<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 14, 1999
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
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) Number)
</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:
CAMERON JAY RAINS, ESQ. MICHAEL W. HALL, ESQ.
JEFFREY T. BAGLIO, ESQ. HOWARD L. ARMSTRONG, ESQ.
Gray Cary Ware & Freidenrich LLP Latham & Watkins
4365 Executive Drive, Suite 1600 701 "B" Street, Suite 2100
San Diego, CA 92121 San Diego, CA 92101
(858) 677-1400 (619) 236-1234
------------------------------
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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED SHARE PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value.............. 5,750,000 shares $24.875 $143,031,250 $39,763.00
</TABLE>
--------------------------
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>
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>
SUBJECT TO COMPLETION - DATED SEPTEMBER 14, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PROSPECTUS
, 1999
[LOGO]-Registered Trademark-
5,000,000 SHARES OF COMMON STOCK
----------------------------------------------------------------------
THE COMPANY:
- We develop, manufacture and sell research kits and products and provide
services designed to facilitate molecular biology research.
NASDAQ SYMBOL: IVGN
THE OFFERING:
- Invitrogen is offering 1,500,000 shares and existing stockholders are
offering 3,500,000 shares.
- The underwriters have an option to purchase an additional 750,000 shares
from Invitrogen and the existing stockholders participating in this
offering to cover over-allotments.
- There is an existing market for our shares. The last reported sale price
for our common stock on , 1999, was $ 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 7.
- --------------------------------------------------------------------------------
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
HAMBRECHT & QUIST
U.S. BANCORP PIPER JAFFRAY
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER
INCORPORATED
The undersigned is facilitating Internet distribution
DLJDIRECT INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 7
Use of Proceeds................................ 15
Price Range of Common Stock.................... 15
Dividend Policy................................ 15
Capitalization................................. 16
Invitrogen Selected Consolidated Financial
Data......................................... 17
Unaudited Selected Pro Forma Combined
Consolidated Financial Data.................. 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 19
<CAPTION>
PAGE
<S> <C>
Business....................................... 26
Management..................................... 50
Certain Transactions........................... 58
Principal and Selling Stockholders............. 59
Description of Capital Stock................... 61
Shares Eligible for Future Sale................ 63
Underwriting................................... 65
Legal Matters.................................. 67
Experts........................................ 67
Additional Information......................... 67
Index to Financial Statements.................. F-1
</TABLE>
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE
INFORMATION THAT YOU SHOULD CONSIDER BEFORE BUYING SHARES IN THIS OFFERING. WE
URGE YOU TO READ THE ENTIRE PROSPECTUS CAREFULLY. UNLESS STATED OTHERWISE, THE
INFORMATION CONTAINED IN THE PROSPECTUS ASSUMES THAT THE UNDERWRITER'S
OVER-ALLOTMENT OPTION TO PURCHASE 750,000 SHARES FROM INVITROGEN AND THE SELLING
STOCKHOLDERS IS NOT EXERCISED.
THROUGHOUT THIS PROSPECTUS, UNLESS OTHERWISE INDICATED, "INVITROGEN," "WE,"
"OUR," AND "US" REFER TO INVITROGEN AND ALL OF ITS SUBSIDIARIES, INCLUDING THE
OPERATIONS OF NOVEX.
INVITROGEN CORPORATION
Invitrogen develops, manufactures and markets research tools in kit form and
provides other research products and 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 and products allow researchers to perform these activities more
accurately, efficiently and with greater reproducibility compared to
conventional research methods. Our kits and products 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
"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. In August 1999, Invitrogen merged with NOVEX, a developer and
manufacturer of pre-cast electrophoresis gels and associated products for gene
and protein analysis. From 1994 through 1998, Invitrogen and NOVEX, on a pro
forma combined basis, experienced compound annual growth in revenue of 27% and
net income of 60%.
Based on independent market studies, in 1998 researchers spent over $1.4
billion on molecular biology products and supplies such as chemicals, reagents,
enzymes and kits. Gene cloning, expression and analysis kits represent a rapidly
emerging segment of the molecular biology product and supply market. Based on
independent market studies, we project sales of gene cloning, expression and
analysis kits to grow approximately 21% in 1999, compared to approximately 14%
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
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;
and
- Accelerated investment in commercial research activities.
We offer approximately 700 kits and other products that researchers use to
conduct key molecular biology research activities. Our kits and products 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 proprietary 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 1998 sales of these kits, we estimate that researchers
who
3
<PAGE>
used TOPO TA Cloning Kits in 1998 saved over 8.5 million hours compared to
standard cloning methods.
In 1998 we 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 2,300 full-length cloned human genes that
correctly express their specific proteins. In addition, we are using 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.
We believe we have assembled one of the broadest portfolios of gene cloning,
expression and analysis related intellectual property in our industry. To date,
we have obtained over 85 licenses, which provide us with access to over 200
patents covering gene cloning, expression and analysis materials and techniques.
We own or control 28 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,
gene expression and gene analysis-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.
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. Our website is not a part of this prospectus.
MERGER WITH NOVEX
On August 17, 1999 we completed our merger with NOVEX. As consideration for
the merger we issued approximately 2.5 million shares of our common stock and
assumed options which were converted into options to purchase approximately
500,000 shares of our common stock. Invitrogen merged with NOVEX because we
believe that NOVEX's pre-cast gel electrophoresis product lines are highly
complementary with Invitrogen's product lines.
Our NOVEX subsidiary develops, manufactures and markets research
electrophoresis products in pre-cast form, which improves the speed, reliability
and convenience of gel electrophoresis. Gel electrophoresis is a technique that
is used as a tool to visualize the results of many different types of molecular
biology experiments. As such, it is an integral part of the majority of the
molecular biology activities that our kits and other products address. NOVEX
offers approximately 450 products that enable researchers to complete their
experiments more accurately, efficiently and with greater reproducibility
compared to traditional electrophoresis methods. For example, our pre-cast gels
eliminate the time required to make gels in the laboratory, resulting in savings
of 1-2 hours every time a gel is purchased from us rather than made by the
researcher.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered:
By Invitrogen.................................... 1,500,000 shares
By the selling stockholders...................... 3,500,000 shares
Total.......................................... 5,000,000 shares
Common stock to be outstanding after this
offering......................................... 17,799,245 shares
Use of proceeds.................................... - Continued development and manufacture
of our existing 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
Risk factors....................................... For a discussion of certain
considerations relevant to an
investment in our common stock, see
"Risk Factors."
Nasdaq National Market symbol...................... IVGN
</TABLE>
The number of shares outstanding after this offering is based on shares
outstanding as of August 31, 1999 and:
- Excludes, except as noted below, 4,115,525 shares of common stock
issuable upon exercise of outstanding stock options at a weighted average
exercise price of $9.21 per share.
- Includes 292,739 of the 4,115,525 shares issuable upon exercise of
options which we anticipate selling stockholders will exercise prior to
this offering.
5
<PAGE>
UNAUDITED SUMMARY PRO FORMA COMBINED CONSOLIDATED FINANCIAL DATA
We have presented below the unaudited pro forma combined consolidated
financial data that reflects the pooling of interests method of accounting and
is intended to give you a better picture of what our business might have looked
like had our merger with NOVEX occurred on January 1, 1996. The unaudited
summary pro forma combined consolidated financial data for the years ended
December 31, 1996, 1997 and 1998 and the six months ended June 30, 1998 and 1999
include both Invitrogen's and NOVEX's financial data for those periods. The
unaudited summary pro forma combined balance sheet data assumes that the merger
occurred on June 30, 1999. The companies may have performed differently if they
had been combined. You should not rely on the pro forma information as being
indicative of the historical results that would have occurred or the future
results that will result after the merger. The unaudited pro forma combined as
adjusted balance sheet data as of June 30, 1999, has been adjusted to reflect
the sale of 1,500,000 shares of common stock by Invitrogen at a price of $24.875
per share, and the application of the net proceeds from such sale. See "Use of
Proceeds."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1996 1997 1998 1998 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues...................................................... $ 32,556 $ 41,182 $ 53,660 $ 24,705 $ 33,766
Cost of revenues.............................................. 12,094 15,958 19,191 8,280 11,578
--------- --------- --------- --------- ---------
Gross margin................................................ 20,462 25,224 34,469 16,425 22,188
Operating expenses:
Sales and marketing......................................... 6,563 8,305 11,352 5,311 7,006
General and administrative.................................. 6,291 7,312 8,091 3,909 4,398
Research and development.................................... 3,882 5,918 8,603 4,049 4,910
--------- --------- --------- --------- ---------
Total operating expenses.................................. 16,736 21,535 28,046 13,269 16,314
--------- --------- --------- --------- ---------
Income from operations........................................ 3,726 3,689 6,423 3,156 5,874
Other income and expense, net................................. 28 117 217 47 258
--------- --------- --------- --------- ---------
Income before taxes........................................... 3,754 3,806 6,640 3,203 6,132
Provision for income taxes.................................... 1,418 1,371 2,410 1,171 2,184
--------- --------- --------- --------- ---------
Net income.................................................... 2,336 2,435 4,230 2,032 3,948
Less: Preferred stock dividends............................... -- (475) (900) (450) (163)
Accretion of non-voting redeemable common stock.......... (171) (175) (204) (98) (74)
Accretion of beneficial conversion feature related to
convertible preferred stock.............................. -- (15,000) -- -- --
Adjustment to beneficial conversion feature related to
convertible preferred stock.............................. -- -- -- -- 985
--------- --------- --------- --------- ---------
Net income (loss) applicable to common shares............ $ 2,165 $ (13,215) $ 3,126 $ 1,484 $ 4,696
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings (loss) per share:
Basic....................................................... $ 0.20 $ (1.15) $ 0.26 $ 0.12 $ 0.32
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted..................................................... $ 0.17 $ (1.15) $ 0.23 $ 0.11 $ 0.27
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Weighted average shares used in per share calculation:
Basic....................................................... 10,831 11,461 12,152 12,157 14,645
Diluted..................................................... 12,554 11,461 13,883 13,581 17,101
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------
<S> <C> <C>
PRO FORMA
PRO FORMA COMBINED
COMBINED AS ADJUSTED
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments....................................... $ 38,644 $ 73,391
Total assets............................................................................ 68,910 103,657
Long-term obligations, less current maturities.......................................... 1,489 1,489
Total stockholders' equity.............................................................. 54,771 89,518
</TABLE>
6
<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 CONTAINED IN THIS
PROSPECTUS.
FAILURE TO SUCCESSFULLY INTEGRATE NOVEX INTO OUR OPERATIONS COULD REDUCE OUR
PROFITABILITY
We closed our merger with NOVEX on August 17, 1999. NOVEX is now a
wholly-owned subsidiary of Invitrogen. Integrating the two companies' operations
is ongoing and will require significant efforts from each company, including the
coordination of research and development and sales and marketing efforts.
Invitrogen may find it difficult to integrate the operations of NOVEX. Personnel
may leave because of the merger. NOVEX customers, distributors or suppliers may
terminate their arrangements with NOVEX, or demand amended terms to these
arrangements, because of the merger. Invitrogen management may have their
attention diverted while trying to integrate the two companies. Such diversion
of management's attention or difficulties in the transition process could have a
material adverse impact on us. If we are not able to successfully integrate the
operations of NOVEX, our expectations of future results of operations may not be
met. Factors which will determine the success of the merger include:
- Changes in the favorable market reaction to NOVEX's and Invitrogen's
significant products;
- Competitive factors, including technological advances attained by
competitors and patents granted to or contested by competitors, which
would result in their ability to compete against us more effectively;
- The ability of the combined company to increase sales of both NOVEX and
Invitrogen products; and
- The ability of the combined company to operate efficiently and achieve
cost savings.
Even if the two companies are able to integrate operations, there can be no
assurance that the anticipated synergies will be achieved. The failure to
achieve such synergies could have a material adverse effect on the business,
results of operations and financial condition of the combined company.
FAILURE TO MANAGE GROWTH COULD IMPAIR OUR BUSINESS
Our business has grown rapidly. Our pro forma combined net revenues
increased from $32.6 million in 1996 to $53.7 million in 1998. During that same
period we significantly expanded our operations in the United States and in
Europe. The number of employees of Invitrogen and NOVEX combined has increased
from approximately 220 at December 31, 1996 to over 400 at August 31, 1999.
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; and
- 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
7
<PAGE>
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 upgrading and integrating our enterprise-wide
financial and manufacturing information system. If we fail to successfully
complete this process we could experience manufacturing and shipping delays
which, in turn, could cause increased manufacturing costs and deferred or lost
sales.
We have developed a high-throughput gene cloning and expression system by
scaling up our TOPO TA Cloning technology. We are commercializing this
technology under the name Invitrogenomics. 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.
We recently merged with NOVEX, requiring additional investments in
operations, product research and development and sales and marketing which are
significant expenses. Failure to successfully manage and coordinate the growth
of the combined company could adversely impact our revenue and profits.
REDUCTION IN RESEARCH AND DEVELOPMENT BUDGETS AND GOVERNMENT FUNDING MAY IMPACT
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.
In recent years, the United States pharmaceutical industry has undergone
substantial downsizing and consolidation. Further mergers or corporate
consolidations in the pharmaceutical industry could cause us to lose existing
customers and potential future customers, which could have a material adverse
effect on our business, financial condition and results of operations.
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 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 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.
8
<PAGE>
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 sometimes 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. On a pro forma combined basis,
over 40% of our revenues are from products manufactured or sold under licenses
from third parties.
Our ability to gain access to technologies needed for new products and
services depends in part on our ability to convince inventors that we can
successfully commercialize their inventions. We cannot assure you that we will
be able to continue to 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.
LOSS OF LICENSES COULD HURT OUR PERFORMANCE
Some of our licenses do not run for the length of the underlying 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 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 may 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 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 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
9
<PAGE>
change in life sciences research, or that our new products will adequately meet
the requirements of the marketplace or achieve market acceptance. Some of the
factors affecting market acceptance of new products include:
- Availability, quality and price relative to competitive products;
- The timing of introduction of the product relative to competitive
products;
- Scientists' opinion of the product's utility;
- Citation of the product in published research; and
- General trends in life sciences research.
The expenses or losses associated with unsuccessful product development
activities or lack of market acceptance of our new products could materially
adversely affect our business, operating results and financial condition.
LOSS OF KEY PERSONNEL COULD HURT OUR BUSINESS
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 SALES
The markets for our products are very competitive and price sensitive. Many
other life sciences research product 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.
The market for our electrophoresis products is also subject to specific
competitive risks. The recent sale by FMC of its BioProducts division to a
competitor of NOVEX may result in additional market and pricing pressure on our
products. Further, NOVEX recently increased its prices, which may be met with
customer resistance and could give competing companies an additional opening
into our markets. The gel electrophoresis market is highly price competitive.
Our competitors have in the past and may in the future compete by lowering
prices on certain products. In certain cases, we may respond by lowering our
prices which would reduce revenues and profits. Conversely, failure to
anticipate and respond to price competition may hurt our market share.
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.
DISTRIBUTORS MAY FORCE US TO USE MORE EXPENSIVE MARKETING AND DISTRIBUTION
CHANNELS
Certain of our customers have developed purchasing initiatives to reduce the
number of vendors they purchase from in order to lower their supply costs. In
some cases these accounts have established agreements with large distributors,
which include discounts and the distributors' direct involvement with the
purchasing process. These activities may force us to supply the large
distributors with our products
10
<PAGE>
at a discount to reach those customers. For similar reasons many larger
customers, including the federal government, have requested and may in the
future request special pricing arrangements, including blanket purchase
agreements. These agreements may limit our pricing flexibility, especially with
respect to our electrophoresis products, which could adversely impact our
business, financial condition and results of operations. Currently we do not
have the capability to accept and process orders through our website.
Accordingly, we may implement sales through Internet vendors. Internet sales
through third parties may negatively impact our gross margins as the commission
paid on Internet sales would be an additional cost not incurred through the use
of non-Internet vendors.
WE RELY ON THIRD-PARTY MANUFACTURERS TO MANUFACTURE SOME OF OUR PRODUCTS AND
COMPONENTS
We rely on third-party manufacturers to supply many of our raw materials,
product components and in some cases, entire products. In particular, we
purchase all of the cassettes used in our electrophoresis pre-cast gels from a
single third-party manufacturer. Also, we recently contracted with an outside
vendor for the production of our PowerEase instrument products. Manufacturing
problems may occur with these and other outside sources. If such problems occur,
there can be no assurance that we will be able to manufacture our products
profitably or on time.
INTERNATIONAL UNREST OR FOREIGN CURRENCY FLUCTUATIONS COULD ADVERSELY AFFECT OUR
RESULTS
Including subsidiaries and distributors, our products are currently marketed
in over 30 countries throughout the world. Our international revenues, which
include revenues from our Netherlands and Germany subsidiaries and export sales,
represented 35% of our pro forma combined revenues in 1998, 29% in 1997 and 26%
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 fully
adopted;
- Unexpected changes in regulatory requirements;
- The difficulties of compliance with a wide variety of foreign laws and
regulations;
- Longer accounts receivable cycles in certain foreign countries; and
- Import and export licensing requirements.
A significant portion of 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
11
<PAGE>
currency exposure, but we cannot 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 recently experienced unstable economic
conditions and significant devaluation in its currencies. The economic situation
in the region may result in slower payments of outstanding receivable balances.
To date this region has not represented a significant portion of 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.
INABILITY TO PROTECT OUR 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 to
offer meaningful protection. In addition, our issued patents or patents we
license 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 TRADE SECRETS COULD AID OUR 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.
INTELLECTUAL PROPERTY OR OTHER 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
proceedings brought by 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 might need to discontinue an important product or product line, alter
our products and processes, pay license fees or 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.
In addition to intellectual property litigation, other substantial, complex
or extended litigation could result in large expenditures by us and distraction
of our management. For example, lawsuits by employees, stockholders,
collaborators or distributors could be very costly and substantially disrupt our
business. Disputes from time to time with such companies or individuals are not
uncommon and we cannot assure you that we will always be able to resolve them
out of court.
12
<PAGE>
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 of property or injury to individuals from these
materials cannot be completely eliminated. In the event of such an accident, we
could be liable for any damages that result, which could seriously damage our
business. Additionally, any accident could partially or completely shut down 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.
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;
- Economic conditions;
- Disputes concerning patents or proprietary rights;
- Changes in earnings estimates by market research analysts;
- Sales of common stock by existing holders;
- Loss of key personnel; and
- Securities class action or other litigation.
The market price for our common stock may also be affected by our ability to
meet analyst's expectations. Any failure to meet such expectations, even
slightly, could have an adverse effect on the market price of our common stock.
In addition, the stock market is subject to extreme price and volume
fluctuations. This volatility has had a significant effect on the market prices
of securities issued by many companies for reasons unrelated to the operating
performance of these companies. In the past, following periods of volatility in
the market price of a company's securities, securities class action litigation
has often been instituted against that company. If similar litigation were
instituted against us, it could result in substantial costs and a diversion of
our management's attention and resources, which could have an adverse effect on
our business, results of operations and financial condition. See "Price Range of
Common Stock."
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. Upon completion of this offering, we
will have outstanding 17,799,245 shares of common stock (based upon shares
outstanding as of August 31, 1999). This assumes no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options after
August 31, 1999, other than options exercised by the selling stockholders
specifically in connection with this offering. Of these shares, approximately
11,800,000 will be registered and freely tradable. All of the remaining
approximately
13
<PAGE>
6,000,000 shares are unregistered but may be sold in accordance with Rule 144 of
the Securities Act of 1933, as amended. Following this offering, approximately
8,200,000 registered and unregistered shares will be subject to 90-day lock-up
agreements, subject to certain exceptions. 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. Holders of 932,942 shares will have the right to request that we
register those shares for sale in the public market. See "Shares Eligible for
Future Sale."
CONTROL OF INVITROGEN BY EXECUTIVE OFFICERS AND DIRECTORS MAY IMPEDE CHANGES TO
INVITROGEN OR ITS POTENTIAL SALE
After this offering, our executive officers and directors collectively will
beneficially own approximately 28.4% of the outstanding common stock. That
percentage would drop to 26.6% if the underwriters' overallotment option is
exercised in full. Executive officers and directors may therefore be able to
exercise effective 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
and Selling Stockholders."
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."
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus, including the above risk
factors, contain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, such as statements relating to trends
in revenues, expenses and net income, and are therefore prospective. You can
identify these statements by forward-looking words such as "may," "will,"
"expect," "anticipate," "believe," "estimate," "project," and "continue" or
similar words. You should read statements that contain these words carefully
because they:
- - Discuss our future expectations;
- - Contain projections of our future results of operations or of our financial
condition; and
- - State other "forward-looking" information.
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 similar language in this prospectus, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectation 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.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to Invitrogen from the sale of the 1,500,000 shares of
common stock at an offering price per share of $24.875 are estimated to be
approximately $34,747,000 after deducting underwriting discounts and commissions
and estimated offering expenses. The net proceeds to Invitrogen would increase
to $40,064,000 if the underwriters exercise their over-allotment option in full.
Invitrogen will not receive any of the proceeds from the sale of common stock by
the selling stockholders.
We intend to use the net proceeds of this offering for:
- The continued development and manufacture of existing products and
services;
- Research and development of additional products and services; and
- 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."
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
IVGN. Public trading of our stock began on February 26, 1999. The following
table shows the high and low sales prices per share of our stock for each period
shown since our stock began publicly trading.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999: HIGH LOW
<S> <C> <C>
First quarter (beginning February 26)...................................... $15 1/2 $12
Second quarter............................................................. 26 12 7/8
Third quarter (through September 10)....................................... 31 23 3/8
</TABLE>
On September 10, 1999, the last reported sale price of our common stock on
the Nasdaq National Market was $24 7/8. As of August 31, 1999, there were
16,006,506 shares of common stock outstanding and 260 shareholders of record of
our common stock.
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.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Invitrogen as of June
30, 1999. The pro forma combined column assumes that the recent merger with
NOVEX occurred on June 30, 1999. The pro forma combined as adjusted column gives
effect to the application of the net proceeds from the sale of 1,500,000 shares
of common stock to be offered by Invitrogen at an assumed public offering price
of $24.875 per share. In addition, the calculations in the table do not reflect
any of the 3,272,434 shares of common stock issuable upon exercise of
outstanding options at June 30, 1999 at an average exercise price of $4.16. See
"Management--Stock Option Plans."
This table should be read in conjunction with the Invitrogen Consolidated
Financial Statements and the related Notes and the Unaudited Pro Forma Combined
Financial Statements and related Notes thereto included elsewhere in this
prospectus. Also see "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------------------------
PRO FORMA
PRO FORMA COMBINED
ACTUAL COMBINED AS ADJUSTED
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations, less current maturities............................ $ 664 $ 1,489 $ 1,489
Stockholders' equity:
Preferred stock, $0.01 par value: 6,405,884 shares authorized; no shares
issued or outstanding, actual, pro forma and as adjusted.............. -- -- --
Common stock, $0.01 par value: 50,000,000 shares authorized; 13,430,650
shares issued and outstanding actual; 15,960,766 shares issued and
outstanding pro forma; 17,460,766 issued and outstanding as
adjusted.............................................................. 134 160 175
Other stockholders' equity.............................................. 52,845 54,611 89,343
--------- ------- -----------
Total stockholders' equity............................................ 52,979 54,771 89,518
--------- ------- -----------
Total capitalization.................................................. $ 53,643 $ 56,260 $ 91,007
--------- ------- -----------
--------- ------- -----------
</TABLE>
16
<PAGE>
INVITROGEN SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of Invitrogen presented
below as of and for the years ended December 31, 1994, 1995, 1996, 1997 and
1998, as well as interim financial data as of and for the six months ended June
30, 1998 and 1999, are derived from the Invitrogen Consolidated Financial
Statements. The 1995, 1996, 1997 and 1998 full-year financial statements have
been audited by Arthur Andersen LLP, independent public accountants. The June
30, 1998 and 1999 financial data has not been audited. The consolidated balance
sheets as of December 31, 1997 and 1998, the related statements of operations
for each of the three years ended December 31, 1996, 1997 and 1998 together with
the related report of independent public accountants, 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 Invitrogen 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 Notes to
Invitrogen Consolidated Financial Statements for an explanation of the
calculations of earnings per share and per share amounts.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- ----------------
1994 1995 1996 1997 1998 1998 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................................................... $11,754 $14,342 $19,121 $ 24,965 $31,414 $14,873 $19,888
Cost of revenues................................................... 4,554 4,743 5,818 7,989 8,642 4,065 5,087
------- ------- ------- -------- ------- ------- -------
Gross margin..................................................... 7,200 9,599 13,303 16,976 22,772 10,808 14,801
Operating expenses:
Sales and marketing.............................................. 2,685 3,646 4,236 4,959 6,976 3,438 3,878
General and administrative....................................... 2,245 2,542 3,880 3,932 4,428 2,098 2,498
Research and development......................................... 1,623 2,043 2,659 4,416 7,209 3,306 3,963
------- ------- ------- -------- ------- ------- -------
Total operating expenses....................................... 6,553 8,231 10,775 13,307 18,613 8,842 10,339
------- ------- ------- -------- ------- ------- -------
Income from operations............................................. 647 1,368 2,528 3,669 4,159 1,966 4,462
Other income (expense), net........................................ (83) (6) 155 268 457 169 383
------- ------- ------- -------- ------- ------- -------
Income before taxes................................................ 564 1,362 2,683 3,937 4,616 2,135 4,845
Benefit (provision) for income taxes............................... 45 (206) (939) (1,413) (1,638) (761) (1,696)
------- ------- ------- -------- ------- ------- -------
Net income......................................................... 609 1,156 1,744 2,524 2,978 1,374 3,149
Less: Preferred stock dividends.................................... -- -- -- (475) (900) (450) (163)
Accretion of non-voting redeemable common stock................ -- (110) (171) (175) (204) (98) (74)
Accretion of beneficial conversion feature related to
convertible preferred stock.................................. -- -- -- (15,000) -- -- --
Adjustment to beneficial conversion feature related to
convertible preferred stock.................................. -- -- -- -- -- -- 985
------- ------- ------- -------- ------- ------- -------
Net income (loss) applicable to common shares.................. $ 609 $ 1,046 $ 1,573 $(13,126) $ 1,874 $ 826 $ 3,897
------- ------- ------- -------- ------- ------- -------
------- ------- ------- -------- ------- ------- -------
Earnings (loss) per share:
Basic............................................................ $ 0.07 $ 0.11 $ 0.19 $ (1.47) $ 0.19 $ 0.09 $ 0.32
------- ------- ------- -------- ------- ------- -------
------- ------- ------- -------- ------- ------- -------
Diluted.......................................................... $ 0.07 $ 0.11 $ 0.16 $ (1.47) $ 0.17 $ 0.08 $ 0.27
------- ------- ------- -------- ------- ------- -------
------- ------- ------- -------- ------- ------- -------
Weighted average shares used in per share calculation:
Basic............................................................ 9,268 9,602 8,356 8,939 9,626 9,632 12,116
Diluted.......................................................... 9,268 9,602 10,080 8,939 11,208 10,996 14,230
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
JUNE 30,
-----------
1999
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments............... $ 631 $ 587 $ 1,381 $ 9,152 $ 6,011 $ 38,533
Total assets.................................................... 4,642 5,992 8,258 18,056 22,815 58,151
Long-term obligations, less current portion..................... 838 433 110 143 83 664
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 52,979
</TABLE>
17
<PAGE>
UNAUDITED SELECTED PRO FORMA COMBINED CONSOLIDATED FINANCIAL DATA
We have presented below the unaudited selected pro forma combined
consolidated financial data that reflects the pooling of interests method of
accounting and is intended to give you a better picture of what our business
might have looked like had our merger with NOVEX occurred on January 1, 1994.
The unaudited selected pro forma combined financial data for the years ended
December 31, 1994, 1995, 1996, 1997 and 1998 and the six months ended June 30,
1998 and 1999 include both Invitrogen's and NOVEX's financial data for these
periods. The unaudited pro forma combined balance sheet data assumes that the
merger occurred on the date presented. The companies may have performed
differently if they had been combined. You should not rely on the unaudited pro
forma information as being indicative of the historical results that would have
occurred or the future results that will result after the merger.
The financial data set forth below contains only a portion of the financial
statements and should be read in conjunction with the Unaudited Pro Forma
Combined Financial Statements and related Notes thereto included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1998 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues............................................. $ 20,390 $ 24,728 $ 32,556 $ 41,182 $ 53,660 $ 24,705 $ 33,766
Cost of revenues..................................... 8,926 9,803 12,094 15,958 19,191 8,280 11,578
--------- --------- --------- --------- --------- --------- ---------
Gross margin....................................... 11,464 14,925 20,462 25,224 34,469 16,425 22,188
Operating expenses:
Sales and marketing................................ 4,222 5,068 6,563 8,305 11,352 5,311 7,006
General and administrative......................... 3,723 4,916 6,291 7,312 8,091 3,909 4,398
Research and development........................... 2,737 3,220 3,882 5,918 8,603 4,049 4,910
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses......................... 10,682 13,204 16,736 21,535 28,046 13,269 16,314
--------- --------- --------- --------- --------- --------- ---------
Income from operations............................... 782 1,721 3,726 3,689 6,423 3,156 5,874
Other income (expense), net.......................... (148) (57) 28 117 217 47 258
--------- --------- --------- --------- --------- --------- ---------
Income before taxes.................................. 634 1,664 3,754 3,806 6,640 3,203 6,132
Benefit (provision) for income taxes................. 16 (332) (1,418) (1,371) (2,410) (1,171) (2,184)
--------- --------- --------- --------- --------- --------- ---------
Net income........................................... 650 1,332 2,336 2,435 4,230 2,032 3,948
Less: Preferred stock dividends...................... -- -- -- (475) (900) (450) (163)
Accretion of non-voting redeemable common
stock.......................................... -- (110) (171) (175) (204) (98) (74)
Accretion of beneficial conversion feature
related to convertible preferred stock......... -- -- -- (15,000) -- -- --
Adjustment to beneficial conversion feature
related to convertible preferred stock......... -- -- -- -- -- -- 985
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) applicable to common shares........ $ 650 $ 1,222 $ 2,165 $ (13,215) $ 3,126 $ 1,484 $ 4,696
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) per share:
Basic.............................................. $ 0.05 $ 0.10 $ 0.20 $ (1.15) $ 0.26 $ 0.12 $ 0.32
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Diluted............................................ $ 0.05 $ 0.10 $ 0.17 $ (1.15) $ 0.23 $ 0.11 $ 0.27
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Weighted average shares used in per share
calculation:
Basic.............................................. 11,947 11,928 10,831 11,461 12,152 12,157 14,645
Diluted............................................ 11,947 11,928 12,554 11,461 13,883 13,581 17,101
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments................ $ 672 $ 649 $ 1,430 $ 9,317 $ 6,530
Total assets..................................................... 7,349 9,877 13,342 23,791 32,050
Long-term obligations, less current portion...................... 838 1,022 698 628 1,577
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....................................... 2,418 4,098 6,509 984 4,676
<CAPTION>
JUNE 30,
-----------
1999
<S> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments................ $ 38,644
Total assets..................................................... 68,910
Long-term obligations, less current portion...................... 1,489
Non-voting redeemable common stock of Invitrogen B.V............. --
Convertible preferred stock...................................... --
Total stockholders' equity....................................... 54,771
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS REFLECT THE OPERATIONS OF INVITROGEN PRIOR TO THE COMPLETION OF THE
MERGER WITH NOVEX, AND UNLESS SPECIFICALLY STATED OTHERWISE, DO NOT INCLUDE
NOVEX'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW
We are engaged primarily in the development, manufacturing and marketing of
research kits used to conduct molecular biology research. Substantially all of
our revenue to date has come from the sale of research kits and related products
used by a variety of scientific researchers to conduct gene cloning, expression
and analysis experiments. Our research kits are sold primarily in the United
States, Europe and Japan. Our products are used for research purposes and their
use is not regulated by the United States Food and Drug Administration or by any
comparable international organization.
We manufacture the majority of our research kits in our manufacturing
facility in Carlsbad, California. In addition, we maintain selected arrangements
with third party manufacturers.
The majority of our sales activities are conducted through a dedicated
direct sales organization located in the United States and Europe. We also
conduct marketing and distribution activities at our facility in the United
States and at a facility we own in the Netherlands. A small proportion of our
sales are to international distributors who resell Invitrogen kits to
researchers. These distributors are located in selected territories in Europe,
as well as in Japan and other territories in Asia. We currently have no plans to
establish a direct sales force in these territories, although we may choose in
the future to establish a direct sales organization in additional territories.
We conduct research activities in the United States and business development
activities in the United States and Europe. As part of these activities we
actively seek to license intellectual property from academic, government and
commercial institutions relating to gene cloning, expression and analysis
technologies. To date, we have obtained over 85 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 are using this
technology to rapidly clone and patent full-length genes which we are licensing
and selling. In addition, we use our Invitrogenomics technology to provide gene
cloning and expression services on a contract basis to pharmaceutical,
biotechnology and agricultural companies. Invitrogenomics products and services
have generated limited revenues to date.
Our revenues have increased significantly since our inception, and from 1994
to 1998, we have 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.
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We have acquired a significant number of patent rights from third parties as
part of our business activities. These patent rights are used as a basis for the
development of our research kits and 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 revenue as the related royalties are
incurred.
We anticipate that our results of operations may fluctuate from quarter to
quarter and will be difficult to predict. The timing and degree of fluctuation
will depend upon several factors, including:
- Changes in customer research budgets which are influenced by the timing of
their research and commercialization efforts and their receipt of
government grants;
- Competitive product introductions;
- Our ability to successfully introduce or transition the market to new
products;
- Market acceptance of existing or new products;
- Our ability to manufacture our products efficiently; and
- Our ability to control or adjust research and development, marketing,
sales and general and administrative expenses in response to changes in
revenues.
In addition, our results of operations could be affected by the timing of
orders from distributors and the mix of sales among distributors and our direct
sales force. Although we have experienced growth in recent years, there can be
no assurance that, in the future, we will sustain revenue growth or remain
profitable on a quarterly or annual basis or that our growth will be consistent
with predictions made by securities analysts. Additionally, quarter to quarter
comparisons of operating results are not necessarily indicative of future
results.
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
REVENUES. Revenues for the three months ended June 30 increased $2.6
million, or 33%, from $7.7 million in 1998 to $10.3 million for 1999. For these
same periods, revenues in the United States increased $1.8 million, or 35%, from
$5.1 million to $6.9 million, and revenues outside of the United States
increased $.8 million, or 29%, from $2.6 million to $3.4 million.
For the six months ended June 30, revenues increased $5.0 million, or 34%,
from $14.9 million in 1998 to $19.9 million in 1999. Revenues in the United
States increased $3.5 million, or 36%, from $9.7 million in 1998 to $13.2
million in 1999 and revenues outside of the United States increased $1.5
million, or 30%, from $5.2 million in 1998 to $6.7 million in 1999.
The overall increase in revenues was primarily attributable to continued
market growth for gene cloning and expression kits and increased market
penetration of our gene cloning and gene expression product lines. We expect
that future revenues will be affected by new product introductions, competitive
conditions, customer research budgets, and the rate of expansion of our customer
base.
GROSS MARGIN. Gross margin as a percentage of revenues for the three months
ended June 30, 1999 increased to 75% from 72% reported for the same period in
1998. This improvement resulted from general price increases, higher grant
revenue and lower shipping costs. Also contributing to higher gross margins was
the absence of royalty expense on our TA Cloning products which was discontinued
during the three months ended June 30, 1999 upon our acquisition of sole
ownership of the patents that cover the technologies used in these products.
This acquisition gave Invitrogen exclusive worldwide royalty-free rights as the
sole assignee through 2013, the life of the patents.
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For the six months ended June 30, gross margin increased from 73% in 1998 to
74% in 1999. The increase resulted from the improvements during the three months
discussed above.
We believe that gross margin for future periods could be affected by sale
volumes, competitive conditions, royalty payments on licensed technologies, and
foreign exchange factors. Foreign currency fluctuations had a negligible impact
during both periods. The functional currency of our Netherlands subsidiary,
Invitrogen B.V., is the Netherlands Guilder (NLG). The translation from NLG to
Dollars for revenue and expenses is based on the average exchange rate during
the period; large increases or decreases in the spread between currencies have
affected and may continue to affect gross margin and reported income. Invitrogen
B.V. conducts its European business in the currencies of its significant
customers. Exchange gains or losses arising from transactions denominated in
these currencies are recorded using the actual exchange differences on the date
of the transaction. Large increases or decreases in these currency fluctuations
could also impact gross margin and reported profits.
SALES AND MARKETING. Sales and marketing expenses increased $0.1 million
from $1.8 million for the three months ended June 30, 1998 to $1.9 million for
the same period in 1999. As a percentage of revenues, sales and marketing
expenses decreased from 24% to 19% for these periods as our revenue growth
continued to outpace spending for sales and marketing.
For the six months ended June 30, 1999, sales and marketing expenses
increased $0.5 million from $3.4 million in 1998 to $3.9 million in 1999 and as
a percentage of sales declined from 23% in 1998 to 20% in 1999.
We anticipate that sales and marketing will comprise 22% to 23% of revenues
over the next few years as we continue the expansion of our field sales forces
in both the United States and Europe.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
three months ended June 30 increased $0.2 million from $1.0 million in 1998 to
$1.2 million in 1999. As a percentage of revenues for the same periods, general
and administrative expenses decreased from 13% to 12%.
For the six months ended June 30, 1999 general and administrative expenses
increased $0.4 million from $2.1 million, or 14% of revenues, in 1998 to $2.5
million, or 13% of revenues in 1999.
The absolute increase resulted from the continued expansion of
administrative resources to support our growth and requirements as a newly
public company. The decline as a percentage of revenues occurred as a fixed
portion of our general and administrative expenses was spread over a larger
revenue base. We expect our aggregate general and administrative expenses for
the remainder of 1999 to be consistent with that of the first half of 1999.
