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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 2000
REGISTRATION NO. 333-37964
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3/A
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INVITROGEN CORPORATION
(Exact name of Registrant as specified in its charter)
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DELAWARE 33-0373077
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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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
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:
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JEFFREY T. BAGLIO, ESQ. HOWARD L. ARMSTRONG, ESQ.
MARTY B. LORENZO, ESQ. MICHAEL LEAKE, ESQ.
LAURA G. SAND, ESQ. LATHAM AND WATKINS
GRAY CARY WARE & FREIDENRICH LLP 701 B STREET, SUITE 2100
4365 EXECUTIVE DRIVE, SUITE 1600 SAN DIEGO, CALIFORNIA 92101-3542
SAN DIEGO, CA 92121-2189
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
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: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434
under the Securities Act, please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a),
MAY DETERMINE.
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<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION, DATED JULY 28, 2000
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
$172,500,000
[LOGO]
INVITROGEN CORPORATION
5 1/2% CONVERTIBLE SUBORDINATED NOTES DUE MARCH 1, 2007
2,024,648 SHARES OF COMMON STOCK ISSUABLE ON CONVERSION OF THE NOTES
------------------------------------------------------------
This prospectus relates to 5 1/2% Convertible Subordinated Notes due
March 1, 2007 of Invitrogen Corporation, a Delaware corporation (Invitrogen),
held by certain security holders who may offer for sale the notes and shares of
our common stock into which the notes are convertible at any time, at market
prices prevailing at the time of sale or at privately negotiated prices. The
selling security holders may sell the notes or the common stock directly to
purchasers or through underwriters, broker-dealers or agents, that may receive
compensation in the form of discounts, concessions or commissions. We will not
receive any proceeds from this offering.
You may convert the notes into shares of our common stock at any time before
their maturity unless we have previously redeemed or repurchased them. The notes
will be due on March 1, 2007. The conversion rate is 11.737 shares per each
$1,000 principal amount of notes, subject to adjustment in certain
circumstances. This is equivalent to a conversion price of $85.20 per share. The
notes are not listed on any securities exchange or included in any automated
quotation system. The notes are eligible for trading in the Private Offerings,
Resale and Trading through Automated Linkages (PORTAL) Market of the National
Association of Securities Dealers, Inc. Our common stock is quoted on the Nasdaq
National Market under the symbol "IVGN." On May 25, 2000, the last reported
sales price for our common stock as quoted on the Nasdaq National Market was
$44.31 per share.
We will pay interest on the notes on March 1 and September 1 of each year.
The first interest payment will be made on September 1, 2000. The notes are
subordinated in right of payment to all senior debt of Invitrogen. The notes
will be issued only in denominations of $1,000 and integral multiples of $1,000.
We have the right to redeem all or a portion of the notes that have not been
previously converted at the redemption prices set forth in this Prospectus on or
after March 1, 2003. In the event of a change in control, as described in this
Prospectus, you may require us to repurchase any notes that you hold.
INVESTING IN THE NOTES AND THE COMMON STOCK INVOLVES RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is July 28, 2000.
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TABLE OF CONTENTS
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PAGE
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Summary............................... 1
Risk Factors.......................... 5
Forward-Looking Statements............ 15
Use of Proceeds....................... 15
Dividend Policy....................... 15
Price Range of Common Stock........... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Description of Convertible Notes...... 24
Description of Capital Stock.......... 41
</TABLE>
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Summary of Certain United States
Federal Income Tax Considerations... 44
Selling Securityholders............... 50
Plan of Distribution.................. 53
Legal Matters......................... 54
Experts............................... 54
Available Information................. 54
Incorporation of Certain Documents by
Reference........................... 54
Limitation of Liability and
Indemnification Matters............. 55
</TABLE>
------------------------
We were incorporated in California in 1989, and reincorporated in Delaware
in 1997. Our principal executive offices are located at 1600 Faraday Avenue,
Carlsbad, California 92008 and our phone number is (760) 603-7200. We maintain a
website at www.invitrogen.com. Our website is not a part of this Prospectus.
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SUMMARY
THIS SUMMARY HIGHLIGHTS CERTAIN IMPORTANT INFORMATION REGARDING OUR BUSINESS
AND THIS OFFERING. WE HAVE INCORPORATED CERTAIN FINANCIAL AND OTHER INFORMATION
IN THIS PROSPECTUS BY REFERENCE. YOU SHOULD CAREFULLY READ THIS ENTIRE
PROSPECTUS, ESPECIALLY THE SECTION ENTITLED "RISK FACTORS," AS WELL AS ANY
SUPPLEMENTAL MATERIAL AND ANY DOCUMENTS THAT ARE INCORPORATED BY REFERENCE.
UNLESS OTHERWISE STATED, ALL OF THE INFORMATION IN THIS PROSPECTUS ASSUMES THAT
THE INITIAL PURCHASERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED. ALSO, UNLESS THE
CONTEXT REQUIRES OTHERWISE, REFERENCES TO "INVITROGEN," "WE," "OUR," "US," AND
SIMILAR TERMS REFER TO INVITROGEN CORPORATION AND ITS CONSOLIDATED SUBSIDIARIES.
INVITROGEN CORPORATION
We develop, manufacture, and market research tools in kit form and provide
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.
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 addition, through our NOVEX product line
we develop, manufacture and market research electrophoresis products in pre-cast
form, which improve 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, gel electrophoresis is integral to the majority of the molecular
biology activities that our other kits and products address. In February 2000 we
merged with Research Genetics, Inc., a leading supplier of products and services
for functional genomics and gene-based drug discovery research. From 1994
through 1999, Invitrogen experienced compound annual growth in revenue of 29%
and net income of 55%, excluding merger costs net of taxes.
Based on independent market studies, in 1999 researchers spent over
$1.6 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 will grow approximately 21% in 2000, compared to
approximately 14% growth 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 sequence the human genome, and other genome
sequencing projects;
- Proliferation of high-throughput molecular biology research techniques;
and
- Increasing investment in commercial research activities.
We offer over 1,000 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
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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 1999 sales of these kits, we estimate that researchers who used
TOPO TA Cloning Kits in 1999 saved over seventeen 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
collections of full-length genes, which we are licensing and selling. To date,
we have assembled a collection of over 2,700 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 95 licenses, which provide us with access to over 200
patents and applications covering gene cloning, expression and analysis
materials and techniques. In total, we own or control 35 issued and pending
patents and applications. 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.
RECENT DEVELOPMENTS
On February 2, 2000 we completed our merger with Research Genetics, Inc. As
consideration for the merger, we issued 3,200,000 shares of our common stock for
all of the capital stock of Research Genetics. Upon their employment by
Invitrogen's subsidiary, we also issued options to purchase 750,000 shares of
our common stock to employees of Research Genetics. Research Genetics is located
in Huntsville, Alabama and will continue to operate there as our subsidiary.
Research Genetics is a leading supplier of products and services for
functional genomics and gene-based drug discovery research. Research Genetics'
product lines include DNA microarrays and custom software for microarray data
analysis, Polymerase Chain Reaction (PCR) primers that amplify all or a specific
portion of selected genes, genetic markers that are used to locate disease
genes, various genomic and cDNA libraries, and custom-made DNA. Research
Genetics currently offers microarrays of 30,000 different human genes, one of
the world's largest collections of commercially available, sequence-validated
clones.
THE OFFERING
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Securities Offered..................... $172,500,000 principal amount of 5 1/2% Convertible
Subordinated Notes due 2007 (convertible notes) that were
previously issued in a private offering, and shares of
Invitrogen common stock as may be issued upon conversion
of the convertible notes.
Maturity............................... March 1, 2007.
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Interest............................... Interest on the convertible notes will accrue at the rate
of 5 1/2% per annum and will be payable in cash
semiannually on March 1 and September 1 of each year,
commencing on September 1, 2000.
Conversion............................. Securityholders may convert a note into shares of
Invitrogen's common stock at any time on or after March 1,
2000 through the maturity date unless the note has been
previously redeemed or repurchased. The conversion rate is
11.737 shares per $1,000 of principal amount at maturity
of the notes, subject to adjustment in certain
circumstances. This results in an initial conversion price
of $85.20 per share, subject to adjustment in certain
events. Please refer to the section entitled "Description
of Convertible Notes--Conversion."
Ranking of the
Convertible Notes.................... The convertible notes are general unsecured obligations
ranking junior to all of our existing and future
indebtedness not expressly subordinated to or on a parity
with the notes. In addition, they will effectively rank
behind all of our secured debts to the extent of the value
of the assets securing those debts and all existing and
future debts and other liabilities of our subsidiaries. As
of March 31, 2000, on a pro forma basis reflecting our
merger with Research Genetics, our subsidiaries had
outstanding long-term debt (including both the current and
long-term portion) of approximately, $2.6 million and also
had $4.7 million of other liabilities, all of which would
have been structurally senior to the convertible notes.
Optional Redemption.................... On or after March 1, 2003, we may at our option redeem
some or all of the convertible notes at any time at the
redemption prices, and subject to certain limitations,
described in the section "Description of Convertible
Notes--Optional Redemption."
Change in Control...................... If we experience specific kinds of changes in control, we
must offer to repurchase the convertible notes at the
prices listed in the section "Description of Convertible
Notes--Repurchase at the Option of Holders."
Use of Proceeds........................ We will not receive any proceeds from the sale by the
selling securityholders of the convertible notes.
Registration Rights.................... We have agreed to use our reasonable best efforts to cause
the shelf registration statement, of which this Prospectus
is a part, to become effective under the Securities Act
within 180 days after the date of original issuance of the
notes. As described in the Registration Rights Agreement,
if the shelf registration statement is not declared
effective within the prescribed time period, or does not
remain effective for the prescribed period, we will be
obligated to pay special interest. Please refer to the
sections entitled "Description of Convertible
Notes--Registration Rights."
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United States Federal Tax
Considerations....................... There are certain U.S. federal income tax considerations
associated with purchasing, holding and disposing of the
convertible notes. Please refer to the section entitled
"Summary of Certain United States Federal Income Tax
Considerations."
</TABLE>
You should refer to the section entitled "Risk Factors" for an explanation
of certain risks related to investing in the convertible notes.
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<PAGE>
RISK FACTORS
AN INVESTMENT IN THE CONVERTIBLE NOTES INVOLVES THE FOLLOWING RISKS WHICH,
TOGETHER WITH OTHER MATTERS DESCRIBED IN THIS PROSPECTUS, SHOULD BE CAREFULLY
CONSIDERED BY INVESTORS BEFORE ANY PURCHASE OF THE CONVERTIBLE NOTES. THE RISKS
DESCRIBED BELOW ARE NOT THE ONLY ONES WE FACE. ADDITIONAL RISKS NOT PRESENTLY
KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS
OPERATIONS. CERTAIN STATEMENTS IN THIS PROSPECTUS (INCLUDING CERTAIN OF THE
FOLLOWING FACTORS) CONSTITUTE FORWARD-LOOKING STATEMENTS. PLEASE REFER TO THE
SECTION ENTITLED "FORWARD-LOOKING STATEMENTS."
FAILURE TO SUCCESSFULLY INTEGRATE RESEARCH GENETICS OR NOVEX INTO OUR OPERATIONS
COULD REDUCE OUR PROFITABILITY
We closed our merger with NOVEX in August 1999 and our merger with Research
Genetics in February 2000. Both are now our wholly-owned subsidiaries. Our
integration of the operations of these companies is ongoing and will require
significant efforts, including the coordination of research and development and
sales and marketing efforts. We may find it difficult to integrate the
operations of these acquired companies. Personnel may leave or be terminated
because of the mergers. In September 1999 we reduced the size of our U.S.
workforce by approximately 14% and in January 2000 we announced the closing of
our Frankfurt, Germany manufacturing facility in connection with the integration
of NOVEX. Such employee terminations or resignations or facility closures may
require us to make severance or other payments and may result in related
litigation.
Research Genetics' operations are located in Huntsville, Alabama, while our
U.S. headquarters and the bulk of our other operations are located in Carlsbad,
California. This physical separation of facilities could make it difficult for
us to effectively communicate with, manage, and integrate Research Genetics'
staff and operations with the rest of Invitrogen. Such difficulties could
significantly hurt our operations and consequently our financial results.
NOVEX or Research Genetics customers, distributors or suppliers may
terminate their arrangements with us, or demand amended terms to these
arrangements because of the merger. Invitrogen management may have their
attention diverted while trying to integrate the 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 Research Genetics or NOVEX, our expectations of future results of
operations may not be met. Factors which will determine the success of the
mergers include:
- Changes in the favorable market reaction to NOVEX's, Research Genetics',
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 all three
companies' products; and
- The ability of the combined company to operate efficiently and achieve
cost savings.
Even if we are able to integrate operations, there can be no assurance that
we will achieve synergies. The failure to achieve synergies could have a
material adverse effect on our business, results of operations, and financial
condition.
FAILURE TO MANAGE GROWTH COULD IMPAIR OUR BUSINESS
Our business has grown rapidly. Our net revenues increased from
$33.7 million in 1995 to $92.9 million in 1999. During that same period we
significantly expanded our operations in the United
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States and in Europe. The number of our employees has increased from
approximately 272 at December 31, 1996 to approximately 635 at December 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
- Programs to recruit and train new personnel.
Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We expect that we will need to continue to improve our
financial and managerial controls, reporting systems and procedures, and to
expand and train our workforce worldwide.
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.
Our recent mergers with NOVEX and Research Genetics will require 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.
AS A RESULT OF THE OFFERING OF THE CONVERTIBLE NOTES, WE HAVE A SIGNIFICANT
AMOUNT OF DEBT AND MAY HAVE INSUFFICIENT CASH TO SATISFY OUR DEBT SERVICE
OBLIGATIONS, EITHER OF WHICH COULD IMPEDE OUR OPERATIONS AND FLEXIBILITY
As a result of the offering of the convertible notes, we have a significant
amount of debt and debt service obligations. If we are unable to generate
sufficient cash flow or otherwise obtain funds necessary to make required
payments on the convertible notes, including from cash and cash equivalents on
hand, we will be in default under the terms of the indenture which could, in
turn, cause defaults under our other existing and future debt obligations.
Even if we are able to meet our debt service obligations, the amount of debt
we have could adversely affect us in a number of ways, including by:
- Limiting our ability to obtain any necessary financing in the future for
working capital, capital expenditures, debt service requirements, or other
purposes;
- Limiting our flexibility in planning for, or reacting to, changes in our
business;
- Placing us at a competitive disadvantage relative to our competitors who
have lower levels of debt;
- Making us more vulnerable to a downturn in our business or the economy
generally; and
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- Requiring us to use a substantial portion of our cash to pay principal and
interest on our debt, instead of contributing those funds to other
purposes such as working capital and capital expenditures.
THE CONVERTIBLE NOTES ARE SUBORDINATED TO OTHER DEBT AND NOT SECURED BY ANY OF
OUR ASSETS
The convertible notes are general unsecured obligations ranking junior to
all our existing and future senior debt, as that term is defined in the
indenture. In addition, the convertible notes are effectively junior to all our
existing and future secured indebtedness to the extent of the value of the
assets securing that indebtedness. As a result of such subordination, in the
event of our bankruptcy, liquidation or reorganization or certain other events,
our assets will be available to pay obligations on the convertible notes only
after all of our senior debt and all of our secured debt, to the extent of the
value of the assets securing that debt, has been paid in full. Consequently,
there may not be sufficient assets remaining to pay amounts due on any or all of
the convertible notes then outstanding. In addition, to the extent our assets
cannot satisfy in full the secured indebtedness, the holders of the secured
indebtedness would have a claim for any shortfall that would rank senior in
right of payment with respect to the convertible notes, if such secured debt
were senior debt, or would rank equally in right of payment with the convertible
notes if such secured debt were not so classified. The indenture governing the
convertible notes does not prohibit or limit our or our subsidiaries' incurrence
of additional debt, including senior debt or secured debt, and the incurrence of
any such additional indebtedness could adversely affect our ability to pay our
obligations on the convertible notes. As of March 31, 2000, our subsidiaries had
outstanding long-term debt (including both the current and long-term portion) of
approximately $2.6 million and also had $4.7 million of other liabilities, all
of which are structurally senior to the convertible notes. Please refer to the
section entitled "Description of Convertible Notes--Subordination of Convertible
Notes."
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
(NIH) 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. Our revenues may be adversely affected if
our customers delay purchases as a result of uncertainties surrounding the
approval of government budget proposals. 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.
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Our customers generally receive funds from approved grants at particular
times of the year, as determined by the federal government. Grants have, in the
past, been frozen for extended periods or have otherwise become unavailable to
various institutions without advance notice. The timing of the receipt of grant
funds affects the timing of purchase decisions by our customers and, as a
result, can cause fluctuations in our sales and operating results.
FAILURE TO LICENSE NEW TECHNOLOGIES COULD IMPAIR OUR NEW PRODUCT DEVELOPMENT
Our business model of providing products to researchers working on a variety
of genetic projects requires us to develop a wide spectrum of products. To
generate broad product lines it is sometimes advantageous to license
technologies from the scientific community at large rather than depending
exclusively on in-house innovations. 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. Over 40% of our revenues are from
products manufactured or sold under licenses from third-parties.
From time to time we are notified or become aware of patents held by
third-parties which are related to technologies we are selling or may sell in
the future. After a review of these patents, we may decide to obtain a license
for these technologies from such third-parties. We are currently in the process
of negotiating several such licenses and expect that we will also negotiate
these types of licenses in the future. There can be no assurances that we will
be able to negotiate such licenses on favorable terms, or at all.
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.
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
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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 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;
- Timing of product introduction 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.
COMPETITION IN THE LIFE SCIENCES RESEARCH MARKET COULD REDUCE SALES
The markets for our products are very competitive and price sensitive. Many
other life science 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. If a competitor develops superior technology or
cost-effective alternatives to our kits and other products, our business,
operating results, and financial condition could be materially adversely
affected.
The market for our electrophoresis products is also subject to specific
competitive risks. This market is highly price competitive. Our competitors have
competed in the past competed by lowering prices on certain products, and they
may do so in the future. 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
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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.
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 customers have established agreements with large distributors,
which include discounts and the distributors' direct involvement with the
purchasing process. These activities may force us to supply the large
distributors with our products at a discount to reach those customers. For
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 pre-cast electrophoresis 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 Dutch and Germany subsidiaries and export sales,
represented 30% of our product revenues in 1999, 30% in 1998, and 26% in 1997.
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.
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A significant portion of our business is conducted in currencies other than
the U.S. dollar, which is our reporting currency. We recognize foreign currency
gains or losses arising from our operations in the period incurred. As a result,
currency fluctuations among the U.S. dollar and the currencies in which we do
business have caused and will continue to cause foreign currency transaction
gains and losses. We cannot predict the effects of exchange rate fluctuations
upon our future operating results because of the number of currencies involved,
the variability of currency exposures, and the potential volatility of currency
exchange rates. We engage in foreign exchange hedging transactions to manage our
foreign currency exposure, but we cannot assure you that our strategies will
adequately protect our operating results from the effects of exchange rate
fluctuations.
The Asia/Pacific region in the past has 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 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. We only have patents issued in selected countries.
Therefore, third-parties can make, use, and sell products covered by our patents
in any country in which we do not have patent 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. We license the right to use our products to our
customers under label licenses that are for research purposes only. These
licenses could be contested and no assurances can be made that we would either
be aware of an unauthorized use or be able to enforce the restrictions in a
cost-effective manner.
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.
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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 under these circumstances we might 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.
THE MARKET PRICE OF OUR STOCK AND THE CONVERTIBLE NOTES COULD BE VOLATILE, WHICH
MAY IMPAIR YOUR INVESTMENT
The market price of our common stock has been subject to volatility and, in
the future, the market price of our common stock and the convertible notes 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 and the convertible notes 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 and the convertible notes. 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."
WE MAY BE UNABLE TO REPAY OR REPURCHASE THE CONVERTIBLE NOTES UPON A CHANGE OF
CONTROL
There is no sinking fund with respect to the convertible notes, and the
entire outstanding principal amount of the convertible notes will become due and
payable at maturity. If we experience a change of control, as defined in the
indenture for the convertible notes, you may require us to repurchase all or a
portion of your convertible notes prior to maturity. See "Description of
Convertible Notes--Repurchase at the Option of Holders." We may not have
sufficient funds or be able to arrange for additional financing to repay the
convertible notes at maturity or to repurchase convertible notes tendered to us
following a change of control.
Borrowing arrangements or agreements relating to other indebtedness to which
we may become a party may contain restrictions on or prohibitions against our
repurchase of the convertible notes. If we
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are prohibited from repurchasing the convertible notes under such financing
arrangements and can not obtain the necessary waivers or refinance the
applicable borrowings, we will be unable to repurchase the convertible notes.
Our failure to repurchase any tendered convertible notes or convertible notes
due upon maturity would constitute an event of default of the convertible notes.
OUR ANTI-TAKEOVER DEFENSE PROVISIONS MAY DETER POTENTIAL ACQUIRORS AND MAY
DEPRESS OUR STOCK PRICE
Certain provisions of our certificate of incorporation, by-laws, 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 include the following:
- We may issue preferred stock with rights senior to those of our common
stock;
- We have a classified Board of Directors;
- Our by-laws prohibit action by written consent by stockholders; and
- We require advance notice for nomination of directors and for stockholder
proposals.
The indenture for the convertible notes also contains provisions that could
have the effect of making it more difficult for a third-party to acquire, or of
discouraging a third-party from attempting to acquire control of us. These
provisions would require us to make an offer to purchase all of the convertible
notes. Provisions such as these in our or our subsidiaries' indebtedness may
decrease the likelihood that stockholders will receive a possibly substantial
premium for their shares over then current market prices, and may limit the
ability of stockholders to approve transactions that they may deem to be in
their best interest. These provisions could discourage potential takeover
attempts and could adversely affect the market price of our common stock and the
convertible notes. See "Description of Capital Stock--Delaware Anti-takeover Law
and Certain Charter Provisions."
AN ACTIVE TRADING MARKET MAY NOT DEVELOP FOR THE CONVERTIBLE NOTES
While the outstanding convertible notes are eligible for trading in the
PORTAL Market, the Private Offering, Resale, and Trading through Automated
Linkages Market of the National Association of Securities Dealers, Inc., a
screen-based automated market for trading securities for qualified institutional
buyers, there is no public market for the convertible notes. The initial
purchasers have informed us that they intend to make a market in the convertible
notes, but they may cease their market-making activities at any time.
We do not intend to apply for a listing of any of the convertible notes on
any securities exchange. We do not know if an active public market will develop
for the convertible notes or, if developed, will continue. If an active market
is not developed or maintained, the market price and the liquidity of the
convertible notes may be adversely affected.
In addition, the liquidity and the market price of the convertible notes may
be adversely affected by changes in the overall market for convertible
securities and by changes in our financial performance or prospects, or in the
prospects for companies in our industry. As a result, you cannot be sure that an
active trading market will develop for these convertible notes.
