<PAGE>
As filed with the Securities and Exchange Commission on March 16, 2000
Registration No. 333-32472
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Genomica Corporation
(Name of Issuer in its charter)
Delaware 7371 23-2821818
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation Classification Code Number)
or organization) Number)
4001 Discovery Drive
Suite 130
Boulder, CO 80303
(303) 544-4000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
Teresa W. Ayers
Chief Executive Officer
Genomica Corporation
4001 Discovery Drive
Suite 130
Boulder, CO 80303
(303) 544-4000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies To:
James C. T. Linfield, Esq. Mark Mihanovic, Esq.
Steven E. Segal, Esq. McDermott, Will & Emery
Cooley Godward llp 2049 Century Park East
2595 Canyon Boulevard, Suite 250 Suite 3400
Boulder, CO 80302-6737 Los Angeles, CA 90067
(303) 546-4000 (310) 277-4110
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) of the Securities Act, please check the following box
and list the Securities Act registration serial 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,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
maximum
Proposed aggregate
Title of securities to Amount to be maximum offering offering price Amount of
be registered registered price per unit (1)(2) registration fee
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<S> <C> <C> <C> <C>
Common Stock, $.001 par
value................. 6,900,000 $17.00 $117,300,000 $30,967
</TABLE>
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(1) Includes shares that the Underwriters have the option to purchase solely
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(o).
Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
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<PAGE>
Subject to Completion, Dated March 16, 2000
The information contained in this prospectus is not complete and may be
changed. These securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities, and it is not soliciting an offer to
buy these securities, in any state where the offer or sale is not permitted.
6,000,000 Shares
Common Stock
$ per share
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This is an initial public offering of common stock of Genomica Corporation.
We expect that the price to the public in the offering will be between $15.00
and $17.00 per share. The market price of the shares after the offering may be
higher or lower than the offering price.
We have applied to include the common stock on the Nasdaq National Market under
the symbol "GNOM."
Investing in the common stock involves risks. See "Risk Factors" beginning on
page 5.
<TABLE>
<CAPTION>
Per Share Total
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<S> <C> <C>
Price to the public........................... $ $
Underwriting discount.........................
Proceeds to Genomica..........................
</TABLE>
We have granted an over-allotment option to the underwriters. Under this
option, the underwriters may elect to purchase a maximum of 900,000 additional
shares from us within 30 days following the date of this prospectus to cover
over-allotments.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
CIBC World Markets
Dain Rauscher Wessels
Prudential Vector Healthcare
a unit of Prudential Securities
The date of this Prospectus is , 2000.
<PAGE>
[INSIDE COVER]
The inside cover art includes a gatefold entitled "The Discovery Manager
Software Product Supports a Broad Range of Disciplines." There are descriptions
of six scientific disciplines including Clinical Genetics, Epidemiology and
Statistical Genetics (on the left page) and Human Genetics, Molecular Biology
and Pharmacogenomics (on the right page). Each description consists of a white-
filled box with a brown border inside of which is the name of the discipline in
capital letters and a one-line description of the discipline. Overlaying the
right side of each text box is a "print screen" of a picture of a computer
screen from Discovery Manager that is useful to a researcher in the discipline.
The inside front cover is a block diagram that describes the various components
of our Discovery Manager product. At the top of the diagram are six rectangles,
one for each type of Discovery Manager user: Clinical Geneticist,
Epidemiologist, Statistical Geneticist, Human Geneticist, Molecular Biologist,
and Pharmacogenomics Researcher. Below these rectangles is a rectangle labeled
"User Interface." Below the User Interface rectangle are three rectangles that
correspond to the key modules of Discovery Manager: Sequence Analysis Module,
Genetic Analysis Module and Mapping Analysis Module. Below the rectangles that
represent our modules there are two cylinders labeled Genomic Database and
Reference Database.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 1
Risk Factors............................................................... 5
Forward-Looking Statements................................................. 12
Use of Proceeds............................................................ 13
Dividend Policy............................................................ 13
Capitalization............................................................. 14
Dilution................................................................... 15
Selected Financial Data.................................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 17
Overview of Genomics....................................................... 22
Business................................................................... 24
Management................................................................. 32
Principal Stockholders..................................................... 38
Related-Party Transactions................................................. 40
Description of Capital Stock............................................... 41
Shares Eligible for Future Sale............................................ 44
Underwriting............................................................... 45
Legal Matters.............................................................. 46
Experts.................................................................... 46
Where You Can Find More Information........................................ 47
Index to Financial Statements.............................................. F-1
</TABLE>
------------------------
The underwriters are offering the shares subject to various conditions and may
reject all or part of any order.
<PAGE>
Prospectus Summary
This summary highlights information contained in other parts of this
prospectus. Because it is a summary, it does not contain all of the information
that you should consider before investing in the shares. You should read the
entire prospectus carefully.
Our Business
We are a leading provider of software products and services that enable
pharmaceutical and biotechnology researchers to accelerate the drug discovery
and development process. We believe our first product, Discovery Manager,
offers the broadest set of software tools for genomics researchers of any
commercially available product. Our current customers include leading genomics-
based research organizations such as AstraZeneca, GlaxoWellcome, Parke-Davis
and the National Cancer Institute. We are also collaborating with PE Biosystems
to develop software products to be used with its industry-leading hardware for
drug discovery.
Genomics is the study of genes and their relationship to disease. Drug
companies are increasingly focusing major research efforts on genomics to
develop new therapeutic drugs and diagnostic tests. Researchers are nearly
finished mapping the human genome, meaning that much of the preliminary work of
identifying human genes is completed. Researchers' next challenge is to
understand the functions of these genes. To do this, researchers must analyze
unprecedented volumes of genetic data, which has created the need for powerful
new software tools to manage and analyze the data. Discovery Manager merges
information technology and genomics by offering researchers software tools to
solve their data management and analysis challenges.
Our Opportunity
Bioinformatics is the application of computer technologies for the collection,
management and analysis of biological data. According to industry surveys,
pharmaceutical and biotechnology organizations will spend $1-2 billion on
bioinformatics in the year 2001. This amount includes spending for both
internal bioinformatics departments and external products and services.
Challenges of Using Genomic Data
The key challenges of using genomic data in the drug discovery and development
process are:
.Unprecedented volumes of data. Public and private genomic databases now
contain tens of
billions of genetic sequence data points. New experiments or analyses
involving these data will rapidly expand the total data volume.
.Diversity of data sources. Many different types of scientists are performing
genomic research and data generation in thousands of different locations
throughout the world. These groups usually represent, classify and store
their data in different ways.
.Current tools unsuited to the task. Many genomic researchers currently rely
on a patchwork of non-standard, non-integrated, non-scientific and
unsupported software tools.
.Short supply of bioinformaticists. There is a limited supply of individuals
with training or experience in both the science of genomics and the
application of computer-based information technology.
.Difficulty of data visualization/presentation. Visualization of large
quantities of highly interrelated genomic data presents significant
challenges.
.Data security concerns. Research organizations are concerned about access to
and the security of the data they produce and use.
Discovery ManagerTM
Discovery Manager is our first bioinformatics product. It has been developed
over the past 15 years by our Chief Scientist in collaboration with some of the
leading researchers working in the field of genomics. The product is an
integrated suite of software tools and a database template for genomics
research. The database can be filled with genomic data from the user's own
research as well as publicly available and other sources. Our tools include
sophisticated scientific algorithms designed for easy use by genomic
researchers without the assistance of bioinformaticists. Discovery Manager
enables individual or collaborating researchers to access, store, manipulate,
analyze, annotate and integrate genomic data from a variety of sources. We
believe that Discovery Manager is the only commercially available product that
integrates human sequence, genetic map, genotype, phenotype and clinical
information.
1
<PAGE>
Discovery Manager addresses the challenges of using genomic data in the drug
discovery and development process. It offers:
. Data standardization. We provide a standard representation of diverse types
and formats of genomic information.
. Data integration. Our product brings together in one database many
different types of information contained in both publicly available and
proprietary genomic databases.
. High scalability. We believe our product will be able to meet the
scalability needs of the largest pharmaceutical and biotechnology companies
in the world.
. Broad suite of data analysis tools. Our product's proprietary software
tools enable researchers to easily sort, manage and analyze genomic
information.
. Practical visualization tools. Our product provides a practical way to show
complex genomic information in simple-to-understand formats.
. Security. Our product provides security and access features to help ensure
the privacy of sensitive project data.
Our Strategy
Our objective is to provide pharmaceutical and biotechnology researchers with
the most scientifically adept bioinformatics tools and services for genetic
research and drug discovery and development. The key elements of our strategy
to achieve our objective include:
. Expanding our product offerings through internal development and
acquisitions
. Establishing product development and distribution alliances with companies
in the drug discovery and development market that have strong market
positions and technologies complementary to ours
. Offering our customers the option to access our products via the Internet
without the need to install and maintain the software on their own
equipment; this approach is commonly called being an application service
provider, or ASP
. Continuing our scientific leadership by deepening and expanding our
relationships with scientific leaders in the field of genomics
. Increasing our sales and marketing capacity
Other Information
We were incorporated in Delaware in September 1995. Our principal executive
offices are located at 4001 Discovery Drive, Suite 130, Boulder, Colorado
80303. Our telephone number is (303) 544-4000. Our website is located at
"www.genomica.com." Our website is not part of this prospectus.
GENOMICATM and Discovery ManagerTM are trademarks of Genomica Corporation. All
other product names, trade names and trademarks included in this prospectus are
the property of their respective owners.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered............... 6,000,000 shares
Common stock to be outstanding
after the offering................ 21,134,668 shares
Use of proceeds.................... We intend to use the net proceeds from the
offering to continue development of
Discovery Manager and new products; expand
our sales and marketing activities; acquire
complementary technologies, products or
companies; repay capital lease obligations;
and for general corporate purposes.
Proposed Nasdaq National Market
symbol............................ GNOM
</TABLE>
In the table above, the number of shares of common stock to be outstanding
after the offering is based on the number of shares outstanding as of December
31, 1999 and includes 3,340,877 shares of common stock issuable upon conversion
of our Series C preferred stock sold in March 2000.
The number of shares of common stock outstanding excludes:
. 1,073,724 shares of common stock issuable upon the exercise of options
outstanding as of December 31, 1999, at a weighted average exercise price
of $0.18 per share
. 79,443 shares of common stock issuable upon exercise of warrants
outstanding as of March 13, 2000, at a weighted average exercise price of
$2.12 per share
. 1,621,980 shares of common stock issuable upon the exercise of options
granted thus far in 2000 with a weighted average exercise price of $1.03
Unless otherwise stated, all information contained in this prospectus assumes:
. no exercise of the over-allotment option granted to the underwriters
. a one-for-three reverse stock split of our common stock
. the conversion of all outstanding shares of our preferred stock into shares
of common stock
.the issuance of 260,943 shares of common stock upon the exercise of warrants
that would otherwise expire upon the closing of the offering.
3
<PAGE>
Summary Financial Data
(in thousands, except per share data)
The pro forma balance sheet data reflect the sale of Series C preferred stock
in March 2000 for net proceeds of $15.0 million. The pro forma as adjusted
balance sheet data reflects the receipt of the net proceeds from the sale of
6,000,000 shares of our common stock at an assumed price to the public of
$16.00 per share, after deducting the underwriting discounts and estimated
offering expenses, and the repayment of capital lease obligations.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1997 1998 1999
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<S> <C> <C> <C>
Statements of Operations Data:
Revenue:
Software licenses and services................ $ -- $ 197 $ 622
Research grants............................... -- -- 159
------- ------- --------
Total revenue............................... -- 197 781
------- ------- --------
Operating expenses:
Costs of revenue.............................. -- 141 447
Research and development...................... 1,682 2,328 4,869
Selling and marketing......................... 495 634 1,722
General and administrative.................... 579 884 1,723
------- ------- --------
Total operating expenses.................... 2,756 3,987 8,761
------- ------- --------
Operating loss.................................. (2,756) (3,790) (7,980)
Interest income................................. 37 90 419
Interest expense................................ (19) (55) (18)
------- ------- --------
Net loss........................................ $(2,738) $(3,755) $ (7,579)
======= ======= ========
Net loss per share, basic and diluted........... $ (2.80) $ (3.81) $ (7.13)
======= ======= ========
Weighted average common shares outstanding,
basic and diluted.............................. 977 986 1,062
Pro forma (unaudited):
Net loss per share, basic and diluted......... $ (0.68)
========
Weighted average common shares outstanding,
basic and diluted............................ 11,121
<CAPTION>
December 31, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
<S> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term
investments.................................... $ 6,343 $21,343 $109,125
Working capital................................. 5,246 20,246 108,158
Total assets.................................... 7,554 22,554 110,336
Capital lease obligations, long-term portion.... 268 268 --
Total stockholders' equity...................... 5,681 20,681 108,861
</TABLE>
4
<PAGE>
Risk Factors
You should carefully consider the following factors and other information in
this prospectus before deciding to invest in the shares.
We have a history of operating losses and an accumulated deficit, and we may
not succeed or become profitable.
We will need to generate significant revenue to achieve profitability and we
may be unable to do so. Even if we do achieve profitability, we may not be
able to sustain or increase profitability in the future. If we do not achieve
or sustain profitability, then we may be unable to continue our operations. We
have incurred operating losses every quarter since we began operations and we
have not generated enough revenue to cover the substantial amounts that we
have spent to develop and market our products and services. We had an
accumulated deficit of $16.2 million at December 31, 1999.
We expect to invest substantial financial and other resources to develop and
introduce new products and services and expand our sales and marketing
departments, strategic relationships and operating infrastructure. We expect
that our expenses will continue to increase. In addition, as a result of
recent stock option grants, we anticipate that there will be significant
charges to earnings in future periods, which will further hamper our ability
to achieve profitability. In the first quarter of 2000, we will incur a one-
time noncash charge to earnings of approximately $15 million as a result of
the sale of our Series C preferred stock.
We are likely to continue experiencing operating losses and negative cash flow
from operations for the foreseeable future.
Our limited operating history makes evaluating our business difficult. This
also makes it difficult to forecast our future operating results.
We commenced operations in September 1995 and we did not begin generating
revenue from our product and services until June 1998. Also, we have only sold
our product to a limited number of customers to date. Our limited operating
history makes it difficult to evaluate our business and to forecast our future
operating results. As a result, you must consider the risks and uncertainties
inherent in the development of a new business enterprise.
The market for our products and services is evolving and uncertain, and if our
products and services do not achieve market acceptance, our business will be
harmed. Our future results of operations depend on whether the market accepts
Discovery Manager and new products and services that we intend to develop. As
is typical in new and evolving markets, demand and market acceptance for our
products and services are subject to a high level of uncertainty. Only a few
commercially available software products designed specifically for genomics-
based drug development and discovery exist and these are unproven.
Our software is designed to incorporate features that respond to the needs of
pharmaceutical and biotechnology researchers. To the extent we experience
delays or difficulties implementing features that these researchers request,
our ability to serve our customers may be adversely affected.
Market acceptance of our products and services will depend on a number of
factors, some of which are not in our control. Our business will suffer if the
market for our products fails to develop or develops more slowly than we
expect.
If we fail to successfully redevelop our product to use a different computer
programming language and database, our customer base will likely decline.
To maintain and increase our customer base, we are currently redeveloping our
product with a different programming language and database platform. We are
not sure if the redeveloped product will have the same performance level as
our current product. If we do not successfully redevelop this product, our
customer base may decline. Any delays in this redevelopment may result in
postponement of future sales and erosion of our competitive position. In
addition, until our customers transition to our redeveloped product, we will
be required to devote resources to maintain and support both our current
product and redeveloped product, which could consume both our personnel and
other resources. If in the future our customers demand a different programming
language or database platform than the ones we have chosen for the current
redevelopment, we will incur substantial additional costs in redeveloping our
product and our business will be harmed.
We expect to rely heavily on strategic relationships with larger companies to
help us achieve market acceptance for our products. If we are unable to
successfully develop these relationships, or if these companies do not perform
as expected, our ability to achieve profitability would be materially harmed.
5
<PAGE>
Part of our business strategy is to work with larger, more established
companies that are suppliers to the drug discovery and development industry to
help create market awareness and acceptance of our products. If we are
unsuccessful in developing strategic relationships, or if parties with which
we develop relationships do not perform as expected, our products may not
achieve broad market acceptance and our ability to achieve profitability will
be significantly harmed.
We are highly dependent on Dr. Thomas Marr, and the loss of his services could
affect our ability to be successful.
We are highly dependent on Dr. Thomas Marr, our founder, President and Chief
Scientist. Dr. Marr is important to developing information, tools and services
required for implementation of our business plan. Moreover, we believe Dr.
Marr's reputation and prominence in the genomics field provides us with a
competitive advantage. A significant component of our marketing strategy is to
capitalize on the reputation and contacts of Dr. Marr. If we lost Dr. Marr's
expertise, we would have difficulty replacing him and our product development
efforts and business opportunities could be adversely affected. We do not have
life insurance on Dr. Marr.
If we do not increase our brand and name recognition, our ability to sell our
products will be reduced and our business and operating results will suffer.
We believe that establishing and maintaining brand and name recognition is
critical for attracting and expanding our targeted customer base. We also
believe that the importance of name recognition and reputation will increase
as competition in our market increases. Promotion and enhancement of our brand
and name will depend on the effectiveness of our marketing and advertising
efforts and on our ability to continue providing high-quality products and
services. We may not be successful in either regard.
We currently have a small number of customers. If we do not increase the num-
ber of our customers and increase sales to our existing customers, we will be
unable to increase our revenue significantly.
If we do not increase the number of product licenses sold to existing and new
customers, we will be unable to significantly increase our revenue. We
currently have nine customers. Our primary target market is biotechnology and
pharmaceutical organizations. A relatively small number of customers will
represent a significant percentage of our total revenue for the foreseeable
future. The loss of customers could cause a material decrease in our revenues.
Our customer contracts are cancellable with little notice and if we lose any
of these contracts, our revenues and marketing efforts with other customers
will be materially adversely affected.
The contracts with our customers are cancellable by them with little notice.
Our customers do not have any obligation to continue to use our current
product or to purchase additional services from us. Our strategy has been to
focus on potential customers who are considered market leaders in the drug
discovery and development industries. Consequently, we depend on our customers
not only for generating revenue but also for enhancing our marketing efforts
with other customers. The loss of any of these contracts would adversely
impact our revenues and operating results, and may affect our marketing
efforts with other customers.