RESEARCH AND DEVELOPMENT. Research and development expenses increased $0.2
million from $1.9 million for the second quarter in 1998 to $2.1 million in
1999. As a percentage of revenues, research and development expenses decreased
from 24% in 1998 to 20% in 1999.
For the six months ended June 30, 1999, research and development expenses
increased $0.7 million to $4 million, or 20% of revenues, from $3.3 million for
the same period in 1998, or 22% of revenues.
OTHER INCOME (EXPENSE). Other income increased $0.3 million from $3,000 for
the three months ended June 30, 1998 to $0.3 million for the same period in
1999. The increase was mainly attributable to higher interest and other income,
resulting primarily from the larger balances of cash and investments during the
period.
For the six months ended June 30, other income increased $0.2 million from
$0.2 million in 1998 to $0.4 million in 1999. The increase in other income was
attributable to higher interest income partially offset by higher foreign
currency transaction costs.
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PROVISION FOR INCOME TAXES. Our effective tax rate decreased slightly from
36% for the three and six months ended June 30, 1998 to 35% for the same period
in 1999. We currently receive tax credits on certain R&D expenditures; in the
past, these tax credits have been authorized by the U.S. Congress on a year by
year basis and we have no assurance they will be available in future years.
Assuming that the U.S. Congress renews the R&D tax credit legislation, we
anticipate that our effective rate for 1999 will be approximately 35%.
YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUE. Revenue increased $6.4 million, or 26%, from $25.0 million in 1997
to $31.4 million in 1998. For these same periods, revenues in the United States
increased $3.9 million, or 24%, from $16.4 million to $20.3 million, and revenue
outside the United States increased $2.5 million, or 30%, from $8.6 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 our gene cloning and gene expression product lines. In
addition, in 1998 our new products contributed approximately $2.5 million in
revenue.
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. Foreign currency fluctuations had a negligible
impact during both periods.
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.
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.
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.
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.
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 $2.3 million, or 37%, from $6.2 million to $8.5
million. The overall increase in revenue was primarily attributable to increased
market penetration
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of our 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 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, we 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
Net cash from operating activities generated $2.6 million during the first
half of 1999. Net cash generated from financing activities totaled $31.8 million
and represents $48.9 million in net proceeds from the sale of common stock in
our initial public offering, reduced by $17.1 million of those proceeds used to
redeem preferred and non-voting common stock and pay accrued dividends. Capital
expenditures and payments for intangible assets for the first six months of 1999
each totaled $1.0 million.
In August 1999 we completed our merger with NOVEX. As consideration for the
merger, we issued approximately 2.5 million shares of our common stock for all
of the outstanding common stock of NOVEX and assumed the outstanding options of
NOVEX which were converted into options to purchase approximately 500,000 shares
of our common stock. Costs incurred as a result of the merger and the related
integration are expected to be approximately $4.4 million.
As of June 30, 1999 we had cash, cash equivalents and short-term investments
totaling $38.5 million and working capital of $43.1 million. We have an
available bank line of credit facility totaling $3 million that expires
September 30, 1999, of which none was utilized at June 30, 1999. Our funds are
currently invested in U.S. Treasury and government agency obligations,
investment-grade commercial paper and interest and dividend-bearing securities.
We expect that our cash, cash equivalents, short term investments, funds
from operations and interest income earned thereon, will be sufficient to fund
our operations for at least two years. Our future capital requirements and the
adequacy of our available funds will depend on many factors, including
scientific progress in our research and development programs, the magnitude of
those programs, our ability to establish collaborative and licensing
arrangements, the cost involved in preparing,
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filing, prosecuting, maintaining and enforcing patent claims, competing
technological and market developments and future business acquisitions.
CURRENCY HEDGING AND FOREIGN CURRENCY TRANSLATION
In the normal course of business, Invitrogen B.V. from time to time
purchases exchange-traded put options on U.S. Dollars and U.K. Pounds Sterling
to mitigate foreign currency exposure. At June 30, 1999 outstanding options
totaled $0.8 million and mature on various dates through December 1999.
Invitrogen conducts business transactions with its subsidiary in the
Netherlands and with its foreign distributors, including those in Asia, in U.S.
Dollars. NLG is the functional currency for Invitrogen B.V. The translation from
NLG to the U.S. Dollar for balance sheet accounts is done 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.
YEAR 2000 EFFECT ON COMPUTER SYSTEMS
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, in less than one year,
computer systems and/or software used by many companies in a very wide variety
of applications will experience operating difficulties unless they are modified
or upgraded to adequately process information involving, related to or dependent
upon the century change. Some businesses may be financially affected by such
computer problems.
We believe our existing manufacturing, financial and accounting systems will
be year 2000 compliant prior to January 1, 2000, meaning that they will be
capable of distinguishing 21st century dates from 20th century dates. We are in
the process of replacing a portion of our existing computer system with new
hardware and software that will also be year 2000 compliant and expect to
complete this process in the fourth quarter 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 a minimum of
3-5 days.
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. Businesses
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will be required to complete transition to the Euro and begin reporting and
conducting their transactions in the Euro by January 1, 2002. On July 1, 2002
the existing national currencies will be withdrawn and will no longer be
considered legal tender.
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. We believe that our enterprise-wide financial and
manufacturing information systems will be Euro compliant by January 1, 2000.
However, we have not determined the costs related to any problems that may arise
in the future. Any such problems may materially adversely affect our business,
operating results and financial condition.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the discussion above under "Currency Hedging and Foreign Currency
Translation" for quantitative and qualitative disclosures about market risk.
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BUSINESS
Invitrogen develops, manufactures and markets research tools in kit form and
provides other research products and 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 and products allow researchers to perform these activities more
accurately, efficiently and with greater reproducibility compared to
conventional research methods. Our kits and products 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
"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. In August 1999, Invitrogen merged with NOVEX, a developer and
manufacturer of pre-cast electrophoresis gels and associated products for gene
and protein analysis. From 1994 through 1998, Invitrogen and NOVEX, on a pro
forma combined basis, experienced compound annual growth in revenue of 27% and
net income of 60%.
Based on independent market studies, in 1998 researchers spent over $1.4
billion on molecular biology products and supplies such as chemicals, reagents,
enzymes and kits. Gene cloning, expression and analysis kits represent a rapidly
emerging segment of the molecular biology product and supply market. Based on
independent market studies, we project sales of gene cloning, expression and
analysis kits to grow approximately 21% in 1999, compared to approximately 14%
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
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;
and
- Accelerated investment in commercial research activities.
We offer approximately 700 kits and other products that researchers use to
conduct key molecular biology research activities. Our kits and products 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 proprietary 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 1998 sales of these kits, we estimate that researchers
who used TOPO TA Cloning Kits in 1998 saved over 8.5 million hours compared to
standard cloning methods.
In 1998 we 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 2,300 full-length cloned human genes that
correctly express their specific proteins. In addition, we are using 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.
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We believe we have assembled one of the broadest portfolios of gene cloning,
expression and analysis related intellectual property in our industry. To date,
we have obtained over 85 licenses, which provide us with access to over 200
patents covering gene cloning, expression and analysis materials and techniques.
We own or control 28 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,
gene expression and gene analysis-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.
On August 17, 1999 we completed our merger with NOVEX. As consideration for
the merger we issued approximately 2.5 million shares of our common stock and
assumed options which were converted into options to purchase approximately
500,000 shares of our common stock. Invitrogen merged with NOVEX because we
believe that NOVEX's pre-cast gel electrophoresis product lines are highly
complementary with Invitrogen's product lines.
Our NOVEX subsidiary develops, manufactures and markets research
electrophoresis products in pre-cast form, which improves the speed, reliability
and convenience of gel electrophoresis. Gel electrophoresis is a technique that
is used as a tool to visualize the results of many different types of molecular
biology experiments. As such, it is an integral part of the majority of the
molecular biology activities that our kits and other products address. NOVEX
offers approximately 450 products that enable researchers to complete their
experiments more accurately, efficiently and with greater reproducibility
compared to traditional electrophoresis methods. For example, our pre-cast gels
eliminate the time required to make gels in the laboratory, resulting in savings
of 1-2 hours every time a gel is purchased from us rather than made by the
researcher.
NOVEX purchased Serva from Boehringer Ingelheim in 1998. Serva sells fine
chemicals and reagents. This acquisition brought new technologies and
capabilities that extend our technologies further into areas such as
two-dimensional, or 2D, electrophoresis. Serva is one of the few companies in
the world with the technical know-how and equipment required to manufacture
ampholytes immobilized in gels coated on plastic film, which is a desirable
component for the first stage of 2D electrophoresis. We believe this platform
technology fits very well with our existing technologies and will open up
avenues for new product development.
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. The entire spectrum of proteins expressed by an organism is called its
proteome. Functional genomics, or proteomics, is the study of the function of
genes, including how expression of a particular gene is regulated and the
function of the protein that the gene encodes.
The DNA molecule is comprised of two linear sequences, or strands, of four
nucleotide bases, commonly known as C, G, A and T. It is estimated that there
are three billion nucleotide base pairs in the human genome. The individual DNA
strands are held together by chemical bonds between the nucleotide bases on each
strand. Only certain pairs of nucleotide bases can form these bonds: C always
pairs with G, and A always pairs with T. Such paired strands are said to be
complementary. When two DNA strands are complementary, they can bind together to
form a double helix in a process called hybridization. DNA itself does not
produce proteins. Instead, the double strand of the DNA helix unwinds and
complementary nucleotide bases are attracted to the separated strands of DNA,
forming
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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 genetic material that should
be sequenced and studied. Gel electrophoresis is utilized at some stage in each
of these techniques to visualize the results of experiments. These 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.'
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- DNA SEQUENCING. DNA sequencing is the technique used by researchers to
determine the linear order of nucleotide bases (i.e. the order of C's,
G's, A's and T's) in a DNA fragment. Sequencing is performed because it
provides researchers with the core information they need to identify,
clone, express and analyze specific genes and their encoded proteins. The
first step in sequencing involves isolating DNA from a sample (such as
cells, tissue, blood, hair or the leaf of a plant). Next, the isolated
DNA is used in four different reactions that occur in buffers containing
salts, a mixture of the four nucleotide bases, a nucleotide primer and an
enzyme. Each of the four reactions also contains one of the four
nucleotide bases that has been specifically modified for use in
sequencing. The nucleotide primer is a short, single strand of DNA with a
known sequence that is complementary to the strand to be sequenced. After
the isolated DNA is placed in the buffer, it is heated to separate the
DNA strands, then cooled rapidly. Rapid cooling forces the DNA to
hybridize, or bind, to the primer rather than to its opposite DNA strand.
The enzyme in the buffer then elongates the complementary strand, one
base at a time, starting from the primer. When the modified sequencing
nucleotide in the buffer incorporates into the growing strand, the
elongation process stops. Running the four different reactions side by
side on a sequencing gel then creates a visual layout that the researcher
uses to determine the actual nucleotide sequence of the DNA.
High-throughput automated DNA sequencing is a recent innovation that has
made it possible to sequence all of the DNA in a genome. The United
States government is funding the sequencing of the human genome to
provide researchers with the building blocks to be used for further
medical and pharmaceutical research. Similarly, governments and major
corporations have begun agricultural genome projects to study and improve
crops like rice, corn, soybeans and tomatoes. Genomes of organisms like
fruit flies, mice, flatworms and yeast are also being sequenced for the
indirect understanding that comparisons among organisms provide.
- 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
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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 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 that they wish to clone, they can use a type of protein called a
restriction enzyme. Restriction enzymes recognize specific DNA sequences,
called restriction sites, and cut the DNA strands in a manner that leaves
nucleotide overhangs, or "sticky ends." When some of the sequence of the
DNA fragment to be cloned is known, researchers can choose a restriction
enzyme that cuts isolated DNA at known restriction sites, then use the
generated sticky ends to hybridize the specific, cleaved DNA fragment
into a cloning vector.
Blunt-ended cloning is a technique that is used when the DNA fragment to
be cloned does not contain sticky overhangs, which is termed as being
blunt. Some restriction enzymes leave blunt ends when they cut. Cloning
blunt-ended DNA fragments is a very inefficient process because there are
no exposed nucleotide bases with which to form base pairs. Blunt ends,
however, have a slight affinity for one another, which makes it possible
for researchers to clone these fragments into blunt-ended cloning
vectors.
PCR cloning is another method that can be used to clone a DNA fragment
when some information about its sequence is known. PCR, or polymerase
chain reaction, is one of the most popular techniques used in molecular
biology because it quickly generates large amounts of specific DNA
fragments. Researchers use restriction enzymes, blunt-ended cloning, TA
cloning or other methods to clone these PCR-produced fragments.
- GENE EXPRESSION. Gene expression is a collection of techniques that is
used to produce proteins from genes that have been cloned into expression
vectors and introduced into various host organisms. Most expression
studies involve expressing the cloned gene in a variety of hosts,
including bacteria, fungi, insects and mammalian cells, under various
growth conditions. The protein that a DNA sequence expresses can vary
slightly depending upon the host in which it is expressed and the growth
conditions used. By compiling the results of multiple experiments,
researchers develop an understanding of how a gene and its encoded
protein function 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
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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 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 discover the identity
of an expressed protein, to determine its function or role and to
establish if it 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.
Electrophoresis is a technique that is central to gene analysis as it is
used to analyze the proteins encoded by the genes.
Molecular interaction studies is 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.
The most commonly used method for characterizing the protein products of
both gene expression and gene analysis experiments is slab gel
electrophoresis. Gel electrophoresis is a process by which a complex
mixture of proteins can be quickly separated on the basis of size or
charge. A porous gel slab is used as a "sieve." An electrical charge is
used to propel the mixture of protein molecules through the sieve. As the
proteins move through the gel, smaller
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molecules travel further through the gel than larger molecules. Depending
on their size, the molecules are trapped at different levels in the gel
to form a series of discrete bands. By controlling the porosity of the
gel, the researcher can optimize the separation for a particular set of
proteins.
Gel electrophoresis is used to visualize the results of molecular biology
experiments and functional genomics studies. For example, electrophoresis
enables a researcher to verify that the desired protein is indeed being
produced during a gene expression experiment. It is also used to identify
and characterize proteins, for example when an unknown protein binds to a
known protein in a molecular interaction study, electrophoresis is used
to establish its identity. With the speed, effectiveness and convenience
of pre-cast electrophoresis products, it is commonplace for scientists to
use electrophoresis to check their work at several points during an
extended experiment involving protein or nucleic acid manipulation. It is
a flexible technique that does not require a significant investment in
hardware, requires little or no method development, and is reliable and
robust under widely diverse sample conditions. A simple apparatus is used
to hold one or two gels in place. A unique advantage of electrophoresis
is that, after the proteins have been separated, they can easily be
recovered from the gel for use in subsequent experiments. This is not the
case with most instrumental separation methods.
There are several different types of electrophoresis as well as related
techniques. These include protein electrophoresis, 2D electrophoresis,
gel visualization, western blotting and nucleic acid electrophoresis.
These techniques are described below:
- PROTEIN ELECTROPHORESIS. Protein electrophoresis is typically
conducted using sodium dodecyl sulfate (SDS) polyacrylamide gel
electrophoresis (SDS-PAGE). SDS is a negatively charged compound that
binds tightly to, and imparts a uniform negative charge to all
proteins. This charge provides the force that drives the proteins
through the gel and ensures a separation based only on size. A
molecular weight standard, which is a mixture of proteins of known
molecular weight, is run in a lane on the same gel as the unknown
sample. By comparing the migration distances, one can determine the
approximate molecular weight of the unknown protein.
- 2D ELECTROPHORESIS. 2D electrophoresis is used to separate proteins of
the same molecular weight, which would migrate together and not be
resolved by SDS-PAGE. Proteins are made up of amino acids, some of
which contain positively or negatively charged functional groups. As a
result of its unique amino acid composition, each protein has a
natural isoelectric point, the pH at which it carries a neutral
charge. In order to separate two proteins with the same molecular
weight, isoelectric focusing (IEF) is first used to separate the
proteins on the basis of charge. The proteins are then separated again
on the basis of molecular weight. This is known as two-dimensional, or
2D, electrophoresis and is commonly used in proteomics research.
In IEF, a mixture of compounds carrying a spectrum of charges known
as ampholytes is either added to the gel matrix or immobilized within
the gel matrix. When an electrical charge is applied, the proteins
organize themselves linearly within the gel according to their
relative charge. Proteins with higher isoelectric points will form
bands on one end of the gel and proteins with lower isoelectric
points will form bands at the other end of the gel.
- GEL VISUALIZATION. After electrophoresis, the gel containing the
separated or "resolved" proteins must be stained to visualize the
proteins. This allows the researcher to determine the molecular weight
and purity of the sample. Various stains are used that have different
levels of sensitivity and specificity. The gel can then be dried and
saved as a permanent
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record of the experiment, or a gel documentation system can be used to
photograph the results and store them in digital form for analysis.
- WESTERN BLOTTING. Alternatively, the proteins can be transferred from
the gel to a membrane in a process called western blotting. The
proteins on the membrane are then exposed to antibodies specific to
the protein of interest or to a specific "tag" that has been
intentionally incorporated into an expressed protein. This allows the
scientist to identify the presence of a specific protein from within a
highly complex mixture. In addition, the separated proteins can be
recovered from the gel or the membrane for further analysis such as
protein sequencing or mass spectrophotometry.
- NUCLEIC ACID ELECTROPHORESIS. Nucleic acid electrophoresis may also be
conducted using a polyacrylamide gel matrix. In DNA sequencing
(described above), polyacrylamide gels ranging in lengths up to 40cm
long are used to separate the results of a DNA sequencing reaction.
Small format (10cm X 10cm or 10cm X 12cm) polyacrylamide gels are also
used for nucleic acid analysis. These gels are used when accurate,
sensitive visualization of small DNA or RNA fragments is required, for
example, when analyzing PCR products.
Nucleic acid electrophoresis is more commonly performed using agarose
as the gel matrix. Agarose has lower resolving power than
polyacrylamide and is typically used for separating large DNA
fragments. Examples include analysis of plasmid preparations and
restriction digestions. DNA fragments can be recovered from the gel
for subsequent cloning into a vector. Agarose gels are easier to make
than polyacrylamide gels, however the stains are hazardous and
require special handling.
MARKET OVERVIEW
Based on independent market studies, in 1998 over $1.4 billion was spent on
molecular biology products and supplies such as chemicals, reagents, enzymes and
kits. The market for these products and for related services consists of the
academic market, comprised of universities and government institutions, and the
commercial market, comprised of pharmaceutical, biotechnology and agricultural
companies. It is estimated that there are over 300,000 scientists worldwide
engaged in molecular biology research. A substantial number of scientists
perform their research using the conventional methods they were taught during
their training, assembling their own reagents and developing their own
protocols. 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 and pre-cast gel electrophoresis
products represent a rapidly emerging segment of the overall molecular biology
product and supply market. Based on independent market studies, we project that
the market for gene cloning, expression and analysis kits will grow
approximately 21% in 1999, compared to approximately 14% for the overall
molecular biology product and supply market. Several factors are driving market
growth and the need for gene cloning, expression and analysis kits, products and
services:
- INCREASING GOVERNMENT FUNDING. The National Institutes of Health is the
largest purchaser of research products and services in the world. In
October 1998, the U.S. Congress approved a 15% increase in NIH funding,
raising its 1999 budget to $15.7 billion. The U.S. Congress has stated
its intention to double the NIH budget in the next five to ten years.
Other governments are similarly increasing funding for biomedical
research. In the past, funding increases of this nature have resulted in
a corresponding increase in the purchase of molecular biology research
products and services.
- HIGH-THROUGHPUT SEQUENCING ENABLES GENOME SEQUENCING & PROTEOMICS
PROJECTS. High-throughput automated DNA sequencing is a recent innovation
that has made it
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both technically possible and economically feasible to sequence all of
the DNA in a genome. The U.S. government launched the Human Genome
Project in 1990 to determine the DNA sequence of the estimated 3 billion
nucleotide base pairs contained in the human genome and to identify its
estimated 100,000 genes. Through the end of 1998, $1.9 billion had been
spent and approximately 7% of the genome had been fully sequenced. An
ambitious schedule has been set to complete the full sequence by the end
of 2003, two years ahead of previous projections. Similarly, governments
and major corporations worldwide have begun agricultural genome
sequencing projects to study and improve crops like rice, corn, soybeans
and tomatoes. We believe that the markets for gene cloning, gene
expression, gene analysis and electrophoresis technologies will continue
to expand as researchers begin proteomics projects designed 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.
TECHNOLOGY AND CAPABILITIES
We believe that many of the 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
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to over 90%. Our FastTrack Kit is another example of a product that provides
researchers with significant advantages over conventional research methods.
Whereas mRNA isolation methods typically took two days to complete and required
the use of hazardous reagents, 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 our
expression vectors, which enable researchers to perform their experiments more
easily.
Making and running polyacrylamide gels in a research laboratory is time
consuming, requires the use of hazardous materials and requires significant
expertise to produce high quality, reliable gels. Gradient gels and isoelectric
focusing gels are particularly difficult to make consistently. For example, the
conventional method requires researchers to first assemble two glass plates
together with spacers and tape. Then, a mixture of acrylamide and cross-linker
is made, catalysts are added and the solution is carefully poured between the
glass plates, making sure it is poured evenly and does not leak through the
tape. The gel must then be left to polymerize for up to two hours before it is
ready for use. Our pre-cast gels eliminate the time required to make gels in the
laboratory, resulting in savings of 1-2 hours every time a gel is purchased from
us rather than made by a researcher. We have developed a complete line of
pre-cast gels that eliminates this entire gel casting procedure. Other of our
products such as the SeeBlue ready-to-use standards, and the WesternBreeze
pre-optimized western blotting kits make other electrophoresis-related processes
faster and easier, while providing better performance than products that
researchers can make on their own.
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.
Our corporate development group has 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 corporate 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, and two major new
electrophoresis product lines: WesternBreeze western blotting kits specific for
rabbit and mouse antibodies and QuickPoint gels for the fast growing nucleic
acid analysis market.
BUSINESS STRATEGY
Our business strategy is to develop and market a comprehensive portfolio of
products and services based on our expertise in gene cloning, expression and
analysis technologies. Our business strategy includes the following key
elements:
- MAINTAIN AND ENHANCE LEADERSHIP POSITIONS. Based on our market shares, we
believe we are a worldwide leader in gene cloning, gene expression and
pre-cast gel electrophoresis technologies. We believe that the
competitive advantages offered by our innovative products and
technologies and the comprehensive nature of our product line will
provide an opportunity to increase our market share. We seek to enhance
our position by investing additional 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, expression and analysis. For example, we have utilized our
capabilities in cloning and expression to launch our GeneStorm product
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line, which facilitates functional genomics studies. Similarly, our NOVEX
subsidiary developed the WesternBreeze complete western blotting kits,
which are used by electrophoresis users. By introducing 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 opportunities to
develop high margin services and out-licensing arrangements. Through
Invitrogenomics, we intend to use our high-throughput gene cloning and
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 drug development and agriculture.
We seek to carry out our business strategies by identifying and
in-licensing, or by developing on our own, promising technologies that can be
rapidly commercialized as products or services. We also intend to continue
out-licensing our technologies to customers wishing to use them in other fields
of use, as well as to 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 continue to consider acquisitions of
complementary companies or technologies.
PRODUCTS AND SERVICES
We currently offer approximately 700 gene identification, cloning,
expression, and analysis products and services. The following table describes
our top selling 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.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
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 PCR
Kit 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.
GENE ANALYSIS PRODUCTS
GeneStorm Expression- Researchers can purchase the gene they wish to study, cloned into
Ready Clones 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.
Pre-Cast NuPAGE Gels NuPAGE gels can be used in place of Tris Glycine gels for protein
electrophoresis. These patented gels provide superior resolution,
run in half the time of conventional gels and have a one-year
shelf life. In addition, NuPAGE gel stability allows ambient
temperature shipping and room temperature storage.
Pre-Cast Tris Glycine TG gels are available in 12 different percentages. These
Gels traditional Laemmli-type gels are used for SDS-PAGE. TG gels have
a refrigerated shelf life of 3-4 months.
Pre-Cast Isoelectric NOVEX supplies pH 3-7 and pH 3-10 pre-cast IEF gels in the
Focusing Gels standard vertical 10x10 cm format, as well as in a horizontal
format, which allows up to 43 samples to be run simultaneously.
Pre-Cast TBE Tris borate EDTA (TBE) gels are used to provide high-resolution
Polyacrylamide Gels separation of double-stranded DNA fragments such as PCR products.
They are also widely used to conduct single-stranded
conformational polymorphism (SSCP) studies to detect single point
DNA mutations and gel mobility shift assays to characterize
DNA-protein interactions.
QuickPoint These ultra thin, polyacrylamide gels are used for the rapid
separation of single-stranded DNA for sequencing. They run in
only 15 minutes, compared to three hours for conventional
sequencing gels. QuickPoint gels are useful for analyzing the
results of RNase Protection Assay experiments and for running
short DNA sequences from site-directed mutagenesis and
differential display experiments.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
WesternBreeze This complete kit provides all of the components required for
western blotting. Kit components have been optimized to provide
low background and high sensitivity.
XCell II Mini-Cell and This apparatus holds the gels and buffers during electrophoresis
Blotting Apparatus and western blotting.
Pre-Made Protein We make three protein standards used during electrophoresis to
Standards determine the approximate molecular weights of proteins in a
sample. Mark12 is a ready-to-use protein standard that does not
require dilution or pretreatment. SeeBlue is a broad range
pre-mixed and pre-stained standard. Multi-Mark is a multi-colored
standard that is particularly useful for western blotting. In
addition, we make a liquid mix pI 3-10 IEF marker for determining
the isoelectric point of proteins.
SUPPORT PRODUCTS
One Shot INVALPHAF', These three different bacterial strains are sold ready-to-use for
TOP10F'and TOP10 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.
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. We
have 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
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blots, Gene Pool cDNA and Discovery Line pre-made cDNA libraries. Isolations of
mRNA and total RNA are performed from hard-to-obtain human normal, fetal and
tumor tissue samples. The mRNA and total RNA is then sold ready-to-use or used
to create ready-to-use Northern blots, cDNA for PCR and cDNA libraries. This
enables researchers to use high quality materials and to study the similarities
and differences between normal, fetal and cancerous tissues. These products save
researchers time and effort because the upstream experiments required to prepare
these materials as well as the failures caused by working with inferior
materials are eliminated.
GENE CLONING PRODUCTS
TA CLONING KIT. This kit enables researchers to clone TAQ
polymerase-generated PCR products quickly and efficiently. The kit contains
prepared cloning vector, competent cells for transferring the vector into after
the cloning reaction and all required buffers and enzyme for cloning.
To clone with the TA Cloning Kit, researchers perform a normal PCR reaction,
add a portion of it to a tube that contains TA Cloning vector and T4 DNA ligase
in a ligation buffer, then incubate this ligation reaction for 10-12 hours, or
overnight. This reaction is then added to a tube of competent bacteria, which
are then plated onto an agar plate. The plates are incubated for a day to allow
colonies to form. Colonies are then picked based on a color selection
method-positive colonies, or those that have incorporated PCR product, are
white, while negatives are blue. DNA is then isolated from positive colonies to
verify that the cloning was successful and to determine the orientation of the
PCR product that inserted into the vector.
The TA Cloning Kit is faster and more efficient than conventional PCR
cloning techniques because it takes advantage of the single base A overhangs
that are added automatically to PCR products by TAQ polymerase, the polymerase
most frequently used for PCR, rather than relying on additional steps to remove
these overhangs or to add sticky overhangs. Among these steps are the addition
of extra bases to the PCR primers to add restriction sites, which makes these
primers more expensive and less specific than normal primers, purification of
the PCR products after they are generated, restriction digestion of the PCR
products and inactivation of the restriction enzyme. Moreover, the restriction
method requires that the entire sequence of PCR products be known prior to
cloning. The TA Cloning Kit offers a better cloning efficiency than the
restriction method, as well as providing blue/white color to indicate positive
clones. Quality Control specifications for the TA Cloning Kit require that each
manufactured lot achieve a minimum cloning efficiency of 90%, whereas the
restriction method typically yields only 50-60%.
We are the sole owner by assignment of U.S. and foreign patents on the TA
Cloning method and materials.
TOPO TA CLONING AND TOPO TA CLONING-DUAL PROMOTER KITS. These two kits are
improved versions of the TA Cloning Kit. They both contain prepared cloning
vector, competent cells for transferring the vector into after the cloning
reaction and all required buffers for cloning.
Both of these kits use and take advantage of the TA Cloning method described
above, but also utilize a technology called TOPO Cloning. This method uses an
enzyme called topoisomerase to mediate the ligation of PCR products into the
cloning vector, rather than T4 DNA ligase. This reduces the ligation step to
only five minutes, as opposed to a 12 hour or overnight ligation. TOPO Cloning,
therefore, saves researchers a full day as they are able perform their ligation
reaction and transform it into bacteria on the same day. The TOPO Cloning-Dual
Promoter Kit has a vector that contains transcriptional promoters in both
orientations, which enables researchers to make both sense and anti-sense RNA
transcripts from the same cloned insert. In other vectors, to achieve this the
insert would need to be cloned twice, once in each direction, a less efficient
and lower yield process.
We are 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 2,300 full-length cloned human genes that express their encoded proteins.
GeneStorm Clones enable researchers to purchase the exact gene they wish to
study and go directly to expression studies, bypassing the laborious procedures
required to clone and test the gene for expression. The genes are cloned into
the same high quality, multi-functional expression vectors sold to Invitrogen's
customers and used in Invitrogenomics research.
HYBRID HUNTER SYSTEMS. Molecular interaction is a technique used to
determine if various molecules are able to bind to, or interact with one
another. Because most cellular processes are mediated through pathways of many
proteins, determining if a given protein interacts with other proteins or
nucleic acid molecules is one of the keys to understanding its function. 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 kits contain "bait" and "prey"
expression vectors, yeast strains, positive and negative control vectors,
sequencing primers, a supply of Zeocin antibiotic and complete protocols.
Molecular interaction systems work by using reporter genes that are
expressed only if an interaction occurs. The gene for the protein being studied
is cloned into a "bait" vector that also contains the reporter gene. A second
gene, or an entire library of genes, is cloned into a second vector, called a
"prey" vector. The prey vector contains a transcriptional activator. If the
proteins expressed from the bait and prey vectors interact with one another, the
transcriptional activator is brought into close proximity of the reporter gene.
This causes the reporter gene to express its protein. Cells that express the
reporter gene indicate that they contain a prey vector that is interacting with
the bait. The gene in the prey vector is then isolated and used for further
expression and molecular interaction studies.
With an estimated 100,000 genes in a human cell, each capable of producing
several different mRNA molecules and proteins due to differential splicing,
there are billions of potential nucleic acid and protein interactions. Designing
methods that are sensitive enough to detect actual interactions, yet that do not
signal false interactions, has challenged suppliers of gene analysis systems.
Because the study of each interaction is extremely time consuming, researchers
need assays which are highly sensitive yet extremely accurate, or they will
waste their time, money and efforts trying to study interactions that do not
actually exist. Our Hybrid Hunter Systems have been designed using technologies
that help prevent the occurrence of false interactions.
PRE-CAST GEL SYSTEM. There are three key advantages to our pre-cast gel
electrophoresis system: ease-of-use, versatility and performance.
- The core of our pre-cast gel system is the XCell II Mini-Cell apparatus
and the polyacrylamide gels that are pre-cast in easy-to-handle 10 X 10cm
plastic cassettes. The gels are individually pouched and ready-to-use. The
researcher simply opens the storage pouch, places two gels in the
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Mini-Cell, adds buffer and loads the samples into the sample wells. An
electrical charge is applied to the Mini-Cell for about one hour to
complete the electrophoresis process. After electrophoresis is complete,
the plastic cassette is opened and the slab gel containing the separated
proteins is released for staining or western blotting.
- We offer over 180 pre-cast gels to meet researchers' diverse needs. These
gels incorporate ten different gel chemistries, each optimized for a
particular application, as well as 37 different gel percentages
(porosities) for optimizing the separation of different kinds of samples.
Gradient gels such as the 4-20% Tris-Glycine gel are used to separate a
broad range of proteins on a single gel. Our pre-cast IEF gels contain
compounds called ampholytes that enable the separation of proteins based
on their native electrical charge rather than their size. A variety of
sample well formats and thicknesses allows the user to select the
appropriate gel for their application.
- Important research decisions are made based upon the results of
electrophoresis experiments, so reliable, high quality gel performance is
essential. It is difficult for a researcher making gels on an occasional
basis to ensure the quality of the gel prior to use, in particular,
gradient gels or IEF gels. We use proprietary and patented technology to
produce highly reproducible gels with superior qualities such as gel
straightness, and crisp, sharp separation of bands (resolution).
These products include:
PRE-CAST NUPAGE GELS. NuPAGE is a unique, patented, long-shelf life
(one year) family of gels for SDS-PAGE protein electrophoresis. NuPAGE is
used in place of the traditional Tris-Glycine gels when faster run time (as
little as 40 minutes), improved resolution, and long-shelf life is desired.
The long shelf life aspect allows the product to be stored and shipped at
ambient temperature and reduces the number of unused expired gels, leading
to reduced costs for the end-user.
PRE-CAST TRIS-GLYCINE GELS. These are the traditional gels used for
SDS-PAGE analysis of proteins. We offer 12 different Tris-Glycine gel
percentages. Tris-Glycine gels have a refrigerated shelf life of three to
four months.
PRE-CAST IEF GELS. We offer pre-cast IEF gels in the 10 X 10cm
vertical format. This gel allows the researcher to separate proteins based
on native charge rather than size.
PRE-CAST TBE GELS. TBE (Tris Borate EDTA) gels are used to separate
double stranded DNA fragments while TBE-Urea gels are used to separate
single stranded RNA and DNA. These gels are used in gel mobility shift
assays, a common technique for identifying and characterizing DNA:protein
interactions. After the run, the DNA:protein complex can be extracted from
the gel for further study.
QUICKPOINT. These ultra-thin 10 X 12cm pre-cast polyacrylamide gels
are used for rapid separation of short DNA sequences and analysis of double
stranded DNA fragments. The 15-minute run time is a significant improvement
over the three hours it takes to run standard manual sequencing gels.
Typically, researchers would have to make a large (30 X 40cm) standard DNA
sequencing gel in order to analyze even short DNA sequences. Now researchers
have the option of using pre-made, easy-to-handle gels with significantly
shorter run times, while still getting the single base resolution needed to
read the DNA sequence.
WESTERNBREEZE. This is a complete western blotting reagent kit that
has been optimized to generate blots with clean backgrounds and high
sensitivity. Western blotting is typically a time-consuming, complex process
with many steps, several different reagents and multiple formulas from which
to choose. Researchers typically use reagents from different vendors and
spend a great deal of time working out satisfactory blotting conditions. The
WesternBreeze kit is optimized to
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work the first time, providing a significant time savings. All of the
solutions are packaged as pre-mixed solutions for maximum ease-of-use.
XCELL II MINI-CELL AND BLOTTING APPARATUS. This apparatus is
specifically designed to run our pre-cast gels. A simple wedge design
eliminates buffer leakage, a common problem found in traditional
electrophoresis apparatus that can result in interruption of the run and
sample loss. Our blotting apparatus fits inside the XCell II Mini-Cell,
saving space, reducing buffer volume and reducing transfer time.
PRE-MADE PROTEIN STANDARDS. Protein standards for electrophoresis
are a mixture of proteins with known molecular weights. Standards are run on
a gel with unknown samples in order to help determine the molecular weight
of the samples. The NOVEX Mark12 protein standard is a wide range standard
that is stable in liquid form and is ready to load onto the gel. NOVEX
SeeBlue pre-stained, wide-range standard has exceptionally sharp bands for
more accurate molecular weight determination. NOVEX MultiMark is a
ready-to-use multi-colored pre-stained marker used primarily for western
blotting. NOVEX ready-to-use IEF markers are used for determining the
isoelectric point of proteins separated in isoelectric focusing gels.
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. We
sell many different bacterial strains, each with different characteristics used
by researchers depending on the experiment to be performed. Our best-selling
bacteria are competent, meaning that they have been processed in a manner that
makes them able to bring vector in from outside their cell walls.
Placing a vector into bacteria is termed transformation. The most common
method to do this is to make cells chemically competent by growing them in a
series of buffers. After this procedure, competent cells can be frozen and
stored for later use. Competent cells can take up vector from outside their cell
walls. All that researchers need to do to transform competent bacteria is to
thaw them and combine the vector and the competent bacteria in a test tube.
Vectors usually contain an antibiotic resistance gene, so an antibiotic is then
used to kill the cells that did not take up vector.
Our 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. We also sell 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.
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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.
RESEARCH SERVICES
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 are marketing under the name
Invitrogenomics. We are using 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 2,300 full-length cloned human genes that express their encoded proteins.
We plan to 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 firms will wish to
analyze large amounts of data to isolate relevant gene targets as quickly as
possible. To do so, these companies will need to conduct cloning and
expression-testing on a large scale. We are using our high-throughput technology
and personnel to provide gene cloning and expression services for corporate
partners on a contract basis. Second, as we build 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 our senior management.
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. We seek 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.
On a pro forma combined basis we spent $8.6 million, $5.9 million and $3.9
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.
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SALES AND MARKETING
We currently market our products in over 30 countries throughout the world.
We sell our products directly to customers in the United States, Germany,
Switzerland, the United Kingdom and 16 other countries. In addition, we utilize
specialized distributors to market our products exclusively in more than 13
other countries as well as in some of the countries in which we sell directly.
These independent distributors may also market research products for other
companies, including some products that are competitive with our offerings. For
more information regarding foreign sales and revenues, see Note 1 to Invitrogen
Consolidated Financial Statements. As of August 31, 1999 we employed 98 people
in our sales and marketing department worldwide to market our products and
provide customer support and service.
