<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 1999
REGISTRATION NO. 333-68665
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 3
TO
FORM S-1
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 Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
1600 FARADAY AVENUE
CARLSBAD, CALIFORNIA 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:
DOUGLAS J. REIN EDMUND S. RUFFIN, JR.
PAUL E. HURDLOW DANIEL W. BURKE
Gray Cary Ware & Freidenrich LLP Venture Law Group
4365 Executive Drive, Suite 1600 2800 Sand Hill Road
San Diego, CA 92121 Menlo Park, CA 94025
(619) 677-1400 (650) 854-4488
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION--FEBRUARY 25, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
WE WILL AMEND AND COMPLETE THE INFORMATION IN THIS PROSPECTUS. ALTHOUGH WE ARE
PERMITTED BY US FEDERAL SECURITIES LAWS TO OFFER THESE SECURITIES USING THIS
PROSPECTUS, WE MAY NOT SELL THEM OR ACCEPT YOUR OFFER TO BUY THEM UNTIL THE
DOCUMENTATION FILED WITH THE SEC RELATING TO THESE SECURITIES HAS BEEN DECLARED
EFFECTIVE BY THE SEC. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES
OR OUR SOLICITATION OF YOUR OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION
WHERE THAT WOULD NOT BE PERMITTED OR LEGAL.
<PAGE>
PROSPECTUS
, 1999
[LOGO]-Registered Trademark-
3,500,000 SHARES OF COMMON STOCK
----------------------------------------------------------------------
THE COMPANY:
- We develop, manufacture and sell research kits and provide services
designed to facilitate molecular biology research.
PROPOSED NASDAQ NATIONAL MARKET
SYMBOL: IVGN
THE OFFERING:
- Invitrogen is offering 3,000,000 shares and existing stockholders are
offering 500,000 shares.
- The underwriters have an option to purchase an additional 525,000 shares
from Invitrogen to cover over-allotments.
- This is our initial public offering and no public market currently exists
for our shares. We estimate the initial public offering price to be
between $14.00 and $16.00 per share.
- Closing: , 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
<S> <C> <C>
PER SHARE TOTAL
- ------------------------------------------------------------------------------------
Public offering price:
Underwriting fees:
Proceeds to Invitrogen:
Proceeds to selling stockholders:
- ------------------------------------------------------------------------------------
</TABLE>
THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6.
- --------------------------------------------------------------------------------
Neither the SEC nor any state securities commission has determined whether this
prospectus is truthful or complete. Nor have they made, nor will they make, any
determination as to whether anyone should buy these securities. Any
representation to the contrary is a criminal offense.
- --------------------------------------------------------------------------------
DONALDSON, LUFKIN & JENRETTE
WARBURG DILLON READ LLC
PIPER JAFFRAY INC.
<PAGE>
DESCRIPTION OF PICTURES APPEARING ON INSIDE COVER PAGE:
Large arrow pointing upward and tilted right containing four text boxes
describing product categories, which read (1) Gene Analysis. Molecular
Interaction Systems, GeneStorm-TM- Clones, Hybrid Hunter-TM- Systems. 18
products. (2) Gene Expression. Bacterial, Fungal, Insect & Mammalian Expression,
Expression Vectors, MaxBac-Registered Trademark- Baculovirus System,
Ecdysone-Inducible Expression. 76 products. (3) Gene Cloning. cDNA & PCR Cloning
Systems, TA Cloning-Registered Trademark-, TOPO-TM- TA
Cloning-Registered Trademark-, Zero Blunt-TM- PCR Cloning. 23 Products. Gene
Identification. mRNA Isolation & cDNA Synthesis Systems. FastTrack, Micro-Fast
Track-TM-, Discovery Line-TM-. 13 Products. Below the four text boxes is a
bulleted list of Market Drivers as follows:
- Increased Government Funding
- Genome Sequencing Projects
- High-Throughput Technology
- Accelerated Investment in Commercial Research
Adjacent to the arrow is an open TOPO-TM- TA Cloning-Registered Trademark-
kit.
Market drivers are factors that may increase demand for our products.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
Use of Proceeds................................ 13
Dividend Policy................................ 13
Capitalization................................. 14
Dilution....................................... 15
Selected Consolidated Financial Data........... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 17
Business....................................... 23
<CAPTION>
PAGE
<S> <C>
Management..................................... 42
Certain Transactions........................... 50
Principal and Selling Stockholders............. 51
Description of Capital Stock................... 53
Shares Eligible for Future Sale................ 55
Underwriting................................... 57
Legal Matters.................................. 58
Experts........................................ 58
Additional Information......................... 59
Index to Financial Statements.................. F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION APPEARING IN OTHER SECTIONS OF THIS
PROSPECTUS. THE OTHER INFORMATION IS IMPORTANT, SO PLEASE READ THIS ENTIRE
PROSPECTUS CAREFULLY. UNLESS OTHERWISE INDICATED, ALL INFORMATION CONTAINED IN
THIS PROSPECTUS:
- GIVES EFFECT TO THE CONVERSION OF ALL OUTSTANDING SHARES OF INVITROGEN'S
CONVERTIBLE PREFERRED STOCK INTO COMMON STOCK AND REDEEMABLE PREFERRED
STOCK UPON THE CLOSING OF THIS OFFERING
- GIVES EFFECT TO THE REDEMPTION OF REDEEMABLE PREFERRED STOCK AND THE
PAYMENT OF ACCRUED DIVIDENDS ON THE CONVERTIBLE PREFERRED STOCK FOR AN
AGGREGATE OF APPROXIMATELY $15.0 MILLION
- ASSUMES THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED
INVITROGEN CORPORATION
Invitrogen develops, manufactures and markets research tools in kit form and
provides research services to corporate, academic and government entities. Our
research kits simplify and improve gene cloning, gene expression and gene
analysis techniques as well as other molecular biology activities (see
"Business--Scientific Overview"). 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. Our kits allow
researchers to perform these activities more accurately, efficiently and with
greater reproducibility compared to conventional research methods. Our 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 we began
marketing our recently developed "high-throughput" gene cloning and expression
technology, which allows us to clone and expression-test genes on an industrial
scale. We are utilizing this high-throughput technology to generate additional
license, service and product opportunities for Invitrogen. Our leading position
in gene cloning and expression has led to significant historical revenue and net
income growth. From 1995 through 1998, we have experienced compound annual
growth in revenue of 28% and net income of 49%.
Based on independent market studies, in 1997 researchers spent over $1.2
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 molecular biology product supply market. Based on
independent market studies, we project sales of gene cloning and expression kits
to grow approximately 21% in 1999, compared to approximately 15% growth in 1999
for the overall molecular biology product and supply market. We believe the gene
cloning, expression and analysis kit market will continue to expand due to
several factors, including:
- - Increasing levels of government funding for the study of genetic material,
known as genomics, and molecular biology research
- - Increasing availability of new data from the Human Genome Project, a federally
funded effort to identify all human genes, and other genome sequencing
projects
- - Proliferation of high-throughput molecular biology research techniques
- - Accelerated investment in commercial research activities
We offer over 250 kits that researchers use to conduct key molecular biology
research activities. Our kits make molecular biology techniques easier, faster
and more accessible to an increasingly broad community of researchers. For
example, as compared to conventional cloning methods, our cloning method, known
as TOPO TA Cloning, reduces the time required for a key step in the gene cloning
process from 12 hours to five minutes, reduces total experiment completion time
from three to five days to one day and increases the cloning success rate from
50-60% to over 90%. Based on our 1997
3
<PAGE>
sales of these kits, we estimate that researchers who used TOPO TA Cloning Kits
in 1997 saved over 2.5 million hours compared to standard cloning methods.
We believe we have assembled one of the broadest portfolios of gene cloning
and gene expression-related intellectual property in our industry. To date, we
have obtained 80 licenses, which provide us with access to over 200 patents
covering gene cloning, expression and analysis materials and techniques. In
addition, we own or control over 15 issued and pending patents. We believe our
intellectual property portfolio has established us as a licensing partner of
choice for corporate and academic researchers who wish to commercialize their
gene cloning and expression-related discoveries. We believe our leadership
position derives from our ability to rapidly enhance the value of the
technologies we license by combining them with our existing products and
licensed technologies.
We have recently developed a high-throughput gene cloning and expression
system by scaling up our TOPO TA Cloning technology and automating much of the
cloning and expression process. We are marketing this technology under the name
Invitrogenomics. We are using this new technology to rapidly clone and patent
full-length genes, which we are licensing and selling. To date, we have
assembled a collection of over 1,700 full-length cloned human genes that
correctly express their specific proteins. In addition, we will use this
technology to provide gene cloning and expression services on a contract basis
to pharmaceutical, biotechnology and agricultural companies that wish to reduce
the time and costs associated with identifying and validating new drug targets
and developing novel therapeutics.
Our principal offices are located at 1600 Faraday Avenue, Carlsbad,
California 92008. Our telephone number is (760) 603-7200. Our website address is
www.invitrogen.com.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered:
By Invitrogen.................................... 3,000,000 shares
By the selling stockholders...................... 500,000 shares
Total.......................................... 3,500,000 shares
Common stock to be outstanding after this
offering......................................... 12,624,210 shares (see
"Capitalization")
Use of proceeds.................................... -Up to $16.5 million for the redemption
of redeemable preferred stock, and
payment of accrued dividends on
convertible preferred stock
- Approximately $1.7 million for the
redemption of redeemable common stock
of a subsidiary of Invitrogen
- Continued development and manufacture
of existing Invitrogen products and
services
- Research and development of
additional products and services
- Working capital and general corporate
purposes, including potential
acquisitions of products,
technologies or companies
Proposed Nasdaq National Market symbol............. IVGN
</TABLE>
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The tables below summarize financial data of Invitrogen set forth in more
detail in the Consolidated Financial Statements at the end of this prospectus.
The financial data below is based on the following assumptions:
- The Pro Forma Balance Sheet data as of December 31, 1998, has been
adjusted to reflect the conversion of convertible preferred stock into
common stock and redeemable preferred stock at the closing of this
offering.
- The As Adjusted Balance Sheet data as of December 31, 1998, has been
adjusted to reflect the sale of 3,000,000 shares of common stock by
Invitrogen at an assumed price of $15.00 per share, and the application of
the net proceeds from such sale. See "Use of Proceeds."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
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
Net income........................................................... $ 1,744 $ 2,524 $ 2,978
---------- ---------- ----------
---------- ---------- ----------
Earnings per share:
Basic.............................................................. $ 0.19 $ (1.47) $ 0.19
---------- ---------- ----------
---------- ---------- ----------
Diluted............................................................ $ 0.16 $ (1.47) $ 0.17
---------- ---------- ----------
---------- ---------- ----------
Weighted average shares used in per share calculation:
Basic.............................................................. 8,356 8,938 9,626
Diluted............................................................ 10,080 8,938 11,208
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1998
------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.................. $ 6,011 $ 6,011 $ 32,084
Total assets....................................................... 22,815 22,815 48,888
Long-term capital leases........................................... 83 83 83
Non-voting redeemable common stock of Invitrogen B.V............... 1,599 1,599 1,599
Redeemable preferred stock......................................... -- 15,027 --
Convertible preferred stock........................................ 16,141 -- --
Total stockholders' equity......................................... 585 1,699 42,799
</TABLE>
5
<PAGE>
RISK FACTORS
BEFORE YOU INVEST IN OUR COMMON STOCK, YOU SHOULD BE AWARE THAT THERE ARE
VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CAREFULLY CONSIDER
THESE RISK FACTORS, TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED IN THIS
PROSPECTUS.
FAILURE TO MANAGE GROWTH COULD IMPAIR OUR BUSINESS
Our business has grown rapidly. Our net revenues increased from $19.1
million in 1996 to $31.4 million in 1998. During that same period we have
significantly expanded our operations in the United States and in the
Netherlands, headquarters for our European operations. Our number of 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 our future success
depends on our ability to implement:
- - Research and product development
- - Sales and marketing programs
- - Customer support programs
- - Operational and financial control systems
- - Recruiting and training new personnel
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We expect that we will need to continue to improve our
financial and managerial controls, reporting systems and procedures and to
expand and train our work force worldwide.
We are in the process of implementing a new, enterprise-wide financial and
manufacturing information system. We expect to begin using our new system
sometime in the first half of 1999. If we fail to successfully complete
implementation of our new system we could experience manufacturing and shipping
delays which, in turn, could cause increased manufacturing costs and deferred or
lost sales.
Our future business growth depends in part on the success of our
Invitrogenomics products and services. In order to succeed in this business we
may need to hire additional senior managers. Moreover, operation of
Invitrogenomics may present unfamiliar management challenges that we might not
successfully address. We 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 our business.
REDUCTION IN RESEARCH AND DEVELOPMENT BUDGETS AND GOVERNMENT FUNDING MAY IMPACT
OUR SALES
Our 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 our
products. Research and development budgets fluctuate due to changes in available
resources, spending priorities and institutional budgetary policies. Our
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 our 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
6
<PAGE>
our direct revenues comes from NIH Small Business Innovation Research grant
funds. Although the level of research funding has increased during the past
several years, we 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 our business.
Our 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 our customers and, as a
result, can cause fluctuations in our sales and operating results.
FAILURE TO LICENSE NEW TECHNOLOGIES COULD IMPAIR OUR NEW PRODUCT DEVELOPMENT
Our business model of providing products to researchers working on a variety
of genetic projects requires us 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 our own
employees. As a result we believe our ability to in-license new technologies
from third parties is and will continue to be critical to our ability to offer
new products. About 90% of our products are manufactured or sold under license
agreements.
Our ability to develop new products and services depends in part on our
ability to convince inventors that we can successfully commercialize their new
technologies. Further, we cannot assure you that we will be able to continue to
identify successfully new technologies developed by others. Even if we are able
to identify new technologies of interest, we may not be able to negotiate a
license on favorable terms, or at all.
LOSS OF LICENSES COULD HURT OUR PERFORMANCE
Some of our licenses do not run for the length of the patent. We may not be
able to renew our existing licenses on favorable terms, or at all. If we lose
the rights to a patented technology, we may need to stop selling certain of our
products or redesign our products or lose a competitive advantage. Potential
competitors could in-license technologies that we fail to license and
potentially erode our market share for certain products.
Our licenses typically subject us to various commercialization, sublicensing
and other obligations. If we fail to comply with these requirements we could
lose important rights under a license, such as the right to exclusivity in a
certain market. In some cases, we could also lose all rights under a license. In
addition, certain rights granted under the license could be lost for reasons out
of our control. For example, the licensor could lose patent protection for a
number of reasons, including invalidity of the licensed patent. We typically do
not receive significant indemnification from a licensor against third party
claims of intellectual property infringement. See "Business--Technology
Licensing" regarding our current licenses.
OUR MARKET SHARE DEPENDS ON NEW PRODUCT INTRODUCTIONS AND ACCEPTANCE
The market for our 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. Our future success will depend in part on
continuous, timely development and introduction of new products that address
evolving market requirements. We
7
<PAGE>
believe 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 are reluctant to switch thereafter. To the extent we
fail to introduce new and innovative products we will probably lose market share
to our 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 our growth rate or damage our business.
We have 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. We expect to launch the services portion of the business
in the near future. We cannot be sure that Invitrogenomics will achieve any
commercial success or that revenues will equal or exceed the cost of our
investment.
In the past we have experienced, and we are likely to experience in the
future, delays in the development and introduction of products. We cannot assure
you that we will keep pace with the rapid rate of change in life sciences
research, or that our new products will adequately meet the requirements of the
marketplace or achieve market acceptance. Factors affecting the market
acceptance of our new products include:
- - Citation of the product in published research
- - The timing of introduction of the product relative to competitive products
- - General trends in life sciences research
LOSS OF KEY PERSONNEL COULD HURT OUR BUSINESS
Our future success depends to a significant extent on the skills, experience
and efforts of company founders Lyle Turner and Joseph Fernandez and key members
of our scientific staff. The loss of any or all of these individuals could
damage our business.
In addition, our products and services are highly technical in nature. In
general only highly qualified and trained scientists have the necessary skills
to develop and market our products and provide our services. We face intense
competition for these professionals from our competitors and our customers,
marketing partners and companies throughout our industry. Any failure on our
part to hire, train and retain a sufficient number of qualified professionals
would seriously damage our business. We do not generally enter into employment
agreements requiring these employees to continue in our employment for any
period of time. See "Management."
COMPETITION IN THE LIFE SCIENCES RESEARCH MARKET COULD REDUCE OUR SALES
The markets for our 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 we do.
These and other companies may have developed or could in the future develop new
technologies that compete with our products or even render our products
obsolete.
We believe that customers in our 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 we are unable to be the first to develop and supply
new products, our competitive position will suffer. See "Business--Competition"
for more information.
LARGE DISTRIBUTORS MAY FORCE US TO USE MORE EXPENSIVE MARKETING AND DISTRIBUTION
CHANNELS
Certain of our 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
8
<PAGE>
accounts have established agreements with large distributors, which include
discounts and the distributors' direct involvement with the purchasing process.
These activities may force us to supply the large distributors with our products
at a discount to reach those customers. For more information, see
"Business--Competition."
INTERNATIONAL UNREST OR FOREIGN CURRENCY FLUCTUATIONS COULD ADVERSELY AFFECT OUR
RESULTS
Our products are currently marketed in over 30 countries throughout the
world. Our international revenues, which include revenues from our Netherlands
subsidiary and export sales, represented 37% of product revenues in 1998, 35% in
1997 and 33% in 1996. We expect that international revenues will continue to
account for a significant percentage of our revenues for the foreseeable future,
in part because we intend to expand our international operations.
There are a number of risks arising from our international business,
including:
- - General economic and political conditions in the markets in which we operate
- - 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
- - Import and export licensing requirements
A significant portion of our business is conducted in currencies other than
the U.S. dollar, which is our reporting currency. We recognize foreign currency
gains or losses arising from our operations in the period incurred. As a result,
currency fluctuations among the U.S. dollar and the currencies in which we do
business have caused and will continue to cause foreign currency transaction
gains and losses. We cannot predict the effects of exchange rate fluctuations
upon our future operating results because of the number of currencies involved,
the variability of currency exposures and the potential volatility of currency
exchange rates. We engage in foreign exchange hedging transactions to manage our
foreign currency exposure, but we can not assure you that our strategies will
adequately protect our 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."
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 our 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, our business
could be damaged.
OUR LIFE SCIENCE PATENTS AND PROPRIETARY TECHNOLOGIES COULD AFFECT OUR ABILITY
TO COMPETE
Our success depends to a significant degree upon our ability to develop
proprietary products and technologies. However, we cannot assure you that
patents will be granted on any of our patent applications. We also cannot assure
you that the scope of any of our issued patents will be sufficiently broad
9
<PAGE>
to offer meaningful protection. In addition, our issued patents or patents
licensed to us could be successfully challenged, invalidated or circumvented so
that our patent rights would not create an effective competitive barrier. See
"Business--Patents and Proprietary Technologies" for more information regarding
our existing and pending patents.
PUBLICITY OF OUR TRADE SECRETS COULD AID COMPETITORS
We attempt to protect our 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 us. If our trade secrets become known we may lose our competitive
position.
VOLATILITY IN OUR STOCK PRICE COULD IMPAIR YOUR INVESTMENT
The price of our common stock may fluctuate substantially due to a variety
of factors, including:
- - Quarterly fluctuations in our operating and earnings per share results
- - Technological innovations or new product introductions by us or our
competitors
- - Securities class action or other litigation
- - Disputes concerning patents or proprietary rights
- - Changes in earnings estimates by market research analysts
- - Changes in accounting principles
- - Sales of common stock by existing holders
- - Loss of key personnel
- - Economic conditions
In addition, our common stock price could be affected because we may
recognize a one-time increase in earnings per share which will impact our 1999
first quarter and year-end financial statements. This increase would be a result
of variations in the dollar amounts needed to redeem the redeemable preferred
stock, which may vary from the amounts recorded in the 1997 financial
statements.
INTELLECTUAL PROPERTY LITIGATION COULD HARM OUR BUSINESS
Litigation regarding patents and other intellectual property rights is
extensive in the biotechnology industry. We are aware that patents have been
applied for and in some cases issued to others claiming technologies which are
closely related to ours. As a result, and in part due to the ambiguities and
evolving nature of intellectual property law, we periodically receive notices of
potential infringement of patents held by others. Although we have to date
successfully resolved these types of claims, we may not be able to do so in the
future.
In the event of an intellectual property dispute we 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 affected
third parties. Intellectual property litigation can be extremely expensive, and
such expense, as well as the consequences should we not prevail, could seriously
harm our business.
If a third-party claimed an intellectual property right to technology we use
we could need to discontinue an important product or product line, alter our
products and processes, pay license fees or
10
<PAGE>
cease certain activities. Although we might under these circumstances attempt to
obtain a license to such intellectual property, we may not be able to do so on
favorable terms, or at all.
OUR STOCK MAY NOT BE LIQUID
There has been no public market for our common stock prior to this offering.
We and the underwriters of this offering will determine the initial public
offering price by negotiations, and this price may not be the price at which the
common stock will subsequently trade. See "Underwriting" for a discussion of
factors that could influence the initial public offering price. Although the
common stock will be quoted on the Nasdaq National Market, an active trading
market may not develop or be sustained after this offering.
FUTURE SALES OF CURRENTLY OUTSTANDING SHARES COULD ADVERSELY AFFECT OUR STOCK
PRICE
The market price of our common stock could drop as a result of sales of a
large number of shares in the market after this offering or in response to the
perception that such sales could occur. All of the 3,500,000 shares sold in this
offering will be freely tradable, while the 9,124,210 other shares outstanding
after this offering, based on the number of shares outstanding on December 31,
1998, will be "restricted securities" as defined in Rule 144 of the Securities
Act of 1933, as amended. Of these restricted securities approximately 9,043,000
will be subject to 180-day lock-up agreements. After expiration of the lock-up
period, all of such shares will be eligible for immediate sale, in certain
instances subject to the volume limitations of Rule 144. Donaldson Lufkin &
Jenrette can release shares from one or more of the lock-up agreements without
our approval. In addition, holders of 1,702,942 shares will have the right to
request that we register those shares for sale in the public market. See "Shares
Eligible for Future Sale."
NEW HOLDERS WILL EXPERIENCE DILUTION
Purchasers in this offering will pay more for their shares than existing
stockholders or individuals acquiring shares from exercising options granted
before this offering. You will experience immediate dilution of $11.72 per share
in pro forma net tangible book value. The exercise of outstanding options would
result in further dilution.
CONTROL OF INVITROGEN BY EXISTING STOCKHOLDERS MAY IMPEDE CHANGES TO
INVITROGEN OR ITS POTENTIAL SALE
After this offering, our executive officers and directors collectively will
beneficially own approximately 65.6% of the outstanding common stock. That
percentage would drop to 63.1% if the underwriters' overallotment option is
exercised in full. Existing stockholders will therefore continue to control
Invitrogen and, if they act together, could elect a majority of the directors,
appoint management and control important matters submitted to our stockholders
for a vote, including matters related to a change of control of Invitrogen. Such
a concentration of ownership may have the effect of delaying or preventing
transactions resulting in a change of control of Invitrogen, including
transactions where stockholders might otherwise receive a premium for their
shares over current market prices. See "Principal Stockholders."
ACCIDENTS RELATED TO HAZARDOUS MATERIALS COULD ADVERSELY AFFECT OUR BUSINESS
Portions of our operations require the controlled use of hazardous and
radioactive materials. Although we believe our 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, we could be liable for any damages
that result,
11
<PAGE>
which could seriously damage our business. Additionally, an accident could
damage our research and manufacturing facilities and operations.
POTENTIAL PRODUCT LIABILITY CLAIMS COULD AFFECT OUR EARNINGS AND FINANCIAL
CONDITION
We face a potential risk of liability claims based on our products or
services. We carry product liability insurance coverage which is limited in
scope and amount but which we believe to be adequate. We cannot assure you,
however, that we will be able to maintain this insurance at reasonable cost and
on reasonable terms. We also cannot assure you that this insurance will be
adequate to protect us against a product liability claim, should one arise.
ANTI-TAKEOVER PROVISIONS COULD IMPAIR OUR STOCK PRICE
Certain provisions of our certificate of incorporation, bylaws and Delaware
law could be used by our incumbent management to make it substantially more
difficult for a third party to acquire control of Invitrogen. These provisions
could discourage potential takeover attempts and could adversely affect the
market price of our common stock. See "Description of Capital Stock--Delaware
Anti-takeover Law and Certain Charter Provisions."
ABSENCE OF DIVIDENDS COULD REDUCE OUR ATTRACTIVENESS TO INVESTORS
Some investors favor companies that pay dividends, particularly in market
downturns. We have never declared or paid any cash dividends on our common
stock. We currently intend to retain any future earnings for funding growth and,
therefore, we do not currently anticipate paying cash dividends on our common
stock in the foreseeable future. Because we may not pay dividends, your return
on this investment likely depends on your selling our stock at a profit. See
"Dividend Policy" and "Dilution."
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus including the above risk factors
section, contains forward-looking statements that involve substantial risks and
uncertainties. 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
- - State other "forward-looking" information
We believe it is important to communicate our expectations to our investors.
However, there may be events in the future that we are not able to predict
accurately or over which we have no control. The risk factors listed above, as
well as any cautionary language in this prospectus, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. Before you
invest in our common stock, you should be aware that the occurrence of the
events described in these risk factors and elsewhere in this prospectus could
have a material adverse effect on our business, operating results and financial
condition.
12
<PAGE>
USE OF PROCEEDS
The net proceeds to Invitrogen from the sale of the 3,000,000 shares of
common stock we are offering will be approximately $41,100,000, assuming an
initial public offering price of $15.00 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses. The net
proceeds to Invitrogen would increase to $48,423,750 if the underwriters
exercise their over-allotment option in full.
We expect to use approximately $13.5 million of the net proceeds for
redemption of the redeemable preferred stock issuable upon the conversion of the
convertible preferred stock upon the closing of this offering assuming an
initial public offering price of $15.00 per share and approximately $1.5 million
for the payment of accrued dividends on the convertible preferred stock. The
redemption price of the redeemable preferred stock and the dollar amount of the
accrued dividends on the convertible preferred stock may vary based on the
offering price and the closing date of this offering. The maximum redemption
price of the redeemable preferred stock is $15 million.
We intend to use the remainder of the net proceeds of this offering for:
- - The redemption of the redeemable subsidiary common stock of our subsidiary,
Invitrogen B.V., on April 7, 1999 in the amount of Netherlands Guilder (NLG)
3,150,000 or an equivalent of USD $1,676,000 at December 31, 1998 exchange
rates
- - The continued development and manufacture of existing products and services
- - Research and development of additional products and services
- - Working capital and other general corporate purposes, including potential
acquisitions of products, technologies or companies
While we from time to time engage in preliminary discussions with respect to
acquisitions, we are not a party to any agreements, understandings or
commitments with respect to such transactions. We will invest the net proceeds
in short-term, interest bearing, investment grade securities.
Based on our current operating plan, we anticipate that the net proceeds of
this offering, together with our available cash, expected interest income and
funds from operations, should be sufficient to finance our capital requirements
for the next two years. This estimate is based on assumptions that could be
negatively impacted by the matters discussed in "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock and do
not anticipate paying such cash dividends in the foreseeable future. We
currently anticipate that we will retain all of our future earnings for use in
the development and expansion of our business and for general corporate
purposes. Any determination to pay dividends in the future will be at the
discretion of our board of directors and will depend upon our results of
operation, financial condition and other factors as the board of directors, in
its discretion, deems relevant.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Invitrogen as of
December 31, 1998. The Pro Forma column gives effect to the conversion of each
outstanding share of convertible preferred stock into a share of common stock
and a share of redeemable preferred stock upon the closing of this offering. The
As Adjusted column gives effect to the receipt of the net proceeds from the sale
of 3,000,000 shares of common stock at an assumed initial public offering price
of $15.00 per share, and the application of an expected $13.5 million of such
net proceeds to the redemption of the redeemable preferred stock and an expected
$1.5 million to the payment of accrued dividends on the convertible preferred
stock. In addition, the As Adjusted calculations in the table reflect none of
the 3,182,402 shares of common stock issuable upon exercise of outstanding
options at December 31, 1998 at an average exercise price of $4.13. See
"Management--Stock Option Plans".
This table should be read in conjunction with our Consolidated Financial
Statements and the related notes included elsewhere in this prospectus. Also see
"Use of Proceeds" and "Certain Transactions."
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------
ACTUAL PRO FORMA AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term portion of capital lease obligations............................... $ 83 $ 83 $ 83
--------- ----------- -----------
Non-voting redeemable common stock of Invitrogen B.V., 18,000 authorized and
issued; full liquidation value, $1,676,000................................. 1,599 1,599 1,599
--------- ----------- -----------
Convertible preferred stock, $0.01 par value per share: 2,202,942 shares
authorized; 2,202,942 shares issued and outstanding actual; no shares
authorized, issued or outstanding pro forma and as adjusted................ 16,141 -- --
--------- ----------- -----------
Redeemable preferred stock, $0.01 par value per share: 2,202,942 shares
authorized; no shares issued and outstanding actual; 2,202,942 shares
issued and outstanding pro forma; no shares issued and outstanding as
adjusted................................................................... -- 15,027 --
--------- ----------- -----------
Stockholders' equity:
Preferred stock, $0.01 par value: 2,000,000 shares authorized; no shares
issued and outstanding, actual, pro forma and as adjusted................ -- -- --
Common stock, $.01 par value: 50,000,000 shares authorized and 7,421,268
shares issued and outstanding actual; 9,624,210 shares issued and
outstanding pro forma; 50,000,000 shares authorized and 12,624,210 shares
issued and outstanding as adjusted....................................... 74 96 126
Additional paid-in capital................................................... 1,598 2,690 43,760
Retained deficit............................................................. (192) (192) (192)
Total stockholders' equity............................................... 585 1,699 42,799
--------- ----------- -----------
Total capitalization..................................................... $ 18,408 $ 18,408 $ 44,481
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
14
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1998 was
approximately $380,000 or $0.04 per share. Pro forma net tangible book value per
share represents the amount of Invitrogen's pro forma stockholders' equity, less
intangible assets, divided by the pro forma number of shares of common stock
outstanding as of December 31, 1998. The as adjusted pro forma net tangible book
value of Invitrogen as of December 31, 1998 would have been $41,480,000, or
$3.28 per share after giving effect to:
- - The automatic conversion of all convertible preferred stock into common stock
and redeemable preferred stock upon the closing of this offering
- - The sale of 3,000,000 shares of common stock offered by Invitrogen at an
assumed initial public offering price of $15.00 per share and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us
- - The redemption of the redeemable preferred stock and payment of accrued
dividends on the convertible preferred stock
This represents an immediate increase in pro forma net tangible book value
of $3.24 per share to existing stockholders and an immediate dilution in pro
forma net tangible book value of $11.72 per share to investors purchasing common
stock in this offering, as illustrated in the following table:
<TABLE>
<CAPTION>
ASSUMING NO
EXERCISE OF
OVER-ALLOTMENT OPTION
---------------------
<S> <C> <C>
Assumed initial public offering price per share.................................... $ 15.00
Pro forma net tangible book value per share before this offering................. $ 0.04
Increase per share attributable to new investors................................. 3.24
As adjusted pro forma net tangible book value per share after this
offering......................................................................... 3.28
------
Dilution per share to new investors................................................ $ 11.72
------
------
</TABLE>
The table below summarizes on a pro forma basis, the differences between the
existing stockholders and the new investors purchasing common stock in this
offering with respect to the total number of shares purchased from Invitrogen,
the total consideration paid and the average price per share paid (based upon an
assumed initial public offering price of $15.00 per share).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PAID PER SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders............................ 9,624,210 76.2% $ 2,786,000 5.8% $ 0.29
New investors.................................... 3,000,000 23.8 45,000,000 94.2 15.00
------------ ----- ------------- -----
Total........................................ 12,624,210 100.0% $ 47,786,000 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of Invitrogen presented
below as of December 31, 1994, 1995, 1996, 1997 and 1998 are derived from the
consolidated financial statements of Invitrogen and its subsidiaries. The 1995,
1996, 1997 and 1998 financial statements have been audited by Arthur Andersen
LLP, independent public accountants. The consolidated balance sheets as of
December 31, 1997 and 1998, and the related statement of operations for each of
the three years in the periods ended December 31, 1998 (collectively, the
"Consolidated Financial Statements"), and the related report, are included
elsewhere in this prospectus.