If we are unable to expand our sales and marketing capabilities, we will be
unable to significantly increase our revenue.
We have limited experience in sales and marketing. We currently have only 11
people in our sales and marketing departments. If we are unable to increase
our sales and marketing personnel and efforts, both in the United States and
in Western Europe, or arrange with a third party to perform these services, we
will be unable to significantly increase our revenue. We are currently
attempting to hire and train additional personnel, but we cannot assure you
that our sales force will be sufficiently large or knowledgeable to
meaningfully increase our sales and customer base. Even if we are able to hire
additional sales personnel in the near future, their effectiveness will be
limited until they gain sufficient experience.
If we cannot attract, retain and motivate skilled personnel, our ability to
compete will be impaired.
Our success depends on our ability to attract, retain and motivate highly
qualified management and scientific personnel. We face intense competition for
qualified personnel. If we are unable to continue to employ our key personnel
or to attract and retain qualified personnel in the future, our business will
suffer.
Several members of our senior management team have joined us very recently. If
we are unable to effectively integrate them into our business or work together
as a management team, then our business will suffer. In addition, our
employees, including members of our senior management team, may terminate
their
6
<PAGE>
employment with us at any time. If any of our key employees left or was
seriously injured and unable to work and we were unable to find a qualified
replacement, our business could be harmed. In addition, the industry in which
we compete has a high level of employee mobility and aggressive recruiting of
skilled personnel.
We face intense competition, including from internal bioinformatics
departments, and we may not have the resources required to successfully
compete.
We face significant competition from the internal bioinformatics departments
of our customers and other companies that are potential customers. Some of our
customers and potential customers have internally developed software to
organize and analyze genomic data. These companies may believe that their
software is adequate for their needs and that our product is unnecessary. In
addition, certain internal departments of a corporation may be resistant to
outsourcing software because it could reduce the departments' budgets.
We face competition from other organizations, as well, including:
.other bioinformatics companies
.specialized drug discovery software companies
.academic and scientific institutions
.public and private research organizations
Many of our customers and potential customers and other competitors have much
greater resources and name recognition than we do. Some of our third-party
competitors may offer discounts as a competitive tactic. Moreover, our
competitors may in the future offer broader product lines or technologies or
products that are more commercially attractive than our current or future
products or that may render our technologies or products obsolete.
If our customers and potential customers elect to continue to develop their
own bioinformatics software, or we are unable to compete successfully with our
third-party competitors, then our business, operating results and financial
condition would suffer.
Our failure to manage growth could adversely affect our business.
We need to rapidly and significantly expand our operations. Our growth has
strained and will continue to strain
our management, financial controls, operations systems, personnel and other
resources. If we do not manage our future growth effectively, our efforts to
increase our customer base and product and service offerings will suffer. In
addition, our rapid growth could adversely affect our ability to provide
services and technical support in a timely manner and in accordance with
customer expectations. To manage growth of our operations, we must:
. improve existing and implement new operational, financial and management
information controls, reporting systems and procedures
. hire, train and manage additional qualifiedpersonnel
. effectively manage multiple relationships with our customers, suppliers and
other third parties, including our collaborators
We may not be able to install management information and control systems in an
efficient and timely manner, and our current or planned personnel, systems,
procedures and controls may not be adequate to support our future operations.
If we do not successfully address these issues, our business could be harmed.
If we are unable to obtain additional capital to fund our operations when
needed, our sales and marketing and product development efforts would be
adversely affected. This could cause our business, prospects and operating
results to be materially harmed.
The continued development of the Discovery Manager product and the expansion
of our sales, marketing and customer support personnel will require
significant additional capital. In addition, our continued product development
efforts, including the possible acquisition of technologies, products or
companies, will require substantial additional capital. If we are unable to
obtain additional capital or are required to obtain it on terms less
satisfactory than what we desire, we may need to delay the development and
marketing of our products or take other actions that could adversely affect
our business, prospects, operating results and financial condition.
To date, our cash flow from operations has been insufficient to cover our
expenses and capital needs. Our estimated funding requirements do not reflect
any contingency amounts and may increase, perhaps substantially, if we are
unable to generate revenues in the amount and within the time frame we expect
or if we have unexpected cost increases.
7
<PAGE>
We experience rapid technological change in our markets. If we do not modify
our products to incorporate new technologies, they may become obsolete and our
sales will suffer.
We compete in a market that is subject to rapid technological change, frequent
new product introductions and enhancements, changes in customer demands and
evolving industry standards. To remain competitive, we must continue to expand
our databases, improve our software, and invest in new technologies in
anticipation of the needs of our customers. Our products could become obsolete
due to the introduction of products containing new technologies, changing
customer requirements or changing industry standards. This would have a
significant negative impact on our revenue generation.
The technological life cycles of our products are difficult to estimate. Our
future success will depend upon our ability to continue to enhance our current
products and to continue to develop and introduce new products that keep pace
with competitive and technological developments and customer demands. If we
fail to develop, market and deliver new products on a timely basis, we may
lose market share, perhaps significantly, and our business could be seriously
harmed.
Our business will suffer if our product contains defects or does not function
as intended, which would cause our revenues to decline.
Our business would suffer if our product malfunctions or our customers' access
to their information stored on our product is interrupted. In addition, our
product is complex and sophisticated and holds vast amounts of data. As a
result, our product and third-party software incorporated into our product
could contain erroneous data, design defects or software errors that could be
difficult to detect and correct. Software defects could be found in current or
future products. If we fail to maintain the quality and integrity of our
product, we would fail to achieve market acceptance.
If we are unable to maintain a product with adequate security safeguards, our
product would not achieve market acceptance and our business would suffer.
Researchers use our product to analyze proprietary data, sometimes in
disparate locations. Our product must have effective, reliable and secure
operations. If we fail to maintain an effective, reliable and secure product,
our customers' data may be compromised and our customers would lose confidence
in our product. Our revenues and ability to maintain or increase market share
would then suffer.
Our product currently depends on components licensed from third parties, and
the failure to maintain these licenses could result in the loss of access to
these components and could delay or suspend our commercialization efforts.
The Genome Topographer technology license from Cold Spring Harbor Laboratory
provides the intellectual property foundation for our Discovery Manager
product. A breach by us of any of the terms of, or other failure to maintain,
this license agreement could preclude future sales of Discovery Manager or
delay or prevent the introduction of new products. Our ability to identify and
license or develop other equivalent technology is highly uncertain and, even
if we were successful in doing so, the cost and delays of such a changeover in
our base technology would likely cause material harm to our business. Further,
we cannot assure you that the Chang-Marr algorithm patent included in the
Genome Topographer technology will not be challenged, invalidated or
circumvented. This could limit or prevent our ability to make, use or sell
this algorithm in our product.
Discovery Manager incorporates other technologies which are the subject of
proprietary rights of others. We have obtained licenses for some of these
technologies and may be required to obtain licenses for others. We may not be
able to obtain any necessary licenses for the proprietary technology of other
parties on commercially reasonable terms, or at all. In addition, one or more
third parties whose software or technologies are used in our product might
cease to make its software or other technologies available to us or to update
such software or technologies as appropriate. We may not be able to develop
alternative approaches if we are unable to obtain necessary licenses, or if
third-party software or technologies become unavailable to us or obsolete. We
cannot assure you that our current or future licenses will be adequate for the
operation of our business. The failure to obtain necessary licenses or
identify and implement alternative approaches could have a material adverse
effect on our business, financial condition and results of operations.
Our intellectual property protection may be inadequate, allowing others to use
our technology or similar technologies, reducing our ability to compete.
The steps taken by us to protect our proprietary technology may be inadequate
to prevent misappropriation of our technology by third parties or third
parties may develop similar technology independently. We rely on a combination
of trademark, copyright and trade secret laws, employee and third-party non-
disclosure agreements and other contracts to establish and protect our
technology and other
8
<PAGE>
intellectual property rights. However, these agreements may be breached or
terminated, and we may not have adequate remedies for any breach. In addition,
we currently have no patents or patent applications pending, although we do
have an exclusive license to one patent. A third party could copy or otherwise
obtain and use our products or technology without authorization.
Our products could infringe on the intellectual property of others, which may
cause us to engage in costly litigation and, if we are not successful, could
cause us to pay substantial damages and prohibit us from selling our products.
Third parties may assert infringement or other intellectual property claims
against us based on their patents or other intellectual property claims. We
may have to pay substantial damages, possibly including treble damages, for
past infringement if it is ultimately determined that our products infringe a
third-party's patents. We would have to obtain a license to sell our product
if our product infringed another person's intellectual property. We might be
prohibited from selling our product before we obtain a license, which, if
available at all, may require us to pay substantial royalties. Even if
infringement claims against us are without merit, defending a lawsuit takes
significant time, may be expensive and may divert management attention from
other business concerns.
Our employees may be bound by confidentiality and other nondisclosure
agreements regarding the trade secrets of their former employers. As a result,
our employees or we could be subject to allegations of trade secret violations
and other similar violations if claims are made that they breached these
agreements.
Our current and potential customers primarily consist of biotechnology and
pharmaceutical organizations, which face risks that could affect our ability
to license our products.
We currently derive a substantial portion of our revenue from product licenses
to biotechnology and pharmaceutical organizations. We expect that these
organizations will continue to be our primary source of revenue for the
foreseeable future. If the drug discovery, development and related industries
experience a downturn, our business will be harmed. Thus, our ability to
generate revenue is indirectly subject to risks and uncertainties that could
cause reductions and delays in research and development expenditures within
the drug discovery, development and related industries. These reductions and
delays may result from factors such as:
. market-driven pressures on companies to consolidate and reduce costs
. the uncertainty of healthcare reform, including the continuing efforts of
governmental and third-party payors to contain or reduce the cost of health
care
. changes in regulations of the U.S. Food and Drug Administration or other
regulatory agencies
These factors are not within our control. In addition, consolidation in the
drug discovery and development industries will reduce the number of our
potential customers and, therefore, may adversely affect our future revenues.
We will not be able to sell our products if the use of genomic information to
develop drugs is not commercially successful.
The development of new drugs based on genomic information is unproven. Few
therapeutic products based on genomic discoveries have been developed and
commercialized. If our customers and potential customers are unable to develop
drugs based on genomic information in general and using our products or
services in particular, then our business will suffer.
If ethical and other concerns surrounding the use of genetic information
become widespread, the demand for our products could decrease.
Genetic testing and research has raised ethical issues regarding
confidentiality and the appropriate uses of the resulting information. For
these reasons, governmental authorities may limit or regulate the use of
genetic testing or prohibit testing for genetic predisposition to certain
conditions, particularly for those that have no known cure. Any such action by
governmental authorities could reduce the potential markets for our products,
which could seriously harm our business.
Doing business outside of the United States involves significant risks that
could harm our business.
International operations involve a number of risks not typically present in
domestic operations. Our exposure to any of these risks could materially and
adversely affect our business, operating results and financial condition.
These risks include:
. costs of operations in countries outside the United States
. licenses, tariffs and other trade barriers
. difficulties in staffing and managing remote operations
. potentially adverse tax consequences
. the burden of complying with multiple and complex laws, regulations and
treaties
. currency fluctuations
9
<PAGE>
. political and economic instability
Our operating results may fluctuate, making it likely that, in some future
quarter or quarters, we will fail to meet analysts' estimates of operating
results or financial performance, causing our stock price to fall.
If revenue declines in a quarter, our earnings will decline because many of
our expenses are relatively fixed. In particular, research and development,
sales and marketing and general and administrative expenses are not affected
directly by variations in revenue. In some future quarter or quarters, our
operating results likely will be below the expectations of securities analysts
or investors. In this event, the market price of our common stock may fall
abruptly and significantly.
We face risks related to the Year 2000.
Our product, the third-party software incorporated in our product or our
internal information technology systems may contain undetected errors or
defects associated with Year 2000. If any such errors or defects do exist, we
may incur material costs, which would adversely affect our business.
Our management has broad discretion over the use of the net proceeds from the
offering.
Our management has broad discretion to allocate the net proceeds of the
offering. The timing and amount of our actual expenditures are subject to
change and will be based on many factors, including:
. success of our sales and marketing efforts
. progress in and scope of our product development activities
. progress in and scope of our strategic alliances
. competitive market developments
We will determine, in our sole discretion without the need for stockholder
approval, how to allocate these proceeds. If our management does not wisely
allocate the proceeds, our business will suffer.
Concentration of ownership among our existing executive officers, directors
and principal stockholders may prevent new investors from influencing
significant corporate decisions.
Following the offering, our executive officers, directors and principal
stockholders will beneficially own, in the aggregate, approximately 27.5% of
our outstanding common stock. These stockholders as a group will be able to
substantially influence our management and affairs. If acting together, they
would be able to influence most matters requiring the approval by our
stockholders, including the election of directors, any merger, consolidation
or sale of all or substantially all of our assets and any other significant
corporate transaction. The concentration of ownership may also delay or
prevent a change in control if opposed by these stockholders irrespective of
whether the proposed transaction is at a premium price or otherwise beneficial
to our stockholders as a whole.
No public market has existed for our shares and an active trading market may
not develop or be sustained.
Before the offering, there has been no public market for our common stock. An
active public market for our common stock may not develop or be sustained
after the offering. The initial public offering price will be determined by
negotiation between the representatives of the underwriters and us and may not
be indicative of future market prices.
Our stock price may be volatile and your investment in our stock could decline
in value.
The market prices for securities of early stage technology companies in
general have been highly volatile and may continue to be highly volatile in
the future. Often this volatility is unrelated to operating performance of a
company.
If our stock price is volatile, we may become subject to securities litiga-
tion, which is expensive and could divert our resources.
Many companies with a volatile stock price have been subject to class-action
litigation brought by security holders. If the market value of our common
stock experiences adverse fluctuations, and we become involved in this type of
litigation, we could incur substantial legal costs and our management's
attention could be diverted, causing our business to suffer, regardless of the
outcome of the litigation.
The future sale of shares of our common stock may cause the market price of
our common stock to fall.
At March 13, 2000 approximately 15,663,557 shares of common stock,
representing 72% of our common stock outstanding after the offering, were
unregistered and eligible for sale, subject to compliance with Rule 144 or
Rule 701 under the Securities Act.
While the holders of substantially all of these shares are subject to lock-up
agreements with the underwriters in the offering for 180 days after the
offering, CIBC World Markets Corp., in its sole discretion, may release any
portion or all of these shares from the lock-up restrictions. In addition,
sales of a substantial number of shares could occur at any time after the
expiration of the 180-day period.
10
<PAGE>
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, the
market price of our common stock may fall. These sales also might make it more
difficult for us to sell equity or equity-related securities in the future at
a time and price that we deem appropriate.
New investors in our common stock will experience immediate and substantial
dilution.
The initial public offering price is substantially higher than the book value
per share of our common stock. Investors purchasing common stock in the
offering will incur immediate dilution of $10.78 in net tangible book value
per share of common stock, based on the initial public offering price of
$16.00 per share. Investors will incur additional dilution upon the exercise
of outstanding stock options and warrants.
Provisions of our charter documents and Delaware law may inhibit a takeover,
which could limit the price investors might be willing to pay in the future
for our common stock.
Provisions in our certificate of incorporation and bylaws may have the effect
of delaying or preventing an acquisition, or merger in which we are not the
surviving company, or changes in our management. In addition, the provisions
of Section 203 of the Delaware General Corporation Law, to which we are
subject, could discourage acquisition or other changes in our control
(including those in which our stockholders might otherwise receive a premium
for their shares over then-current market prices) and otherwise limit the
price that investors might be willing to pay in the future for our common
stock.
11
<PAGE>
Forward-Looking Statements
Some of the information in this prospectus contains forward-looking statements
within the meaning of the federal securities laws. These forward-looking
statements include statements about our plans, objectives, expectations and
intentions and other statements contained in this prospectus that are not
historical facts. You can find these statements under "Prospectus Summary,"
"Risk Factors," "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and elsewhere in
this prospectus.
We typically identify forward-looking statements by using terms such as "may,"
"will," "should," "could," "would," "expect," "intend," "plan," "anticipate,"
"believe," "seek," "estimate," "predict," "potential," "continue" and similar
words, although we express some forward-looking statements differently. You
should be aware that our actual results could differ materially from those
contained in the forward-looking statements due to a number of factors,
including:
. failure to successfully market and sell our products
. failure to develop new products
. competition
. technological change
. general economic conditions
. variability of license and other revenue
. failure to satisfy performance obligations
. failure to successfully transition our Discovery Manager product to a new
technology base
. failure to enter into collaborative agreements
. changes in industry practice
You should also consider carefully the statements under "Risk Factors" and
other sections of this prospectus, which address additional factors that could
cause our actual results to differ from those set forth in the forward-looking
statements. These forward-looking statements speak only as of the date of this
prospectus and we caution potential investors not to place undue reliance on
these statements. We have no plans to update these forward-looking statements.
We use market data and industry forecasts throughout this prospectus, which we
have obtained from internal surveys, market research, publicly available
information and industry publications. Industry publications generally state
that the information they provide has been obtained from sources believed to be
reliable, but that the accuracy and completeness of such information is not
guaranteed. Similarly, we believe that the surveys and market research we or
others have performed are reliable, but we have not independently verified this
information. Neither we nor any of the underwriters represents that any such
information is accurate.
12
<PAGE>
Use of Proceeds
We estimate that the net proceeds from the sale of the shares of common stock
we are offering will be approximately $88.2 million. If the underwriters
exercise in full their option to purchase an additional 900,000 shares, the net
proceeds of the shares sold by us will be $101.6 million. "Net proceeds" are
what we expect to receive after paying the underwriting discount and other
expenses of the offering. For the purpose of estimating net proceeds we are
assuming an initial public offering price of $16.00 per share.
We expect to use our net proceeds from the offering to:
. continue development of Discovery Manager and new products
. expand our sales and marketing activities
. acquire complementary technologies, products or companies
. repayment of $398,000 of capital lease obligations
. fund general corporate purposes
Our management has broad discretion as to the allocation of the net proceeds of
the offering. Although we intend to evaluate acquisition opportunities, we have
no current agreements or commitments with respect to any acquisition. The
timing and amount of our actual expenditures are subject to change and are
based on many factors, including:
. success of our sales and marketing efforts
. success of our acquisition efforts
. progress and scope of our product development activities
. progress and scope of our strategic alliances
Until we use the net proceeds of the offering, we will invest the funds in
short term, interest bearing, investment grade securities.