Our sales strategy has been to employ scientists to work as our technical
sales representatives. Most technical sales representatives have an extensive
background in biology. A thorough knowledge of biological techniques and an
understanding of the research process allows our sales representatives to become
advisors, acting in a consultative role with our 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 of scientists by hosting an annual symposium, presenting at
scientific seminars and exhibiting at scientific meetings. Invitrogen's website
allows researchers to view an on-line catalog, download technical manuals and
vector sequences, read our newsletter and participate in interactive forums and
discussion groups. The website for our NOVEX subsidiary allows researchers to
view an on-line catalog and download NOVEX technical manuals and application
notes.
MANUFACTURING
The U.S. manufacturing facilities for Invitrogen products 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 Invitrogen's 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.
Our U.S. manufacturing facilities for NOVEX products are located in San
Diego, California. NOVEX's manufacturing department is responsible for
production, quality testing, process improvements, customer service and
shipping. The engineering department supports the manufacturing department with
development of proprietary manufacturing automation, equipment maintenance and
repair. The manufacturing processes include quality control testing of all
products to ensure that every product meets or exceeds its minimum
specifications and quality assurance testing of purchased materials that will be
used in products. NOVEX obtained ISO9001 certification in 1997.
NOVEX also assembles pre-cast gels and buffers in Frankfurt, Germany and has
a manufacturing facility in Heidelberg, Germany for formulating and packaging
fine chemicals.
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
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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 our new technologies to market. Our significant licenses or exclusivity
rights expire at various times during the next fifteen years. These licenses
include:
TA CLONING. The patents on this cloning method were formerly co-owned by
Invitrogen and Molecular Biology Resources. We had an exclusive license from
Molecular Biology Resources for cloning purposes. In June 1999 we purchased all
of Molecular Biology Resources' rights in the TA Cloning patents and are now the
sole owner of those patents.
TOPO CLONING. This patented technology significantly accelerates gene
cloning and is an enhancement to our 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, we 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. We paid an up-front fee to
CAYLA, and pay royalties on sales of kits and vectors containing this gene. We
also make 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 Zeocin and certain additional antibiotics exclusively
from CAYLA at a price set each year. We have agreed that our purchases will grow
each year, in order to obtain most-favored pricing terms.
ZERO BACKGROUND. We 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
have 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 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.
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Royalties in 1998 related to the licenses described above were less than 10%
of our 1998 pro forma combined cost of revenues. In 1998 the royalty amounts,
and in the case of the Zeocin license, the combined royalty and purchase
amounts, related to the five licenses described above were approximately
$309,000, $67,500, $950,000, $38,000 and $8,800, respectively.
In addition to these licenses, 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 considerations 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 underlying 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, and
we 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 licensed patent. We do not
receive significant indemnification from a licensor against third party claims
of intellectual property infringement.
PATENTS AND PROPRIETARY TECHNOLOGIES
We consider 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 nine issued patents in the United States and five issued
patents in other major industrialized nations, and own or control 28 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 nine issued United States patents will expire between 2012 and
2019 and our five foreign patents will expire between 2011 and 2015.
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
47
<PAGE>
of enforceability of patent protection continue to evolve, particularly in the
areas of molecular biology of interest to Invitrogen.
Patent applications in the United States are maintained in secrecy until
patents issue. Also, publication of discoveries in the scientific or patent
literature tends 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 and 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 and price sensitive. We
expect the intensity of competition to increase. Currently, we compete primarily
with other life sciences research product 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.
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 may suffer. See "Risk Factors--Competition in the Life Sciences
Research 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. Our 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
us.
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<PAGE>
EMPLOYEES
As of August 31, 1999, we employed 426 persons, of whom 44 hold Ph.D. or
M.D. degrees and 30 hold other advanced degrees. Approximately 78 employees are
engaged in research and development, 98 in sales and marketing, 189 in
manufacturing and 61 in supporting corporate development, intellectual property,
finance and other administrative functions.
Our success will depend in large part upon our ability to attract and retain
employees. We face 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 for marketing and product support
operations, research and development and manufacturing activities. We presently
pay rent of approximately $40,000 per month with predetermined cost-of-living
rent increases at annual intervals. The lease expires in February 2007. We
believe that adequate facilities will be available upon the conclusion of our
lease. We are currently in negotiation to lease additional space in Carlsbad. We
also own an approximately 17,000 square foot facility in the Netherlands to
support sales and distribution in Europe.
Our NOVEX subsidiary leases two buildings comprising a total of
approximately 41,000 square feet at its San Diego, California location, which is
used for manufacturing as well as for marketing and product support operations,
and research and development. We presently pay rent of approximately $30,000 per
month plus $11,000 per month for tenant improvements. The lease expires in 2000
and we hold options to extend the lease for another two years. We believe that
adequate facilities will be available upon the conclusion of this lease. NOVEX
also leases approximately 12,000 square feet in Frankfurt, Germany and 18,000
square feet in Heidelberg, Germany, which leases run through 2002 and 2001
respectively. Payments under these leases total approximately $22,000 per month
and include all utilities for the Frankfurt facilities.
LEGAL PROCEEDINGS
From time to time we have been and expect to be involved in legal
proceedings arising from our ordinary business operations. In early 1999, our
NOVEX subsidiary received a letter outlining a $1.1 million claim from a
distributor in Austria. The letter stated that the claim arose from the
termination of NOVEX's relationship with the distributor. No formal legal action
has been taken. None of the proceedings that are currently pending are expected
to have a material adverse effect on our financial condition and business
operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information concerning directors and executive
officers of Invitrogen as of August 31, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Lyle C. Turner............................ 46 President, Chief Executive Officer and Chairman of the Board
of Directors
James R. Glynn............................ 52 Executive Vice President, Corporate Development, Chief
Financial Officer and Director
David E. McCarty.......................... 57 Executive Vice President and Director
Donald W. Grimm........................... 57 Director
Kurt R. Jaggers(1)(2)..................... 40 Director
Bradley G. Lorimier....................... 54 Director
Jay M. Short, Ph.D.(2).................... 41 Director
Lewis J. Shuster(1)....................... 44 Director
</TABLE>
- ------------------------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
LYLE C. TURNER, a founder of Invitrogen, has served as President, Chief
Executive Officer and Director since February 1988. Previously, Mr. Turner
served as Director of Sales and Marketing at Stratagene, a life science research
company, from January 1987 through February 1988, and as Technical Sales
Specialist at Boehringer Mannheim Corp., a pharmaceutical company, from June
1985 to January 1987. From September 1981 through May 1985, Mr. Turner worked at
Syntro Corporation, an animal health company, at which his final position was
Manager of Business Development. Mr. Turner received his B.A. in Chemistry from
the University of California, San Diego.
JAMES R. GLYNN became a Senior Vice President, Corporate Development, Chief
Financial Officer and Director of Invitrogen in June 1998 and previously served
as Director in 1995. In September 1999, Mr. Glynn became an Executive Vice
President of Invitrogen. From July 1995 to May 1997 he served as Senior Vice
President and Chief Financial Officer and from May 1997 to July 1998 as Chief
Operating Officer, Chief Financial Officer and Director of Matrix
Pharmaceutical, Inc., a company focusing on the treatment of cancer. Mr. Glynn
served as Executive Vice President, Chief Financial Officer and Director of
Mycogen Corporation, an agribusiness and biotechnology company, from April 1987
to February 1995. From 1982 to 1987 Mr. Glynn was Vice President, Finance and
Treasurer of Lubrizol Enterprises, Inc., a venture development company. He is
currently a Director of Matrix Pharmaceutical, Inc. in addition to his positions
with Invitrogen. Mr. Glynn received his B.B.A. in Accounting from Cleveland
State University.
DAVID E. MCCARTY joined Invitrogen as a Senior Vice President and Director
in August 1999 as part of the Invitrogen-NOVEX merger, and became an Executive
Vice President in September 1999. Mr. McCarty is also President and Chief
Executive Officer of NOVEX, a position he has held since August 1997. Prior to
joining NOVEX, Mr. McCarty was President and CEO of Alexon Biomedical, a
Sunnyvale CA-based immunoassay diagnostic company which he joined in 1990. Prior
to joining Alexon, Mr. McCarty spent six years at Gen-Probe, Inc., a DNA probe
diagnostics company, as Vice President of Operations. His other professional
experience includes senior operating positions at Calbiochem-Behring and
Boehringer Mannheim. Mr. McCarty also serves as a director of Chromagen, Inc., a
privately held high-throughput drug screening company. Mr. McCarty holds a B.S.
in Chemistry from
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California State University at Northridge and an M.B.A. from California State
University at Long Beach.
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 President and Chief Operating Officer of Pharmacopeia
Laboratories, an operating unit of Pharmacopeia, Inc., a pharmaceutical and
biotechnical research company, a position he has held since February 1999. From
November 1994 to February 1999 Mr. Shuster served as Executive Vice President
and Chief Financial Officer of Pharmacopia, Inc. From September 1992 to November
1994 Mr. Shuster served as Executive Vice President, Operations and Finance of
Human Genome Sciences, Inc., a pharmaceutical company. Mr. Shuster received his
M.B.A. from Stanford University Graduate School of Business and his B.A. from
Swarthmore College. He is currently a Director of US Biomaterials Corporation, a
private biomedical company.
Invitrogen currently has authorized between five and nine directors with the
current number set at eight. Invitrogen's certificate of incorporation provides
for three classes of directors. The terms of
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Class I, Class II and Class III directors expire at the annual meeting of
stockholders held in 2000, 2001 and 2002, respectively, or at special meetings
held instead of such annual meetings. At each annual meeting of stockholders
after the initial classification, or special meetings held instead, the
successors to directors whose terms will then expire will be elected to serve
until the third annual meeting following their election. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This classification of the board of
directors may have the effect of delaying or preventing changes in control or
management of Invitrogen.
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 1995 and 1997
Stock Option Plans and the 1996 and 1998 NOVEX Stock Option Plans we assumed in
connection with our merger.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In March 1997 Invitrogen made an initial investment of $500,000 to acquire
shares of preferred stock and a warrant to purchase shares of preferred stock of
MorphaGen, Inc., a start-up company engaged in the business of researching and
developing Morphatides, a special type of nucleic acid. The President of
MorphaGen, Heidi Short, is the spouse of Dr. Short, a member of the board of
directors of Invitrogen. During 1997, Invitrogen performed research services for
MorphaGen for which it was paid approximately $81,000. In November 1998,
Invitrogen acquired all of the outstanding shares of MorphaGen not already owned
by Invitrogen in exchange for a grant of an option to purchase 50,000 shares of
Invitrogen common stock to Heidi Short, payment of royalties contingent upon
certain milestones, the assumption of outstanding options of MorphaGen employees
and the assumption of certain liabilities. MorphaGen was dissolved as a separate
corporate entity in 1999. Dr. Short's father, Roy Short, receives royalties of
approximately $100,000 per year from sales relating to Invitrogen's DNA DipStick
product line and electroporation cuvettes. There were no other interlocks or
other relationships among Invitrogen's executive officers and directors that are
required to be disclosed under applicable executive compensation disclosure
requirements.
COMPENSATION OF DIRECTORS
Invitrogen does not currently provide cash compensation to directors for
services as directors, other than to Dr. Short, who receives up to $1,500 per
meeting and Mr. Grimm who receives up to $750 per meeting, both pursuant to
preexisting agreements. Directors may be reimbursed for certain expenses in
connection with attendance at Board of Directors and committee meetings. Since
November 19, 1998, directors who are not employees of Invitrogen receive annual
grants of options to purchase 10,000 shares of common stock in accordance with
the 1997 Stock Option Plan. Options to purchase 30,000 shares of common stock
were granted to non-employee directors of Invitrogen during Invitrogen's fiscal
year ended December 31, 1998.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION MATTERS
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
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<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; and
- 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.
EXECUTIVE COMPENSATION
The following table summarizes, for the periods indicated, the compensation
paid to or earned by our Chief Executive Officer and our other current executive
officer whose aggregate compensation during the fiscal year ended December 31,
1998 exceeded $100,000. Mr. Glynn joined Invitrogen on July 1, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------------------
SHARES OF
COMMON STOCK
ISSUABLE UPON
EXERCISE OF ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS($) OPTIONS COMPENSATION
<S> <C> <C> <C> <C> <C>
Lyle C. Turner .............................. 1998 $ 285,601 $ 270,998 -- --
President and Chief Executive Officer...... 1997 258,405 640,690
James R. Glynn .............................. 1998 136,146 123,125 250,000 --
Executive Vice President Corporate 1997 -- -- --
Development and Chief Financial Officer
</TABLE>
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<PAGE>
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 ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS GRANTED APPRECIATION FOR OPTION
UNDERLYING TO EXERCISE OR TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------
NAME GRANTED(1) FISCAL YEAR ($/SH) DATE 5% 10%
<S> <C> <C> <C> <C> <C> <C>
James R. Glynn................ 250,000 20.3 $ 5.60 7/01/08 $ 880,000 $ 2,230,000
</TABLE>
- ------------------------------
(1) Options are granted under Invitrogen's 1995 and 1997 Stock Option Plans.
Such options expire ten years from the date of grant, or earlier upon
termination of employment.
Amounts reported in the Potential Realizable Value column above represent
hypothetical values that may be realized upon exercise of the options
immediately prior to the expiration of their term, assuming that the stock price
on the date of grant appreciates at the specified annual rates of appreciation,
compounded annually over the term of the options. These numbers are calculated
based on rules promulgated by the Securities and Exchange Commission. Actual
gains, if any, on stock option exercises and common stock holdings are dependent
on the time of such exercise and the future performance of Invitrogen's common
stock.
YEAR-END VALUES
The table below provides information about the number and value of options
held by the executive officers described above at December 31, 1998. Since there
was no public trading market for Invitrogen common stock as of December 31,
1998, the values of in-the-money options have been calculated on the basis of
$15.00 per share, the Invitrogen board's good faith determination of the fair
market value of a share of Invitrogen's common stock as of that date, 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 31,
1998 1998
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
James R. Glynn...................................... 70,833 179,167 $ 665,830 $ 1,684,170
</TABLE>
EMPLOYMENT AND SEVERANCE ARRANGEMENTS
On March 31, 1999 we entered into severance agreements with two of our
former executive officers, Joseph M. Fernandez and Theodore J. DeFrank, pursuant
to their resignations. Under those agreements, each former officer receives
monthly severance pay at their regular salary rate on the date of the
agreements; Mr. DeFrank for six months, Mr. Fernandez for twelve months. Each
former officer additionally entered into consulting agreements with Invitrogen,
for nine months and twelve months respectively. As part of its merger with
NOVEX, Invitrogen assumed an employment agreement with David E. McCarty,
President of NOVEX. That agreement provides that if Mr. McCarty is terminated
other than for cause, he will receive 12 months' severance pay.
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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 since its adoption. The 1997 Plan was subsequently
amended on two occasions to provide for the issuance of options to purchase an
additional 750,000 shares and 1,000,000 shares of common stock. With those
amendments, the 1997 Plan allows for the issuance of options to purchase up to
5,485,479 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 and the NOVEX plans
(discussed below) similarly make 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, our outside directors, including outside
directors that were formerly employees of Invitrogen, will 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.
Effective August 17, 1999, Invitrogen assumed NOVEX's 1996 and 1998 Stock
Option/Stock Issuance Plans in connection with the merger of Invitrogen and
NOVEX. Pursuant to the terms of the merger, each outstanding NOVEX common stock
option was assumed and converted into an option to acquire the number of shares
of Invitrogen common stock obtained by multiplying the number of shares of NOVEX
common stock subject to the option by the exchange ratio used in the merger. The
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<PAGE>
terms of NOVEX's 1996 and 1998 Stock Option/Stock Issuance Plans are
substantially similar to Invitrogen's 1995 Plan and 1997 Plan. All options
granted to NOVEX employees after the merger have been and will be granted under
Invitrogen's 1997 Plan.
As of August 31, 1999, there were outstanding options to purchase an
aggregate of 4,115,525 shares of common stock at exercise prices ranging from
$.8357 to $28.125 per share, or a weighted average exercise price per share of
$9.21 under the 1995 Plan and the 1997 Plan and the NOVEX plans. Options to
acquire 574,659 shares have been exercised. As of August 31, 1999 a total of
1,361,801 shares of common stock were available for future option grants under
the 1995 Plan and the 1997 Plan, and none were available for future option
grants under the NOVEX plans. 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.
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.
The ESOP trustees are Lyle C. Turner and Lisa G. McCurdy. 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 other similar transactions, and with respect to all
corporate matters. The ESOP may be amended or terminated by us at any time,
subject to certain restrictions, the Internal Revenue Code and ERISA.
56
<PAGE>
As of August 31, 1999 the ESOP Trust held 1,203,499 shares of Invitrogen
stock as well as approximately $460,000 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.
NOVEX has also established a 401(k)/ESOP Plan. The NOVEX Plan was originally
established in April 1995 only as an ESOP which allowed employees to acquire
shares of NOVEX stock and thus participate in the growth of the company. Between
its inception and April 1997, the NOVEX Plan was funded through contributions by
the company. In April 1997 the NOVEX Plan was amended to add a 401(k) feature
which allows employees to contribute salary deductions on a pretax basis. We
contribute to the NOVEX Plan by matching employees' salary deductions.
NOVEX employees who complete 1,000 hours or more in a twelve-month period
are eligible to participate in the NOVEX Plan. These employees vest in the
amounts contributed by NOVEX over a six-year period at 20% per year beginning
with their second year of service. Distributions from the NOVEX Plan are made
under substantially the same conditions and restrictions as outlined for the
Invitrogen Plan above, except that no right of first refusal exists on the
Invitrogen common stock held by the NOVEX Plan Trust.
The NOVEX Plan is administered by a Committee appointed by the board of
directors. Union Bank of California is the NOVEX Plan's trustee. The Committee
votes the NOVEX Plan's stock except with respect to matters as listed above in
the description of Invitrogen's Plan. The NOVEX Plan may be amended or
terminated at any time, subject to the same restrictions as Invitrogen's Plan.
As of the closing of the merger with Invitrogen, the NOVEX Plan held 628,005
shares of NOVEX common stock, which were converted into 145,622 shares of
Invitrogen common stock. The NOVEX Plan also has cash assets invested in various
mutual and money-market funds as directed by participants.
Invitrogen intends to terminate the NOVEX Plan, to distribute its assets to
the participants or roll those assets into the Invitrogen 401(k) Plan or other
qualified retirement plans designated by the participants, and to enroll the
NOVEX Plan participants who wish to do so in the Invitrogen 401(k) Plan (see
below) as of January 1, 2000.
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. Of those, 17,454 have been
issued as of August 31, 1999. 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.
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 James R. Glynn. 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.
57
<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. Concurrently with the sale of 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 Lyle C.
Turner, Joseph M. Fernandez, Anh Nguyen and 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 our initial public offering, the convertible preferred
stock was converted into an equal number of shares of common stock and
redeemable preferred stock, and such redeemable preferred stock was redeemed out
of proceeds of that offering at a cost of approximately $13.5 million.
Additionally, holders of the convertible preferred stock received accumulated
dividends of approximately $1.5 million.
In December 1998, Invitrogen received a promissory note from Mr. Turner in
the amount of $150,000. The note is secured by a pledge of common stock, is due
in December 1999 and bears interest of 6.5%.
During 1997 and 1998, Invitrogen leased an airplane from Turner Aviation, a
company controlled by Mr. Turner, for $7,200 per month. Invitrogen had also
advanced $150,000 to Turner Aviation to assist in the acquisition of the plane.
The lease agreement terminated in February 1999, upon the closing of
Invitrogen's initial public offering. The advance was repaid through the
December 1999 promissory note described above.
In connection with our acquisition of MorphaGen, Inc., in November 1998 we
issued an option to purchase 50,000 shares of our common stock to the spouse of
Dr. Short, one of our directors. See "Management-Compensation Committee
Interlocks and Insider Participation."
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.
Invitrogen has entered into indemnification agreements with each of its
officers and directors containing provisions which may require us, among other
things, to indemnify its officers and directors against liabilities that may
arise by reasons of their status or service as officers or directors and to
advance their expenses incurred as a result of any proceeding against them as to
which they could be indemnified. Invitrogen also intends to execute such
agreements with its future directors and executive officers.
On August 17, 1999 Invitrogen issued to David E. McCarty, Executive Vice
President and a director of Invitrogen, an option to purchase 110,000 shares of
our common stock at an exercise price of $28.125 per share, in connection with
his employment by Invitrogen following the merger with NOVEX. In connection with
the acquisition of NOVEX, Invitrogen also assumed NOVEX's obligations under an
employment agreement with Mr. McCarty and options held by Mr. McCarty to
purchase NOVEX common stock, which were converted into options to purchase
139,128 shares of Invitrogen common stock at an exercise price of $4.14 per
share. See "Management--Employment and Severance Arrangements."
58
<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 August 31, 1999, by:
- Each person Invitrogen knows to be the beneficial owner of 5% or more of
the outstanding shares of common stock, together with the affiliates of
such person;
- Each executive officer listed in the Summary Compensation Table;
- Each director of Invitrogen, who, where applicable, is listed under the
name of the principal stockholder with which he is affiliated; and
- All executive officers and directors of Invitrogen as a group.
Except in cases where community property laws apply or as indicated in the
footnotes to this table, Invitrogen believes that each stockholder identified in
the table possesses sole voting and investment power with respect to all shares
of common stock shown as beneficially owned by such stockholder. Unless
otherwise noted, the address of the individuals and the ESOP Trust Fund listed
below is c/o Invitrogen Corporation, 1600 Faraday Avenue, Carlsbad, California
92008.
<TABLE>
<CAPTION>
SHARES THAT MAY
BE ACQUIRED
SHARES SHARES BENEFICIALLY WITHIN 60 DAYS
SHARES BENEFICIALLY BEING OWNED AFTER THE OF AUGUST 31,
OWNED OFFERED OFFERING 1999
------------------------ ----------- ---------------------- ---------------
NUMBER PERCENT(1) NUMBER PERCENT
<S> <C> <C> <C> <C> <C> <C>
Lyle C. Turner(2)........................ 4,678,142 29.2% 800,000 3,878,142 22.2% --
Joseph M. Fernandez(3)................... 1,888,369 11.7 300,000 1,588,369 9.0 159,607
TA Associates(4)......................... 1,702,942 10.6 770,000 932,942 5.3 --
Kurt R. Jaggers
TA Associates, Inc.
125 High Street Tower, Suite 2500
Boston, Massachusetts 02110
ESOP Trust Fund(5)....................... 1,203,499 7.5 0 1,203,499 6.9 --
Sheldon C. Englehorn(6).................. 983,686 6.1 500,000 483,686 2.8 --
Ampersand Ventures(7).................... 973,901 6.1 750,000 223,901 1.3 --
55 William Street, Suite 240
Wellesly, MA 02181
Essex Investment Management, LLC......... 905,960 5.7 0 905,960 5.2 --
125 High Street, 29(th) floor
Boston, MA 02110
Charlie B. McAtee(8)..................... 269,134 1.7 80,000 189,134 1.1 212,000
William F. Alpenfels(9).................. 212,976 1.3 50,000 162,976 * 18,347
Ann M. McCormick(10)..................... 180,183 1.1 30,000 150,183 * 153,250
Glenn E. Davies(11)...................... 176,394 1.1 30,000 146,394 * 153,300
Wilfred S. Paul(12)...................... 167,700 1.0 50,000 117,700 * 166,000
Jay M. Short(13)......................... 151,650 * 90,000 61,650 * 126,650
James R. Glynn........................... 112,947 * 0 112,947 * 112,498
David E. McCarty(14)..................... 88,694 * 50,000 38,694 * 88,626
Donald W. Grimm.......................... 23,000 * 0 23,000 * 20,000
Lewis J. Shuster......................... 16,250 * 0 16,250 * 16,250
Bradley G. Lorimier...................... 7,500 * 0 7,500 * 7,500
All Directors and Executive Officers as a
group (8 persons)(15).................. 6,781,125 41.4 5,071,125 28.4
</TABLE>
- ------------------------------
* Less than 1%.
59
<PAGE>
(1) Percentage of ownership is based on: 16,006,506 shares of common stock
outstanding as of August 31, 1999. Shares of common stock that an individual
or group has the right to acquire within 60 days of August 31, 1999,
pursuant to the exercise of options are deemed to be outstanding for the
purposes of computing the percentage ownership of such individual or group,
but are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown in the table.
(2) Mr. Turner is President, Chief Executive Officer, and Chairman of the board
of directors of Invitrogen. Includes 162,645 shares held of record by the
ESOP as to which Mr. Turner holds a pecuniary interest.
(3) Includes 113,421 shares held of record by the ESOP as to which Mr. Fernandez
holds a pecuniary interest.
(4) Includes 1,410,304 shares held by TA/Advent VIII, L.P., 264,432 shares held
by Advent Atlantic and Pacific III, L.P., and 28,206 shares held by TA
Venture Investors L.P. TA/Advent VIII, L.P., Advent Atlantic and Pacific
III, L.P. and TA Venture Investors L.P. are part of an affiliated group of
investment partnerships referred to collectively as TA Associates Group. The
general partner of TA/Advent VIII, L.P. is TA Associates VIII LLC. The
general partner of Advent Atlantic and Pacific III, L.P. is TA Associates
AAP III Partners. The general partner of each of TA Associates VIII LLC. and
TA Associates AAP III Partners is TA Associates, Inc. In such capacity, TA
Associates, Inc. exercises sole voting and investment power with respect to
all of the shares held of record by the named investment partnerships, with
the exception of those shares held by TA Venture Investors, L.P.;
individually, no stockholder, director or officer of TA Associates, Inc., is
deemed to have or share such voting or investment power. Principals and
employees of TA Associates, Inc., including Mr. Jaggers, a director,
comprise the general partners of TA Venture Investors, L.P. In such
capacity, Mr. Jaggers may be deemed to share voting and investment power
with respect to the 28,206 shares held of record by TA Venture Investors,
L.P. Mr. Jaggers disclaims beneficial ownership of such shares.
(5) As trustee of Invitrogen's ESOP Trust Fund, Mr. Turner has certain voting
and investment power with respect to the 1,203,499 shares held of record by
the ESOP. Mr. Turner disclaims beneficial ownership of such shares, except
with respect to the 162,645 shares in the ESOP as to which Mr. Turner holds
a pecuniary interests.
(6) Includes 9,783 shares held by NOVEX's ESOP Trust Fund as to which Mr.
Englehorn holds a pecuniary interest.
(7) Includes 182,606 shares held by Laboratory Partners I Limited Partnership,
60,868 held by Laboratory Partners Companion Fund Limited Partnership, and
730,427 shares held by Ampersand Specialty Materials and Chemicals II
Limited Partnership. Laboratory Partners I Limited Partnership, Laboratory
Partners Companion Fund Limited Partnership, and Ampersand Specialty
Materials and Chemicals II Limited Partnership are part of an affiliated
group of investment partnerships referred to collectively as Ampersand
Ventures. Ampersand Lab Partners MCLP LLP is the general partner of
Ampersand Lab Partners Management Company Limited Partnership, which is the
general partner of Laboratory Partners I Limited Partnership and Laboratory
Partners Companion Fund Limited Partnership, which exercises sole voting and
investment power with respect to all of the shares held of record by
Laboratory Partners I Limited Partnership and Laboratory Partners Companion
Fund Limited Partnership. ASMC-II MCLP LLP is the general partner of ASMC-II
Management Company Limited Partnership, which is the general partner of
Ampersand Specialty Materials and Chemicals II Limited Partnership, which
exercises sole voting and investment power with respect to all of the shares
held of record by Ampersand Specialty Materials and Chemicals II Limited
Partnership.
(8) Includes 47,102 shares held of record by the ESOP as to which Mr. McAtee
holds a pecuniary interest.
(9) Includes 9,124 shares held of record by NOVEX's ESOP Trust Fund as to which
Mr. Alpenfels holds a pecuniary interest.
(10) Includes 26,144 shares held of record by the ESOP as to which Ms. McCormick
holds a pecuniary interest.
(11) Includes 22,394 shares held of record by the ESOP as to which Mr. Davies
holds a pecuniary interest.
(12) Includes 960 shares held of record by the ESOP as to which Mr. Paul holds a
pecuniary interest.
(13) Includes options to purchase 5,000 shares held of record by Dr. Short's
spouse.
(14) Includes 68 shares held of record by NOVEX's ESOP Trust Fund as to which
Mr. McCarty holds a pecuniary interest.
(15) Includes 162,645 shares held by Invitrogen's ESOP as to which Mr. Turner
holds a pecuniary interest. Includes 68 shares held of record by NOVEX's
ESOP Trust Fund as to which Mr. McCarty holds a pecuniary interest. Includes
options to purchase 5,000 shares held of record by Dr. Short's spouse.
60
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The information set forth below is a general summary of the capital stock
structure of Invitrogen. As a summary, this section is qualified and not a
substitute for the provisions of Invitrogen's certificate of incorporation, as
amended and Invitrogen's bylaws, as amended, both of which are on file with the
SEC.
AUTHORIZED CAPITAL STOCK
Invitrogen's authorized capital stock consists of 50,000,000 shares of
common stock, par value $0.01 per share, and 6,405,884 shares of preferred
stock, par value $0.01 per share.
COMMON STOCK
As of August 31, 1999, 16,006,506 shares of Invitrogen common stock were
outstanding. In addition, 5,859,872 shares of Invitrogen common stock were
reserved and available for issuance pursuant to Invitrogen's employee benefit
plans, including 467,001 shares reserved for issuance upon exercise of the NOVEX
options assumed in the recent merger.
The holders of Invitrogen common stock are entitled to receive ratably, from
funds legally available for the payment thereof, dividends when and as declared
by resolution of the board of directors, subject to any preferential dividend
rights which may be granted to holders of any preferred stock authorized and
issued by the board of directors. Traditionally, Invitrogen has not declared and
paid dividends. In the event of liquidation, each share of Invitrogen common
stock is entitled to share pro rata in any distribution of Invitrogen's assets
after payment or providing for the payment of liabilities and any liquidation
preference of any preferred stock authorized and issued by the board of
directors. Each holder of Invitrogen common stock is entitled to one vote for
each share of Invitrogen common stock held of record on the applicable record
date on all matters submitted to a vote of shareholders, including the election
of directors.
Holders of Invitrogen common stock have no cumulative voting rights or
preemptive rights to purchase or subscribe for any stock or other securities,
and there are no conversion rights or redemption rights or sinking fund
provisions with respect to Invitrogen common stock. All outstanding shares of
Invitrogen common stock are duly authorized, validly issued, fully paid and
nonassessable.
PREFERRED STOCK
As of August 31, 1999, no shares of preferred stock were outstanding.
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.
REGISTRATION RIGHTS
Under a Stock Purchase and Stockholders' Agreement dated June 20, 1997,
after this offering the holders of approximately 932,942 shares of Invitrogen
common stock, or persons to whom such holders transfer the common stock, have
registration rights with respect to such shares. If Invitrogen proposes to
register any of its securities under the Securities Act, either for its own
account or for the account of other security holders, holders of shares entitled
to registration rights are entitled to notice of such
61
<PAGE>
registration and are entitled to include their shares in such registration, at
Invitrogen's expense. However, the underwriters of any such offering have the
right to limit the number of shares included in such registration. In addition,
holders of at least 50% of the shares entitled to registration rights
outstanding may require Invitrogen to prepare and file a registration statement
under the Securities Act, at Invitrogen's expense, covering such shares, and
Invitrogen is generally required to use its best efforts to effect such
registration. Invitrogen is not obligated to effect more than two of these
stockholder-initiated registrations. Further, holders of shares entitled to
registration rights generally may require Invitrogen to file additional
registration statements on Form S-3.
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.
Invitrogen's certificate of incorporation provides 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 is 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 also requires 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
similarly permits 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
is 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 may 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.
Invitrogen's bylaws also contain many of the above provisions found in
Invitrogen's certificate of incorporation. Our bylaws do not permit stockholders
to call a special meeting. In addition, our bylaws provide 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 is limited to business properly brought before the meeting.
TRANSFER AGENT AND REGISTRAR
Boston EquiServe L.P., is the transfer agent and registrar for the
Invitrogen stock.
STOCK EXCHANGE LISTING
Invitrogen's stock is quoted on the Nasdaq National Market under the symbol
"IVGN."
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
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 our common stock 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 17,800,000 shares of common stock based on the number of
shares of common stock outstanding as August 31, 1999, and assuming no
exercise of the underwriters' over-allotment option.
- Of these shares, approximately 6,800,000 shares previously registered and
the 5,000,000 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. However, some
of these shares will be subject to lock-up agreements, as described below.
- 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 thereunder, which is summarized below.
Invitrogen's directors, executive officers and the selling stockholders will
together beneficially own an aggregate of approximately 8,200,000 shares of
common stock after the offering. These stockholders have signed lock-up
agreements which prevent them from selling any common stock owned by them for a
period of 90 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, approximately 9,600,000 of the outstanding common shares will be
freely tradable on the date of this prospectus, subject to the applicable volume
limitations. Upon expiration of the lock-up period, all of our outstanding
shares will be freely tradable, subject to the same volume limitations.
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 175,065 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, 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.
Invitrogen has filed registration statements under the Securities Act
covering shares of common stock reserved for issuance under stock option,
employee stock purchase and 401(k) plans. Such registration statements cover
approximately 4,500,000 shares. Shares registered under such registration
statements will, subject to Rule 144 volume limitations applicable to
affiliates, be available for immediate
63
<PAGE>
sale in the public market upon issuance, unless such shares are subject to lock
up agreements described above.
Holders of approximately 933,000 shares of common stock issued in February
1999 upon the conversion of the convertible preferred stock have the right 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 tradable. 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."
64
<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, Hambrecht & Quist LLC, U.S.
Bancorp Piper Jaffray, and Dain Rauscher Wessels 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.............................
Hambrecht & Quist LLC...........................................................
U.S. Bancorp Piper Jaffray......................................................
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated.................
------------
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 CENTS per
share. The underwriters may allow, and such dealers may re-allow, to certain
other dealers a concession not in excess of CENTS 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.
DLJDIRECT Inc., an affiliate of Donaldson, Lufkin & Jenrette Securities
Corporation and a member of the selling group, is facilitating the distribution
of the shares sold in this offering over the Internet. The underwriters have
agreed to allocate a limited number of shares to DLJDIRECT Inc. for sale to its
brokerage account holders.
The underwriters have an option, exercisable within 30 days after the date
of this prospectus, to purchase up to an aggregate of 750,000 additional shares
of common stock at the 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
65
<PAGE>
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 90 days after the date of this prospectus without
the prior written consent of DLJ.
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.
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.
66
<PAGE>
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 Latham & Watkins, San Diego, California.
EXPERTS
The consolidated financial statements of Invitrogen Corporation as of
December 31, 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.
The financial statements of NOVEX included in this prospectus and
registration statement for the fiscal years ended March 31, 1999, 1998 and 1997
have been audited by Ernst & Young LLP, independent auditors, and are included
herein in reliance upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1, of which
this prospectus is a part, under the Securities Act with respect to the shares
of common stock offered hereby. This prospectus does not contain all of the
information contained in the registration statement and the exhibits and
schedules to the registration statement. For further information with respect to
us and our common stock, we refer you to the registration statement and the
exhibits and schedules filed as part of the registration statement. Statements
in this prospectus concerning the contents of any contract or any other document
are not necessarily complete. If a contract or document has been filed as an
exhibit to the registration statement, we refer you to that exhibit. Each
statement in this prospectus relating to a contract or document filed as an
exhibit to the registration statement is qualified by the filed exhibits.
IN ADDITION, WE FILE REPORTS, PROXY STATEMENTS AND OTHER INFORMATION WITH
THE SEC. YOU MAY READ AND COPY ANY DOCUMENT WE FILE AT THE SEC'S PUBLIC
REFERENCE ROOMS IN WASHINGTON, D.C., NEW YORK, NEW YORK AND CHICAGO, ILLINOIS.
PLEASE CALL THE SEC AT 1-800-SEC-0330 FOR FURTHER INFORMATION ON THE PUBLIC
REFERENCE ROOMS. OUR SEC FILINGS ARE ALSO AVAILABLE TO THE PUBLIC ON THE SEC'S
WEBSITE AT HTTP://WWW.SEC.GOV.
67
<PAGE>
INVITROGEN CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INVITROGEN CORPORATION
AUDITED FINANCIAL STATEMENTS
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 for the Years Ended December 31, 1996, 1997 and 1998... F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1997
and 1998............................................................................................. F-7
Notes to Consolidated Financial Statements............................................................. F-9
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
Interim Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998.......................... F-25
Interim Consolidated Statements of Income for the Three Months and Six Months ended June 30, 1999 and
1998.................................................................................................. F-27
Interim Consolidated Statement of Stockholders' Equity for the Six Months ended
June 30, 1999........................................................................................ F-28
Interim Consolidated Statements of Cash Flows for the Six Months ended
June 30, 1999 and 1998............................................................................... F-29
Notes to Interim Consolidated Financial Statements..................................................... F-31
NOVEX
AUDITED FINANCIAL STATEMENTS
Report of Independent Auditors......................................................................... F-34
Consolidated Balance Sheets as of March 31, 1999 and 1998.............................................. F-35
Consolidated Statements of Income for the years ended March 31, 1999, 1998 and 1997.................... F-36
Consolidated Statements of Stockholders' Equity for the years ended March 31, 1999, 1998 and 1997...... F-37
Consolidated Statements of Cash Flows for the years ended March 31, 1999, 1998
and 1997............................................................................................. F-38
Notes to Consolidated Financial Statements............................................................. F-39
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
Interim Condensed Consolidated Balance Sheets as of June 30, 1999 and March 31, 1999................... F-51
Interim Consolidated Statements of Income for the Three Months ended June 30, 1999
and 1998............................................................................................. F-52
Interim Consolidated Statement of Shareholders' Equity for the Three Months ended June 30, 1999........ F-53
Interim Consolidated Statements of Cash Flows for the Three Months ended June 30, 1999 and 1998........ F-54
Notes to Interim Consolidated Financial Statements..................................................... F-55
INVITROGEN CORPORATION AND NOVEX
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Unaudited Pro Forma Combined Balance Sheet as of June 30, 1999......................................... F-58
Unaudited Pro Forma Combined Statements of Income for the Six Months ended June 30, 1999 and 1998 and
for the years ended December 31, 1998, 1997 and 1996.................................................. F-59
Notes to Unaudited Pro Forma Combined Financial Statements............................................. F-64
</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,
(except with respect to the matter
discussed in Note 17, as to which the
date is August 17, 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 AMOUNTS)
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Line of credit............................................................................ $ -- $ --
Current portion of obligations under capital leases....................................... 121 54
Accounts payable.......................................................................... 1,275 2,257
Accrued expenses.......................................................................... 1,334 1,378
Income taxes payable...................................................................... 499 718
--------- ---------
Total current liabilities............................................................... 3,229 4,407
--------- ---------
Obligations Under Capital Leases, Less Current Portion...................................... 143 83
--------- ---------
Commitments and Contingencies
Non-voting Redeemable Common Stock of Invitrogen B.V.:
Subsidiary common stock: authorized and issued--18,000 shares.