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.
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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.
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 in the future or in response to the
perception that such sales could occur. As of March 31, 2000, we had outstanding
23,297,420 shares of common stock. Of these shares, approximately 14,081,145 are
registered and freely tradable. All of the remaining approximately 9,216,275
shares are unregistered but may be sold in accordance with Rule 144 and
Rule 701 of the Securities Act of 1933, as amended. Approximately 4,365,423
registered and unregistered shares are subject to 90-day lock-up agreements
which expire on May 30, 2000, 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 3,653,001 shares of common stock have the right
to request that we register their shares for sale in the public market.
CONTROL OF INVITROGEN BY EXECUTIVE OFFICERS AND DIRECTORS MAY IMPEDE CHANGES TO
INVITROGEN OR ITS POTENTIAL SALE
As of March 31, 2000, the President of our Research Genetics subsidiary and
his family, our executive officers and directors collectively beneficially owned
approximately 35.1% of our outstanding common stock. These 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 Stockholders."
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. See "Dividend Policy."
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FORWARD-LOOKING STATEMENTS
Any statements in this prospectus about our expectations, beliefs, plans,
objectives, assumptions or future events or performance are not historical facts
and are forward-looking statements. These statements are often, but not always,
made through the use of words or phrases such as "believe," "anticipate,"
"should," "intend," "plan," "will," "expects," "estimates," "projects,"
"positioned," "strategy," "outlook" and similar expressions. Accordingly, these
statements involve estimates, assumptions and uncertainties which could cause
actual results to differ materially from the results expressed in the
statements. Any forward-looking statements are qualified in their entirety by
reference to the factors discussed throughout this prospectus. The following
cautionary statements identify important factors that could cause our actual
results to differ materially from those projected in the forward-looking
statements made in this prospectus. Among the key factors that have a direct
impact on our results of operations are:
- The risks and other factors described under the caption "Risk Factors" in
this prospectus;
- General economic and business conditions;
- Industry trends;
- Our assumptions about customer acceptance, overall market penetration and
competition from providers of alternative products and services;
- Our actual funding requirements; and
- Availability, terms and deployment of capital.
Because the risk factors referred to above could cause actual results or
outcomes to differ materially from those expressed in any forward-looking
statements made by us, you should not place undue reliance on any such
forward-looking statements. Further, any forward-looking statement speaks only
as of the date on which it is made and we undertake no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time, and it is not
possible for us to predict which will arise. In addition, we cannot assess the
impact of each factor on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
USE OF PROCEEDS
Invitrogen will not receive any proceeds from the sale by the selling
securityholder of the notes or the shares of common stock immediately on
conversion of the notes.
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.
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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>
HIGH LOW
------------------------ ------------------------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
First quarter (beginning February 26)....................... $ 15.50 $ 12.00
Second quarter.............................................. 26.00 12.88
Third quarter............................................... 35.13 23.38
Fourth quarter.............................................. 67.38 23.25
YEAR ENDED DECEMBER 31, 2000:
First quarter............................................... 99.50 43.63
Second quarter (through May 25, 2000)....................... 73.00 36.00
</TABLE>
On May 25, 2000, the last reported sale price of our common stock on the
Nasdaq National Market was $44.31. As of May 25, 2000, there were 23,441,466
shares of common stock outstanding and approximately 354 stockholders of record
of our common stock.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges for
our company and our subsidiaries for each of the periods indicated. We
calculated the ratio of earnings to fixed charges by dividing earnings by total
fixed charges. Earnings consist of pretax income plus fixed charges. Fixed
charges consist of interest expense on all indebtedness and amortization of debt
expense.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------------- ------------------
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges................... 11.2 8.7 8.5 10.3 17.0 1.6
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We develop, manufacture, and market research tools in kit form and provide
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.
Substantially all of our revenue to date has come from the sale of these
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 and other products in our
manufacturing facilities in Carlsbad and San Diego, California and Huntsville,
Alabama. In addition, we purchase products from third-party manufacturers. We
also have a manufacturing facility in Heidelberg, Germany for formulating and
packaging fine chemicals.
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 facilities 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 may choose in the future
to establish a direct sales organization in these and 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 95 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 1995
to 1999 we have experienced compound annual revenue growth of 29%. The increase
in our revenues has been due to several factors, including the continued growth
of the market for gene identification, cloning, expression, and analysis kits
and products; increasing market acceptance of these kits and products; our
introduction of new research kits and products for gene identification, 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. In the past,
we have paid royalties 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;
- Our ability to control or adjust research and development, marketing,
sales and general and administrative expenses in response to changes in
revenues; and
- Currency rate fluctuations.
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.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
REVENUES. Revenues for the three months ended March 31 increased
$5.7 million, or 26%, from $21.6 million in 1999 to $27.3 million for 2000. For
these same periods, revenues in North America increased $5.2 million, or 31%,
from $16.5 million to $21.7 million, and revenues outside of North America
increased $.5 million, or 10%, from $5.1 million to $5.6 million. The overall
increase in revenue was primarily attributable to continued market growth and
increased market penetration for DNA microarrays, sequence-verified gene clones
and gene cloning, expression and analysis kits. European revenues, when reported
in U.S. Dollars, were adversely affected by changes in currency rates. The
change in currency rates accounted for a decrease in U.S. Dollar denominated
revenues of $.8 million, or 4%. European revenues also reflect a $.3 million
decline in sales of the fine chemicals product line acquired with the NOVEX
merger last year. The fine chemicals product line is a slow-to no-growth
business. Holding currency conversion rates constant with those in 1999 and
excluding revenues from the fine chemicals product line, European revenues
increased 38% and worldwide revenues increased 30%.
We expect that future revenues will be affected by new product
introductions, competitive conditions, customer research budgets, and the rate
of expansion of our customer base.
GROSS MARGIN. Our gross margin for the three months ended March 31
increased from $13.5 million in 1999 to $18.2 million in 2000. Gross margin as a
percentage of revenues increased from 62.5% to 66.7% for these periods. Gross
margin improvements during the period were primarily a result of increased sales
of our higher margin gene cloning and expression kits, DNA microarrays and
sequence-verified gene clones.
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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. The functional currency of our Netherlands subsidiary,
Invitrogen B.V., is the Netherlands Guilder (NLG) and for our German
subsidiaries, NOVEX GmbH and Serva GmbH, is the Deutsche Mark. The translation
from NLG and the Deutsche Mark to the U.S. Dollar 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. All three European subsidiaries conduct
their European business in the currencies of their 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 for the three months
ended March 31 increased 20% from $4.0 million in 1999 to $4.8 million in 2000.
As a percentage of revenues, sales and marketing expenses decreased from 18.5%
to 17.5% for these periods as our revenue growth continued to outpace spending
on sales and marketing.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
three months ended March 31 increased 18% from $3.0 million in 1999 to
$3.6 million in 2000. As a percentage of revenues, general and administrative
expenses decreased from 14.1% to 13.2% for these periods. The absolute increase
resulted from the continued expansion of administrative resources to support our
growth and the completion of our first full year as a 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.
RESEARCH AND DEVELOPMENT. Research and development expenses for the three
months ended March 31 remained relatively flat at $3.5 million for both 1999 and
2000. As a percentage of revenues, research and development expenses decreased
from 16.0% in 1999 to 12.9% in 2000 as our revenue growth continues to exceed
our spending for research and development.
OTHER INCOME (EXPENSE). Other income and expense, net, for the three months
ended March 31 increased $0.8 million, from zero in 1999, to net other income of
$.8 million in 2000. This increase resulted mainly from higher interest income
earned on larger average balances of cash and cash equivalents during the
period, partially offset by interest expense on higher debt balances.
PROVISION FOR INCOME TAXES. The provision for income taxes for the three
months ended March 31, 2000 was higher than our pre-tax income due to certain
merger related costs incurred in February 2000 that are not deductible for tax
purposes. Excluding the impact of the merger related costs, net of tax, our
effective tax rate increased from 33.1% for all of 1999 to 36.7% for 2000.
Higher taxable income in 2000 lessens the impact of our tax credits which
effectively increases our rate. We have also reinvested our holdings in
tax-deductible investments in fully taxable investments due to our net operating
loss carryforward for tax purposes, which also increases our effective rate.
YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUES. Revenues for the year ended December 31 increased $22.3 million,
or 32%, from $70.6 million in 1998 to $92.9 million for 1999. For these same
periods, revenues in North America increased $15.2 million, or 31%, from
$49.5 million to $64.7 million, and revenues outside of North America increased
$7.1 million, or 34%, from $21.1 million to $28.2 million. The overall increase
in revenue was primarily attributable to continued market growth and penetration
for gene identification, cloning, expression and analysis kits and products.
While our European revenue increase was positively impacted by an additional
five months of revenues from our Serva fine chemicals product line, acquired in
May 1998, currency rates adversely affected revenues denominated in U.S. Dollars
by $1.8 million, a
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2.6% decline in revenues. Holding currency conversion rates constant with those
in 1998 and excluding the Serva product line revenues, European revenues
increased 43%.
We expect that future revenues will be affected by new product
introductions, competitive conditions, customer research budgets, the rate of
expansion of our customer base and foreign currency conversion rates.
GROSS MARGIN. Our gross margin increased from $44.1 million in 1998 to
$60.0 million in 1999. Gross margin as a percentage of revenues increased from
63% to 65% 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 in addition to general price increases, higher
grant revenue, lower shipping costs and decreased royalty expenses.
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. The functional currency of our Dutch subsidiary,
Invitrogen B.V., is the Netherlands Guilder (NLG) and for our German
subsidiaries, NOVEX GmbH and Serva GmbH, is the Deutsche Mark. The translation
from NLG and the Deutsche Mark to the U.S. Dollar 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. All three European subsidiaries conduct
their European business in the currencies of their 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 23% from
$13.2 million in 1998 to $16.2 million in 1999. As a percentage of revenues,
sales and marketing expenses decreased from 19% to 18% for these periods as our
revenue growth continued to outpace spending on sales and marketing.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
10% from $11.1 million in 1998 to $12.1 million in 1999. As a percentage of
revenues, general and administrative expenses decreased from 16% to 13% for
these periods. The absolute increase resulted from the continued expansion of
administrative resources to support our growth and 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.
RESEARCH AND DEVELOPMENT. Research and development expenses increased 31%
from $11.2 million in 1998 to $14.7 million in 1999. As a percentage of
revenues, research and development expenses remained the same at 16% for both
1998 and 1999. The absolute increase resulted from increased costs associated
with the expansion of research and business development competencies in our core
gene identification, cloning, expression and analysis business.
OTHER INCOME (EXPENSE). Other income and expense, net, increased
$1.5 million, from net other expense of $0.2 million in 1998, to net other
income of $1.3 million in 1999. This increase resulted mainly from higher
interest income earned on larger average balances of cash and cash equivalents
during the period.
PROVISION FOR INCOME TAXES. Our effective tax rate decreased from 35.1% in
1998 to 34.5% for 1999. The decrease in our effective tax rate resulted from tax
deductible interest earned on investments during 1999 offset by certain merger
related costs incurred in August 1999 that are not deductible for tax purposes.
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YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES. Revenue increased $15.2 million, or 28%, from $55.3 million in
1997 to $70.6 million in 1998. For these same periods, revenues in North America
increased $8.3 million, or 20%, from $41.3 million to $49.6 million, and revenue
outside North America increased $6.9 million, or 49%, from $14.2 million to
$21.1 million. The acquisition of the Serva product line in 1998 accounted for
$2.8 million of the increase in revenues for 1998. Excluding the Serva product
line revenues in 1998, revenue growth outside North America was $4.1 million, or
29%. The overall increase in revenue was primarily attributable to continued
market growth and increased market penetration of DNA microarrays, gene cloning,
expression and analysis kits and related product lines.
GROSS MARGIN. Our gross margin increased from $32.6 million in 1997 to
$44.1 million in 1998. Gross margin as a percentage of revenues increased from
59% to 63% 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. These improvements were offset slightly by a low
gross margin on Serva product revenues which was 36% in 1998 and one-time
charges to cost of goods sold for process and design changes in the
manufacturing of electrophoresis products in 1998. Foreign currency fluctuations
had a negligible impact during both periods.
SALES AND MARKETING. Sales and marketing expenses increased 33% from
$9.9 million in 1997 to $13.2 million in 1998. As a percentage of revenues,
sales and marketing expenses increased from 18% to 19% for these periods. These
increases resulted from the growth of our field sales force in North America and
Europe and the addition of expenses related to the Serva product line.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
16% from $9.6 million in 1997 to $11.1 million in 1998. As a percentage of
revenues, general and administrative expenses decreased from 17% to 16% for
these periods. The absolute increase resulted from the continued expansion of
administrative resources to support our growth and the addition of expenses
related to the Serva product line. 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 48%
from $7.5 million in 1997 to $11.2 million in 1998. As a percentage of revenues,
research and development expenses increased from 14% to 16% 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 identification, cloning,
expression, analysis and related products.
OTHER INCOME (EXPENSE). Other expense, net, decreased $0.1 million, from
$0.3 million in 1997, to $0.2 million in 1998. This decrease in net expense
resulted from higher interest income earned on larger average balances of cash
and cash equivalents during the period offset by higher interest expense and
lower net gains on foreign currency transactions.
PROVISION FOR INCOME TAXES. Our effective tax rate remained the same at
35.1% for 1998 and 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash from operating activities generated $3.3 million during the first
quarter of 2000. Net cash generated from financing activities totaled
$162.4 million and reflects $167.0 million in net proceeds from the issuance of
convertible subordinated debt, $5.5 million in net proceeds from stock issued
under employee stock plans, reduced by $9.4 million that was used to pay off
debt acquired in the Research Genetics merger. Capital expenditures and payments
for intangible assets during the first quarter of 2000 totaled $2.4 million and
$0.1 million, respectively.
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During the first quarter of 2000 we recorded a current deferred tax asset of
$12.1 million representing amounts deductible for income tax purposes for
non-qualified stock option exercises and disqualifying dispositions of our
common stock by employees during the quarter. This benefit is reflected as
additional paid-in capital in the March 31, 2000 balance sheet.
In February 2000 we completed our merger with Research Genetics. As
consideration for the merger, we issued 3,200,000 shares of our common stock for
all of the outstanding common stock of Research Genetics. Costs incurred as a
result of the merger and related integration are expected to be $6.4 million,
which includes $2.4 million paid by a Research Genetics shareholder, and are
subject to change. These costs were expensed in February 2000, after the merger
was completed.
In March 2000 we issued $172,500,000 in 5 1/2% Convertible Subordinated
Notes due 2007. The notes were priced on February 24, 2000 at 100% of their
principal amount and are convertible into 2,024,648 shares of Invitrogen's
common stock. Interest is payable semiannually on March 1 and September 1. The
convertible notes may be redeemed, in whole or in part, at our option on or
after March 1, 2003.
As of March 31, 2000 we had cash and cash equivalents totaling
$265.4 million and working capital of $296.6 million. Our funds are currently
invested in U.S. Treasury and government agency obligations, tax exempt and
taxable municipal bonds, commercial paper and dividend-bearing securities. Due
to our sufficient cash balances we terminated our $3.0 million bank line of
credit facility and the $1.2 million line of credit facility that we acquired in
the NOVEX merger. In February we assumed Research Genetics' bank line of credit
facility totaling $1.5 million. In March 2000 we fully paid the outstanding
balance on this line and terminated the facility.
We expect that our cash and cash equivalents, and cash provided by
operations will be sufficient to fund our operations for at least two years. Our
future capital requirements and the adequacy of our available funds will depend
on many factors, including scientific progress in our research and development
programs, the magnitude of those programs, our ability to establish
collaborative and licensing arrangements, the cost involved in preparing,
filing, prosecuting, maintaining and enforcing patent claims, competing
technological and market developments and future business acquisitions.
CURRENCY HEDGING AND FOREIGN CURRENCY TRANSLATION
We conduct business transactions with our subsidiaries in the Netherlands
and with our foreign distributors, including those in Asia, in U.S. Dollars.
Transactions with our German subsidiary, NOVEX GmbH, are denominated in Deutsche
Marks. We have not taken any action to reduce our exposure to changes in foreign
currency exchange rates, such as options or futures contracts with respect to
transactions with our subsidiaries or transactions with our foreign customers.
However, in the normal course of business, Invitrogen B.V. from time to time
purchases exchange-traded put options on U.S. Dollars and U.K. Pounds Sterling
to mitigate foreign currency exposure. At March 31, 2000 outstanding options
totaled $2.1 million and mature on various dates through December 2000.
NLG is the functional currency for Invitrogen B.V. and the Deutsche Mark is
the functional currency for NOVEX GmbH and Serva GmbH. The translation from NLG
and the Deutsche Mark 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
revenue and expense accounts using the average exchange rate during the period.
The effects of translation are recorded as a separate component of stockholders'
equity. Invitrogen B.V., NOVEX GmbH and Serva GmbH conduct their 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 and are included in the Consolidated
Statements of Income in the respective period incurred.
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ISSUES RELATED TO THE EUROPEAN MONETARY CONVERSION
On January 1, 1999, certain member states of the European Economic Community
(EEC), 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 Euro and the
existing national currency, such as the NLG, French Franc or Deutsche Mark.
Businesses 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 have tested our internal systems and are able to process orders
and invoices in the Euro as well as the local currency for the members of the
monetary union. To date we have spent immaterial amounts to comply with these
statutory requirements. These assessments have not been independently verified.
However, we have not determined the costs related to any problems that may arise
in the future due to the inability of any of our customers or vendors to comply
with the statutory requirements. Any such problems may materially adversely
affect our business, operating results and financial condition.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to interest rate risk. Our investment portfolio is maintained
in accordance with our investment policy which defines allowable investments,
specifies credit quality standards and limits the credit exposure of any single
issuer. We do not utilize any form of interest rate swap agreements to manage
our exposure to fluctuations in earnings due to changes in interest rates. At
March 31, 2000, cash and cash equivalents are invested primarily in securities
with maturities of less than 90 days. Since the fair value of our cash and cash
equivalents approximated carrying value due to the short-term nature of the
investments, any increase in interest rates would not have had a material impact
on the ending fair value of our cash equivalents. We would, however, be at risk
for lower earnings should interest rates decline unexpectedly.
See also the discussion under "Currency Hedging and Foreign Currency
Translation" for additional quantitative and qualitative disclosures about
market risk.
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DESCRIPTION OF CONVERTIBLE NOTES
GENERAL
We issued the convertible notes under an indenture, dated as of March 1,
2000, between us and State Street Bank and Trust Company of California, N.A. as
trustee. The following description is a summary of the material provisions of
the indenture. It does not restate the indenture in its entirety. We urge you to
read the indenture and registration rights agreement because they, and not this
description, define your rights as holders of these convertible notes. Copies of
the indenture and the registration rights agreement are available to you upon
request.
You can find the definitions of certain terms used in this description under
the subheading "Definitions." In this section of the Prospectus entitled
"Description of Convertible Notes" when we refer to Invitrogen or Invitrogen
Corporation, or "we," "our," or "us," we are referring only to Invitrogen
Corporation and not any of its subsidiaries.
The convertible notes are unsecured obligations, subordinated in right of
payment to all our existing and future senior debt as described under
"--Subordination of Convertible Notes" and convertible into our common stock as
described under "--Conversion." The indenture does not contain any financial
covenants or restrictions on the payment of dividends, the incurrence of senior
debt or issuance or repurchase of our securities. The indenture contains no
covenants or other provisions to afford protection to holders of the convertible
notes in the event of a highly leveraged transaction by us except to the extent
described under "--Repurchase at the Option of Holders." The convertible notes
are not guaranteed by any of our subsidiaries.
We conduct a significant amount of our operations through our subsidiaries.
To the extent that we need the cash flow of our subsidiaries to meet some of our
obligations, including our obligations under the convertible notes, the
convertible notes are effectively subordinated to all existing and future
indebtedness and other liabilities and commitments of our subsidiaries with
respect to the cash flow and assets of those subsidiaries.
PRINCIPAL, MATURITY AND INTEREST
The convertible notes have a maximum aggregate principal amount of
$172,500,000 and mature on March 1, 2007. Interest on the convertible notes
accrues at a rate of 5 1/2% per annum from the date of original issuance,
payable semiannually on March 1 and September 1, commencing on September 1,
2000. We will make each interest payment to the holders of record of the
convertible notes on the immediately preceding February 15 and August 15.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
The convertible notes are payable both as to principal and interest on
presentation of the convertible notes if in certificated form at the offices or
agencies we maintain for such purpose within the City and State of New York or,
at our option, payment of interest may be made by check mailed to the holders of
the convertible notes at their respective addresses set forth in the register of
holders of convertible notes or, if a holder who holds an aggregate principal
amount of at least $5.0 million of convertible notes so requests, by wire
transfer of immediately available funds to an account previously specified in
writing by such holder to us and the trustee. Until otherwise designated by us,
our office or agency in New York will be the offices of the trustee maintained
for such purpose. The convertible notes will be issued in registered form,
without coupons, and in denominations of $1,000 and integral multiples of
$1,000.
CONVERSION
The holders of the notes are entitled at any time on or after March 1, 2000
and before the close of business on the date of maturity of the notes, subject
to prior redemption or repurchase pursuant to
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the change in control provisions, to convert the notes, or portions thereof (if
the portions are $1,000 or whole multiples thereof) into 11.737 shares of common
stock per $1,000 of principal amount of notes, which we refer to as the
conversion rate. The conversion rate is subject to adjustment upon the
occurrence of an "adjustment event" as discussed below. Upon conversion, you
will not be entitled to any payment or adjustment on account of accrued and
unpaid interest or accrued original issue discount on the notes. Our delivery to
you of the fixed number of shares of common stock into which the note is then
convertible (together with any cash payment in lieu of any fractional share of
common stock) will be deemed to satisfy our obligation to pay the principal
amount of the note, including the accrued and unpaid interest and the accrued
original issue discount on the note attributable to the period from the first
date of issuance of the relevant notes to the date of surrender for conversion.
Thus, the accrued and unpaid interest and accrued original issue discount are
deemed to be paid in full rather than canceled, extinguished or forfeited.
If you surrender notes for conversion during the period after any interest
record date and prior to the corresponding interest payment date, you must pay
us the interest payable on those notes, unless they have been called for
redemption on a redemption date within the period or on the interest payment
date. You may not convert notes called for redemption after the close of
business on the business day preceding the date fixed for redemption unless we
default in payment of the redemption price. We will not issue fractional shares
of common stock on conversion. Rather, we will pay the converting holder in cash
an amount equal to the fair market value of the fractional interest, unless
payment in cash is prohibited by our indebtedness, in which case we will issue
fractional shares.
