildings in the area. In an unusually wet year, flooding could occur which
could disrupt normal business operations and cause significant damage to
facilities and materials stored at the site.
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THE SPECIAL MEETINGS
GENERAL; DATE, TIME AND PLACE
This Joint Proxy Statement/Prospectus is being furnished by the boards of
directors of NOVEX to its shareholders in connection with the solicitation of
proxies by the NOVEX board for use at the special meeting of NOVEX shareholders.
This Joint Proxy Statement/Prospectus is also being furnished by the board of
directors of Invitrogen to its stockholders in connection with the solicitation
of proxies by the Invitrogen board for use at the special meeting of Invitrogen
stockholders.
The special meetings will both be held on , 1999, at 9:00 a.m.
local time. The Invitrogen special meeting will be held at Invitrogen's
headquarters, 1600 Faraday Avenue, Carlsbad, California, 92008, and the NOVEX
special meeting will be held at NOVEX's headquarters, 11040 Roselle Street, San
Diego, California, 92121.
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to shareholders of NOVEX and stockholders of Invitrogen on or about
, , 1999.
PURPOSES OF THE SPECIAL MEETINGS
At the Invitrogen special meeting, holders of Invitrogen common stock will
be asked to consider and vote upon the following:
- A proposal to approve and adopt the merger agreement, dated as of June 14,
1999, among Invitrogen, its subsidiary participating in the merger and
NOVEX;
- A proposal to amend Invitrogen's 1997 Stock Option Plan to increase the
number of shares reserved for issuance under the plan by 1,000,000 shares
(subject to adjustments specified in the plan) for a total of 5,485,479
shares of common stock; and
- Such other matters as may properly be brought before the special meeting
or any adjournment or postponement of such meeting.
At the NOVEX special meeting, holders of NOVEX stock will be asked to
consider and vote upon the following:
- A proposal to approve and adopt the merger agreement, dated as of June 14,
1999, among Invitrogen, its subsidiary participating in the merger and
NOVEX; and
- Such other matters as may properly be brought before the special meeting
or any adjournment or postponement of such meeting.
RECOMMENDATION OF THE NOVEX BOARD AND INVITROGEN BOARD
THE NOVEX BOARD AND THE INVITROGEN BOARD HAVE UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE
MERGER, AND RECOMMENDS THAT HOLDERS OF NOVEX STOCK AND HOLDERS OF INVITROGEN
COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. THE
INVITROGEN BOARD HAS ALSO UNANIMOUSLY APPROVED THE AMENDMENT TO THE 1997 STOCK
OPTION PLAN AND RECOMMENDS THAT HOLDERS OF INVITROGEN COMMON STOCK VOTE FOR THE
AMENDMENT TO THE PLAN.
SHAREHOLDERS ENTITLED TO VOTE; VOTE REQUIRED
NOVEX
The NOVEX board has fixed the close of business on , 1999, as
the record date for the determination of the holders of NOVEX stock entitled to
notice of and to vote at the special
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meeting. Accordingly, only holders of record of NOVEX stock on the record date
will be entitled to notice of, and to vote at, the special meeting. As of the
record date, there were shares of common stock and shares of
preferred stock outstanding and entitled to vote, which shares were held by
approximately holders of record. Each holder of record of shares of
NOVEX common stock on the record date is entitled to one vote per share, and
each holder of record of shares of NOVEX preferred stock on the record date is
entitled to one hundred (100) votes per share. Such votes may be cast either in
person or by properly executed proxy, at the special meeting.
A majority vote of the shares of NOVEX common stock and preferred stock
outstanding on the record date, voting together as a single class (the preferred
stock voting as if converted into common stock) is required to adopt the merger
agreement. In addition, a majority vote of the shares of NOVEX common stock and
preferred stock outstanding on the record date, each voting as a separate class,
is required to adopt the merger agreement.
Shares of NOVEX stock represented in person or by proxy will be counted for
the purpose of determining whether a quorum is present at the special meeting.
Shares which abstain from voting, and shares held by a nominee who has not been
given the authority to vote on a particular matter, will be treated as shares
that are present and entitled to vote at the special meeting for purposes of
determining whether a quorum exists. Because the merger agreement must be
approved by the holders of a majority of the total outstanding shares of NOVEX
stock as well as the separate classes of common stock and preferred stock,
abstentions and shares held in the name of a broker or other nominee who has not
been given the authority to vote will have the same effect as a vote against the
merger agreement.
A vote in favor of the merger agreement shall be also deemed to be the
shareholder's grant, as an individual, of a power of attorney to Sheldon
Engelhorn, as the shareholder representative designated in Section 8.4 of the
merger agreement and Section 1.2 of the indemnity escrow agreement, to act for
the shareholder in all matters pertaining to the evaluation, response to, and
defense or settlement of claims by Invitrogen against the escrow shares. This
means the shareholder will be bound by Sheldon Engelhorn's actions and
decisions, even if the shareholder disagrees with them. For example, Mr.
Engelhorn could admit to or settle a claim by Invitrogen for breach of
representations and warranties, even though the shareholder believes there was
no breach; or Mr. Engelhorn could incur legal fees and other defense expenses on
behalf of the shareholders (which would have to be satisfied by liquidation of a
portion of the escrow shares or by some other method), even though the
shareholder believes it was unwise to contest the claim or that the defense was
conducted in too costly a manner.
A vote in favor of the merger agreement shall also be deemed an agreement by
the shareholder, as an individual, to hold Sheldon Engelhorn harmless from and
against all of his acts or omissions in the role of shareholders'
representative, as long as the acts or omissions were in good faith. This means
the shareholder would not be able to hold Sheldon Engelhorn liable for his acts
or omissions as shareholders' representative, even if the acts or omissions were
negligent, unwise, or led to a bad outcome. Protection of this kind is necessary
to prevent Mr. Engelhorn from being paralyzed by potential liability to one or
another of two shareholders who may have opposite views on how best to proceed,
and to induce him to serve without compensation as the shareholders'
representative. This hold-harmless is analogous to the business judgment rule,
which protects corporate directors from liability for breach of the duty of care
as long as they act in good faith.
INVITROGEN
The Invitrogen board has fixed the close of business on , 1999,
as the record date for the determination of the holders of Invitrogen common
stock entitled to notice of and to vote at the special meeting. Accordingly,
only holders of record of Invitrogen common stock on the record date will be
entitled to notice of, and to vote at, the special meeting. As of the record
date, there were
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total shares outstanding and entitled to vote, which shares were
held by approximately holders of record. Each holder of record of
shares of Invitrogen common stock on the record date is entitled to one vote per
share, which may be cast either in person or by properly executed proxy, at the
special meeting. The presence, in person or by properly executed proxy, of the
holders of a majority of the outstanding shares of Invitrogen common stock
entitled to vote at the special meeting is necessary to constitute a quorum at
the special meeting.
The approval and the adoption of the merger agreement and the approval of
the amendment to the 1997 Stock Option Plan will require the affirmative vote of
the holders of a majority of the shares of Invitrogen common stock outstanding
on the record date.
Shares of Invitrogen common stock represented in person or by proxy will be
counted for the purpose of determining whether a quorum is present at the
special meeting. Shares which abstain from voting, and shares held by a nominee
who has not been given the authority to vote on a particular matter, will be
treated as shares that are present and entitled to vote at the special meeting
for purposes of determining whether a quorum exists. Because the merger
agreement and the amendment to the 1997 Stock Option Plan must be approved by
the holders of a majority of the shares of Invitrogen common stock outstanding
on the record date, abstentions and shares held in the name of a broker or other
nominee who has not been given the authority to vote will have the same effect
as a vote against the merger agreement and amendment to the plan.
PROXIES
This Joint Proxy Statement/Prospectus is being furnished to NOVEX
shareholders and Invitrogen stockholders in connection with the solicitation of
proxies by, and on behalf of, the NOVEX board and Invitrogen board for use at
the respective special meetings of NOVEX shareholders and Invitrogen
stockholders and is accompanied by a form of proxy.
All shares of NOVEX stock and Invitrogen common stock which are entitled to
vote and are represented at the respective special meeting by properly executed
proxies received prior to or at the respective special meeting, and not revoked,
will be voted at such special meeting in accordance with the instructions
indicated on the proxies. Except in cases where a nominee has indicated on a
proxy that it does not have the power to vote, if no instructions are indicated,
such proxies will be voted for approval and adoption of the merger agreement.
If any other matters are properly presented at the special meetings for
consideration, including, among other things, consideration of a motion to
adjourn the special meetings to another time and/or place for such purposes as
soliciting additional proxies or allowing additional time for the satisfaction
of conditions to the merger, the persons named in the enclosed forms of proxy
and acting thereunder will have discretion to vote on such matters in accordance
with their judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by:
- Filing with the Secretary of NOVEX or Invitrogen, as appropriate, at or
before the taking of the vote at the relevant special meeting, a written
notice of revocation bearing a later date than the proxy;
- Duly executing a later-dated proxy relating to the same shares and
delivering it to NOVEX or Invitrogen, as appropriate, before the taking of
the vote at the relevant special meeting; or
- Attending the special meetings and voting in person. Attendance at the
special meetings will not in and of itself constitute a revocation of the
proxy.
Any written notice of revocation or subsequent proxy should be sent to, in
the case of NOVEX shareholders: NOVEX, 11040 Roselle Street, San Diego,
California 92121, Attention: Secretary, or
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hand delivered to the Secretary of NOVEX, and in the case of Invitrogen
stockholders: Invitrogen Corporation, 1600 Faraday Avenue, Carlsbad, California
92008, Attention: Secretary, or hand delivered to the Secretary of Invitrogen,
as the case may be, at or before the taking of the vote at the special meeting.
All expenses of this solicitation of proxies will be borne by NOVEX and
Invitrogen and the cost of preparing and mailing this Joint Proxy
Statement/Prospectus to NOVEX shareholders and Invitrogen stockholders will be
paid one-half by Invitrogen and one-half by NOVEX. In addition to solicitation
by use of the mails, proxies may be solicited from NOVEX shareholders and
Invitrogen stockholders by directors, officers and employees of NOVEX or
Invitrogen in person or by telephone, telegram or other means of communication.
Such directors, officers and employees will not be additionally compensated, but
may be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation.
NOVEX SHAREHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS.
DISSENTERS' RIGHTS
If the principal terms of the merger are approved by NOVEX shareholders,
holders of NOVEX stock who elect to dissent from the approval of the principal
terms of the merger may, under certain circumstances, be entitled to have their
shares purchased in accordance with Chapter 13 of the California Corporations
Code, or the CCC.
In order for a NOVEX shareholder to exercise dissenters' rights, a notice of
such shareholder's intention to exercise his or her dissenters' rights as
provided in the CCC must be sent by such shareholder and such shareholder must
comply with such other procedures as required by the CCC, as more fully
described below in "The Merger--Dissenters' Rights." Failure to send such notice
or to follow such other procedures will result in waiver of such shareholder
dissenters' rights. See page 47 for a discussion of dissenters' rights and Annex
C for a description of the procedures that must be followed to perfect such
rights.
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THE MERGER
GENERAL
The following summarizes the material terms of the merger agreement, a copy
of which is included in this Joint Proxy Statement/Prospectus as Annex A and
incorporated herein by reference. We urge you to read the merger agreement in
its entirety for a more complete description of the terms and conditions upon
which the merger is to be effected.
If the merger agreement is approved and adopted by the holders of a majority
of the outstanding shares of NOVEX stock and the holders of a majority of
Invitrogen common stock entitled to vote at the respective special meetings, a
subsidiary of Invitrogen will be merged with and into NOVEX, which will be the
surviving corporation, and NOVEX will become a wholly-owned subsidiary of
Invitrogen.
BACKGROUND OF THE MERGER
The acquisition of complementary businesses and products is an important
part of Invitrogen's overall business strategy. Invitrogen continually evaluates
potential acquisition opportunities and considers potential alliances,
combinations and other strategic transactions with other participants in
developing, manufacturing and marketing research tools for biology research.
On July 30, 1998, James Glynn, Invitrogen's Chief Financial Officer, David
McCarty, NOVEX's President and Chief Executive Officer, and Sheldon Engelhorn,
NOVEX's Executive Vice President, Technology Development, met and discussed
Invitrogen's potential interest in entering into a business combination or
similar transaction with NOVEX.
The following week, NOVEX and Invitrogen entered into a non-disclosure
agreement to facilitate business combination discussions while protecting both
companies from the disclosure of confidential information and materials.
On August 7, 1998, Mr. Glynn, Mr. McCarty and Mr. Engelhorn, met once again
to discuss the potential combination of NOVEX and Invitrogen. Anthony Broad,
NOVEX's Vice President, Finance and Administration, and James Johnson, NOVEX's
Vice President, Sales and Marketing were also in attendance.
On August 27, 1998 Mr. Glynn sent Mr. McCarty a letter expressing
Invitrogen's interest in acquiring NOVEX, and on August 28, 1998, Mr. Glynn and
Mr. McCarty met to discuss Invitrogen's proposed terms.
On September 16, 1998, Mr. McCarty, Mr. Engelhorn, Mr. Glynn, and Lyle
Turner, Invitrogen's President, Chief Executive Officer, and Chairman of the
Board, met to discuss the proposed merger including issues relating to the
companies' management structures and business philosophies.
On September 24, 1998, Mr. McCarty and Mr. Glynn met once again to discuss
Invitrogen's merger proposal.
On October 27, 1998, negotiations were terminated between NOVEX and
Invitrogen due to a failure of the parties to agree on fundamental terms.
Over the next several months Invitrogen prepared for and successfully
completed its initial public offering.
On March 18, 1999, Mr. McCarty and Mr. Turner met and Invitrogen expressed a
renewed interest in a merger transaction with NOVEX.
On April 30, 1999, at a special meeting, the NOVEX Board discussed the
merits of selling the assets of NOVEX to, or merging NOVEX with, Invitrogen.
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On several occasions between March and June of 1999, representatives of
Invitrogen and its counsel met with representatives of NOVEX and its counsel to
discuss the proposed terms of the merger and to complete various aspects of each
party's due diligence review of the other party's business, financial and legal
affairs. Beginning on May 27, 1999, and continuing until June 14, 1999,
Invitrogen and NOVEX, and their respective counsel, negotiated the terms of the
merger agreement.
On June 2, 1999 at a special meeting of the Invitrogen board, Invitrogen's
legal counsel reviewed with the Invitrogen board the proposed terms of the
merger agreement and Invitrogen's management provided financial analyses
relating to the proposed merger. At the meeting, the Invitrogen board
unanimously approved the merger agreement and related matters and authorized
Invitrogen's management to proceed with the merger.
On June 13, 1999, by written consent action, the NOVEX board approved the
merger agreement and related matters and authorized NOVEX's management to
proceed with the merger.
On June 14, 1999, following the actions of the NOVEX board and the
Invitrogen board approving the merger agreement, Invitrogen, Invo Merger
Corporation and NOVEX executed the merger agreement.
On June 15, 1999, Invitrogen's management retained Houlihan Lokey Howard &
Zukin Financial Advisors, Inc. as Invitrogen's financial advisor as to the
fairness of the merger to Invitrogen and its stockholders.
NOVEX'S REASONS FOR THE MERGER; RECOMMENDATION OF THE NOVEX BOARD
The NOVEX board has carefully considered the terms and conditions of the
proposed merger and has unanimously determined that the merger is in the best
interests of, and is on terms that are fair to NOVEX's shareholders, and has
unanimously approved the merger agreement and the transactions contemplated
thereby, including the merger.
In reaching its unanimous determination to approve the merger agreement and
the merger, the NOVEX board considered a number of factors that may result from
the merger. Following is a list of material factors that were considered by the
NOVEX board that may result from the merger:
- The increased ability of NOVEX to pursue the development of its protein
and nucleic acid electrophoresis, detection and analysis products;
- Direct access to the global manufacturing, marketing and sales
infrastructure of Invitrogen in support of the development and commercial
goals of NOVEX;
- The opportunity for Invitrogen to expand its product line and widen the
market for its molecular biology research products beyond that in which
Invitrogen has established a presence;
- Access to greater financial and technical resources in support of the
goals of NOVEX;
- The opportunity for NOVEX shareholders to participate in a larger,
stronger, better capitalized, and more commercially diversified company in
a transaction which is designed not to result in the recognition of
taxable gain and to be accounted for as a pooling of interests, and to
receive Invitrogen stock which offers significantly more liquidity than
NOVEX common stock;
- That Invitrogen common stock offers a significant premium over the current
fair market value of NOVEX common stock;
- The market capitalization, revenues, and assets of Invitrogen as compared
to NOVEX;
- The experience, depth, and competence of Invitrogen's operating team; and
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- The relative liquidity of an investment in Invitrogen stock as compared to
an investment in NOVEX's common stock.
In reaching its determination that the merger was advisable and in the best
interests of NOVEX and its shareholders, the NOVEX board also considered and
balanced against the potential benefits of the merger a number of factors,
including without limitation, the factors set forth above under the caption
"Risk Factors," the risks that the merger may not be consummated, and the
employment, severance and other arrangements among NOVEX, Invitrogen and certain
employees of NOVEX. After detailed consideration of these factors, the NOVEX
board concluded that the expected long-term benefits of the merger outweigh the
potential risks associated with the execution of the merger agreement.
The foregoing discussion and factors considered by the NOVEX board addresses
the material factors considered by the NOVEX board in its consideration of the
merger. The NOVEX board did not quantify or attach any particular weight to the
various factors that it considered in reaching its determination that the merger
agreement and the transactions contemplated thereby, including the merger, are
advisable and in the best interests of NOVEX's shareholders. Different NOVEX
board members may have assigned different weights to different factors. In
reaching its determination, the NOVEX board took the various factors into
account collectively. The NOVEX board did not perform factor-by-factor analysis,
but rather its determination was made in consideration of all of the factors as
a whole.
INVITROGEN'S REASONS FOR THE MERGER; RECOMMENDATION OF THE INVITROGEN BOARD
The Invitrogen board has carefully considered the terms and conditions of
the proposed merger and has unanimously determined that the merger is in the
best interests of, and is on terms that are fair to Invitrogen's shareholders,
and has unanimously approved the merger agreement and the merger.
In reaching its unanimous determination to approve the merger agreement and
the merger, the Invitrogen board considered a number of factors that may result
from the merger. Following is a list of material factors that were considered by
the Invitrogen board that may result from the merger:
- The complementary nature of the products produced by NOVEX and the
opportunity to incorporate NOVEX products into Invitrogen's existing
product line;
- The opportunity for Invitrogen to expand its product line and widen the
market for its molecular biology research products beyond that in which
Invitrogen has established a presence;
- The opinion of Houlihan Lokey Howard & Zukin Financial Advisors, Inc. as
to the fairness of the merger to Invitrogen stockholders;
- The access to NOVEX's strong position in the commercial pharmaceutical and
biotechnology market segments;
- The access to the manufacturing, marketing and sales infrastructure of
NOVEX which will support the corporate development and commercial goals of
Invitrogen; and
- The experience, depth and competence of NOVEX's operating team.
In reaching its determination that the merger was advisable and in the best
interests of Invitrogen and its shareholders, the Invitrogen board also
considered and balanced against the potential benefits of the merger a number of
factors, including without limitation, the factors set forth above under the
caption "Risk Factors," and the risks that the merger may not be consummated.
After detailed consideration of these factors, the Invitrogen board concluded
that the expected long-term benefits of the merger outweigh the potential risks
associated with the execution of the merger agreement.
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The foregoing discussion and factors considered by the Invitrogen board
addresses the material factors considered by the Invitrogen board in its
consideration of the merger. The Invitrogen board did not quantify or attach any
particular weight to the various factors that it considered in reaching its
determination that the merger agreement and the transactions contemplated
thereby, including the merger, are advisable and in the best interests of
Invitrogen's stockholders. Different Invitrogen board members may have assigned
different weights to different factors. In reaching its determination, the
Invitrogen board took the various factors into account collectively. The
Invitrogen board did not perform factor-by-factor analysis, but rather its
determination was made in consideration of all of the factors as a whole.
OPINION OF INVITROGEN'S FINANCIAL ADVISOR
Invitrogen engaged Houlihan Lokey Howard & Zukin Financial Advisors, Inc. to
render an opinion as to the fairness, from a financial point of view, of the
Invitrogen/NOVEX merger, to both Invitrogen and Invitrogen's stockholders.
Houlihan Lokey is a nationally recognized investment banking firm that provides
financial advisory services in connection with mergers and acquisitions,
leveraged buyouts, business valuations for a variety of regulatory and planning
purposes, recapitalizations, financial restructurings, and private placements of
debt and equity securities. Houlihan Lokey has performed financial advisory
services for Invitrogen in the past, including annual stock valuations in
connection with the administration of its Employee Stock Ownership Plan (prior
to its public offering), for which Houlihan Lokey was paid annual fees of
approximately $12,000 to $15,000.
Invitrogen agreed to pay Houlihan Lokey a fee of $125,000 for its
preparation and delivery of the fairness opinion. No portion of Houlihan Lokey's
fee is contingent upon the successful completion of the Invitrogen/NOVEX merger.
Invitrogen's Board of Directors did not limit Houlihan Lokey in any way in the
investigations it made or the procedures it followed in rendering its opinion.
Invitrogen retained Houlihan Lokey solely to deliver its fairness opinion.
Invitrogen agreed to indemnify Houlihan Lokey and its affiliates against certain
liabilities, including liabilities under federal securities laws that arise out
of the engagement of Houlihan Lokey. The full text of Houlihan Lokey's opinion,
which sets forth the assumptions made, general procedures followed, factors
considered and limitations on the review undertaken by Houlihan Lokey in
rendering its opinion is attached as Annex B and is incorporated herein by
reference. We urge you to read the opinion in its entirety.
Houlihan Lokey did not, and was not requested by Invitrogen to, make any
recommendations as to the form or amount of consideration to be received by the
NOVEX stockholders, the public market values or realizable value of Invitrogen's
common stock given as consideration in the Invitrogen/ NOVEX merger or the
prices at which Invitrogen's common stock may trade in the future following the
Invitrogen/NOVEX merger, and does not express any opinion as to the fairness of
any aspect of the Invitrogen/NOVEX merger not expressly addressed in its
fairness opinion.
In arriving at its opinion, attached as Annex B to this registration
statement and incorporated herein by reference, among other things, Houlihan
Lokey:
- Reviewed its prior valuation of Invitrogen as of December 31, 1998;
- Reviewed a copy of Invitrogen's prospectus as filed with the Securities
and Exchange Commission on February 26, 1999 which included Invitrogen's
audited financial statements for the three fiscal years ended December 31,
1998, quarterly report on Form 10-Q for the quarter ended March 31, 1999,
and internally-prepared interim financial statements for the period ended
May 31, 1999, which Invitrogen's management has identified as being the
most current financial statements available;
- Reviewed Invitrogen's audited financial statements for the two fiscal
years ended December 31, 1996;
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- Reviewed NOVEX's audited financial statements for the four fiscal years
ended March 31, 1998 and draft audited financial statements for the fiscal
year ended March 31, 1999, which NOVEX's management has identified as
being the most current financial statements available;
- Reviewed a copy of the merger agreement dated as of June 14, 1999;
- Reviewed a draft of the Registration Statement on Form S-4 dated July 7,
1999;
- Met with certain members of the senior management of Invitrogen and NOVEX
to discuss the operations, financial condition, future prospects and
projected operations and performance of Invitrogen and NOVEX, and held
discussions with representatives of Invitrogen's counsel to discuss
certain matters;
- Visited certain facilities and business offices of Invitrogen;
- Reviewed forecasts prepared by Invitrogen's management with respect to
Invitrogen for the years ending December 31, 1999 through 2000;
- Reviewed forecasts prepared by Invitrogen's management with respect to
NOVEX for the years ending December 31, 1999 through 2000 as well as a
budget prepared by NOVEX's management with respect to NOVEX for the twelve
month period ending March 31, 2000;
- Reviewed the historical market prices and trading volume for Invitrogen's
publicly traded securities;
- Reviewed certain other publicly available financial data for certain
companies that we deem comparable to Invitrogen and NOVEX, and publicly
available prices and premiums paid in other transactions that we
considered similar to the Invitrogen/NOVEX merger;
- Reviewed drafts of certain documents to be delivered at the closing of the
Invitrogen/NOVEX merger; and
- Conducted such other studies, analyses and inquiries as Houlihan Lokey has
deemed appropriate.
Houlihan Lokey used various methodologies to assess the fairness, from a
financial point of view, of the Invitrogen/NOVEX merger to Invitrogen and its
stockholders.
COMPARISON OF NOVEX VALUE TO CONSIDERATION
First, Houlihan Lokey employed methodologies that provided estimates as to
the aggregate value of NOVEX. The analyses required studies of the overall
market, economic and industry conditions in which NOVEX operates, and the
operating results of NOVEX. Such analyses are summarized as follows:
COMPARABLE COMPANY ANALYSIS: Using publicly available information,
Houlihan Lokey compared selected financial data of NOVEX with similar data of
various companies engaged in businesses considered by Houlihan Lokey to be
comparable to that of NOVEX, including Bio-Rad Laboratories, Inc., Fisher
Scientific International Inc., Invitrogen Corporation, Life Technologies, Inc.,
The Perkin-Elmer Corporation, QIAGEN NV and Sigma-Aldrich Corp. For each of the
comparable companies, Houlihan Lokey calculated, reviewed and analyzed numerous
financial and operating performance ratios, as well as numerous market
capitalization ratios, such as the enterprise value (aggregate equity plus total
interest-bearing debt) to the latest twelve months revenues and latest twelve
months and projected earnings before interest, taxes, depreciation and
amortization, or EBITDA, and earnings before interest and taxes, or EBIT.
There are inherent differences between the businesses, operations, and
prospects of NOVEX and the comparable companies. Accordingly, Houlihan Lokey
believed that it was inappropriate to, and
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therefore did not, rely solely on the above-described quantitative results of
the comparable company analysis and accordingly also made qualitative judgments
concerning differences between the financial and operating characteristics and
prospects of NOVEX and the comparable companies that would, in Houlihan Lokey's
opinion, affect the public market valuation of such companies.
COMPARABLE TRANSACTION ANALYSIS. Houlihan Lokey analyzed certain
financial performance measures for numerous merger and acquisition transactions
involving companies in the life sciences research industry, including the
following four transactions which we deemed to be most comparable to the
Invitrogen/NOVEX merger: FMC--Bioproducts Business / Cambrex Corporation; CN
Biosciences Inc. / Merck KGAA; Clontech Laboratories / Becton Dickinson & Co.;
and Life Technologies, Inc. / Dexter Corp.
In performing its analysis, Houlihan Lokey considered that the merger and
acquisition transaction environment varies over time because of, among other
things, interest rate and equity market fluctuations and industry results and
growth expectations.
SUMMARY OF NOVEX ANALYSIS. No company or transaction used in the
analysis described above was directly comparable to NOVEX or the
Invitrogen/NOVEX merger. Accordingly, Houlihan Lokey reviewed the foregoing
comparable companies and transactions to understand the range of multiples of
revenues, multiples of EBITDA, and multiples of EBIT paid for companies in the
life sciences research or related industries. The lowest and highest ranges of
multiples of latest twelve months' revenues paid for such companies was 0.80x to
9.97x, respectively; the lowest and highest ranges of multiples of latest twelve
months' and projected EBITDA paid for such companies was 6.7x to 53.7x,
respectively; and the lowest and highest ranges of multiples of latest twelve
months' and projected EBIT paid for such companies was 11.0x to 69.4x,
respectively. Based upon NOVEX's historical revenues and historical and
projected EBITDA and EBIT and utilizing multiples deemed appropriate by Houlihan
Lokey based upon the comparable transaction and public company analyses,
Houlihan Lokey calculated the enterprise value for NOVEX to be between
approximately $50.3 million to $67.3 million.
In connection with the Invitrogen/NOVEX merger, Houlihan Lokey determined
total aggregate consideration of $57.3 million to $62.7 million for NOVEX was
composed of the following: (i) $54.9 million to $60.3 million for 2.5 million
shares of common stock based on the closing price of Invitrogen's common stock
as of June 11, 1999 (the date immediately prior to the announcement of the
Invitrogen/NOVEX merger) and July 7, 1999, respectively; and (ii) the assumption
of $2.407 million of total interest bearing debt as of March 31, 1999, which
management of NOVEX represented to Houlihan Lokey as the most recent debt
balance available.
The comparison of NOVEX value to the consideration paid for NOVEX indicated
that the Invitrogen/NOVEX merger is fair, from a financial point of view, to
Invitrogen and its stockholders.
PRO FORMA ACCRETION ANALYSIS
In addition to the valuation analysis of NOVEX described above, we performed
a similar valuation of Invitrogen on a pro forma basis reflecting the merger.
This pro forma valuation analysis consisted of a comparable company analysis
which analyzed the trading statistics of Fisher Scientific International Inc.,
Incyte Pharmaceuticals Inc., Invitrogen Corporation, Life Technologies, Inc.,
The Perkin-Elmer Corporation, QIAGEN NV and Sigma-Aldrich Corp.
No company or transaction used in the analysis described above was directly
comparable to the Invitrogen/NOVEX combined company. Accordingly, Houlihan Lokey
reviewed the foregoing transactions to understand the range of multiples of
revenues, multiples of EBITDA, and multiples of EBIT paid for companies in the
life sciences research or related industries. The lowest and highest ranges of
multiples of latest twelve months' revenues paid for such companies was 0.86x to
9.97x, respectively; the
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lowest and highest ranges of multiples of latest twelve months' and projected
EBITDA paid for such companies was 9.4x to 53.7x, respectively; and the lowest
and highest ranges of multiples of latest twelve months' and projected EBIT paid
for such companies was 11.1x to 69.4x, respectively. Based upon historical
revenues and historical and projected EBITDA and EBIT for the combined company
on a pro-forma basis and utilizing multiples which Houlihan Lokey deemed
appropriate based upon the public company analyses, Houlihan Lokey calculated
the enterprise value for the combined company to be between approximately $354.3
million to $389.3 million.
Using the pro forma valuation of the combined company, we analyzed the
projected net income and earnings per share on a fully diluted basis to
determine if the Invitrogen/NOVEX merger is accretive to Invitrogen and its
shareholders. Based upon our pro forma valuation and 17,603,000 fully diluted
shares outstanding post-merger, this analysis indicated that the
Invitrogen/NOVEX merger is fair, from a financial point of view, to Invitrogen
and its stockholders.
In arriving at its fairness opinion, Houlihan Lokey reviewed key economic
and market indicators, including growth in gross domestic product, inflation
rates, interest rates, consumer spending levels, manufacturing productivity
levels, unemployment rates and general stock market performance. Houlihan
Lokey's opinion is based on the business, economic, market and other conditions
as they existed as of July 8, 1999 and on the projected financial information
provided to Houlihan Lokey as of such date. In rendering its opinion, Houlihan
Lokey has relied upon and assumed, without independent verification that the
historical and projected financial information provided to Houlihan Lokey by
Invitrogen has been reasonably and accurately prepared based upon the best
current available estimates of the financial results and condition of
Invitrogen. Additionally, Houlihan Lokey has relied upon and assumed, without
independent verification, that the historical and projected financial
information provided to Houlihan Lokey by NOVEX has been reasonably and
accurately prepared based upon the best current available estimates of the
financial results and condition of NOVEX. Houlihan Lokey did not independently
verify the accuracy or completeness of the information supplied to it with
respect to Invitrogen or NOVEX and does not assume responsibility for it. Except
as set forth above, Houlihan Lokey did not make any independent appraisal of the
specific properties or assets of Invitrogen or NOVEX.
The summary set forth above describes the material points of more detailed
analyses performed by Houlihan Lokey in arriving at its fairness opinion. The
preparation of a fairness opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and application of those methods to the particular
circumstances and is therefore not readily susceptible to summary description.
In arriving at its opinion, Houlihan Lokey made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Houlihan
Lokey believes that its analyses and summary set forth herein must be considered
as a whole. In its analysis, Houlihan Lokey made numerous assumptions with
respect to Invitrogen, NOVEX, industry performance, general business, economic,
market and financial conditions and office matters, many of which are beyond the
control of Invitrogen and NOVEX. The estimates contained in such analyses are
not necessarily indicative of actual values or predictive of future results or
values, which may be more or less favorable than suggested by such analyses.
However, there were no specific factors reviewed by Houlihan Lokey that did not
support its opinion. Additionally, analyses relating to the value of businesses
or securities are not appraisals. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material federal income tax
considerations relevant to the exchange of shares of NOVEX common stock for
Invitrogen common stock pursuant to the merger that are generally applicable to
you. This discussion assumes that you hold your shares as capital assets. This
discussion is based on currently existing provisions of the Internal Revenue
Code of 1986, as
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amended, or the IRS Code, existing and the proposed Treasury Regulations under
the IRS Code and current administrative rulings and court decisions, all of
which are subject to change. Any such change, which may or may not be
retroactive, could alter the tax consequences to you as discussed in this Joint
Proxy Statement/Prospectus.
You should be aware that this discussion does not deal with all federal
income tax considerations that may be relevant to you in light of your
particular circumstances, such as if you:
- Are a dealer in securities;
- Are subject to the alternative minimum tax provisions of the IRS Code;
- Are subject to special treatment under the IRS Code (such as insurance
companies, tax-exempt organizations or financial institutions);
- Are a foreign person;
- Do not hold your NOVEX common stock as a capital asset;
- Hold your shares in a hedging transaction or as part of a straddle or
conversion transaction; or
- Acquired your shares in connection with stock option or stock purchase
plans or in other compensatory transactions.
In addition, the following discussion does not address the tax consequences
of the merger under foreign, state or local tax laws, the tax consequences of
transactions completed before, after or at the same time as the merger (whether
or not any of these transactions are undertaken in connection with the merger),
including, without limitation, (i) any tax consequences of the creation of the
escrow, its operation or the distributions from the escrow to either Invitrogen
or the NOVEX shareholders, (ii) any transaction in which shares of NOVEX common
stock are acquired or shares of Invitrogen common stock are disposed of, or
(iii) the tax consequences of the assumption by Invitrogen of the options to
purchase NOVEX common stock. ACCORDINGLY, YOU ARE URGED TO CONSULT YOUR OWN TAX
ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE MERGER, INCLUDING THE
APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES AND APPLICABLE TAX
RETURN REPORTING REQUIREMENTS.
The merger is intended to constitute a tax-free "reorganization" within the
meaning of Section 368(a) of the IRS Code. If the merger qualifies as a
reorganization, you will have the following federal income tax consequences:
- You will recognize no gain or loss solely upon your receipt of Invitrogen
common stock in exchange for NOVEX common stock in the merger (except to
the extent of cash received in lieu of a fractional share of Invitrogen
common stock);
- The aggregate tax basis of Invitrogen common stock you receive in the
merger (including a fractional share that you receive cash for) will be
the same as the aggregate tax basis of NOVEX common stock surrendered in
exchange for the shares of Invitrogen common stock;
- The holding period of Invitrogen common stock you receive in the merger
will include the period for which NOVEX common stock surrendered in
exchange for the Invitrogen common stock was considered to be held,
provided that you held the NOVEX common stock you surrendered as a capital
asset at the time of the merger; and
- Cash payments you receive in lieu of a fractional share will be treated
for federal income tax purposes as if the fractional share of Invitrogen
common stock had been issued in the merger and then redeemed by
Invitrogen. If you receive cash in lieu of a fractional share, you will
recognize gain or loss, measured by the difference (if any) between the
amount of cash received and your tax basis in such fractional share.
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The parties are not requesting and will not request a ruling form the IRS in
connection with the merger. Completion of the merger is conditioned upon the
prior receipt by Invitrogen of a tax opinion from Gray Cary Ware & Freidenrich
LLP and the receipt by NOVEX of a tax opinion from Brobeck Phleger & Harrison
LLP stating that the merger will constitute a tax-free reorganization.
Invitrogen and NOVEX undertake to recirculate these proxy materials and to
resolicit proxies if the parties waive the receipt of these opinions as a
condition to closing. You should be aware that the tax opinions do not bind the
IRS and the IRS is therefore not prevented from successfully asserting a
contrary opinion.
A successful IRS challenge to the tax-free reorganization status of the
merger would result in you recognizing taxable gain or loss with respect to each
share of common stock of NOVEX surrendered equal to the difference between your
basis in such share and the fair market value, as of the close of the merger, of
Invitrogen common stock received in exchange for such share. In such event, your
aggregate tax basis in the Invitrogen common stock you receive would equal its
fair market value and your holding period for such stock would begin the day
after the merger.
THE PRECEDING DISCUSSION DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR
DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT TO THE MERGER. YOU ARE URGED TO
CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO YOU OF THE
MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY AND
EFFECT OF FEDERAL, STATE, LOCAL AND OTHER APPLICABLE TAX LAWS AND THE EFFECTS OF
ANY PROPOSED CHANGES IN THE TAX LAWS, AND YOUR OBLIGATION TO RETAIN INFORMATION
REGARDING THE TRANSACTION.
ACCOUNTING TREATMENT
The merger is intended to qualify as a pooling of interests. The pooling of
interests method of accounting assumes that the combining companies have been
merged from inception, and the historical financial statements for periods prior
to consummation of the merger may be restated as though the companies had been
combined from inception as required under United States Generally Accepted
Accounting Principles.
It is a condition to the merger that:
- Invitrogen shall have received a letter from Arthur Andersen LLP, San
Diego, California, independent accountants for Invitrogen, dated as of the
date on which the transactions contemplated by the merger agreement are
completed, regarding their concurrence with Invitrogen management's
conclusion that no condition exists that would preclude Invitrogen's
accounting for the merger as a pooling of interests if the merger is
closed and completed in accordance with the merger agreement; and
- NOVEX shall provide Invitrogen with a copy of a letter received from Ernst
& Young LLP, independent accountants for NOVEX, that no transaction
entered into by NOVEX and no other fact or circumstance related to NOVEX,
would preclude Invitrogen's accounting for the merger as a pooling of
interests if the merger is closed and completed in accordance with the
merger agreement.
FEDERAL SECURITIES LAWS CONSEQUENCES
All shares of Invitrogen common stock received by NOVEX shareholders in the
merger who are not affiliates of NOVEX prior to the merger will be freely
transferable. However, shares of Invitrogen common stock received by persons who
are deemed to be affiliates of NOVEX prior to the merger may be resold by them
only in transactions permitted by the resale provisions of Rule 145 promulgated
under the Securities Act of 1933, or Rule 144 promulgated under the Securities
Act in the case of such persons who become affiliates of Invitrogen, or as
otherwise permitted under the Securities Act. Persons deemed to be affiliates of
NOVEX are those individuals or entities that control, are controlled by,
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or are under common control with, NOVEX. Affiliates generally include executive
officers and directors of NOVEX as well as certain principal shareholders of
NOVEX. This Joint Proxy Statement/ Prospectus does not cover any resales of
Invitrogen common stock received by affiliates of NOVEX in the merger.
NASDAQ NATIONAL MARKET LISTING
It is a condition to the merger that the shares of Invitrogen common stock
to be issued pursuant to the merger agreement be approved for listing on the
Nasdaq National Market, subject to official notice of issuance. An application
will be filed for listing the shares of Invitrogen common stock to be issued in
the merger on the Nasdaq National Market.
DISSENTERS' RIGHTS
By virtue of Section 2115 of the California Corporation Code, or the CCC, if
holders of NOVEX stock exercise dissenters' rights in connection with the merger
under Sections 1300 to 1312 of the CCC, referred to here as Chapter 13, any
shares of NOVEX stock as to which such dissenters' rights are exercised will not
be converted into the right to receive shares of Invitrogen common stock but
instead will be converted into the right to receive such consideration as may be
determined to be due with respect to such dissenting shares pursuant to the CCC.
THE FOLLOWING SUMMARY OF THE PROVISIONS OF CHAPTER 13 IS NOT INTENDED TO BE
A COMPLETE STATEMENT OF SUCH PROVISIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF CHAPTER 13. A COPY OF WHICH IS ATTACHED HERETO AS
ANNEX C AND IS INCORPORATED HEREIN BY REFERENCE.
If the merger is approved by the required vote of NOVEX's shareholders, each
holder of NOVEX stock who does not vote in favor of the merger and who follows
the procedures set forth in Chapter 13 will be entitled to have his, her or its
NOVEX stock purchased by NOVEX for cash at the fair market value of the shares
of NOVEX stock. The fair market value of shares of NOVEX stock will be
determined as of the day before the first announcement of the terms of the
proposed merger, excluding any appreciation or depreciation in consequence of
the proposed merger (i.e., valuing the shares of NOVEX stock as if the merger
had not occurred.) The shares of NOVEX stock with respect to which holders have
perfected their purchase demand in accordance with Chapter 13 and have not
effectively withdrawn or lost such dissenters' rights are referred to in this
Joint Proxy Statement/Prospectus as the "dissenting shares."
Within ten days after approval of the merger by NOVEX's shareholders, NOVEX
must mail an approval notice to all shareholders who have not voted in favor of
the merger notifying such shareholders that the merger has been approved,
together with a statement of the price determined by NOVEX to represent the fair
market value of the applicable dissenting shares, a brief description of the
procedures to be followed in order for the shareholder to pursue dissenters'
rights, and a copy of Sections 1300 to 1304 of the CCC. The statement of price
by NOVEX constitutes an offer by NOVEX to purchase all dissenting shares at the
stated amount.
A shareholder of NOVEX electing to exercise dissenters' rights must, within
thirty days after the date in which the approval notice is mailed to such
shareholder, mail or deliver a written demand to NOVEX stating that such holder
is demanding purchase of his or her shares of NOVEX stock, stating the number of
shares which NOVEX must purchase, what the shareholder claims to be the fair
market value of such shares and enclosing the share certificates for endorsement
by NOVEX. A holder who elects to exercise dissenters' rights should mail or
deliver his, her or its written demand to NOVEX Corporation, 11040 Roselle
Street, San Diego, California 92121, Attention:David McCarty. The demand and
statement of fair market value constitutes an offer by the shareholder to sell
the shares at the
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stated amount. Any NOVEX shareholder who executes and delivers the proxy
accompanying this Joint Proxy Statement/Prospectus voting in favor of the merger
will have waived his, her or its dissenters' rights.
If NOVEX and the shareholder agree that the shares are dissenting shares and
agree upon the price of the shares, NOVEX must pay the shareholder the agreed
upon price plus interest at the legal rate from the date of the agreement on
dissenting shares within thirty days from the later of (i) the date of the
agreement on dissenting shares or (ii) the date all contractual conditions to
the merger are satisfied.
If NOVEX denies that the shares are dissenting shares, or if NOVEX and the
shareholder fail to agree upon the fair market value of shares of NOVEX stock,
then within six months after the date the approval notice was mailed to
shareholders, any shareholder who has made a valid written purchase demand and
who has not voted in favor of approval and adoption of the merger may file a
complaint in California superior court requesting a determination as to whether
the shares are dissenting shares or as to the fair market value of such holder's
shares of NOVEX stock, or both.
Any holder of dissenting shares who has duly demanded the purchase of his,
her or its shares under Chapter 13 will not, after the effective time of the
merger, be entitled to vote the shares subject to such demand for any purposes
or be entitled to the payment of dividends or other distributions on such
dissenting shares (except dividends or other distributions payable to
shareholders of record as of the date prior to the effective time of the
merger).
If any holder of NOVEX stock who demands the purchase of his, her or its
shares under Chapter 13 fails to perfect, or effectively withdraws or loses his
or her right to such purchase, the shares of such holder will be converted into
a right to receive a number of shares of Invitrogen common stock in accordance
with the terms of the merger agreement. Dissenting shares lose their status as
dissenting shares if (a) the merger is abandoned; (b) the shares are transferred
prior to their submission for the required endorsement; (c) the dissenting
shareholder fails to make a timely written demand for purchase, along with a
statement of fair market value; (d) the dissenting shares are voted in favor of
the merger; (e) the dissenting shareholder and NOVEX do not agree upon the
status of the shares as dissenting shares or do not agree on the purchase price,
but neither NOVEX nor the shareholder files a complaint or intervenes in a
pending action within six months after mailing of the approval notice; or (f)
with NOVEX's consent, the shareholder delivers to Invitrogen a written
withdrawal of such shareholder's demand for purchase of his, her or its shares.
FAILURE TO FOLLOW THE STEPS REQUIRED BY CHAPTER 13 FOR PERFECTING
DISSENTERS' RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS (IN WHICH EVENT A
SHAREHOLDER WILL BE ENTITLED TO RECEIVE THE CONSIDERATION RECEIVABLE WITH
RESPECT TO SUCH DISSENTING SHARES IN ACCORDANCE WITH THE MERGER AGREEMENT). IN
VIEW OF THE COMPLEXITY OF THE PROVISIONS OF CHAPTER 13, NOVEX SHAREHOLDERS WHO
ARE CONSIDERING OBJECTING TO THE MERGER SHOULD CONSULT THEIR OWN LEGAL ADVISORS.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the NOVEX board regarding the adoption
of the merger agreement, NOVEX shareholders should note that certain of the
individuals who have served as directors or executive officers of NOVEX have
interests in the merger that are different from the interests of other
shareholders generally.
STOCK OPTIONS. As of the record date, approximately 2,045,455 shares of
NOVEX common stock were subject to options granted to executive officers,
employees and directors under NOVEX's 1996 and 1998 stock option compensation
plans. NOVEX's stock option plans do not provide for the accelerated vesting of
NOVEX options upon a change in control, or a merger or other business
combination of NOVEX with another entity where NOVEX is not the surviving
entity, if the stock options are assumed by the successor or replaced with
comparable stock options of the successor.
Pursuant to the merger agreement, NOVEX will take all action necessary so
that each NOVEX common stock option shall cease to represent a right to acquire
shares of NOVEX common stock and will be converted into an option to acquire an
appropriate number of shares of Invitrogen common stock, with corresponding
adjustments to the exercise price of such options. Each such option will be
assumed by Invitrogen. See "The Merger Agreement--Exchange of NOVEX Options."
EMPLOYMENT/SEVERANCE AGREEMENTS
DAVID MCCARTY. Pursuant to the merger agreement, Invitrogen will assume the
obligations of NOVEX under the employment agreement of David McCarty, NOVEX's
President and Chief Executive Officer. The employment agreement provides that in
the event Mr. McCarty's employment is terminated without cause, he will receive
severance pay equal to his annual salary, payable semi-monthly.
NOVEX EXECUTIVES. Upon the effective time of the merger, NOVEX and each of
William F. Alpenfels, Joseph W. Amshey, Anthony B. Broad, James K. Johnson and
Stephen B. Socha will enter into severance agreements which provide in part that
in the event the employment of any of these individuals is terminated without
cause, they will receive severance pay equal to one month's salary for each year
of service with NOVEX, with a minimum of six months and a maximum of twelve
months payable to each individual.
The foregoing interests of then certain members of management of NOVEX may
mean that they have a personal interest in the merger which may not be identical
to the interests of the other NOVEX shareholders.
As of July 2, 1999, the members of management of NOVEX, as a group, owned
approximately 77% of the NOVEX common stock, 100% of the NOVEX preferred stock
and 86% of all stock (assuming conversion of all preferred stock to common
stock) entitled to vote on the merger.
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THE MERGER AGREEMENT
The merger agreement contemplates the merger of a subsidiary of Invitrogen
into NOVEX, with NOVEX continuing as the surviving subsidiary corporation. This
section of the Joint Proxy Statement/ Prospectus describes material provisions
of the merger agreement. Because the description of the merger agreement
contained in this Joint Proxy Statement/Prospectus is a summary, it does not
contain all the information that may be important to you. You should carefully
read the entire copy of the merger agreement attached as Annex A to this Joint
Proxy Statement/Prospectus before you decide how to vote.
CLOSING AND EFFECTIVE TIME OF THE MERGER
CLOSING. Unless the parties agree otherwise, the closing of the merger will
take place on the second business day after the date on which all closing
conditions have been satisfied or waived or such other time as agreed to in
writing by Invitrogen and NOVEX. The closing is expected to take place shortly
after the approval of the merger by the NOVEX shareholders and Invitrogen
stockholders.
EFFECTIVE TIME. The merger will be effective upon the filing of a
certificate of merger with the Secretary of State of the State of California.
Such filing of the certificate of merger shall be made simultaneously with, or
as soon as practicable after, the closing of the transactions contemplated by
the merger agreement. See "Conditions to the Merger" below.
Share certificates should not be surrendered for exchange by shareholders of
NOVEX prior to approval of the merger and the receipt of a transmittal form.
No fractional shares of Invitrogen common stock will be issued to any NOVEX
shareholder upon surrender of certificates previously representing NOVEX common
stock. In lieu of such fractional shares each holder of shares of NOVEX common
stock exchanged pursuant to the merger who would otherwise have been entitled to
receive a fraction of a share will receive cash without interest in an amount
equal to the product of:
- Such fractional part of a share multiplied by
- The closing price for a share of Invitrogen common stock on the Nasdaq
National Market on the trading day on which the effective time occurs.
No dividend or distribution with respect to Invitrogen common stock will be
payable with respect to any fractional share and such fractional share interests
will not entitle their owners to any rights of a stockholder of Invitrogen.
As soon as reasonably practicable after the effective time, transmittal
forms and exchange instructions will be mailed to each holder of record of NOVEX
common stock to be used to surrender and exchange certificates formerly
evidencing shares of NOVEX common stock for certificates evidencing the shares
of Invitrogen common stock to which the holder has become entitled. After
receipt of such transmittal forms, each holder of certificates formerly
representing NOVEX common stock will be able to surrender such certificates to
the exchange agent, and each holder will receive in (i) exchange certificates
evidencing the number of whole shares of Invitrogen common stock to which the
holder is entitled, (ii) any cash which may be payable in lieu of a fractional
share of Invitrogen common stock and (iii) any dividends or other distributions
with respect to Invitrogen common stock with a record date after the effective
time declared or made after the effective time. NOVEX shareholders should not
send in their certificates until they receive a transmittal form.
After the effective time, each certificate formerly representing NOVEX
common stock, until surrendered and exchanged, shall be deemed, for all
purposes, to evidence only the right to receive the number of whole shares of
Invitrogen common stock which the holder of the certificate is entitled to
receive in the merger, any cash payment in lieu of a fractional share of
Invitrogen common stock and
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any dividend or other distribution with respect to Invitrogen common stock as
described above. The holder of the unexchanged certificate will not be entitled
to receive any dividends or other distributions payable by Invitrogen until the
certificate has been exchanged. Subject to applicable laws, following surrender
of the certificates, any dividends and distributions, together with any cash
payment in lieu of a fractional share of Invitrogen common stock, will be paid
without interest.
EXCHANGE OF NOVEX STOCK OPTIONS
At the effective time, automatically and without any action on the part of
the holder thereof, each outstanding NOVEX common stock option shall be assumed
by Invitrogen and shall be converted into an option to acquire that number of
shares of Invitrogen common stock obtained by multiplying the number of shares
of NOVEX common stock under the option by the exchange ratio rounded down, if
necessary, to the nearest whole share of Invitrogen common stock, at an exercise
price per share equal to the per share exercise price of the option divided by
the exchange ratio, and otherwise upon the same terms and conditions as the
outstanding NOVEX stock options; provided, however, that in the case of any
NOVEX common stock option to which Section 421 of the Internal Revenue Code
applies by reason of the qualifications under Section 422 of the Internal
Revenue Code, the exercise price and the number of shares purchasable pursuant
to such NOVEX stock option shall be determined in order to comply with Section
424(a) of the Internal Revenue Code. No NOVEX stock options will be cancelled
following the consummation of the merger.
Invitrogen will take all corporate actions necessary to reserve for issuance
a sufficient number of shares of Invitrogen common stock for delivery upon
exercise of the NOVEX stock options assumed by Invitrogen. As promptly as
practicable after the effective time, Invitrogen will file a registration
statement on Form S-8 with respect to the shares of Invitrogen common stock
subject to the NOVEX stock options and shall use its reasonable efforts to
maintain the effectiveness of such registration statement for so long as those
NOVEX stock options remain outstanding. Except as provided in the merger
agreement or as otherwise agreed by NOVEX and Invitrogen, each of NOVEX's stock
option plans providing for the issuance or grant of NOVEX stock options will be
assumed as of the effective time by Invitrogen with such amendments to the plans
as may be required to reflect the merger.
CONDITIONS TO THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATIONS TO CONSUMMATE THE MERGER. The
respective obligations of NOVEX, Invitrogen and its subsidiary participating in
the merger to effect the merger are subject to the fulfillment, at or prior to
the effective time, of the following conditions, unless waived by the parties:
- SHAREHOLDER APPROVAL. The merger agreement and the transactions
contemplated thereby shall have been approved and adopted by the requisite
vote of the shareholders of NOVEX and the stockholders of Invitrogen under
applicable law and applicable listing requirements;
- NASDAQ LISTING. The shares of Invitrogen common stock issuable in the
merger and those to be reserved for issuance upon exercise of stock
options shall have been authorized for listing on the Nasdaq National
Market;
- EFFECTIVE REGISTRATION STATEMENT. The Registration Statement on Form S-4
filed by Invitrogen shall have become effective, and no stop order
suspending such effectiveness shall have been issued and remain in effect
and no proceeding for that purpose shall have been instituted by the SEC
or any state regulatory authorities;
- NO PROCEEDINGS. No governmental order, writ, injunction or decree shall be
in effect, and no governmental proceeding or action shall have been
instituted before any governmental body that would make the merger illegal
or otherwise would prohibit the completion of the merger; and
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- ACCOUNTANT'S LETTER. NOVEX's independent public accountants shall have
issued a letter to NOVEX stating that NOVEX is an entity eligible to
engage in a pooling of interests transaction, and Invitrogen's independent
public accountants shall have issued a letter to Invitrogen stating that
accounting for the merger as a pooling of interests is appropriate.
ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF NOVEX. The obligation of NOVEX
to effect the merger is further subject to the fulfillment, at or prior to the
effective time, of the following additional conditions, unless waived by NOVEX:
- PERFORMANCE OF OBLIGATIONS/REPRESENTATIONS AND WARRANTIES. Invitrogen and
its subsidiary participating in the merger shall have performed and
complied with all their agreements and covenants in the merger agreement,
and the representations and warranties of Invitrogen and its subsidiary
participating in the merger contained in the merger agreement shall be
true and correct when made and on and as of the closing date as if made
at, and as of, such date;
- TAX OPINION. NOVEX shall have received a written opinion of Brobeck
Phleger & Harrison LLP that the merger will constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code. See
"The Merger--Material Federal Income Tax Consequences" on page 44;
- LEGAL OPINION. NOVEX shall have received a legal opinion of Gray Cary Ware
& Freidenrich LLP dated as of the closing date of the merger as to matters
reasonably agreed upon by Invitrogen and NOVEX;
- NOVEX EMPLOYEE OPTIONS. Certain of NOVEX's employees shall have been
granted options under Invitrogen's 1997 Stock Option Plan to purchase
713,000 shares of Invitrogen common stock as of the closing date of the
merger, at the fair market value of Invitrogen's common stock as of such
date; and
- EMPLOYMENT AGREEMENTS. Invitrogen shall have (i) assumed the employment
agreement of David McCarty dated July 22, 1997 and (ii) executed and
delivered severance agreements to certain of NOVEX's executive officers.
ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF INVITROGEN AND ITS SUBSIDIARY
PARTICIPATING IN THE MERGER. The obligation of Invitrogen and its subsidiary
participating in the merger to effect the merger is further subject to the
fulfillment, at or prior to the effective time, of the following additional
conditions, unless waived by Invitrogen and its subsidiary participating in the
merger:
- PERFORMANCE OF OBLIGATIONS/REPRESENTATIONS AND WARRANTIES. NOVEX shall
have performed and complied with all its agreements and covenants in the
merger agreement, and the representations and warranties of NOVEX
contained in the merger agreement shall be true and correct when made and
on and as of the closing date as if made at and as of such date;
- TAX OPINION. Invitrogen shall have received a written opinion of Gray Cary
Ware & Freidenrich LLP that the merger will constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code. See
"The Merger--Material Federal Income Tax Consequences" on page 44;
- DISSENTING NOVEX SHARES. Holders of not more than 5% of all shares of
NOVEX stock outstanding as of the date of the special meeting shall have
demanded dissenters' rights under Chapter 13 of the California
Corporations Code;
- LEGAL OPINION. Invitrogen shall have received a legal opinion of Brobeck
Phleger & Harrison LLP dated as of the closing date of the merger, as to
matters reasonably agreed upon by Invitrogen and NOVEX;
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- NON-COMPETITION AGREEMENTS. Certain of NOVEX's employees shall have
entered into Non-Solicitation and Non-Competition Agreements with
Invitrogen; and
- INDEMNITY ESCROW AGREEMENT. Invitrogen, NOVEX, the representative of the
NOVEX shareholders and the escrow agent shall have entered into the
Indemnity Escrow Agreement governing the disposition of shares of
Invitrogen common stock placed into escrow to satisfy the indemnification
obligations of NOVEX and its shareholders under the merger agreement.
REPRESENTATIONS AND WARRANTIES OF INVITROGEN AND NOVEX
The merger agreement contains various customary representations and
warranties of NOVEX and Invitrogen relating to, among other things:
- Proper organization and good standing of NOVEX, Invitrogen and their
respective subsidiaries;
- The capitalization of NOVEX and Invitrogen;
- The corporate authorization and enforceability of the merger agreement;
- The filing of SEC reports and the preparation of financial statements;
- The absence of any undisclosed liabilities;
- The absence of certain material adverse changes or events;
- Litigation;
- This Joint Proxy Statement/Prospectus;
- Compliance with laws;
- Environmental matters; and
- Brokers' and finders' fees.
The merger agreement contains additional customary representations and
warranties of NOVEX relating to:
- Taxes;
- Employee benefit matters;
- Labor controversies;
- Intellectual property matters;
- Affiliate transactions;
- Material contract defaults; and
- Insurance.
CONDUCT OF THE BUSINESS OF NOVEX PRIOR TO THE MERGER
Pursuant to the merger agreement, NOVEX has agreed that, prior to the
effective time or earlier termination of the merger agreement, it shall:
- Conduct its business in the ordinary course of business and consistent
with past practice;
- Use all reasonable efforts to preserve intact its business organization
and goodwill, keep available the service of their respective present
officers, significant employees and consultants of NOVEX, preserve the
goodwill and business relationships with customers and others having
business relationships with them;
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- Not amend or propose to amend its organizational documents;
- Not issue, deliver, sell, pledge, dispose of or encumber any shares of any
class of capital stock, any options, other rights of any kind to acquire
any shares of capital stock, or any other ownership interest, of NOVEX or
any of its subsidiaries, except for the issuance of shares of NOVEX common
stock as a result of the exercise of NOVEX stock options outstanding as of
June 14, 1999 and the conversion of the NOVEX preferred stock;
- Not deliver, sell, pledge, dispose of or encumber any assets of NOVEX or
any of its subsidiaries, except for sales of products pursuant to existing
contracts in the ordinary course of business;
- Not declare, set aside or pay any dividend or distribution payable in
cash, stock, property or otherwise;
- Not split, combine or reclassify, repurchase or redeem its outstanding
capital stock;
- Not adopt a plan of liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization, other than the
merger;
- Not incur any indebtedness or issue any debt securities other than
borrowings incurred with the prior written consent of Invitrogen;
- Not make any acquisition of any assets or businesses other than
expenditures for current assets in the ordinary course of business;
- Not enter into any agreement as licensee or licensor;
- Not enter into or amend any contract, agreement, commitment or arrangement
with respect to any of the foregoing actions;
- Not enter into any commitments or transactions material to NOVEX and its
subsidiaries;
- Not settle or compromise any material pending suit, action or claim;
- Not increase the compensation of directors or executive officers, except
in the ordinary course of business and consistent with past practice or as
required by an existing agreement, or otherwise increase employee
benefits;
- Not make changes in accounting methods, except as required by generally
accepted accounting principles;
- Not make any tax election or settle any material tax liability;
- Not pay, discharge or satisfy any claims, liabilities or obligations,
except in the ordinary course of business and consistent with past
practice; and
- Maintain insurance, with financially responsible insurance companies, on
its tangible assets and its businesses in such amounts and against such
risks and losses as are consistent with past practice.
NO SOLICITATION OF ACQUISITION TRANSACTIONS
The merger agreement provides that prior to the effective time or earlier
termination of the merger agreement, NOVEX shall not, initiate, solicit,
negotiate, encourage, facilitate or provide confidential information to
facilitate any acquisition proposals consisting of:
- A merger, reorganization, share exchange, consolidation, business
combination, recapitalization, liquidation, dissolution or similar
transaction involving NOVEX, or
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- Any purchase or sale of all or any substantial part of the business or
properties of NOVEX or 20% or more of the capital stock of NOVEX.
In addition, NOVEX shall not, and shall use its reasonable efforts to cause
any officer, director or employee of NOVEX, or any attorney, accountant,
investment banker, financial advisor or any other agent retained by it or any of
its subsidiaries not to, negotiate or provide nonpublic or confidential
information to facilitate an acquisition proposal.
The merger agreement requires that the NOVEX board promptly notify
Invitrogen after receipt of any acquisition proposal, indication of interest or
request for nonpublic information relating to NOVEX or its subsidiaries in
connection with an acquisition proposal or for access to the properties, books
or records of NOVEX or any subsidiary by any person or entity that informs the
NOVEX board or the board of directors of such subsidiary that it is considering
making, or has made, an acquisition proposal. Such notice to Invitrogen shall
indicate in reasonable detail the identity of the offeror and the terms and
conditions of such proposal, inquiry or contact.
CONDUCT OF THE BUSINESS OF THE COMBINED COMPANIES FOLLOWING THE MERGER
Following the merger, NOVEX will be a wholly owned subsidiary of Invitrogen.
Pursuant to the merger agreement, the articles of incorporation of NOVEX, as in
effect immediately prior to the effective time, shall be the articles of
incorporation of the surviving corporation and thereafter may be amended in
accordance with its terms as provided in the California Corporations Code, or
CCC. Pursuant to the merger agreement, the bylaws of NOVEX, as in effect
immediately prior to the effective time, shall be the bylaws of NOVEX as the
surviving corporation and thereafter may be amended in accordance with their
terms as provided in the CCC.