Full liquidation value of $1,676 (NLG 3,150)............................................ 1,295 1,599
--------- ---------
Convertible Redeemable Preferred Stock:
Preferred stock; $0.01 par value; 4,202,942 shares authorized; 2,202,942 issued and
outstanding in 1997 and 1998, 6% redeemable convertible, liquidation value of
$16,375,000............................................................................. 15,242 16,141
--------- ---------
Redeemable Preferred Stock, $0.01 par value per share: 2,202,942 shares authorized; no
shares issued or outstanding.............................................................. -- --
--------- ---------
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...................................................................... 74 74
Additional paid-in-capital................................................................ 664 1,598
Deferred compensation..................................................................... (495) (962)
Value of common stock designated pursuant to Employee Stock Ownership Plan................ 100 100
Foreign currency translation adjustment................................................... (130) (33)
Retained deficit.......................................................................... (2,066) (192)
--------- ---------
Total stockholders' equity (deficit).................................................... (1,853) 585
--------- ---------
Total liabilities and stockholders' equity (deficit).................................... $ 18,056 $ 22,815
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-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 beneficial conversion feature related to
convertible preferred stock.................................. -- (15,000) --
------------ ------------ ------------
Income available to common stockholders........................... $ 1,573 $ (13,126) $ 1,874
------------ ------------ ------------
------------ ------------ ------------
Basic earnings per share................................................ $ 0.19 $ (1.47) $ 0.19
------------ ------------ ------------
------------ ------------ ------------
Diluted earnings per share.............................................. $ 0.16 $ (1.47) $ 0.17
------------ ------------ ------------
------------ ------------ ------------
Weighted average shares used in basic earnings per share calculation.... 8,356,270 8,938,719 9,626,333
------------ ------------ ------------
------------ ------------ ------------
Weighted average shares used in diluted earnings per share
calculation........................................................... 10,079,755 8,938,719 11,208,016
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-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.
CONCENTRATIONS OF RISKS
REVENUES (EXCLUSIVE OF GRANTS AND ROYALTIES)
Revenues for each of the three years ended December 31, 1998, were earned
from sales to customers in the following geographic regions (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
North America................................................ $ 12,496 $ 15,751 $ 19,105
Europe....................................................... 4,620 6,286 8,453
Pacific Rim.................................................. 1,570 2,257 2,632
--------- --------- ---------
Total revenue................................................ $ 18,686 $ 24,294 $ 30,190
--------- --------- ---------
--------- --------- ---------
</TABLE>
Certain countries in the Pacific Rim have recently been experiencing
significant volatility in their currencies. While the Company sells principally
in U.S. dollars to customers in these countries, the volatility in the
countries' currencies may have an adverse impact on the Company's revenue and
profit in the future. The Company did not have any material accounts receivable
from customers in this region in any of the years presented.
CUSTOMERS
Approximately $6,800,000, $8,300,000 and $10,193,000, or 36%, 34% and 34% of
the Company's revenues during the years ended December 31, 1996, 1997, and 1998,
respectively, were derived from
F-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)
university and research institutions which management believes are, to some
degree, directly or indirectly supported by the U.S. Government. A change in
current research fundings, particularly with respect to the National Institute
of Health, may have an adverse impact on the Company's future results of
operations.
REVENUE RECOGNITION
Revenues from product sales are recognized upon shipment to the customer.
The Company does not receive material upfront fees; those that are received are
deferred and recognized upon shipment to the customers. Grant revenue is
recorded as earned, as defined within the specific agreements and is not
refundable. Grant revenue was $435,000, $671,000 and $649,000 in 1996, 1997 and
1998, respectively. Cost of grant revenue is included in research and
development.
Royalty revenue is recognized when earned, generally upon the receipt of
cash, and is not refundable.
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. Cash equivalents at
December 31, 1997 and 1998 consist primarily of commercial paper. All other
investments are classified as held to maturity short-term investments and
consist of commercial paper and mature through June 1, 1999. Short term
investments are carried at cost.
INVENTORIES
Inventories are stated at lower of cost (first-in, first-out method) or
market. The Company reviews the components of its inventory on a quarterly basis
for excess, obsolete and impaired inventory and makes appropriate dispositions
as obsolete stock is identified.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated over the estimated
useful lives of the assets (3 to 39 years) using the straight-line method.
Amortization of leasehold improvements is computed on the straight-line method
over the shorter of the lease term or the estimated useful lives of the assets.
Maintenance and repairs are charged to operations as incurred. When assets are
sold, or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts and any gain or loss is included in operations.
INTANGIBLE ASSETS
Intangible assets, representing primarily patents and license agreements,
are recorded at cost and amortized on a straight-line basis over estimated
useful lives of 5 to 17 years.
F-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)
LONG-LIVED ASSETS
The Company has adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets". The statement requires
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be fully
recoverable. The Company periodically re-evaluates the original assumptions and
rationale utilized in the establishment of the carrying value and estimated
lives of its long-lived assets. The criteria used for these evaluations include
management's estimate of the asset's continuing ability to generate income from
operations and positive cash flow in future periods as well as the strategic
significance of any intangible asset in the Company's business objectives.
RESEARCH AND DEVELOPMENT COSTS
All research and development costs are charged to operations as incurred.
INCOME TAXES
The Company uses the liability method of accounting for income taxes in
accordance with Statement of Financial Statement Accounting Standards No. 109,
"Accounting for Income Taxes". Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes,
using enacted tax rates in effect for the year in which the differences are
expected to reverse. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized.
FOREIGN CURRENCY TRANSLATION
The functional currency for Invitrogen B.V. is the Netherlands Guilder
(NLG), the applicable foreign currency. The translation from the applicable
foreign currency to the U.S. dollar is translated for balance sheet accounts
using the current exchange rate in effect at the balance sheet date and for
revenue and expense accounts using an average exchange rate during the period.
The effects of translation are recorded as a separate component of stockholders'
equity. Exchange gains and losses arising from transactions denominated in
foreign currencies are recorded using the actual exchange differences on the
date of the transaction.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of all financial instruments such as foreign cash
accounts, accounts receivable, accounts payable and accrued expenses are
reasonable estimates of their fair value because of the short maturity of these
items. The Company believes the carrying amounts of the Company's notes
receivable from officers, line of credit and obligations under capital leases
approximate fair value because the interest rates on these instruments are
subject to change with, or approximate, market interest rates.
F-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)
COMPUTATION OF EARNINGS PER SHARE
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128 ("SFAS No. 128"), "Earnings Per Share." SFAS No. 128 requires
companies to compute basic and diluted per share data for all periods for which
an income statement is presented. Basic earnings per share was computed by
dividing net income by the weighted average number of common shares outstanding
during the period. Diluted earnings per share reflects the potential dilution
that could occur if the income were divided by the weighted-average number of
common shares and potential common shares from outstanding stock options.
Potential common shares were calculated using the treasury stock method and
represent incremental shares issuable upon exercise of the Company's outstanding
options. Diluted earnings per share does not consider the impact of the
conversion of outstanding redeemable convertible preferred stock as its
inclusion would be anti-dilutive for all periods presented. Potentially dilutive
securities are not considered in the calculation of net loss per share as their
impact would be antidilutive.
COMPREHENSIVE INCOME
The Company has implemented Statement of Financial Accounting Standards No.
130 "Comprehensive Income". This statement requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Accordingly, in addition to
reporting net income under the current rules, the Company is required to display
the impact of any fluctuations in its foreign currency translation adjustments
as a component of comprehensive income and to display an amount representing
total comprehensive income for each period presented.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued AICPA
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). This statement provides
guidance on accounting for the costs of computer software developed or obtained
for internal use and identifies characteristics of internal use software as well
as assists in determining when computer software is for internal use. SOP 98-1
is effective for fiscal years beginning after December 15, 1998, with earlier
application permitted. The Company has not determined the impact of the adoption
of SOP 98-1 as this is highly dependent upon the nature, timing and extent of
future internal use software development.
In March 1998, the Accounting Standards Executive Committee issued AICPA
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities."
This Statement of Position provides guidance
F-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)
on the financial reporting of start-up costs and organization costs. It requires
that the cost of start-up activities and organization costs be expensed as
incurred. The SOP is effective for financial statements for fiscal years
beginning after December 15, 1998. The company does not expect adoption of this
SOP to have a material impact on its financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement changes the previous
accounting definition of derivative--which focused on freestanding contracts
such as options and forwards (including futures and swaps)--expanding it to
include embedded derivatives and many commodity contracts. Under the Statement,
every derivative is recorded in the balance sheet as either an asset or
liability measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999. Earlier application is allowed as of the
beginning of any quarter beginning after issuance. The Company does not
anticipate that the adoption of SFAS 133 will have a material impact on its
financial position or results of operations.
The Company has adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" and, as
explained above, has determined that it operates in one business segment
dedicated to molecular biology research.
2. RELATED PARTY TRANSACTIONS
NOTE RECEIVABLE--OFFICER
The Company holds a note receivable of $150,000 from an officer of the
Company. The promissory note originated in December 1998, is collateralized by
16,000 shares of common stock of the Company, bears annual interest of 6.5
percent and is due in full on December 31, 1999.
INVESTMENT IN MORPHAGEN, INC.
In February 1997, the Company entered into an agreement with MorphaGen,
Inc., a start-up company, for an initial investment of $500,000 in exchange for
109,850 shares of Series A Preferred Stock of MorphaGen, Inc. The president of
MorphaGen, Inc. is the spouse of a member of the board of directors of the
Company. On November 3, 1998, the Company acquired all of the outstanding common
stock of MorphaGen, Inc. which the Company did not already own for 50,000
options to purchase company stock at $8.50 per share. In connection with this
acquisition, the Company recorded $147,000 as additional paid-in capital
representing the estimated fair value of the options issued.
COMMON STOCK
In connection with the Company's recapitalization, all of the Series A
common stock and Series B common stock of the former California Corporation were
converted to the common stock of the new Delaware corporation; accordingly,
Series A common stock and Series B common stock ceased to exist.
SERIES A. All outstanding shares of Series A common stock have been issued
to founders, directors, employees or consultants of the Company pursuant to
agreements which entitles the Company to repurchase the shares at the current
market value in the event of termination of employment.
F-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 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.
Upon the closing of an IPO or other qualified event, the outstanding
Convertible Preferred Stock will automatically convert into 2,202,942 shares of
Common Stock and 2,202,942 shares of Redeemable Preferred Stock, (RPS). The RPS
is immediately redeemable at the closing of an IPO at a Sliding Scale Redemption
Price of between $0 and $15 million. This is a function of the qualified
offering or
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)
transaction price. This formula provides for a minimum return to the Convertible
Preferred Stockholders of $15 million. The resulting premium to holders of
Convertible Preferred Stock will be between $0 to $15 million, depending upon
the amount, date and type of the qualified event. In accordance with EITF D-60,
the maximum possible premium to holders of convertible preferred stock ($15
million) was recognized as a beneficial conversion feature through a charge to
equity on June 20, 1997, the date the Convertible Preferred first became
convertible. This $15 million charge has been recognized as a reduction to
earnings available to common stockholders in 1997.
13. COMMON STOCK
AUTHORIZED SHARES
In November 1998, the Company amended its bylaws to reflect an increase of
authorized shares of common stock from 20,000,000 to 50,000,000.
STOCK SPLIT
On June 20, 1997, the Company approved a recapitalization which authorized
20,000,000 shares of common stock and a stock split that converted each share of
Class A and Class B stock into seven shares of common stock of the Company. All
prior period share amounts have been restated to reflect the stock split.
14. EARNINGS PER SHARE
Earnings per share is calculated as follows (in thousands, except share and
per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
Basic EPS:
Income available to common stockholders.................................. $ 1,874 9,626,333 $ 0.19
-----
-----
Stock options............................................................ -- 1,581,683
------ -------------
Diluted EPS:
Income available to common stockholders plus assumed conversions......... $ 1,874 11,208,016 $ 0.17
------ ------------- -----
------ ------------- -----
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
----------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
Basic and Diluted EPS:
Income available to common stockholders.................................. $ (13,126) 8,938,719 $ (1.47)
------------ ------------- -----------
------------ ------------- -----------
</TABLE>
F-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.
A summary of the status of the Company's stock option plans at December 31,
1996, 1997 and 1998 and changes during the periods then ended is presented in
the tables below:
<TABLE>
<CAPTION>
1996 1997 1998
----------------------- ------------------------ -----------------------
WTD. AVG. WTD. AVG. WTD. AVG.
SHARES EX PRICE SHARES EX PRICE SHARES EX PRICE
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of
year....................... 2,956,107 $ 0.85 3,467,107 $ 0.91 1,970,152 $ 1.30
Granted...................... 581,000 $ 1.21 222,000 $ 3.80 1,233,500 $ 8.29
Exercised.................... (70,000) $ 0.98 (178,955) $ 0.90 (16,050) $ 1.02
Forfeited/expired............ -- -- (1,540,000) $ 0.84 (5,200) $ 1.40
---------- ----- ----------- ----- ---------- -----
Outstanding, end of year..... 3,467,107 $ 0.91 1,970,152 $ 1.30 3,182,402 $ 4.13
Exercisable, end of year..... 1,331,686 $ 0.89 1,297,152 $ 1.09 1,602,918 $ 1.44
Weighted average fair value
of options granted......... $ 0.35 $ 0.96 $ 2.30
</TABLE>
F-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)
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>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1996, 1997 AND 1998
17. SUBSEQUENT EVENT
On August 17, 1999, the Company consummated a merger with NOVEX, in a
stock-for-stock transaction. NOVEX manufactures protein and nucleic acid
electrophoresis gels and related equipment, solutions, standards, and fine
chemicals, primarily for use in research laboratories.
Invitrogen issued approximately 2.5 million shares of common stock in
exchange for all the outstanding shares of NOVEX stock based on an exchange
ratio of approximately .23188 shares of Invitrogen common stock for each share
of NOVEX common stock. Invitrogen also assumed and exchanged all options to
purchase NOVEX common stock for options to purchase approximately .5 million
shares of Invitrogen common stock. The merger is intended to qualify as a
tax-free reorganization and will be accounted for as a pooling of interests.
Costs incurred as a result of the merger are expected to be $4.4 million and are
subject to change. These costs were expensed in August 1999, after the merger
was completed. The supplemental combined financial information excludes expenses
related to the merger as they are nonrecurring in nature.
Prior to the merger, NOVEX used a fiscal year ending March 31. In order to
report the combined results on a consistent basis, NOVEX's fiscal years have
been recast to a twelve-month period ended December 31, for all periods
presented. These recast results have been combined with the corresponding fiscal
years ended December 31, 1996, 1997 and 1998, of Invitrogen to arrive at the
supplemental combined financial information. The supplemental combined financial
information is presented to show the combined results of operations of
Invitrogen and NOVEX as if the merger had occurred at the beginning of the
periods presented.
<TABLE>
<CAPTION>
SUPPLEMENTAL SUPPLEMENTAL SUPPLEMENTAL
COMBINED FINANCIAL COMBINED FINANCIAL COMBINED FINANCIAL
INFORMATION INFORMATION INFORMATION
DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
Revenues........................ $ 32,556 $ 41,182 $ 53,660
Net Income...................... 2,336 2,435 4,230
Earnings (loss) per share--
basic......................... $ 0.20 $ (1.15)(a) $ 0.26
Earnings (loss) per share--
diluted....................... $ 0.17 $ (1.15)(a) $ 0.23
</TABLE>
- ------------------------
(a) 1997 reflects a $15 million adjustment to beneficial conversion feature
related to conversion of preferred stock.
F-24
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................................... $ 36,094 $ 1,797
Short-term investments.............................................................. 2,439 4,214
Accounts receivable, net of allowance for doubtful accounts of $122 and $124........ 3,966 3,189
Note receivable officer............................................................. 150 150
Inventories......................................................................... 2,823 2,848
Deferred income taxes............................................................... 595 611
Prepaid expenses and other current assets........................................... 1,539 1,194
----------- ------------
Total current assets.............................................................. 47,606 14,003
Property and Equipment, net........................................................... 7,182 7,090
Intangible Assets, net................................................................ 3,192 1,319
Other Assets.......................................................................... 171 403
----------- ------------
Total assets...................................................................... $ 58,151 $ 22,815
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-25
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
(UNAUDITED) (AUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long term obligations............................................ $ 438 $ 54
Accounts payable.................................................................... 1,742 2,257
Accrued expenses.................................................................... 1,697 1,378
Income taxes payable................................................................ 631 718
----------- ------------
Total current liabilities......................................................... 4,508 4,407
----------- ------------
Obligations under capital leases, less current portion................................ 64 83
----------- ------------
Note payable.......................................................................... 600 --
----------- ------------
Non-voting Redeemable Common Stock of Invitrogen B.V; Subsidiary common stock, 18,000
shares authorized; no shares issued or outstanding on June 30, 1999 and 18,000
shares issued and outstanding on
December 31, 1998................................................................... -- 1,599
----------- ------------
Convertible Redeemable Preferred stock, $0.01 par value; 4,202,942 shares authorized;
no shares issued or outstanding on June 30, 1999 and 2,202,942 shares issued and
outstanding on December 31, 1998.................................................... -- 16,141
----------- ------------
Stockholders' Equity:
Common stock; $0.01 par value, 50,000,000 shares authorized; 13,430,650 and
7,421,268 shares issued and outstanding at June 30, 1999 and December 31, 1998,
respectively...................................................................... 134 74
Additional paid-in-capital............................................................ 51,081 1,598
Deferred compensation................................................................. (766) (962)
Value of common stock designated pursuant to Employee Stock Ownership Plan............ -- 100
Foreign currency translation adjustment............................................... (191) (33)
Retained earnings (deficit)........................................................... 2,721 (192)
----------- ------------
Total stockholders' equity........................................................ 52,979 585
----------- ------------
Total liabilities and stockholders' equity........................................ $ 58,151 $ 22,815
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-26
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues............................................................... $ 10,287 $ 7,719 $ 19,888 $ 14,873
Cost of Revenues....................................................... 2,547 2,164 5,087 4,065
--------- --------- --------- ---------
Gross margin......................................................... 7,740 5,555 14,801 10,808
Operating Expenses:
Sales and marketing.................................................. 1,905 1,820 3,878 3,438
General and administrative........................................... 1,212 982 2,498 2,098
Research and development............................................. 2,055 1,851 3,963 3,306
--------- --------- --------- ---------
Total operating expenses........................................... 5,172 4,653 10,339 8,842
--------- --------- --------- ---------
Income from operations........................................... 2,568 902 4,462 1,966
--------- --------- --------- ---------
Other Income (Expense):
Gain (loss) on foreign currency transactions......................... (149) (52) (206) 3
Interest and other expense........................................... (5) (8) (13) (18)
Interest and other income............................................ 407 63 602 184
--------- --------- --------- ---------
253 3 383 169
--------- --------- --------- ---------
Income before provision for income taxes............................... 2,821 905 4,845 2,135
Provision for income taxes............................................. 984 322 1,696 761
--------- --------- --------- ---------
Net income........................................................... 1,837 583 3,149 1,374
Less: Preferred stock dividends...................................... -- (225) (163) (450)
Accretion of non-voting redeemable common stock.................. (18) (50) (74) (98)
Adjustment to beneficial conversion feature related to
convertible preferred stock.................................... -- -- 985 --
--------- --------- --------- ---------
Income available to common stockholders.............................. $ 1,819 $ 308 $ 3,897 $ 826
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings per share:
Basic................................................................ $ 0.14 $ 0.03 $ 0.32 $ 0.09
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted.............................................................. $ 0.12 $ 0.03 $ 0.27 $ 0.08
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average shares used in per share calculation:
Basic................................................................ 13,333 9,635 12,116 9,632
Diluted.............................................................. 15,596 11,074 14,230 10,996
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL EMPLOYEE FOREIGN RETAINED
------------------------ PAID-IN- DEFERRED OWNERSHIP PLAN CURRENCY EARNINGS
SHARES AMOUNT CAPITAL COMPENSATION CONTRIBUTION TRANSLATION (DEFICIT)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1998.................. 7,421 $ 74 $ 1,598 $ (962) $ 100 $ (33) $ (192)
Adjustment to beneficial
conversion feature
related to convertible
preferred stock....... -- -- 985 -- -- -- --
Accretion of beneficial
conversion feature
related to convertible
preferred stock....... -- -- (985) -- -- -- --
Conversion of redeemable
preferred stock....... 2,203 22 729 -- -- -- --
Initial Public Offering,
net of offering
costs................. 3,525 35 48,127 -- -- -- --
Issuance of common stock
pursuant to Employee
Stock Ownership
Plan.................. 8 -- 100 -- (100) -- --
Amortization of deferred
compensation expense.. -- -- (5) 196 -- -- --
Exercise of stock
options............... 266 3 426 -- -- -- --
Employee Stock Purchase
Plan.................. 8 -- 106 -- -- -- --
Preferred stock
dividends declared and
accretion of
redemption value over
stated value on
subsidiary common
stock issued to NOM... -- -- -- -- -- -- (236)
Foreign currency
translation
adjustment............ -- -- -- -- -- (158) --
Net income.............. -- -- -- -- -- -- 3,149
----------- ----- ----------- ------ ----- ------ -----------
Balance at June 30,
1999.................. 13,431 $ 134 $ 51,081 $ (766) $ -- $ (191) $ 2,721
----------- ----- ----------- ------ ----- ------ -----------
----------- ----- ----------- ------ ----- ------ -----------
<CAPTION>
STOCKHOLDERS'
EQUITY
<S> <C>
Balance at December 31,
1998.................. $ 585
Adjustment to beneficial
conversion feature
related to convertible
preferred stock....... 985
Accretion of beneficial
conversion feature
related to convertible
preferred stock....... (985)
Conversion of redeemable
preferred stock....... 751
Initial Public Offering,
net of offering
costs................. 48,162
Issuance of common stock
pursuant to Employee
Stock Ownership
Plan.................. --
Amortization of deferred
compensation expense.. 191
Exercise of stock
options............... 429
Employee Stock Purchase
Plan.................. 106
Preferred stock
dividends declared and
accretion of
redemption value over
stated value on
subsidiary common
stock issued to NOM... (236)
Foreign currency
translation
adjustment............ (158)
Net income.............. 3,149
-------------
Balance at June 30,
1999.................. $ 52,979
-------------
-------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
---------------------
1999 1998
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................................ $ 3,149 $ 1,374
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization........................................................... 754 415
Amortization of deferred compensation................................................... 202 108
Employee stock ownership plan contribution.............................................. -- 50
Deferred income taxes................................................................... 11 (151)
Changes in operating assets and liabilities:
Accounts receivable................................................................... (936) (865)
Inventories........................................................................... (44) (285)
Prepaid expenses and other current assets............................................. (429) (908)
Other assets.......................................................................... 16 (43)
Accounts payable...................................................................... (440) 1,230
Accrued expenses...................................................................... 359 (3)
Income taxes payable.................................................................. (67) 233
---------- ---------
Net cash provided by operating activities........................................... 2,575 1,155
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in short term investments.......................................................... 1,776 (658)
Purchases of property and equipment....................................................... (1,042) (3,231)
Payments for intangible assets............................................................ (974) (260)
---------- ---------
Net cash used in investing activities............................................... (240) (4,149)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from line of credit, net......................................................... -- 76
Principal payments on capital lease obligations........................................... (36) (64)
Redemption of preferred and common stock and payment of accrued dividends................. (17,060) --
Proceeds from sale of common stock........................................................ 48,902 2
---------- ---------
Net cash provided by financing activities........................................... 31,806 14
Effect of exchange rate changes on cash................................................... 156 (13)
---------- ---------
Net increase (decrease) in cash and cash equivalents...................................... 34,297 (2,993)
Cash and cash equivalents, beginning of period............................................ 1,797 5,375
---------- ---------
Cash and cash equivalents, end of period.................................................. $ 36,094 $ 2,382
---------- ---------
---------- ---------
</TABLE>
F-29
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30,
---------------------
1999 1998
(UNAUDITED)
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes................................................................ $ 907 $ 630
---------- ---------
---------- ---------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of Convertible Redeemable Preferred Stock into Redeemable Preferred Stock...... $ 14,015 $ --
---------- ---------
---------- ---------
Conversion of Redeemable Preferred Stock into Common Stock................................ $ 751 $ --
---------- ---------
---------- ---------
Adjustment to beneficial conversion feature related to Convertible Redeemable Preferred
Stock................................................................................... $ 985 $ --
---------- ---------
---------- ---------
Note issued for patent rights............................................................. $ 1,000 $ --
---------- ---------
---------- ---------
Preferred dividends declared.............................................................. $ 163 $ 450
---------- ---------
---------- ---------
Contribution of common stock to ESOP...................................................... $ 100 $ --
---------- ---------
---------- ---------
Accretion of redemption value for Redeemable Common Stock................................. $ 74 $ 98
---------- ---------
---------- ---------
Deferred compensation..................................................................... $ -- $ 563
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
GENERAL
The unaudited interim consolidated financial statements include the accounts
of Invitrogen Corporation and its 100% controlled subsidiaries, Invitrogen B.V.
and Invitrogen Export Company, Ltd. All significant intercompany accounts and
transactions have been eliminated in consolidation. The accompanying unaudited
interim financial statements have been prepared by Invitrogen, without audit,
according to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the accompanying unaudited interim
financial statements contain all adjustments, which include only normal
recurring adjustments, necessary to state fairly the financial position, results
of operations and cash flows as of and for the periods indicated.
It is suggested that these financial statements be read in conjunction with
the audited financial statements of Invitrogen Corporation and the notes thereto
included elsewhere in this prospectus.
1. INVENTORIES
Inventories include material, labor and overhead costs and consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS) JUNE 30, 1998
1999
(UNAUDITED)
<S> <C> <C>
Raw materials and components...................................... $ 544 $ 574
Work in process................................................... 573 636
Finished goods.................................................... 1,706 1,638
----------- ------
$ 2,823 $ 2,848
----------- ------
----------- ------
</TABLE>
2. ACCUMULATED DEPRECIATION AND AMORTIZATION
Accumulated depreciation and amortization of property, plant and equipment
was $4.3 million and $3.7 million at June 30, 1999 and December 31, 1998,
respectively. Accumulated amortization of intangible assets was $.4 million and
$.3 million at June 30, 1999 and December 31, 1998, respectively.
3. INITIAL PUBLIC OFFERING, CONVERSION AND REDEMPTION OF PREFERRED STOCK
In February 1999, the Company completed its initial public offering and
issued 3,525,000 newly issued shares of its Common Stock at a price of $15.00
per share. The Company received $48.2 million in cash, net of underwriting
discounts, commissions and other offering costs.
Simultaneously with the closing of the initial public offering, each of the
2,202,942 outstanding shares of Series A Cumulative Convertible Preferred Stock
was automatically converted into 2,202,942 shares of Common Stock and 2,202,942
shares of Series A Redeemable Preferred Stock (RPS). At the closing of the IPO,
the RPS was redeemed for $14,015,000 and accumulated dividends on the Series A
Cumulative Convertible Preferred Stock of $1,538,000 were paid. In 1997, when
the stock was issued, a charge to equity of $15 million was recorded to reflect
the beneficial conversion feature of the convertible preferred stock. Upon
determination of the final redemption price of $14,015,000 at the IPO a credit
to equity of $985,000 was recorded which has been reported as an adjustment to
Income Available to Common Stockholders in the income statement for the quarter
ended March 31, 1999.
F-31
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. EARNINGS PER SHARE
Earnings per share is calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999
-------------------------------------------
INCOME SHARES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
Basic EPS:
Income available to common stockholders.................................. $ 1,819 13,333 $ 0.14
Stock options............................................................ -- 2,263 --
------ ------ -----
Diluted EPS:
Income available to common stockholders plus assumed conversions......... $ 1,819 15,596 $ 0.12
------ ------ -----
------ ------ -----
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998
-------------------------------------------
INCOME SHARES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
Basic EPS:
Income available to common stockholders.................................. $308 9,635 $ 0.03
Stock options............................................................ -- 1,439 --
------ ------ -----
Diluted EPS:
Income available to common stockholders plus assumed conversions......... $308 11,074 $ 0.03
------ ------ -----
------ ------ -----
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
-------------------------------------------
INCOME SHARES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
Basic EPS:
Income available to common stockholders.................................. $ 3,897 12,116 $ 0.32
Stock options............................................................ -- 2,114 --
------ ------ -----
Diluted EPS:
Income available to common stockholders plus assumed conversions......... $ 3,897 14,230 $ 0.27
------ ------ -----
------ ------ -----
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
-------------------------------------------
INCOME SHARES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
Basic EPS:
Income available to common stockholders.................................. $826 9,632 $ 0.09
Stock options............................................................ -- 1,364 --
------ ------ -----
Diluted EPS:
Income available to common stockholders plus assumed conversions......... $826 10,996 $ 0.08
------ ------ -----
------ ------ -----
</TABLE>
F-32
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. EARNINGS PER SHARE (CONTINUED)
In accordance with SAB Topic 4D, the Company considers any common stock
issuable upon the occurrence of an IPO for little or no consideration as a
nominal issuance. In accordance with the above bulletin, the Company has
considered 2,202,942 common shares issuable in connection with the conversion of
convertible preferred stock to be a nominal issuance and outstanding for all
periods since the original issuance of the underlying security until the
conversion into common stock upon the IPO in February 1999.
5. COMPREHENSIVE INCOME
Total comprehensive income is determined as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
(IN THOUSANDS) 1999 1998 1999 1998
(UNAUDITED)
<S> <C> <C> <C> <C>
Net income................................................................... $ 1,837 $ 583 $ 3,149 $ 1,374
Foreign currency translation adjustments..................................... 48 97 (158) 67
--------- --------- --------- ---------
Total comprehensive income............................................... $ 1,885 $ 680 $ 2,991 $ 1,441
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
6. SUBSEQUENT EVENT
On August 17, 1999, the Company consummated a merger with NOVEX, in a
stock-for-stock transaction. NOVEX manufactures protein and nucleic acid
electrophoresis gels and related equipment, solutions, standards, and fine
chemicals, primarily for use in research laboratories.
Invitrogen issued approximately 2.5 million shares of common stock in
exchange for all the outstanding shares of NOVEX common stock based on an
exchange ratio of approximately .23188 shares of Invitrogen common stock for
each share of NOVEX common stock. Invitrogen also assumed and exchanged all
options to purchase NOVEX common stock for options to purchase approximately 0.5
million shares of Invitrogen common stock. The merger is intended to qualify as
a tax-free reorganization and will be accounted for as a pooling of interests.
Costs incurred as a result of the merger are expected to be $4.4 million and are
subject to change. These costs were expensed in August 1999 after the merger was
completed.
F-33
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Novex
We have audited the accompanying consolidated balance sheets of Novex (the
"Company") as of March 31, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended March 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Novex at March
31, 1999 and 1998, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended March 31, 1999 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
May 28, 1999,
except for Note 11, as to which the date is
August 17, 1999
F-34
<PAGE>
NOVEX
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash................................................................................ $ 306,048 $ 187,901
Accounts receivable, net of allowance for uncollectible accounts of $252,128 and
$124,626 at March 31, 1999 and 1998, respectively................................. 3,339,111 2,017,157
Inventories......................................................................... 2,563,264 1,016,289
Deferred income taxes............................................................... 201,000 156,000
Other current assets................................................................ 105,372 240,697
------------ ------------
Total current assets.................................................................. 6,514,795 3,618,044
Equipment and leasehold improvements, net............................................. 2,599,271 2,244,608
Intangible assets, net................................................................ 434,526 371,218
Other assets.......................................................................... 13,620 48,719
Deferred income taxes................................................................. 117,000 106,000
------------ ------------
Total assets.......................................................................... $ 9,679,212 $ 6,388,589
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank............................................................... $ 522,008 $ 875,448
Accounts payable.................................................................... 1,341,205 503,499
Accrued liabilities................................................................. 1,149,750 784,298
Income taxes payable................................................................ 184,813 105,404
Current portion of long-term debt................................................... 910,493 369,555
------------ ------------
Total current liabilities............................................................. 4,108,269 2,638,204
Long-term debt, less current maturities............................................... 974,765 406,984
Deferred rent......................................................................... 51,782 71,297
Commitments
Redeemable convertible preferred stock, no par value; 42,000 shares authorized, 42,000
shares issued and outstanding at March 31, 1999 and 1998, liquidation preference of
$2,924,380 and $2,769,400 at March 31, 1999 and 1998, respectively.................. 2,899,781 2,744,801
Stockholders' equity:
Common stock, no par value; 13,200,000 shares authorized, 6,707,324 and 6,678,505
shares issued and outstanding at March 31, 1999 and 1998, respectively............ 582,453 560,551
Cumulative comprehensive loss....................................................... (14,682) (41,208)
Retained earnings................................................................... 1,076,844 7,960
------------ ------------
Total stockholders' equity............................................................ 1,644,615 527,303
------------ ------------
Total liabilities and stockholders' equity............................................ $ 9,679,212 $ 6,388,589
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-35
<PAGE>
NOVEX
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Revenues............................................................ $ 24,478,191 $ 17,133,551 $ 14,154,565
Cost of revenues.................................................... 11,941,602 8,189,306 6,384,976
------------- ------------- -------------
Gross margin........................................................ 12,536,589 8,944,245 7,769,589
Operating expenses:
Sales and marketing............................................... 5,166,022 3,259,949 2,682,963
General and administrative........................................ 3,604,213 3,468,827 2,660,467
Research and development.......................................... 1,554,476 1,500,184 1,292,987
------------- ------------- -------------
Total operating expenses............................................ 10,324,711 8,228,960 6,636,417
------------- ------------- -------------
Income from operations.............................................. 2,211,878 715,285 1,133,172
Other income (expense):
Interest expense.................................................. (226,784) (147,019) (121,145)
Interest income................................................... 657 2,981 5,562
Other expense..................................................... (17,796) (49,936) (2,504)
------------- ------------- -------------
(243,923) (193,974) (118,087)
------------- ------------- -------------
Income before provision for income taxes............................ 1,967,955 521,311 1,015,085
Provision for income taxes.......................................... 744,091 202,000 459,190
------------- ------------- -------------
Net income.......................................................... 1,223,864 319,311 555,895
Preferred stock dividend accrued.................................... (154,980) (154,980) (31,421)
------------- ------------- -------------
Net income available to common stockholders......................... $ 1,068,884 $ 164,331 $ 524,474
------------- ------------- -------------
------------- ------------- -------------
Net income per share:
Basic............................................................. $ 0.16 $ 0.02 $ 0.08
------------- ------------- -------------
------------- ------------- -------------
Diluted........................................................... $ 0.11 $ 0.02 $ 0.05
------------- ------------- -------------
------------- ------------- -------------
Weighted-average shares:
Basic............................................................. 6,691,771 6,678,254 6,521,841
------------- ------------- -------------
------------- ------------- -------------
Diluted........................................................... 11,305,780 6,775,792 10,721,841
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes.
F-36
<PAGE>
NOVEX
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ACCUMULATED EARNINGS
---------------------- COMPREHENSIVE (ACCUMULATED
SHARES AMOUNT INCOME (LOSS) DEFICIT) TOTAL
---------- ---------- ------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at April 1, 1996................ 6,428,005 $ 370,171 $ -- $ (680,845) $ (310,674)
Issuance of common stock to acquire
subsidiary.......................... 250,000 190,000 -- -- 190,000
Accrual for dividends on preferred
stock............................... -- -- -- (31,421) (31,421)
Net income............................ -- -- -- 555,895 555,895
Foreign currency translation
adjustment.......................... -- -- 5,903 -- 5,903
------------
Comprehensive income.................... 561,798
---------- ---------- ------------- ---------------- ------------
Balance at March 31, 1997............... 6,678,005 560,171 5,903 (156,371) 409,703
Exercise of stock options to purchase
common stock for cash............... 500 380 -- -- 380
Accrual for dividends on preferred
stock............................... -- -- -- (154,980) (154,980)
Net income............................ -- -- -- 319,311 319,311
Foreign currency translation
adjustment.......................... -- -- (47,111) -- (47,111)
------------
Comprehensive income.................... 272,200
---------- ---------- ------------- ---------------- ------------
Balance at March 31, 1998............... 6,678,505 560,551 (41,208) 7,960 527,303
Exercise of stock options to purchase
common stock for cash............... 28,819 21,902 -- -- 21,902
Accrual for dividends on preferred
stock............................... -- -- -- (154,980) (154,980)
Net income............................ -- -- -- 1,223,864 1,223,864
Foreign currency translation
adjustment.......................... -- -- 26,526 -- 26,526
------------
Comprehensive income.................... 1,250,390
---------- ---------- ------------- ---------------- ------------
Balance at March 31, 1999............... 6,707,324 $ 582,453 $ (14,682) $ 1,076,844 $ 1,644,615
---------- ---------- ------------- ---------------- ------------
---------- ---------- ------------- ---------------- ------------
</TABLE>
See accompanying notes.