With respect to any notes that are "restricted securities" on the conversion
date, the shares of common stock distributed upon conversion will be treated as
"restricted securities" and will bear a legend to that effect. You will not be
able to transfer these shares except pursuant to an effective registration
statement or pursuant to an exemption from the registration requirements of the
Securities Act. All such shares will be issued in physical certificated form and
will not be eligible for receipt in global form through the facilities of the
Depository Trust Company, or "DTC." With respect to notes that are no longer
"restricted securities" on a conversion date, either as a result of a resale of
the notes pursuant to the shelf registration statement or otherwise, all shares
of common stock distributed upon conversion will be freely transferable without
restriction under the Securities Act, other than by our affiliates, and those
shares will be eligible for receipt in global form through the facilities DTC.
The conversion price is subject to adjustment upon the occurrence of certain
events, including:
- The issuance of shares of common stock as a dividend or distribution on
the common stock;
- The subdivision or combination of the outstanding common stock;
- The issuance to substantially all holders of common stock of rights or
warrants to subscribe for or purchase common stock (or securities
convertible into common stock) at a price per share less than the then
current market price per share, as defined;
- The distribution of shares of our capital stock (other than common stock),
evidences of indebtedness or other assets (excluding dividends in cash,
except as described below) to all holders of common stock;
- The distribution, by dividend or otherwise, of cash to all holders of
common stock in an aggregate amount that, together with the aggregate of
(i) any other distributions of cash that did not trigger a conversion
price adjustment to all holders of our common stock within the 12 months
preceding the date fixed for determining the stockholders entitled to such
distribution and (ii) all excess payments in respect of each tender offer
or other negotiated transaction by us or any of our subsidiaries for
common stock concluded within the preceding 12 months not triggering a
conversion price adjustment, exceeds 15% of the product (a) of the current
market price per share (determined as set forth below) on the date fixed
for the determination of
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stockholders entitled to receive such distribution times (b) the number of
shares of common stock outstanding on such date;
- Payment of an excess payment in respect of a tender offer or other
negotiated transaction by us or any of our subsidiaries for common stock,
if the aggregate amount of such excess payment, together with the
aggregate amount of cash distributions made within the preceding
12 months not triggering a conversion price adjustment and all excess
payments in respect of each tender offer or other negotiated transaction
by us or any of our subsidiaries for common stock concluded within the
preceding 12 months not triggering a conversion price adjustment, exceeds
15% of the product of the current market price per share on the expiration
of the tender offer or the consummation of the other negotiated
transaction, as the case may be, times the number of shares of common
stock outstanding on that date; and
- The distribution to substantially all holders of common stock of rights or
warrants to subscribe for securities (other than those referred to above).
In the event of a distribution to substantially all holders of common
stock of rights to subscribe for additional shares of our capital stock
(other than those referred to above), we may, instead of making any
adjustment in the conversion price, make proper provision so that each
holder of a convertible note who converts the convertible note after the
record date for the distribution and prior to the expiration or redemption
of the rights will be entitled to receive upon that conversion, in
addition to shares of common stock, an appropriate number of rights.
The conversion price will be adjusted until cumulative adjustments amount to
one percent or more of the conversion price as last adjusted.
If we reclassify or change our outstanding common stock, or consolidate with
or merge into or transfer or lease all or substantially all of our assets to any
person, or we are a party to a merger that reclassifies or changes our
outstanding common stock, the convertible notes will become convertible into the
kind and amount of securities, cash or other assets which the holders of the
convertible notes would have owned immediately after the transaction if the
holders had converted the convertible notes immediately before the effective
date of the transaction.
The indenture also provides that if rights, warrants or options expire
unexercised, the conversion price shall be readjusted to take into account the
actual number of warrants, rights or options which were exercised.
In the indenture, the "current market price" per share of common stock on
any date is deemed to be the average of the daily market prices for the shorter
of (1) 10 consecutive business days ending on the last full trading day on the
exchange or market referred to in determining the daily market prices prior to
the time of determination (as defined in the indenture) or (2) the period
commencing on the date next succeeding the first public announcement of the
issuance of rights or warrants or distribution through the last full trading day
prior to the time of determination.
We will be permitted to make such reductions in the conversion price as we,
in our discretion, determine to be advisable in order that any stock dividend,
subdivision of shares, distribution or rights to purchase stock or securities or
distribution of securities convertible into or exchangeable for stock made by us
to our stockholders will not be taxable to the recipients.
SUBORDINATION OF CONVERTIBLE NOTES
The convertible notes will be subordinate in right of payment to all of our
existing and future senior debt. The indenture does not restrict the amount of
senior debt or other indebtedness that we or any of our subsidiaries can incur.
As of March 31, 2000, our subsidiaries had outstanding long-term debt (including
both the current and long-term portion) of approximately $2.6 million and also
had $4.7 million of other liabilities, all of which would have been structurally
senior to the convertible
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notes. After this offering, we will not have any debt outstanding other than
Indebtedness of our subsidiaries, trade debt and the indebtedness represented by
the convertible notes.
The payment of the principal of, interest on or any other amounts due on the
convertible notes is subordinated in right of payment to the prior payment in
full of all of our existing and future senior debt. No payment on account of
principal of, redemption of, interest on or any other amounts due on the
convertible notes, including, without limitation, any payments on the change of
control offer, and no redemption, purchase or other acquisition of the
convertible notes may be made unless (1) full payment of amounts then due on all
senior debt have been made or duly provided for pursuant to the terms of the
instrument governing that senior debt, and (2) at the time for, or immediately
after giving effect to, any such payment, redemption, purchase or other
acquisition, there does not exist under any senior debt or any agreement under
which any senior debt has been issued, any default that has not been cured or
waived and that has resulted in the full amount of the senior debt being
declared due and payable. In addition, the indenture provides that if any of the
holders of any issue of senior debt notify us and the trustee that a default has
occurred giving the holders of the senior debt the right to accelerate the
maturity of the convertible notes, a payment blockage notice, no payment on
account of principal, redemption, interest, special interest, if any, or any
other amounts due on the convertible notes and no purchase, redemption or other
acquisition of the convertible notes will be made for the period, the payment
blockage period, commencing on the date notice is received and ending on the
earlier of: (A) the date on which the default was cured or waived, or
(B) 180 days from the date notice is received. Only one payment blockage notice
with respect to the same event of default or any other events of default
existing or continuing at the time of notice on the same issue of senior debt
may be given during any period of 360 consecutive days unless the event of
default or other events of default have been cured or waived for a period of not
less than 90 consecutive days. No new payment blockage period may be commenced
by the holders of senior debt during any period of 360 consecutive days unless
all events of default which were the object of the preceding payment blockage
notice, and any other event of default existing or continuing at the time of
such notice, have been cured or waived.
Upon any distribution of our assets in connection with any dissolution,
winding-up, liquidation or reorganization of us or acceleration of the principal
amount due on the convertible notes because of any event of default, we must pay
all senior debt in full before the holders of the convertible notes are entitled
to any payments whatsoever.
As a result of these subordination provisions, in the event of our
insolvency, holders of the convertible notes may recover ratably less than our
general creditors.
If the payment of the convertible notes is accelerated because of an event
of default, we or the trustee shall promptly notify the holders of senior debt
or the trustee(s) for the senior debt of the acceleration. We may not pay the
convertible notes until five days after the holders or trustee(s) of senior debt
receive notice of the acceleration and, after which we may pay the convertible
notes only if the subordination provisions of the indenture otherwise permit
payment at that time.
If the trustee or any holder of convertible notes receives any payment or
distribution of our assets of any kind in contravention of any of the terms of
the indenture, whether in cash, property or securities, including, without
limitation by way of set-off or otherwise, in respect of the convertible notes
before all senior debt is paid in full, then the payment or distribution will be
held by the recipient in trust for the benefit of holders of senior debt, and
will be immediately paid over or delivered to the holders of senior debt or
their representative or representatives to the extent necessary to make payment
in full of all senior debt remaining unpaid, after giving effect to any
concurrent payment or distribution, or provision therefor, to or for the holders
of senior debt.
The convertible notes are our exclusive obligations. Since a significant
amount of our operations are conducted through our subsidiaries, our cash flow
and our consequent ability to service debt, including the convertible notes,
will depend in part upon the earnings of our subsidiaries and the
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distribution of those earnings to, or under loans or other payments of funds by
those subsidiaries to, us. The payment of dividends and the making of loans and
advances to us by our subsidiaries may be subject to statutory or contractual
restrictions, will depend upon the earnings of those subsidiaries and are
subject to various business considerations.
Our right to receive assets of any of our subsidiaries upon their
liquidation or reorganization (and the consequent right of the holders of the
convertible notes to participate in those assets) is effectively subordinated to
the claims of that subsidiary's creditors (including trade creditors), except to
the extent that we are recognized as a creditor of that subsidiary, in which
case our claims would still be subordinate to any security interests in the
assets of that subsidiary and any indebtedness of that subsidiary senior to that
held by us.
The indenture does not limit the amount of additional indebtedness,
including Senior Debt, which we can create, incur, assume or guarantee, nor does
the indenture limit the amount of indebtedness and other liabilities which any
subsidiary can create, incur, assume or guarantee.
OPTIONAL REDEMPTION
The convertible notes are not entitled to any sinking fund. At any time on
or after March 1, 2003, we may redeem any portion of the convertible notes, in
whole or in part, on at least 30 days but no more than 60 days' notice at the
following prices (expressed as a percentage of the principal amount), together
with accrued and unpaid interest to, but excluding, the redemption date.
If redeemed during the period beginning March 1, 2003 and ending on
February 29, 2004 at a redemption price of 103.143%, and if redeemed during the
12-month period beginning March 1:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2004........................................................ 102.357%
2005........................................................ 101.571%
2006........................................................ 100.786%
2007........................................................ 100.000%
</TABLE>
If we redeem less than all of the outstanding convertible notes, the trustee
will select the convertible notes to be redeemed in multiples of $1,000 by lot,
pro rata or any other method the trustee considers fair and appropriate. If a
portion of your convertible notes is selected for partial redemption and you
convert a portion of the convertible notes, the portion selected for redemption
will be converted. We may not give notice of any redemption if we have defaulted
in payment of interest and the default is continuing.
MANDATORY REDEMPTION AND REPURCHASE
We are not required to make mandatory redemption or sinking fund payments
with respect to the convertible notes. We are required to make a Change of
Control Offer with respect to a repurchase of the convertible notes under the
circumstances described under the caption "Repurchase at the Option of Holders."
REPURCHASE AT THE OPTION OF HOLDERS
If a change of control occurs, each holder of convertible notes will have
the right to require us to repurchase all or any part of the holder's
convertible notes equal to $1,000 or an integral multiple of $1,000, pursuant to
the change of control offer at a purchase price equal to 100% of the principal
amount, plus accrued and unpaid interest, if any, as of the date of purchase. We
refer to this payment
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as the change of control payment. Within 25 days following any change of
control, we will mail a notice to each holder, stating:
- That the change of control offer is being made under the covenant entitled
"change of control" and that all convertible notes tendered will be
accepted for payment;
- The purchase price and the purchase date, which will be no earlier than
30 days nor later than 45 days from the date the notice is mailed. This
date is referred to as the change of control payment date;
- That interest will continue to accrue on any convertible notes not
tendered, as provided in the convertible notes;
- That, unless we default in the payment of the change of control payment,
with respect to all convertible notes accepted for payment under the
change of control offer, interest will cease to accrue after the change of
control payment date;
- That holders electing to have any convertible notes purchased under a
change of control offer will be required to surrender the convertible
notes, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the convertible notes completed, to the paying agent at the
address specified in the notice prior to the close of business on the
third business day preceding the change of control payment date;
- That holders will be entitled to withdraw their election if the paying
agent receives, not later than the close of business on the second
business day preceding the change of control payment date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of convertible notes delivered for purchase,
and a statement that the holder is withdrawing his election to have the
convertible notes purchased; and
- That holders whose convertible notes are being purchased only in part will
be issued new convertible notes equal in principal amount to the
unpurchased portion of the convertible notes surrendered, which
unpurchased portion must be equal to $1,000 or an integral multiple
thereof in principal amount.
We will comply with the requirements of Rules 13e-4 and 14e-1 under the
Exchange Act and any other securities laws and regulations to the extent those
laws and regulations are applicable in connection with the repurchase of the
convertible notes in connection with a change of control.
On the change of control payment date, we will, to the extent lawful,
- Accept for payment convertible notes or portions of convertible notes
tendered under the change of control offer;
- Deposit with the paying agent an amount equal to the change of control
payment in respect of all convertible notes or portions of convertible
notes tendered; and
- Deliver or cause to be delivered to the trustee the convertible notes
accepted together with an officers' certificate stating the convertible
notes or portions of convertible notes tendered to us.
The paying agent will promptly mail to each holder of convertible notes
accepted, or, if the holder requests, wire transfer immediately available funds
to an account previously specified in writing by the holder to us and the paying
agent, payment in an amount equal to the purchase price for the convertible
notes. The trustee will promptly authenticate and mail to each holder a new
convertible note equal in principal amount to any unpurchased portion of the
convertible notes surrendered, if any; provided that each new convertible note
will be in a principal amount of $1,000 or an integral multiple of $1,000. We
will publicly announce the results of the change of control offer on or as soon
as practicable after the change of control payment date.
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Except as described above with respect to a change of control, the indenture
does not contain any other provision that permits the holders of the convertible
notes to require that we repurchase or redeem the convertible notes in the event
of a takeover, recapitalization or similar restructuring. The change of control
offer requirement of the convertible notes may, in certain circumstances, make
more difficult or discourage a takeover of us, and, thus, the removal of
incumbent management. Management has not entered into any agreement or plan
involving a change of control, although it is possible that we would decide to
do so in the future. Subject to the limitations discussed below, we could, in
the future, enter into various transactions including acquisitions, refinancings
or other recapitalizations, that would not constitute a change of control under
the indenture, but that could increase the amount of indebtedness outstanding at
that time or otherwise affect our capital structure or credit ratings.
Our ability to pay cash to the holders of convertible notes under a change
of control offer may be limited by our then existing financial resources and by
the subordination provisions of the convertible notes. See "Risk Factors." Any
future credit facilities or other agreements relating to our or our
subsidiaries' indebtedness may contain prohibitions or restrictions on our
ability to effect a change of control payment. In the event a change of control
occurs at a time when such prohibitions or restrictions are in effect, we could
seek the consent of our lenders to the purchase of convertible notes and other
indebtedness containing change of control provisions or could attempt to
refinance the borrowings that contain those prohibitions or restrictions. If we
do not obtain such consents or repay such borrowings, we will be effectively
prohibited from purchasing the convertible notes. In that case, our failure to
purchase tendered convertible notes would constitute an event of default with
respect to the notes, whether or not such purchase is permitted by the
subordination provisions. Moreover, the events that constitute a change of
control under the indenture may constitute events of default under our future
debt instruments or credit agreements of us or our subsidiaries. Those events of
default may permit the lenders under the debt instruments or credit agreements
to accelerate the debt and, if that debt is not paid or repurchased, to enforce
their security interests in what may be all or substantially all of our assets
or the assets of our subsidiaries. Therefore, our ability to raise cash to repay
or repurchase the convertible notes may be limited.
The definition of change of control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of all or substantially all of
our assets. Although there is a developing body of case law interpreting the
phrase substantially all, there is no precise established definition of the
phrase under applicable law. Accordingly, the ability of a holder of convertible
notes to require us to repurchase those convertible notes as a result of a sale,
lease, transfer, conveyance or other disposition of less than all of the assets
of us and our subsidiaries to another person may be uncertain.
SELECTION AND NOTICE
If less than all of the convertible notes are to be redeemed at any time,
the trustee will select the convertible notes for redemption in compliance with
the requirements of any securities exchange on which the convertible notes are
listed. In the absence of any requirements of any securities exchange or if the
convertible notes are not listed, selection of the convertible note to be
redeemed will be made on a pro rata basis, provided that no convertible notes of
$1,000 or less will be redeemed in part. Notice of redemption will be mailed by
first class mail at least 30 but not more than 60 days before the redemption
date to each holder of convertible notes to be redeemed at its registered
address. If any convertible note is to be redeemed in part only, the notice of
redemption that relates to that convertible note will state the portion of the
principal amount to be redeemed. A new convertible note in principal amount
equal to the unredeemed portion will be issued in the name of the holder upon
cancellation of the original convertible note. On and after the redemption date,
interest ceases to accrue on convertible notes or portions of them called for
redemption.
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COVENANTS
LIMITATION ON MERGER, SALE OR CONSOLIDATION
The indenture provides that we may not, directly or indirectly, consolidate
with or merge with or into, or sell, lease or otherwise dispose of all or
substantially all of our assets, on a consolidated basis, whether in a single
transaction or a series of related transactions, to another person or group of
affiliated persons, other than to our wholly-owned subsidiaries, unless:
- Either:
(a) in the case of a merger or consolidation, we are the surviving
entity; or
(b) the resulting, surviving or transferee entity is a corporation
organized under the laws of the United States, any state thereof or
the District of Columbia and expressly assumes by supplemental
indenture all of our obligations in connection with the convertible
notes and the indenture; and
- No default or event of default shall exist immediately before or after
giving effect on a pro forma basis to such transaction.
Upon any permitted consolidation or merger or any permitted sale, lease or
other disposition of all or substantially all of our assets in accordance with
the foregoing, the successor corporation formed by such consolidation or into
which we are merged or to which such sale, lease or other disposition is made,
shall succeed to, and be substituted for, and may exercise every right and power
of, us under the indenture with the same effect as if such successor corporation
had been named therein in the same manner as we are named, and, when a successor
corporation duly assumes all of our obligations under the convertible notes and
the indenture, we will be released from our obligations under the indenture and
the convertible notes, except as to any obligations that arise from or as a
result of such transaction.
For purposes of the foregoing, the transfer, by lease, assignment, sale or
otherwise, of all or substantially all of the properties and assets of one or
more subsidiaries, which properties and assets, if held by us instead of such
subsidiary, would constitute all or substantially all of our properties and
assets, shall be deemed to be the transfer of all or substantially all of our
properties and assets. This "Limitation on Merger, Sale or Consolidation"
covenant will not apply to a sale, assignment, transfer, conveyance or other
disposition of assets between or among us and any of our wholly-owned
subsidiaries.
LIMITATION ON STATUS AS INVESTMENT COMPANY
The indenture provides that we will not, and will not permit any subsidiary
to, conduct our or its business in a fashion that would cause us to be required
to register as an "investment company" (as that term is defined in the
Investment Company Act of 1940, as amended).
REPORTS
Whether or not required by the rules and regulations of the SEC, so long as
any convertible notes are outstanding, we will file with the SEC and furnish to
the holders of convertible notes all quarterly and annual financial information
required to be contained in a filing with the SEC on Forms 10-Q and 10-K,
including a "Management's Discussion and Analysis of Results of Operations and
Financial Condition" and, with respect to the annual information only, a report
by our certified independent accountants, in each case, as required by the rules
and regulations of the SEC as in effect on the Issuance Date.
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EVENTS OF DEFAULT AND REMEDIES
The indenture provides that each of the following constitutes an event of
default:
- Default for 30 days in the payment when due of interest on the convertible
notes;
- A default in the payment of principal of any convertible note when due at
its stated maturity, upon optional redemption, in connection with a change
of control offer, upon declaration, or otherwise;
- The failure by us to comply for 30 days after notice with any of our
obligations under the covenants described above under "Repurchase at the
Option of Holders" and "Limitation on Merger, Sale or Consolidation" (in
each case, other than a failure to purchase convertible notes in
connection with a change of control offer);
- Failure by us for 60 days after notice to comply with certain other
covenants and agreements contained in the indenture or the convertible
notes;
- Default under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any indebtedness
for money borrowed by us or any of our subsidiaries that is a significant
subsidiary or any group of two or more subsidiaries that, taken as a
whole, would constitute a significant subsidiary, or the payment of which
is guaranteed by us or any of our subsidiaries that is a significant
subsidiary or any group of two or more subsidiaries that, taken as a
whole, would constitute a significant subsidiary, whether such
indebtedness or guarantee now exists, or is created after the issuance
date, which default
(a) is caused by a failure to pay when due principal or interest on that
indebtedness within the grace period provided in that indebtedness,
which payment default continues beyond any applicable grace period;
or
(b) results in the acceleration of that indebtedness prior to its express
maturity and, in each case, the principal amount of that
indebtedness, together with the principal amount of any other
Indebtedness under which there has been a payment default or the
maturity of which has been so accelerated, aggregates $10.0 million
or more;
- Failure by us or any subsidiary of us that is a significant subsidiary or
any group of two or more subsidiaries that, taken as a whole, would
constitute a significant subsidiary to pay final judgments for the payment
of money (other than any judgment as to which a reputable insurance
company has accepted liability subject to customary terms) aggregating in
excess of $5.0 million, which judgments are not paid, wired, discharged or
stayed within 60 days after their entry; and
- Certain events of bankruptcy or insolvency with respect to us or any of
our subsidiaries that is a significant subsidiary or any group of two or
more subsidiaries that, taken as a whole, would constitute a significant
subsidiary.
If any event of default occurs and is continuing, the trustee or the holders
of at least 25% in principal amount of the then outstanding convertible notes
may declare all the convertible notes to be due and payable immediately, subject
to the provisions limiting payment described in "--Subordination of Convertible
Notes." However, in the case of an event of default arising from certain events
of bankruptcy, insolvency or reorganization, with respect to us or any
significant subsidiary, all outstanding convertible notes will become due and
payable without further action or notice. Holders of the convertible notes may
not enforce the indenture or the convertible notes except as provided in the
indenture. Subject to certain limitations, holders of a majority in principal
amount of the then outstanding convertible notes may direct the trustee in its
exercise of any trust or power. The trustee may withhold from holders of the
convertible notes notice of any continuing default or event of default,
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except a default or event of default relating to the payment of principal or
interest, if it determines that withholding notice is in their interest.
In the event of a declaration of acceleration of the convertible notes
because an event of default has occurred and is continuing as a result of the
acceleration of any indebtedness described in clause (5) of the notes above, the
declaration of acceleration of the convertible notes will be automatically
annulled if:
- The holders of any indebtedness described in of the notes have rescinded
the declaration of acceleration in respect of that indebtedness within
30 days after the date of the declaration;
- The annulment of the acceleration of the convertible notes would not
conflict with any judgment or decree of a court of competent jurisdiction;
and
- All existing events of default, except for nonpayment of principal of or
interest on the convertible notes that became due solely because of the
acceleration of the convertible notes, have been cured or waived.
The holders of a majority in aggregate principal amount of the then
outstanding convertible notes by notice to the trustee may on behalf of all of
the holders waive any existing default or event of default and its consequences
under the indenture except a continuing default or event of default in the
payment of interest on or the principal of the convertible notes.