The selected consolidated financial data set forth below contains only a
portion of Invitrogen's financial statements, and should be read in conjunction
with, the Consolidated Financial Statements and related Notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus. In particular, see Note 14 to
Consolidated Financial Statements for an explanation of the calculations of
earnings per share and per share amounts.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................ $ 11,754 $ 14,342 $ 19,121 $ 24,965 $ 31,414
Cost of revenues.............................. 4,554 4,743 5,818 7,989 8,642
--------- --------- --------- --------- ---------
Gross margin.................................. 7,200 9,599 13,303 16,976 22,772
Operating expenses:
Sales and marketing........................... 2,685 3,646 4,236 4,959 6,976
General and administrative.................... 2,245 2,542 3,880 3,932 4,428
Research and development...................... 1,623 2,043 2,659 4,416 7,209
--------- --------- --------- --------- ---------
Total operating expenses.................... 6,553 8,231 10,775 13,307 18,613
Income from operations.......................... 647 1,368 2,528 3,669 4,159
Other income (expense), net..................... (83) (6) 155 268 457
--------- --------- --------- --------- ---------
Income before taxes............................. 564 1,362 2,683 3,937 4,616
Benefit (provision) for income taxes............ 45 (206) (939) (1,413) (1,638)
--------- --------- --------- --------- ---------
Net income...................................... $ 609 $ 1,156 $ 1,744 $ 2,524 $ 2,978
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings per share:
Basic......................................... $ 0.05 $ 0.10 $ 0.19 $ (1.47) $ 0.19
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted....................................... $ 0.05 $ 0.10 $ 0.16 $ (1.47) $ 0.17
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares used in per share
calculation:
Basic......................................... 9,268 9,602 8,356 8,938 9,626
Diluted....................................... 9,268 9,602 10,080 8,938 11,208
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments..... $ 631 $ 587 $ 1,381 $ 9,152 $ 6,011
Total assets.......................................... 4,642 5,992 8,258 18,056 22,815
Long-term capital leases.............................. 838 433 110 143 83
Non-voting redeemable common stock of
Invitrogen B.V...................................... -- 1,143 1,306 1,295 1,599
Convertible preferred stock........................... -- -- -- 15,242 16,141
Total stockholders' equity (deficit).................. 1,111 2,298 3,779 (1,853) 585
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Since Invitrogen's inception in 1987, we have been 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. We have to date developed
over 250 research kits and other 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 a total of 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. We expect research and
development and sales and marketing expenditures related to Invitrogenomics to
increase as we continue to conduct activities using our high-throughput gene
cloning and expression technology.
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.
17
<PAGE>
In 1998, Invitrogen realized significant increases in research and
development expenditures, both in absolute dollars and as a percentage of sales.
The increase in research and development expenses as a percentage of sales was
primarily related to the development of our high-throughput gene cloning and
expression technology. We anticipate that research and development expenses will
decline as a percentage of sales in future periods to approach historical
levels.
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 such third parties royalties relating to sales of some of our research kits
and selected services. Royalty expense is recognized as a cost of revenues as
the related royalties are earned.
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
- - 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
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 our new products contributed approximately $2.5
million in revenue. 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. Our 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. We believe 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
18
<PAGE>
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 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 our high-throughput
gene cloning and expression technology and greater personnel and research
supplies expense as we continue to expand our gene cloning, expression, analysis
and related products. We believe that our research and development expenditures
as a percentage of revenues will generally decline toward historical levels.
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 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 our field sales force in the United States and
Europe. We expect to continue the expansion of our 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 our growth. 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 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. Our effective tax rate decreased slightly from
36% in 1997 to 35% in 1998. 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.
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 our new products contributed $2.1 million in
revenue.
GROSS MARGIN. Our 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
19
<PAGE>
increased from 14% to 18% for these periods. These increases resulted primarily
from greater personnel and research supplies expense as we continued the
expansion of our gene cloning and expression products and the development of our
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. Our 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
We generated net cash from operating activities of approximately $3.1
million in 1998. We used approximately $6.5 million in our investing activities,
which included the construction of a new building for our subsidiary in the
Netherlands, the purchase of hardware and software for the conversion to a new
enterprise-wide financial and manufacturing information system, and the
development and installation of high-throughput gene cloning and expression
equipment. Since Invitrogen's inception we have funded our business primarily
through cash generated from operations and debt. In addition, an aggregate of
$16.0 million has been raised from the sale of equity securities.
As of December 31, 1998 we had cash and cash equivalents and short-term
investments of approximately $1.8 million and $4.2 million, respectively, and
working capital of approximately $9.6 million. We had lines of credit totaling
approximately $10 million, of which none was utilized as of December 31, 1998.
Our funds are currently invested in U.S. Treasury and government agency
obligations, investment-grade commercial paper and interest-bearing securities.
In 1997, in connection with the initial issuance of convertible preferred
stock, we recorded a charge to equity of $15 million to reflect the beneficial
conversion feature of this security. At the closing of this offering, we will be
required to redeem all outstanding shares of the redeemable preferred stock
issuable upon conversion of the outstanding shares of convertible preferred
stock and will be required to pay accumulated dividends on the convertible
preferred stock. We expect the redemption price to be up to $6.8091 per share,
plus accrued dividends, based on the final offering price. The redemption price
of the redeemable preferred stock and the dollar amount of the accumulated
dividends on the convertible preferred stock may vary based on the offering
price and the closing date of this offering. Assuming an initial public offering
price of $15.00 per share and the closing of this public offering in February
1999, the aggregate redemption price for the redeemable preferred stock will be
$13.5 million and the accumulated preferred dividends will be $1.5 million.
Redemption of the redeemable preferred stock will have no impact on future
results of operations. However, it may affect per share amounts we expect to
report in the first quarter of 1999 as well as for the year ending December 31,
1999.
Our subsidiary, Invitrogen B.V., has issued shares of non-voting stock which
are required to be redeemed on April 7, 1999 for NLG 3,150,000 or an equivalent
of USD $1,676,000 at December 31, 1998 exchange rates. Other than a reduction in
dividend requirements, the redemption of the preferred stock will not have a
material impact on results of operations upon conversion. See Note 12 to
Consolidated Financial Statements.
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We expect that the proceeds from this offering, our funds from operations
and our existing funds 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 and competing technological and market developments.
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. The maximum outstanding amounts of such
options have been less than $2 million and have been for less than one year in
duration.
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 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.
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. We have 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 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. We
do not expect adoption of this SOP to have a material impact on our financial
statements.
We will be required to adopt Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information."
Statement 131 superseded SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise" and is effective for years beginning after December 31,
1997. Statement 131 establishes standards for the way that public business
enterprises report selected information about operating segments in financial
reports. Statement 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The adoption of
Statement 131 will not affect our results of operations or financial position,
but may affect the disclosure of the segment information in the future.
In June 1998, the Financial Accounting Standards Board 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.
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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. We do not anticipate that
the adoption of SFAS 133 will have a material impact on our financial position
or results of operations.
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 are
year 2000 compliant, meaning that they are capable of distinguishing 21st
century dates from 20th century dates. We intend to replace our existing
computer system with a new system that will also be year 2000 compliant, with
implementation of the new system expected to be completed by the first half of
1999.
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 system will be Euro
compliant, we have not tested this system. 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.
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BUSINESS
THE COMPANY
Invitrogen develops, manufactures and markets research tools in kit form and
provides research services to corporate, academic and government entities. Our
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. Our kits allow researchers to perform experiments
more accurately, efficiently and with greater reproducibility compared to
conventional research methods. As a result, our 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 we developed a high-throughput gene
cloning and expression technology. Invitrogenomics will seek to utilize this
technology to generate additional license, service and product opportunities.
Our leadership position in gene cloning and expression has led to significant
historical revenue and net income growth. From 1995 to 1998, we experienced
compound annual growth in revenues and net income of 28% and 49%, respectively.
In 1997, based on independent market studies, researchers spent over $1.2
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, we project sales of gene cloning and
expression kits to grow approximately 21% in 1999, compared to approximately 15%
growth in 1999 for the overall molecular biology product and supply market. We
believe 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
- - Accelerated investment in commercial research activities
We offer over 250 research kits that researchers use to conduct key
molecular biology research activities. We design research kits to overcome
limitations and complexities of traditional molecular biology techniques, by
making these activities easier, faster and more accessible to an increasingly
broad community of researchers. For example, as compared to standard cloning
methods, our 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%. We estimate that researchers who used our TOPO TA Cloning Kits in 1997
saved over 2.5 million hours relative to standard cloning methods.
We believe we have assembled one of the broadest portfolios of gene cloning
and expression-related intellectual property in the industry. To date, we have
obtained 80 licenses, providing us with access to over 200 patents covering gene
cloning, expression and analysis materials and techniques. In addition, we own
or control over 15 issued and pending patents. We believe that these licenses
and patents have established us as a licensing partner of choice for corporate
and academic researchers who wish to commercialize their gene cloning and
expression-related discoveries. We believe this position derives from our
ability to enhance the value of licensed technologies by combining them with our
existing products and licensed technologies.
Our Invitrogenomics high-throughput, gene cloning and expression technology
was developed by scaling up our TOPO TA Cloning technology. With the
Invitrogenomics high-throughput technology we rapidly clone and patent
full-length expression-tested genes which we license and sell to academic,
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governmental and corporate customers. To date, we have assembled a collection of
over 1,700 full-length cloned human genes that express their encoded proteins.
In addition, we plan to use this 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 3 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. The five techniques and their
applications are illustrated and described below:
[CHART]
[Diagram illustrates in a clockwise circle a sequence of steps performed for
molecular biological research, including DNA sequencing, gene identification,
gene cloning, gene expression and gene analysis. A box illustrating the
"sequence" step contains a graphic depiction of a cell and chromosomes. Text in
it reads "The total genetic information carried by an organism is called its
genome, which is a linear sequence of nucleotide bases. An illustration of
arrows in a circle is labelled "Discovery Cycle." A box illustrating the
"Identify" step contains a graphic depiction of a chromosome and a DNA sequence.
Text in it reads "A gene is a specific functional unit of nucleotide bases that
code for a particular protein." A box illustrating the "clone" step contains a
graphic depiction of an expression vector including a cloned gene. Text in it
reads "Genes are cloned into vectors so they can be replicated in cells and used
in other studies, such as gene expression." A box illustrating the "express"
step contains a graphic depiction of DNA and protein. Text in it reads "cloned
genes are used to express proteins in a variety of host organisms." A box
illustrating the "analyze" step contains a graphic depiction of a sequencing gel
and a family tree. Text in it reads "Expressed proteins are studied to determine
their function. This analysis provides information about other genes that need
to be cloned and expressed to understand cellular functions."
- - 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.
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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
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
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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 are 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.
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
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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 1997 over $1.2 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. 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 sales of gene cloning and
expression kits will grow approximately 21% in 1999, compared to approximately
15% 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.
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- - 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. To
date, $1.9 billion has been spent and approximately 4% of the genome has been
fully sequenced. In order to complete the project as scheduled in 2005, the
number of nucleotide base pairs sequenced and genes identified needs to grow
at a rate of 59% per year. 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. We believe 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, we believe 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 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
We believe 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. We have 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, our
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. Our 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
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two days to complete and required the use of hazardous reagents, our method is
completed in only three hours and does not involve the use of any hazardous
materials. Our broad portfolio of gene expression vectors and systems also
provide scientific as well as ease-of-use advantages to researchers.
Specifically, we offer complete protocols with all of our expression vectors,
which enables researchers to perform their experiments more easily. In addition,
we offer a broad line of expression systems, a number of which can only be
obtained from Invitrogen.
We have developed significant expertise in identifying molecular biology
techniques that could be simplified and improved by their development as
research kits. We have 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.
We have an established business development group of four professionals, each
with significant molecular biology research expertise. In addition, our sales
and technical service representatives are experienced molecular biologists who
work with our customers to identify emerging molecular biology techniques or
potential new product and service opportunities. Specifically, our business
development, sales and technical service groups have identified and obtained
rights to over 200 patents to date. Since the beginning of 1997, our 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. Our business strategy includes the following key
elements:
- - MAINTAIN AND ENHANCE LEADERSHIP POSITION IN GENE CLONING AND GENE
EXPRESSION. Based on our market shares, we believe we are a worldwide leader
in gene cloning and gene expression technologies. We believe that the
competitive advantages offered by our innovative products and technologies for
gene cloning and expression and the comprehensive nature of our product line
will allow us to continue to increase our market share. We seek to enhance our
position by investing significant resources in research and development and
in-licensing efforts to continually introduce novel products and expand our
product line. In addition, we are actively expanding our direct worldwide
sales force to increase market penetration of our products.
- - DEVELOP NEW PRODUCTS AND MARKETS BASED UPON CORE EXPERTISE. We 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,
we have utilized our capabilities in cloning and expression to launch our
GeneStorm product line, which facilitates functional genomics studies. By
continuing to introduce new, complementary products we believe we can enhance
our position in our current core markets while targeting additional
high-growth market segments.
- - CAPTURE ADDITIONAL VALUE THROUGH SERVICES AND OUT-LICENSING. We believe our
technologies in gene cloning and expression provide significant opportunities
to develop high margin services and out-licensing arrangements. Through
Invitrogenomics, we will continue to use our 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, we plan to utilize our
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. We also intend to out-license
our technologies to customers wishing to use them in other fields of use, as
well as combine our own research and development expertise with the technologies
of corporate partners to participate in processes such as drug discovery. In
addition, we will consider acquisitions of complementary companies or
technologies.
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INVITROGEN PRODUCTS AND SERVICES
We currently offer over 250 gene identification, gene cloning, gene
expression and gene analysis products and services. The following table
describes our top ten products, as well as the leading product lines in our key
areas of focus:
<TABLE>
<CAPTION>
<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.
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-- The cloning vector in this version of the TOPO TA Cloning Kit
Dual Promoter contains promoters in opposite orientations, enabling
researchers to generate both sense and anti-sense transcripts of
their cloned PCR product.
Zero Blunt PCR Cloning This kit enables researchers to efficiently clone blunt-ended
Kit 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 This complete kit provides researchers with all required
Expression System components to perform gene expression in insect cells (including
vectors, cell lines, viral stocks, growth media, transfection
reagents and protocols).
Ecdysone-Inducible This system provides tightly controlled, inducible expression in
Mammalian Expression mammalian cells, allowing researchers to study the effects of a
System particular protein by turning on and off its expression as
desired.
</TABLE>
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<TABLE>
<S> <C>
GENE ANALYSIS PRODUCTS
GeneStorm Expression- Researchers can purchase the gene they wish to study, cloned
Ready Clones 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 INVALPHAF', These three different bacterial strains are sold ready-to-use
TOP10F' and TOP10 for cloning and expression experiments to transfer vectors into
Competent E. COLI bacteria. They are packaged in convenient, single-use aliquots
to prevent loss of efficiency caused by freeze-thaw cycles.
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.
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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.
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 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 a co-owner of a granted patent to the TA Cloning method with
Molecular Biology Resources, Inc. and has exclusive rights to its use for
commercial purposes.
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.
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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.
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. We provide 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. We
offer 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 our 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.
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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. We have created a large collection of
cloned yeast and human genes with our 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. We are currently cloning human gene families that
are likely to be of importance in various disease states, like kinase genes
involved in cell signaling pathways. To date we have assembled a collection of
over 1,700 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 we sell to our
customers and use 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. We
offer 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 kit contains "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 INVALPHAF', 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
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bacteria are competent, meaning that they have been processed in a manner that
makes them able to bring vector in from outside their cell wall.
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
wall. 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 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 our PCR Cloning Kits. The popularity of One Shot products stems in
great part from researchers first using One Shot cells in our 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 we sell 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
We have developed a high-throughput gene cloning and expression technology
by scaling up our proprietary TOPO TA Cloning technology. We believe this
technology can provide significant opportunities to develop new licenses,
services and products, which we will market under the name Invitrogenomics. We
plan to utilize our Invitrogenomics high-throughput capabilities to rapidly
clone and expression-test thousands of genes for corporate customers in drug
development and agriculture. To date, we have assembled a collection of over
1,700 full-length cloned human genes that express their encoded proteins. We
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.
We intend to focus the Invitrogenomics activities and technology on two
important business opportunities. First, as genome sequencing efforts
accelerate, pharmaceutical, biotechnology and agricultural
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firms will wish to analyze the large amounts of data to isolate gene targets of
relevance 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 our library of patented cloned full-length genes and expression
vectors for use in drug and agricultural biotechnology discovery efforts, we
expect licensing and research kit revenue opportunities to increase.
Our 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.
TECHNOLOGY AND PRODUCT DEVELOPMENT
We are focusing our technology and product development on expanding our
existing product lines and developing innovative new products in areas where we
have expertise and have 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 our internal technology
and product development programs, we aggressively in-license and acquire
technology and intellectual property. Research institutions seeking to license
their technologies are attracted to our ability to package innovations as
convenient and cost-effective research kits and to rapidly introduce those kits
to the market. Our employees also actively stay abreast of industry developments
to identify and acquire innovative technologies from researchers and research
institutions throughout the world.
We 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 our customers.
SALES AND MARKETING
We currently market our products in over 30 countries throughout the world.
Invitrogen and our subsidiary, Invitrogen B.V., sell our 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. As of December 31, 1998 we employed 54 highly
trained and skilled people in our sales and marketing department to market our
products and provide customer support and service. Over 70% of the sales and
marketing staff have degrees in biological sciences and over 40% have advanced
degrees.
Invitrogen's sales strategy has been to employ scientists to work as our
technical sales representatives. Due to the highly technical nature of our
products, we believe 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 our sales representatives to become
advisors, acting in a consultative role with their customers. Our use of
technical sales representatives also enables us to better identify unmet market
needs and new technologies that we can license and develop into new products.
Our marketing departments in our U.S. and European headquarters combine
various types of media and methods to inform customers of new product
developments and enhancements to existing products. We advertise in prominent
scientific journals, publish a yearly catalog, a bi-monthly newsletter and
conduct direct mail campaigns to researchers in the U.S. and Europe. We also
reach a broad range
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of scientists by hosting an annual symposium, presenting at scientific seminars
and exhibiting at scientific meetings. Our website allows researchers to view an
on-line catalog, place orders, download all of our technical manuals and vector
sequences, read our newsletter and participate in interactive forums and
discussion groups.
MANUFACTURING
Our U.S. manufacturing facilities occupy approximately 15,000 square feet of
our Carlsbad, California facility. Seven manufacturing cells are responsible for
the complete production, quality testing and process improvements of our various
product lines. The plant engineering department supports the manufacturing
department with 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.
TECHNOLOGY LICENSING
Many of our products are manufactured or sold under the terms of license
agreements which require us to pay royalties to the licensor based upon a
percentage of the sales of products containing the licensed materials or
technology. Although we have increasingly emphasized our own research and
development in recent periods, we believe our ability to in-license new
technologies from third parties is and will continue to be critical to our
ability to offer new products. Our ability to compete as an innovator in the
development of molecular biology research products and services depends in part
on our ability to convince inventors that we can successfully bring their new
technologies to market. Our significant licenses or exclusivity rights expire at
various times during the next fifteen years. These licenses include:
TA CLONING. Invitrogen co-owns the patents on this cloning method with
Molecular Biology Resources (MBR), formerly Molecular Chimerics Corporation, of
Milwaukee, Wisconsin. Ordinarily, patent owners in the United States may freely
exploit jointly-owned technologies independently of one another, without any
payments or accounting to the other. Invitrogen obtained for a ten year period
from MBR the exclusive rights to the technology anywhere in the world for
cloning purposes in exchange for an initial licensing fee and commitments to
make royalty payments based on sales of reagents and kits which incorporate the
TA Cloning method.
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. We paid certain initial fees to
SKI, and continue 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. We have 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,
we have reimbursed SKI for costs of patent prosecution, and have 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, we 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,
we have historically purchased the
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Zeocin and certain additional antibiotics exclusively from CAYLA at a price set
each year. We have agreed that our 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 us exclusive rights to use this patented
"lethal gene" technology for commercial purposes in all fields worldwide. We
paid an initial license fee and reimbursed certain patent costs of the
University and pay a royalty on sales of products containing the lethal gene. In
order to maintain the exclusive rights, we pay minimum royalties each year. We
are also responsible for reimbursing the University's patent prosecution costs
for this technology, up to a fixed cap.
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. We recently obtained a non-exclusive license to use TAQ polymerase
and PCR in our 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.
We paid an initial license fee for these rights and also pay royalties, which
are calculated using both sales of TAQ-based products and the use or sale of
TAQ. We granted F. Hoffmann-La Roche the right to negotiate for a license to
make and sell any competing enzyme we may develop in the future. If F.
Hoffmann-La Roche does not exercise its right to negotiate the foregoing
license, we have 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 us. Prior to obtaining this license, we purchased TAQ from authorized sources
in order to have the rights to use PCR for our research.
Royalties in 1998 related to the licenses described above were less than 10%
of the cost of revenues of Invitrogen in 1998, which Invitrogen believes is not
material.
In addition to these licenses, we maintain a portfolio of exclusive,
co-exclusive and non-exclusive rights to make, use and/or sell many of the
various technologies underlying our 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, we provide
various financial and other consideration to the patent holder or the holder of
senior license rights. Typically, our 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 we will be able to continue to successfully
identify new technologies developed by others. Even if we are able to identify
new technologies of interest, we may not be able to negotiate a license on
favorable terms, or at all. Some of our licenses do not run for the length of
the patent. We may not be able to renew our existing licenses on favorable
terms, or at all. If we lose the rights to patented technology, we may need to
discontinue selling certain of our products, redesign our products or may lose a
competitive advantage. Potential competitors could in-license technologies that
we fail to license and potentially erode our market share for certain products.
Our licenses typically subject us to various commercialization, sublicensing
and other obligations. If we fail to comply with these requirements we could
lose important rights under a license, such as the right to exclusivity in a
certain market. In some cases, we could also lose all rights under a license. In
addition, certain rights granted under the license could be lost for reasons out
of our control. For example, the licensor could lose patent protection for a
number of reasons, including invalidity of the
39
<PAGE>
licensed patent. We do not receive significant indemnification from a licensor
against third party claims of intellectual property infringement.
PATENTS AND PROPRIETARY TECHNOLOGIES
Invitrogen considers the protection of our proprietary technologies and
products for molecular and cellular biology research to be important to the
success of our business. We rely on a combination of patents, licenses and
trademarks to establish and protect our proprietary rights to our technologies
and products. We currently own two issued patents in the United States and four
issued patents in other major industrialized nations, and own or control over 15
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. Our two issued United States patents will expire in 2013 and our
four foreign patents will expire in 2011.
Our success depends to a significant degree upon our ability to develop
proprietary products and technologies. It is critically important to our success
that we adequately protect the intellectual property associated with these
products and technologies. We intend to continue to file patent applications as
we develop new products and technologies. Patents provide some degree of
protection for our 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 us.
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 our
patent applications or from applications licensed to us. The scope of any of our
issued patents may not be sufficiently broad to offer meaningful protection. In
addition, our issued patents or patents licensed to us could be successfully
challenged, invalidated or circumvented so that our patent rights would not
create an effective competitive barrier. Our intellectual property positions
involve complex legal factual questions and may be uncertain.
We rely in part on trade secret protection of our intellectual property. We
attempt to protect our 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 us. Employees also agree not to compete
unfairly with us 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 us.
Also, a third party may learn our trade secrets through means other than by
breach of our confidentiality agreements, or they could be independently
developed by our competitors.
COMPETITION
The markets for our products are very competitive. We expect the intensity
of competition to increase. Currently, we compete primarily with other life
sciences research products suppliers. Many of our competitors have greater
financial, operational, sales and marketing resources, and more experience in
research and development than us. These competitors and other companies may have
developed or could in the future develop new technologies that compete with our
products or which could render our products obsolete.
40
<PAGE>
Competitors offer a broad range of equipment, laboratory supplies and other
products, including research products that compete with ours. We believe that
customers in our markets display a significant amount of loyalty to their
initial supplier of a particular product. Therefore, we may experience
difficulties in generating sales to customers who initially purchased products
from competitors. Similarly, we believe that there is a significant competitive
advantage in being the first to introduce a new product to market. Accordingly,
we believe that to compete effectively, we will need to consistently be first to
market with important new research products and services. To the extent that we
are unable to be the first to develop and supply new products, our competitive
position will suffer. See "Risk Factors--Highly Competitive Market."
GOVERNMENT REGULATION
We are not subject to direct governmental regulation other than the laws and
regulations generally applicable to businesses in the jurisdictions in which we
operate, 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 we believe that our 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, we could be
held liable for resulting damages; such liability could have a material adverse
effect on Invitrogen. However, we do not expect that compliance with the
governmental regulations to which we are subject will have a material effect on
our capital expenditures, earnings or competitive position.
EMPLOYEES
As of December 31, 1998, Invitrogen employed 221 persons, of whom 33 hold
Ph.D. or M.D. degrees and 22 hold other advanced degrees. Approximately 57
employees are engaged in research and development, 54 in sales and marketing, 64
in manufacturing and 46 in supporting business development, intellectual
property, finance and other administrative functions.
Our success will depend in large part upon our ability to attract and retain
employees. Invitrogen faces competition in this regard from other companies,
research and academic institutions, government entities and other organizations.
We believe that we maintain good relations with our employees.
FACILITIES
We lease an approximately 60,000 square foot facility in Carlsbad,
California for our 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. See Note 10 to Consolidated Financial
Statements. We believe that adequate facilities will be available upon the
conclusion of our lease. We also own 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 our ordinary business operations. None of the
proceedings that are currently pending are expected to have a material adverse
effect on Invitrogen or our business operations.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information concerning directors and executive
officers of Invitrogen as of December 31, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Lyle C. Turner...................... 45 President, Chief Executive Officer and Chairman of the Board of
Directors
Theodore J. DeFrank................. 37 Chief Operations Officer
Joseph M. Fernandez................. 39 Senior Vice President of Business Development, Secretary and Director
James R. Glynn...................... 52 Senior Vice President, Chief Financial Officer and Director
Donald W. Grimm..................... 57 Director
Kurt R. Jaggers(1)(2)............... 40 Director
Bradley G. Lorimier................. 53 Director
Jay M. Short, Ph.D.(2).............. 40 Director
Lewis J. Shuster(1)................. 43 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.
THEODORE J. DEFRANK joined Invitrogen as its Chief Operations Officer in
January 1996. From September 1986 to December 1995 Mr. DeFrank was employed by
Stratagene in various positions including Vice President/Director of Operations,
New Product Manager and Manufacturing Manager. Mr. DeFrank received his B.A. in
Biochemistry from the University of California, San Diego.
JOSEPH M. FERNANDEZ, a founder of Invitrogen, has served as Senior Vice
President, Business Development since February 1993. He has been a member of the
Board of Directors and an executive officer of Invitrogen since April 1988. From
April 1988 through February 1993, Mr. Fernandez served as Director of Sales and
Marketing for Invitrogen. From September 1987 to April 1988 he served as a
Research Associate at Scripps Clinic and Research Foundations, a non-profit
research organization. From May 1986 to September 1987 Mr. Fernandez was
employed at Stratagene where he managed Technical Services in the Marketing
Department. Mr. Fernandez received his B.A. in Biology at Hiram College in Ohio.
JAMES R. GLYNN has served as Senior Vice President, 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
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<PAGE>
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. Mr. Glynn is currently a Director of a private company.
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 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 Executive Vice President and Chief Financial Officer of
Pharmacopeia, Inc., a pharmaceutical and biotechnical research company, a
position he has held since November 1994. 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.
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<PAGE>
Invitrogen currently has authorized nine directors. Our certificate of
incorporation provides that effective upon the closing of this offering, the
terms of office of the directors will be divided into three classes. The terms
of Class I, Class II and Class III directors will expire at the annual meeting
of stockholders held in 1999, 2000 and 2001, 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.
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 our independent
auditors to review our 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 our general and
specific compensation policies and practices and administers our 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, we
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. 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
We do not currently provide cash compensation to directors for services as
directors, other than to Dr. Short, who receives up to $1,500 per meeting.
Directors may be reimbursed for certain expenses in connection with attendance
at Board of Directors and committee meetings. After November 19, 1998, directors
who are not employees of Invitrogen will receive annual grants of options to
purchase 10,000 shares of common stock in accordance with the 1997 Plan. Options
to purchase 30,000 shares of common stock were granted to non-employee directors
of Invitrogen during our fiscal year ended December 31, 1998. See "Stock Option
Plans".
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
We have adopted provisions in our certificate of incorporation, permitted by
Delaware General Corporation Law, which provide that directors of Invitrogen
shall not be personally liable for monetary
44
<PAGE>
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.
Our bylaws authorize us to indemnify our officers, directors, employees and
agents to the extent permitted by the Delaware Law. Section 145 of the Delaware
Law empowers us to enter into indemnification agreements with our officers,
directors, employees and agents. We have entered into separate indemnification
agreements with our 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 us, 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 we are not aware of any threatened litigation or
proceeding that may result in a claim for such indemnification.