Dividend Policy
We have never paid any cash dividends on our capital stock. We anticipate that
we will retain any earnings to support operations and to finance the growth and
development of our business. Therefore, we do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay cash
dividends will be at the discretion of our board of directors and will depend
upon our financial condition, operating results, capital requirements,
covenants in our debt instruments, and such other factors as the board of
directors deems relevant.
13
<PAGE>
Capitalization
The following table shows:
. our capitalization on December 31, 1999
. our pro forma capitalization on December 31, 1999 reflecting the issuance
of $15.0 million of our Series C preferred stock in March 2000
. our pro forma as adjusted capitalization on December 31, 1999, assuming the
conversion of all outstanding preferred stock and the completion of the
offering at an assumed public offering price of $16.00 per share and the
repayment of capital lease obligations
<TABLE>
<CAPTION>
December 31, 1999
------------------------------
Pro Pro Forma
Actual Forma As Adjusted
------- -------- -----------
(dollars in thousands)
<S> <C> <C> <C>
Capital lease obligations....................... $ 398 $ 398 $ --
------- -------- --------
Stockholders' equity:
Common stock, $0.001 par value, 44,000,000
shares authorized; 1,079,399 shares issued
and outstanding;............................. 1 1 21
Preferred stock, $0.001 par value, 37,688,178
shares authorized:
Series A, 12,533,676 shares issued and
outstanding................................ 7,504 7,504 --
Series B, 18,826,959 shares issued and
outstanding................................ 12,369 12,369 --
Series C, 10,022,634 shares issued and
outstanding................................ -- 15,000 --
Additional paid-in capital.................... 31 15,031 138,064
Options and warrants.......................... 7,765 7,765 7,765
Deferred compensation......................... (5,772) (5,772) (5,772)
Accumulated deficit........................... (16,217) (31,217) (31,217)
------- -------- --------
Total stockholders' equity.................. 5,681 20,681 $108,861
------- -------- --------
Total capitalization...................... $ 6,079 $ 21,079 $108,861
======= ======== ========
</TABLE>
The number of shares of common stock in this table excludes:
. 1,073,724 shares of common stock issuable upon exercise of options
outstanding as of December 31, 1999
. 340,386 shares of common stock issuable upon exercise of warrants
outstanding as of December 31, 1999, 260,943 of which will expire if not
exercised prior to the closing of the offering
14
<PAGE>
Dilution
Our pro forma net tangible book value as of December 31, 1999 was $20.7
million, or approximately $1.39 per share. "Pro forma net tangible book value"
is total assets minus the sum of liabilities and intangible assets, after
giving effect to $15.0 million received from the sale of Series C Preferred
Stock in March 2000. "Pro forma net tangible book value per share" is pro forma
net tangible book value divided by the total number of shares outstanding and
assuming conversion of all outstanding shares of preferred stock (including
Series C) into common stock. Without taking into account any other changes in
the pro forma net tangible book value after December 31, 1999, other than the
sale of the shares offered hereby at an assumed offering price of $16.00 per
share, our pro forma net tangible book value as of December 31, 1999 would have
been $108.9 million, or $5.22 per share. This pro forma net tangible book value
amount assumes that the proceeds to us, net of offering expenses and
underwriting discount, will be approximately $88.2 million.
The following table illustrates the pro forma increase in net tangible book
value of $3.83 per share and the dilution (the difference between the offering
price per share and pro forma net tangible book value per share) to new
investors:
<TABLE>
<S> <C> <C>
Assumed public offering price per share....................... $16.00
Pro forma net tangible book value per share as of December
31, 1999................................................... $ 1.39
Increase in pro forma net tangible book value per share
attributable to the offering............................... 3.83
---------
Pro forma net tangible book value per share as of December 31,
1999 after giving effect to the offering..................... 5.22
------
Dilution per share to new investors in the offering........... $10.78
======
</TABLE>
The following table shows the difference between existing stockholders and new
investors with respect to the number of shares purchased from us, the total
consideration paid and the average price paid per share. The table assumes that
the public offering price will be $16.00 per share.
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Price
------------------ -------------------- Per
Number Percent Amount Percent Share
---------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 14,934,490 71.3% $ 36,153,804 27.4% $ 2.42
New investors................... 6,000,000 28.7 96,000,000 72.6 $16.00
---------- ----- ------------ -----
Total......................... 20,934,490 100.0% $132,153,804 100.0%
========== ===== ============ =====
</TABLE>
In the discussion and tables above, we assume no exercise of any stock options
or warrants to purchase our common stock. As of December 31, 1999, there were
outstanding options to purchase a total of 1,073,724 shares of common stock at
a weighted average exercise price of $0.18 per share. In addition there were
outstanding warrants to purchase a total of 340,387 shares of common stock, of
which 260,943 shares will expire if not exercised prior to the closing of the
offering. To the extent that holders of these options and warrants exercise
their outstanding options and warrants, new investors will be further diluted.
15
<PAGE>
Selected Financial Data
This section presents our selected historical financial data. You should read
carefully the financial statements included in this prospectus, including the
notes to the financial statements. The selected data in this section is not
intended to replace the financial statements.
We derived the statement of operations data for the years ended December 31,
1997, 1998 and 1999 and the balance sheet data as of December 31, 1998 and 1999
from the audited financial statements in this prospectus. Those financial
statements were audited by Arthur Andersen llp, independent public accountants.
We derived the statement of operations data for the period from our inception
to December 31, 1995 and for the year ended December 31, 1996 and the balance
sheet data as of December 31, 1995, 1996 and 1997 from audited financial
statements that are not included in this prospectus. Historical results are not
necessarily indicative of the results to be expected for any interim period or
for the year as a whole.
<TABLE>
<CAPTION>
Period from
Inception
(September 5,
1995) to Year Ended December 31,
December 31, ----------------------------------
1995 1996 1997 1998 1999
------------- ------- ------- ------- -------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue:
Software licenses and
services.............. $-- $ -- $ -- $ 197 $ 622
Research grants........ -- -- -- -- 159
---- ------- ------- ------- -------
Total revenue........ -- -- -- 197 781
---- ------- ------- ------- -------
Operating expenses:
Costs of revenue....... -- -- -- 141 447
Research and
development........... -- 1,533 1,682 2,328 4,869
Selling and marketing.. -- 383 495 634 1,722
General and
administrative........ 70 183 579 884 1,723
---- ------- ------- ------- -------
Total operating
expenses............ 70 2,099 2,756 3,987 8,761
---- ------- ------- ------- -------
Operating loss........... (70) (2,099) (2,756) (3,790) (7,980)
Interest income.......... -- 28 37 90 419
Interest expense......... -- (5) (19) (55) (18)
---- ------- ------- ------- -------
Net loss................. $(70) $(2,076) $(2,738) $(3,755) $(7,579)
==== ======= ======= ======= =======
Net loss per share, basic
and diluted............. $-- $ (2.67) $ (2.80) $ (3.81) $ (7.13)
==== ======= ======= ======= =======
Weighted average common
shares outstanding,
basic and diluted....... -- 779 977 986 1,062
Pro forma (unaudited):
Net loss per share,
basic and diluted..... $0.68
=======
</TABLE>
<TABLE>
<S> <C>
Weighted average common shares outstanding, basic and diluted.......... 11,121
</TABLE>
<TABLE>
<CAPTION>
December 31,
---------------------------------
1995 1996 1997 1998 1999
---- ---- ------- ------ ------
<S> <C> <C> <C> <C> <C>
(in thousands)
Balance Sheet Data:
Cash, cash equivalents and short-term
investments.................................. $ 6 $355 $ 3,094 $5,223 $6,343
Working capital............................... (82) (264) 2,515 4,569 5,246
Total assets.................................. 18 515 3,426 5,649 7,554
Notes Payable and capital lease obligations,
long-term portion............................ -- -- 184 71 268
Total stockholders' equity.................... (70) (143) 2,623 4,872 5,681
</TABLE>
16
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
You should read this discussion together with the financial statements and
other financial information included in this prospectus.
Overview
We are a leading provider of software products and services that enable
pharmaceutical and biotechnology researchers to accelerate the drug discovery
and development process. We believe our first product, Discovery Manager,
offers the broadest set of software tools for genomics researchers of any
commercially available product. Our current customers include leading genomics-
based research organizations such as AstraZeneca, GlaxoWellcome, Parke-Davis
and the National Cancer Institute. We are also collaborating with PE Biosystems
to develop software products to be used with their industry-leading hardware
for drug discovery.
We have sold our product to customers directly since June 1998. We derive
revenue primarily from granting licenses to our Discovery Manager product to
pharmaceutical and biotechnology research organizations. Our software license
agreements are typically one to three years in length, and include support and
maintenance. The price for each agreement depends upon the number of users
licensed by our customers, the duration of the agreement and which of our
product components and services the customer purchases. We typically invoice
our customers on an annual basis at the commencement of the software license
agreement and on each anniversary date. We record deferred revenue at the time
of our invoice and we recognize the associated revenue ratably over the related
period.
We have incurred losses since our inception. As of December 31, 1999, we had an
accumulated deficit of $16.2 million. These losses and this accumulated deficit
resulted from the significant costs incurred in the development of our
technology platform and the establishment of relationships with our customers.
We intend to invest heavily in research and development, selling and marketing
and our computer and administrative infrastructure. In addition, as a result of
recent stock option grants, we will incur approximately $30.1 million of
charges to earnings in future periods. We also will record a one-time noncash
charge of approximately $15.0 million in the quarter ending March 31, 2000 for
the difference between the deemed fair value of our common stock for financial
reporting purposes and the price at which our Series C preferred stock was
sold.
Results of Operations
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Total revenue. Total revenue increased to $781,000 in 1999 from $197,000 in
1998, an increase of $584,000. Of this increase, $425,000 was from licensing
our software to an increased number of pharmaceutical and biotechnology
organizations. We also recognized revenue from research grants of $159,000 in
1999; no such revenue was recognized in 1998.
Costs of revenue. Costs of revenue increased to $447,000 in 1999 from $141,000
in 1998, an increase of $306,000. This increase was due to additional customer
service and support costs, software royalty payments for third-party software
licenses and costs associated with research grants. Our research grants pay us
for our direct costs of performing specified research projects and a portion of
our other operating expenses. We expect costs of revenue to increase in
absolute dollars but decrease as a percent of revenue as we spread customer
service and support and maintenance costs over a larger customer and revenue
base. Because we recognize revenue ratably over the life of our license
agreements, our revenue may grow more slowly than our costs for a time, as we
must build infrastructure to support our customers.
Research and development. Research and development expenses increased to $4.9
million in 1999 from $2.3 million in 1998, an increase of $2.5 million. The
increase was primarily related to an increase in salaries and other personnel
costs in 1999 related to engaging additional software developers. We also
incurred non-cash compensation expense
17
<PAGE>
of $846,000 in 1999 from options for common stock issued with exercise prices
below the deemed market value of the common stock for financial reporting
purposes, as discussed below. We expect research and development expenses will
continue to increase for the foreseeable future as we expand our product
offerings.
Selling and marketing. Selling and marketing expenses increased to $1.7 million
in 1999 from $634,000 in 1998, an increase of $1.1 million. The increase was
due primarily to an increase in salaries, travel and other personnel costs
related to expanding our selling and marketing team. We also increased our
product marketing expenses to enhance the visibility of our product. We
incurred non-cash compensation expense of $85,000 in 1999 for options for
common stock issued with exercise prices below the deemed market value of the
common stock for financial reporting purposes, as discussed below. We expect
selling and marketing expenses will continue to increase for the foreseeable
future.
General and administrative. General and administrative expenses increased to
$1.7 million in 1999 from $884,000 in 1998, an increase of $839,000. The
increase was due primarily to additions to our management team. We incurred
non-cash compensation expense of $738,000 in 1999 from options for common stock
issued with exercise prices below the deemed market value of the common stock
for financial reporting purposes, as discussed below. We expect general and
administrative expenses to increase for the foreseeable future.
Stock-based compensation. Deferred compensation for options granted is the
difference between the exercise price and the deemed fair value for financial
reporting purposes of our common stock on the date the options were granted. In
connection with the grant of stock options to employees, we recorded deferred
stock compensation of $7.4 million during the year ended December 31, 1999, of
which $1.7 million was expensed in 1999.
So far in 2000, we have granted employees additional stock options to purchase
1,621,980 shares of common stock at exercise prices ranging from $0.75 to $4.50
per share. We will record additional deferred stock compensation of
approximately $24.3 million in the quarter ending March 31, 2000 to account for
the difference between the exercise price of these option grants and the deemed
fair value for financial reporting purposes of our common stock on the date of
grant.
Deferred compensation is included as a component of stockholders' equity and is
being amortized in accordance with FASB Interpretation No. 28 over the vesting
periods of the related options, which is generally four or five years. We
recognized $1.7 million of compensation expense in 1999. We will recognize
additional compensation expense of $14.6 million in 2000, $7.9 million in 2001,
$4.5 million in 2002, $2.3 million in 2003, $753,000 in 2004 and $49,000 in
2005.
On March 13, 2000, we issued 3,340,877 shares of our Series C preferred stock
for $15.0 million, which will convert into shares of common stock upon the
closing of this offering. We will record a one-time charge to earnings
applicable to common stockholders of $15.0 million on March 13, 2000 for the
beneficial conversion feature associated with the sale of our Series C
preferred stock at a price below the deemed fair value of our common stock for
financial reporting purposes.
Interest income. Interest income increased to $419,000 in 1999 from $90,000 in
1998, an increase of $329,000. The increase was primarily due to our higher
average cash and investment balances during 1999 as a result of a private
placement of equity securities in February 1999 and December 1998.
Interest expense. Interest expense decreased to $18,000 in 1999 from $55,000 in
1998, a decrease of $37,000. The decrease was due primarily to lower average
debt outstanding during 1999 following the conversion of a note payable to
equity in 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Total revenue. Total revenue was $197,000 in 1998. We added our first two
customers in 1998 and had no customers in 1997.
Costs of revenue. Costs of revenue were $141,000 in 1998. These costs were
associated with customer service and support expenses.
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Research and development. Research and development expenses increased to $2.3
million in 1998 from $1.7 million in 1997, an increase of $646,000. The
increase was due primarily to an increase in salaries and other personnel
costs in 1998 related to hiring additional software developers.
Selling and marketing. Selling and marketing expenses increased to $634,000 in
1998 from $495,000 in 1997, an increase of $138,000. The increase was due
primarily to an increase in salaries, travel and other personnel costs related
to expanding our selling and marketing team. We also increased our product
marketing expenses to enhance the visibility of our product.
General and administrative. General and administrative expenses increased to
$884,000 in 1998 from $579,000 in 1997, an increase of $305,000. The increase
was due primarily to additions to our management team.
Interest income. Interest income increased to $90,000 in 1998 from $37,000 in
1997, an increase of $53,000. The increase was primarily due to our higher
cash and investment balances during 1998 as a result of a private placement of
equity securities in 1998.
Interest expense. Interest expense increased to $55,000 in 1998 from $20,000
in 1997, an increase of $35,000. The increase was due primarily to higher
average debt outstanding during 1998.
Liquidity and Capital Resources
We have financed our operations primarily from the net proceeds generated from
the issuance of preferred stock. We have received total net proceeds of
approximately $35.2 million from sales of:
. 12,533,676 shares of our Series A convertible preferred stock in March 1996
and February, June and October 1997, including conversions of convertible
notes payable, raising net proceeds of $7.5 million
.18,826,959 shares of our Series B convertible preferred stock in December
1998 and February 1999, including conversions of convertible notes
payable, raising net proceeds of $12.7 million
.10,022,634 shares of our Series C convertible preferred stock in March 2000,
raising net proceeds of $15.0 million
As of December 31, 1999, we had cash, cash equivalents and short-term
investments of approximately $6.3 million, up from $5.2 million of cash and
cash equivalents at December 31, 1998. On a pro forma basis, accounting for
Series C preferred stock proceeds received in March 2000, we had cash and cash
equivalents and short-term investments of $21.3 million as of December 31,
1999.
In 1999, we used cash of approximately $5.1 million in operating activities to
fund our net losses of $7.6 million, offset by non-cash charges for
depreciation and deferred compensation amortization totalling $1.9 million and
increases in deferred revenue of $706,000. We used approximately $3.5 million
of cash for operations in 1998 and $2.4 million in 1997.
Our investing activities used cash of approximately $3.1 million in 1999,
compared to a provision of cash of $2.3 million in 1998 and cash used of $2.7
million in 1997. Our investing activities consisted primarily of purchases and
sales of short-term investments depending on our cash balances, and purchases
of property and equipment to be used in our business. We expect to continue to
make investments in our infrastructure, including the purchase of property and
equipment to support our operations. As discussed below, we have also acquired
property through the use of capital leases.
Our financing activities in 1999 generated $6.5 million of cash, primarily
from the net proceeds of sales of preferred stock. Our financing activities in
1998 generated $5.8 million in cash, primarily from the net proceeds of sales
of preferred stock and the issuance of convertible notes payable, which were
subsequently converted into preferred stock. Our financing activities in 1997
generated $5.4 million of cash, primarily from the net proceeds of sales of
preferred stock and $400,000 of borrowings under a bank loan. This loan was
repaid in monthly installments through September 1999. In December 1998, we
entered into a master lease agreement under which we could borrow $1.0 million
through December 1999. This facility is treated as a capital lease. We
borrowed $97,000 under this lease in 1998 and $354,000 in 1999. Our borrowings
under this lease have stated interest rates ranging from 8.4% to 15.3%
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and were used to acquire computer equipment and office furniture. We repaid
$70,000 of these borrowings during 1999, and $398,000 remains outstanding at
December 31, 1999 under this lease. We intend to repay outstanding borrowings
under this lease out of proceeds of the offering.
We expect our cash requirements to increase significantly in 2000 as we
continue our research and development efforts, hire additional personnel, grow
our administrative support activities and expand our facilities. The amount and
timing of cash requirements will depend on market acceptance of our products
and the resources we devote to researching and developing, marketing, selling
and supporting our products. We may also acquire complementary businesses or
products, although we have no commitment to do so.