F-37
<PAGE>
NOVEX
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------
1999 1998 1997
------------- ------------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................................ $ 1,223,864 $ 319,311 $ 555,895
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for uncollectible accounts................................ 127,502 61,651 48,164
Depreciation and amortization....................................... 767,947 686,694 540,786
Deferred income taxes............................................... (56,000) (6,450) (39,550)
Deferred rent....................................................... (19,515) (11,154) 16,787
Loss on sale and abandonment of equipment and leasehold
improvements...................................................... 22,354 125,652 8,805
Changes in assets and liabilities:
Accounts receivable............................................... (1,449,456) (379,161) (153,709)
Inventories....................................................... (1,114,975) (77,579) (144,320)
Other current assets.............................................. 135,325 (143,398) 132,997
Accounts payable.................................................. 837,706 33,730 (155,472)
Accrued liabilities............................................... 365,452 152,271 135,757
Income taxes payable.............................................. 79,409 (144,931) 164,335
------------- ------------- ------------
Net cash provided by operating activities............................. 919,613 616,636 1,110,475
INVESTING ACTIVITIES
Purchases of equipment and leasehold improvements..................... (1,027,812) (1,075,325) (872,251)
Investments in intangible assets...................................... (112,460) (43,475) (40,618)
Other assets.......................................................... 35,099 59,804 13,863
------------- ------------- ------------
Net cash used in investing activities................................. (1,105,173) (1,058,996) (899,006)
FINANCING ACTIVITIES
Borrowings on notes payable to bank, net.............................. (353,440) 704,779 166,461
Additions to long-term debt........................................... 1,300,000 360,833 --
Payments on long-term debt............................................ (691,281) (453,768) (356,576)
Proceeds from issuance of common stock................................ 21,902 380 --
------------- ------------- ------------
Net cash provided by (used in) financing activities................... 277,181 612,224 (190,115)
Effect of exchange rate on cash....................................... 26,526 (47,111) 5,903
------------- ------------- ------------
Net increase in cash.................................................. 118,147 122,753 27,257
Cash at beginning of year............................................. 187,901 65,148 37,891
------------- ------------- ------------
Cash at end of year................................................... $ 306,048 $ 187,901 $ 65,148
------------- ------------- ------------
------------- ------------- ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid....................................................... $ 226,784 $ 147,781 $ 126,622
------------- ------------- ------------
------------- ------------- ------------
Income taxes paid................................................... $ 709,341 $ 354,000 $ 334,000
------------- ------------- ------------
------------- ------------- ------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Assets acquired with long-term debt (Note 2)........................ $ 500,000 $ -- $ --
------------- ------------- ------------
------------- ------------- ------------
Common stock issued to acquire subsidiary........................... $ -- $ -- $ 190,000
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
See accompanying notes.
F-38
<PAGE>
NOVEX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Novex (the "Company"), formerly known as Novel Experimental Technology, a
California corporation, was incorporated on April 5, 1989. The Company
manufactures protein and nucleic acid electrophoresis gels and related
equipment, solutions, standards, and fine chemicals, primarily for use in
research laboratories. The Company sells these products to customers throughout
the United States, Canada, Europe, Australia, and Asia.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries: Novex Electrophoresis GmbH
(formerly known as Anamed GmbH), incorporated in December 1992, Serva GmbH,
incorporated in May 1998, and Novex International Sales Corporation (also known
as "NISC"), incorporated in February 1997. Significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers investments in highly-liquid debt securities with
remaining maturities of three months or less when acquired to be cash
equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
credit risk consist principally of accounts receivable. Credit is extended to
customers based on an evaluation of the customer's financial condition and
collateral is generally not required. The Company's customers are located
throughout the world. Credit losses have traditionally been minimal and within
management's expectations.
INVENTORIES
Inventories are carried at the lower of cost or market using the first-in,
first-out (FIFO) method.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost. Depreciation and
amortization are calculated using the straight-line method over the lesser of an
estimated useful life ranging from three to seven years or the lease term (in
the case of leasehold improvements).
INTANGIBLE ASSETS
The Company capitalizes the costs of obtaining trademarks and patents. These
costs are amortized over the estimated economic life of 15 years beginning with
the issuance of such trademarks and patents. Periodically, management assesses
whether there has been a permanent impairment in the value of intangible assets
and the amount of such impairment is determined by comparing anticipated
undiscounted future cash flows from operating activities with the carrying value
of the intangible assets.
F-39
<PAGE>
NOVEX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The excess cost over the fair value of the net tangible assets purchased
(goodwill) arose from the Company's acquisition of its wholly-owned subsidiary,
Novex Electrophoresis GmbH, and is being amortized over ten years.
NET INCOME PER SHARE
Earnings per share are computed in accordance with FASB Statement No. 128,
EARNINGS PER SHARE. Basic earnings per share are computed using the weighted
average number of common shares outstanding during each period. Diluted earnings
per share include the dilutive effect of common shares potentially issuable upon
the exercise of stock options.
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------
1999 1998 1997
------------ ---------- ------------
<S> <C> <C> <C>
Numerator:
Numerator for basic earnings per share--income available to common
stockholders......................................................... $ 1,068,884 $ 164,331 $ 524,474
Effect of dilutive preferred dividend accrued.......................... 154,980 -- 31,421
------------ ---------- ------------
Numerator for diluted earnings per share............................... $ 1,223,864 $ 164,331 555,895
------------ ---------- ------------
------------ ---------- ------------
Denominator:
Denominator for basic earnings per share--weighted-average shares
outstanding.......................................................... 6,691,771 6,678,254 6,521,841
Effect of convertible preferred stock.................................. 4,200,000 -- 4,200,000
Effect of dilutive options............................................. 414,009 97,538 --
------------ ---------- ------------
Denominator for diluted earnings per share--adjusted weighted-average
shares and assumed conversions....................................... 11,305,780 6,775,792 10,721,841
------------ ---------- ------------
------------ ---------- ------------
Basic earnings per share................................................. $ 0.16 $ 0.02 $ 0.08
------------ ---------- ------------
------------ ---------- ------------
Diluted earnings per share............................................... $ 0.11 $ 0.02 $ 0.05
------------ ---------- ------------
------------ ---------- ------------
</TABLE>
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported revenues and expenses during the reporting
period. Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards (SFAS) No.
121, ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, the Company regularly
F-40
<PAGE>
NOVEX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
evaluates its long-lived assets for indicators of possible impairment. To date,
no such indicators have been identified.
FOREIGN CURRENCY TRANSLATION
In accordance with SFAS No. 52, the balance sheet accounts of the Company's
foreign operations are translated from foreign currencies into U.S. dollars at
year-end historical rates, while income and expenses are translated at the
weighted average exchange rates for the year. Translation gains or losses are
shown as a component of comprehensive income. Gains and losses resulting from
foreign currency transactions (transactions denominated in a currency other than
the entity's functional currency) are included in the results of operations.
Such foreign currency transaction gains and losses were not significant in 1999,
1998 and 1997.
REVENUES
Revenues from product sales are recognized when goods are shipped.
STOCK OPTIONS
As permitted by SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the
Company has elected to follow Accounting Principles Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25") and related Interpretations
in accounting for its employee stock options. Under APB 25, if the exercise
price of the Company's employee stock options equals or exceeds the deemed fair
value of the underlying stock on the date of grant, no compensation expense is
recognized. Options issued to non-employees are recorded at their fair value and
recognized over the related service period.
RECENTLY ISSUED ACCOUNTING STANDARD
Effective April 1, 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME. This standard requires that all components of
comprehensive income, including net income, be reported in the financial
statements in the period in which they are recognized. Comprehensive income is
defined as the change in equity during a period from transactions and other
events and circumstances from non-owner sources. Net income and other
comprehensive income, including unrealized gains and losses on investments and
foreign currency translation adjustments, shall be reported, net of their
related tax effect, to arrive at comprehensive income. The Company has included
foreign currency translation adjustments in comprehensive income, in its
statement of stockholders' equity.
LONG-TERM OBLIGATIONS
The carrying amount of the Company's long-term obligations approximate fair
value.
2. ACQUISITIONS
In May 1998, the Company purchased the assets of the Serva product line from
Boehringer Ingelheim Bioproducts Partnership ("Boehringer Ingelheim") in
Heidelberg, Germany. The purchase price was $1,543,000 comprised of $799,000 in
cash, acquisition costs of $244,000, and a promissory note for $500,000 at 8%
interest per year due in December 1999. The promissory note is supported by
F-41
<PAGE>
NOVEX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
2. ACQUISITIONS (CONTINUED)
a stand-by letter of credit with the Company's bank. The assets acquired include
inventory and property with an estimated fair value of $1,475,000 and $68,000,
respectively.
3. GEOGRAPHIC AND CUSTOMER INFORMATION
The Company operates in one business segment: the manufacture of protein and
nucleic acid electrophoresis gels and related equipment, solutions, standards
and fine chemicals. United States export sales, principally to Europe,
aggregated $3.2 million, $1.7 million and $2.4 million for the years ended March
31, 1999, 1998 and 1997, respectively.
Information with respect to the Company's operations by significant
geographic area is set forth below. All transactions denominated in foreign
currency have been translated at the average exchange rate during the period.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1999
------------------------------------------
CONSOLIDATED
UNITED STATES GERMANY TOTAL
------------- ------------ -------------
<S> <C> <C> <C>
Sales to unaffiliated customers.................. $ 15,568,681 $ 8,909,510 $ 24,478,191
------------- ------------ -------------
------------- ------------ -------------
Long-lived assets................................ $ 2,306,213 $ 741,204 $ 3,047,417
------------- ------------ -------------
------------- ------------ -------------
<CAPTION>
YEAR ENDED MARCH 31, 1998
------------------------------------------
CONSOLIDATED
UNITED STATES GERMANY TOTAL
------------- ------------ -------------
<S> <C> <C> <C>
Sales to unaffiliated customers.................. $ 13,407,787 $ 3,725,764 $ 17,133,551
------------- ------------ -------------
------------- ------------ -------------
Long-lived assets................................ $ 2,032,353 $ 632,192 $ 2,664,545
------------- ------------ -------------
------------- ------------ -------------
<CAPTION>
YEAR ENDED MARCH 31, 1997
------------------------------------------
CONSOLIDATED
UNITED STATES GERMANY TOTAL
------------- ------------ -------------
<S> <C> <C> <C>
Sales to unaffiliated customers.................. $ 11,740,855 $ 2,413,710 $ 14,154,565
------------- ------------ -------------
------------- ------------ -------------
Long-lived assets................................ $ 2,208,566 $ 150,479 $ 2,359,045
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
4. FINANCIAL STATEMENT INFORMATION
INVENTORIES
The Company's inventories consist of the following at March 31:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Raw materials..................................................... $ 1,051,663 $ 434,054
Work-in-process................................................... 489,223 258,893
Finished goods.................................................... 1,022,378 323,342
------------ ------------
$ 2,563,264 $ 1,016,289
------------ ------------
------------ ------------
</TABLE>
F-42
<PAGE>
NOVEX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
4. FINANCIAL STATEMENT INFORMATION (CONTINUED)
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of the following at March 31:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Manufacturing equipment......................................... $ 2,151,889 $ 1,241,153
Office and marketing equipment.................................. 1,204,096 1,130,366
Leasehold improvements.......................................... 1,044,914 891,035
Research and development equipment.............................. 286,204 184,724
------------- -------------
4,687,103 3,447,278
Less accumulated depreciation and amortization.................. (2,118,716) (1,399,921)
------------- -------------
2,568,387 2,047,357
Construction in progress........................................ 30,884 197,251
------------- -------------
$ 2,599,271 $ 2,244,608
------------- -------------
------------- -------------
</TABLE>
INTANGIBLE ASSETS
Intangible assets consist of the following at March 31:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Goodwill, net of accumulated amortization of $36,321 in 1999, $15,567
in 1998............................................................. $ 119,347 $ 140,101
Trademarks and patents, net of accumulated amortization of $42,144 in
1999, $13,746 in 1998............................................... 149,653 130,463
Costs incurred on pending trademarks and patents...................... 165,526 100,654
---------- ----------
$ 434,526 $ 371,218
---------- ----------
---------- ----------
</TABLE>
ACCRUED LIABILITIES
Accrued expenses consist of the following at March 31:
<TABLE>
<CAPTION>
1999 1998
------------ ----------
<S> <C> <C>
ESOP contribution................................................... $ 238,774 $ 136,179
Payroll and payroll taxes........................................... 245,943 172,907
Commissions......................................................... 87,033 34,592
Accrued vacations................................................... 235,019 122,677
Accrued relocation expenses......................................... -- 60,000
Value added taxes................................................... 146,818 37,573
Accrued warranty expenses........................................... 22,685 52,685
Other............................................................... 173,478 167,685
------------ ----------
$ 1,149,750 $ 784,298
------------ ----------
------------ ----------
</TABLE>
F-43
<PAGE>
NOVEX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
5. FINANCING ARRANGEMENTS
At March 31 1999, the Company has available a credit facility from a bank,
which provides a revolving line of credit for advances up to $1,200,000 and
bears interest at the bank's prime lending rate (7.75% at March 31, 1999) plus
1.0%. At March 31, 1999, $677,992 was available for advances and a balance of
$522,008 was outstanding on this revolving line of credit. The credit facility
will expire on August 10, 1999.
The financing arrangements are collateralized by substantially all of the
assets of the Company.
6. LONG-TERM DEBT
Long-term debt consists of the following at March 31:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Note payable to bank, payable in 60 installments of $21,667 plus interest through May
11, 2003, with interest at prime (7.75% at March 31, 1999) plus 1.75%, collateralized
by accounts receivable, inventories, equipment and intangibles....................... $ 1,082,722 $ --
Note payable to Boehringer Ingelheim, payable $500,000 plus interest on December 31,
1999, with interest at 8%, supported by a stand-by letter of credit with the bank.... 500,000 --
Notes payable to German bank, payable in monthly installments of $4,618 through October
2001, collateralized by certain assets of the Company with a net book value totaling
$124,000 at March 31, 1999........................................................... 72,575 102,426
Note payable to the Company's landlord, bearing interest at 12% due in monthly
installments of $10,586 through October 1, 2000...................................... 182,350 280,969
Note payable to bank, payable in 48 installments of $6,250 plus interest through August
15, 1999, with interest at prime plus 2.00%, collateralized by accounts receivable,
inventories, equipment and intangibles, outstanding balance prepaid during 1999 at
the election of the Company.......................................................... -- 106,250
Note payable to bank, payable in 48 installment of $4,706 plus interest through August
15, 2001, with interest at prime plus 1.00%, collateralized by accounts receivable,
inventories, equipment and intangibles, outstanding balance pre-paid during 1999 at
the election of the Company.......................................................... -- 192,962
Unsecured note payable to a former stockholder, payable in 12 equal quarterly
installments of $25,000 each through January 19, 1999, at an imputed interest rate of
10.25%, personally guaranteed by the Company's major stockholder..................... -- 93,932
Other.................................................................................. 47,611 --
------------ -----------
1,885,258 776,539
Less current maturities................................................................ (910,493) (369,555)
------------ -----------
$ 974,765 $ 406,984
------------ -----------
------------ -----------
</TABLE>
F-44
<PAGE>
NOVEX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
6. LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt consist of the following at March 31, 1999:
<TABLE>
<S> <C>
2000.............................................. $ 910,493
2001.............................................. 416,066
2002.............................................. 255,366
2003.............................................. 260,000
2004.............................................. 43,333
-------------
$ 1,885,258
-------------
-------------
</TABLE>
7. COMMITMENTS
The Company leases certain equipment and its facilities under operating
leases which expire through July 2002.
Annual future minimum lease obligations as of March 31, 1999 are as follows:
<TABLE>
<S> <C>
2000.............................................. $ 649,766
2001.............................................. 511,383
2002.............................................. 165,488
-------------
$ 1,326,637
-------------
-------------
</TABLE>
Three facility leases provide for specific escalating rental payments. Total
rent expense, which is recognized on a straight-line basis over the term of the
lease, including rent expense for equipment rentals was $755,229, $477,113 and
$281,000 during the years ended March 31, 1999, 1998 and 1997, respectively.
8. EMPLOYEE STOCK OWNERSHIP PLAN
The Company amended its Employee Stock Ownership Plan (ESOP), adding 401(k)
provisions allowing employees to contribute pretax salary deferrals to their
accounts, effective April 1, 1997. The Company had previously converted its
defined contribution profit sharing plan into an Employee Stock Ownership Plan
(ESOP) effective April 1, 1995. The purpose of the 401(k)/ESOP is to enable
employees who have completed 1,000 or more hours of service within a
twelve-month period to acquire stock ownership in the Company and share in its
growth, as well as defer taxes on wages earned. For the years ended March 31,
1999, 1998 and 1997, the Company accrued contributions of approximately
$238,774, $136,179 and $382,600, respectively, to the ESOP, which is included in
compensation expense. Contributions to the Plan are based upon a Company match
of employee 401(k) salary deferrals, as well as a discretionary percentage of
eligible participants' total compensation. During the year ended March 31, 1996,
the ESOP purchased 628,005 shares of the Company's stock with the 1995
contribution, all of which have been allocated to Plan participants. During the
years ended March 31, 1999 and 1998, the ESOP did not purchase any shares of
stock from the Company. The contributions for the years ended March 31, 1999 and
1998 have been funded through cash payments.
F-45
<PAGE>
NOVEX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
8. EMPLOYEE STOCK OWNERSHIP PLAN (CONTINUED)
In the event that a participant leaves the Plan through termination, death,
retirement, or permanent disability and the participant desires to sell his or
her shares of the Company's stock, the Company may be required to purchase the
shares from the participant at their fair value. Depending on the circumstances
of the participant leaving the Plan, the Company may have up to five years to
purchase the stock.
9. STOCKHOLDERS' EQUITY
REDEEMABLE CONVERTIBLE PREFERRED STOCK
In January 1996, the Company repurchased 4,200,000 shares of common stock
for $2,220,000 from one of the Company's former major stockholders/officers. In
conjunction with the repurchase of the common stock, the Company sold 42,000
shares of Series A preferred stock at a purchase price of $61.50 per share, net
of issuance costs of $24,599. The proceeds from the sale of preferred shares
were used to pay for the repurchase of the shares of common stock of the
Company.
Concurrent with the repurchase of the common stock in January 1996, the
Company executed a release and settlement agreement with the Company's former
major stockholder/officer for alleged breach of contract and wrongful
termination claim. As consideration for execution of the agreement, the former
stockholder/officer received $75,000 for legal fees incurred and a $300,000
non-interest bearing promissory note. The note was due in twelve quarterly
installments of $25,000 each commencing April 1996. The note is fully amortized
and no liability remains on the accompanying 1999 balance sheet. At March 31,
1998, the note is recorded in the accompanying balance sheets at its discounted
value of $93,932, using a 10.25% imputed rate of interest.
Each share of Series A preferred stock is convertible at the option of the
holder at any time into one hundred shares of common stock ($.6150 per share, or
as adjusted for any dilution). Each share of Series A preferred stock shall
automatically be converted into shares of common stock at the then effective
conversion price in the event the Company completes an initial public offering
which meets certain minimum requirements.
Commencing January 17, 1997, dividends began to accrue on each share of
Series A preferred stock, whether or not earned or declared. Cash dividends
accrue at an annual rate of $3.69 per share. Series A accrued dividends totalled
$154,980, $154,980 and $31,421 for the years ended March 31, 1999, 1998 and
1997, respectively. In addition, on January 17th in 2001, 2002 and 2003, each
holder of Series A preferred stock shall have the right to require the Company
to redeem up to 33.3%, 50% and 100%, respectively, of the shares of Series A
preferred stock held by such holder on such date, at a redemption rate of $61.50
per share (or as adjusted for any dilution), plus any accrued but unpaid
dividends.
Each share of Series A preferred stock has voting rights equal the number of
shares of common stock which would be issued upon conversion. The holders of
Series A preferred stock shall be entitled to elect two out of the six members
of the Company's board of directors.
F-46
<PAGE>
NOVEX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
9. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLAN
In April 1996, the Company adopted the 1996 Stock Option Plan (the "Stock
Plan"), which was amended in fiscal 1999 to issue additional shares. In
addition, the 1998 Stock Option Plan was adopted in fiscal 1999 to issue
additional shares. The Stock Plans provide for the grant of incentive stock
options to employees and nonstatutory stock options to employees, directors and
consultants. The Company has reserved 290,462 shares for future contribution to
the Stock Plans and the Employee Stock Ownership Plan and any compensation
agreement as contemplated by the Company.
All options granted under the Stock Plans expire not later than ten years
from the date of grant and vest and become fully exercisable after not more than
five years of continued employment or engagement. Options generally vest
one-fifth on the first anniversary and the remainder vest ratably over the next
four years. The exercise price of stock options must be equal to or greater than
the fair market value on the date of grant.
The following table summarizes stock option activity under the Stock Plans:
<TABLE>
<CAPTION>
OPTIONS WEIGHTED-AVERAGE
OUTSTANDING EXERCISE PRICE
----------- -----------------
<S> <C> <C>
Balance at April 1, 1996...................................... -- $ --
Granted..................................................... 752,000 $ 0.76
Cancelled................................................... (36,000) $ 0.76
-----------
Balance at March 31, 1997..................................... 716,000 $ 0.76
Granted..................................................... 1,097,500 $ 0.96
Exercised................................................... (500) $ 0.76
Forfeited................................................... (159,297) $ 0.76
-----------
Balance at March 31, 1998..................................... 1,653,703 $ 0.89
Granted..................................................... 453,000 $ 1.10
Exercised................................................... (28,819) $ 0.76
Forfeited................................................... (75,670) $ 0.90
-----------
Balance at March 31, 1999..................................... 2,002,214 $ 0.94
-----------
-----------
</TABLE>
At March 31, 1999, options to purchase 599,396 shares of common stock were
exercisable. The weighted-average remaining contractual life of the options
outstanding at March 31, 1999 was 8.4 years.
Pro forma information regarding net income is required by SFAS 123, and has
been determined as if the Company had accounted for its employee stock options
under the fair value method under the Statement. The fair value of these options
was estimated at the date of grant using the minimum value method with the
following weighted average assumptions for fiscal years 1999, 1998 and
1997:risk-free interest rate of 6.00%; no annual dividends; and an expected
option life of five years. The weighted-average fair value of options granted
during 1999, 1998 and 1997 was $0.27, $0.25 and $0.20, respectively. The effect
of applying the minimum value method of SFAS 123 to options granted in fiscal
year 1999, 1998 and 1997 did not result in a pro forma net income amount that is
materially different from the amount reported. Accordingly, such pro forma
information is not presented herein. The pro forma
F-47
<PAGE>
NOVEX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
9. STOCKHOLDERS' EQUITY (CONTINUED)
effect determined in fiscal year 1999 may not be representative of the pro forma
effect to be reported in future years.
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
Common stock reserved for future issuance is as follows:
<TABLE>
<CAPTION>
MARCH 31,
1999
----------
<S> <C>
Conversion of Series A convertible preferred stock................................................... 4,200,000
Stock options outstanding under the Stock Plan....................................................... 2,002,214
Common stock reserved for future contributions to the Stock Plan, ESOP and compensation agreements... 290,462
----------
6,492,676
----------
----------
</TABLE>
10. INCOME TAXES
Net deferred tax assets consist of the following as of March 31:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Accruals and reserves............................................... $ 164,000 $ 111,000
Depreciation........................................................ 117,000 86,000
Other, net.......................................................... 37,000 145,000
---------- ----------
Total deferred tax assets............................................. 318,000 342,000
Valuation allowance................................................... -- (80,000)
---------- ----------
Net deferred tax assets............................................... $ 318,000 $ 262,000
---------- ----------
---------- ----------
</TABLE>
A valuation allowance of $80,000 at March 31, 1998, was provided against the
deferred tax asset related to the foreign tax loss carryforwards since that time
realization was uncertain. The foreign tax losses may be carried forward
indefinitely.
F-48
<PAGE>
NOVEX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
10. INCOME TAXES (CONTINUED)
The income tax expense (benefit) consists of the following for the years
ended March 31:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current
Federal................................................ $ 589,000 $ 185,000 $ 432,190
State.................................................. 145,000 24,000 66,000
Foreign................................................ 66,091 -- --
---------- ---------- ----------
800,091 209,000 498,190
Deferred
Federal................................................ (51,000) (3,000) (40,000)
State.................................................. (5,000) (4,000) 1,000
Foreign................................................ -- -- --
---------- ---------- ----------
(56,000) (7,000) (39,000)
---------- ---------- ----------
$ 744,091 $ 202,000 $ 459,190
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The reconciliation of income taxes computed at the U.S. federal statutory
rates to income tax expense is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Tax U.S. statutory rates................ 34.0% 34.0% 34.0%
State income taxes, net of federal tax
benefit............................... 3.8% 2.5% 4.1%
Permanent differences................... 1.1% 2.9% 2.9%
Other, net.............................. (1.1)% (0.7)% 4.2%
------ ------ ------
37.8% 38.7% 45.2%
------ ------ ------
------ ------ ------
</TABLE>
F-49
<PAGE>
NOVEX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
11. SUBSEQUENT EVENT
On August 17, 1999, under an agreement and plan of merger with Invitrogen,
all of NOVEX's issued and outstanding shares, including the redeemable
convertible preferred stock, were acquired for 2.5 million shares of
Invitrogen's common stock. All of the outstanding stock options of NOVEX were
assumed by Invitrogen and converted into options to purchase .5 million shares
of Invitrogen common stock. The transaction will be accounted for as a pooling
of interests and is intended to qualify as a tax-free exchange. Costs incurred
as a result of the merger are expected to be $.2 million and are subject to
change. These costs were expensed in August 1999 after the merger was completed.
Based on the fair value of the Invitrogen shares, management has concluded
that the exercise price of the Company's options to purchase common stock
granted subsequent to March 31, 1999 is less than the fair value of the
Company's common stock. Accordingly, the Company recorded deferred compensation
of $163,817 in April 1999 for the difference between the fair market value and
the exercise price of the options to purchase the common stock granted
subsequent to March 31, 1999. The deferred compensation will be amortized over
the vesting period of the related options.
F-50
<PAGE>
NOVEX
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1999 MARCH 31, 1999
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................................................ $ 111 $ 306
Accounts and notes receivable.................................................... 3,481 3,339
Inventories...................................................................... 2,845 2,563
Deferred income taxes............................................................ 201 201
Prepaid expenses and other current assets........................................ 167 106
------------- ------
Total current assets........................................................... 6,805 6,515
Property and equipment, net........................................................ 2,643 2,599
Intangible assets, net............................................................. 436 434
Other assets....................................................................... 186 131
------------- ------
Total Assets....................................................................... $ 10,070 $ 9,679
------------- ------
------------- ------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank............................................................. $ 570 $ 522
Current portion of long-term debt................................................ 1,031 910
Accounts payable................................................................. 1,334 1,341
Accrued expenses................................................................. 1,076 1,150
Income taxes payable............................................................. 355 185
------------- ------
Total current liabilities...................................................... 4,366 4,108
------------- ------
Long-term debt, less current maturities............................................ 825 1,026
Redeemable convertible preferred stock............................................. 2,939 2,900
Stockholders' Equity:
Common stock, par value.......................................................... 750 583
Other stockholders' equity....................................................... 1,190 1,062
------------- ------
Total stockholders' equity..................................................... 1,940 1,645
------------- ------
Total Liabilities and Stockholders' Equity..................................... $ 10,070 $ 9,679
------------- ------
------------- ------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-51
<PAGE>
NOVEX
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------------------
1999 1998
(UNAUDITED)
<S> <C> <C>
Revenues.................................................................................... $ 6,936 $ 5,081
Cost of Revenues............................................................................ 3,178 2,284
--------- ---------
Gross margin............................................................................ 3,758 2,797
Operating Expenses:
Sales and marketing....................................................................... 1,616 1,151
General and administrative................................................................ 1,053 904
Research and development.................................................................. 486 412
--------- ---------
Total operating expenses................................................................ 3,155 2,467
--------- ---------
Income from operations................................................................ 603 330
--------- ---------
Other Income (Expense):
Gain (loss) on foreign currency transactions.............................................. 4 (5)
Interest and other expense................................................................ (50) (43)
--------- ---------
Net income................................................................................ (46) (48)
--------- ---------
Income before provision for income taxes.............................................. 557 282
Provision for income taxes.................................................................. 212 106
--------- ---------
Net income............................................................................ 345 176
Less: Preferred stock dividends....................................................... (39) (39)
--------- ---------
Income available to common stockholders............................................... $ 306 $ 137
--------- ---------
--------- ---------
Earnings per share:
Basic..................................................................................... $ 0.05 $ 0.02
--------- ---------
--------- ---------
Diluted................................................................................... $ 0.03 $ 0.01
--------- ---------
--------- ---------
Weighted average shares used in per share calculation:
Basic..................................................................................... 6,710 6,687
Diluted................................................................................... 12,205 10,985
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-52
<PAGE>
NOVEX
INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED) (IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK FOREIGN
------------------------ DEFERRED CURRENCY RETAINED
SHARES AMOUNT COMPENSATION TRANSLATION EARNINGS
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1999............................ 6,707 $ 583 $ -- $ (15) $ 1,077
Exercise of stock options............................ 4 3 -- -- --
Deferred compensation................................ -- 164 (164) -- --
Amortization of deferred compensation................ -- -- 8 -- --
Preferred stock dividends............................ -- -- -- -- (39)
Foreign currency translation adjustment.............. -- -- -- (22) --
Net income........................................... -- -- -- -- 345
----- ----- ------ ----- -----------
Balance at June 30, 1999............................. 6,711 $ 750 $ (156) $ (37) $ 1,383
----- ----- ------ ----- -----------
----- ----- ------ ----- -----------
<CAPTION>
STOCKHOLDERS'
EQUITY
<S> <C>
Balance at March 31, 1999............................ $ 1,645
Exercise of stock options............................ 3
Deferred compensation................................ --
Amortization of deferred compensation................ 8
Preferred stock dividends............................ (39)
Foreign currency translation adjustment.............. (22)
Net income........................................... 345
------
Balance at June 30, 1999............................. $ 1,940
------
------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-53
<PAGE>
NOVEX
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------------------
1999 1998
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................................................... $ 345 $ 176
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.............................................................. 213 161
Deferred income taxes...................................................................... -- 19
Provision for uncollectible accounts....................................................... -- 5
Changes in operating assets and liabilities:
Accounts receivable...................................................................... (142) (413)
Inventories.............................................................................. (280) (737)
Prepaid expenses and other current assets................................................ (62) (74)
Account payable.......................................................................... (7) 132
Accrued expenses......................................................................... (127) 172
Income taxes payable..................................................................... 170 1
--------- ---------
Net cash provided (used) by operating activities....................................... 110 (558)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.......................................................... (256) (338)
Payments for intangible assets............................................................... (2) (2)
Other assets................................................................................. (56) --
--------- ---------
Net cash used by investing activities.................................................. (314) (340)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable to bank, net..................................................... 19 50
Additions to long-term debt.................................................................. -- 921
Payments on long-term debt................................................................... -- (22)
Proceeds from sale of common stock........................................................... 12 --
--------- ---------
Net cash provided by financing activities.............................................. 31 949
--------- ---------
Effect of exchange rate changes on cash........................................................ (22) (1)
--------- ---------
Net increase (decrease) in cash and cash equivalents................................... (195) 50
Cash and cash equivalents, beginning of period................................................. 306 188
--------- ---------
Cash and cash equivalents, end of period....................................................... $ 111 $ 238
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest......................................................................... $ 35 $ 48
--------- ---------
Cash paid for income taxes..................................................................... $ 60 $ 91
--------- ---------
--------- ---------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Assets acquired with long-term debt.......................................................... $ -- $ 500
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-54
<PAGE>
NOVEX
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
GENERAL
The consolidated financial statements include the accounts of NOVEX and its
100% controlled subsidiaries, Novex Electrophoresis GmbH, Serva GmbH and Novex
International Sales Corporation. All significant intercompany accounts and
transactions have been eliminated in consolidation. The interim financial
statements have been prepared by NOVEX, without audit, according to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. In the opinion of management,
the accompanying unaudited financial statements contain all adjustments, which
include only normal recurring adjustments, necessary to state fairly the
financial position, results of operations and cash flows as of and for the
periods indicated.
It is suggested that these financial statements be read in conjunction with
the audited financial statements of NOVEX and the notes thereto included
elsewhere in this prospectus.
1. INVENTORIES
Inventories include material, labor and overhead costs and consist of the
following:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
(IN THOUSANDS) 1999 1999
<S> <C> <C>
Raw materials and components............................................ $ 1,468 $ 1,052
Work in process......................................................... 307 489
Finished goods.......................................................... 1,070 1,022
----------- -----------
$ 2,845 $ 2,563
----------- -----------
----------- -----------
</TABLE>
2. ACCUMULATED DEPRECIATION AND AMORTIZATION
Accumulated depreciation and amortization of property, plant and equipment
was $2.3 million and $2.1 million at June 30, 1999 and March 31, 1999,
respectively. Accumulated amortization of intangible assets $0.1 million at June
30, 1999 and March 31, 1999.
F-55
<PAGE>
NOVEX
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. EARNINGS PER SHARE
Earnings per share is calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999
---------------------------------------------
INCOME SHARES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
Basic EPS:
Income available to common stockholders.............. $ 306 6,710 $ 0.05
Preferred stock dividend............................. 39 4,200
Stock options........................................ -- 1,295
----- ------ -----
Diluted EPS:
Income available to common stockholders plus assumed
conversions........................................ $ 345 12,205 $ 0.03
----- ------ -----
----- ------ -----
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998
---------------------------------------------
INCOME SHARES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C>
Basic EPS:
Income available to common stockholders.............. $ 137 6,687 $ 0.02
Preferred stock dividend............................. 39 4,200
Stock options........................................ -- 98
----- ------ -----
Diluted EPS:
Income available to common stockholders plus assumed
conversions........................................ $ 176 10,985 $ 0.02
----- ------ -----
----- ------ -----
</TABLE>
5. COMPREHENSIVE INCOME
Total comprehensive income for the three months ended June 30, 1999 and 1998
was $323,000 and $177,000, respectively. The adjustments to net income to arrive
at total comprehensive income represent a foreign currency translation loss of
$22,000 for the three months ended June 30, 1999 and a foreign currency
translation gain of $1,000 for the same period in 1998.
6. SUBSEQUENT EVENTS
On August 17, 1999, under an agreement and plan of merger with Invitrogen,
all of NOVEX's issued and outstanding shares, including the redeemable
convertible preferred stock, were acquired for 2.5 million shares of
Invitrogen's common stock. All of the outstanding stock options of NOVEX were
assumed by Invitrogen and converted into options to purchase 0.5 million shares
of Invitrogen's common stock. The transaction will be accounted for as a pooling
of interests and is intended to qualify as a tax -free exchange. Costs incurred
as a result of the merger are expected to be $0.2 million and are subject to
change. These costs were expensed in August 1999 after the merger was completed.
Based on the fair value of the Invitrogen shares, management has concluded
that the exercise price of the Company's options to purchase common stock
granted subsequent to March 31, 1999 is less than the fair value of the
Company's common stock. Accordingly, the Company recorded deferred compensation
of $163,817 in April 1999 for the difference between the fair value and the
exercise price for the options to purchase common stock granted subsequent to
March 31, 1999. The deferred compensation will be amortized over the vesting
period of the related options.
In August 1999, the Company extended its bank credit facility which provides
a revolving line of credit for advances up to $1.2 million to August 2000.
F-56
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined balance sheet as of June 30,
1999, illustrates the effect of the merger as if it had occurred on June 30,
1999. The following unaudited pro forma combined statements of income for the
six months ended June 30, 1999 and 1998 and for the three years ended December
31, 1998, illustrate the effect of the merger as if it had occurred on January
1, 1996. There were no material differences between the accounting policies of
Invitrogen and NOVEX and, therefore, no conforming of accounting policy
adjustments have been made to the unaudited pro forma financial statements. The
unaudited pro forma combined statements of income for the three years ended
December 31, 1998 include both Invitrogen's and NOVEX's financial data for these
same periods.
The unaudited pro forma combined financial statements are presented for
comparative purposes only and are not necessarily indicative of the combined
financial position or results of operations of future periods or the results
that actually would have been realized had Invitrogen and NOVEX been a single
entity during the periods presented.
Pursuant to the terms of the merger, each share of NOVEX stock was converted
into the right to receive .23188 of a share of Invitrogen. The unaudited pro
forma combined financial statements have been derived from the respective
historical audited and unaudited consolidated financial statements of Invitrogen
and NOVEX and should be read in conjunction with such financial statements and
the notes thereto included elsewhere in this prospectus.