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<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to or earned by our
Chief Executive Officer and our other three most highly compensated executive
officers, each of whose aggregate compensation during the fiscal year ended
December 31, 1998 exceeded $100,000. Mr. Glynn joined Invitrogen on July 1,
1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------
SHARES OF
COMMON STOCK
ISSUABLE UPON
NAME AND 1998 EXERCISE OF
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS
<S> <C> <C> <C> <C>
Lyle C. Turner .................................... 1998 $ 285,601 $ 270,998 --
President and Chief Executive Officer
Theodore J. DeFrank ............................... 1998 142,780 19,179 70,000
Chief Operations Officer
Joseph M. Fernandez ............................... 1998 172,098 106,141 --
Senior Vice President of Business Development and --
Secretary
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
-----------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF STOCK
SECURITIES % OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OR OPTION TERM
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ------------------------
NAME GRANTED(1) FISCAL YEAR ($/SH) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Theodore J. DeFrank.................. 35,000 2.8 $ 5.60 5/28/08 $ 123,200 $ 312,200
35,000 2.8 12.00 11/20/08 264,250 669,200
James R. Glynn....................... 250,000 20.3 5.60 7/01/08 880,000 2,230,000
</TABLE>
- ------------------------------
(1) Options are granted under our 1995 and 1997 Stock Option Plans. Such options
expire 10 years from the date of grant, or earlier upon termination of
employment. See "Management--Stock Option Plans."
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, 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.
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<PAGE>
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 the common stock as of December 31, 1998 the
values of in-the-money options have been calculated on the basis of an initial
public offering price of $15.00 per share, less the applicable exercise price.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT DECEMBER 31, OPTIONS AT DECEMBER
1998 31, 1998
------------------------ ----------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Theodore J. DeFrank...................... 61,000 178,000 $ 794,300 $1,813,280
Joseph M. Fernandez...................... 159,607 -- $2,260,035 --
James R. Glynn........................... 70,833 179,167 $ 665,830 $1,684,170
</TABLE>
EMPLOYMENT AND SEVERANCE ARRANGEMENTS
Invitrogen and Mr. DeFrank entered into an employment agreement effective
September 28, 1995. The employment agreement is not for a set term and may be
terminated by Mr. DeFrank or Invitrogen at any time with or without notice. If
we terminate Mr. DeFrank's employment with or without cause, Mr. DeFrank will be
entitled to one month of severance pay for each year of his employment with
Invitrogen.
STOCK OPTION PLANS
We have adopted a 1995 Stock Option Plan and a 1997 Stock Option Plan, as
amended November 20, 1998. The 1995 Plan originally provided for the grant of
options to purchase up to 500,000 shares, but specified that the number would be
adjusted due to stock splits. Due to a seven-for-one split, the shares available
for future option grants under the 1995 Plan were increased to 3,500,000. In May
1997, we adopted the 1997 Plan and discontinued granting options under the 1995
Plan. The 1997 Plan carried forward 3,125,794 shares available for issuance or
subject to outstanding options under the 1995 Plan and added 609,685 shares,
resulting in 3,735,479 shares available for future option grants under the 1997
Plan. As of the adoption of the 1997 Plan, options to purchase 89,313 shares
granted under the 1995 Plan had been exercised. We have been granting all
options under the 1997 Plan. The 1997 Plan was subsequently amended to provide
for the issuance of options to purchase an additional 750,000 shares of common
stock. With that amendment, the 1997 Plan allows for the issuance of options to
purchase up to 4,485,479 shares of common stock.
Under the 1997 Plan, all employees of Invitrogen or any subsidiary, all
directors who are not employees of Invitrogen or any subsidiary and any
independent contractor or advisor who performs services for Invitrogen or a
subsidiary are eligible to receive Nonstatutory Stock Options. Employees are
also eligible to receive Incentive Stock Options intended to qualify under
Section 422A of the Internal Revenue Code of 1986. The 1997 Plan is administered
by a committee of the Board of Directors of Invitrogen, which selects the
persons who will receive options, determines the number of shares in each
option, and prescribes other terms and conditions, including the type of
consideration to be paid to Invitrogen upon exercise and vesting schedules, in
connection with each option. The committee's recommendations are forwarded to
the full board of directors for approval. The 1995 Plan similarly makes
employees, officers, directors and consultants eligible for NSOs and provides
that employees are eligible for ISOs. The 1995 Plan may be administered by the
board of directors or a committee.
Under the 1997 Plan, after November 19, 1998, outside directors receive an
initial NSO to purchase 10,000 shares when they are first appointed or elected
to the board of directors. In addition, acting outside directors, including
outside directors that were formerly employees of Invitrogen, will
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<PAGE>
automatically receive an option to purchase 10,000 shares of common stock at
each annual meeting of stockholders after their election, provided such director
has served at least six months. The first such grants were in January 1999. The
exercise price of the options in all cases will be equal to the fair market
value of the common stock on the date of grant. Options received by outside
directors generally vest over three years and must be exercised within ten
years.
With respect to NSOs granted under the 1997 Plan at the discretion of the
board of directors upon committee recommendation, the exercise price generally
must be at least 85% of the fair market value of the common stock on the date of
grant. The exercise price under ISOs cannot be lower than 100% of the fair
market value of the common stock on the date of grant and, in the case of ISOs
given to holders of more than 10% of the voting power of Invitrogen, not less
than 110% of such fair market value. The term of an option cannot exceed ten
years, and the term of an ISO given to a holder of more than 10% of the voting
power of Invitrogen cannot exceed five years. Options generally expire not later
than 90 days following a termination of employment, 12 months following the
optionee's disability, or not later than 12 months following the optionee's
death. The terms for options granted under the 1995 Plan are substantially
similar to those granted under the 1997 Plan.
As of December 31, 1998, there were outstanding options to purchase an
aggregate of 3,182,402 shares of common stock at exercise prices ranging from
$.8357 to $12.00 per share, or a weighted average exercise price per share of
$4.13 under the 1995 Plan and the 1997 Plan. Options to acquire 265,005 shares
have been exercised. As of December 31, 1998 a total of 1,127,385 shares of
common stock were available for future option grants under the 1995 Plan and the
1997 Plan. If any option granted under the 1997 Plan expires, terminates or is
canceled for any reason, or if shares of stock issued subject to a right of
repurchase are repurchased by Invitrogen, the shares allocable to the
unexercised option or the repurchased shares will become available for
additional option grants under the 1997 Plan. The 1995 Plan similarly allows the
shares allocable to expired or terminated options to be made available for
additional option grants, but does not explicitly discuss the acquisition by
Invitrogen of shares subject to repurchase.
EMPLOYEE STOCK OWNERSHIP PLAN
In 1989 we adopted the Invitrogen Corporation Employee Stock Ownership Plan
(ESOP), as amended January 1, 1993, amended and restated January 1, 1996 and as
amended August 31, 1997 and November 24, 1998. The ESOP's purpose is to reward
eligible employees for service to Invitrogen by providing them with retirement
benefits. The ESOP is a qualified retirement plan designed to comply with
provisions of sections 4975(e)(7) and 401(a) of the Internal Revenue Code, the
Employment Retirement Income Security Act of 1974 and applicable regulations.
Each year Invitrogen makes certain contributions to a trust fund whose assets
are invested primarily in Invitrogen common stock.
Under the ESOP, we make two types of contributions to the ESOP Trust:
discretionary stock bonus contributions determined annually by the board of
directors and fixed money purchase pension contributions, equal to 2% of
eligible employees' compensation. Effective August 31, 1997, the ESOP was
amended such that certain highly-compensated employees, those employees whose
compensation in the preceding year exceeded $75,000, do not receive a
contribution. Both types of contributions have historically been made in the
form of common stock, as valued by an independent valuation firm. Contributions
are allocated based on the participants' compensation.
Employees are eligible to participate in the ESOP after one year of service.
Employees become vested in their share of the ESOP Trust over five years
beginning with the completion of two years of service. An employee is 25% vested
after two years of service. An employee is fully vested after five years of
service, or upon reaching normal retirement age or upon the employee's death or
total and permanent disability. All participants are also fully vested upon
termination of the ESOP.
48
<PAGE>
Distributions from the ESOP Trust to vested employees occur upon their
retirement, death, total and permanent disability or termination. An employee
may elect to receive distributions in the form of cash or Invitrogen stock and
may elect to receive the distribution in a lump sum or in installments, not to
exceed his/her assumed life expectancy for the combined life expectancy of the
participant and his/ her beneficiary, if such distribution is exercised.
Invitrogen stock distributed to beneficiaries is subject to a right of first
refusal by Invitrogen and the ESOP Trust. Participants receive two 60-day put
options with respect to Invitrogen stock distributed under the ESOP, the first
beginning on the day following distribution from the ESOP, the second beginning
the first day of the fifth month in the next calendar year following
distribution. Under the put option, participants have the right to sell
Invitrogen stock received from the ESOP back to us at a value determined by an
independent valuation firm. The put option does not apply if our stock is
regularly traded on a national securities market at the time of distribution
from the ESOP.
The ESOP trustees are Lyle C. Turner and Joseph M. Fernandez. The trustees
vote all Invitrogen stock held by the ESOP Trust, except that individual
beneficiaries may direct the voting of stock allocated to their accounts with
respect to any merger, recapitalization, dissolution, sale of substantially all
of Invitrogen's assets, and the like and with respect to all corporate matters
if Invitrogen stock is a "registration-type" class of security. The ESOP may be
amended or terminated by us at any time, subject to certain restrictions, the
Internal Revenue Code and ERISA.
As of December 31, 1998 the ESOP Trust held 1,195,717 shares of Invitrogen
stock as well as approximately $464,000 invested in various mutual and
money-market funds. We terminated contributions to the ESOP Trust as of December
31, 1998, which accelerated the vesting of all participants. A $100,000 ESOP
contribution was approved for the calendar year ended December 31, 1998. Shares
will be issued in 1999 based upon the fair market value.
1998 EMPLOYEE STOCK PURCHASE PLAN
A total of 250,000 shares of Invitrogen common stock have been reserved for
issuance under our 1998 Employee Stock Purchase Plan, none of which has been
issued. The employee stock purchase plan permits eligible employees to purchase
common stock at a discount through payroll deductions, during 24-month offering
periods. Unless the board of directors establishes different periods, each
offering period will be divided into eight consecutive three-month purchase
periods. Unless the board of directors establishes a higher purchase price, the
price at which stock is purchased under the employee stock purchase plan shall
be equal to 85% of the fair market value of the common stock on the first day of
the offering period or the last day of the purchase period, whichever is lower.
The initial offering period will commence on the effective date of this
offering.
SECTION 401(k) PLAN
Effective June 1, 1994, Invitrogen adopted a 401(k) tax-deferred savings
plan for the benefit of its employees. The 401(k) Plan is intended to be a
qualified retirement plan under section 401(a) of the Internal Revenue Code. Our
employees are eligible to make salary deferral contributions to the 401(k) Plan
upon the completion of three months of employment and to participate in employer
non-elective and matching contributions to the 401(k) Plan upon the completion
of 1,000 hours of service. We may, but are not required to, make matching
contributions to the 401(k) Plan based on the participants' salary deferral
contributions. Our contributions are subject to a graduated vesting schedule
based upon an employee's years of service with Invitrogen. All contributions to
the 401(k) Plan are held in a trust which is intended to be exempt from income
tax under Section 501(a) of the Internal Revenue Code. The 401(k) Plan's
trustees are Lyle C. Turner and Joseph M. Fernandez. Participants may direct the
investment of their contributions among specified Salomon Smith Barney
investment funds. The 401(k) Plan may be amended or terminated by us at any
time, subject to certain restrictions imposed by the Internal Revenue Code and
ERISA.
49
<PAGE>
CERTAIN TRANSACTIONS
In June 1997, we sold a total of 2,202,942 shares of convertible preferred
stock at $6.8091 per share, for an aggregate purchase price of approximately $15
million, to three accredited investors, each of which are affiliates of TA
Associates. Kurt R. Jaggers, a director of Invitrogen, is a Managing Director of
TA Associates. At the same time we sold the convertible preferred stock, we
repurchased and retired 1,101,471 shares of common stock at $6.8091 per share,
for an aggregate purchase price of approximately $7.5 million, from Mr. Lyle
Turner, Mr. Joseph Fernandez, Mr. Anh Nguyen and Mr. Malcolm Finlayson,
executive officers and former executive officers of Invitrogen. In this
transaction, the TA Associates affiliates acquired registration rights with
respect to the common stock issued or issuable upon conversion of the
convertible preferred stock.
At the closing of this offering, the convertible preferred stock will be
converted into an equal number of shares of common stock and redeemable
preferred stock, and such redeemable preferred stock will be redeemed out of
proceeds of this offering at an expected cost of approximately $13.5 million.
Additionally, holders of the convertible preferred stock will receive
accumulated dividends of approximately $1.5 million. See "Description of Capital
Stock."
At January 1, 1997, we had notes receivable from Mr. Turner and Mr.
Fernandez, executive officers of Invitrogen, in the amount of $323,000 and
$92,000, respectively. These notes were secured by pledges of common stock and
paid interest of 6.0% and 6.37%, respectively, and allowed us to take direct
legal action against the executives if the common stock was not sufficient to
satisfy the notes in full. The notes were repaid in 1997. At December 8, 1998,
we 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, we leased an airplane from Turner Aviation, a company
controlled by Mr. Turner, for $7,200 per month. We had also advanced $150,000 to
Turner Aviation to assist in the acquisition of the plane. The lease agreement
will terminate effective upon the closing of this offering. The advance was
repaid through the December 8, 1998 note receivable described above.
We have entered into indemnification agreements with each of our officers
and directors containing provisions which may require us, among other things, to
indemnify our 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. We also intend to execute such agreements with our future
directors and executive officers. See "Management--Limitations on Liability and
Indemnification Matters."
For a description of other transactions between Invitrogen and affiliates of
Invitrogen, see "Management--Compensation Committee Interlocks and Insider
Participation."
50
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information concerning the beneficial
ownership of the shares of our common stock as of December 31, 1998, and as
adjusted to give effect to the sale of 3,000,000 shares of common stock in this
offering assuming (a) conversion of all of Invitrogen's outstanding shares of
convertible preferred stock into common stock and (b) no exercise of the
underwriters' over-allotment option, 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
- All executive officers and directors of Invitrogen as a group
- Each of the selling stockholders
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 THAT MAY
BE ACQUIRED
SHARES BENEFICIALLY SHARES BENEFICIALLY WITHIN 60 DAYS
OWNED PRIOR TO THE SHARES BEING OWNED AFTER THE OFFERING OF JANUARY 29,
BENEFICIAL OWNER OFFERING OFFERED 1999
- ------------------------------- ------------------------- ------------ ------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
NUMBER PERCENT(1) NUMBER PERCENT(1)
TA Associates(2) .............. 2,202,942 22.9% 500,000 1,702,942 13.5% 0
Kurt R. Jaggers
TA Associates, Inc.
125 High Street Tower
Suite 2500
Boston, Massachusetts
02110
ESOP Trust Fund(3) ............ 1,195,717 12.4 0 1,195,717 9.5 0
1600 Faraday Avenue
Carlsbad, California 92008
Lyle C. Turner(4).............. 4,678,096 48.6 0 4,678,096 37.1 0
Joseph M. Fernandez(5)......... 1,888,338 19.3 0 1,888,338 15.0 159,607
Theodore F. DeFrank............ 90,000 * 0 90,000 * 89,000
Bradley G. Lorimier............ 2,500 * 0 2,500 * 2,500
Jay M. Short(6)................ 117,400 1.2 0 117,400 * 117,400
Donald W. Grimm................ 10,000 * 0 10,000 * 10,000
Lewis J. Shuster............... 7,500 * 0 7,500 * 7,500
James R. Glynn................. 87,500 * 0 87,500 * 87,500
All Directors and Executive
Officers as a group
(nine persons)(7)............ 9,084,276 90.2% 500,000 8,584,276 65.6% 473,507
</TABLE>
- ------------------------------
* Less than 1%.
51
<PAGE>
(1) Percentage of ownership is based on: (i) before the offering, 9,624,210
shares of common stock outstanding, including 7,421,268 shares of common
stock outstanding on December 31, 1998 and 2,202,942 shares of common stock
issuable upon conversion of convertible preferred stock, and (ii) after the
offering, 12,624,210 shares of common stock outstanding (assuming no
exercise of the underwriters' over-allotment option). Shares of common stock
that an individual or group has the right to acquire within 60 days of
January 29, 1999, pursuant to the 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 1,824,382 shares held by TA/Advent VIII, L.P. before the offering
and 1,410,304 shares held after the offering, 342,072 shares held by Advent
Atlantic and Pacific III, L.P. before the offering and 264,432 shares held
after the offering, and 36,488 shares held by TA Venture Investors L.P.
before the offering and 28,206 shares held after the offering. 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 36,488 shares held of record by TA
Venture Investors, L.P. Mr. Jaggers disclaims beneficial ownership of such
shares, except with respect to 6,334 shares of convertible preferred stock
that he holds through TA Venture Investors Limited Partnership as to which
Mr. Jaggers holds a pecuniary interest.
(3) As co-trustees of Invitrogen's ESOP Trust Fund, Mr. Turner and Mr. Fernandez
share certain voting and investment power with respect to the 1,195,717
shares held of record by the ESOP. Mr. Turner and Mr. Fernandez disclaim
beneficial ownership of such shares, except with respect to the 162,599
shares and 113,390 shares in the ESOP as to which Mr. Turner and Mr.
Fernandez hold a pecuniary interest, respectively.
(4) 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.
(5) Mr. Fernandez is Senior Vice President of Business Development, Secretary
and a Director of Invitrogen. Includes 113,390 shares held of record by the
ESOP as to which Mr. Fernandez holds a pecuniary interest.
(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 certain directors
as described in Note (3) above.
52
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Invitrogen 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. Each outstanding share of convertible
preferred stock will be automatically converted into one share of common stock
and one share of redeemable preferred stock upon the closing of this offering.
Upon the conversion, the convertible preferred stock will be canceled and
retired and the redeemable preferred stock will be redeemed and retired. The
following summary of certain provisions of the common stock and the preferred
stock of Invitrogen is not complete and a full understanding requires a review
of the certificate of incorporation and bylaws of Invitrogen that are included
as exhibits to the Registration Statement of which this prospectus forms a part,
and the provisions of applicable law.
COMMON STOCK
As of December 31, 1998 there were 7,421,268 shares of common stock
outstanding held by 19 stockholders of record. The holders of common stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of the stockholders. Subject to preferences that may be applicable to any
then outstanding preferred stock, holders of common stock are entitled to
receive ratably such dividends, if any, as may be declared by the board of
directors out of funds legally available therefor. See "Dividend Policy."
In the event of a liquidation, dissolution or winding up of Invitrogen,
holders of the common stock and the preferred stock are entitled to share
ratably on an as-converted basis in all assets remaining after payment of
liabilities and the liquidation preference of any then outstanding preferred
stock. The common stock has no preemptive or conversion rights or other
subscription rights and there are no redemptive or sinking funds provisions
applicable to the common stock. Invitrogen has received full payment for all
outstanding shares of its common stock and cannot require its shareholders to
make further payments on the stock; the common stock to be outstanding upon
completion of this offering will have the same status.
PREFERRED STOCK
The board of directors has the authority, without further action by the
stockholders, to issue from time to time the preferred stock in one or more
series and to fix the number of shares, designations, preferences, powers, and
relative, participating, optional or other special rights and the qualifications
or restrictions thereof. The preferences, powers, rights and restrictions of
different series of preferred stock may differ with respect to dividend rates,
amounts payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions, and purchase funds and other matters. The
issuance of preferred stock could decrease the amount of earnings and assets
available for distribution to holders of common stock or affect adversely the
rights and powers, including voting rights, of the holders of common stock, and
may have the effect of delaying, deferring or preventing a change in control of
Invitrogen. See Note 12 to Consolidated Financial Statements for a description
of the currently outstanding preferred stock.
REGISTRATION RIGHTS
After this offering and under a Stock Purchase and Stockholders' Agreement
dated June 20, 1997, the holders of approximately 1,702,942 shares of common
stock issuable upon conversion of our convertible preferred stock, or persons to
whom such holders transfer the common stock, will have registration rights with
respect to such shares. If we propose to register any of our securities under
the Securities Act, either for our own account or for the account of other
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 our expense. However, the underwriters of any such offering
have the right to limit the number of shares included in such registration. In
addition, beginning 180
53
<PAGE>
days after the effective date of this offering, holders of at least 50% of the
shares entitled to registration rights outstanding may require us to prepare and
file a registration statement under the Securities Act, at our expense, covering
such shares, and we are generally required to use our best efforts to effect
such registration. We are not obligated to effect more than two of these
stockholder-initiated registrations. Further, holders of shares entitled to
registration rights generally may require us to file additional registration
statements on Form S-3.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
We are required to follow Section 203 of the Delaware Law, an anti-takeover
law. In general, the statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. A "business combination" includes a merger, asset or stock
sale or other transaction resulting in financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years prior, did own, 15% or more of the
corporation's outstanding voting stock. This provision may have the effect of
delaying, deterring or preventing a change of control of Invitrogen without
further actions by the stockholders.
Effective upon the closing of this offering, Invitrogen's certificate of
incorporation will provide that any action permitted to be taken by stockholders
of Invitrogen must be effected at a duly-called annual or special meeting of
stockholders and will not be able to be effected by a consent in writing. The
Board of Directors will be composed of a classified board where only one-third
of the directors are eligible for election in any given year. The classification
system of electing directors may tend to discourage a third party from making a
tender offer or otherwise attempting to obtain control of Invitrogen and may
maintain incumbents on the board of directors, as it generally makes it more
difficult for stockholders to replace a majority of the directors. Our
certificate of incorporation will also require the approval of at least
two-thirds of the total number of authorized directors in order to adopt, amend
or repeal our bylaws. In addition, our certificate of incorporation will
similarly permit the stockholders to adopt, amend or repeal our bylaws only upon
the affirmative vote of the holders of at least two-thirds of the voting power
of all then outstanding shares of stock entitled to vote. Also, a director will
be removable by stockholders only for cause. Vacancies on the board of directors
resulting from death, resignation, removal or other reason may be filled by a
majority of the directors or a majority of the shares entitled to vote. In
general, other vacancies are to be filled by a majority of the directors.
Lastly, the provisions in the certificate of incorporation described above and
other provisions pertaining to the limitation of liability and indemnification
of directors will be able to be amended or repealed only with the affirmative
vote of the holders of at least two-thirds of the voting power of all then
outstanding shares of stock entitled to vote. These provisions may have the
effect of deterring hostile takeovers or delaying changes in control or
management of Invitrogen, which could have an adverse effect on the market price
of the our common stock.
Upon the closing of this offering, Invitrogen's bylaws will also contain
many of the above provisions found in Invitrogen's certificate of incorporation.
Our bylaws will not permit stockholders to call a special meeting. In addition,
our bylaws will establish an advance notice procedure with regard to matters to
be brought before an annual or special meeting of stockholders of Invitrogen,
including the election of directors. Business permitted to be conducted in any
annual meeting or special meeting of stockholders will be limited to business
properly brought before the meeting.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is BankBoston, N.A.
54
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Before this offering there has been no public market for the common stock of
Invitrogen. Future sales of substantial amounts of common stock in the public
market could adversely affect market prices prevailing from time to time. As
described below, only a limited number of shares will be available for sale
shortly after this offering due to certain contractual and legal restrictions on
resale. Nevertheless, sales of substantial amounts of common stock of Invitrogen
in the public market after the restrictions lapse could adversely affect the
prevailing market price at such time and the ability of Invitrogen to raise
equity capital in the future.
- Upon the closing of this offering, we will have outstanding an aggregate
of approximately 12,624,210 shares of common stock based on the number of
shares of convertible preferred stock and common stock outstanding as of
December 31, 1998, and assuming no exercise of the underwriters'
over-allotment option
- Of these shares, the 3,500,000 shares of common stock to be sold in this
offering will be freely tradable without restriction or further
registration under the Securities Act, unless such shares are held by
"affiliates" of Invitrogen as such term is defined in Rule 144 of the
Securities Act
- All remaining shares held by our existing stockholders were issued and
sold by Invitrogen in private transactions and are eligible for public
sale if registered under the Securities Act or sold in accordance with
Rule 144 or Rule 701 thereunder, which rules are summarized below
Invitrogen's directors, executive officers and a few large stockholders will
collectively hold an aggregate of approximately 9,043,000 shares of common stock
after the offering and after giving effect to conversion of the convertible
preferred stock. These stockholders have signed lock-up agreements which prevent
them from selling any common stock owned by them for a period of 180 days from
the date of this prospectus without the prior written consent of Donaldson,
Lufkin & Jenrette Securities Corporation. When determining whether or not to
release shares from the lock-up agreements, DLJ will consider, among other
factors, the stockholder's reasons for requesting the release, the number of
shares for which the release is being requested and market conditions at the
time. As a result of lock-up agreements with DLJ and the provisions of Rule 144
and 701, additional shares will be available for sale in the public market as
follows:
- Approximately 27,600 shares will be eligible for immediate sale on the
date of this prospectus
- Approximately 53,700 additional shares of common stock will be eligible
for sale from time after the date of this prospectus but before the
expiration of the lock-up period
- Approximately 9,043,000 additional outstanding shares of common stock will
be eligible for sale upon expiration of the lock-up period
In general, under Rule 144 as currently in effect, a person or persons whose
shares are aggregated, including an "affiliate", who has beneficially owned
shares for at least one year is entitled to sell, within any three-month period,
a number of shares that does not exceed the greater of either 1% of the then
outstanding shares of common stock or the average weekly trading volume of the
common stock on the Nasdaq National Market during the four calendar weeks
preceding the filing of a notice on Form 144 with respect to such sale. One
percent of the outstanding shares of common stock would be 126,242 shares
immediately after the offering. Sales under Rule 144 are also subject to
prescribed requirements regarding the manner of sale, notice and availability of
current public information about Invitrogen. Under Rule 144(k), a person who is
not deemed to have been an "affiliate" of Invitrogen at any time during the 90
days preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years, would be entitled to sell such shares without
complying with the manner of sale,
55
<PAGE>
public information, volume limitation or notice requirements described above.
Therefore, unless otherwise restricted, "144(k) shares" may be sold immediately
following completion of the offering without limitations as to volume.
In general, under Rule 701 of the Securities Act as currently in effect, any
employee, consultant or advisor of Invitrogen who purchased shares from us in
connection with a compensatory stock or option plan or written employment
agreement is eligible to resell such shares 90 days after the effective date of
the offering in reliance on Rule 144, by complying with the applicable
requirements of Rule 144 other than the holding period conditions. On the date
90 days after the effective date of this offering, options to purchase
approximately 500,000 shares of common stock not subject to lock-up agreements
will be vested and exercisable and upon exercise may be sold pursuant to Rule
701.
We intend to file one or more registration statements on Form S-8 under the
Securities Act to register approximately 6,000,000 shares of common stock issued
under our Employee Stock Ownership Plan and its stock option and employee stock
purchase plans. Such registration statements are expected to be filed soon after
the date of this prospectus and will automatically become effective upon filing.
Accordingly, shares registered under such registration statement will be
available for sale in the open market, unless such shares are subject to vesting
restrictions with Invitrogen or the lock-up restrictions described above.
Beginning 180 days after this offering, the holders of approximately
1,702,942 shares of common stock issued upon the conversion of the convertible
preferred stock will be entitled to certain rights to cause Invitrogen to
register the sale of such shares under the Securities Act. Registration of such
shares under the Securities Act would generally result in such shares becoming
freely tradable without restriction under the Securities Act immediately upon
the effectiveness of such registration. However, shares purchased by affiliates
of Invitrogen would not be freely tradeable. See "Risk Factors--Future Sales of
Shares," "Management--Stock Option Plans," "Management--Employee Stock Ownership
Plan," "Management--1998 Employee Stock Purchase Plan," and "Description of
Capital Stock--Registration Rights".
56
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
, 1999, the underwriters named below, who are represented by
Donaldson, Lufkin & Jenrette Securities Corporation, Warburg Dillon Read LLC and
Piper Jaffray Inc., have each agreed to purchase from Invitrogen and the selling
stockholders the respective number of shares of common stock set forth opposite
their names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation..............................
Warburg Dillon Read LLC..........................................................
Piper Jaffray Inc................................................................
----------
Total..........................................................................
----------
----------
</TABLE>
The Underwriting Agreement provides that the obligations of the underwriters
to purchase and accept delivery of the shares of common stock offered by this
prospectus are subject to conditions set forth in the Underwriting Agreement.
Except for shares covered by the over-allotment option described below, the
underwriters are obligated to purchase and accept delivery of all the shares of
common stock offered by this prospectus if any are purchased.
The underwriters initially propose to offer the shares of common stock in
part directly to the public at the initial public offering price set forth on
the cover page of this prospectus and in part to certain dealers, including the
underwriters, at such price less a concession not in excess of $ per
share. The underwriters may allow, and such dealers may re-allow, to certain
other dealers a concession not in excess of $ per share. After the initial
offering of the common stock, the public offering price and other selling terms
may be changed by the representatives of the underwriters at any time without
notice. The underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
The underwriters have an option, exercisable within 30 days after the date
of this prospectus, to purchase up to an aggregate of 525,000 additional shares
of common stock at the initial public offering price less underwriting discounts
and commissions. The underwriters may exercise such option solely to cover
overallotments, if any, made in connection with the offering. To the extent that
the underwriters exercise such option, each underwriter will become obligated,
subject to certain conditions, to purchase its pro rata portion of such
additional shares based on such underwriter's percentage underwriting commitment
as indicated in the preceding table.
Invitrogen and the selling stockholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the underwriters may be
required to make in respect thereof.
Each of Invitrogen, its executive officers and directors and certain
stockholders of Invitrogen has agreed, subject to certain exceptions, not to:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase or otherwise transfer or dispose of, directly or
indirectly, any shares of common stock or any securities convertible into
or exercisable or exchangeable for common stock or
- enter into any swap or other arrangement that transfers all or a portion
of the economic consequences associated with the ownership of any common
stock for a period of 180 days after the date of this prospectus without
the prior written consent of DLJ.
57
<PAGE>
In addition, during such period, we have also agreed not to file any
registration statement with respect to any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock
without DLJ's prior written consent. Each of our executive officers, directors
and particular stockholders have agreed not to make any demand for, or exercise
any right with respect to, the registration of any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock
without DLJ's prior written consent.
Prior to the offering, there has been no established trading market for the
common stock. The initial public offering price for the shares of common stock
offered hereby will be determined by negotiation among Invitrogen,
representatives of the selling stockholders and the representatives of the
underwriters. The factors to be considered in determining the initial public
offering price include the history of and the prospects for the industry in
which Invitrogen competes, the past and present operations of Invitrogen, the
historical results of operations of Invitrogen, the prospects for future
earnings of Invitrogen, the recent market prices of securities of generally
comparable companies and the general condition of the securities markets at the
time of the offering.
Other than in the United States, no action has been taken by Invitrogen, the
selling stockholders or the underwriters that would permit a public offering of
the shares of common stock offered by this
prospectus in any jurisdiction where action for that purpose is required. The
shares of common stock offered by this prospectus may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material
or advertisements in connection with the offer and sale of any such shares of
common stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this prospectus
comes are advised to inform themselves about and to observe any restrictions
relating to the offering of the common stock and the distribution of this
prospectus. This prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any shares of common stock offered hereby in any
jurisdiction in which such an offer or a solicitation is unlawful.
In connection with the offering, the underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the common stock.