We believe that our cash, cash equivalents and short-term investments,
including the proceeds of the March 2000 sale of Series C preferred stock and
the net proceeds from this offering are sufficient to fund our operations for
at least 24 months. Without the net proceeds of this offering, we believe our
capital resources will be sufficient to fund our operations through at least
December 31, 2000.
Our future capital requirements will depend on many factors, including the
following:
. success of our selling and marketing efforts
. success of our acquisition efforts
. progress and scope of our product development activities
. progress and scope of our strategic alliances
Future capital requirements will also depend on the extent to which we acquire
or invest in businesses, products and technologies. If we should require
additional financing due to unanticipated developments, additional financing
may not be available when needed or, if available, we may not be able to obtain
this financing on terms favorable to us or to our stockholders. Insufficient
funds may require us to delay, scale back or eliminate some or all of our
research and development programs, or may adversely affect our ability to
operate as a going concern. If additional funds are raised by issuing equity
securities, substantial dilution to existing stockholders may result.
Income Taxes
As of December 31, 1999 we had a net operating loss carryforward of
approximately $11.3 million for federal income tax reporting purposes, which
begins to expire in 2010. We have established a valuation allowance against the
entire amount of our deferred tax asset because our management has not been
able to conclude that it is more likely than not that we will be able to
realize the deferred tax asset, due primarily to our history of operating
losses.
Quantitative and Qualitative Disclosures about Market Risk
The primary objective of our investment activities is to preserve principal
while at the same time maximize the income we receive from our investments
without significantly increasing risk. Some of the securities that we invest in
may have market risk. This means that a change in prevailing interest rates may
cause the principal amount of the investment to fluctuate. For example, if we
hold a security that was issued with a fixed interest rate at the then-
prevailing rate and the prevailing interest rate later rises, the principal
amount of our investment will probably decline. To minimize this risk in the
future, we intend to maintain our portfolio of cash equivalents and short-term
investments in a variety of securities, including commercial paper, money
market funds, government and non-government debt securities. The average
duration of all of our investments in 1999 was less than one year. Due to the
short-term nature of these investments, we believe we have no material exposure
to interest rates arising from our investments. Therefore, no quantitative
tabular disclosure is included in the prospectus.
The Year 2000
Computer systems and software must accept four digit entries to distinguish
21st century dates from 20th century dates. As a result, many software and
computer systems that accepted only two digit entries needed to be upgraded in
order to accept dates beginning January 1, 2000. We did not experience any
date-related problems with our software.
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In addition, we have not been made aware of, nor have we experienced, date-
related problems with any third-party software. We do not believe that we will
incur material costs in the future because of date-related problems.
Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes
accounting and reporting standards for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. It requires an entity to recognize all derivatives as either assets
or liabilities in the statement of financial position and measures those
instruments at fair value. In June 1999, the FASB issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and
Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133--an
amendment of FASB Statement No. 133" ("SFAS No. 137"). SFAS No. 137 delays the
effective date of SFAS No. 133 to fiscal quarters and fiscal years beginning
after June 15, 2000. The Company does not typically enter into arrangements
that would fall under the scope of SFAS No. 133 and thus, management believes
that SFAS No. 133 will not significantly affect its financial condition and
results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101, "Revenue Recognition" ("SAB 101"). SAB 101
provides the SEC Staff's views in applying generally accepted accounting
principles to selected revenue recognition issues. We must implement the
guidance in SAB 101 during the first quarter of 2000. We believe we are in
compliance with the guidelines provided in SAB 101, and thus, our management
believes that the adoption of SAB 101 will not significantly affect our results
of operations.
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Overview of Genomics
Introduction
The number of currently known disease targets limits the development of new
drugs. Disease targets are molecules in the body that can be affected by a drug
to cause a desired biological reaction. Pharmaceutical and biotechnology
organizations are increasingly turning to genomics to improve the productivity
of the drug discovery and development process. The study of the human genome is
revealing new disease targets and providing pharmaceutical and biotechnology
organizations with better information regarding these targets. Industry
analysts expect genomics to lead to a medical revolution in identifying and
treating disease based on growing evidence that genes play a significant role
in most major diseases.
Genomics
The complete set of instructions for making an organism is called its genome.
The human genome governs all cellular functions, which, in turn, determine all
human physiology, such as metabolism, susceptibility to disease and reactions
to drugs. Genomics is broadly defined as the study of an organism's genes,
including their location, structure, sequence, regulation, function and
relationship to disease.
The human genome is organized into 23 pairs of chromosomes, which include the X
and Y chromosomes that determine sex. These chromosomes are comprised of
strands of DNA molecules that consist of long chains of chemical sub-units,
called nucleotides. There are four types of nucleotides--adenine, cytosine,
guanine, and thymine, often abbreviated with their first letters A, C, G, and
T. DNA molecules consist of two long chains of nucleotides bound together by
the pairing of the nucleotides. Each nucleotide is also referred to as a base,
and pairs of bases bound to each other are called base pairs. Approximately 3.2
billion nucleotide base pairs, or 6.4 billion total bases, make up the entire
human genome.
Some sequences of nucleotides, called genes, carry the specific information
necessary to construct proteins that regulate most aspects of human life. Genes
may contain from several dozen to millions of nucleotides. Scientific evidence
to date indicates that there are approximately 100,000 genes in the human
genome, although some researchers estimate the number to be as high as 150,000.
Genetic Study Methods
The methods of analysis in the field of genomics generally fall into one of
four major categories:
. DNA Sequencing. DNA sequencing is the process of determining the linear
order of nucleotide bases in a strand of DNA and is performed with a
laboratory instrument called a DNA sequencer.
. Genotyping. Genotyping is the process of analyzing locations within a
genome where variations in the sequence of nucleotides within a gene, or
genetic polymorphisms, are known to exist. Differences in a genotype, or
the sequence of nucleotides in a gene, can determine specific physical
characteristics, such as eye color, or functions, such as ability to
produce insulin. Genetic polymorphisms play a role in an individual's
susceptibility to disease and response to drugs. One type of polymorphism
is a variation in a single nucleotide base, commonly referred to as a
single nucleotide polymorphism, or SNP. SNPs are the most common type of
genetic variation. There are an estimated three to ten million SNPs in the
human genome. While only a small fraction of human SNPs have been
identified to date, we expect this number to increase dramatically during
the next few years. The SNP Consortium is a group of drug companies and
public entities who are working together to discover 300,000 SNPs and
contribute their findings to public databases. Numerous other individual
companies have initiated programs to identify large numbers of human SNPs.
As more and more SNPs are identified, a new market is emerging for looking
at SNPs of individuals for diagnostic and therapeutic purposes, called SNP
genotyping. Merely identifying a SNP does not indicate whether or how it
may relate to human health. To relate SNPs to disease or drug response,
SNPs must be measured in hundreds or thousands of people and correlated
with clinical data describing the physical or mental health of those
individuals.
. Gene Expression Analysis. Gene expression analysis involves measuring the
extent to which specific genes are expressed within a cell. Gene
expression is the process by which a gene's coded information is
translated into
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the production of proteins within a cell. While all cells contain the full
set of DNA, different cells express different sets of genes depending on
cell type and environmental conditions. Certain diseases also arise from
the over or under expression of genes. Researchers use differential gene
expression analysis, the comparison of genes expressed in healthy versus
diseased samples, to identify specific genes involved in a particular
disease process. Researchers can also measure changes in expression of
certain genes when they add drug candidates to cells. As researchers
identify more genes, we expect the market for expression analysis
technologies to grow significantly.
.Phenotyping. Phenotyping is the determination of the traits of an individu-
al. A phenotype is the physical and measurable trait related to an under-
lying gene. For example, a gene is responsible for determining eye color,
but the actual eye color is a phenotype.
Proteomics
Proteins are large complex molecules that control and mediate most cellular
activities. Proteins are created based upon the information provided by genes.
Each set of three nucleotides in a gene codes for a specific amino acid. Amino
acids are the basic building blocks that make up proteins. Success in drug
discovery is often a function of the amount known about the structure and
function of a particular protein.
A very important goal for biology and pharmaceutical research and development
is to establish a direct correlation between the sequence information of the
human genome and the sequence information in proteins. This field is generally
referred to as proteomics. Proteomics seeks to determine what proteins are
being made where, in what amount and under what conditions. By integrating
gene and protein information, researchers are able to trace amino acid
sequences back to corresponding gene sequences. That, in turn, enables them to
take data on proteins present in samples and link it to the gene expression
data, providing a new level of detail on how genes actually regulate proteins
in cells.
Proteomics research involves the large-scale separation, identification and
characterization of proteins. While gene expression data provides important
information regarding the underlying proteins, it cannot predict all changes
that occur to a protein. Although the proteomics market is relatively new, it
is expected to be one of the fastest growing life science disciplines.
Pharmacogenomics
Pharmacogenomics is a rapidly evolving field of identifying genetic variations
that may affect an individual's response to a specific drug. We expect that
this research will lead to a more personalized approach to medicine that will
allow drugs and dosages to be tailored for individual patients based upon
their genetic information. In addition, pharmacogenomics may enable more
successful clinical trials by improving the process of patient selection and
"rescuing" drugs that have failed previous drug trials by identifying more
appropriate populations for using the drug. Candidates for rescued drugs
include those where particular sub-populations have reacted adversely to these
drugs or where a drug has worked in a particular subpopulation but not in the
broader group initially studied.
We expect that genomic information will be used to develop genetic
characterization tests to identify the genetic make-up of individuals. These
tests will contribute to a more personalized approach to medicine. For
example, many types of cancer have similar symptoms. The ability to deliver an
effective treatment for a particular patient depends on understanding what
kind of cancer the patient has. Genetic characterization tests may help the
physician select the most effective drug with the fewest side effects. We
believe that this approach should benefit patients with more customized care,
reduced illness length, and better treatment results.
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Business
Overview
We are a leading provider of software products and services that enable
pharmaceutical and biotechnology researchers to accelerate the drug discovery
and development process. Discovery Manager, our first product, is used for
genomics research, including genetic research, gene discovery and
pharmacogenomics. This product allows researchers to turn the vast volumes of
gene, SNP, protein and patient data from diverse sources into information
useful for drug discovery. We license Discovery Manager to leading genomics-
based research organizations, including AstraZeneca, GlaxoWellcome, Parke-Davis
and the National Cancer Institute. We are also collaborating with companies
such as PE Biosystems to develop software products to be used with their
industry-leading hardware for drug discovery.
The Bioinformatics Market Opportunity
The market for software products to facilitate the drug discovery process is
large and rapidly growing. Genetic Engineering News projects the bioinformatics
market to be in the range of $1-2 billion in the year 2001. We believe that
this number includes spending by research organizations for both internal and
external bioinformatics services. Additional industry sources expect that
research and development spending for bioinformatics technology will grow to
over $2 billion by 2004.
Challenges of Using Genomic Data
Pharmaceutical and biotechnology researchers are increasingly turning to
genomics to improve the efficiency of the drug discovery process. These
researchers need bioinformatics tools to effectively manage the large
quantities and complexities of data being generated by genomics research.
Bioinformatics is the application of computer technologies to collect, manage,
analyze and link biological data. The key challenges of using genomic data in
the drug discovery and development process are:
. Unprecedented volumes of data. Improvements in genetic research
methodologies and related tools are producing unprecedented quantities of
genetic data, creating massive data management problems for organizations
conducting genomics research. These problems are accelerating as leading
research organizations near completion of sequencing the human genome.
Public sequence databases are growing exponentially. Some of these
databases are expected to reach over 10 billion bases of sequence data and
more than 6 million records by the end of 2000. Experiments or analyses
involving these data can rapidly expand the total data volume. The use of
SNPs in drug research illustrates the effect of experiments on data
volume. The SNP Consortium has announced its intention to identify a set
of approximately 300,000 SNPs by April 2001. Identifying all of these SNPs
in a group of 1,000 patients would generate over 300,000,000 individual
SNP scores. Similarly, a single pharmacogenomics experiment could entail
analysis of approximately 100,000 different sites in a patient's DNA, so
that a 1,000 patient study would generate approximately 100,000,000 data
points.
. Diversity of data sources. Genomic research and data generation is being
performed in thousands of different locations throughout the world.
Genomic projects generally involve a diverse group of scientists, such as
clinicians, geneticists and biologists, each working on their own type of
data. Furthermore, these projects often involve multiple organizations
working together. These groups often represent, classify and store their
data in different ways.
. Current tools unsuited to the task. Many organizations currently collect,
store, and analyze their genomic data using a patchwork of public domain,
free or low-fee software, off-the-shelf, non-scientific desktop
applications such as spreadsheets and internally developed bioinformatics
tools. This can result in researchers using a variety of non-standard,
non-integrated, non-scientific and unsupported software tools. Many
genomic researchers also rely on time-consuming and error-prone manual
approaches to handle their bioinformatics needs.
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. Short supply of bioinformaticists. Genomic-based research is heavily
dependent on sophisticated computer applications that are typically
created and maintained by bioinformaticists. The supply of individuals
with training or experience in both genomics and the development of
computer-based information technology is limited. As a result, many
organizations have been unable to internally develop adequate
bioinformatics tools.
. Difficulty of data visualization/presentation. Researchers need to
visualize the large quantities of complex genomic data and their
relationships to perform analyses and derive meaningful results.
Visualization of large quantities of highly interrelated data is a
challenging software problem.
. Data security concerns. Research organizations are concerned about access
to and the security of the data they produce and use. Security issues are
compounded when multiple organizations are collaborating on a project. A
security breach could compromise or even ruin an entire drug discovery
effort, potentially resulting in the loss of substantial profits.
Bioinformatics tools must provide security features that reliably ensure
the desired type and level of security required by each research
organization.
Our Solution
We offer proprietary bioinformatics solutions designed to address the
challenges of using genomic data in the drug discovery and development process.
Our solutions offer:
. Data standardization. We provide a standard representation of diverse
types and formats of genomic information, including both publicly
available and proprietary genomic data. Our process of standardization
allows our customers to compare and cross-analyze information from varied
sets of genomic data. This can result in significant savings in time and
fewer user errors.
. Data integration. Our product brings together in one database information
contained in many publicly available and proprietary genomic data sets.
Our products also integrate different types of genomic data from research
sources such as pharmacogenomic, high-throughput genotyping, SNP and
sequence data.
. High scalability. Our product has been designed to handle massive data
sets and large numbers of users. We believe our product will be able to
meet the needs of the largest pharmaceutical and biotechnology companies
in the world.
. Broad suite of data analysis tools. Our product's proprietary software
tools enable researchers such as clinicians, epidemiologists, geneticists
and molecular biologists to easily sort and analyze genomic information.
. Practical visualization tools. Our product provides a practical way to
show complex genomic information in simple-to-understand formats such as
tables, graphs, charts and reports.
. Security. Our product includes state-of-the-art redundancy, back-up and
encryption systems to ensure minimal exposure to systems failure or
unauthorized access. We employ rigorous electronic security measures to
protect our customers' data and to restrict unauthorized access to such
data from non-approved users both within and outside client organizations.
. Professional services. We support our product by offering our customers
product integration services, scientific consulting services and technical
consulting services.
Our Strategy
Our objective is to provide pharmaceutical and biotechnology researchers with
the most scientifically adept bioinformatics tools and services for drug
discovery and development. The key elements of our strategy to achieve our
objective include:
. Expand our product offerings. We intend to significantly extend our
product offerings to include modules in other areas of drug discovery and
development such as gene and protein expression analysis and protein
function prediction. In addition to developing products internally and in
collaboration with our strategic partners, we plan to selectively acquire
complementary businesses and products.
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. Establish significant industry collaborations. We intend to establish
product development and distribution alliances with companies in the drug
discovery and development market that have strong market positions and
technologies complementary to ours. We believe that these collaborations
will provide us with access to broader markets and accelerated market
penetration. We plan to add, in collaboration with some of these
companies, new modules or features to our products that work with their
technology and hardware. As part of this strategy, we also intend to
offer reduced functionality versions of most of our products. We expect
that these entry-level products will sell for a lower price, but in
greater quantities, than the enterprise-level versions of our products.
These entry-level products should provide the opportunity for future
upgrade sales to enterprise-level products.
. Implement application service provider strategy. We intend to offer our
customers the option to access our products via the Internet without the
need to install and maintain the software on their own equipment. This
approach, commonly called being an application service provider, or ASP,
should broaden and accelerate the adoption of our products by lowering
initial capital investment, minimizing implementation time and effort,
providing convenient scalability, offering affordable payment options and
reducing the information technology burden for our customers.
. Continue scientific leadership. We believe our close interaction with
commercial and academic scientific leaders has been a major factor in
establishing Discovery Manager as one of the most comprehensive and
scientifically advanced bioinformatics products available to the genomics
industry. We intend to advance our scientific leadership by deepening and
expanding our relationships with scientific leaders in the field of
genomics. We rely on these relationships to stay abreast of cutting edge
developments in the field and to identify and address new customer needs.
. Increase sales and marketing capacity. We intend to expand our direct
sales force to sell our enterprise-level product in the United States and
major international markets. We also intend to pursue a multifaceted
marketing strategy to increase Genomica brand awareness and to
substantially increase our number of qualified customer leads. One of the
key goals of our sales personnel is to increase the number of users of
our product at existing customers.
Discovery Manager(TM)
Discovery Manager is our core bioinformatics product. It is an integrated
suite of software tools and a database template for genomics research. The
database can be filled with genomic data from the user's own research as well
as publicly available and other sources. Our tools include sophisticated
scientific algorithms designed for easy use by genomic researchers without the
assistance of bioinformaticists. Discovery Manager enables individual or
collaborating researchers to access, store, manipulate, analyze, annotate and
integrate genomic data from a variety of sources. We believe that Discovery
Manager is the only commercially available product that integrates human
sequence, genetic map, genotype, phenotype and clinical information.
Supported disciplines. We developed Discovery Manager to be used by
researchers in a broad range of disciplines including:
. Clinical genetics. Clinical geneticists identify patients and collect
their medical data. Discovery Manager allows these researchers to store
and view patient information in a simple graphical format, which can show
the medical and genetic data of each patient as well as parent and
sibling genetic relationships among family members, called pedigrees.
. Epidemiology. Epidemiologists study the genetic and environmental causes
for disease. Discovery Manager helps these researchers analyze and
determine how a genetic trait or environmental factor is distributed
among people in a population.