F-57
<PAGE>
INVITROGEN CORPORATION AND NOVEX
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
INVITROGEN NOVEX ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................ $ 36,094 $ 111 $ -- $ 36,205
Short-term investments................................... 2,439 -- -- 2,439
Accounts and notes receivable............................ 4,116 3,481 (3)(2) 7,594
Inventories.............................................. 2,823 2,845 -- 5,668
Deferred income taxes.................................... 595 201 -- 796
Prepaid expenses and other current assets................ 1,539 167 692(4) 2,398
----------- ----------- ----------- -----------
Total current assets................................... 47,606 6,805 689 55,100
Property and equipment, net................................ 7,182 2,643 9,825
Intangible assets, net..................................... 3,192 436 -- 3,628
Other assets............................................... 171 186 -- 357
----------- ----------- ----------- -----------
Total Assets........................................... $ 58,151 $ 10,070 $ 689 $ 68,910
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank..................................... $ -- $ 570 $ -- $ 570
Current portion of long-term obligations................. 438 1,031 -- 1,469
Accounts payable......................................... 1,742 1,334 (3)(2) 3,073
Accrued expenses......................................... 1,697 1,076 4,442(4) 7,215
Income taxes payable..................................... 631 355 (663)(4) 323
----------- ----------- ----------- -----------
Total current liabilities.............................. 4,508 4,366 3,776 12,650
----------- ----------- ----------- -----------
Long-term obligations, less current maturities............. 664 825 -- 1,489
Redeemable convertible preferred stock..................... -- 2,939 (2,939)(3) --
Stockholders' Equity:
Common stock, par value.................................. 134 750 (724)(3) 160
Other stockholders' equity............................... 52,845 1,190 576 )(4 54,611
----------- ----------- ----------- -----------
Total stockholders' equity................................. 52,979 1,940 (148) 54,771
----------- ----------- ----------- -----------
Total Liabilities and Stockholders' Equity................. $ 58,151 $ 10,070 $ 689 $ 68,910
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
F-58
<PAGE>
INVITROGEN CORPORATION AND NOVEX
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
INVITROGEN NOVEX ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Revenues...................................................... $ 19,888 $ 13,897 $ (19)(2) $ 33,766
Cost of Revenues.............................................. 5,087 6,496 (5)(2) 11,578
----------- ----------- --- -----------
Gross margin.............................................. 14,801 7,401 (14) 22,188
----------- ----------- --- -----------
Operating Expenses:
Sales and marketing......................................... 3,878 3,128 -- 7,006
General and administrative.................................. 2,498 1,900 -- 4,398
Research and development.................................... 3,963 961 (14)(2) 4,910
----------- ----------- --- -----------
Total operating expenses.................................. 10,339 5,989 (14) 16,314
----------- ----------- --- -----------
Income from operations.................................. 4,462 1,412 -- 5,874
----------- ----------- --- -----------
Other Income (Expense):
Gain (loss) on foreign currency transactions................ (206) -- -- (206)
Interest and other expense.................................. (13) (126) -- (139)
Interest and other income................................... 602 1 -- 603
----------- ----------- --- -----------
383 (125) -- 258
----------- ----------- --- -----------
Income before provision for income taxes................ 4,845 1,287 -- 6,132
Provision for income taxes.................................... 1,696 488 -- 2,184
----------- ----------- --- -----------
Net Income.............................................. 3,149 799 -- 3,948
Less: Preferred stock dividends......................... (163) (78) 78(3) (163)
Accretion of non-voting redeemable common stock.... (74) -- -- (74)
Adjustment to beneficial conversion feature related
to convertible preferred stock..................... 985 -- -- 985
----------- ----------- --- -----------
Income available to common stockholders................. $ 3,897 $ 721 $ 78 $ 4,696
----------- ----------- --- -----------
----------- ----------- --- -----------
Earnings per share:
Basic....................................................... $ 0.32 $ 0.11 $ 0.32
----------- ----------- -----------
----------- ----------- -----------
Diluted..................................................... $ 0.27 $ 0.07 $ 0.27
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares used in per share calculation:
Basic....................................................... 12,116 6,706 14,645(3)
Diluted..................................................... 14,230 11,810 17,101(3)
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
F-59
<PAGE>
INVITROGEN CORPORATION AND NOVEX
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
INVITROGEN NOVEX ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Revenues...................................................... $ 14,873 $ 9,857 $ (25)(2) $ 24,705
Cost of Revenues.............................................. 4,065 4,221 (6)(2) 8,280
----------- ----------- --- -----------
Gross margin.............................................. 10,808 5,636 (19) 16,425
----------- ----------- --- -----------
Operating Expenses:
Sales and marketing......................................... 3,438 1,873 -- 5,311
General and administrative.................................. 2,098 1,811 -- 3,909
Research and development.................................... 3,306 762 (19)(2) 4,049
----------- ----------- --- -----------
Total operating expenses.................................. 8,842 4,446 (19) 13,269
----------- ----------- --- -----------
Income from operations.................................. 1,966 1,190 -- 3,156
----------- ----------- --- -----------
Other Income (Expense):
Gain (loss) on foreign currency transactions................ 3 (9) -- (6)
Interest and other expense.................................. (18) (116) -- (134)
Interest and other income................................... 184 3 -- 187
----------- ----------- --- -----------
169 (122) -- 47
----------- ----------- --- -----------
Income before provision for income taxes................ 2,135 1,068 -- 3,203
Provision for income taxes.................................... 761 410 -- 1,171
----------- ----------- --- -----------
Net income.............................................. 1,374 658 -- 2,032
Less: Preferred stock dividends......................... (450) (77) 77(3) (450)
Accretion of non-voting redeemable common stock.... (98) -- -- (98)
----------- ----------- --- -----------
Income available to common stockholders................. $ 826 $ 581 $ 77 $ 1,484
----------- ----------- --- -----------
----------- ----------- --- -----------
Earnings per share:
Basic....................................................... $ 0.09 $ 0.09 $ 0.12
----------- ----------- -----------
----------- ----------- -----------
Diluted..................................................... $ 0.08 $ 0.05 $ 0.11
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares used in per share calculation:
Basic....................................................... 9,632 6,687 12,157(3)
Diluted..................................................... 10,996 10,985 13,581(3)
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
F-60
<PAGE>
INVITROGEN CORPORATION AND NOVEX
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
INVITROGEN NOVEX ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Revenues...................................................... $ 31,414 $ 22,293 $ (47)(2) $ 53,660
Cost of Revenues.............................................. 8,642 10,560 (11)(2) 19,191
----------- ----------- ----- -----------
Gross margin.............................................. 22,772 11,733 (36) 34,469
----------- ----------- ----- -----------
Operating Expenses:
Sales and marketing......................................... 6,976 4,376 -- 11,352
General and administrative.................................. 4,428 3,663 -- 8,091
Research and development.................................... 7,209 1,430 (36)(2) 8,603
----------- ----------- ----- -----------
Total operating expenses.................................. 18,613 9,469 (36) 28,046
----------- ----------- ----- -----------
Income from operations.................................. 4,159 2,264 -- 6,423
----------- ----------- ----- -----------
Other Income (Expense):
Gain (loss) on foreign currency transactions................ 61 (36) -- 25
Interest and other expense.................................. (35) (214) -- (249)
Interest and other income................................... 431 10 -- 441
----------- ----------- ----- -----------
457 (240) -- 217
----------- ----------- ----- -----------
Income before provision for income taxes................ 4,616 2,024 -- 6,640
Provision for income taxes.................................... 1,638 772 -- 2,410
----------- ----------- ----- -----------
Net income.............................................. 2,978 1,252 -- 4,230
Less: Preferred stock dividends......................... (900) (155) 155(3) (900)
Accretion of non-voting redeemable common stock.... (204) -- -- (204)
----------- ----------- ----- -----------
Income available to common stockholders................. $ 1,874 $ 1,097 $ 155 $ 3,126
----------- ----------- ----- -----------
----------- ----------- ----- -----------
Earnings per share:
Basic....................................................... $ 0.19 $ 0.16 $ 0.26
----------- ----------- -----------
----------- ----------- -----------
Diluted..................................................... $ 0.17 $ 0.11 $ 0.23
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares used in per share calculation:
Basic....................................................... 9,626 6,691 12,152(3)
Diluted..................................................... 11,208 11,195 13,883(3)
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
F-61
<PAGE>
INVITROGEN CORPORATION AND NOVEX
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
INVITROGEN NOVEX ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Revenues...................................................... $ 24,965 $ 16,240 $ (23)(2) $ 41,182
Cost of Revenues.............................................. 7,989 7,976 (7)(2) 15,958
---------- ----------- ----- -----------
Gross margin.............................................. 16,976 8,264 (16) 25,224
---------- ----------- ----- -----------
Operating Expenses:
Sales and marketing......................................... 4,959 3,346 -- 8,305
General and administrative.................................. 3,932 3,380 -- 7,312
Research and development.................................... 4,416 1,518 (16)(2) 5,918
---------- ----------- ----- -----------
Total operating expenses.................................. 13,307 8,244 (16) 21,535
---------- ----------- ----- -----------
Income from operations.................................. 3,669 20 -- 3,689
---------- ----------- ----- -----------
Other Income (Expense):
Gain (loss) on foreign currency transactions................ 145 -- -- 145
Interest and other expense.................................. (88) (154) -- (242)
Interest and other income................................... 211 3 -- 214
---------- ----------- ----- -----------
268 (151) -- 117
---------- ----------- ----- -----------
Income before provision for income taxes................ 3,937 (131) -- 3,806
Provision for income taxes.................................... 1,413 (42) -- 1,371
---------- ----------- ----- -----------
Net income.............................................. 2,524 (89) -- 2,435
Less: Preferred stock dividends......................... (475) (147) 147(3) (475)
Accretion of non-voting redeemable common stock.... (175) -- -- (175)
Adjustment to beneficial conversion feature related
to convertible preferred stock..................... (15,000) -- -- (15,000)
---------- ----------- ----- -----------
Income available to common stockholders................. $ (13,126) $ (236) $ 147 $ (13,215)
---------- ----------- ----- -----------
---------- ----------- ----- -----------
Earnings per share:
Basic....................................................... $ (1.47) $ (0.04) $ (1.15)
---------- ----------- -----------
---------- ----------- -----------
Diluted..................................................... $ (1.47) $ (0.04) $ (1.15)
---------- ----------- -----------
---------- ----------- -----------
Weighted average shares used in per share calculation:
Basic....................................................... 8,939 6,679 11,461(3)
Diluted..................................................... 8,939 6,679 11,461(3)
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
F-62
<PAGE>
INVITROGEN CORPORATION AND NOVEX
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
INVITROGEN NOVEX ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Revenues...................................................... $ 19,121 $ 13,450 $ (15)(2) $ 32,556
Cost of Revenues.............................................. 5,818 6,280 (4)(2) 12,094
----------- ----------- --- -----------
Gross margin.............................................. 13,303 7,170 (11) 20,462
----------- ----------- --- -----------
Operating Expenses:
Sales and marketing......................................... 4,236 2,327 -- 6,563
General and administrative.................................. 3,880 2,411 -- 6,291
Research and development.................................... 2,659 1,234 (11)(2) 3,882
----------- ----------- --- -----------
Total operating expenses.................................. 10,775 5,972 (11) 16,736
----------- ----------- --- -----------
Income from operations.................................. 2,528 1,198 -- 3,726
----------- ----------- --- -----------
Other Income (Expense):
Gain (loss) on foreign currency transactions................ 172 -- -- 172
Interest and other expense.................................. (87) (131) -- (218)
Interest and other income................................... 70 4 -- 74
----------- ----------- --- -----------
155 (127) -- 28
----------- ----------- --- -----------
Income before provision for income taxes................ 2,683 1,071 -- 3,754
Provision for income taxes.................................... 939 479 -- 1,418
----------- ----------- --- -----------
Net income.............................................. 1,744 592 -- 2,336
Less: Accretion of non-voting redeemable common stock... (171) -- -- (171)
----------- ----------- --- -----------
Income available to common stockholders................. $ 1,573 $ 592 $ -- $ 2,165
----------- ----------- --- -----------
----------- ----------- --- -----------
Earnings per share:
Basic....................................................... $ 0.19 $ 0.09 $ 0.20
----------- ----------- -----------
----------- ----------- -----------
Diluted..................................................... $ 0.16 $ 0.06 $ 0.17
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares used in per share calculation:
Basic....................................................... 8,356 6,679 10,831(3)
Diluted..................................................... 10,080 10,672 12,554(3)
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
F-63
<PAGE>
INVITROGEN CORPORATION AND NOVEX
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The Merger will be accounted for as a pooling of interests. Under this
method of accounting the unaudited pro forma combined statements of income
combine the historical statements of income for Invitrogen for the six months
ended June 30, 1999 and 1998 and three years ended December 31, 1998 with the
historical statements of income for NOVEX for the same periods. All unaudited
pro forma combined income statements assume consummation of the Merger on
January 1, 1996.
The unaudited pro forma combined balance sheet combines the historical
balance sheets of Invitrogen and NOVEX at June 30, 1999 and assumes consummation
of the Merger on June 30, 1999.
2. INTERCOMPANY TRANSACTIONS
All significant intercompany sales and balances have been eliminated in the
combination.
3. MERGER TRANSACTION
The unaudited pro forma combined financial statements reflects the
conversion of NOVEX redeemable convertible preferred stock into NOVEX common
stock and the subsequent issuance of 2.5 million shares of Invitrogen common
stock for all of the outstanding common stock for NOVEX at an exchange ratio of
0.23188. The unaudited pro forma combined net income (loss) per share also
reflects the assumption of all outstanding NOVEX stock options by Invitrogen at
the same exchange ratio.
4. MERGER COSTS
Costs incurred as a result of the Merger are expected to be $4.4 million and
are subject to change. These costs were expensed in August 1999 after the Merger
was completed. The unaudited pro forma combined statements of income exclude
expenses related to the Merger as they are nonrecurring in nature.
F-64
<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 Invitrogen. The Invitrogen logo, MaxBac-Registered Trademark-,
FastTrack-Registered Trademark-, One Shot-Registered Trademark-, TA
Cloning-Registered Trademark-, TOPO-Registered Trademark- and Zero
Blunt-Registered Trademark- are Invitrogen trademarks which have been registered
with the United States Patent and Trademark Office.
FastTrack-Registered Trademark-, GeneStorm-Registered Trademark-,
Invitrogenomics-Registered Trademark-, Morphagen-Registered Trademark-and
Morphatides-Registered Trademark- are trademarks of Invitrogen for which
registration applications have been filed with the United States Patent and
Trademark Office.
XCell II-TM-, Blue Horizon-TM-, Mark12-TM- and Coomassie-TM-are trademarks
of NOVEX. NOVEX-Registered Trademark-, Serva-Registered Trademark-,
Quickpoint-Registered Trademark-, NuPAGE-Registered Trademark-,
Powerease-Registered Trademark-, SeeBlue-Registered Trademark-,
Multi-Mark-Registered Trademark-and SilverXpress-Registered Trademark- are
trademarks of NOVEX which have been registered with the United States Patent and
Trademark Office. WesternBreeze-TM- is a trademark of NOVEX for which an
application for registration has been filed with the United States Patent and
Trademark Office.
All other trademarks or trade names referred to in this prospectus are the
property of their respective owners.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
, 1999
[LOGO]-Registered Trademark-
5,000,000 SHARES OF COMMON STOCK
-----------------
PROSPECTUS
-----------------
DONALDSON, LUFKIN & JENRETTE
HAMBRECHT & QUIST
U.S. BANCORP PIPER JAFFRAY
DAIN RAUSCHER WESSELS
A DIVISION OF DAIN RAUSCHER INCORPORATED
----------------------------------
DLJDIRECT, 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.
- --------------------------------------------------------------------------------
<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.................................................. 39,763
NASD filing fee................................................... 14,803
Nasdaq National Market fee........................................ 17,000
Blue sky qualification fees and expenses.......................... 10,000
Printing and engraving expenses................................... 175,000
Legal fees and expenses........................................... 250,000
Accounting fees and expenses...................................... 100,000
Transfer agent and registrar fees................................. 20,000
Fee for Custodian for Selling Stockholders........................ 20,000
Miscellaneous..................................................... 53,434
---------
Total......................................................... $ 700,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
As permitted by Section 102(b)(7) of the General Corporation Law of the
State of Delaware (the "Delaware Law"), the Registrant's Certificate of
Incorporation includes a provision that eliminates the personal liability of a
director to the Registrant or its stockholders for monetary damages arising out
of the director's breach of his or her fiduciary duty of care, except as
follows. A director remains potentially liable for monetary damages (unless
otherwise permitted by applicable law) for (a) breach of the director's duty of
loyalty to the Registrant or its stockholders, (b) acts or omissions not in good
faith or which involve misconduct or a knowing violation of law, (c) an improper
payment of a dividend or an improper redemption or repurchase of the
Registrant's stock (as provided in Section 174 of the Delaware Law) or (d) any
transaction from which a director derives an improper personal benefit. Any
repeal or modification of this provision will not affect any right or protection
of a director that exists at the time of such repeal or modification.
Section 145 of the Delaware Law empowers a Delaware corporation to indemnify
any persons who are, or are threatened to be made, parties to any threatened,
pending or completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation) by reason of the fact that such person is or was an officer,
director, employee or agent of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that such officer,
director, employee or agent acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the corporation's best interests,
and, for criminal proceedings, had no reasonable cause to believe his or her
conduct was unlawful. A Delaware corporation may indemnify officers and
directors in an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the
II-1
<PAGE>
corporation must indemnify him or her against the expenses which such officer or
director actually and reasonably incurred.
Article VII of the By-Laws of the Registrant provides in terms similar to
those of Section 145 of the Delaware Law that the Registrant shall have power
and shall be required to indemnify its directors and officers in accordance with
the Delaware Law.
Under the terms of various Directors and Officers Liability and Corporation
Reimbursement Liability Policies, the directors and officers of the Registrant
are insured, subject to applicable policy exclusions, limits and deductibles,
against any loss incurred in connection with any claim made against them or any
of them for any actual or alleged breach of duty, neglect, error, misstatement,
misleading statement, omission or other act done or wrongfully attempted, or any
matter not excluded by the terms and conditions of the policy, claimed against
them solely by reason of their being directors or officers of the Registrant.
The foregoing statements are subject to the detailed provisions of such
Policies.
The Registrant has entered into indemnification agreements with each of its
directors and officers. Such indemnification agreements provide that the
Registrant will pay certain amounts incurred by a director or officer in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, and specifically
including actions by or in the name of the Registrant (referred to as derivative
suits), where the individual's involvement is by reason of the fact that he or
she is or was a director or officer. Such amounts include, to the maximum extent
permitted by law, attorneys' fees, judgments, civil or criminal fines,
settlement amounts, and other expenses customarily incurred in connection with
legal proceedings. Under each indemnification agreement, a director or officer
will not be indemnified if he or she is found not to have acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Registrant. Each indemnification agreement provides a
number of procedures and presumptions used in the determination of the right to
indemnification, as well as a requirement that in order to receive an
advancement of expenses, the director or officer must submit an undertaking to
repay any expenses advanced on his or her behalf with respect to which it is
later determined the director or officer was not entitled to receive. Each
indemnification agreement is effective for actions arising out of acts or
omissions which may have occurred before or after the execution of such
indemnification agreement. The foregoing statements are subject to the detailed
provisions of such indemnification agreements.
ITEM 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 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.
II-2
<PAGE>
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)1.1 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
(1)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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
*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
**10.13 Assignment of Intellectual Property Conditional on Payment Dated as of May 31, 1999, by and
between Molecular Biology Resources and Invitrogen Corporation.
**10.14 Agreement and Plan of Merger, dated as of June 14, 1999, among Invitrogen Corporation, INVO
Merger Corporation and NOVEX.
10.15 1996 NOVEX Stock Option/Stock Issuance Plan and forms of Incentive Stock Option Agreement and
Nonstatutory Stock Option Agreement thereunder.
10.16 1998 NOVEX Stock Option/Stock Issuance Plan and forms of Incentive Stock Option Agreement and
Nonstatutory Stock Option Agreement thereunder.
10.17 Employment Agreement between NOVEX and David E. McCarty dated July 22, 1997, assumed by
Invitrogen on August 17, 1999.
(1)10.18 Promissory Note from Lyle C. Turner dated December 1998.
21.1 List of Subsidiaries
23.1.1 Consent of Arthur Andersen LLP, Independent Public Accountants
23.1.2 Consent of Ernst & Young LLP, Independent Auditors
(1)23.2 Consent of Gray Cary Ware & Freidenrich LLP (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-4)
</TABLE>
- ------------------------
* Incorporated by reference to the Registrant's Registration Statement on
Forms S-1 (File No. 333-68665).
** Incorporated by reference to the Registrant's Registration Statement on Form
S-4 (File No. 333-82593).
(1) To be filed by amendment.
(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
II-4
<PAGE>
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.
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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 the Registrant
has duly caused this 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 14th day of September, 1999.
<TABLE>
<S> <C> <C>
INVITROGEN CORPORATION
By: /s/ JAMES R. GLYNN
-----------------------------------------
James R. Glynn
Executive Vice President, Chief Financial
Officer and Director
</TABLE>
POWER OF ATTORNEY
Each of the undersigned officers and directors of Invitrogen Corporation,
hereby constitutes and appoints Wilfred S. Paul and Warner R. Broaddus, and each
of them his or her true and lawful attorney-in-fact and agent, each with full
power of substitution and resubstitution, with power to act alone, to sign and
execute on behalf of the undersigned any amendment or amendments to this
Registration Statement on Form S-1, including any and all new registration
statements filed pursuant to Rule 462 under the Securities Act in connection
with or related to the offering contemplated by the Registration Statement as
amended, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, and each of
the undersigned does hereby ratify and confirm all that said attorney-in-fact
and agent, or his substitutes, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this 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
/s/ LYLE C. TURNER Officer and Chairman of
- ------------------------------ the Board of Directors September 14, 1999
Lyle C. Turner (PRINCIPAL EXECUTIVE
OFFICER)
Executive Vice President,
/s/ JAMES R. GLYNN Chief Financial Officer
- ------------------------------ and Director September 14, 1999
James R. Glynn (PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER)
/s/ DAVID E. MCCARTY
- ------------------------------ Executive Vice President September 14, 1999
David E. McCarty and Director
- ------------------------------ Director September , 1999
Bradley G. Lorimier
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<C> <S> <C>
/s/ DONALD W. GRIMM
- ------------------------------ Director September 14, 1999
Donald W. Grimm
/s/ KURT R. JAGGERS
- ------------------------------ Director September 14, 1999
Kurt R. Jaggers
/s/ JAY M. SHORT
- ------------------------------ Director September 14, 1999
Jay M. Short
/s/ LEWIS J. SHUSTER
- ------------------------------ Director September 14, 1999
Lewis J. Shuster
</TABLE>
II-7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
<C> <S>
(1)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
(1)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
**10.13 Assignment of Intellectual Property Conditional on Payment Dated as of May 31, 1999, by and
between Molecular Biology Resources and Invitrogen Corporation.
**10.14 Agreement and Plan of Merger, dated as of June 14, 1999, among Invitrogen Corporation, INVO
Merger Corporation and NOVEX.
10.15 1996 NOVEX Stock Option/Stock Issuance Plan and forms of Incentive Stock Option Agreement and
Nonstatutory Stock Option Agreement thereunder.
10.16 1998 NOVEX Stock Option/Stock Issuance Plan and forms of Incentive Stock Option Agreement and
Nonstatutory Stock Option Agreement thereunder.
10.17 Employment Agreement between NOVEX and David E. McCarty dated July 22, 1997, assumed by
Invitrogen on August 17, 1999.
(1)10.18 Promissory Note from Lyle C. Turner dated December 1998.
21.1 List of Subsidiaries
23.1.1 Consent of Arthur Andersen LLP, Independent Public Accountants
23.1.2 Consent of Ernst & Young LLP, Independent Auditors
(1)23.2 Consent of Gray Cary Ware & Freidenrich LLP (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-6)
</TABLE>
- ------------------------
* Incorporated by reference to the Registrant's Registration Statement on
Forms S-1 (File No. 333-68665).
** Incorporated by reference to the Registrant's Registration Statement on Form
S-4 (File No. 333-82593).
(1) To be filed by amendment.
<PAGE>
EXHIBIT 10.14
Novel Experimental Technology
1996 STOCK OPTION/STOCK ISSUANCE PLAN
(as amended January 27, 1998)
ARTICLE I
GENERAL PROVISIONS
1. PURPOSE
This 1996 Stock Option/Stock Issuance Plan ("Plan") is intended to
promote the interests of Novel Experimental Technology (the "Corporation"), by
providing individuals who render valuable services to the Corporation (or any
Parent or Subsidiary) with the opportunity to acquire ownership interests in the
Corporation so as to encourage them to continue to render services to the
Corporation (or any Parent or Subsidiary).
2. STRUCTURE OF THE PLAN; TERMINOLOGY
This Plan has two separate components: the Option Grant Program set
forth in Article II and the Stock Issuance Program set forth in Article III.
For the purposes of this Plan, any capitalized term shall have the meaning
assigned under Article IV, Section 8 hereof.
3. ADMINISTRATION OF THE PLAN
A. This Plan shall be administered either the Board or a committee
of two (2) or more Board members appointed by the Board to which the Board has
delegated administrative functions under the Plan (the "Plan Administrator").
Members of any committee to which the Board has delegated any administrative
functions shall serve for such terms as the Board shall determine and subject to
the Board's right of removal. All delegations of authority to any committee
shall be and remain revocable by the Board.
B. The Plan Administrator shall have full power and authority to
implement, interpret and administer the Plan, to establish all such rules and
regulations as it deems appropriate, and to make such determinations under the
Plan and any outstanding option grants or share issuances as it deems necessary
or advisable. Decisions of the Plan Administrator shall be final and binding on
all parties who have an interest in the Plan or any outstanding option or share
issuance.
4. SELECTION OF OPTIONEES AND PARTICIPANTS
A. The persons eligible to receive share issuances under the Stock
Issuance Program and/or option grants pursuant to the Option Grant Program are
limited to Employees; non-employee members of the Board of the Corporation (or
of any Parent or Subsidiary); and consultants and other independent contractors
who provide valuable services to the Corporation (or of any Parent or
Subsidiary).
B. The Plan Administrator shall have the absolute discretion and
authority to determine, subject to the provisions of this Plan, the terms of any
option grant or share issuance. In addition to any other matters over which the
Plan Administrator has discretion hereunder, the Plan Administrator shall
determine which, if any, eligible individuals will be granted options in
accordance with Article II of the Plan and which will be issued shares in
accordance with Article III of the Plan. With respect to option grants made
under the Plan, the Plan Administrator will determine the number of shares to be
covered by each such grant, the status of the granted option as either an
Incentive Option or a Non-Statutory Option, the time or times at which each
granted option is to become exercisable, the vesting schedule (if any)
applicable to shares issued pursuant to the granted options, and the maximum
term for which the option may remain outstanding. With respect to share
issuances under the Stock
C-1
<PAGE>
Issuance Program, in addition to other matters over which the Plan
Administrator has discretion hereunder, the Plan Administrator will determine
the number of shares to be issued to each issuee, the vesting schedule (if
any) applicable to the issued shares, and the consideration to be paid by the
individual for such shares.
C. Common Stock issuable under the Plan, whether under the Option
Grant Program or the Stock Issuance Program, may be subject to such restrictions
on transfer, repurchase rights or other restrictions as may be imposed by the
Plan Administrator and set forth in the documents governing such option or
issuance.
5. STOCK SUBJECT TO THE PLAN
A. Common Stock of the Corporation will be issued under the Plan.
The maximum number of shares of Common Stock which may be issued over the term
of the Plan shall not exceed 2,322,000 shares, subject to adjustment from time
to time in accordance with the provisions of this Section 5 of Article I.
B. Shares reserved for issuance under granted options but not in
fact issued pursuant to options granted under the Plan due to the expiration or
termination of the option or the cancellation of the option in accordance with
Section 3 of Article II, will again become available for issuance under the
Plan. Shares actually issued under the Plan, whether pursuant to the exercise
of an option under the Option Grant Program or a stock issuance pursuant to the
Stock Issuance Program, which are subsequently repurchased by the Corporation
will not become available for future issuance.
C. In the event any change is made to the Common Stock issuable
under the Plan by reason of any stock dividend, stock split, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without receipt of consideration, then appropriate adjustments
shall be made to (i) the aggregate number and/or class of shares issuable under
the Plan and (ii) the aggregate number and/or class of shares and the option
price per share in effect under each outstanding option in order to prevent the
dilution or enlargement of benefits thereunder. The adjustments determined by
the Plan Administrator shall be final, binding and conclusive.
6. AMENDMENT OF THE PLAN AND AWARDS
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects whatsoever. However, no such
amendment or modification shall adversely affect the rights and obligations of
an optionee with respect to options at the time outstanding under the Plan, nor
adversely affect the rights of any issuee with respect to Common Stock issued
under the Plan prior to such action unless such optionee or issuee consents to
such amendment. In addition, the Board shall not, without the approval of the
Corporation's shareholders, amend the Plan so as to (i) increase the maximum
number of shares issuable under the Plan (except for adjustments required under
Article I, Section 5.C), (ii) materially increase the benefits accruing to
individuals who participate in the Plan, or (iii) materially modify the
eligibility requirements for participation in the Plan.
B. Options to purchase shares of Common Stock may be granted under
the Option Grant Program and shares of Common Stock may be issued under the
Stock Issuance Program, which are in excess of the number of shares then
available for issuance under the Plan, PROVIDED any excess shares actually
issued under the Option Grant Program or the Stock Issuance Program are held in
escrow until shareholder approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan is
obtained. If such approval is not obtained within twelve (12) months after the
date the initial excess issuances are made, then (I) any unexercised options
representing such excess shall terminate and cease to be exercisable and (II)
the Corporation shall promptly refund to the optionees and issuees the option or
purchase price paid for any excess shares issued under the Plan and held in
escrow, together with interest (at the applicable Short Term Federal Rate) for
the period the shares were held in escrow, and such shares shall thereupon be
automatically cancelled and cease to be outstanding.
C-2
<PAGE>
7. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective when adopted by the Board.
Options to purchase shares of Common Stock may be granted under the Option Grant
Program and shares of Common Stock may be issued under the Stock Issuance
Program from and after the effective date, PROVIDED any shares actually issued
under the Plan are held in escrow until shareholder approval of the Plan is
obtained. If such approval is not obtained within twelve (12) months after the
effective date, then (I) all options shall terminate and cease to be
exercisable, (II) the Corporation shall promptly refund to the optionees and
issuees the option or purchase price paid for any shares issued under the Plan,
together with interest (at the applicable Short Term Federal Rate) for the
period the shares were held in escrow, and such shares shall thereupon be
automatically cancelled and cease to be outstanding, and (III) this Plan shall
terminate in its entirety.
B. Unless sooner terminated by reason of Section 7A of this Article
I, the Plan shall terminate upon the EARLIER of (i) March 31, 2006, or (ii) the
date on which all shares available for issuance under the Plan have been issued
pursuant to the exercise of options granted under Article II or the issuance of
shares under Article III. The termination of the Plan shall have no effect on
any outstanding options under or shares issued and outstanding under the Plan,
and such securities shall thereafter continue to have force and effect in
accordance with the provisions of the agreements evidencing such options and
issuances.
8. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon any person any right to continue
in Service for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any Parent or Subsidiary)
or of the optionee or the issuee, which rights are hereby expressly reserved by
each, to terminate Service of the optionee or issuee at any time for any reason
whatsoever, with or without cause or to engage in any Corporate Transaction.
ARTICLE II
OPTION GRANT PROGRAM
1. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall be authorized by action of
the Plan Administrator and may, at the Plan Administrator's discretion, be
either Incentive Options or Non-Statutory Options except that individuals who
are not Employees may only be granted Non-Statutory Options. Each granted
option shall be evidenced by one or more instruments in the form approved by the
Plan Administrator; PROVIDED, however, that each such instrument shall comply
with the terms and conditions of Sections 1 and 3 of this Article II and each
instrument evidencing an Incentive Option shall, in addition, comply with the
provisions of Section 2 of this Article II.
A. OPTION PRICE.
(I) The option price per share shall be fixed by the Plan
Administrator. In no event, however, shall the option price per share be less
than ninety percent (90%) of the Fair Market Value of a share of Common Stock on
the date of the option grant.
(II) The option price per share shall become immediately due
upon exercise of the option and shall, subject to the provisions of Article IV,
Section 1 and the agreement evidencing such grant, be payable in cash or check
drawn to the Corporation's order. Notwithstanding the above, should the
Corporation's outstanding Common Stock be registered under Section 12(g) of the
Securities Exchange Act of 1934, at the time the option is exercised, then the
option price may also be paid as follows:
C-3
<PAGE>
- in shares of Common Stock held by the optionee for the
requisite period necessary to avoid a charge to the Corporation's earnings
for financial reporting purposes and valued at Fair Market Value; or
- through a special sale and remittance procedure
pursuant to which the optionee provides irrevocable written instructions
(I) to a designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Corporation, out of the sale proceeds
available on the settlement date, an amount sufficient to cover the
aggregate option price payable for the purchased shares plus all applicable
Federal and State income and employment taxes required to be withheld by
the Corporation by reason of such purchase and (II) to the Corporation to
deliver the certificates for the purchased shares directly to such
brokerage firm in order to effect the sale transaction.
Except to the extent such sale and remittance procedure is utilized, payment of
the option price must occur at the time the option is exercised.
B. TERM AND EXERCISE OF OPTIONS. Each option granted under the Plan
shall be exercisable at such time or times, during such period, and for such
number of shares as shall be determined by the Plan Administrator and set forth
in the stock option agreement evidencing such option. However, no option
granted under the Plan shall have a term in excess of ten (10) years from the
grant date.
C. NO ASSIGNMENT. During the lifetime of the optionee, the option
shall be exercisable only by the optionee and shall not be assignable or
transferable by the optionee otherwise than by will or by the laws of descent
and distribution following the optionee's death.
D. TERMINATION OF SERVICE. The following provisions shall govern
the exercise period applicable to any options held by the optionee at the time
of cessation of Service or death:
(I) Should the optionee cease to remain in Service for any
reason other than death or Permanent Disability or termination for cause, then
the period during which each outstanding option held by such optionee is to
remain exercisable shall be limited to the three (3)-month period following the
date of such cessation of Service.
(II) Should such Service terminate by reason of Permanent
Disability or should the optionee die while holding one or more outstanding
options, then the period during which each such option is to remain exercisable
shall be limited to the twelve (12)-month period following the date of the
optionee's cessation of Service or death. During the limited exercise period
following the optionee's death, the option may be exercised by the personal
representative of the optionee's estate or by the person or persons to whom the
option is transferred pursuant to the optionee's will or in accordance with the
laws of descent and distribution.
(III) Should such Service terminate by reason of termination
for cause, the option shall immediately terminate and entirely cease to be
exercisable.
(IV) The Plan Administrator shall have full power and
authority to extend (either at the time the option is granted or at any time
while the option remains outstanding) the period of time for which the option is
to remain exercisable following the optionee's cessation of Service, from the
limited period otherwise applicable under subsection 1C of this Article II, to
such greater period of time as the Plan Administrator may deem appropriate under
the circumstances.
(V) Notwithstanding the above no option shall be
exercisable after the specified expiration date of the option term.
(VI) Each such option shall, during the applicable limited
exercise period, be
C-4
<PAGE>
exercisable only with respect to the shares for which the
option was exercisable on the date of the optionee's cessation of Service.
E. SHAREHOLDER RIGHTS. An optionee shall not have rights as a
shareholder with respect to any shares subject to an option until such optionee
shall have exercised the option and paid the option price.
2. INCENTIVE OPTIONS
All provisions of the Plan shall be applicable to Incentive Options
granted hereunder and, in addition, the terms and conditions specified in this
Section 2 shall be applicable to Incentive Options granted under the Plan.
Options which are specifically designated as Non-Statutory Options when issued
under the Plan shall NOT be subject to such terms and conditions set forth
herein.
A. OPTION PRICE.
(I) The option price per share of the Common Stock subject
to an Incentive Option shall in no event be less than one hundred percent (100%)
of the Fair Market Value of a share of Common Stock on the grant date.
(II) If the individual to whom the option is granted is a
10% Shareholder, then the option price per share shall not be less than one
hundred ten percent (110%) of the Fair Market Value of the Common Stock on the
date of the option grant.
B. DOLLAR LIMITATION. The aggregate Fair Market Value
(determined as of the date or dates of grant) of Common Stock which first
becomes exercisable during any one calendar year under Incentive Options
granted to any Employee under any option plan of the Corporation (or any
parent or subsidiary corporation) shall not exceed the sum of One Hundred
Thousand Dollars ($100,000). To the extent the Employee holds options which
become exercisable in the same calendar year, the foregoing limitation on
such options shall be applied on the basis of the order in which such options
are granted. Any options in excess of such limitation shall automatically be
treated as Non-statutory Options.
C. TERM OF OPTION FOR 10% SHAREHOLDERS. No option granted to a 10%
Shareholder shall have a term in excess of five (5) years from the grant date.
3. CANCELLATION AND NEW GRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees, the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or a
different numbers of shares of Common Stock but having an option price per share
established at the time of such cancellation and regrant in accordance with the
provisions of this Plan.
ARTICLE III
STOCK ISSUANCE PROGRAM
1. STOCK ISSUANCES
Shares of Common Stock shall be issuable under the Stock Issuance
Program through direct and immediate issuances without any intervening stock
option grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement ("Issuance Agreement") in a form acceptable to the Plan Administrator,
which form shall be in compliance with the provisions of the Plan.
C-5
<PAGE>
2. ISSUE PRICE
The purchase price per share shall be fixed by the Plan Administrator,
but in no event shall it be less than ninety percent (90%) of the Fair Market
Value of a share of Common Stock at the time of issuance.
3. PAYMENT OF ISSUE PRICE
Except as provided in Article IV, Section 1, shares shall be issued
only in exchange for cash, a check payable to the Corporation, for services
previously rendered to the Corporation (or any Parent or Subsidiary) or such
other lawful consideration as may be acceptable to the Plan Administrator.
ARTICLE IV
MISCELLANEOUS
1. LOANS
A. The Plan Administrator may assist any optionee or issuee (other
than a non-employee director) in the exercise of one or more options granted to
such optionee under the Option Grant Program or the purchase of one or more
shares to be issued to such issuee under the Stock Issuance Program, including
the satisfaction of any Federal and State income and employment tax obligations
arising therefrom, by (i) authorizing the extension of a loan from the
Corporation to such optionee or issuee, or (ii) permitting the optionee or
issuee to pay the option price or purchase price for the purchased Common Stock
in installments over a period of years.
B. The terms of any loan or installment method of payment (including
the interest rate and terms of repayment) shall be established by the Plan
Administrator in its sole discretion. Loans or installment payments may be
authorized with or without security or collateral. However, any loan made to a
consultant or other non-employee advisor must be secured by property other than
the purchased shares of Common Stock. In all events the maximum credit
available to each optionee or issuee may not exceed the SUM of (i) the aggregate
option price or purchase price payable for the purchased shares plus (ii) any
Federal and State income and employment tax liability incurred by the optionee
or issuee in connection with such exercise or purchase.
C. The Plan Administrator may, in its absolute discretion, determine
that one or more loans extended under the financial assistance program shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Board in its discretion deems appropriate.
2. VESTING OF SHARES AND REPURCHASE RIGHTS
A. The Plan Administrator, in its absolute discretion, may issue
fully and immediately vested shares of Common Stock, or the Plan Administrator
may impose such vesting requirements as it deems appropriate with the
Corporation retaining a right to repurchase any unvested shares. The terms of
the vesting schedule and of the Corporation's repurchase rights shall be as
determined by the Plan Administrator and set forth in the agreement governing
such issuance.