Specifically, the underwriters may overallot the offering, which would involve
syndicate sales in excess of the offering size, creating a syndicate short
position. The underwriters may bid for and purchase shares of common stock in
the open market to cover such syndicate short position or to stabilize the price
of the common stock. In addition, the underwriting syndicate may reclaim selling
concessions from syndicate members if the syndicate repurchases previously
distributed common stock in syndicate covering transactions, in stabilization
transactions or otherwise. These activities may stabilize or maintain the market
price of the common stock above independent market levels. These transactions
may be effected on the Nasdaq National Market or otherwise and, if commenced,
may be discontinued any time.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be passed
upon for Invitrogen by Gray Cary Ware & Freidenrich LLP, San Diego, California.
Certain legal matters in connection with this offering will be passed upon for
the underwriters by Venture Law Group, a Professional Corporation, Menlo Park,
California.
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 prospectus and elsewhere in the registration statement 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.
58
<PAGE>
ADDITIONAL INFORMATION
Invitrogen has filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act with respect to the
common stock offered hereby. When used in this prospectus, the term
"registration statement" includes amendments to the registration statement. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement. As used
herein, the term "registration statement" means the initial registration
statement, including the exhibits, schedules, financial statements and notes
filed as part thereof, and any and all amendments thereto. This prospectus omits
certain information contained in the registration statement as permitted by the
rules and regulations of the SEC. For further information with respect to
Invitrogen and the common stock offered hereby, reference is made to the
registration statement. Statements herein concerning the contents of any
contract or other document are not necessarily complete and in each instance
reference is made to the copy of such contract or other document filed with the
SEC an exhibit to the registration statement, each such statement being
qualified by and subject to such reference in all respects. With respect to each
such document filed with the SEC as an exhibit to the registration statement,
reference is made to the exhibit for a more complete description of the matter
involved.
As a result of the offering hereunder, Invitrogen will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and in accordance therewith, will file reports and other information with the
SEC. Reports, registration statements, 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 Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and at the SEC's Regional Offices: 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, New York, New York 10048. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the SEC, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549. The SEC maintains a World Wide Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of the
site is http://www.sec.gov.
Invitrogen intends to furnish holders of the common stock with annual
reports containing, among other information, audited financial statements
certified by an independent public accounting firm and quarterly reports
containing unaudited condensed financial information for the first three
quarters of each fiscal year. Invitrogen intends to furnish such other reports
as it may determine or as may be required by law.
59
<PAGE>
INVITROGEN CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998............................................... F-3
Consolidated Statements of Income for the Years Ended December 31, 1996 1997 and 1998...................... F-5
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1996, 1997 and
1998..................................................................................................... F-6
Consolidated Statement of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998.................. F-7
Notes to Consolidated Financial Statements................................................................. F-9
</TABLE>
F-1
<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-2
<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-3
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PROFORMA
DECEMBER 31,
1997 1998 1998
<S> <C> <C> <C>
(UNAUDITED)
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.... -- -- 15,027
--------- --------- ------
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 96
Additional paid-in-capital................................................. 664 1,598 2,690
Deferred compensation...................................................... (495) (962) (962)
Value of common stock designated pursuant to Employee Stock Ownership
Plan..................................................................... 100 100 100
Foreign currency translation adjustment.................................... (130) (33) (33)
Retained deficit........................................................... (2,066) (192) (192)
--------- --------- ------
Total stockholders' equity (deficit)..................................... (1,853) 585 1,699
--------- --------- ------
Total liabilities and stockholders' equity (deficit)..................... $ 18,056 $ 22,815
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<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 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-5
<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-6
<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-7
<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-8
<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.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET PRESENTATION
The unaudited pro forma consolidated balance sheet is presented to show the
effects on the December 31, 1998 balance sheet of the conversion of all
outstanding shares of Convertible Redeemable Preferred Stock into 2,202,942
shares of common stock and 2,202,942 shares of Redeemable Preferred Stock with a
redemption value of $15,027,000 which will occur upon filing of the Company's
proposed initial public offering as if the conversion took place on December 31,
1998.
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
F-9
<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)
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 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.
F-10
<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)
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.
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
F-11
<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)
because the interest rates on these instruments are subject to change with, or
approximate, market interest rates.
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.
F-12
<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)
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 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.
F-13
<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 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.
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-14
<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-15
<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-16
<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-17
<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-18
<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.
The Company has a sliding scale redemption with respect to this redeemable
preferred stock. The value of this redemption feature is determined based on a
sliding scale, as defined in the agreement, which is a function of the qualified
offering or transaction price. This formula provides for a minimum
F-19
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996, 1997 AND 1998
12. PREFERRED STOCK (CONTINUED)
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 most beneficial premium to holders of convertible
preferred stock ($15 million) was recognized as 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-20
<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-21
<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.
F-22
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996, 1997 AND 1998
16. STOCK OPTION PLANS (CONTINUED)
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>
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-23
<PAGE>
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 the Company. The Invitrogen logo, MaxBac-Registered Trademark- and
TA Cloning-Registered Trademark- are Company trademarks which have been
registered with the United States Patent and Trademark Office. FastTrack-TM-,
GeneStorm-TM-, Invitrogenomics-TM-, One Shot-TM-, TOPO-TM- and Zero Blunt-TM-
are trademarks of the Company for which registration applications have been
filed with the United States Patent and Trademark Office. Morphatides-TM- is a
trademark of MorphaGen-TM-, Inc., a wholly owned subsidiary of the Company. All
other trademarks or trade names referred to in this prospectus are the property
of their respective owners.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
[LOGO]-Registered Trademark-
3,500,000 SHARES OF COMMON STOCK
-----------------
PROSPECTUS
-----------------
DONALDSON, LUFKIN & JENRETTE
WARBURG DILLON READ LLC
PIPER JAFFRAY INC.
------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU
WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO
MATTERS NOT STATED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES OR OUR
SOLICITATION OF YOUR OFFER TO BUY THE SECURITIES IN ANY JURISDICTION WHERE THAT
WOULD NOT BE PERMITTED OR LEGAL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALES MADE HEREUNDER AFTER THE DATE OF THIS PROSPECTUS SHALL CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR THE AFFAIRS OF THE COMPANY
HAVE NOT CHANGED SINCE THE DATE HEREOF.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT EFFECT TRANSACTIONS IN THESE SHARES OF COMMON STOCK MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS AN UNDERWRITER AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. The Company is paying all of the expenses
incurred on behalf of the Selling Stockholders (other than underwriting
discounts and commissions). All amounts shown are estimates except for the
registration fee, the NASD filing fee and the Nasdaq National Market fee.
<TABLE>
<S> <C>
Registration fee.................................................. $ 17,904
NASD filing fee................................................... 6,940
Nasdaq National Market fee........................................ 84,875
Blue sky qualification fees and expenses.......................... 5,000
Printing and engraving expenses................................... 125,000
Legal fees and expenses........................................... 250,000
Accounting fees and expenses...................................... 150,000
Transfer agent and registrar fees................................. 20,000
Fee for Custodian for Selling Stockholders........................ 10,000
Miscellaneous..................................................... 80,281
---------
Total......................................................... $ 750,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the DGCL permits indemnification of officers, directors, and
other corporate agents under certain circumstances and subject to certain
limitations. The Registrant's Certificate of Incorporation and Bylaws provide
that the Registrant shall indemnify its directors, officers, employees and
agents to the full extent permitted by the DGCL, including circumstances in
which indemnification is otherwise discretionary under Delaware law. In
addition, the Registrant has entered into separate indemnification agreements
with its directors and executive officers which require the Registrant, among
other things, to indemnify them against certain liabilities which may arise by
reason of their status or service (other than liabilities arising from acts or
omissions not in good faith or willful misconduct).
These indemnification provisions and the indemnification agreements entered
into between the Registrant and its executive officers and directors may be
sufficiently broad to permit indemnification of the Registrant's executive
officers and directors for liabilities (including reimbursement of expenses
incurred) arising under the Securities Act.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act, or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since December 31, 1995, the Registrant has sold and issued the following
unregistered securities:
(a) Issuances of Shares of Common Stock.
In August 1996, the Registrant issued an aggregate of 15,936 shares (111,552
after the seven-for-one split discussed below) to the Registrant's ESOP as a
contribution. In May 1997, the Registrant
II-1
<PAGE>
issued an aggregate of 22,939 shares to the Registrant's ESOP as a contribution.
In July 1998, the Registrant issued 12,920 shares to the Registrant's ESOP as a
contribution.
In June 1997, the Registrant reincorporated in Delaware and each outstanding
share of Common Stock of its California predecessor was converted into seven
shares of Common Stock of the Registrant.
(b) Issuances of Shares of Preferred Stock.
On June 20, 1997, the Registrant issued a total of 2,202,942 shares of
Convertible Preferred Stock to three venture capital funds, each of which was an
accredited investor, for an aggregate offering price of $15 million.
(c) Option Issuances to, and Exercises by, Employees and Directors.
From December 31, 1995 to December 31, 1998, the Registrant issued options
to approximately 65 employees to purchase a total of 2,036,500 shares of common
stock at a weighted average exercise price of $7.02 per share. No consideration
was paid to the Registrant by any recipient of any of the foregoing options for
the grant of any such options. From December 31, 1995 through December 31, 1998,
13 employees had exercised options for an aggregate of 265,005 shares of Common
Stock. Certain of these shares were subsequently repurchased by the Company.
There were no underwriters employed in connection with any of the
transactions set forth in Item 15.
The issuances described in Items 15(a) and 15(b) were deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving a public offering. In
addition, the issuances described in Item 15(c) were deemed exempt from
registration under the Securities Act in reliance on Rule 701 promulgated
thereunder as transactions pursuant to compensatory benefit plans and contracts
relating to compensation. The recipients of securities in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and other instruments
issued in such transactions. All recipients either received adequate information
about the Registrant or had access, through employment or other relationships,
to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Restated Certificate of Incorporation of the Company, as amended
3.2* Amended and Restated Bylaws of the Company
4.1* Specimen Common Stock Certificate
5.1* Opinion of Gray Cary Ware & Freidenrich LLP
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
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
10.5 Patent License Agreement, effective as of July 1, 1998, among F.
Hoffmann-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, 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* Employment Agreement between Theodore De Frank and Invitrogen dated
September 28, 1995
21.1* List of Subsidiaries
23.1 Consent of Independent Public Accountants
23.2* Consent of Counsel (included in Exhibit 5.1)
24.1* Power of Attorney (see page II-4 of Registrant's Registration Statement on
Form S-1 (File No. 333-68665) on December 10, 1998)
27.1* Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed.
(b) Financial Statement Schedules.
No schedules have been filed because the information required to be set
forth therein is not applicable or is shown in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement 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, employee or agent of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, employee or agent in connection with the securities being
registered hereunder, 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.
II-3
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 the Registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Carlsbad,
County of San Diego, State of California, on the 25th day of February, 1999.
<TABLE>
<S> <C> <C>
INVITROGEN CORPORATION
By: /s/ JAMES R. GLYNN
-----------------------------------------
James R. Glynn
Senior Vice President,
Chief Financial Officer and Director
</TABLE>
Pursuant to the requirements of the Securities Act, this Amendment to
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
President, Chief Executive February 25, 1999
/s/ LYLE C. TURNER* Officer and Chairman of
- ------------------------------ the Board
Lyle C. Turner (PRINCIPAL EXECUTIVE
OFFICER)
/s/ THEODORE J. DEFRANK*
- ------------------------------ Chief Operations Officer February 25, 1999
Theodore J. DeFrank
/s/ JOSEPH M. FERNANDEZ* Senior Vice President of February 25, 1999
- ------------------------------ Business Development,
Joseph M. Fernandez Secretary and Director
Senior Vice President, February 25, 1999
/s/ JAMES R. GLYNN Chief Financial Officer
- ------------------------------ and Director
James R. Glynn (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
/s/ BRADLEY G. LORIMIER*
- ------------------------------ Director February 25, 1999
Bradley G. Lorimier
/s/ DONALD W. GRIMM*
- ------------------------------ Director February 25, 1999
Donald W. Grimm
/s/ KURT R. JAGGERS*
- ------------------------------ Director February 25, 1999
Kurt R. Jaggers
/s/ JAY M. SHORT*
- ------------------------------ Director February 25, 1999
Jay M. Short
/s/ LEWIS J. SHUSTER*
- ------------------------------ Director February 25, 1999
Lewis J. Shuster
*By: /s/ JAMES R. GLYNN
- ------------------------------
James R. Glynn
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
1.1* Form of Underwriting Agreement
3.1* Restated Certificate of Incorporation of the Company, as amended
3.2* Amended and Restated Bylaws of the Company
4.1* Specimen Common Stock Certificate
5.1* Opinion of Gray Cary Ware & Freidenrich LLP
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. Hoffmann-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* Employment Agreement between Theodore De Frank and Invitrogen dated September 28, 1995
21.1* List of Subsidiaries
23.1 Consent of Independent Public Accountants
23.2* Consent of Counsel (included in Exhibit 5.1)
24.1* Power of Attorney (see page II-4)
27.1* Financial Data Schedule
</TABLE>
- ------------------------
* Previously filed.
<PAGE>
PATENT LICENSE AGREEMENT
This is a patent license agreement ("Agreement"), and effective as of July 1,
1998.
by and among
F. Hoffmann-La Roche Ltd, a Swiss corporation with offices at Grenzacherstrasse
124, CH-4070 Basel, Switzerland
and
Roche Molecular Systems, Inc., a Delaware corporation having an office at 1080
U.S. Highway 202, Branchburg Township, Somerville, New Jersey 08876-1760
(BOTH OF WHICH ARE REFERRED TO HEREIN AS "ROCHE"),
and
Invitrogen Corporation, a Delaware corporation with offices at 1600 Faraday
Avenue, Carlsbad, California 92008
(HEREINAFTER REFERRED TO AS "INVITROGEN")
***********************
BACKGROUND
A. ROCHE owns United States Patents Nos. 4,683,195, 4,683,202 and 4,965,188 and
the corresponding foreign counterpart patents and patent applications,
describing and claiming nucleic acid amplification processes including,
INTER ALIA, a process known as the polymerase chain reaction ("PCR")
process.
B. ROCHE also owns certain patents and patent applications, filed worldwide,
relating to purified natural, as well as recombinant, thermostable DNA
polymerases, as well as compositions including said polymerases, including
for example, DNA polymerases isolated from Thermus species and fragments and
mutants thereof.
C. ROCHE also owns United States Patent No. 5,075,216 and the corresponding
foreign counterpart patents and patent applications relating to sequencing
with Taq DNA polymerase.
D. ROCHE also owns United States Patent Nos. 5,407,800, 5,322,770 and 5,310,652
and the corresponding foreign counterpart patents and patent applications
relating, inter alia, to reverse transcription using a thermostable
polymerase.
E. The Perkin-Elmer Corporation ("P-E") has exclusive rights in certain fields,
including the field of research, pursuant to an agreement dated December 11,
1991 with ROCHE and has
Enzyme/PCR Research Products 1 v.2061097
<PAGE>
certain rights to grant sublicenses in said fields. Under separate
agreements between ROCHE and P-E and in consideration of a share of
royalties due hereunder, P-E has released ROCHE from so much of P-E's rights
in the aforementioned fields as is necessary for ROCHE to convey to
INVITROGEN the rights specified in this Agreement.
F. INVITROGEN wishes to obtain the right to make, use and sell to the research
and to other markets products covered by AMPLIFICATION PATENT RIGHTS,
POLYMERASE PATENT RIGHTS, RT AND RT-PCR PATENT RIGHTS and/or SEQUENCING
PATENT RIGHTS, as hereinafter defined.
G. In structuring the present Agreement, the Parties have considered the
possibility that novel polymerases may be developed by INVITROGEN (and
others) that are useful in, and that without a license from ROCHE,
INVITROGEN may not pass on to its customers the right to use said
polymerases in the PCR PROCESS, or in process covered by RT or RT-PCR PATENT
RIGHTS. It is INVITROGEN's desire to promote and sell such internally
developed, or licensed or purchased polymerases for use in the PCR PROCESS,
or in processes covered by RT and/or RT-PCR PATENT RIGHTS and to pass on to
the purchaser such a license and ROCHE is willing to permit INVITROGEN to do
so.
H. In addition, the parties take note that INVITROGEN may market the products
licensed hereunder in conjunction with other products, components or
materials, both separately or together, and in various package arrangements,
which may be useful in the PCR PROCESS, and/or processes covered by RT AND
RT-PCR PATENT RIGHTS. Taking this into consideration, for the mutual
convenience of the parties, the products on which INVITROGEN will pay a
royalty, that is the royalty base, will include those products on which
INVITROGEN will pay a royalty, that is the royalty base, will include those
products as specifically described below that are adapted for, promoted or
supported for use with the patent rights licensed herein. Futhermore, in an
effort to minimize customer confusion as to which INVITROGEN products in
fact permit the customer to practice the PCR PROCESS, and/or processes
covered by RT AND RT-PCR PATENT RIGHTS without additional licenses,
INVITROGEN agrees, as is further described below, to give special
consideration to the manner in which it promotes and sells its other
products which may be useful in the PCR PROCESS and/or processes covered by
RT AND RT-PCR PATENT RIGHTS but which are not specifically licensed by ROCHE
for that purpose.
NOW THEREFORE, for and in consideration of the mutual covenants contained
herein, ROCHE and INVITROGEN ("the Parties") agree as follows:
1. DEFINITIONS
For the purpose of this Agreement, and solely for that purpose, the terms set
forth hereinafter shall be defined as follows:
1.1 The term "AFFILIATE" of a designated party to this Agreement shall mean:
a) and organization of which fifty percent (50%) or more of the
voting stock is controlled or owned directly or indirectly by
either party to this Agreement;
Enzyme/PCR Research Products 2 v.2061097
<PAGE>
b) an organization which directly or indirectly owns or controls
fifty percent (50%) or more of the voting stock of either party to
this Agreement;
c) an organization, the majority ownership of which is directly or
indirectly common to the majority ownership of either party to
this Agreement; and
d) an organization under a), b), or c) above in which the amount of
said ownership is less than fifty percent (50%) and that amount is
the maximum amount permitted pursuant to the law governing the
ownership of said organization.
It is understood and agreed, however, that the term "AFFILIATE" shall not
include Genentech Inc., a Delaware corporation.
1.2 "AMPLIFICATION PATENT RIGHTS" shall mean the nucleic acid amplification
processes covered by United States Patent Nos. 4,683,195, 4,683,202 and
4,965,188, and those claims in foreign patents and patent applications
which correspond to issued claims in the above patents and which foreign
patents and patent applications claim priority from patent applications
on which the above patents are based, and access to which patents and
patent applications are necessary for INVITROGEN to manufacture, use and
sell products which include a label license under AMPLIFICATION PATENT
RIGHTS, in accordance with the rights granted in Sections 2.2 - 2.3
hereto.
1.3 "APPLICATION FIELDS" shall mean those fields listed in Appendix A.
1.4 "APPLICATIONS KIT" shall mean a LICENSED PRODUCT in combination with all
such other reagents, enzymes or other materials as are necessary to
perform a PCR-based assay or nucleic acid sequencing in the APPLICATION
FIELD for which it is sold.
1.5 "AUTHORIZED THERMAL CYCLER" shall mean a thermal cycler or temperature
cycling instrument whose use in automated performance of the PCR PROCESS
in the RESEARCH FIELD and APPLICATION FIELDS is covered by the up-front
fee component of a PCR PROCESS license. The up-front component of that
license may be purchased from P-E. Alternatively, the up-front component
of that license may be obtained through the purchase of thermal cycler(s)
or temperature cycling instrument(s) bearing a valid label conveying the
up-front PCR PROCESS license component.
1.6 "INVITROGEN ENZYME" shall mean any thermostable polymerase that is not a
ROCHE PATENTED ENZYME, is not within POLYMERASE PATENT RIGHTS, and is
developed by INVITROGEN or is purchased or licensed by INVITROGEN from a
third party, which enzyme may be used in or with the PCR PROCESS and/or
processes covered by RT AND RT-PCR PATENT RIGHTS. An enzyme shall not be
included in this definition if INVITROGEN demonstrates to ROCHE'S
satisfaction that said enzyme is in fact used predominantly for other
than the PCR PROCESS and/or processes covered by RT AND RT-PCR PATENT
RIGHTS. Unless excluded as provided herein, all sales of said INVITROGEN
ENZYMES are assumed to be for use in the PCR Process and/or processes
covered by RT AND RT-PCR PATENT RIGHTS.
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1.7 "LICENSED APPLICATION PRODUCT" shall mean a) an APPLICATIONS KIT for a
LICENSED APPLICATION FIELD or b) reagents, components or other materials
which are sold in connection with the sale of an APPLICATIONS KIT for a
LICENSED APPLICATION FIELD by INVITROGEN and which are adapted for or
promoted or supported for use by customers in PCR TESTING or nucleic acid
sequencing, or RT AND RT-PCR in APPLICATION FIELDS. As used herein, "PCR
testing" shall include all steps in the analysis of a sample for the
presence or absence of amplifiable nucleic acid from preparation of the
sample to detection and/or analysis of any amplified product.
1.8 "LICENSED FIELDS" shall mean the RESEARCH FIELD and those APPLICATION
FIELDS that are elected or added pursuant to Section 5 of this Agreement
("LICENSED APPLICATION FIELDS").
1.9 "LICENSED PRODUCT" shall mean:
a) a ROCHE PATENTED ENZYME or a INVITROGEN ENZYME used or sold in a
country where the use or sale of such ROCHE PATENTED ENZYME or
INVITROGEN ENZYME would infringe at least one VALID CLAIM of a
patent or patent application within AMPLIFICATION PATENT RIGHTS,
SEQUENCING PATENT RIGHTS or RT AND RT-PCR PATENT RIGHTS; and/or
b) a ROCHE PATENTED ENZYME made, used or sold in a country where the
manufacture, use or sale thereof would infringe a VALID CLAIM of a
patent or patent application within POLYMERASE PATENT RIGHTS.
1.10 "LICENSED RESEARCH PRODUCTS" shall mean any product, including but not
limited to kits, which products consist of or contain a LICENSED PRODUCT
and may include all or some of the following components: buffers,
nucleotides, enzymes, or other reagents or materials. Notwithstanding
the foregoing, it is understood and agreed that such LICENSED RESEARCH
PRODUCT shall not contain, without ROCHE's specific approval, which
approval shall be strictly discretionary with ROCHE, nucleic acid
sequences homologous to the nucleic acid sequences of any human
infectious agent or pathogen.
1.11 "NET SALES" shall mean gross invoice amount less
a) discounts allowed and taken, in amounts customary in the trade,
and
b) sales and/or use taxes and/or duties for particular sales.
No allowance or deduction shall be made for commissions or fees
for collection, by whatever name known.
NET SALES shall be calculated on the basis of sales or transfers
to end users by INVITROGEN or an AFFILIATE or distributor. In the
event INVITROGEN is unable to account for sales to third-party end
users by its distributors, the NET SALES shall be calculated as
the sales price to such distributors multiplied by 1.67, which
factor
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represents a 40% margin allowed to the distributor. Sales to a
third party controlling, controlled by, or under common control
with INVITROGEN, or enjoying a special course of dealing with
INVITROGEN, shall be determined by reference to the listed or
published price for the product sold or transferred which would be
applicable in an arm's length transaction, with an unrelated third
party. In Japan, if INVITROGEN does not use a distributor, but
instead, sales are made to end users through a WHOLESALER, and
INVITROGEN is unable to account for sales to third-party end users
by said WHOLESALER in Japan, the Net Sales shall be calculated as
the sale price to such WHOLESALER multiplied by 1.20, which factor
represents a 17% margin allowed to the WHOLESALER in Japan.
INVITROGEN and ROCHE agree that ROCHE may amend this factor in the
event that market conditions change such that the prevailing
margin to WHOLESALERS differs from 17% by 2% or more.
1.12 "PCR PROCESS" shall mean the polymerase chain reaction (PCR)
process, which is one of the amplification processes covered by
AMPLIFICATION PATENT RIGHTS.
1.13 "POLYMERASE PATENT RIGHTS" shall mean
a) TAQ PATENT RIGHTS; and
b) those claims of those United States patents and patent
applications listed in Schedule 1 hereto, and those claims
in non-US patents and patent applications which claim
priority from the patents and patent applications on which
the patents and patent applications in Schedule 1 are
based, and access to which patents and patent applications
are necessary for INVITROGEN to manufacture, use and sell
ROCHE PATENTED ENZYMES, other than A TAQ REAGENT, in
accordance with the rights granted in Section 2.2. hereto.
1.14 "RESEARCH FIELD" shall mean the internal use by an end user of a
product solely in applications of the end user (or in applications
of the end user's customer, if the end user is performing contract
research) in scientific research and development; and by way of
example but not by way of limitation, expressly excludes:
a) reportable results generated from clinical applications in
humans or animals such as the detection or measurement,
treatment, prevention or mitigation of disease or other
health-related condition; the detection of pathogens,
detection of genetic disease or genetic predisposition to
disease; tissue transplantation typing; and parentage
determination;
b) the use of PCR to manufacture any products for sale;
c) the commercial application of Taggants, which shall be
defined herein to be the application of the PCR PROCESS to
identify any synthetic nucleotide sequence which has been
inserted, dispersed or applied into a product, substance or
organism in order to identify such product, substance or
organism or to convey other specific information;
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d) quality assurance and quality control, including without
limitation, conformance with specifications, purity, batch
to batch consistency whether performed internally or for
third parties on a commercial basis; and
e) Forensic and Human Identity Applications (as defined in
Appendix A);
f) Environmental Testing Applications (as defined in Appendix
A);
g) Agricultural Plant Applications (as defined in Appendix A);
h) Animal Identity Testing and Positive Trait Breeding
Applications (as defined in Appendix A);
i) Food Testing Applications (as defined in Appendix A).
1.15 "ROCHE PATENTED ENZYME" shall mean
a) a TAQ REAGENT; or
b) an enzyme the manufacture, use or sale of which would be
covered by at least one VALID CLAIM within paragraph (b) of
POLYMERASE PATENT RIGHTS and which ROCHE has agreed to
include in Schedule 2 hereto. Notwithstanding the
foregoing, the Parties understand and agree that ROCHE
shall not be obligated in any way to include any additional
patent rights to those currently listed in Schedule 1.
1.16 "ROYALTY UNIT" shall mean:
a) for a TAQ REAGENT, the equivalence to a unit of AmpliTaq
-Registered Trademark- DNA polymerase as described in
Appendix B, Section I;
b) for a ROCHE PATENTED ENZYME other than a TAQ REAGENT, and
for an INVITROGEN ENZYME, a unit of enzyme (as unit is
defined in INVITROGEN's product specification) multiplied
by the PCR EFFECTIVENESS RATIO as provided in Appendix B,
Section II.
1.17 "RT" shall mean reverse transcription.
1.18 "RT AND RT-PCR PATENT RIGHTS" shall mean those claims of United
States Patent Nos. 5,407,800, 5,322,770, and 5,310,652 and any
reissues thereof and those claims in foreign patents and patent
applications which correspond to issued claims in the above
patents and which foreign patents and patent applications claim
priority from the patent application(s) on which the '800, '770
and '652 patents are based, and access to which patents and patent
applications are necessary for INVITROGEN to manufacture, use and
sell ROCHE PATENTED ENZYMES and INVITROGEN ENZYMES in accordance
with the rights granted in Section 2.5 hereto.
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1.19 "SEQUENCING PATENT RIGHTS" shall mean the claims of United States Patent
No. 5,075,216 and any reissue thereof and those claims in foreign patents
and patent applications which correspond to issued claims in the above
patent and which foreign patents and patent applications claim priority
from the patent application(s) on which the '216 patent is based, and
access to which patents and patent applications are necessary for
INVITROGEN to manufacture, use and sell products pursuant to section 2.4
hereto.
1.20 "TAQ PATENT RIGHTS" shall mean those claims of United States Patent Nos.
4,889,818 and 5,079,352 and any reissues and continuations thereof, but
not continuations in part of the above patents and patent applications,
and those claims in foreign patents and patent applications claiming
priority from a patent application which is a basis for any of the above
US patents or patent applications, which include within their scope a
polymerase encoded by THERMUS AQUATICUS DNA, but only to the extent that
such claims are necessary for INVITROGEN to manufacture, use and sell a
polymerase encoded by THERMUS AQUATICUS pursuant to Section 2.1 hereto,
except that these rights specifically exclude the "Stoffel Fragment"
(Lawyer, et. al. (1993) PCR Methods and Applications 2: 275-287) and the
"Abramson Mutant" (described in and additionally covered by US Patent No.
5,466,591).
1.21 "TAQ REAGENT" shall mean an enzyme the manufacture, use or sale of which
is covered by at least one VALID CLAIM within TAQ PATENT RIGHTS.
1.22 "TERRITORY" shall mean worldwide.
1.23 "VALID CLAIM" shall mean the claim of a patent or pending patent
application which has not been held invalid or otherwise unenforceable by
a court from which no appeal has or can be taken, or has not otherwise
finally been held unpatentable by the appropriate administrative agency.
1.24 "WHOLESALER" shall mean an agent who takes orders from end-user customers
for INVITROGEN products, purchases said products from INVITROGEN,
delivers the products to said customers and collects payment from the
end-user customers. The WHOLESALER does not perform other functions of a
distributor, such as, by way of example but not by way of exclusion,
marketing activities such as participating in trade shows, creating
product advertising, and presenting technical seminars, or pre- and
post-sale technical support of the products. ROCHE and INVITROGEN agree
that this definition is applicable only to the Japanese market.
2. GRANT TO INVITROGEN
2.1 LICENSES UNDER POLYMERASE PATENT RIGHTS
Upon the terms and subject to the conditions of this Agreement, ROCHE
hereby grants to INVITROGEN and INVITROGEN hereby accepts from ROCHE a
royalty bearing
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nonexclusive license in the TERRITORY, without the right to sublicense
except to its current AFFILIATES as specifically provided in Section 2.6,
as follows:
a) under TAQ PATENT RIGHTS, to manufacture, but not to have
manufactured, to use and to sell, strictly under INVITROGEN's or
its Affiliates' own Trademarks, Tradenames and/or label(s), TAQ
REAGENTS; and
b) under POLYMERASE PATENT RIGHTS, to manufacture, but not to have
manufactured, to use and to sell, strictly under INVITROGEN's or
its Affiliates' own Trademarks, Tradenames and/or label(s), ROCHE
PATENTED ENZYMES other than TAQ REAGENTS.
No rights are granted expressly, by implication or by estoppel under
AMPLIFICATION PATENT RIGHTS, SEQUENCING PATENT RIGHTS, RT- and RT-PCR
PATENT RIGHTS or any other ROCHE patent rights by the grant of this
Section.