. Statistical genetics. Statistical geneticists identify the regions of DNA
that determine a particular trait. Discovery Manager helps these
researchers group individuals together and test various hypotheses
regarding the portion of DNA to which a trait is linked.
. Human genetics. Human geneticists identify the location of genes using a
variety of sophisticated analytical approaches. Discovery Manager helps
these researchers study the specific genes of each family member.
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. Molecular biology. Molecular biologists determine the function of genes.
Discovery Manager helps these researchers organize and analyze genetic map
and sequence data to isolate genes and determine their function.
. Pharmacogenomics. Pharmacogenomics researchers determine the genetic basis
for why a drug works for some people but not others. Discovery Manager
helps these researchers examine the genetic variations of a group of
patients with similar drug responses.
Key tools. Discovery Manager provides three key tool sets that are used by
different types of researchers to facilitate the interpretation of data
relevant to the drug discovery and development process:
. Sequence analysis tools. Sequence analysis is the examination of a specific
DNA sequence to understand the structure and function of the sequence.
Discovery Manager provides tools for finding genes in human DNA sequences
and comparing two or more sequences for similarity.
. Genetic analysis tools. Genetic analysis is the isolation and analysis of
DNA variations in families and unrelated populations. Discovery Manager
provides tools to integrate, manipulate, edit and analyze genetic data.
. Map analysis tools. Map analysis is the construction and comparison of maps
containing different representations of genetic information. Discovery
Manager provides tools that support the graphical viewing, manipulation and
comparison of maps that are created using well-known algorithms.
Discovery Manager database. A key component of Discovery Manager is a central
repository of genomic data compiled from many sources:
. Legacy data. Data that researchers previously have accumulated on various
systems and in various formats.
. New data. Results from experiments performed using Discovery Manager.
. Reference Database. Our proprietary Reference Database, described below, is
comprised of 12 publicly available genomic databases from major
international genome research centers. Each of these public databases has
completed the peer review, quality control process of the National
Institutes of Health. In addition, we standardize and quality check this
data before including it in the Reference Database.
. Other public data. If a customer wishes to incorporate data from sources
other than those in the Reference Database, the customer can convert it
into a common format and import it into Discovery Manager. Customers can
also access the National Center for Biotechnology Information and other
websites of interest directly from Discovery Manager. Researchers use
information from these websites to annotate their database.
Reference Database. We offer our proprietary database, the Reference Database,
as an option to licensees of Discovery Manager. Our Reference Database
compiles into one database and in one common format all of the information
from 12 publicly available databases. Researchers no longer need to access the
individual remote databases. As a result, they are able to easily and
uniformly query these distinct databases, resulting in significant time
savings and reduced risk of user errors.
Common user interface. Discovery Manager addresses many important aspects of
genomics research from a common user interface. This interface permits
researchers to access, use and compare data from a single database. With
simple point-and-click operations, researchers can map, compare, query and
graphically display data in formats commonly used in the industry. Using
annotation tools, researchers may enrich data with additional information,
such as experiment details, literature references and direct links to websites
of interest. The common user interface also enables many different types of
researchers to use the same data and system to do their part of the analysis.
Security. Because of the potential value of proprietary genomic information,
security is important to our customers. Discovery Manager provides security
and access features that enable system administrators to assign user accounts
and passwords, provide users with access to authorized projects and allow
management to review the work progress within the genomic project while
insuring the privacy of sensitive project data.
We regularly upgrade Discovery Manager to keep pace with the latest advances
in algorithms, tools and technology. Customer input plays a key role in the
definition of these upgrades. We also regularly upgrade the contents of the
Reference Database to include newly available information. We intend to expand
the Reference Database to include
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other public databases and additional databases of non-human data. We also
intend to develop new products to expand into other areas of drug discovery
and development and new technologies.
Technology
We designed Discovery Manager to support the unique needs of drug discovery
and development researchers. We selected technologies to handle very large and
complex data sets and provide users with simple-to-use data visualization
technology. Because researchers most often work in teams, our products
securely operate in a network environment designed to allow collaboration
among hundreds of researchers. We believe that Discovery Manager offers the
broadest set of software tools for genomics research of any commercially
available product.
Our software uses "object-oriented" technology as a simple way of modeling
biological data and their relationships, such as patients and their associated
DNA sequences. An object is a combination of related data, such as patient
name, age and height. We invested 40 person-years to create a collection of
over 400 objects to represent the core biological entities that are part of
drug discovery and development. A key benefit of our use of object-oriented
technology is that once the core biological objects have been defined, it
becomes easier to add new features to keep pace with advances in genomic
science.
Current architecture. The current software structure, or architecture, of
Discovery Manager is divided into two key operating components, referred to as
a client and a server. The client is the easy-to-use graphical interface that
operates on a standard desktop computer used by the researcher. The server
consists of the scientific applications and databases that operate on a
powerful computer that provides processing services to all the clients.
The Discovery Manager client component was developed using a commercially
available programming language known as VisualWorks for Smalltalk. The server
component was developed using a commercially available database management
system known as GemStone/S.
Next-generation architecture. We are currently developing the next generation
of Discovery Manager to be Internet compatible. The new architecture will have
three key operating components, referred to as a client, an application server
and a database server. We expect the new client component to continue to
provide a set of visualization tools to simplify organizing, querying and
analyzing complex genomic information. The client will allow users to interact
with Discovery Manager through a standard Java-based web browser, such as
Netscape Navigator or Microsoft Explorer. The application server component
will consist of scientific applications developed using Java technology. The
database server component will consist of Oracle Corporation's Oracle 8i
relational database management system.
We are transitioning to this new technology architecture primarily because we
believe drug discovery and development companies have selected the Oracle
database technology as a standard operating environment for their genomic
research and because many customers have expressed an interest in moving to
Internet-compatible applications. We believe that our new technology choices
of Java for application and advanced user interface programming, Hypertext
Markup Language (HTML) for programming web browser interfaces, and Oracle as
the database for storing all of the genomic data, will meet customer
requirements and provide a stable foundation for the foreseeable future. We
are scheduled to deliver our first product on the new architecture in 2000. We
will transition all existing customers to the redeveloped product at no
additional cost to them.
Research and Development
As of March 13, 2000, we had 39 employees working in research and development,
of which 16 were working on the development of the current Discovery Manager
product and 23 were working on the redeveloped product. We intend to transfer
all development resources to developing the redeveloped product once all
customers have transitioned to the new Discovery Manager product. Our research
and development expenses were $2.3 million in 1998 and $4.9 million in 1999.
We expect that research and development expenses will continue to increase.
Consulting and Scientific Services
We currently offer limited consulting services that are included in the price
of Discovery Manager. We anticipate offering a full range of consulting
services on a fee-for-service basis in conjunction with Discovery Manager,
including the following:
28
<PAGE>
. Product integration. Helping customers integrate the Discovery Manager
product suite into their bioinformatics departments and scientific
workflow.
. Technical consulting. Providing custom programming, technical guidance and
tools development for bioinformatics needs.
. Scientific consulting. Helping customers with their genomics research.
Examples of this service include designing scientific experiments,
formulas and algorithms.
Customers
We license our products and provide services to pharmaceutical and
biotechnology companies and academic institutions in the United States and
Western Europe. The following is a list of our current customers:
AstraZeneca PLC
Biognosis U.S. Inc.
Clingenix
GlaxoWellcome Inc.
National Cancer Institute
Oxagen Limited
Orchid Biosciences, Inc.
University of Oxford Wellcome Trust Centre for Human Genetics
Warner-Lambert Company
As pharmacogenomics expands, we believe our products will play a key role in
both genetic analysis and clinical trial data gathering and processing. We also
expect to increase sales to contract research organizations and healthcare
providers. We intend to target agricultural biotechnology companies involved in
genomic research.
In the year ended December 31, 1999, the clients listed above accounted for all
of our software license revenue. We expect that a small number of clients will
continue to account for a high percentage of our total revenue for the
foreseeable future.
Sales and Marketing
Direct Sales
We sell our enterprise-level product and services in North America and Western
Europe through a direct sales force to pharmaceutical and biotechnology
companies and academic institutions. Our direct sales force is divided into
three regions: U.S. East Coast, U.S. West Coast and Western Europe (based in
the United Kingdom). We combine an account manager with a field scientist, who
together demonstrate the business and scientific value of our product to our
potential customers. As of March 13, 2000, we had six individuals in our sales
department, including two sales managers, two account managers and two field
scientists. We are currently recruiting additional sales people.
Indirect Sales
We intend to augment our direct sales effort with indirect sales channels
established through collaborations. Indirect sales channels are expected to
give us access to sales forces that are much larger than our own. Through these
sales forces, we believe we can increase and accelerate our market penetration.
We believe the following types of indirect sales channels are viable for our
products:
. Distributors outside core territories. In markets where there are
insufficient sales opportunities to justify a direct presence, or barriers
to entry in the markets are high, we may establish distributor
relationships.
. Strategic industry collaborations. We intend to establish product
development and distribution alliances with companies in the drug
discovery and development market that have strong market positions and
technologies complementary to ours. We also plan to add, in collaboration
with some of these companies, new modules or features to our products that
work with their technology and hardware.
. Consultants and systems integrators. We intend to establish a services
partnership program with consultants and systems integrators who provide
professional services to our targeted customer base. We believe
consultants and systems integrators are in a strong position to recommend
our solutions to their services customers.
29
<PAGE>
Marketing
To support our sales force, our marketing team is focused on creating a
consistent, targeted message that increases awareness of our brand name and
solutions. We intend to expand our use of marketing programs such as print and
online advertising, direct mail and conference exhibits.
As a part of our marketing efforts, we provide our product and other support to
leading genomics research institutions. These institutions are the thought
leaders in the genomics research industry and set the trends of how genomics
research will be conducted in the future. In addition, we believe that our
relationship with these institutions will result in graduates being trained
users of Discovery Manager and, therefore, potential customers. The following
institutions currently use Discovery Manager:
. Johns Hopkins University
. Princeton University
. University of Colorado
. University of Oxford Wellcome Trust Centre for Human Genetics
Strategic Relationships
We have entered into an agreement with PE Biosystems, a leading supplier of
gene sequencing and other equipment to the drug discovery industry. Under this
agreement, we are jointly developing software for users of certain PE
Biosystems genotyping equipment. Customers will use our software to manage,
sort and manipulate genotypic, phenotypic, clinical and other data produced
using PE Biosystems' genotyping hardware and other sources. We and PE
Biosystems are currently discussing terms under which this product may be
jointly commercialized.
We have entered into an agreement with PE Biosystems and Oxagen Limited to
create a comprehensive drug discovery system for use by Oxagen, incorporating
system hardware and software from PE Biosystems, bioinformatics software from
Genomica and drug discovery technologies from Oxagen. The agreement
contemplates that we will consider marketing the jointly developed product if
we are successful in creating this drug discovery system.
Competition
We face competition from other bioinformatics companies and specialized drug
discovery software companies. We believe that additional specialized software
companies will be formed to pursue this market opportunity. Competition could
also result from non-commercial software developed by academic institutions and
software developed by companies who sell access to proprietary genomic data.
Some of our competitors, including academic institutions and large genomics or
pharmaceutical companies, have substantially greater financial, marketing,
sales and support resources than we do. We also face competition from
pharmaceutical companies' own bioinformatics departments.
There are many companies describing bioinformatics as part of their strategy,
but a much smaller number who currently offer bioinformatics products or
databases commercially. Most of our commercial competitors offer sequence
analysis software products, which represents only a portion of the
functionality of our product. We believe that no other company has a
bioinformatics product for genomics that matches the functionality of Discovery
Manager.
The market for software products and services to support the drug discovery
process is new and rapidly changing, and we believe it will become highly
competitive. We believe that the principal competitive factors affecting the
markets for our software and services include:
. breadth of functionality
. technological and scientific excellence
. timeliness of product introductions
. responsiveness to customer requirements
. customer relationships
. ease of use
We believe we compete favorably with respect to each of these factors.
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<PAGE>
Intellectual Property
We are the exclusive, worldwide licensee of the Genome Topographer technology
owned by Cold Spring Harbor Laboratory. Genome Topographer was co-developed by
our founder, President and Chief Scientist, Dr. Thomas G. Marr at Cold Spring
Harbor Laboratory under work supported, in part, by grants from the Department
of Energy and the National Institutes of Health. Genome Topographer is a
general purpose computer system useful for studying complex, genetic diseases
and serves as the intellectual property foundation of Discovery Manager. The
Genome Topographer technology includes the patented Chang/Marr algorithm, which
incorporates, either in hardware or software form, an algorithm for analyzing
genetic data. Our license with Cold Spring Harbor Laboratory grants us
exclusive, worldwide rights to the Chang/Marr Patent, as well as the exclusive
right to commercialize the complete set of Genome Topographer technology. Our
Discovery Manager product incorporates this licensed technology.
Failure to maintain the license agreement with Cold Spring Harbor Laboratory
could preclude future sales of Discovery Manager or delay or prevent the
introduction of new products. Even if we could identify and license or develop
non-infringing equivalent technology, which is far from certain, the cost and
delays of such a changeover in our base technology would likely cause material
harm to our business.
We cannot assure you that the Chang/Marr algorithm patent owned by Cold Spring
Harbor Laboratory will not be challenged, invalidated or circumvented or that
the rights created thereunder will provide a competitive advantage. In
addition, our competitors may apply for and obtain patents covering
technologies that are more effective than our technologies. This could render
our technologies or products obsolete or uncompetitive or prevent, limit or
interfere with our ability to make, use or sell our product either in the
United States or in international markets.
Our current product incorporates additional technologies that are the subject
of proprietary rights of others. We have obtained licenses for certain of these
technologies and may be required to obtain licenses for others. If needed, we
may not be able to obtain licenses for technology patented by others on
commercially reasonable terms, or at all. We also may not be able to develop
alternative approaches if we are unable to obtain necessary licenses. We cannot
assure you that our current and future licenses will be adequate for the
operation of our business. The failure to obtain necessary licenses or identify
and implement alternative approaches could have a material adverse effect on
our business, financial condition and results of operations.
We believe the source code for our proprietary software is protected both as a
trade secret and copyright work in the United States. However, effective
copyright and trade secret protection may not be available in every other
country in which our products are distributed.
Our policy is to enter into confidentiality agreements with our employees,
consultants and vendors, and we generally control access to and distribution of
our software, documentation and other proprietary information. Despite these
precautions, a third party might be able to copy or otherwise obtain and use
our products or technology without authorization. The steps taken by us to
protect our proprietary technology might be inadequate to prevent
misappropriation of our technology by third parties. In addition, third parties
might be able to develop similar technology independently. Either of these
events could significantly harm our business, operating results and financial
condition.
Employees
As of March 13, 2000, we had 61 full-time employees, including 39 employees
primarily engaged in research and development, 11 in sales and marketing, five
in customer support and six in administration. None of our employees is
currently represented under collective bargaining agreements and we consider
our relations with our employees to be good.
Facilities
We are located in Boulder, Colorado. We lease approximately 9,500 square feet
under an agreement that expires April 2000. We recently entered into a lease
agreement for 24,000 square feet in a different location in Boulder, Colorado.
We have entered into a non-binding letter of intent to lease an additional
14,000 square feet beginning in June 2000. We believe that our current
facilities, plus the additional facilities available under our lease
agreements, will be adequate to support our operations through 2000. In the
event that additional space is needed, we believe that additional or substitute
space will be available on commercially reasonable terms.
Legal Proceedings
We are not currently involved in any legal proceedings.
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<PAGE>
Management
Executive Officers and Directors
The following table sets forth, as of March 13, 2000, certain information
concerning our executive officers and directors:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Teresa W. Ayers ........ 46 Chief Executive Officer and Director
Thomas G. Marr, Ph.D.... 47 President, Chief Scientist and Director
Kenneth S. Rubin........ 35 Executive Vice President of Commercial Development
Daniel R. Hudspeth...... 37 Chief Financial Officer, Vice President of Finance, Treasurer
and Secretary
James E. Clemens........ 52 Vice President of Engineering
James L. Rathmann(1).... 48 Chairman of the Board
Marvin H. Caruthers,
Ph.D.(1)(2)............ 59 Director
Ralph E. Christoffersen,
Ph.D.(2)............... 62 Director
Arnold J. Levine, Ph.D.. 60 Director
Robert T. Nelsen(1)(2).. 36 Director
</TABLE>
- ------------------
(1) Member of the compensation committee.
(2) Member of the audit committee.
Teresa W. Ayers has served as our Chief Executive Officer since 1999 and as a
member of our board of directors since 1999. From 1997 to 1999, Ms. Ayers
served as the President, Chief Executive Officer and director of BioStar, Inc.,
a point-of-care diagnostics company. From 1995 until 1997, Ms. Ayers served as
BioStar's President and Chief Operating Officer and, from 1992 until 1995, as
BioStar's Vice President of Finance. Ms. Ayers received a B.B.A. from the
University of Georgia.
Thomas G. Marr, Ph.D. has served as our President and Chief Scientist and a
member of our board of directors since our inception. From 1997 to 1998, Dr.
Marr served as our Chief Executive Officer. From 1989 to 1997, Dr. Marr held
various positions at Cold Spring Harbor Laboratory. From 1989 to 1994, Dr. Marr
was a Senior Staff Investigator. From 1994 to 1997, Dr. Marr was a Senior
Scientist, head of the Structural Biology and Computational Section at the Cold
Spring Harbor Laboratory/National Cancer Institute-Cancer Center and head of
the Computational Molecular Biology and Genetics Department. Prior to 1989, Dr.
Marr was a Staff Scientist at Los Alamos National Laboratory. Dr. Marr has been
involved in the development of bioinformatics technology used in the Human
Genome Project since 1985, and has served on many peer review, policy and
standards committees related to the project. Dr. Marr received a Ph.D. in
Biology from New Mexico State University.
Kenneth S. Rubin has served as our Executive Vice President of Commercial
Development since January 2000. In addition, Mr. Rubin has served as a
consultant to us since 1997. From 1997 until 2000, Mr. Rubin served as the
Chief Operating Officer of Secant Technologies, Inc., a software products
company. From 1995 until 1997, Mr. Rubin served as the Director of Business
Development for IBM Corporation's North America Object Technology Practice. Mr.
Rubin received an M.S. in Computer Science from Stanford University.
Daniel R. Hudspeth has served as our Chief Financial Officer, Vice President of
Finance, Treasurer and Secretary since April 1999. From 1997 to 1999, Mr.