We are required to deliver to the trustee annually a statement regarding
compliance with the indenture, and upon becoming aware of any default or event
of default, to deliver to the trustee a statement specifying such default or
event of default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
None of our directors, officers, employees, incorporators or stockholders,
as such, has any liability for any of our obligations under the convertible
notes or the indenture or for any claim based on, in respect of, or by reason
of, such obligations or their creation. Each holder of the convertible notes by
accepting a convertible note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the convertible notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws, and it is the view of the SEC that a waiver of such liabilities
is against public policy.
UNCLAIMED MONEY; PRESCRIPTION
If money deposited with the trustee or paying agent for the payment of
principal or interest remains unclaimed for two years, the trustee and the
paying agent shall pay the money back to us at our written request. After that,
holders of convertible notes entitled to the money must look to us for payment
unless an abandoned property law designates another person and all liability of
the trustee and the paying agent will cease. Other than as set forth in this
paragraph, the indenture does not provide for any prescription period for the
payment of interest and principal on the convertible notes.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the convertible notes are issued in registered,
global form, without coupons, in minimum denominations of $1,000 and integral
multiples of $1,000 in excess thereof. The global notes were deposited with the
trustee as custodian for the Depositary Trust Company (DTC), in New York, New
York, and registered in the name of DTC or its nominee, in each case for credit
to an account of a direct or indirect participant in DTC as described below.
Beneficial interests in the global notes will be exchangeable for definitive
certificated notes only in the limited circumstances described
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below. Owners of beneficial interests in the global notes will not be entitled
to receive physical delivery of convertible notes in certificated form.
Except as set forth below, the global notes may be transferred, in whole or
in part, only to another DTC nominee or to a successor of DTC or its nominee.
The convertible notes, including beneficial interests in the global notes,
will be subject to certain restrictions on transfer and will bear a restrictive
legend as described under "Notice to Investors." In addition, transfers of
beneficial interests in global notes will be subject to the applicable rules and
procedures of DTC and its direct or indirect participants, which may change from
time to time.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of the respective settlement systems and are subject
to changes by them. We take no responsibility for these operations and
procedures and urge investors to contact the system or their participants
directly to discuss these matters.
DTC has advised us that DTC is a limited-purpose trust company created to
hold securities for its participating organizations, collectively, the
participants, and to facilitate the clearance and settlement of transactions in
those securities between participants through electronic book-entry changes in
accounts of its participants. The participants include securities brokers and
dealers, including the initial purchasers, banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly, collectively, the indirect participants. Persons
who are not participants may beneficially own securities held by or on behalf of
DTC only through the participants or the indirect participants. The ownership
interests in, and transfers of ownership interests in, each security held by or
on behalf of DTC are recorded on the records of the participants and indirect
participants.
DTC has also advised us that, pursuant to procedures established by it:
- Upon deposit of the global notes, DTC will credit the accounts of
participants designated by the initial purchasers with portions of the
principal amount of the global notes; and
- Ownership of these interests in the global notes will be shown on, and the
transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the participants) or by the
participants and the indirect participants (with respect to other owners
of beneficial interest in the global notes).
Investors in the global notes who are participants in DTC's system may hold
their interests therein directly through DTC. Investors in the global notes who
are not participants may hold their interests therein indirectly through
organizations which are participants in DTC. All interests in a global note are
subject to the procedures and requirements of DTC. The laws of some states
require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer beneficial
interests in a global note to such persons will be limited to that extent.
Because DTC can act only on behalf of participants, which in turn act on behalf
of indirect participants, the ability of a person having beneficial interests in
a global note to pledge such interests to persons that do not participate in the
DTC system, or otherwise take actions in respect of such interests, may be
affected by the lack of a physical certificate evidencing such interests.
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EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE CONVERTIBLE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL
DELIVERY OF CONVERTIBLE NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED
THE REGISTERED OWNERS OR "HOLDERS" OF CONVERTIBLE NOTES UNDER THE INDENTURE FOR
ANY PURPOSE.
Payments with respect to the principal, interest, premium and special
interest, if any, on a global note registered in the name of DTC or its nominee
will be payable to DTC in its capacity as the registered holder under the
indenture. Under the terms of the indenture, we and the trustee will treat the
persons in whose names the convertible notes, including the global notes, are
registered as the owners thereof for the purpose of receiving payments and for
all other purposes. Consequently, neither we, the trustee, nor any agent of ours
or the trustee has or will have any responsibility or liability for:
- Any aspect of DTC's records or any participant's or indirect participant's
records relating to or payments made on account of beneficial ownership
interest in the global notes or for maintaining, supervising or reviewing
any of DTC's records or any participant's or indirect participant's
records relating to the beneficial ownership interests in the global
notes; or
- Any other matter relating to the actions and practices of DTC or any of
its participants or indirect participants.
DTC has advised us that its current practice, upon receipt of any payment in
respect of securities such as the convertible notes (including principal and
interest), is to credit the accounts of the relevant participants with the
payment on the payment date unless DTC has reason to believe it will not receive
payment on such payment date. Each relevant participant is credited with an
amount proportionate to its beneficial ownership of an interest in the principal
amount of the relevant security as shown on the records of DTC. Payments by the
participants and the indirect participants to the beneficial owners of
convertible notes will be governed by standing instructions and customary
practices and will be the responsibility of the participants or the indirect
participants and will not be the responsibility of DTC, the trustee or us.
Neither we nor the trustee will be liable for any delay by DTC or any of its
participants in identifying the beneficial owners of the convertible notes, and
we and the trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Subject to the transfer restrictions set forth under "Notice to Investors,"
transfers between participants in DTC will be effected in accordance with DTC's
procedures, and will be settled in same-day funds.
DTC has advised us that it will take any action permitted to be taken by a
holder of convertible notes only at the direction of one or more participants to
whose account DTC has credited the interests in the global notes and only in
respect of such portion of the aggregate principal amount of the convertible
notes as to which such participant or participants has or have given such
direction. However, if there is an event of default under the convertible notes,
DTC reserves the right to exchange the global notes for legended convertible
notes in certificated form, and to distribute such convertible notes to its
participants.
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES
A global note is exchangeable for definitive convertible notes in registered
certificated form, certificated notes if:
- DTC (a) notifies us that it is unwilling or unable to continue as
depositary for the global notes and we fail to appoint a successor
depositary or (b) has ceased to be a clearing agency registered under the
Exchange Act;
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- We, at our option, notify the trustee in writing that we elect to cause
the issuance of the certificated notes; or
- There shall have occurred and be continuing a default or event of default
with respect to the convertible notes.
In addition, beneficial interests in a global note may be exchanged for
certificated notes upon prior written notice given to the trustee by or on
behalf of DTC in accordance with the indenture. In all cases, certificated notes
delivered in exchange for any global note or beneficial interests in global
notes will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary, in accordance with its customary
procedures, and will bear the restrictive legend referred to in "Notice to
Investors" unless that legend is not required by applicable law.
SAME DAY SETTLEMENT AND PAYMENT
We will make payments in respect of the convertible notes represented by the
global notes (including principal, interest, premium, and special interest, if
any) by wire transfer of immediately available funds to the accounts specified
by the global note holder. We will make all payments of principal, interest,
premium and special interest, if any, with respect to certificated notes by wire
transfer of immediately available funds to the accounts specified by the holders
thereof or, if no such account is specified or permitted to be specified, by
mailing a check to each such Holder's registered address. The convertible notes
represented by the global notes are eligible to trade in the PORTAL market and
to trade in DTC's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such convertible notes will, therefore, be required
by DTC to be settled in immediately available funds. We expect that secondary
trading in any certificated notes will also be settled in immediately available
funds.
TRANSFER AND EXCHANGE
A holder may transfer or exchange interests in the convertible notes in
accordance with procedures described in "Book-Entry, Delivery and Form." The
registrar and the trustee may require a holder, among other things, to furnish
appropriate endorsements and transfer documents and we may require a holder to
pay any taxes and fees required by law or permitted by the indenture. We are not
required to transfer or exchange any convertible note selected for redemption.
Also, we are not required to transfer or exchange any convertible note for a
period of 15 days before a selection of convertible notes to be redeemed.
The registered holder of a convertible note will be treated as the owner of
it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next succeeding paragraph, the indenture or the
convertible notes may be amended or supplemented with the consent of the holders
of at least a majority in aggregate principal amount of the outstanding
convertible notes, as applicable, including consents obtained in connection with
a tender offer or exchange offer for the convertible notes. Any existing default
or compliance with any provision of the indenture or the convertible notes may
be waived with the consent of the holders of a majority in aggregate principal
amount of then outstanding convertible notes, including consents obtained in
connection with a tender offer or exchange offer for the convertible notes.
Without the consent of each holder affected, an amendment or waiver may not:
- Reduce the amount of convertible notes whose holders must consent to an
amendment, supplement or waiver;
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- Reduce the principal of or change the fixed maturity of any convertible
note or alter the provisions with respect to the redemption of the
convertible notes, except for repurchases of the convertible notes under
the covenant described above under the caption "--Repurchase at the Option
of Holders;"
- Reduce the rate of or change the time for payment or accrual of interest
on any convertible note;
- Waive a default in the payment of principal of or interest on any
convertible notes, except a rescission of acceleration of the convertible
notes by the holders of at least a majority in aggregate principal amount
of the convertible notes and a waiver of the payment default that resulted
from such acceleration;
- Make any convertible note payable in money other than that stated in the
convertible notes;
- Make any change in the provisions of the indenture relating to waivers of
past defaults or the rights of holders of convertible notes to receive
payments of principal of or interest on the convertible notes;
- Waive a redemption payment with respect to any convertible note;
- Impair the right to convert the convertible notes into common stock;
- Modify the conversion or subordination provision of the indenture in a
manner adverse to the holders of the convertible notes; or
- Make any change in the foregoing amendment and waiver provisions.
Without the consent of any holder of convertible notes, we and the trustee
may amend or supplement the indenture or the convertible notes:
- To cure any ambiguity, defect or inconsistency;
- To provide for uncertificated convertible notes in addition to or in place
of certificated convertible notes;
- To provide for the assumption of our obligations to holders of the
convertible notes in the case of a merger or consolidation or certain
transfers or leases;
- To make any change that would provide any additional rights or benefits to
the holders of the convertible notes or that does not adversely affect the
legal rights under the indenture of any such holder; or
- To comply with requirements of the SEC in order to maintain the
qualification of the indenture under the Trust Indenture Act.
GOVERNING LAW AND JUDGMENTS
The convertible notes and the indenture will be governed exclusively by and
construed in accordance with the laws of the State of New York without giving
effect to applicable principles of conflicts of laws to the extent that the
application of the law of another jurisdiction would be required thereby.
We will submit to the jurisdiction of the United States federal and New York
state courts located in the Borough of Manhattan, City and State of New York for
purposes of all legal actions and proceedings instituted in connection with the
convertible notes and the indenture. We have appointed CT Corporation System as
our authorized agent upon which process may be served in any such action.
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CONCERNING THE TRUSTEE
The indenture contains limitations on the rights of the trustee, should it
become a creditor of us, to obtain payment of claims in certain cases, or to
realize on certain property received in respect of any such claim as security or
otherwise. The trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such conflict
within 90 days, apply to the SEC for permission to continue or resign.
The holders of the majority in aggregate principal amount of the then
outstanding convertible notes will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
trustee under the indenture, subject to certain exceptions. The indenture
provides that if an event of default occurs, which is not cured or waived, the
trustee will be required, in the exercise of its power, to use the degree of
care of a prudent man in the conduct of his own affairs. Subject to these
provisions, the trustee will be under no obligation to exercise any of its
rights or powers under the indenture at the request of any holder of convertible
notes, unless such holder has offered to the trustee security and indemnity
satisfactory to it against any loss, liability or expense.
REGISTRATION RIGHTS
The following summary of certain provisions of the registration rights
agreement and the convertible notes is not complete. You should refer to the
registration rights agreement and the convertible notes for a full description
of the registration rights that apply to the convertible notes.
On March 1, 2000, we entered into a registration rights agreement with
Donaldson, Lufkin & Jenrette Securities Corporation, Bear, Stearns & Co. Inc.,
Chase Securities Inc., Dain Rauscher Incorporated, U.S. Bancorp Piper Jaffray
Inc., the initial purchasers of the convertible notes. This agreement obligates
us, at our sole expense as follows:
- To file with the SEC a shelf registration statement within 90 days after
the closing of the sale of the convertible notes, with respect to resales
of the convertible notes and the common stock issuable upon conversion
- To use our best efforts to cause the shelf registration statement to be
declared effective by the SEC within 180 days after the closing of the
sale of the convertible notes, and
- To use our reasonable best efforts to keep the shelf registration
statement effective and usable until the earlier of (1) such time as all
the registrable securities have been sold under the shelf registration
statement, (2) the date on which, in the opinion of our counsel, all of
the registrable securities outstanding may be sold in the public United
States securities markets in the absence of a registration statement
covering such sales, or otherwise transferred in a way that eliminates the
Securities Act transfer restrictions for future resales by non-affiliates,
(3) the second anniversary of the closing of the sale of the convertible
notes, or (4) the date on which there ceases to be outstanding any
registrable securities.
We will be permitted, however, to suspend the use of the shelf registration
statement during certain black-out periods relating to pending corporate
developments, public filings with the SEC, and similar events, if we determine
in good faith that it is in our best interest and if we provide written notice
of the suspension to legal counsel for the holders of a majority in interest of
the registrable securities and any holders who have advised us of their intent
to sell their registrable securities.
We have agreed to:
- Provide each holder of registrable securities with copies of the
prospectus that is a part of the shelf registration statement;
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- Notify each holder of registrable securities when the shelf registration
statement has become effective; and
- Take certain other actions as are required to permit unrestricted resales
of the registrable securities.
A holder that sells registrable securities pursuant to the shelf
registration statement will:
- Usually be required to be named as a selling securityholder in the related
prospectus and to deliver the prospectus to purchasers;
- Be subject to certain of the civil liability provisions under the
Securities Act in connection with such sales;
- Be required to notify us of its intent to distribute registrable
securities pursuant to the registration statement at least three business
days prior to making such distribution; and
- Be bound by the provisions of the registration rights agreement that are
applicable to such a holder, including certain indemnification rights and
obligations.
In order to be named as a selling securityholder in the shelf registration
statement when it first becomes effective, holders are required to complete and
deliver a notice and questionnaire prior to the effectiveness of the shelf
registration statement. Any holder that does not complete and deliver a
questionnaire or provide such other information will not be named as a selling
securityholder in the Prospectus and therefore will not be permitted to sell any
registrable securities pursuant to the shelf registration statement.
If a registration default occurs, then the note interest rate will be
increased 0.25% annually, subject to certain exceptions. Following the cure of a
registration default, the interest rate will become the rate in effect
immediately prior to the registration default. We use the term "registration
default" to mean if:
- The SEC has not declared the shelf registration statement effective within
180 days after the closing of the sale of the convertible notes; or
- We fail to keep the shelf registration statement that has been declared
effective continuously effective and usable, subject to the permitted
blackout periods described above, for the period required.
Each registrable security will contain a legend to the effect that the
holder will be deemed to have agreed to be bound by the provisions of the
registration rights agreement.
The above summary of certain provisions of the registration rights agreement
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the registration rights
agreement, which has been filed with the SEC and which is available upon request
to us. See "Where You Can Find More Information."
Holders of convertible notes will be required to deliver information to be
used in connection with the shelf registration statement and to provide comments
on the shelf registration statement within the time periods set forth in the
registration rights agreement in order to have their convertible notes or the
common stock issuable upon conversion thereof included in the shelf registration
statement and benefit from the provisions regarding special interest set forth
above.
We will provide to each registered holder of convertible notes, or the
common stock issuable upon conversion thereof, who is named in the prospectus
and who requests us to do so in writing, copies of the prospectus which will be
a part of the shelf registration statement, notify each such holder when the
shelf registration statement for the convertible notes or the common stock
issuable upon conversion thereof has become effective and taken certain other
actions as required to permit unrestricted resales
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of the convertible notes or the common stock issuable upon conversion thereof. A
holder of convertible notes or the common stock issuable upon conversion thereof
that sells such securities pursuant to a shelf registration statement generally
will be required to be named as a selling security holder in the related
prospectus and to deliver a prospectus to purchasers, will be subject to certain
of the civil liability provisions under the Securities Act in connection with
such sales and will be bound by the provisions of the registration rights
agreement which are applicable to such holder, including certain indemnification
and contribution rights and obligations.
Upon the initial sale of convertible notes or common stock issuable upon
conversion thereof, each selling holder will be required to deliver a notice of
such sale to the trustee and us. The notice will, among other things, identify
the sale as a transfer pursuant to the shelf registration statement, certify
that the prospectus delivery requirements, if any, of the Securities Act have
been complied with, and certify that the selling holder and the aggregate
principal amount of securities owned by such holder are identified in the
related prospectus in accordance with the applicable rules and regulations under
the Securities Act.
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DESCRIPTION OF CAPITAL STOCK
The information set forth below is a general summary of our capital stock
structure. As a summary, this section is qualified and not a substitute for the
provisions of our certificate of incorporation, as amended and our by-laws, as
amended, both of which are on file with the SEC.
AUTHORIZED CAPITAL STOCK
Our 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 March 31, 2000, 23,297,420 shares of our common stock were
outstanding. In addition, 4,928,112 shares of our common stock were reserved and
available for issuance pursuant to our employee benefit plans.
The holders of our 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, we have not declared and paid
dividends. In the event of liquidation, each share of our common stock is
entitled to share pro rata in any distribution of our 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
our common stock is entitled to one vote for each share of our 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 our 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 our common stock. All outstanding shares of our common stock are duly
authorized, validly issued, fully paid and nonassessable.
PREFERRED STOCK
As of March 31, 2000, 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, the
holders of approximately 798,551 shares of our common stock (Group A), or
persons to whom such holders transfer the common stock, have registration rights
with respect to such shares. In connection with our merger with Research
Genetics, holders of an additional 3,200,000 shares of our common stock
(Group B) or persons to whom such holders transfer the common stock, have
registration rights with respect to such shares. If we propose to register any
of its securities under the Securities Act, either for
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its own account or for the account of other security holders, holders of all
shares entitled to registration rights are entitled to notice of such
registration. Holders of Group A shares are entitled to include their shares in
such registration and holders of Group B shares are entitled to include up to
50% of their shares in such registration, each at our expense. However, the
underwriters of any such offering have the right to limit the number of shares
included in such registration. In addition, holders of at least 50% of the Group
A and Group B shares entitled to registration rights outstanding may require us
to prepare and file a registration statement under the Securities Act, at our
expense, covering such shares, and we are generally required to use our best
efforts to effect such registration. We are not obligated to effect more than
two of these stockholder-initiated registrations for Group A, and not more than
one of these stockholder-initiated registration for Group B. Further, holders of
Group A shares entitled to registration rights generally may require us to file
additional registration statements on Form S-3.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
We are required to follow Section 203 of the Delaware Law, an anti-takeover
law. In general, the statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. A "business combination" includes a merger, asset or stock
sale or other transaction resulting in financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years prior, did own, 15% or more of the
corporation's outstanding voting stock. This provision may have the effect of
delaying, deterring or preventing a change of control of Invitrogen without
further actions by the stockholders.
Our certificate of incorporation provides that any action permitted to be
taken by our stockholders 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 us 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 by-laws. In addition, our certificate of incorporation similarly permits the
stockholders to adopt, amend or repeal our by-laws 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, stockholders may remove a
director 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 our 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 by-laws also contain many of the above provisions found in our
certificate of incorporation. Our by-laws do not permit stockholders to call a
special meeting. In addition, our by-laws provide an advance notice procedure
with regard to matters to be brought before an annual or special meeting of our
stockholders, including the election of directors. Business permitted to be
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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
Our common stock is quoted on the Nasdaq National Market under the symbol
"IVGN."
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SUMMARY OF CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
considerations relating to the purchase, ownership and disposition of the notes,
but does not purport to be a complete analysis of all the potential tax
considerations relating thereto. This summary is based on laws, regulations,
rulings and decisions now in effect, all of which are subject to change. This
summary deals only with holders that will hold the notes as "capital assets"
within the meaning of Sections 1221 and 1273 of the Internal Revenue Code of
1986, as amended, which we sometimes refer to as the Code. This summary does not
address tax considerations applicable to investors that may be subject to
special tax rules, such as banks, tax-exempt organizations, insurance companies,
dealers in securities or currencies, persons that will hold notes as a position
in a hedging transaction, "straddle" or "conversion transaction" for tax
purposes or persons deemed to sell notes under the constructive sale provisions
of the Code or tax considerations applicable to subsequent purchasers of the
notes.
For purposes of this summary, the term "U.S. Holder" means a holder that is
either, as determined for U.S. federal income tax purposes, (i) a citizen or
resident of the United States, or U.S.; (ii) a corporation or partnership formed
under the laws of the U.S. or a state of the U.S.; (iii) an estate the income of
which is subject to U.S. federal income tax regardless of its source; or (iv) a
trust subject to the primary supervision of a court within the U.S. and the
control of a U.S. person as described in Section 7701(a)(30). A "Non-U.S.
Holder" is any holder other than a U.S. Holder.
We have not sought any ruling from the Internal Revenue Service (IRS) with
respect to the statements made and the conclusions reached in the following
summary, and there can be no assurance that the IRS will agree with such
statements and conclusions. In addition, the IRS is not precluded from
successfully adopting a contrary position. This summary does not consider the
effect of any applicable foreign, state, local or other tax laws.
HOLDERS OF CONVERTIBLE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR
PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF
ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX
TREATY.
UNITED STATES HOLDERS
TAXATION OF INTEREST
Interest paid on the convertible notes will be included in the income of a
holder as ordinary income at the time it is treated as received or accrued, in
accordance with the holder's regular method of tax accounting.
Our failure to maintain the effectiveness of the registration statement will
cause additional interest to accrue on the convertible notes in the manner
described in the convertible notes. According to Treasury Regulations, the
possibility of a change in the interest rate due to our obligation to pay
special interest (see "Description of Convertible Notes--Registration Rights")
will not affect the amount of interest income recognized by a holder, or the
timing of such recognition, if the likelihood of the change, as of the date the
convertible notes are issued, is remote. We believe that the likelihood of a
change in the interest rate on the convertible notes is remote and we do not
intend to treat the possibility of a change in the interest rate as affecting
the yield to maturity of any convertible note. Similarly, we intend to take the
position that the occurrence of an event requiring us to repurchase the
convertible notes is remote under the Treasury Regulations, and likewise we do
not intend to treat the possibility of the occurrence of an event requiring us
to repurchase the convertible notes as affecting the yield to maturity of any
convertible note.
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MARKET DISCOUNT
"Market discount" will exist if the stated redemption price at maturity
exceeds the U.S. Holder's initial tax basis in the convertible note. If the
market discount is less than 0.25% of the stated redemption price of the
convertible note at maturity multiplied by the number of complete years to
maturity, then the market discount will be deemed to be zero.