2.2 LICENSE IN THE RESEARCH FIELD TO CONVEY A LABEL LICENSE AND TO PROMOTE
FOR USE IN PCR
A license under the AMPLIFICATION PATENT RIGHTS for automated performance
of the PCR PROCESS in the RESEARCH FIELD has an up-front fee component
based on the capacity of thermal cyclers used, and a running-royalty
component for each use of the process. In consideration of INVITROGEN's
payment of the license issuance fee and of royalties on sales of LICENSED
RESEARCH PRODUCTS, ROCHE hereby grants to INVITROGEN and INVITROGEN
accepts from ROCHE, in the TERRITORY, limited, nonexclusive rights,
without the right to sublicense except to its current AFFILIATES as
specifically provided in Section 2.6, as follows:
a) INVITROGEN is hereby authorized to sell, strictly under
INVITROGEN's or it Affiliates' own Trademarks, Tradenames and/or
label(s), LICENSED RESEARCH PRODUCTS with a label conveying to
end-user purchasers the running-royalty component of a license
under the AMPLIFICATION PATENT RIGHTS to use such LICENSED
RESEARCH PRODUCTS in or with the PCR PROCESS strictly for such
purchasers' own internal use in the RESEARCH FIELD in conjunction
with a thermal cycler whose use is covered by the up-front fee
component, either by payment to P-E or as purchased, and
b) INVITROGEN may promote LICENSED RESEARCH PRODUCTS for such use in
or with the PCR PROCESS in the RESEARCH FIELD. The up-front
component of the PCR license for research must be obtained by the
end user in order to have a complete license for the automated
performance of the PCR PROCESS. The up-front component may be
purchased from P-E. Alternatively, it may be obtained through the
purchase of thermal cycler(s) or temperature cycling instrument(s)
bearing a valid label conveying to purchasers the up-front
component of the license, that is, an "AUTHORIZED THERMAL CYCLER."
Enzyme/PCR Research Products 8 v.2061097
<PAGE>
INVITROGEN may use LICENSED RESEARCH PRODUCTS, on which it pays royalties
hereunder, in accordance with the terms of the label authorized in part a)
above.
2.3 LICENSE IN APPLICATION FIELDS TO CONVEY A LABEL LICENSE AND TO PROMOTE FOR
PCR
A license under the AMPLIFICATION PATENT RIGHTS for automated performance
of the PCR PROCESS in all or some of the APPLICATION FIELDS includes an
up-front fee component as described in Section 2.2 and a running royalty
component. In further consideration of INVITROGEN's payment of license
issuance fees and royalties on sales of LICENSED APPLICATION PRODUCTS,
ROCHE hereby grants to INVITROGEN and INVITROGEN accepts from ROCHE in the
TERRITORY, limited, nonexclusive rights, without the right to sublicense
except to its current AFFILIATES as specifically provided in Section 2.6 as
follows:
a) INVITROGEN is hereby authorized to sell, strictly under INVITROGEN's
or its Affiliates' own Trademarks, Tradenames and/or label(s),
APPLICATION KITS with a label conveying to end-user purchasers the
running-royalty component of a license under the AMPLIFICATION PATENT
RIGHTS to use such APPLICATION KITS in or with the PCR PROCESS
strictly for such purchasers' own internal use in the LICENSED
APPLICATION FIELDS in conjunction with a thermal cycler whose use is
covered by the up-front fee component, either by payment to P-E or as
purchased; and
b) INVITROGEN may promote LICENSED APPLICATION PRODUCTS for such use in
or with the PCR PROCESS in the LICENSED APPLICATION FIELDS. The
up-front component of the PCR license for APPLICATION FIELDS must be
obtained by the end user in order to have a complete license for the
automated performance of the PCR PROCESS. The up-front component may
be purchased from P-E. Alternatively, it may be obtained through the
purchase of thermal cycler(s) or temperature cycling instrument(s)
bearing a valid label conveying to purchasers the up-front component
of the license, that is, an "AUTHORIZED THERMAL CYCLER."
INVITROGEN may use APPLICATION KITS, on which it pays royalties hereunder,
in accordance with the terms of the label authorized in part a) above.
24. LICENSE IN THE RESEARCH FIELD AND LICENSED APPLICATION FIELDS TO CONVEY A
LABEL LICENSE AND TO PROMOTE FOR USE IN SEQUENCING.
In further consideration of INVITROGEN's payment of license issuance fees
and royalties on sales of LICENSED RESEARCH PRODUCTS and LICENSED
APPLICATION PRODUCTS, ROCHE hereby grants to INVITROGEN and INVITROGEN
accepts from ROCHE in the TERRITORY, limited nonexclusive rights, without
the right to sublicense except to its current AFFILIATES as specifically
provided in Section 2.6, as follows:
a) INVITROGEN is authorized to sell, strictly under INVITROGEN's or its
Affiliates' own Trademarks, Tradenames and/or labels(s)., LICENSED
RESEARCH PRODUCTS in the RESEARCH FIELD and APPLICATIONS KITS in the
LICENSED
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APPLICATION FIELDS with a label conveying to end-user purchasers a
license under the SEQUENCING PATENT RIGHTS to use such LICENSED
RESEARCH PRODUCTS and APPLICATIONS KITS for such purchasers' own
internal use in sequencing without any rights under the AMPLIFICATION
PATENT RIGHTS in the RESEARCH FIELD or the LICENSED APPLICATION FIELDS
for which the APPLICATIONS KITS are sold; and
b) INVITROGEN may promote LICENSED RESEARCH PRODUCTS for use in the
RESEARCH FIELD and APPLICATIONS KITS for use in the LICENSED
APPLICATION FIELDS for which the APPLICATIONS KITS are sold in
processes within the SEQUENCING PATENT RIGHTS.
INVITROGEN may use LICENSED RESEARCH PRODUCTS and APPLICATIONS KITS, on
which it pays royalties hereunder, in accordance with the terms of the
label authorized in part a) above.
25. LICENSE IN THE RESEARCH FIELD AND LICENSED APPLICATION FIELDS TO CONVEY
RIGHTS TO PERFORM AND PROMOTE FOR USE IN RT AND RT-PCR
In further consideration of INVITROGEN's payment of license issuance fees
and royalties on sales of LICENSED RESEARCH PRODUCTS and LICENSED
APPLICATION PRODUCTS, ROCHE hereby grants to INVITROGEN and INVITROGEN
accepts from ROCHE in the TERRITORY, limited nonexclusive rights, without
the right to sublicense except to its current AFFILIATES as specifically
provided in Section 2.6, as follows:
a) INVITROGEN is authorized to sell, strictly under INVITROGEN's or its
Affiliates' own Trademarks, Tradenames and/or labels(s), LICENSED
RESEARCH PRODUCTS in the RESEARCH FIELD and APPLICATIONS KITS in the
LICENSED APPLICATION FIELDS which convey to the end-user purchasers a
license under RT AND RT-PCR PATENT RIGHTS to use such LICENSED
RESEARCH PRODUCTS and APPLICATIONS KITS for such purchasers' own
internal use in reverse transcription and reverse transcription
coupled with PCR amplification; and
b) INVITROGEN may promote LICENSED RESEARCH PRODUCTS for use in the
RESEARCH FIELD and APPLICATIONS KITS for use in the LICENSED
APPLICATION FIELDS in processes within RT AND RT-PCR PATENT RIGHTS.
INVITROGEN may use LICENSED RESEARCH PRODUCTS and APPLICATIONS KITS on
which it pays royalties hereunder, in accordance with the terms defined in
part a) above.
2.6 LIMITED RIGHT TO GRANT SUBLICENSES
a) INVITROGEN expressly acknowledges and agrees that the license pursuant
to this Agreement is personal to INVITROGEN alone, and INVITROGEN
shall have no right to sublicense, assign or otherwise transfer or
share its right, under this license. Notwithstanding the foregoing,
ROCHE hereby grants to INVITROGEN the right to sublicense current
INVITROGEN AFFILIATES, that is AFFILIATES of INVITROGEN
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<PAGE>
on the Effective Date of this Agreement. INVITROGEN hereby
accepts that right, and grants to all of its current
AFFILIATES, and on their behalf accepts, sublicenses as
provided herein. INVITROGEN's AFFILIATES shall not have the
right to grant further sublicenses to any other AFFILIATE or
third party.
b) INVITROGEN shall provide prior written notice to ROCHE of
AFFILIATES operating under its sublicense. Sublicenses to
AFFILIATES of INVITROGEN shall accord with all requirements of
this Agreement and shall include the following terms and
conditions:
i) That the sublicense is co-terminus with this Agreement
as to term and TERRITORY, except as provided below;
ii) To provide INVITROGEN with such complete and accurate
information as is necessary to calculate the NET SALES
of each sublicensed product sold or otherwise
transferred by such AFFILIATE;
iii) To grant to ROCHE the right to inspect under the terms
and conditions in Section 4.4; and
iv) To be bound by all terms and conditions of this
Agreement, including without limitation, the indemnity
provisions of Section 11.
Notwithstanding the foregoing, INVITROGEN shall remain
primarily responsible both for its and its sublicensed
AFFILIATES' performance under this Agreement.
c) Unless terminated sooner pursuant to Section 6 herein, any
sublicense to an AFFILIATE shall terminate immediately without
any notice or action on the part of INVITROGEN if:
i) Such sublicense no longer meets the definition of an
AFFILIATE set forth in Section 1.1 hereof; or
ii) INVITROGEN sells its business in LICENSED PRODUCTS to
another person.
In the event of termination on either of the bases set forth in
Section 2.6 c i) or ii) above, then all rights granted to and
obligations undertaken by the sublicensee and INVITROGEN under
such sublicense shall terminate immediately without any action
on the part of INVITROGEN, the AFFILIATE or ROCHE, except for
the rights and obligations surviving termination set forth in
Sections 6.7 and 6.8 herein, and INVITROGEN shall provide
written notice to ROCHE of such termination.
d) No sublicensed AFFILIATE shall have the right to assign or
otherwise transfer its sublicense in whole or in part to any
other AFFILIATE or third party, whether by written instrument
or by operation of law. An assignment of a sublicense in
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<PAGE>
violation of the foregoing sentence shall include, but is not
limited to, either of the following occurrences:
i) The sale, directly or indirectly, to any third party of
a beneficial interest in fifty percent (50%) or more of
the outstanding voting securities of such AFFILIATE; or
ii) The issuance or sale to any third party of a class of
securities of INVITROGEN, the interest dividend or other
distribution on which is measured in substantial part by
the performance of such AFFILIATE such that such third
party, acting alone or in concert with other third
parties, become the beneficial owner of fifty percent
(50%) or more of such class of INVITROGEN securities.
e) Nothing herein shall prohibit INVITROGEN from distributing
LICENSED PRODUCTS on behalf of any sublicensed AFFILIATE.
2.7 Except as is specifically provided herein, this Agreement shall not
limit the rights of ROCHE in any way. It is specifically understood
that as between the Parties to this Agreement, ROCHE reserves the
right itself or through its AFFILIATES to practice under POLYMERASE
PATENT RIGHTS, SEQUENCING PATENT RIGHTS, RT AND RT-PCR PATENT RIGHTS
and AMPLIFICATION PATENT RIGHTS, including the PCR PROCESS itself, and
to sublicense, assign or otherwise transfer such rights to others for
any purpose whatsoever.
2.8 INVITROGEN shall affix to each particular LICENSED RESEARCH PRODUCT or
LICENSED APPLICATIONS PRODUCT licensed hereunder, either on a product
insert accompanying the product or on the product itself, one of the
labels described in Appendix C, as ROCHE shall direct, or such other
label as ROCHE may direct from time to time. Such changes in labeling
shall be subject to the approval of INVITROGEN, which shall not be
unreasonably withheld. As to the labels set forth in Appendix C,
INVITROGEN understands and agrees that the notices numbered 1 through
5 reflect ROCHE's present label licensing policy and shall be used on
the labels for INVITROGEN products as appropriate. In regard to any
changes in labels directed by ROCHE, INVITROGEN shall have a
reasonable time period over which to change its labels.
2.9 a) INVITROGEN hereby covenants that it shall sell, market and
otherwise promote products licensed hereunder in accordance
with the terms of this Agreement and it shall use its best
efforts, as described herein, and shall contractually require
all of its distributors to also use their best efforts, as
described herein, to ensure that these products are sold in
compliance with the letter and intent of this Agreement. To
that end, INVITROGEN and its distributors shall prominently
display in catalogues and brochures describing LICENSED
RESEARCH PRODUCTS and/or LICENSED APPLICATION PRODUCTS, the
label license statements as described in Section 2.8 and
Appendix C. Furthermore, in advertisements or any other
materials intended for distribution to third parties and
referring in any way to
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products licensed hereunder and the use of said products in the PCR PROCESS,
but in which it is not practical to include the complete label license
statements, INVITROGEN will include a comparable restriction on use as
follows:
"Purchase of this product [or product name] is accompanied by a limited
license to use it in the Polymerase Chain Reaction (PCR) process
[and RT or other as appropriate] for ["field"] in conjunction with a thermal
cycler whose use in the automated performance of the PCR process is covered
by the up-front license fee, either by payment to Perkin-Elmer or as
purchased, i.e., an authorized thermal cycler."
or other statement approved in writing by ROCHE.
b) INVITROGEN agrees that once it is notified by ROCHE or once it
independently becomes aware that a particular purchaser is using or
intends to use any product licensed herein in violation of AMPLIFICATION
PATENT RIGHTS, SEQUENCING PATENT RIGHTS, or RT AND RT-PCR PATENT RIGHTS,
INVITROGEN shall immediately notify said purchaser in writing that such
use is unlicensed and that a license for said use must be obtained from
ROCHE or P-E. INVITROGEN shall also require sublicensed AFFILIATES and
distributors to report to INVITROGEN any unlicensed activities of which
they become aware. INVITROGEN further agrees that continued or resumed
sales by INVITROGEN, a sublicensed AFFILIATE or a distributor, to a
particular purchaser of which INVITROGEN was previously notified or is
otherwise aware is distributing/using any licensed product in violation of
AMPLIFICATION PATENT RIGHTS, RT AND RT-PCR PATENT RIGHTS or SEQUENCING
PATENT RIGHTS, shall constitute a breach of this Agreement under Section 6.5
of the Agreement. A written certification by a distributor or purchaser which
is executed by an officer of said distributor or purchaser which officer may
legally bind the company, that it has ceased infringing the AMPLIFICATION
PATENT RIGHTS, RT AND RT-PCR PATENT RIGHTS and/or SEQUENCING PATENT RIGHTS
or, alternatively, that it does not infringe said patent rights, or a
written certification by INVITROGEN which is executed by an officer of
INVITROGEN which officer may legally bind INVITROGEN that sales to such
distributor or purchaser have ceased, shall be a cure under Section 6.5.
c) Pursuant to the foregoing general requirements, INVITROGEN shall, when it
receives an order for a LICENSED RESEARCH PRODUCT from any customer, which
INVITROGEN recognizes as significantly exceeding that customer's typical
usage requirements, contact the customer and specifically inform the
customer that the AMPLIFICATION PATENT RIGHTS, RT AND RT-PCR PATENT RIGHTS
and/or SEQUENCING PATENT RIGHTS conveyed to customer with the sale of such
LICENSED RESEARCH PRODUCT are limited for use by the customer for internal
research only and that no other rights under the AMPLIFICATION PATENT RIGHTS,
RT AND RT-PCR PATENT RIGHTS and/or SEQUENCING PATENT RIGHTS outside the
LICENSED FIELD are conveyed. Said customers shall be required to furnish a
written certification that customer intends to use said LICENSED RESEARCH
PRODUCT without violating the
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AMPLIFICATION PATENT RIGHTS, RT AND RT-PCR PATENT RIGHTS or the SEQUENCING
PATENT RIGHTS.
d) INVITROGEN agrees that it shall provide to ROCHE a copy of each of its
notices to purchasers/distributors (as well as a copy of each
purchaser/distributor's certification of compliance) pursuant to this
Section 2.9.
e) The Parties understand and hereby agree that INVITROGEN shall have no
obligation to monitor or police its customers' payment of the up-front fee
component of a PCR license for research or the thermal cycler
"authorization" fee described in Section 1.5. INVITROGEN's obligations
hereinunder in regard to AUTHORIZED THERMAL CYCLERS shall be limited to
providing the label license as specified in Section 2.8 and Appendix C.
However, INVITROGEN agrees not to knowingly promote, directly or through
its distributors, the unlicensed use of PCR with the ROCHE PATENTED
ENZYMES or INVITROGEN ENZYMES in the RESEARCH FIELD or APPLICATION FIELDS
in thermal cyclers for which the up-front license fee has not been paid
(not authorized).
INVITROGEN and ROCHE agree that ROCHE will enforce its rights and will use
its best efforts to cause P-E to enforce its rights with regard to
customers of INVITROGEN using thermal cyclers that are not "authorized" in
the same manner ROCHE and P-E treat their own customers in the same
circumstances.
2.10 Roche hereby grants to INVITROGEN the right and INVITROGEN accepts and
agrees to credit ROCHE as the source of patent rights in INVITROGEN's
promotional materials, including for example advertisements, product
inserts and data sheets, intended for distribution to third parties as
follows:
"This product is sold under licensing arrangements with F. Hoffmann-La
Roche Ltd, Roche Molecular Systems, Inc. and The Perkin-Elmer
Corporation."
Such reference will be reasonably prominent and in materials (for example
catalogues) containing multiple product descriptions, will be directly
associated with information on each specific product covered by this
Agreement.
2.11 In accordance with Section 2.6 b iv), sublicenses granted by INVITROGEN
shall specifically require the sublicensee to comply with INVITROGEN's
obligations under Sections 2.7-2.10.
3. GRANT TO ROCHE
3.1 If INVITROGEN elects to market a INVITROGEN ENZYME or elects to license
third parties to make, use or sell a INVITROGEN ENZYME, ROCHE shall have
an option to negotiate a nonexclusive license to manufacture and sell
directly or through distributors such INVITROGEN ENZYME. INVITROGEN shall
notify ROCHE of its election to market or to license third parties to
market INVITROGEN Enzymes within thirty (30)
Enzyme/PCR Research Products 14 v.2061097
<PAGE>
days of INVITROGEN making such an election. ROCHE may exercise the
said option within three (3) years after the receipt of INVITROGEN's
notice. The terms of said licenses shall be negotiated in good faith
by the parties, taking into consideration the relevant market factors
typically considered in such agreements, but any negotiated royalty
shall not exceed 10% of the Net Selling Price of ROCHE to its
customers or distributors. The duration of said license shall be
commensurate with the term of the last to expire of any patent
covering ROCHE's customers' use of such enzyme without further payment
of any kind from end user customers to INVITROGEN or its licensor, if
there is one. If ROCHE does not exercise the option hereunder, ROCHE
shall nonetheless be entitled to a license to make, use or sell said
INVITROGEN ENZYME under the same terms and conditions as the most
favorable nonexclusive license granted by INVITROGEN.
3.2 Sublicenses granted by INVITROGEN are conditioned on the sublicensee's
making a grant equivalent to Section 3.1 to ROCHE.
4. ROYALTIES, RECORDS AND REPORTS
4.1 LICENSE ISSUANCE FEE
For the rights and privileges granted hereunder, INVITROGEN will pay to
P-E a nonrefundable, noncreditable License Issuance fee of *
upon execution of the Agreement.
4.2 ROYALTIES
For the rights and privileges granted under this Agreement, INVITROGEN
shall pay royalties on products licensed hereunder used by INVITROGEN or
its sublicensed AFFILIATES of sold, distributed, or otherwise transferred
by INVITROGEN or its sublicensed AFFILIATES (with or without payment), as
follows below, except as otherwise specifically modified by Section 5.2
and Appendix A:
a) for a ROCHE PATENTED ENZYME or an INVITROGEN ENZYME, per
Royalty Unit for each such enzyme;
b) for LICENSED RESEARCH PRODUCTS and LICENSED APPLICATION PRODUCTS
that include ROCHE PATENTED ENZYMES and/or INVITROGEN ENZYME, *
of the Net Sales of each licensed Research Product and licensed
Application Product or per Royalty Unit for each enzyme
included in such Product, whichever is larger.
c) for LICENSED RESEARCH PRODUCTS which contain neither ROCHE
PATENTED ENZYMES nor INVITROGEN ENZYMES *
Furthermore, the Parties further understand and agree that the royalty
rates provided in subsections a) though c) above shall apply only for
so long as Amplification Patent shall be in force.
* "CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION."
Enzyme/PCR Research Products 15 v.2061097
<PAGE>
4.3 Royalties for sales prior to the signature of the Agreement as from the
first commercial sale of products licensed hereunder shall be reported
together with the first report due hereunder in accordance with Section
4.5.
4.4 INVITROGEN shall keep full, true and accurate books of account containing
all particulars which may be necessary for the purpose of showing the
amount payable by way of royalty or by way of any other provision under
this Agreement for itself and its sublicensed AFFILIATES. Such books and
the supporting data shall be open at all reasonable times, for three (3)
years following the end of the calendar year to which they pertain (and
access shall not be denied thereafter, if reasonably available), to the
inspection of an independent certified public accountant retained by
ROCHE for the purpose of verifying INVITROGEN's royalty statements or
INVITROGEN's compliance in other respects with this Agreement. If in
dispute, such records shall be kept until the dispute is settled. The
inspection of records shall be at ROCHE's sole cost unless the inspector
concludes that royalties reported by INVITROGEN for the period being
audited are understated by five percent (5%) or more from actual
royalties, in which case the costs and expenses of such inspection
shall be paid by INVITROGEN.
4.5 INVITROGEN shall within thirty (30) days after the first day of January,
April, July and October of each year deliver to the addresses provided
below a true and accurate royalty report. This report shall be in
accordance with the royalty report form attached hereto as Appendix D.
This report shall be on U.S./ex-U.S. basis and shall give such
particulars of the business conducted by INVITROGEN in the United States
and in territories other than the United States during the preceding
three (3) calendar months as are pertinent to an accounting for royalty
under this Agreement and shall include at least the following:
a) separately itemized quantities of products licensed hereunder that
are used, sold or otherwise transferred by INVITROGEN during those
three (3) months;
b) the ROYALTY UNITS of ROCHE PATENTED ENZYME(S) AND/OR INVITROGEN
ENZYME(S) in each product licensed hereunder and, for each
product, the calculation of ROYALTY UNITS if different from
"activity units" for said enzyme as advertised, marketed or sold
by INVITROGEN;
c) the NET SALES of each LICENSED RESEARCH PRODUCT and LICENSED
APPLICATION PRODUCT;
d) the calculation of net royalties based on a royalty rate as
defined in Section 4.2;
e) the net royalties due. If no royalties are due, it shall be so
reported.
* "CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION."
Enzyme/PCR Research Products 16 v.2061097
<PAGE>
The correctness and completeness of each such report shall be attested to
in writing by the responsible financial officer of INVITROGEN's
organization or by INVITROGEN's external auditor or by the chairman or
other head of INVITROGEN's internal audit committee. With respect to
royalties due from sublicenses, attestation by INVITROGEN may be that it
has obtained from sublicensed AFFILIATES attestations complying with the
preceding sentence.
Simultaneously with the delivery of each such royalty report, INVITROGEN
shall pay to P-E the royalty and any other payments due under this
Agreement for the period covered by such report. All amounts payable
hereunder by INVITROGEN shall be payable in United States currency and
sent by the due date, together with the royalty report, to the following
address:
Applied Biosystems Division
The Perkin-Elmer Corporation
850 Lincoln Centre Drive
Foster City, California 94404, U.S.A.
Attn: Licensing Manager
or to such other address as P-E may designate. A copy of the royalty
report shall also be sent to:
Roche Molecular Systems, Inc.
1145 Atlantic Avenue, Suite 100
Alameda, California 94501, U.S.A.
Attn: Licensing Manager
or to such other address as ROCHE may designate.
4.6 Royalties accruing on account of sales in countries other than the United
States shall be payable in United States dollars in amounts based on the
New York rate of exchange as quoted in The Wall Street Journal (WSJ) for
the last business day of each quarter. If the WSJ does not publish any
such rate, a comparable publication shall be agreed upon from time to
time by the parties, and with respect to each country for which such rate
is not published in the WSJ or in a comparable publication, the parties
shall use the applicable rate for such date by the appropriate
governmental agency in such country.
4.7 a) The Parties agree that the royalty rates and unit fees set
forth in Section 4.2 are reasonable in view of the proprietary
rights associated with the products licensed hereunder and the
consequent relative importance of these products in the
marketplace. The Parties also recognize, however, that a
substantive change might occur in the marketplace, including,
for example, a change in ROCHE's proprietary position, or in
the status of technological alternatives that are non-proprietary
to ROCHE, which change in the marketplace might significantly
detract from the value added of the products licensed hereunder
and thereby in light of the royalty schedule of Section 4.2,
potentially makes INVITROGEN's marketing position correspondingly
less competitive. Should such changes occur in the marketplace,
the parties agree to discuss whether adjustments to the financial
terms herein would be appropriate and otherwise acceptable to
ROCHE.
* "CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION."
Enzyme/PCR Research Products 17 v.2061097
<PAGE>
b) In an effort to assist INVITROGEN in remaining competitive in
light of such changes in the marketplace, the parties have
specifically agreed that the following mechanism shall be
available to provide INVITROGEN royalty relief if ROCHE
ascertains that P-E's worldwide combined "Average Transaction
Price" ("ATP") for * in a * period (as is provided below)
is less than * per unit, then INVITROGEN'S unit royalty for *
for that same * period shall be * per unit multiplied by the
fraction * [* per unit], but in no event shall INVITROGEN'S
unit royalty be reduced below * per unit for * nor raised
above * per unit. Such ATP calculations shall be made by ROCHE
for the * period preceding * and INVITROGEN shall be
notified * after the beginning of each such * period if it
is or is not entitled to a credit for the * periods
comprising such * period. By way of example as to how said
royalty adjustments will operate, on each *, ROCHE shall
ascertain P-E's ATP for the * period beginning * prior to
said * date and shall calculate the per-unit royalty as above
described. If that per unit royalty is other than * per unit,
ROCHE shall so notify INVITROGEN no later than on *,
respectively, of * so that INVITROGEN may take the
appropriate credit against the royalties next owed.
As used herein, "Average Transaction Price" shall mean the
average transfer price per unit for all * transferred by P-E or
its Affiliates to end users (which, in P-E's case shall mean to
other than ROCHE or ROCHE's Affiliates). "Average Transaction
Price" shall be calculated by dividing the worldwide aggregate
Net Sales of all products transferred by P-E that contain only
* by the worldwide aggregate Units of * contained in those
products. ROCHE represents that it has the right and is able to
obtain access to such information about P-E's Average
Transaction Price (ATP) as is necessary for ROCHE to make the
above (ATP) calculations accurately.
Except as is specifically provided by the mechanism to provide royalty
relief described in Section (b) above, ROCHE shall be under no
obligation to change or renegotiate any sections, provisions or terms
of this Agreement.
4.8 Withholding tax, if any, levied on any royalty and/or on any other
payments to be paid hereunder, will be paid by INVITROGEN to the proper
taxing authority and proof of payment will be sent to P-E. Any such
withholding tax paid by INVITROGEN, will be fully credited against the
royalty due to P-E.
* "CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION."
Enzyme/PCR Research Products 18 v.2061097
<PAGE>
4.9 Any amount not being paid by INVITROGEN when due will bear interest
of one and a half percent (1.5%) per month from the due date until
paid.
5. LICENSE IN ADDITIONAL FIELDS
5.1 INVITROGEN may elect at the time of execution of this Agreement, or
shall maintain an option, exercisable for five years from the
signature date of this Agreement, to add APPLICATION FIELDS to the
LICENSED FIELDS.
5.2 Appendix A specifies for each field to which this election and option
applies a license issuance fee, where applicable, and the applicable
royalty rate if such rate is different from that specified in Section
4.2, for each such field. Roche shall have the right to change said
license issuance fees and royalty rate after two years from the
signature of this Agreement for any field which has not become a
LICENSED FIELD pursuant to Section 5.3.
5.3 Each individual field in addition to RESEARCH FIELD will become a
LICENSED FIELD when the respective election and option has been
exercised and the specified license issuance fee for that field has
been paid.
6. TERM AND TERMINATION
6.1 This license is granted retroactively to INVITROGEN as from the date
of first commercial sale of LICENSED PRODUCTS, LICENSED RESEARCH
PRODUCTS and/or LICENSED APPLICATION PRODUCTS and will expire on the
expiration of the last to expire of the patents within AMPLIFICATION
PATENT RIGHTS, SEQUENCING PATENT RIGHTS, POLYMERASE PATENT RIGHTS, RT
AND RT-PCR PATENT RIGHTS to the extent a license of rights under any
of the foregoing surviving Patent Rights is being exercised pursuant
to Sections 2.1 - 2.5 hereto.
6.2 Notwithstanding any other Section of this Agreement, INVITROGEN may
terminate this Agreement for any reason on ninety (90) days' written
notice to ROCHE. If INVITROGEN elects to terminate this Agreement
pursuant to this section, it shall within thirty (30) days of said
notice to ROCHE, also notify each of its customers that INVITROGEN is
no longer licensed under AMPLIFICATION PATENT RIGHTS, POLYMERASE
PATENT RIGHTS, SEQUENCING PATENT RIGHTS or RT AND RT-PCR PATENT RIGHTS.
6.3 Notwithstanding any other section of this Agreement, ROCHE may
terminate this Agreement, effective immediately upon notice of
termination to INVITROGEN, in the event that a third party which is
licensed by ROCHE to manufacture products for use in PCR-based human
diagnostic testing acquires any interest, including but not limited to
an ownership interest, directly or indirectly, in INVITROGEN of 50% or
more.
6.4 The license granted hereunder to INVITROGEN and all sublicenses
granted by INVITROGEN to its AFFILIATES shall automatically terminate
upon i) an adjudication of INVITROGEN as bankrupt or insolvent, or
INVITROGEN's admission in writing of its
Enzyme/PCR Research Products 19 v.2061097
<PAGE>
inability to pay its obligations as they mature; or ii) an assignment
by INVITROGEN for the benefit of creditors; or iii) INVITROGEN's
applying for or consenting to the appointment of a receiver, trustee
or similar officer for any substantial part of its property or such
receiver, trustee or similar officer's appointment without the
application or consent of INVITROGEN, if such appointment shall
continue undischarged for a period of ninety (90) days; or iv)
INVITROGEN's instituting (by petition, application, answer, consent or
otherwise) any bankruptcy, insolvency arrangement, or similar
proceeding relating to INVITROGEN under the laws of any jurisdiction;
or v) the institution of any such proceeding (by petition, application
or otherwise) against INVITROGEN, if such proceeding shall remain
undismissed for a period of ninety (90) days or the issuance or levy
of any judgment, writ, warrant of attachment or execution or similar
process against a substantial part of the property of INVITROGEN, if
such judgment, writ, or similar process shall not be released, vacated
or fully bonded within ninety (90) days after its issue or levy.
6.5 Upon any breach or default of a material term under this Agreement by
INVITROGEN or an AFFILIATE sublicensed by INVITROGEN, this Agreement
may be terminated upon ninety (90) days, written notice to INVITROGEN.
Said notice shall become effective at the end of the ninety-day
period, unless during said period INVITROGEN fully cures such breach
or default and notifies ROCHE of such cure. Such 90-day cure period
shall not apply to any uncontested royalty payments due, which
uncontested payments must be made in accordance with the terms of this
Agreement.