Hudspeth served as the Chief Financial Officer, Vice President of Finance,
Treasurer and Secretary of Communications Systems International, Inc., a
publicly-traded telecommunications company. From 1995 to 1997, Mr. Hudspeth
served as the Chief Financial Officer, Vice President of Finance, Treasurer and
Secretary of Wireless Telecom, Inc., a software developer and distributor of
wireless data telecommunications products. During 1995, Mr. Hudspeth served as
Vice President and Corporate Controller of CWE, Inc., a publicly-traded
computer retail company. Mr. Hudspeth has a BS/BA in Accounting from Colorado
State University. Mr. Hudspeth is a certified public accountant.
James E. Clemens has served as our Vice President of Engineering since 1997.
From 1996 to 1997, Mr. Clemens served as the Vice President of Engineering for
Objectshare, Inc., a software development company. From 1994 to 1996, Mr.
Clemens served as the Senior Director of Engineering at Volt Delta Resources, a
telecommunications software and hardware company. Mr. Clemens received a B.A.
in Mathematics and Computer Science from the University of California at Los
Angeles.
James L. Rathmann has served as the Chairman of our board of directors since
our inception and served as our Chief Executive Officer from inception to 1997.
Mr. Rathmann founded Falcon Technology Partners, L.P. in 1993, and is the
president of Falcon Technology Management Corporation and the general partner
of Falcon Technology
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<PAGE>
Partners, L.P. Mr. Rathmann also serves on the board of directors of Ciphergen
Biosystems, Inc., a biological research systems company. Mr. Rathmann received
an M.S. in Computer Science from the University of Wisconsin.
Marvin H. Caruthers, Ph.D. has served as a member of our board of directors
since 1997. From 1992 to 1995, Dr. Caruthers was the chairman of the Department
of Chemistry and Biochemistry at the University of Colorado. He has been a
professor at the University of Colorado since 1979. Dr. Caruthers is a director
of OXiGENE, Inc. and Array Biopharma, both of which are biotechnology
companies. Dr. Caruthers received a Ph.D. from Northwestern University.
Ralph E. Christoffersen, Ph.D. has served as a member of our board of directors
since 1997. Dr. Christoffersen has served as Chief Executive Officer, President
and a director of Ribozyme Pharmaceuticals, Inc. since 1992. From 1989 to 1992,
Dr. Christoffersen was Senior Vice President and Director of U.S. Research at
SmithKline Beecham Pharmaceuticals, a pharmaceutical company. From 1983 to
1989, he held senior management positions in research at The Upjohn Company, a
pharmaceutical company. Prior to joining The Upjohn Company, Dr. Christoffersen
served as a Professor of Chemistry and Vice Chancellor for Academic Affairs at
the University of Kansas and as President of Colorado State University. He
received his Ph.D. in Physical Chemistry from Indiana University.
Arnold J. Levine, Ph.D. has served as a member of our board of directors since
1997. Dr. Levine is a cancer biologist and is President of Rockefeller
University. Previously, Dr. Levine was the Harry C. Wiess Professor of the Life
Sciences at Princeton University, where he founded Princeton's molecular
biology department during a 12-year tenure that saw the department grow to
include two research laboratories and 35 faculty members. Prior to his work at
Princeton, Dr. Levine was chairman at SUNY/Stony Brook School of Medicine. Dr.
Levine is also a director of PE Corporation and Baxter International, Inc.
Robert T. Nelsen has served as a member of our board of directors since 1997.
Since 1994, Mr. Nelsen has served as a senior principal of various venture
capital funds associated with ARCH Venture Partners, including ARCH Venture
Fund II, L.P., ARCH Venture Fund III, L.P. and ARCH Venture Fund IV, L.P. From
1987 to 1994, Mr. Nelsen was Senior Manager at ARCH Development Corporation, a
company affiliated with the University of Chicago, where he was responsible for
new company formation. He holds an M.B.A. from the University of Chicago.
Scientific Advisory Board
We benefit from consultation with prominent scientists active in fields related
to our technology. Each of the individuals serving on our scientific advisory
board has significant expertise in both the computational and biological
aspects of genomics and each has been involved in the Human Genome Project
since its inception.
Aravinda Chakravarti, Ph.D. is Professor of Genetics in the School of Medicine
at Case Western Reserve University. Dr. Chakravarti is a leading quantitative
geneticist, well known for his contributions in determining the multigenic
cause of congenital human birth defects.
Uta Francke, M.D. is an Investigator at the Howard Hughes Medical Institute and
Professor of Genetics and Pediatrics at the Stanford University School of
Medicine. Dr. Francke is the current president of the American Society of Human
Genetics.
William R. Pearson, Ph.D. is Professor of Biochemistry at the University of
Virginia. Dr. Pearson created the FASTA package of sequence comparison
programs. FASTA is a worldwide standard for performing sequence comparison
searches.
Gary D. Stormo, Ph.D. is Professor of Molecular Biology at Washington
University Human Genome Center. Dr. Stormo's research has been in pattern
recognition algorithms for the identification of regulatory sequences in DNA
and for pathway analysis.
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<PAGE>
Board Composition
Upon the closing of the offering, in accordance with the terms of our restated
certificate of incorporation, the terms of office of the board of directors
will be divided into three classes:
. Class I directors, whose term will expire at the annual meeting of
stockholders to be held in 2001
. Class II directors, whose term will expire at the annual meeting of
stockholders to be held in 2002
. Class III directors, whose term will expire at the annual meeting of
stockholders to be held in 2003
Each class of directors will be determined by resolution of our board of
directors prior to the closing of the offering. At each annual meeting of
stockholders beginning with the 2001 annual meeting, the successors to
directors whose terms expire will be elected to serve from the time of election
and qualification until the third annual meeting following election and until
their successors have been elected.
Committees of the Board of Directors
The audit committee reviews the selection of independent auditors, the results
and scope of the audit and other services provided by our independent auditors
and evaluates our internal accounting procedures.
The compensation committee reviews and approves compensation and benefits for
our executive officers. The compensation committee also administers our
compensation and stock plans and makes recommendations to the board of
directors regarding such matters.
Director Compensation
Ralph Christoffersen, an outside director, receives $1,000 for each board
meeting attended. Other than Dr. Christoffersen, no other directors receive
compensation for their services as directors. We reimburse our outside
directors, upon request, for reasonable out-of-pocket expenses incurred in
attending board and committee meetings. In addition, all directors are eligible
to participate in our 2000 Equity Incentive Plan.
Compensation Committee Interlocks and Insider Participation
During 1999, Messrs. Caruthers, Nelsen and Rathmann served as members of our
compensation committee. None of our executive officers serves as a member of
the board of directors or compensation committee of any other entity that has
one or more executive officers serving as a member of our board of directors or
compensation committee.
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<PAGE>
Executive Compensation
Summary Compensation Table (1)(2)
The following table sets forth all compensation awarded to, earned by or paid
to our chief executive officer and our four highest paid executive officers
for services rendered in all capacities to us during 1999. We refer to these
executive officers as our "named executive officers" in other parts of this
prospectus.
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
---------------- ---------------------
Securities Underlying All Other
Name and Principal Position Salary Bonus Options Compensation
- --------------------------- -------- ------- --------------------- ------------
<S> <C> <C> <C> <C>
Teresa W. Ayers(1),
Chief Executive Officer... $102,015 -- 366,699 --
Thomas G. Marr,
President and Chief
Scientist................. 225,000 -- 66,699 $4,050(3)
Daniel R. Hudspeth(1),
Vice President of Finance
and Chief Financial
Officer................... 94,673 -- 33,366 19,423(3)
James E. Clemens,
Vice President of
Engineering............... 162,415 $60,000 33 --
Susan E. Strong,
Former Vice President of
Sales and Marketing....... 164,968 -- 8,366 --
</TABLE>
- -----------------
(1) We hired Ms. Ayers in July 1999 and Mr. Hudspeth in April 1999.
(2) We hired Mr. Rubin in January 2000. Had he been employed by us for the
entire year of 1999, his compensation would have required disclosure in
this table. Mr. Rubin's base salary is $200,000.
(3) Reimbursement of moving expenses.
1999 Option Grants
The following table sets forth information regarding options granted to each
of our named executive officers during 1999.
The options in this table were granted under our 2000 Equity Incentive Plan,
have 10-year terms, will terminate before their expiration dates if the
optionee leaves his or her employment with us, and unless otherwise noted,
vest over a period of four years. We have not granted any stock appreciation
rights.
The percentages shown below of options granted is based on an aggregate of
697,397 options we granted in 1999.
<TABLE>
<CAPTION>
Potential Realizable Value at
Number of Percent of Assumed Annual Rates of
Securities Total Options Exercise Stock Price Appreciation for
Underlying Granted to Price Option Term
Options Employees in (Per ------------------------------
Name Granted 1999 Share) Expiration Date 5% 10%
- ---- ---------- ------------- -------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Teresa W. Ayers......... 366,666(1) 52.6% $0.18 6/21/09 $ 3,689,508 $ 9,349,939
33(2) * 0.18 12/1/09 332 841
Thomas G. Marr.......... 66,666(2) 9.6% 0.18 6/21/09 670,814 1,699,975
33(2) * 0.18 12/1/09 332 841
Daniel R. Hudspeth...... 33,333(1) 4.8% 0.18 4/5/09 355,407 849,987
33(2) * 0.18 12/1/09 332 841
James E. Clemens........ 33(2) * 0.18 12/1/09 332 841
Susan E. Strong......... 8,333(3) 1.2% 0.18 4/15/09 83,849 212,490
33(2) * 0.18 12/7/09 332 841
</TABLE>
- -----------------
* Less than 1%.
(1) 25% of the options vest on the first anniversary of the vesting
commencement date. The remaining 75% vest in 36 equal monthly installments
thereafter.
(2) 100% vested on the vesting commencement date.
(3) 25% of the options vest on December 8, 1999. The remaining 75% vest in 36
equal monthly installments thereafter.
35
<PAGE>
The potential realizable value represents amounts, net of exercise price before
taxes, that may be realized upon exercise of the options immediately prior to
the expiration of their terms assuming appreciation of 5% and 10% over the
option term. Assuming 5% and 10% annual appreciation, these values are
calculated based on rules promulgated by the Securities and Exchange Commission
and an assumed initial public offering price of $16.00 per share and do not
reflect our estimate of future stock price growth. The actual value realized
may be greater or less than the potential realizable value set forth in the
table.
1999 Option Values
The following table sets forth information concerning the number and value of
exercisable and unexercisable options held by each of the named executive
officers as of December 31, 1999. The value of unexercised, in-the-money
options at December 31, 1999 represents an amount equal to the difference
between the assumed initial public offering price of $16.00 per share and the
option exercise price, multiplied by the number of unexercised, in-the-money
options. An option is in-the-money if the fair market value of the underlying
shares exceeds the exercise price of the options.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options at
Shares Options at December 31, 1999 December 31, 1999
Acquired on Value -------------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Teresa W. Ayers......... -- -- 33 366,666 $ 522 $5,800,656
Thomas G. Marr.......... -- -- 122,254 27,778 1,934,058 439,448
Daniel R. Hudspeth...... -- -- 33 33,333 522 527,328
James E. Clemens........ -- -- 16,351 25,348 258,673 401,005
Susan E. Strong......... -- -- 4,116 4,167 66,428 65,922
</TABLE>
Employee Benefit Plans
401(k) Plan
Our employees are eligible to participate in our 401(k) Plan. Pursuant to the
401(k) Plan, employees may elect to reduce their current compensation by up to
the lesser of 15% of eligible compensation or the statutorily prescribed annual
limit ($10,000 in 1999). Employees may contribute this amount on a pre-tax
basis to the 401(k) Plan. Employees direct the investment of the assets of the
401(k) Plan in up to seven different investment funds. The 401(k) Plan is
intended to qualify under Section 401 of the Internal Revenue Code so that
contributions by employees to the 401(k) Plan, and income earned on plan
contributions are not taxable to employees until withdrawn. An employee becomes
eligible for the matching contribution only if he or she makes a pretax
contribution. We may make discretionary matching contributions to the 401(k)
Plan. Additionally, we may make annual discretionary profit sharing
contributions in amounts to be determined annually by the board of directors.
Since the 401(k) Plan's inception, we have made no matching or profit sharing
contributions.
2000 Equity Incentive Plan
Our 2000 Equity Incentive Plan was originally adopted as the 1996 Stock Option
Plan and its amendment and restatement was adopted by our board of directors on
March 13, 2000. We expect to submit the plan for approval to our stockholders
prior to the closing of the offering. There is currently an aggregate of
5,000,000 shares of common stock authorized for issuance under the plan. The
plan will terminate on March 13, 2010 unless sooner terminated by the board of
directors (or committee). As of March 13, 2000, we have not issued shares
pursuant to stock awards under our plan, no shares have been repurchased or
lapsed and there are no shares which remain subject to repurchase. In addition,
options to purchase 1,889,678 shares at a weighted average price of $0.87 per
share were outstanding, and 2,183,884 shares remained available for future
stock awards under our plan. Awards issued under our plan prior to its
amendment and restatement as the 2000 Equity Incentive Plan will be governed by
the terms of the plan and applicable option agreements in effect prior to such
amendment and restatement. Prior to the amendment and restatement, the plan
provided only for grants of stock options and not for other types of awards.
36
<PAGE>
The plan provides for the grant of incentive stock options, as defined under
the Code, and nonstatutory stock options, restricted stock purchase awards and
stock bonuses. Our employees are eligible to receive incentive stock options
under our plan and our employees, directors and consultants are eligible to
receive nonstatutory stock options, restricted stock purchase awards and stock
bonuses. Our board or a committee appointed by the board administers the plan,
which determines recipients and types of awards to be granted, including the
exercise price, number of shares and the exercisability thereof. The plan also
permits our board of directors to allow the early exercise of option grants.
Shares issued under such option grants carry restrictions which lapse over the
vesting period of the original option grant.
The terms of options granted under the plan may not exceed ten years. The
board, or committee, determines the exercise price of options granted under the
plan. The exercise price for incentive stock options cannot be less than 100%
of the fair market value of the common stock on the date of the option grant.
The exercise price for nonstatutory stock options cannot be less than 85% of
the fair market value of the common stock on the date of the option grant.
Options granted under the plan typically vest over four years. Generally, the
optionee may not transfer a stock option other than by will or the laws of
descent or distribution unless the optionee holds a nonstatutory stock option
that provides for transfer in the stock option agreement. However, an optionee
may designate a beneficiary who may exercise the option following the
optionee's death. An optionee whose service relationship with us ceases for any
reason may exercise vested options for the term provided in the option
agreement, which is generally one month.
No incentive stock option may be granted to any person who, at the time of the
grant, owns or is deemed to own stock possessing more than 10% of our total
combined voting power unless the option exercise price is at least 110% of the
fair market value of the stock subject to the option on the date of grant and
the term of the option does not exceed five years from the date of grant. In
addition, the aggregate fair market value, determined at the time of grant, of
the shares of common stock with respect to which incentive stock options are
exercisable for the first time by an optionee during any calendar year may not
exceed $100,000.
Shares subject to stock awards that have expired or otherwise terminated
without having been exercised revert and become available for the grant of
awards under the stock plan. The board or committee may reprice outstanding
options or offer optionees the opportunity to replace outstanding options with
new options for the same or a different number of shares.
The board or committee determines the terms of restricted stock purchase awards
granted under the plan. Under restricted stock purchase awards, we have an
option to repurchase unvested shares upon termination of service. The price of
a restricted stock purchase award cannot be less than 85% of the fair market
value of the stock subject to the award on the date of grant. Our board or
committee may award stock bonuses in consideration of past services without a
purchase payment. Restricted stock purchase awards under the plan are generally
non-transferable, although the applicable award agreement may permit some
transfers. Transfers other than by will or the laws of descent and distribution
are restricted so long as the stock remains subject to the agreement.
Upon a merger, consolidation, reorganization, stock dividend, stock split or
other change in corporate structure affecting the number of issued shares of
our common stock, our board or committee may make proportionate adjustments to
the outstanding stock awards, including the class, number of shares and price
per share of options granted under the plan.
Our plan provides that if we dissolve, liquidate or sell substantially all of
our assets, outstanding stock awards will terminate immediately prior to that
event. In addition, upon our merger with or into another corporation or a sale
of substantially all of our assets, each option or right shall be assumed or an
equivalent option or right will be substituted by the successor corporation. If
the outstanding options or awards are not assumed or substituted, the vesting
of options or awards will be accelerated.
37
<PAGE>
Principal Stockholders
The following table sets forth information with respect to beneficial ownership
of our common stock as of March 13, 2000 for:
. each person or group of affiliated persons known to us to beneficially own
more than five percent of our common stock
. each of our directors
. each of our named executive officers and
. all of our directors and executive officers as a group
Beneficial ownership is determined according to the rules of the Securities and
Exchange Commission and generally means that a person has beneficial ownership
of a security if he or she possesses sole or shared voting or investment power
over that security, and includes options and warrants that are currently
exercisable or exercisable within 60 days. Each director, officer or 5% or more
stockholder, as the case may be, has furnished us with information with respect
to beneficial ownership. Except as otherwise indicated, we believe that the
beneficial owners of the common stock listed below, based on the information
each of them has given to us, have sole investment and voting power with
respect to their shares, except where community property laws may apply.
This table lists applicable percentage ownership based on 15,663,557 shares of
common stock outstanding as of March 13, 2000 (including shares of preferred
stock on an as-converted basis, and excluding shares issuable under warrants
which expire upon the closing of the offering), and also lists applicable
percentage ownership based on 21,663,557 shares of common stock outstanding
after completion of the offering. Options and warrants to purchase shares of
our common stock that are exercisable within 60 days of March 13, 2000, are
deemed to be beneficially owned by the persons holding these options and
warrants for the purpose of computing percentage ownership of that person, but
are not treated as outstanding for the purpose of computing any other person's
ownership percentage. Shares underlying options and warrants that are deemed
beneficially owned are listed in this table separately in the column labeled
"Shares Subject to Options and Warrants." These shares are included in the
number of shares listed in the column labeled "Total Number."
Unless otherwise indicated, the address of each person or entity named below is
c/o Genomica Corporation, 4001 Discovery Drive, Suite 130, Boulder, CO 80303.