AFFILIATE AGREEMENTS
Each of Invitrogen and NOVEX has agreed to provide to the other party a
letter identifying all persons who, in the opinion of Invitrogen or NOVEX, as
the case may be, may be deemed affiliates of such party for purposes of Rule 145
under the Securities Act or for purposes of the applicable SEC accounting
releases with respect to pooling-of-interest accounting treatment. Each of
Invitrogen and NOVEX has further agreed to deliver to the other party a letter
from each such affiliate agreeing, among other things, to abide by certain
transfer restrictions pursuant to Rule 145 and the accounting releases.
TERMINATION, AMENDMENT OR WAIVER
TERMINATION. The merger agreement may be terminated at any time prior to
the closing date, whether before or after the approval by the shareholders of
NOVEX:
- By the mutual written consent of NOVEX and Invitrogen;
- By either Invitrogen or NOVEX if:
- the merger is not completed by the termination date, which is December
31, 1999;
- Any required approval of the merger or merger agreement by the
shareholders of NOVEX or Invitrogen is not obtained due to the failure
to obtain the required vote at the special meetings;
- The merger is restrained, enjoined or otherwise prohibited by a final,
unappealable court order; or
- Upon a material breach of a representation or warranty of the
non-terminating party contained in the merger agreement which has not
been cured in all material respects and which
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has caused certain conditions to the obligations of the terminating
party to effect the merger to be incapable of being satisfied by the
termination date.
- The non-terminating party:
- Fails to perform or comply in any material respect with any of its
material covenants in the merger agreement; and
- Does not cure such default in all material respects within 15 days
after written notice of such default specifying such default in
reasonable detail is given to the non-terminating party by the
terminating party.
AMENDMENT. The merger agreement may not be amended except by action taken
by the parties' respective boards of directors and then only by an instrument in
writing signed on behalf of each party and in compliance with applicable law.
Such amendment may take place at any time prior to the closing date, and,
subject to applicable law, whether before or after approval by the shareholders
of NOVEX or Invitrogen, but after any such approval, no amendment shall be made
which requires the approval of the shareholders of NOVEX or Invitrogen without
such approval.
WAIVER. At any time prior to the effective time, either party to the merger
agreement may, to the extent legally allowed:
- Extend the time for the performance of any of the obligations or other
acts of the other party thereto,
- Waive any inaccuracies in the representations and warranties of the other
party contained therein or in any document delivered pursuant thereto and
- Waive compliance by the other party with any of the agreements or
conditions contained therein.
EXPENSES
The merger agreement provides that all costs and expenses incurred in
connection with the merger agreement and the transactions contemplated thereby
shall be paid by the party incurring such expenses, except that (1) those
expenses incurred in connection with printing and filing this Joint Proxy
Statement/Prospectus shall be shared equally by Invitrogen and NOVEX, and (2)
payment of legal and accounting fees of NOVEX over $100,000 shall be made by the
shareholders of NOVEX as a group.
INDEMNIFICATION AND ESCROW
The merger agreement provides that following the merger, Invitrogen will
assume the obligations of NOVEX, as the surviving corporation, to compensate for
the losses of and hold harmless, and provide advancement of expenses to, all
past and present directors, officers and employees of NOVEX and their
subsidiaries to the same extent such persons are compensated for loss or have
the right to advancement of expenses pursuant to NOVEX's articles of
incorporation, by-laws or other indemnification agreements, for acts or
omissions occurring at or prior to the merger including for acts or omissions
occurring in connection with the approval of the merger agreement and the merger
and other transactions contemplated thereby.
At the effective time of the merger Invitrogen will deposit into escrow
certificates representing 250,000 of the shares of Invitrogen common stock
issued to the holders of NOVEX common stock in the merger, on a pro rata basis.
Such escrow shares will be registered in the name of and deposited with an
escrow agent pursuant to the merger agreement to constitute an escrow fund. The
escrow fund will be available to indemnify Invitrogen, its affiliates, their
representatives, and their successors for any loss, damage, injury, decline in
value, lost opportunity, liability, claim, demand, settlement, judgment, award,
fine, penalty, tax, fee (including reasonable attorneys' fees), charge or costs
that Invitrogen or
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NOVEX has incurred by reason of any inaccuracy or breach by NOVEX of any
representation, warranty, covenant or obligation of NOVEX contained in the
merger agreement. The indemnification period will end on the first anniversary
of the merger closing date.
Notwithstanding the foregoing, Invitrogen may not receive any shares from
the escrow fund unless and until the aggregate amount of damages exceeds
$300,000, but once that threshold is exceeded Invitrogen will be entitled to
full indemnification for all such damages. To receive any escrow shares, a
notice of damages must be delivered to the escrow agent and the shareholders'
representative and if the shareholders' representative disputes the claim, the
matter must be resolved by binding arbitration. For the purpose of compensating
Invitrogen for its damages, the escrow shares shall be valued at a price equal
to the closing price of Invitrogen common stock on the business day prior to the
day the claim is paid by the escrow agent. In no event shall Invitrogen receive
more than the number of escrow shares then remaining in the escrow fund at the
time of Invitrogen's claim for damages. Except with respect to claims based on
knowing and intentional misrepresentations and warranties, Invitrogen's sole
recourse with respect to damages is limited to the escrow fund, and the maximum
liability of all NOVEX shareholders under the indemnity provisions of the merger
agreement shall not exceed the forfeiture of the escrow shares in the escrow
fund.
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INVITROGEN BUSINESS
INVITROGEN
Invitrogen develops, manufactures and markets research tools in kit form and
provides research services to corporate, academic and government entities.
Invitrogen's kits simplify and improve gene cloning, gene expression and gene
analysis as well as other molecular biology activities that underlie functional
genomics and gene-based drug discovery. Invitrogen's kits allow researchers to
perform experiments more accurately, efficiently and with greater
reproducibility compared to conventional research methods. As a result,
Invitrogen's kits have made molecular biology research techniques more
accessible to pharmaceutical, biotechnology, agricultural, government and
academic researchers with backgrounds in a wide range of scientific disciplines.
In 1998 Invitrogen developed a high-throughput gene cloning and expression
technology called Invitrogenomics and will seek to utilize this technology to
generate additional license, service and product opportunities. Invitrogen's
leadership position in gene cloning and expression has led to significant
historical revenue and net income growth. From 1995 to 1998, Invitrogen
experienced compound annual growth in revenues and net income of 28% and 49%,
respectively.
In 1998, based on independent market studies, researchers spent over $1.4
billion on molecular biology products and supplies such as chemicals, reagents,
enzymes and kits. Gene cloning, expression and analysis kits represent a rapidly
emerging segment of the overall molecular biology product and supply market.
Based on independent market studies, Invitrogen projects the market for gene
cloning and expression kits to grow approximately 21% in 1999, compared to
approximately 14% growth in 1999 for the overall molecular biology product and
supply market. Invitrogen believes that the market for gene cloning, expression
and analysis kits will continue to expand due to several factors, including:
- Increasing levels of government funding for genomics and molecular biology
research;
- The increasing availability of new genomics data from the Human Genome
Project and other genome sequencing projects;
- The proliferation of high-throughput molecular biology techniques; and
- Accelerated investment in commercial research activities.
Invitrogen offers over 250 research kits that researchers use to conduct key
molecular biology research activities. Invitrogen designs research kits to
overcome limitations and complexities of traditional molecular biology
techniques, by making these activities faster, easier, and more accessible to an
increasingly broad community of researchers. For example, as compared to
standard cloning methods, Invitrogen's proprietary TOPO TA Cloning technology
has reduced the time required for a key step in the gene cloning process from 12
hours to five minutes, has reduced total experiment completion time from a range
of three to five days to one day and has increased the cloning success rate from
50-60% to over 90%. Invitrogen estimates that researchers who used its TOPO TA
Cloning Kits in 1998 saved over 8.5 million hours relative to standard cloning
methods.
Invitrogen believes it has assembled one of the broadest portfolios of gene
cloning and expression-related intellectual property in the industry. To date,
it has obtained over 80 licenses, providing Invitrogen with access to over 200
patents covering gene cloning, expression and analysis materials and techniques.
In addition, Invitrogen owns or controls over 15 issued and pending patents.
Invitrogen believes that these licenses and patents have established it as a
licensing partner of choice for corporate and academic researchers who wish to
commercialize their gene cloning and expression-related discoveries. Invitrogen
believes this position derives from its ability to enhance the value of licensed
technologies by combining them with its existing products and licensed
technologies.
Invitrogen's high-throughput, gene cloning and expression technology sold
under the name Invitrogenomics was developed by scaling up its TOPO TA Cloning
technology. With the Invitrogenomics
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high-throughput technology, Invitrogen rapidly clones and patents full-length
expression-tested genes which it licenses and sells to academic, governmental
and corporate customers. To date, Invitrogen has assembled a collection of over
2,300 full-length cloned human genes that express their encoded proteins. In
addition, Invitrogen plans to use its Invitrogenomics technology to provide
services on a contract basis to pharmaceutical, biotechnology and agricultural
companies that wish to reduce the time and cost associated with identifying and
validating new drug targets and developing novel therapeutics.
SCIENTIFIC OVERVIEW
All living cells are largely comprised of proteins and contain long chains
of deoxyribonucleic acid, better known as DNA. The entire DNA content of an
organism is called its genome. Genomics is the term used for the study of the
genome. A gene is a specific segment of DNA that is used as a template to
produce a particular protein; in scientific terminology, a gene is said to
express its encoded protein. It is estimated that genes make up only 3% of the
human genome; the function of the remaining DNA is not well understood but is
believed to regulate the amount and timing of the protein expression from the
genes. Functional genomics is the study of the function of genes, including how
expression of a particular gene is regulated and the function of the protein
that the gene encodes.
The DNA molecule is comprised of two linear sequences, or strands, of four
nucleotide bases, commonly known as C, G, A and T. It is estimated that there
are three billion nucleotide base pairs in the human genome. The individual DNA
strands are held together by chemical bonds between the nucleotide bases on each
strand. Only certain pairs of nucleotide bases can form these bonds: C always
pairs with G, and A always pairs with T. Such paired strands are said to be
complementary. When two DNA strands are complementary, they can bind together to
form a double helix in a process called hybridization. DNA itself does not
produce proteins. Instead, the double strand of the DNA helix unwinds and
complementary nucleotide bases are attracted to the separated strands of DNA,
forming messenger ribonucleic acid, or mRNA. The mRNA molecules typically move
to a different area of the cell where they are used as templates for protein
synthesis, or expression.
Proteins and their interactions are responsible for all of the biochemical
and physical properties of a cell, as well as the variations among different
types of cells. Proteins take various forms including enzymes, hormones,
antibodies and receptors. As noted above, genes code for proteins. By studying
the proteins that genes express, researchers can study topics such as the way a
particular gene and the protein it encodes impact an organism's susceptibility
or resistance to disease. Virtually all drugs on the market today interact with
about 500 specific protein targets. As the functions of additional proteins
become better understood, hundreds or thousands more such targets may be
identified, creating new opportunities for drug development by pharmaceutical
companies.
Molecular biology techniques are used to study how a cell uses its genetic
information to direct the production of its proteins and regulate its biological
activities. Researchers use molecular biology techniques to identify the
functions and interactions of proteins and to develop new drugs, diagnostic
techniques, therapies for disease and useful variations of species, including
crops and livestock. As a result, molecular biology has emerged as a key
scientific discipline and is used by a wide variety of researchers at
pharmaceutical, biotechnology and agricultural companies, as well as at
government and academic research institutions.
Five frequently used molecular biology techniques are DNA sequencing, gene
identification, gene cloning, gene expression and gene analysis. DNA sequencing
is used to determine the linear order of nucleotide bases in a DNA fragment. The
other techniques listed above are used to analyze the data obtained by DNA
sequencing and to determine the role and function of proteins encoded and
regulated by the sequence data. Each of the five techniques generates data and
results that are used by the subsequent technique in the above list. Ultimately,
gene analysis provides information about additional
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genetic material that should be sequenced and studied. The five techniques and
their applications are illustrated and described below:
- DNA SEQUENCING. DNA sequencing is the technique used by researchers to
determine the linear order of nucleotide bases (i.e. the order of C's,
G's, A's and T's) in a DNA fragment. Sequencing is performed because it
provides researchers with the core information they need to identify,
clone, express and analyze specific genes and their encoded proteins. The
first step in sequencing involves isolating DNA from a sample (such as
cells, tissue, blood, hair or the leaf of a plant). Next, the isolated DNA
is used in four different reactions that occur in buffers containing
salts, a mixture of the four nucleotide bases, a nucleotide primer and an
enzyme. Each of the four reactions also contains one of the four
nucleotide bases that has been specifically modified for use in
sequencing. The nucleotide primer is a short, single strand of DNA with a
known sequence that is complementary to the strand to be sequenced. After
the isolated DNA is placed in the buffer, it is heated to separate the DNA
strands, then cooled rapidly. Rapid cooling forces the DNA to hybridize,
or bind, to the primer rather than to its opposite DNA strand. The enzyme
in the buffer then elongates the complementary strand, one base at a time,
starting from the primer. When the modified sequencing nucleotide in the
buffer incorporates into the growing strand, the elongation process stops.
Running the four different reactions side by side on a sequencing gel then
creates a visual layout that the researcher uses to determine the actual
nucleotide sequence of the DNA.
- High-throughput automated DNA sequencing is a recent innovation that has
made it possible to sequence all of the DNA in a genome. The United States
government is funding the sequencing of the human genome to provide
researchers with the building blocks to be used for further medical and
pharmaceutical research. Similarly, governments and major corporations
have begun agricultural genome projects to study and improve crops like
rice, corn, soybeans and tomatoes. Genomes of organisms like fruit flies,
mice, flatworms and yeast are also being sequenced for the indirect
understanding that comparisons among organisms provides.
- GENE IDENTIFICATION. Gene identification is the process of determining the
specific nucleotide sequence of the protein-encoding region of a gene. It
is required because, while DNA sequencing provides researchers with the
entire linear nucleotide sequence of a DNA molecule, it does not provide
any information about which portions of a sequence are genes or which part
of these genes code for proteins. Because many researchers are interested
in determining how proteins exert their influence, gene identification
techniques are used to determine the coding sequences that lie within the
genomic sequence.
One method for gene identification involves mRNA isolation and
complementary DNA ("cDNA") synthesis. Genes use mRNA as an intermediary
that is translated into protein. Thus, an mRNA molecule indicates a DNA
sequence that codes for a protein. But mRNA degrades very quickly and
cannot be replicated for further studies. Because of this, researchers
have developed a method to synthesize cDNA from isolated mRNA. cDNA can
then be used in various experiments like gene identification, gene cloning
and gene expression.
Another method used to perform gene identification, called bioinformatics,
utilizes computer programs that attempt to predict which DNA sequences are
genes that code for proteins. Entire genomic sequences are entered into
databases and sophisticated algorithms search for specific DNA sequences
that are usually found at the beginning and end of a gene. When these are
found, there is a high probability that a gene has been identified.
- GENE CLONING. Gene Cloning is a process used to move a selected gene or
other piece of DNA into a cloning vector for use in other techniques. A
cloning vector is a circular DNA molecule used to capture foreign DNA and
carry it into other organisms, usually bacteria, where it can replicate.
Cloning gives scientists the ability to produce sufficient quantities of a
specific DNA
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fragment for use in further studies, like gene expression and gene
analysis. Using cloned DNA can simplify research because the host
organisms and conditions in which a clone can replicate are far simpler to
work with than those in which the cloned DNA normally resides. The ability
to perform gene expression and analysis studies under these controlled,
simplified conditions increases the ability of researchers to determine
how genes and their encoded proteins function.
There are several methods used for cloning. Researchers choose among
methods depending upon how the piece of DNA to be cloned was generated and
what information is known about it. When a researcher does not know the
sequence of the DNA to be cloned, two frequently used methods are genomic
library and cDNA library construction. In genomic library construction,
the entire DNA of a cell is isolated and broken into smaller pieces using
a technique called shearing. These pieces are then cloned into vectors and
either sequenced or screened to find DNA fragments that have some property
that the researcher wishes to study. cDNA library construction is similar;
however, the researcher first isolates mRNA from the cells, then reverse
transcribes it into cDNA prior to cloning. Genomic libraries contain all
of the DNA in a genome, whereas cDNA libraries only contain genes that
encode proteins. Various screening methods enable researchers to identify
specific genes from among the many in the library.
When researchers have some information about the sequence of a DNA
fragment they wish to clone, they can use a type of protein called a
restriction enzyme. Restriction enzymes recognize specific DNA sequences,
called restriction sites, and cut the DNA strands in a manner that leaves
nucleotide overhangs, or "sticky ends." When some of the sequence of the
DNA fragment to be cloned is known, researchers can choose a restriction
enzyme that cuts isolated DNA at known restriction sites, then use the
generated sticky ends to hybridize the specific, cleaved DNA fragment into
a cloning vector.
Blunt-ended cloning is a technique that is used when the DNA fragment to
be cloned does not contain sticky overhangs, which is termed as being
blunt. Some restriction enzymes leave blunt ends when they cut. Cloning
blunt-ended DNA fragments is a very inefficient process because there are
no exposed nucleotide bases with which to form base pairs. Blunt ends,
however, have a slight affinity for one another, which makes it possible
for researchers to clone these fragments into blunt-ended cloning vectors.
PCR cloning is another method that can be used to clone a DNA fragment
when some information about its sequence is known. PCR, or polymerase
chain reaction, is one of the most popular techniques used in molecular
biology because it quickly generates large amounts of specific DNA
fragments. Researchers use restriction enzymes, blunt-ended cloning, TA
cloning or other methods to clone these PCR-produced fragments.
- GENE EXPRESSION. Gene expression is a collection of techniques that is
used to produce proteins from genes that have been cloned into expression
vectors and introduced into various host organisms. Most expression
studies involve expressing the cloned gene in a variety of hosts,
including bacteria, fungi, insects and mammalian cells, under various
growth conditions. The protein that a DNA sequence expresses can vary
slightly depending upon the host in which it is expressed and the growth
conditions used. By compiling the results of multiple experiments,
researchers develop an understanding of how a gene and its encoded protein
function and are regulated in the context of an entire organism.
Generally, gene expression experiments fall into two categories: those in
which the goal is to produce a large amount of protein that will be
purified for use in other studies and those in which the goal is to
monitor the host for physiological changes caused by expression of the
foreign protein. Specific hosts and expression vector elements provide
functions for these different experiment types. Complete expression
systems can facilitate each type of experiment.
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Gene expression relies on expression vectors, which, like cloning vectors,
are circular DNA molecules. Expression vectors contain various elements of
DNA that, at a minimum, enable the vector to replicate in the host and
cause the cloned gene to express its encoded protein. Usually, expression
vectors also contain antibiotic resistance genes to facilitate selection.
Each particular host organism requires expression vectors with specific
elements that function in that host, as well as methods for introducing
the vector into the host, and detecting and purifying the expressed
protein. Other gene expression techniques involve specifically mutating
DNA sequences that code for protein, using only portions of a DNA
sequence, or creating gene fusions that use more than one DNA sequence.
Gene expression analysis is used to identify which genes cause a
difference between two cell types, for example the differences in genes
being expressed in a healthy cell as opposed to those in a diseased cell.
One relatively new technique involves placing thousands of partial gene
sequences, or tags, onto different glass slides, or chips. mRNA isolated
from different cell types is then applied to identical chips. Comparison
of the chips reveals that many tags, sometimes hundreds, bind mRNA on one
chip but not the other. These indicate genes that were being expressed in
one cell type but not the other. The sequences of these tags are then used
to identify, clone, express and analyze full-length genes to determine
which are responsible for the observed differences in the cell types.
Thus, the availability of chip technology both expands the need for gene
identification, cloning, expression and analysis tools and ultimately
provides targets that can be used for drug discovery.
- GENE ANALYSIS. Gene analysis techniques are used to determine the function
or role of an encoded protein, or if a given protein interacts with other
proteins or nucleic acids. Because most cellular processes are mediated
through pathways that involve many proteins and nucleic acids, determining
which proteins or nucleic acid molecules can interact with a given protein
is one of the keys to understanding its function in the context of the
entire cell.
Molecular interaction studies are one method that can be used to determine
protein function. A given protein is expressed from an expression vector
that can indicate whether the expressed protein binds to other proteins
that are expressed from a second vector. Both expression vectors contain
specific elements that enable detection of interactions. Researchers can
express one gene or an entire library of genes from the second vector.
When an interaction is indicated, researchers then isolate the gene in the
second vector and begin to study the two genes and their proteins to
determine exactly how they bind to one another, if other proteins are
involved in the binding and the events that precede and follow this
molecular interaction. With an estimated 100,000 genes in a human cell,
each capable of producing several different mRNA molecules and proteins
due to differential splicing, there are billions of potential protein and
nucleic acid interactions. For this reason, gene analysis studies to date
have been more of a starting than an ending point in understanding a
protein's function. The information provided by these studies indicates
which additional genes must be identified, cloned, expressed and analyzed
before the function of the entire pathway is understood.
MARKET OVERVIEW
Based on independent market studies, in 1998 over $1.4 billion was spent on
molecular biology products and supplies such as chemicals, reagents, enzymes and
kits. The market for these products and for related services consists of the
academic market, comprised of universities and government institutions, and the
commercial market, comprised of pharmaceutical, biotechnology and agricultural
companies. It is estimated that there are over 300,000 scientists worldwide
engaged in molecular biology research. A substantial number of scientists
perform their research using the conventional methods they were taught during
their training, assembling their own reagents and developing their own
protocols.
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Because not all scientists replace their familiar methods rapidly, even with
improved methods, a large number of scientists using molecular biology
techniques are not currently using kits.
Gene cloning, expression and analysis kits represent a rapidly emerging
segment of the overall molecular biology product and supply market. Based on
independent market studies, Invitrogen projects that the market for gene cloning
and expression kits will grow approximately 21% in 1999, compared to
approximately 14% for the overall molecular biology product and supply market.
Several factors are driving market growth and the need for gene cloning,
expression and analysis kits and services:
- INCREASING GOVERNMENT FUNDING. The National Institutes of Health is the
largest purchaser of research products and services in the world. In
October 1998, the U.S. Congress approved a 15% increase in NIH funding,
raising its 1999 budget to $15.7 billion. The U.S. Congress has stated its
intention to double the NIH budget in the next five to ten years. Other
governments are similarly increasing funding for biomedical research. In
the past, funding increases of this nature have resulted in a
corresponding increase in the purchase of molecular biology research
products and services.
- HIGH-THROUGHPUT SEQUENCING AND GENOME SEQUENCING PROJECTS. High-throughput
automated DNA sequencing is a recent innovation that has made it both
technically possible and economically feasible to sequence all of the DNA
in a genome. The U.S. government launched the Human Genome Project in 1990
to determine the DNA sequence of the estimated 3 billion nucleotide base
pairs contained in the human genome and to identify its estimated 100,000
genes. Through the end of 1998, $1.9 billion had been spent and
approximately 7% of the genome had been fully sequenced. An ambitious
schedule has been set to complete the full sequence by the end of 2003,
two years ahead of previous projections. Similarly, governments and major
corporations worldwide have begun agricultural genome sequencing projects
to study and improve crops like rice, corn, soybeans and tomatoes.
Invitrogen believes that the market for gene cloning, gene expression and
gene analysis technologies will continue to expand as researchers attempt
to determine the function of the many genes for which sequence data is
becoming available.
- PROLIFERATION OF HIGH-THROUGHPUT MOLECULAR BIOLOGY TECHNIQUES. The advent
of high-throughput technologies for DNA sequencing and gene expression
analysis has exponentially increased the number of genes that need to be
analyzed. In addition, these technologies have enabled research to be
performed on a much larger scale. For example, while researchers used to
study genes one or two at a time, the emergence of chip technologies
provides information on tens or hundreds of genes that might need to be
cloned and studied to accurately determine the cause of a
genetically-based disease. For increasing numbers of research
organizations, especially those that wish to use personnel with limited
training in molecular biology techniques, the availability of easy-to-use
molecular biology methods, or kits, enables research to be performed more
efficiently, conveniently and cost-effectively than conventional
techniques. Invitrogen believes that the increased numbers of researchers
using molecular biology techniques and the increased number of experiments
being performed will accelerate the tendency of researchers to convert
from conventional techniques to easy-to-use kits.
- ACCELERATED INVESTMENT IN COMMERCIAL RESEARCH. As more genes of the human
and other genomes are sequenced, Invitrogen believes that the focus of
research will shift toward discovering the specific functions of each
gene, especially of those implicated in disease states. Companies wishing
to develop economically viable therapeutic and diagnostic products based
on such discoveries hope to rapidly establish and protect intellectual
property rights by obtaining patents or licenses covering these
full-length genes and their encoded proteins. These companies are
competing with one another to be the first to identify, clone and express
the finite number of genes thought to be of commercial importance. The
desire to secure proprietary positions increasingly leads
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companies to seek a competitive advantage by adopting methods that can
accelerate their research, including outsourcing of research tasks to
companies with demonstrated expertise.
INVITROGEN TECHNOLOGY AND CAPABILITIES
Invitrogen believes that many conventional molecular biology research
methods described above are time consuming, require the use of hard-to-obtain or
hazardous materials or require considerable scientific training and experience
to generate accurate, reproducible results. Invitrogen has developed a diverse
line of kits and services that address these limitations and make molecular
biology research techniques faster, easier and more cost-effective. In addition,
Invitrogen's offerings make these techniques available to a broader range of
researchers with varying skill levels. For example, the conventional PCR cloning
method requires researchers to perform several steps between the PCR and
ligation reactions to prepare the PCR products for cloning. Invitrogen's TOPO TA
Cloning Kit enables researchers to clone the PCR products directly, bypassing
all intermediate steps, which both saves time and improves the cloning
efficiency. Whereas the conventional method requires three to five days and
generates a 50-60% cloning efficiency, the TOPO TA Cloning Kit requires only one
day and increases the cloning efficiency to over 90%. Invitrogen's FastTrack Kit
is another example of a product that provides researchers with significant
advantages over conventional research methods. Whereas mRNA isolation methods
typically took two days to complete and required the use of hazardous reagents,
Invitrogen's method is completed in only three hours and does not involve the
use of any hazardous materials. Invitrogen's broad portfolio of gene expression
vectors and systems also provide scientific as well as ease-of-use advantages to
researchers. Specifically, Invitrogen offers complete protocols with all of
Invitrogen's expression vectors, which enables researchers to perform their
experiments more easily. In addition, Invitrogen offers a broad line of
expression systems, a number of which can only be obtained from Invitrogen.
Invitrogen has developed significant expertise in identifying molecular
biology techniques that could be simplified and improved by their development as
research kits. Invitrogen has a consistent track record of identifying new
technologies, licensing or applying for the necessary patents and rapidly
introducing new or enhanced products based on those technologies to the market.
Invitrogen has an established corporate development group of five professionals,
each with significant molecular biology research expertise. In addition,
Invitrogen's sales and technical service representatives are experienced
molecular biologists who work with its customers to identify emerging molecular
biology techniques or potential new product and service opportunities.
Specifically, Invitrogen's corporate development, sales and technical service
groups have identified and obtained rights to over 200 patents to date. Since
the beginning of 1997, Invitrogen's new product development teams have
introduced over 50 new or enhanced research kits to the market.
BUSINESS STRATEGY
Invitrogen's business strategy is to develop and market a comprehensive
portfolio of products and services based on its expertise in gene cloning and
gene expression technologies. Invitrogen's business strategy includes the
following key elements:
- MAINTAIN AND ENHANCE LEADERSHIP POSITION IN GENE CLONING AND GENE
EXPRESSION. Based on its market shares, Invitrogen believes it is a
worldwide leader in gene cloning and gene expression technologies.
Invitrogen believes that the competitive advantages offered by its
innovative products and technologies for gene cloning and expression and
the comprehensive nature of its product line will allow it to continue to
increase its market share. Invitrogen seeks to enhance its position by
investing significant resources in research and development and
in-licensing efforts to continually introduce novel products and expand
its product line. In addition, Invitrogen is actively expanding its direct
worldwide sales force to increase market penetration of its products.
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- DEVELOP NEW PRODUCTS AND MARKETS BASED UPON CORE EXPERTISE. Invitrogen
will continue to develop and launch novel product lines related to gene
cloning and expression, such as gene transfer and gene analysis
technologies. For example, Invitrogen has utilized its capabilities in
cloning and expression to launch its GeneStorm product line, which
facilitates functional genomics studies. By continuing to introduce new,
complementary products Invitrogen believes it can enhance its position in
its current core markets while targeting additional high-growth market
segments.
- CAPTURE ADDITIONAL VALUE THROUGH SERVICES AND OUT-LICENSING. Invitrogen
believes its technologies in gene cloning and expression provide
significant opportunities to develop high margin services and
out-licensing arrangements. Through Invitrogenomics, Invitrogen will
continue to use its high-throughput gene expression technology to develop
a proprietary library of full-length genes, which can be licensed and sold
to corporate partners for drug discovery and other commercial development
activities. In addition, Invitrogen plans to utilize its high-throughput
capabilities to rapidly clone and expression-test thousands of genes for
corporate customers in drug development and agriculture.
Invitrogen seeks to carry out its business strategies by identifying and
in-licensing, or by developing on its own, promising technologies that can be
rapidly commercialized as products or services. Invitrogen also intends to
out-license its technologies to customers wishing to use them in other fields of
use, as well as to combine its own research and development expertise with the
technologies of corporate partners to participate in processes such as drug
discovery. In addition, Invitrogen will continue to consider acquisitions of
complementary companies or technologies.
INVITROGEN PRODUCTS AND SERVICES
Invitrogen currently offers over 250 gene identification, gene cloning, gene
expression and gene analysis products and services. The following table
describes Invitrogen's top ten products, as well as the leading product lines in
its key areas of focus:
<TABLE>
<S> <C>
GENE IDENTIFICATION PRODUCTS
FastTrack 2.0 Kit................. This kit simplifies isolation of pure, full-length mRNA
directly from cells or tissue in three hours, as opposed
to the two days required for conventional methods.
Micro-FastTrack Kit............... This kit is a modified version of the FastTrack Kit,
optimized for improved results when isolating mRNA from
small sample sizes.
Discovery Line.................... Northern Territory mRNA and total RNA blots, Gene Pool
cDNA and Discovery Line mRNA, total RNA and premade cDNA
libraries have been created from a variety of hard-to-
obtain human normal, fetal and tumor tissue sources and
are sold ready-to-use, enabling researchers not trained
in these gene identification techniques to begin their
studies with high quality materials.
</TABLE>
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<TABLE>
<S> <C>
GENE CLONING PRODUCTS
TA Cloning Kit.................... This kit enables fast, efficient cloning of PCR products
generated using TAQ polymerase, which is used by the
majority of researchers, by eliminating intermediate
steps required by conventional PCR cloning methods, like
special PCR primers, modifying enzymes, DNA purification
and restriction digestion.
TOPO TA Cloning Kit............... This improved version of the TA Cloning Kit utilizes
topoisomerase in the ligation reaction, reducing the
time required for this step from 12 hours to only 5
minutes.
TOPO TA Cloning Kit--Dual
Promoter........................ The cloning vector in this version of the TOPO TA
Cloning Kit contains promoters in opposite orientations,
enabling researchers to generate both sense and
anti-sense transcripts of their cloned PCR product.
Zero Blunt PCR Cloning Kit........ This kit enables researchers to efficiently clone
blunt-ended PCR products by employing a lethal gene that
prevents bacterial growth unless the cloning reaction
was successful.
GENE EXPRESSION PRODUCTS
Expression Vectors................ These kits comprise the world's largest collection of
expression vectors for bacterial, yeast, insect and
mammalian cells. Choices in each host type include
various promoters, selectable markers, epitope tags and
targeting sequences.
MaxBac Baculovirus Expression
System.......................... This complete kit provides researchers with all required
components to perform gene expression in insect cells
(including vectors, cell lines, viral stocks, growth
media, transfection reagents and protocols).
Ecdysone-Inducible Mammalian
Expression System............... This system provides tightly controlled, inducible
expression in mammalian cells, allowing researchers to
study the effects of a particular protein by turning on
and off its expression as desired.
GENE ANALYSIS PRODUCTS
GeneStorm Expression-Ready
Clones.......................... Researchers can purchase the gene they wish to study,
cloned into a quality vector and tested to verify that
it expresses protein.
Hybrid Hunter Systems............. These systems are complete kits for the IN VIVO
detection of protein-protein and protein-RNA
interactions and have been designed to help reduce false
positives.
SUPPORT PRODUCTS
One Shot INVaF', TOP10F' and TOP10
Competent E. COLI............... These three different bacterial strains are sold
ready-to-use for cloning and expression experiments to
transfer vectors into bacteria. They are packaged in
convenient, single-use aliquots to prevent loss of
efficiency caused by freeze-thaw cycles.
</TABLE>
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<TABLE>
<S> <C>
Zeocin Antibiotic................. This antibiotic quickly and completely kills mammalian,
yeast and bacterial cell lines, enabling researchers to
eliminate all cells that do not contain vectors with the
SH BLE antibiotic resistance gene.
RESEARCH SERVICES
Invitrogenomics................... Invitrogenomics services include a variety of functional
genomics and molecular biological services, such as
high-throughput gene cloning and gene expression.
</TABLE>
GENE IDENTIFICATION PRODUCTS
FASTTRACK 2.0 AND MICRO-FASTTRACK KITS. These kits provide researchers with
all of the reagents needed to quickly isolate mRNA directly from cells, tissue
or total RNA samples. The two products differ from one another in that the
protocol and materials configuration of the Micro-FastTrack Kit have been
optimized for isolation from small sample sizes. These kits contain all required
buffers, oligo(dT) cellulose resin and spin columns.
For each product, the researcher begins by placing the sample in lysis
buffer to break open the cells. The inside material, or cell lysate, is applied
to an oligo(dT) cellulose resin, which binds the mRNA. This resin is transferred
to a spin column, then wash buffer is added and spun through the resin with a
microcentrifuge to remove materials other than the mRNA. An elution buffer is
then spun through the resin to remove the mRNA and complete the procedure.
These products were the first to enable researchers to isolate mRNA directly
from cells and tissue, eliminating the need to first isolate total RNA, which
has reduced the time required from two days to three hours. The kits have also
eliminated the use of hazardous chemicals like guanidinium isothiocyanate and
the need for expensive equipment like ultracentrifuges.
THE DISCOVERY LINE. One of the first steps for researchers performing gene
identification studies is to isolate mRNA from a chosen sample. However, if the
sample is of poor quality or the mRNA isolation done improperly, downstream
experiments that rely on undegraded mRNA will not provide accurate results.
Invitrogen has recognized the absolute necessity for using quality materials and
responded by providing researchers with Discovery Line mRNA and total RNA,
Northern Territory mRNA and total RNA blots, Gene Pool cDNA and Discovery Line
pre-made cDNA libraries. Isolations of mRNA and total RNA are performed from
hard-to-obtain human normal, fetal and tumor tissue samples. The mRNA and total
RNA is then sold ready-to-use or used to create ready-to-use Northern blots,
cDNA for PCR and cDNA libraries. This enables researchers to use high quality
materials and to study the similarities and differences between normal, fetal
and cancerous tissues. These products save researchers time and effort because
the upstream experiments required to prepare these materials as well as the
failures caused by working with inferior materials are eliminated.
GENE CLONING PRODUCTS
TA CLONING KIT. This kit enables researchers to clone TAQ
polymerase-generated PCR products quickly and efficiently. The kit contains
prepared cloning vector, competent cells for transferring the vector into after
the cloning reaction and all required buffers and enzyme for cloning.
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To clone with the TA Cloning Kit, researchers perform a normal PCR reaction,
add a portion of it to a tube that contains TA Cloning vector and T4 DNA ligase
in a ligation buffer, then incubate this ligation reaction for 10-12 hours, or
overnight. This reaction is then added to a tube of competent bacteria, which
are then plated onto an agar plate. The plates are incubated for a day to allow
colonies to form. Colonies are then picked based on a color selection
method--positive colonies, or those that have incorporated PCR product, are
white, while negatives are blue. DNA is then isolated from positive colonies to
verify that the cloning was successful and to determine the orientation of the
PCR product that inserted into the vector.
The TA Cloning Kit is faster and more efficient than conventional PCR
cloning techniques because it takes advantage of the single base A overhangs
that are added automatically to PCR products by TAQ polymerase, the polymerase
most frequently used for PCR, rather than relying on additional steps to remove
these overhangs or to add sticky overhangs. Among these steps are the addition
of extra bases to the PCR primers to add restriction sites, which makes these
primers more expensive and less specific than normal primers, purification of
the PCR products after they are generated, restriction digestion of the PCR
products and inactivation of the restriction enzyme. Moreover, the restriction
method requires that the entire sequence of PCR products be known prior to
cloning. The TA Cloning Kit offers a better cloning efficiency than the
restriction method, as well as providing blue/white color to indicate positive
clones. Quality Control specifications for the TA Cloning Kit require that each
manufactured lot achieve a minimum cloning efficiency of 90%, whereas the
restriction method typically yields only 50-60%.
Invitrogen is the sole owner by assignment of U.S. and foreign patents on
the TA Cloning method and materials.
TOPO TA CLONING AND TOPO TA CLONING--DUAL PROMOTER KITS. These two kits are
improved versions of the TA Cloning Kit. They both contain prepared cloning
vector, competent cells for transferring the vector into after the cloning
reaction and all required buffers for cloning.
Both of these kits use and take advantage of the TA Cloning method described
above, but also utilize a technology called TOPO Cloning. This method uses an
enzyme called topoisomerase to mediate the ligation of PCR products into the
cloning vector, rather than T4 DNA ligase. This reduces the ligation step to
only five minutes, as opposed to a 12 hour or overnight ligation. TOPO Cloning,
therefore, saves researchers a full day as they are able perform their ligation
reaction and transform it into bacteria on the same day. The TOPO Cloning--Dual
Promoter Kit has a vector that contains transcriptional promoters in both
orientations, which enables researchers to make both sense and anti-sense RNA
transcripts from the same cloned insert. In other vectors, to achieve this the
insert would need to be cloned twice, once in each direction, a less efficient
and lower yield process.
Invitrogen is the exclusive worldwide licensee to all rights in all fields
to a patent granted to Sloan-Kettering Institute for Cancer Research for the
TOPO Cloning method.
ZERO BLUNT PCR CLONING KIT. When DNA fragments do not contain sticky
overhangs, which is termed as being blunt, they do not have exposed nucleotide
bases with which to form base pairs with a cloning vector. This makes
blunt-ended cloning a very inefficient process. Invitrogen has solved this
problem through the use of the lethal CCDB gene, or control of cell death, which
prevents colonies from growing unless they have successfully incorporated a DNA
fragment. Incorporation occurs in the middle of the lethal gene, so these clones
can grow because they have disrupted expression of the lethal gene. While the
actual cloning efficiency remains low, because the negative colonies cannot
grow, the effective efficiency is very high. The Zero Blunt PCR Cloning Kit
enables researchers to clone blunt-ended PCR products, which are generated by
thermostable polymerases like PFU. It contains a prepared cloning vector,
competent cells for transferring the vector into after the cloning reaction and
all required buffers.
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Using the Zero Blunt PCR Cloning Kit is much like using the TOPO TA Cloning
Kits. Researchers perform PCR as normal, add the PCR products to the prepared
cloning vector, wait five minutes, transform the competent bacteria, then plate
out the bacteria and wait overnight for colony growth. Because of the lethal
gene, nearly all colonies that grow contain an insert. DNA is then isolated from
the colonies to verify that the cloning was successful. The advantage of the
Zero Blunt PCR Cloning Kit is that it improves the effective cloning efficiency
of blunt-ended cloning and prevents researchers from having to use other, more
difficult techniques.
GENE EXPRESSION PRODUCTS
EXPRESSION VECTORS. Invitrogen provides researchers with an extensive
collection of gene expression vectors and complete expression systems, enabling
researchers to express genes in a variety of host organisms, as well as IN
VITRO. Because of their differing posttranslational modification
characteristics, different hosts produce a slightly different variant of the
same protein. By combining results obtained from experiments performed in
different hosts, researchers can slowly piece together how a gene's expression
is regulated and what functions its protein performs in the context of the
entire organism. The kit contains an expression vector, another expression
vector with a cloned reporter gene that serves as a positive control, a vial of
bacteria, complete protocols and the entire vector sequence.
Depending on their purpose, expression vectors can contain many different
elements, each of which provides a specific function. Various combinations of
the individual elements are used to create vectors with unique functions.
Invitrogen offers a broad line of expression vectors, providing researchers with
the ability to perform various types of experiments in different hosts to reach
a conclusion. In addition, several of Invitrogen's vectors contain elements that
are available exclusively from Invitrogen.
MAXBAC BACULOVIRUS EXPRESSION SYSTEM. This kit is a complete system that
provides researchers with all of the reagents needed to express protein in
insect cells using recombinant baculovirus. This includes expression vectors,
insect cell lines, baculovirus stocks, growth media, transfection reagents and
complete protocols.
Insect cells are chosen as a host organism because they produce high-levels
of protein and are simple and inexpensive to grow. Also, the posttranslational
modifications performed by insect cells are well understood and are similar to
those of mammalian cells. This enables researchers to study proteins using a
system that is similar to, but simpler and cheaper to use, than mammalian cells.
ECDYSONE-INDUCIBLE MAMMALIAN EXPRESSION SYSTEM. This system provides
tightly controlled, inducible expression in mammalian cells, allowing
researchers to study the effects of a particular protein by turning on and off
its expression whenever desired. The kits contain an expression vector, a
control vector, sequencing primers, a supply of Zeocin antibiotic, an inducing
agent and a complete protocol. The system utilizes a promoter that has an
extremely low basal level of expression until an inducing agent is added to the
media. Protein expression then increases over 200-fold.
The advantage of inducible expression is that it enables researchers to
study the effects of the expression of a particular protein. Most promoters used
in expression vectors cause protein to be expressed constitutively, or all the
time. Inducible promoters allow researchers to study the physiological effects
caused by the recombinant protein by turning expression on and off and observing
how the cells respond.
GENE ANALYSIS PRODUCTS
GENESTORM EXPRESSION-READY CLONES. Invitrogen has created a large
collection of cloned yeast and human genes with its high-throughput gene cloning
and expression technology. The entire yeast genome, over 6,000 genes, has been
cloned into both yeast and mammalian expression vectors. These vectors are then
tested for protein expression. Invitrogen is currently cloning human gene
families that
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are likely to be of importance in various disease states, like kinase genes
involved in cell signaling pathways. To date Invitrogen has assembled a
collection of over 2,300 full-length cloned human genes that express their
encoded proteins.
GeneStorm Clones enable researchers to purchase the exact gene they wish to
study and go directly to expression studies, bypassing the laborious procedures
required to clone and test the gene for expression. The genes are cloned into
the same high quality, multi-functional expression vectors sold to Invitrogen's
customers and used in Invitrogenomics research.
HYBRID HUNTER SYSTEMS. Molecular interaction is a technique used to
determine if various molecules are able to bind to, or interact with one
another. Because most cellular processes are mediated through pathways of many
proteins, determining if a given protein interacts with other proteins or
nucleic acid molecules is one of the keys to understanding its function.
Invitrogen offers products for determining both protein-protein and protein-RNA
interactions. These studies are performed in yeast because its cells are similar
to, but far simpler than, mammalian cells. The kits contain "bait" and "prey"
expression vectors, yeast strains, positive and negative control vectors,
sequencing primers, a supply of Zeocin antibiotic and complete protocols.
Molecular interaction systems work by using reporter genes that are
expressed only if an interaction occurs. The gene for the protein being studied
is cloned into a "bait" vector that also contains the reporter gene. A second
gene, or an entire library of genes, is cloned into a second vector, called a
"prey" vector. The prey vector contains a transcriptional activator. If the
proteins expressed from the bait and prey vectors interact with one another, the
transcriptional activator is brought into close proximity of the reporter gene.
This causes the reporter gene to express its protein. Cells that express the
reporter gene indicate that they contain a prey vector that is interacting with
the bait. The gene in the prey vector is then isolated and used for further
expression and molecular interaction studies.
With an estimated 100,000 genes in a human cell, each capable of producing
several different mRNA molecules and proteins due to differential splicing,
there are billions of potential nucleic acid and protein interactions. Designing
methods that are sensitive enough to detect actual interactions, yet that do not
signal false interactions, has challenged suppliers of gene analysis systems.
Because the study of each interaction is extremely time consuming, researchers
need assays which are highly sensitive yet extremely accurate, or they will
waste their time, money and efforts trying to study interactions that do not
actually exist. Invitrogen's Hybrid Hunter Systems have been designed using
technologies that help prevent the occurrence of false interactions.
SUPPORT PRODUCTS
ONE SHOT INVaF', TOP10F' and TOP10 Competent E. coli. Nearly all molecular
biology techniques, including gene cloning and gene expression, require that
researchers be able to propagate vector in E. COLI bacteria. Invitrogen sells
many different bacterial strains, each with different characteristics used by
researchers depending on the experiment to be performed. Invitrogen's best
selling bacteria are competent, meaning that they have been processed in a
manner that makes them able to bring vector in from outside their cell walls.
Placing a vector into bacteria is termed transformation. The most common
method to do this is to make cells chemically competent by growing them in a
series of buffers. After this procedure, competent cells can be frozen and
stored for later use. Competent cells can take up vector from outside their cell
walls. All that researchers need to do to transform competent bacteria is to
thaw them and combine the vector and the competent bacteria in a test tube.
Vectors usually contain an antibiotic resistance gene, so an antibiotic is then
used to kill the cells that did not take up vector.
Invitrogen's One Shot Competent E. COLI are sold ready-to-use and are
packaged in convenient, single-use aliquots. Researchers thaw the bacteria and
add vector directly to the tube, using the tube's
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entire contents. This prevents the researcher from having to aliquot competent
cells into tubes and refreezing the unused cells. Aliquoting and freeze-thaw
cycling greatly reduce the competency of bacteria, so this convenient packaging
not only saves time, it ensures better results. Because of this, One Shot
Competent E. COLI are included in all of Invitrogen's PCR Cloning Kits. The
popularity of One Shot products stems in great part from researchers first using
One Shot cells in Invitrogen's PCR Cloning Kits, then buying the One Shot
products separately for all of their transformation procedures.
ZEOCIN ANTIBIOTIC. This antibiotic quickly and completely kills mammalian,
yeast and bacterial cell lines. Researchers buy it to use for selection of the
many different expression vectors Invitrogen sells that contain the SH BLE
antibiotic resistance gene. Invitrogen also sells cassette vectors that enable
researchers to easily move the SH BLE gene into other vectors.
After transformation or transfection, which is transformation of
non-bacterial cells, researchers add Zeocin to the media to kill cells that have
not taken up vector with a SH BLE gene. The cells that grow are homogeneous in
that they all contain vector. Having a homogeneous population is important when
performing expression experiments because cells without vector will have
different characteristics than those that do, causing inaccurate results.
The Zeocin antibiotic offers researchers advantages over other antibiotics.
Its selection is relatively fast, enabling the researcher to begin expression
studies with a homogeneous, or stable, cell line sooner. Because the antibiotic
and the gene of interest may be causing physiological effects during selection,
it is advantageous for it to occur as quickly as possible. Secondly, Zeocin and
the SH BLE gene function in bacteria as well as yeast and mammalian cells. Most
antibiotics function in only one host type. This forces the construction of
vectors that contain one resistance gene for bacteria and another for the other
host, which increases the size of the vector. Increased vector size makes nearly
everything that is done with vectors (including propagation, cloning,
transformation and transfection) less efficient. Finally, Zeocin uses a
different mode of action than other commonly used antibiotics, like G418 and
hygromycin B. This enables researchers to select more than one vector at the
same time.
INVITROGENOMICS
Invitrogen has developed a high-throughput gene cloning and expression
technology by scaling up its proprietary TOPO TA Cloning technology. Invitrogen
believes this technology can provide significant opportunities to develop new
licenses, services and products, which it markets under the name
Invitrogenomics. Invitrogen plans to utilize its Invitrogenomics high-throughput
capabilities to rapidly clone and expression-test thousands of genes for
corporate customers in drug development and agriculture. To date, Invitrogen has
assembled a collection of over 2,300 full-length cloned human genes that express
their encoded proteins. Invitrogen will continue to develop a proprietary
library of full-length genes, which can be sold and licensed to corporate
partners for drug discovery and other commercial development activities.
Invitrogen intends to focus the Invitrogenomics activities and technology on
two important business opportunities. First, as genome sequencing efforts
accelerate, pharmaceutical, biotechnology and agricultural firms will wish to
analyze the large amounts of data to isolate relevant gene targets as quickly as
possible. To do so, these companies will need to conduct cloning and
expression-testing on a large scale. Invitrogenomics will use its
high-throughput technology and personnel to provide gene cloning and expression
services for corporate partners on a contract basis. Second, as Invitrogen
builds upon its library of patented cloned full-length genes and expression
vectors for use in drug and agricultural biotechnology discovery efforts, it
expects licensing and research kit revenue opportunities to increase.
Invitrogen's Invitrogenomics effort is currently staffed with 24 personnel,
primarily in research and development, manufacturing and marketing. Business
development activities are conducted primarily by the senior management of
Invitrogen.
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TECHNOLOGY AND PRODUCT DEVELOPMENT
Invitrogen is focusing its technology and product development on expanding
its existing product lines and developing innovative new products in areas where
it has expertise and has identified substantial unmet market needs. Invitrogen
seeks to introduce products that can be manufactured and marketed profitably by
continuing to develop products that are not regulated by government agencies
such as the Food and Drug Administration. In addition to Invitrogen's internal
technology and product development programs, it aggressively in-licenses and
acquires technology and intellectual property. Research institutions seeking to
license their technologies are attracted to Invitrogen's ability to package
innovations as convenient and cost-effective research kits and to rapidly
introduce those kits to the market. Invitrogen's employees also actively stay
abreast of industry developments to identify and acquire innovative technologies
from researchers and research institutions throughout the world.
Invitrogen spent $7.2 million, $4.4 million and $2.7 million on research and
development activities in 1998, 1997 and 1996, respectively. No material portion
of this investment in research and development was sponsored by Invitrogen's
customers.
SALES AND MARKETING
Invitrogen currently markets its products in over 30 countries throughout
the world. Invitrogen and its subsidiary, Invitrogen B.V., sell Invitrogen
products directly to customers in the United States, Canada, Germany, France,
the United Kingdom and 15 other countries throughout the world. In addition,
Invitrogen utilizes specialized distributors to market products in more than 13
other countries. For more information regarding foreign sales and revenues, see
Note 1 to Consolidated Financial Statements of Invitrogen's Audited Financial
Statements. As of May 31, 1999 Invitrogen employed 58 highly trained and skilled
people in its sales and marketing department worldwide to market Invitrogen's
products and provide customer support and service. Over 70% of the sales and
marketing staff have degrees in biological sciences and about 40% have advanced
degrees.
Invitrogen's sales strategy has been to employ scientists to work as its
technical sales representatives. Due to the highly technical nature of its
products, Invitrogen believes that scientists trained to work with customers are
far more valuable than salespeople trained to sell scientific products. Each
technical sales representative has an extensive background in molecular biology,
including time spent in the laboratory doing research prior to being hired by
the sales department. A thorough knowledge of molecular biological techniques
and an understanding of the research process allows Invitrogen's sales
representatives to become advisors, acting in a consultative role with their
customers. Invitrogen's use of technical sales representatives also enables it
to better identify unmet market needs and new technologies that it can license
and develop into new products.
Invitrogen's marketing departments in its U.S. and European headquarters
combine various types of media and methods to inform customers of new product
developments and enhancements to existing products. Invitrogen advertises in
prominent scientific journals, publishes a yearly catalog, a bi-monthly
newsletter and conducts direct mail campaigns to researchers in the U.S. and
Europe. Invitrogen also reaches a broad range of scientists by hosting an annual
symposium, presenting at scientific seminars and exhibiting at scientific
meetings. Invitrogen's website allows researchers to view an on-line catalog,
place orders, download all of its technical manuals and vector sequences, read
its newsletter and participate in interactive forums and discussion groups.
MANUFACTURING
Invitrogen's U.S. manufacturing facilities occupy approximately 15,000
square feet of its Carlsbad, California facility. Seven manufacturing cells are
responsible for the complete production, quality testing and process
improvements of Invitrogen's various product lines. The plant engineering
department supports the manufacturing department with equipment maintenance and
repair. The manufacturing
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processes include Quality Control testing of all products to ensure that every
product meets or exceeds its minimum specifications and Quality Assurance
testing of purchased materials that will be used in products.
TECHNOLOGY LICENSING
Many of Invitrogen's products are manufactured or sold under the terms of
license agreements which require it to pay royalties to the licensor based upon
a percentage of the sales of products containing the licensed materials or
technology. Although Invitrogen has increasingly emphasized its own research and
development in recent periods, Invitrogen believes its ability to in-license new
technologies from third parties is and will continue to be critical to its
ability to offer new products. Invitrogen's ability to compete as an innovator
in the development of molecular biology research products and services depends
in part on its ability to convince inventors that it can successfully bring
their new technologies to market. Invitrogen's significant licenses or
exclusivity rights expire at various times during the next fifteen years. These
licenses include:
TA CLONING. The patents on this cloning method were formerly co-owned by
Invitrogen and Molecular Biology Resources. Invitrogen had an exclusive license
from Molecular Biology Resources for cloning purposes. In June 1999 Invitrogen
purchased all of Molecular Biology Resources' rights in the TA Cloning patents
and is now the sole owner of those patents.
TOPO CLONING. This patented technology significantly accelerates gene
cloning and is an enhancement to Invitrogen's TA Cloning products, among others.
The technology was invented by Dr. Stewart Shuman working at the Sloan-Kettering
Institute for Cancer Research (SKI), which owns the patent. In 1997, Invitrogen
obtained exclusive worldwide rights to commercialize this technology for all
purposes for the life of the underlying patent. Invitrogen paid certain initial
fees to SKI, and continues to pay royalties on sales of products designed to use
this enhanced cloning method. These royalties depend in part on the type of
product sold and the level of annual sales. Invitrogen has also committed to
minimum yearly royalty payments to SKI. Sublicenses may be granted to third
parties upon approval by SKI with a portion of the sublicense income payable to
SKI. SKI retains rights to use and practice the technology for any purpose.
Additionally, Invitrogen has reimbursed SKI for costs of patent prosecution, and
has agreed to pay for future patent prosecution in exchange for the right to
prepare and control the ongoing patent applications.
ZEOCIN AND ZEOCIN RESISTANCE. In 1994, Invitrogen obtained from CAYLA of
Toulouse, France, exclusive worldwide rights to use a patented gene that confers
resistance to certain antibiotics including Zeocin. Invitrogen paid an up-front
fee to CAYLA, and pays royalties on sales of kits and vectors containing this
gene. Invitrogen also makes minimum royalty commitments to CAYLA, which grow at
a fixed rate from year to year, in exchange for exclusive rights. In addition,
Invitrogen has historically purchased the Zeocin and certain additional
antibiotics exclusively from CAYLA at a price set each year. Invitrogen has
agreed that its purchases will grow, in order to obtain most-favored pricing
terms.
ZERO BACKGROUND. Invitrogen licensed the CCDB or Zero Background gene, used
for selection of successful clones, from the Universite Libre de Bruxelles in
1995 for a ten year period, unless otherwise terminated under the provisions of
the license. This license grants Invitrogen exclusive rights to use this
patented "lethal gene" technology for commercial purposes in all fields
worldwide. Invitrogen paid an initial license fee and reimbursed certain patent
costs of the University and pays a royalty on sales of products containing the
lethal gene. In order to maintain the exclusive rights, Invitrogen pays minimum
royalties each year. Invitrogen is also responsible for reimbursing the
University's patent prosecution costs for this technology, up to a fixed cap.
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TAQ AND PCR. Probably the most pervasive and essential tool in molecular
biology today, the Polymerase Chain Reaction (PCR), enables researchers to
target and amplify, or copy in large numbers, certain portions of DNA. This
technique, and certain aspects of TAQ polymerase, which is an essential reagent
in PCR, are patented and now owned by F. Hoffmann-La Roche, Ltd. of Basel,
Switzerland. Invitrogen recently obtained a non-exclusive license to use TAQ
polymerase and PCR in Invitrogen's research efforts as well as non-exclusive
rights to make and sell TAQ to the research community for the life of patents
underlying the technology. Invitrogen paid an initial license fee for these
rights and also pays royalties, which are calculated using both sales of
TAQ-based products and the use or sale of TAQ. Invitrogen granted F. Hoffmann-La
Roche the right to negotiate for a license to make and sell any competing enzyme
Invitrogen may develop in the future. If F. Hoffmann-La Roche does not exercise
its right to negotiate the foregoing license, Invitrogen has agreed that F.
Hoffmann-La Roche shall nonetheless be entitled to a license to make, use and
sell any such competing enzyme of Invitrogen under the same terms and conditions
as the most favorable nonexclusive license granted by Invitrogen. Prior to
obtaining this license, Invitrogen purchased TAQ from authorized sources in
order to have the rights to use PCR for Invitrogen's research.
Royalties in 1998 related to the licenses described above were less than 10%
of the cost of revenues of Invitrogen in 1998. In 1998 the royalty amounts, and
in the case of the Zeocin, the combined royalty and purchase amounts, related to
the five licenses described above were approximately $309,000, $67,500,
$950,000, $38,000 and $8,800, respectively.
In addition to these licenses, Invitrogen maintains a portfolio of
exclusive, co-exclusive and non-exclusive rights to make, use and/or sell many
of the various technologies underlying its products and services. Depending upon
factors including the scope of rights granted, the usefulness and commercial
potential of the technology and whether the rights are exclusive, Invitrogen
provides various financial and other consideration to the patent holder or the
holder of senior license rights. Typically, Invitrogen's other licenses include
an initial license fee and continuing royalties. Some licenses also include
payments at certain milestones, e.g., at the first commercial sale of a product.
Many licenses, especially exclusive licenses, call for certain minimum royalty
payments each year. A license will often contain other undertakings by us, such
as a commitment to diligently pursue development and marketing of commercial
products utilizing the licensed technology.
There can be no assurance that Invitrogen will be able to continue to
successfully identify new technologies developed by others. Even if it is able
to identify new technologies of interest, it may not be able to negotiate a
license on favorable terms, or at all. Some of Invitrogen's licenses do not run
for the length of the patent. Invitrogen may not be able to renew its existing
licenses on favorable terms, or at all. If Invitrogen loses the rights to
patented technology, it may need to discontinue selling certain of its products,
redesign its products or may lose a competitive advantage. Potential competitors
could in-license technologies that it fails to license and potentially erode
Invitrogen's market share for certain products.
Invitrogen's licenses typically subject it to various commercialization,
sublicensing and other obligations. If it fails to comply with these
requirements it could lose important rights under a license, such as the right
to exclusivity in a certain market. In some cases, Invitrogen could also lose
all rights under a license. In addition, certain rights granted under the
license could be lost for reasons out of Invitrogen's control. For example, the
licensor could lose patent protection for a number of reasons, including
invalidity of the licensed patent. Invitrogen does not receive significant
indemnification from a licensor against third party claims of intellectual
property infringement.
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PATENTS AND PROPRIETARY TECHNOLOGIES
Invitrogen considers the protection of its proprietary technologies and
products for molecular and cellular biology research to be important to the
success of its business. Invitrogen relies on a combination of patents, licenses
and trademarks to establish and protect its proprietary rights to its
technologies and products. Invitrogen currently owns two issued patents in the
United States and four issued patents in other major industrialized nations, and
owns or controls over 15 other issued and pending patents. Generally, U.S.
patents have a term of 17 years from the date of issue for patents issued from
applications submitted prior to June 8, 1995 and 20 years from the date of
filing of the application in the case of patents issued from applications
submitted on or after June 8, 1995. Patents in most other countries have a term
of 20 years from the date of filing the patent application. Invitrogen's two
issued United States patents will expire in 2013 and its four foreign patents
will expire in 2011.
Invitrogen's success depends to a significant degree upon its ability to
develop proprietary products and technologies. It is critically important to
Invitrogen's success that it adequately protect the intellectual property
associated with these products and technologies. Invitrogen intends to continue
to file patent applications as it develops new products and technologies.
Patents provide some degree of protection for Invitrogen's intellectual
property. However, the assertion of patent protection involves complex legal and
factual determinations and is therefore uncertain. In addition, the laws
governing the scope of patent coverage and the periods of enforceability of
patent protection continue to evolve, particularly in the areas of molecular
biology of interest to Invitrogen.
Patent applications in the United States are maintained in secrecy until
patents issue. Also, publication of discoveries in the scientific or patent
literature tend to lag behind actual discoveries by at least several months. As
a result, there can be no assurance that patents will issue from any of
Invitrogen's patent applications or from applications licensed to Invitrogen.
The scope of any of Invitrogen's issued patents may not be sufficiently broad to
offer meaningful protection. In addition, Invitrogen's issued patents or patents
licensed to it could be successfully challenged, invalidated or circumvented so
that its patent rights would not create an effective competitive barrier.
Invitrogen's intellectual property positions involve complex legal factual
questions and may be uncertain.
Invitrogen relies in part on trade secret protection of its intellectual
property. It attempts to protect its trade secrets by entering into
confidentiality agreements with third parties, employees and consultants.
Employees and consultants also sign agreements to assign to Invitrogen their
interests in patents and copyrights arising from their work for Invitrogen.
Employees also agree not to compete unfairly with Invitrogen after their
employment by using confidential information, soliciting employees or soliciting
customers. However, these agreements can be breached and, if they were, there
may not be an adequate remedy available to Invitrogen. Also, a third party may
learn Invitrogen's trade secrets through means other than by breach of its
confidentiality agreements, or they could be independently developed by
Invitrogen's competitors.
COMPETITION
The markets for Invitrogen's products are very competitive. Invitrogen
expects the intensity of competition to increase. Currently, Invitrogen competes
primarily with other life sciences research products suppliers. Many of
Invitrogen's competitors have greater financial, operational, sales and
marketing resources, and more experience in research and development than
Invitrogen. These competitors and other companies may have developed or could in
the future develop new technologies that compete with Invitrogen's products or
which could render Invitrogen's products obsolete.