6.6 Upon termination of this Agreement as provided herein, INVITROGEN
shall immediately stop selling products licensed hereunder and all
rights and licenses granted to INVITROGEN by ROCHE hereunder and all
sublicenses granted by INVITROGEN shall automatically revert to or be
retained by ROCHE.
6.7 INVITROGEN's obligations to report to ROCHE and to pay royalties as to
the sale of products licensed and sublicensed hereunder pursuant to
the Agreement prior to termination or expiration of the Agreement
shall survive such termination or expiration.
6.8 Upon termination of this Agreement for any reason, INVITROGEN shall
destroy its inventory of all products licensed hereunder and confirm
such destruction in writing within ten days of the termination of the
Agreement.
7. ENFORCEMENT OF PATENTS
7.1 INVITROGEN shall advise ROCHE promptly, and shall furnish documentary
proof which is reasonably acceptable to ROCHE, upon its becoming aware
of substantial infringement by a third party or parties of an
enforceable patent right (1) within POLYMERASE PATENT RIGHTS by the
sale of "Significant Quantities" of unlicensed stand-alone enzymes in
any country in the TERRITORY, or (2) within AMPLIFICATION PATENT
RIGHTS by the sale of "Significant Quantities" of enzymes not within
POLYMERASE PATENT RIGHTS but which enzymes are actively promoted by
said third party or parties or their AFFILIATES or distributors for
use in AMPLIFICATION PATENT RIGHTS in any country in
Enzyme/PCR Research Products 20 v.2061097
<PAGE>
the TERRITORY. Upon receipt of said written information, ROCHE agrees it
shall, within its reasonable business judgment, take such action as is
required to restrain such infringement.
ROCHE shall be in full compliance with its obligations under this Section
7.1 if, within six (6) months of ROCHE having received said written
information from INVITROGEN about any one infringing party in a
particular country, (1) ROCHE notifies each third party identified by
such acceptable documentary proof of ROCHE's enforceable proprietary
position in the country where infringement is occurring and receives from
such third parties written assurances, which shall be executed by an
officer of each said third party capable of legally binding that party,
that it is not infringing ROCHE's rights, or (2) said infringement has
stopped, or (3) ROCHE has entered into good faith license negotiations
with such third parties, or (4) ROCHE has instituted or is prosecuting an
action for patent infringement against at least one infringing third
party seller which is active in said country. The above six-month period
may be extended with the consent of INVITROGEN.
It is agreed and understood that nothing in this Section 7.1 or this
Agreement shall require ROCHE to sue more than one party at a time or to
sue in more than one country at any one time.
For the purposes of the foregoing clauses, "Significant Quantities" of
unlicensed stand-alone enzymes shall mean (1) in the case of a single
third-party infringer in a particular country, at least 20%, or (2) in
the case of more than one third party seller in a particular country, at
least 40%, of total ROYALTY UNIT turnover, respectively, of all
stand-alone enzyme(s) within POLYMERASE PATENT RIGHTS or thermostable
enzymes not within POLYMERASE PATENT RIGHTS but which are "Actively
Promoted" for use in AMPLIFICATION PATENT RIGHTS, in each country. For
purposes of this Section 7.1, both Parties must agree as to the accuracy
of said 20% or 40% figures before ROCHE is obligated under this Section
7.1 to pursue any remedial course of action vis a vis any third party
with respect to sales of unlicensed stand-alone enzymes. Also, for
purposes of this particular paragraph, "Actively Promoted" shall mean
advertised or technically supported for use in AMPLIFICATION PATENT
RIGHTS.
If ROCHE is provided with the documentary proof of ongoing infringing
sales as above described and ROCHE does not within the six-month period
pursue one of the above options, INVITROGEN shall have the right at the
expiration of the six-month period, or such other period as the parties
have agreed, to reduce its royalty rate for royalties owed on stand-alone
ROCHE PATENTED ENZYMES and/or stand-alone INVITROGEN ENZYMES in said
country by 20%. It is understood and agreed that any royalty reduction
afforded INVITROGEN pursuant to this Section 7 applies only to sold as
stand-alone enzymes and not to kits containing said enzymes.
INVITROGEN's right to reduce its royalties shall terminate and INVITROGEN
shall resume paying full royalties in each country, as of the time (1)
all such parties in such country have either delivered the written
assurances described above or engaged in good
Enzyme/PCR Research Products 21 v.2061097
<PAGE>
faith license negotiations with ROCHE, provided that if said negotiations
do not conclude within one year, INVITROGEN may again abate its royalty
by 20% in the manner described above until the conclusion of a license
with said third party, or (2) the filing or prosecution of an
infringement suit against at least one such party in said country, or (3)
as a result of the written assurances received in accordance with the
foregoing or the conclusion of any licenses or litigations or otherwise,
infringement in fact ceases or is reduced to below "Significant
Quantities".
Notwithstanding the provisions of this Section 7.1, ROCHE and INVITROGEN
understand and specifically agree that nothing in this Section shall
reduce INVITROGEN's royalty for stand-alone enzymes * per Royalty
Unit.
7.2 Section 7.1 shall apply to sublicensed AFFILIATES and to INVITROGEN's
royalty obligations for sales of sublicensed AFFILIATES as if the
sublicensed AFFILIATES were INVITROGEN.
8. CONFIDENTIALITY-PUBLICITY
8.1 To the extent that, in literature for distribution to third parties,
INVITROGEN refers to ROCHE, P-E or the terms of this Agreement, solely by
specific inclusion of the clause provided in Section 2.10, ROCHE hereby
approves of such usage and no further ROCHE review or approval shall be
required for distribution of said literature. If INVITROGEN varies from
the agreed-to clause in Section 2.10, then INVITROGEN agrees to obtain
ROCHE's written approval prior to distributing any written information
including said modified reference to ROCHE, P-E or the terms of this
Agreement. ROCHE's approval shall not be unreasonably withheld or
delayed and, in any event, its decision shall be rendered within three
(3) weeks of receipt of the written information. Once approved, such
materials, or abstracts of such materials, which do not materially alter
the context of the material originally approved may be reprinted during
the term of the Agreement without further approval by ROCHE unless ROCHE
has notified INVITROGEN in writing of its decision to withdraw permission
for such use. Sublicenses are conditioned on the sublicensed AFFILIATES'
specific agreement to be bound by INVITROGEN's obligations under this
Section.
8.2 Each party agrees that any financial, legal or business information or
any technical information disclosed to it (the "Receiving Party") by the
other (the "Disclosing Party") and identified in writing as confidential
in connection with this Agreement shall be considered confidential and
proprietary and the Receiving Party shall not disclose same to any third
party and shall hold it in confidence for a period of five (5) years
following termination of this Agreement and will not use it other than as
permitted under this Agreement provided, however, that any information,
know-how or data which is orally disclosed to the Receiving Party shall
not be considered confidential and proprietary unless such oral
disclosure is reduced to writing and marked confidential and given to the
Receiving Party in written form within thirty (30) days after oral
disclosure thereof. Such confidential and proprietary information shall
include, without limitation, marketing and sales information,
commercialization plans and strategies, research and
* "CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION."
Enzyme/PCR Research Products 22 v.2061097
<PAGE>
development work plans, and technical information such as patent
applications, inventions, trade secrets, systems, methods,
apparatus, designs, tangible material, organisms and products and
derivatives thereof. Notwithstanding the above, ROCHE shall have
the right to share royalty reports with P-E.
8.3 The above obligations of confidentiality shall not be applicable
to the extent that:
a) such information is general public knowledge or, after
disclosure hereunder, becomes general or public knowledge
through no fault of the Receiving Party; or
b) such information can be shown by the Receiving Party by its
written records to have been in its possession prior to
receipt thereof hereunder; or
c) such information is received by the Receiving Party from
any third party for use or disclosure by the Receiving
Party without any obligation to the Disclosing Party
provided, however, that information received by the
Receiving Party from any third party funded by the
Disclosing Party (e.g. consultants, subcontractors, etc.)
shall not be released from confidentiality under this
exception; or
d) the disclosure of such information is required or desirable
to comply with or fulfill governmental requirements,
submissions to governmental bodies, or the securing of
regulatory approvals.
8.4 Each party shall, to the extent reasonably practicable, maintain
the confidentiality of the provisions of this Agreement and shall
refrain from making any public announcement or disclosure of this
Agreement or its terms without the prior consent of the other
party, which consent shall not be unreasonably withheld, except to
the extent a party concludes in good faith that such disclosure is
required under applicable law or regulations, in which case the
other party shall be notified in advance.
9. ASSIGNMENT/TRANSFERABILITY
9.1 The rights and licenses granted by ROCHE to INVITROGEN in this
Agreement are personal to INVITROGEN and may not be assigned or
otherwise transferred, including without limitation any purported
assignment or transfer that would arise from a sale or transfer of
INVITROGEN's business (or any portion of said business). Any
attempted assignment or transfer shall be void and shall
automatically terminate all rights of INVITROGEN under this
Agreement.
9.2 ROCHE may assign all or any part of its rights and obligations
under this Agreement at any time without the consent of
INVITROGEN. INVITROGEN agrees to execute such further
acknowledgments or other instruments as ROCHE may reasonably
request in connection with such assignment.
Enzyme/PCR Research Products 23 v.2061097
<PAGE>
10. NEGATION OF WARRANTIES AND INDEMNITY
10.1 Nothing in this Agreement shall be construed as:
a) a warranty or representation by ROCHE as to the validity or
scope of any patent included within POLYMERASE PATENT
RIGHTS, AMPLIFICATION PATENT RIGHTS, SEQUENCING PATENT
RIGHTS or RT AND RT-PCR PATENT RIGHTS;
b) a warranty or representation that the practice of
POLYMERASE PATENT RIGHTS, AMPLIFICATION PATENT RIGHTS,
SEQUENCING PATENT RIGHTS or RT AND RT-PCR PATENT RIGHTS is
or will be free from infringement of patents of third
parties;
c) an obligation to bring or prosecute actions or suits
against third parties for infringement, provided, however,
that this clause shall not alter INVITROGEN's rights and
ROCHE's obligations under Section 7.1;
d) except as expressly set forth herein, conferring the right
to use in advertising, publicity or otherwise any
trademark, trade name, or names, or any contraction,
abbreviation, simulation or adaptation thereof, of ROCHE or
P-E;
e) conferring by implication, estoppel or otherwise any
licenses, immunities or rights under any patents or patent
applications of ROCHE other than those specified in
POLYMERASE PATENT RIGHTS, AMPLIFICATION PATENT RIGHTS,
SEQUENCING PATENT RIGHTS or RT AND RT-PCR PATENT RIGHTS,
regardless of whether such other patents or patent
applications are dominant or subordinate to those in
POLYMERASE PATENT RIGHTS, AMPLIFICATION PATENT RIGHTS,
SEQUENCING PATENT RIGHTS or RT AND RT-PCR PATENT RIGHTS, or
under any thermal cycler or other instrument patent, or to
perform PCR in the thermal cycler that is not an AUTHORIZED
THERMAL CYCLER, or to make or sell any thermal cycler or
other instrument for the automated performance of the PCR
PROCESS;
f) an obligation to furnish any know-how not provided in
POLYMERASE PATENT RIGHTS, AMPLIFICATION PATENT RIGHTS,
SEQUENCING PATENT RIGHTS and RT AND RT-PCR PATENT RIGHTS;
or
g) creating any agency, partnership, joint venture or similar
relationship between ROCHE and/or P-E on the one hand, and
INVITROGEN on the other hand.
10.2 ROCHE MAKES NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
10.3 Notwithstanding the foregoing, ROCHE warrants and represents that
it has the right to grant the licenses provided in Sections 2 and
5.
10.4 The provisions of Section 10.1 and 10.2 regarding warranties and
representations by ROCHE shall be specifically included in any
sublicense granted by INVITROGEN.
Enzyme/PCR Research Products 24 v.2061097
<PAGE>
11. INDEMNITY
INVITROGEN shall assume full responsibility for its use of POLYMERASE
PATENT RIGHTS and for its sale of ROCHE PATENTED ENZYMES and
INVITROGEN ENZYMES and shall defend, indemnify and hold ROCHE and P-E
and their respective officers, directors, agents, employees and
stockholders, harmless from and against all liability, demands,
damages, expenses (including attorneys' and expert witness fees and
expenses) and losses for death, personal injury, illness or property
damage, or any other injury or damage arising out of the use by
INVITROGEN of the POLYMERASE PATENT RIGHTS or the preparation, use or
sale of LICENSED PRODUCTS, including but not limited to, use or
reliance upon such LICENSED PRODUCTS by customers of INVITROGEN.
12. *
13. GENERAL
13.1 This Agreement constitutes the entire agreement between INVITROGEN and
ROCHE as to the subject matter hereof, and all prior negotiations,
representations, agreements and understandings are merged into,
extinguished by and completely expressed by it. This Agreement may be
modified or amended only by a writing executed by authorized officers
of each of The Parties.
* "CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION."
Enzyme/PCR Research Products 25 v.2061097
<PAGE>
Any notice required or permitted to be given by this Agreement shall
be given by postpaid, first class, registered or certified mail, or by
courier, properly addressed to the other party or parties at the
respective address as shown below.
If to ROCHE: F. Hoffmann-La Roche Ltd
Grenzacherstrasse 124
4070 Basel
Switzerland
Attn: Corporate Law Department
with a copy to: Roche Molecular Systems, Inc.
1145 Atlantic Avenue, Suite 100
Alameda, California 94501
U.S.A.
Attn: Licensing Manager
If to INVITROGEN: Invitrogen Corporation
1600 Faraday Avenue
Carlsbad, California 92008
U.S.A.
Attn: Law Department
Either party may change its address by providing notice to the other
party. Unless otherwise specified herein, any notice given in
accordance with the foregoing shall be deemed given within four (4)
full business days after the day of mailing, or one full day after the
date of delivery to the courier, as the case will be.
13.2 GOVERNING LAW
This Agreement and its effect are subject to and shall be construed
and enforced in accordance with the laws of Switzerland
13.3 ARBITRATION
The Parties agree that all disputes arising from or in connection with
this Agreement, including disputes on its conclusion, binding effect,
amendment and termination, the exclusive jurisdiction and venue for
any such dispute or controversy shall be resolved, to the exclusion of
the ordinary courts, by an Arbitral Tribunal in accordance with the
International Arbitration Rules of the Zurich Chamber of Commerce.
13.4 Nothing in this Agreement shall be construed so as to require the
commission of any act contrary to law, and wherever there is any
conflict between any provision of this Agreement or concerning the
legal right of the parties to enter into this Agreement and any
statute, law, ordinance or treaty, the latter shall prevail, but in
such event the affected provisions of the Agreement shall be curtailed
and limited only to the extent necessary to bring it within the
applicable legal requirements.
Enzyme/PCR Research Products 26 v.2061097
<PAGE>
13.5 If any provision of this Agreement is held to be unenforceable for any
reason, it shall be adjusted rather than voided, if possible, in order to
achieve the intent of the parties to the extent possible. In any event,
all other provisions of this Agreement shall be deemed valid and
enforceable to the full extent possible.
IN WITNESS WHEREOF, The Parties hereto have set their hands and seals and
duly executed this Agreement on the date(s) indicated below.
Basel, F. HOFFMANN-LA ROCHE LTD
By: /s/ [ILLEGIBLE]
--------------------------------
Title: PCR Licensing Manager Signatory
----------------------------
Date: September 19, 1998
------------------------------
Branchburg, ROCHE MOLECULAR SYSTEMS, INC.
Apprv'd As To Form By: /s/ Kathy Ordonez
LAW DEPT. ---------------------------------------
Kathy Ordonez
By: [ILLEGIBLE]
---- Title: President
Date: July 27, 1998
-------------------------------------
INVITROGEN CORPORATION
By: /s/ Joseph M. Fernandez
---------------------------------------
Joseph M. Fernandez
Title: Vice President, Business Development
Date: 9/1/98
-------------------------------------
Enzyme/PCR Research Products 27 v.2061097
<PAGE>
S C H E D U L E 1
POLYMERASE PATENT RIGHTS(1)
4,889,818
5,079,352
5,352,600
USSN 07/873,897
USSN 08/384,490
- ----------------
(1) And those Ex-US patents and patent applications which claim priority from
the above-referenced US Patents and patent applications and access to which is
necessary for INVITROGEN to manufacture, use and sell the ROCHE PATENTED ENZYMES
specifically listed in Schedule 2 hereto. For the convenience of INVITROGEN,
Roche shall provide to INVITROGEN, from time to time as appropriate, an up-dated
list of its worldwide patent portfolio directed to POLYMERASE PATENT RIGHTS.
Enzyme/PCR Research Products 28 v.2061097
<PAGE>
S C H E D U L E 2
ROCHE PATENTED ENZYMES(1) licensed herein:
a) native Taq DNA Polymerase, full length, unmutated
b) recombinant Taq DNA Polymerase, full length, unmutated
c) Tth DNA Polymerase, full length, unmutated (native or recombinant)
- ----------------
(1) To the extent that any of the enzymes listed above may be covered by third
party patent rights, no rights under such third party patent are hereby
granted or implied.
Enzyme/PCR Research Products 29 v.2061097
<PAGE>
A P P E N D I X A
APPLICATIONS FIELDS
FORENSICS AND HUMAN IDENTITY APPLICATIONS
1. "Forensic and Human Identity Applications" shall mean the forensic
analysis of human genetic material for use in, or in preparation for,
legal proceedings, but shall exclude parentage determination except in
cases of sexual assault investigation. This field specifically excludes
tissue typing.
2. *
ENVIRONMENTAL TESTING APPLICATIONS
1. "Environmental Testing Applications" shall mean testing and monitoring
environmental samples, including, without limitation, for the purpose of
detecting the presence or absence or amount of any organism or
microorganism (including, without limitation, viruses and bacteria),
whether living, dead or extinct, or their remains.
2. *
AGRICULTURAL PLANT APPLICATIONS
1. "Agricultural Plant Applications" shall mean diagnostic applications in
plants, including, without limitation, the diagnosis of a disease or
condition, the diagnosis of susceptibility or resistance to a disease or
condition, or a choice of treatment of a disease or condition, the
determination of genetic traits for breeding purposes, or the
identification of a particular plant species.
2. *
ANIMAL IDENTITY TESTING AND POSITIVE TRAIT BREEDING APPLICATIONS
1. "Animal Identity Testing Applications" shall mean identity testing for
animals (other than humans) whether living, dead or extinct, or their
remains, including, without limitation, parentage determination.
"Positive Trait Breeding Applications" shall mean the determination of
genetic traits other than disease-related traits for breeding purposes.
2. *
* "CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION."
Enzyme/PCR Research Products 30 v.2061097
<PAGE>
FOOD TESTING APPLICATIONS
1. "Food Testing Applications" shall mean the detection and/or analysis of
microorganisms in food or food/samples for quality assurance and quality
control purposes.
2. *
* "CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION."
Enzyme/PCR Research Products 31 v.2061097
<PAGE>
APPENDIX B
ASSAY TO DETERMINE UNITS OF ENZYME
1. Taq DNA polymerase
Taq DNA polymerase manufactured by INVITROGEN ("INVITROGEN-Taq") shall be
assayed under the following conditions, in parallel with an assay of
Roche Molecular Systems' AmpliTaq-Registered Trademark- DNA polymerase
(P-E catalogue numbers N-801-0060, N-801-1012). The activity of
INVITROGEN-Taq and AmpliTaq thus measured by INVITROGEN shall be
normalized to the concentration stated by RMS for the AmpliTaq.
Unit Definition: One unit of enzyme is defined as the amount that
will incorporate 10nmoles of dNTPs into acid
insoluble material per 30 minutes at 74 deg. C under
the analysis conditions below.
Analysis conditions: 25mM TAPS (tris-(hydroxymethyl)-methyl-amino-
propane-sulfonic acid, sodium salt) pH 9.3 (at
25 deg. C); 50mM KCl; 2mM MgCl(2);
1mM Beta-mercaptoethanol; 200muM each dATP, dGTP,
dTTP; 100muM [infinity - (32)P]-dCTP (0.05 to
0.1 Ci/mmole); activated salmon sperm DNA, mixed in
a final volume of 50mul and incubated at 74 deg. C
for 10 minutes. The salmon sperm DNA is activated by
a modification of the methods in reference 1.
The assay mixture (without enzyme) is prepared fresh daily and 45mul
aliquots (0 deg. C) are mixed with 5mul of Taq DNA polymerase diluted in
25mM Tris-HCl pH 8, 50mM KCl, 100mug/ml autoclaved gelatin, 1mM
Beta-mercaptoethanol, 0.5% (w/v) NP40 and 0.5% (w/v) Tween20.
Reactions are initiated with addition of enzyme and placed at 74 deg. C.
Reactions are quenched after 10 minutes with the addition of 10mul of
60mM EDTA and placed at 0 deg. C. Aliquots (50mul) are diluted with 1ml
of 2mM EDTA containing 50mug/ml sheared salmon sperm DNA, and precipitated
by the addition of 1 ml 20% (w/v) trichloroacetic acid and 2% (w/v)
sodium pyrophosphate, and incubated at 0 deg. C for 15 min. Precipitated
DNA is collected on GF/C filter discs (2.4 cm) and washed extensively
with 5% trichloroacetic acid and 2% sodium pyrophosphate (7 x 5 ml), then
95% ethanol (5ml), dried and counted.
- ------------------------
(1) Richardson, C.C. 1966. DNA Polymerase from Escherichi coli. in PROCEDURES
IN NUCLEIC ACID RESEARCH eds. Cantoni G.L. and Davies, D.R. Harper &
Row, New York. p. 264.
Enzyme/PCR Research Products 32 v.2061097
<PAGE>
Activity concentration is determined from replicate assays (at least 3)
of replicate parallel, serial dilutions (at least 3) that yield 20-90
pMoles dCMP incorporation in the assay.
Activated salmon sperm DNA is used at a concentration that provides
linear incorporation values with 20-100 mU of enzyme. This DNA
concentration usually represents 12.5-20mug/assay.
II. INVITROGEN ENZYMES AND ROCHE PATENTED ENZYMES OTHER THAN TAQ DNA
POLYMERASE
INVITROGEN ENZYMES shall be assayed in reference to AmpliTaq DNA
polymerase (or another enzyme manufactured by ROCHE which is more
comparable to the particular INVITROGEN ENZYME) in a manner similar to
that described above. The analysis conditions shall be adapted to
reflect the optimal activity conditions for each such INVITROGEN ENZYME.
Further, the effectiveness of such enzyme in producing amplified DNA in
the PCR PROCESS shall be determined in comparison with AmpliTaq DNA
polymerase under the optimal conditions for each enzyme. This
determination shall be performed as follows:
TEMPLATE: Bacteriophage Lambda DNA
TARGET: The 500 basepair fragment of bacteriophage lambda DNA extending
from nucleotides 7131 to 7630 will be the target for amplification.
Note: The template and primers are available in the GeneAmp-Registered
Trademark- Lambda Control Reagents (Part No. N808-0008) from Perkin-Elmer.
PRIMERS:
5'-GATGAGTTCGTGTCCGTACAACTGG-3' (complement of - strand: Nucleotides
7131-7155)
5'-GGTTATCGAAATCAGCCACAGCGCC-3' (complement of + strand: Nucleotides
7606-7630)
CONDITIONS:
200muM each dATP, dCTP, dGTP, dTTP, 1ng/100mul. template, 1muM each primer.
For AmpliTaq DNA polymerase other components are: 10mM Tris-HCl pH8.3,
1.5mM MgCl(2) and 50mM KCl.
For INVITROGEN Enzyme, buffer pH and concentration, and MgCl(2) and KCl
concentrations should be optimized for the INVITROGEN enzyme.
Enzyme/PCR Research Products 33 v.2061097
<PAGE>
The PCR should be carried out for 25 cycles.
From the comparative yield of specific 500 basepair fragment, a "PCR
Effectiveness Ratio" will be derived to be used in determining the
ROYALTY UNIT as specified in Section 1.16. The Parties agree that
calculation of such a ratio is complex and the data supporting the
determination of the ratio must be reviewed and approved by ROCHE on a
case by case basis.
III. For purposes of calculating royalties owed on products, the concentration
of enzyme (units per volume) reported must be within * of the actual
activity measured by the above assays. The volume of enzyme reported
to be in a product must be within +/- * of the actual measurable volume.
* "CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION."
Enzyme/PCR Research Products 34 v.2061097
<PAGE>
APPENDIX C
NOTICES TO PURCHASER
1. LICENSE STATEMENT FOR USE ON ROCHE PATENTED ENZYMES AND INVITROGEN ENZYMES
DESIGNED AND SOLD FOR USE IN AMPLIFICATION PATENT RIGHTS AND/OR SEQUENCING
PATENT RIGHTS.
NOTICE TO PURCHASER: LIMITED LICENSE
A license under U.S. Patents 4,683,202, 4,683,195, 4,965,188, and 5,075,216
or their foreign counterparts, owned by Roche Molecular Systems, Inc. and
F. Hoffmann-La Rouche Ltd ("Roche"), has an up-front fee component and a
running-royalty component. The purchase price of this product includes
limited, nontransferable rights under the running-royalty component to use
only this amount of the product to practice the Polymerase Chain Reaction
("PCR") and related processes described in said patents solely for the
research and development activities of the purchaser when this product is
used in conjunction with a thermal cycler whose use is covered by the
up-front fee component. Rights to the up-front fee component must be
obtained by the end user in order to have a complete license to use this
product in the PCR process. These rights under the up-front fee component
may be purchased from Perkin-Elmer or obtained by purchasing an Authorized
Thermal Cycler. No right to perform or offer commercial services of any
kind using PCR, including without limitation reporting the results of
purchaser's activities for a fee or other commercial consideration, is
hereby granted by implication or estoppel. Further information on
purchasing licenses to practice the PCR Process may be obtained by
contacting the Director of Licensing at The Perkin-Elmer Corporation, 850
Lincoln Centre Drive, Foster City, California 94404 or at Roche Molecular
Systems, Inc., 1145 Atlantic Avenue, Alameda, California 94501.
2. LICENSED RESEARCH PRODUCTS DESIGNED AND SOLD FOR USE IN AMPLIFICATION
PATENT RIGHTS BUT NOT SUITABLE FOR USE IN SEQUENCING PATENT RIGHTS
NOTICE TO PURCHASER: LIMITED LICENSE
A license under U.S. Patents 4,683,202, 4,683,195 and 4,965,188 or their
foreign counterparts, owned by Roche Molecular Systems, Inc. and F.
Hoffmann-La Roche Ltd ("Roche"), has an up-front fee component and a
running-royalty component. The purchase price of this product includes
limited, nontransferable rights under the running-royalty component to use
only this amount of the product to practice the Polymerase Chain Reaction
("PCR") and related processes described in said patents solely for the
research and development activities of the purchaser when this product is
used in conjunction with a thermal cycler whose use is covered by the
up-front fee component. Rights to the up-front fee component must be
obtained by the end user in order to have a complete license. These rights
under the up-front fee component may be purchased from Perkin-Elmer or
obtained by purchasing an Authorized Thermal Cycler. No right to perform
or offer commercial services of any kind using PCR, including without
limitation reporting the results of
Enzyme/PCR Research Products 35 v.2061097
<PAGE>
purchaser's activities for a fee or other commercial consideration, is
hereby granted by implication or estoppel. Further information on
purchasing licenses to practice the PCR Process may be obtained by
contacting the Director of Licensing at The Perkin-Elmer Corporation, 850
Lincoln Centre Drive, Foster City, California 94404 or at Roche Molecular
Systems, Inc., 1145 Atlantic Avenue, Alameda, California 94501.
3. LICENSED RESEARCH PRODUCTS DESIGNED AND SOLD FOR USE IN SEQUENCING RIGHTS
NOTICE TO PURCHASER: LIMITED LICENSE
The purchase price of this product includes a limited, nontransferable
license under U.S. Patent 5,075,216 or its foreign counterparts, owned by
Roche Molecular Systems, Inc. and F. Hoffmann-La Roche Ltd ("Roche"), to
use only this amount of the product for DNA Sequencing and related
processes described in said patent solely for the research and development
activities of the purchaser. No license under these patents to use the PCR
process is conveyed expressly or by implication to the purchaser by the
purchase of this product. A license to use the PCR Process for certain
research and development activities accompanies the purchase of certain
reagents from licensed suppliers such as INVITROGEN when used in
conjunction with an Authorized Thermal Cycler, or is available from The
Perkin-Elmer Corporation. Further information on purchasing licenses to
practice the PCR Process may be obtained by contacting the Director of
Licensing at The Perkin-Elmer Corporation, 850 Lincoln Centre Drive, Foster
City, California 94404 or at Roche Molecular Systems, Inc., 1145 Atlantic
Avenue, Alameda, California 94501.
4. FOR USE ON RESEARCH PRODUCTS WHICH ARE NOT LICENSED RESEARCH PRODUCTS BUT
WHICH ARE SUPPORTED FOR USE IN PCR AND/OR WITH LICENSED RESEARCH PRODUCTS
NOTICE TO PURCHASER
This product is optimized for use in the Polymerase Chain Reaction ("PCR")
covered by patents owned by Roche Molecular Systems, Inc. and F.
Hoffmann-La Roche Ltd ("Roche"). No license under these patents to use the
PCR Process is conveyed expressly or by implication to the purchaser by the
purchase of this product. A license to use the PCR Process for certain
research and development activities accompanies the purchase of certain
reagents from licensed suppliers such as INVITROGEN when used in
conjunction with an authorized thermal cycler, or is available from The
Perkin-Elmer Corporation. Further information on purchasing licenses to
practice the PCR Process may be obtained by contacting the Director of
Licensing at The Perkin-Elmer Corporation, 850 Lincoln Centre Drive, Foster
City, California 94404 or at Roche Molecular Systems, Inc., 1145 Atlantic
Avenue, Alameda, California 94501.
5. Similar notices for use on products for RT and RT-PCR and for Licensed
Application Products will be provided as appropriate.
Enzyme/PCR Research Products 36 v.2061097
<PAGE>
SUMMARY ROYALTY REPORT APPENDIX D
for the Period _______ to ________ US or x-US: ___________
<TABLE>
<CAPTION>
Licensee: Invitrogen Corporation Field of Use: Enzyme/PCR Research Products
Effective Date: July 1, 1998 Royalty Rate: 15.5 cents/unit or 15% of Net Sales
- ------------------------------------------------------------------------------------------------------------------------------------
Units of Gross Invoice Discounts Number Royalty
Licensed Product Enzyme in Price of Allowed Net Sales of Product Determined on Royalty Due
Product Product (Explain) of Product Units Sold Enzyme or Net
Sales
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Check here if there were no sales for this period _______ TOTAL ROYALTY EARNED
-----------------------------------------------------
*Please attach supporting or supplemental data to this sheet. APPLICABLE CREDIT
-----------------------------------------------------
ROYALTY PAYMENT DUE
- ------------------------------------------------------------------------------------------------------------------------------------
I hereby certify the information set forth above is correct and complete with respect to the amounts due under
the applicable license agreement.