<TABLE>
<CAPTION>
Shares Beneficially Owned
---------------------------------------------
Shares Subject to Percent Percent
Total Options and Before After
Name of Beneficial Owner Number Warrants Offering Offering
- ------------------------ --------- ----------------- -------- --------
<S> <C> <C> <C> <C>
The Kaufmann Fund, Inc. (1)...... 3,989,272 -- 25.5% 18.4%
Falcon Technology Partners,
L.P. (2)........................ 3,035,987 66,673 19.3% 14.0%
INVESCO Global Health Sciences
Fund (3)........................ 2,599,597 25,173 16.6% 12.0%
ARCH Venture Fund III, L.P. (4).. 1,727,180 16,493 11.0% 8.0%
Boulder Ventures Limited (5)..... 1,025,805 1,736 6.5% 4.7%
Teresa W. Ayers.................. 366,699 33 2.3% 1.7%
Thomas G. Marr................... 560,031 50,032 3.6% 2.6%
James E. Clemens................. 105,031 33 * *
Susan E. Strong.................. 31,977 -- * *
Daniel R. Hudspeth............... 166,699 33 1.1% *
Marvin H. Caruthers (6).......... 117,348 868 * *
Ralph E. Christoffersen.......... 12,500 12,500 * *
Arnold J. Levine................. 12,500 12,500 * *
Robert T. Nelsen (7)............. 1,727,180 16,493 11.0% 8.0%
James L. Rathmann (8)............ 3,075,987 66,673 19.6% 14.2%
All current directors and
executive officers as a group
(10 persons) (9)................ 6,165,641 159,167 39.0% 28.3%
</TABLE>
- ------------------
* Represents beneficial ownership of less than 1%.
(1) The address of The Kaufmann Fund, Inc. is 140 East 45th Street, 43rd
Floor, New York, New York 10017.
38
<PAGE>
(2) The address of Falcon Technology Partners, L.P. is 600 Dorset Road, Devon,
Pennsylvania 19333.
(3) The address of INVESCO Global Health Sciences Fund is 7800 East Union
Avenue, Mail Stop 1100, Denver, Colorado 80237.
(4) The address of ARCH Venture Fund III, L.P. is 8725 West Higgins Road,
Suite 290, Chicago, Illinois 60631.
(5) Consists of 301,731 shares held by Boulder Ventures, L.P., 629,944 shares
held by Boulder Ventures II, L.P. and 94,130 shares held by Boulder
Ventures II (Annex), L.P. The address of each entity is 1634 Walnut
Street, Suite 301, Boulder, Colorado 80303.
(6) Consists solely of shares held by The Caruthers Family, L.L.C., of which
Dr. Caruthers is the Manager.
(7) Consists solely of shares held by ARCH Venture Fund III, L.P. (see Note 4
above), of whose General Partner, Mr. Nelsen is the Managing Director. Mr.
Nelsen disclaims beneficial ownership of such shares except to the extent
of his pecuniary interest herein.
(8) Includes shares held by Falcon Technology Partners, L.P. (see Note 2
above), of which Mr. Rathmann is the General Partner.
(9) Includes 75,133 shares of common stock issuable upon exercise of stock
options and 84,034 shares of common stock issuable upon exercise of
preferred stock warrants. Also, see Notes 6 through 11 above.
39
<PAGE>
Related-Party Transactions
Financings
The following persons or entities purchased securities in the amounts set
forth, on an as-converted to common stock basis, in the chart below. We sold
shares of our common stock between March 1996 and April 2000. We sold shares of
our Series A preferred stock between March 1996 and October 1997. We sold
shares of our Series B preferred stock between December 1998 and February 1999.
We sold shares of our Series C preferred stock in March 2000.
<TABLE>
<CAPTION>
Series A Series B Series C
Purchaser Common Stock Financing Financing Financing Warrants
- --------- ------------ --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Principal Stockholders
The Kaufmann Fund, Inc.. -- -- 3,240,740 748,532 --
Falcon Technology
Partners, L.P.......... -- 1,660,099 864,770 444,444 66,673
INVESCO Global Health
Sciences Fund.......... -- 830,025 633,288 1,111,111 25,173
ARCH Venture Fund III,
L.P.................... -- 691,687 574,556 444,444 16,493
Boulder Ventures Limited
....................... -- 276,675 486,283 261,111 1,736
Caruthers Family L.L.C.. -- 69,169 36,200 11,111 868
Executive Officers
Teresa W. Ayers......... 366,666 -- -- -- --
Thomas G. Marr.......... 509,999 -- -- -- --
James E. Clemens........ 108,332 -- -- -- --
Susan E. Strong......... 31,977 -- -- -- --
Daniel R. Hudspeth...... 166,666 -- -- -- --
James L. Rathmann....... 40,000 -- -- -- --
Kenneth S. Rubin........ 21,664 -- -- -- --
Other Transaction
Information
Price per share......... $0.003-$0.75 $ 1.80 $ 2.16 $ 4.50 $1.81-$2.16
</TABLE>
Investor Rights Agreement
We have entered into an Amended and Restated Investors Rights' Agreement with
the purchasers of our common and preferred stock pursuant to which these and
other stockholders will have registration rights with respect to their shares
of common stock following this offering. For a description of these
registration rights, see "Description of Capital Stock--Registration Rights."
Indemnification
We have entered into, or prior to the offering will enter into, indemnity
agreements with our directors and executive officers for the indemnification
and advance payment of expenses to these persons to the fullest extent
permitted by law. See "Description of Capital Stock--Limitation of Liability
and Indemnification."
We believe that each of the transactions described above was carried out on
terms that were no less favorable to us than those that would have been
obtained from unaffiliated third parties. Any future transactions between us
and any of our directors, officers or principal stockholders will be on terms
no less favorable to us than could be obtained from unaffiliated third parties
and will be approved by a majority of the independent and disinterested members
of the board of directors.
40
<PAGE>
Description of Capital Stock
In accordance with our restated certificate of incorporation, which will become
effective upon the closing of the offering, we may issue up to 50,000,000
shares of common stock, par value $0.001 per share, and 5,000,000 shares of
preferred stock, par value $0.001 per share. As of March 13, 2000, there were
1,869,141 shares of common stock outstanding held by 35 stockholders of record,
and 13,794,416 shares of preferred stock outstanding held by 19 stockholders of
record.
We do not intend the following summary description of our capital stock to be
complete and we qualify the description by referring to the provision of
applicable law and to our restated certificate of incorporation and our amended
and restated bylaws, which will become effective upon the closing the offering,
filed as exhibits to the registration statement of which this prospectus is a
part.
Common Stock
As of March 13, 2000, and assuming conversion of all outstanding preferred
stock into common stock upon the closing of the offering, there were
outstanding 15,663,556 shares of common stock held of record by 53
stockholders. Each share of common stock entitles the holder to one vote on all
matters submitted to a vote of stockholders. Subject to preferences that may be
applicable to any outstanding shares of preferred stock, holders of common
stock are entitled to receive ratably the dividends, if any, declared from time
to time by the board of directors out of legally available funds. In the event
of our liquidation, dissolution or winding up, holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities
and the liquidation preferences of any outstanding shares of preferred stock.
Holders of common stock have no preemptive, conversion, subscription or other
rights. There are no redemption or sinking fund provisions applicable to the
common stock. All outstanding shares of common stock are, and all shares of
common stock to be outstanding upon completion of the offering will be, fully
paid and nonassessable.
Preferred Stock
As of March 13, 2000, assuming the closing of the offering, all outstanding
shares of preferred stock would have been converted into 13,794,416 shares of
common stock. See Note 5 to financial statements for a description of the
currently outstanding preferred stock. Following the conversion, our restated
certificate of incorporation will be amended and restated to delete all
references to such shares of preferred stock. The restated certificate of
incorporation gives the board of directors the authority, without further
action by stockholders, to issue up to five million shares of preferred stock
in one or more series and to fix the rights, preferences, privileges,
qualifications and restrictions granted to or imposed upon such preferred
stock, including dividend rights, conversion rights, voting rights, rights and
terms of redemption, liquidation preference and sinking fund terms, any or all
of which may be greater than the rights of the common stock. The issuance of
preferred stock could:
. adversely affect the voting power of holders of common stock and reduce the
likelihood that such holders will receive dividend payments and payments
upon liquidation
. decrease the market price of our common stock
. delay, deter or prevent a change in our control
We have no present plans to issue any shares of preferred stock.
Warrants
In connection with the private placement of our Series A preferred stock, we
issued a warrant to purchase 124,502 shares of Series A preferred stock at an
exercise price of $0.60 per share (which will convert into 41,500 shares of
common stock, if exercised prior to the closing of the offering) to Falcon
Technology Partners, L.P. which expires upon the closing of this initial public
offering, and a warrant to purchase 30,000 shares of Series A preferred stock
at an exercise price of $0.60 per share (which will become exercisable for
10,000 shares of common stock upon the closing of the offering) issued to
Silicon Valley Bank, which expires on September 9, 2004.
We have outstanding warrants to purchase an aggregate of 208,331 shares of
Series B preferred stock at an exercise price of $0.72 per share (which will
become exercisable for 69,443 shares of common stock upon the closing of the
offering) issued to certain principal stockholders, which expire on December
16, 2003.
We have outstanding warrants to purchase an aggregate of 219,443 shares of
common stock at an exercise price of $2.16 per share issued to Punk, Ziegel &
Company L.P., which expire on the closing of this initial public offering.
41
<PAGE>
The exercise price of each of our outstanding warrants is subject to customary
adjustments for stock splits, stock dividends or subdivisions. Additionally,
the warrants are subject to customary adjustments upon a sale of all or
substantially all of our assets or upon our reorganization, reclassification,
consolidation or merger. The exercise prices of the warrants are also subject
to adjustment in the event of our subsequent issuance of common stock at a
price per share less than their respective exercise prices. None of our
warrants confer upon the holder any voting or any other rights of our
stockholders, and the shares issuable upon exercise of the warrants carry
registration rights. See "Description of Capital Stock--Registration Rights."
Registration Rights
Under agreements between us and some of our investors, investors holding
14,134,803 shares of our common stock issued or issuable upon conversion of our
outstanding preferred stock and upon exercise of outstanding warrants to
purchase preferred and common stock have registration rights pertaining to the
securities they hold. After December 11, 2000, we may be required to prepare
and file a registration statement under the Securities Act if requested to do
so by the holders of at least a majority of the registrable securities, so long
as the aggregate offering price is at least $15,000,000 and the shares to be
registered constitute at least 20% of the outstanding shares of the Company's
common stock. We are required to use our best efforts to effect such
registration. We are not obligated to effect more than one such registration.
If we propose to register any of our securities under the Securities Act for
our own account or the account of any of our stockholders other than these
holders of registrable securities, the holders of registrable securities are
entitled to include registrable securities in the registration, subject to the
underwriters' right to limit the number of shares included. The holders of
registrable securities also may require us to file additional registration
statements on Form S-3 if requested to do so by the holders of at least 25% of
the registrable securities. We are not obligated to effect more than three of
such registrations on Form S-3.
We are required to bear all costs incurred in connection with any such
registrations. The foregoing registration rights could result in substantial
future expenses for us and adversely affect any future public offerings of our
equity securities.
Anti-Takeover Provisions
Delaware Law
We are governed by the provisions of Section 203 of the Delaware General
Corporation Law. In general, Section 203 prohibits a public 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 is approved in a prescribed manner. A "business combination"
includes mergers, asset sales or other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock. The statute could have the
effect of delaying, deferring or preventing a change in our control.
Certificate of Incorporation and Bylaw Provisions
Our certificate of incorporation, which will become effective shortly following
the closing of the offering, provides that our board of directors will be
divided into three classes of directors, with each class serving a staggered
three-year term. 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 the composition of our current board of
directors, as the classification of the board of directors generally increases
the difficulty of replacing a majority of directors. Our certificate of
incorporation provides that any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting of
stockholders and may not be effected by any consent in writing. In addition,
our bylaws provide that special meetings of our stockholders may be called only
by the chairman of the board, our chief executive officer, or by the board of
directors pursuant to a resolution adopted by a majority of the total number of
authorized directors.
42
<PAGE>
Our certificate of incorporation also specifies that the authorized number of
directors may be changed only by resolution of the board of directors and does
not include a provision for cumulative voting for directors. Under cumulative
voting, a minority stockholder holding a sufficient percentage of a class of
shares may be able to ensure the election of one or more directors. These and
other provisions contained in our certificate of incorporation and bylaws could
delay or discourage certain types of transactions involving an actual or
potential change in our control or change in our management (including
transactions in which stockholders might otherwise receive a premium for their
shares over then current prices) and may limit the ability of stockholders to
remove current management or approve transactions that stockholders may deem to
be in their best interests and, therefore, could adversely affect the price of
our common stock.
Limitation of Liability and Indemnification
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. In addition, our bylaws require us to
indemnify our directors and officers, and allow us to indemnify our other
employees and agents, the fullest extent permitted by law.
We have entered into, or prior to the offering will enter into, indemnity
agreements with our directors and executive officers for the indemnification
and advancement of expenses to these persons. We also intend to enter into
these agreements with our future directors and executive officers. We believe
that these provisions and agreements are necessary to attract and retain
qualified directors and executive officers.
At present, there is no pending litigation or proceeding involving any
director, executive officer, employee or agent where indemnification will be
required or permitted. We are not aware of any threatened litigation or
proceeding that might result in a claim for such indemnification. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, executive officers or persons controlling our company
pursuant to the foregoing provisions, we have been informed 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.
Transfer Agent and Registrar
We have appointed American Securities Transfer & Trust, Inc. to serve as the
transfer agent and registrar for the common stock.
Listing
We have applied for listing of the common stock on the Nasdaq National Market
under the trading symbol "GNOM".
43
<PAGE>
Shares Eligible for Future Sale
When the offering is completed, we will have a total of 21,663,557 shares of
common stock outstanding. The 6,000,000 shares offered by this prospectus will
be freely tradeable unless they are purchased by our "affiliates," as defined
in Rule 144 under the Securities Act of 1933. Shares purchased by affiliates
may generally only be sold pursuant to an effective registration statement
under the Securities Act or in compliance with Rule 144. The remaining
15,663,557 shares are "restricted," which means they were originally sold in
offerings that were not subject to a registration statement filed with the
Securities and Exchange Commission. These restricted shares may be resold only
through registration under the Securities Act or under an available exemption
from registration, such as provided through Rule 144.
Rule 144
Generally, Rule 144 as currently in effect provides that, beginning 90 days
after the first date of this prospectus, a person who has beneficially owned
shares of our common stock for at least one year would be entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of:
. one percent of the number of shares of common stock then outstanding, which
based on the shares outstanding as of March 13, 2000, will equal
approximately 216,635 shares or
. the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of the
notice on Form 144 with respect to the sale
Rule 144 provides limitation as the manner of sales and imposes requirements
as to notice and the availability of current public information about us.
Under Rule 144(k), a person who has not been one of our affiliates at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, may sell his or her shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144. Therefore, unless otherwise restricted,
including by a lock-up agreement, a person who has been a non-affiliate for at
least two years may sell his or her shares in the open market.
One hundred eighty days after the date of this prospectus, 11,421,247 shares
of our common stock will be eligible for sale under Rule 144, including
1,053,121 shares under Rule 144(k), and 901,433 will be eligible for sale
under Rule 701. The remaining shares will be eligible for sale within 180 days
thereafter.
Rule 701
Rule 701 permits any of our employees, officers, directors or consultants who
purchased their shares under a compensatory stock or option plan or other
written agreement prior to the effective date of this offering to sell such
shares under Rule 144 without complying with the holding period, public
information, volume limitation or notice requirement of Rule 144. Holders of
Rule 701 shares may not sell their Rule 701 shares until 90 days after the
date of this prospectus. However, substantially all shares of our common stock
issued under Rule 701 are subject to the lock-up agreements described below.
Registration Rights
The holders of 14,710,185 shares of common stock and of warrants exercisable
into 340,386 shares of the common stock will be entitled to certain rights
with respect to the registration of these shares under the Securities Act.
After these shares are registered, they will be freely tradable.
Lock-Up Agreements
All of our stockholders have entered into lock-up agreements with us
prohibiting them from offering, selling, pledging or otherwise disposing of
their shares for a period of 180 days after the date of this prospectus. In
addition, our directors, officers and other stockholders who together own
______ shares of common stock have agreed to similar lock-up agreements with
the underwriters prohibiting them from offering, selling, pledging or otherwise
disposing of these shares for the same 180-day period. This generally means
that the stockholders cannot sell these shares during the 180 days following
the date of this prospectus.
44
<PAGE>
Underwriting
We have entered into an underwriting agreement with the underwriters named
below. CIBC World Markets Corp., Dain Rauscher Incorporated and Prudential
Securities Incorporated are acting as representatives of the underwriters.
The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the
commitment of any other underwriter to purchase shares. Subject to the terms
and conditions of the underwriting agreement, each underwriter has severally
agreed to purchase the number of shares of common stock set forth opposite its
name below:
<TABLE>
<CAPTION>
Underwriter Number of Shares
----------- ----------------
<S> <C>
CIBC World Markets Corp..................................
Dain Rauscher Incorporated...............................
Prudential Securities Incorporated.......................
-------------
Total................................................ 6,000,000
=============
</TABLE>
The underwriters have agreed to purchase all of the shares offered by this
prospectus (other than those covered by the over-allotment option described
below) if any are purchased. Under the underwriting agreement, if an
underwriter defaults in its commitment to purchase shares, the commitments of
non-defaulting underwriters may be increased or the underwriting agreement may
be terminated, depending on the circumstances.
The shares should be ready for delivery on or about , 2000 against payment in
immediately available funds. The representatives have advised us that the
underwriters propose to offer the shares directly to the public at the public
offering price that appears on the cover page of this prospectus. In addition,
the representatives may offer some of the shares to other securities dealers at
such price less a concession of $ per share. The underwriters may also allow,
and such dealers may reallow, a concession not in excess of $ per share to
other dealers. After the shares are released for sale to the public, the
representatives may change the offering price and other selling terms at
various times.