A U.S. Holder may elect to include market discount in income currently as it
accrues. Any such election will apply to all market discount bonds acquired
during or after the year for which the election is made, and the election may be
terminated only with the consent of the IRS.
If a U.S. Holder does not make an election to include market discount in
income currently as it accrues, any principal amount received or gain realized
by a U.S. Holder on the sale, exchange, retirement or other taxable disposition
of a convertible note will be treated as ordinary income to the extent of any
accrued market discount on the convertible note. Unless a U.S. holder
irrevocably elects to accrue market discount under a constant-interest method,
accrued market discount is the total market discount multiplied by a fraction,
the numerator of which is the number of days the U.S. Holder has held the
convertible note and the denominator of which is the number of days from the
date the holder acquired the convertible note until its maturity. If a U.S.
Holder exchanges or converts a convertible note into our common stock in a
transaction that is otherwise tax free, any accrued market discount will carry
over and generally be recognized upon a disposition of our common stock.
A U.S. Holder may be required to defer a portion of such holder's interest
deductions for the taxable year attributable to any indebtedness incurred or
continued to purchase or carry a note purchased with market discount. Any such
deferred interest expense may not exceed the market discount that accrues during
a taxable year and is, in general, allowed as a deduction not later than the
year in which the market discount is includible in income. This interest expense
deferral will not apply if a U.S. Holder makes an election to include market
discount in income currently as it accrues.
MARKET PREMIUM
A "market premium" will exist if a U.S. Holder's initial tax basis in a note
is greater than the stated redemption price at maturity of such convertible
note. If an election is made, the market premium may be amortized using a
constant yield method, over the remaining term of the convertible note, or, if
shorter, over the period from the date of purchase to the date of an assumed
redemption option exercise. We will be presumed to exercise our option to redeem
the convertible notes if, by using the date of exercise of the call option as
the maturity date and the redemption price as the stated redemption price at
maturity, the yield on the notes would be lower than such yield would be if the
option were not exercised. A U.S. Holder may deduct any remaining market premium
upon redemption if a convertible note is redeemed prior to the time at which it
is assumed that the convertible note would be redeemed.
Interest otherwise required to be included in income with respect to the
convertible note during any tax year may be offset by the amount of any
amortized market premium. An election to amortize market premium will apply to
all market premium bonds acquired during or after the year for which the
election is made, and the election may be terminated only with the consent of
the IRS.
SALE, EXCHANGE OR REDEMPTION OF THE CONVERTIBLE NOTES
Upon the sale, exchange, retirement or other taxable disposition of a
convertible note, a holder will recognize gain or loss equal to the difference
between the amount received on such disposition (other than amounts received in
respect of accrued and unpaid interest, which will be taxable as such) and the
holder's tax basis in the note. A holder's tax basis in a convertible note will
be, in general, the cost of the convertible note to the holder. Gain or loss
realized on the sale, exchange or retirement of
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a convertible note generally will be capital gain or loss, and will be long-term
capital gain or loss if, at the time of such sale, exchange or retirement, the
convertible note had been held for more than one year. Long-term capital gain
recognized by an individual holder is generally subject to a maximum U.S.
federal rate of 20%; an individual's ability to offset capital losses against
ordinary income is, however, limited.
CONVERSION OF THE CONVERTIBLE NOTES
A holder will generally not recognize income, gain or loss upon conversion
of the note into our common stock, except with respect to any cash received in
lieu of a fractional share (which will generally result in capital gain or
loss). In addition, a holder will recognize income with respect to the receipt
of cash or our common stock in payment of interest, where such interest has not
already been included in income. The holder's tax basis in the common stock
received upon conversion will be the same as the holder's tax basis in the
convertible note at the time of conversion (exclusive of any tax basis allocable
to a fractional share), and the holding period for our common stock received
upon conversion will include the holding period of the convertible note
converted.
ADJUSTMENT TO CONVERSION PRICE
Holders of convertible debt instruments such as the convertible notes may,
in certain circumstances, be deemed to have received constructive distributions
where the conversion ratio of such instruments is adjusted. Adjustments to the
conversion price made pursuant to a bona fide reasonable adjustment formula
which has the effect of preventing the dilution of the interest of the holders
of the debt instruments, however, will generally not be considered to result in
a constructive distribution of stock. Certain of the possible adjustments
provided in the convertible notes, including, without limitation, adjustments in
respect of taxable dividends to our stockholders, will not qualify as being
pursuant to a bona fide reasonable adjustment formula. If such adjustments are
made, the holders of convertible notes might be deemed to have received
constructive distributions taxable as dividends. Moreover, in certain other
circumstances, the failure to adjust the conversion ratio on the convertible
notes may result in a deemed taxable dividend to holders of our common stock.
DIVIDENDS PAID ON COMMON STOCK
A holder generally will be required to include in gross income as ordinary
dividend income the amount of any distributions paid on our common stock to the
extent that such distributions are paid out of our current or accumulated
earnings and profits as determined for United States federal income tax
purposes. Distributions in excess of such earnings and profits will reduce the
holder's tax basis in our common stock and, to the extent such excess
distributions exceed such tax basis, will be treated as gain from a sale or
exchange of such common stock. Corporate holders may be entitled to a dividends
received deduction with respect to such distributions and we urge such corporate
holders to consult their own tax advisors in this regard.
SALE OF COMMON STOCK
Upon the sale or exchange of our common stock, a holder generally will
recognize capital gain or loss equal to the difference between
- The amount of cash and the fair market value of any property received upon
the sale or exchange, and
- Such holder's adjusted tax basis in our common stock. Such capital gain or
loss will be long-term capital gain or loss if the holder's holding period
in our common stock is more than one year at the time of the sale or
exchange.
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A holder's basis and holding period in our common stock received upon conversion
of a note are determined as discussed above under "--Conversion of the
Convertible Notes."
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a convertible note, payments of
dividends on our common stock, payments of the proceeds of the sale of a
convertible note and payments of the proceeds of the sale of our common stock,
and a 31% backup withholding tax may apply to such payments if the holder:
- Fails to demonstrate that the holder comes within certain exempt
categories of holders;
- Fails to furnish or certify his correct taxpayer identification number to
the payor in the manner required;
- Is notified by the IRS that he has failed to report payments of interest
and dividends properly;
- Or under certain circumstances, fails to certify that he has not been
notified by the IRS that he is subject to backup withholding for failure
to report interest and dividend payments.
Any amounts withheld under the backup withholding rules from a payment to a
holder will be allowed as a credit against such holder's United States federal
income tax and may entitle the holder to a refund, provided that the required
information is furnished to the IRS.
NON-U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a Non-U.S. Holder.
For purposes of withholding tax on interest and dividends discussed below, a
Non-U.S. Holder includes a non-resident fiduciary of an estate or trust. For
purposes of the following discussion, interest, dividends and gain on the sale,
exchange or other disposition of a convertible note or common stock will be
considered to be "U.S. trade or business income" if such income or gain is;
- Effectively connected with the conduct of a U.S. trade or business; or
- In the case of a treaty resident, attributable to a permanent
establishment (or, in the case of an individual, a fixed base) in the
United States.
TAXATION OF INTEREST
Generally any interest paid to a Non-U.S. Holder of a note that is not U.S.
trade or business income will not be subject to U.S. tax if the interest
qualifies as "portfolio interest." Generally interest on the convertible notes
will qualify as portfolio interest if:
- The Non-U.S. Holder does not actually or constructively own 10% or more of
the total voting power of all our voting stock and is not a "controlled
foreign corporation" with respect to which we are a "related person"
within the meaning of the Code;
- The beneficial owner, under penalty of perjury, certifies that the
beneficial owner is not a U.S. person and such certificate provides the
beneficial owner's name and address;
- The Non-U.S. Holder is not a bank receiving interest on an extension of
credit made pursuant to a loan agreement made in the ordinary course of
its trade or business.
The gross amount of payments of interest to a Non-U.S. Holder that do not
qualify for the portfolio interest exemption and that are not U.S. trade or
business income will be subject to U.S. federal income tax at the rate of 30%,
unless a U.S. income tax treaty applies to reduce or eliminate
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withholding. U.S. trade or business income will be taxed at regular U.S. rates
rather than the 30% gross rate. In the case of a Non-U.S. Holder that is a
corporation, such U.S. trade or business income may also be subject to the
branch profits tax (which is generally imposed on a foreign corporation on the
actual or deemed repatriation from the United States of earnings and profits
attributable to U.S. trade or business income) at a 30% rate. The branch profits
tax may not apply (or may apply at a reduced rate) if a recipient is a qualified
resident of a country with which the United States has an income tax treaty. To
claim the benefit of a tax treaty or to claim exemption from withholding because
the income is U.S. trade or business income, the Non-U.S. Holder must provide a
properly executed Form W-8BEN or W-8ECI (or such successor forms as the IRS
designates), as applicable, prior to the payment of interest. These forms must
be periodically updated. Under new regulations which are effective with respect
to payments made after December 31, 2000, a Non-U.S. Holder who is claiming the
benefits of a treaty may be required to obtain a U.S. taxpayer identification
number, which may require providing certain documentary evidence issued by
foreign governmental authorities to prove residence in the foreign country.
Certain special procedures are provided in such new regulations for payments
through qualified intermediaries.
DIVIDENDS ON COMMON STOCK
Dividends paid on our common stock that are not effectively connected with
the conduct of a trade or business within the United States will be subject to
United States federal income tax, which generally will be withheld at a rate of
30% of the gross amount of the dividends, unless the rate is reduced by an
applicable income tax treaty. Under the currently applicable Treasury
regulations, dividends paid to an address in a country other than the United
States are presumed to be paid to a resident of such country for purposes of the
withholding (unless the payor has knowledge to the contrary) and, under the
current interpretation of Treasury regulations, for purposes of determining the
applicability of a tax treaty rate. However, under the new withholding
regulations, if a non-U.S. Holder wishes to claim the benefit of an applicable
treaty rate, such holder would be required to satisfy certain certification and
other requirements. In addition, under the new withholding regulations, we may
elect to withhold only on the portion of dividend distributions paid out of our
accumulated, and reasonably estimated current, earnings and profits.
SALES, EXCHANGE OR REDEMPTION OF THE CONVERTIBLE NOTES OR COMMON STOCK
Except as described below and subject to the discussion concerning backup
withholding, any gain realized by a Non-U.S. Holder on the sale, exchange or
redemption of a convertible note or our common stock generally will not be
subject to U.S. federal income tax, unless;
- Such gain is U.S. trade or business income;
- Subject to certain exceptions, the Non-U.S. Holder is an individual who
holds the convertible note or our common stock as a capital asset and is
present in the United States for 183 days or more in the taxable year of
the disposition;
- The Non-U.S. Holder is subject to tax pursuant to the provisions of U.S.
tax law applicable to certain U.S. expatriates, including certain former
citizens or residents of the United States; or
- In the case of the disposition of our common stock, we are a U.S. real
property holding corporation. We do not believe that we are currently a
"United States real property holding corporation," or that we will become
one in the future.
CONVERSION OF THE CONVERTIBLE NOTES
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
on the conversion of convertible notes into our common stock, except with
respect to cash (if any) received in lieu of a
48
<PAGE>
fractional share of our common stock or cash or our common stock received as a
payment of interest, where such interest does not qualify for the portfolio
interest exemption. Cash received in lieu of a fractional share may give rise to
gain that would be subject to the rules described below for the sale of notes.
Cash or common stock treated as issued for accrued interest would be treated as
interest under the rules described above.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
We must report annually to the IRS and to each Non-U.S. Holder any interest
or dividend that is subject to withholding or is exempt from U.S. withholding
tax pursuant to a tax treaty, or interest that is exempt from U.S. tax under the
portfolio interest exception. Copies of these information returns may also be
made available under the provisions of a specific treaty or agreement to the tax
authorities of the country in which the Non-U.S. Holder resides.
Treasury Regulations provide that backup withholding and additional
information reporting will not apply to payments we make towards the principal
on the notes to a Non-U.S. Holder if the holder certifies as to its Non-U.S.
status under penalties of perjury or otherwise establishes an exemption
(provided that neither we nor our paying agent has actual knowledge that the
holder is a U.S. person or that the conditions of any other exemption are not,
in fact, satisfied).
As a general matter, information reporting and backup withholding will not
apply to a payment of proceeds of a sale effected outside the United States by a
foreign office of a foreign broker. However, information reporting requirements
(but not backup withholding) will apply to a payment of the proceeds of the sale
of notes or common stock effected outside the United States by a foreign office
of a broker if the broker:
- Is a U.S. person;
- Derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the Unites States;
- Is a "controlled foreign corporation" as to the United States; or
- With respect to payments made after December 31, 2000, is a foreign
partnership that, at any time during its taxable year, is 50% or more (by
income or capital interest) owned by U.S. persons or is engaged in the
conduct of a U.S. trade or business unless the broker has documentary
evidence in its records that the holder is a non-U.S. holder and certain
conditions are met, or the holder otherwise establishes an exemption.
Payment by a United States office of a broker of the proceeds of a sale
will be subject to both backup withholding and information reporting
unless the holder certifies its non-U.S. status under penalties of perjury
or otherwise establishes an exemption.
New regulations, generally effective with respect to payments made after
December 31, 2000, make certain modifications to some of the withholding, backup
withholding and information reporting rules described above. The new regulations
generally attempt to unify certification requirements and modify reliance
standards. We urge prospective investors to consult their own tax advisors
regarding the new regulations.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. federal income tax liability, provided that the requisite
procedures are followed.
49
<PAGE>
SELLING SECURITYHOLDERS
The convertible notes offered hereby were issued by us and sold by the
initial purchasers in a transaction exempt from the registration requirements of
the Securities Act to persons reasonably believed by the initial purchasers to
be "qualified institutional buyers" (as defined in Rule 144A under the
Securities Act). The selling securityholders (which term includes the initial
purchasers' transferees, pledgees, donees or their successors) may from time to
time offer and sell pursuant to this Prospectus any or all of the convertible
notes and common stock issued upon conversion of the convertible notes.
The following table sets forth information, as of July 28, 2000, with
respect to the selling securityholders and the respective principal amounts of
convertible notes beneficially owned by each selling securityholder that may be
offered pursuant to this Prospectus. Such information has been obtained from the
selling securityholders. None of the selling securityholders has, or within the
past three years has had, any position, office or other material relationship
with us or any of our predecessors or affiliates. Because the selling
securityholders may offer all or some portion of the convertible notes or the
common stock issuable upon conversion of the convertible notes pursuant to this
Prospectus, no estimate can be given as to the amount of the notes or the common
stock issuable upon conversion of the convertible notes that will be held by the
selling securityholders upon termination of any such sales. In addition, the
selling securityholders identified below may have sold, transferred or otherwise
disposed of all or a portion of their convertible notes since the date on which
they provided the information regarding their convertible notes in transactions
exempt from the registration requirements of the Securities Act.
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
NOTES
-----------------------------
BENEFICIALLY NUMBER OF SHARES OF COMMON STOCK
OWNED AND ------------------------------------------
OFFERED BENEFICIALLY OFFERED OWNED AFTER
NAME OF SELLING SECURITYHOLDER HEREBY(1) OWNED(1)(2) HEREBY THE OFFERING
------------------------------ ----------------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
AAM/Zazove Institutional Income Fund L.P.... 1,300,000 15,258 15,258 0
Alta Partners Holdings, LDC................. 3,500,000 41,079 41,079 0
American Investors Life Insurance Co........ 250,000 2,934 2,934 0
Argent Classic Convertible Arbitrage Fund
(Bermuda) L.P............................. 1,000,000 11,737 11,737 0
Associated Electric & Gas Insurance Services
Limited................................... 300,000 3,521 3,521 0
BankAmerica Pension Plan.................... 2,500,000 29,342 29,342 0
BNP Arbitrage SNC........................... 10,450,000 122,652 122,652 0
Canyon Value Realization (Cayman) Ltd....... 10,520,000 123,474 123,474 0
Chartwell Investment Partners............... 1,000,000 11,737 11,737 0
Conseco Fund Group--Convertible Securities
Fund...................................... 1,500,000 17,605 17,605 0
Conseco Health Insurance Company............ 1,000,000 11,737 11,737 0
Conseco Senior Health Insurance Company--
Convertible............................... 1,000,000 11,737 11,737 0
Conseco Variable Insurance Company--
Convertible............................... 500,000 5,868 5,868 0
Delphi Financial Group, Inc................. 570,000 6,690 6,690 0
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
NOTES
-----------------------------
BENEFICIALLY NUMBER OF SHARES OF COMMON STOCK
OWNED AND ------------------------------------------
OFFERED BENEFICIALLY OFFERED OWNED AFTER
NAME OF SELLING SECURITYHOLDER HEREBY(1) OWNED(1)(2) HEREBY THE OFFERING
------------------------------ ----------------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Deutsche Bank Securities.................... 9,000,000 105,633 105,633 0
Donaldson Luffkin & Jenrette................ 20,143,000 236,420 236,420 0
The Estate of James Campbell................ 867,000 10,176 10,176 0
Financial Trust: Fidelity Convertible
Securities Fund........................... 7,000,000 82,159 82,159 0
Fortis Equity Portfolios Growth & Income.... 700,000 8,216 8,216 0
Fortis Series Fund, Inc. Growth & Income.... 5,300,000 62,207 62,207 0
GLG Market Neutral Fund..................... 5,000,000 58,685 58,685 0
IBM Retirement Plan--High Income............ 180,000 2,112 2,112 0
JMG Capital Partners LP..................... 6,250,000 73,356 73,356 0
Lincoln National Convertible Securities
Fund...................................... 2,500,000 29,342 29,342 0
LLT Limited................................. 180,000 2,112 2,112 0
Lyxor Master Fund........................... 2,000,000 23,474 23,474 0
McMahan Securities Company L.P.............. 44,000 516 516 0
Morgan Stanley Dean Witter Convertible
Securities Trust.......................... 1,500,000 17,605 17,605 0
Museum of Fine Arts, Boston................. 20,000 234 234 0
Parker-Hannifin Corporation
Hotel Union & Hotel Industry of Hawaii.... 40,000 469 469 0
Pax World High Yield Fund................... 150,000 1,760 1,760 0
Peoples Benefit Life Insurance Company...... 4,700,000 55,164 55,164 0
Peoples Benefit Life Insurance Company
Teamsters................................. 4,190,000 49,178 49,178 0
PhEP IV, LLC................................ 93,000 1,091 1,091 0
ProMutual................................... 80,000 938 938 0
Putnam Asset Allocation Funds--Balanced
Portfolio................................. 140,000 1,643 1,643 0
Putnam Asset Allocation Funds--Conservative
Portfolio................................. 90,000 1,056 1,056 0
Putnam Balanced Retirement Fund............. 40,000 469 469 0
Putnam Convertible Income--Growth Trust..... 550,000 6,455 6,455 0
Putnam Convertible Opportunities and Income
Trust..................................... 60,000 704 704 0
Quattro Fund, LLC........................... 1,000,000 11,737 11,737 0
Quattro Fund Ltd............................ 1,000,000 11,737 11,737 0
R2 Investments LDC.......................... 8,000,000 93,896 93,896 0
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
NOTES
-----------------------------
BENEFICIALLY NUMBER OF SHARES OF COMMON STOCK
OWNED AND ------------------------------------------
OFFERED BENEFICIALLY OFFERED OWNED AFTER
NAME OF SELLING SECURITYHOLDER HEREBY(1) OWNED(1)(2) HEREBY THE OFFERING
------------------------------ ----------------------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Salomon Brothers Asset Management, Inc...... 21,305,000 250,058 250,058 0
San Diego County Employees Retirement
Association............................... 3,800,000 44,601 44,601 0
San Diego County Employees Retirement
Association............................... 120,000 1,408 1,408 0
Southport Management Partners, L.P.......... 580,000 6,807 6,807 0
Southport Partners International Ltd........ 1,140,000 13,380 13,380 0
St. Albans Partners Ltd..................... 2,500,000 29,342 29,342 0
University of Rochester..................... 20,000 234 234 0
Value Line Convertible Fund, Inc............ 500,000 5,868 5,868 0
Value Realization Fund B, L.P............... 570,000 6,690 6,690 0
Value Realization Fund, L.P................. 8,340,000 97,887 97,887 0
Van Kampen Convertible Securities Fund...... 492,000 5,774 5,774 0
Van Kampen Harbor Fund...................... 2,758,000 32,370 32,370 0
Zurich HFR Master Hedge Fund Index.......... 100,000 1,173 1,173 0
Zurich HFR Master Hedge Fund Index Ltd...... 170,000 1,995 1,995 0
</TABLE>
------------------------
(1) Information concerning the selling securityholders may change from time to
time and any such changed information will be set forth in supplements to
this Prospectus if and when necessary. In addition, the per share conversion
price, and therefore the number of shares issuable upon conversion of the
notes, is subject to adjustment under certain circumstances. Accordingly,
the aggregate principal amount of convertible notes and the number of shares
of common stock issuable upon conversion of the notes offered hereby may
increase or decrease.
(2) Assumes a conversion price of $85.20 per share, and a cash payment in lieu
of any fractional share interest.
(3) Information concerning other selling securityholders will be set forth in
Prospectus supplements from time to time, if required.
(4) Assumes that any other holders of notes or any future transferee from any
such holder does not beneficially own any common stock other than the common
stock issuable upon conversion of the convertible notes at the initial
conversion rate.
PLAN OF DISTRIBUTION
The convertible notes and common stock offered hereby may be sold from time
to time to purchasers directly by the selling securityholders. Alternatively,
the selling security holders may from time to time offer the convertible notes
and common stock to or through underwriters, broker/dealers or agents, who may
receive compensation in the form of underwriting discounts, concessions or
commissions from the selling securityholders or the purchasers of convertible
notes and common stock for whom they may act as agents. The selling
securityholders and any underwriters, broker/dealers or agents that participate
in the distribution of convertible notes and common stock may be deemed to be
52
<PAGE>
"underwriters" within the meaning of the Securities Act and any profit on the
sale of convertible notes and common stock by them and any discounts,
commissions, concessions or other compensation received by any such underwriter,
broker/dealer or agent may be deemed to be underwriting discounts and
commissions under the Securities Act.
The convertible notes and common stock offered hereby may be sold from time
to time in one or more transactions at fixed prices, at prevailing market prices
at the time of sale, any varying prices determined at the time of sale or at
negotiated prices. The sale of the convertible notes and the common stock
issuable upon conversion of the convertible notes may be effected in
transactions (which may involve crosses or block transactions):
- On any national securities exchange or quotation service on which the
convertible notes or the common stock may be listed or quoted at the time
of sale;
- In the over-the-counter market;
- In transactions otherwise than on such exchanges or in the
over-the-counter market; or
- Through the settlement of short sales. At the time a particular offering
of the convertible notes and the common stock is made, a prospectus
supplement, if required, will be distributed that will set forth the
aggregate amount and type of convertible notes and common stock being
offered and the terms of the offering, including the name or names of any
underwriters, broker/dealers or agents, if any, any discounts, commissions
and other terms constituting compensation from the selling securityholders
and any discounts, commissions or concessions allowed or reallowed or paid
to broker/dealers.