Competitors offer a broad range of equipment, laboratory supplies and other
products, including research products that compete with Invitrogen. Invitrogen
believes that customers in its markets display a significant amount of loyalty
to their initial supplier of a particular product. Therefore, Invitrogen may
experience difficulties in generating sales to customers who initially purchased
products
75
<PAGE>
from competitors. Similarly, Invitrogen believes that there is a significant
competitive advantage in being the first to introduce a new product to market.
Accordingly, Invitrogen believes that to compete effectively, it will need to
consistently be first to market with important new research products and
services. To the extent that Invitrogen is unable to be the first to develop and
supply new products, its competitive position will suffer. See "Risk
Factors--Competition in the Life Sciences Research Market."
GOVERNMENT REGULATION
Invitrogen is not subject to direct governmental regulation other than the
laws and regulations generally applicable to businesses in the jurisdictions in
which it operates, including those governing the handling and disposal of
hazardous wastes and other environmental matters. Invitrogen's research and
development activities involve the controlled use of small amounts of hazardous
materials, chemicals and radioactive compounds. Although Invitrogen believes
that its safety procedures for handling and disposing of such materials comply
with applicable regulations, the risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of such an
accident, Invitrogen could be held liable for resulting damages; such liability
could have a material adverse effect on Invitrogen. However, Invitrogen does not
expect that compliance with the governmental regulations to which it is subject
will have a material effect on its capital expenditures, earnings or competitive
position.
EMPLOYEES
As of May 31, 1999, Invitrogen employed 218 persons, of whom 38 hold Ph.D.
or M.D. degrees and 23 hold other advanced degrees. Approximately 62 employees
are engaged in research and development, 58 in sales and marketing, 65 in
manufacturing and 33 in supporting corporate development, intellectual property,
finance and other administrative functions.
Invitrogen's success will depend in large part upon its ability to attract
and retain employees. Invitrogen faces competition in this regard from other
companies, research and academic institutions, government entities and other
organizations. Invitrogen believes that it maintains good relations with its
employees.
FACILITIES
Invitrogen leases an approximately 60,000 square foot facility in Carlsbad,
California for its headquarters, as well as the base for marketing and product
support operations, research and development and manufacturing activities. Under
the terms of the lease, Invitrogen presently pays rent of approximately $40,000
per month with predetermined cost-of-living rent increases at annual intervals.
The lease expires in February 2007. Invitrogen believes that adequate facilities
will be available upon the conclusion of its lease. Invitrogen also owns an
approximately 17,000 square foot facility in the Netherlands to support sales
and distribution in Europe.
LEGAL PROCEEDINGS
From time to time Invitrogen has been and expects to be involved in legal
proceedings arising from Invitrogen's ordinary business operations. None of the
proceedings that are currently pending are expected to have a material adverse
effect on Invitrogen or Invitrogen's business operations.
76
<PAGE>
INVITROGEN UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined balance sheet as of
March 31, 1999, illustrates the effect of the merger as if it had occurred on
March 31, 1999. The following unaudited pro forma combined statements of income
for the quarters ended March 31, 1999 and 1998 and for the three years ended
December 31, 1998, illustrate the effect of the merger as if it had occurred on
January 1, 1996. There were no material differences between the accounting
policies of Invitrogen and NOVEX and, therefore, no adjustments have been made
to the pro forma financial statements. For an explanation of the periods
combined of NOVEX with Invitrogen, see Note 1 of the Notes to Unaudited Proforma
Combined Financial Statements. The pro forma combined financial statements are
presented for comparative purposes only and are not necessarily indicative of
the combined financial position or results of operations of future periods or
the results that actually would have been realized had Invitrogen and NOVEX been
a single entity during the periods presented.
Pursuant to the terms of the merger, each share of NOVEX common stock will
be converted into the right to receive a portion of a share of Invitrogen common
stock equal to the exchange ratio. The pro forma combined financial statements
have been derived from the respective historical audited consolidated financial
statements of Invitrogen and NOVEX and should be read in conjunction with such
financial statements and the notes thereto that are incorporated herein by
reference.
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<PAGE>
INVITROGEN CORPORATION AND NOVEX
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1999
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
INVITROGEN NOVEX ADJUSTMENTS COMBINED
---------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............. $35,583 $ 306 $ -- $35,889
Short-term investments................ 3,421 -- -- 3,421
Accounts and notes receivable......... 4,349 3,339 (3)(2) 7,685
Inventories........................... 2,685 2,563 -- 5,248
Deferred income taxes................. 575 201 -- 776
Prepaid expenses and other current
assets.............................. 1,599 105 -- 1,704
---------- ---------- ------------- ---------
Total current assets................ 48,212 6,514 (3) 54,723
Property and equipment, net............. 7,044 2,599 -- 9,643
Intangible assets, net.................. 1,545 435 -- 1,980
Other assets............................ 176 131 -- 307
---------- ---------- ------------- ---------
Total Assets............................ $56,977 $9,679 $ (3) $66,653
---------- ---------- ------------- ---------
---------- ---------- ------------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank................. $ -- $ 522 $ -- $ 522
Current portion of long-term
obligations......................... 42 910 -- 952
Accounts payable...................... 2,224 1,341 (3)(2) 3,562
Accrued expenses...................... 1,357 1,150 -- 2,507
Income taxes payable.................. 1,052 185 -- 1,237
---------- ---------- ------------- ---------
Total current liabilities........... 4,675 4,108 (3) 8,780
---------- ---------- ------------- ---------
Obligations under capital leases, less
current portion....................... 74 -- -- 74
Deferred rent........................... -- 52 -- 52
Long-term debt, less current
maturities............................ -- 975 -- 975
Non-voting redeemable common stock of
Invitrogen B.V........................ 1,526 -- -- 1,526
Redeemable convertible preferred
stock................................. -- 2,900 (2,900)(3) --
Stockholders' Equity:
Common stock, par value............... 132 567 (542)(3) 157
Other stockholders' equity............ 50,570 1,077 3,442(3) 55,089
---------- ---------- ------------- ---------
Total stockholders' equity.............. 50,702 1,644 2,900 55,246
---------- ---------- ------------- ---------
Total Liabilities and Stockholders'
Equity................................ $56,977 $9,679 $ (3) $66,653
---------- ---------- ------------- ---------
---------- ---------- ------------- ---------
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
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<PAGE>
INVITROGEN CORPORATION AND NOVEX
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
QUARTER ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
INVITROGEN NOVEX ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues................................ $9,601 $6,961 $(12)(2) $16,550
Cost of revenues........................ 2,540 3,318 (3)(2) 5,855
---------- ---------- ----- ---------
Gross Margin........................ 7,061 3,643 (9) 10,695
Operating Expenses:
Sales and marketing................... 1,973 1,512 -- 3,485
General and administrative............ 1,286 847 -- 2,133
Research and development.............. 1,908 475 (9)(2) 2,374
---------- ---------- ----- ---------
Total operating expenses............ 5,167 2,834 (9) 7,992
---------- ---------- ----- ---------
Income from operations............ 1,894 809 -- 2,703
Other Income (Expense):
Gain (loss) on foreign currency
transactions........................ (57) (4) -- (61)
Interest and other expense............ (8) (76) -- (84)
Interest and other income............. 195 1 -- 196
---------- ---------- ----- ---------
Income before provision for income
taxes........................... 2,024 730 -- 2,754
Provision for income taxes.............. 712 276 -- 988
---------- ---------- ----- ---------
Net income............................ 1,312 454 -- 1,766
Less: Preferred stock dividends
accrued............................. (163) (155) 155(3) (163)
----- ---------
Accretion of non-voting
redeemable common stock........ (56) -- -- (56)
Adjustment to beneficial
conversion feature related to
convertible preferred stock.... 985 -- -- 985
---------- ---------- ----- ---------
Income available to common
stockholders........................ $2,078 $ 299 $155 $ 2,532
---------- ---------- ----- ---------
---------- ---------- ----- ---------
Earnings per share:
Basic................................. $ 0.19 $ 0.04 $ 0.19
---------- ---------- ---------
---------- ---------- ---------
Diluted............................... $ 0.16 $ 0.04 $ 0.16
---------- ---------- ---------
---------- ---------- ---------
Weighted average shares used in per
share calculation:
Basic................................. 10,900 6,701 13,424(3)
Diluted............................... 12,865 11,415 15,508(3)
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
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<PAGE>
INVITROGEN CORPORATION AND NOVEX
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
QUARTER ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
INVITROGEN NOVEX ADJUSTMENTS COMBINED
---------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
Revenues................................ $7,154 $4,677 $ (18)(2) $11,813
Cost of revenues........................ 1,901 2,174 (5)(2) 4,070
---------- ---------- ------------- ---------
Gross Margin........................ 5,253 2,503 (13) 7,743
Operating Expenses:
Sales and marketing................... 1,618 1,009 -- 2,627
General and administrative............ 1,116 904 -- 2,020
Research and development.............. 1,455 412 (13)(2) 1,854
---------- ---------- ------------- ---------
Total operating expenses............ 4,189 2,325 (13) 6,501
---------- ---------- ------------- ---------
Income from operations............ 1,064 178 -- 1,242
Other Income (Expense):
Gain (loss) on foreign currency
transactions........................ 55 (5) -- 50
Interest expense...................... (10) (42) -- (52)
Interest and other income............. 121 -- -- 121
---------- ---------- ------------- ---------
Income before provision for income
taxes........................... 1,230 131 -- 1,361
Provision for income taxes.............. 439 50 -- 489
---------- ---------- ------------- ---------
Net income............................ 791 81 -- 872
Less: Preferred stock dividends
accrued............................. (225) -- -- (225)
Accretion of non-voting
redeemable common stock........ (48) -- -- (48)
---------- ---------- ------------- ---------
Income available to common
stockholders........................ $ 518 $ 81 $ -- $ 599
---------- ---------- ------------- ---------
---------- ---------- ------------- ---------
Earnings per share:
Basic................................. $ 0.05 $ 0.01 $ 0.05
---------- ---------- ---------
---------- ---------- ---------
Diluted............................... $ 0.05 $ 0.01 $ 0.04
---------- ---------- ---------
---------- ---------- ---------
Weighted average shares used in per
share calculation:
Basic................................. 9,630 6,687 12,150(3)
Diluted............................... 10,919 10,985 13,463(3)
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
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<PAGE>
INVITROGEN CORPORATION AND NOVEX
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
INVITROGEN NOVEX ADJUSTMENTS COMBINED
---------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Revenues................................ $31,414 $24,478 $(52)(2) $55,840
Cost of revenues........................ 8,642 11,941 (13)(2) 20,570
---------- ---------- ----- ---------
Gross Margin........................ 22,772 12,537 (39) 35,270
Operating Expenses:
Sales and marketing................... 6,976 5,166 -- 12,142
General and administrative............ 4,428 3,604 -- 8,032
Research and development.............. 7,209 1,555 (39)(2) 8,725
---------- ---------- ----- ---------
Total operating expenses............ 18,613 10,325 (39) 28,899
---------- ---------- ----- ---------
Income from operations............ 4,159 2,212 -- 6,371
Other Income (Expense):
Gain (loss) on foreign currency
transactions........................ 61 (36) -- 25
Interest and other expense............ (35) (212) -- (247)
Interest and other income............. 431 4 -- 435
---------- ---------- ----- ---------
Income before provision for income
taxes........................... 4,616 1,968 -- 6,584
Provision for income taxes.............. 1,638 744 -- 2,382
---------- ---------- ----- ---------
Net income............................ 2,978 1,224 -- 4,202
Less: Preferred stock dividends
accrued............................. (900) (155) 155(3) (900)
Accretion of non-voting
redeemable common stock........ (204) -- -- (204)
---------- ---------- ----- ---------
Income available to common
stockholders........................ $ 1,874 $ 1,069 $155 $ 3,098
---------- ---------- ----- ---------
---------- ---------- ----- ---------
Earnings per share:
Basic................................. $ 0.19 $ 0.16 $ 0.26
---------- ---------- ---------
---------- ---------- ---------
Diluted............................... $ 0.17 $ 0.11 $ 0.22
---------- ---------- ---------
---------- ---------- ---------
Weighted average shares used in per
share calculation:
Basic................................. 9,626 6,692 12,149(3)
Diluted............................... 11,208 11,306 13,826(3)
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
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<PAGE>
INVITROGEN CORPORATION AND NOVEX
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
INVITROGEN NOVEX ADJUSTMENTS COMBINED
---------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Revenues................................ $ 24,965 $17,133 $(26)(2) $ 42,072
Cost of revenues........................ 7,989 8,189 (8)(2) 16,170
---------- ---------- ----- ---------
Gross Margin........................ 16,976 8,944 (18) 25,902
Operating Expenses:
Sales and marketing................... 4,959 3,260 -- 8,219
General and administrative............ 3,932 3,469 -- 7,401
Research and development.............. 4,416 1,500 (18)(2) 5,898
---------- ---------- ----- ---------
Total operating expenses............ 13,307 8,229 (18) 21,518
---------- ---------- ----- ---------
Income from operations............ 3,669 715 -- 4,384
Other Income (Expense):
Gain (loss) on foreign currency
transactions........................ 145 (5) -- 140
Interest and other expense............ (88) (195) -- (283)
Interest and other income............. 211 6 -- 217
---------- ---------- ----- ---------
Income before provision for income
taxes........................... 3,937 521 -- 4,458
Provision for income taxes.............. 1,413 202 -- 1,615
---------- ---------- ----- ---------
Net income............................ 2,524 319 -- 2,843
Less: Preferred stock dividends
accrued............................. (475) (155) 155(3) (475)
Accretion of non-voting
redeemable common stock........ (175) -- -- (175)
Accretion of beneficial
conversion feature related to
convertible preferred stock.... (15,000) -- -- (15,000)
---------- ---------- ----- ---------
Net income (loss) applicable to common
shares.............................. $ (13,126) $ 164 $155 $(12,807)
---------- ---------- ----- ---------
---------- ---------- ----- ---------
Earnings per share:
Basic................................. $ (1.47) $ 0.02 $ (1.12)
---------- ---------- ---------
---------- ---------- ---------
Diluted............................... $ (1.47) $ 0.02 $ (1.12)
---------- ---------- ---------
---------- ---------- ---------
Weighted average shares used in per
share calculation:
Basic................................. 8,939 6,678 11,457(3)
Diluted............................... 8,939 6,776 11,457(3)
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
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<PAGE>
INVITROGEN CORPORATION AND NOVEX
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
INVITROGEN NOVEX ADJUSTMENTS COMBINED
---------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Revenues................................ $19,121 $14,154 $(13)(2) $33,262
Cost of revenues........................ 5,818 6,385 (4)(2) 12,199
---------- ---------- ----- ---------
Gross Margin........................ 13,303 7,769 (9) 21,063
Operating Expenses:
Sales and marketing................... 4,236 2,683 -- 6,919
General and administrative............ 3,880 2,660 -- 6,540
Research and development.............. 2,659 1,293 (9)(2) 3,943
---------- ---------- ----- ---------
Total operating expenses............ 10,775 6,636 (9) 17,402
---------- ---------- ----- ---------
Income from operations............ 2,528 1,133 -- 3,661
Other Income (Expense):
Gain (loss) on foreign currency
transactions........................ 172 -- -- 172
Interest and other expense............ (87) (124) -- (211)
Interest and other income............. 70 6 -- 76
---------- ---------- ----- ---------
Income before provision for income
taxes........................... 2,683 1,015 -- 3,698
Provision for income taxes.............. 939 459 -- 1,398
---------- ---------- ----- ---------
Net income............................ 1,744 556 -- 2,300
Less: Preferred stock dividends
accrued............................. -- (32) 32(3) --
Accretion of non-voting
redeemable common stock........ (171) -- -- (171)
---------- ---------- ----- ---------
Income available to common
stockholders........................ $ 1,573 $ 524 $ 32 $ 2,129
---------- ---------- ----- ---------
---------- ---------- ----- ---------
Earnings per share:
Basic................................. $ 0.19 $ 0.08 $ 0.20
---------- ---------- ---------
---------- ---------- ---------
Diluted............................... $ 0.16 $ 0.05 $ 0.17
---------- ---------- ---------
---------- ---------- ---------
Weighted average shares used in per
share calculation:
Basic................................. 8,356 6,522 10,839(3)
Diluted............................... 10,080 10,722 12,562(3)
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
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<PAGE>
INVITROGEN CORPORATION AND NOVEX
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The Merger will be accounted for as a pooling of interests. Under this
method of accounting the unaudited pro forma combined statements of income
combine the historical statements of income for Invitrogen for the three years
ended December 31, 1998 with the historical statements of income for NOVEX for
the three years ended March 31, 1999. The quarterly statements of income pro
forma presentation for March 31, 1999 combines the historical statements of
income for Invitrogen and NOVEX for the quarter ended March 31, 1999. The
presentation for March 31, 1998 combines the historical statement of income for
Invitrogen for the quarter ended March 31, 1998 with the historical statement of
income for NOVEX for the quarter ended June 30, 1998. Revenues and net income
for NOVEX for the quarter ended March 31, 1999 were $7.0 million and $0.5
million respectively, and have been included in both the pro forma statements of
income for the year ended December 31, 1999 and for the quarter ended March 31,
1999. All unaudited pro forma combined income statements assume consummation of
the Merger on January 1, 1996.
The unaudited pro forma combined balance sheet combines the historical
balance sheets of Invitrogen and NOVEX at March 31, 1999 and assumes
consummation of the Merger on March 31, 1999.
2. INTERCOMPANY TRANSACTIONS
All significant intercompany sales and balances have been eliminated in the
combination.
3. MERGER TRANSACTION
The unaudited pro forma combined financial statements reflects the
conversion of NOVEX redeemable convertible preferred stock into NOVEX common
stock and the subsequent issuance of 2.5 million shares of Invitrogen common
stock for all of the outstanding common stock of NOVEX at an exchange ratio of
0.23154. The unaudited pro forma combined net income (loss) per share also
reflects the assumption of all NOVEX stock options outstanding by Invitrogen at
the same exchange ratio.
4. MERGER COSTS
Costs incurred as a result of the Merger are expected to be $2,775,000 and
are subject to change. These costs will be expensed after the Merger is
completed. The unaudited pro forma combined financial statements exclude
material expenses related to the Merger as they are nonrecurring in nature.
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<PAGE>
INVITROGEN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Invitrogen is engaged primarily in the development, manufacturing and
marketing of research kits used to conduct molecular biology research.
Substantially all of our revenue to date has come from the sale of research kits
and related products used by a variety of scientific researchers to conduct gene
cloning, expression and analysis experiments. Our research kits are sold
primarily in the United States, Europe and Japan. Our products are used for
research purposes and their use is not regulated by the United States Food and
Drug Administration or by any comparable international organization.
We manufacture the majority of our research kits in our manufacturing
facility in Carlsbad, California. In addition, we maintain selected arrangements
with third party manufacturers.
The majority of our sales activities are conducted through a dedicated
direct sales organization located in the United States and Europe. We also
conduct marketing and distribution activities at our facility in the United
States and at a facility we own in the Netherlands. A small proportion of our
sales are to international distributors who resell Invitrogen kits to
researchers. These distributors are located in selected territories in Europe,
as well as in Japan and other territories in Asia. We currently have no plans to
establish a direct sales force in these territories, although we may choose in
the future to establish a direct sales organization in additional territories.
We conduct research activities in the United States and business development
activities in the United States and Europe. As part of these activities we
actively seek to license intellectual property from academic, government and
commercial institutions relating to gene cloning, expression and analysis
technologies. To date, Invitrogen has obtained over 80 licenses, which provide
us with access to over 200 patents covering gene cloning, expression and
analysis materials and techniques.
In June 1998, we began using our high-throughput cloning and expression
technologies, which we market under the name Invitrogenomics. We will provide
licenses to our full-length clones to corporate development partners, as well as
sell selected clones as part of new research kits. In addition, we will use our
Invitrogenomics technology to provide large-scale, high-throughput gene cloning
and expression services to corporate customers. Invitrogenomics products and
services have generated limited revenues to date.
Our revenues have increased significantly since our inception, and from 1995
to 1998, Invitrogen has experienced compound annual revenue growth of 28%. The
increase in our revenues has been due to several factors, including the
continued growth of the market for gene cloning and expression kits, increasing
market acceptance of our gene cloning and expression kits, our introduction of
new research kits for gene cloning, expression and analysis, and the expansion
of our direct sales and marketing efforts. We plan to continue to introduce new
research kits, as we believe continued new product development and rapid product
introduction is a critical competitive factor in the market for molecular
biology research kits. In order to support increased levels of sales and to
augment our long-term competitive position, we anticipate that we will continue
to increase expenditures in sales and marketing, manufacturing and research and
development.
We currently manufacture products for inventory and ship products shortly
after the receipt of orders, and anticipate that we will do so in the future.
Accordingly, we have not developed a significant backlog and do not anticipate
we will develop a material backlog in the future.
Invitrogen has acquired a significant number of patent rights from third
parties as part of its business activities. These patent rights are used as a
basis for the development of our research kits and the Invitrogenomics
technologies. We have historically paid and are obligated to pay in the future
to
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<PAGE>
such third parties royalties relating to sales of some of our research kits and
selected services. Royalty expense is recognized as a cost of revenue as the
related royalties are incurred.
We anticipate that our results of operations may fluctuate from quarter to
quarter and will be difficult to predict. The timing and degree of fluctuation
will depend upon several factors, including:
- Changes in customer research budgets which are influenced by the timing of
their research and commercialization efforts and their receipt of
government grants;
- Competitive product introductions;
- Our ability to successfully introduce or transition the market to new
products;
- Market acceptance of existing or new products;
- Our ability to manufacture our products efficiently; and
- Our ability to control or adjust research and development, marketing,
sales and general and administrative expenses in response to changes in
revenues.
In addition, our results of operations could be affected by the timing of
orders from distributors and the mix of sales among distributors and our direct
sales force. Although we have experienced growth in recent years, there can be
no assurance that, in the future, we will sustain revenue growth or remain
profitable on a quarterly or annual basis or that our growth will be consistent
with predictions made by securities analysts. Additionally, quarter to quarter
comparisons of operating results are not necessarily indicative of future
results.
RESULTS OF OPERATIONS
QUARTERS ENDED MARCH 31, 1999 AND 1998
REVENUE. Revenue increased $2.4 million, or 34%, from $7.2 million for the
quarter ended March 31, 1998 to $9.6 million for the same period in 1999. For
these same periods, revenues in the United States increased $1.7 million, or
36%, from $4.5 million to $6.2 million, and revenues outside the United States
increased $.8 million, or 30%, from $2.6 million to $3.4 million. The overall
increase in revenue was primarily attributable to continued market growth for
gene cloning and expression kits and increased market penetration of
Invitrogen's gene cloning and gene expression product lines. We expect that
future revenues will be affected by new product introductions, competitive
conditions, customer research budgets, and the rate of expansion of our customer
base.
GROSS MARGIN. Gross margins remained relatively unchanged at 73% for the
first quarter in 1999 as product mix and geographic sales mix were consistent
with 1998. We believe that gross margin for future periods could be affected by
sale volumes, competitive conditions, royalty payments on licensed technologies,
and foreign exchange factors. Foreign currency fluctuations had a negligible
impact during both periods. The functional currency of Invitrogen B.V. is the
Netherlands Guilder (NLG). The translation from Guilders to Dollars for revenue
and expenses is based on the average exchange rate during the period; large
increases or decreases in the spread between currencies have affected and may
continue to affect gross margin and reported income. Invitrogen B.V. conducts
its European business in the currencies of its significant customers. Exchange
gains or losses arising from transactions denominated in these currencies are
recorded using the actual exchange differences on the date of the transaction.
Large increases or decreases in these currency fluctuations could also impact
gross margin and reported profits.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 31%
from $1.5 million for the first quarter of 1998 to $1.9 million in 1999. As a
percentage of revenues, research and development expenses remained the same at
20% for these periods. We believe that our research and development expenditures
as a percentage of revenues will gradually decline throughout 1999.
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<PAGE>
There can be no assurance that our research and development efforts will
produce products or services that achieve market acceptance or that produce
acceptable margins.
SALES AND MARKETING. Sales and marketing expenses increased 22% from $1.6
million for the first quarter in 1998 to $2.0 million in 1999. As a percentage
of revenues, sales and marketing expenses decreased from 23% to 21% for these
periods as our revenue growth continues to outpace our spending for sales and
marketing. We anticipate that sales and marketing will continue to comprise 22%
to 23% of revenues in future quarters as we continue the expansion of our field
sales force in both the United States and Europe in 1999.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
15% from $1.1 million for the first quarter in 1998 to $1.3 million in 1999. As
a percentage of revenues, general and administrative expenses decreased from 16%
to 13% for these periods. The absolute increase resulted from the continued
expansion of administrative resources to support our growth and needs as a newly
public company. The decline as a percentage of revenues occurred as a fixed
portion of our general and administrative expenses was spread over a larger
revenue base. We expect our aggregate general and administrative expenses for
the remainder of 1999 to be consistent with that of the first quarter of 1999.
OTHER INCOME (EXPENSE). Other income and expense, on a net basis, decreased
slightly for the first quarter in 1999 from 1998. The $0.1 million increase in
interest and other income, resulting primarily from the larger balances of cash
and investments during the period, was offset by $0.1 million in net foreign
currency exchange losses.
PROVISION FOR INCOME TAXES. Our effective tax rate decreased slightly from
36% for the first quarter in 1998 to 35% in 1999. We currently receive tax
credits on certain R&D expenditures; in the past, these tax credits have been
authorized by the U.S. Congress on a year by year basis and we have no assurance
they will be available in future years. Assuming that the U.S. Congress renews
the R&D tax credit legislation, we anticipate that our effective rate for 1999
will be approximately 35%.
YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUE. Revenue increased $6.4 million, or 26%, from $25.0 million in 1997
to $31.4 million in 1998. For these same periods, revenues in the United States
increased $3.9 million, or 24%, from $16.4 million to $20.3 million, and revenue
outside the United States increased $2.5 million, or 30%, from $8.5 million to
$11.1 million. The overall increase in revenue was primarily attributable to
continued market growth for gene cloning and expression kits and increased
market penetration of Invitrogen's gene cloning and gene expression product
lines. In addition, in 1998 Invitrogen's new products contributed approximately
$2.5 million in revenue. Invitrogen expects that future revenues will be
affected by new product introductions, competitive conditions, customer research
budgets, and the rate of expansion of Invitrogen's customer base.
GROSS MARGIN. Invitrogen's gross margin increased from $17.0 million in
1997 to $22.8 million in 1998. Gross margin as a percentage of revenues
increased from 68% to 72% for these periods. Gross margin improvements during
the period were primarily a result of absorbing certain manufacturing labor and
overhead costs over an increased revenue base. Invitrogen believes that gross
margin for future periods will be affected by sale volumes, competitive
conditions, royalty payments on licensed technologies, and foreign exchange
factors. Foreign currency fluctuations had a negligible impact during both
periods. The functional currency of Invitrogen B.V. is the Netherlands Guilder
(NLG). The translation from Guilders to Dollars for revenue and expenses is
based on the average exchange rate during the period; large increases or
decreases in the spread between currencies have affected and may continue to
affect gross margin and reported income. Invitrogen B.V. conducts its European
business in
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the currencies of its significant customers. Exchange gains or losses arising
from transactions denominated in these currencies are recorded using the actual
exchange differences on the date of the transaction. Large increases or
decreases in these currency fluctuations could also impact gross margin and
reported profits.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 63%
from $4.4 million in 1997 to $7.2 million in 1998. As a percentage of revenues,
research and development expenses increased from 18% to 23% for these periods.
The increases resulted primarily from the development of Invitrogen's
high-throughput gene cloning and expression technology and greater personnel and
research supplies expense as we continue to expand Invitrogen's gene cloning,
expression, analysis and related products. Invitrogen believes that its research
and development expenditures as a percentage of revenues will generally decline
toward historical levels. There can be no assurance that Invitrogen's research
and development efforts will produce products or services that achieve market
acceptance or that produce acceptable margins.
SALES AND MARKETING. Sales and marketing expenses increased 41% from $5.0
million in 1997 to $7.0 million in 1998. As a percentage of revenues, sales and
marketing expenses increased from 20% to 22% for these periods. These increases
resulted from the growth of Invitrogen's field sales force in the United States
and Europe. Invitrogen expects to continue the expansion of its field sales
force in both the United States and Europe.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
13% from $3.9 million in 1997 to $4.4 million in 1998. As a percentage of
revenues, general and administrative expenses decreased from 16% to 14% for
these periods. The absolute increase resulted from the continued expansion of
administrative resources to support Invitrogen's growth. The decline as a
percentage of revenues occurred as a fixed portion of Invitrogen's general and
administrative expenses was spread over a larger revenue base. Invitrogen
expects its aggregate general and administrative expenses to increase in 1999
due to the additional expenses associated with being a public company.
OTHER INCOME (EXPENSE). Other income, principally earned interest,
increased $0.2 million, from $0.3 million in 1997, to $0.5 million in 1998. This
increase resulted primarily from the larger average balances of cash and cash
equivalents during the later period.
PROVISION FOR INCOME TAXES. Invitrogen's effective tax rate decreased
slightly from 36% in 1997 to 35% in 1998. Invitrogen currently receives tax
credits on certain R&D expenditures; in the past, these tax credits have been
authorized by the U.S. Congress on a year by year basis and Invitrogen has no
assurance they will be available in future years.
YEARS ENDED DECEMBER 31, 1997 AND 1996
REVENUES. Revenue increased $5.8 million, or 31%, from $19.1 million in
1996 to $25.0 million in 1997. Revenues in the United States increased $3.5
million, or 27%, from $12.9 million to $16.4 million, and revenue from outside
the United States increased $2.4 million, or 37%, from $6.2 million to $8.5
million. The overall increase in revenue was primarily attributable to increased
market penetration of Invitrogen's gene cloning and gene expression product
lines. In addition, in 1997 Invitrogen's new products contributed $2.1 million
in revenue.
GROSS MARGIN. Invitrogen's gross margin increased from $13.3 million in
1996 to $17.0 million in 1997. Gross margin as a percentage of revenues
decreased from 70% to 68% for these periods, primarily as a result of foreign
exchange impact on revenues and to a lesser extent increased royalty payments on
licensed technologies.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 66%
from $2.7 million in 1996 to $4.4 million in 1997. As a percentage of revenues,
research and development expenses
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increased from 14% to 18% for these periods. These increases resulted primarily
from greater personnel and research supplies expense as Invitrogen continued the
expansion of its gene cloning and expression products and the development of its
high-throughput gene cloning and expression technologies.
SALES AND MARKETING. Sales and marketing expenses increased 17% from $4.3
million in 1996 to $5.0 million in 1997. As a percentage of revenues, sales and
marketing expenses declined from 22% to 20% for these periods as certain costs
were spread over a larger revenue base.
GENERAL AND ADMINISTRATIVE. General and administrative expenses remained
flat at $3.9 million in 1996 and 1997. As a percentage of revenues, general and
administrative expenses decreased from 20% to 16% for these periods. During
1996, Invitrogen incurred a significant one-time expense of $0.8 million for
defending and resolving licensing and patent issues with a competitor.
OTHER INCOME (EXPENSE). Other income, primarily interest earned, increased
73% from $0.2 million in 1996 to $0.3 million in 1997, primarily from higher
average cash balances.
PROVISION FOR INCOME TAXES. Invitrogen's effective tax rate increased
slightly from 35% in 1996 to 36% in 1997, reflecting changes in the utilization
of tax credits.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter ended March 31, 1999, we generated $33 million in
cash from financing activities which represents $48.6 million in net proceeds
from the sale of common stock from our initial public offering offset by $15.6
million used to redeem preferred stock and pay accrued dividends. Capital
expenditures for the first quarter of 1999 totaled $0.4 million and payments for
intangible assets totaled $0.3 million.
As of March 31, 1999 we had cash, cash equivalents and short-term
investments totaling $39 million and working capital of $43.5 million. In June
1999 we reduced our available bank line of credit facility from $10 million to
$3.0 million. The line of credit facility expires September 30, 1999, of which
none was utilized at March 31, 1999. Our funds are currently invested in U.S.
Treasury and government agency obligations, investment-grade commercial paper
and interest and dividend-bearing securities.
Our subsidiary, Invitrogen B.V., previously issued shares of non-voting
redeemable common stock which were redeemed in April 1999 for NLG 3,150,000 or
an equivalent of USD $1,544,000.
We expect that our cash, cash equivalents, short term investments, funds
from operations and interest income earned thereon, will be sufficient to fund
our operations for at least two years. Our future capital requirements and the
adequacy of our available funds will depend on many factors, including
scientific progress in our research and development programs, the magnitude of
those programs, our ability to establish collaborative and licensing
arrangements, the cost involved in preparing, filing, prosecuting, maintaining
and enforcing patent claims, competing technological and market developments and
future business acquisitions.
CURRENCY HEDGING AND FOREIGN CURRENCY TRANSLATION
In the normal course of business, Invitrogen B.V. from time to time
purchases exchange-traded put options on U.S. Dollars and U.K. Pounds sterling
to mitigate foreign currency exposure. At March 31, 1999 outstanding options
totaled $1.3 million and matured on various dates through December 1999.
Invitrogen conducts business transactions with its subsidiary in the
Netherlands and with its foreign distributors, including those in Asia, in U.S.
Dollars. The functional currency for Invitrogen B.V. is the Netherlands Guilder
(NLG). The translation from NLG to the U.S. Dollar is translated for balance
sheet accounts using the current exchange rate in effect at the balance sheet
date and for revenues and expense accounts using the average exchange rate
during the period. The effects of translation are
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recorded as a separate component of stockholder's equity. Invitrogen B.V.
conducts its business with significant customers in their local European
currencies; exchange gains and losses arising from these transactions are
recorded using the actual exchange differences on the date of the transaction.
YEAR 2000 EFFECT ON COMPUTER SYSTEMS
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, in less than one year,
computer systems and/or software used by many companies in a very wide variety
of applications will experience operating difficulties unless they are modified
or upgraded to adequately process information involving, related to or dependent
upon the century change. Some businesses may be financially affected by such
computer problems.
We believe our existing manufacturing, financial and accounting systems will
be year 2000 compliant, meaning that they will be capable of distinguishing 21st
century dates from 20th century dates. We are in the process of replacing our
existing computer system with a new system that will also be year 2000 compliant
and expect to complete implementation of the new system in the first half of
2000.
We are in the process of testing our other internal systems, including
embedded control systems in our manufacturing and storage equipment. We
currently believe these systems are year 2000 compliant. We have made inquiries
of our suppliers to attempt to assess their readiness for the year 2000. The
failure of systems maintained by our customers, distributors, and suppliers
could reduce our revenues, cause us to incur significant expenses to remedy any
problems, or otherwise seriously damage our business.
To date we have spent immaterial amounts to comply with accounting and
statutory requirements regarding the year 2000. We believe that we will spend
minimal additional amounts for year 2000 issues in the foreseeable future. These
assessments have not been independently verified.
If we discover year 2000 errors or defects in our internal systems, we may
have to spend substantial amounts in making repairs. These errors may result in
the temporary failure of our manufacturing, accounting and financial systems,
which in turn would delay the taking and processing of orders for perhaps 3-5
days. In case of such errors we plan to rely upon our current computer systems
which we will maintain as a backup system after our new system is installed.
ISSUES RELATED TO THE EUROPEAN MONETARY CONVERSION
On January 1, 1999, certain member states of the European Economic
Community, including the Netherlands, fixed their respective currencies to a new
currency, the Euro. On that day, the Euro became a functional legal currency
within these countries. During the three years beginning on January 1, 1999,
business in these EEC member states will be conducted in both the existing
national currency, such as the Netherlands Guilder, French Franc or Deutsche
Mark, and the Euro. Companies operating in or conducting business in EEC member
states will need to ensure that their financial and other software systems are
capable of processing transactions and properly handling the existing
currencies, as well as the Euro. We are still assessing the impact that the Euro
will have on our internal systems and products. While we believe our
enterprise-wide financial and manufacturing information systems will be Euro
compliant, we have not tested these systems. We have not determined the costs
related to any problems that may arise in the future. Any such problems may
materially adversely affect our business, operating results and financial
condition.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See discussion under Currency Hedging and Foreign Currency Translation in
the Management Discussion and Analysis for quantitative and qualitative
disclosures about market risk.
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FORWARD-LOOKING STATEMENTS
The Invitrogen Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995, such as statements
relating to trends in revenues, expenses and net income, and are therefore
prospective. You can identify these statements by forward-looking words such as
"may," "will," "expect," "anticipate," "believe," "estimate," "project," and
"continue" or similar words. You should read statements that contain these words
carefully because they:
- Discuss our future expectations;
- Contain projections of our future results of operations or of our
financial condition; and
- State other "forward-looking" information.
Such forward-looking statements are subject to a number of risks,
uncertainties and other factors that could cause actual results to differ
materially from future results expressed or implied by such forward-looking
statements. Potential risks and uncertainties include, but are not limited to,
those listed under "Risk Factors" on page 20.
The above Invitrogen Management's Discussion and Analysis should be read in
conjunction with the consolidated financial statements and notes thereto
included in Invitrogen's Prospectus, as amended, and March 31, 1999 Form 10-Q
filed with the Securities and Exchange Commission in 1999.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information concerning directors and executive
officers of Invitrogen as of July 8, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- ----------------------------------------------------------
<S> <C> <C>
Lyle C. Turner.............. 46 President, Chief Executive Officer and Chairman of the
Board of Directors
James R. Glynn.............. 52 Senior Vice President, Corporate Development, Chief
Financial Officer and Director
Donald W. Grimm............. 57 Director
Kurt R. Jaggers(1)(2)....... 40 Director
Bradley G. Lorimier......... 54 Director
Jay M. Short, Ph.D.(2)...... 41 Director
Lewis J. Shuster(1)......... 44 Director
</TABLE>
- ------------------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
LYLE C. TURNER, a founder of Invitrogen, has served as President, Chief
Executive Officer and Director since February 1988. Previously, Mr. Turner
served as Director of Sales and Marketing at Stratagene, a life science research
company, from January 1987 through February 1988, and as Technical Sales
Specialist at Boehringer Mannheim Corp., a pharmaceutical company, from June
1985 to January 1987. From September 1981 through May 1985, Mr. Turner worked at
Syntro Corporation, an animal health company, at which his final position was
Manager of Business Development. Mr. Turner received his B.A. in Chemistry from
the University of California, San Diego.
JAMES R. GLYNN has served as Senior Vice President, Corporate Development,
Chief Financial Officer and Director of Invitrogen since June 1998 and served as
Director in 1995. From July 1995 to May 1997 he served as Senior Vice President
and Chief Financial Officer and from May 1997 to July 1998 as Chief Operating
Officer, Chief Financial Officer and Director of Matrix Pharmaceutical, Inc., a
company focusing on the treatment of cancer. Mr. Glynn served as Executive Vice
President, Chief Financial Officer and Director of Mycogen Corporation, an
agribusiness and biotechnology company, from April 1987 to February 1995. From
1982 to 1987 Mr. Glynn was Vice President, Finance and Treasurer of Lubrizol
Enterprises, Inc., a venture development company. He is currently a Director of
Matrix Pharmaceutical, Inc. in addition to his positions with Invitrogen. Mr.
Glynn received his B.B.A. in Accounting from Cleveland State University.
DONALD W. GRIMM has served as a Director of Invitrogen since June 1998. From
September 1995 to March 1998 Mr. Grimm was Managing Director, West Coast for
Copenhagen Capacity, a Danish trade group focused on biotechnology and medical
devices. Since June 1995 he has served as Chairman of the Board and President of
Strategic Design, a strategic planning and consulting company. He was a Director
of MedNet M.P.C. Corp., a medical services company from November 1997 to
December 1997. Mr. Grimm retired from Eli Lilly & Company, a research-based
pharmaceutical company, in 1993 after 23 years of service. Mr. Grimm held
positions at Eli Lilly as Director of Worldwide Pharmaceutical Pricing, Director
of Pharmaceutical Market Research, and Director of Sales. From September 1987 to
December 1993, Mr. Grimm served as President, CEO and Chairman of Hybritech,
Inc., a company
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involved in physical and biological research. For the six month period between
June 1994 and December 1994, Mr. Grimm served as President, CEO and Director of
Telios Pharmaceuticals, a pharmaceutical and medical device company. Telios and
MedNet filed petitions for bankruptcy after Mr. Grimm's resignation from those
companies. Mr. Grimm received his B.S. in Pharmacy and M.B.A. from the
University of Pittsburgh. Mr. Grimm is currently a Director of several private
companies and non-profit organizations.
KURT R. JAGGERS has served as a Director of Invitrogen since June 1997. Mr.
Jaggers has served as a Managing Director of TA Associates, Inc., an equity
investment firm, since January 1997. He has also served as a Principal for TA
Associates from 1993 to 1996, and as Vice President of that firm from 1990 to
1992. Mr. Jaggers attended Stanford University, receiving B.S. and M.S. degrees
in Electrical Engineering, and an M.B.A. He is currently a Director of JDA
Software Group, Inc., a software development company, as well as several private
companies.
BRADLEY G. LORIMIER has served as a Director of Invitrogen since November
1998. Mr. Lorimier has been retired since July 1997. From March 1994 to June
1997 Mr. Lorimier served as Senior Vice President, Business Development and
Director of Human Genome Sciences, Inc., a biotechnology company. From July 1991
to March 1994 Mr. Lorimier served as Vice President, Corporate Development of
Ortho-McNeil Pharmaceutical, Inc., a subsidiary of Johnson & Johnson, a
pharmaceutical manufacturing company. He is also currently a Director of Matrix
Pharmaceutical, Inc. as well as several private companies.
JAY M. SHORT has served as a Director of Invitrogen since February 1995.
From September 1994 to the present Dr. Short has served as President, Chief
Technology Officer and Director of Diversa Corporation, a biotechnology research
company. From September 1985 to September 1994 Dr. Short held various positions
at Stratagene including Vice President, Research and Development & Operations
and Senior Staff Scientist. Previously, he was President of Stratacyte Inc., a
molecular biology company. Dr. Short received his Ph.D. in Biochemistry from
Case Western Reserve University. Dr. Short is currently a Director of StressGen
Biotechnologies Corporation, a biopharmaceutical company.
LEWIS J. SHUSTER has served as a Director of Invitrogen since June 1998. Mr.
Shuster is presently President and Chief Operating Officer of Pharmacopeia
Laboratories, an operating unit of Pharmacopeia, Inc., a pharmaceutical and
biotechnical research company, a position he has held since February 1999. From
November 1994 to February 1999 Mr. Shuster served as Executive Vice President
and Chief Financial Officer of Pharmacopia, Inc. From September 1992 to November
1994 Mr. Shuster served as Executive Vice President, Operations and Finance of
Human Genome Sciences, Inc., a pharmaceutical company. Mr. Shuster received his
M.B.A. from Stanford University Graduate School of Business and his B.A. from
Swarthmore College. He is currently a Director of US Biomaterials Corporation, a
private biomedical company.
Invitrogen currently has authorized between five and nine directors with the
current number set at eight. Invitrogen's certificate of incorporation provides
that effective upon the closing of Invitrogen's initial public offering,
offering the terms of office of the directors were divided into three classes.
The terms of Class I, Class II and Class III directors expire at the annual
meeting of stockholders held in 2000, 2001 and 2002, respectively, or at special
meetings held instead of such annual meetings. At each annual meeting of
stockholders after the initial classification, or special meetings held instead,
the successors to directors whose terms will then expire will be elected to
serve until the third annual meeting following their election. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This classification of the board of
directors may have the effect of delaying or preventing changes in control or
management of Invitrogen.
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BOARD COMMITTEES
The board of directors has established an Audit Committee and a Compensation
Committee. The Audit Committee, which consists of Mr. Jaggers and Mr. Shuster,
reviews the results and scope of the annual audit and meets with Invitrogen's
independent auditors to review Invitrogen's internal accounting policies and
procedures. The Compensation Committee, which consists of Mr. Jaggers and Dr.
Short, makes recommendations to the board of directors with respect to
Invitrogen's general and specific compensation policies and practices and
administers Invitrogen's 1997 Stock Option Plan and 1995 Stock Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In March 1997 Invitrogen made an initial investment of $500,000 to acquire
shares of preferred stock and a warrant to purchase shares of preferred stock of
MorphaGen, Inc., a start-up company engaged in the business of researching and
developing Morphatides, a special type of nucleic acid. The President of
MorphaGen, Heidi Short, is the spouse of Dr. Short, a member of the board of
directors of Invitrogen. During 1997, Invitrogen performed research services for
MorphaGen for which it was paid approximately $81,000. In November 1998,
Invitrogen acquired all of the outstanding shares of MorphaGen not already owned
by Invitrogen in exchange for a grant of an option to purchase 50,000 shares of
Invitrogen common stock to Heidi Short, payment of royalties contingent upon
certain milestones, the assumption of outstanding options of MorphaGen employees
and the assumption of certain liabilities. MorphaGen was dissolved as a separate
corporate entity in 1999. Dr. Short's father, Roy Short, receives royalties of
approximately $100,000 per year from sales relating to Invitrogen's DNA DipStick
product line and electroporation cuvettes. There were no other interlocks or
other relationships among Invitrogen's executive officers and directors that are
required to be disclosed under applicable executive compensation disclosure
requirements.
COMPENSATION OF DIRECTORS
Invitrogen does not currently provide cash compensation to directors for
services as directors, other than to Dr. Short, who receives up to $1,500 per
meeting and Mr. Grimm who receives up to $750 per meeting, both pursuant to
preexisting agreements. Directors may be reimbursed for certain expenses in
connection with attendance at Board of Directors and committee meetings. Since
November 19, 1998, directors who are not employees of Invitrogen receive annual
grants of options to purchase 10,000 shares of common stock in accordance with
the 1997 Stock Option Plan. Options to purchase 30,000 shares of common stock
were granted to non-employee directors of Invitrogen during Invitrogen's fiscal
year ended December 31, 1998.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
Invitrogen has adopted provisions in its certificate of incorporation,
permitted by Delaware General Corporation Law, which provide that directors of
Invitrogen shall not be personally liable for monetary damages to Invitrogen or
its stockholders for a violation of the directors' duty to act with care and in
the best interests of the shareholders, except for liability:
- For acts or omissions that are not in good faith, are deliberately
improper or are known to be illegal
- Under Section 174 of the Delaware Law relating to improper dividends or
distributions
- For any transaction from which the director obtained an improper personal
benefit
Such limitation of liability does not affect the availability of equitable
remedies such as injunctive relief or rescission.
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Invitrogen's bylaws authorize Invitrogen to indemnify its officers,
directors, employees and agents to the extent permitted by the Delaware Law.
Section 145 of the Delaware Law empowers Invitrogen to enter into
indemnification agreements with its officers, directors, employees and agents.
Invitrogen has entered into separate indemnification agreements with its
directors and executive officers which may, in some cases be broader than the
specific indemnification provisions contained in the Delaware Law. The
indemnification agreements may require Invitrogen, among other things, to
indemnify such executive officers and directors against liabilities that may
arise by reason of status or service as directors or executive officers and to
advance expenses they spend as a result of any proceeding against them as to
which they could be indemnified.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of Invitrogen where indemnification will be
required or permitted, and Invitrogen is not aware of any threatened litigation
or proceeding that may result in a claim for such indemnification.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned by
Invitrogen's Chief Executive Officer and Invitrogen's other executive officers
each of whose aggregate compensation during the fiscal year ended December 31,
1998 exceeded $100,000. Mr. Glynn joined Invitrogen on July 1, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------
SHARES OF COMMON
STOCK ISSUABLE UPON
NAME AND 1998 PRINCIPAL POSITION YEAR SALARY BONUS($) EXERCISE OF OPTIONS
- ------------------------------------------------------------- --------- ---------- ---------- -------------------
<S> <C> <C> <C> <C>
Lyle C. Turner .............................................. 1998 $ 285,601 $ 270,998 --
President and Chief Executive Officer
James R. Glynn .............................................. 1998 136,146 123,125 250,000
Senior Vice President and Chief Financial Officer
</TABLE>
1998 OPTION GRANTS
The following table contains information about the stock option grants in
1998 to the executive officers described in the first sentence of "Executive
Compensation." The table is based on an aggregate of 1,233,500 options granted
by Invitrogen during 1998 to employees of and consultants to Invitrogen. The
exercise price per share of each option was equal to the fair market value of
the common stock on the date of grant as determined by the board of directors.
OPTION GRANTS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF RATES OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR OPTION
UNDERLYING OPTIONS GRANTED TO EXERCISE OR TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------
NAME GRANTED(1) FISCAL YEAR ($/SH) DATE 5% 10%
- ----------------------------- ----------- --------------------- ------------- ----------- ---------- ------------
James R. Glynn............... 250,000 20.3 $ 5.60 7/01/08 $ 880,000 $ 2,230,000
</TABLE>
- ------------------------
(1) Options are granted under Invitrogen's 1995 and 1997 Stock Option Plans.
Such options expire ten years from the date of grant, or earlier upon
termination of employment.
Amounts reported in the Potential Realizable Value column above represent
hypothetical values that may be realized upon exercise of the options
immediately prior to the expiration of their term,
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assuming that the stock price on the date of grant appreciates at the specified
annual rates of appreciation, compounded annually over the term of the options.
These numbers are calculated based on rules promulgated by the Securities and
Exchange Commission. Actual gains, if any, on stock option exercises and common
stock holdings are dependent on the time of such exercise and the future
performance of Invitrogen's common stock.
YEAR-END VALUES
The table below provides information about the number and value of options
held by the executive officers described above at December 31, 1998. Since there
was no public trading market for Invitrogen common stock as of December 31,
1998, the values of in-the-money options have been calculated on the basis of
$15.00 per share, the Invitrogen board's good faith determination of the fair
market value of a share of Invitrogen's common stock during Invitrogen's initial
public offering, less the applicable exercise price.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT DECEMBER 31, IN-THE-MONEY OPTIONS AT
1998 DECEMBER 31, 1998
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James R. Glynn............................................ 70,833 179,167 $ 665,830 $ 1,684,170
</TABLE>
EMPLOYMENT AND SEVERANCE ARRANGEMENTS
On March 31, 1999 Invitrogen entered into severance agreements with two of
its executive officers, Joseph Fernandez and Theodore DeFrank, pursuant to their
resignations. Under those agreements, each officer receives monthly severance
pay at their regular salary rate on the date of the agreements; Mr. DeFrank for
six months, Mr. Fernandez for twelve months. Each officer additionally entered
into consulting agreements with Invitrogen, for nine months and twelve months
respectively.
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CERTAIN TRANSACTIONS
In December 1998, Invitrogen accepted a note receivable from Mr. Turner in
the amount of $150,000. The note is secured by a pledge of common stock, is due
in December 1999 and bears interest of 6.5%.
During 1997 and 1998, Invitrogen leased an airplane from Turner Aviation, a
company controlled by Mr. Turner, for $7,200 per month. Invitrogen had also
advanced $150,000 to Turner Aviation to assist in the acquisition of the plane.
The lease agreement terminated in February 1999, upon the closing of
Invitrogen's initial public offering. The advance was repaid through the
December 1999 note receivable described above.
Invitrogen has entered into indemnification agreements with each of its
officers and directors containing provisions which may require us, among other
things, to indemnify its officers and directors against liabilities that may
arise by reasons of their status or service as officers or directors and to
advance their expenses incurred as a result of any proceeding against them as to
which they could be indemnified. Invitrogen also intends to execute such
agreements with its future directors and executive officers.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information concerning the beneficial
ownership of the shares of our common stock as of July 2, 1999, by:
- Each person Invitrogen knows to be the beneficial owner of 5% or more of
the outstanding shares of common stock, together with the affiliates of
such person;
- Each executive officer listed in the Summary Compensation Table;
- Each director of Invitrogen, who, where applicable, is listed under the
name of the principal stockholder with which he is affiliated; and
- All executive officers and directors of Invitrogen as a group.
Except in cases where community property laws apply or as indicated in the
footnotes to this table, Invitrogen believes that each stockholder identified in
the table possesses sole voting and investment power with respect to all shares
of common stock shown as beneficially owned by such stockholder. The address of
the individuals listed below is the address of Invitrogen appearing on the cover
of the registration statement of which this prospectus is part.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES THAT MAY BE
ACQUIRED WITHIN 60
------------------------- DAYS
BENEFICIAL OWNER NUMBER PERCENT(1) OF JULY 2, 1999
- ----------------------------------------------------------------- ---------- ------------- ----------------------
<S> <C> <C> <C>
Lyle C. Turner(2)................................................ 4,678,096 34.8% --
Joseph M. Fernandez(3)........................................... 1,888,338 13.9 159,607
TA Associates(4)................................................. 1,702,942 12.7 --
Kurt R. Jaggers
TA Associates, Inc.
125 High Street Tower, Suite 2500
Boston, Massachusetts 02110
ESOP Trust Fund(5)............................................... 1,203,499 9.0 --
1600 Faraday Avenue
Carlsbad, California 92008
Jay M. Short(6).................................................. 122,400 * 97,400
James R. Glynn................................................... 104,369 * 104,165
Donald W. Grimm.................................................. 23,000 * 20,000
Lewis J. Shuster................................................. 15,000 * 15,000
Bradley G. Lorimier.............................................. 7,500 * 7,500
All Directors and Executive Officers as a group (seven
persons)(7).................................................... 8,541,645 61.7% 403,672
</TABLE>
- ------------------------
* Less than 1%.
(1) Percentage of ownership is based on: 13,430,650 shares of common stock
outstanding as of July 2, 1999. Shares of common stock that an individual or
group has the right to acquire within 60 days of July 2, 1999, pursuant to
the exercise of options are deemed to be outstanding for the purposes of
computing the percentage ownership of such individual or group, but are not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person shown in the table.
(2) Mr. Turner is President, Chief Executive Officer, and Chairman of the board
of directors of Invitrogen. Includes 162,599 shares held of record by the
ESOP as to which Mr. Turner holds a pecuniary interest.
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(3) Includes 113,390 shares held of record by the ESOP as to which Mr. Fernandez
holds a pecuniary interest.
(4) Includes 1,410,304 shares held by TA/Advent VIII, L.P., 264,432 shares held
by Advent Atlantic and Pacific III, L.P., and 28,206 shares held by TA
Venture Investors L.P. TA/Advent VIII, L.P., Advent Atlantic and Pacific
III, L.P. and TA Venture Investors L.P. are part of an affiliated group of
investment partnerships referred to collectively as TA Associates Group. The
general partner of TA/Advent VIII, L.P. is TA Associates VIII LLC. The
general partner of Advent Atlantic and Pacific III, L.P. is TA Associates
AAP III Partners. The general partner of each of TA Associates VIII LLC. and
TA Associates AAP III Partners is TA Associates, Inc. In such capacity, TA
Associates, Inc. exercises sole voting and investment power with respect to
all of the shares held of record by the named investment partnerships, with
the exception of those shares held by TA Venture Investors, L.P.;
individually, no stockholder, director or officer of TA Associates, Inc., is
deemed to have or share such voting or investment power. Principals and
employees of TA Associates, Inc., including Mr. Jaggers, a director,
comprise the general partners of TA Venture Investors, L.P. In such
capacity, Mr. Jaggers may be deemed to share voting and investment power
with respect to the 28,206 shares held of record by TA Venture Investors,
L.P. Mr. Jaggers disclaims beneficial ownership of such shares.
(5) As trustee of Invitrogen's ESOP Trust Fund, Mr. Turner has certain voting
and investment power with respect to the 1,203,499 shares held of record by
the ESOP. Mr. Turner disclaims beneficial ownership of such shares, except
with respect to the 162,599 shares in the ESOP as to which Mr. Turner holds
a pecuniary interests.
(6) Includes options to purchase 5,000 shares held of record by Dr. Short's
spouse.
(7) Includes 275,989 shares held by an entity affiliated with Mr. Turner as
described in Note (5) above.
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NOVEX BUSINESS
Given that both Invitrogen and NOVEX supply products used to assist
molecular biology research, there is a significant overlap between the
scientific basis for both Invitrogen's and NOVEX's products, as well as other
similarities in industry trends facing both companies. To avoid restating
material already outlined in the Invitrogen Business section, where this Joint
Proxy Statement/Prospectus indicates information was "described previously," or
"previously identified," the description of that information is continued in the
Invitrogen Business section.
NOVEX
NOVEX develops, manufactures and markets research electrophoresis products
in pre-made or kit form to business, academic and government customers. NOVEX's
products improve the speed, reliability and convenience of polyacrylamide gel
electrophoresis, a technique that is an integral part of the molecular biology
activities that underlie functional genomics and gene-based drug discovery.
NOVEX's products allow researchers to perform experiments more accurately,
efficiently and with greater reproducibility compared to traditional
electrophoresis methods. NOVEX's pre-cast gels eliminate the time required to
make gels in the laboratory, resulting in savings of 1-2 hours every time a gel
is purchased from NOVEX rather than made by the researcher.
As described previously, based on independent market studies, researchers'
1998 purchases of molecular biology products and supplies amounted to over $1.4
billion. NOVEX believes that pre-cast electrophoresis gels and related products
represent a rapidly emerging segment of this overall market. NOVEX expects that
the market for pre-cast gels and related electrophoresis products will continue
to expand due to factors previously mentioned, namely the increases in
government funding, availability of sequencing data, use of automation and
investment in commercial research. NOVEX and its subsidiaries offer over 450
products that researchers use as part of their molecular biology research
activities. NOVEX designs electrophoresis products that simplify and speed up
traditional electrophoresis methods.
NOVEX purchased the Serva fine chemicals and reagents product line from
Boehringer Ingelheim in early 1998. This acquisition brought to the company new
technologies and capabilities that extend NOVEX's technology further into areas
such as two dimensional or 2D electrophoresis. Serva is one of the few companies
in the world that makes ampholytes immobilized in gels coated on plastic film--a
desirable component for the first stage of 2D electrophoresis. NOVEX believes
this platform technology fits very well with its existing technologies, and will
open up avenues for new product development.
SCIENTIFIC OVERVIEW
The scientific overview of NOVEX's market, i.e. molecular biology, begins
with the same basic concepts as that previously discussed in connection with
Invitrogen. Of particular importance to NOVEX are the study of proteins and
nucleic acids (DNA and RNA). As described previously, proteins and their
interactions are responsible for all of the biochemical and physical properties
of a cell, as well as the variations among different types of cells. Proteins
take various forms including enzymes, hormones, antibodies and receptors. Genes
made up of nucleic acids code for proteins. The entire spectrum of proteins
expressed by an organism or cell is called its proteome. Proteomics is the term
used for the study of the proteome.
Each of the five molecular biology techniques previously identified, namely
gene identification, gene cloning, gene expression and gene analysis, generates
data and results that are used in subsequent techniques in the list. Ultimately,
gene analysis provides information about additional genetic material that should
be sequenced. Each of the techniques utilizes electrophoresis at some stage as a
tool to visualize the results of the experiment.
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Gel electrophoresis is a process by which a mixture of proteins or nucleic
acids can be quickly separated on the basis of size or charge. A porous gel
matrix slab is used as a "sieve." An electrical charge is used to propel the
mixture of molecules through the sieve. As the proteins or nucleic acids move
through the gel, smaller molecules travel further through the gel than larger
molecules. Depending on their size, the molecules are trapped at different
levels in the gel to form a series of discrete bands. By controlling the
porousness of the gel, the researcher can optimize the separation for a
particular range of sizes.
Electrophoresis is a fast, easy-to-use method of visualizing the results of
molecular biology experiments. For example, visualizing the results of a protein
expression experiment is important to verify that the desired protein is indeed
being expressed. Two-dimensional, or 2D, electrophoresis is a powerful
separation tool widely used in the rapidly growing field of proteomics research.
A unique advantage of electrophoresis is that, after the proteins or nucleic
acids have been separated, they can easily be recovered from the gel for further
investigation or for use in subsequent experiments. This is not the case with
most instrumental methods of separation.
With the speed, effectiveness and convenience of pre-cast electrophoresis
products, it is commonplace for scientists to use electrophoresis to check their
work at several points during an extended experiment involving protein or
nucleic acid manipulation. It is a flexible technique that does not require a
significant investment in hardware, requires little or no method development,
and is reliable and robust under widely diverse sample conditions. A simple
apparatus is used to hold one or two gels in place. Multiple samples can be run
in parallel on a single gel for higher throughput and side-by-side comparison of
results.
NOVEX's core product line is made up primarily of electrophoresis, detection
and analysis tools. In particular NOVEX provides tools for these commonly-used
research techniques:
PROTEIN ELECTROPHORESIS. Protein electrophoresis is typically conducted
using sodium dodecyl sulfate polyacrylamide gel electrophoresis (SDS-PAGE). SDS
is a negatively charged compound that binds tightly to, and imparts a uniform
negative charge to all proteins. This charge provides the force that drives the
proteins through the gel and ensures a separation based only on size. A
molecular weight standard, which is a mixture of proteins of known molecular
weight, is run in a lane on the same gel as the unknown sample. By comparing the
migration distances, one can determine the approximate molecular weight of the
unknown protein.
Alternatively, isoelectric focusing (IEF) is used to separate proteins on
the basis of their native charge. Proteins are made up of amino acids, some of
which contain charged functional groups. Each protein has a natural isoelectric
point, the pH at which it carries a neutral charge, as a result of its unique
amino acid composition. In order to separate two proteins with the same
molecular weight, the proteins are first separated on the basis of charge (IEF),
then separated again on the basis of molecular weight (SDS-PAGE). This is known
as 2D electrophoresis and is the basis of proteomics research.
In IEF, a mixture of compounds carrying a spectrum of charges known as
ampholytes is either added to the gel matrix or immobilized within the gel
matrix. When an electrical charge is applied, the proteins organize themselves
linearly within the gel according to their relative charge. Proteins with higher
isoelectric points will form bands on one end of the gel and proteins with lower
isoelectric points will form bands at the other end of the gel.
GEL VISUALIZATION. The gel containing the separated or "resolved" proteins
must be stained to visualize the proteins. This allows the researcher to
determine the molecular weight and purity of the sample. Various stains are used
that have different levels of sensitivity and specificity. The gel can then be
dried and saved as a permanent record of the experiment, or a gel documentation
system can be used to photograph the results and store them in digital form for
analysis.