B. Any new, additional or different shares of stock or other
property (including money paid other than as a regular cash dividend) which the
holder of unvested Common Stock may have the right to receive by reason of a
stock dividend, stock split, reclassification or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration shall be issued subject to (i) the same vesting and repurchase
limitations applicable to the unvested Common Stock with respect to which it was
paid or arose, and (ii) such escrow arrangements as the Plan Administrator shall
deem appropriate.
C-6
<PAGE>
C. No person to whom shares of Common Stock have been issued
pursuant to the Plan may transfer any such shares which have not vested.
However, provided the Corporation's bylaws are not inconsistent with such a
gift, the issuee shall have the right to make a gift of unvested shares acquired
under the Plan to his/her spouse, parents or issue or to a trust established for
such spouse, parents or issue, provided the transferee of such shares delivers
to the Corporation a written agreement to be bound by all the provisions of the
Plan and the Issuance or Stock Purchase Agreement executed by the issuee at the
time of his/her acquisition of the gifted shares.
3. MARKET STAND-OFF AGREEMENTS
The Plan Administrator may require each person to whom any shares are
issued under this Plan to enter into an agreement which restricts or prohibits
the sale of any stock of the Corporation by such person for a reasonable period
of time following a public offering of any shares of stock by the Corporation.
4. RIGHT OF FIRST REFUSAL
Until such time as the Corporation's outstanding shares of Common
Stock are first publicly held, the Plan Administrator may subject any shares
issued pursuant to the Plan to a right of first refusal with respect to any
proposed disposition of such shares other than a transfer permitted by Section
2.C of this Article IV. Such right of first refusal shall be exercisable by the
Corporation (or its assignees) in accordance with the terms and conditions
specified in the instrument governing the issuance of such shares.
5. SECURITIES LAWS; LEGENDS
A. No shares of Common Stock or other assets shall be issued or
delivered under this Plan unless and until the Corporation shall have determined
that there has been full and adequate compliance with all applicable
requirements of the Federal and state securities laws and all other applicable
legal and regulatory requirements.
B. Shares issued under the Plan shall bear such legends as the Plan
Administrator deems necessary or appropriate, including such restrictive legends
as the Plan Administrator shall require to reflect the terms of any agreement
between the issuee and the Corporation.
6. SHAREHOLDER RIGHTS
Subject to the rights of the Corporation set forth herein or in any
other agreement entered into between the Corporation and an issuee of shares
under the Plan, each person to whom shares of Common Stock have been issued
under the Plan shall have all the rights of a shareholder with respect to those
shares whether or not his/her interest in such shares is vested. Accordingly,
the issuee shall have the right to vote such shares and to receive any cash
dividends or other distributions paid or made with respect to such shares.
7. ACCELERATION
The Plan Administrator may, in its discretion, provide for the
automatic acceleration upon a Corporate Transaction of the time at which any
option will become exercisable or for the lapse of any repurchase right tied to
vesting. Such acceleration may be provided for at any time by the Plan
Administrator in the exercise of its discretion, or may be included as a right
of the optionee or issuee in the documents evidencing the rights of the optionee
or issuee.
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8. DEFINITIONS
The following definitions shall be in effect under this Plan:
A. BOARD shall mean the Board of Directors of the Corporation.
B. COMMON STOCK shall mean the common stock of the Corporation.
C. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) any transaction or series of related transactions
(including, without limitation, any reorganization, merger or
consolidation) in which more than fifty percent (50%) of the
Corporation's outstanding voting stock is transferred to a person or
persons different from those who held the stock immediately prior to
such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation
or dissolution of the Corporation.
D. EMPLOYEE shall mean an individual who is in the employ of the
Corporation or any Parent or Subsidiary, subject to the control and direction of
the employer entity as to both the work to be performed and the manner and
method of performance.
E. FAIR MARKET VALUE per share of Common Stock on any relevant date
under the Plan shall be the value determined in accordance with the following
provisions:
(i) If the Common Stock is not at the time listed or
admitted to trading on any stock exchange but is traded on the NASDAQ
National Market System, the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question, as
the price is reported by the National Association of Securities
Dealers through the NASDAQ National Market System or any successor
system. If there is no closing selling price for the Common Stock on
the date in question, then the Fair Market Value shall be the closing
selling price on the last preceding date for which such quotation
exists.
(ii) If the Common Stock is at the time listed or
admitted to trading on any stock exchange, then the Fair Market Value
shall be the closing selling price per share of Common Stock on the
date in question on the stock exchange determined by the Plan
Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on
such exchange. If there is no closing selling price for the Common
Stock on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.
(iii) If the Common Stock is at the time neither listed
nor admitted to trading on any stock exchange nor traded on the NASDAQ
National Market System, then such Fair Market Value shall be
determined by the Plan Administrator after taking into account such
factors as the Plan Administrator shall deem appropriate. The Plan
Administrator may, but shall not be required to, commission and rely
upon an independent valuation.
F. INCENTIVE OPTION shall mean a stock option which satisfies the
requirements of Internal Revenue Code Section 422.
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G. NON-STATUTORY OPTION shall mean a stock option not intended to
meet the requirements of Internal Revenue Code Section 422.
H. PARENT shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the time
of the determination, stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
I. PERMANENT DISABILITY shall have the meaning assigned to such term
in Internal Revenue Code Section 22(e)(3).
J. SERVICE shall mean the provision of services to the Corporation
or any Parent or Subsidiary by an individual in the capacity of an Employee, a
non-employee member of the Board or a consultant or independent contractor.
K. SUBSIDIARY shall mean each corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each such corporation (other than the last corporation) in
the unbroken chain owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
L. 10% SHAREHOLDER shall mean the owner of stock (as determined
under Internal Revenue Code Section 424(d)) possessing ten percent (10%) or more
of the total combined voting power of all classes of stock of the Corporation.
9. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the issuance of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
10. WITHHOLDING
The Corporation's obligation to deliver shares upon the exercise of
any options granted under Article II or the purchase of any shares issued under
Article III shall be subject to the satisfaction of all applicable Federal,
State and local income and employment tax withholding requirements.
11. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options under the
Option Grant Program, the issuance of any shares under the Stock Issuance
Program, and the issuance of Common Stock upon the exercise of the option grants
made hereunder shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it, and the Common Stock issued
pursuant to it.
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APPENDIX A
NOVEL EXPERIMENTAL TECHNOLOGY
STOCK OPTION AGREEMENT
RECITALS
A. The Board of Directors of Novel Experimental Technology (the
"Corporation") has adopted the Novel Experimental Technology 1998 Stock
Option/Stock Issuance Plan (the "Plan") for the purpose of attracting and
retaining the services of persons who contribute to the growth and financial
success of the Corporation.
B. The Optionee specified in the accompanying Notice of Grant of
Stock Option (the "Grant Notice") is a person whom the Plan Administrator
believes has and will contribute to the growth and financial success of the
Corporation and this Agreement is intended to carry out the purposes of the
Plan.
AGREEMENT
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions
set forth in this Agreement, the Corporation hereby grants to Optionee, as of
the grant date (the "Grant Date") specified in the Grant Notice, a stock option
to purchase up to that number of shares of the Corporation's Common Stock (the
"Option Shares") as is specified in the Grant Notice. The Option Shares shall
be purchasable from time to time during the option term at the option price per
share (the "Option Price") specified in the Grant Notice.
2. OPTION TERM. This option shall have a maximum term of ten (10)
years measured from the Grant Date and shall expire at the close of business on
the expiration date (the "Expiration Date") specified in the Grant Notice,
unless sooner terminated in accordance with Paragraph 5, 6 or 17.
3. LIMITED TRANSFERABILITY. This option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee.
4. DATES OF EXERCISE. This option may not be exercised in whole or
in part at any time prior to the time the Plan is approved by the Corporation's
shareholders in accordance with Paragraph 17. Provided such shareholder
approval is obtained, this option shall thereupon become exercisable for the
Option Shares in one or more installments as is specified in the Grant Notice.
As the option becomes exercisable in one or more installments, the installments
shall accumulate and the option shall remain exercisable for such installments
until the Expiration Date or the sooner termination of the option term under
Paragraph 5 or Paragraph 6 of this Agreement.
5. ACCELERATED TERMINATION OF OPTION TERM. The option term
specified in Paragraph 2 shall terminate (and this option shall cease to be
exercisable) prior to the Expiration Date should any of the following provisions
become applicable:
(i) Except as otherwise provided in Article II, Section
1.D(III) of the Plan (stating that any outstanding option shall immediately
terminate at the time of Optionee's termination for cause) or in
subparagraph (ii) or (iii) below, should Optionee cease to remain in
Service while this option is outstanding, then the period for exercising
this option shall be reduced to a three (3)-month period commencing with
the date of such cessation of Service, but in no event shall this option be
exercisable at any time after the Expiration Date. Upon the expiration of
such three (3)-month period or (if earlier) upon the Expiration Date, or
(if applicable) immediately at the time of Optionee's termination for
cause, this option shall terminate and cease to be outstanding.
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(ii) Should Optionee die while this option is outstanding, then
the personal representative of the Optionee's estate or the person or
persons to whom the option is transferred pursuant to the Optionee's will
or in accordance with the law of descent and distribution shall have the
right to exercise this option. Such right shall lapse and this option
shall cease to be exercisable upon the EARLIER of (A) the expiration of the
twelve (12) month period measured from the date of Optionee's death or (B)
the Expiration Date. Upon the expiration of such twelve (12) month period
or (if earlier) upon the Expiration Date, this option shall terminate and
cease to be outstanding.
(iii) Should Optionee become Permanently Disabled and cease by
reason thereof to remain in Service while this option is outstanding, then
the Optionee shall have a period of twelve (12) months (commencing with the
date of such cessation of Service) during which to exercise this option,
but in no event shall this option be exercisable at any time after the
Expiration Date. Upon the expiration of such limited period of
exercisability or (if earlier) upon the Expiration Date, this option shall
terminate and cease to be outstanding.
(iv) During the limited period of exercisability applicable
under subparagraph (i), (ii) or (iii) above, this option may be exercised
for any or all of the Option Shares for which this option is, at the time
of the Optionee's cessation of Service, exercisable in accordance with the
exercise schedule specified in the Grant Notice and the provisions of this
Agreement.
6. SPECIAL TERMINATION OF OPTION.
A. This Option, to the extent not previously exercised, shall
terminate and cease to be exercisable upon the consummation of a Corporate
Transaction unless this Option is expressly assumed by the successor corporation
or Parent thereof.
B. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan on both an aggregate and per
Optionee basis following the consummation of such Corporate Transaction and (ii)
the exercise price payable per share under each outstanding option, PROVIDED the
aggregate exercise price payable for such securities shall remain the same.
C. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise make changes in its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES. In the event any change is made to
the Corporation's outstanding Common Stock by reason of any stock split, stock
dividend, combination of shares, exchange of shares, or other change affecting
the outstanding Common Stock as a class without receipt of consideration, then
appropriate adjustments shall be made to (i) the total number of Option Shares
subject to this option, (ii) the number of Option Shares for which this option
is to be exercisable from and after each installment date specified in the Grant
Notice and (iii) the Option Price payable per share in order to reflect such
change and thereby preclude a dilution or enlargement of benefits hereunder.
8. PRIVILEGE OF STOCK OWNERSHIP. The holder of this option shall
not have any of the rights of a shareholder with respect to the Option Shares
until such individual shall have exercised the option and paid the Option Price.
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9. MANNER OF EXERCISING OPTION.
A. In order to exercise this option with respect to all or any part
of the Option Shares for which this option is at the time exercisable, Optionee
(or in the case of exercise after Optionee's death, the Optionee's executor,
administrator, heir or legatee, as the case may be) must take the following
actions: (i) execute and deliver to the Secretary of the Corporation (a) written
notice of exercise and (b) a Stock Purchase Agreement in substantially the form
of Exhibit B to the Grant Notice; (ii) pay the aggregate Option Price for the
purchased shares in one or more forms approved under Article II, Section 1.A(II)
of the Plan; and (iii) furnish to the Corporation appropriate documentation that
the person or persons exercising the option, if other than Optionee, have the
right to exercise this option.
B. For purposes of this Agreement, the Exercise Date shall be the
date on which Paragraph 9.A of this Agreement has been fully satisfied, and the
fair market value of a share of Common Stock on any relevant date shall be
determined as provided in Article IV, Section 8.E of the Plan.
C. As soon after the Exercise Date as practical, the Corporation
shall mail or deliver to Optionee or to the other person or persons exercising
this option a certificate or certificates representing the shares so purchased
and paid for, with the appropriate legends affixed thereto.
D. In no event may this option be exercised for any fractional
shares.
10. COMPLIANCE WITH LAWS AND REGULATIONS.
A. The exercise of this option and the issuance of Option Shares
upon such exercise shall be subject to compliance by the Corporation and the
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange or national market system on which
shares of the Common Stock may be listed at the time of such exercise and
issuance.
B. In connection with the exercise of this option, Optionee shall
execute and deliver to the Corporation such representations in writing as may be
requested by the Corporation in order for it to comply with the applicable
requirements of Federal and State securities laws.
11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided
in Paragraph 3 or 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Corporation.
12. LIABILITY OF CORPORATION.
A. If the Option Shares covered by this Agreement exceed, as of the
Grant Date, the number of shares of Common Stock which may without shareholder
approval be issued under the Plan, then this option shall be void with respect
to such excess shares, unless Board of Directors and shareholder approval of an
amendment sufficiently increasing the number of shares of Common Stock issuable
under the Plan is obtained in accordance with the provisions of the Plan.
B. The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
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13. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation in care of the Corporate Secretary at its principal corporate
offices. Any notice required to be given or delivered to Optionee shall be in
writing and addressed to Optionee at the address indicated below Optionee's
signature line on the Grant Notice. Either party may change its address for
notice by giving written notice of such change. All notices shall be deemed to
have been given or delivered upon personal delivery or upon deposit in the U.S.
mail, postage prepaid and properly addressed to the party to be notified.
14. LOANS. The Plan Administrator may, in its absolute discretion
and without any obligation to do so, assist the Optionee in the exercise of this
option by (i) authorizing the extension of a loan to the Optionee from the
Corporation or (ii) permitting the Optionee to pay the option price for the
purchased Common Stock in installments over a period of years. The terms of any
such loan or installment method of payment (including the interest rate, the
requirements for collateral and the terms of repayment) shall be established by
the Plan Administrator in its sole discretion.
15. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the express terms and provisions of the Plan. Capitalized terms not
otherwise defined within this Agreement shall have the meanings ascribed to them
in the Plan, unless the context clearly requires otherwise. All decisions of
the Plan Administrator with respect to any question or issue arising under the
Plan or this Agreement shall be conclusive and binding on all persons having an
interest in this option.
16. GOVERNING LAW. The interpretation, performance, and enforcement
of this Agreement shall be governed by the laws of the State of California
without resort to that State's conflict-of-laws rules.
17. SHAREHOLDER APPROVAL. The grant of this option is subject to
approval of the Plan by the Corporation's shareholders within twelve (12) months
after the adoption of the Plan by the Board of Directors. NOTWITHSTANDING ANY
PROVISION OF THIS AGREEMENT TO THE CONTRARY, THIS OPTION MAY NOT BE EXERCISED IN
WHOLE OR IN PART UNTIL SUCH SHAREHOLDER APPROVAL IS OBTAINED. In the event that
such shareholder approval is not obtained, then this option shall thereupon
terminate in its entirety and the Optionee shall have no further rights to
acquire any Option Shares hereunder.
18. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. Should this
option be designated in the Grant Notice as immediately exercisable and as an
incentive stock option, then this option shall not become exercisable in the
calendar year in which granted if (and to the extent) the aggregate fair market
value (determined at the Grant Date) of the Corporation's Common Stock for which
this option would otherwise first become exercisable in such calendar year
would, when added to the aggregate fair market value (determined as of the
respective date or dates of grant) of the Common Stock for which this option or
one or more other incentive stock options granted to the Optionee prior to the
Grant Date (whether under the Plan or any other option plan of the Corporation
or its Parent or Subsidiary corporations) first become exercisable during the
same calendar year, exceed One Hundred Thousand Dollars ($100,000) in the
aggregate. To the extent the exercisability of this option is deferred by
reason of the foregoing limitation, the deferred portion will first become
exercisable in the first calendar year or years thereafter in which the One
Hundred Thousand Dollar ($100,000) limitation of this Paragraph 18 would not be
contravened.
19. WITHHOLDING. Optionee hereby agrees (as a precondition to
exercise) to make appropriate arrangements with the Corporation or Parent or
Subsidiary corporation employing Optionee for the satisfaction of all Federal,
State or local income tax withholding requirements and Federal social security
employee tax requirements applicable to the exercise of this option.
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EXHIBIT 10.15
Novel Experimental Technology
1998 STOCK OPTION/STOCK ISSUANCE PLAN
ARTICLE I
GENERAL PROVISIONS
1. PURPOSE
This 1998 Stock Option/Stock Issuance Plan ("Plan") is intended to
promote the interests of Novel Experimental Technology (the "Corporation"), by
providing individuals who render valuable services to the Corporation (or any
Parent or Subsidiary) with the opportunity to acquire ownership interests in the
Corporation so as to encourage them to continue to render services to the
Corporation (or any Parent or Subsidiary).
2. STRUCTURE OF THE PLAN; TERMINOLOGY
This Plan has two separate components: the Option Grant Program set
forth in Article II and the Stock Issuance Program set forth in Article III.
For the purposes of this Plan, any capitalized term shall have the meaning
assigned under Article IV, Section 8 hereof.
3. ADMINISTRATION OF THE PLAN
A. This Plan shall be administered by either the Board or a
committee of two (2) or more Board members appointed by the Board to which the
Board has delegated administrative functions under the Plan (the "Plan
Administrator"). Members of any committee to which the Board has delegated any
administrative functions shall serve for such terms as the Board shall determine
and subject to the Board's right of removal. All delegations of authority to
any committee shall be and remain revocable by the Board.
B. The Plan Administrator shall have full power and authority to
implement, interpret and administer the Plan, to establish all such rules and
regulations as it deems appropriate, and to make such determinations under the
Plan and any outstanding option grants or share issuances as it deems necessary
or advisable. Decisions of the Plan Administrator shall be final and binding on
all parties who have an interest in the Plan or any outstanding option or share
issuance.
4. SELECTION OF OPTIONEES AND PARTICIPANTS
A. The persons eligible to receive share issuances under the Stock
Issuance Program and/or option grants pursuant to the Option Grant Program are
limited to Employees; non-employee members of the Board of the Corporation (or
of any Parent or Subsidiary); and consultants and other independent contractors
who provide valuable services to the Corporation (or of any Parent or
Subsidiary).
B. The Plan Administrator shall have the absolute discretion and
authority to determine, subject to the provisions of this Plan, the terms of any
option grant or share issuance. In addition to any other matters over which the
Plan Administrator has discretion hereunder, the Plan Administrator shall
determine which, if any, eligible individuals will be granted options in
accordance with Article II of the Plan and which will be issued shares in
accordance with Article III of the Plan. With respect to option grants made
under the Plan, the Plan Administrator will determine the number of shares to be
covered by each such grant, the status of the granted option as either an
Incentive Option or a Non-Statutory Option, the time or times at which each
granted option is to become exercisable, the vesting schedule (if any)
applicable to the option shares (provided that vesting shall not be slower than
20% per year over five (5) years from the option grant date) and the maximum
term for which the option may remain outstanding. With respect to share
issuances under the Stock Issuance Program, in addition to other matters over
which the Plan Administrator has discretion hereunder, the Plan Administrator
will determine the number of shares to be issued to each issuee, the vesting
schedule (if any) applicable to the issued shares (provided that vesting
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shall not be slower than 20% per year over five (5) years from the date the
stock was purchased), and the consideration to be paid by the individual for
such shares.
C. Common Stock issuable under the Plan, whether under the Option
Grant Program or the Stock Issuance Program, may be subject to such restrictions
on transfer, repurchase rights or other restrictions as may be imposed by the
Plan Administrator and set forth in the documents governing such option or
issuance.
5. STOCK SUBJECT TO THE PLAN
A. Common Stock of the Corporation will be issued under the Plan.
The maximum number of shares of Common Stock which may be issued over the term
of the Plan shall not exceed 589,771 shares, subject to adjustment from time to
time in accordance with the provisions of this Section 5 of Article I.
B. Shares reserved for issuance under granted options but not in
fact issued pursuant to options granted under the Plan due to the expiration or
termination of the option or the cancellation of the option in accordance with
Section 3 of Article II, will again become available for issuance under the
Plan. Shares actually issued under the Plan, whether pursuant to the exercise
of an option under the Option Grant Program or a stock issuance pursuant to the
Stock Issuance Program, which are subsequently repurchased by the Corporation
will not become available for future issuance.
C. In the event any change is made to the Common Stock issuable
under the Plan by reason of any stock dividend, stock split, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without receipt of consideration, then appropriate adjustments
shall be made to (i) the aggregate number and/or class of shares issuable under
the Plan and (ii) the aggregate number and/or class of shares and the option
price per share in effect under each outstanding option and unexecuted stock
issuance in order to prevent the dilution or enlargement of benefits thereunder.
The adjustments determined by the Plan Administrator shall be final, binding and
conclusive.
6. AMENDMENT OF THE PLAN AND AWARDS
A. The Board shall have complete and exclusive power and authority
to amend or modify the Plan in any or all respects whatsoever. However, no such
amendment or modification shall adversely affect the rights and obligations of
an optionee with respect to options at the time outstanding under the Plan, nor
adversely affect the rights of any issuee with respect to Common Stock issued
under the Plan prior to such action unless such optionee or issuee consents to
such amendment. In addition, the Board shall not, without the approval of the
Corporation's shareholders, amend the Plan so as to (i) increase the maximum
number of shares issuable under the Plan (except for adjustments required under
Article I, Section 5.C), (ii) materially increase the benefits accruing to
individuals who participate in the Plan, or (iii) materially modify the
eligibility requirements for participation in the Plan.
B. Options to purchase shares of Common Stock may be granted under
the Option Grant Program and shares of Common Stock may be issued under the
Stock Issuance Program, which are in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued under the Option Grant Program or the Stock Issuance Program are held in
escrow until shareholder approval of an amendment sufficiently increasing the
number of shares of Common Stock available for issuance under the Plan is
obtained. If such approval is not obtained within twelve (12) months after the
date the initial excess issuances are made, then (I) any unexercised options
representing such excess shall terminate and cease to be exercisable and (II)
the Corporation shall promptly refund to the optionees and issuees the option or
purchase price paid for any excess shares issued under the Plan and held in
escrow, together with interest (at the applicable Short Term Federal Rate) for
the period the shares were held in escrow, and such shares shall thereupon be
automatically cancelled and cease to be outstanding.
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7. EFFECTIVE DATE AND TERM OF PLAN
A. The Plan shall become effective when adopted by the Board.
Options to purchase shares of Common Stock may be granted under the Option Grant
Program and shares of Common Stock may be issued under the Stock Issuance
Program from and after the effective date, provided any shares actually issued
under the Plan are held in escrow until shareholder approval of the Plan is
obtained. If such approval is not obtained within twelve (12) months after the
effective date, then (I) all options shall terminate and cease to be
exercisable, (II) the Corporation shall promptly refund to the optionees and
issuees the option or purchase price paid for any shares issued under the Plan,
together with interest (at the applicable Short Term Federal Rate) for the
period the shares were held in escrow, and such shares shall thereupon be
automatically cancelled and cease to be outstanding, and (III) this Plan shall
terminate in its entirety.
B. Unless sooner terminated by reason of Section 7A of this Article
I, the Plan shall terminate upon the earlier of (i) July 26, 2008, or (ii) the
date on which all shares available for issuance under the Plan have been issued
pursuant to the exercise of options granted under Article II or the issuance of
shares under Article III. The termination of the Plan shall have no effect on
any outstanding options under or shares issued and outstanding under the Plan,
and such securities shall thereafter continue to have force and effect in
accordance with the provisions of the agreements evidencing such options and
issuances.
8. NO EMPLOYMENT OR SERVICE RIGHTS
Nothing in the Plan shall confer upon any person any right to continue
in Service for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Corporation (or any Parent or Subsidiary)
or of the optionee or the issuee, which rights are hereby expressly reserved by
each, to terminate Service of the optionee or issuee at any time for any reason
whatsoever, with or without cause or to engage in any Corporate Transaction.
ARTICLE II
OPTION GRANT PROGRAM
1. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to the Plan shall be authorized by action of
the Plan Administrator and may, at the Plan Administrator's discretion, be
either Incentive Options or Non--Statutory Options except that individuals who
are not Employees may only be granted Non-Statutory Options. Each granted
option shall be evidenced by one or more instruments in the form approved by the
Plan Administrator; provided, however, that each such instrument shall comply
with the terms and conditions of Sections 1 and 3 of this Article II and each
instrument evidencing an Incentive Option shall, in addition, comply with the
provisions of Section 2 of this Article II.
A. OPTION PRICE.
(I) The option price per share shall be fixed by the Plan
Administrator. In no event, however, shall the option price per share be less
than ninety percent (90%) of the Fair Market Value of a share of Common Stock on
the date of the option grant. If the individual to whom the option is granted is
a 10% Shareholder, then the option price per share shall not be less than one
hundred ten percent (110%) of the Fair Market Value of the Common Stock on the
date of the option grant.
(II) The option price per share shall become immediately due upon
exercise of the option and shall, subject to the provisions of Article IV,
Section 1 and the agreement evidencing such grant, be payable in cash or check
drawn to the Corporation's order. Notwithstanding the above, should the
Corporation's outstanding Common Stock be registered under Section 12(g) of the
Securities Exchange Act of 1934, at the time the option is exercised, then the
option price may also be paid as follows:
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- in shares of Common Stock held by the optionee for
the requisite period necessary to avoid a charge to the Corporation's earnings
for financial reporting purposes and valued at Fair Market Value; or
- through a special sale and remittance procedure
pursuant to which the optionee provides irrevocable written instructions (I) to
a designated brokerage firm to effect the immediate sale of the purchased shares
and remit to the Corporation, out of the sale proceeds available on the
settlement date, an amount sufficient to cover the aggregate option price
payable for the purchased shares plus all applicable Federal and State income
and employment taxes required to be withheld by the Corporation by reason of
such purchase and (II) to the Corporation to deliver the certificates for the
purchased shares directly to such brokerage firm in order to effect the sale
transaction.
Except to the extent such sale and remittance procedure is utilized, payment of
the option price must occur at the time the option is exercised.
B. TERM AND EXERCISE OF OPTIONS. Each option granted under the Plan
shall be exercisable at such time or times, during such period, and for such
number of shares as shall be determined by the Plan Administrator and set forth
in the stock option agreement evidencing such option. However, no option
granted under the Plan shall have a term in excess of ten (10) years from the
grant date.
C. NO ASSIGNMENT. During the lifetime of the optionee, the option
shall be exercisable only by the optionee and shall not be assignable or
transferable by the optionee otherwise than by will or by the laws of descent
and distribution following the optionee's death.
D. TERMINATION OF SERVICE. The following provisions shall govern
the exercise period applicable to any options held by the optionee at the time
of cessation of Service or death:
(I) Should the optionee cease to remain in Service for any
reason other than death or Permanent Disability or termination for cause, then
the period during which each outstanding option held by such optionee is to
remain exercisable shall be limited to the three (3)-month period following the
date of such cessation of Service.
(II) Should such Service terminate by reason of Permanent
Disability or should the optionee die while holding one or more outstanding
options, then the period during which each such option is to remain exercisable
shall be limited to the twelve (12)-month period following the date of the
optionee's cessation of Service or death. During the limited exercise period
following the optionee's death, the option may be exercised by the personal
representative of the optionee's estate or by the person or persons to whom the
option is transferred pursuant to the optionee's will or in accordance with the
laws of descent and distribution.
(III) Should such Service terminate by reason of termination for
cause, the option shall immediately terminate and entirely cease to be
exercisable.
(IV) The Plan Administrator shall have full power and authority
to extend (either at the time the option is granted or at any time while the
option remains outstanding) the period of time for which the option is to remain
exercisable following the optionee's cessation of Service, from the limited
period otherwise applicable under subsection 1C of this Article II, to such
greater period of time as the Plan Administrator may deem appropriate under the
circumstances.
(V) Notwithstanding the above no option shall be exercisable
after the specified expiration date of the option term.
(VI) Each such option shall, during the applicable limited
exercise period, be exercisable only with respect to the shares for which the
option was exercisable on the date of the optionee's cessation of Service.
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E. SHAREHOLDER RIGHTS. An optionee shall not have rights as a
shareholder with respect to any shares subject to an option until such optionee
shall have exercised the option and paid the option price.
2. INCENTIVE OPTIONS
All provisions of the Plan shall be applicable to Incentive Options
granted hereunder and, in addition, the terms and conditions specified in this
Section 2 shall be applicable to Incentive Options granted under the Plan.
Options which are specifically designated as Non-Statutory Options when issued
under the Plan shall not be subject to such terms and conditions set forth
herein.
A. OPTION PRICE.
(I) The option price per share of the Common Stock subject to
an Incentive Option shall in no event be less than one hundred percent (100%) of
the Fair Market Value of a share of Common Stock on the grant date.
(II) If the individual to whom the option is granted is a 10%
Shareholder, then the option price per share shall not be less than one hundred
ten percent (110%) of the Fair Market Value of the Common Stock on the date of
the option grant.
B. DOLLAR LIMITATION. The aggregate Fair Market Value
(determined as of the date or dates of grant) of Common Stock which first
becomes exercisable during any one calendar year under Incentive Options
granted to any Employee under any option plan of the Corporation (or any
parent or subsidiary corporation) shall not exceed the sum of One Hundred
Thousand Dollars ($100,000). To the extent the Employee holds options which
become exercisable in the same calendar year, the foregoing limitation on
such options shall be applied on the basis of the order in which such options
are granted. Any options in excess of such limitation shall automatically be
treated as Non-statutory Options.
C. TERM OF OPTION FOR 10% SHAREHOLDERS. No option granted to a 10%
Shareholder shall have a term in excess of five (5) years from the grant date.
3. CANCELLATION AND NEW GRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionees, the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or a
different numbers of shares of Common Stock but having an option price per share
established at the time of such cancellation and regrant in accordance with the
provisions of this Plan.
ARTICLE III
STOCK ISSUANCE PROGRAM
1. STOCK ISSUANCES
Shares of Common Stock shall be issuable under the Stock Issuance
Program through direct and immediate issuances without any intervening stock
option grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement ("Issuance Agreement") in a form acceptable to the Plan Administrator,
which form shall be in compliance with the provisions of the Plan.
2. ISSUE PRICE
The purchase price per share shall be fixed by the Plan Administrator,
but in no event shall it be less than ninety percent (90%) of the Fair Market
Value of a share of Common Stock at the time of issuance;
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provided, that the price shall be 110% of the Fair Market Value of a share of
Common Stock on the stock issuance date in the case of any 10% Shareholder.
3. PAYMENT OF ISSUE PRICE
Except as provided in Article IV, Section 1, shares shall be issued
only in exchange for cash, a check payable to the Corporation, for services
previously rendered to the Corporation (or any Parent or Subsidiary) or such
other lawful consideration as may be acceptable to the Plan Administrator.
4. NO ASSIGNMENT
During the lifetime of the issuee, the stock issuance right shall be
personal to the issuee and shall not be assignable or transferrable by the
issuee otherwise than by will or by the laws of descent and distribution
following the issuee's death.
ARTICLE IV
MISCELLANEOUS
1. LOANS
A. The Plan Administrator may assist any optionee or issuee (other
than a non-employee director) in the exercise of one or more options granted to
such optionee under the Option Grant Program or the purchase of one or more
shares to be issued to such issuee under the Stock Issuance Program, including
the satisfaction of any Federal and State income and employment tax obligations
arising therefrom, by (i) authorizing the extension of a loan from the
Corporation to such optionee or issuee, or (ii) permitting the optionee or
issuee to pay the option price or purchase price for the purchased Common Stock
in installments over a period of years.
B. The terms of any loan or installment method of payment (including
the interest rate and terms of repayment) shall be established by the Plan
Administrator in its sole discretion. Loans or installment payments may be
authorized with or without security or collateral. However, any loan made to a
consultant or other non-employee advisor must be secured by property other than
the purchased shares of Common Stock. In all events the maximum credit
available to each optionee or issuee may not exceed the sum of (i) the aggregate
option price or purchase price payable for the purchased shares plus (ii) any
Federal and State income and employment tax liability incurred by the optionee
or issuee in connection with such exercise or purchase.
C. The Plan Administrator may, in its absolute discretion, determine
that one or more loans extended under the financial assistance program shall be
subject to forgiveness by the Corporation in whole or in part upon such terms
and conditions as the Board in its discretion deems appropriate.
2. VESTING OF SHARES AND REPURCHASE RIGHTS
A. The Plan Administrator, in its absolute discretion, may issue
fully and immediately vested shares of Common Stock, or the Plan Administrator
may impose such vesting requirements, subject to Article I, Section 4.B hereof,
as it deems appropriate with the Corporation retaining a right to repurchase any
unvested shares. The terms of the vesting schedule and of the Corporation's
repurchase rights shall be as determined by the Plan Administrator and set forth
in the agreement governing such issuance.
B. Without limitation, the Plan Administrator shall have the
discretion to grant options which are exercisable for unvested shares of Common
Stock. Should the optionee cease Service while holding such unvested shares,
the Corporation shall have the right to repurchase, at the exercise price paid
per share, any or all of those unvested shares. The terms upon which such
repurchase right shall be exercisable (including the period and procedure for
exercise and the appropriate vesting schedule for the purchased shares) shall be
established by the Plan Administrator, shall be consistent with the provisions
of California Corporations Commissioner Rule 260.140.41(k)(2), and shall be set
forth in the document evidencing such repurchase right.
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C. Any new, additional or different shares of stock or other
property (including money paid other than as a regular cash dividend) which the
holder of unvested Common Stock may have the right to receive by reason of a
stock dividend, stock split, reclassification or other change affecting the
outstanding Common Stock as a class without the Corporation's receipt of
consideration shall be issued subject to (i) the same vesting and repurchase
limitations applicable to the unvested Common Stock with respect to which it was
paid or arose, and (ii) such escrow arrangements as the Plan Administrator shall
deem appropriate.
D. No person to whom shares of Common Stock have been issued
pursuant to the Plan may transfer any such shares which have not vested.
However, provided the Corporation's bylaws are not inconsistent with such a
gift, the issuee shall have the right to make a gift of unvested shares acquired
under the Plan to his/her spouse, parents or issue or to a trust established for
such spouse, parents or issue, provided the transferee of such shares delivers
to the Corporation a written agreement to be bound by all the provisions of the
Plan and the Issuance or Stock Purchase Agreement executed by the issuee at the
time of his/her acquisition of the gifted shares.
3. MARKET STAND-OFF AGREEMENTS
The Plan Administrator may require each person to whom any shares are
issued under this Plan to enter into an agreement which restricts or prohibits
the sale of any stock of the Corporation by such person for a reasonable period
of time following a public offering of any shares of stock by the Corporation.
4. RIGHT OF FIRST REFUSAL
Until such time as the Corporation's outstanding shares of Common
Stock are first publicly held, the Plan Administrator may subject any shares
issued pursuant to the Plan to a right of first refusal with respect to any
proposed disposition of such shares other than a transfer permitted by Section
2.C of this Article IV. Such right of first refusal shall be exercisable by the
Corporation (or its assignees) in accordance with the terms and conditions
specified in the instrument governing the issuance of such shares.
5. SECURITIES LAWS; LEGENDS
A. No shares of Common Stock or other assets shall be issued or
delivered under this Plan unless and until the Corporation shall have determined
that there has been full and adequate compliance with all applicable
requirements of the Federal and state securities laws and all other applicable
legal and regulatory requirements.
B. Shares issued under the Plan shall bear such legends as the Plan
Administrator deems necessary or appropriate, including such restrictive legends
as the Plan Administrator shall require to reflect the terms of any agreement
between the issuee and the Corporation.
6. SHAREHOLDER RIGHTS
Subject to the rights of the Corporation set forth herein or in any
other agreement entered into between the Corporation and an issuee of shares
under the Plan, each person to whom shares of Common Stock have been issued
under the Plan shall have all the rights of a shareholder with respect to those
shares whether or not his/her interest in such shares is vested. Accordingly,
the issuee shall have the right to vote such shares and to receive any cash
dividends or other distributions paid or made with respect to such shares.
7. ACCELERATION
The Plan Administrator may, in its discretion, provide for the
automatic acceleration upon a Corporate Transaction of the time at which any
option will become exercisable or for the lapse of any repurchase right tied to
vesting. Such acceleration may be provided for at any time by the Plan
Administrator in the exercise of its discretion, or may be included as a right
of the optionee or issuee in the documents evidencing the rights of the optionee
or issuee.
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8. DEFINITIONS
The following definitions shall be in effect under this Plan:
A. BOARD shall mean the Board of Directors of the Corporation.
B. COMMON STOCK shall mean the common stock of the Corporation.
C. CORPORATE TRANSACTION shall mean either of the following
shareholder-approved transactions to which the Corporation is a party:
(i) any transaction or series of related transactions
(including, without limitation, any reorganization, merger or consolidation) in
which more than fifty percent (50%) of the Corporation's outstanding voting
stock is transferred to a person or persons different from those who held the
stock immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of all or
substantially all of the Corporation's assets in complete liquidation or
dissolution of the Corporation.
D. EMPLOYEE shall mean an individual who is in the employ of the
Corporation or any Parent or Subsidiary, subject to the control and direction of
the employer entity as to both the work to be performed and the manner and
method of performance.