To comply with the securities laws of certain jurisdictions, if applicable,
the convertible notes and common stock will be offered or sold in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain jurisdictions the convertible notes and common stock may
not be offered or sold unless they have been registered or qualified for sale in
such jurisdictions or an exemption from registration or qualification is
available and is complied with.
The selling securityholders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the convertible notes and
common stock by the selling securityholders. The foregoing may affect the
marketability of the convertible notes and the common stock.
Pursuant to the registration rights agreement, all expenses of the
registration of the convertible notes and common stock will be paid by us,
including, without limitation, SEC filing fees and expenses of compliance with
state securities or "blue sky" laws; however, the selling securityholders will
pay all underwriting discounts and selling commissions, if any. The selling
securityholders will be indemnified by us against certain civil liabilities,
including certain liabilities under the Securities Act, or will be entitled to
contribution in connection therewith.
LEGAL MATTERS
The legality of the convertible notes and the common stock issuable on
conversion of the convertible notes is being passed upon by Gray Cary Ware &
Freidenrich LLP, San Diego, California and Graham & James LLP, New York, New
York.
EXPERTS
The audited financial statements of Invitrogen and Research Genetics
included in and incorporated by reference in this Prospectus and elsewhere in
this Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with
53
<PAGE>
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the Exchange Act). In accordance with the Exchange Act,
we file reports, proxy statements and other information with the SEC. Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the SEC at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549-1004, and at the SEC's following regional
offices: New York Regional Office, 7 World Trade Center, New York, New York
10048; and Chicago Regional Office, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may also be
obtained at prescribed rates from the Public Reference Room of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549-1004. Information on the operation of
the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.
Our common stock is listed on the Nasdaq National Market and such reports and
other information concerning us may also be inspected at the offices of the
Nasdaq Stock Market, 1735 K Street, N.W., Washington DC 20006-1506. The SEC also
maintains a web site at http://www.sec.gov that contains reports, proxy and
other information statements and other information regarding registrants,
including us, that file such information electronically with the SEC.
We have also filed with the SEC a registration statement on Form S-3
(together with all amendments and exhibits thereto, the registration statement)
under the Securities Act of 1933, as amended. This Prospectus does not contain
all the information set forth in the registration statement, certain parts of
which are omitted in accordance with the rules and regulations of the SEC. For
further information, refer to the registration statement, copies of which you
may obtain from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington DC 20549, upon payment of the fees prescribed by the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents we filed with the SEC pursuant to the Exchange Act
are incorporated by reference and made a part of this Prospectus:
- Annual Report on Form 10-K for the year ended December 31, 1999 filed on
March 14, 2000,
- Current Reports on Form 8-K filed on February 16, 2000 and Form 8-K/A
filed on February 17, 2000,
- The description of our common stock which is contained in our registration
statement on Form 8-A under the Exchange Act on January 29, 1999,
including any amendment or reports filed for the purpose of updating such
description, and
- Quarterly Report on Form 10-Q filed on May 8, 2000.
In addition, all documents and reports we file with the SEC pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference into this Prospectus and to be a part of it from the
date of filing of those documents. Any statement contained in a document
incorporated into this Prospectus by reference shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained in this Prospectus or in any other subsequently filed document which
also is or is deemed to be incorporated by reference in this Prospectus modifies
or supersedes such earlier statement. Any statement modified or superseded shall
not be deemed, except as modified or superseded, to constitute a part of this
Prospectus.
54
<PAGE>
Upon written or oral request, we will provide without charge to each person
to whom this Prospectus is delivered, a copy of any or all documents
incorporated by reference in this Prospectus (other than any exhibits to those
documents not specifically incorporated in those documents by reference).
Requests for such documents should be submitted to Invitrogen
Corporation, Inc., 1600 Faraday Avenue, Carlsbad, California 92008, Attention:
Investor Relations, or made by telephone at (760) 603-7200.
LIMITATIONS OF LIABILITY AND INDEMNIFICATION MATTERS
We have adopted provisions in our certificate of incorporation, which the
Delaware General Corporation Law permits, that provide that our directors shall
not be personally liable to us or our stockholders for monetary damages
resulting from a violation of the directors' duty to act with care and in the
best interests of the stockholders, except for liability:
- For any breach of a director's duty of loyalty to us or our stockholders;
- For acts or omissions that are not in good faith, or involve intentional
misconduct or a knowing violation of the law;
- Under Section 174 of the Delaware General Corporation Law relating to
improper dividends or distributions; and
- For any transaction from which the director obtained an improper personal
benefit.
This limitation of liability does not affect the availability of equitable
remedies, including injunctive relief or rescission.
Our by-laws authorize us to indemnify our officers, directors, employees and
agents to the fullest extent permitted by the Delaware General Corporation Law.
Section 145 of the Delaware General Corporation Law empowers us to enter into
indemnification agreements with our officers, directors, employees and agents.
We have entered into separate indemnification agreements with each of our
current directors and executive officers which, in some cases, are broader than
the specific indemnification provisions allowed by the Delaware General
Corporation Law. The indemnification agreements require us to indemnify the
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 for which they could be
indemnified to the fullest extent permitted by the Delaware General Corporation
Law.
At present, there is no pending litigation or proceeding involving any of
our directors, officers, employees or agents 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 indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, executive officers or persons controlling us as
described above, we have been informed that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act, and
is therefore unenforceable.
55
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS
Report of Independent Public Accountants.............. F-2
Consolidated Balance Sheets as of December 31, 1999
and 1998............................................. F-3
Consolidated Statements of Income for the Years Ended
December 31, 1999, 1998 and 1997..................... F-4
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1997, 1998 and 1999..... F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 1998 and 1997............... F-6
Notes to Consolidated Financial Statements............ F-8
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
Interim Consolidated Balance Sheets as of March 31,
2000 and December 31, 1999........................... F-27
Interim Consolidated Statements of Income for the
Three Months ended March 31, 2000 and 1999........... F-28
Interim Consolidated Statements of Cash Flows for the
Three Months ended March 31, 2000 and 1999........... F-29
Notes to Interim Consolidated Financial Statements.... F-31
</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, 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 December 31,
1999. 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.
/s/ ARTHUR ANDERSEN LLP
San Diego, California
March 1, 2000
F-2
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $102,221 $ 2,329
Short-term investments.................................... -- 4,214
Accounts receivable, net of allowance for doubtful
accounts of $835 and $616............................... 11,518 8,356
Note receivable officer................................... -- 150
Inventories............................................... 7,490 5,947
Income taxes receivable................................... 4,495 --
Deferred income taxes..................................... 3,561 1,057
Prepaid expenses and other current assets................. 1,052 1,433
-------- -------
Total current assets.................................... 130,337 23,486
Property and Equipment, net................................. 21,582 18,806
Intangible Assets, net...................................... 4,199 1,980
Deferred income taxes....................................... 117 106
Other Assets................................................ 440 1,244
-------- -------
Total assets............................................ $156,675 $45,622
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to bank..................................... $ 415 $ 1,512
Current portion of long term obligations.................. 6,211 1,255
Accounts payable.......................................... 4,301 4,453
Accrued expenses.......................................... 5,181 3,086
Income taxes payable...................................... 1,680 1,002
-------- -------
Total current liabilities............................... 17,788 11,308
-------- -------
Long term obligations....................................... 7,256 8,033
-------- -------
Deferred income taxes....................................... 439 322
-------- -------
Commitments and contingencies
Non-voting Redeemable Common Stock of Invitrogen B.V;
Subsidiary common stock, 66,000 shares authorized; no
shares issued or outstanding on December 31, 1999 and
18,000 issued and outstanding on December 31, 1998........ -- 1,599
-------- -------
Convertible Redeemable Preferred Stock; $0.01 par value,
2,202,942 shares authorized; no shares issued or
outstanding on December 31, 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;
22,271,140 and 13,148,035 shares issued and outstanding at
December 31, 1999 and 1998, respectively.................. 223 131
Additional paid-in-capital.................................. 121,269 6,399
Deferred compensation....................................... (746) (962)
Value of common stock designated pursuant to Employee Stock
Ownership Plan............................................ -- 100
Accumulated other comprehensive loss........................ (520) (40)
Retained earnings........................................... 10,966 2,591
-------- -------
Total stockholders' equity.............................. 131,192 8,219
-------- -------
Total liabilities and stockholders' equity.............. $156,675 $45,622
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1999 1998 1997
--------- --------- ----------
<S> <C> <C> <C>
Revenues.................................................... $92,880 $70,567 $ 55,334
Cost of Revenues............................................ 32,862 26,443 22,713
------- ------- ---------
Gross margin.............................................. 60,018 44,124 32,621
Operating Expenses:
Sales and marketing....................................... 16,235 13,165 9,935
General and administrative................................ 12,139 11,066 9,564
Research and development.................................. 14,699 11,201 7,545
Merger costs.............................................. 4,379 -- --
------- ------- ---------
Total operating expenses................................ 47,452 35,432 27,044
------- ------- ---------
Income from operations.................................. 12,566 8,692 5,577
------- ------- ---------
Other Income (Expense):
Net gains (losses) on foreign currency transactions....... (90) 25 145
Interest and other expense................................ (866) (910) (698)
Interest and other income................................. 2,229 700 239
------- ------- ---------
1,273 (185) (314)
------- ------- ---------
Income before provision for income taxes.................... 13,839 8,507 5,263
Provision for income taxes.................................. 4,779 2,988 1,846
------- ------- ---------
Net income.................................................. 9,060 5,519 3,417
Less: Preferred stock dividends........................... (163) (900) (475)
Accretion of non-voting redeemable common stock...... (74) (204) (175)
Adjustment to beneficial conversion feature related
to
convertible preferred stock........................ 985 -- (15,000)
------- ------- ---------
Net income (loss) applicable to common shares......... $ 9,808 $ 4,415 $ (12,233)
======= ======= =========
Earnings (loss) per share:
Basic..................................................... $ 0.51 $ 0.29 $ (0.83)
======= ======= =========
Diluted................................................... $ 0.45 $ 0.26 $ (0.83)
======= ======= =========
Weighted average shares used in per share calculation:
Basic..................................................... 19,069 15,352 14,661
Diluted................................................... 21,629 17,083 14,661
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------------------
COMMON STOCK SERIES A SERIES B ADDITIONAL
------------------- ------------------- ------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
-------- -------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996................ 5,722 $ 57 7,226 $-- 1,188 $-- $ 5,698
Recapitalization of stock....................... 8,414 84 (7,226) -- (1,188) -- (84)
Value of common stock designated pursuant to
Employee Stock Ownership Plan................. -- -- -- -- -- -- --
Deferred compensation........................... -- -- -- -- -- -- 664
Amortization of deferred compensation expense... -- -- -- -- -- -- --
Common stock issued under employee plans........ 202 2 -- -- -- -- 258
Shareholder equity contribution................. -- -- -- -- -- -- 147
Repurchase of common stock...................... (1,189) (12) -- -- -- -- (1,437)
Beneficial conversion feature related to
convertible preferred stock................... -- -- -- -- -- -- 15,000
Accretion of beneficial conversion feature
related to convertible preferred stock........ -- -- -- -- -- -- (15,000)
Preferred and common stock dividends declared
and accretion of redemption value over stated
value on subsidiary common stock.............. -- -- -- -- -- -- --
Foreign currency translation adjustment......... -- -- -- -- -- -- --
Net income...................................... -- -- -- -- -- -- --
------ ---- ------ --- ------ --- --------
Balance at December 31, 1997................ 13,149 131 -- -- -- -- 5,246
Value of common stock designated pursuant to
Employee Stock Ownership Plan................. -- -- -- -- -- -- --
Deferred compensation........................... -- -- -- -- -- -- 683
Amortization of deferred compensation expense... -- -- -- -- -- -- --
Common stock issued under employee plans........ 33 -- -- -- -- -- 130
Shareholder equity contribution................. -- -- -- -- -- -- 205
Tax effect of exercise of stock options......... -- -- -- -- -- -- 138
Repurchase of common stock...................... (34) -- -- -- -- -- (150)
Stock option issued to acquire Morphagen, Inc... -- -- -- -- -- -- 147
Preferred and common stock dividends declared
and accretion of redemption value over stated
value on subsidiary common stock.............. -- -- -- -- -- -- --
Foreign currency translation adjustment......... -- -- -- -- -- -- --
Net income...................................... -- -- -- -- -- -- --
------ ---- ------ --- ------ --- --------
Balance at December 31, 1998................ 13,148 131 -- -- -- -- 6,399
Initial public stock offering................... 3,525 36 -- -- -- -- 48,093
Conversion of redeemable preferred stock........ 2,203 22 -- -- -- -- 729
Adjustment to beneficial conversion feature
related to convertible preferred stock........ -- -- -- -- -- -- (985)
Accretion of beneficial conversion feature
related to convertible preferred stock........ -- -- -- -- -- -- 985
Secondary stock offering........................ 2,400 24 -- -- -- -- 56,443
Deferred compensation........................... -- -- -- -- -- -- 126
Amortization of deferred compensation expense... -- -- -- -- -- -- (20)
Common stock issued under employee plans........ 995 10 -- -- -- -- 3,219
Shareholder equity contribution................. -- -- -- -- -- -- 80
Tax effect of exercise of stock options......... -- -- -- -- -- -- 6,200
Preferred and common stock dividends declared
and accretion of redemption value over stated
value on subsidiary common stock.............. -- -- -- -- -- -- --
Foreign currency translation adjustment......... -- -- -- -- -- -- --
Net income...................................... -- -- -- -- -- -- --
------ ---- ------ --- ------ --- --------
Balance at December 31, 1999................ 22,271 $223 -- $-- -- $-- $121,269
====== ==== ====== === ====== === ========
<CAPTION>
EMPLOYEE ACCUMULATED
OWNERSHIP OTHER RETAINED
DEFERRED PLAN COMPREHENSIVE EARNINGS STOCKHOLDERS'
COMPENSATION CONTRIBUTION INCOME (LOSS) (DEFICIT) EQUITY
------------- ------------ -------------- --------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996................ $ -- $ 100 $ (29) $ 2,791 $ 8,617
Recapitalization of stock....................... -- -- -- -- --
Value of common stock designated pursuant to
Employee Stock Ownership Plan................. -- 100 -- -- 100
Deferred compensation........................... (664) -- -- -- --
Amortization of deferred compensation expense... 169 -- -- -- 169
Common stock issued under employee plans........ -- (100) -- -- 160
Shareholder equity contribution................. -- -- -- -- 147
Repurchase of common stock...................... -- -- -- (6,385) (7,834)
Beneficial conversion feature related to
convertible preferred stock................... -- -- -- -- (15,000)
Accretion of beneficial conversion feature
related to convertible preferred stock........ -- -- -- -- 15,000
Preferred and common stock dividends declared
and accretion of redemption value over stated
value on subsidiary common stock.............. -- -- -- (990) (990)
Foreign currency translation adjustment......... -- -- (95) -- (95)
Net income...................................... -- -- -- 3,417 3,417
------ ------ ------- ------- --------
Balance at December 31, 1997................ (495) 100 (124) (1,167) 3,691
Value of common stock designated pursuant to
Employee Stock Ownership Plan................. -- 100 -- -- 100
Deferred compensation........................... (683) -- -- -- --
Amortization of deferred compensation expense... 216 -- -- -- 216
Common stock issued under employee plans........ -- (100) -- -- 30
Shareholder equity contribution................. -- -- -- -- 205
Tax effect of exercise of stock options......... -- -- -- -- 138
Repurchase of common stock...................... -- -- -- -- (150)
Stock option issued to acquire Morphagen, Inc... -- -- -- -- 147
Preferred and common stock dividends declared
and accretion of redemption value over stated
value on subsidiary common stock.............. -- -- -- (1,761) (1,761)
Foreign currency translation adjustment......... -- -- 84 -- 84
Net income...................................... -- -- -- 5,519 5,519
------ ------ ------- ------- --------
Balance at December 31, 1998................ (962) 100 (40) 2,591 8,219
Initial public stock offering................... -- -- -- -- 48,129
Conversion of redeemable preferred stock........ -- -- -- -- 751
Adjustment to beneficial conversion feature
related to convertible preferred stock........ -- -- -- -- 985
Accretion of beneficial conversion feature
related to convertible preferred stock........ -- -- -- -- (985)
Secondary stock offering........................ -- -- -- -- 56,467
Deferred compensation........................... (126) -- -- -- --
Amortization of deferred compensation expense... 342 -- -- -- 322
Common stock issued under employee plans........ -- (100) -- -- 3,129
Shareholder equity contribution................. -- -- -- -- 80
Tax effect of exercise of stock options......... -- -- -- -- 6,200
Preferred and common stock dividends declared
and accretion of redemption value over stated
value on subsidiary common stock.............. -- -- -- (685) (685)
Foreign currency translation adjustment......... -- -- (480) -- (480)
Net income...................................... -- -- -- 9,060 9,060
------ ------ ------- ------- --------
Balance at December 31, 1999................ $ (746) -- $ (520) $10,966 $131,192
====== ====== ======= ======= ========
<CAPTION>
COMPREHENSIVE
INCOME
--------------
<S> <C>
Balance at December 31, 1996................ $ --
Recapitalization of stock....................... --
Value of common stock designated pursuant to
Employee Stock Ownership Plan................. --
Deferred compensation........................... --
Amortization of deferred compensation expense... --
Common stock issued under employee plans........ --
Shareholder equity contribution................. --
Repurchase of common stock...................... --
Beneficial conversion feature related to
convertible preferred stock................... --
Accretion of beneficial conversion feature
related to convertible preferred stock........ --
Preferred and common stock dividends declared
and accretion of redemption value over stated
value on subsidiary common stock.............. --
Foreign currency translation adjustment......... (95)
Net income...................................... 3,417
-------
Balance at December 31, 1997................ $ 3,322
=======
Value of common stock designated pursuant to
Employee Stock Ownership Plan................. --
Deferred compensation........................... --
Amortization of deferred compensation expense... --
Common stock issued under employee plans........ --
Shareholder equity contribution................. --
Tax effect of exercise of stock options......... --
Repurchase of common stock...................... --
Stock option issued to acquire Morphagen, Inc... --
Preferred and common stock dividends declared
and accretion of redemption value over stated
value on subsidiary common stock.............. --
Foreign currency translation adjustment......... 84
Net income...................................... 5,519
-------
Balance at December 31, 1998................ $ 5,603
=======
Initial public stock offering................... --
Conversion of redeemable preferred stock........ --
Adjustment to beneficial conversion feature
related to convertible preferred stock........ --
Accretion of beneficial conversion feature
related to convertible preferred stock........ --
Secondary stock offering........................ --
Deferred compensation........................... --
Amortization of deferred compensation expense... --
Common stock issued under employee plans........ --
Shareholder equity contribution................. --
Tax effect of exercise of stock options......... --
Preferred and common stock dividends declared
and accretion of redemption value over stated
value on subsidiary common stock.............. --
Foreign currency translation adjustment......... (480)
Net income...................................... 9,060
-------
Balance at December 31, 1999................ $ 8,580
=======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 9,060 $ 5,519 $ 3,417
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization............................. 4,464 3,227 2,355
Amortization of deferred compensation..................... 322 216 169
Employee stock ownership plan contribution................ -- 100 100
Deferred income taxes..................................... (700) 45 (676)
Non-cash write-off of investments......................... -- -- 330
Non-cash merger related costs............................. 1,820 -- --
Other non-cash adjustments................................ 409 22 161
Changes in operating assets and liabilities:
Accounts receivable..................................... (3,383) (2,172) (1,429)
Inventories............................................. (1,623) (2,385) (32)
Prepaid expenses and other current assets............... (138) (713) (171)
Other assets............................................ 406 (530) (310)
Accounts payable........................................ (80) 1,974 724
Accrued expenses........................................ 2,172 1,022 358
Income taxes payable.................................... 703 469 (172)
-------- -------- --------
Net cash provided by operating activities............. 13,432 6,794 4,824
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in short term investments.......................... 4,214 (438) (3,777)
Payment received on note receivable from officer.......... 150 -- 415
Purchases of property and equipment....................... (5,228) (10,070) (4,284)
Payments for intangible assets............................ (1,724) (926) (249)
Investment in related party............................... -- -- (500)
-------- -------- --------
Net cash used in investing activities................. (2,588) (11,434) (8,395)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances (principal payments) on lines of credit, net..... (1,067) (568) 812
Proceeds from long term obligations....................... 1,916 4,708 1,447
Principal payments on long term obligations............... (2,268) (2,338) (1,747)
Proceeds from sale of preferred stock..................... -- -- 14,766
Proceeds from sale of common stock and equity
contributions........................................... 108,019 235 308
Redemption of preferred and common stock and payment of
accrued dividends....................................... (17,507) (657) (340)
Repurchase of common stock................................ -- (150) (7,834)
-------- -------- --------
Net cash provided by financing activities............. 89,093 1,230 7,412
Effect of exchange rate changes on cash................... (45) 183 (105)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents......................................... 99,892 (3,227) 3,736
Cash and cash equivalents, beginning of period............ 2,329 5,556 1,820
-------- -------- --------
Cash and cash equivalents, end of period.................. $102,221 $ 2,329 $ 5,556
======== ======== ========
</TABLE>
F-6
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
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 $ -- $ --
======== ======== ========
Preferred dividends declared.............................. $ 163 $ 900 $ 475
======== ======== ========
Accretion of redemption value for redeemable common
stock................................................... $ 74 $ 204 $ 175
======== ======== ========
Deferred compensation..................................... $ 164 $ 683 $ 664
======== ======== ========
Contribution of common stock to ESOP...................... $ 100 $ 100 $ 100
======== ======== ========
Note issued for patent rights............................. $ 1,000 $ -- $ --
======== ======== ========
Property acquired with debt............................... $ 3,500 $ -- $ --
======== ======== ========
Converted deposit to note receivable-officer.............. $ -- $ 150 $ --
======== ======== ========
Options issued for assets of Morphagen, Inc............... $ -- $ 147 $ --
======== ======== ========
Note issued for Serva product line assets acquired........ $ -- $ 500 $ --
======== ======== ========
Accretion of beneficial conversion feature of convertible
preferred stock......................................... $ -- $ -- $ 15,000
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 588 $ 709 $ 692
======== ======== ========
Cash paid for income taxes................................ $ 3,659 $ 1,971 $ 1,980
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999, 1998 AND 1997
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 3).