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WESTERN BLOTTING. Alternatively, the proteins can be transferred from the
gel to a membrane in a process called western blotting. The proteins on the
membrane are then exposed to antibodies specific to the protein of interest or
to a specific "tag" that has been intentionally incorporated into an expressed
protein. This allows the scientist to identify the presence of a specific
protein from within a highly complex mixture. In addition, the separated
proteins can be recovered from the gel or the membrane for further analysis such
as protein sequencing or mass spectrophotometry.
NUCLEIC ACID ELECTROPHORESIS. Nucleic acid electrophoresis may also be
conducted using a polyacrylamide gel matrix. In DNA sequencing, polyacrylamide
gels ranging in lengths up to 40cm long are used to separate the results of a
DNA sequencing reaction. Small format (10x10 cm or 10x12 cm) polyacrylamide gels
are also used for nucleic acid analysis. These gels are used when accurate,
sensitive visualization of small DNA or RNA fragments is required, for example,
when analyzing PCR products.
Nucleic acid electrophoresis is more commonly performed using agarose as the
gel matrix. Agarose has lower resolving power than polyacrylamide and is
typically used for separating large DNA fragments. Examples include analysis of
plasmid preparations and restriction digestions. DNA fragments can be recovered
from the gel for subsequent cloning into a vector. Agarose gels are easier to
make than polyacrylamide gels, however the stains are hazardous and require
special handling.
MARKET OVERVIEW
NOVEX expects that the market for electrophoresis products will keep pace
with the market for gene cloning, expression and analysis kits. Several factors
are driving market growth for molecular biology kits and the closely linked
electrophoresis products, including those previously listed in the discussion of
Invitrogen's business:
- INCREASED GOVERNMENT FUNDING;
- HIGH-THROUGHPUT SEQUENCING AND GENOME SEQUENCING PROJECTS;
- PROLIFERATION OF HIGH-THROUGHPUT MOLECULAR BIOLOGY TECHNIQUES; AND
- ACCELERATED INVESTMENT IN COMMERCIAL RESEARCH.
We believe at least one significant additional factor will drive the market
for NOVEX's products:
- PROTEOMICS PROJECTS. Proteins are responsible for most of the biochemical
and physical properties of a cell, as well as the variations among
different cells. 2D electrophoresis is a new enabling technology that is
facilitating proteomics studies in the drug discovery process. It enables
researchers to relate genomic or nucleic acid information to specific
proteins. As the interest in the study of proteomics grows, the demand for
higher quality electrophoresis products will grow, including isoelectric
focusing and high-resolution polyacrylamide gels.
NOVEX TECHNOLOGY AND CAPABILITIES
Making and running polyacrylamide gels in a research laboratory is generally
time consuming, requires the use of hazardous materials and requires significant
expertise to produce high quality, reliable gels. Gradient gels and isoelectric
focusing gels are particularly difficult to make consistently. For example, the
conventional method requires researchers to first assemble two glass plates
together with spacers and tape. Then, a mixture of acrylamide and cross-linker
is made, catalysts are added and the solution is carefully poured between the
glass plates, making sure it is poured evenly and does not leak through the
tape. The gel must then be left to polymerize for up to two hours before it is
ready for use. NOVEX's pre-cast gels eliminate the time required to make gels in
the laboratory, resulting in savings of 1-2 hours every time a gel is purchased
from NOVEX rather than made by a researcher. NOVEX has developed a complete line
of pre-cast gels that eliminates this entire gel casting procedure. Other NOVEX
products such as the SilverXpress gel staining kit, the SeeBlue ready-to-use
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standards, and the WesternBreeze pre-optimized western blotting kits make other
electrophoresis-related processes faster and easier, while providing better
performance than products that researchers can make on their own.
NOVEX has significant expertise in identifying and developing new techniques
and technologies that could be simplified and improved by their development as
kits. NOVEX has a consistent track record of identifying new technologies,
applying for the necessary patents and rapidly introducing new or enhanced
products based on those technologies to the market. NOVEX has an established
business development function, headed by an individual with significant
experience in electrophoresis technology. In addition, NOVEX's sales and
technical service representatives have strong science backgrounds and work with
NOVEX customers to identify emerging techniques and potential new product
opportunities. Since the beginning of 1997, NOVEX's new product teams have
introduced two major new product lines. NOVEX expects that its WesternBreeze
western blotting kit, specific for rabbit and mouse antibodies, will open up
avenues within this large market, and that its QuickPoint gel will allow further
expansion into the fast growing nucleic acid analysis market.
BUSINESS STRATEGY
NOVEX's business strategy is to develop and market a comprehensive portfolio
of products based on its expertise in electrophoresis technologies. NOVEX's
business strategy includes the following key elements:
- MAINTAIN AND ENHANCE LEADERSHIP POSITION IN THE PRE-CAST ELECTROPHORESIS
GEL AND ELECTROPHORESIS ACCESSORIES MARKET. NOVEX believes it is a
worldwide leader in the pre-cast gel electrophoresis market and that the
competitive advantages offered by its proprietary products, such as NuPAGE
pre-cast gels, will allow it to capture additional market share. Continued
conversion of current pre-cast and pour-your-own gel users to NuPAGE will
strengthen NOVEX's leadership position in this market.
- DEVELOP NEW PRODUCTS AND MARKETS BASED ON CORE EXPERTISE. NOVEX will
continue to develop and launch novel product lines related to
electrophoresis such as western blotting and products for proteomics
research. For example, NOVEX has utilized its capabilities in
electrophoresis to launch the WesternBreeze complete western blotting kit.
In addition, NOVEX has introduced QuickPoint, a new format gel for
ultra-fast nucleic acid analysis. By continuing to introduce new,
complementary products, NOVEX believes it can enhance its position in its
current core markets while developing additional high-growth market
segments.
- CAPTURE ADDITIONAL VALUE THROUGH PARTNERSHIPS OR ACQUISITIONS OF
COMPLEMENTARY COMPANIES OR TECHNOLOGIES. NOVEX will continue to
investigate alternative means of acquiring complementary products that
will add value to the NOVEX product line.
NOVEX PRODUCTS
NOVEX and its subsidiaries currently offer over 450 products, not including
the fine chemicals line. In the electrophoresis line there are ten different gel
chemistries, with a total of 37 different
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percentages, a selection of six well formats and two gel thicknesses. There are
over 180 types of pre-cast gels from which to choose.
<TABLE>
<S> <C>
PRE-CAST POLYACRYLAMIDE GELS
NuPAGE............................ NuPAGE gels can be used in place of Tris Glycine and
Tricine gels for SDS-PAGE. These patented gels provide
superior resolution, run in half the time of
conventional gels and have a one-year shelf life. The
choice of five gel percentages and two buffer types
provides researchers with all of the flexibility of 15
TG and Tricine gels. NuPAGE gel stability allows ambient
temperature shipping and room temperature storage.
Tris Glycine...................... TG gels are available in 12 different percentages. These
traditional Laemmli-type gels are used for SDS-PAGE. TG
gels have a refrigerated shelf life of 3-4 months.
Tricine........................... Tricine gels are available in three different
percentages. They provide excellent separation of small
peptides and are often used to prepare proteins for
sequencing.
Isoelectric Focusing.............. NOVEX supplies pH 3-7 and pH 3-10 pre-cast IEF gels in
the standard vertical 10x10 cm format, as well as in a
horizontal format, which allows up to 43 samples to be
run simultaneously.
Zymogram.......................... Zymogram gels are used to determine the molecular weight
of proteases. Proteases play an important role in cancer
and HIV infection.
TBE............................... Tris borate EDTA (TBE) gels are used to provide high-
resolution separation of double-stranded DNA fragments
such as PCR products. They are also widely used to
conduct single-stranded conformational polymorphism
(SSCP) studies to detect single point DNA mutations.
TBE-Urea.......................... TBE-Urea gels are used to separate single-stranded DNA
or RNA fragments. They are used to check oligonucleotide
synthesis reactions and the results of IN VITRO
transcription studies.
DNA Retardation................... These gels are formulated for use in gel mobility shift
assays, a common method for identifying and
characterizing DNA-protein interactions. The DNA-protein
complex can be extracted from the gel for further study.
QuickPoint........................ These ultra thin, polyacrylamide gels are used for the
rapid separation of single-stranded DNA for sequencing.
They need only 15 minutes to run, compared to three
hours for conventional sequencing gels. QuickPoint gels
are useful for analyzing the results of RNase Protection
Assay experiments and for running short DNA sequences
from site-directed mutagenesis and differential display
experiments.
</TABLE>
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<TABLE>
<S> <C>
WESTERN BLOTTING KITS
WesternBreeze..................... This complete kit provides all of the components
required for western blotting. Kit components have been
optimized to provide low background and high
sensitivity.
INSTRUMENTS AND APPARATUS
XCell II Mini-Cell................ This apparatus holds gels and buffers during an
electrophoresis run.
Blotting Apparatus................ This apparatus is used for western blotting.
Serva Blue Horizon................ This apparatus is used to run horizontal pre-cast IEF
gels.
PowerEase 500..................... This unique power supply is pre-programmed for use with
various pre-cast gel types and allows the user to print
out the results of the run.
STANDARDS, STAINS AND BUFFERS
Standards......................... NOVEX makes three protein standards used during
electrophoresis to determine the approximate molecular
weights of proteins in a sample. Mark12 was the first
ready-to-use protein standard that did not require
dilution or pretreatment. SeeBlue is a broad range
pre-mixed pre-stained standard. Multi-Mark is a
multi-colored standard that is particularly useful for
western blotting. In addition, NOVEX makes a liquid mix
pI 3-10 IEF marker for determining the isoelectric point
of proteins.
Staining.......................... NOVEX manufactures an ultra-sensitive silver staining
kit, a colloidal Coomassie staining kit and provides
Coomassie stain in tablet form. NOVEX OEMs SYBR Green I
and II stains from Molecular Probes, Inc.
Pre-Mixed Buffers................. NOVEX supplies pre-mixed running, sample and transfer
buffers for NuPAGE, Tris-Glycine, Tricine, IEF and TBE
gels. Each buffer provides a convenient way to ensure
high-quality, consistent results.
Ampholytes........................ NOVEX offers over 20 ampholyte solutions including broad
range (more than 3 pH units) narrow range (2-3 pH units)
and ultra narrow range (1 pH unit) pH fractions that
allow scientists to make their own IEF gels. NOVEX is
one of the few companies that market ampholytes, an
essential component of IEF gels.
ELECTROPHORESIS ACCESSORIES
Gel Drying Products............... NOVEX carries a line of easy-to-use gel drying products.
Gel Fix........................... NOVEX is one of two companies that manufacture films for
attachment of agarose or polyacrylamide gels to a film
backing for better handling of ultra thin gels.
</TABLE>
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<TABLE>
<S> <C>
FINE CHEMICALS
Serva, NOVEX's Heidelberg, Germany subsidiary, is a
wholesaler of over 1,000 fine chemicals including
antibiotics, cell culture media, enzymes and ion
exchange resins. Serva both formulates and repackages
these fine chemicals and electrophoresis reagents.
</TABLE>
TECHNOLOGY AND PRODUCT DEVELOPMENT
NOVEX is focusing its technology and product development on expanding its
existing product lines and developing innovative new products in areas where it
has expertise and has identified substantial unmet market needs. NOVEX seeks to
introduce products that can be manufactured and marketed profitably by
continuing to develop products that are not regulated by government agencies
such as the Food and Drug Administration. NOVEX's employees actively stay
abreast of industry developments to identify and acquire innovative technologies
from researchers and research institutions throughout the world.
NOVEX spent $1.6 million, $1.5 million and $1.3 million on research and
development activities in 1999, 1998 and 1997 respectively. No portion of this
investment in research and development was sponsored by NOVEX's customers. See
"NOVEX Management's Discussion and Analysis" below.
SALES AND MARKETING
NOVEX currently has an active sales and marketing presence in over 20
countries throughout the world. NOVEX and its subsidiary NOVEX Electrophoresis
GmbH (Frankfurt, Germany) sell NOVEX products directly to its customers in the
United States, Germany, the United Kingdom, Austria, Ireland and Switzerland.
Excluding Serva distributors, NOVEX utilizes specialized distributors in
approximately 15 other countries. The are approximately 50 distributors for
Serva products. Both groups are made up predominantly of independent
distributors who also market research products for other companies, including
some products that are competitive with NOVEX's offerings. As of July 2, 1999,
NOVEX employed 40 people in its worldwide sales and marketing departments to
market NOVEX products and provide customer support and service.
NOVEX's sales strategy is to hire salespeople with a scientific background
and a minimum of three years experience selling to the life science market.
NOVEX's marketing departments in NOVEX's U.S. and European headquarters combine
various types of media and methods to inform customers of new product
developments and enhancements to existing products. NOVEX advertises in
prominent scientific journals, publishes a yearly catalog, a newsletter and
conducts direct mail campaigns to researchers in the U.S. and Europe. NOVEX also
reaches researchers by exhibiting at scientific meetings and conducting
seminars. NOVEX's website (http://www.novex.com) allows researchers to view an
on-line catalog, and download all of NOVEX's technical manuals and application
notes.
MANUFACTURING
NOVEX's U.S. manufacturing facilities are located together with its
headquarters in San Diego, California. The manufacturing department is
responsible for production, quality testing, process improvements, customer
service and shipping. The engineering department supports the manufacturing
department with development of proprietary manufacturing automation, equipment
maintenance and repair. The manufacturing processes include quality control
testing of all products to ensure that every product meets or exceeds its
minimum specifications and quality assurance testing of purchased materials that
will be used in products. NOVEX obtained ISO9001 certification in 1997.
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NOVEX also assembles pre-cast gels and buffers in Frankfurt. Additional
electrophoresis manufacturing processes that were previously part of Serva's
operations have been transferred to the Frankfurt facility. Heidelberg
manufacturing consists of formulation and packaging of fine chemicals.
PATENTS AND PROPRIETARY TECHNOLOGIES
NOVEX owns six issued patents and one pending patent in the United States
and four pending patents in other major industrialized nations. Its six issued
United State patents will expire between 2012 and 2019. NOVEX also owns a number
of trademarks, some of which are registered in the United States and in foreign
countries where NOVEX sell its products. Our reliance on these and other
intellectual properties and the risks associated with that reliance are similar
to Invitrogen's. More information can be found under NOVEX Risk Factors and
"Invitrogen Business--Patents and Proprietary Technologies" above.
COMPETITION
The markets for NOVEX's products are very competitive and price-sensitive.
NOVEX expects the intensity of competition to increase. Currently, NOVEX
competes primarily with other life sciences research products suppliers. Many of
NOVEX's competitors have greater financial, operational, sales and marketing
resources. These competitors and other companies may have developed or could in
the future develop new technologies that compete with NOVEX's products or which
could render NOVEX's products obsolete.
Competitors offer a broad range of equipment, laboratory supplies and other
products, including electrophoresis products that compete with NOVEX. NOVEX
believes that customers in its markets display a significant amount of loyalty
to their initial supplier of a particular product. Therefore, NOVEX may
experience difficulties in generating sales to customers who initially purchased
products from competitors.
GOVERNMENT REGULATION
NOVEX is not subject to direct governmental regulation other than the laws
and regulations generally applicable to businesses in the jurisdictions in which
it operates, including those governing the handling and disposal of hazardous
wastes and other environmental matters. NOVEX's research and development
activities involve the controlled use of small amounts of hazardous materials,
chemicals and radioactive compounds. Although NOVEX believes that its safety
procedures for handling and disposing of such materials comply with applicable
regulations, the risk of accidental contamination or injury from these materials
cannot be completely eliminated. In the even of such an accident, NOVEX could be
held liable for resulting damages; such liability could have a material adverse
effect on NOVEX. However, NOVEX does not expect that compliance with the
governmental regulations to which it is subject will have a material effect on
its capital expenditures, earnings or competitive position.
EMPLOYEES
As of July 2, 1999, NOVEX employed 202 persons. Approximately 16 employees
are engaged in research and development, 40 in sales and marketing, 118 in
manufacturing and 28 in supporting business development, finance and other
administrative functions.
FACILITIES
NOVEX leases two buildings comprising a total of 41,000 square feet at its
San Diego, California location, which it uses for manufacturing and headquarters
as well as the base for marketing and product support operations, and research
and development. Under the terms of the lease, NOVEX
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presently pays rent of approximately $30,000 per month plus $11,000 per month
for tenant improvements. The lease expires in 2000 and NOVEX holds options to
extend the lease for another two years. NOVEX is currently in negotiation to
lease an additional 7,700 square feet in an adjacent building. NOVEX believes
that adequate facilities will be available upon the conclusion of its lease.
NOVEX also leases approximately 12,000 square feet in Frankfurt and 18,000
square feet in Heidelberg, which leases run through 2002 and 2001 respectively.
Payments under these leases total approximately $22,000 per month and include
all utilities for the Frankfurt facilities.
LEGAL PROCEEDINGS
In early 1999, NOVEX received a letter outlining a $1.1 million claim from a
distributor in Austria. The letter stated that the claim arose from the
termination of NOVEX's relationship with the distributor. No formal legal action
has been taken. From time to time NOVEX has been and expects to be involved in
legal proceedings arising from NOVEX's ordinary business operations. Other than
described above, no other proceedings are currently pending that are expected to
have a material adverse effect on NOVEX or NOVEX's business operations.
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NOVEX MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
NOVEX was founded in 1987, and its primary focus has been the development,
manufacturing and marketing of research electrophoresis products in pre-made or
kit form to corporate, academic and government entities. These products are used
primarily in life science research, such as pharmaceutical drug discovery and
investigation of diseases. The sale of electrophoresis products, primarily in
the United States, Europe and the Pacific Rim countries, has provided the
majority of NOVEX's revenues to date. Since NOVEX products are used for research
and quality control purposes, their use is not directly regulated by the United
States Food and Drug Administration or by any other international organization.
NOVEX products are manufactured or assembled at three facilities. The
primary manufacturing location is in San Diego, California. The Company also has
facilities in Frankfurt and Heidelberg, Germany. Other companies produce some
products and other components for final assembly and sale by NOVEX.
NOVEX maintains a direct sales force in the United States, Germany, the
United Kingdom and Switzerland, along with a selling agent in Austria. Sales and
marketing activities are headquartered at the San Diego facility, with European
efforts locally managed by Frankfurt and Heidelberg personnel. NOVEX also has
distribution arrangements in fifteen other countries, primarily in Europe,
Canada and the Pacific Rim countries. NOVEX sells its products to third party
distributors in these countries, who then sell the product to the end user. In
most European countries, the products are shipped directly to the end customer.
In France, NOVEX employs a direct sales person to augment the efforts of the
local distribution company. NOVEX does not currently plan on terminating any of
its distribution arrangements. It is possible that NOVEX will change this plan
in the future, and set up direct sales to customers in countries presently
served by distributors.
NOVEX's direct presence in Europe was established in November, 1996, when a
wholly-owned subsidiary was acquired in Frankfurt, Germany. Prior to this time,
all European sales were handled by distributors, and activity was coordinated
through a branch office and warehouse in Copenhagen, Denmark. Termination of
distribution arrangements and direct sales to customers in Germany and the
United Kingdom commenced shortly after the establishment of the subsidiary. Over
the last two years, NOVEX has terminated distribution agreements in Switzerland
and Austria, and sales are now direct to customers in these countries as well.
In May, 1998, NOVEX acquired the Serva product line from Boehringer
Ingelheim in an asset purchase. The Serva product line includes electrophoresis
products as well as fine chemicals used in life science research.
NOVEX's revenues have grown every year since its founding in 1987. Over the
last four years, NOVEX's sales have increased at a compound annual growth rate
of approximately 28%. This sales growth has been the result of a number of
factors, including the continuing conversion of customers from "pour your own"
to pre-cast electrophoresis gels, increased marketing and selling efforts in
both the United States and Europe, and product line expansion to include other
consumable items. NOVEX plans on continuing to increase its selling and
marketing efforts in the future. NOVEX also expects product development
activities to increase, in order to continue the expansion of electrophoresis
product lines.
NOVEX maintains inventory levels sufficient to ship most products to the
customer within 48 hours of receipt of order. As a result, NOVEX does not
currently have a significant backorder on any product, nor does it anticipate
establishing any significant backorder in the future. None of
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NOVEX's sales to its customers are covered by any contractual agreement, and are
not assured to continue in the future.
NOVEX's operating results and financial performance are difficult to
accurately forecast, and will probably vary from period to period. Several
circumstances will contribute to this fluctuation, including:
- New products introduced by competitors;
- New competitors in the pre-cast gel electrophoresis market;
- Advances in other technologies, which may lead to a replacement for gel
electrophoresis;
- NOVEX's continued ability to manufacture and distribute existing products;
- Future success in new product development and introduction;
- NOVEX's ability to control expenses in manufacturing, general
administration, marketing, selling and research and development; and
- General changes in the life science research market, including the
financial stability of major customers, as well as future commitments by
commercial, governmental and academic institutions to continued research
in life science.
Also, NOVEX has no control over the purchasing behavior of its customers,
and significant fluctuations in financial performance may result from changes in
the timing and product mix of customer orders. Prior financial information is no
indication of future performance, and historical trends on a yearly or quarterly
basis should not be extended to predict future results. There can be no
guarantee that the historical increases in revenue and profitability will
continue into the future, nor that future financial performance will meet
projections by third parties, including securities analysts.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED MARCH 31, 1999 AND 1998
REVENUE. Revenue increased $7.4 million, or 43%, from FY1998 to FY1999.
Total revenues were $17.1 million and $24.5 million in FY1998 and FY1999,
respectively. Domestic U.S. revenues increased $2.2 million, or 16%, from $13.4
million to $15.6 million, and international revenue increased $5.2 million, or
139%, from $3.7 million to $8.9 million. International revenue increased
approximately $4.1 million due to the acquisition of the Serva product line from
Boehringer Ingelheim in May, 1998. Revenue worldwide also increased due to
continued conversion of customers to pre-cast electrophoresis gels, as well as
increased sales of other consumable products. NOVEX believes that future
revenues will be impacted by marketing efforts of major competitors, NOVEX's
ability to introduce new products, and general market conditions in the life
science field.
GROSS MARGIN. Gross margin increased $3.6 million, or 40%, from FY1998 to
FY1999. Gross margins were $8.9 million and $12.5 million in FY1998 and FY1999,
respectively. Gross margin as a percentage of revenues decreased from 52% to 51%
for these periods. In FY1998, one-time expenses related to process changes in
manufacturing lowered gross margin as a percentage of revenues by approximately
2%. Gross margin as a percentage of revenues in FY1999 was reduced approximately
3% due to the sales of Serva branded products, which have a lower margin than
NOVEX branded electrophoresis products. Excluding the one time expenses in
fiscal FY1998 and the Serva sales in FY1999, the gross margin as a percentage of
sales on NOVEX branded electrophoresis products would have remained essentially
consistent from year to year. NOVEX believes that future gross margins will be
impacted by total sales volume, the Company's ability to maintain its pricing
structure, and foreign currency exchange rates. During FY1998 and FY1999, the
Company did not experience a significant financial impact from foreign currency
translation. NOVEX accepts payment in Europe in German
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Deutsche Marks, British Pounds, Swiss Francs and Austrian Shilling. Expenses are
primarily denominated in German Deutsche Marks, and, to a minor extent, British
Pounds. For financial reporting purposes, the European currencies are translated
into US Dollars at the average exchange rate for the period. Changes in the
exchange rates have had an effect on sales, gross margin and income, and may
cause fluctuations in financial performance in the future. Since the functional
currency of the German operations is the German Deutsche Mark, actual exchange
gains or losses have occurred, and may continue to occur, due to the delay in
payment of customer accounts receivable. During this delay, any change in
exchange rate between the local currency and the German Deutsche Mark results in
an exchange gain or loss.
SALES AND MARKETING. Sales and marketing expenses increased $1.9 million,
or 58% from FY1998 to FY1999. Sales and marketing expenses were $3.3 million and
$5.2 million in FY1998 and FY1999, respectively. Sales and marketing expenses as
a percentage of revenue increased from 19% in FY1998 to 21% in FY1999. The
increase in sales and marketing expenses was due the addition of expenses
related to the Serva product line, as well as expansion of NOVEX's United States
and European field sales force. NOVEX expects that sales and marketing expenses
as a percentage of revenue will decrease in the future to historical levels.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$0.1 million, or 4% from FY1998 to FY1999. General and administrative expenses
were $3.5 million and $3.6 million in FY1998 and FY1999, respectively. General
and administrative expenses as a percentage of revenue decreased from 20% to
15%. The increase in general and administrative expenses was a result of the
addition of expenses related to Serva product line, partially offset by lower
executive recruiting and relocation. NOVEX incurred a number of non-recurring
expenses in FY1998 related to the recruitment of three members of the executive
management team. NOVEX does not expect significant changes in general and
administrative expenses in the next year.
RESEARCH AND DEVELOPMENT. Research and development expenses increased $0.1
million, or 4%, from FY1998 to FY1999. Research and development expenses were
$1.5 million and $1.6 million in FY1998 and FY1999, respectively. Research and
development expenses as a percentage of revenues decreased from 9% in FY1998 to
6% in FY1999. The increase in expenses resulted primarily from an increase in
personnel devoted to development of electrophoresis gels and consumable
products, partially offset by a reduction in instrument development efforts.
NOVEX plans on increasing research and development efforts in the future. There
is no guarantee that these efforts and expenditures will result in marketable
products, or that customers will purchase sufficient volumes at sufficient
prices to result in profitable returns on future research and development.
OTHER INCOME (EXPENSE). Other expenses, consisting primarily of interest
expense, remained essentially constant at $0.2 million between FY1998 and
FY1999.
PROVISION FOR INCOME TAXES. NOVEX's effective tax rate decreased slightly
from 39% in FY1998 to 38% in FY1999. NOVEX believes that the future effective
tax rates may increase. This increase might occur if profits from the Serva
product line increase at a greater rate than overall profits of NOVEX. Serva
profits are taxed at German tax rates, which are higher than United States tax
rates at the present time.
FISCAL YEARS ENDED MARCH 31, 1998 AND 1997
REVENUE. Revenue increased $3.0 million, or 21%, from FY1997 to FY1998.
Revenues were $14.1 million and $17.1 million in FY1997 and FY1998,
respectively. Domestic U.S. revenues increased $1.6 million, or 14%, from $11.8
million to $13.4 million, and international revenues increased $1.3 million, or
54%, from $2.4 million to $3.7 million.
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GROSS MARGIN. Gross margin increased $1.1 million, or 15%, from FY1997 to
FY1998. Gross margin was $7.8 million and $8.9 million in FY1997 and FY1998,
respectively. Gross margin as a percentage of revenues decreased from 55% to 52%
for these periods. The reduction in gross margin as a percentage of revenues was
due to process and design changes in manufacturing which resulted in
non-recurring charges to cost of goods sold in FY1998.
SALES AND MARKETING. Sales and marketing expenses increased $0.6 million,
or 22% from FY1997 to FY1998. Sales and marketing expenses were $2.7 million and
$3.3 million in FY1997 and FY1998, respectively. Sales and marketing expenses as
a percentage of revenue remained constant at 19% over these periods. The
increase in sales and marketing expenses was due to the expenses associated with
the Company's wholly-owned subsidiary in Germany, which was acquired in
November, 1996.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$0.8 million, or 30% from FY1997 to FY1998. General and administrative expenses
were $2.7 million and $3.5 million in FY1997 and FY1998, respectively. General
and administrative expenses as a percentage of revenues increased from 19% to
20%. The increase in general and administrative expenses was a result of a
number of non-recurring expenses in FY1998 related to executive recruiting and
relocation, as well as expenses associated with the Company's wholly-owned
subsidiary in Germany.
RESEARCH AND DEVELOPMENT. Research and development expenses increased $0.2
million, or 16% from FY1997 to FY1998. Research and development expenses were
$1.3 million and $1.5 million in FY1997 and FY1998, respectively. Research and
development expenses as a percentage of revenues remained constant at 9% over
these periods. The increase in expenses resulted primarily from an increase in
personnel devoted to development of electrophoresis gels and consumable
products.
OTHER INCOME (EXPENSE). Other expenses, consisting primarily of interest
expense, increased $0.1 million from FY1997 to FY1998. Other expenses were $0.1
million and $0.2 million in FY1997 and FY1998, respectively.
PROVISION FOR INCOME TAXES. NOVEX's effective tax rate decreased from 45%
in FY1997 to 39% in FY1998. The Company experienced the high tax rate in FY1997
due to the accounting treatment of net operating losses at its wholly-owned
subsidiary in Germany.
LIQUIDITY AND CAPITAL RESOURCES
NOVEX's operating cash requirements have been provided by operating cash
flows and bank debt financing throughout its history. Cash flows from operating
activities were $0.6 million and $0.9 million in FY1998 and FY1999,
respectively. Cash flows from operating activities include the sources and uses
of funds related to net income, depreciation, and working capital balance sheet
accounts. Investing activities used approximately $1.1 million in both FY1998
and FY1999, primarily for the purchase of manufacturing equipment, office
equipment, computers and improvements in leased buildings. NOVEX's financing
activities provided $0.6 million and $0.3 million in FY1998 and FY1999,
respectively, primarily through additional bank borrowings.
As of March 31, 1999, NOVEX had cash of approximately $0.3 million, and
working capital of $2.4 million. NOVEX maintains a $1.2 million bank line of
credit, of which $0.5 million was utilized at March 31, 1999. NOVEX has
long-term debt of approximately $1.9 million, with $0.9 million due within the
next twelve months.
The balance sheet of NOVEX at March 31, 1999 includes an accrued dividend
payable to preferred stockholders of approximately $0.3 million. NOVEX believes
that the preferred stockholders will convert their shares into common stock in
anticipation of this transaction, thereby forfeiting the dividend.
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NOVEX relies on the profits from the continued sale of products to fund
operations. Cash on hand at the present time is insufficient to maintain
operations for any significant period of time. NOVEX expects that future cash
flows from operating activities will be sufficient to provide the Company's
requirements, but there is no assurance that these funds will be available. The
availability of these funds will be dependent on operating profits, which are,
in turn, dependent on many factors, including competitive market forces, product
development efforts and overall management of the Company.
EURO CONVERSION
Beginning in January 1999, a new currency called the Euro was introduced in
certain Economic and Monetary Union, or EMU, countries. During 2002, all EMU
countries are expected to be operating with the Euro as their single currency.
Uncertainty exists as to the effects the Euro currency will have on the
marketplace. NOVEX has completed an assessment of the impact of the Euro
currency on our operations in Germany. NOVEX utilizes two financial computer
systems in Europe, one of which is able to process transactions in the Euro
currency. A replacement for the non-compliant system is being implemented, and
is expected to be operational by the end of 1999. While NOVEX believes that the
Euro currency does not pose a problem for internal systems and controls, it is
possible that some disruption to operations will be experienced in the future.
It is impossible to estimate the costs related to the potential disruption.
FOREIGN CURRENCY EXCHANGE RISK
NOVEX conducts its business in Europe in foreign currencies, including the
German Deutsche Mark, British Pound, Swiss Franc and Austrian Shilling. NOVEX
has not taken any steps to reduce its exposure to changes in foreign currency
exchange rates, such as options or futures contracts. This exposure could result
in fluctuations in revenues and profits in the future, depending on changes in
exchange rates between these currencies and the US Dollar.
The functional currency of NOVEX's German operations is the German Deutsche
Mark. Balance sheet accounts are converted from Deutsche Marks to US Dollars at
the prevailing exchange rate on the date of the balance sheet. Income statement
accounts are translated at the average exchange rate over the period covered by
the statement. The net effect of the foreign currency exchange gain or loss is
recorded in the stockholders' equity section of the balance sheet.
The sales denominated in British Pounds, Swiss Francs and Austrian Shillings
have had an exchange gain or loss due to the delay between sale of the product
and collection of cash from the customer. These exchange gains or losses have
not been significant in the past, and are recognized on the income statement of
the Company's subsidiaries in Germany. NOVEX expects that these exchange gains
or losses will continue to occur in the future, but will not have a significant
impact on profits.
YEAR 2000 COMPLIANCE
NOVEX is dependent on computer systems and manufacturing equipment with
embedded hardware or software to conduct its business. The Company has completed
an inventory and assessment of computer systems, applications, and manufacturing
equipment, and has not discovered any issues related to Year 2000 compliance.
NOVEX expects that all equipment will continue to operate properly after
December 31, 1999, and does not believe that remedial action or contingency
plans are necessary for internal systems with respect to the Year 2000 issue.
NOVEX has communicated with its critical external suppliers to determine the
extent to which the Company may be vulnerable to their failure to resolve Year
2000 issues. To date, NOVEX has not received any indication that any key
supplier has or will have any Year 2000 issues. There is no guarantee that
external parties, including customers, will not experience disruptions after
December 31,
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1999. If a key supplier or customer experiences problems related to Year 2000
issues, it may have a negative impact on sales, distribution, supply and profits
in the future. This potential impact cannot be reasonably estimated at this
time.
NOVEX has not incurred significant expenses related to Year 2000 compliance.
The efforts to date have been accomplished during the normal course of business
by existing employees, with minimal impact on operations.
While NOVEX feels that sufficient investigation has been completed on the
readiness of systems, equipment and suppliers for Year 2000, there is no
guarantee that problems will not be encountered after December 31, 1999. If
problems do occur, the Company may experience significant impacts in revenue,
expenses and profit.
FORWARD-LOOKING STATEMENTS
The Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, such as statements relating to
trends in revenues, expenses and net income, and are therefore prospective. You
can identify these statements by forward-looking words such as "may," "will,"
"expect," "anticipate," "believe," "estimate," "project," and "continue" or
similar words. You should read statements that contain these words carefully
because they:
- Discuss our future expectations;
- Contain projections of our future results of operations or of our
financial condition; and
- State other "forward-looking" information.
Such forward-looking statements are subject to a number of risks,
uncertainties and other factors that could cause actual results to differ
materially from future results expressed or implied by such forward-looking
statements. Potential risks and uncertainties include, but are not limited to,
those listed under "Risk Factors" on page 20.
The above Management's Discussion and Analysis should be read in conjunction
with the consolidated financial statements and notes thereto included in this
Joint Proxy Statement/Prospectus.
EXECUTIVE OFFICERS OF NOVEX JOINING INVITROGEN
DAVID E. MCCARTY (PRESIDENT AND CEO, 56)
Mr. McCarty joined NOVEX as President and Chief Executive Officer in August
1997. Prior to joining NOVEX, Mr. McCarty was President and CEO of Alexon
Biomedical, a Sunnyvale CA-based immunoassay diagnostic company which he joined
in 1990. Prior to joining Alexon, Mr. McCarty spent six years at Gen-Probe,
Inc., a DNA probe diagnostics company, as Vice President of Operations. His
other professional experience includes senior operating positions at
Calbiochem-Behring and Boehringer Mannheim. Mr. McCarty also serves as a
director of Chromagen, Inc., a privately held high-throughput drug screening
company. Mr. McCarty holds a B.S. in Chemistry from California State University
at Northridge and an M.B.A. from California State University at Long Beach.
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EXECUTIVE COMPENSATION
The following table sets forth all compensation received during the fiscal
year ended March 31, 1999 by NOVEX's Chief Executive Officer and President--the
only executive officer of NOVEX who will serve as an executive officer of
Invitrogen following the completion of the merger.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------------
SHARES OF
COMMON STOCK
ISSUABLE UPON
EXERCISE OF ALL OTHER
NAME AND POSITION YEAR SALARY ($) BONUS ($) OPTIONS COMPENSATION ($)
- ---------------------------------------- ---- -------------- --------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
David E. McCarty ....................... 1999 $ 235,096(1) 35,496 0 15,736(2)
Chief Executive Officer and President
</TABLE>
- ------------------------
(1) Includes $10,096 in paid out vacation.
(2) Includes (i) a contribution of $7,717 to NOVEX's 401K Plan which NOVEX made
on behalf of Mr. McCarty to match his FY1999 pre-tax elective deferral
contributions (included under salary) to such plan, (ii) $6,945 contributed
by NOVEX to NOVEX's Employee Stock Ownership Plan on behalf of Mr. McCarty,
and (iii) $1,074 paid to Mr. McCarty pursuant to NOVEX's executive medical
expenses reimbursement plan.
YEAR-END VALUES
The following table sets forth certain information concerning the number and
value of unexercised options held by the executive officer listed in the Summary
Compensation Table as of March 31, 1999. There was no public trading market for
NOVEX's common stock as of March 31, 1999. Accordingly, the values of
unexercised in-the-money options have been calculated on the basis of a price of
$2.00 per share, the good faith determination by NOVEX's board of directors of
the fair market value as of the date of grant, less the applicable exercise
price per share, multiplied by the number of shares underlying such options.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT MARCH 31, 1999 MARCH 31, 1999
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
David E. McCarty.......................................... 196,222 403,778 $ 204,071 $ 419,929
</TABLE>
EMPLOYMENT AND SEVERANCE ARRANGEMENTS
NOVEX entered into an agreement with Mr. McCarty as of July 1997 in
connection with Mr. McCarty's employment as Chief Executive Officer and
President of NOVEX. The agreement calls for an initial base salary of $225,000
per year beginning August 19, 1997, which as of April 1, 1999 has been increased
to $240,000 per year. The agreement also provides for, against a target bonus of
30% of his fiscal 1998 salary, prorated for actual time employed, a 1998 fiscal
year bonus equal to no less than 15% of McCarty's fiscal 1998 salary received
from NOVEX. Commencing at the beginning of NOVEX's 1999 fiscal year, Mr. McCarty
became eligible to participate in a cash bonus plan giving him the opportunity
to receive a bonus of up to 30% of his annual salary upon achievement of targets
established for him from year to year by NOVEX's Board of Directors. The
agreement also reflects the grant to him of 600,000 stock options. If Mr.
McCarty is terminated, other than for cause, NOVEX must pay him twelve months'
salary at his then base salary rate (reduced by applicable tax withholding), to
be paid on an ongoing semi-monthly basis.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information concerning the beneficial
ownership of the shares of NOVEX's common stock as of July 2, 1999, by:
- Each person NOVEX knows to be the beneficial owner of 5% or more of the
outstanding shares of common stock, together with the affiliates of such
person;
- NOVEX's Chief Executive Officer and its four most highly compensated
executive officers, other than its Chief Executive Officer, who were
serving as executive officers as of the NOVEX's fiscal year ended March
31, 1999;
- Each director of NOVEX; and
- All executive officers and directors of NOVEX as a group.
Except in cases where community property laws apply or as indicated in the
footnotes to this table, NOVEX believes that each shareholder identified in the
table possesses sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by such shareholder. Unless otherwise
indicated, the address of each person in this table is: 11040 Roselle Street,
San Diego, California 92121.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES THAT MAY BE
ACQUIRED WITHIN 60
------------------------- DAYS
BENEFICIAL OWNER NUMBER PERCENT(1) OF JULY 2, 1999
- ----------------------------------------------------------------- ---------- ------------- ----------------------
<S> <C> <C> <C>
Sheldon C. Englehorn(2).......................................... 4,240,351 38.9% 0
2474 Manchester Ave.
Cardiff by the Sea, CA 92007
Ampersand Ventures............................................... 4,201,807 38.5 4,091
Peter D. Parker
David J. Parker(3)(4)
55 William Street, Suite 240
Wellesley, MA 02181-4003
William B. Cogen................................................. 800,000 7.3 0
17851 Arbor Lane
Irvine, CA 92715
William F. Alpenfels(5).......................................... 837,873 7.7 5,001
119 Eighth Street
Del Mar, CA 92014
Union Bank of California,........................................ 628,005 5.8 0
as the Trustee for the Novel Experimental Technology Employee
Stock Ownership Plan(6)
11040 Roselle Street
San Diego, CA 92121
James K. Johnson................................................. 0 * 28,816
Joseph W. Amshey................................................. 0 * 32,541
David McCarty(7)................................................. 0 2.2 246,489
All Directors and Executive Officers as a group(3)(4)(8) (nine
persons)....................................................... 9,334,628 86.1% 426,133
</TABLE>
- ------------------------
* Less than 1%.
(1) Percentage of ownership is based on: 6,711,317 shares of common stock and
42,000 shares of Series A Preferred Stock (which will be converted into
4,200,000 shares of common stock immediately prior to the close of the
merger) outstanding as of July 2, 1999. Shares of common stock that an
individual or group has the right to acquire within 60 days of July 2, 1999,
pursuant to the
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exercise of options or pursuant to stock purchase agreements, are deemed to
be outstanding for the purposes of computing the percentage ownership of
such individual or group, but are not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person shown in
the table.
(2) Includes 40,351 shares, as of March 31, 1998, held of record by NOVEX's ESOP
Trust Fund as to which Mr. Englehorn holds a pecuniary interest. The number
of shares in NOVEX's ESOP Trust Fund as to which Mr. Englehorn holds a
pecuniary interest as of July 2, 1999 has not yet been finally determined,
but is estimated to be approximately 42,242.
(3) Includes approximately 7,875 shares of Series A Preferred Stock (which will
be converted into 787,480 shares of common stock immediately prior to the
close of the merger) held by Laboratory Partners I Limited Partnership,
approximately 2,625 shares of Series A Preferred Stock (which will be
converted into 262,520 shares of common stock immediately prior to the close
of the merger) held by Laboratory Partners Companion Fund Limited
Partnership, and 31,500 shares of Series A Preferred Stock (which will be
converted into 3,150,000 shares of common stock immediately prior to the
close of the merger) owned by Ampersand Specialty Materials and Chemicals II
Limited Partnership. Laboratory Partners I Limited Partnership, Laboratory
Partners Companion Fund Limited Partnership, and Ampersand Specialty
Materials and Chemicals II Limited Partnership are part of an affiliated
group of investment partnerships referred to collectively as Ampersand
Ventures. The general partner of Laboratory Partners I Limited Partnership
and Laboratory Partners Companion Fund Limited Partnership is Ampersand Lab
Partners MCLP LLP, which exercises sole voting and investment power with
respect to all of the shares held of record by Laboratory Partners I Limited
Partnership and Laboratory Partners Companion Fund Limited Partnership. The
general partner of Ampersand Specialty Materials and Chemicals II Limited
Partnership is ASMC-II MCLP LLP, which exercises sole voting and investment
power with respect to all of the shares held of record by Ampersand
Specialty Materials and Chemicals II Limited Partnership. Peter D. Parker, a
director of NOVEX, is the general partner of Ampersand Lab Partners MCLP LLP
and ASMC-II MCLP LLP. David J. Parker, a director of NOVEX, is a limited
partner of ASMC-II MCLP LLP and Ampersand Lab Partners MCLP LLP. Both Peter
Parker and David Parker disclaim beneficial ownership in any of the shares
owned by Laboratory Partners I Limited Partnership, Laboratory Partners
Companion Fund Limited Partnership, and Ampersand Specialty Materials and
Chemicals II Limited Partnership except to the extent of their respective
percentage interests in such investment partnerships.
(4) Includes 4,091 stock options owned by Mr. David Parker's spouse, Althea W.
Lee, who is an employee of NOVEX. Also includes 1,807 shares, as of March
31, 1998, held of record by NOVEX's ESOP Trust Fund as to which Ms. Lee
holds a pecuniary interest. The number of shares in NOVEX's ESOP Trust Fund
as to which Ms. Lee holds a pecuniary interest as of July 2, 1999 has not
yet been finally determined, but is estimated to be 2,221. Mr. Parker
disclaims beneficial ownership of those stock options and the ESOP Trust
Fund shares.
(5) Includes 37,873 shares, as of March 31, 1998, held of record by NOVEX's ESOP
Trust Fund as to which Mr. Alpenfels holds a pecuniary interest. The number
of shares in NOVEX's ESOP Trust Fund as to which Mr. Alpenfels holds a
pecuniary interest as of July 2, 1999 has not yet been finally determined,
but is estimated to be approximately 39,390.
(6) As trustee of NOVEX's ESOP Trust Fund, Union Bank of California has certain
voting and investment power with respect to the 628,005 shares held of
record by the ESOP. Union Bank of California disclaims beneficial ownership
of such shares.
(7) Does not include the estimated 441 shares in NOVEX's ESOP Trust Fund as to
which Mr. McCarty holds a pecuniary interest as of July 2, 1999, as that
number of shares has not yet been finally determined. As of March 31, 1998,
Mr. McCarty had no interest in any of the shares held by the ESOP Trust
Fund.
(8) Includes 134,628 shares, as of March 31, 1998, held of record by NOVEX's
ESOP Trust Fund as to which NOVEX's Directors and Executive Officers, as a
group, hold a pecuniary interest. The number of shares in NOVEX's ESOP Trust
Fund as to which NOVEX's Directors and Executive Officers, as a group, hold
a pecuniary interest as of July 2, 1999 has not yet been finally determined,
but is estimated to be 140,686.
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DESCRIPTION OF INVITROGEN CAPITAL STOCK
The information set forth below is a general summary of the capital stock
structure of Invitrogen. As a summary, this section is qualified and not a
substitute for the provisions of Invitrogen's certificate of incorporation, as
amended and Invitrogen's bylaws, as amended, both of which are on file with the
SEC.
AUTHORIZED CAPITAL STOCK
Invitrogen's authorized capital stock consists of 50,000,000 shares of
common stock, par value $0.01 per share, and 6,405,884 shares of preferred
stock, par value $0.01 per share.
COMMON STOCK
As of July 2, 1999, 13,430,650 shares of Invitrogen common stock were
outstanding. In addition, 4,436,129 shares of Invitrogen common stock were
reserved and available for issuance pursuant to Invitrogen's employee benefit
plans. On a pro forma basis immediately following the merger approximately 16
million shares of Invitrogen common stock will be outstanding and 5.9 million
shares of Invitrogen common stock will be reserved and available for issuance
pursuant to Invitrogen's employee benefit plans (assuming the 1,000,000 share
increase under the 1997 Stock Option Plan is approved).
The holders of Invitrogen common stock are entitled to receive ratably, from
funds legally available for the payment thereof, dividends when and as declared
by resolution of the Invitrogen board, subject to any preferential dividend
rights which may be granted to holders of any preferred stock authorized and
issued by the Invitrogen board. Traditionally, Invitrogen has not declared and
paid dividends. In the event of liquidation, each share of Invitrogen common
stock is entitled to share pro rata in any distribution of Invitrogen's assets
after payment or providing for the payment of liabilities and any liquidation
preference of any preferred stock authorized and issued by the Invitrogen board.
Each holder of Invitrogen common stock is entitled to one vote for each share of
Invitrogen common stock held of record on the applicable record date on all
matters submitted to a vote of shareholders, including the election of
directors.
Holders of Invitrogen common stock have no cumulative voting rights or
preemptive rights to purchase or subscribe for any stock or other securities,
and there are no conversion rights or redemption rights or sinking fund
provisions with respect to Invitrogen common stock. The outstanding shares of
Invitrogen common stock are, and the shares of Invitrogen common stock issued
pursuant to the merger will be, duly authorized, validly issued, fully paid and
nonassessable.
PREFERRED STOCK
As of July 2, 1999, no shares of preferred stock were outstanding.
The Invitrogen board has the authority, without further stockholder approval
to create series of preferred stock, to issue shares of preferred stock in such
series up to the maximum number of shares of the relevant class of preferred
stock authorized, and to determine the preferences, rights, privileges and
restrictions of any such series, including the dividend rights, voting rights,
rights and terms of redemption, liquidation preferences, the number of shares
constituting any such series and the designation of such series.
REGISTRATION RIGHTS
Under a Stock Purchase and Stockholders' Agreement dated June 20, 1997, the
holders of approximately 1,702,942 shares of Invitrogen common stock, or persons
to whom such holders transfer the common stock, have registration rights with
respect to such shares. If Invitrogen proposes to register any of its securities
under the Securities Act, either for its own account or for the account of other
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security holders, holders of shares entitled to registration rights are entitled
to notice of such registration and are entitled to include their shares in such
registration, at Invitrogen's expense. However, the underwriters of any such
offering have the right to limit the number of shares included in such
registration. In addition, beginning August 1999, holders of at least 50% of the
shares entitled to registration rights outstanding may require Invitrogen to
prepare and file a registration statement under the Securities Act, at
Invitrogen's expense, covering such shares, and Invitrogen is generally required
to use its best efforts to effect such registration. Invitrogen is not obligated
to effect more than two of these stockholder-initiated registrations. Further,
holders of shares entitled to registration rights generally may require
Invitrogen to file additional registration statements on Form S-3.
TRANSFER AGENT AND REGISTRAR
Boston EquiServe L.P., is the transfer agent and registrar for the
Invitrogen stock.
STOCK EXCHANGE LISTING
The Invitrogen stock is listed on the Nasdaq National Market under the
symbol "IVGN." Invitrogen will cause the shares of Invitrogen common stock
issuable in the merger to be approved for listing on the Nasdaq National Market
on or prior to the merger, subject to official notice of issuance.
COMPARISON OF SHAREHOLDER RIGHTS
As a result of the merger, holders of NOVEX common stock will become holders
of Invitrogen common stock. The following is a summary of certain of the
material differences between the rights of holders of NOVEX common stock and the
rights of holders of Invitrogen common stock. NOVEX is organized under the laws
of the State of California, while Invitrogen is organized under the laws of the
State of Delaware. Such differences arise from differences between the
California and Delaware state laws, as well as under the various provisions of
the NOVEX articles of incorporation and bylaws and the Invitrogen certificate of
incorporation and bylaws.
The following summary does not purport to be a complete statement of the
rights of holders of Invitrogen common stock and NOVEX common stock. You should
also refer to the Delaware General Corporation Law, or the DGCL, the California
Corporations Code, or the CCC, and the certificates of incorporation and bylaws
of Invitrogen and the articles of incorporation and bylaws of NOVEX. See
"Description of Invitrogen Capital Stock" for a summary of certain other rights
relating to the Invitrogen common stock.
ELECTION, NUMBER, CLASSIFICATION AND REMOVAL OF DIRECTORS
The authorized number of directors of Invitrogen is between five and nine
and is currently set at eight. One seat is currently vacant. The Invitrogen
board is divided into three separate classes. The terms of Class I, Class II and
Class III duties expire at the annual meeting of stockholders held in 2000, 2001
and 2002 respectively, or at special meetings held instead of such annual
meetings. Directors serve until the third annual meeting of shareholders
following their election.
The authorized number of directors of NOVEX is currently five. The NOVEX
board currently has five members.
Invitrogen's certificate of incorporation does not provide for cumulative
voting of directors, which is consistent with the DGCL. Under the CCC, with
limited exceptions inapplicable to NOVEX, any shareholder of a corporation is
entitled to cumulate his votes for the election of directors provided that at
least one shareholder has given notice at the meeting prior to the voting of
such shareholder's intention to cumulate his or her votes. Cumulative votes may
only be cast for candidates who have
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been nominated before the voting. Accordingly, NOVEX shareholders are entitled
to cumulative votes for the election of directors.
Any one or more of the directors of Invitrogen may be removed from office at
any time, by the holders of a majority of the shares then entitled to vote in an
election of directors. The NOVEX board is not divided into separate classes of
directors. Directors serve until the next annual meeting of shareholders and
until their successors are elected and qualified. Under the CCC, the holders of
at least 10% of the number of outstanding shares of any class of stock may
initiate a court action to remove any director for cause. In addition, any or
all of the directors of a California corporation may be removed without cause by
the affirmative vote of a majority of the outstanding shares entitled to vote.
Unless the entire board is removed, however, no director may be removed when the
votes cast against removal would be sufficient to elect the director if voted
cumulatively at an election at which the same total number of votes were cast
and the entire number of the directors authorized at the time of the director's
most recent election were then being elected.
ADVANCE NOTICE OF SHAREHOLDER PROPOSALS
The bylaws of Invitrogen provide that a shareholder must give advance
written notice if the shareholder intends to bring any business before a meeting
of shareholders or to make nominations for the board of directors.
The bylaws of Invitrogen require that, for business to be properly brought
by a shareholder before an annual meeting, notice must be delivered to or mailed
by the shareholder and received by Invitrogen not less than 120 days prior to
the anniversary of the prior year's annual meeting or not later than ten days
after notice or public disclosure of the date of the annual meeting shall be
given or made to shareholders, whichever date is earlier.
For nominations of directors to the Invitrogen board, notice must be
delivered to or mailed by the shareholder and received by Invitrogen not later
than
- With respect to an election to be held at an annual meeting of
shareholders, 120 days prior to the anniversary of the prior year's annual
meeting and
- With respect to an election to be held at a special meeting of
shareholders for the election of directors, seven days following the date
on which notice shall be given to shareholders.
RIGHT TO CALL SPECIAL MEETINGS
The bylaws of Invitrogen provide that special meetings of shareholders may
be called by the chairman, the president or by a majority of directors.
Under the CCC, a special meeting of shareholders may be called by the board
of directors, the chairman of the board, the president or the holders of shares
entitled to cast not less than 10% of the votes at the meeting, or by such
additional persons as may be provided in the charter or bylaws. Neither the
NOVEX articles nor its bylaws permit any other person to call a special meeting.
SHAREHOLDER ACTION BY WRITTEN CONSENT
Unless otherwise provided in the charter, under the DGCL, any action which
is required to be taken or may be taken at a meeting of shareholders, including
the election of directors, may be taken by a written consent signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to take such action at a meeting. Invitrogen's
certificate of incorporation prohibits the taking of action by written consent
of the stockholders.
Under the CCC and NOVEX's bylaws, any action which may be taken at a meeting
of shareholders may also be taken by the written consent of the holders of at
least the same proportion of
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outstanding shares as would be necessary to take such action at a meeting at
which all shares entitled to vote were present and voted, except that the
election of directors by written consent generally requires the unanimous
consent of all shares entitled to vote.
TRANSACTIONS WITH INTERESTED SHAREHOLDER; DGCL SECTION 203 AND CCC SECTION 1203
Invitrogen is subject to Section 203 of the DGCL. Under Section 203, an
interested stockholder, defined generally as a person owning 15% or more of a
corporation's outstanding voting stock, is prevented from engaging in a business
combination with the corporation for three years after becoming an interested
stockholder unless:
- The board approved the transaction in which the interested stockholder
became an interested stockholder;
- The interested stockholder owns more than 85% of the stock after the
consummation of the transaction in which the stockholder became
interested; or
- The board approves the business combination and 2/3 of the outstanding
voting stock of the corporation not owned by the interested stockholder
approves the business combination.
NOVEX is subject to Section 1203 of the CCC. Under Section 1203, if a tender
offer or a written proposal for approval of a reorganization or for a sale of
assets is made to some or all of a corporation's shareholders by an "interested
party," an affirmative opinion in writing as to the fairness of the
consideration to the shareholders of that corporation shall be delivered as
follows:
- If no shareholder approval or acceptance is required for the consummation
of the transaction, the opinion shall be delivered to the corporation's
board of directors not later than the time that consummation of the
transaction is authorized and approved by the board of directors;
- If a tender offer is made to the corporation's shareholders, the opinion
shall be delivered to the stockholders at the time that the tender offer
is first made in writing to the shareholders;
- If a shareholders' meeting is to be held to vote on approval of the
transaction, the opinion shall be delivered to the shareholders with the
notice of the meeting;
- If consents of all shareholders entitled to vote are solicited in writing,
the opinion shall be delivered at the same time as that solicitation; or
- If the consents of all shareholders are not solicited in writing, the
opinion shall be delivered to each shareholder whose consent is solicited
prior to that shareholder's consent being given, and to all other
shareholders at the time they are given notice of any shareholder approval
by less than unanimous written consent.
An "interested party" as defined in Section 1203 means a person who is a
party to the transaction and:
- Directly or indirectly controls the corporation that is the subject of the
tender offer or proposal;
- Is, or is directly or indirectly controlled by, an officer or director of
the subject corporation; or
- Is an entity in which a material financial interest is held by any
director or executive officer of the subject corporation.
AMENDMENT OF CHARTER/ARTICLES AND BYLAWS
AMENDMENT OF CHARTER. The Invitrogen certificate of incorporation may be
amended by a vote of a majority of the outstanding shares of Invitrogen common
stock.
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The CCC contains a similar provision. The vote of a majority of the
outstanding shares of NOVEX stock entitled to vote thereon, and the vote of a
majority of the outstanding shares of NOVEX stock of each class entitled to vote
thereon as a class, are necessary to approve an amendment to the NOVEX articles.
AMENDMENT OF BYLAWS. The Invitrogen board may adopt, amend or repeal the
bylaws of Invitrogen, or adopt new bylaws, without any action on the part of the
shareholders; provided, however, that no such adoption, amendment or repeal
shall be valid with respect to bylaw provisions which have been adopted, amended
or repealed by the shareholders; and further provided that bylaws adopted or
amended by the Invitrogen board and any powers thereby conferred may be amended,
altered or repealed by the shareholders.
The NOVEX bylaws provide that, subject to the provisions of the articles and
the provisions of the CCC, the power to amend, alter or repeal bylaws and to
adopt new bylaws may be exercised by the board of directors or by the
shareholders.
APPRAISAL RIGHTS
Under the CCC, in connection with the merger of a corporation for which the
approval of outstanding shares is required, dissenting shareholders of such
corporation who follow prescribed statutory procedures are entitled to receive
payment of the fair market value of their shares. See "The Merger-- Dissenters'
Rights" on page 30.
Under the DGCL, a stockholder of a corporation who does not vote in favor of
or consent in writing to certain merger transactions and who demands appraisal
of his or her shares in connection therewith may, under varying circumstances,
be entitled to dissenters' rights pursuant to which such stockholder may receive
cash in the amount determined by a Delaware court to be the fair value of his or
her shares together with a fair rate of interest, if any, in lieu of the
consideration he or she would otherwise receive in the transaction. Unless the
corporation's certificate of incorporation provides otherwise such appraisal
rights are not available in certain circumstances, including without limitation
(a) the sale, lease or exchange of all or substantially all of the assets of a
corporation, (b) the merger or consolidation of a corporation the shares of
which are either listed on a national securities exchange or on Nasdaq or are
held of record by more than 2,000 holders if such stockholders receive only
shares of the surviving corporation or shares of any other corporation which are
either listed on a national securities exchange or on Nasdaq or held of record
by more than 2,000 holders, plus cash in lieu of fractional shares or (c) to
stockholders of a corporation surviving a merger if no vote of the stockholders
of the surviving corporation is required to approve the merger because the
merger agreement does not amend the existing certificate of incorporation, each
share of the surviving corporation outstanding prior to the merger is an
identical outstanding or treasury share after the merger, and the number of
shares to be issued in the merger does not exceed 20% of the shares of the
surviving corporation outstanding immediately prior to the merger and if certain
other conditions are met. The concept of "fair value" in payment for shares upon
exercise of appraisal rights, under the DGCL, must be determined exclusive of
any element of value arising from the accomplishment or expectation of the
relevant transaction.
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ADDITIONAL MATTERS FOR CONSIDERATION OF INVITROGEN STOCKHOLDERS
In addition to consideration of and voting on the issuance of Invitrogen
common stock in connection with the merger, the Invitrogen stockholders will be
asked to vote upon a proposal to amend Invitrogen's 1997 Stock Option Plan to
increase the number of shares reserved for issuance under the plan.
AMENDMENT OF 1997 STOCK OPTION PLAN
GENERAL
The maximum number of shares of Invitrogen common stock that may be issued
pursuant to options under the 1997 Stock Option Plan is currently 4,485,479, and
as of July 2, 1999, options covering a total of 3,239,778 shares were
outstanding or had been exercised under the plan. Accordingly, only 1,245,701
shares remain available for new grants. The board of directors has unanimously
approved, subject to approval by the stockholders, an amendment to the plan to
make an additional 1,000,000 shares of Invitrogen common stock available for
issuance under the plan for a total of 5,485,479 shares of Invitrogen common
stock.
SUMMARY OF 1997 STOCK OPTION PLAN
The following is a summary of the principal features of the plan as in
effect and as proposed to be amended.
PURPOSE AND ELIGIBILITY. The plan is intended to promote the interests of
Invitrogen and its stockholders by using options to purchase shares of common
stock of Invitrogen to attract, retain and motivate its management and other
persons, to encourage and reward their contributions to the performance of
Invitrogen and to align their interests with the interests of Invitrogen
stockholders. The persons eligible to receive awards under the plan include
directors, officers, employees, consultants, and advisors of Invitrogen and its
affiliated entities. Currently, it is estimated that approximately 227 persons
are eligible to receive stock options under the plan, consisting of
approximately 5 directors, 2 executive officers and 220 employees and
consultants.
TYPES OF OPTIONS. The plan enables Invitrogen to grant incentive and
nonqualified stock options. Stock options granted under the plan may be
incentive stock options intended to qualify under the provisions of Section 422
of the Internal Revenue Code or nonqualified stock options that do not qualify
under Section 422. The exercise price for each option is determined by the
committee at the date of grant. Options granted under the plan vest, become
exercisable, and terminate as determined by the committee. All options granted
under the plan may be exercised at any time after they vest and before their
expiration date, provided that no option may be exercised more than ten years
after its grant or, in some instances, upon termination of the recipient. The
exercise of stock options under the plan will have the effect of diluting
current stockholders to the extent that the stock options are exercised and
therefore converted into shares of common stock.
SECURITIES SUBJECT TO THE PLAN. No more than 4,485,479 shares of common
stock (5,485,479 shares if this proposal is approved) may be issued pursuant to
or upon exercise of options granted under the plan. The shares available under
the plan may either be authorized and unissued shares or shares reacquired by
Invitrogen through open market purchases or otherwise. Shares of common stock
subject to unexercised options that expire, terminate or are canceled, and
shares of common stock issued under options that are reacquired by Invitrogen
according to the terms of the option under which the shares were issued, will
again become eligible for the grant of further options under the plan. The
number of shares of common stock available under the plan in general, as well as
the number of shares of common stock subject to outstanding options and the
exercise price per share of any options, may be proportionately adjusted to
reflect stock splits, stock dividends and other capital stock transactions.
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If Invitrogen is the surviving corporation in any merger or consolidation,
each outstanding option will entitle the recipient to receive the same
consideration received by holders of the same number of shares of Invitrogen
common stock in the merger or consolidation. In the event of a
change-in-control, any then outstanding vested or unvested options will
automatically terminate unless:
- provision is made in writing in connection with such transaction for the
continuance of the plan and for the assumption of any options, or for the
substitution for any options of new options covering the securities of a
successor entity or its affiliate with appropriate adjustments as to the
number and kind of securities and exercise prices, in which event the plan
and such outstanding options will continue or be replaced, as the case may
be; or
- the board will provide in writing for any adjustments it deems appropriate
in the terms and conditions of the then-outstanding options, including
accelerating the vesting of outstanding options and/or providing for the
cancellation of options and their automatic conversion into the right to
receive the securities, cash or other consideration that a holder of the
shares underlying such options would have been entitled to receive upon
consummation of the change-in-control had the shares been issued and
outstanding immediately before the effective date and time of the
change-in-control, net of the appropriate option exercise prices.