</TABLE>
By: Title: Date:
------------------------------ ---------------------- ---------
(authorized signature)
Name (PLEASE PRINT):
--------------------------------
Send to: Applied Biosystems Division, The Perkin-Elmer Corporation, 850 Lincoln
Centre Dr., Foster City, CA 94404
copy to: Roche Molecular Systems, Inc., 1145 Atlantic Avenue, Suite 100,
Alameda, CA 94501
Enzyme/PCR Research Products 37 v.2061097
<PAGE>
LICENSE AGREEMENT
This Agreement made this 10 day of May, 1990 by and between Molecular
Chimerics Corporation, a Wisconsin corporation doing business at 3802 Packers
Avenue, Madison, Wisconsin 53704 (hereinafter referred to as "LICENSOR"), and
Invitrogen, a California corporation having offices at 11588 Sorrento Valley
Road #20, San Diego, California 92121 (hereinafter referred to as "LICENSEE").
WHEREAS, LICENSOR has developed a proprietary cloning system for cloning
the products of PCR (polymerase chain reaction) procedures and maintains the
proprietary rights to this system;
WHEREAS, LICENSOR desires to have the technology incorporated in their
products sold throughout the world and recognizes that a successful marketing
effort requires advertising, manufacturing, warehousing, sales, distribution,
and customer service capability;
WHEREAS, LICENSEE manufactures, sells, and services products for molecular
biology research and has an established world-wide sales network and
distribution network; and
WHEREAS, LICENSEE desires to be licensed to sell the products which
incorporate the propietary cloning system developed by LICENSOR;
Therefore, in consideration of the mutual covenants contained herein,
LICENSOR and LICENSEE agree as follows:
ARTICLE 1 - DEFINITIONS
The following terms, when used in this Agreement, shall have the following
meanings:
1.1 "TA cloning" shall mean the proprietary direct cloning system
developed by LICENSOR for cloning the products of PCR processes including, but
not limited to, the preparation of vectors with a single thymidine overhang on
both ends to prevent self ligation and to accept DNA that has been synthesized
by Taq polymerase leaving a single adenine overhang.
1.2 "Know-how" and "trade secret" shall mean all information presently
known to LICENSOR which is necessary to manufacture and service kits for direct
TA cloning of PCR amplified DNA.
1.3 "Kit" shall mean a combination of reagents, enzymes, prepared vectors,
and instructions for TA cloning PCR amplified DNA directly without the addition
of linkers thereto.
<PAGE>
1.4 "Patent" shall mean any patents currently being considered, written,
or applied for based on the composition, process for manufacture, or
applications of the TA cloning technology.
1.5 "Net Domestic Sales" shall mean the revenues generated by sales of
LICENSOR's product in the United States less any legitimate refunds, returns,
or uncollectible bills derived from or resulting from sales of the kit.
1.6 "Net Foreign Sales" shall mean the revenues generated by sales of
LICENSOR's product outside of the United States less any legitimate refunds,
returns, or uncollectible bills derived from or resulting from the sales of the
kit.
ARTICLE 2 - GRANT OF RIGHTS
LICENSOR hereby grants to LICENSEE a field-of-use exclusive license to use
the TA cloning technology including the know-how and trade secrets appurtenant
thereto for the manufacture and sale of TA cloning products and kits anywhere in
the world. The field of use for which the license is granted is for kits and
reagents for the cloning of PCR amplified DNA products, but specifically
excluding reagents and kits specifically designed for sequencing, as opposed
to cloning, procedures and specifically excluding reagents and kits designed
for use with phage M13 vectors.
LICENSOR specifically reserves the right to
*
If a
patent is filed or obtained through the procedure described in this Agreement,
such patent shall also be subject to the same field-of-use exclusive license
granted herein to the know-how and trade secret TA cloning technology.
ARTICLE 3 - PAYMENTS
3.1 Payment Schedule.
In consideration for the delivery of the know-how and trade secret
information relating to TA cloning to LICENSEE, and the grant of right to
manufacture and sell kits for TA cloning as described above, LICENSEE will
pay an initial licensing fee to LICENSOR of * , due and
payable in four (4) installments, * upon
delivery of the trade secret and know-how information to LICENSEE, and an
additional amount equal to * * due each successive
thirty (30) days thereafter. In addition, LICENSEE shall pay to LICENSOR a
royalty equal to * of net domestic sales of any reagents or kits
incorporating the TA cloning technology as described herein and *
* foreign sales of such regents or kits. The initial
licensing fee shall not be applied against subsequent royalty obligations.
If a patent is obtained covering the TA
* "Confidential portion has been omitted and filed separately with the
Commission."
-2-
<PAGE>
cloning technology, the royalty rate shall be * * of net
domestics sales and * * of net foreign sales of any such
reagents or kits during the term of said patent.
3.2 Payment of Royalties.
Royalty payments shall be made quarterly within sixty (60) days of the end
of each calendar quarter of the license.
3.3 Royalty Reports.
LICENSEE shall furnish to LICENSOR a written report stating the quantity
and description of kits sold by LICENSEE and the nature of sales, domestic or
foreign, and the returns, refunds, and uncollected bills resulting from or
derived from sales of said kits and such reports shall accompany each royalty
payment delivered from LICENSEE to LICENSOR.
ARTICLE 4 - PATENT
LICENSEE, at its discretion, may request LICENSOR to file an
application for a patent in the United Sates or Canada on the TA cloning
technology. If LICENSEE desires that such a patent be filed, LICENSEE agrees
to pay to LICENSOR the reasonable costs of their attorney's fees and expenses
in procuring said patent, said fees to be credited against royalties
otherwise due from LICENSEE to LICENSOR. If a patent actually issues in the
United States covering this product, the royalty amount for all kits covered
by the claims of any such U.S. patent owed by LICENSEE to LICENSOR shall be
adjusted as per Article 3 during the term of such patent.
ARTICLE 5 - DUTIES OF LICENSOR
LICENSOR agrees to inform LICENSEE in a confidential basis of any
innovations or improvements to TA cloning that could improve the kit or would
result in additional products. Should any additional products result from the
research conducted by LICENSOR relating to TA cloning in the field of use
described herein, LICENSOR shall grant to LICENSEE the right to negotiate in
good faith the right to market those products.
ARTICLE 6 - ATTRIBUTION
LICENSOR reserves the right to and intends to submit for publication a
scientific paper describing the TA cloning technology. If such a paper is
published, LICENSEE agrees, upon the written request of LICENSOR, to include a
citation to the published paper in any printed advertisements or printed
promotional pieces which LICENSEE may choose to print about its reagents or kits
for the TA cloning technology.
-3-
* "CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION."
<PAGE>
ARTICLE 7 - PATENTS TO OTHERS
LICENSOR expressly disclaims any warranty, express or implied, as to
whether the making, using or selling of reagents and kits using the TA
cloning technology might infringe any patents owned by any other entities.
ARTICLE 8 - TERM AND TERMINATION
8.1 Term
The term of this Agreement shall commence as of the date thereof and shall
expire on the tenth anniversary of the date hereof.
8.2 Termination
This Agreement may be terminated by either party effective immediately upon
written notice if:
(a) The other party has committed a material breach of the terms and
provisions of this Agreement, unless such breach has been cured within
thirty (30) days following written notice of said breach.
(b) The other party dissolves or liquidates, makes a general
assignment for the benefit of creditors, files a voluntary petition under
the federal estate bankruptcy or insolvency laws, or has filed against it a
petition which is not dismissed within ninety (90) days after filing.
8.3 Effects of Termination
Upon the termination or expiration of this Agreement the obligations of
LICENSEE and LICENSOR shall immediately terminate provided that LICENSEE shall
have the right to continue to sell kits and components of kits as described
herein.
ARTICLE 9 - RELATIONSHIP OF THE PARTIES
Each party shall act as an independent contractor in carrying out its
obligations under this Agreement. Nothing contained in this Agreement shall
be construed to imply a joint venture, partnership, or a principal-agent
relationship between the parties, and neither party by virtue of the
Agreement shall have the right, power, or authority to act or create any
obligation, express or implied, on behalf of the other party. This Agreement
shall not be construed to create rights, express or implied, on behalf of or
for the use of any party aside from LICENSEE and LICENSOR.
-4-
* "CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION."
<PAGE>
ARTICLE 10 - ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties and
supersedes all written, oral or prior agreements and understandings. This
Agreement shall be construed in accordance with the laws of the State of
Wisconsin.
LICENSOR:
Molecular Chimerics Corporation
By: /s/ David Mead
--------------------------------
Title: Research Director
-----------------------------
LICENSEE:
Invitrogen
By: [Illegible] 5/30/90
--------------------------------
Title: President
-----------------------------
-5-
<PAGE>
[Invitrogen LOGO]
PURCHASE AGREEMENT
THIS AGREEMENT is made and is effective this 1st day of, JULY 1994, (the
"Effective Date") by and between CAYLA having its technical offices located at
Centre Commercial de Gros, Avenue de Larrieu, 31094 Toulouse Cedex, France and
INVITROGEN CORPORATION, a California corporation having a principal place of
business at 3985-B Sorrento Valley Blvd, San Diego, CA 92121.
RECITALS
WHEREAS, Cayla has the knowledge and facilities for the production of
Phleomycin, Zeomycin, Zeocin, and Neocin (G418).
WHEREAS, Invitrogen desires to develop the Materials as products for
research markets, and desires thereafter to market and distribute the Materials
as widely as possible.
1. DEFINITIONS
1.1 "Materials" means the antibiotics Phleomycin, Zeomycin, Zeocin, and
Neocin (G418) produced by Cayla.
1.2 "Affiliate" means Invitrogen and any company or other legal entity
other than Invitrogen in whatever country organized, which directly controls, is
controlled by, or is under common control with Invitrogen. The term "control"
means possession, direct or indirect, of the powers to direct or cause the
direction of the management and policies of Invitrogen, whether through the
ownership of voting securities, by contract or otherwise.
1
<PAGE>
2. GRANT
2.1 Cayla hereby grants to Invitrogen and its Affiliates a
non-exclusive 3 year worldwide market with preferential pricing under Cayla's
Rights to use the Materials to make and/or sell Licensed Products.
2.2 *
3. TECHNOLOGY PRICING
3.1 Invitrogen will buy Phleomycin, Zeomycin, Zeocin, and Neocin (G418)
solely from Cayla for a price to be determined. Discounted price structure
dependent upon quantity purchased.
3.2 Invitrogen shall be granted most favored pricing on Phleomycin,
Zeomycin, and Zeocin. Third parties that purchase these antibiotics for
commercialization from Cayla will be charged * as much for the
material as Invitrogen establishing a * price ratio.
4. PURCHASE ORDERS
4.1 Purchase orders for the Material placed by Invitrogen will be subject
to the terms and conditions stated in the Purchase Order Form (Appendix I).
5. AGREEMENT TERM
5.1 This Agreement shall be in full force and effect from the Effective
Date and shall remain in effect for three (3) years unless terminated earlier in
accordance with other provisions in this Agreement or by operation of law.
5.2 In the event that Invitrogen shall at any time fail to perform any
term of this Agreement, then Cayla may give written notice of such default
(Notice of Default) to Invitrogen. If Invitrogen should fail to repair the
default within ninety (90) days of the effective date of such notice, Cayla
shall have the right to terminate this Agreement by a second written notice
(Notice of Termination) to Invitrogen. If a Notice of Termination is sent to
Invitrogen, this Agreement shall automatically terminate on the effective date
of such notice.
5.3 This Agreement may be terminated by Cayla at its option and without
prejudice to any other remedy to which it may be entitled at law or in equity,
or elsewhere under this Agreement, by giving written notice of termination to
Invitrogen if the latter should:
5.3(a) be adjudicated a voluntary or involuntary bankrupt upon
which necessary strains and protocols shall be and continue
to be provided to Invitrogen in order to continue sales
and/or custom work of Licensed Material.
2
* "CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION."
<PAGE>
5.3(b) institute or suffer to be institute any proceeding for a
reorganization or rearrangement of its affairs; or
5.3(c) make an assignment for the benefit of creditors; or
5.3(d) become insolvent or have a receiver of its assets or
property appointed; or
5.3(e) allow any money judgment against it to remain unsatisfied
for a period of thirty (30) days or longer
5.4 Invitrogen will be allowed to renew this non-exclusivity purchase
agreement under most favored conditions provided sales have reached significant
values at the termination date.
6. NOTICES
6.1 Any notice required on permitted to be given under this Agreement
shall be deemed to have been properly given for all purposes if mailed by
first-class certified or registered mail to the addresses given:
To Invitrogen:
Invitrogen Corporation
3985-B Sorrento Valley Blvd.
San Diego, CA 92121
Attention: Mr. Joseph Fernandez
Vice-President, Business Development
To Cayla:
Centre Commercial de Gros
Avenue de Larrieu
31094 Toulouse, Cedex
France
Attention: Jean-Louis Bousque
Gerant
3
<PAGE>
IN WITNESS WHEREOF, both Cayla and Invitrogen have executed this Agreement,
in duplicate originals, by their respective officers.
INVITROGEN CORPORATION
By /s/ Joseph Fernandez
---------------------------------
Signature
Name: Joseph Fernandez
Title: Vice President, Business Development
Date: 6/10/94
CAYLA
By /s/ Jean-Louis Bousque
---------------------------------
Signature
Name: Jean-Louis Bousque
Title: Gerant
Date: 6/24/94
4
<PAGE>
AMENDMENT TO PURCHASE AGREEMENT
Effective as of 5/31/96, 1996, INVITROGEN CORPORATION ("INVITROGEN") a
corporation organized and existing under the laws of the State of California
and having its principal place of business at 3985 B Sorrento Valley
Boulevard, San Diego, California, 92121 and CAYLA, a corporation of the state
of France, with its technical offices located at ZI Nontaudran-5 rue Jean
Rodier, 31400 Toulouse Cedex, France, agree as follows:
ARTICLE I
BACKGROUND
SECTION 1.1. INVITROGEN and CAYLA are parties to a purchase agreement
made effective July 1, 1994 (the "Purchase Agreement") under which CAYLA
granted INVITROGEN rights to purchase certain materials at preferential
prices, and to use these materials to make and/or sell products.
SECTION 1.2. INVITROGEN and CAYLA wish to amend the Purchase Agreement and
desire to hereby document the amendments.
SECTION 1.3. Terms used in this agreement have the same meanings in the
Purchase Agreement except as amended hereby.
ARTICLE II
AMENDMENTS
SECTION 2.1. AMENDMENTS TO ARTICLE 2.1. The Purchase Agreement is
hereby amended by changing ARTICLE 2.1. of the Purchase Agreement to read in its
entirety as follows:
2.1. CAYLA hereby grants to Invitrogen and its Affiliates a
non-exclusive 3.5 year (expiring on December 31, 1997) worldwide
market with preferential pricing under CAYLA's Rights to
use the Materials to make and/or sell Licensed Products.
SECTION 2.2. AMENDMENT TO ARTICLE 5.1. The Purchase Agreement is hereby
amended by changing ARTICLE 5.1. of the Purchase Agreement to read in its
entirety as follows:
5.1. This Agreement shall be in full force and effect from the
Effective Date and shall remain in effect for 3.5 years (expiring on
December 31, 1997) unless terminated earlier in accordance with other
provisions in this Agreement or by operation of law.
SECTION 2.3. AMENDMENT TO ARTICLE 5.4. The Purchase Agreement is hereby
amended by changing ARTICLE 5.4 of the Purchase Agreement to read in its
entirety as follows:
5.4 Invitrogen will be allowed to renew this non-exclusive purchase
agreement with preferential pricing for an additional three years
provided
(a) revenues payable to CAYLA (including royalties, licensing fees,
and purchases of materials, excluding hygromycin B) reaches
AMENDMENT TO PURCHASE AGREEMENT Page 1 of 2
INVITROGEN AND CAYLA
* "CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION."
<PAGE>
*
(b) revenues payable to CAYLA (including royalties, licensing fees,
and purchases of materials, excluding hygromycin B) reaches *
(C) Revenues payable to CAYLA including royalties, licensing fees,
and purchases of materials, excluding hygromycin B) *
revenues payable the preceding year of *
SECTION 2.4. The Purchase Agreement is hereby amended by adding ARTICLE
5.5 of the Purchase Agreement to read in its entirety as follows:
5.5 In the event that Invitrogen does not reach one of the targets
indicated in Article 5.4 a, b and c, Invitrogen will be allowed to
renew this non-exclusive purchase agreement with most favorable
terms.
IN WITNESS WHEREOF, the parties have caused this Amendment to the License
Agreement to be executed by their duly authorized representatives.
For and on behalf of: For and on behalf of:
INVITROGEN CORPORATION CAYLA
By: /s/ [ILLEGIBLE] By: /s/ Jean-Louis Bousque
---------------------------------- ---------------------------------
Title: V.P. Business Development Title: Gerant
------------------------------- ------------------------------
Date: 5/14/96 Date: 5/31/96
---------------------------------- ---------------------------------
AMENDMENT TO PURCHASE AGREEMENT Page 2 of 2
INVITROGEN AND CAYLA
* "CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION."
<PAGE>
[LOGO]
8 September 1998
Mr. Jean-Louis Bousque
CAYLA
5 rue Jean Rodier
31400 Toulouse
FRANCE
RE: ZEOCIN-TM- AND RELATED PRODUCTS
Dear Mr. Bousque,
I am writing to confirm the points we have agreed on with respect to the
Zeocin-TM- purchase agreement and the Ble gene license:
Notwithstanding anything in our prior agreements and amendments, we now agree as
follows:
1) Royalties payable on plasmids containing the Ble gene shall be * per
plasmid. Minimum royalty payments to maintain exclusivity for the Ble gene
shall be * for 1998. The license will continue to be exclusive as long as
Invitrogen makes minimum royalty payments which increase by * annually.
2) Minimum payments to CAYLA to maintain preferential pricing in the Zeocin-TM-
supply agreement shall be as follows:
a) minimum payments shall increase annually by the lesser of i) * or ii)
* . The minimum for 1998 is *
b) the following shall be credited against these minimums:
i) All antibiotic purchases from CAYLA, excluding Hygromycin B;
ii) *
iii) Royalties paid under the Ble license;
iv) Price of Zeocin/mg x 5mg x number of pouches of FastMedia products
containing Zeocin;
v) * purchases (if any).
3) The price of Zeocin shall be * from September 1, 1998 to September 1,
1999.
Sincerely, ACCEPTED & AGREED TO:
/s/ Warner R. Broaddus /s/ Jean-Louis Bousque, Gerant
Warner R. Broaddus Jean-Louis Bousque, Gerant
General Counsel CAYLA SARL
[LETTERHEAD]
* "CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION."
<PAGE>
LICENSE AGREEMENT
(SK# 2302)
This Agreement, effective on the date signed by the last party to sign below
(the "Effective Date"), is made by and between
SLOAN-KETTERING INSTITUTE FOR CANCER RESEARCH, a not-for-profit corporation
organization under the law of New York state and having its principal place of
business at 1275 York Avenue, New York, NY 10021 (hereinafter "SKI"), and
INVITROGEN, a business corporation having offices at 3985 B Sorrento Valley
Blvd., San Diego, California 92121 (hereinafter "Invitrogen").
In consideration of the mutual covenants contained herein, both parties AGREE AS
FOLLOWS:
ARTICLE 1
BACKGROUND
1.1 SKI owns certain patent rights and technical information relating to Novel
Approaches to Molecular Cloning and Polynucleotide Synthesis using Vaccinia
DNA Topoisomerase (TECHNOLOGY) developed by Dr. Stewart Shuman at Memorial
Sloan-Kettering Cancer Center.
1.2 Invitrogen wishes to obtain a license from SKI to practice LICENSED PATENTS
relating to TECHNOLOGY.
ARTICLE 2
DEFINITIONS
2.1 FIELD OF USE of this agreement is all uses in all markets.
2.2 LICENSED PATENTS shall mean the United States patent application Serial No.
08/358,344, the inventions described and claimed therein, and any division,
continuations, continuations-in-part to the extent that their claims are
dominated by existing LICENSED PATENTS, and patents issuing thereof, and
any and all foreign patents and patents applications corresponding thereto;
all of which will be automatically incorporated in and to this Agreement
and shall periodically be added to Appendix A attached to this Agreement
and made a part hereof.
2.3 LICENSED PRODUCTS shall mean any products claimed in LICENSED PATENT or
products made or services provided in accordance with or by means of the
processes claimed in LICENSED PATENTS.
2.4 NET SALES shall mean the total of all charges billed or invoiced for sales
or lease of LICENSED PRODUCTS; less normal trade discount actually allowed;
credit allowed for returned or damaged goods; transportation costs; and
sales and other excise taxes paid directly with respect to the sale of
LICENSED PRODUCTS.
ARTICLE 3
LICENSE GRANT
3.1 SKI hereby grants to Invitrogen an exclusive, world-wide license, to use
and practice LICENSED PATENTS within the FIELD OF USE.
<PAGE>
3.2 SKI grants to Invitrogen the right to sublicense third parties, providing
that, prior to signing any sublicense agreement;
A. SKI is fully informed of proposed terms of the sublicense agreement
and proposed terms of all collateral agreements (such as cross-licensing or
supply agreements that are related to the sublicense and which have cash
and/or non-cash value), so that SKI will have knowledge of the full value
received by Invitrogen from each sublicensee whether in the form of fees,
royalties or other compensation of whatever form;
B. each sublicense agreement includes a provision that it subject to the
terms of this Agreement; and
C. SKI approves of the sublicense agreement, which approval shall not be
unreasonably withheld.
3.3 All grants under this Article 2 are subject to rights of the U.S.
government under 35 USC Sections 200 and 212.
3.4 SKI explicitly retains the right to use and practice the LICENSED PATENTS
for any purpose.
ARTICLE 4
PAYMENTS
4.1 Within 30 days after the Effective Date, Invitrogen shall pay to SKI *
* as a fully paid, non-refundable license fee. *
of this fee is fully creditable against royalties to be paid according to
section 4.3 accrued in the first twelve (12) months of this Agreement.
4.2 In consideration of the exclusivity of this license, Invitrogen agrees
to pay a minimum royalty of * United States dollars
commencing with the second royalty period as defined in
paragraph 4.3(c). Minimum payments shall be made at the same intervals
as regular royalty payments, on a PRO RATA basis. Failure to made such
payments will constitute a material breach and be subject to termination
as defined in Article 7.2 herein.
4.3 For the license granted in Article 2, Invitrogen shall pay to SKI the
amount of royalty of NET SALES indicated as follows:
a). LICENSED PRODUCTS sold alone: * of NET SALES
b). LICENSED PRODUCTS sold in combination such as a Kit:
* for annual NET SALES under *
* for annual NET SALES between *
* for annual NET SALES greater than *
c). All royalties are payable annually for the period of January 1 -
December 31. They shall be due sixty (60) days after the end of the
year.
d). Where Invitrogen sells LICENSED PRODUCTS together with third-party
licensed technology, the royalty rate due hereunder shall be reduced
by * for every * of royalty due to third parties.
However, the royalty payable will never be lower than *
* of the then running royalty rate.
* "CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION."
<PAGE>
4.4 If the LICENSED PRODUCTS is sold in a kit in combination with other active
products or components that are not LICENSED PRODUCTS, NET SALES for
purposes of determining royalties shall be the unit equivalent price of
the LICENSED PRODUCTS if sold separately.
4.5 For purposes of determining royalties on foreign (Non-U.S.) sales of
LICENSED PRODUCTS, NET SALES shall be determined by multiplying the U.S.
catalog price for each such LICENSED PRODUCTS by the number of such
LICENSED PRODUCTS sold during the period for which royalties are due
(i.e., NET SALES = Foreign Units Sold x U.S. catalog price). Such
determination of NET SALES shall only be valid as long as LICENSED
PRODUCTS are substantially manufactured in the United States.
4.6 In the case of sublicense, Invitrogen shall pay SKI * of the non-royalty
sublicense income (e.g. License issue fees, license maintenance fee,
etc.), and * of royalty sublicense income. Any non-cash consideration
received by Invitrogen from such sublicense shall be valued at its fair
market value as of the date of receipt by Invitrogen.
4.7 Within Thirty (30) Days of the Effective Date Invitrogen shall reimburse
SKI * * , for documented out of pocket expenses
reasonably incurred by SKI for the preparation, prosecution and
maintenance of LICENSED PATENTS prior to the Effective Date. Such costs
will be fully creditable against royalties payable in *
* increments over three (3) years beginning with the second royalty
period as defined in paragraph 4.3(c).
Invitrogen shall take over control of the preparation, filing, prosecution
and maintenance of LICENSED PATENTS as of the Effective Date and shall pay
all related expenses reasonably incurred thereafter. SKI shall promptly
execute any documents reasonably requested by Invitrogen or its counsel in
connection with such preparation, filing, prosecution or maintenance.
Such control shall be exercised exclusively by Invitrogen and includes,
without limitation the right to decide what to claim, in what
jurisdictions to prosecute, and the choice of attorneys, except that the
attorneys prosecuting the U.S. patents as of Effective Date shall not be
changed absent good cause. Invitrogen shall consult with SKI as to the
preparation, filing, prosecution and maintenance and shall use prudent and
sound business judgment in all decisions relevant thereto.
In the event Invitrogen elects not to file an application, or elects to
abandon an application in any jurisdiction, SKI may, at its option file or
continue prosecution of such application at its own expense and under its
exclusive control. Such applications that become issued patents will not
be part of LICENSED PATENTS.
4.8 Payment shall be made by remittance to Sloan-Kettering Institute for
Cancer Research. Payment shall show "payment, contract SK# 2302" on the
check stub, and shall be sent to
Office of Industrial Affairs
Memorial Sloan-Kettering for Cancer Research
1275 York Avenue
New York, New York 10021
ARTICLE 5
INFRINGEMENT
5.1 SKI reserves the right to take action, in its own name and its own
expense to enforce LICENSED PATENTS against infringement or
threatened infringement. In the event that SKI takes action against
infringers, Invitrogen shall give reasonable assistance (not to
exceed 40 hours labor) to
* "CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION."
<PAGE>
SKI and any damages recovered shall belong to SKI. However, Invitrogen
shall have the right to join in such action in order to recover damages
for injury to Invitrogen resulting from said infringement, and in that
event, each party's expenses shall be reimbursed from their respective
recovered damages.
5.2 In the event that SKI decide not to take action against infringer, SKI
shall notify Invitrogen and Invitrogen may initiate legal proceeding
against infringer at Invitrogen's expense. Failure of SKI to provide such
notice within thirty (30) days of letter request from Invitrogen shall be
deemed the equivalent of such notice. Invitrogen, may at its' option join
SKI as a plaintiff. SKI shall give reasonable assistance (not to exceed 40
hours labor) to Invitrogen and damages recovered shall belong to
Invitrogen. However, SKI shall have the right to join in such action in
order to recover damages for injury to SKI resulting from said
infringement, and in that event, each party's expenses shall be reimbursed
from their respective recovered damages.
ARTICLE 6
CONFIDENTIALITY
6.1 Invitrogen shall not disclose any information to third parties furnished
to Invitrogen and marked "Confidential" by SKI or by third parties on
behalf of SKI related to LICENSED PATENTS or know-how related to the
LICENSED PATENTS ("Confidential Information") during the term of this
Agreement.
6.2 Obligations of confidentiality shall not apply to information:
a) for which disclosure was authorized by both parties in writing;
b) in Invitrogen's possession at the time of disclosure by SKI and
not directly or indirectly obtained from SKI;
c) which is or may hereafter be publicly available through no
wrongful act of Invitrogen:
d) lawfully received by Invitrogen from a third party under no
obligation of confidentially; or,
e) required to be disclosed by law, government regulations or court
order with prior notice to SKI.
ARTICLE 7
TERM AND TERMINATION
7.1 The term of this agreement is from the Effective Date until the
expiration date of the last to expire of LICENSED PATENTS unless
earlier terminated according to this article 7.
7.2 Failure by Invitrogen or SKI to comply with any of their respective
obligations and conditions contained in this Agreement shall entitle the
other party to the party in default written notice requiring it to cure
such fault. If such default is not cured within sixty (60) days after
receipt of such notice, the notifying party shall be entitled (without
prejudice to any of its other rights conferred on it by this Agreement) to
terminate this Agreement by giving notice to take effect immediately. The
right of either party to terminate this Agreement shall not be affected in
any way by its waiver of, or failure to take action with respect to, any
previous default.
7.3 Should the U.S. patent application(s) under LICENSED PATENTS be ultimately
rejected for any reason this agreement shall terminate.
If at any time all or substantially all claims within the LICENSED PATENTS
are declared invalid, void or unenforceable by any court of final resort or
in a judgment from which no appeal is taken, no royalty shall thereafter be
payable hereunder in the relevant jurisdiction. If at any time, such
claims are declared invalid, void or unenforceable by any court, and review
by a
* "CONFIDENTIAL PORTION HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION."
<PAGE>
higher court is sought, then royalties shall continue to accrue, but shall
not become due unless and until the court's judgment is reversed
7.4 Upon termination of this License for any reason, all rights granted
hereunder shall revert to SKI for the solo benefit of SKI.
7.5 At least forty five (45) days prior to filing a petition in bankruptcy,
each party must inform the other of its intention to file the petition or
of another's intent to file an involuntary petition in bankruptcy. Failure
to conform to this be deemed to be a material, pre-petition incurable
breach.
7.6 Obligations under Article 5, 6 and 8 shall survive termination of this
agreement
ARTICLE 8
PRODUCT LIABILITY
8.1 Invitrogen shall at all times, during the term of this Agreement and
thereafter, indemnify and hold SKI and its affiliates and their directors,
officers, agents and employees, harmless against all claims and expenses,
including legal expenses and reasonable attorneys' fees, arising out of the
death of or injury to any person or persons or out of any damage to
property and against any other claim, proceeding, demand, expense and
liability of any kind whatsoever resulting from the action of Invitrogen
hereunder in the production, manufacture, sales, use, consumption or
advertisement of LICENSED PRODUCTS, subject to SKI giving Invitrogen prompt
notice of any such claims, giving Invitrogen full control of the defense or
settlement of any such claims.
8.2 Nothing in this Agreement shall be construed as a warranty or
representation that anything made, used, sold or otherwise disposed of any
license granted in this Agreement is or will be free from infringement of
patents of third parties.
8.3 Invitrogen shall not use the name of SKI or any affiliate, inventor,
employee or agent of SKI, nor any variant of any of them, for advertising,
publicity, offering, promotion or sales purposes without the prior written
consent of SKI.
ARTICLE 9
MISCELLANEOUS
9.1 Any notice given by either party hereunder shall be given in writing by
registered or certified mail addressed to the party for whom it is intended
at the address set forth below or such other address as such party may
subsequently designate in writing.