On August 17, 1999, the Company consummated a merger with NOVEX, in a
stock-for-stock transaction (see Note 2). NOVEX, formerly known as Novel
Experimental Technology, a California Corporation, was incorporated on April 5,
1989. NOVEX manufactures protein and nucleic acid electrophoresis gels and
related equipment, solutions, standards, and fine chemicals, primarily for use
in research laboratories. On February 2, 2000, the Company consummated a merger
with Research Genetics, an Alabama Corporation, incorporated on June 1, 1994
(see Note 2). Research Genetics supplies products and services for functional
genomics and gene-based drug discovery research. These transactions have been
accounted for as pooling of interests' and, accordingly, the Company's
consolidated financial statements have been restated for all periods prior to
the business combinations to include the financial results of Invitrogen, NOVEX
and Research Genetics.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its 100% controlled subsidiaries, Invitrogen B.V., which commenced
operations in The Netherlands in April 1993, NOVEX Electrophoresis GmbH
(formerly known as Anamed GmbH), which commended operations in Germany in
December 1992, Serva GmbH, incorporated in Germany in May 1998, Invitrogen
Export Company, Ltd., a foreign sales corporation incorporated in 1996 and NOVEX
International Sales Corporation, incorporated in February 1997. All significant
intercompany accounts and transactions have been eliminated in consolidation.
CONCENTRATIONS OF RISKS
SEGMENT AND GEOGRAPHIC DATA. The Company has adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" and has determined that it operates in one business segment
dedicated to molecular biology research. The
F-8
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999, 1998 AND 1997
1. BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company does not report product line information as it would be impracticable to
do so. Information about the Company by geographic area is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS) -------- -------- --------
<S> <C> <C> <C>
Product sales to unrelated customers located in:
North America.................................. $62,952 $48,172 $39,987
Europe......................................... 22,475 17,089 10,672
Pacific Rim.................................... 5,728 4,023 3,538
------- ------- -------
Total product revenue........................ $91,155 $69,284 $54,197
======= ======= =======
Net long-lived assets located in:
North America.................................. $19,139 $15,426
Europe......................................... 2,443 3,380
------- -------
Total net long-lived assets.................. $21,582 $18,806
======= =======
</TABLE>
CUSTOMERS. Approximately $39.5 million, $29.7 million and $23.9 million, or
42%, 42% and 43% of the Company's revenues during the years ended December 31,
1999, 1998, and 1997, respectively, were derived from university and research
institutions which management believes are, to some degree, directly or
indirectly supported by the U.S. Government. A change in current research
fundings, particularly with respect to the National Institute of Health, may
have an adverse impact on the Company's future results of operations.
REVENUE RECOGNITION
Revenues from product sales are recognized upon shipment to the customer.
The Company does not receive material upfront fees; those that are received are
deferred and recognized upon shipment to the customers. Grant revenue is
recorded as earned, as defined within the specific agreements and is not
refundable. Grant revenue was $1.7 million, $1.3 million and $1.1 million in
1999, 1998 and 1997, 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, 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, 1999 and 1998 consist primarily of U.S. Treasury and government
agency obligations, commercial paper and dividend-bearing securities.
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.
F-9
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999, 1998 AND 1997
1. BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 represent patents, license agreements and genome
libraries, are recorded at cost and are amortized on a straight-line basis over
estimated useful lives of 3 to 17 years. The excess of cost over the fair value
of the net tangible assets purchased (goodwill) arose from the Company's 1996
acquisition of its wholly-owned subsidiary, NOVEX Electrophoresis GmbH, and is
being amortized over ten years.
LONG-LIVED ASSETS
The Company has adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets." The statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be fully recoverable. The Company periodically re-evaluates the original
assumptions and rationale utilized in the establishment of the carrying value
and estimated lives of its long-lived assets. The criteria used for these
evaluations include management's estimate of the asset's continuing ability to
generate income from operations and positive cash flow in future periods as well
as the strategic significance of any intangible asset in the Company's business
objectives.
RESEARCH AND DEVELOPMENT COSTS
All research and development costs are charged to operations as incurred.
INCOME TAXES
The Company uses the liability method of accounting for income taxes in
accordance with Statement of Financial Statement Accounting Standards No. 109,
"Accounting for Income Taxes." Deferred income taxes reflect the net tax effects
of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes,
using enacted tax rates in effect for the year in which the differences are
expected to reverse. Valuation allowances are established, when necessary, to
reduce deferred tax assets to the amount expected to be realized.
FOREIGN CURRENCY TRANSLATION
The balance sheet accounts of the Company's foreign operations are
translated from their respective foreign currencies into U.S. dollars at the
exchange rate in effect at the balance sheet date
F-10
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999, 1998 AND 1997
1. BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and revenue and expense accounts are translated using an average exchange rate
during the period of recognition. 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 and are included in
the Consolidated Statements of Income.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of all financial instruments such as cash equivalents,
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 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.
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 applicable to common shares 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
F-11
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999, 1998 AND 1997
1. BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." This SAB summarizes the SEC's view in applying generally accepted
accounting principles to revenue recognition in financial statements. This SAB
is effective for all registrants during the second quarter of fiscal 2000.
Management has reviewed the impact of SAB 101 on the Company's financial
statements, and does not believe that its adoption will have a material impact
on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS 133 requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. This Statement was amended by SFAS
No. 137 which defers the effective date to all fiscal quarters of fiscal years
beginning after June 15, 2000. SFAS No. 133 is effective for our first quarter
in the fiscal year ending March 31, 2001 and is not expected to have a material
effect on our financial position or results of operations.
RECLASSIFICATIONS
Certain reclassifications of prior year amounts have been made to conform to
the current year presentation.
2. BUSINESS COMBINATIONS
RESEARCH GENETICS MERGER
On February 2, 2000, the Company completed a merger with Research Genetics,
a privately held U.S. company that supplies products and services for functional
genomics and gene-based drug discovery research. The Company issued 3.2 million
shares of common stock for all of the outstanding common stock of Research
Genetics. The transaction has been accounted for as a pooling of interests and
qualifies as a tax free exchange. Costs incurred as a result of the merger and
related integration are expected to be $6.4 million and are subject to change.
These costs were expensed in February 2000 upon completion of the merger. The
combined results of operations of Invitrogen and Research Genetics are presented
as if the merger had occurred at the beginning of the periods presented.
NOVEX MERGER
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.
F-12
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999, 1998 AND 1997
Invitrogen issued 2,530,124 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 469,678 shares of Invitrogen common stock. The merger is
intended to qualify as a tax-free reorganization and has been accounted for as a
pooling of interests. In August 1999, after the merger was completed, the
Company recorded $4.4 million in merger-related costs. These costs included
transaction costs to complete the merger, severance, write-downs of duplicate
property, plant and equipment and other costs to close duplicate facilities. The
duplicate facilities were located in San Diego, California and in Frankfurt,
Germany and the closure of these facilities included workforce reductions of
approximately 45 employees in 1999 and 22 in 2000. It is expected that the
closure of the duplicate facilities will be completed by the end of 2000. At
December 31, 1999 the Company had $1.7 million remaining in accrued merger
related costs, which are subject to change.
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, 1999, 1998 and 1997, of Invitrogen to arrive at the
financial information presented. The combined results of operations of
Invitrogen and NOVEX are presented as if the merger had occurred at the
beginning of the periods presented.
The reconciliations of revenues and net income previously reported prior to
the respective mergers by the separate companies to the combined results
reported in the Consolidated Statements of Income for the years ended December
31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS) -------- -------- --------
<S> <C> <C> <C>
Revenues:
Invitrogen............................................... $49,530 $31,414 $24,965
Research Genetics........................................ 24,581 17,006 14,331
NOVEX.................................................... 18,807 22,293 16,240
Intercompany sales....................................... (38) (146) (202)
------- ------- -------
$92,880 $70,567 $55,334
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS) -------- -------- --------
<S> <C> <C> <C>
Net Income:
Invitrogen.................................................. $5,526 $2,978 $2,524
Research Genetics........................................... 2,395 1,289 982
NOVEX....................................................... 1,139 1,252 (89)
------ ------ ------
$9,060 $5,519 $3,417
====== ====== ======
</TABLE>
SERVA ACQUISITION
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 $1.5 million comprised of $.8
million in cash, acquisition costs of $.2 million, and a
F-13
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999, 1998 AND 1997
promissory note for $.5 million. The assets acquired include inventory and
property with an estimated fair value of $1.5 million. Revenues, expenses and
acquired assets relating to this product line are included in the consolidated
financial statements from the date of acquisition.
3. RELATED PARTY TRANSACTIONS
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 former
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.
RESEARCH GENETICS
Related party transactions consist of minor pass-through arrangements with
various start-up biotech companies in which the President of Research Genetics
holds a nominal equity interest.
COMMON STOCK
In connection with the Company's recapitalization in 1997, 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.
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.
F-14
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999, 1998 AND 1997
4. INVENTORIES
Inventories include material, labor and overhead costs and consist of the
following at December 31:
<TABLE>
<CAPTION>
1999 1998
(IN THOUSANDS) -------- --------
<S> <C> <C>
Raw materials and components................................ $1,962 $1,787
Work in process............................................. 1,082 1,217
Finished goods.............................................. 4,446 2,943
------ ------
$7,490 $5,947
====== ======
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
(IN THOUSANDS) -------- --------
<S> <C> <C>
Land..................................................... $ 5,592 $ 2,107
Building and improvements................................ 5,845 5,304
Machinery and equipment.................................. 21,941 20,225
Leasehold improvements................................... 1,969 1,516
Construction in process.................................. 10 302
-------- --------
35,357 29,454
Accumulated depreciation and amortization................ (13,775) (10,648)
-------- --------
$ 21,582 $ 18,806
======== ========
</TABLE>
6. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
(IN THOUSANDS) -------- --------
<S> <C> <C>
Licensing agreements (see Note 11).......................... $2,841 $ 984
Patents and trademarks...................................... 1,259 848
Genome libraries............................................ 806 350
Goodwill.................................................... 156 156
Other....................................................... 49 49
------ ------
5,111 2,387
Accumulated amortization.................................... (912) (407)
------ ------
$4,199 $1,980
====== ======
</TABLE>
F-15
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999, 1998 AND 1997
7. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
(IN THOUSANDS) -------- --------
<S> <C> <C>
Accrued purchases........................................... $ 733 $ 931
Accrued payroll and related expenses........................ 1,482 1,148
Accrued benefit plan contributions.......................... 692 254
Accrued merger related costs................................ 1,661 -
Customer prepayments........................................ 171 192
Accrued other............................................... 442 561
------ ------
$5,181 $3,086
====== ======
</TABLE>
8. LINES OF CREDIT
The Company has an available line of credit for advances up to $3 million.
The credit facility bears interest at the bank's Libor rate (6.5% at December
31, 1999) plus 2% or the bank's prime rate (8.5% at December 31, 1999). The line
of credit expires on October 1, 2001. No amounts were outstanding on this credit
facility at December 31, 1999. The line is collateralized by assets with a net
book value of $135.5 million at December 31, 1999. The line of credit agreement
contains various normal and customary financial covenants, which the Company was
in compliance with for all periods presented.
In February and March 2000, due to sufficient cash balances, the Company
terminated certain revolving line of credit facilities with banks for advances
totaling up to $2.7 million. At December 31, 1999, $415,000 was outstanding on
these lines and $2,285,000 was available. The outstanding balances on the lines
were paid in full in January and March 2000.
9. LONG TERM OBLIGATIONS
The Company leases certain equipment under capital leases which are due in
aggregate monthly installments of $8,000 and mature at various dates through
November 2002. Property and equipment, net, at December 31, 1999 and 1998,
include approximately $326,000 and $398,000, respectively, of equipment under
capital leases which have been capitalized.
F-16
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AS OF DECEMBER 31, 1999, 1998 AND 1997
9. LONG TERM OBLIGATIONS (CONTINUED)
Long term obligations consist of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
(IN THOUSANDS) -------- --------
<S> <C> <C>
Notes payable to SouthTrust Bank, paid in full March
2000..................................................... $ 8,855 $ 3,862
Bonds payable to State Industrial Development Authority of
Alabama, interest due monthly, principal due annually
through 2008, variable rate interest, supported by a
letter of credit for $3.6 million with a bank............ 2,880 3,120
Note payable to Molecular Biology Resources, principal and
interest due annually through June 2003, with interest at
6%, supported by a standby letter of credit with a
bank..................................................... 1,030 --
Note payable to Boehringer Ingelheim, payable $500 plus
interest on December 31, 1999, with interest at 8%,
supported by a standby letter of credit with a bank, paid
in full January 2000..................................... 500 500
Other notes payable........................................ 30 1,668
Capital leases............................................. 172 138
------- -------
13,467 9,288
Less current maturities.................................... (6,211) (1,255)
------- -------
$ 7,256 $ 8,033
======= =======
</TABLE>
The bonds payable represent Variable Rate Industrial Development Revenue
Bonds issued for the benefit of Research Genetics. Improvements and equipment
acquired with the bond proceeds become the property of the Industrial
Development Board of the City of Huntsville, Alabama. The Company has entered
into a lease arrangement with the Board whereby the property is leased for one
dollar per year through January 1, 2008. The company has an option to purchase
the property from the Board for one hundred dollars.
Maturities of long term obligations at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Years Ending
December
31,
(IN THOUSANDS) ------------
<S> <C>
2000........................................................ $ 6,211
2001........................................................ 1,375
2002........................................................ 1,234
2003........................................................ 1,124
2004........................................................ 853
Thereafter.................................................. 2,670
-------
$13,467
=======
</TABLE>
F-17
<PAGE>
10. INCOME TAXES
Significant components of the Company's deferred tax assets and liabilities
are as follows at December 31:
<TABLE>
<CAPTION>
1999 1998
(IN THOUSANDS) -------- --------
<S> <C> <C>
Deferred tax assets:
Various accruals........................................ $ 842 $ 743
Net operating loss and credit carryforwards............. 2,147 --
State taxes............................................. 66 91
Depreciation and amortization........................... 161 --
Reserves................................................ 160 141
Other................................................... 448 202
------ -----
Total deferred tax assets................................... 3,824 1,177
Deferred tax Liabilities:
Valuation allowance..................................... -- --
Depreciation and amortization........................... (585) (336)
------ -----
Net deferred tax assets..................................... $3,239 $ 841
====== =====
</TABLE>
Income before income taxes includes the following components for the years
ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS) -------- -------- --------
<S> <C> <C> <C>
United States...................................... $11,224 $7,395 $4,522
Foreign............................................ 2,615 1,112 741
------- ------ ------
$13,839 $8,507 $5,263
======= ====== ======
</TABLE>
The provision for income taxes consists of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS) -------- -------- --------
<S> <C> <C> <C>
Current:
Federal.......................................... $ 5,183 $2,040 $1,628
State............................................ 1,103 414 363
Foreign.......................................... 1,015 342 334
------- ------ ------
Total current provision............................ 7,301 2,796 2,325
Deferred:
Federal.......................................... (2,165) 168 (344)
State............................................ (357) 24 (135)
------- ------ ------
Total deferred provision........................... (2,522) 192 (479)
------- ------ ------
Total provision.................................... $ 4,779 $2,988 $1,846
======= ====== ======
</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-18
<PAGE>
10. 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 for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
(IN THOUSANDS) -------- -------- --------
<S> <C> <C> <C>
Federal tax provision at statutory rate............. $4,702 $2,892 $1,790
State tax, net of federal benefit................... 408 460 276
Foreign Sales Corporation Benefit................... (98) (74) (39)
Research and development and other credits.......... (384) (455) (280)
Change in valuation allowance....................... - (80) 26
Other............................................... 151 245 73
------ ------ ------
Provision for income taxes.......................... $4,779 $2,988 $1,846
====== ====== ======
</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
$6,200,000 and $138,000 for 1999 and 1998, respectively. A portion of this
benefit was utilized in the current year and has been reflected as additional
paid-in capital in the accompanying statement of stockholders' equity.
11. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases certain equipment and its office and manufacturing
facilities under operating leases which expire through September 2010. Certain
rental commitments provide for specific escalating rental payments and certain
commitments have renewal options extending through the year 2015. Rent expense
under all operating leases was $1.2 million, $1.3 million and $1.0 million for
the years ended December 31, 1999, 1998 and 1997, respectively.
Future minimum lease commitments for operating leases at December 31, 1999
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Years Ending December 31,
2000........................................................ $ 1,475
2001........................................................ 1,490
2002........................................................ 1,326
2003........................................................ 1,335
2004........................................................ 1,388
Thereafter.................................................. 6,209
-------
Total minimum lease payments............................ $13,223
=======
</TABLE>
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
generally range from the remaining life of the patent up to twenty years and
initial costs are amortized over their terms using the straight-line method.
Total royalties paid under the agreements were approximately $1.2 million, $1.4
million and $1.1 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
F-19
<PAGE>
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Certain of the licensing agreements require guaranteed minimum annual
royalty payments, to maintain exclusivity. Future minimum guaranteed royalties
at December 31, 1999 are as follows:
<TABLE>
<S> <C>
(IN THOUSANDS)
Years Ending December 31,
2000........................................................ $ 643
2001........................................................ 708
2002........................................................ 693
2003........................................................ 696
2004........................................................ 660
Thereafter.................................................. 2,682
------
$6,082
======
</TABLE>
PURCHASE COMMITMENTS
The Company has minimum purchase commitments for inventory from certain
vendors. Future minimum guaranteed minimum purchase commitments at December 31,
1999 are as follows:
<TABLE>
<S> <C>
(IN THOUSANDS)
Years Ending December 31,
2000........................................................ $ 812
2001........................................................ 837
2002........................................................ 987
2003........................................................ 1,026
2004........................................................ 1,000
Thereafter.................................................. 1,871
------
$6,533
======
</TABLE>
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, 1999 the Company had outstanding put options to sell 1.7
million pounds sterling at $1.63 per pound. Additionally, the Company had
outstanding call options to purchase 1.7 million pounds sterling at $1.66 per
pound. These contracts expire monthly through December 2000. The above contracts
had no net value at December 31, 1999.
12. 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
F-20
<PAGE>
12. REDEEMABLE COMMON STOCK OF INVITROGEN B.V. (CONTINUED)
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 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). The Company redeemed all of the shares on
April 7, 1999 for the redemption amount of NLG 3,150,000 (USD $1,507,000).
The excess of the redemption value over the issue price was accredited by
periodic charges to equity over the life of the issue through April 7, 1999.
13. PREFERRED STOCK
AUTHORIZED SHARES
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>
The Series A Cumulative Convertible Redeemable Preferred Stock ("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
elect one director of the Company and vote on certain other significant
transactions, voting together as one separate class. The Convertible Preferred
Stock may be voluntarily converted upon the election of holders of not less than
66.67% of the voting power of this stock. 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. After June 18, 2003, any
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.
There were no shares of Convertible Preferred Stock outstanding at December 31,
1999.
The Series A Redeemable Preferred Stock ("RPS") 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 RPS is redeemable upon the occurrence of a qualified public offering or sale
or other qualified event. Upon liquidation, the RPS 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 were no shares of RPS outstanding at December 31,
1999.
ISSUED SHARES
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
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. 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
F-21
<PAGE>
13. PREFERRED STOCK (CONTINUED)
equity on June 20, 1997, the date the Convertible Preferred Stock first became
convertible. This $15 million charge has been recognized as a reduction to
earnings available to common stockholders in 1997.
SUBSEQUENT CONVERSION AND REDEMPTION
In February 1999, upon the closing of the Company's IPO (see Note 14), each
of the 2,202,942 outstanding shares of Convertible Preferred Stock were
automatically converted into 2,202,942 shares of common stock and 2,202,942
shares of RPS. At the closing of the IPO, the RPS was redeemed for $14,015,000
and accumulated dividends on the Convertible Preferred Stock of $1,538,000 were
paid. 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.
14. COMMON STOCK, INITIAL PUBLIC OFFERING AND SECONDARY STOCK OFFERING
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.
INITIAL PUBLIC OFFERING
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 $48.1 million in cash, net of underwriting
discounts, commissions and other offering costs.
SECONDARY STOCK OFFERING
In November 1999, the Company completed a secondary stock offering and
issued 2,400,000 newly issued shares of its Common Stock at a price of $25.00
per share. The Company received $56.5 million in cash, net of underwriting
discounts, commissions and offering costs.
F-22
<PAGE>
15. EARNINGS (LOSS) PER SHARE
Earnings loss per share is calculated as follows for the years ended
December 31:
<TABLE>
<CAPTION>
1999
--------------------------------------
INCOME SHARES
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- --------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Basic EPS:
Income available to common stockholders..... $9,808 19,069 $0.51
=====
Stock options............................... -- 2,560
------ ------
Diluted EPS:
Income available to common stockholders plus
assumed conversions....................... $9,808 21,629 $0.45
====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------------------------
INCOME SHARES
(NUMERATOR) (DENOMINATOR)(1) AMOUNT
----------- ---------------- --------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Basic EPS:
Income available to common stockholders... $4,415 15,352 $0.29
=====
Stock options............................. -- 1,731
------ ------
Diluted EPS:
Income available to common stockholders
plus assumed conversions................ $4,415 17,083 $0.26
====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
1997
-----------------------------------------
LOSS SHARES
(NUMERATOR) (DENOMINATOR)(1) AMOUNT
----------- ---------------- --------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Basic and Diluted EPS:
Loss available to common stockholders.... $ (12,233) 14,661 $ (0.83)
========= ====== =======
</TABLE>
------------------------
(1) 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.
16. EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLANS
The Company previously had an Employee Stock Ownership Plan ("ESOP") for the
benefit of all Invitrogen employees. The ESOP was terminated as of December 31,
1998 and the assets of the ESOP were distributed to the participants or rolled
into the Invitrogen 401(k) plan or other qualified retirement plans as
designated by the participants in December 1999 and January 2000. Contributions
of $100,000 were designated for the ESOP for each of the years ended December
31, 1998 and 1997.
F-23
<PAGE>
16. EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company also has a 401(k)/ESOP plan covering all NOVEX employees. The
401(k)/ESOP plan was terminated as of December 31, 1999. Upon receipt of the IRS
Determination Letter, the Company intends to distribute the assets to the
participants or roll those assets into the Invitrogen 401(k) plan or other
qualified retirement plans as designated by the participants. Previous
contributions to the 401(k)/ESOP were based upon a Company match of employee
401(k) salary deferrals, as well as a discretionary percentage of eligible
participants' total compensation. The Company made contributions of $117,000,
$136,000 and $383,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.
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 $313,000, $179,000 and
$134,000, for the years ended December 31, 1999, 1998 and 1997, respectively.
The Company also has a 401(k) profit sharing plan that covers all Research
Genetics employees who meet minimum participation requirements. Annual
compensation may be deferred up to the maximum prescribed by the Internal
Revenue Code. The Company contributes an amount equal to 50% of the first 5% of
the participant's pre-tax contribution. Matching contributions for the years
ended December 31, 1999, 1998 and 1997 were $91,000, $71,000 and $49,000,
respectively. The Company intends to terminate this plan and to distribute the
assets to the participants or roll those assets into the Invitrogen 401(k) plan
or other qualified retirement plans as designated by the participants.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an employee stock purchase plan which became effective upon
the Company's initial public offering in February 1999. During 1999 employees
purchased 34,191 shares at an average price of $12.86 per share. As of December
31, 1999 there were 215,809 shares of the Company's common stock reserved for
future issuance under the plan.