If the plan and the options terminate by reason of the occurrence of a
change-in-control without provision for any of the actions described above, then
any recipient holding outstanding options has the right, at a time immediately
before the consummation of the change-in-control designated by the board, to
fully exercise the recipient's options. For purposes of the plan, a
change-in-control includes:
- a reorganization, merger or consolidation after which more than 50% of
voting securities of Invitrogen are not represented by holders of
securities before the reorganization, merger or consolidation;
- a liquidation or dissolution of Invitrogen;
- the acquisition of 50% or more of Invitrogen's voting securities by any
person; or
- a majority change in board membership without board approval.
The following table sets forth the number of options granted under the 1997
Stock Option Plan, including outstanding options and options that have been
exercised, as of July 2, 1999 for:
- each of Invitrogen's executive officers listed in its summary compensation
table;
- each person who received 5% of such options;
- all current executive officers of Invitrogen as a group;
- all current directors of Invitrogen who are not executive officers as a
group; and
- all employees of Invitrogen, including current officers who are not
executive officers, as a group.
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<TABLE>
<CAPTION>
NUMBER OF
NAME OF BENEFICIAL OWNER OPTIONS GRANTED
- ----------------------------------------------------------------------------- ---------------
<S> <C>
Lyle C. Turner............................................................... 0
President and Chief Executive Officer
James R. Glynn............................................................... 250,000
Senior Vice President Corporate Development and
Chief Financial Officer
Donald W. Grimm.............................................................. 20,000
Kurt R. Jaggers.............................................................. 0
Bradley G. Lorimier.......................................................... 10,000
Jay M. Short, Ph.D........................................................... 152,000
Lewis J. Shuster............................................................. 20,000
All current executive officers as a group (2 persons)........................ 250,000
All current directors who are not executive officers as a group (5
persons)................................................................... 202,000
All current employees, including all current officers who are not executive
officers, as a group (65 persons).......................................... 1,735,320
</TABLE>
ADMINISTRATION, AMENDMENT AND TERMINATION. The plan is administered by a
committee of the board, which consists of at least two non-employee directors
who are disinterested within the meaning of Rule 16b-3 of the Securities
Exchange Act, and who are eligible to receive only automatic, non-employee
directors options. However, the board, instead of the committee, may exercise
any authority granted to the committee under the plan. The committee has the
authority to interpret the plan and the rights of recipients of awards granted
under the plan. The committee also has the power to discontinue, suspend or
amend the plan in any manner, subject to certain limited exceptions, including
increases in the number of shares available that may be the subject of awards
under the plan which requires stockholder approval. With respect to all other
amendments to the plan, the board may, in its discretion, determine that such
amendment shall only become effective upon approval by the company's
stockholders if the board determines that such stockholder approval may be
advisable, such as for the purpose of obtaining or retaining any statutory or
regulatory benefits under federal or state securities laws, federal or state tax
laws, or for the purpose of satisfying applicable stock exchange listing
requirements. The committee may, with the consent of the recipient of an option,
modify the terms and conditions, accelerate or extend the vesting or exercise
period and adjust or reduce the purchase price of an option.
TERMS AND CONDITIONS OF OPTIONS UNDER THE PLAN. The committee will select
the recipients of options granted under the plan and will determine the dates,
amounts, exercise prices, vesting periods and other relevant terms of the
option.
OPTION PRICING. The exercise price for stock options shall be determined by
the committee as of the date the award is granted. Options to purchase
Invitrogen common stock may, with some limitations, be granted with an exercise
price below the market value of such stock on the grant date.
OPTION VESTING. Options granted under the plan vest and become exercisable
as determined by the committee in its discretion. Options granted under the plan
may be exercised at any time after they vest and before the expiration date
determined by the committee, provided that any options intended to qualify as an
incentive stock option under the Internal Revenue Code will not be exercisable
after the expiration of five years from the date of grant to certain holders of
significant amounts of outstanding Invitrogen common stock. Furthermore, in the
absence of a specific agreement to the contrary, options will generally expire
and become unexercisable three months following termination of the
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recipient's employment with Invitrogen for any reason other than for cause. The
committee may accelerate the vesting of any options and may also extend the
period following termination of employment with Invitrogen during which options
may vest and/or be exercised.
OPTION PAYMENTS. The exercise price for options may be paid in cash or in
any other consideration the committee deems acceptable, including securities of
Invitrogen surrendered by the recipient or withheld from the shares otherwise
deliverable upon exercise. Invitrogen may extend or arrange for the extension of
credit to any recipient to finance the recipient's purchase of shares upon
exercise of the recipient's award and/or the payment of taxes payable in
connection with an option, on terms approved by the committee, subject to
restrictions under applicable laws and regulations, or allow exercise in a
broker's transaction in which the exercise price will not be received until
after exercise and subsequent sale of the underlying common stock.
LIMITED TRANSFERABILITY OF OPTIONS. Options are generally not transferable
by the recipient during the life of the recipient.
OPTION DOCUMENTATION. Options granted under the plan will be evidenced by
an agreement duly executed on behalf of Invitrogen and by the recipient, or by a
confirming memorandum issued by Invitrogen to the recipient, setting forth the
terms and conditions applicable to the option. The plan does not preclude
Invitrogen from establishing any other forms of incentive or other compensation
for its employees, directors, advisors or consultants, whether or not approved
by stockholders.
RIGHTS WITH RESPECT TO COMMON STOCK. No recipient of an option under the
plan has any right, title or interest in or to any shares of common stock
subject to any option or any rights as a stockholder unless and until the option
is duly exercised pursuant to the terms of the plan and the exercise of the
option results in the issuance of shares of common stock to the recipient.
PLAN PROVISIONS REGARDING SECTION 162(M) OF THE CODE. In general, Section
162(m) of the Internal Revenue Code imposes a $1 million limit on the amount of
compensation that may be deducted by Invitrogen in any tax year with respect to
its Chief Executive Officer and its other four most highly compensated
employees, including any compensation relating to an award under the plan. The
plan is designed to allow Invitrogen to grant options that are not subject to
the $1 million limit of Section 162(m). No one eligible person may be granted
any awards with respect to more than 250,000 shares of common stock or in excess
of $1 million in any one calendar year. Furthermore, if Section 162(m) would
otherwise apply and if the amount of compensation an eligible person would
receive under an award is not based solely on an increase in the value of the
underlying Invitrogen common stock after the date of grant the committee may
condition the grant, vesting, or exercisability of the option on the attainment
of a preestablished objective performance goal. A preestablished objective
performance goal may include one or more of the following performance criteria:
(a) cash flow, (b) earnings per share (including earnings before interest,
taxes, and amortization), (c) return on equity, (d) total shareholder return,
(e) return on capital, (f) return on assets or net assets, (g) income or net
income, (h) operating income or net operating income, (i) operating margin, (j)
return on operating revenue, and (k) any other similar performance criteria.
PARTICIPATION IN THE PLAN BY DIRECTORS, EXECUTIVE OFFICERS AND OTHER
EMPLOYEES. On July 2, 1999, the market value of Invitrogen common stock was
$23.75 per share, options to purchase 440,996 shares had been exercised under
the plan and options to purchase an aggregate of 2,798,782 shares of common
stock have been granted and were outstanding under the plan at exercise prices
ranging from $0.84 to $17.88 a share.
Participation in the plan is at the discretion of the board or the
committee; accordingly, future participation by directors, executive officers
and other employees under the plan is not determinable.
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FEDERAL INCOME TAX TREATMENT. The following brief description of federal
income tax treatment which will generally apply to options granted under the
plan, based on federal income tax laws currently in effect. The exact federal
income tax treatment of options and other awards will depend on the specific
circumstances of the recipient. No information is provided with respect to
estate, inheritance, gift, state or local tax laws, although there may be
certain tax consequences upon receipt or exercise of an option or other award or
the disposition of any acquired shares under those laws.
INCENTIVE STOCK OPTIONS. Stock options granted under the plan may qualify
as "incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code. If a recipient exercises an incentive stock option in accordance
with its terms and does not dispose of the shares acquired within two years from
the date of the grant of the incentive stock option nor within one year from the
date of exercise, the required holding periods, the recipient generally will not
be subject to regular federal income tax, and Invitrogen will not be entitled to
any deduction on either the grant or the exercise of the incentive stock option.
A recipient's basis in the shares acquired upon exercise will be the amount paid
upon exercise. Provided a recipient holds the shares as a capital asset at the
time of sale or other disposition of the shares, a recipient's gain or loss, if
any, recognized on the sale or other disposition will be capital gain or loss.
The amount of a recipient's gain or loss will be the difference between the
amount realized on the disposition of the shares and the recipient's basis in
the shares.
If, however, the recipient disposes of the acquired shares at any time
before the expiration of the required holding periods, then, subject to certain
exceptions, the recipient will recognize ordinary income at the time of such
disposition which will equal the excess, if any, of the lesser of (a) the amount
realized on such disposition, or (b) the fair market value of the shares on the
date of exercise, over the recipient's basis in the shares. Invitrogen generally
will be entitled to a deduction in an amount equal to the amount of ordinary
income recognized by a recipient. Any gain in excess of such ordinary income
amount will be a capital gain. If a recipient disposes of such shares for less
than the recipient's basis in the shares, the difference between the amount
realized and the recipient's basis will be capital loss.
The excess of the fair market value of the shares acquired on the exercise
date of an incentive stock option over the exercise price of such option
generally is required to be included in the recipient's alternative minimum
taxable income for the year in which the option is exercised and, accordingly,
may subject a recipient to the alternative minimum tax.
NON-QUALIFIED STOCK OPTIONS. In general, there are no tax consequences to
the recipient or to Invitrogen on the grant of a stock option that does not
qualify as an incentive stock option. On exercise, however, the recipient
generally will recognize ordinary income equal to the excess of the fair market
value of the shares as of the exercise date over the purchase price paid for
such shares, and Invitrogen will be entitled to a deduction equal to the amount
of ordinary income recognized by the recipient. On a later disposition of the
shares received under a non-qualified stock option, the difference between the
amount realized on such disposition and the fair market value of the shares on
the date of exercise generally will be treated as a capital gain or loss.
MISCELLANEOUS TAX ISSUES. Invitrogen generally will be required to make
arrangements for withholding applicable taxes with respect to any ordinary
income recognized by a recipient in connection with the exercise of options
granted under the plan.
Special rules will apply in cases where a recipient of an option pays the
exercise price or applicable withholding tax obligations by delivering
previously owned shares of common stock or by reducing the amount of shares
otherwise issuable pursuant to the exercise of an option. The surrender or
withholding of such shares will in certain circumstances result in the
recognition of income with respect to such shares or a carryover basis in the
shares acquired.
127
<PAGE>
LEGAL MATTERS
The validity of the Invitrogen stock to be issued in connection with the
merger will be passed upon by Gray Cary Ware & Freidenrich LLP. Certain tax
matters relating to the merger will be passed upon by Gray Cary Ware &
Freidenrich LLP for Invitrogen and by Brobeck Phleger & Harrison LLP for NOVEX.
See "The Merger--Material Federal Income Tax Consequences."
EXPERTS
The consolidated financial statements as of December 31, 1996 and 1997 and
1998 and for the three years in the period ended December 31, 1998 included in
this Joint Proxy Statement/Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
The financial statements of NOVEX included in this Joint Proxy
Statement/Prospectus for the fiscal years ended March 31, 1999 and 1998, have
been audited by Ernst & Young LLP, independent auditors, and are included herein
in reliance upon the authority of said firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
Invitrogen is subject to the informational requirements of the Exchange Act
and, in accordance therewith file reports, proxy statements and other
information with the SEC. The reports, proxy statements and other information
filed by Invitrogen with the SEC can be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC Regional Offices located at 7 World Trade
Center, 13th floor, New York, New York 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material also can be obtained at
prescribed rates from the Public Reference Section of the SEC at 450 Fifth
Street, Washington, D.C. 20549. Information regarding the Public Reference Room
may be obtained by calling the SEC at (800) 732-0330. In addition, Invitrogen is
required to file electronic versions of such material with the SEC through the
SEC's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. The SEC
maintains a World Wide Web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC. Invitrogen stock is listed on the Nasdaq
National Market and reports and other information concerning Invitrogen can also
be inspected at the offices of the Nasdaq National Market and reports and other
information concerning Invitrogen can also be inspected at the offices of the
National Association of Securities Dealers, Inc. at 1735 K Street, N.W.,
Washington, D.C. 20001-1500.
Invitrogen has filed with the SEC a Registration Statement on Form S-4 under
the Exchange Act with respect to the shares of Invitrogen common stock to be
issued pursuant to the merger agreement.
Invitrogen has supplied all information contained or incorporated by
reference in this Joint Proxy Statement/Prospectus relating to Invitrogen and
NOVEX has supplied all such information relating to NOVEX.
128
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INVITROGEN CORPORATION
INTERIM FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998................................. F-2
Interim Consolidated Statements of Income for the Three Months ended March 31, 1999 and 1998........... F-3
Interim Consolidated Statements of Cash Flows for the Three Months ended March 31, 1999 and 1998....... F-4
Notes to Consolidated Financial Statements............................................................. F-5
AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants............................................................... F-8
Consolidated Balance Sheets as of December 31, 1997 and 1998........................................... F-9
Consolidated Statements of Income for the Years Ended December 31, 1996, 1997 and 1998................. F-10
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1996, 1997
and 1998.............................................................................................. F-12
Consolidated Statement of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998.............. F-13
Notes to Consolidated Financial Statements............................................................. F-15
NOVEX
AUDITED FINANCIAL STATEMENTS
Report of Independent Auditors......................................................................... F-30
Consolidated Balance Sheets as of March 31, 1999 and 1998.............................................. F-31
Consolidated Statements of Income for the years ended March 31, 1999, 1998 and 1997.................... F-32
Consolidated Statements of Stockholders' Equity for the years ended March 31, 1999, 1998 and 1997...... F-33
Consolidated Statements of Cash Flows for the years ended March 31, 1999, 1998 and 1997................ F-34
Notes to Consolidated Financial Statements............................................................. F-35
</TABLE>
F-1
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................................... $ 35,583 $ 1,797
Short-term investments.............................................................. 3,421 4,214
Accounts receivable, net of allowance for doubtful accounts of $124................. 4,199 3,189
Note receivable officer............................................................. 150 150
Inventories......................................................................... 2,685 2,848
Deferred income taxes............................................................... 575 611
Prepaid expenses and other current assets........................................... 1,599 1,194
----------- ------------
Total current assets............................................................ 48,212 14,003
Property and Equipment, net........................................................... 7,044 7,090
Intangible Assets, net................................................................ 1,545 1,319
Other Assets.......................................................................... 176 403
----------- ------------
Total assets.................................................................... $ 56,977 $ 22,815
----------- ------------
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of obligations under capital leases................................. $ 42 $ 54
Accounts payable.................................................................... 2,224 2,257
Accrued expenses.................................................................... 1,357 1,378
Income taxes payable................................................................ 1,052 718
----------- ------------
Total current liabilities....................................................... 4,675 4,407
----------- ------------
Obligations under capital leases, less current portion................................ 74 83
----------- ------------
Commitments and Contingencies
Non-voting Redeemable Common Stock of Invitrogen B.V:
Subsidiary common stock: authorized and issued--18,000 shares
Full liquidation value of $1,544 (NLG 3,150)...................................... 1,526 1,599
----------- ------------
Convertible Redeemable Preferred stock, $0.01 par value; 4,202,942 shares authorized;
no shares issued or outstanding on March 31, 1999 and 2,202,942 issued and
outstanding on December 31, 1998.................................................... -- 16,141
----------- ------------
Stockholders' Equity:
Common stock; $0.01 par value, 50,000,000 shares authorized; 13,229,039 and
7,421,268 shares issued and outstanding at March 31, 1999 and December 31, 1998,
respectively...................................................................... 132 74
Additional paid-in-capital............................................................ 50,639 1,598
Deferred compensation................................................................. (832) (962)
Value of common stock designated pursuant to Employee Stock Ownership Plan............ 100 100
Foreign currency translation adjustment............................................... (238) (33)
Retained earnings (deficit)........................................................... 901 (192)
----------- ------------
Total stockholders' equity...................................................... 50,702 585
----------- ------------
Total liabilities and stockholders' equity...................................... $ 56,977 $ 22,815
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-2
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1999 1998
--------- ---------
(UNAUDITED)
<S> <C> <C>
Revenues....................................................................................... $ 9,601 $ 7,154
Cost of Revenues............................................................................... 2,540 1,901
--------- ---------
Gross margin............................................................................... 7,061 5,253
--------- ---------
Operating Expenses:
Sales and marketing.......................................................................... 1,973 1,618
General and administrative................................................................... 1,286 1,116
Research and development..................................................................... 1,908 1,455
--------- ---------
Total operating expenses................................................................... 5,167 4,189
--------- ---------
Income from operations................................................................... 1,894 1,064
Other Income (Expense):
Gain (loss) on foreign currency transactions................................................. (57) 55
Interest expense............................................................................. (8) (10)
Interest and other income.................................................................... 195 121
--------- ---------
Income before provision for income taxes....................................................... 2,024 1,230
Provision for Income Taxes..................................................................... 712 439
--------- ---------
Net income..................................................................................... 1,312 791
Less: Preferred stock dividends.............................................................. (163) (225)
Accretion of non-voting redeemable common stock......................................... (56) (48)
Adjustment to beneficial conversion feature related to convertible preferred stock...... 985 --
--------- ---------
Income available to common stockholders........................................................ $ 2,078 $ 518
--------- ---------
--------- ---------
Basic earnings per share....................................................................... $ .19 $ .05
--------- ---------
--------- ---------
Diluted earnings per share..................................................................... $ .16 $ .05
--------- ---------
--------- ---------
Weighted average shares used in basic earnings per share calculation........................... 10,900 9,630
--------- ---------
--------- ---------
Weighted average shares used in diluted earnings per share calculation......................... 12,865 10,919
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1999 1998
---------- ---------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................................ $ 1,312 $ 791
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization............................................................. 340 181
Amortization of deferred compensation..................................................... 131 54
Employee stock ownership plan contribution................................................ -- 25
Deferred income taxes..................................................................... 32 (172)
Changes in operating assets and liabilities:
Accounts receivable..................................................................... (1,108) (636)
Inventories............................................................................. 116 (144)
Prepaid expenses and other current assets............................................... (457) (75)
Other assets............................................................................ 11 51
Accounts payable........................................................................ 15 379
Accrued expenses........................................................................ 6 (189)
Income taxes payable.................................................................... 345 34
---------- ---------
Net cash provided by operating activities............................................. 743 299
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in short term investments.......................................................... 793 (1,839)
Purchases of property and equipment....................................................... (445) (1,314)
Payments for intangible assets............................................................ (267) (72)
---------- ---------
Net cash provided by (used in) investing activities................................... 81 (3,225)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations........................................... (22) (34)
Redemption of preferred stock and payment of accrued dividends............................ (15,553) --
Proceeds from sale of common stock........................................................ 48,562 --
---------- ---------
Net cash provided by (used in) financing activities....................................... 32,987 (34)
Effect of exchange rate changes on cash................................................... (25) (145)
---------- ---------
Net increase (decrease) in cash and cash equivalents...................................... 33,786 (3,105)
Cash and cash equivalents, beginning of period............................................ 1,797 5,375
---------- ---------
Cash and cash equivalents, end of period.................................................. $ 35,583 $ 2,270
---------- ---------
---------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes................................................................ $ 323 $ 258
---------- ---------
---------- ---------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of Convertible Redeemable Preferred Stock into Redeemable Preferred Stock...... $ 14,015 $ --
---------- ---------
---------- ---------
Conversion of Redeemable Preferred Stock into Common Stock................................ $ 751 $ --
---------- ---------
---------- ---------
Adjustment to beneficial conversion feature related to Convertible Redeemable Preferred
Stock................................................................................... $ 985 $ --
---------- ---------
---------- ---------
Preferred dividends declared.............................................................. $ 163 $ 225
---------- ---------
---------- ---------
Accretion of redemption value for Redeemable Common Stock................................. $ 56 $ 48
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GENERAL
The consolidated financial statements include the accounts of Invitrogen
Corporation and its 100% controlled subsidiaries, Invitrogen B.V. and Invitrogen
Export Company, Ltd. All significant intercompany accounts and transactions have
been eliminated in consolidation. The interim financial statements have been
prepared by Invitrogen, without audit, according to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of management, the
accompanying unaudited financial statements contain all adjustments, which
include only normal recurring adjustments, necessary to state fairly the
financial position, results of operations and cash flows as of and for the
periods indicated.
It is suggested that these financial statements be read in conjunction with
the audited financial statements and the notes thereto included in the
Prospectus, as amended, filed with the Securities and Exchange Commission on
February 26, 1999.
1. INVENTORIES
Inventories include material, labor and overhead costs and consist of the
following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
----------- -------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and components........................................ $ 428 $ 574
Work in process..................................................... 585 636
Finished goods...................................................... 1,672 1,638
----------- ------
$ 2,685 $ 2,848
----------- ------
----------- ------
</TABLE>
2. ACCUMULATED DEPRECIATION AND AMORTIZATION
Accumulated depreciation and amortization of property, plant and equipment
was $4.0 million and $3.7 million at March 31, 1999 and December 31, 1998,
respectively. Accumulated amortization of intangible assets was $0.3 million at
March 31, 1999 and December 31, 1998.
3. INITIAL PUBLIC OFFERING, CONVERSION AND REDEMPTION OF PREFERRED STOCK
In February 1999, the Company completed its initial public offering and
issued 3,525,000 newly issued shares of its Common Stock at a price of $15.00
per share. The Company received $48.2 million in cash, net of underwriting
discounts, commissions and other offering costs.
Simultaneously with the closing of the initial public offering, each of the
2,202,942 outstanding shares of Series A Cumulative Convertible Preferred Stock
was automatically converted into 2,202,942 shares of Common Stock and 2,202,942
shares of Series A Redeemable Preferred Stock (RPS). At the closing of the IPO,
the RPS was redeemed for $14,015,000 and accumulated dividends on the Series A
Cumulative Convertible Preferred Stock of $1,538,000 were paid. In 1997, when
the stock was issued, a charge to equity of $15 million was recorded to reflect
the beneficial conversion feature of the convertible preferred stock. Upon
determination of the final redemption price of $14,015,000 at the IPO a
F-5
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INITIAL PUBLIC OFFERING, CONVERSION AND REDEMPTION OF PREFERRED STOCK
(CONTINUED)
credit to equity of $985,000 was recorded which has been reported as an
adjustment to Income Available to Common Stockholders in the income statement
for the quarter ended March 31, 1999.
4. EARNINGS PER SHARE
Earnings per share is calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
-------------------------------------------
INCOME SHARES
(NUMERATOR) (DENOMINATOR) AMOUNT
------------- --------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Basic EPS:
Income available to common stockholders.................................. $ 2,078 10,900 $ 0.19
Stock options............................................................ -- 1,965 --
------ ------ -----
Diluted EPS:
Income available to common stockholders plus assumed conversions......... $ 2,078 12,865 $ 0.16
------ ------ -----
------ ------ -----
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
-------------------------------------------
INCOME SHARES
(NUMERATOR) (DENOMINATOR) AMOUNT
------------- --------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Basic EPS:
Income available to common stockholders.................................. $ 518 9,630 $ 0.05
Stock options............................................................ -- 1,289 --
------ ------ -----
Diluted EPS:
Income available to common stockholders plus assumed conversions......... $ 518 10,919 $ 0.05
------ ------ -----
------ ------ -----
</TABLE>
In accordance with SAB Topic 4D, the Company considers any common stock
issuable upon the occurrence of an IPO for little or no consideration as a
nominal issuance. In accordance with the above bulletin, the Company has
considered 2,202,942 common shares issuable in connection with the conversion of
convertible preferred stock to be a nominal issuance and outstanding for all
periods since the original issuance of the underlying security until the
conversion into common stock upon the IPO.
5. COMPREHENSIVE INCOME
Total comprehensive income for the three months ended March 31, 1999 and
1998 was $1.1 million and $.8 million, respectively. The adjustments to net
income to arrive at total comprehensive income for the three months ended March
31, 1999 and 1998 were $206,000 and $30,000, respectively, and represent foreign
currency translation adjustments.
F-6
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SUBSEQUENT EVENT
In June 1999 the Company signed a definitive agreement to acquire NOVEX, a
privately held U.S. company that supplies pre-cast electrophoresis gels and
related instruments to molecular biology customers in the U.S. and Europe. The
Company will issue approximately 2.5 million shares of common stock for all of
the outstanding common stock of NOVEX and assume approximately 500,000
outstanding options of NOVEX. The transaction will be accounted for as a pooling
of interests and qualifies as a tax-free exchange. Consummation of the
transaction is subject to usual and customary closing conditions and approvals,
including the approval of both companies' stockholders, and is expected to close
in September 1999. Costs incurred as a result of the merger are expected to be
$2,775,000 and are subject to change. These costs will be expensed after the
merger is completed.
F-7
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Invitrogen Corporation:
We have audited the accompanying consolidated balance sheets of Invitrogen
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1997
and 1998 and the related consolidated statements of income, stockholders' equity
(deficit) and cash flows for each of the three years in the period 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 Invitrogen Corporation and
subsidiaries as of December 31, 1997 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Diego, California
January 15, 1999
F-8
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................................................... $ 5,375 $ 1,797
Short-term investments............................................................. 3,777 4,214
Accounts receivable, net of allowance for doubtful accounts of $124................ 2,255 3,189
Note receivable officer............................................................ -- 150
Inventories........................................................................ 1,914 2,848
Deferred income taxes.............................................................. 740 611
Prepaid expenses and other current assets.......................................... 413 1,194
------------ ------------
Total current assets............................................................. 14,474 14,003
Property and Equipment, net.......................................................... 2,459 7,090
Intangible Assets, net............................................................... 770 1,319
Other Assets......................................................................... 353 403
------------ ------------
Total assets..................................................................... $ 18,056 $ 22,815
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-9
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Line of credit............................................................................ $ -- $ --
Current portion of obligations under capital leases....................................... 121 54
Accounts payable.......................................................................... 1,275 2,257
Accrued expenses.......................................................................... 1,334 1,378
Income taxes payable...................................................................... 499 718
--------- ---------
Total current liabilities............................................................... 3,229 4,407
--------- ---------
Obligations Under Capital Leases, Less Current Portion...................................... 143 83
--------- ---------
Commitments and Contingencies
Non-voting Redeemable Common Stock of Invitrogen B.V.:
Subsidiary common stock: authorized and issued--18,000 shares.
Full liquidation value of $1,676 (NLG 3,150)............................................ 1,295 1,599
--------- ---------
Convertible Redeemable Preferred Stock:
Preferred stock; $0.01 par value; 4,202,942 shares authorized; 2,202,942 issued and
outstanding in 1997 and 1998, 6% redeemable convertible, liquidation value of
$16,375,000; no shares authorized, issued or outstanding pro forma...................... 15,242 16,141
--------- ---------
Redeemable Preferred Stock, $0.01 par value per share: 2,202,942 shares authorized; no
shares issued or outstanding, 2,202,942 shares pro forma.................................. -- --
--------- ---------
Stockholders' Equity (Deficit):
Common stock; $0.01 par value, 20,000,000 and 50,000,000 shares authorized; in 1997 and
1998, respectively, 7,426,702 and 7,421,268 shares issued and outstanding in 1997 and
1998, respectively, 9,624,210 shares proforma........................................... 74 74
Additional paid-in-capital................................................................ 664 1,598
Deferred compensation..................................................................... (495) (962)
Value of common stock designated pursuant to Employee Stock Ownership Plan................ 100 100
Foreign currency translation adjustment................................................... (130) (33)
Retained deficit.......................................................................... (2,066) (192)
--------- ---------
Total stockholders' equity (deficit).................................................... (1,853) 585
--------- ---------
Total liabilities and stockholders' equity (deficit).................................... $ 18,056 $ 22,815
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-10
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Revenues................................................................ $ 19,121 $ 24,965 $ 31,414
Cost of Revenues........................................................ 5,818 7,989 8,642
------------ ------------ ------------
Gross margin........................................................ 13,303 16,976 22,772
------------ ------------ ------------
Operating Expenses:
Sales and marketing................................................... 4,236 4,959 6,976
General and administrative............................................ 3,880 3,932 4,428
Research and development.............................................. 2,659 4,416 7,209
------------ ------------ ------------
Total operating expenses............................................ 10,775 13,307 18,613
------------ ------------ ------------
Income from operations............................................ 2,528 3,669 4,159
------------ ------------ ------------
Other Income (Expense):
Gain on foreign currency transactions................................. 172 145 61
Interest expense...................................................... (87) (88) (35)
Interest and other income............................................. 70 211 431
------------ ------------ ------------
155 268 457
------------ ------------ ------------
Income before provision for income taxes.......................... 2,683 3,937 4,616
Provision for Income Taxes.............................................. 939 1,413 1,638
------------ ------------ ------------
Net income........................................................ $ 1,744 $ 2,524 $ 2,978
Less: Preferred stock dividends................................... -- (475) (900)
Accretion of non-voting redeemable common stock.............. (171) (175) (204)
Accretion of beneficial conversion feature related to
convertible preferred stock.................................. -- (15,000) --
------------ ------------ ------------
Income available to common stockholders........................... $ 1,573 $ (13,126) $ 1,874
------------ ------------ ------------
------------ ------------ ------------
Basic earnings per share................................................ $ 0.19 $ (1.47) $ 0.19
------------ ------------ ------------
------------ ------------ ------------
Diluted earnings per share.............................................. $ 0.16 $ (1.47) $ 0.17
------------ ------------ ------------
------------ ------------ ------------
Weighted average shares used in basic earnings per share calculation.... 8,356,270 8,938,719 9,626,333
------------ ------------ ------------
------------ ------------ ------------
Weighted average shares used in diluted earnings per share
calculation........................................................... 10,079,755 8,938,719 11,208,016
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-11
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------------------
COMMON STOCK SERIES A SERIES B
----------------------- ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995........................ -- $ -- 7,142,758 $ -- 1,188,040 $ --
Issuance of common stock
pursuant to Employee Stock
Ownership Plan.............. -- -- 111,552 -- -- --
Value of common stock
designated pursuant to
Employee Stock Ownership
Plan........................ -- -- -- -- -- --
Exercise of stock options..... -- -- 70,000 -- -- --
Repurchase of common stock.... -- -- (97,937) -- -- --
Foreign currency translation
adjustment.................. -- -- -- -- -- --
Accretion of redemption value
over stated value on
subsidiary common stock
issued to NOM............... -- -- -- -- -- --
Net income.................... -- -- -- -- -- --
----------- ---------- ---------- ---------- ---------- ----------
Balance at December 31,
1996........................ -- -- 7,226,373 -- 1,188,040 --
Recapitalization of stock..... 8,414,413 84 (7,226,373) -- (1,188,040) --
Issuance of common stock
pursuant to Employee Stock
Ownership Plan.............. 22,939 -- -- -- -- --
Value of common stock
designated pursuant to
Employee Stock Ownership
Plan........................ -- -- -- -- -- --
Deferred compensation......... -- -- -- -- -- --
Amortization of deferred
compensation expense........ -- -- -- -- -- --
Exercise of stock options..... 178,955 2 -- -- -- --
Repurchase of common stock.... (88,134) (1) -- -- -- --
Repurchase of common stock
relating to stock Purchase
agreement................... (1,101,471) (11) -- -- -- --
Beneficial conversion feature
related to convertible
preferred stock............. -- -- -- -- -- --
Accretion of beneficial
conversion feature related
to convertible preferred
stock....................... -- -- -- -- -- --
Preferred stock dividends
declared and accretion of
redemption value over stated
value on subsidiary common
stock issued to NOM......... -- -- -- -- -- --
Foreign currency translation
adjustment.................. -- -- -- -- -- --
Net income.................... -- -- -- -- -- --
----------- ---------- ---------- ---------- ---------- ----------
Balance at December 31,
1997........................ 7,426,702 74 -- -- -- --
Issuance of common stock
pursuant to Employee Stock
Ownership Plan.............. 12,920 -- -- -- -- --
Value of common stock
designated pursuant to
Employee Stock Ownership
Plan........................ -- -- -- -- -- --
Deferred compensation......... -- -- -- -- -- --
Amortization of deferred
compensation expense........ -- -- -- -- -- --
Exercise of stock options..... 16,050 -- -- -- -- --
Tax effect of exercise of
stock options............... -- -- -- -- -- --
Repurchase of common stock.... (34,404) -- -- -- -- --
Issuance of stock options to
acquire
MorphaGen, Inc.............. -- -- -- -- -- --
Preferred stock dividends
declared and accretion of
redemption value over stated
value on subsidiary common
stock issued to NOM......... -- -- -- -- -- --
Foreign currency translation
adjustment.................. -- -- -- -- -- --
Net income.................... -- -- -- -- -- --
----------- ---------- ---------- ---------- ---------- ----------
Balance at December 31,
1998........................ 7,421,268 $ 74 -- $ -- -- $ --
----------- ---------- ---------- ---------- ---------- ----------
----------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
ADDITIONAL OWNERSHIP FOREIGN RETAINED STOCKHOLDERS'
PAID-IN DEFERRED PLAN CURRENCY EARNINGS EQUITY COMPREHENSIVE
CAPITAL COMPENSATION CONTRIBUTION TRANSLATION (DEFICIT) (DEFICIT) INCOME
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995........................ $1,170 $ $199 $ 57 $ 872 $2,298 $ --
Issuance of common stock
pursuant to Employee Stock
Ownership Plan.............. 199 -- (199) -- -- -- --
Value of common stock
designated pursuant to
Employee Stock Ownership
Plan........................ -- -- 100 -- -- 100 --
Exercise of stock options..... 68 -- -- -- -- 68 --
Repurchase of common stock.... (174) -- -- -- -- (174) --
Foreign currency translation
adjustment.................. -- -- -- (86) -- (86) (86)
Accretion of redemption value
over stated value on
subsidiary common stock
issued to NOM............... -- -- -- -- (171) (171) --
Net income.................... -- -- -- -- 1,744 1,744 1,744
---------- ------------ --- --- -------- ------------- ------
Balance at December 31,
1996........................ 1,263 -- 100 (29) 2,445 3,779 1,658
------
------
Recapitalization of stock..... (84) -- -- -- -- -- --
Issuance of common stock
pursuant to Employee Stock
Ownership Plan.............. 100 -- (100) -- -- -- --
Value of common stock
designated pursuant to
Employee Stock Ownership
Plan........................ -- -- 100 -- -- 100 --
Deferred compensation......... 664 (664) -- -- -- -- --
Amortization of deferred
compensation expense........ -- 169 -- -- -- 169 --
Exercise of stock options..... 158 -- -- -- -- 160 --
Repurchase of common stock.... (333) -- -- -- -- (334) --
Repurchase of common stock
relating to stock Purchase
agreement................... (1,104) -- -- -- (6,385) (7,500) --
Beneficial conversion feature
related to convertible
preferred stock............. 15,000 -- -- -- -- 15,000 --
Accretion of beneficial
conversion feature related
to convertible preferred
stock....................... (15,000) -- -- -- -- (15,000) --
Preferred stock dividends
declared and accretion of
redemption value over stated
value on subsidiary common
stock issued to NOM......... -- -- -- -- (650) (650) --
Foreign currency translation
adjustment.................. -- -- -- (101) -- (101) (101)
Net income.................... -- -- -- -- 2,524 2,524 2,524
---------- ------------ --- --- -------- ------------- ------
Balance at December 31,
1997........................ 664 (495) 100 (130) (2,066) (1,853) 2,423
------
------
Issuance of common stock
pursuant to Employee Stock
Ownership Plan.............. 100 -- (100) -- -- -- --
Value of common stock
designated pursuant to
Employee Stock Ownership
Plan........................ -- -- 100 -- -- 100 --
Deferred compensation......... 683 (683) -- -- -- -- --
Amortization of deferred
compensation expense........ -- 216 -- -- -- 216 --
Exercise of stock options..... 16 -- -- -- -- 16 --
Tax effect of exercise of
stock options............... 138 -- -- -- -- 138 --
Repurchase of common stock.... (150) -- -- -- -- (150) --
Issuance of stock options to
acquire
MorphaGen, Inc.............. 147 -- -- -- -- 147 --
Preferred stock dividends
declared and accretion of
redemption value over stated
value on subsidiary common
stock issued to NOM......... -- -- -- -- (1,104) (1,104) --
Foreign currency translation
adjustment.................. -- -- -- 97 -- 97 97
Net income.................... -- -- -- -- 2,978 2,978 2,978
---------- ------------ --- --- -------- ------------- ------
Balance at December 31,
1998........................ $1,598 $ (962) $100 $(33) $ (192) $ 585 $3,075
---------- ------------ --- --- -------- ------------- ------
---------- ------------ --- --- -------- ------------- ------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-12
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................................... $ 1,744 $ 2,524 $ 2,978
Adjustments to reconcile net income to net cash provided by operating
activities, net of businesses acquired:
Depreciation and amortization................................................. 737 732 1,052
Amortization of deferred compensation......................................... -- 169 216
Loss on disposal of property and equipment.................................... -- 11 --
Non-cash write-off of investments............................................. -- 330 --
Employee stock ownership plan contribution.................................... 100 100 100
Foreign currency translation adjustment....................................... (86) (101) 96
Deferred income taxes......................................................... (63) (543) 129
Deferred rent expense......................................................... (13) -- --
Changes in operating assets and liabilities:
Accounts receivable......................................................... (284) (452) (1,276)
Inventories................................................................. (722) (13) (592)
Prepaid expenses and other current assets................................... (185) (77) (781)
Other assets................................................................ 42 (302) (50)
Accounts payable............................................................ 280 459 982
Accrued expenses............................................................ 592 204 55
Income taxes payable........................................................ 396 (117) 219
--------- --------- ---------
Net cash provided by operating activities................................. 2,538 2,924 3,128
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................................. (742) (1,642) (5,553)
Proceeds from sale of property and equipment.................................... -- 25 --
Payments for intangible assets.................................................. (381) (186) (542)
Purchase of short term investments.............................................. -- (3,777) (438)
Advances made on notes receivable from officers................................. (150) -- --
Principal payments received on notes receivable from officers................... 125 415 --
Investment in related party..................................................... -- (500) --
--------- --------- ---------
Net cash used in investing activities..................................... (1,148) (5,665) (6,533)
--------- --------- ---------
</TABLE>
(CONTINUED)
F-13
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of preferred stock........................................... -- 14,766 --
Principal payments on capital lease obligations................................. (432) (157) (127)
Repurchase of common stock...................................................... (174) (7,834) (150)
Proceeds from exercise of stock options......................................... 68 160 16
Principal payments on line of credit, net....................................... (50) (190) --
--------- --------- ---------
Net cash provided by (used in) financing activities....................... (588) 6,745 (261)
--------- --------- ---------
Effect of exchange rate changes on cash........................................... (8) (10) 88
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents.............................. 794 3,994 (3,578)
Cash and cash equivalents, beginning of year...................................... 587 1,381 5,375
--------- --------- ---------
Cash and cash equivalents, end of year............................................ $ 1,381 $ 5,375 $ 1,797
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.......................................................... $ 85 $ 88 $ 35
--------- --------- ---------
--------- --------- ---------
Cash paid for income taxes...................................................... $ 117 $ 1,266 $ 920
--------- --------- ---------
--------- --------- ---------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Preferred dividends declared.................................................... $ -- $ 475 $ 900
--------- --------- ---------
--------- --------- ---------
Accretion of redemption value for redeemable common stock....................... $ 171 $ 175 $ 204
--------- --------- ---------
--------- --------- ---------
Accretion of beneficial conversion feature of convertible preferred stock....... $ -- $ 15,000 $ --
--------- --------- ---------
--------- --------- ---------
Converted deposit to note receivable--officer................................... $ -- $ -- $ 150
--------- --------- ---------
--------- --------- ---------
Net assets acquired through purchase of MorphaGen, Inc.......................... $ -- $ -- $ 147
--------- --------- ---------
--------- --------- ---------
Deferred compensation........................................................... $ -- $ 664 $ 683
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996, 1997 AND 1998
1. BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
Invitrogen Corporation (the "Company") was incorporated in the state of
California on September 29, 1989. The Company operates in one business segment
which develops, manufactures and sells products designed to facilitate molecular
biology research. The Company sells its products to researchers at universities,
corporations, and research institutions throughout North America, the Pacific
Rim and Europe. In 1997, the Company changed its state of incorporation to
Delaware. In connection with the Company's recapitalization, all of the Series A
common stock and Series B common stock of the former California Corporation were
converted to the common stock of the new Delaware corporation; accordingly,
Series A common stock and Series B common stock ceased to exist (see Note 2).
Invitrogen B.V., a 100% controlled subsidiary of the Company, commenced
operations in The Netherlands in April 1993. It sells and distributes the
Company's products to the European markets.
Invitrogen Export Company, Ltd., a wholly-owned subsidiary of the Company,
was incorporated in 1996 and is a foreign sales corporation.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its 100% controlled subsidiaries, Invitrogen B.V. and Invitrogen Export
Company, Ltd. All significant intercompany accounts and transactions have been
eliminated in consolidation.
CONCENTRATIONS OF RISKS
REVENUES (EXCLUSIVE OF GRANTS AND ROYALTIES)
Revenues for each of the three years ended December 31, 1998, were earned
from sales to customers in the following geographic regions (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
North America................................................ $ 12,496 $ 15,751 $ 19,105
Europe....................................................... 4,620 6,286 8,453
Pacific Rim.................................................. 1,570 2,257 2,632
--------- --------- ---------
Total revenue................................................ $ 18,686 $ 24,294 $ 30,190
--------- --------- ---------
--------- --------- ---------
</TABLE>
Certain countries in the Pacific Rim have recently been experiencing
significant volatility in their currencies. While the Company sells principally
in U.S. dollars to customers in these countries, the volatility in the
countries' currencies may have an adverse impact on the Company's revenue and
profit in the future. The Company did not have any material accounts receivable
from customers in this region in any of the years presented.
CUSTOMERS
Approximately $6,800,000, $8,300,000 and $10,193,000, or 36%, 34% and 34% of
the Company's revenues during the years ended December 31, 1996, 1997, and 1998,
respectively, were derived from
F-15
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996, 1997 AND 1998
1. BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
university and research institutions which management believes are, to some
degree, directly or indirectly supported by the U.S. Government. A change in
current research fundings, particularly with respect to the National Institute
of Health, may have an adverse impact on the Company's future results of
operations.
REVENUE RECOGNITION
Revenues from product sales are recognized upon shipment to the customer.
The Company does not receive material upfront fees; those that are received are
deferred and recognized upon shipment to the customers. Grant revenue is
recorded as earned, as defined within the specific agreements and is not
refundable. Grant revenue was $435,000, $671,000 and $649,000 in 1996, 1997 and
1998, respectively. Cost of grant revenue is included in research and
development.
Royalty revenue is recognized when earned, generally upon the receipt of
cash, and is not refundable.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash equivalents at
December 31, 1997 and 1998 consist primarily of commercial paper. All other
investments are classified as held to maturity short-term investments and
consist of commercial paper and mature through June 1, 1999. Short term
investments are carried at cost.
INVENTORIES
Inventories are stated at lower of cost (first-in, first-out method) or
market. The Company reviews the components of its inventory on a quarterly basis
for excess, obsolete and impaired inventory and makes appropriate dispositions
as obsolete stock is identified.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated over the estimated
useful lives of the assets (3 to 39 years) using the straight-line method.
Amortization of leasehold improvements is computed on the straight-line method
over the shorter of the lease term or the estimated useful lives of the assets.
Maintenance and repairs are charged to operations as incurred. When assets are
sold, or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts and any gain or loss is included in operations.
INTANGIBLE ASSETS
Intangible assets, representing primarily patents and license agreements,
are recorded at cost and amortized on a straight-line basis over estimated
useful lives of 5 to 17 years.
F-16
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996, 1997 AND 1998
1. BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
The Company has adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets". The statement requires
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be fully
recoverable. The Company periodically re-evaluates the original assumptions and
rationale utilized in the establishment of the carrying value and estimated
lives of its long-lived assets. The criteria used for these evaluations include
management's estimate of the asset's continuing ability to generate income from
operations and positive cash flow in future periods as well as the strategic
significance of any intangible asset in the Company's business objectives.
RESEARCH AND DEVELOPMENT COSTS
All research and development costs are charged to operations as incurred.
INCOME TAXES
The Company uses the liability method of accounting for income taxes in
accordance with Statement of Financial Statement Accounting Standards No. 109,
"Accounting for Income Taxes". 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,
using enacted tax rates in effect for the year in which the differences are
expected to reverse. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized.
FOREIGN CURRENCY TRANSLATION
The functional currency for Invitrogen B.V. is the Netherlands Guilder
(NLG), the applicable foreign currency. The translation from the applicable
foreign currency to the U.S. dollar is translated for balance sheet accounts
using the current exchange rate in effect at the balance sheet date and for
revenue and expense accounts using an average exchange rate during the period.
The effects of translation are recorded as a separate component of stockholders'
equity. Exchange gains and losses arising from transactions denominated in
foreign currencies are recorded using the actual exchange differences on the
date of the transaction.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of all financial instruments such as foreign cash
accounts, accounts receivable, accounts payable and accrued expenses are
reasonable estimates of their fair value because of the short maturity of these
items. The Company believes the carrying amounts of the Company's notes
receivable from officers, line of credit and obligations under capital leases
approximate fair value because the interest rates on these instruments are
subject to change with, or approximate, market interest rates.
F-17
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996, 1997 AND 1998
1. BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPUTATION OF EARNINGS PER SHARE
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), "Earnings Per Share." SFAS No. 128 requires
companies to compute basic and diluted per share data for all periods for which
an income statement is presented. Basic earnings per share was computed by
dividing net income by the weighted average number of common shares outstanding
during the period. Diluted earnings per share reflects the potential dilution
that could occur if the income were divided by the weighted-average number of
common shares and potential common shares from outstanding stock options.
Potential common shares were calculated using the treasury stock method and
represent incremental shares issuable upon exercise of the Company's outstanding
options. Diluted earnings per share does not consider the impact of the
conversion of outstanding redeemable convertible preferred stock as its
inclusion would be anti-dilutive for all periods presented. Potentially dilutive
securities are not considered in the calculation of net loss per share as their
impact would be antidilutive.
COMPREHENSIVE INCOME
The Company has implemented Statement of Financial Accounting Standards No.
130 "Comprehensive Income". This statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Accordingly, in addition to
reporting net income under the current rules, the Company is required to display
the impact of any fluctuations in its foreign currency translation adjustments
as a component of comprehensive income and to display an amount representing
total comprehensive income for each period presented.
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 reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued AICPA
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). This statement provides
guidance on accounting for the costs of computer software developed or obtained
for internal use and identifies characteristics of internal use software as well
as assists in determining when computer software is for internal use. SOP 98-1
is effective for fiscal years beginning after December 15, 1998, with earlier
application permitted. The Company has not determined the impact of the adoption
of SOP 98-1 as this is highly dependent upon the nature, timing and extent of
future internal use software development.
In March 1998, the Accounting Standards Executive Committee issued AICPA
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities."
This Statement of Position provides guidance
F-18
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996, 1997 AND 1998
1. BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
on the financial reporting of start-up costs and organization costs. It requires
that the cost of start-up activities and organization costs be expensed as
incurred. The SOP is effective for financial statements for fiscal years
beginning after December 15, 1998. The company does not expect adoption of this
SOP to have a material impact on its financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement changes the previous
accounting definition of derivative--which focused on freestanding contracts
such as options and forwards (including futures and swaps)--expanding it to
include embedded derivatives and many commodity contracts. Under the Statement,
every derivative is recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. Earlier application is allowed as of the
beginning of any quarter beginning after issuance. The Company does not
anticipate that the adoption of SFAS 133 will have a material impact on its
financial position or results of operations.
The Company has adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" and, as
explained above, has determined that it operates in one business segment
dedicated to molecular biology research.
2. RELATED PARTY TRANSACTIONS
NOTE RECEIVABLE--OFFICER
The Company holds a note receivable of $150,000 from an officer of the
Company. The promissory note originated in December 1998, is collateralized by
16,000 shares of common stock of the Company, bears annual interest of 6.5
percent and is due in full on December 31, 1999.
INVESTMENT IN MORPHAGEN, INC.
In February 1997, the Company entered into an agreement with MorphaGen,
Inc., a start-up company, for an initial investment of $500,000 in exchange for
109,850 shares of Series A Preferred Stock of MorphaGen, Inc. The president of
MorphaGen, Inc. is the spouse of a member of the board of directors of the
Company. On November 3, 1998, the Company acquired all of the outstanding common
stock of MorphaGen, Inc. which the Company did not already own for 50,000
options to purchase company stock at $8.50 per share. In connection with this
acquisition, the Company recorded $147,000 as additional paid-in capital
representing the estimated fair value of the options issued.
COMMON STOCK
In connection with the Company's recapitalization, all of the Series A
common stock and Series B common stock of the former California Corporation were
converted to the common stock of the new Delaware corporation; accordingly,
Series A common stock and Series B common stock ceased to exist.
SERIES A. All outstanding shares of Series A common stock have been issued
to founders, directors, employees or consultants of the Company pursuant to
agreements which entitles the Company to repurchase the shares at the current
market value in the event of termination of employment.
F-19
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996, 1997 AND 1998
2. RELATED PARTY TRANSACTIONS (CONTINUED)
SERIES B. All outstanding shares of Series B common stock have been issued
to the president and majority stockholder of the Company. The Series B common
stock has the same rights, preferences, privileges and restrictions of Series A
common stock except the Series B shares may not vote in the election of
directors of the Company. In 1997, the Company converted all the outstanding
Series B common stock to Series A common stock on a one to one basis.
3. INVENTORIES
Inventories include material, labor and overhead costs and consist of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Raw materials and components............................................... $ 291 $ 574
Work in process............................................................ 503 636
Finished goods............................................................. 1,120 1,638
--------- ---------
$ 1,914 $ 2,848
--------- ---------
--------- ---------
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Land..................................................................... $ -- $ 216
Building................................................................. -- 1,629
Machinery and equipment.................................................. 4,823 8,330
Leasehold improvements................................................... 223 538
Construction in process.................................................. 221 119
--------- ---------
5,267 10,832
Accumulated depreciation and amortization................................ (2,808) (3,742)
--------- ---------
$ 2,459 $ 7,090
--------- ---------
--------- ---------
</TABLE>
5. INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Licensing agreements (see Note 7)........................................... $ 574 $ 984
Patents and trademarks...................................................... 362 569
Other....................................................................... 10 49
--------- ---------
946 1,602
Accumulated amortization.................................................... (176) (283)
--------- ---------
$ 770 $ 1,319
--------- ---------
--------- ---------
</TABLE>
F-20
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996, 1997 AND 1998
6. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Accrued purchases.......................................................... $ 240 $ 530
Accrued payroll and related................................................ 741 491
Accrued other.............................................................. 353 357
--------- ---------
$ 1,334 $ 1,378
--------- ---------
--------- ---------
</TABLE>
7. LICENSING AGREEMENTS
The Company manufactures and sells certain products under several licensing
agreements. The agreements require royalty payments based upon various
percentages of sales or profits from the products. Terms of the agreements range
from five to ten years and initial costs are amortized over their terms using
the straight-line method. Total royalties paid under the agreements were
approximately $444,000, $815,000, and $996,000 for the years ended December 31,
1996, 1997 and 1998, respectively.
Certain of the licensing agreements require guaranteed minimum annual
royalty payments, to maintain exclusively. Future minimum guaranteed royalties
at December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1999............................................................................. $ 877
2000............................................................................. 1,174
2001............................................................................. 1,501
2002............................................................................. 1,391
2003............................................................................. 1,520
---------
$ 6,463
---------
---------
</TABLE>
The Company has a minimum purchase commitment with a vendor, which requires
annual purchases of approximately $1 million to maintain preferential pricing.
8. LINE OF CREDIT
As of September 30, 1998, the Company amended the line of credit to increase
the maximum available commitment to $10,000,000, which bears interest at the
bank's Libor rate (5.75% at December 31, 1998) plus 2% or the bank's prime rate.
The line of credit expires on September 30, 1999. The line of credit agreement
contains various normal and customary financial covenants, which the Company was
in compliance with for all periods presented.
F-21
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996, 1997 AND 1998
9. INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities
are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Deferred tax assets:
Various accruals............................................................ $ 617 $ 525
Net operating loss carryforwards............................................ 33 --
State taxes................................................................. 115 96
Other....................................................................... -- 135
--------- ---------
Total deferred tax assets..................................................... 765 756
Deferred tax liabilities:
Depreciation and amortization............................................... (25) (145)
--------- ---------
Net deferred tax assets....................................................... $ 740 $ 611
--------- ---------
--------- ---------
</TABLE>
Income before income taxes includes the following components:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
United States.................................................... $ 1,212 $ 2,983 $ 3,859
Foreign.......................................................... 1,471 954 757
--------- --------- ---------
$ 2,683 $ 3,937 $ 4,616
--------- --------- ---------
--------- --------- ---------
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Current:
Federal......................................................... $ 510 $ 1,343 $ 1,042
State........................................................... 30 339 267
Foreign......................................................... 462 334 276
--------- --------- ---------
Total current provision........................................... 1,002 2,016 1,585
Deferred:
Federal......................................................... (27) (453) 34
State........................................................... (36) (150) 19
Foreign......................................................... -- -- --
--------- --------- ---------
Total deferred provision.......................................... (63) (603) 53
--------- --------- ---------
Total provision................................................... $ 939 $ 1,413 $ 1,638
--------- --------- ---------
--------- --------- ---------
</TABLE>
The difference between the provision for income taxes and the amounts that
would be obtained by applying the Federal statutory rate to income before income
taxes relates primarily to the utilization of certain tax credit and net
operating loss carryforwards.
F-22
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996, 1997 AND 1998
9. INCOME TAXES (CONTINUED)
The provision for income taxes differs from the amount computed by applying
the federal statutory rate to the Company's income before provision for income
taxes as follows:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Federal tax provision at statutory rate........................... 34.0% 34.0% 34.0%
State tax, net of federal benefit................................. 4.0% 6.0% 6.0%
Foreign Sales Corporation Benefit................................. -- (1.0)% (1.6)%
Research and development and other credits........................ -- (5.0)% (7.0)%
Other............................................................. (3.0)% 1.9% 4.1%
--- --- ---
Provision for income taxes........................................ 35.0% 35.9% 35.5%
--- --- ---
--- --- ---
</TABLE>
The tax benefit associated with the disqualifying dispositions by employees
of shares issued in the Company's stock options plans reduced taxes payable by
$138,000 for 1998. This benefit has been reflected as additional paid-in capital
in the accompanying statement of stockholders' equity.
10. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain equipment under capital leases which are
personally guaranteed by the Company's principal stockholders, are due in
aggregate monthly installments of $32,000 and mature at various dates through
November 2001. Property and equipment at December 31, 1997 and 1998, include
approximately $595,000 and $498,000, respectively, of equipment under capital
leases which have been capitalized. Accumulated depreciation for such equipment
was approximately $347,000 and $100,000 at December 31, 1997 and 1998,
respectively.
Future minimum lease commitments at December 31, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING DECEMBER 31, LEASES LEASES
<S> <C> <C>
1999................................................................. $ 463 $ 65
2000................................................................. 482 48
2001................................................................. 501 44
2002................................................................. 521 --
2003................................................................. 542 --
Thereafter........................................................... 1,759 --
----------- -----
Total minimum lease payments....................................... $ 4,268 157
-----------
-----------
Less: amount representing interest................................. (20)
-----
137
Less: current portion.............................................. (54)
-----
$ 83
-----
-----
</TABLE>
F-23
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996, 1997 AND 1998
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company leases its office and manufacturing facility in Carlsbad,
California under an operating lease which expires February 2007. Rent expense
under all operating leases was approximately $318,000, $480,000 and $588,000 for
the years ended December 31, 1996, 1997 and 1998, respectively.
LITIGATION
The Company and its subsidiaries are subject to claims and from time to time
are named as defendants in legal proceedings. In the opinion of management, the
amount of ultimate liability, if any, with respect to those actions will not
materially affect the financial position or results of operations of the
Company.
HEDGING
At December 31, 1998 the Company had outstanding put options to sell 1.2
million pounds sterling at $1.63 per pound. Additionally, the Company had
outstanding call options to purchase 1.2 million pounds sterling at $1.675 per
pound. These contracts expire monthly through December 1999. The above contracts
had no net value at December 31, 1998.
11. REDEEMABLE COMMON STOCK OF INVITROGEN B.V.
Effective February 26, 1993, Invitrogen B.V. entered into a money loan
agreement with N.V. Noordelijke Ontwikkelingsmaatschappij, Investment and
Development Company for the Northern Netherlands ("NOM"). As of December 31,
1994, the due date of the Loan, the Company had borrowed $618,000, at a 15%
effective interest rate, under the agreement which had provisions by which NOM
could convert its loan balance to Invitrogen B.V. common stock. On April 7,
1995, the Company, Invitrogen B.V. and NOM entered into a Shareholders'
Agreement. As a result, Invitrogen B.V. issued 18,000 shares of non-voting
redeemable common stock to NOM in exchange for a NLG 1.8 million. The proceeds
from the issuance of the non-voting redeemable common stock were utilized to
retire the outstanding debt of $618,000 (NLG 1.2 million). NOM may require the
Company and/or its subsidiary to redeem these shares in the amount of NLG
3,150,000 (redemption amount) if certain events occur. The Company and/or its
subsidiary are required to redeem all the shares on April 7, 1999 for the
redemption amount of NLG 3,150,000 (USD $1,676,000 at December 31, 1998). At any
time, the Company and/or its subsidiary may redeem all of the subsidiary shares
issued to NOM for the redemption price.
The excess of the redemption value over the issue price is being accredited
by periodic charges to equity over the life of the issue (through April 7,
1999).
F-24
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996, 1997 AND 1998
12. PREFERRED STOCK
The Company has authorized 6,405,884 shares of preferred stock, designated
as follows:
<TABLE>
<CAPTION>
SHARES
<S> <C>
Series A cumulative convertible redeemable preferred stock....................... 2,202,942
Series A redeemable preferred stock.............................................. 2,202,942
Undesignated preferred stock..................................................... 2,000,000
----------
Total preferred shares........................................................... 6,405,884
----------
----------
</TABLE>
On June 20, 1997, the Company entered into a stock purchase agreement with a
group of three investors (Investors). The Company sold 2,202,942 shares of
Series A Cumulative Convertible Redeemable Preferred Stock ("Convertible
Preferred Stock") at $6.8091 per share to the Investors in exchange for
$14,766,000, net of issuance costs. Additionally, the Company repurchased and
retired 1,101,471 shares of the Company's common stock at $6.8091 per share,
representing the fair value of these shares, from certain stockholders of the
Company in exchange for $7.5 million. The Convertible Preferred Stock accrues
dividends at a rate of 6% per annum and has a liquidation preference of $6.8091
per share plus accrued and unpaid dividends. Additionally, the Convertible
Preferred Stock entitles the holder thereof to one vote per outstanding share in
the election of one director of the Company, voting together as one separate
class. The holders of the Convertible Preferred Stock vote separately as a class
on significant transactions including acquisitions, redemption of shares,
declaration of dividends, creation of any senior securities, or securities on
par with the Convertible Preferred Stock, increases in the size of the Board of
Directors, and payment of executive bonuses. Holders of the Convertible
Preferred Stock also elect one director. The Convertible Preferred Stock is
automatically converted into shares of common stock and redeemable preferred
stock as of the filing of an initial public offering or a qualified event
(including a sale, merger or purchase of substantially all of the assets of the
Company). The rate at which the Convertible Preferred Stock converts to common
stock is automatically adjusted in the event of most future issuances of equity
securities by the Company below the original purchase price of the Convertible
Preferred Stock, resulting in an increase in the percentage of the Company owned
by the holders on a fully diluted basis. The Convertible Preferred Stock may
also be voluntarily converted upon the election of holders of not less than
66.67% of the voting power of this stock. After June 18, 2003, the holders of
the Convertible Preferred Stock have the right to require the Company to redeem
their shares for the original purchase price plus accrued dividends.
The redeemable preferred stock accrues dividends at 3% per annum and
entitles the holder thereof to one vote per outstanding share in the election of
one director of the Company, voting together as a separate class. The redeemable
preferred stock is redeemable upon the occurrence of a qualified public offering
or sale or other qualified event. Upon liquidation, the redeemable preferred
stock is entitled to be paid out of the assets of the Company at the redeemable
base liquidation amount (original issue price of $6.8091 per share plus accrued
dividends) per share (determined at the measurement date). There are no shares
of redeemable preferred stock outstanding at December 31, 1998.
Upon the closing of an IPO or other qualified event, the outstanding
Convertible Preferred Stock will automatically convert into 2,202,942 shares of
Common Stock and 2,202,942 shares of Redeemable Preferred Stock, (RPS). The RPS
is immediately redeemable at the closing of an IPO at a Sliding Scale
F-25
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996, 1997 AND 1998
12. PREFERRED STOCK (CONTINUED)
Redemption Price of between 0 and $15 million. This is a function of the
qualified offering or transaction price. This formula provides for a minimum
return to the Convertible Preferred Stockholders of $15 million. The resulting
premium to holders of Convertible Preferred Stock will be between $0 to $15
million, depending upon the amount, date and type of the qualified event. In
accordance with EITF D-60, the maximum possible premium to holders of
convertible preferred stock ($15 million) was recognized as a beneficial
conversion feature through a charge to equity on June 20, 1997, the date the
Convertible Preferred first became convertible. This $15 million charge has been
recognized as a reduction to earnings available to common stockholders in 1997.