For SKI For Invitrogen
Mr. James S. Quirk Mr. Joseph M. Fernandez
Senior Vice President Vice President
Sloan-Kettering Institute for Cancer Invitrogen Corporation
Research Business Development
1275 York Avenue 3985 B Sorrento Valley Boulevard
New York, NY 10021 San Diego, CA 92121
9.2 The construction, validity, and performance of this Agreement shall be
governed in all respects by the laws of the State of New York, but the
scope and validity of any LICENSED PATENTS shall be governed by the
applicable laws of the country granting such patent.
9.3 Neither party may assign this Agreement or any rights granted hereunder in
whole or in part without the prior written consent of the other party
except to the successor to, or assignee of, all
<PAGE>
or substantially all of the business, assets, and goodwill of the assigning
party with prior written notice to the other party.
9.4 This Agreement sets forth the entire Agreement and understanding between
the parties and to the subject matter of this Agreement, and merges all
prior discussions between them and this Agreement may not be superseded,
amended, or modified except by written agreement between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective duly authorized officers as of the day and year first above
written, all in duplicate original.
SLOAN-KETTERING INSTITUTE INVITROGEN CORPORATION
FOR CANCER RESEARCH
By: /s/ James S. Quirk By: /s/ Joseph M. Fernandez
------------------------------- -------------------------------
James S. Quirk Joseph M. Fernandez
Senior Vice President Vice President
Research Resources Management Business Development
Date: 1/22/97 Date: 1/16/97
------------------------------ -----------------------------
<PAGE>
APPENDIX A
The following comprise LICENSED PATENTS:
U.S. patent application serial No. 08/358,344, filed December 19, 1994
PCT International application No. PCT/US95/16099, filed December 12, 1995
<PAGE>
MORPHAGEN, INC.
STOCK PURCHASE AGREEMENT
This Agreement is entered into as of November 3, 1998 by and between
MorphaGen, Inc., a Delaware corporation, with its principal office located at
320 Delage Dr., Encinitas CA 92024 (the "Company"), Heidi Short, an individual
residing at 320 Delage Dr., Encinitas CA 92024 (the "Seller") and Invitrogen
Corporation, a Delaware corporation with its principal offices at 1600 Faraday
Ave., Carlsbad CA 92008 (the "Purchaser").
WHEREAS the parties executed a Memorandum of Terms for the purchase of all
outstanding shares of the Company, dated October 1, 1998 and the parties wish to
more fully define their agreement, NOW THEREFORE in consideration of the mutual
promises, covenants and conditions set forth in that Memorandum and below, the
parties mutually agree as follows:
1. SALE OF COMPANY SHARES
1.1 SALE OF OUTSTANDING SHARES Subject to the terms and conditions of
this Agreement at the Closing (as defined below), the Seller will sell and
deliver to Purchaser and Purchaser will purchase from the Company 975,000 shares
of Common Stock (the "Shares") for and in consideration of the obligations of
Purchaser set out in this Agreement, which shares represent all of the
outstanding equity of the Company with the exception of 109,850 shares of
Series A Preferred Stock currently owned by Purchaser.
1.2 DELIVERY OF COMPANY ASSETS & RECORDS At the Closing, Seller
shall further deliver to Buyer all of the assets of Company, both tangible and
intangible, including without limitation all equipment & supplies, cash,
securities and intellectual property. Intellectual property shall include
patents, copyrights, trademarks, trade secrets and the like owned by, assigned
to or assignable by prior agreement to the Company, specifically but without
limitation, those items listed in Schedule B hereto, together with all documents
related to any of the above. Seller & Company shall deliver to Purchaser all
books and records of the Company. Seller shall execute such further documents as
may be reasonably requested by Purchaser or its counsel in connection with the
transfer of Company, its assets, governance and operations to Purchaser.
2. SECURITIES OF PURCHASER
2.1 At the Closing, Purchaser will grant to Seller a
"non-statutory" option to purchase 50,000 shares of Purchaser's common stock
whose exercise price shall be $8.50. Said option shall be for a term of ten
years and the right to purchase 5,000 of the 50,000 shares shall vest upon
grant. The remainder of the option shall vest upon achievement by Purchaser
of either of the following:
a) execution of an agreement with a third party, wherein the third party
provides at least $200,000 for research, development or improvement of,
and/or purchase of rights to the technology described in Schedule B hereto
(the "Subject Technology"); or
Page 1 of 15
* "Confidential portion has been omitted and filed
separately with the Commission."
<PAGE>
b) discovery or production of a "Morphatide," as that term is defined in
patent applications within Subject Technology, which reproducibly binds a
protein with a binding constant of * or better.
2.2 At or before the Closing, Purchaser will offer to replace all
outstanding options for shares of Company with options to purchase 13,000
common shares of Purchaser, distributed PRO RATA according to the relative
number of Company options held by its optionees. Said options shall have an
exercise price of $8.50. The options shall be for a term of ten years and shall
be subject to time vesting over 2 years as follows: 50% of each option shall
vest one year from the Closing, the remaining 50% shall vest in equal monthly
installments over the subsequent 12 months.
3. ROYALTIES & FEES RELATED TO SUBJECT TECHNOLOGY
3.1 NET SALES For purposes of this Agreement, "Net Sales" means the
U.S. list price for products or services, less customary discounts and credits
or allowances given for rejected or returned products. If a product covered by a
Valid Claim within Subject Technology is sold in a kit in combination with other
significant active products or components that are not covered by such Valid
Claim and are not an integral part of the Morphatide application or use, Net
Sales for purposes of determining royalties shall be calculated by multiplying
Net Sales of the kit by the fraction A/(A+B), where A is the total U.S. list
price of the product if sold separately and B is the total of the U.S. list
prices of all other active products or components in the kit if sold separately.
If the component covered by a Valid Claim and the other significant active
components or products in the kit are not sold separately, Purchaser and Seller
shall agree on a Net Sales calculation for that kit. Net Sales for services
shall be calculated in the same manner where a service comprises steps or
materials which are covered by a Valid Claim and other significant, i.e.
value-added, steps which are not so covered and are not an integral part of the
Morphatide application or use.
3.2 VALID CLAIM For purposes of this Agreement, "Valid Claim" means
any pending or issued and enforceable claim within Subject Technology, including
claims which are supported by the specification(s) of any patent applications
listed in Schedule B and which may be legally prosecuted in the future, e.g. via
a continuation, continuation-in-part or divisional application.
3.3 RUNNING ROYALTIES Purchaser will pay to Seller the following
royalties on a quarterly basis on Net Sales of products and services sold which
are covered by a Valid Claim within Subject Technology:
(a) For two years from the Closing, * of Net Sales of products
covered by a Valid Claim; * thereafter.
(b) For two years from the Closing, * of revenue from licenses
issued for Subject Technology; * thereafter.
Page 2 of 15
* "Confidential portion has been omitted and filed
separately with the Commission."
<PAGE>
(c) * of net revenue from research and development contracts
for demonstrating feasibility of Subject Technology which use
products or methods covered by a Valid Claim, until the aggregate
of such income reaches $5 million. No royalties shall be payable
on any grant income.
(d) * of Net Sales from all other contracts (e.g. services;
research and development of specific applications of Subject
Technology at the request of a third party) covered by a Valid
Claim.
In the event that Purchaser realizes Net Sales or income from products, services
or contracts of the type described in a)-d) above which use or contain
technology claimed in a patent application listed in Schedule B, but which
technology is not covered by a Valid Claim, Purchaser shall pay to Seller a
royalty of * of such Net Sales or income. Such payments shall be made during
the term of the relevant patents, as if the claim or claims had issued (i.e. 20
years from the priority date of the relevant application). At the expiration of
this term, the Seller or Seller's representative and Purchaser shall meet to
discuss further compensation that may be appropriate under this paragraph.
3.4 PAYMENTS UPON SALE OF COMPANY OR SUBJECT TECHNOLOGY Should
Purchaser sell or transfer to a third party any portion of the shares
purchased hereunder or of the Subject Technology, either 1) the third party
shall agree to the same royalty payments (PRO RATA according to the
transferred portion) to Seller as outlined in paragraph 3.3; or 2) Purchaser
shall pay Seller the greater of a) * of the proceeds from such sale or
transfer or b) * (PRO RATA as above). * Should Purchaser conclude with a
third party an investment of equity whose purpose is substantially to support
or invest in Subject Technology, Seller and Purchaser shall meet and
negotiate in good faith a commercially reasonable compensation to Seller,
which may or may not exceed the terms outlined above.
3.5 AUDIT During the period for payment of any sums due under
paragraphs 3.3 or 3.4, and for 90 days after the termination of such period,
Seller shall have the right, not more than annually, to have the books and
records of Purchaser and/or Company relevant to such payments inspected by an
independent certified public accountant acceptable to Purchaser during normal
business hours. Seller shall bear the expense of any such inspection, unless
the inspection reveals an underpayment of at least 10%, in which case
Purchaser shall bear the cost of the inspection.
4. CONTINUED DEVELOPMENT OF MORPHATIDE TECHNOLOGY
4.1 Purchaser represents and warrants that for at least * from the
Closing, it will a) continue research and development of Morphatides at
commercially reasonable levels, but at a minimum shall maintain * * for such
efforts; and b) continue prosecution of patent applications listed in
Schedule B. Purchaser shall make commercially reasonable efforts to obtain
the broadest claims enabled by such applications and shall not arbitrarily or
for the purpose of reducing royalties under paragraph 3.3 abandon any
Page 3 of 15
* "Confidential portion has been omitted and filed
separately with the Commission."
<PAGE>
claim. Purchaser shall give timely notice to Seller regarding patent prosecution
decisions which will materially affect royalties payable under paragraph 3.3.
Purchaser and Seller or Seller's representative intend (without binding
themselves) to meet quarterly or at such other intervals as they may agree, to
discuss patent prosecution and research strategy for Subject Technology.
4.2 Following the two-year period in paragraph 4.1 if Purchaser
chooses not to continue research and development, or patent prosecution for all
or part of the Subject Technology, Seller shall have the right of first refusal
for any license offered for the development or commercialization of such
technology, to the extent not continued by Purchaser.
4.3 Purchaser will ensure that proper acknowledgement is made of the
inventor(s) of Subject Technology in any publications, in accordance with
scientific custom.
5. CLOSING DATE; DELIVERY
5.1 CLOSING DATE The closing of the purchase and sale of the Shares
to the Purchaser will be held at the offices of Invitrogen, 1600 Faraday Ave.,
Carlsbad, California, on November 3, 1998, or at such other time and place as
the Seller and the Purchaser may agree (the "Closing").
5.2 DELIVERY. Subject to the terms of this Agreement, at the Closing
the Company will deliver to Purchaser a stock certificate representing the
number of Common Shares set out above.
6. REPRESENTATIONS AND WARRANTIES OF SELLER & THE COMPANY. Except as set
forth on the Schedules attached to this Agreement, the Seller and the Company
jointly and severally represent and warrant to Purchaser as follows:
6.1 ORGANIZATION AND STANDING; ARTICLES AND BYLAWS. The Company is a
corporation duly organized and validly existing under, and by virtue of, the
laws of the State of Delaware and is in good standing under such laws. The
Company has the requisite corporate power to own and operate its properties and
assets, and to carry on its business as presently conducted and as proposed to
be conducted. The Company is qualified to do business as a foreign corporation
in California. The Company will deliver at the Closing originals of the
Company's Articles of Incorporation and Bylaws, each as amended to date, and
originals of all proceedings of the Company's Board of Directors and
shareholders together with originals of all material documents related to
Company.
6.2 CORPORATE POWER The Company & the Seller have all requisite legal
and corporate power to enter into this Agreement. The Seller has good title to
the Shares and the unencumbered power to sell the Shares hereunder, and to carry
out and perform her obligations under the terms of this Agreement.
6.3 SUBSIDIARIES. The Company does not control, directly or
indirectly, or have an interest in, any other corporation, association or
business entity.
Page 4 of 15
<PAGE>
6.4 CAPITALIZATION As of the date of the Closing, the authorized
capital stock of the Company will consist of 429,000 shares of of Preferred
Stock and 5,000,000 shares of Common Stock. The issued and outstanding capital
stock of the Company will consist of 109,850 shares of Series A Preferred stock
and 975,000 shares of Common Stock. As of the Closing, there will be no
outstanding rights, plans, options, warrants, conversion rights or agreements
for the purchase or acquisition from the Company of any shares of its capital
stock, except those set out herein and in Schedule A.
6.5 AUTHORIZATION
(a) The Shares are validly issued, fully paid and nonassessable,
and are free of any liens or encumbrances; provided, however, that the Shares
may be subject to restrictions on transfer under state and/or federal securities
laws as set forth herein or otherwise required by such laws at the time a
transfer is proposed.
(b) Except for the rights specifically contemplated by the
transactions described herein and in the attachments, no entity has any right of
first refusal or any preemptive rights in connection with the Shares.
6.6 PATENTS, TRADEMARKS, ETC. The Company has sufficient title and
ownership of all patents, trademarks, service marks, trade names, copyrights,
trade secrets, information, proprietary rights and processes owned by, or
assignable to it by prior agreement, specifically that described as "IP" in the
term sheet dated October 1, 1998, those listed in Schedule B, including all
rights and title to the Morphatide technology. Company & Seller have disclosed
to Purchaser all such intellectual property. Company & Seller have disclosed to
Purchaser all colorable conflicts with or infringement of the rights of others
with respect to the above-listed items of which it, its directors, employees or
shareholders are aware. Other than a previous license to Purchaser, there are no
outstanding options, licenses, or agreements of any kind relating to the
foregoing, nor are the Company or Seller bound by or a party to any options,
licenses or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity. The Company has
not received any communications alleging that the Company has violated or, by
conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity.
6.7 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation of its Certificate of Incorporation or Bylaws, or in any material
respect of any mortgage, indenture, contract, agreement, instrument, judgment,
decree, order, statute, rule or regulation by which the Company is bound or to
which the Company's property is subject. Execution, delivery and performance of
this Agreement on the part of the Company, and the sale of the Shares pursuant
hereto, will not result in any such violation, will not accelerate performance
under the terms of any agreement, and will not constitute an event that, with
the lapse of time or action by a third party, will result in a default under any
of the foregoing.
Page 5 of 15
<PAGE>
6.8 MATERIAL AGREEMENTS
(a) There are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, affiliates,
or any affiliate thereof.
(b) Other than as set forth in Schedule A, there are no
agreements, understandings, instruments, contracts, proposed transactions,
judgments, orders, writs or decrees to which the Company is a party or by which
it is bound that may involve (i) obligations (contingent or otherwise) of, or
payments to or from the Company which in the aggregate exceed $5,000, or (ii)
the license of any patent, copyright, trade secret or other proprietary right to
or from the Company, (iii) provisions restricting or affecting the development,
manufacture or distribution of the Company's products or services or (iv)
encumbrance or transfer restrictions on any of Company's assets.
6.9 LITIGATION, ETC. There are no actions, suits, proceedings or
investigations pending or, to the Seller's and Company's knowledge, threatened
against the Company, nor, to their knowledge, is there any basis therefor,
which, either in any case or in the aggregate, might result in any material
adverse change in the business, prospects, affairs or operations of the Company
or in any of its properties or assets, or in any material impairment of the
right or ability of the Company to carry on its business as now conducted or as
proposed to be conducted, or in any material liability on the part of the
Company, and none which questions any action taken or to be taken in connection
herewith. Further, there is no action, suit, proceeding, or investigation
pending against the Company or any officer, director or employee of the Company,
or any threat thereof, by reason of the past employment relationships of such
officers, directors and employees. There is no action, suit, proceeding or
investigation by the Company currently pending or which the Company intends to
originate.
6.10 REGISTRATION RIGHTS. The Company has no obligation to register
any of its outstanding securities under the Securities Act of 1933, as amended
(the "Securities Act").
6.11 GOVERNMENTAL CONSENT, ETC. No consent, approval or authorization
of or designation, declaration or filing with any governmental authority on the
part of the Company is required in connection with the valid execution and
delivery of this Agreement, or the offer, sale or issuance of the Shares or the
consummation of any other transaction contemplated hereby.
6.12 SECURITIES ACT. Subject to the accuracy of the Purchaser's
representations in Section 7 hereof, the offer and sale of the Shares in
conformity with the terms of this Agreement constitute transactions exempt from
the registration requirements of Section 5 of the Securities Act and the
requirements of Delaware Law.
6.13 DISCLOSURE. To the best of the Company's knowledge, Seller & the
Company have fully provided Purchaser with all the information that such
Purchaser has requested for deciding whether to purchase the Shares, including
complete disclosure of all tangible assets, cash & securities on Schedule D
hereof. This Agreement and the statements and certificates made or delivered in
connection herewith do not contain any untrue statement of a
Page 6 of 15
<PAGE>
material fact or omit to state a material fact necessary to make the statements
herein not misleading.
7. REPRESENTATIONS AND WARRANTIES OF PURCHASERS; INDEMNITY BY PURCHASERS;
RESTRICTIONS ON TRANSFER
7.1 REPRESENTATIONS AND WARRANTIES BY EACH PURCHASER. Purchaser
represents and warrants to the Company as follows:
(a) The Purchaser has such knowledge and experience in financial
and business matters that the Purchaser is capable of (i) evaluating the merits
and risks of the purchase of the Shares pursuant to the terms of this Agreement
and (ii) protecting the Purchaser's interests in connection therewith.
(b) The Purchaser has a preexisting personal or business
relationship with one or more of the officers and directors of the Company
consisting of personal or business contacts of a nature and duration to enable
Purchase to be aware of the character, business acumen and general business and
financial circumstances of the person(s) with whom such relationship(s) exists.
(c) The Purchaser and the Purchaser's representatives have been
solely responsible for such Purchaser's own "due diligence" investigation of the
Company and its management and business, for such Purchaser's own analysis of
the merits and risks of this investment, and for such Purchaser's own analysis
of the fairness and desirability of the terms of the investment; in taking any
action or performing any role relative to the arranging of the proposed
investment, the Purchaser has acted solely in the Purchaser's own interest, and
acknowledges that none of the other Purchasers (or any of their agents or
employees) has acted as an agent of such Purchaser.
(d) The Shares are being acquired for the Purchaser's own
account, in each case for investment and not with a view to, or for resale in
connection with, any distribution or public offering thereof within the meaning
of the Securities Act.
(e) The Purchaser understands that the Shares have not been
registered under the Securities Act by reason of their issuance in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act pursuant to Section 4(2) of the Securities Act and/or Regulation
D promulgated under the Securities Act, that the Company has no present
intention of registering the Shares and that the Purchaser must bear the
economic risk of such investment indefinitely, unless a subsequent disposition
thereof is registered under the Securities Act or is exempt from registration.
The Purchaser understands that the Shares are restricted securities within the
meaning of Rule 144 under the Securities Act, which allows limited resale of
such securities under certain conditions; that, in any event, such exemption
from registration under Rule 144 will not be available for at least two years,
and even then will not be available unless the other conditions of Rule 144 are
compiled with.
Page 7 of 15
<PAGE>
(f) No consent, approval or authorization of or designation,
declaration or filing with any governmental authority on the part of the
Purchaser is required in connection with the valid execution this Agreement.
7.2 LEGENDS Each certificate or instrument representing the Shares
will be endorsed with the following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED
OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT COVERING SUCH SECURITIES, THE TRANSFER IS MADE IN COMPLIANCE WITH RULE 144
PROMULGATED UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THESE SECURITIES WHICH IS REASONABLY SATISFACTORY TO THE COMPANY,
STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
The Company need not register a transfer of any Shares, and may also
instruct its transfer agent not to register the transfer of the Shares, unless
the conditions specified in this Agreement are satisfied.
7.3 THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS
AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA AND THE PAYMENT OR RECEIPT OF ANY OF ANY PART OF THE
CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE
OF SECURITIES IS EXEMPT FROM QUALIFICATIONS BY SECTIONS 25100, 25102 OR 25105 OF
THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT
ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE
SALE IS SO EXEMPT.
8. CONDITIONS TO CLOSING
8.1 CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The obligation of
Purchaser to purchase Shares at the Closing is subject to the fulfillment on or
prior to the time of the Closing (except condition (c) which may be fulfilled up
to 30 days from the Closing) of the following conditions, any of which may be
waived by such Purchaser:
(a) REPRESENTATIONS AND WARRANTIES CORRECT; PERFORMANCE OF
OBLIGATIONS The representations and warranties made by the Seller & the Company
in Section 6 hereof will be true and correct in all material respects when made,
and will be true and correct in all material respects on the date of the Closing
with the same force and effect as if they had been made on and as of the date of
the Closing, and the Company will have performed all obligations
Page 8 of 15
<PAGE>
and conditions herein required to be performed or observed by it on or prior to
the date of the Closing.
(b) LEGAL INVESTMENT. At the time of the Closing, the purchase of
the Shares by the Purchasers hereunder will be legally permitted by all laws and
regulations to which the Purchasers and the Company are subject.
(c) OPTIONS REPLACED. Within 30 days of the Closing, every
holder of options for Company's shares will have done one of the following:
executed an agreement based on an offer under paragraph 2.2 hereof, executed
another similar agreement agreeable to Purchaser; or executed a termination of
his or her option without further obligation on the part of Company or
Purchaser.
8.2 CONDITIONS TO OBLIGATIONS OF THE SELLER. The Seller's obligation
to sell the Shares at the Closing is subject to the fulfillment on or prior to
the date of the Closing of the following conditions, any of which may be waived
by the Company:
(a) INCORPORATION OF CONDITIONS. The condition set forth in
subsection (b) of section 8.1 will have been fulfilled.
(b) REPRESENTATIONS AND WARRANTIES CORRECT; PERFORMANCE OF
OBLIGATIONS The representations and warranties made by the Purchaser in Section
7 hereof will be true and correct when made, and will be true and correct on the
date of the Closing with the same force and effect as if they had been made on
and as of the date of the Closing, and the Purchasers will have performed all
obligations and conditions herein required to be performed or observed by them
on or prior to the date of the Closing.
9. MISCELLANEOUS.
9.1 WAIVERS AND AMENDMENTS. With the written consent of the Purchaser
the representations, warranties or obligations of the Seller and the Company may
be waived (either generally or in a particular instance, either retroactively or
prospectively and either for a specified period of time or indefinitely), and
the Seller, Company & Purchaser may enter into a supplementary written agreement
for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement. Neither this Agreement nor
any provision hereof may be changed, waived, discharged or terminated orally,
but only by a statement in writing signed by the party against which enforcement
of the change, waiver, discharge or termination is sought.
9.2 GOVERNING LAW. This Agreement will be governed in all respects by
the laws of the State of Delaware as such laws are applied to agreements between
Delaware residents entered into and to be performed entirely within Delaware.
Page 9 of 15
<PAGE>
9.3 SURVIVAL. The representations, warranties, covenants and
agreements made herein will survive the execution of this Agreement and the
Closing of the transactions contemplated hereby.
9.4 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof will inure to the benefit of, and be binding upon,
the successors, assigns, heirs, executors and administrators of the parties
hereto. Except as part of a merger or change of control, Purchaser may not
assign its rights to purchase the Shares.
9.5 ENTIRE AGREEMENT. This Agreement, the exhibits to this Agreement
and the other documents delivered pursuant hereto or incorporated by reference
herein constitute the full and entire understanding and agreement among the
parties with regard to the subjects hereof and thereof and supersede all prior
oral and written understandings, agreements and commitments with regard to such
subjects by or among the parties hereto.
9.6 NOTICES, ETC. All notices and other communications required or
permitted hereunder will be in writing and will be mailed by certified or
registered mail, postage prepaid.
9.7 NO WAIVERS. No failure on the part of any party to exercise or
delay in exercising any right hereunder will be deemed a waiver thereof, nor
will any such failure or delay, or any single or partial exercise of any such
right, preclude any further or other exercise of such right or any other right.
9.8 SEPARABILITY. If any provision of this Agreement, or the
application thereof, is for any reason and to any extent determined by a court
of competent jurisdiction to be invalid or unenforceable, the remainder of this
Agreement and the application of such provision to other persons or
circumstances will be interpreted so as best to reasonably effect the intent of
the parties hereto. The parties agree to use their best efforts to replace such
void or unenforceable provision of this Agreement with a valid and enforceable
provision which will achieve, to the extent greatest possible, the economic,
business and other purposes of the void or unenforceable provision.
9.9 EXPENSES. The Company, Seller and Purchaser shall each bear its
respective expenses and legal fees incurred with respect to this Agreement and
the transactions contemplated hereby.
9.10 TITLES AND SUBTITLES. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
9.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be an original, but all of which together will
constitute one instrument.
Page 10 of 15
<PAGE>
9.12 EXTINGUISHES PRIOR AGREEMENTS Upon the Closing and satisfaction
of all conditions thereof, the Memorandum of Terms dated October 1, 1998 and
the Stock Purchase, Rights, Services and License Agreements dated on or about
March 25, 1997 between the parties will be extinguished.
The parties have executed this Agreement as of the day and year first
above written.
MORPHAGEN, INC. INVITROGEN CORPORATION
By: By:
/s/ Heidi Short /s/ Lyle C. Turner
- ----------------------------- ------------------------------
Heidi Short, CEO Lyle C. Turner, CEO
SELLER:
/s/ Heidi Short
- -----------------------------
Heidi Short
CONSENT OF SPOUSE:
I understand that I have a legal interest in the Shares and other items being
sold in this Agreement. I have had the opportunity to consult with a lawyer
about my rights concerning this Agreement. I consent to this sale and all of the
terms of the Agreement.
/s/ Jay Short
- -----------------------------
Jay Short
Page 11 of 15
<PAGE>
SCHEDULE A
AGREEMENTS
(on following 1 page)
Page 12 of 15
<PAGE>
<TABLE>
<CAPTION>
MORPHAGEN CONTRACTS/AGREEMENTS:
Date Agreement Terms Vesting Common Price Written
---- --------- ----- ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Carolyn Erickson 1 Apr-97 Confidentiality Agreement * (do not use) Written
2 Jan-98 Consulting Agreement- * Written
*
Stock Option * * * Written
Barry Glickman, Ph.D. 1 Apr-97 Confidentiality Agreement * Written
2 Jan-98 Consulting Agreement- * Written
*
Stock Option * * * Written
Wolfgang Kusser, Ph.D. 1 Apr-97 Confidentiality Agreement * Written
2 Jun-97 Consulting Agreement- * Written
*
* * *
* *
* *
3 Employee Agreement- * Written
*
*
*
Rick Tullis, Ph.D. 1 Apr-97 Confidentiality Agreement * Written
2 Consulting Agreement- * Written
*
* * *
Verbal Agreement *
Grant *
*
Johan DeBoer, Ph.D. 1 Apr-97 Confidentiality Agreement * Written
2 Jun-97 Consulting Agreement- * Written
*
*
* * *
*
* * *
*
Heidi Short 1 Mar-97 *
*
Jay Short, Ph.D. 1 Mar-97 Patent Assignments *
2 *
RESEARCH - OTHER:
Dalton Chemical Co.;
Canada 1 May-97 Confidentiality Agreement * Written
2 Jun-97 Contract Services *
* * Written
Tri-link Corp.;
California 1 Jun-97 Contract Services Chemical synthesis performed
at their costs for hope
of future business Paid
LAW FIRMS:
Pillsbury, Madison,
& Sutro General Counsel
Patent Law Firm
NY. firm Patent Law Firm
MORPHAGEN RELATIONSHIPS:
Silicon Valley Bank Checking Account
</TABLE>
* "Confidential portion has been omitted and filed
separately with the Commission."
<PAGE>
SCHEDULE B
INTELLECTUAL PROPERTY
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
TYPE TITLE/SERIAL NO. DATE STATUS
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Patent App. Novel Shape & Structure * Abandoned; Utility filed
Libraries claiming date
(provisional) *
- -----------------------------------------------------------------------------------------------
Patent App. Morphatides: Novel Shape & * Claims benefit of
Structure Libraries * * Pending;
Restriction requirement
received
- -----------------------------------------------------------------------------------------------
Patent App. Morphatides: Novel Shape & * Continuation in Part of
Structure Libraries * * Pending;
Office Action received
- -----------------------------------------------------------------------------------------------
Patent App. Morphatides: Novel Shape & * Continuation in Part of
Structure Libraries * * Pending;
Notice to File Missing
Parts
- -----------------------------------------------------------------------------------------------
PCT Patent App. Morphatides: Novel Shape & * Claims benefit of
Structure Libraries/ * Pending;
* Prelim. exam. received
- -----------------------------------------------------------------------------------------------
Patent App. * * Utility & PCT to be filed
*
*
- -----------------------------------------------------------------------------------------------
Trademark MORPHAGEN Reg. filed
- -----------------------------------------------------------------------------------------------
Trademark MORPHATIDE Reg. filed
- -----------------------------------------------------------------------------------------------
Trade Secret/ *
Concept
- -----------------------------------------------------------------------------------------------
Trade Secret/ *
Concept
- -----------------------------------------------------------------------------------------------
Trade Secret/ *
Concept
- -----------------------------------------------------------------------------------------------
Trade Secret/ *
Concept
- -----------------------------------------------------------------------------------------------
Trade Secret/ *
Concept
- -----------------------------------------------------------------------------------------------
Trade Secret/ *
Concept
- -----------------------------------------------------------------------------------------------
Trade Secret/ *
Concept
- -----------------------------------------------------------------------------------------------
Trade Secret/ *
Concept
- -----------------------------------------------------------------------------------------------
Trade Secret/ *
Concept
- -----------------------------------------------------------------------------------------------
Trade Secret/ *
Concept
- -----------------------------------------------------------------------------------------------
Trade Secret/ *
Concept
- -----------------------------------------------------------------------------------------------
</TABLE>
* "Confidential portion has been omitted and filed
separately with the Commission."
Page 13 of 15
<PAGE>
SCHEDULE C
OUTSTANDING OBLIGATIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TO WHOM DESCRIPTION AMOUNT
- --------------------------------------------------------------------------------
<S> <C> <C>
Seller Patent Costs *
- --------------------------------------------------------------------------------
Company's Patent Counsel PCT filing Costs *
- --------------------------------------------------------------------------------
Company's Patent Counsel Other *
- --------------------------------------------------------------------------------
Rick Tullis Consulting Agreement *
- -------------------------------------------------------------------------------
</TABLE>
Page 14 of 15
* "Confidential portion has been omitted and filed
separately with the Commission."
<PAGE>
SCHEDULE D
CASH, SECURITIES & TANGIBLE ASSETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TYPE DESCRIPTION APPOX. DEPRECIATED VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Checking account Silicon Valley Bank, No.
3300054587
- --------------------------------------------------------------------------------
Equipment Chassis Thermocycler DNA *
Engine, Serial No. EN006592
- --------------------------------------------------------------------------------
Equipment Canon Copier *
- --------------------------------------------------------------------------------
Equipment HP Computer, Serial No. *
US73050806 w/ printer
- --------------------------------------------------------------------------------
Reagents Misc. N/A
- --------------------------------------------------------------------------------
Notebooks Misc. N/A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Page 15 of 15
* "Confidential portion has been omitted and filed
separately with the Commission."
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
for Invitrogen Corporation and to all references to our Firm included in or
made a part of this Registration Statement.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
San Diego, California
February 25, 1999