17. STOCK OPTION PLANS
The Company has five stock option plans, the 1995, 1997 and 2000 Invitrogen
Corporation Stock Option Plans and the 1996 and 1998 NOVEX Stock Option/Stock
Issuance Plans. Under these plans, incentive stock options and non-qualified
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 Directors on the
date of grant.
The Company recognizes as compensation expense any difference between the
exercise price and the fair market value of the common stock on the date of
grant based on subsequent valuations of the stock. Stock based compensation
expense is deferred and recognized over the vesting period of the stock option.
During the years ended December 31, 1999, 1998 and 1997 the Company recognized
$322,000, $216,000 and $169,000, 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
F-24
<PAGE>
17. STOCK OPTION PLANS (CONTINUED)
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>
1999 1998 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -------- -------- ---------
<S> <C> <C> <C>
Income (loss) available to common stockholders:
As reported.................................. $9,808 $4,415 $ (12,223)
Pro forma.................................... 7,781 4,181 (12,247)
Basic earnings per share:
As reported.................................. $ 0.51 $ 0.29 $ (0.83)
Pro forma.................................... 0.41 0.27 (0.84)
Diluted earnings per share:
As reported.................................. $ 0.45 $ 0.26 $ (0.83)
Pro forma.................................... 0.36 0.24 (0.84)
</TABLE>
Under these four Plans, the Company may grant up to 5,962,875 options, of
which 3,430,800 are outstanding and 1,365,359 are available for future issuance
at December 31, 1999. 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,
1997, 1998 and 1999 and changes during the periods then ended is presented in
the tables below:
<TABLE>
<CAPTION>
Wtd.
Avg.
Shares Ex. Price
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) -------- ---------
<S> <C> <C>
Outstanding at December 31, 1996.......................... 3,605 $ 1.01
Granted................................................. 393 $ 3.88
Exercised............................................... (179) $ 0.90
Canceled................................................ (1,579) $ 0.90
-------
Outstanding at December 31, 1997.......................... 2,240 $ 1.60
Granted................................................. 1,429 $ 8.00
Exercised............................................... (20) $ 1.66
Canceled................................................ (29) $ 2.80
-------
Outstanding at December 31, 1998.......................... 3,620 $ 4.12
Granted................................................. 1,155 $25.69
Exercised............................................... (953) $ 2.75
Canceled................................................ (391) $15.89
-------
Outstanding at December 31, 1999.......................... 3,431 $10.40
=======
Exercisable at December 31, 1999.......................... 1,540 $ 4.76
</TABLE>
F-25
<PAGE>
17. STOCK OPTION PLANS (CONTINUED)
At December 31, 1999:
(OPTIONS IN THOUSANDS)
<TABLE>
<CAPTION>
WTD. AVG.
REMAINING
OPTIONS OPTIONS EXERCISE CONTRACTUAL
OUTSTANDING EXERCISABLE PRICE LIFE IN YEARS
----------- ----------- ------------- -------------
<S> <C> <C> <C>
1,024... 916 $ 0.84-$1.78 5.1
1,108... 403 $ 3.28-$8.63 8.0
489..... 110 $12.00-$19.44 9.0
787..... 111 $24.56-$29.75 9.6
23...... -- $47.88-$48.00 10.0
----- -----
3,431... 1,540 $ 10.40 7.7
===== =====
</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 of options granted during the years
ended December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Weighted average risk free interest rate............ 5.55% 5.48% 5.89%
Expected option life................................ 5.4 yrs 8.7 yrs 7.0 yrs
Expected stock price volatility..................... 45% 0% 0%
Expected dividend yield............................. -- -- --
Weighted average fair value of options granted...... $ 12.47 $ 3.04 $ 1.26
</TABLE>
18. SUBSEQUENT EVENT
CONVERTIBLE SUBORDINATED NOTES
In March 2000, we issued $172.5 million principal amount of 5.5% convertible
subordinated notes (the "Convertible Notes") due March 1, 2007. After expenses,
the company received net proceeds of $167.0 million. Interest on the Convertible
Notes is payable semi-annually on March 1st and September 1st, commencing in
September 2000. The notes were issued at 100% of principal value, and are
convertible into 2,024,648 shares of stock at the option of the holder at any
time at a price of $85.20 per share. The notes may be redeemed, in whole or in
part, at our option on or after March 1, 2003 at a premium of 103.143% of par
value which declines annually to par value at maturity date.
Costs incurred to issue the debt will be deferred and included in other
assets in the consolidated balance sheet. These costs will be amortized over the
term of the related debt using the effective interest method.
The Convertible Notes are subordinate to substantially all of the current
and future outstanding debt of Invitrogen, including all our secured debt and
all debts and liabilities of our subsidiaries. The Convertible Notes are not
subordinate to amounts we owe for employee compensation, goods or services we
purchase or to amounts we may owe to our subsidiaries.
F-26
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $265,411 $102,221
Accounts and notes receivable, net of allowance for
doubtful accounts of $835............................... 14,092 11,518
Inventories............................................... 7,536 7,490
Deferred income taxes..................................... 11,923 3,561
Prepaid expenses and other current assets................. 3,770 5,547
-------- --------
Total current assets.................................... 302,732 130,337
Property and Equipment, net................................. 22,833 21,581
Intangible Assets, net...................................... 4,124 4,199
Deferred income taxes....................................... 117 117
Other Assets................................................ 5,859 441
-------- --------
Total assets............................................ $335,665 $156,675
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable to bank..................................... $ -- $ 415
Current portion of long term obligations.................. 813 6,211
Accounts payable.......................................... 2,456 4,300
Accrued expenses.......................................... 7,055 5,181
Income taxes payable...................................... 766 1,681
-------- --------
Total current liabilities............................... 11,090 17,788
-------- --------
Long term obligations....................................... 3,024 7,695
-------- --------
5.5% Convertible subordinated notes due March 1, 2007....... 172,500 --
-------- --------
Commitments and contingencies
Stockholders' Equity:
Common stock; $0.01 par value, 50,000,000 shares
authorized; 23,297,420 and 22,271,140 shares issued and
outstanding at March 31, 2000 and December 31, 1999,
respectively............................................ 233 223
Additional paid-in-capital................................ 140,937 121,269
Deferred compensation..................................... (595) (746)
Accumulated other comprehensive loss...................... (730) (520)
Retained earnings......................................... 9,206 10,966
-------- --------
Total stockholders' equity.............................. 149,051 131,192
-------- --------
Total liabilities and stockholders' equity.............. $335,665 $156,675
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-27
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues.................................................... $27,286 $21,585
Cost of Revenues............................................ 9,090 8,097
------- -------
Gross margin.............................................. 18,196 13,488
Operating Expenses:
Sales and marketing....................................... 4,778 3,995
General and administrative................................ 3,595 3,036
Research and development.................................. 3,521 3,455
Merger costs.............................................. 6,427 --
------- -------
Total operating expenses................................ 18,321 10,486
------- -------
Income (loss) from operations......................... (125) 3,002
------- -------
Other Income (Expense):
Net losses on foreign currency transactions............... (157) (61)
Interest and other expense................................ (1,036) (183)
Interest and other income................................. 2,005 229
------- -------
812 (15)
------- -------
Income before provision for income taxes.................... 687 2,987
Provision for income taxes.................................. 2,447 1,093
------- -------
Net income (loss)........................................... (1,760) 1,894
Less: Preferred stock dividends........................... -- (163)
Accretion of non-voting redeemable common stock...... -- (56)
Adjustment to beneficial conversion feature related
to
convertible preferred stock........................ -- 985
------- -------
Net income (loss) applicable to common shares........... $(1,760) $ 2,660
======= =======
Earnings (loss) per share:
Basic..................................................... $ (0.08) $ 0.16
======= =======
Diluted................................................... $ (0.08) $ 0.14
======= =======
Weighted average shares used in per share calculation:
Basic..................................................... 22,776 16,628
Diluted................................................... 22,776 18,914
</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
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (1,760) $ 1,894
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization............................. 1,240 954
Amortization of deferred compensation..................... 46 131
Deferred income taxes..................................... 3,298 (25)
Non-cash merger related costs............................. 2,208 --
Other non-cash adjustments................................ 21 (266)
Changes in operating assets and liabilities:
Accounts receivable..................................... (2,857) (2,356)
Inventories............................................. (132) 16
Prepaid expenses and other current assets............... 1,762 (552)
Other assets............................................ 81 236
Accounts payable........................................ (1,819) (624)
Accrued expenses........................................ 2,082 333
Income taxes payable.................................... (899) 458
-------- --------
Net cash provided by operating activities............. 3,271 199
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment received on note receivable from officer.......... -- (500)
Purchases of property and equipment....................... (2,445) (1,247)
Payments for intangible assets............................ (96) (312)
Investment in related party............................... (3) --
-------- --------
Net cash used in investing activities................. (2,544) (2,059)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances (principal payments) on lines of credit, net..... (415) 2,003
Proceeds from long term obligations....................... 166,999 --
Principal payments on long term obligations............... (9,641) (288)
Proceeds from sale of common stock........................ 5,476 48,569
Redemption of preferred and common stock and payment of
accrued dividends....................................... -- (15,553)
-------- --------
Net cash provided by financing activities............. 162,419 34,731
Effect of exchange rate changes on cash................... 44 (33)
-------- --------
Net increase in cash and cash equivalents............. 163,190 32,838
Cash and cash equivalents, beginning of period............ 102,221 6,543
-------- --------
Cash and cash equivalents, end of period.................. $265,411 $ 39,381
======== ========
</TABLE>
F-29
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
NONCASH INVESTING AND FINANCING ACTIVITIES:
Stock issued for merger costs............................. $ 2,208 $ --
======== ========
Conversion of Convertible Redeemable Preferred Stock into
Redeemable Preferred Stock.............................. $ -- $ 14,015
======== ========
Conversion of Redeemable Preferred Stock into Common
Stock................................................... $ -- $ 751
======== ========
Preferred dividends declared.............................. $ -- $ 163
======== ========
Accretion of redemption value for redeemable common
stock................................................... $ -- $ 56
======== ========
Accretion of beneficial conversion feature of convertible
preferred stock......................................... $ -- $ 985
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 171 $ 141
======== ========
Cash paid for income taxes................................ $ 74 $ 706
======== ========
</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
GENERAL
The consolidated financial statements include the accounts of Invitrogen
Corporation and its 100% controlled subsidiaries, Invitrogen B.V., Invitrogen
Export Company, Ltd., NOVEX Electrophoresis GmbH (formerly known as Anamed
GmbH), Serva GmbH, NOVEX International Sales Corporation, and Research Genetics,
Inc. All significant intercompany accounts and transactions have been eliminated
in consolidation. The interim financial statements have been prepared by
Invitrogen, without audit, according to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. In the opinion of management, the accompanying unaudited
financial statements contain all adjustments, which include only normal
recurring adjustments, necessary to state fairly the financial position, results
of operations and cash flows as of and for the periods indicated.
It is suggested that these financial statements be read in conjunction with
the audited financial statements and the notes thereto included in our form
10-K, filed with the Securities and Exchange Commission on March 14, 2000.
RECLASSIFICATIONS
Certain reclassifications of prior year amounts have been made to conform to
the current year presentation.
1. INVENTORIES
Inventories include material, labor and overhead costs and consist of the
following:
<TABLE>
<CAPTION>
MARCH 31,
2000 DECEMBER 31,
(UNAUDITED) 1999
(IN THOUSANDS) ----------- ------------
<S> <C> <C>
Raw materials........................................ $1,563 $2,186
Work in process...................................... 1,948 1,175
Finished goods....................................... 4,025 4,129
------ ------
$7,536 $7,490
====== ======
</TABLE>
2. ACCUMULATED DEPRECIATION AND AMORTIZATION
Accumulated depreciation and amortization of property, plant and equipment
was $14.8 million and $13.8 million at March 31, 2000 and December 31, 1999,
respectively. Accumulated amortization of intangible assets was $1.1 million and
$.9 million at March 31, 2000 and December 31, 1999.
F-31
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is calculated as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 2000
---------------------------------------
INCOME (LOSS) SHARES
(NUMERATOR) (DENOMINATOR) AMOUNT
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ------------- ------------- -------
<S> <C> <C> <C>
Basic and Diluted EPS:
Income (loss) available to common
stockholders............................. $ (1,760) 22,776 $ (0.08)
======== ====== =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1999
-------------------------------------
INCOME SHARES
(NUMERATOR) (DENOMINATOR) AMOUNT
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ----------- ------------- -------
<S> <C> <C> <C>
Basic EPS:
Income available to common stockholders.... $ 2,660 16,628 $ 0.16
=======
Stock options.............................. -- 2,286
-------- ------
Diluted EPS:
Income available to common stockholders
plus assumed conversions................. $ 2,660 18,914 $ 0.14
======== ====== =======
</TABLE>
4. COMPREHENSIVE INCOME (LOSS)
Total comprehensive loss for the three months ended March 31, 2000 was $2.0
million and total comprehensive income for the three months ended March 31, 1999
was $1.7 million, respectively. The adjustments to income or loss to arrive at
total comprehensive income or loss for the three months ended March 31, 2000 and
1999 were $209,865, and $212,260, respectively, and represent foreign currency
translation adjustments.
5. RESEARCH GENETICS MERGER
On February 2, 2000, the Company completed a merger with Research Genetics,
a privately held U.S. company that supplies products and services for functional
genomics and gene-based drug discovery research. The Company issued 3.2 million
shares of common stock for all of the outstanding common stock of Research
Genetics. The merger has been 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 and related integration are expected to be $6.4 million and are subject
to change. These costs were expensed in February 2000 upon completion of the
merger. As of March 31, 2000 the company had $.5 million remaining in accrued
merger related costs.
The combined financial information is presented to show the combined results
of operations of Invitrogen and Research Genetics as if the merger had occurred
at the beginning of the periods presented.
F-32
<PAGE>
INVITROGEN CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. ISSUANCE OF CONVERTIBLE SUBORDINATED DEBT
In March 2000, the Company issued $172.5 million principal amount of 5.5%
convertible subordinated notes (the "Convertible Notes") due March 1, 2007.
After expenses, the Company received net proceeds of $167.0 million. Interest on
the Convertible Notes is payable semi-annually on March 1st and September 1st,
commencing in September 2000. The notes were issued at 100% of principal value,
and are convertible into 2,024,648 shares of stock at the option of the holder
at any time at a price of $85.20 per share. The notes may be redeemed, in whole
or in part, at our option on or after March 1, 2003 at a premium of 103.143% of
par value which declines annually to par value at maturity date.
Costs incurred to issue the debt have been deferred and are included in
other assets in the consolidated balance sheet. These costs are being amortized
over the term of the related debt using the effective interest method.
The Convertible Notes are subordinate to substantially all of the current
and future outstanding debt of Invitrogen, including all our secured debt and
all debts and liabilities of our subsidiaries. The Convertible Notes are not
subordinate to amounts we owe for employee compensation, goods or services we
purchase or to amounts we may owe to our subsidiaries.
F-33
<PAGE>
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
JULY 28, 2000
[LOGO]
$172,500,000
5 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2007
PROSPECTUS
----------------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE
YOU WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE
REPRESENTATION AS TO MATTERS NOT STATED IN THE 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 NOR BE PERMITTED.
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 OUR AFFAIRS HAVE NOT CHANGED SINCE THE
DATE HEREOF.
--------------------------------------------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. Except
for the SEC registration fee, all amounts are estimates.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 45,540
Accounting fees and expenses................................ $ 90,000
Legal fees and expenses..................................... $160,000
Printing and engraving expenses............................. $150,000
Trustee's fees and expenses................................. $ 5,000
Transfer agent's and registrar's fees and expenses.......... $ 12,500
Miscellaneous expenses, including Listing Fees.............. $ 36,960
Total....................................................... $500,000
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (DGCL) authorizes a
court to award, or a corporation's board of directors to grant, indemnity to
directors and officers under certain circumstances for liabilities incurred in
connection with their activities in such capacities (including reimbursement for
expenses incurred). The Registrant's Restated Certificate of Incorporation
provides that the Registrant will indemnify its directors and officers to the
fullest extent permitted by law and that directors shall not be liable for
monetary damages to the Registrant or its stockholders for breach of fiduciary
duty, except to the extent that the DGCL prohibits elimination or limitation of
such liability.
The Registrant's Restated Certificate of Incorporation provides that no
director of the Registrant will be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Registrant or to its stockholders, (ii) for acts or omissions not made in good
faith or involving intentional misconduct or a knowing violation of the law,
(iii) under Section 174 of the DGCL, or (iv) for any transactions from which the
director derives an improper personal benefit. In addition, the Registrant's
Amended and Restated By-laws provide that any director or officer who was or is
a party or is threatened to be made a party to any action or proceeding by
reason of his or her services to the Registrant will be indemnified to the
fullest extent permitted by the DGCL.
The Registrant has entered into agreements with each of its executive
officers and directors under which the Registrant has agreed to indemnify each
of them against expenses and losses incurred for claims brought against them by
reason of their being an officer or director of the Registrant. There is no
pending litigation or proceeding involving a director or officer of the
Registrant as to which indemnification is being sought, nor is the Registrant
aware of any pending or threatened litigation that may result in claims for
indemnification by any director or executive officer.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1*++ 5 1/2% Convertible Subordinated Notes due 2007, Purchase
Agreement dated February 25, 2000
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.1 + ++ Indenture dated March 31, 2000 between the Company and State
Street Bank and Trust Company of California, N.A. and Table
of Contents of Indenture, including Cross-Reference Table to
the Trust Indenture Act of 1989.
4.2*++ 5 1/2% Convertible Subordinated Notes due 2007, Registration
Rights Agreement dated as of March 1, 2000 by and among
Invitrogen Corporation, and Donaldson, Lufkin & Jenrette
Securities Corporation et al., as Initial Purchasers
5.1 ++ Opinion of Gray Cary Ware & Freidenrich LLP as to legality
of shares
5.2 ++ Opinion of Graham & James LLP as to legality of notes
5.3 Opinion of Gray Cary Ware & Freidenrich LLP as to legality
of notes
12 ++ Statements Regarding Computations of Ratios
23.1 ++ Consent of Gray Cary Ware & Freidenrich LLP (contained in
Exhibit 5.1)
23.2 ++ Consent of Arthur Andersen LLP, independent public
accountants
23.3 Consent of Arthur Andersen LLP, independent public
accountants
23.4 Consent of Arthur Andersen LLP., independent public
accountants.
23.5 Consent of Gray Cary Ware & Freidenrich LLP (contained in
Exhibit 5.3)
24 ++ Power of Attorney (contained in the signature page hereof)
25 ++ Statement of Eligibility of the Trustee on Form T-1
</TABLE>
------------------------
* Incorporated herein by reference from the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1999 filed March 14, 2000.
+ The Indenture is incorporated herein by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999 filed
March 14, 2000. The Table of Contents of the Indenture and the
Cross-Reference Table to the Trust Indenture Act of 1989 are filed herewith.
++ Previously filed
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act.
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate
II-2
<PAGE>
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
Notwithstanding the foregoing, paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by the registrant
pursuant to Section 13 or Section 15(d) of the Securities and Exchange Act of
1934 that are incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(d) The undersigned registrant hereby undertakes to file an application for the
purpose of determining the eligibility of the trustee to act under subsection
(a) of Section 310 of the Trust Indenture Act (TIA) in accordance with the rules
and regulations prescribed by the Commission under Section 305(b)(2) of the Act.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the County of San Diego, State of California on
July 28, 2000.
<TABLE>
<S> <C> <C>
INVITROGEN CORPORATION
By: /s/ JAMES R. GLYNN
-----------------------------------------
James R. Glynn
Vice President and Chief Financial Officer
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Lyle C.
Turner, James R. Glynn and Warner R. Broaddus, and each of them, with full power
of substitution and resubstitution and each with full power to act without the
other, his or her true and lawful attorney-in-fact and agent, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange Commission
or any state, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, or
their, his or her substitutes or substitute, may lawfully do or cause to be done
by virtue hereof. Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C>
*
---------------------------------------------
Date: July 28, 2000 Lyle C. Turner
Chief Executive Officer and Chairman of the
Board of Directors
*
---------------------------------------------
Date: July 28, 2000 James R. Glynn
Executive Vice President, Chief Financial
Officer and Director
*
---------------------------------------------
Date: July 28, 2000 Lewis J. Shuster
Chief Operating Officer and Director
*
---------------------------------------------
Date: July 28, 2000 David E. McCarty
Director
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
---------------------------------------------
Date: July , 2000 Donald W. Grimm
Director
---------------------------------------------
Date: July , 2000 Kurt R. Jaggers
Director
*
---------------------------------------------
Date: July 28, 2000 Bradley G. Lorimer
Director
*
---------------------------------------------
Date: July 28, 2000 Jay M. Short
Director
/s/ WARNER BROADDUS
---------------------------------------------
Date: July 28, 2000 Warner Broaddus
* Attorney-In-Fact
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1*++ 5 1/2% Convertible Subordinated Notes due 2007, Purchase
Agreement dated February 25, 2000
4.1+ ++ Indenture dated March 31, 2000 between the Company and State
Street Bank and Trust Company of California, N.A. and Table
of Contents of Indenture, including Cross-Reference Table to
the Trust Indenture Act of 1989.
4.2*++ 5 1/2% Convertible Subordinated Notes due 2007, Registration
Rights Agreement dated as of March 1, 2000 by and among
Invitrogen Corporation, and Donaldson, Lufkin & Jenrette
Securities Corporation et al., as Initial Purchasers
5.1++ Opinion of Gray Cary Ware & Freidenrich LLP as to legality
of shares
5.2++ Opinion of Graham & James LLP as to legality of notes
5.3 Opinion of Gray Cary Ware & Freidenrich LLP as to legality
of notes
12 ++ Statements Regarding Computations of Ratios
23.1++ Consent of Gray Cary Ware & Freidenrich LLP (contained in
Exhibit 5.1)
23.2++ Consent of Arthur Andersen LLP, independent public
accountants
23.3 Consent of Arthur Andersen LLP, independent public
accountants
23.4 Consent of Arthur Andersen LLP, independent public
accountants
23.5 Consent of Gray Cary Ware & Freidenrich LLP (contained in
Exhibit 5.3)
24 ++ Power of Attorney (contained in the signature page hereof)
25 ++ Statement of Eligibility of the Trustee on Form T-1
</TABLE>
------------------------
* Incorporated herein by reference from the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1999 filed March 14, 2000.
+ The Indenture is incorporated herein by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1999 filed
March 14, 2000. The Table of Contents of the Indenture and the
Cross-Reference Table to the Trust Indenture Act of 1989 are filed herewith.
++ Previously filed