13. COMMON STOCK
AUTHORIZED SHARES
In November 1998, the Company amended its bylaws to reflect an increase of
authorized shares of common stock from 20,000,000 to 50,000,000.
STOCK SPLIT
On June 20, 1997, the Company approved a recapitalization which authorized
20,000,000 shares of common stock and a stock split that converted each share of
Class A and Class B stock into seven shares of common stock of the Company. All
prior period share amounts have been restated to reflect the stock split.
14. EARNINGS PER SHARE
Earnings per share is calculated as follows (in thousands, except share and
per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
Basic EPS:
Income available to common stockholders.................................. $ 1,874 9,626,333 $ 0.19
-----
-----
Stock options............................................................ -- 1,581,683
------ -------------
Diluted EPS:
Income available to common stockholders plus assumed conversions......... $ 1,874 11,208,016 $ 0.17
------ ------------- -----
------ ------------- -----
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
----------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
Basic and Diluted EPS:
Income available to common stockholders.................................. $ (13,126) 8,938,719 $ (1.47)
------------ ------------- -----------
------------ ------------- -----------
</TABLE>
F-26
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996, 1997 AND 1998
14. EARNINGS PER SHARE (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1996
-----------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
Basic EPS:
Income available to common stockholders.................................. $ 1,573 8,356,270 $ 0.19
-----
-----
Stock options............................................................ -- 1,723,485
------ -------------
Diluted EPS:
Income available to common stockholders plus assumed conversions......... $ 1,573 10,079,755 $ 0.16
------ ------------- -----
------ ------------- -----
</TABLE>
In accordance with SAB Topic 4D, the Company considers any common stock
issuable upon the occurrence of an IPO for little or no consideration as a
nominal issuance. In accordance with the above bulletin, the Company has
considered 2,202,942 common shares issuable in connection with the conversion of
convertible preferred stock to be a nominal issuance and outstanding for all
periods since the original issuance of the underlying security.
15. EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an Employee Stock Ownership Plan ("ESOP") covering all
employees who have completed one year of continuous service or have completed
1,000 hours of service in a twelve-month period prior to entry date.
Contributions to the ESOP are made at the discretion of the Board of Directors.
Contributions of approximately $100,000 were designated for the ESOP for the
years ended December 31, 1996, 1997 and 1998.
SECTION 401(K) PROFIT SHARING PLAN
The Company has a profit sharing plan which allows each eligible employee to
voluntarily make pre-tax deferred salary contributions. The Company may make
matching contributions in amounts as determined by the board of directors. The
Company made matching contributions of approximately $111,000, $134,000 and
$179,000, for the years ended December 31, 1996, 1997 and 1998, respectively.
EMPLOYEE STOCK PURCHASE PLAN
In November 1998, the Company's Board of Directors approved an employee
stock purchase plan to become effective upon the filing of the Company's
proposed initial public offering. An aggregate of 250,000 shares of the
Company's common stock will be reserved for issuance under this plan.
16. STOCK OPTION PLANS
The Company has two stock option plans, the 1997 Invitrogen Corporation
Stock Option Plan and the 1995 Invitrogen Corporation Stock Option Plan. Under
both plans, incentive stock options are granted to eligible employees to
purchase shares of the Company's common stock at an exercise price equal to no
less than the estimated fair market value of such stock as determined by the
Board of
F-27
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996, 1997 AND 1998
16. STOCK OPTION PLANS (CONTINUED)
Directors on the date of grant; nonqualified stock options are granted at an
exercise price of no less than 85% of the fair market value of the common stock
on the date of grant. The Company recognizes as compensation expense the
difference between the exercise price and the fair market value of the common
stock on the date of grant. Stock based compensation expense is deferred and
recognized over the vesting period of the stock option. During the years ended
December 31, 1997 and 1998 the Company recognized approximately $169,000 and
$216,000, respectively, in stock based compensation expense.
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
fixed stock option or stock purchase plans. Had compensation cost for the
Company's stock-based compensation plans been determined based on the fair value
at the grant dates for awards under those plans consistent with the method of
SFAS 123, the Company's results of operations would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C> <C>
Income available to common stockholders: As reported......... $ 1,573 $ (13,126) $ 1,874
Pro forma........... 1,493 (13,175) 1,429
EPS: As reported......... $ 0.19 $ (1.47) $ 0.19
Pro forma........... 0.18 (1.47) 0.15
DEPS: As reported......... $ 0.16 $ (1.47) $ 0.17
Pro forma........... 0.15 (1.47) 0.13
</TABLE>
Under these two Plans, the Company may grant up to 4,485,479 options, of
which 3,182,402 are outstanding and 1,127,385 are available for issue at
December 31, 1998. Options vest immediately or over a period of time ranging up
to five years, are exercisable in whole or in installments, and expire ten years
from date of grant.
A summary of the status of the Company's stock option plans at December 31,
1996, 1997 and 1998 and changes during the periods then ended is presented in
the tables below:
<TABLE>
<CAPTION>
1996 1997 1998
----------------------- ------------------------ -----------------------
WTD. AVG. WTD. AVG. WTD. AVG.
SHARES EX PRICE SHARES EX PRICE SHARES EX PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year....................... 2,956,107 $ 0.85 3,467,107 $ 0.91 1,970,152 $ 1.30
Granted...................... 581,000 $ 1.21 222,000 $ 3.80 1,233,500 $ 8.29
Exercised.................... (70,000) $ 0.98 (178,955) $ 0.90 (16,050) $ 1.02
Forfeited/expired............ -- -- (1,540,000) $ 0.84 (5,200) $ 1.40
---------- ----- ----------- ----- ---------- -----
Outstanding, end of year..... 3,467,107 $ 0.91 1,970,152 $ 1.30 3,182,402 $ 4.13
Exercisable, end of year..... 1,331,686 $ 0.89 1,297,152 $ 1.09 1,602,918 $ 1.44
Weighted average fair value
of options granted......... $ 0.35 $ 0.96 $ 2.30
</TABLE>
F-28
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996, 1997 AND 1998
16. STOCK OPTION PLANS (CONTINUED)
At December 31, 1998:
<TABLE>
<CAPTION>
WTD. AVG.
REMAINING
OPTIONS OPTIONS EXERCISE CONTRACTUAL
OUTSTANDING EXERCISABLE PRICE LIFE IN YEARS
<S> <C> <C> <C> <C>
1,498,402 1,311,502 $ 0.84- $ 1.20 6.8
230,000 91,400 $ 1.20- $ 2.40 7.2
220,500 88,500 $ 3.60- $ 4.80 8.8
466,000 83,333 $ 4.80- $ 6.00 9.5
171,500 23,051 $ 6.00- $ 7.20 9.7
63,000 5,000 $ 8.40- $ 9.60 9.8
533,000 132 $ 10.80- $ 12.00 9.9
- ----------- ----------
3,182,402 1,602,918 $4.13 8.1
- ----------- ----------
- ----------- ----------
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the present value pricing method as described in SFAS No. 123. The underlying
assumptions used to estimate the fair values for the 1996, 1997 and 1998 grants
are weighted average risk-free interest rates of 6.02%, 5.81% and 5.4%,
respectively, with an expected life of 5, 9.2 and 9.3 years in 1996, 1997 and
1998, respectively. No dividend yield or stock price volatility was used in
these calculations.
F-29
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Novex
We have audited the accompanying consolidated balance sheets of Novex (the
"Company") as of March 31, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended March 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial position of Novex at March
31, 1999 and 1998, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended March 31, 1999 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
May 28, 1999,
except for Note 11, as to which the date is
June 14, 1999
F-30
<PAGE>
NOVEX
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................................ $ 306,048 $ 187,901
Accounts receivable, net of allowance for uncollectible accounts of $252,128 and
$124,626 at March 31, 1999 and 1998, respectively................................. 3,339,111 2,017,157
Inventories......................................................................... 2,563,264 1,016,289
Deferred income taxes............................................................... 201,000 156,000
Other current assets................................................................ 105,372 240,697
------------ ------------
Total current assets.................................................................. 6,514,795 3,618,044
Equipment and leasehold improvements, net............................................. 2,599,271 2,244,608
Intangible assets, net................................................................ 434,526 371,218
Other assets.......................................................................... 13,620 48,719
Deferred income taxes................................................................. 117,000 106,000
------------ ------------
Total assets.......................................................................... $ 9,679,212 $ 6,388,589
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank............................................................... $ 522,008 $ 875,448
Accounts payable.................................................................... 1,341,205 503,499
Accrued liabilities................................................................. 1,149,750 784,298
Income taxes payable................................................................ 184,813 105,404
Current portion of long-term debt................................................... 910,493 369,555
------------ ------------
Total current liabilities............................................................. 4,108,269 2,638,204
Long-term debt, less current maturities............................................... 974,765 406,984
Deferred rent......................................................................... 51,782 71,297
Commitments
Redeemable convertible preferred stock, no par value; 42,000 shares authorized, 42,000
shares issued and outstanding at March 31, 1999 and 1998, liquidation preference of
$2,924,380 and $2,769,400 at March 31, 1999 and 1998, respectively.................. 2,899,781 2,744,801
Stockholders' equity:
Common stock, no par value; 13,200,000 shares authorized, 6,707,324 and 6,678,505
shares issued and outstanding at March 31, 1999 and 1998, respectively............ 582,453 560,551
Cumulative comprehensive loss....................................................... (14,682) (41,208)
Retained earnings................................................................... 1,076,844 7,960
------------ ------------
Total stockholders' equity............................................................ 1,644,615 527,303
------------ ------------
Total liabilities and stockholders' equity............................................ $ 9,679,212 $ 6,388,589
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-31
<PAGE>
NOVEX
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues............................................................ $ 24,478,191 $ 17,133,551 $ 14,154,565
Cost of revenues.................................................... 11,941,602 8,189,306 6,384,976
------------- ------------- -------------
Gross margin........................................................ 12,536,589 8,944,245 7,769,589
Operating expenses:
Sales and marketing............................................... 5,166,022 3,259,949 2,682,963
General and administrative........................................ 3,604,213 3,468,827 2,660,467
Research and development.......................................... 1,554,476 1,500,184 1,292,987
------------- ------------- -------------
Total operating expenses............................................ 10,324,711 8,228,960 6,636,417
------------- ------------- -------------
Income from operations.............................................. 2,211,878 715,285 1,133,172
Other income (expense):
Interest expense.................................................. (226,784) (147,019) (121,145)
Interest income................................................... 657 2,981 5,562
Other expense..................................................... (17,796) (49,936) (2,504)
------------- ------------- -------------
(243,923) (193,974) (118,087)
------------- ------------- -------------
Income before provision for income taxes............................ 1,967,955 521,311 1,015,085
Provision for income taxes.......................................... 744,091 202,000 459,190
------------- ------------- -------------
Net income.......................................................... 1,223,864 319,311 555,895
Preferred stock dividend accrued.................................... (154,980) (154,980) (31,421)
------------- ------------- -------------
Net income available to common stockholders......................... $ 1,068,884 $ 164,331 $ 524,474
------------- ------------- -------------
------------- ------------- -------------
Net income per share:
Basic............................................................. $ 0.16 $ 0.02 $ 0.08
------------- ------------- -------------
------------- ------------- -------------
Diluted........................................................... $ 0.11 $ 0.02 $ 0.05
------------- ------------- -------------
------------- ------------- -------------
Weighted-average shares:
Basic............................................................. 6,691,771 6,678,254 6,521,841
------------- ------------- -------------
------------- ------------- -------------
Diluted........................................................... 11,305,780 6,775,792 10,721,841
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes.
F-32
<PAGE>
NOVEX
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ACCUMULATED EARNINGS
---------------------- COMPREHENSIVE (ACCUMULATED
\ SHARES AMOUNT INCOME (LOSS) DEFICIT) TOTAL
---------- ---------- ------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at April 1, 1996................ 6,428,005 $ 370,171 $ -- $ (680,845) $ (310,674)
Issuance of common stock to acquire
subsidiary.......................... 250,000 190,000 -- -- 190,000
Accrual for dividends on preferred
stock............................... -- -- -- (31,421) (31,421)
Net income............................ -- -- -- 555,895 555,895
Foreign currency translation
adjustment.......................... -- -- 5,903 -- 5,903
------------
Comprehensive income.................... 561,798
---------- ---------- ------------- ---------------- ------------
Balance at March 31, 1997............... 6,678,005 560,171 5,903 (156,371) 409,703
Exercise of stock options to purchase
common stock for cash............... 500 380 -- -- 380
Accrual for dividends on preferred
stock............................... -- -- -- (154,980) (154,980)
Net income............................ -- -- -- 319,311 319,311
Foreign currency translation
adjustment.......................... -- -- (47,111) -- (47,111)
------------
Comprehensive income.................... 272,200
---------- ---------- ------------- ---------------- ------------
Balance at March 31, 1998............... 6,678,505 560,551 (41,208) 7,960 527,303
Exercise of stock options to purchase
common stock for cash............... 28,819 21,902 -- -- 21,902
Accrual for dividends on preferred
stock............................... -- -- -- (154,980) (154,980)
Net income............................ -- -- -- 1,223,864 1,223,864
Foreign currency translation
adjustment.......................... -- -- 26,526 -- 26,526
------------
Comprehensive income.................... 1,250,390
---------- ---------- ------------- ---------------- ------------
Balance at March 31, 1999............... 6,707,324 $ 582,453 $ (14,682) $ 1,076,844 $ 1,644,615
---------- ---------- ------------- ---------------- ------------
---------- ---------- ------------- ---------------- ------------
</TABLE>
See accompanying notes.
F-33
<PAGE>
NOVEX
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------
1999 1998 1997
------------- ------------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................................ $ 1,223,864 $ 319,311 $ 555,895
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for uncollectible accounts................................ 127,502 61,651 48,164
Depreciation and amortization....................................... 767,947 686,694 540,786
Deferred income taxes............................................... (56,000) (6,450) (39,550)
Deferred rent....................................................... (19,515) (11,154) 16,787
Loss on sale and abandonment of equipment and leasehold
improvements...................................................... 22,354 125,652 8,805
Changes in assets and liabilities:
Accounts receivable............................................... (1,449,456) (379,161) (153,709)
Inventories....................................................... (1,114,975) (77,579) (144,320)
Other current assets.............................................. 135,325 (143,398) 132,997
Accounts payable.................................................. 837,706 33,730 (155,472)
Accrued liabilities............................................... 365,452 152,271 135,757
Income taxes payable.............................................. 79,409 (144,931) 164,335
------------- ------------- ------------
Net cash provided by operating activities............................. 919,613 616,636 1,110,475
INVESTING ACTIVITIES
Purchases of equipment and leasehold improvements..................... (1,027,812) (1,075,325) (872,251)
Investments in intangible assets...................................... (112,460) (43,475) (40,618)
Other assets.......................................................... 35,099 59,804 13,863
------------- ------------- ------------
Net cash used in investing activities................................. (1,105,173) (1,058,996) (899,006)
FINANCING ACTIVITIES
Borrowings on notes payable to bank, net.............................. (353,440) 704,779 166,461
Additions to long-term debt........................................... 1,300,000 360,833 --
Payments on long-term debt............................................ (691,281) (453,768) (356,576)
Proceeds from issuance of common stock................................ 21,902 380 --
------------- ------------- ------------
Net cash provided by (used in) financing activities................... 277,181 612,224 (190,115)
Effect of exchange rate on cash....................................... 26,526 (47,111) 5,903
------------- ------------- ------------
Net increase in cash.................................................. 118,147 122,753 27,257
Cash at beginning of year............................................. 187,901 65,148 37,891
------------- ------------- ------------
Cash at end of year................................................... $ 306,048 $ 187,901 $ 65,148
------------- ------------- ------------
------------- ------------- ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid....................................................... $ 226,784 $ 147,781 $ 126,622
------------- ------------- ------------
------------- ------------- ------------
Income taxes paid................................................... $ 709,341 $ 354,000 $ 334,000
------------- ------------- ------------
------------- ------------- ------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Assets acquired with long-term debt (Note 2)........................ $ 500,000 $ -- $ --
------------- ------------- ------------
------------- ------------- ------------
Common stock issued to acquire subsidiary........................... $ -- $ -- $ 190,000
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
See accompanying notes.
F-34
<PAGE>
NOVEX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Novex (the "Company"), formerly known as Novel Experimental Technology, a
California corporation, was incorporated on April 5, 1989. The Company
manufactures protein and nucleic acid electrophoresis gels and related
equipment, solutions, standards, and fine chemicals, primarily for use in
research laboratories. The Company sells these products to customers throughout
the United States, Canada, Europe, Australia, and Asia.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries: Novex Electrophoresis GmbH
(formerly known as Anamed GmbH), incorporated in December 1992, Serva GmbH,
incorporated in May 1998, and Novex International Sales Corporation (also known
as "NISC"), incorporated in February 1997. Significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers investments in highly-liquid debt securities with
remaining maturities of three months or less when acquired to be cash
equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
credit risk consist principally of accounts receivable. Credit is extended to
customers based on an evaluation of the customer's financial condition and
collateral is generally not required. The Company's customers are located
throughout the world. Credit losses have traditionally been minimal and within
management's expectations.
INVENTORIES
Inventories are carried at the lower of cost or market using the first-in,
first-out (FIFO) method.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost. Depreciation and
amortization are calculated using the straight-line method over the lesser of an
estimated useful life ranging from three to seven years or the lease term (in
the case of leasehold improvements).
INTANGIBLE ASSETS
The Company capitalizes the costs of obtaining trademarks and patents. These
costs are amortized over the estimated economic life of 15 years beginning with
the issuance of such trademarks and patents. Periodically, management assesses
whether there has been a permanent impairment in the value of intangible assets
and the amount of such impairment is determined by comparing anticipated
undiscounted future cash flows from operating activities with the carrying value
of the intangible assets.
F-35
<PAGE>
NOVEX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The excess cost over the fair value of the net tangible assets purchased
(goodwill) arose from the Company's acquisition of its wholly-owned subsidiary,
Novex Electrophoresis GmbH, and is being amortized over ten years.
NET INCOME PER SHARE
Earnings per share are computed in accordance with FASB Statement No. 128,
EARNINGS PER SHARE. Basic earnings per share are computed using the weighted
average number of common shares outstanding during each period. Diluted earnings
per share include the dilutive effect of common shares potentially issuable upon
the exercise of stock options.
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------
1999 1998 1997
------------ ---------- ------------
<S> <C> <C> <C>
Numerator:
Numerator for basic earnings per share--income available to common
stockholders......................................................... $ 1,068,884 $ 164,331 $ 524,474
Effect of dilutive preferred dividend accrued.......................... 154,980 -- 31,421
------------ ---------- ------------
Numerator for diluted earnings per share............................... $ 1,223,864 $ 164,331 555,895
------------ ---------- ------------
------------ ---------- ------------
Denominator:
Denominator for basic earnings per share--weighted-average shares
outstanding.......................................................... 6,691,771 6,678,254 6,521,841
Effect of convertible preferred stock.................................. 4,200,000 -- 4,200,000
Effect of dilutive options............................................. 414,009 97,538 --
------------ ---------- ------------
Denominator for diluted earnings per share--adjusted weighted-average
shares and assumed conversions....................................... 11,305,780 6,775,792 10,721,841
------------ ---------- ------------
------------ ---------- ------------
Basic earnings per share................................................. $ 0.16 $ 0.02 $ 0.08
------------ ---------- ------------
------------ ---------- ------------
Diluted earnings per share............................................... $ 0.11 $ 0.02 $ 0.05
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported revenues and expenses during the reporting
period. Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards (SFAS) No.
121, ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, the Company regularly
F-36
<PAGE>
NOVEX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
evaluates its long-lived assets for indicators of possible impairment. To date,
no such indicators have been identified.
FOREIGN CURRENCY TRANSLATION
In accordance with SFAS No. 52, the balance sheet accounts of the Company's
foreign operations are translated from foreign currencies into U.S. dollars at
year-end historical rates, while income and expenses are translated at the
weighted average exchange rates for the year. Translation gains or losses are
shown as a component of comprehensive income. Gains and losses resulting from
foreign currency transactions (transactions denominated in a currency other than
the entity's functional currency) are included in the results of operations.
Such foreign currency transaction gains and losses were not significant in 1999,
1998 and 1997.
REVENUES
Revenues from product sales are recognized when goods are shipped.
STOCK OPTIONS
As permitted by SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the
Company has elected to follow Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related Interpretations
in accounting for its employee stock options. Under APB 25, if the exercise
price of the Company's employee stock options equals or exceeds the deemed fair
value of the underlying stock on the date of grant, no compensation expense is
recognized. Options issued to non-employees are recorded at their fair value and
recognized over the related service period.
RECENTLY ISSUED ACCOUNTING STANDARD
Effective April 1, 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME. This standard requires that all components of
comprehensive income, including net income, be reported in the financial
statements in the period in which they are recognized. Comprehensive income is
defined as the change in equity during a period from transactions and other
events and circumstances from non-owner sources. Net income and other
comprehensive income, including unrealized gains and losses on investments and
foreign currency translation adjustments, shall be reported, net of their
related tax effect, to arrive at comprehensive income. The Company has included
foreign currency translation adjustments in comprehensive income, in its
statement of stockholders' equity.
LONG-TERM OBLIGATIONS
The carrying amount of the Company's long-term obligations approximate fair
value.
2. ACQUISITIONS
In May 1998, the Company purchased the assets of the Serva product line from
Boehringer Ingelheim Bioproducts Partnership ("Boehringer Ingelheim") in
Heidelberg, Germany. The purchase price was $1,543,000 comprised of $799,000 in
cash, acquisition costs of $244,000, and a promissory note for $500,000 at 8%
interest per year due in December 1999. The promissory note is supported by
F-37
<PAGE>
NOVEX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
2. ACQUISITIONS (CONTINUED)
a stand-by letter of credit with the Company's bank. The assets acquired include
inventory and property with an estimated fair value of $1,475,000 and $68,000,
respectively.
3. GEOGRAPHIC AND CUSTOMER INFORMATION
The Company operates in one business segment: the manufacture of protein and
nucleic acid electrophoresis gels and related equipment, solutions, standards
and fine chemicals. United States export sales, principally to Europe,
aggregated $3.2 million, $1.7 million and $2.4 million for the years ended March
31, 1999, 1998 and 1997, respectively.
Information with respect to the Company's operations by significant
geographic area is set forth below. All transactions denominated in foreign
currency have been translated at the average exchange rate during the period.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1999
------------------------------------------
CONSOLIDATED
UNITED STATES GERMANY TOTAL
------------- ------------ -------------
<S> <C> <C> <C>
Sales to unaffiliated customers.................. $ 15,568,681 $ 8,909,510 $ 24,478,191
------------- ------------ -------------
------------- ------------ -------------
Long-lived assets................................ $ 2,306,213 $ 741,204 $ 3,047,417
------------- ------------ -------------
------------- ------------ -------------
<CAPTION>
YEAR ENDED MARCH 31, 1998
------------------------------------------
CONSOLIDATED
UNITED STATES GERMANY TOTAL
------------- ------------ -------------
<S> <C> <C> <C>
Sales to unaffiliated customers.................. $ 13,407,787 $ 3,725,764 $ 17,133,551
------------- ------------ -------------
------------- ------------ -------------
Long-lived assets................................ $ 2,032,353 $ 632,192 $ 2,664,545
------------- ------------ -------------
------------- ------------ -------------
<CAPTION>
YEAR ENDED MARCH 31, 1997
------------------------------------------
CONSOLIDATED
UNITED STATES GERMANY TOTAL
------------- ------------ -------------
<S> <C> <C> <C>
Sales to unaffiliated customers.................. $ 11,740,855 $ 2,413,710 $ 14,154,565
------------- ------------ -------------
------------- ------------ -------------
Long-lived assets................................ $ 2,208,566 $ 150,479 $ 2,359,045
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
4. FINANCIAL STATEMENT INFORMATION
INVENTORIES
The Company's inventories consist of the following at March 31:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Raw materials..................................................... $ 1,051,663 $ 434,054
Work-in-process................................................... 489,223 258,893
Finished goods.................................................... 1,022,378 323,342
------------ ------------
$ 2,563,264 $ 1,016,289
------------ ------------
------------ ------------
</TABLE>
F-38
<PAGE>
NOVEX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
4. FINANCIAL STATEMENT INFORMATION (CONTINUED)
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following at March 31:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Manufacturing equipment......................................... $ 2,151,889 $ 1,241,153
Office and marketing equipment.................................. 1,204,096 1,130,366
Leasehold improvements.......................................... 1,044,914 891,035
Research and development equipment.............................. 286,204 184,724
------------- -------------
4,687,103 3,447,278
Less accumulated depreciation and amortization.................. (2,118,716) (1,399,921)
------------- -------------
2,568,387 2,047,357
Construction in progress........................................ 30,884 197,251
------------- -------------
$ 2,599,271 $ 2,244,608
------------- -------------
------------- -------------
</TABLE>
INTANGIBLE ASSETS
Intangible assets consist of the following at March 31:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Goodwill, net of accumulated amortization of $36,321 in 1999, $15,567
in 1998............................................................. $ 119,347 $ 140,101
Trademarks and patents, net of accumulated amortization of $42,144 in
1999, $13,746 in 1998............................................... 149,653 130,463
Costs incurred on pending trademarks and patents...................... 165,526 100,654
---------- ----------
$ 434,526 $ 371,218
---------- ----------
---------- ----------
</TABLE>
ACCRUED LIABILITIES
Accrued expenses consist of the following at March 31:
<TABLE>
<CAPTION>
1999 1998
------------ ----------
<S> <C> <C>
ESOP contribution................................................... $ 238,774 $ 136,179
Payroll and payroll taxes........................................... 245,943 172,907
Commissions......................................................... 87,033 34,592
Accrued vacations................................................... 235,019 122,677
Accrued relocation expenses......................................... -- 60,000
Value added taxes................................................... 146,818 37,573
Accrued warranty expenses........................................... 22,685 52,685
Other............................................................... 173,478 167,685
------------ ----------
$ 1,149,750 $ 784,298
------------ ----------
------------ ----------
</TABLE>
F-39
<PAGE>
NOVEX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
5. FINANCING ARRANGEMENTS
At March 31 1999, the Company has available a credit facility from a bank,
which provides a revolving line of credit for advances up to $1,200,000 and
bears interest at the bank's prime lending rate (7.75% at March 31, 1999) plus
1.0%. At March 31, 1999, $677,992 was available for advances and a balance of
$522,008 was outstanding on this revolving line of credit. The credit facility
will expire on August 10, 1999.
The financing arrangements are collateralized by substantially all of the
assets of the Company.
6. LONG-TERM DEBT
Long-term debt consists of the following at March 31:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Note payable to bank, payable in 60 installments of $21,667 plus interest through May
11, 2003, with interest at prime (7.75% at March 31, 1999) plus 1.75%, collateralized
by accounts receivable, inventories, equipment and intangibles....................... $ 1,082,722 $ --
Note payable to Boehringer Ingelheim, payable $500,000 plus interest on December 31,
1999, with interest at 8%, supported by a stand-by letter of credit with the bank.... 500,000 --
Notes payable to German bank, payable in monthly installments of $4,618 through October
2001, collateralized by certain assets of the Company with a net book value totaling
$124,000 at March 31, 1999........................................................... 72,575 102,426
Note payable to the Company's landlord, bearing interest at 12% due in monthly
installments of $10,586 through October 1, 2000...................................... 182,350 280,969
Note payable to bank, payable in 48 installments of $6,250 plus interest through August
15, 1999, with interest at prime plus 2.00%, collateralized by accounts receivable,
inventories, equipment and intangibles, outstanding balance prepaid during 1999 at
the election of the Company.......................................................... -- 106,250
Note payable to bank, payable in 48 installment of $4,706 plus interest through August
15, 2001, with interest at prime plus 1.00%, collateralized by accounts receivable,
inventories, equipment and intangibles, outstanding balance pre-paid during 1999 at
the election of the Company.......................................................... -- 192,962
Unsecured note payable to a former stockholder, payable in 12 equal quarterly
installments of $25,000 each through January 19, 1999, at an imputed interest rate of
10.25%, personally guaranteed by the Company's major stockholder..................... -- 93,932
Other.................................................................................. 47,611 --
------------ -----------
1,885,258 776,539
Less current maturities................................................................ (910,493) (369,555)
------------ -----------
$ 974,765 $ 406,984
------------ -----------
------------ -----------
</TABLE>
F-40
<PAGE>
NOVEX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
6. LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt consist of the following at March 31, 1999:
<TABLE>
<S> <C>
2000.............................................. $ 910,493
2001.............................................. 416,066
2002.............................................. 255,366
2003.............................................. 260,000
2004.............................................. 43,333
-------------
$ 1,885,258
-------------
-------------
</TABLE>
7. COMMITMENTS
The Company leases certain equipment and its facilities under operating
leases which expire through July 2002.
Annual future minimum lease obligations as of March 31, 1999 are as follows:
<TABLE>
<S> <C>
2000.............................................. $ 649,766
2001.............................................. 511,383
2002.............................................. 165,488
-------------
$ 1,326,637
-------------
-------------
</TABLE>
Three facility leases provide for specific escalating rental payments. Total
rent expense, which is recognized on a straight-line basis over the term of the
lease, including rent expense for equipment rentals was $755,229, $477,113 and
$281,000 during the years ended March 31, 1999, 1998 and 1997, respectively.
8. EMPLOYEE STOCK OWNERSHIP PLAN
The Company amended its Employee Stock Ownership Plan (ESOP), adding 401(k)
provisions allowing employees to contribute pretax salary deferrals to their
accounts, effective April 1, 1997. The Company had previously converted its
defined contribution profit sharing plan into an Employee Stock Ownership Plan
(ESOP) effective April 1, 1995. The purpose of the 401(k)/ESOP is to enable
employees who have completed 1,000 or more hours of service within a
twelve-month period to acquire stock ownership in the Company and share in its
growth, as well as defer taxes on wages earned. For the years ended March 31,
1999, 1998 and 1997, the Company accrued contributions of approximately
$238,774, $136,179 and $382,600, respectively, to the ESOP, which is included in
compensation expense. Contributions to the Plan are based upon a Company match
of employee 401(k) salary deferrals, as well as a discretionary percentage of
eligible participants' total compensation. During the year ended March 31, 1996,
the ESOP purchased 628,005 shares of the Company's stock with the 1995
contribution, all of which have been allocated to Plan participants. During the
years ended March 31, 1999 and 1998, the ESOP did not purchase any shares of
stock from the Company. The contributions for the years ended March 31, 1999 and
1998 have been funded through cash payments.
F-41
<PAGE>
NOVEX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
8. EMPLOYEE STOCK OWNERSHIP PLAN (CONTINUED)
In the event that a participant leaves the Plan through termination, death,
retirement, or permanent disability and the participant desires to sell his or
her shares of the Company's stock, the Company may be required to purchase the
shares from the participant at their fair value. Depending on the circumstances
of the participant leaving the Plan, the Company may have up to five years to
purchase the stock.
9. STOCKHOLDERS' EQUITY
REDEEMABLE CONVERTIBLE PREFERRED STOCK
In January 1996, the Company repurchased 4,200,000 shares of common stock
for $2,220,000 from one of the Company's former major stockholders/officers. In
conjunction with the repurchase of the common stock, the Company sold 42,000
shares of Series A preferred stock at a purchase price of $61.50 per share, net
of issuance costs of $24,599. The proceeds from the sale of preferred shares
were used to pay for the repurchase of the shares of common stock of the
Company.
Concurrent with the repurchase of the common stock in January 1996, the
Company executed a release and settlement agreement with the Company's former
major stockholder/officer for alleged breach of contract and wrongful
termination claim. As consideration for execution of the agreement, the former
stockholder/officer received $75,000 for legal fees incurred and a $300,000
non-interest bearing promissory note. The note was due in twelve quarterly
installments of $25,000 each commencing April 1996. The note is fully amortized
and no liability remains on the accompanying 1999 balance sheet. At March 31,
1998, the note is recorded in the accompanying balance sheets at its discounted
value of $93,932, using a 10.25% imputed rate of interest.
Each share of Series A preferred stock is convertible at the option of the
holder at any time into one hundred shares of common stock ($.6150 per share, or
as adjusted for any dilution). Each share of Series A preferred stock shall
automatically be converted into shares of common stock at the then effective
conversion price in the event the Company completes an initial public offering
which meets certain minimum requirements.
Commencing January 17, 1997, dividends began to accrue on each share of
Series A preferred stock, whether or not earned or declared. Cash dividends
accrue at an annual rate of $3.69 per share. Series A accrued dividends totalled
$154,980, $154,980 and $31,421 for the years ended March 31, 1999, 1998 and
1997, respectively. In addition, on January 17th in 2001, 2002 and 2003, each
holder of Series A preferred stock shall have the right to require the Company
to redeem up to 33.3%, 50% and 100%, respectively, of the shares of Series A
preferred stock held by such holder on such date, at a redemption rate of $61.50
per share (or as adjusted for any dilution), plus any accrued but unpaid
dividends.
Each share of Series A preferred stock has voting rights equal the number of
shares of common stock which would be issued upon conversion. The holders of
Series A preferred stock shall be entitled to elect two out of the six members
of the Company's board of directors.
F-42
<PAGE>
NOVEX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
9. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLAN
In April 1996, the Company adopted the 1996 Stock Option Plan (the "Stock
Plan"), which was amended in fiscal 1999 to issue additional shares. In
addition, the 1998 Stock Option Plan was adopted in fiscal 1999 to issue
additional shares. The Stock Plans provide for the grant of incentive stock
options to employees and nonstatutory stock options to employees, directors and
consultants. The Company has reserved 290,462 shares for future contribution to
the Stock Plans and the Employee Stock Ownership Plan and any compensation
agreement as contemplated by the Company.
All options granted under the Stock Plans expire not later than ten years
from the date of grant and vest and become fully exercisable after not more than
five years of continued employment or engagement. Options generally vest
one-fifth on the first anniversary and the remainder vest ratably over the next
four years. The exercise price of stock options must be equal to or greater than
the fair market value on the date of grant.
The following table summarizes stock option activity under the Stock Plans:
<TABLE>
<CAPTION>
OPTIONS WEIGHTED-AVERAGE
OUTSTANDING EXERCISE PRICE
----------- -----------------
<S> <C> <C>
Balance at April 1, 1996...................................... -- $ --
Granted..................................................... 752,000 $ 0.76
Cancelled................................................... (36,000) $ 0.76
-----------
Balance at March 31, 1997..................................... 716,000 $ 0.76
Granted..................................................... 1,097,500 $ 0.96
Exercised................................................... (500) $ 0.76
Forfeited................................................... (159,297) $ 0.76
-----------
Balance at March 31, 1998..................................... 1,653,703 $ 0.89
Granted..................................................... 453,000 $ 1.10
Exercised................................................... (28,819) $ 0.76
Forfeited................................................... (75,670) $ 0.90
-----------
Balance at March 31, 1999..................................... 2,002,214 $ 0.94
-----------
-----------
</TABLE>
At March 31, 1999, options to purchase 599,396 shares of common stock were
exercisable. The weighted-average remaining contractual life of the options
outstanding at March 31, 1999 was 8.4 years.
Pro forma information regarding net income is required by SFAS 123, and has
been determined as if the Company had accounted for its employee stock options
under the fair value method under the Statement. The fair value of these options
was estimated at the date of grant using the minimum value method with the
following weighted average assumptions for fiscal years 1999, 1998 and
1997:risk-free interest rate of 6.00%; no annual dividends; and an expected
option life of five years. The weighted-average fair value of options granted
during 1999, 1998 and 1997 was $0.27, $0.25 and $0.20, respectively. The effect
of applying the minimum value method of SFAS 123 to options granted in fiscal
year 1999, 1998 and 1997 did not result in a pro forma net income amount that is
materially different from the amount reported. Accordingly, such pro forma
information is not presented herein. The pro forma
F-43
<PAGE>
NOVEX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
9. STOCKHOLDERS' EQUITY (CONTINUED)
effect determined in fiscal year 1999 may not be representative of the pro forma
effect to be reported in future years.
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
Common stock reserved for future issuance is as follows:
<TABLE>
<CAPTION>
MARCH 31,
1999
----------
<S> <C>
Conversion of Series A convertible preferred stock................................................... 4,200,000
Stock options outstanding under the Stock Plan....................................................... 2,002,214
Common stock reserved for future contributions to the Stock Plan, ESOP and compensation agreements... 290,462
----------
6,492,676
----------
----------
</TABLE>
10. INCOME TAXES
Net deferred tax assets consist of the following as of March 31:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves............................................... $ 164,000 $ 111,000
Depreciation........................................................ 117,000 86,000
Other, net.......................................................... 37,000 145,000
---------- ----------
Total deferred tax assets............................................. 318,000 342,000
Valuation allowance................................................... -- (80,000)
---------- ----------
Net deferred tax assets............................................... $ 318,000 $ 262,000
---------- ----------
---------- ----------
</TABLE>
A valuation allowance of $80,000 at March 31, 1998, was provided against the
deferred tax asset related to the foreign tax loss carryforwards since that time
realization was uncertain. The foreign tax losses may be carried forward
indefinitely.
F-44
<PAGE>
NOVEX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
10. INCOME TAXES (CONTINUED)
The income tax expense (benefit) consists of the following for the years
ended March 31:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current
Federal................................................ $ 589,000 $ 185,000 $ 432,190
State.................................................. 145,000 24,000 66,000
Foreign................................................ 66,091 -- --
---------- ---------- ----------
800,091 209,000 498,190
Deferred
Federal................................................ (51,000) (3,000) (40,000)
State.................................................. (5,000) (4,000) 1,000
Foreign................................................ -- -- --
---------- ---------- ----------
(56,000) (7,000) (39,000)
---------- ---------- ----------
$ 744,091 $ 202,000 $ 459,190
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The reconciliation of income taxes computed at the U.S. federal statutory
rates to income tax expense is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Tax U.S. statutory rates................ 34.0% 34.0% 34.0%
State income taxes, net of federal tax
benefit............................... 3.8% 2.5% 4.1%
Permanent differences................... 1.1% 2.9% 2.9%
Other, net.............................. (1.1)% (0.7)% 4.2%
------ ------ ------
37.8% 38.7% 45.2%
------ ------ ------
------ ------ ------
</TABLE>
11. SUBSEQUENT EVENT
On June 14, 1999, the Company entered into an agreement and plan of merger
with Invitrogen Corporation ("Invitrogen") whereby Invitrogen, subject to
shareholders approval, would acquire all of the Company's issued and outstanding
shares for approximately 2.5 million of Invitrogen's common stock and would
assume the outstanding options of the Company which equates to approximately
500,000 options to purchase Invitrogen common stock. The transaction will be
accounted for as a pooling of interests.
Based on the fair value of the Invitrogen shares, management has concluded
that the exercise price of the Company's options to purchase common stock
granted subsequent to March 31, 1999 is less than the fair value of Company's
common stock. Accordingly, the Company recorded deferred compensation of
$163,817 for the difference between the fair value and the exercise price for
the options to purchase common stock granted subsequent to March 31, 1999. The
deferred compensation will be amortized over the vesting period of the related
options.
F-45
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
dated as of June 14, 1999
by and among
INVITROGEN CORPORATION
a Delaware Corporation
NOVEX
a California Corporation
and
INVO MERGER CORPORATION
a California Corporation
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
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<S> <C> <C>
ARTICLE I THE MERGER................................................................. 2
1.1 The Merger................................................................ 2
1.2 Effective Time............................................................ 2
1.3 Closing of the Merger..................................................... 2
1.4 Effects of the Merger..................................................... 2
1.5 Articles of Incorporation and Bylaws...................................... 2
1.6 Directors................................................................. 2
1.7 Officers.................................................................. 3
1.8 Tax Consequences.......................................................... 3
1.9 Accounting Treatment...................................................... 3
ARTICLE II CONVERSION OF SECURITIES.................................................. 3
2.1 Merger Effect............................................................. 4
2.2 Stock Options............................................................. 4
2.3 Stock Transfer Books...................................................... 4
2.4 Dissenter's Rights........................................................ 4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................ 5
3.1 Organization, Standing and Power.......................................... 5
3.2 Company Capital Structure................................................. 5
3.3 Authority; Required Filings and Consents.................................. 6
3.4 Financial Statements...................................................... 7
3.5 Absence of Undisclosed Liabilities........................................ 7
3.6 Absence of Certain Changes or Events...................................... 7
3.7 Taxes..................................................................... 9
3.8 Tangible Assets and Real Property......................................... 9
3.9 Intellectual Property..................................................... 10
3.10 Bank Accounts............................................................. 12
3.11 Contracts................................................................. 12
3.12 Labor Difficulties........................................................ 13
3.13 Trade Regulation; Customers and Distributors.............................. 13
3.14 Environmental Matters..................................................... 14
3.15 Employee Benefit Plans.................................................... 14
3.16 Compliance with Laws...................................................... 15
3.17 Employees and Consultants................................................. 15
3.18 Litigation................................................................ 15
3.19 Restrictions on Business Activities....................................... 15
3.20 Governmental Authorization................................................ 16
3.21 Insurance................................................................. 16
3.22 Interested Party Transactions............................................. 16
3.23 No Existing Discussions................................................... 16
3.24 Real Property Holding Corporation......................................... 16
3.25 Corporate Documents....................................................... 16
3.26 Registration Statements; Proxy Statement.................................. 17
3.27 No Misrepresentation...................................................... 17
3.28 Brokers' and Finders' Fees................................................ 17
</TABLE>
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TABLE OF CONTENTS
(continued)
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3.29 Inventories............................................................... 18
3.30 Accounts Receivable....................................................... 18
3.31 Employees & Suppliers..................................................... 18
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGERSUB....................
18
4.1 Organization.............................................................. 18
4.2 Parent Capital Structure.................................................. 18
4.3 Authority; No Conflict; Required Filings and Consents..................... 19
4.4 SEC Filings; Financial Statements......................................... 20
4.5 Absence of Certain Changes or Events...................................... 21
4.6 Registration Statement; Proxy Statement................................... 21
4.7 Brokers' and Finders' Fees................................................ 21
ARTICLE V COVENANTS RELATED TO CONDUCT OF BUSINESS................................... 22
5.1 Conduct of Business of the Company........................................ 22
ARTICLE VI ADDITIONAL AGREEMENTS..................................................... 24
6.1 Proxy Statement; Registration Statement................................... 24
6.2 Access to Information..................................................... 25
6.3 The Stockholders' Meetings................................................ 26
6.4 Legal Conditions to Merger................................................ 26
6.5 Payment of Taxes.......................................................... 26
6.6 Tax-Free Reorganization................................................... 26
6.7 NASDAQ Quotation.......................................................... 27
6.8 Consents.................................................................. 27
6.9 Employee Benefits; Employee Issues........................................ 27
6.10 Reports................................................................... 27
6.11 Notification of Certain Matters........................................... 27
6.12 Best Efforts.............................................................. 27
6.13 Acquisition Proposals..................................................... 28
6.14 Publicity................................................................. 28
6.15 Bonus Programs............................................................ 28
6.16 Board Seat................................................................ 28
6.17 Indemnification Agreements................................................ 28
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE MERGER................................. 29
7.1 Closing Conditions........................................................ 29
7.2 Additional Conditions to Obligations of Parent and MergerSub.............. 29
7.3 Additional Conditions to Obligations of the Company....................... 31
ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION
PROVISIONS........................................................................... 32
8.1 Survival of Representations and Warranties................................ 32
8.2 Indemnification of the Parent............................................. 33
8.3 Limits on Indemnification and Liability................................... 33
8.4 Defense of Third Party Claims............................................. 33
</TABLE>
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TABLE OF CONTENTS
(continued)
<TABLE>
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<S> <C> <C>
8.5 Escrow.................................................................... 34
ARTICLE IX TERMINATION; AMENDMENT; WAIVER............................................ 35
9.1 Termination............................................................... 35
9.2 Effect of the Termination................................................. 35
9.3 Fees and Expenses......................................................... 36
9.4 Amendment................................................................. 36
9.5 Extension; Waiver......................................................... 36
ARTICLE X MISCELLANEOUS.............................................................. 37
10.1 Entire Agreement; Assignment.............................................. 37
10.2 Notices................................................................... 37
10.3 Governing Law............................................................. 38
10.4 Descriptive Headings...................................................... 38
10.5 Parties in Interest....................................................... 38
10.6 Severability.............................................................. 38
10.7 Specific Performance...................................................... 39
10.8 Counterparts.............................................................. 39
10.9 Interpretation............................................................ 39
10.10 Attorney Fees............................................................. 40
10.11 Definitions............................................................... 40
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of June 14, 1999, by and among
NOVEX, a California corporation (the "COMPANY"), INVITROGEN CORPORATION, a
Delaware corporation ("PARENT"), and INVO MERGER CORPORATION, a California
corporation and a direct wholly owned subsidiary of Parent ("MERGERSUB").
WHEREAS, the Boards of Directors of each of Parent, MergerSub, and the
Company, have approved, and deem it fair to, advisable, and in the best
interests of their respective stockholders to proceed with the acquisition of
the Company by Parent and MergerSub upon the terms and consideration set forth
herein;
WHEREAS, in furtherance thereof, it is proposed that MergerSub acquire all
of the issued and outstanding shares ("SHARES") of common stock of the Company
("COMPANY COMMON STOCK") and outstanding options to purchase shares of Company
Common Stock ("COMPANY STOCK OPTIONS"), in exchange for an aggregate of
3,000,000 shares of Parent (the "MERGER SHARES"), upon the terms and subject to
the conditions set forth herein;
WHEREAS, also in furtherance of such acquisition thereof, the Board of
Directors of each of Parent, MergerSub, and the Company have approved the terms
and provisions of this Agreement and the Merger pursuant to which MergerSub
shall merge with and into the Company and the outstanding Shares and Company
Stock Options shall be converted into the right to receive the Merger Shares,
all in accordance with the California Corporations Code and upon the terms and
subject to the conditions set forth herein;
WHEREAS, the Board of Directors of the Company (the "COMPANY BOARD") has
determined that the consideration to be paid for each Share, the terms and
provisions of the assumption of each Company Stock Option and the terms and
provisions of the Merger are fair to the holders of such Shares and Company
Stock Options and has resolved to recommend that the holders of such Shares
approve and adopt this Agreement and the Merger upon the terms and subject to
the conditions set forth herein;
WHEREAS, the Company, Parent, and MergerSub desire to make certain
representations, warranties, covenants, and agreements in connection with the
Merger;
WHEREAS, as a further inducement for Parent and MergerSub to enter into this
Agreement, certain key employees and equity holders in the Company will execute
and deliver Non-Solicitation and Non-Competition Agreements effective as of the
closing; and
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants, and agreements herein contained, and intending to be
legally bound hereby, the Company, Parent, and MergerSub hereby agree as
follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time and upon the terms and subject to
the conditions of this Agreement and in accordance with the California
Corporations Code (the "CCC"), MergerSub shall be merged with and into the
Company (the "MERGER"). Following the Merger, the Company shall continue as the
surviving corporation (the "SURVIVING CORPORATION") and the separate corporate
existence of MergerSub shall cease.
1.2 EFFECTIVE TIME. Subject to the provisions of this Agreement, Parent,
MergerSub, and the Company shall cause the Merger to be consummated by filing an
appropriate Agreement of Merger or other appropriate documents (the "CERTIFICATE
OF MERGER") with the Secretary of State of the State of
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California in such form as required by, and executed in accordance with, the
relevant provisions of the CCC, as soon as practicable on or after the Closing
Date. The Merger shall become effective upon such filing or at such time
thereafter as is provided in the Certificate of Merger (the "EFFECTIVE TIME").
1.3 CLOSING OF THE MERGER. The closing of the Merger (the "CLOSING") will
take place at a time and on a date to be specified by the parties hereto (the
"CLOSING DATE"), which shall be no later than the second business day after
satisfaction or waiver of the conditions set forth in Article VII (other than
those conditions that by their nature are to be satisfied at the Closing, but
subject to the fulfillment or waiver of those conditions), at the offices of
Gray Cary Ware & Freidenrich LLP, 4365 Executive Drive, Suite 1600, San Diego,
California 92121, or at such other time, date, or place as agreed to in writing
by the parties hereto.
1.4 EFFECTS OF THE MERGER. The Merger shall have the effects set forth in
the CCC. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time, all the properties, rights, privileges, powers, and
franchises of the Company and MergerSub shall vest in the Surviving Corporation,
and all debts, liabilities, and duties of the Company and MergerSub shall become
the debts, liabilities, and duties of the Surviving Corporation.
1.5 ARTICLES OF INCORPORATION AND BYLAWS.
(a) Effective immediately following the Merger, the articles of
incorporation of the Company, as in effect immediately prior to the
Effective Time, shall be the articles of incorporation of the Surviving
Corporation until amended in accordance with applicable law.
(b) Effective immediately following the Merger, the bylaws of the
Company, as in effect immediately prior to the Effective Time, shall be the
bylaws of the Surviving Corporation until amended in accordance with
applicable law.
1.6 DIRECTORS. The directors of MergerSub immediately prior to the
Effective Time shall be the initial directors of the Surviving Corporation, to
hold office in accordance with the articles of incorporation and bylaws of the
Surviving Corporation until their successors are duly elected or appointed and
qualified or until their earlier death, resignation, or removal.
1.7 OFFICERS. The officers of MergerSub immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation, to hold office
in accordance with the articles of incorporation and bylaws of the Surviving
Corporation until their successors are duly elected or appointed and qualified
or until their earlier death, resignation, or removal.
1.8 TAX CONSEQUENCES. For federal tax income purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement hereby adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2 (g) and 1.368-3 (a) of
the United States Treasury Regulations.
1.9 ACCOUNTING TREATMENT. For accounting purposes, the Merger is intended
to be treated as a "pooling of interests."
ARTICLE II
CONVERSION OF SECURITIES
2.1 MERGER EFFECT. As of the Effective Time, by virtue of the Merger and
without any action on the part of the holders of any Shares or any shares of
capital stock of MergerSub:
(a) Each issued and outstanding share of common stock of MergerSub
shall be converted into and become one fully paid and nonassessable share of
common stock of the Surviving Corporation.
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(b) Each issued and outstanding Share shall be converted into and
exchanged for that number of validly issued, fully paid and nonassessable
shares of Parent equal to the Exchange Ratio (as defined in Section 2.1(c))
(the "SHARE CONSIDERATION"), provided that 250,000 of such Merger Shares
(taken PRO RATA from the quantities otherwise deliverable to each Company
shareholder) shall be deposited into escrow in accordance with Section 8.5
hereof.
(c) The "Exchange Ratio" shall mean the quotient obtained by dividing
(x) 3,000,000 by (y) the Company Total Shares. As used herein, the "COMPANY
TOTAL SHARES" shall mean that number of Shares of Company Common Stock that
are outstanding immediately prior to the Effective Time, plus that number of
shares of Company Common Stock issuable upon exercise of all Company Stock
Options that are outstanding at the close of business on the day immediately
preceding the Effective Time.
(d) No fractional shares of Parent Common Stock shall be issued in
connection with the Merger, and no certificates for any such fractional
shares shall be issued. In lieu of such fractional shares, any holder of
Shares who would otherwise be entitled to receive a fraction of a share of
Parent Common Stock shall, upon delivery of such stockholder's Share, be
paid in cash the dollar amount (rounded to the nearest whole cent), without
interest, determined by multiplying such fraction by the closing price of
Parent Common Stock on the business day immediately preceding to the
Effective Time.
2.2 STOCK OPTIONS.
(a) At the Effective Time, each outstanding Company Stock Option,
whether vested or unvested, shall be deemed to constitute an option to
acquire, on substantially the terms and conditions as were applicable under
the Company's 1996 Stock Option Plan or the Company's 1998 Stock Option
Plan, as applicable, (collectively referred to herein as the "COMPANY OPTION
PLAN") and under the agreement relating thereto, that number of whole shares
of Parent Common Stock equal to the product of the number of shares of the
Company Common Stock that were issuable (without regard to applicable
vesting requirements) upon exercise of such option immediately before the
Effective Time multiplied by the Exchange Ratio (as defined in Section
2.2(c) hereto) and rounded down to the nearest whole number of shares of
Parent Common Stock, and the per-share exercise price for the shares of
Parent Common Stock issuable upon exercise of such replaced the Company
Stock Option will be equal to the quotient determined by dividing the
exercise price per share of the Company Common Stock at which such option
was exercisable immediately before the Effective Time by the Exchange Ratio,
rounded down to the nearest whole cent. It is the intention of the parties
that the Company Stock Options so modified in accordance with this Section
2.2 qualify following the Effective Time as "incentive stock options" as
defined in
Section 422 of the Code to the extent such options qualified as incentive
stock options immediately before the Effective Time.
(b) Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery
under the Company Stock Options assumed in accordance with this Section 2.2.
As soon as practicable after the Effective Time, Parent shall file a
registration statement on Form S-8 (or any successor or other appropriate
forms) with respect to the shares of Parent Common Stock subject to the
assumed options and shall use its best efforts to maintain the effectiveness
of such registration statement for so long as such options remain
outstanding.
2.3 STOCK TRANSFER BOOKS. The stock transfer books of the Company shall be
closed immediately upon the Effective Time and there shall be no further
registration of transfers of Shares thereafter on the records of the Company.
A-3
<PAGE>
2.4 DISSENTER'S RIGHTS. Notwithstanding any other provision of this
Agreement to the contrary, Shares (the "DISSENTING SHARES") that are issued and
outstanding immediately prior to the Effective Time and which are held by
stockholders who did not vote in favor of the Merger and who comply with all of
the relevant provisions of Chapter 13 of the CCC (the "DISSENTING STOCKHOLDERS")
shall not be converted into or be exchangeable for the right to receive the
Share Consideration, unless and until such holders shall have failed to perfect
or shall have effectively withdrawn or lost their dissenters' rights under the
CCC. If any Dissenting Stockholder shall have failed to perfect or shall have
effectively withdrawn or lost such right, such holder's Shares shall thereupon
be converted into and become exchangeable for the right to receive, as of the
Effective Time, the Share Consideration without any interest thereon. The
Company shall give Parent (i) prompt notice of any written demands for
dissenters' rights, attempted withdrawals of such demands, and any other
instruments served pursuant to the CCC and received by the Company relating to
dissenters' rights, and (ii) the opportunity to direct all negotiations and
proceedings in respect of dissenters' rights under the CCC. Neither the Company
nor the Surviving Corporation shall, except with the prior written consent of
Parent, voluntarily make any payment in respect of, or settle or offer to
settle, any such demand for payment. If any Dissenting Stockholder shall fail to
perfect or shall have effectively withdrawn or lost the right to dissent, the
Shares held by such Dissenting Stockholder shall thereupon be treated as though
such Shares had been converted into the right to receive the Share Consideration
pursuant to Section 2.1(b).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule separately delivered by the
Company (for purposes of this Agreement, references to the Company include all
subsidiaries of the Company) to Parent prior to the execution of this Agreement
(the "COMPANY DISCLOSURE SCHEDULE") (each section of which qualifies the
correspondingly numbered representation and warranty or covenant to the extent
specified therein), the Company hereby represents and warrants to each of Parent
and MergerSub as follows:
3.1 ORGANIZATION, STANDING AND POWER. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has all requisite corporate power to own,
lease and operate its properties and to carry on its business as currently being
conducted and as currently proposed to be conducted, and is duly qualified to
transact business and is in good standing in each jurisdiction in which the
nature of its operations requires such qualification, except where the failure
to so qualify has not and will not have a Material Adverse Effect on the
Company. The Company has delivered true and correct copies of the articles of
incorporation and bylaws of the Company, each as amended to date, to Parent. The
Company is not in violation of any of the provisions of its articles of
incorporation, bylaws or other charter documents.
3.2 COMPANY CAPITAL STRUCTURE.
(a) The authorized capital stock of the Company consists of 13,200,000
shares of the Company Common Stock and 42,000 shares of Series A Convertible
Preferred Stock ("SERIES A PREFERRED"). As of the date hereof and the
Closing Date, 6,711,317 shares of the Company Common Stock and 42,000 shares
of Series A Preferred (convertible into 4,200,000 shares of Company Common
Stock) are and will be issued and outstanding. Immediately prior to Closing
hereof, all such shares of Series A Preferred will be voluntarily converted
to Company Common Stock by the holders thereof in accordance with the
provisions of the Company's articles of incorporation. To the Company's
knowledge, all such outstanding shares of the Company Common Stock and
Series A Preferred are held by the holder thereof free and clear of all
liens, claims and encumbrances. All such outstanding shares of the Company
Common Stock and Series A Preferred have been duly authorized, validly
issued, fully paid and are nonassessable, have been issued in compliance
with all applicable federal and state securities laws, and, are subject to
no preemptive rights
A-4
<PAGE>
or rights of first refusal created by statute, the charter documents of the
Company or any agreement to which the Company is a party or by which it is
bound.
(b) Except as set forth on the Company Disclosure Schedule, there are
(i) no equity or debt securities of any class of the Company, or any
securities exchangeable into or exercisable for such equity or debt
securities, issued, reserved for issuance, or outstanding and (ii) no
outstanding subscriptions, options, warrants, puts, calls, rights, or other
commitments or agreements of any character to which the Company is a party
or by which it is bound obligating the Company to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any equity or debt securities of the Company or obligating the
Company to grant, extend, accelerate the vesting of, change the exercise
price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. There are no contracts, commitments or
agreements relating to voting, purchase or sale of the Company's capital
stock to which the Company is a party.
(c) The subsidiaries of the Company are listed on the Company
Disclosure Schedule. Other than the subsidiaries listed on the Company
Disclosure Schedule, the Company does not own, directly or indirectly any
equity or similar interest in, any corporation, partnership, joint venture
or other business association or entity. All outstanding shares of capital
stock of each subsidiary of the Company are held beneficially and of record
by the Company free and clear of all liens, claims and encumbrances, have
been duly authorized, validly issued, fully paid and are nonassessable, have
been issued in compliance with all applicable federal and state securities
laws, and are not subject to any voting restrictions, preemptive rights or
rights of first refusal created by statute, the charter documents of the
subsidiary or any agreement to which the subsidiary or the Company is a
party or by which either of them is bound.
3.3 AUTHORITY; REQUIRED FILINGS AND CONSENTS.
(a) The Company has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. Subject to obtaining the consent of the Company's stockholders to
the Merger as contemplated hereby, the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of the
Company and its stockholders. This Agreement and all other documents
expressly required to be executed and delivered by the Company hereunder,
including the Certificate of Merger (collectively, the "TRANSACTION
DOCUMENTS"), have been or will be duly executed and delivered by the Company
and constitute or will constitute the valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms, except as such enforceability may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to
creditors' rights generally, and general principles of equity.
(b) The execution and delivery by the Company of this Agreement and the
other Transaction Documents to which it is or will be a party do not, and
the consummation of the transactions contemplated hereby and thereby will
not, (i) conflict with, or result in any violation or breach of any
provision of, the articles of incorporation or bylaws of the Company, (ii)
result in any violation or breach of or constitute (with or without notice
or lapse of time, or both) a default under, or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under, any note, mortgage, indenture, lease, contract or other
agreement or obligation to which the Company is a party or by which the
Company, or any of its properties or assets may be bound, or (iii) conflict
with or violate any permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the
Company or any of its respective properties or assets, except in the case of
(ii) and (iii) above for any such conflicts, violations,
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<PAGE>
defaults, terminations, cancellations or accelerations which would not have
a Material Adverse Effect on the Company.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission
or other governmental authority or instrumentality ("GOVERNMENTAL ENTITY")
is required by or with respect to the Company in connection with the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing of the
Certificate of Merger with the California Secretary of State in accordance
with the CCC, (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws, and (iii) such other consents,
authorizations, filings, approvals and registrations which, if not obtained
or made, would not prevent or materially alter or delay any of the
transactions contemplated by this Agreement or have a Material Adverse
Effect of the Company.
3.4 FINANCIAL STATEMENTS. The Company has delivered to Parent its audited
financial statements for each of the fiscal years ended March 31, 1997 and 1998
and its unaudited financial statements for the fiscal year ended March 31, 1999
(collectively, the "COMPANY FINANCIAL STATEMENTS"). The Company Financial
Statements are correct in all material respects and were prepared in accordance
with United States generally accepted accounting principles ("GAAP") applied on
a consistent basis throughout the periods involved. The Company Financial
Statements present fairly the financial position of the Company in all material
respects as of the respective dates and the results of its operations and cash
flows for the periods indicated. The Company has maintained a standard system of
accounting established and administered in accordance with GAAP. Within two
business days of its receipt of the audited financial statements for the fiscal
year ended March 31, 1999, the Company will provide copies thereof to Parent.
3.5 ABSENCE OF UNDISCLOSED LIABILITIES. The Company does not have any
material liabilities, individually or in the aggregate, either accrued or
contingent (whether or not required to be reflected in financial statements in
accordance with GAAP), and whether due or to become due, other than (i)
liabilities reflected or provided for on the balance sheet as of March 31, 1999
(the "COMPANY BALANCE SHEET") contained in the Company Financial Statements,
(ii) liabilities specifically described in this Agreement or the Company
Disclosure Schedule, and (iii) normal or recurring liabilities incurred since
March 31, 1999 in the ordinary course of business consistent with past
practices.