E. FAIR MARKET VALUE per share of Common Stock on any relevant date
under the Plan shall be the value determined in accordance with the following
provisions:
(i) If the Common Stock is not at the time listed or admitted
to trading on any stock exchange but is traded on the Nasdaq Stock Market, the
Fair Market Value shall be the closing selling price per share of Common Stock
on the date in question, as the price is reported by the National Association of
Securities Dealers through the Nasdaq Stock Market or any successor system. If
there is no closing selling price for the Common Stock on the date in question,
then the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
(ii) If the Common Stock is at the time listed or admitted to
trading on any stock exchange, then the Fair Market Value shall be the closing
selling price per share of Common Stock on the date in question on the stock
exchange determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such quotation
exists.
(iii) If the Common Stock is at the time neither listed nor
admitted to trading on any stock exchange nor traded on the Nasdaq Stock Market,
then such Fair Market Value shall be determined by the Plan Administrator after
taking into account such factors as the Plan Administrator shall deem
appropriate. The Plan Administrator may, but shall not be required to,
commission and rely upon an independent valuation.
F. INCENTIVE OPTION shall mean a stock option which satisfies the
requirements of Internal Revenue Code Section 422.
G. NON-STATUTORY OPTION shall mean a stock option not intended to
meet the requirements of Internal Revenue Code Section 422.
H. PARENT shall mean any corporation (other than the Corporation) in
an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the
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Corporation) owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
I. PERMANENT DISABILITY shall have the meaning assigned to such term
in Internal Revenue Code Section 22(e)(3).
J. SERVICE shall mean the provision of services to the Corporation
or any Parent or Subsidiary by an individual in the capacity of an Employee, a
non--employee member of the Board or a consultant or independent contractor.
K. SUBSIDIARY shall mean each corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each such corporation (other than the last corporation) in
the unbroken chain owns, at the time of the determination, stock possessing
fifty percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
L. 10% SHAREHOLDER shall mean the owner of stock (as determined
under Internal Revenue Code Section 424(d)) possessing ten percent (10%) or more
of the total combined voting power of all classes of stock of the Corporation.
9. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the issuance of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
10. WITHHOLDING
The Corporation's obligation to deliver shares upon the exercise of
any options granted under Article II or the purchase of any shares issued under
Article III shall be subject to the satisfaction of all applicable Federal,
State and local income and employment tax withholding requirements.
11. REGULATORY APPROVALS
The implementation of the Plan, the granting of any options under the
Option Grant Program, the issuance of any shares under the Stock Issuance
Program, and the issuance of Common Stock upon the exercise of the option grants
made hereunder shall be subject to the Corporation's procurement of all
approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the options granted under it, and the Common Stock issued
pursuant to it.
12. FINANCIAL STATEMENTS
Each optionee and issuee shall be entitled to receive annually the
Corporation's annual report to shareholders and the financial statements
included therein.
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APPENDIX A
NOVEL EXPERIMENTAL TECHNOLOGY
STOCK OPTION AGREEMENT
RECITALS
A. The Board of Directors of Novel Experimental Technology (the
"Corporation") has adopted the Novel Experimental Technology 1998 Stock
Option/Stock Issuance Plan (the "Plan") for the purpose of attracting and
retaining the services of persons who contribute to the growth and financial
success of the Corporation.
B. The Optionee specified in the accompanying Notice of Grant of
Stock Option (the "Grant Notice") is a person whom the Plan Administrator
believes has and will contribute to the growth and financial success of the
Corporation and this Agreement is intended to carry out the purposes of the
Plan.
AGREEMENT
NOW, THEREFORE, it is hereby agreed as follows:
1. GRANT OF OPTION. Subject to and upon the terms and conditions
set forth in this Agreement, the Corporation hereby grants to Optionee, as of
the grant date (the "Grant Date") specified in the Grant Notice, a stock option
to purchase up to that number of shares of the Corporation's Common Stock (the
"Option Shares") as is specified in the Grant Notice. The Option Shares shall
be purchasable from time to time during the option term at the option price per
share (the "Option Price") specified in the Grant Notice.
2. OPTION TERM. This option shall have a maximum term of ten (10)
years measured from the Grant Date and shall expire at the close of business on
the expiration date (the "Expiration Date") specified in the Grant Notice,
unless sooner terminated in accordance with Paragraph 5, 6 or 17.
3. LIMITED TRANSFERABILITY. This option shall be neither
transferable nor assignable by Optionee other than by will or by the laws of
descent and distribution following Optionee's death and may be exercised, during
Optionee's lifetime, only by Optionee.
4. DATES OF EXERCISE. This option may not be exercised in whole or
in part at any time prior to the time the Plan is approved by the Corporation's
shareholders in accordance with Paragraph 17. Provided such shareholder
approval is obtained, this option shall thereupon become exercisable for the
Option Shares in one or more installments as is specified in the Grant Notice.
As the option becomes exercisable in one or more installments, the installments
shall accumulate and the option shall remain exercisable for such installments
until the Expiration Date or the sooner termination of the option term under
Paragraph 5 or Paragraph 6 of this Agreement.
5. ACCELERATED TERMINATION OF OPTION TERM. The option term
specified in Paragraph 2 shall terminate (and this option shall cease to be
exercisable) prior to the Expiration Date should any of the following provisions
become applicable:
(i) Except as otherwise provided in Article II, Section
1.D(III) of the Plan (stating that any outstanding option shall immediately
terminate at the time of Optionee's termination for cause) or in
subparagraph (ii) or (iii) below, should Optionee cease to remain in
Service while this option is outstanding, then the period for exercising
this option shall be reduced to a three (3)-month period commencing with
the date of such cessation of Service, but in no event shall this option be
exercisable at any time after the Expiration Date. Upon the expiration of
such three (3)-month period or (if earlier) upon the Expiration Date, or
(if applicable) immediately at the time of Optionee's termination for
cause, this option shall terminate and cease to be outstanding.
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(ii) Should Optionee die while this option is outstanding, then
the personal representative of the Optionee's estate or the person or
persons to whom the option is transferred pursuant to the Optionee's will
or in accordance with the law of descent and distribution shall have the
right to exercise this option. Such right shall lapse and this option
shall cease to be exercisable upon the EARLIER of (A) the expiration of the
twelve (12) month period measured from the date of Optionee's death or (B)
the Expiration Date. Upon the expiration of such twelve (12) month period
or (if earlier) upon the Expiration Date, this option shall terminate and
cease to be outstanding.
(iii) Should Optionee become Permanently Disabled and cease by
reason thereof to remain in Service while this option is outstanding, then
the Optionee shall have a period of twelve (12) months (commencing with the
date of such cessation of Service) during which to exercise this option,
but in no event shall this option be exercisable at any time after the
Expiration Date. Upon the expiration of such limited period of
exercisability or (if earlier) upon the Expiration Date, this option shall
terminate and cease to be outstanding.
(iv) During the limited period of exercisability applicable
under subparagraph (i), (ii) or (iii) above, this option may be exercised
for any or all of the Option Shares for which this option is, at the time
of the Optionee's cessation of Service, exercisable in accordance with the
exercise schedule specified in the Grant Notice and the provisions of this
Agreement.
6. SPECIAL TERMINATION OF OPTION.
A. This Option, to the extent not previously exercised, shall
terminate and cease to be exercisable upon the consummation of a Corporate
Transaction unless this Option is expressly assumed by the successor corporation
or Parent thereof.
B. Each option which is assumed in connection with a Corporate
Transaction shall be appropriately adjusted, immediately after such Corporate
Transaction, to apply to the number and class of securities which would have
been issuable to the Optionee in consummation of such Corporate Transaction had
the option been exercised immediately prior to such Corporate Transaction.
Appropriate adjustments shall also be made to (i) the number and class of
securities available for issuance under the Plan on both an aggregate and per
Optionee basis following the consummation of such Corporate Transaction and (ii)
the exercise price payable per share under each outstanding option, PROVIDED the
aggregate exercise price payable for such securities shall remain the same.
C. This Agreement shall not in any way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise make changes in its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
7. ADJUSTMENT IN OPTION SHARES. In the event any change is made to
the Corporation's outstanding Common Stock by reason of any stock split, stock
dividend, combination of shares, exchange of shares, or other change affecting
the outstanding Common Stock as a class without receipt of consideration, then
appropriate adjustments shall be made to (i) the total number of Option Shares
subject to this option, (ii) the number of Option Shares for which this option
is to be exercisable from and after each installment date specified in the Grant
Notice and (iii) the Option Price payable per share in order to reflect such
change and thereby preclude a dilution or enlargement of benefits hereunder.
8. PRIVILEGE OF STOCK OWNERSHIP. The holder of this option shall
not have any of the rights of a shareholder with respect to the Option Shares
until such individual shall have exercised the option and paid the Option Price.
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9. MANNER OF EXERCISING OPTION.
A. In order to exercise this option with respect to all or any part
of the Option Shares for which this option is at the time exercisable, Optionee
(or in the case of exercise after Optionee's death, the Optionee's executor,
administrator, heir or legatee, as the case may be) must take the following
actions: (i) execute and deliver to the Secretary of the Corporation (a) written
notice of exercise and (b) a Stock Purchase Agreement in substantially the form
of Exhibit B to the Grant Notice; (ii) pay the aggregate Option Price for the
purchased shares in one or more forms approved under Article II, Section 1.A(II)
of the Plan; and (iii) furnish to the Corporation appropriate documentation that
the person or persons exercising the option, if other than Optionee, have the
right to exercise this option.
B. For purposes of this Agreement, the Exercise Date shall be the
date on which Paragraph 9.A of this Agreement has been fully satisfied, and the
fair market value of a share of Common Stock on any relevant date shall be
determined as provided in Article IV, Section 8.E of the Plan.
C. As soon after the Exercise Date as practical, the Corporation
shall mail or deliver to Optionee or to the other person or persons exercising
this option a certificate or certificates representing the shares so purchased
and paid for, with the appropriate legends affixed thereto.
D. In no event may this option be exercised for any fractional
shares.
10. COMPLIANCE WITH LAWS AND REGULATIONS.
A. The exercise of this option and the issuance of Option Shares
upon such exercise shall be subject to compliance by the Corporation and the
Optionee with all applicable requirements of law relating thereto and with all
applicable regulations of any stock exchange or national market system on which
shares of the Common Stock may be listed at the time of such exercise and
issuance.
B. In connection with the exercise of this option, Optionee shall
execute and deliver to the Corporation such representations in writing as may be
requested by the Corporation in order for it to comply with the applicable
requirements of Federal and State securities laws.
11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided
in Paragraph 3 or 6, the provisions of this Agreement shall inure to the benefit
of, and be binding upon, the successors, administrators, heirs, legal
representatives and assigns of Optionee and the successors and assigns of the
Corporation.
12. LIABILITY OF CORPORATION.
A. If the Option Shares covered by this Agreement exceed, as of the
Grant Date, the number of shares of Common Stock which may without shareholder
approval be issued under the Plan, then this option shall be void with respect
to such excess shares, unless Board of Directors and shareholder approval of an
amendment sufficiently increasing the number of shares of Common Stock issuable
under the Plan is obtained in accordance with the provisions of the Plan.
B. The inability of the Corporation to obtain approval from any
regulatory body having authority deemed by the Corporation to be necessary to
the lawful issuance and sale of any Common Stock pursuant to this option shall
relieve the Corporation of any liability with respect to the non-issuance or
sale of the Common Stock as to which such approval shall not have been obtained.
The Corporation, however, shall use its best efforts to obtain all such
approvals.
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13. NOTICES. Any notice required to be given or delivered to the
Corporation under the terms of this Agreement shall be in writing and addressed
to the Corporation in care of the Corporate Secretary at its principal corporate
offices. Any notice required to be given or delivered to Optionee shall be in
writing and addressed to Optionee at the address indicated below Optionee's
signature line on the Grant Notice. Either party may change its address for
notice by giving written notice of such change. All notices shall be deemed to
have been given or delivered upon personal delivery or upon deposit in the U.S.
mail, postage prepaid and properly addressed to the party to be notified.
14. LOANS. The Plan Administrator may, in its absolute discretion
and without any obligation to do so, assist the Optionee in the exercise of this
option by (i) authorizing the extension of a loan to the Optionee from the
Corporation or (ii) permitting the Optionee to pay the option price for the
purchased Common Stock in installments over a period of years. The terms of any
such loan or installment method of payment (including the interest rate, the
requirements for collateral and the terms of repayment) shall be established by
the Plan Administrator in its sole discretion.
15. CONSTRUCTION. This Agreement and the option evidenced hereby are
made and granted pursuant to the Plan and are in all respects limited by and
subject to the express terms and provisions of the Plan. Capitalized terms not
otherwise defined within this Agreement shall have the meanings ascribed to them
in the Plan, unless the context clearly requires otherwise. All decisions of
the Plan Administrator with respect to any question or issue arising under the
Plan or this Agreement shall be conclusive and binding on all persons having an
interest in this option.
16. GOVERNING LAW. The interpretation, performance, and enforcement
of this Agreement shall be governed by the laws of the State of California
without resort to that State's conflict-of-laws rules.
17. SHAREHOLDER APPROVAL. The grant of this option is subject to
approval of the Plan by the Corporation's shareholders within twelve (12) months
after the adoption of the Plan by the Board of Directors. NOTWITHSTANDING ANY
PROVISION OF THIS AGREEMENT TO THE CONTRARY, THIS OPTION MAY NOT BE EXERCISED IN
WHOLE OR IN PART UNTIL SUCH SHAREHOLDER APPROVAL IS OBTAINED. In the event that
such shareholder approval is not obtained, then this option shall thereupon
terminate in its entirety and the Optionee shall have no further rights to
acquire any Option Shares hereunder.
18. ADDITIONAL TERMS APPLICABLE TO AN INCENTIVE OPTION. Should this
option be designated in the Grant Notice as immediately exercisable and as an
incentive stock option, then this option shall not become exercisable in the
calendar year in which granted if (and to the extent) the aggregate fair market
value (determined at the Grant Date) of the Corporation's Common Stock for which
this option would otherwise first become exercisable in such calendar year
would, when added to the aggregate fair market value (determined as of the
respective date or dates of grant) of the Common Stock for which this option or
one or more other incentive stock options granted to the Optionee prior to the
Grant Date (whether under the Plan or any other option plan of the Corporation
or its Parent or Subsidiary corporations) first become exercisable during the
same calendar year, exceed One Hundred Thousand Dollars ($100,000) in the
aggregate. To the extent the exercisability of this option is deferred by
reason of the foregoing limitation, the deferred portion will first become
exercisable in the first calendar year or years thereafter in which the One
Hundred Thousand Dollar ($100,000) limitation of this Paragraph 18 would not be
contravened.
19. WITHHOLDING. Optionee hereby agrees (as a precondition to
exercise) to make appropriate arrangements with the Corporation or Parent or
Subsidiary corporation employing Optionee for the satisfaction of all Federal,
State or local income tax withholding requirements and Federal social security
employee tax requirements applicable to the exercise of this option.
A-4
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EMPLOYMENT AGREEMENT
THIS AGREEMENT is made by and between Novel Experimental
Technology, a California corporation ("EMPLOYER"), and David E. McCarty
("EMPLOYEE") as of July 22, 1997.
R E C I T A L S:
WHEREAS, EMPLOYER and EMPLOYEE wish to set forth in this
Agreement the terms and conditions under which EMPLOYEE is to be employed by
EMPLOYER.
NOW, THEREFORE, EMPLOYER and EMPLOYEE, in consideration of the
mutual promises set forth herein, agree as follows:
ARTICLE 1
TERM OF AGREEMENT
1.1 TERM. The term of this Agreement shall commence on August 19, 1997
or such earlier date as the parties may agree, and shall continue until
terminated pursuant to Article 6.
ARTICLE 2
EMPLOYMENT DUTIES
2.1 TITLE/RESPONSIBILITIES. EMPLOYEE shall serve as an employee of
EMPLOYER and hold the positions of Chief Executive Officer and President of
EMPLOYER, and shall have the powers and responsibilities consistent with such
positions. Subject to the ultimate direction and management of EMPLOYER's Board
of Directors, EMPLOYEE will have general charge of the management and operations
of EMPLOYER. EMPLOYEE shall also perform all duties which from time to time are
assigned to him by EMPLOYER's Board of
<PAGE>
Directors, and shall provide the Board with periodic reports upon request.
2.2 DIRECTORSHIP. EMPLOYEE agrees, if and when elected, to serve (at
the pleasure of EMPLOYER's shareholders) as a Director on EMPLOYER's Board of
Directors (and on such Board committees to which he may be appointed) at no
additional compensation during the time he is an employee of EMPLOYER. It is
understood that EMPLOYEE shall forthwith be elected to fill a newly-created seat
on EMPLOYER's Board of Directors and shall, as long as he remains Chief
Executive Officer and President, be included on management's slate of director
nominees.
2.3 FULL TIME ATTENTION. EMPLOYEE shall perform his duties hereunder in
a diligent and professional manner and devote all of his business time and
attention, best efforts, energy and skills to EMPLOYER during the time he is
employed hereunder as Chief Executive Officer and President of EMPLOYER. During
the term of this Agreement EMPLOYEE shall not without the express consent of
EMPLOYER's Board of Directors serve or act as a shareholder (except passive
holdings of less than 3% of the stock), employee, agent, consultant (except
under the Consulting/Noncompete Agreement with Erie Scientific Company dated
April 1997), officer, director (except as a director of Cromogen), partner,
representative or owner of any other business entity, nor (if it would require
more than an insubstantial amount of business time or attention) of any
non-profit entity.
2.4 COMPLIANCE WITH RULES. EMPLOYEE shall comply with all applicable
governmental laws, rules and regulations and with all
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of EMPLOYER's policies, rules and/or regulations applicable to all employees
of EMPLOYER.
ARTICLE 3
COMPENSATION
3.1 BASE SALARY. EMPLOYER shall pay (semi-monthly and in arrears) to
EMPLOYEE a salary of $225,000 per annum.
3.2 ADDITIONAL COMPENSATION (STOCK OPTIONS).
(a) In addition to the salary provided in Section 3.1,
EMPLOYER shall grant to EMPLOYEE as additional compensation for EMPLOYEE's
services (but not for any capital-raising purposes or in connection with any
capital-raising activities) an incentive stock option to purchase 600,000 shares
of EMPLOYER Common Stock (the "Option Stock") under EMPLOYER's 1996 Stock
Option/Stock Issuance Plan, with an exercise price equal to the fair market
value per share of EMPLOYER Common Stock on the first day of the term of this
Agreement, such option to vest 20% after completion of one year and then in
equal daily installments over the following four years.
(b) In connection with such stock options, EMPLOYEE hereby
represents, warrants and acknowledges to EMPLOYER as follows:
(i) EMPLOYEE acknowledges that the purchase, if made, of the
Option Stock involves a high degree of risk and further acknowledges that he can
bear the economic risk of the acquisition of the Option Stock, including the
total loss of his investment.
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(ii) By reason of his business and financial experience,
EMPLOYEE has the capacity to protect his own interests in this transaction and
is acquiring the stock options and Option Stock (and would acquire the Option
Stock) for his own account and not with a view to distribution.
(iii) EMPLOYEE understands that the stock options are
being, and the Option Stock is being and would be, offered and sold to him in
reliance on specific exemptions from the registration requirements of Federal
and State securities laws and that EMPLOYER is relying upon the truth and
accuracy of the representations, warranties, and acknowledgements of EMPLOYEE
set forth herein in order to determine the applicability of such exemptions
and the suitability of EMPLOYEE to acquire the stock options and the Option
Stock.
(iv) EMPLOYEE understands that no Federal or State agency
has passed on or made any recommendation or endorsement of the stock options
and/or the Option Stock.
(v) EMPLOYEE understands that as a condition to exercising
the stock options he must enter into the Shareholders' Agreement dated January
19, 1996 (as amended from time to time).
(c) EMPLOYEE hereby agrees that, during the period of
duration (not to exceed 180 days) specified by EMPLOYER and an underwriter of
Common Stock or other securities of EMPLOYER, following the effective date of
each respective registration statement of EMPLOYER filed under the Securities
Act, he shall not, to the extent requested by EMPLOYER and such underwriter,
directly or indirectly sell, offer to sell, contract to sell
-4-
<PAGE>
(including, without limitation, any short sale), pledge, hypothecate, grant
any option to purchase or otherwise transfer or dispose of (other than to
donees who agree to be similarly bound) any securities of EMPLOYER held by
him at any time during such period. In order to enforce this Section 3.2(c),
EMPLOYER may impose stop-transfer instructions with respect to the securities
of EMPLOYEE (and the shares or securities of every other person subject to
the foregoing restriction) until the end of such period.
3.3 BONUS. In addition to the salary provided in Section 3.1, EMPLOYEE
shall (a) against a target bonus of 30% of his fiscal 1998 salary, pro-rated for
actual time employed, receive a bonus at the end of EMPLOYER's 1998 fiscal year
equal to no less than 15% of his fiscal 1998 salary received from EMPLOYER, and
(b) beginning with EMPLOYER'S 1999 fiscal year, participate in a cash bonus plan
giving him the opportunity to receive, in the discretion of EMPLOYER's Board of
Directors, a bonus of up to 30% of annual salary upon achievement of targets
established for him from year to year by EMPLOYER's Board of Directors in its
discretion.
3.4 RELOCATION. EMPLOYER shall, in connection with EMPLOYEE's
relocation from Cupertino to San Diego, reimburse EMPLOYEE for closing costs (as
are customarily borne by sellers in the Cupertino market) on the sale of his
Cupertino house, the moving of his household goods, and two months' temporary
lodging and a reasonable number of scouting trips for EMPLOYEE and his wife.
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<PAGE>
ARTICLE 4
OTHER BENEFITS
4.1 FRINGE BENEFITS. EMPLOYEE shall be entitled during the term of his
employment under this Agreement to all fringe benefits made available from time
to time by EMPLOYER to its executives generally and/or its employees generally,
including without limitation participation in EMPLOYER's employee stock
ownership plan, 401(k) plan and group health insurance plan.
4.2 EXPENSES. EMPLOYER shall reimburse EMPLOYEE, not less often than
monthly, for reasonable out-of-pocket business expenses incurred by EMPLOYEE in
the course of his duties hereunder, upon submission by EMPLOYEE of appropriate
expense account reports and substantiating receipts.
4.3 VACATION. EMPLOYEE shall be entitled to four weeks paid vacation
per full year of service, in accordance with and subject to EMPLOYER's vacation
accrual plan and accrual policies as they may be amended from time to time.
EMPLOYEE acknowledges the "cap" on vacation accruals set forth in such plan and
policies. In availing himself of such vacation EMPLOYEE shall reasonably take
into consideration EMPLOYER's business interests.
ARTICLE 5
FORMER EMPLOYMENT
5.1 NO CONFLICT. EMPLOYEE represents and warrants that the execution
and delivery by him of this Agreement, his employment by EMPLOYER and his
performance of duties under this Agreement will not conflict with and will not
be constrained by any prior
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<PAGE>
employment or consulting agreement or relationship, or any other contractual
obligation, other than the Consulting/Noncompete Agreement with Erie
Scientific Company dated April 1997.
5.2 NO USE OF PRIOR CONFIDENTIAL INFORMATION. EMPLOYEE will not
intentionally disclose to EMPLOYER or use on its behalf any confidential
information belonging to any of his former employers, but during his employment
by EMPLOYER he will use in the performance of his duties all information (but
only such information) which is generally known and used by persons with
training and experience comparable to his own or is common knowledge in the
industry or otherwise legally in the public domain.
ARTICLE 6
TERMINATION
6.1 TERM. The term of EMPLOYEE'S employment shall continue until
terminated by either EMPLOYER or EMPLOYEE. Such termination of EMPLOYEE's
employment shall be effected by written notification and may be effected at any
time, with or without cause, for any reason or no reason.
6.2 SEVERANCE. If this Agreement and/or EMPLOYEE's employment is
terminated for cause, EMPLOYEE shall be entitled to no severance pay. (Payment
of Section 4.2 expenses and accrued vacation time does not constitute severance
pay.) If this Agreement and/or EMPLOYEE's employment is terminated other than
for cause, EMPLOYEE shall be entitled, as severance pay, to the following
benefit and no more: 12 months' salary at EMPLOYEE's
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<PAGE>
then base salary rate (reduced by applicable tax withholding), to be paid on
an ongoing semi-monthly basis.
6.3 DEFINITION OF CAUSE. "Cause" shall be defined to mean:
(a) Death;
(b) Voluntary resignation (other than because of Constructive
Termination or a material breach by EMPLOYER of its obligations under this
Agreement);
(c) EMPLOYEE's repudiation of this Agreement other than
because of Constructive Termination;
(d) extended disability (defined as EMPLOYEE's inability to
perform, with or without reasonable accommodation, the essential functions of
his position for any 120 business days -- exclusive of vacation days taken --
within any continuous period of 150 business days by reason of physical or
mental illness or incapacity);
(e) EMPLOYEE being convicted of a felony, or being
convicted of a misdemeanor involving moral turpitude;
(f) EMPLOYEE's demonstrable fraud or dishonesty;
(g) EMPLOYEE's use of alcohol, drugs or any illegal substance
in such a manner as to interfere with the performance of his duties under this
Agreement;
(h) EMPLOYEE's intentional, reckless or grossly negligent
action which causes material harm to the EMPLOYER, including any
misappropriation or unauthorized use of EMPLOYER's property or improper use or
disclosure of confidential information (but excluding any good faith exercise of
business judgment);
(i) EMPLOYEE's intentional failure to perform material
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<PAGE>
duties under this Agreement if such failure has continued for 45 days after
EMPLOYEE has been notified in writing by EMPLOYER of the nature of EMPLOYEE's
failure to perform; or
(j) EMPLOYEE's chronic absence from work for reasons other
than illness or permitted vacation.
6.4 DEFINITION OF CONSTRUCTIVE TERMINATION. A "Constructive
Termination" shall occur when EMPLOYEE resigns within six (6) months of any
one or more of the following events: (a) a material reduction in the level of
his responsibilities or executive functions, (b) a reduction in his level of
compensation including base salary, fringe benefits, and bonus entitlement by
more than twenty-five percent (25%), or (c) a relocation of his place of
employment to a location more than thirty-five (35) miles from the current
offices of EMPLOYER.
6.5 TERMINATION FOR CAUSE. Termination for cause shall be without
prejudice to any other right or remedy to which EMPLOYER may be entitled at law,
in equity, or under this Agreement.
ARTICLE 7
ARBITRATION
7.1 FINAL AND BINDING ARBITRATION. Any controversy, claim or dispute
between (a) a party to this Agreement, on the one hand, and (b) the other party
to this Agreement and/or such second party's parents, subsidiaries or affiliates
and/or any of their directors, officers, employees, agents, successors, assigns,
heirs, executors, administrators, or legal representatives, on the other hand,
arising out of, in connection with, or in relation to
-9-
<PAGE>
(t) the interpretation, validity, performance or breach of this Agreement,
(u) EMPLOYEE's stock options and the underlying Option Stock, (v) EMPLOYEE's
employment by EMPLOYER, (w) any termination of such employment, (x) any
actions during or with respect to EMPLOYEE's work for EMPLOYER, (y) any
claims for breach of contract, tort, or breach of the covenant of good faith
and fair dealing, or (z) any claims of discrimination or other claims under
any federal, state or local law or regulation now in existence or hereinafter
enacted and as amended from time to time concerning in any way the subject of
EMPLOYEE's employment with EMPLOYER or its termination, shall, at the request
of either party, be resolved to the exclusion of a court of law by binding
arbitration in San Diego, California, in accordance with the Employment
Dispute Resolution Arbitration Rules of the American Arbitration Association
then in effect as expressly modified by Exhibit A hereto (but nonetheless the
arbitration itself shall not be conducted under the auspices of such
Association unless the parties shall expressly so agree). This paragraph
shall not have the effect of diminishing the remedies to which EMPLOYEE may
be due under any of such claims, but shall merely affect the forum in which
such claims are made. Each of EMPLOYEE and EMPLOYER understands and agrees
that the arbitration shall be instead of any civil litigation and that the
arbitrator's decision shall be final and binding to the fullest extent
permitted by law and enforceable by any court having jurisdiction thereof.
The only claims NOT covered by this Section 7.1 are claims for benefits under
the workers' compensation laws or claims for unemployment
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<PAGE>
insurance benefits, which will be resolved pursuant to those laws.
ARTICLE 8
GENERAL PROVISIONS
8.1 GOVERNING LAW. This Agreement and the rights of the parties
thereunder shall be governed by and interpreted under California law.
8.2 ASSIGNMENT. EMPLOYEE may not delegate, assign, pledge or encumber
his rights or obligations under this Agreement or any part thereof.
8.3 NOTICE. Any notice required or permitted to be given under this
Agreement shall be sufficient if it is in writing and is sent by registered or
certified mail, postage prepaid, or personally delivered, to the following
addresses, or to such other addresses as either party shall specify by giving
notice under this section:
TO EMPLOYER: Chairman, Novel Experimental Technology
11040 Roselle Street
San Diego, CA 92121
Copy to: Hayden J. Trubitt
Brobeck, Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, CA 92101
TO EMPLOYEE: David E. McCarty
21925 Hyannisport Drive
Cupertino, CA 95014
8.4 AMENDMENT. This Agreement may be waived, amended or
supplemented only by an express writing signed by both of the parties hereto. To
be valid, EMPLOYER's signature must be by a
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<PAGE>
person specially authorized by EMPLOYER's Board of Directors to sign such
particular document.
8.5 WAIVER. No waiver of any provision of this Agreement shall be
binding unless and until set forth expressly in writing and signed by the
waiving party. To be valid, EMPLOYER's signature must be by a person
specially authorized by EMPLOYER's Board of Directors to sign such particular
document. The waiver by either party of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any preceding or
succeeding breach of the same or any other term or provision, or a waiver of
any contemporaneous breach of any other term or provision, or a continuing
waiver of the same or any other term or provision. No failure or delay by a
party in exercising any right, power, or privilege hereunder or other conduct
by a party shall operate as a waiver thereof, in the particular case or in
any past or future case, and no single or partial exercise thereof shall
preclude the full exercise or further exercise of any right, power, or
privilege. No action taken pursuant to this Agreement shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representations, warranties, covenants or agreements contained herein.
8.6 SEVERABILITY. All provisions contained herein are severable and
in the event that any of them shall be held to be to any extent invalid or
otherwise unenforceable by any court of competent jurisdiction, such
provision shall be construed as if it were written so as to effectuate to the
greatest possible extent the parties' expressed intent; and in every case the
remainder of
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<PAGE>
this Agreement shall not be affected thereby and shall remain valid and
enforceable, as if such affected provision were not contained herein.
8.7 HEADINGS. Article and section headings are inserted herein for
convenience of reference only and in no way are to be construed to define,
limit or affect the construction or interpretation of the terms of this
Agreement.
8.8 DRAFTING PARTY. The provisions of this Agreement have been
prepared, examined, negotiated and revised by each party hereto, and no
implication shall be drawn and no provision shall be construed against either
party by virtue of the purported identity of the drafter of this Agreement, or
any portion thereof.
8.9 NO OUTSIDE REPRESENTATIONS. No representation, warranty,
condition, promise, understanding or agreement of any kind with respect to the
subject matter hereof has been made by either party, nor shall any such be
relied upon by either party, except those contained herein. There were no
inducements to enter into this Agreement, except for what is expressly set forth
in this Agreement.
8.10 ENTIRE AGREEMENT. This Agreement, together with
EMPLOYER's standard Proprietary Information and Inventions Agreement,
constitutes the entire agreement between the parties pertaining to the subject
matter hereof and completely supersedes all prior or contemporaneous agreements,
understandings, arrangements, commitments, negotiations and discussions of the
parties, whether oral or written (all of which shall have no substantive
significance or evidentiary effect). Each party
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<PAGE>
acknowledges, represents and warrants that he or it has not relied on any
representation, agreement, understanding, arrangement or commitment which has
not been expressly set forth in this Agreement. Each party acknowledges,
represents and warrants that this Agreement is fully integrated and not in
need of parol evidence in order to reflect the intentions of the parties. The
parties specifically intend that the literal words of this Agreement shall,
alone, conclusively determine all questions concerning the parties' intent.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered
this Employment Agreement in San Diego, California as of the date first written
above.
NOVEL EXPERIMENTAL TECHNOLOGY
By:
DAVID E. McCARTY
Attachment: Exhibit A (Special Arbitration Procedures)
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<PAGE>
EXHIBIT A
SPECIAL ARBITRATION PROCEDURES
1. ESTABLISHMENT OF FORUM. Arbitration shall be initiated by one party
sending to the other a Notice of Arbitration, by registered or certified United
States mail, which notice must contain a description of the dispute, the amount
involved, and the remedy sought. Unless the parties agree on one arbitrator
within ten days thereafter, a sole arbitrator shall be designated by the
American Arbitration Association. The arbitration shall be held within 90 days
after the mailing of the initiating notice, at a date, time and place in San
Diego, California determined (subject to this Agreement) by the arbitrator.
2. PRE-HEARING CONFERENCE. The arbitrator shall schedule a pre-hearing
conference to reach agreement or procedural matters, arrange for the exchange of
information, obtain stipulations, and attempt to narrow the issues.
3. DISCOVERY. The parties agree to expedite the arbitration proceedings
by eliminating discovery. Instead of discovery, the parties agree to the
following exchange of information:
(a) Either party can make a written demand for lists of the
witnesses to be called or the actual documents to be introduced at the hearing.
The demand must be received prior to the pre-hearing conference.
(b) The lists and such documents must be served within fifteen
days of the demand.
(c) Except as expressly provided in this Item 3, no
depositions, interrogatories, or document production may be taken for discovery.
4. THE HEARING.
(a) The parties must file briefs with the arbitrator at least
three days before the hearing, specifying the facts each intends to prove and
analyzing the applicable law.
(b) The parties have the right to representation by legal
counsel throughout the arbitration proceedings.
(c) Judicial rules of evidence and procedure relating to the
conduct at the hearing, examination of witnesses, and presentation of evidence
do not apply. Any relevant evidence, including hearsay, shall be admitted by the
arbitrator if it is the sort of evidence on which responsible persons are
accustomed
A-16
<PAGE>
to rely on in the conduct of serious affairs, regardless of the admissibility
of such evidence in a court of law.
(d) Subject to the discretion of the arbitrator, both sides at
the hearing may call and examine witnesses for relevant testimony, introduce
relevant exhibits or other documents, cross-examine or impeach witnesses who
shall have testified orally on any matter relevant to the issues, and otherwise
rebut evidence.
(e) Any party desiring a stenographic record may secure a
court reporter to attend the proceedings. The requesting party must notify the
other parties of the arrangements in advance of the hearing and must pay for the
cost incurred.
(f) Any party may request the oral evidence to be given under
oath.
5. THE AWARD.
(a) The decision shall be based on the evidence introduced at
the hearing, including all logical and reasonable inferences therefrom. The
arbitrator may grant any remedy or relief which is just and equitable. The
arbitrator shall be empowered to award relief which is legal and/or equitable in
nature, as appropriate, and in accordance with any statutory provisions.
(b) The award must be made in writing and signed by the
arbitrator. It shall contain a concise statement of the reasons in support of
the decision.
(c) The award must be mailed promptly to the parties, but no
later than thirty (30) days from the closing of the hearing.
6. FEES AND EXPENSES. Each party must pay its one-half share of the
arbitrator's expenses and fees, together with other expenses of the arbitration
incurred or approved by the arbitrator. Each party must pay its own attorney
fees, witness fees and other expenses incurred by the party for its own benefit.
7. SPECIAL LIMITATIONS PERIOD. EMPLOYEE shall have 15 days after
receipt of notification of termination pursuant to Article 6, or knowledge of
facts alleged to constitute some other breach of this Agreement, in which to
submit a demand for arbitration to EMPLOYER. If EMPLOYEE fails to submit a
demand for arbitration within said 15 day period, such failure shall constitute
an absolute bar to EMPLOYEE's institution of any arbitration proceeding (or any
other kind of proceeding or court action) thereon.
8. CALIFORNIA ARBITRATION STATUTES. Except to the extent
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expressly contradicted by this Agreement, the arbitration provisions of
Section 1280 et seq. (Part 3, Title 9) (with the exception of Section
1283.05) of the California Code of Civil Procedure shall be fully applicable
to this Agreement. For purposes of California Code of Civil Procedure Section
1281.8 (relating to court issuance of provisional remedies), the parties
agree that in any controversy, claim or dispute involving the protection of
any intellectual property, it shall be conclusively presumed, if a party is
otherwise entitled to have a court issue a provisional remedy, that the
arbitration award to which the party may be entitled may be rendered
ineffectual without such provisional remedy.
Except for applications or other procedures to obtain provisional
relief from a court as contemplated by California Code of Civil Procedure
Section 1281.8 or any equivalent statute, if any controversy, claim or dispute
within the scope of Article 7 becomes the subject of a judicial action and,
despite the other party's request for arbitration, for any reason remains the
subject of a judicial action, all decisions of fact and law shall be determined
by reference pursuant to Section 638 et seq. (Part 2, Title 8, Chapter 6) of the
California Code of Civil Procedure. The parties shall designate to the court as
referee a person determined by the parties in accordance with the provisions
established for the selection of an arbitrator pursuant to this Agreement; but
if an arbitrator is already selected pursuant to this Agreement the reference
shall be to such arbitrator.
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<PAGE>
EXHIBIT 21.1
INVITROGEN CORPORATION SUBSIDIARIES
Invitrogen Export Company, Ltd.
Invitrogen B.V.
NOVEX
NOVEX International Sales Corporation
NOVEX Electrophoresis GmbH
Serva GmbH
<PAGE>
Exhibit 23.1.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated January 15, 1999 of Invitrogen Corporation included in this registration
statement and to all references to our Firm included in or made a part of
this registration statement.
ARTHUR ANDERSEN LLP
San Diego, California
September 13, 1999
<PAGE>
EXHIBIT 23.1.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated May 28, 1999, except for Note 11 as to which the
date is August 17, 1999, with respect to the consolidated financial
statements of NOVEX included in the Registration Statement (Form S-1) and
Prospectus of Invitrogen Corporation for the registration of shares of its
common stock.
ERNST & YOUNG LLP
San Diego, California
September 13, 1999