3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since March 31, 1999, the
Company has conducted its business in the ordinary course and in a manner
consistent with past practices and, since such date, the Company has not:
(a) suffered any event or occurrence that has had a Material Adverse
Effect on the Company;
(b) suffered any damage, destruction or loss, whether covered by
insurance or not, which in the aggregate has had a Material Adverse Effect
on the Company;
(c) granted any material increase in the compensation payable or to
become payable by the Company to its officers or employees other than
increases in the ordinary course of business to employees who are not
officers;
(d) declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of its capital stock or declared
any direct or indirect redemption, retirement, purchase or other acquisition
of such shares;
(e) issued any shares of its capital stock or any warrants, rights, or
options for, or entered into any commitment relating to such capital stock;
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<PAGE>
(f) made any change in the accounting methods or practices it follows,
whether for general financial or tax purposes, or any change in depreciation
or amortization policies or rates;
(g) sold, leased, abandoned or otherwise disposed of any real property,
machinery, equipment or other operating property other than in the ordinary
course of business;
(h) sold, assigned, transferred, licensed or otherwise disposed of any
patent, patent right, trademark, trade name, brand name, copyright (or
pending application for any patent, trademark or copyright), invention, work
of authorship, process, know-how, formula or trade secret or interest
thereunder or other material intangible asset;
(i) entered into any material commitment or transaction (including
without limitation any borrowing) other than commitments or transactions
entered into in the ordinary course of business that are not reasonably
likely to have a Material Adverse Effect on the Company;
(j) permitted or allowed any of its property or assets to be subjected
to any new mortgage, deed of trust, pledge, lien, security interest or other
encumbrance of any kind, except for liens for current taxes not yet due and
purchase money security interests incurred in the ordinary course of
business;
(k) made any capital expenditure or commitment for additions to
property, plant or equipment individually in excess of $10,000, or, in the
aggregate, in excess of $50,000;
(l) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets to, or entered into any agreement or
arrangement with, any of its officers, directors or stockholders or any
affiliate of any of the foregoing, other than employee compensation and
benefits and reimbursement of employment related business expenses incurred
in the ordinary course of business; or
(m) agreed to take any action described in this Section 3.6 or which
would constitute a breach of any of the representations or warranties of the
Company contained in this Agreement.
3.7 TAXES.
(a) For purposes of this Agreement, a "TAX" or, collectively, "TAXES,"
means any and all federal, state and local taxes of any country, assessments
and other governmental charges, duties, impositions and liabilities,
including taxes based upon or measured by gross receipts, income, profits,
sales, use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, excise and property taxes,
together with all interest, penalties and additions imposed with respect to
such amounts and any obligations under any agreements or arrangements with
any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) The Company has prepared and timely filed all returns, estimates,
information statements and reports required to be filed with any taxing
authority ("RETURNS") relating to any and all Taxes concerning or
attributable to the Company or its operations and such Returns are true and
correct in all material respects and have been completed in all material
respects in accordance with applicable law.
(c) The Company, as of the Closing Date, (i) will have paid all Taxes
it is required to pay prior to the Closing Date and (ii) will have withheld
with respect to its employees all Taxes required to be withheld.
(d) There is no Tax deficiency outstanding or assessed or proposed
against the Company that is not reflected as an estimated liability on the
Company Balance Sheet or set forth on the Company Disclosure Schedule, nor
has the Company executed any agreements or waivers
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extending any statute of limitations on or extending the period for the
assessment or collection of any Tax.
(e) The Company has no liabilities for unpaid Taxes that have not been
accrued for or reserved on the Company Balance Sheet which should have been
accrued for or reserved on the Company Balance Sheet as of the date thereof
in accordance with GAAP, whether asserted or unasserted, contingent or
otherwise.
(f) The Company is not a party to any tax-sharing agreement or similar
arrangement with any other party, or any contractual obligation to pay any
Tax obligations of, or with respect to any transaction relating to, any
other person or to indemnify any other person with respect to any Tax.
3.8 TANGIBLE ASSETS AND REAL PROPERTY.
(a) The Company owns or leases all tangible assets and properties which
are used in the conduct of its business as currently conducted or which are
reflected on the Company Balance Sheet or acquired since the date of the
Company Balance Sheet (the "TANGIBLE ASSETS"). The Tangible Assets are in
good operating condition and repair. The Company has good and valid title to
all Tangible Assets that it owns (except properties, interests in properties
and assets sold or otherwise disposed of since the date of the Company
Balance Sheet in the ordinary course of business), free and clear of all
mortgages, liens, pledges, charges or encumbrances of any kind or character,
except as reflected in the Company Financial Statements and except for liens
for current taxes not yet due and payable. Assuming the due execution and
delivery thereof by the other parties thereto, all leases of Tangible Assets
to which the Company is a party are in full force and effect and valid,
binding and enforceable in accordance with their respective terms, except as
such enforceability may be limited by bankruptcy, insolvency, moratorium or
other similar laws affecting or relating to creditors' rights generally, and
general principles of equity and except where failure of such leases to be
in full force and effect and valid, binding and enforceable would not have a
Material Adverse Effect on the Company. The Company Disclosure Schedule sets
forth a true and correct list of all such leases, and true and correct
copies of all such leases have been made available to Parent.
(b) The Company owns no real property. The Company Disclosure Schedule
sets forth a true and complete list of all real property leased by the
Company. Assuming the due execution and delivery thereof by the other
parties thereto, all such real property leases are in full force and effect
and valid, binding and enforceable in accordance with their respective
terms, except as such enforceability may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to
creditors' rights generally, and general principles of equity. True and
correct copies all such of real property leases have been made available to
Parent.
3.9 INTELLECTUAL PROPERTY.
(a) The Company owns, or is licensed or otherwise possesses legally
enforceable rights to use, all patents, trademarks, trade names, service
marks and copyrights, and any applications for and registrations of such
patents, trademarks, trade names, service marks, and copyrights and all
processes, formulas, methods, schematics, technology, know-how, computer
software programs, data or applications and tangible or intangible
proprietary information or material that are used in the business of the
Company as currently conducted, or as currently proposed to be conducted,
free and clear of all liens, claims or encumbrances (all of which are
referred to as the "COMPANY INTELLECTUAL PROPERTY RIGHTS"). The foregoing
representation as it relates to Licensed Intellectual Property (as defined
below) is limited to the Company's interest pursuant to licenses from third
parties, each of which is in full force and effect, is valid, binding and
enforceable and grants the Company such rights to such intellectual property
as are used in the business of the Company as
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currently conducted or currently proposed to be conducted pursuant to the
Company's current business plan.
(b) The Company Disclosure Schedule contains an accurate and complete
description of (i) all patents and patent applications and all trademarks,
trade names, service marks and registered copyrights included in the Company
Intellectual Property Rights, including the jurisdictions in which each such
the Company Intellectual Property Right has been issued or registered or in
which any such application for such issuance and registration has been
filed, (ii) all licenses and sublicenses, distribution agreements and other
agreements to which the Company is a party and pursuant to which any person
is authorized to use any the Company Intellectual Property Rights or has the
right to manufacture, reproduce, market or exploit any product of the
Company (a "COMPANY PRODUCT") or any adaptation, translation or derivative
work based on any Company Product or any portion thereof, other than
nonexclusive end-user licenses entered into in the ordinary course of
business pursuant to the Company's standard forms of license agreement,
(iii) all material licenses, sublicenses and other agreements to which the
Company is a party and pursuant to which the Company is authorized to use
any third party technology, trade secret, know-how, process, patent,
trademark or copyright, including software ("LICENSED INTELLECTUAL
PROPERTY"), which is used in the manufacture of, incorporated in or forms a
part of any Company Product (other than licenses for off-the-shelf software
used in the conduct of the Company's business), (iv) all joint development
agreements to which the Company is a party, and (v) all agreements with
Governmental Entities or other third parties pursuant to which the Company
has obtained funding for research and development activities.
(c) The Company is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations under this
Agreement, in breach of any material license, sublicense or other agreement
relating to the Company Intellectual Property Rights or Licensed
Intellectual Property, nor will such execution and delivery of this
Agreement or the performance of such obligations render any such material
license, sublicense or other agreement terminable.
(d) All patents and registered trademarks, service marks and copyrights
claimed by or issued to the Company which relate to any Company Product are
valid, currently maintained and subsisting. The manufacturing, marketing,
licensing or sale of any Company Product does not, to the Company's
knowledge, infringe any patent, trademark, service mark, copyright, trade
secret or other proprietary right of any third party. The Company (i) has
not received notice that it has been sued in any suit, action or proceeding
which involves a claim of infringement of any patent, trademark, service
mark, copyright, trade secret or other proprietary right of any third party
and (ii) has no knowledge of any claim challenging or questioning the
validity or effectiveness of any license or agreement relating to any the
Company Intellectual Property Rights or Licensed Intellectual Property.
(e) All designs, drawings, specifications, source code, object code,
documentation, flow charts, data and diagrams incorporated, embodied or
reflected in any Company Product at any stage of its development (the
"COMPANY COMPONENTS") were written, developed and created solely and
exclusively by (i) employees of the Company without the assistance of any
third party which have been assigned, or are assignable, to the Company by
written agreement to the extent permitted by law or (ii) third parties who
assigned ownership of their rights with respect thereto to the Company by
means of valid and enforceable agreements, which are listed and described in
the Company Disclosure Schedule and copies of which have been made available
to Parent. The Company has at all times used commercially reasonable efforts
to protect its trade secrets and has not acted in such a manner as to cause
the loss of such trade secrets by their release into the public domain.
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(f) Each person currently or formerly employed by the Company
(including independent contractors, if any) that has or had access to
confidential information of the Company has executed and delivered to the
Company a confidentiality and non-disclosure agreement in one of the forms
previously made available to Parent. Neither the execution or delivery of
any such agreement by any such person, nor the carrying on of the Company's
business as currently conducted and as currently proposed to be conducted,
has conflicted or will conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any contract,
covenant or instrument known to the Company under which any of such persons
is obligated.
3.10 BANK ACCOUNTS. The Company Disclosure Schedule sets forth the names
and locations of all banks and other financial institutions at which the Company
maintains accounts of any nature, the type of accounts maintained at each such
institution and the names of all persons authorized to draw thereon or make
withdrawals therefrom.
3.11 CONTRACTS.
(a) The Company is not a party or subject to any agreement, obligation
or commitment, written or oral:
(i) that calls for any fixed or contingent payment or expenditure or
any related series of fixed or contingent payments or expenditures by or
to the Company totaling more than $20,000 in any twelve-month period;
(ii) with agents, advisors, salesmen, sales representatives,
independent contractors or consultants;
(iii) that restricts the Company from carrying on anywhere in the
world its business or any portion thereof as currently conducted;
(iv) to provide funds to or to make any investment in any other
person or entity (in the form of a loan, capital contribution or
otherwise);
(v) with respect to obligations as guarantor, surety, co-signer,
endorser, co-maker, indemnitor or otherwise in respect of the obligation
of any other person or entity;
(vi) for any line of credit, standby financing, revolving credit or
other similar financing arrangement; or
(vii) with any distributor, original equipment manufacturer, value
added remarketer or other person for the distribution of any of Company
Products; or
(viii) regarding any merger or other reorganization or any joint
venture (including, but not limited to, joint ventures involving supply,
research and development or manufacturing).
(b) No party to any such contract, agreement or instrument has
expressed its intention to any officer of the Company to cancel, withdraw,
modify or amend such contract, agreement or instrument, nor does the Company
otherwise know of such an intention.
(c) The Company is not in default under or in breach or violation of,
nor is there any valid basis for any claim of default by the Company under,
or breach or violation by the Company of, any contract, commitment or
restriction to which the Company is a party or by which the Company or any
of its properties or assets is bound or affected, except where such default,
or breach or violation would not have a Material Adverse Effect on the
Company. To the Company's knowledge, no other party is in default under or
in breach or violation of, nor is there any valid basis for any claim of
default by any other party under, or any breach or violation by any other
party of, any contract, commitment, or restriction to which the Company is a
party or by which the Company or any of its properties or assets is bound or
affected, except where such default, or breach or
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violation would not have a Material Adverse Effect on the Company. The
Company has no reason to believe that it will not be able to comply with the
terms or conditions of any contract to which it is a party without an
increase in its technical or personnel resources allocated to such contract
compared to the resources budgeted by the Company as of the date of this
Agreement or any other increase in the cost of satisfying any covenants or
conditions under such contract compared to the costs budgeted by the Company
as of the date of this Agreement.
3.12 LABOR DIFFICULTIES. The Company is not engaged in any unfair labor
practice or in violation of any applicable laws respecting employment,
employment practices or terms and conditions of employment. There is no unfair
labor practice complaint against the Company pending or to the Company's
knowledge, threatened before any Governmental Entity. There is no strike, labor
dispute, slowdown, or stoppage pending or to the Company's knowledge, threatened
against the Company. The Company is not now and has never been subject to any
union organizing activities. The Company has not experienced any work stoppage
or other labor difficulty.
3.13 TRADE REGULATION; CUSTOMERS AND DISTRIBUTORS. The Company has not,
within the past two years, terminated its relationship with or refused to ship
Company Products to any dealer, distributor, third party marketing entity or
customer which had theretofore paid or been obligated to pay the Company in
excess of $10,000 over any consecutive twelve-month period. All of the prices
charged by the Company in connection with the marketing or sale of any of its
products or services have been in compliance with all applicable laws and
regulations. No claims have been asserted or, to the Company's knowledge,
threatened against the Company with respect to the wrongful termination of any
dealer, distributor or any other marketing entity, discriminatory pricing, price
fixing, unfair competition, false advertising, or any other material violation
of any laws or regulations relating to anti-competitive practices or unfair
trade practices of any kind, and, to the Company's knowledge, no specific
situation, set of facts, or occurrence provides any reasonable basis for any
such claim. Except as set forth in the Company Disclosure Schedule, no customer
or distributor accounted for more than 5% of the Company's sales during the most
recently completed fiscal year. No customer or distributor which accounted for
revenue to the Company during its most recently completed fiscal year of
$100,000 or more has canceled or otherwise terminated its relationship with the
Company during the last twelve months, nor materially decreased its usage or
purchases of the services or products of the Company during that period. To the
Company's knowledge, no customer or distributor of the Company has any plan or
intention to terminate, cancel or otherwise materially and adversely alter its
relationship with the Company or to decrease materially or limit its usage or
purchase of the Company's products or services which could reasonably be
expected to result in a Material Adverse Effect on the Company.
3.14 ENVIRONMENTAL MATTERS.
(a) As of the date hereof, no amount of any substance that has been
designated by applicable law or regulation to be radioactive, toxic,
hazardous or otherwise a danger to health or the environment, excluding
office, janitorial and similar substances (a "HAZARDOUS MATERIAL"), is
present, as a result of the actions of the Company or, to the Company's
actual knowledge, as a result of any actions of any third party or
otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water, that the Company has at any
time owned, operated, occupied or leased, except for Hazardous Materials
which are stored in appropriate containers at the Company's facilities for
use in the Company's business in compliance with applicable environmental
laws and regulations. To the knowledge of the Company, no underground
storage tanks are present under any property that the Company has at any
time owned, operated, occupied or leased.
(b) At no time has the Company transported, stored, used, manufactured,
disposed of, released or exposed its employees or others to Hazardous
Materials (collectively, "HAZARDOUS
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MATERIALS ACTIVITIES") in violation of any law, rule, regulation or treaty
promulgated by any Governmental Entity which has had or is likely to have a
Material Adverse Effect on the Company.
(c) The Company currently holds all environmental approvals, permits,
licenses, clearances and consents (the "ENVIRONMENTAL PERMITS") necessary
for the conduct of its business as such businesses is currently being
conducted, the absence of which would have a Material Adverse Effect on the
Company.
(d) No action, proceeding, writ, injunction or claim is pending or, to
the knowledge of the Company, threatened concerning any Environmental Permit
or any Hazardous Materials Activity of the Company. The Company is not aware
of any fact or circumstance which could reasonably be expected to involve
the Company in any environmental litigation or impose upon the Company any
liability concerning Hazardous Materials Activities.
3.15 EMPLOYEE BENEFIT PLANS.
(a) The Company has set forth in the Company Disclosure Schedule (i)
all employee benefit plans, (ii) all bonus, stock option, stock purchase,
incentive, deferred compensation, supplemental retirement, severance and
other similar employee benefit plans, and (iii) all unexpired severance
agreements, written or otherwise, for the benefit of, or relating to, any
current or former employee of the Company (individually, a "COMPANY EMPLOYEE
PLAN,"and collectively, the "COMPANY EMPLOYEE PLANS").
(b) With respect to each Company Employee Plan, the Company has made
available to Parent a true and correct copy of (i) such Company Employee
Plan and (ii) each trust agreement and group annuity contract, if any,
relating to such Company Employee Plan.
(c) With respect to the Company Employee Plans, individually and in the
aggregate, no event has occurred, and there exists no condition or set of
circumstances in connection with which the Company could be subject to any
liability which would have a Material Adverse Effect on the Company.
(d) With respect to the Company Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions
have not been made or properly accrued and there are no unfunded benefit
obligations which have not been accounted for by reserves, or otherwise
properly footnoted, in accordance with GAAP on the financial statements or
books of the Company.
(e) The Company is not a party to any oral or written (i) union or
collective bargaining agreement, (ii) agreement with any officer or other
key employee of the Company, the benefits of which are contingent, or the
terms of which are materially altered, upon the occurrence of a transaction
involving the Company of the nature contemplated by this Agreement, (iii)
agreement with any officer of the Company providing any term of employment
or compensation guarantee or for the payment of compensation in excess of
$100,000 per annum, or (iv) agreement or plan, including any stock option
plan, stock appreciation right plan, restricted stock plan or stock purchase
plan, any of the benefits of which will be increased, or the vesting of the
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
3.16 COMPLIANCE WITH LAWS. Except for violations which have not had and
could not reasonably be expected to have a Material Adverse Effect on the
Company, the Company has complied with, is not in violation of, and has not
received any notices of violation with respect to, any statute, law or
regulation applicable to the ownership or operation of its business.
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3.17 EMPLOYEES AND CONSULTANTS. The Company Disclosure Schedule contains a
list of the names of all employees and consultants of the Company as of the date
of this Agreement and their salaries or wages, other compensation, dates of
employment and positions. Each employee of the Company, other than David
McCarty, is terminable "at will" and there are no agreements or understandings
between the Company and any of its employees that his/her employment will be for
any particular period, for any particular position or for any specified
compensation.
3.18 LITIGATION. There is no action, suit, proceeding, claim, arbitration
or known investigation pending before any agency, court or tribunal or, to the
Company's knowledge, threatened against the Company or any of its properties or
officers or directors (in their capacities as such). There is no judgment,
decree or order against the Company, or to the Company's knowledge, any of the
Company's stockholders, directors or officers (in their capacities as such) that
could prevent, enjoin or materially alter or delay any of the transactions
contemplated by this Agreement, or that could reasonably be expected to have a
Material Adverse Effect on the Company. All litigation to which the Company is a
party (or, to its knowledge, threatened to become a party) is disclosed in the
Company Disclosure Schedule.
3.19 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement, judgment,
injunction, order or decree binding upon the Company which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any current or currently proposed business practice of the Company or the
conduct of business by the Company as currently conducted or as currently
proposed to be conducted pursuant to the Company's current business plan.
3.20 GOVERNMENTAL AUTHORIZATION. The Company has obtained each
governmental consent, license, permit, grant or other authorization of a
Governmental Entity that is required for the operation of the business of the
Company (collectively, the "COMPANY AUTHORIZATIONS"), and all of such Company
Authorizations are in full force and effect, except where failure to obtain such
consent, license, permit, grant, or other authorization would not have a
Material Adverse Effect on the Company.
3.21 INSURANCE. The Company Disclosure Schedule contains a list and
description of all insurance policies in effect which are maintained by the
Company or as to which it is an insured party. There is no material claim
pending under any of such policies as to which coverage has been questioned,
denied or disputed by the underwriters of such policies. All premiums due and
payable under all such policies have been paid, and the Company is otherwise in
compliance with the terms of such policies. The Company has no knowledge of any
threatened termination of, or material premium increase with respect to, any of
such policies.
3.22 INTERESTED PARTY TRANSACTIONS. No director, officer or stockholder of
the Company has any interest in (i) any material equipment or other material
property or asset, real or personal, tangible or intangible, including, without
limitation, any of the Company Intellectual Property Rights, used in connection
with or pertaining to the business of the Company, (ii) any creditor, supplier,
customer, manufacturer, agent, representative, or distributor of any of the
Company Products, (iii) any entity that competes with the Company, or with which
the Company is affiliated or has a business relationship, or (iv) any material
agreement, obligation or commitment, written or oral, to which the Company is a
party; PROVIDED, HOWEVER, that no such person shall be deemed to have such an
interest solely by virtue of ownership of less than five percent (5%) of the
outstanding stock or debt securities of any company whose stock or debt
securities are traded on a recognized stock exchange or on the Nasdaq/AMEX
Market.
3.23 NO EXISTING DISCUSSIONS. As of the date of this Agreement, the
Company is not engaged, directly or indirectly, in any discussions or
negotiations with any party other than Parent with respect to any merger,
consolidation, sale of substantial assets, sale of shares of capital stock or
similar transactions.
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3.24 REAL PROPERTY HOLDING CORPORATION. The Company is not a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
3.25 CORPORATE DOCUMENTS. The Company has furnished to Parent, or its
representatives, for its examination (i) copies of its minute book containing
all records required to be set forth of all proceedings, consents, actions, and
meetings of the stockholders, the Board of Directors and any committees thereof
and (ii) all permits, orders, and consents issued by any Governmental Entity
with respect to the Company. The corporate minute books and other corporate
records of the Company are complete and accurate in all material respects, and
the signatures of all officers and directors of the Company and the signatures
of all stockholders and other persons appearing on all documents contained
therein are the true signatures of the persons purporting to have signed the
same. All actions reflected in such books and records were duly and validly
taken in material compliance with the laws of the applicable jurisdiction.
3.26 REGISTRATION STATEMENTS; PROXY STATEMENT. The information concerning
the Company supplied by the Company for inclusion in the Registration Statement
(as defined in Section 4.6) shall not at the time the Registration Statement is
declared effective by the SEC contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The information concerning the Company supplied
by the Company for inclusion in the proxy statement/prospectus to be sent to the
stockholders of the Company in connection with the meeting of the Company's
stockholders to consider the Merger and this Agreement (the "COMPANY
STOCKHOLDERS' MEETING") (such proxy statement/prospectus as amended or
supplemented is referred to herein as the "PROXY STATEMENT") shall not, on the
date the Proxy Statement is first mailed to the Company's stockholders, at the
time of the Company Stockholders' Meeting and at the Effective Time, contain any
statement which, at such time and in light of the circumstances under which it
shall be made, is false or misleading with respect to any material fact, or omit
to state any material fact necessary in order to make the statements made
therein not false or misleading; or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Company Stockholders' Meeting which has become
false or misleading. If at any time prior to the Effective Time any event
relating to the Company or any of its affiliates, officers or directors should
be discovered by the Company which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, the Company shall
promptly inform Parent and MergerSub. Notwithstanding the foregoing, the Company
makes no representation or warranty with respect to any information concerning
Parent or MergerSub supplied by Parent or MergerSub which is contained in any of
the foregoing documents.
3.27 NO MISREPRESENTATION. No representation or warranty by the Company in
this Agreement, or any written statement, certificate or schedule furnished or
to be furnished by or on behalf of the Company pursuant to this Agreement, when
taken together with all the written statements, certificates and schedules
furnished or to be furnished by or on behalf of the Company pursuant to this
Agreement, contains or shall contain any untrue statement of a material fact or
omits or shall omit to state a material fact required to be stated therein or
necessary in order to make such statements, in light of the circumstances under
which they were made, not misleading. The Company has delivered or made
available to Parent or its representatives true and complete copies of all
documents which are referred to in this Article III or in the Company Disclosure
Schedule.
3.28 BROKERS' AND FINDERS' FEES. No entity or person will have a claim,
directly or indirectly, for liability for brokerage, financial advisor or
finders' fees or agents' commissions or any similar charges in connection with
this Agreement, the Merger or any transaction contemplated hereby as a result of
any agreement of, or action taken by, the Company or its officers or directors.
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3.29 INVENTORIES. The Company's inventories are of a quality and quantity
so as to be reasonably anticipated to be saleable in the ordinary course of
business and the Company has and maintains adequate inventory reserves. The
inventories stated in the Company Balance Sheet reflect the usual and customary
inventory valuation policies of the Company and in the best judgment of the
Company are properly valued.
3.30 ACCOUNTS RECEIVABLE. All of Company's accounts receivable, whether or
not shown on the Company Balance Sheet, represent bona fide completed sales made
in the ordinary course of business, are valid and enforceable claims, are not
subject to any known set-offs or counterclaims and are, in the best judgment of
Company, fully collectible in the normal course of business, after deducting the
reserve set forth in the Company Balance Sheet, which reserve is Company's best
estimate of its uncollectible accounts.
3.31 EMPLOYEES & SUPPLIERS. To the Company's knowledge, no executive of
the Company has any plan or intention to terminate his/her employment with the
Company, nor is the Company aware that any employee is in breach of any
agreement with the Company regarding, without limitation, competition,
confidentiality or intellectual property. To the Company's knowledge, no
sole-source supplier has any plan or intention to terminate or reduce its
business with the Company or to materially and adversely modify its relationship
with the Company.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGERSUB
Except as set forth in the disclosure schedule which references the specific
representations and warranties as to which the exception is made and which is
separately delivered by Parent to the Company on or before the date of this
Agreement (the "PARENT DISCLOSURE SCHEDULE"), Parent and MergerSub represent and
warrant to the Company as follows:
4.1 ORGANIZATION. Each of Parent and MergerSub is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has all requisite corporate power to own,
lease and operate its property and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified to transact
business and is in good standing as a foreign corporation in each jurisdiction
in which the failure to be so qualified would have a Material Adverse Effect on
Parent. Parent is not in violation of any of the provisions of its articles of
incorporation, bylaws or other charter documents.
4.2 PARENT CAPITAL STRUCTURE.
(a) The authorized capital stock of Parent consists of 50,000,000
shares of Common Stock, $0.01 par value ("PARENT COMMON STOCK") and
6,405,884 shares of Preferred Stock, $0.01 par value ("PARENT PREFERRED
STOCK"). As of May 31, 1999: (i) 13,340,650 shares of Parent Common Stock
were issued and outstanding, all of which are validly issued, fully paid and
nonassessable; (ii) no shares of Parent Common Stock were held in the
treasury of Parent; (iii) no shares of Parent Preferred Stock were
outstanding; (iv) options to purchase 2,889,582 shares of Parent Common
Stock were outstanding under Parent's 1995 and 1997 Stock Option Plans and
1,244,901 additional shares were available for grant thereunder; (v) 250,000
shares of Parent Common Stock were reserved for issuance under Parent's 1998
Employee Stock Purchase Plan, of which 241,646 shares remain available for
grant thereunder; and (vi) 150,000 shares of Parent Common Stock were
reserved for issuance pursuant to Parent's 401(k) plan, none of which were
outstanding. All shares of Parent Common Stock subject to issuance as
specified above, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable and are not subject to
preemptive rights or rights of first refusal created by statute, the charter
documents of Parent or MergerSub or any agreement to
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which Parent or MergerSub is a party or by which it is bound. All of the
outstanding shares of capital stock of MergerSub are duly authorized,
validly issued, fully paid and nonassessable, and all such shares are owned
by Parent free and clear of all security interests, liens, claims, pledges,
agreements, limitations on Parent's voting rights, charges or other
encumbrances of any nature.
(b) Except as set forth in this Section 4.2 or as reserved for future
grants of options under the Parent stock option plans (as more fully
described in the Parent SEC Reports defined in Section 4.4), there are (i)
no equity or debt securities of any class of Parent, or any security
exchangeable into or exercisable for such equity or debt securities, issued,
reserved for issuance or outstanding and (ii) no outstanding subscriptions,
options, warrants, puts, calls, rights or other commitments or agreements of
any character to which Parent is a party or by which it is bound obligating
Parent to issue, deliver, sell, repurchase or redeem or cause to be issued,
delivered, sold, repurchased or redeemed any equity or debt securities of
Parent or obligating Parent to grant, extend, accelerate the vesting of,
change the exercise price of or otherwise amend or enter into any such
option, warrant, call, right, commitment or agreement. There are no
contracts, commitments or agreements relating to voting, purchase or sale of
the Parent's capital stock to which the Parent is a party.
(c) The Merger Shares to be issued pursuant to the Merger, when issued
in accordance with the terms of this Agreement, will be duly authorized,
validly issued, fully paid, and nonassessable and, will be issued in
compliance with the registration requirements of the Securities Act of 1933,
as amended (the "Securities Act").
4.3 AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Parent and MergerSub have all requisite corporate power and
authority to enter into this Agreement and the other documents to which they
are or will be parties in connection with this Agreement and to consummate
the transactions contemplated hereby and thereby. Subject to obtaining the
consent of Parent's stockholders to the Merger as contemplated hereby, the
execution and delivery of this Agreement and all other documents expressly
required to be executed and delivered by Parent and MergerSub hereunder,
including the Certificate of Merger (the "Parent Transaction Documents") to
which Parent or MergerSub is or will be a party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of Parent and MergerSub,
respectively. This Agreement and the other Parent Transaction Documents to
which Parent and/or MergerSub are parties have been or will be duly executed
and delivered by Parent and/or MergerSub and constitute or will constitute
the valid and binding obligations of Parent and/or MergerSub, enforceable in
accordance with their terms, except as such enforceability may be limited by
bankruptcy laws and other similar laws affecting creditors' rights generally
and general principles of equity.
(b) The execution and delivery by Parent and MergerSub of this
Agreement and the other Parent Transaction Documents to which they are or
will be parties do not, and the consummation of the transactions
contemplated hereby and thereby will not, (i) conflict with, or result in
any violation or breach of any provision of the articles of incorporation or
bylaws of Parent or MergerSub, (ii) result in any violation or breach of, or
constitute (with or without notice or lapse of time, or both) a default
under, or give rise to a right of termination, cancellation or acceleration
of any material obligation or loss of any material benefit under, any note,
mortgage, indenture, lease, contract or other agreement, instrument or
obligation to which Parent or MergerSub is a party or by which either of
them or any of their properties or assets may be bound, or (iii) conflict
with or violate any permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Parent or
MergerSub or any of its or their properties or assets, except in the case of
(ii) and (iii) for any such conflicts, violations, defaults, terminations,
cancellations or accelerations which would not have a Material Adverse
Effect on Parent.
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(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Parent or any of its Subsidiaries in connection with the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing of the
Certificate of Merger with the California Secretary of State in accordance
with the CCC, (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and the laws of any foreign country and
(iii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not prevent or
materially alter or delay any of the transactions contemplated by this
Agreement and would not have a Material Adverse Effect on Parent.
4.4 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has timely filed and made available to the Company all
forms, reports and documents required to be filed by Parent with the
Securities and Exchange Commission (the "SEC") since February 26, 1999 other
than registration statements on Form S-8 (collectively, the "PARENT SEC
REPORTS"). The Parent SEC Reports (i) at the time filed, complied in all
material respects with the applicable requirements of the Securities Act,
and the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), as
the case may be, and (ii) did not at the time they were filed (or if amended
or superseded by a filing prior to the date of this Agreement, then on the
date of such filing) contain any untrue statement of a material fact or omit
to state a material fact required to be stated in such Parent SEC Reports or
necessary in order to make the statements in such Parent SEC Reports, in the
light of the circumstances under which they were made, not misleading. None
of Parent's Subsidiaries are required to file any forms, reports or other
documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes) contained in the Parent SEC Reports, complied as to
form in all material respects with the applicable published rules and
regulations of the SEC with respect thereto, was prepared in accordance with
United States GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial
statements or, in the case of unaudited statements, as permitted by Form
10-Q promulgated by the SEC) and presented fairly, in all material respects,
the consolidated financial position of Parent as of and at the respective
dates and the consolidated results of its operations and cash flows for the
periods indicated, except that the unaudited interim financial statements
were or are subject to normal and recurring year-end adjustments which were
not or are not expected to be material in amount. The unaudited consolidated
balance sheet of Parent as of March 31, 1999 is referred to herein as the
"PARENT BALANCE SHEET."
4.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since March 31, 1999, there has
been no material adverse change in the business, assets, financial condition or
results of operations of Parent, and Parent has conducted its business in the
ordinary course and in a manner consistent with past practices. Since March 31,
1999, Parent has not agreed to take any action outside the ordinary course of
business or that would (if the action were taken immediately) constitute a
breach of any of the representations or warranties of Parent contained in this
Agreement.
4.6 REGISTRATION STATEMENT; PROXY STATEMENT. Subject to the accuracy of
the representations of the Company, the Registration Statement on Form S-4
pursuant to which the Merger Shares to be issued in the Merger will be
registered with the SEC (the "REGISTRATION STATEMENT") shall not, at the time
the Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC, contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
included therein, in light of the circumstances under which they were made, not
misleading. The information concerning Parent and MergerSub supplied by Parent
for inclusion in the Proxy Statement contained therein shall not, on the date
the Proxy Statement is first mailed
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to the Parent's stockholders, at the time of the Parent's stockholders' meeting
to consider this Agreement and the Merger (the "PARENT STOCKHOLDERS' MEETING")
and at the Effective Time, contain any statement which, at such time and in
light of the circumstances under which it shall be made, is false or misleading
with respect to any material fact, or omit to state any material fact necessary
in order to make the statements therein not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Parent
Stockholders' Meeting which has become false or misleading. If at any time prior
to the Effective Time any event relating to Parent, MergerSub or any of their
respective affiliates, officers or directors should be discovered by Parent or
MergerSub which should be set forth in an amendment to the Registration
Statement or a supplement to the Proxy Statement, Parent or MergerSub will
promptly inform the Company and file and distribute such amendment or
supplement. Notwithstanding the foregoing, Parent and MergerSub make no
representation or warranty with respect to any information concerning the
Company supplied by the Company which is contained in any of the foregoing
documents.
4.7 BROKERS' AND FINDERS' FEES. No entity or person will have a claim,
directly or indirectly, for liability for brokerage, financial advisor or
finders' fees or agents' commissions or any similar charges in connection with
this Agreement, the Merger or any transaction contemplated hereby as a result of
any agreement of, or action taken by, Parent or MergerSub or their officers or
directors.
ARTICLE V
COVENANTS RELATED TO CONDUCT OF BUSINESS
5.1 CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated by this
Agreement, during the period from the date hereof to the Effective Time, the
Company will conduct its operations in the ordinary and usual course of business
consistent with past practice, seek to preserve intact its current business
organizations, seek to keep available the service of its current officers and
employees and seek to preserve its relationships with customers, suppliers, and
others having business dealings with it to the end that its goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Without limiting the
generality of the foregoing, and except as otherwise expressly provided in this
Agreement, prior to the Effective Time, the Company will not without the prior
written consent of Parent:
(a) amend its articles of incorporation or bylaws (or other similar
organizational or governing instrument);
(b) authorize for issuance, issue, sell, deliver, or agree or commit to
issue, sell, or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase, or
otherwise) any capital stock of any class or any other securities
convertible into or exchangeable for any capital stock or any equity
equivalents (including any stock options or stock appreciation rights),
except for the issuance or sale of Shares pursuant to outstanding Company
Stock Options exercised by the holders thereof and except for conversion of
Series A Preferred Stock as provided in Section 3.2 hereof;
(c) (i) split, combine, or reclassify any shares of its capital stock;
(ii) declare, set aside or pay any dividend or other distribution (whether
in cash, stock, or property or any combination thereof) in respect of its
capital stock; (iii) make any other actual, constructive, or deemed
distribution in respect of any shares of its capital stock or otherwise make
any payments to stockholders in their capacity as such; or (iv) redeem,
repurchase or otherwise acquire any securities of the Company (except for
termination of options issued pursuant to the Company Stock Option Plan upon
termination of employment of the optionee);
(d) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization, or other
reorganization of the Company (other than the Merger and
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other than acceptance of any Acquisition Proposal which does not violate the
provisions of Section 6.13 hereof);
(e) (i) incur or assume any additional long-term or short-term debt or
issue any debt securities; (ii) assume, guarantee, endorse, or otherwise
become liable or responsible (whether directly, contingently, or otherwise)
for the obligations of any other person; (iii) make any loans, advances, or
capital contributions to, or investments in, any other person (other than to
the wholly owned subsidiaries of the Company or customary loans or advances
to employees in the ordinary and usual course of business consistent with
past practice and in amounts not material to the maker of such loan or
advance); (iv) pledge or otherwise encumber shares of capital stock of the
Company; or (v) mortgage or pledge any of its material assets, tangible or
intangible, or create or suffer to exist any material lien or encumbrance
thereupon;
(f) acquire, sell, lease, or dispose of any assets outside the ordinary
and usual course of business consistent with past practice or any assets
which in the aggregate are material to the Company taken as a whole, enter
into any commitment or transaction outside the ordinary and usual course of
business consistent with past practice, grant any exclusive distribution
rights, grant any license, right to use, or covenant not to sue in respect
of any Company Intellectual Property Rights, or disclose (other than in the
ordinary course of business and subject to appropriate nondisclosure and
nonuse agreements) any trade secrets or other confidential proprietary
information of the Company or any of its Subsidiaries to any third person
(other than the transactions contemplated hereby);
(g) except as may be required as a result of a change in state or
federal regulation, rule or statute or in United States GAAP, change any of
the accounting principles or practices used by it;
(h) revalue in any material respect any of its assets, including
writing down the value of inventory or writing-off notes or accounts
receivable other than in the ordinary and usual course of business
consistent with past practice or as required by United States GAAP;
(i) (i) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership, or other business organization or
division thereof or any equity interest therein; (ii) enter into or amend
any material contract; (iii) authorize any new capital expenditures which,
individually, are in excess of $50,000 (or the foreign currency equivalent
thereof) or, in the aggregate, are in excess of $200,000 (or the foreign
currency equivalent thereof); or (iv) enter into or amend any contract,
agreement, commitment, or arrangement providing for the taking of any action
that would be prohibited hereunder;
(j) make or revoke any Tax election, or settle or compromise any Tax
liability, or change (or make a request to any taxing authority to change)
any aspect of its method of accounting for Tax purposes;
(k) pay, discharge, or satisfy any material claims, liabilities, or
obligations (absolute, accrued, asserted or unasserted, contingent, or
otherwise), other than the payment, discharge, or satisfaction in the
ordinary and usual course of business consistent with past practice of
liabilities reflected or reserved against in the Company Financial
Statements or incurred in the ordinary and usual course of business
consistent with past practice or waive the benefits of, or agree to modify
in any manner, any confidentiality, standstill, or similar agreement to
which the Company is a party;
(l) settle or compromise any pending or threatened claim, action, suit,
or proceeding, relating to the transactions contemplated hereby;
(m) enter into any agreement or arrangement that limits or otherwise
restricts the Company or any successor thereto or that would, after the
Effective Time, limit or restrict the Surviving
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Corporation and its affiliates (including Parent) or any successor thereto,
from engaging or competing in any line of business or in any geographic
area;
(n) fail to comply in any material respect with any federal or state
rule, regulation or statute (including, any environmental law) applicable to
the Company, or its respective assets;
(o) enter into any direct or indirect arrangements for financial or
other subsidies with any domestic or foreign Governmental Entity or other
person;
(p) make any change to, or amend in any way, the contracts, salaries,
wages, or other compensation (including, any completion bonuses or change of
control payments) of any officer, director, employee, agent, or other
similar representative of the Company, other than changes or amendments that
(i) are made in the ordinary course of business and consistent with past
practice and (ii) do not and will not result in increases, in the aggregate,
of more than seven percent in the salary, wages, and other compensation of
any such person;
(q) adopt, enter into, amend, alter, or terminate (partially or
completely) any Company Employee Plan except as contemplated by this
Agreement or to the extent required by applicable law;
(r) enter into any contract with an officer, director, employee, agent,
or other similar representative of the Company that is not terminable,
without penalty or other liability, upon not more than 60 calendar days'
notice; or
(s) take, propose to take, or agree in writing or otherwise to take,
any of the actions described in Sections 5.1(a) through 5.1(r) or any action
which would make any of the representations or warranties of the Company
contained in this Agreement untrue or incorrect.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 PROXY STATEMENT; REGISTRATION STATEMENT.
(a) As promptly as practicable after the execution of this Agreement,
Parent and the Company shall prepare and file with the SEC the Proxy
Statement to be sent to the stockholders of the Company and Parent in
connection with the meetings of the Company's and Parent's stockholders and
Parent shall prepare and file with the SEC the Registration Statement, in
which the Proxy Statement will be included as a prospectus. Parent and the
Company shall use all reasonable efforts to cause the Registration Statement
to become effective as soon after such filing as practicable. The Proxy
Statement shall include the recommendation of the Board of Directors of the
Company and Parent in favor of this Agreement and the Merger provided that
the Board of Directors of the Company or Parent may withdraw such
recommendation if such Board of Directors shall have determined in good
faith, after consultation with its outside legal counsel, that the
withdrawal of such recommendation is necessary for such Board of Directors
to comply with applicable law. Parent and the Company shall make all other
necessary filings with respect to the Merger under the Securities Act and
the Exchange Act and the rules and regulations thereunder.
(b) The Company shall take such action as may be necessary to cause the
representation set forth in Section 3.26 hereof to be true and correct at
all applicable times with respect to each of the Proxy Statement and the
Registration Statement.
(c) Parent shall take such action as may be necessary to cause the
representation set forth in Section 4.7 hereof to be true and correct at all
applicable times with respect to each of the Proxy Statement and the
Registration Statement.
6.2 ACCESS TO INFORMATION.
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(a) Between the date hereof and the Effective Time, the Company will
give Parent and MergerSub and their authorized representatives (including,
counsel, financial advisors, auditors, and environmental consultants)
reasonable access during normal business hours to all employees, plants,
offices, warehouses, and other facilities and to all books and records of
the Company, will permit Parent and MergerSub to make such inspections as
Parent and MergerSub may reasonably require (including, any environmental
audit, investigation, or study) and will cause the Company's officers to
furnish Parent and MergerSub with such financial and operating data and
other information in respect of the business, properties, and personnel of
the Company as Parent or MergerSub may from time to time reasonably request,
provided that no investigation pursuant to this Section 6.2(a) shall affect
or be deemed to modify any of the representations or warranties made by the
Company.
(b) Between the date hereof and the Effective Time, the Parent and
MergerSub will give the Company and their authorized representatives
(including, counsel, financial advisors, auditors, and environmental
consultants) reasonable access during normal business hours to all
employees, plants, offices, warehouses, and other facilities and to all
books and records of Parent and MergerSub, will permit the Company to make
such inspections as the Company may reasonably require (including, any
environmental audit, investigation, or study) and will cause Parent and
MergerSub officers to furnish the Company with such financial and operating
data and other information in respect of the business, properties, and
personnel of the Parent or MergerSub as the Company may from time to time
reasonably request, provided that no investigation pursuant to this Section
6.2(b) shall affect or be deemed to modify any of the representations or
warranties made by Parent and MergerSub.
(c) Between the date hereof and the Effective Time, the Company shall
furnish to Parent and MergerSub within five business days after the delivery
thereof to management, such monthly financial statements and data as are
regularly prepared for distribution to Company management.
(d) Each of Parent, MergerSub and the Company will hold and will cause
its authorized representatives to hold in confidence all documents and
information concerning the other parties hereto furnished to Parent,
MergerSub or the Company in connection with the transactions contemplated by
this Agreement pursuant to the terms of that certain agreement entered into
between the Company and Parent dated August 5, 1998 (the "CONFIDENTIALITY
AGREEMENT").
6.3 THE STOCKHOLDERS' MEETINGS. The Company and Parent shall each call a
meeting of their stockholders to be held as promptly as practicable for the
purpose of voting upon this Agreement and the Merger. Subject to Section 6.1(a)
hereof, the Company and Parent will, through their Board of Directors, recommend
to their stockholders approval of such matters and will use their best efforts
to hold such meeting as soon as practicable after the date hereof. The Company
and Parent shall use all reasonable efforts to solicit from their stockholders
proxies in favor of such matters.
6.4 LEGAL CONDITIONS TO MERGER. Each of Parent and the Company will take
all reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on it with respect to the Merger (which actions shall
include, without limitation, furnishing all information required in connection
with approvals of or filings with any Governmental Entity) and will promptly
cooperate with and furnish information to each other in connection with any such
requirements imposed upon either of them or any of their subsidiaries in
connection with the Merger. Each of Parent and the Company will, and will cause
its subsidiaries to, take all reasonable actions necessary to obtain (and will
cooperate with each other in obtaining) any consent, authorization, order, or
approval of, or any exemption by, any Governmental Entity or other public third
party, required to be obtained or made by Parent or the Company in connection
with the Merger or the taking of any action contemplated thereby or by this
Agreement. Nothing in this Section 6.4, however, shall require Parent, in
connection with the receipt of any regulatory approval, to agree to (i) sell or
agree to sell, discontinue, or limit, before or
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after the Effective Time, any assets, businesses, or interests in any assets or
businesses of the Company, Parent or any of their respective affiliates or (ii)
agree to any conditions relating to, or changes or restrictions in, the
operations of any such assets or businesses that, in either case, is reasonably
likely to materially and adversely impact the economic or business benefits of
the parties to the transactions contemplated hereby.
6.5 PAYMENT OF TAXES.
(a) The Company shall pay prior to the Effective Time (i) all Taxes
required to be paid by the Company prior to that day, and (ii) shall
withhold with respect to its employees all federal and state income taxes,
FICA, FUTA, and other Taxes required to be withheld.
(b) Parent shall pay prior to the Effective Time (i) all Taxes required
to be paid by Parent prior to that day, and (ii) shall withhold with respect
to its employees all federal and state income taxes, FICA, FUTA, and other
Taxes required to be withheld.
6.6 TAX-FREE REORGANIZATION. In connection with the tax opinions referred
to in Article VII, the Company agrees to deliver letters of representation in
such form and substance as is customary in the giving of such tax opinions.
6.7 NASDAQ QUOTATION. Parent shall use its best efforts to cause the
shares of Parent Common Stock to be issued in the Merger to be approved for
listing on the Nasdaq National Market, subject to official notice of issuance,
prior to the Closing Date.
6.8 CONSENTS. Each of Parent and the Company shall use all reasonable
efforts to obtain all necessary consents, waivers, and approvals under any of
Parent's or the Company's material agreements, contracts, licenses, or leases in
connection with the Merger.
6.9 EMPLOYEE BENEFITS; EMPLOYEE ISSUES. Following the Effective Time and
subject to the eligibility and other participation requirements and terms
contained in Parent's benefit programs and plans, all employees of the Company
shall be given credit for their periods of service with the Company as if such
service were with Parent in determining their eligibility for inclusion in, and
the level of benefits granted after the Effective Time under, Parent's employee
benefit plans and the assumed Company Stock Options.
6.10 REPORTS. From and after the Effective Time and so long as necessary
in order to permit each officer and director of the Company to sell the Merger
Shares received by them as a result of the Merger pursuant to Rule 145 and, to
the extent applicable, Rule 144 under the Securities Act, Parent will use its
best efforts to file on a timely basis all reports required to be filed by it
pursuant to Section 13 or 15(d) of the Exchange Act, referred to in paragraph
(c)(1) of Rule 144 under the Securities Act (or, if applicable, Parent will use
its best efforts to make publicly available the information regarding itself
referred to in paragraph (c)(2) of Rule 144).
6.11 NOTIFICATION OF CERTAIN MATTERS. The Company will give prompt notice
to Parent upon discovery thereof, and Parent will give prompt notice to the
Company upon discovery thereof, of (a) the occurrence, or failure to occur, of
any event which occurrence or failure would be likely to cause any
representation or warranty of such party contained in this Agreement to be
untrue or inaccurate in any material respect at any time from the date hereof to
the Effective Time, and (b) any material failure of such party, or any director,
officer, employee, agent or representative thereof, to comply with or satisfy
any covenant, condition, or agreement to be complied with or satisfied by it
hereunder.
6.12 BEST EFFORTS.
(a) Subject to the terms and conditions of this Agreement, each party
will use its best efforts to take, or cause to be taken, all actions and to
do, or cause to be done, all things necessary, proper, or advisable under
applicable laws to consummate the Merger and the other transactions
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contemplated by this Agreement and each party will use its best efforts to
facilitate the satisfaction of the Article VII closing conditions within its
control and responsibility and will use its commercially reasonable efforts
to facilitate the satisfaction of the Article VII closing conditions within
the control and responsibility of the other party.
(b) The Company and Parent agree that in connection with any litigation
which may be brought against the Company or its directors relating to the
transactions contemplated hereby, the Company will keep Parent, and any
counsel which Parent may retain at its own expense, informed of the course
of such litigation, to the extent Parent is not otherwise a party thereto,
and the Company agrees that it will consult with Parent prior to entering
into any settlement or compromise of any such litigation; PROVIDED, HOWEVER,
that no such settlement or compromise will be entered into without Parent's
prior written consent, which consent shall not be unreasonably withheld.
6.13 ACQUISITION PROPOSALS. From the date hereof until the termination
hereof, the Company will not, nor will it authorize or direct any officer,
director, or employee of or any investment banker, attorney, accountant, or
other advisor or representative of, the Company directly or indirectly, (i)
solicit, initiate, or encourage the submission of any Acquisition Proposal or
(ii) participate in any discussions or negotiations regarding, or furnish to any
person any information in respect of, or take any other action to facilitate,
any Acquisition Proposal or any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any Acquisition Proposal.
The Company shall take all necessary steps to promptly inform the individuals or
entities referred to in the first sentence of this Section 6.13 of the
obligations undertaken in this Section 6.13. As used herein, "ACQUISITION
PROPOSAL" means an inquiry, offer, or proposal regarding any of the following
(other than the transactions contemplated by this Agreement) involving the
Company: (i) any merger, consolidation, share exchange, recapitalization,
business combination, or other similar transaction; (ii) any sale, lease,
exchange, mortgage, pledge, transfer, or other disposition of all or
substantially all the assets of the Company in a single transaction or series of
related transactions; (iii) any tender offer or exchange offer for 20% or more
of the outstanding Shares or the filing of a registration statement under the
Securities Act in connection therewith; or (iv) any public announcement of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing.
6.14 PUBLICITY. The initial press releases in respect of the execution of
this Agreement shall be acceptable to Parent and the Company and shall be in the
form of EXHIBIT A hereto. Thereafter, so long as this Agreement is in effect,
neither the Company, Parent, nor any of their respective affiliates shall issue
or cause to be issued the publication of any press release in respect of the
Merger, this Agreement, or the transactions contemplated hereby without the
prior consultation with the other party, except as may be required by applicable
law or any listing agreement with a national securities exchange or national
securities quotation system.
6.15 BONUS PROGRAMS. Effective as of the Closing, Parent shall assume and
thereafter shall honor, on behalf of the Company, the Company cash and Incentive
Stock Option bonus programs established by the Company for the year ending March
31, 2000, as described in the Company Board of Directors agenda package for its
April 27, 1999 meeting and true and correct copies of which have been provided
to Parent.
6.16 BOARD SEAT. After the Closing, for the first two annual meetings of
the stockholders of Parent, Parent shall include on its management slate of
director nominees David McCarty (or, if he is not then employed by Parent, a
person designated by a majority in interest of the former Company Common Stock).
Mr. McCarty shall be added to Parent's board of directors effective as of
immediately after the Closing.
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6.17 INDEMNIFICATION AGREEMENTS. After the Effective Time, Parent shall
assume and shall continue to honor the pre-closing indemnification agreements
between the Company and its respective officers and directors.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
7.1 CLOSING CONDITIONS. The respective obligations of each party to this
Agreement to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing of each of the following conditions, any of which may be waived, in
writing, by agreement of all the parties hereto:
(a) STOCKHOLDER APPROVAL. This Agreement and the Merger shall have
been approved and adopted by the requisite vote of the stockholders of the
Company and Parent as may be required by law, by the rules of the Nasdaq
National Market, and by any applicable provisions of the Company's articles
of incorporation and bylaws and Parent's certificate of incorporation and
bylaws.
(b) APPROVALS. There shall have been obtained permits, consents, and
approvals of securities or "blue sky" commissions or agencies of any
jurisdiction and of other governmental bodies or agencies that may
reasonably be deemed necessary so that the consummation of the Merger and
the transactions contemplated hereby will be in compliance with applicable
laws, the failure to comply with which would have a Material Adverse Effect
on the Surviving Corporation or Parent after consummation of the Merger.
(c) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of
any stop order or proceedings by a Governmental Entity seeking a stop order.
The Proxy Statement shall have been delivered to the stockholders of the
Company in accordance with the requirements of the Securities Act and the
Exchange Act.
(d) NASDAQ. The Merger Shares to be issued in the Merger or to be
issued pursuant to options granted pursuant to the Merger or otherwise
contemplated by this Agreement shall have been approved for additional
listing on the Nasdaq National Market.
(e) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction, or other order issued by any
court of competent jurisdiction or other legal or regulatory restraints or
prohibition preventing the consummation of the Merger or materially limiting
or restricting Parent's conduct or operation of the business of Parent or
the Company after the Merger shall have been issued, nor shall any
proceedings brought by any Governmental Entity seeking any of the foregoing
be pending; nor shall there be any action taken, or any statute, rule,
regulation, or order enacted, entered, enforced, or deemed applicable to the
Merger which makes the consummation of the Merger illegal.
7.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND MERGERSUB. The
obligations of Parent and MergerSub to consummate and effect this Agreement and
the transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Closing of each of the following conditions, any of which may be
waived, in writing, by Parent:
(a) ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by the Company contained or referred to in this Agreement
and in each of the other agreements and instruments delivered to Parent in
connection herewith, shall be true and correct in all material respects at
the Closing as though made at the Closing, except for representations and
warranties that speak as of a specific date or time other than the Closing,
which need only be true and correct as of such date or time.
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(b) PERFORMANCE OF COVENANTS. All of the covenants and obligations
that the Company is required to comply with or to perform at or prior to the
Closing shall have been complied with and performed in all material
respects.
(c) DOCUMENTS. Parent shall have received the following documents:
(i) legal opinion of Brobeck, Phleger & Harrison LLP and tax opinion
of Gray Cary Ware & Freidenrich LLP, each dated as of the Closing Date,
substantially in the form set forth at EXHIBITS B-1 AND B-2 hereto;
(ii) a certificate executed by the Company's Chief Executive Officer
or other senior executive officer of the Company certifying that the
conditions set forth in 7.2(a) and (b) have been fulfilled as to the
Company.
(iii) Affiliate Agreements in the form of EXHIBIT C executed by any
person who could reasonably be deemed to be an "affiliate" of the Company
for purposes of the Securities Act;
(iv) a Company Tax Representation Letter duly executed by the
Company in customary form reasonably acceptable to Parent;
(v) to the extent reasonably requested by Parent, confidential
invention and assignment agreements, reasonably satisfactory in form and
content to Parent, executed by all employees of the Company and by all
consultants and independent contractors to the Company who have not
already signed such agreements;
(vi) a letter from Ernst & Young LLP, dated as of the Closing Date,
confirming that no transaction entered into by the Company, and no other
fact or circumstance relating to the Company, will prevent Parent from
accounting for the Merger as a "pooling of interests" in accordance with
generally accepted principles, Accounting Principles Board Opinion No.
16, and all published rules, regulations and policies of the SEC;
(vii) a letter from Arthur Andersen LLP, dated as of the Closing
Date, confirming the appropriateness of Parent accounting for the Merger
as a "pooling of interests" in accordance with generally accepted
principles, Accounting Principles Board Opinion No. 16, and all published
rules, regulations and policies of the SEC.
(viii) a statement (in such form as may be reasonably requested by
counsel to Parent) conforming to the requirements of Treasury Regulations
Section 1.8972(h)(l)(i);
(ix) Non-Solicitation and Non-Competition Agreements in
substantially the form attached hereto as Exhibit D executed and
delivered by the individuals identified on Schedule 7.2 hereto; and
(x) the Indemnity Escrow Agreement signed by the Company, Parent,
the Shareholder Representative (as that terms is defined in Section
8.4(d)) and the escrow agent thereunder.
(d) DISSENTING SHARES. Holders of not more than 5% of the Company
Common Stock shall have demanded that the Company purchase such shares of
Company Common Stock in accordance with the dissenters' rights provisions of
the CCC.
(e) FIRPTA COMPLIANCE. The Company shall have filed with the Internal
Revenue Service the notification required under Treasury Regulations Section
1.8972(h)(2).
(f) CONSENTS. All consents of third parties required to be obtained in
connection with the Merger and the other transactions contemplated by this
Agreement (other than those the failure of which to obtain would not
reasonably be expected to have a Material Adverse Effect on the Parent or
the Surviving Corporation) shall have been obtained and shall be in full
force and effect.
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(g) Parent shall have received a fairness opinion from Houlihan Lokey
regarding the terms and provisions of the Merger.
7.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations
of the Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing of each of the following conditions, any of which may be waived, in
writing, by the Company:
(a) ACCURACY OF REPRESENTATIONS. Each of the representations and
warranties made by Parent and MergerSub contained or referred to in this
Agreement and in each of the other agreements and instruments delivered to
the Company in connection herewith, shall be true and correct in all
material respects at the Closing as though made at the Closing, except for
representations and warranties that speak as of a specific date or time
other than the Closing which need only be true and correct as of such date
or time.
(b) PERFORMANCE OF COVENANTS. All of the covenants and obligations
that Parent and MergerSub are required to comply with or to perform at or
prior to the Closing shall have been complied with and performed in all
material respects.
(c) DOCUMENTS. The Company shall have received the following
documents:
(i) legal opinion of Gray Cary Ware & Freidenrich LLP and tax
opinion of Brobeck, Phleger & Harrison LLP, each dated as of the Closing
Date, substantially in the form set forth at EXHIBITS E-1 AND E-2 hereto;
(ii) a certificate executed by Parent's Chief Executive Officer or
other senior executive officer of the Parent certifying that the
conditions set forth in 7.3(a) and (b) have been fulfilled;
(iii) Tax Representation Letter duly executed by Parent in customary
form reasonably acceptable to the Company; and
(iv) the Indemnity Escrow Agreement.
(d) EMPLOYEE OPTIONS. The individuals listed on SCHEDULE 7.3(D) hereto
shall have been granted incentive stock options under Parent's 1997 Stock
Option Plan to purchase the number of shares of Parent Common Stock
indicated next to their names, effective as of the Closing, at the fair
market value of Parent Common Stock as of the Closing Date. Each executive
employee option, as indicated on Schedule 7.3(d), shall be 20% vested upon
grant, with the remainder vesting in equal monthly installments over the
first 36 months. All other options listed on Schedule 7.3(d) shall vest 25%
on the first anniversary of the Closing Date, with the remainder vesting in
equal monthly installments over the 36 months following such first
anniversary. All of such options shall be incentive stock options if the
recipient's Company Stock Options were incentive stock options. SCHEDULE
7.3(D) may be amended by the mutual agreement of Parent and the Company
prior to the Effective Date.
(e) EMPLOYMENT AGREEMENTS. Parent shall have assumed the employment
agreement of David McCarty dated July 22, 1997. In addition, Parent shall
have executed and delivered to the respective persons listed on SCHEDULE
7.3(E) hereof severance agreements which provide for the payment in the
event of termination of such persons without cause, of one month's salary
for every full year of service with the Company and the Surviving
Corporation prior to such termination without cause, PROVIDED, HOWEVER, that
the minimum of such severance payments shall be for six months salary and
the maximum payments shall be for twelve months salary.
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ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
AND INDEMNIFICATION PROVISIONS
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
(a) The representations and warranties of each of the parties contained
herein shall survive the Merger and shall expire on the first anniversary of
the Effective Time (the "CLAIM DEADLINE") and any liability of the parties
with respect to such representations and warranties shall thereupon cease;
and if, at any time before the Claim Deadline, any person entitled to
indemnification hereunder (acting in good faith) delivers to any
indemnifying party hereunder a written notice asserting a claim for recovery
under Section 8.2, then the claim asserted in such notice shall survive the
Claim Deadline with respect to each indemnifying party who was provided a
written notice prior to the Claim Deadline until such time as such claim is
fully and finally resolved.
(b) For purposes of this Agreement, each statement or other item of
information set forth in a Schedule pertaining to a party's representations
and warranties shall be deemed to be a representation and warranty made by
that party in this Agreement.
8.2 INDEMNIFICATION OF THE PARENT.
(a) Following the Effective Time, the Parent, the Surviving Corporation
and the officers, directors, agents and representatives of the Parent or the
Surviving Corporation (collectively, the "PARENT AFFILIATES") shall be
indemnified and held harmless by the stockholders of the Company in respect
of, and shall be compensated and reimbursed for, any and all losses,
damages, costs and expenses (including reasonable attorney's fees)
(collectively, "DAMAGES") which are directly or indirectly suffered or
incurred by any Parent Affiliate or to which any Parent Affiliate may
otherwise become subject (regardless of whether or not such Damages relate
to any third-party claim) and which arise from or as a result of: (i) any
misrepresentation or breach of any representation, warranty, covenant or
agreement made by the Company in this Agreement or in any certificate,
instrument, schedule or document given by the Company in connection with
this Agreement, or (ii) any legal proceeding relating to any inaccuracy or
breach of the type referred to in clause "(i)" above (including any legal
proceeding commenced by any Parent Affiliate for the purpose of enforcing
any of its rights under this Section 8.2).
(b) The Parties acknowledge and agree that, if the Surviving
Corporation suffers, incurs or otherwise becomes subject to any Damages as a
result of or in connection with any inaccuracy in or breach of any
representation, warranty, covenant or obligation of the Company set forth
herein, then, without limiting any of the indemnification rights of the
Surviving Corporation, Parent shall also be deemed, by virtue of its
ownership of the Surviving Corporation, to have incurred Damages as a result
of and in connection with such inaccuracy or breach.
8.3 LIMITS ON INDEMNIFICATION AND LIABILITY. The indemnification of the
Parent Affiliates (except for any liability arising out of fraudulent or
intentional misrepresentations by the Company ("Misrepresentation Liability")
which shall not be limited in the manner set forth in this Section 8.3) shall be
limited to the shares of Parent Common Stock deposited in escrow at the Closing
as provided in Section 8.5 hereof; PROVIDED, HOWEVER, that in the event of any
Misrepresentation Liability, each shareholder of the Company shall be severally
liable for any and all Damages incurred by the Parent Affiliates in connection
with such Misrepresentation Liability, up to a maximum of each shareholder's PRO
RATA number of Merger Shares received or to be received by such shareholder
pursuant to Article II of this Agreement. No Parent Affiliate shall be entitled
to indemnification under this Article VIII for individual claims of less than
$1,000. No Parent Affiliate shall be entitled to indemnification under this
Article VIII until the aggregate of all indemnification claims by the Parent
Affiliates exceeds $300,000,
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but after such threshold is exceeded, the Parent Affiliates shall be entitled to
full indemnification for all such claims.
8.4 DEFENSE OF THIRD PARTY CLAIMS. In the event of the assertion or
commencement by any person of any claim or legal proceeding (whether against the
Surviving Corporation, against Parent or against any other person) with respect
to which a Parent Affiliate may be entitled to payment pursuant to this Article
VIII, Parent shall, within a reasonable amount of time after learning of such
claim or legal proceeding, notify the Shareholder Representative of such claim
or legal proceeding and shall extend to the Shareholder Representative a
reasonable opportunity to defend against such claim or legal proceeding, at the
shareholders' sole expense and through legal counsel reasonably acceptable to
Parent, provided that the shareholders' defense of such claim or legal
proceeding proceeds in good faith, expeditiously and diligently. Parent shall,
at its option and expense, have the right to participate in any defense
undertaken by the shareholders through the Shareholder Representative with legal
counsel of its own selection. No settlement or compromise of any claim which may
result in Damages or which acknowledges any liability for a violation of law, or
purports to impose any non-monetary obligation on the indemnified party, may be
made by the Shareholder Representative without the prior written consent of
Parent, which consent will not be unreasonably withheld. In the event the
Shareholder Representative does not timely tender a defense to such claim or
legal proceeding or such defense does not proceed in good faith, expeditiously
or diligently, then Parent shall have the right, at its election, to proceed
with the defense of such claim or legal proceeding on its own. If Parent so
proceeds with the defense of any such claim or legal proceeding under such
circumstances:
(a) all reasonable expenses relating to the defense of such claim or
legal proceeding shall be subject to claim as indemnified Damages hereunder
(subject to the provisions of Sections 8.2 and 8.3);
(b) the parties shall use reasonable efforts to make available to
Parent any documents and materials in their possession or control that may
be necessary to the defense of such claim or legal proceeding; and
(c) Parent shall have the right to settle, adjust or compromise such
claim or legal proceeding with the written consent of the Shareholder
Representative, which consent will not be unreasonably withheld; PROVIDED,
HOWEVER, that Parent may nevertheless settle or compromise any such claim or
legal proceeding without the Shareholder Representative's prior written
consent if the failure to so settle or compromise such claim or legal
proceeding in a timely manner will, in the reasonable judgment of Parent,
materially and adversely affect Parent or the Surviving Company (but such
settlement or compromise shall not prejudice the rights of any party to
maintain that such settlement or compromise should not result in a claim for
indemnification in the amount of the settlement or at all).
(d) For purposes of this Article VIII, Sheldon Engelhorn is appointed
Shareholder Representative. The Shareholder Representative shall in no event
be liable to Parent or the Surviving Corporation for any action taken in
good faith by the Shareholder Representative in the scope of performing his
role hereunder.
8.5 ESCROW. In order to satisfy any indemnification obligation of the
Company, at the Closing Two Hundred Fifty Thousand Merger Shares to be issued
pursuant to this Agreement (the "ESCROW SHARES") shall be deposited in an escrow
account pursuant to the escrow agreement substantially in the form attached
hereto as EXHIBIT F (the "INDEMNITY ESCROW AGREEMENT").
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ARTICLE IX
TERMINATION; AMENDMENT; WAIVER
9.1 TERMINATION. This Agreement may be terminated and the Merger
contemplated herein may be abandoned at any time prior to the Effective Time,
whether before or after approval of matters presented in connection with the
Merger by the stockholders of the Company and Parent:
(a) By the mutual written consent of Parent and the Company.
(b) By either of Parent or the Company if (i) the conditions to such
party's obligation to close contained in Article VII hereof are not
satisfied or waived by the applicable party by December 31, 1999, or (ii) a
statute, rule, or executive order shall have been enacted, entered, or
promulgated prohibiting the transactions contemplated hereby on the terms
contemplated by this Agreement, or (ii) any Governmental Entity shall have
issued an order, decree, or ruling or taken any other action (which order,
decree, ruling, or other action the parties hereto shall use their
reasonable efforts to lift), in each case permanently restraining,
enjoining, or otherwise prohibiting the transactions and such order, decree,
ruling, or other action shall have become final and non-appealable.
(c) By the Company if there is a material breach by Parent or MergerSub
of any of their representations, warranties, covenants, or agreements
contained in this Agreement which breach is not curable or, if curable, is
not cured within fifteen calendar days after written notice of such breach
is given by the Company to Parent.
(d) BY PARENT OR MERGERSUB:
(i) if there is a breach by the Company of any of its
representations, warranties, covenants, or agreements contained in this
Agreement which breach is not curable or, if curable, is not cured within
fifteen calendar days after written notice of such breach is given by
Parent to the Company; or
(ii) at any time during the three week period from the date hereof,
if Parent, as a result of Parent's due diligence with respect to the
Company, determines good reason exists for Parent to not consummate the
Merger.
9.2 EFFECT OF THE TERMINATION. In the event of termination of this
Agreement by either the Company or Parent or MergerSub as provided in Section
9.1, this Agreement shall forthwith become void and have no effect, without any
liability or obligation on the part of Parent, MergerSub, or the Company, other
than the provisions of Section 6.2(d), this Section 9.2, Section 9.3, and
Article X and except to the extent of liability for pre-termination willful and
material breach by a party of any of its representations, warranties, covenants,
or agreements set forth in this Agreement.
9.3 FEES AND EXPENSES.
(a) Each party to this Agreement shall bear and pay all fees, costs and
expenses (including legal fees and accounting fees) that have been incurred
or that are incurred by such party in connection with the transactions
contemplated by this Agreement, including all fees, costs and expenses
incurred by such party in connection with or by virtue of (a) the
investigation and review conducted by Parent and its representatives with
respect to the Company's business (and the furnishing of information to
Parent and its representatives in connection with such investigation and
review), (b) the negotiation, preparation and review of this Agreement and
all agreements, certificates, opinions and other instruments and documents
delivered or to be delivered in connection with the transactions
contemplated by this Agreement, (c) the preparation and submission of any
filing, registration statement or notice required to be made or given in
connection with any of the transactions contemplated by this Agreement, and
the obtaining of any consent required to be
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obtained in connection with any of such transactions, and (d) the
consummation of the Merger, PROVIDED, HOWEVER, that all legal and accounting
fees, costs and expenses of the Company set forth in this Section 9.3(a) in
excess of $100,000 in connection with this Agreement and the transactions
contemplated hereby shall be deemed to be expenses of the stockholders of
the Company and shall be borne by the stockholders and not become
obligations of the Surviving Corporation (the "STOCKHOLDER EXPENSES").
Provisions for the payment of the Stockholders Expenses reasonably
acceptable to Parent shall be made prior to Closing.
(b) The Company shall pay all Taxes, such as (i) transfer, stamp, and
documentary Taxes or fees and (b) sales, use, gains, real property transfer,
and other or similar Taxes or fees, incident to preparing for, entering
into, and carrying out this Agreement and the consummation of the
transactions contemplated hereby. Expenses incurred in connection with the
filing, printing, and mailing of the Proxy Statement and the filing fees
associated with non-1933 Act filings with Governmental Entities shall be
shared equally by the Company and Parent.
9.4 AMENDMENT. This Agreement may be amended by action taken by the
Company, Parent, and MergerSub at any time before or after approval of the
Merger by the stockholders of either the Company or Parent but, after any such
approval, no amendment shall be made which requires the approval of such
stockholders under applicable law without such approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of the parties
hereto.
9.5 EXTENSION; WAIVER. At any time prior to the Effective Time, each party
hereto (for these purposes, Parent and MergerSub shall together be deemed one
party and the Company shall be deemed the other party) may (i) extend the time
for the performance of any of the obligations or other acts of the other party,
(ii) waive any inaccuracies in the representations and warranties of the other
party contained herein or in any document, certificate, or writing delivered
pursuant hereto, or (iii) waive compliance by the other party with any of the
agreements or conditions contained herein. Any agreement on the part of either
party hereto to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. The failure of any
party hereto to assert any of its rights hereunder shall not constitute a waiver
of such rights.
ARTICLE X
MISCELLANEOUS
10.1 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement constitutes the entire
agreement among the parties hereto in respect of the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
among the parties in respect of the subject matter hereof other than the
Confidentiality Agreement.
(a) Neither this Agreement nor any of the rights, interests, or
obligations hereunder shall be assigned by operation of law (including, by
merger or consolidation) or otherwise; PROVIDED, HOWEVER, that MergerSub may
assign, in its sole discretion, any or all of its rights, interests, and
obligations under this Agreement to any direct wholly owned subsidiary of
Parent, but no such assignment shall relieve Parent or MergerSub of its
obligations hereunder if such assignee does not perform such obligations.
Any assignment in violation of the preceding sentence shall be void. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the
benefit of, and be enforceable by, the parties and their respective
successors and permitted assigns.
10.2 NOTICES. All notices, requests, instructions, or other documents to
be given under this Agreement shall be in writing and shall be deemed given, (i)
five business days following sending by registered or certified mail, postage
prepaid, (ii) when sent if sent by facsimile; PROVIDED, HOWEVER, that the
facsimile is promptly confirmed by telephone confirmation thereof, (iii) when
delivered, if delivered personally to the intended recipient, and (iv) one
business day following sending by overnight delivery
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via a national courier service, and in each case, addressed to a party at the
following address for such party:
if to MergerSub or to
Parent, to:
Invitrogen Corporation
1600 Faraday Avenue
Carlsbad, California 92008
Attention: James R. Glynn, Chief Financial Officer
Telephone: (760) 603-7200
Facsimile: (760) 603-7201
with a copy to:
Gray Cary Ware Freidenrich LLP
4365 Executive Drive, Suite 1600
San Diego, California 92121-2189]
Attention: Cameron Jay Rains, Esq.
Telephone: (619) 677-1400
Facsimile: (619) 677-1477
if to the Company, to:
Novex
11040 Roselle Street
San Diego, California 92121
Attention: David E. McCarty, President
Telephone: (619) 452-6634
Facsimile: (619) 452-6635
with a copy to:
Brobeck Phleger & Harrison LLP
550 West "C" Street, Suite 1300
San Diego, California 92101
Attention: Hayden J. Trubitt, Esq.
Telephone: (619) 234-1966
Facsimile: (619) 234-3848
or to such other address or facsimile number as the person to whom notice is
given may have previously furnished to the other in writing in the manner set
forth above.
10.3 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the Laws of the State of California, without giving effect to
the choice of law principles thereof.
10.4 DESCRIPTIVE HEADINGS. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
10.5 PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto and its successors and permitted
assigns, and, except as provided in Sections 6.9, 6.10, 6,15, 6.16, 6.17,
7.3(d), 7.3(e), 8.2 and 8.5, nothing in this Agreement, express or implied, is
intended to or shall confer upon any other person any rights, benefits, or
remedies of any nature whatsoever under or by reason of this Agreement.
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10.6 SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
10.7 SPECIFIC PERFORMANCE. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of California or in California state court, this being in
addition to any other remedy to which they are entitled at Law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any federal court located in the State of California or
any California state court in the event any dispute arises out of this Agreement
or any of the transactions contemplated hereby, (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court, and (c) agrees that it will not bring any action
relating to this Agreement or any of the transactions contemplated hereby in any
court other than a federal or state court sitting in the State of California.
10.8 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
10.9 INTERPRETATION.
(a) The words "HEREOF," "HEREIN," "HEREWITH," and words of similar
import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole and not to any particular provision of this Agreement,
and article, section, paragraph, exhibit, and schedule references are to the
articles, sections, paragraphs, exhibits, and schedules of this Agreement
unless otherwise specified. Whenever the words "INCLUDE," "INCLUDES," or
"INCLUDING" are used in this Agreement, they shall be deemed to be followed
by the words "WITHOUT LIMITATION." All terms defined in this Agreement shall
have the defined meanings contained herein when used in any certificate or
other document made or delivered pursuant hereto unless otherwise defined
therein. The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms. Any agreement,
instrument, or statute defined or referred to herein or in any agreement or
instrument that is referred to herein means such agreement, instrument, or
statute as from time to time, amended, qualified or supplemented, including
(in the case of agreements and instruments) by waiver or consent and (in the
case of statutes) by succession of comparable successor statutes and all
attachments thereto and instruments incorporated therein. References to a
person are also to its permitted successors and assigns.
(b) The phrases "THE DATE OF THIS AGREEMENT," "THE DATE HEREOF," and
terms of similar import, unless the context otherwise requires, shall be
deemed to refer to June 14, 1999. The phrase "MADE AVAILABLE" in this
agreement shall mean that the information referred to has been actually
delivered to the party to whom such information is to be made available if
so requested.
(c) The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be
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construed as if drafted jointly by the parties and no presumption or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement.
10.10 ATTORNEY FEES. If any of the parties brings an action or suit
against any other party by reason of any breach of any covenant, agreement,
representation, warranty or other provision of this Agreement, or any breach of
any duty or obligation created under this Agreement by such other party, the
prevailing party in whose favor final judgment is entered shall be entitled to
recover from the losing party all reasonable costs and expenses incurred by the
prevailing party in connection with such suit or action, including legal fees
and court costs (whether or not taxable as such).
10.11 DEFINITIONS. As used herein,
(a) "MATERIAL ADVERSE EFFECT" means in respect of any entity, any
change, circumstance, or effect that is or is reasonably likely to be
materially adverse to (i) the assets, properties, condition (financial or
otherwise), or results of operations of such entity and its subsidiaries
taken as a whole, or (ii) the ability of such party to consummate the
transactions contemplated by this Agreement.
(b) "PERSON" means an individual, corporation, limited liability
company, partnership, association, trust, unincorporated organization, other
entity or group (as defined in the Exchange Act).
(c) "SUBSIDIARY" means, in respect of any party, any corporation,
partnership, or other entity or organization, whether incorporated or
unincorporated, of which (i) such other party or any other subsidiary of
such party is a general partner (excluding such partnerships where such
party or any subsidiary of such party does not have a majority of the voting
interest in such partnership) or (ii) at least a majority of the securities
or other interests having by their terms ordinary voting power to elect a
majority of the board of directors or others performing similar functions in
respect of such corporation or other organization is directly or indirectly
owned or controlled by such party or by any one or more of its subsidiaries,
or by such party and one or more of its subsidiaries.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly
executed on its behalf as of the date first above written.
INVITROGEN CORPORATION
By: /s/ JAMES R. GLYNN
------------------------------------
Name: James R. Glynn
Title: Senior Vice President & CFO
INVO MERGER CORPORATION
By: /s/ JAMES R. GLYNN
------------------------------------
Name: James R. Glynn
Title: Senior Vice President & CFO
NOVEX
By: /s/ DAVID E. MCCARTY
------------------------------------
Name: David E. McCarty
Title: President and CEO
A-33
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
- -----------
<S> <C>
A Press Releases (6.14)
B-1 Brobeck Phleger & Harrison LLP Legal Opinion (7.2(c)(i))
B-2 Gray Cary Ware & Freidenrich LLP Tax Opinion (7.2(c)(i))
C Affiliate Agreement (7.2(c)(ii))
D Non-Competition and Non-Solicitation Agreement (7.2(c)(ix))
E-1 Gray Cary Ware & Freidenrich LLP Legal Opinion (7.3(c)(i))
E-2 Brobeck Phleger & Harrison LLP Tax Opinion (7.3(c)(i))
F Indemnity Escrow Agreement (8.5)
<CAPTION>
SCHEDULES
- -----------
<S> <C>
Company Disclosure Schedule (separately delivered)
Parent Disclosure Schedule (separately delivered)
Schedule 7.2 (individuals to sign non-competes)
Schedule 7.3(d) (stock options)
Schedule 7.3(e) (individuals to receive severance agreements)
</TABLE>
A-34
<PAGE>
[HOULIHAN LOKEY HOWARD & ZUKIN LETTERHEAD APPEARS HERE]
ANNEX B
July 8, 1999
To the Board of Directors
of Invitrogen Corporation
Gentlemen:
We understand that Invitrogen Corporation ("Invitrogen" or the "Company")
has entered into an Agreement and Plan of Merger pursuant to which a subsidiary
of Invitrogen will be merged with NOVEX (formerly known as Novel Experimental
Technology and referred to herein as "NOVEX"). NOVEX will be the surviving
corporation and become a wholly owned subsidiary of Invitrogen. As a result of
such merger, the holders of NOVEX common stock will be entitled to exchange
their holdings in NOVEX for aggregate consideration of approximately 2.5 million
shares of newly issued common stock in Invitrogen. In addition, Invitrogen will
assume approximately 500,000 outstanding NOVEX stock options and exchange such
options for similar options in Invitrogen. The aforementioned merger, including
the issuance of Invitrogen's stock in exchange for NOVEX shares, and the
assumption of the NOVEX stock options, and all other related transactions
disclosed to Houlihan Lokey are referred to collectively herein as the
"Transaction."
You have requested our opinion (the "Opinion") as to the matters set forth
below. The Opinion does not address i) the Company's underlying business
decision to effect the Transaction; ii) the public market values or realizable
value of Invitrogen's common shares given as consideration in the
Invitrogen/NOVEX merger or the prices at which Invitrogen's common shares may
trade in the future following the Invitrogen/NOVEX merger; or iii) the fairness
of any aspect of the Invitrogen/NOVEX merger not expressly addressed in this
opinion. We have not been requested to, and did not, solicit third party
indications of interest in acquiring all or any part of the Company.
Furthermore, at your request, we have not negotiated the Transaction or advised
you with respect to alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed our prior Company valuation as of December 31, 1998;
2. reviewed a copy of the Company's prospectus as filed with the Securities
and Exchange Commission on February 26, 1999, which included the
Company's audited financial statements for the three fiscal years ended
December 31, 1998 and quarterly report on Form 10-Q for the quarter ended
March 31, 1999, and Company-prepared interim financial statements for the
period ended May 31, 1999, which the Company's management has identified
as being the most current financial statements available;
3. reviewed the Company's audited financial statements for the two fiscal
years ended December 31, 1996;
4. reviewed NOVEX's audited financial statements for the four fiscal years
ended March 31, 1998 and draft audited financial statements for the
fiscal year ended March 31, 1999, which NOVEX's management has identified
as being the most current financial statements available;
B-1
<PAGE>
5. reviewed a copy of the Agreement and Plan of Merger dated as of June 14,
1999;
6. reviewed a draft of the Registration Statement on Form S-4 dated July 7,
1999;
7. met with certain members of the senior management of the Company and
NOVEX to discuss the operations, financial condition, future prospects
and projected operations and performance of the Company and NOVEX, and
held discussions with representatives of the Company's counsel to discuss
certain matters;
8. visited certain facilities and business offices of the Company;
9. reviewed forecasts prepared by the Company's management with respect to
the Company for the years ending December 31, 1999 through 2000;
10. reviewed forecasts prepared by the Company's management with respect to
NOVEX for the years ending December 31, 1999 through 2000 as well as a
budget prepared by NOVEX's management with respect to NOVEX for the
twelve month period ending March 31, 2000;
11. reviewed the historical market prices and trading volume for the
Company's publicly traded securities;
12. reviewed certain other publicly available financial data for certain
companies that we deem comparable to the Company and NOVEX, and publicly
available prices and premiums paid in other transactions that we
considered similar to the Transaction;
13. reviewed drafts of certain documents to be delivered at the closing of
the Transaction; and
14. conducted such other studies, analyses and inquiries as we have deemed
appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably prepared
and reflect the best currently available estimates of the future financial
results and condition of the Company, and that there has been no material change
in the assets, financial condition, business or prospects of the Company since
the date of the most recent financial statements made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. Except as noted herein, we have not made any
physical inspection or independent appraisal of any of the properties or assets
of the Company. Our opinion is necessarily based on business, economic, market
and other conditions as they exist and can be evaluated by us at the date of
this letter.
The Company, like other companies and any business entities analyzed by
Houlihan Lokey or which are otherwise involved in any manner in connection with
this Opinion, could be materially affected by complications that may occur, or
may be anticipated to occur, in computer-related applications as a result of the
year change from 1999 to 2000 (the "Y2K Issue"). In accordance with long-
standing practice and procedure, Houlihan Lokey's services are not designed to
detect the likelihood and extent of the effect of the Y2K Issue, directly or
indirectly, on the financial condition and/or operations of a business. Further,
Houlihan Lokey has no responsibility with regard to the Company's efforts to
make its systems, or any other systems (including its vendors and service
providers), Year 2000 compliant on a timely basis. Accordingly, Houlihan Lokey
shall not be responsible for any effect of the Y2K Issue on the matters set
forth in this Opinion.
Based upon the foregoing, and in reliance thereon, it is our opinion that
the Transaction is fair to the Company and its shareholders from a financial
point of view.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
B-2
<PAGE>
ANNEX C
CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION LAW
CHAPTER 13. DISSENTERS' RIGHTS
1300 SHORT FORM MERGER; PURCHASE OF SHARES AT FAIR MARKET VALUE; "DISSENTING
SHARES" AND DISSENTING SHAREHOLDER.(a) If the approval of the outstanding shares
(Section 152) of a corporation is required for a reorganization under
subdivisions (a) and (b) or subdivision (e) or (f) of Section 1201, each
shareholder of the corporation entitled to vote on the transaction and each
shareholder of a subsidiary corporation in a short-form merger may, by complying
with this chapter, require the corporation in which the shareholder holds shares
to purchase for cash at their fair market value the shares owned by the
shareholder which are dissenting shares as defined in subdivision (b). The fair
market value shall be determined as of the day before the first announcement of
the terms of the proposed reorganization or short-form merger, excluding any
appreciation or depreciation in consequence of the proposed action, but adjusted
for any stock split, reverse stock split, or share dividend which becomes
effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of Governors
of the Federal Reserve System, and the notice of meeting of shareholders to
act upon the reorganization summarizes this section and Sections 1301, 1302,
1303 and 1304; provided, however, that this provision does not apply to any
shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided,
further, that this provision does not apply to any class of shares described
in subparagraph (A) or (B) if demands for payment are filed with respect to
5 percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not votes
in favor or the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case where
the approval required by Section 1201 is sought by written consent rather
than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
1301 DISSENTER'S RIGHTS; DEMAND ON CORPORATION FOR PURCHASE OF SHARES.(a)
If, in the case of a reorganization, any shareholders of a corporation have a
right under Section 1300, subject to compliance with paragraphs (3) and (4) of
subdivision (b) thereof, to require the corporation to purchase their shares for
cash, such corporation shall mail to each such shareholder a notice of the
approval of the reorganization by its outstanding shares (Section 152) within 10
days after the date of such approval, accompanied by a copy of Section 1300,
1302, 1303, 1304 and this section, a statement of the price determined by the
corporation to represent the fair market value of the dissenting shares,
C-1
<PAGE>
and a brief description of the procedure to be followed if the shareholder
desires to exercise the shareholder's right under such sections. The statement
of price constitutes an offer by the corporation to purchase at the price stated
any dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization of short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
1302 DISSENTING SHARES, STAMPING OR ENDORSING. Within 30 days after the date
on which notice of the approval by the outstanding shares or the notice pursuant
to subdivision (i) of Section 1110 was mailed to the shareholder, the
shareholder shall submit to the corporation at its principal office or at the
office of any transfer agent thereof, (a) if the shares are certificated
securities, the shareholder's certificates representing any shares which the
shareholder demands that the corporation purchase, to be stamped or endorsed
with a statement that the shares are dissenting shares or to be exchanged for
certificates of appropriate denomination so stamped or endorsed or (b) if the
shares are uncertificated securities, written notice of the number of shares
which the shareholder demands that the corporation purchase. Upon subsequent
transfers of the dissenting shares on the books of the corporation the new
certificates, initial transaction statement, and other written statements issued
therefor shall bear a like statement, together with the name of the original
dissenting holder of the shares.
1303 DISSENTING SHAREHOLDER ENTITLED TO AGREED PRICE WITH INTEREST; TIME OF
PAYMENT. (a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306; payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
1304 DISSENTERS ACTIONS; JOINDER; CONSOLIDATION; APPOINTMENT OF APPRAISERS.
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market values of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are
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<PAGE>
dissenting shares or the fair market value of the dissenting shares or both or
may intervene in any action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiff, or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
1305 APPRAISERS DUTY AND REPORT; COURT JUDGEMENT; PAYMENT; APPEAL; COSTS OF
ACTION. (a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
1306 DISSENTING SHAREHOLDERS: EFFECT OF PREVENTION OF PAYMENT OF FAIR MARKET
VALUE. To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
1307 DISSENTING SHARES, DISPOSITION OF DIVIDENDS. Cash dividends declared
and paid by the corporation upon the dissenting shares after the date of
approval of the reorganization by the outstanding shares (Section 152) and prior
to payment for the shares by the corporation shall be credited against the total
amount to be paid by the corporation therefor.
1308 DISSENTING SHARES, RIGHTS AND PRIVILEGES. Except as expressly limited
in this chapter, holders of dissenting shares continue to have all the rights
and privileges incident to their shares, until the fair market value of their
shares is agreed upon or determined. A dissenting shareholder may not withdraw a
demand for payment unless the corporation consents thereto.
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<PAGE>
1309 DISSENTING SHARES, LOSS OF STATUS. Dissenting shares lose their status
as dissenting shares and the holders thereof cease to be dissenting shareholders
and cease to be entitled to require the corporation to purchase their shares
upon the happening of any of the following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
1310 SUSPENSION OF CERTAIN PROCEEDINGS WHILE LITIGATION IS PENDING. If
litigation is instituted to test the sufficiency or regularity of the votes of
the shareholders in authorizing a reorganization, any proceeding under Sections
1304 and 1305 shall be suspended until final determination of such litigation.
1311 CHAPTER INAPPLICABLE TO CERTAIN CLASSES OF SHARES. This chapter, EXCEPT
SECTION 1312, does not apply to classes of shares whose terms and provisions
specifically set forth the amount to be paid in respect to such shares in the
event of a reorganization or merger.
1312 VALIDITY OF REORGANIZATION OR SHORT FORM MERGER, ATTACK ON;
SHAREHOLDERS' RIGHTS; BURDEN OF PROOF. (a) No shareholder of a corporation who
has a right under this chapter to demand payment of cash for the shares held by
the shareholder shall have any right at law or in equity to attack the validity
of the reorganization or short-form merger, or to have the reorganization or
short-form merger set aside or rescinded, except in an action to test whether
the number of shares required to authorize or approve the reorganization have
been legally voted in favor thereof; but any holder of shares of a class whose
terms and provisions specifically set forth the amount to be paid in respect to
them in the event of a reorganization or short-form merger is entitled to
payment in accordance with those terms and provisions or, if the principal terms
of the reorganization are approved pursuant to subdivision (b) of Section 1202,
is entitled to payment in accordance with the terms and provisions of the
approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days,
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
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<PAGE>
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
C-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 102(b)(7) of the General Corporation Law of the
State of Delaware (the "Delaware Law"), Invitrogen's (the "Company's")
Certificate of Incorporation includes a provision that eliminates the personal
liability of a director to the Company or its stockholders for monetary damages
arising out of the director's breach of his or her fiduciary duty of care,
except as follows. A director remains potentially liable for monetary damages
(unless otherwise permitted by applicable law) for (a) breach of the director's
duty of loyalty to the Company or its stockholders, (b) acts or omissions not in
good faith or which involve misconduct or a knowing violation of law, (c) an
improper payment of a dividend or an improper redemption or repurchase of the
Company's stock (as provided in Section 174 of the Delaware Law) or (d) any
transaction from which a director derives an improper personal benefit. Any
repeal or modification of this provision will not affect any right or protection
of a director that exists at the time of such repeal or modification.
Section 145 of the Delaware Law empowers a Delaware corporation to indemnify
any persons who are, or are threatened to be made, parties to any threatened,
pending or completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation) by reason of the fact that such person is or was an officer,
director, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such officer,
director, employee or agent acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the corporation's best interests,
and, for criminal proceedings, had no reasonable cause to believe his or her
conduct was unlawful. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him or
her against the expenses which such officer or director actually and reasonably
incurred.
Article VII of the By-Laws of the Company provides in terms similar to those
of Section 145 of the Delaware Law that the Company shall have power and shall
be required to indemnify its directors and officers in accordance with the
Delaware Law.
Under the terms of various Directors and Officers Liability and Corporation
Reimbursement Liability Policies, the directors and officers of the Company are
insured, subject to applicable policy exclusions, limits and deductibles,
against any loss incurred in connection with any claim made against them or any
of them for any actual or alleged breach of duty, neglect, error, misstatement,
misleading statement, omission or other act done or wrongfully attempted, or any
matter not excluded by the terms and conditions of the policy, claimed against
them solely by reason of their being directors or officers of the Company. The
foregoing statements are subject to the detailed provisions of such Policies.
The Company has entered into indemnification agreements with each of its
directors and officers. Such indemnification agreements provide that the Company
will pay certain amounts incurred by a director or officer in connection with
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, and specifically including actions by
or in the name of the Company (referred to as derivative suits), where the
individual's involvement is by reason of the fact that he or she is or was a
director or officer. Such amounts include, to the maximum extent
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<PAGE>
permitted by law, attorneys' fees, judgments, civil or criminal fines,
settlement amounts, and other expenses customarily incurred in connection with
legal proceedings. Under each indemnification agreement, a director or officer
will not be indemnified if he or she is found not to have acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Company. Each indemnification agreement provides a number
of procedures and presumptions used in the determination of the right to
indemnification, as well as a requirement that in order to receive an
advancement of expenses, the director or officer must submit an undertaking to
repay any expenses advanced on his or her behalf with respect to which it is
later determined the director or officer was not entitled to receive. Each
indemnification agreement is effective for actions arising out of acts or
omissions which may have occurred before or after the execution of such
indemnification agreement. The foregoing statements are subject to the detailed
provisions of such indemnification agreements.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following Exhibits are filed herewith unless otherwise indicated:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of June 14, 1999, among Invitrogen Corporation, Invo Merger
Corporation and NOVEX (attached as Annex A to the Joint Proxy Statement/ Prospectus contained in this
Registration Statement).
3.1+ Restated Certificate of Incorporation of Invitrogen Corporation.
3.2+ Amended and Restated By-Laws of Invitrogen Corporation.
5.1* Opinion of the Gray Cary Ware & Freidenrich LLP regarding the legality of the shares of Invitrogen
Corporation Common Stock to be registered under this Registration Statement.
8.1* Opinion of Gray Cary Ware & Freidenrich LLP regarding certain United States federal income tax
consequences of the Merger.
8.2* Opinion of Brobeck Phleger & Harrison LLP regarding certain United States federal income tax consequences
of the Merger.
10.1+ Form of Indemnification Agreement for directors and executive officers.
10.2+ 1995 Stock Option Plan and forms of Incentive Stock Option Agreement and Nonstatutory Stock Option
Agreement thereunder.
10.3+ 1997 Stock Option Plan, as amended, and forms of Incentive Stock Option Agreement and Nonstatutory Stock
Option Agreement thereunder.
10.4+ 1998 Employee Stock Purchase Plan and form of subscription agreement thereunder.
10.5+ Patent License Agreement, effective as of July 1, 1998, among F. Hoffman-La Roche Ltd, Roche Molecular
Systems, Inc. and Invitrogen Corporation.
10.6+ License Agreement, dated May 10, 1990, between Molecular Chimerics Corporation and Invitrogen
Corporation.
10.7+ Purchase Agreement, effective July 1, 1994, between Cayla and Invitrogen, as amended.
10.8+ License Agreement, dated January 22, 1997, between Sloan-Kettering Institute for Cancer Research and
Invitrogen.
10.9+ Lease, dated November 1, 1995, as amended, between CRC and Invitrogen.
10.10+ Stock Purchase and Stockholders Agreement dated June 20, 1997 among Invitrogen, Lyle C. Turner, Joseph
Fernandez, TA/Advent VIII L.P., Advent Atlantic and Pacific III, L.P. and TA Venture Investors L.P.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
10.11+ Stock Purchase Agreement dated November 3, 1998, between MorphaGen, Inc., Heidi Short and Invitrogen
Corporation.
10.12 Assignment of Intellectual Property Conditional on Payment dated as of May 31, 1999, by and between
Molecular Biology Resources, Inc. and Invitrogen Corporation.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ernst & Young LLP.
23.4* Consent of Gray Cary Ware & Freidenrich LLP (contained in Exhibit 8.1).
23.5* Consent of Brobeck Phleger & Harrison LLP (contained in Exhibit 8.2).
27.1 Financial Data Schedule.
99.1 Opinion of Houlihan Lokey (included as Annex B to the Proxy Statement/Prospectus contained in this
Registration Statement).
99.2 Form of Proxy for holders of NOVEX common stock.
99.3 Form of Proxy for holders of Invitrogen common stock.
</TABLE>
- ------------------------
* to be filed by amendment.
+ incorporated by reference to the Registrant's Registration Statement on Form
S-1 (File No. 333-68665)
(b) Financial Data Schedule.
Schedules are omitted because they either are not required or are not
applicable or because equivalent information has been included in the financial
statements, the notes thereto or elsewhere herein.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
- That, for purposes of determining any liability under the securities act
of 1933, as amended (the "securities act"), each filing of the
registrant's annual report pursuant to section 13(a) or 15(d) of the
securities exchange act of 1934, as amended (the "exchange act") (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the exchange act) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
BONA FIDE offering thereof;
- That prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter
within the meaning of rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by this form
with respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of this form;
- That every prospectus (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the securities act and is used in connection with an
offering of securities subject to rule 415, will be filed as a part of an
amendment to this registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any
liability under the securities act, each such post-
II-3
<PAGE>
effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE
offering thereof;
- Insofar as indemnification for liabilities arising under the securities
act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the securities and
exchange commission such indemnification is against public policy as
expressed in the securities act and is, therefore, unenforceable. In the
event that a claim for indemnification against such 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 such
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 such
indemnification by it is against public policy as expressed in the
securities act and will be governed by the final adjudication of such
issue;
- To respond to requests for information that is incorporated by reference
into the prospectus pursuant to items 4, 10(b), 11 or 13 of this Form S-4,
within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Joint Proxy Statement/Prospectus through the date of
responding to the request;
- To remove from registration by means of a post-effective amendment any of
the Invitrogen common stock being registered which remains unsold at the
termination of the offering; and
- To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in this registration statement
when it became effective.
Pursuant to the requirements of the Securities Act of 1933, as amended,
Invitrogen Corporation duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in San Diego,
California, on July , 1999.
<TABLE>
<S> <C> <C>
INVITROGEN CORPORATION
(Registrant)
By:
Name: James R. Glynn
Title: Chief Financial Officer
</TABLE>
II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman of the Board and
/s/ LYLE C. TURNER Chief Executive Officer
- ------------------------------ (Principal Executive July 9, 1999
Lyle C. Turner Officer) and Director
Senior Vice President,
/s/ JAMES R. GLYNN Corporate Development
- ------------------------------ and Chief Financial July 9, 1999
James R. Glynn Officer (Principal
Financial Officer)
/s/ DONALD W. GRIMM
- ------------------------------ Director July 9, 1999
Donald W. Grimm
/s/ KURT R. JAGGERS
- ------------------------------ Director July 9, 1999
Kurt R. Jaggers
/s/ BRADLEY G. LORIMIER
- ------------------------------ Director July 9, 1999
Bradley G. Lorimier
- ------------------------------ Director July 1999
Jay M. Short
/s/ LEWIS J. SHUSTER
- ------------------------------ Director July 9, 1999
Lewis J. Shuster
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of June 14, 1999, among Invitrogen Corporation, Invo Merger
Corporation and NOVEX (attached as Annex A to the Joint Proxy Statement/ Prospectus contained in this
Registration Statement).
3.1+ Restated Certificate of Incorporation of Invitrogen Corporation.
3.2+ Amended and Restated By-Laws of Invitrogen Corporation.
5.1* Opinion of the Gray Cary Ware & Freidenrich LLP regarding the legality of the shares of Invitrogen
Corporation Common Stock to be registered under this Registration Statement.
8.1* Opinion of Gray Cary Ware & Freidenrich LLP regarding certain United States federal income tax
consequences of the Merger.
8.2* Opinion of Brobeck Phleger & Harrison LLP regarding certain United States federal income tax consequences
of the Merger.
10.1+ Form of Indemnification Agreement for directors and executive officers.
10.2+ 1995 Stock Option Plan and forms of Incentive Stock Option Agreement and Nonstatutory Stock Option
Agreement thereunder.
10.3+ 1997 Stock Option Plan, as amended, and forms of Incentive Stock Option Agreement and Nonstatutory Stock
Option Agreement thereunder.
10.4+ 1998 Employee Stock Purchase Plan and form of subscription agreement thereunder.
10.5+ Patent License Agreement, effective as of July 1, 1998, among F. Hoffman-La Roche Ltd, Roche Molecular
Systems, Inc. and Invitrogen Corporation.
10.6+ License Agreement, dated May 10, 1990, between Molecular Chimerics Corporation and Invitrogen
Corporation.
10.7+ Purchase Agreement, effective July 1, 1994, between Cayla and Invitrogen, as amended.
10.8+ License Agreement, dated January 22, 1997, between Sloan-Kettering Institute for Cancer Research and
Invitrogen.
10.9+ Lease, dated November 1, 1995, as amended, between CRC and Invitrogen.
10.10+ Stock Purchase and Stockholders Agreement dated June 20, 1997 among Invitrogen, Lyle C. Turner, Joseph
Fernandez, TA/Advent VIII L.P., Advent Atlantic and Pacific III, L.P. and TA Venture Investors L.P.
10.11+ Stock Purchase Agreement dated November 3, 1998, between MorphaGen, Inc., Heidi Short and Invitrogen
Corporation.
10.12 Assignment of Intellectual Property Conditional on Payment dated as of May 31, 1999, by and between
Molecular Biology Resources, Inc. and Invitrogen Corporation.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Ernst & Young LLP.
23.4* Consent of Gray Cary Ware & Freidenrich LLP (contained in Exhibit 8.1).
23.5* Consent of Brobeck Phleger & Harrison LLP (contained in Exhibit 8.2).
27.1 Financial Data Schedule.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
99.1 Opinion of Houlihan Lokey (included as Annex B to the Proxy Statement/Prospectus contained in this
Registration Statement).
99.2 Form of Proxy for holders of NOVEX common stock.
99.3 Form of Proxy for holders of Invitrogen common stock.
</TABLE>
- ------------------------
* to be filed by amendment.
+ incorporated by reference to the Registrant's Registration Statement on Form
S-1 (File No. 333-68665)
<PAGE>
ASSIGNMENT OF INTELLECTUAL PROPERTY
CONDITIONAL ON PAYMENT
THIS AGREEMENT is made and entered into as of this 31st day of May,
1999, by and between MOLECULAR BIOLOGY RESOURCES, INC., a corporation
organized under the laws of the State of Delaware ("MBR") and INVITROGEN
CORP., a corporation organized under the laws of the State of Delaware
("INVITROGEN").
RECITALS
A. MBR owns certain rights and title to the Patents (defined
below) and has licensed its interest in the Patents to INVITROGEN pursuant to
a license agreement dated May 10, 1990 (the "License Agreement").
B. INVITROGEN desires to acquire the entire interest in the
Patents and MBR desires to assign its entire interest in the Patents upon
full payment of the obligations set forth below.
AGREEMENTS
In consideration of the recitals and the mutual promises contained
in this Agreement, and other good and valuable consideration the receipt of
which is hereby acknowledged, the parties agree as follows:
1. Definitions.
(a) "Patents" means the patents referenced on Schedule A to
Exhibit B to this Agreement.
(b) "Invention" means all claimed or disclosed features in
the Patents.
(c) "Product" means all devices, methods, compositions of
matter of manufacture embodying the Invention.
(d) "Patent Rights" means (i) the right to make, use and
sell the Inventions and/or Products.
2. Assignment of Invention. MBR agrees to transfer and assign to
INVITROGEN all of its rights in the Patents for one million five hundred
<PAGE>
thousand dollars ($1,500,000.00)(the "Purchase Price") as provided in this
Agreement. MBR will execute and deliver to INVITROGEN an assignment of the
Patents in the form attached as Exhibit B contemporaneously with INVITROGEN
delivering to MBR:
(a) $500,000 in cash by wire transfer;
(b) a duly executed promissory note in the amount of $1
million in the form attached as Exhibit A (the "Note"); and
(c) a letter of credit issued by Union Bank in favor of MBR
in the form attached as Exhibit C and in an amount sufficient to cover
principal and interest payments due under the Note.
3. License Agreement Termination. The License Agreement shall
terminate upon MBR's receipt of the documents referred to in section 2(a),
(b) and (c) above and no royalties accruing thereunder will respect to
Products sold after December 31, 1998 shall be payable.
4. Representations and Warranties by MBR.
(a) MBR represents and warrants that it has full and
complete authority to enter into this Agreement and the right to assign the
Patents as provided herein.
(b) MBR represents and warrants that it has taken no actions
which adversely affect the rights of INVITROGEN under this Agreement. MBR
further represents and warrants that it owns all rights, title and interest
in and to the Patents (excluding rights of INVITROGEN or its assignees) free
and clear of any and all liens, security interests and/or third party
encumbrances.
(c) MBR represents and warrants that no licenses, covenants
or agreements have been granted or entered into by MBR relating to the
Patents, except those entered into with the INVITROGEN, and no licenses,
covenants or agreements will be granted or entered into by the MBR relating
to the Patents subsequent to the date of this Agreement.
(d) INVITROGEN possesses the necessary expertise and skill
in the technical areas in which the Invention is involved to make, and has
made, its own evaluation of the capabilities, safety, utility, and commercial
application of the Invention. Accordingly, MBR EXPRESSLY DISCLAIMS ANY
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
2
<PAGE>
PARTICULAR PURPOSE AND ANY OTHER IMPLIED WARRANTIES WITH RESPECT TO THE
CAPABILITIES, SAFETY, UTILITY, OR COMMERCIAL APPLICATION OF THE INVENTION.
(e) To MBR's knowledge, without investigation, the Patents
are not being infringed by any third party.
5. REPRESENTATIONS AND WARRANTIES BY INVITROGEN.
(a) INVITROGEN represents and warrants that it has full and
complete authority to enter into this Agreement and to transfer payments to
MBR.
(b) INVITROGEN acknowledges that an inducement for MBR to
enter into this Agreement is full payment of all past royalties owed to MBR
by INVITROGEN. Accordingly, INVITROGEN represents and warrants that all
royalties under the License Agreements payable with respect to Products sold
on or before December 31, 1998, have been paid in full.
6. NOTICES. Any notice, correspondence or other communication
required or permitted by this Agreement, unless otherwise specified, shall be
in writing and shall be deemed properly given when sent by first class mail,
certified or registered postage prepaid, or by facsimile transmission and
addressed as provided below.
(a) If to MBR:
Peter J. Smyczek, President
Molecular Biology Resources, Inc.
5520 West Burleigh Street
Milwaukee, WI 53210
(b) If to INVITROGEN:
LAW DEPARTMENT
INVITROGEN CORP.
1600 FARADAY AVENUE
CARLSBAD, CA 92008
7. GOVERNING LAW. This Agreement shall be exclusively construed,
applied, performed and enforced according to federal law of the United
3
<PAGE>
State of America and/or the law of the State of Wisconsin, USA, and each
party to this Agreement hereby consents to the exclusive jurisdiction of any
competent United States federal court and/or court of law in the State of
Wisconsin.
8. ENTIRE AGREEMENT. This Agreement constitutes and contains the
entire transaction of the parties with respect to the subject matter hereof.
This Agreement supersedes any and all prior understandings and agreements
between the parties. Any modification of this Agreement shall be in writing
and executed in the same manner as this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement or
cause this Agreement to be executed of the day, month and year first above
written.
MOLECULAR BIOLOGY INVITROGEN CORP.
RESOURCES, INC.
By: /s/ Peter J. Smyczek By: [illegible]
------------------------------ -----------------------------
Peter J. Smyczek, President
Date: May 28, 1999 Date: May 28, 1999
---------------------------- ---------------------------
4
<PAGE>
EXHIBIT A
TERM NOTE
$1,000,000.00 Milwaukee, Wisconsin
May 31, 1999
FOR VALUE RECEIVED, the undersigned, INVITROGEN CORP. ("Maker"),
promises to pay to the order of MOLECULAR BIOLOGY RESOURCES, INC. ("MBR") at
5520 West Burleigh Street, Milwaukee, WI 53210 or at such other address as
the holder may designate to the Maker in writing, the principal sum of One
Million Dollars ($1,000,000) payable as follows: a $400,000 principal payment
on June 1, 2000, a $300,000 principal payment on June 1, 2001, a $200,000
principal payment on June 1, 2002, and a $100,000 principal payment on June
1, 2003, plus interest payable as set forth below. All payments shall be made
by wire transfer as directed by MBR.
This Note bears interest on the outstanding principal balance at the
rate of 6% per annum, compounded annually, payable with each installment and
at maturity, by acceleration or otherwise. Unpaid principal and interest
shall bear interest from the time due (whether by acceleration or lapse of
time) until paid at the rate of 12.5% per annum. All principal and interest
shall be payable in lawful money of the United States of America.
The unpaid balance hereunder shall mature and become immediately payable
if any installment of principal or interest is not paid when due under this
Note or the Maker or any surety, endorser, or guarantor becomes the subject
of bankruptcy or other insolvency proceedings. The holder's receipt of any
payment on this Note after the occurrence of a default shall not constitute a
waiver of the default or the holder's rights and remedies upon such default.
This Note may be prepaid in whole or in part at any time, without
penalty or interest.
Maker agrees to pay all costs of collection before and after judgment,
including reasonable attorneys' fees. Maker, for itself, its legal
representatives, successors and assigns, hereby waives presentment, protest,
demand and notice of acceleration, nonpayment and dishonor. This Note is
secured by all existing and future security agreements and mortgages between
the holder and Maker.
<PAGE>
This Note is executed in and is governed by the laws of the State of
Wisconsin. To the extent not prohibited by law, Maker consents that venue for
any legal proceeding relating to collection of this Note shall be, at the
holder's option, the county in which the holder maintains its principal place
of business, the county in which Maker maintains its principal place of
business, or the county in which this Note was executed.
This Note shall be freely transferable and assignable by the holder and
may be modified or discharged only by an agreement in writing executed by
the party against whom enforcement of any modification or discharge is sought.
INVITROGEN CORP.
BY_____________________________
Its__________________________
<PAGE>
EXHIBIT B
ASSIGNMENT OF INTELLECTUAL PROPERTIES
THIS ASSIGNMENT OF INTELLECTUAL PROPERTIES, effective May 31, 1999, is
between MOLECULAR BIOLOGY RESOURCES, INC., a Delaware corporation
("Assignor") and INVITROGEN CORP., a Delaware corporation ("Assignee").
RECITALS
A. Assignor is the owner of certain rights, title and interest in and to
certain intellectual properties, as specified below.
B. Assignor desires to assign all its rights, title and interest in such
properties to Assignee, and Assignee desires to accept such assignment.
AGREEMENTS
In consideration of the recitals and mutual agreements which follow and
other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, Assignee and Assignor agree as follows:
1. ASSIGNMENT OF PATENTS, PATENT APPLICATIONS AND INVENTIONS. Assignor,
irrevocably and forever, assigns and transfers to Assignee, its successors
and assigns, Assignor's entire rights, title and interest in and to the
patents, together with the inventions and improvements covered thereby,
listed in Schedule A attached hereto. Assignor also assigns and transfers its
entire rights, title, and interest in and to any extension, reissue or
reexamination patent or the equivalent thereof that may result from any such
patent. Assignor also hereby assigns and transfers its entire rights, title,
and interest in and to any other protectable interest or invention underlying
any said patent, and in and to any patent rights relating to or depending
from any said invention or patent, including all rights to claim priority on
and to any and all improvements and inventions part of and underlying the
patents listed in Schedule A.
2. ASSIGNMENT OF ACCRUED ENFORCEMENT RIGHTS. Assignor assigns and
contributes to Assignee any and all claims or causes of action for
infringement or unauthorized use of any of the intellectual properties listed
on Schedule A that may have accrued prior to the effective date of this
<PAGE>
Agreement, together with the right to bring suit for and/or initiate any
proceeding to collect any and all damages arising from any such claim or
cause of action.
3. FURTHER ASSURANCES. Assignor shall provide Assignee, its successors,
assigns or other legal representatives, cooperation and assistance at
Assignee's reasonable request and expense, such assistance including (a)
making available technical information and know-how relating to any patent or
patent application listed in Schedule A; and (b) the execution and delivery
of any and all affidavits, declarations, oaths exhibits, assignments, powers
of attorney or other documentation as may be reasonably required: in the
preparation, prosecution and/or maintenance of any applications for patents or
registration of intellectual property assigned pursuant to this Assignment;
in the prosecution or defense of any interference, opposition, infringement
or other proceedings that may arise in connection with any of the
intellectual property assigned pursuant to this Assignment; and in the
implementation or perfection of this Assignment.
For Assignor, MOLECULAR BIOLOGY RESOURCES, INC.:
BY:____________________________
Printed Name:
Title:
Subscribed and sworn to before me
this ____ day of ____________, 19__.
____________________________________
Notary Public, State of Wisconsin
My commission expires:______________
For Assignee, INVITROGEN CORP.:
BY:____________________________
Printed Name:
Title:
Subscribed and sworn to before me
this ____ day of ____________, 19__.
____________________________________
Notary Public, State of Wisconsin
My commission expires:______________
<PAGE>
SCHEDULE A
PATENTS AND PATENT APPLICATIONS
United States Patent No. 5,827,657 for "Direct cloning of PCR amplified
nucleaic acids" filed July 18, 1996.
United States Patent No. 5,487,993 for "Direct cloning of PCR amplified
nucleaic acids" filed September 9, 1993.
European Patent No. 0550693 and corresponding national patents.
European Patent Application No. 96250006.2 pending.
<PAGE>
TERM NOTE
$1,000,000.00 Milwaukee, Wisconsin
May 31, 1999
FOR VALUE RECEIVED, the undersigned, INVITROGEN CORP. ("Maker"),
promises to pay to the order of MOLECULAR BIOLOGY RESOURCES, INC. ("MBR") at
5520 West Burleigh Street, Milwaukee, WI 53210 or at such other address as
the holder may designate to the Maker in writing, the principal sum of One
Million Dollars ($1,000,000) payable as follows: a $400,000 principal payment
on June 1, 2000, a $300,000 principal payment on June 1, 2001, a $200,000
principal payment on June 1, 2002, and a $100,000 principal payment on
June 1, 2003, plus interest payable as set forth below. All payments shall be
made by wire transfer as directed by MBR.
This Note bears interest on the outstanding principal balance at the
rate of 6% per annum, compounded annually, payable with each installment and
at maturity, by acceleration or otherwise. Unpaid principal and interest
shall bear interest from the time due (whether by acceleration or lapse of
time) until paid at the rate of 12.5% per annum. All principal and interest
shall be payable in lawful money of the Unites States of America.
The unpaid balance hereunder shall mature and become immediately
payable if any installment of principal or interest is not paid when due
under this Note or the Maker or any surety, endorses, or guarantor becomes
the subject of bankruptcy or other insolvency proceedings. The holder's
receipt of any payment on this Note after the occurrence of a default shall
not constitute a waiver of the default or the holder's rights and remedies
upon such default.
This Note may be prepaid in whole or in part at any time, without
penalty or interest.
Maker agrees to pay all costs of collection before and after judgment,
including reasonable attorneys' fees. Maker, for itself, its legal
representatives, successors and assigns, hereby waives presentment, protest,
demand and notice of acceleration, nonpayment and dishonor. This Note is
secured by all existing and future security agreements and mortgages between
the holder and Maker.
This Note is executed in and is governed by the laws of the State of
Wisconsin. To the extent not prohibited by law, Maker consents that venue for
<PAGE>
any legal proceeding relating to collection of this Note shall be, at the
holder's option, the county in which the holder maintains its principal place
of business, the county in which Maker maintains its principal place of
business, or the county in which this Note was executed.
This Note shall be freely transferable and assignable by the holder
and may be modified or discharged only by an agreement in writing executed by
the party against whom enforcement of any modification or discharge is sought.
INVITROGEN CORP.
BY (illegible)
----------------------
Its Sr. VP & CFO
----------------------
2
<PAGE>
ASSIGNMENT OF INTELLECTUAL PROPERTIES
THIS ASSIGNMENT OF INTELLECTUAL PROPERTIES, effective May 31, 1999, is
between MOLECULAR BIOLOGY RESOURCES, INC., a Delaware corporation
("Assignor") and INVITROGEN CORP., a Delaware corporation ("Assignee").
RECITALS
A. Assignor is the owner of certain rights, title and interest in
and to certain intellectual properties, as specified below.
B. Assignor desires to assign all its rights, title and interest in
such properties to Assignee, and Assignee desires to accept such assignment.
AGREEMENTS
In consideration of the recitals and mutual agreements which follow
and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, Assignee and Assignor agree as follows:
1. ASSIGNMENT OF PATENTS, PATENT APPLICATIONS AND INVENTIONS.
Assignor, irrevocably and forever, assigns and transfers to Assignee, its
successors and assigns, Assignor's entire rights, title and interest in and
to the patents, together with the inventions and improvements covered
thereby, listed in Schedule A attached hereto. Assignor also assigns and
transfers its entire rights, title, and interest in and to any extension,
reissue or reexamination patent or the equivalent thereof that may result
from any said patent. Assignor also hereby assigns and transfers its entire
rights, title, and interest in and to any other protectable interest or
invention underlying from any said patent, and in and to any patent rights
relating to or depending from any said invention or patent, including all
rights to claim priority on and to any and all improvements and inventions
part of and underlying the patents listed in Schedule A.
2. ASSIGNMENT OF ACCRUED ENFORCEMENT RIGHTS. Assignor assigns and
contributes to Assignee any and all claims or causes of action for
infringement or unauthorized use of any of the intellectual properties listed
on Schedule A that may have accrued prior to the effective date of this
Agreement, together with the right to bring suit for and/or initiate any
proceeding to collect any and all damages arising from any such claim or
cause of action.
<PAGE>
3. FURTHER ASSURANCES. Assignor shall provide Assignee, its
successors, assigns or other legal representatives, cooperation and
assistance at Assignee's reasonable request and expense, such assistance
including (a) making available technical information and know-how relating to
any patent or patent application listed in Schedule A; and (b) the execution
and delivery of any and all affidavits, declarations, oaths, exhibits,
assignments, powers of attorney or other documentation as may be reasonably
required: in the preparation, prosecution and/or maintenance of any
applications for patents or registration of the intellectual property
assigned pursuant to this Assignment; in the prosecution or defense of any
interference, opposition, infringement or other proceedings that may arise in
connection with any of the intellectual property assigned pursuant to this
Assignment; and in the implementation or perfection of this Assignment.
For Assignor, MOLECULAR BIOLOGY RESOURCES, INC.:
BY /s/ Peter J. Smyczek
------------------------------
Printed Name: Peter J. Smyczek
Title: President
Subscribed and sworn to before me
this 28th day of May, 1999
/s/ Lynn M. Honari
- -----------------------------------
Notary Public, State of Wisconsin
My commission expires: 1-26, 2003
-------------
For Assignee, INVITROGEN CORP.
BY /s/ Warner Broaddus
------------------------------
Printed Name: Warner Broaddus
Title: Gen. Counsel &
Secretary
Subscribed and sworn to before me
this 2 day of June, 1999
/s/ Kristen Higgins
- -----------------------------------
Notary Public, State of California [SEAL]
My commission expires: 6/11/99
-------------
<PAGE>
SCHEDULE A
PATENTS AND PATENT APPLICATIONS
United States Patent No. 5,827,657 for "Direct cloning of PCR amplified
nucleaic acids" filed July 18, 1996.
United States Patent No. 5,487,993 for "Direct cloning of PCR amplified
nucleaic acids" filed September 9, 1993.
European Patent No. 0550693 and corresponding national patents.
European Patent Application No. 96250006.2 pending.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
on the financial statements of Invitrogen Corporation, and all references to
our Firm, included in or made part of this Registration Statement.
ARTHUR ANDERSEN LLP
San Diego, California
July 8, 1999
<PAGE>
Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated May 28, 1999, except for Note 11 as to which the
date is June 14, 1999, with respect to the consolidated financial statements
of NOVEX included in the Joint Proxy Statement of Invitrogen Corporation and
NOVEX that is made a part of the Registration Statement (Form S-4) and
Prospectus of Invitrogen Corporation for the registration of 3,000,000 shares
of its common stock.
ERNST & YOUNG LLP
San Diego, California
July 8, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> MAR-31-1999 MAR-31-1998 MAR-31-1997
<PERIOD-START> APR-01-1998 APR-01-1997 APR-01-1996
<PERIOD-END> MAR-31-1999 MAR-31-1998 MAR-31-1997
<CASH> 306,048 187,901 0
<SECURITIES> 0 0 0
<RECEIVABLES> 3,591,239 2,141,783 0
<ALLOWANCES> 252,128 124,626 0
<INVENTORY> 2,563,264 1,016,289 0
<CURRENT-ASSETS> 6,514,795 3,618,044 0
<PP&E> 4,717,987 3,644,529 0
<DEPRECIATION> 2,118,716 1,399,921 0
<TOTAL-ASSETS> 9,679,212 6,388,589 0
<CURRENT-LIABILITIES> 4,108,269 2,638,204 0
<BONDS> 0 0 0
0 0 0
2,899,781 2,744,801 0
<COMMON> 582,453 560,551 0
<OTHER-SE> 1,062,162 (39,248) 0
<TOTAL-LIABILITY-AND-EQUITY> 9,679,212 6,388,589 0
<SALES> 23,094,389 16,023,317 13,263,710
<TOTAL-REVENUES> 24,478,191 17,133,551 14,154,565
<CGS> 11,941,602 8,189,306 6,384,976
<TOTAL-COSTS> 11,941,602 8,189,306 6,384,976
<OTHER-EXPENSES> 10,324,711 8,228,960 6,636,417
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 226,784 147,019 121,145
<INCOME-PRETAX> 1,967,955 521,311 1,015,085
<INCOME-TAX> 744,091 202,000 459,190
<INCOME-CONTINUING> 1,223,864 319,311 555,895
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 1,223,864 319,311 555,895
<EPS-BASIC> 0.16 0.02 0.08
<EPS-DILUTED> 0.11 0.02 0.05
</TABLE>
<PAGE>
NOVEX
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints David McCarty and Sheldon Engelhorn jointly and
severally as proxies, with full power of substitution and resubstitution, to
vote all shares of stock which the undersigned is entitled to vote at the
Special Meeting of shareholders of NOVEX, a California corporation (the
"Company") to be held on __________, 1999, or at any adjournments or
postponements thereof, as specified below, and to vote in the proxyholders'
discretion on such other business as may properly come before the Special
Meeting and any adjournments or postponements thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
1. APPROVAL OF MERGER. A proposal to approve and adopt the Agreement and Plan of
Merger, dated as of June 14, 1999 (the "Merger Agreement"), by and among the
Company, Invitrogen Corporation, a Delaware corporation ("Invitrogen"), and Invo
Merger Corporation., a California corporation and a wholly-owned subsidiary of
Invitrogen ("MergerSub"), and to approve Invitrogen's acquisition of the Company
through the merger of MergerSub with and into the Company, with the Company
being the surviving corporation and becoming a wholly-owned subsidiary of
Invitrogen. (the "Merger").
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Unless otherwise specified by the undersigned, this proxy will be voted in the
manner directed above, but if no contrary direction is made, it will be voted
FOR Proposal 1 above and by the proxyholders, in the proxyholders' discretion,
as to any other matters properly transacted at the Special Meeting or any
adjournments or postponements thereof. To vote in accordance with the Board of
Directors' recommendation, just sign below, no box need be checked.
A vote in favor of the Merger Agreement shall be also deemed to be the
shareholder's grant, as an individual, of a power of attorney to Sheldon
Engelhorn, as the Shareholder Representative designated in Section 8.4 of the
Merger Agreement and Section 1.2 of the Indemnity Escrow Agreement (as defined
in the Merger Agreement), to act for the shareholder in all matters pertaining
to the evaluation, response to, and defense or settlement of claims by
Invitrogen against the shares of Invitrogen beneficially held by the
undersigned, but deposited in escrow pursuant to the terms of the Merger
Agreement.
Dated:
--------------------------------------
--------------------------------------------
Signature of Shareholder
--------------------------------------------
Printed Name of Shareholder
--------------------------------------------
Title (if appropriate)
Please sign exactly as name
appears hereon. If signing
as attorney, executor,
administrator, trustee or
guardian, please give full
title as such, and, if
signing for a corporation,
please give your title.
When shares are in the
names of more than one
person, each should sign.
CHECK HERE IF YOU PLAN TO ATTEND
THE SPECIAL MEETING [ ]
<PAGE>
/X/ PLEASE MARK
VOTES AS IN
THIS EXAMPLE
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THE SHARES WILL BE VOTED "FOR" THE PROPOSALS LISTED
BELOW. RECEIPT OF THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS IS HEREBY
ACKNOWLEDGED. THIS PROXY MAY BE REVOKED AT ANY TIME PRIOR TO THE TIME IT IS
VOTED BY ANY MEANS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT.
FOR AGAINST ABSTAIN
1. To approve the merger agreement among Invitrogen
Corporation, Invo Merger Corporation and NOVEX. / / / / / /
2. To amend Invitrogen's 1997 Stock Option Plan to
increase the number of shares reserved for issuance / / / / / /
under the plan by 1,000,000 shares for a total of
5,485,479 shares of common stock.
Please vote, date and promptly return this proxy in the enclosed
return envelope which is postage prepaid if mailed in the United
States.
Please sign exactly as your name(s) appear(s) hereon. If the
stock is registered in the names of two or more persons, each
should sign. Please give full title and capacity in which signing
if not signing as an individual.
SIGNATURE: DATE: SIGNATURE: DATE:
----------------- --------- --------------- -----
PROXY
INVITROGEN CORPORATION
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON _________, 1999
The undersigned hereby appoints LYLE C. TURNER, JAMES R. GLYNN and WARNER R.
BROADDUS, and each of them, as attorneys and proxies of the undersigned, with
full power of substitution, to vote all shares of common stock of Invitrogen
Corporation which the undersigned may be entitled to vote at the Special Meeting
of Stockholders to be held at Invitrogen's offices at 1600 Faraday Avenue,
Carlsbad, California on __________, 1999 at _____a.m. local time, and at any and
all postponements, continuations and adjournments thereof, with all powers that
the undersigned would possess if personally present, such proxies being directed
to vote on the proposals as specified on the reverse side.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
/SEE REVERSE SIDE/ /SEE REVERSE SIDE/