We have granted the underwriters an over-allotment option. This option, which
is exercisable for up to 30 days after the date of this prospectus, permits the
underwriters to purchase a maximum of 900,000 additional shares from us to
cover over-allotments. If the underwriters exercise all or part of this option,
they will purchase shares covered by the option at the initial public offering
price that appears on the cover page of this prospectus, less the underwriting
discount. If this option is exercised in full, the total price to public will
be $110.4 million and the total proceeds to us will be $ . The underwriters
have severally agreed that, to the extent the over-allotment option is
exercised, they will each purchase a number of additional shares proportionate
to the underwriter's initial amount reflected in the foregoing table.
The following table provides information regarding the amount of the discount
to be paid to the underwriters by us.
<TABLE>
<CAPTION>
Total without Total with Full
Exercise of Over- Exercise of Over-
Per Share Allotment Option Allotment Option
--------- ----------------- -----------------
<S> <C> <C> <C>
Genomica.................... $ $ $
</TABLE>
We estimate that our total expenses of the offering, excluding the underwriting
discount, will be approximately $1,100,000.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
We, our officers and directors and some other stockholders have agreed to a
180-day "lock-up" with respect to shares of common stock and other
Genomica securities that they beneficially own, including securities that are
convertible into shares of common stock and securities that are exchangeable or
exercisable for shares of common stock. This means that, subject to certain
exceptions, for a period of 180 days following the date of this prospectus, we
and such persons may not offer, sell, pledge or otherwise dispose of these
Genomica securities without the prior written consent of CIBC World Markets
Corp.
The representatives have informed us that they do not expect discretionary
sales by the underwriters to exceed five percent of the shares offered by this
prospectus.
45
<PAGE>
The underwriters have reserved for sale up to shares for employees,
directors and other persons associated with us. These reserved shares will be
sold at the initial public offering price that appears on the cover page of
this prospectus. The number of shares available for sale to the general public
in the offering will be reduced to the extent reserved shares are purchased by
such persons. The underwriters will offer to the general public, on the same
terms as other shares offered by this prospectus, any reserved shares that are
not purchased by such persons.
There is no established trading market for the shares. The offering price for
the shares has been determined by us and the representatives, based on the
following factors:
. estimates of our business potential and earnings prospects
. an assessment of our management
. consideration of the above factors in relation to market valuations of
companies in related businesses
Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the
shares is completed. The underwriters may, however, engage in the following
activities in accordance with the rules:
. Stabilizing transactions--The representatives may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the
shares, so long as stabilizing bids do not exceed a specified maximum.
. Over-allotments and syndicate covering transactions--The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is
created in connection with the offering, the representatives may engage
in syndicate covering transactions by purchasing shares in the open
market. The representatives may also elect to reduce any short position
by exercising all or part of the over-allotment option.
. Penalty bids--If the representatives purchase shares in the open market
in a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group
members who sold those shares as part of this offering.
Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the
shares if it discourages resales of the shares.
Neither we nor the underwriters makes any representation or prediction as to
the effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or
otherwise. If such transactions are commenced, they may be discontinued
without notice at any time.
One of the representatives, Prudential Securities Incorporated, facilitates
the making of new issues online through its PrudentialSecurities.com division.
Clients of Prudential AdvisorSM may view offering terms and a prospectus
online and place orders through their financial advisors. Other than the
prospectus in electronic format, the information on the Prudential Securities
Incorporated website is not part of this prospectus or the registration
statement of which this prospectus forms a part and has not been approved or
endorsed by us or any underwriter in such capacity and should not be relied on
by prospective investors.
Legal Matters
Certain legal matters with respect to the legality of the issuance of the
shares of common stock offered by this prospectus will be passed upon for us
by Cooley Godward llp, Boulder, Colorado. An investment partnership affiliated
with Cooley Godward llp owns 69,444 shares of our preferred stock, which will
convert into 23,148 shares of our common stock upon the completion of this
offering. Certain legal matters will be passed upon for the underwriters by
McDermott, Will & Emery.
Experts
The financial statements included 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 respect thereto, and
are included herein in reliance upon the authority of said firm as experts in
giving said reports.
46
<PAGE>
Where You Can Find More Information
We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission in connection with the offering. In addition, upon
completion of the offering, we will be required to file annual, quarterly and
current reports, proxy statements and other information with the Securities and
Exchange Commission. You may read and copy the registration statement or any
other documents filed by us at the Securities and Exchange Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the Securities and Exchange Commission at 1-800-SEC-0330 for further
information on the Public Reference Room. Our Securities and Exchange
Commission filings are also available to the public at the Securities and
Exchange Commission's Internet site at "http://www.sec.gov."
This prospectus is part of the registration statement and does not contain all
of the information included in the registration statement. Whenever a reference
is made in this prospectus to any contract or other document of Genomica, the
reference may not be complete and you should refer to the exhibits that are a
part of the registration statement for a copy of the contract or document.
After the offering, we expect to provide annual reports to our stockholders
that include financial information examined and reported on by our independent
auditors.
47
<PAGE>
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Arthur Andersen LLP, Independent Public Accountants.............. F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Stockholders' Equity......................................... F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-8
</TABLE>
F-1
<PAGE>
After the reverse stock split discussed in Note 2 to the Company's financial
statements is effected, we expect to be in a position to render the following
audit report.
Arthur Andersen LLP
Denver, Colorado,
March 13, 2000.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Genomica Corporation:
We have audited the accompanying balance sheets of Genomica Corporation (a
Delaware corporation) as of December 31, 1998 and 1999, and the related
statements of operations, 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 Genomica Corporation as of
December 31, 1998 and 1999, and the results of its operations and its 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.
Denver, Colorado,
March 13, 2000 (except
with respect to the
reverse stock split
discussed in Note 2, as
to which the date is
, 2000).
F-2
<PAGE>
GENOMICA CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1999
----------- ------------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 5,222,549 $ 3,518,570
Short-term investments................................. -- 2,824,763
Accounts receivable-trade.............................. -- 360,000
Prepaid expenses and other............................. 53,151 148,037
----------- ------------
Total current assets............................... 5,275,700 6,851,370
----------- ------------
PROPERTY AND EQUIPMENT, net.............................. 349,394 673,479
OTHER ASSETS............................................. 24,309 28,786
----------- ------------
Total assets....................................... $ 5,649,403 $ 7,553,635
=========== ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable....................................... $ 229,615 $ 318,206
Accrued compensation and employee benefits............. 93,593 289,538
Current portion of note payable........................ 166,667 --
Current portion of capital lease obligations........... 44,435 130,142
Deferred revenue....................................... 123,333 829,601
Other accrued expenses................................. 49,046 37,429
----------- ------------
Total current liabilities.......................... 706,689 1,604,916
----------- ------------
LONG-TERM DEBT:
Capital lease obligations, net of current portion...... 70,556 268,157
----------- ------------
Total liabilities.................................. 777,245 1,873,073
----------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.001 par value,
26,785,400 and 37,688,178 shares authorized,
respectively:
Series A, 12,533,676 shares issued and outstanding
(liquidation value--$7,550,209)..................... 7,504,266 7,504,266
Series B, 8,757,516 and 18,826,959 shares issued and
outstanding, respectively (liquidation value--
$6,305,411 and $13,555,410, respectively)........... 5,898,515 12,369,208
Common stock, $.001 par value, 34,000,000 and
44,000,000 shares authorized, 1,105,859 and 1,140,073
shares issued and outstanding, respectively........... 1,106 1,140
Treasury stock, at cost................................ (182) (182)
Additional paid-in capital............................. 25,103 31,228
Options and warrants................................... 82,298 7,764,767
Deferred compensation.................................. -- (5,772,446)
Accumulated deficit.................................... (8,638,948) (16,217,419)
----------- ------------
Total stockholders' equity......................... 4,872,158 5,680,562
----------- ------------
Total liabilities and stockholders' equity......... $ 5,649,403 $ 7,553,635
=========== ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
GENOMICA CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For The Years Ended December 31,
-------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE:
Software licenses and services......... $ -- $ 196,892 $ 622,230
Research grants........................ -- -- 159,100
----------- ----------- -----------
Total revenue........................ -- 196,892 781,330
----------- ----------- -----------
OPERATING EXPENSES:
Costs of revenue....................... -- 141,490 447,057
Research and development............... 1,681,868 2,327,569 4,868,577
Selling and marketing.................. 495,068 633,551 1,722,141
General and administrative............. 578,952 884,267 1,723,364
----------- ----------- -----------
Total operating expenses............. 2,755,888 3,986,877 8,761,139
----------- ----------- -----------
Operating loss...................... (2,755,888) (3,789,985) (7,979,809)
INTEREST INCOME......................... 37,219 90,325 419,279
INTEREST EXPENSE........................ (19,581) (55,214) (17,941)
----------- ----------- -----------
NET LOSS................................ $(2,738,250) $(3,754,874) $(7,578,471)
=========== =========== ===========
NET LOSS PER SHARE, basic and diluted... $ (2.80) $ (3.81) $ (7.13)
=========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING, basic and diluted......... 976,532 986,015 1,062,392
=========== =========== ===========
PRO FORMA NET LOSS PER SHARE
(UNAUDITED--NOTE 2):
Net loss per share, basic and diluted. $ (0.68)
===========
Weighted average common shares
outstanding, basic and diluted....... 11,120,510
===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
GENOMICA CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible Preferred Stock
--------------------------------------------
Series A Series B Common Stock Treasury Stock Additional Options
--------------------- ---------------------- ---------------- --------------- Paid-In and
Shares Amount Shares Amount Shares Amount Shares Amount Capital Warrants
---------- ---------- ---------- ----------- --------- ------ ------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances,
December 31,
1996........... 3,320,400 $2,000,209 -- $ -- 976,532 $ 977 (60,764) $ (182) $ 1,953 $ --
Sale of Series A
preferred stock
in February,
June and
October 1997
for cash of
$0.6024 per
share, net of
offering costs
of $45,943..... 8,383,256 5,004,057 -- -- -- -- -- -- -- --
Conversion of
notes payable
in March 1997
at $0.6024 per
share.......... 830,020 500,000 -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
---------- ---------- ---------- ----------- --------- ------ ------- ------ ------- ----------
Balances,
December 31,
1997........... 12,533,676 7,504,266 -- -- 976,532 977 (60,764) (182) 1,953 --
Sale of Series B
preferred stock
in December
1998 for cash
of $0.72 per
share, net of
offering costs
of $332,264.... -- -- 7,347,927 4,958,243 -- -- -- -- -- --
Issuance of
warrants to
purchase common
stock.......... -- -- -- -- -- -- -- -- -- 82,298
Conversion of
notes payable
in December
1998 at $0.72
per share...... -- -- 1,409,589 940,272 -- -- -- -- -- --
Issuance of
common stock
upon exercise
of options..... -- -- -- -- 129,327 129 -- -- 23,150 --
Net loss........ -- -- -- -- -- -- -- -- -- --
---------- ---------- ---------- ----------- --------- ------ ------- ------ ------- ----------
Balances,
December 31,
1998........... 12,533,676 7,504,266 8,757,516 5,898,515 1,105,859 1,106 (60,764) (182) 25,103 82,298
Sale of Series B
preferred stock
in February
1999 for cash
of $0.72 per
share, net of
offering costs
of $538,180.... -- -- 10,069,443 6,711,819 -- -- -- -- -- --
Issuance of
warrants to
purchase common
stock.......... -- -- -- (241,126) -- -- -- -- -- 241,126
Issuance of
common stock
upon exercise
of options..... -- -- -- -- 34,214 34 -- -- 6,125 --
Deferred
compensation... -- -- -- -- -- -- -- -- -- 7,441,343
Amortization of
deferred
compensation... -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- --
---------- ---------- ---------- ----------- --------- ------ ------- ------ ------- ----------
Balances,
December 31,
1999........... 12,533,676 $7,504,266 18,826,959 $12,369,208 1,140,073 $1,140 (60,764) $ (182) $31,228 $7,764,767
========== ========== ========== =========== ========= ====== ======= ====== ======= ==========
<CAPTION>
Deferred Accumulated
Compensation Deficit Total
------------- ------------- ------------
<S> <C> <C> <C>
Balances,
December 31,
1996........... $ -- $ (2,145,824) $ (142,867)
Sale of Series A
preferred stock
in February,
June and
October 1997
for cash of
$0.6024 per
share, net of
offering costs
of $45,943..... -- -- 5,004,057
Conversion of
notes payable
in March 1997
at $0.6024 per
share.......... -- -- 500,000
Net loss........ -- (2,738,250) (2,738,250)
------------- ------------- ------------
Balances,
December 31,
1997........... -- (4,884,074) 2,622,940
Sale of Series B
preferred stock
in December
1998 for cash
of $0.72 per
share, net of
offering costs
of $332,264.... -- -- 4,958,243
Issuance of
warrants to
purchase common
stock.......... -- -- 82,298
Conversion of
notes payable
in December
1998 at $0.72
per share...... -- -- 940,272
Issuance of
common stock
upon exercise
of options..... -- -- 23,279
Net loss........ -- (3,754,874) (3,754,874)
------------- ------------- ------------
Balances,
December 31,
1998........... -- (8,638,948) 4,872,158
Sale of Series B
preferred stock
in February
1999 for cash
of $0.72 per
share, net of
offering costs
of $538,180.... -- -- 6,711,819
Issuance of
warrants to
purchase common
stock.......... -- -- --
Issuance of
common stock
upon exercise
of options..... -- -- 6,159
Deferred
compensation... (7,441,343) -- --
Amortization of
deferred
compensation... 1,668,897 -- 1,668,897
Net loss........ -- (7,578,471) (7,578,471)
------------- ------------- ------------
Balances,
December 31,
1999........... $(5,772,446) $(16,217,419) $ 5,680,562
============= ============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
GENOMICA CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Years Ended December 31,
--------------------------------------
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................. $(2,738,250) $(3,754,874) $ (7,578,471)
Adjustments to reconcile net loss to
net cash used in operating
activities--
Depreciation......................... 69,422 176,926 253,016
Amortization of discount on
convertible debt.................... -- 7,666 --
Amortization of discount on short-
term investments.................... -- -- 38,053
Preferred stock issued for accrued
interest on convertible debt........ -- 14,904 --
Amortization of deferred
compensation........................ -- -- 1,668,897
Changes in operating assets and
liabilities--
Accounts receivable................. -- -- (360,000)
Other assets........................ 2,168 (18,127) (99,363)
Accounts payable.................... 47,682 83,848 88,591
Accrued compensation and employee
benefits........................... 93,825 (8,841) 195,945
Deferred revenue.................... -- 123,333 706,268
Other accrued expenses.............. 107,379 (109,652) (11,617)
----------- ----------- ------------
Net cash used in operating
activities........................ (2,417,774) (3,484,817) (5,098,681)
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Redemptions of held-to-maturity
securities........................... -- 2,462,412 16,480,000
Purchases of held-to-maturity
securities........................... (2,462,412) -- (19,342,816)
Purchases of property and equipment... (209,071) (157,095) (223,480)
----------- ----------- ------------
Net cash provided by (used in)
investing activities.............. (2,671,483) 2,305,317 (3,086,296)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital leases............ (4,683) (11,239) (70,313)
Proceeds from issuance of loan........ 400,000 -- --
Principal payments on loan............ (33,333) (200,000) (166,667)
Proceeds from issuance of convertible
debt and warrants.................... -- 1,000,000 --
Proceeds from issuance of preferred
stock................................ 5,050,000 5,290,507 7,249,999
Costs related to issuance of preferred
stock................................ (45,943) (332,264) (538,180)
Proceeds from exercise of common stock
options.............................. -- 23,279 6,159
----------- ----------- ------------
Net cash provided by financing
activities........................ 5,366,041 5,770,283 6,480,998
----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS...................... 276,784 4,590,783 (1,703,979)
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR.................................. 354,982 631,766 5,222,549
----------- ----------- ------------
CASH AND CASH EQUIVALENTS, END OF YEAR. $ 631,766 $ 5,222,549 $ 3,518,570
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
GENOMICA CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Years Ended
December 31,
------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.............................. $19,581 $32,644 $ 17,941
======= ======= ========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING
ACTIVITIES:
Capital lease obligations incurred to acquire
equipment.......................................... $33,716 $97,197 $353,621
======= ======= ========
Warrants issued for offering costs.................. $ -- $ -- $241,126
======= ======= ========
</TABLE>
- --------
As discussed in Note 4, in 1997, the Company converted a $500,000 note payable
to a stockholder into shares of Series A Preferred Stock.
As discussed in Note 4, in 1998, the Company converted $925,368 of debt, net of
unamortized discount of $74,632, plus accrued interest of $14,904 into
1,409,589 shares of Series B Preferred Stock.
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
GENOMICA CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. Organization and Business:
Genomica Corporation (the "Company"), a Delaware corporation, is a provider
of software products and services that enable pharmaceutical and biotechnology
researchers to accelerate the drug discovery and development process. The
Company's first product, Discovery Manager, offers a broad set of software
tools for genomic researchers.
The Company was incorporated in September 1995 and began operations shortly
thereafter. Since its inception, the Company has incurred significant losses.
Although the Company anticipates that funds from product licenses, working
capital at December 31, 1999 and the proceeds of its March 2000 private
placement (Note 11) will be sufficient to fund its operations through at least
December 31, 2000, additional financing may be needed after that date by the
Company to fund its operations, continue the commercial development of its
products and develop its sales and marketing infrastructure. The Company may
also seek additional capital in 2000 to accelerate these efforts. There is no
guarantee that such financing will be available when needed upon terms
acceptable to the Company. Operations of the Company are subject to certain
risks and uncertainties including, among others, uncertainty of product
development, inexperience in marketing or selling its product, technological
uncertainty, competition and dependence on key personnel.
2. Summary of Significant Accounting Policies:
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates may affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily cash and cash equivalents, accounts
receivable and investments in high-grade corporate bonds and commercial paper.
The Company maintains its cash balances in the form of bank demand deposits and
money market accounts with financial institutions that management believes are
creditworthy. Accounts receivable are typically unsecured and are concentrated
in the pharmaceutical industry. Accordingly, the Company may be exposed to
credit risk generally associated with pharmaceutical and biotechnology
companies. Two customers (Note 8) accounted for all of the Company's trade
accounts receivable as of December 31, 1999. The Company has no significant
financial instruments with off-balance sheet risk of accounting loss, such as
foreign exchange contracts, option contracts or other foreign currency hedging
arrangements.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
F-8
<PAGE>
GENOMICA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents,
short-term investments, trade receivables and payables and capital leases. The
carrying values of the cash equivalents, short-term investments, trade
receivables and payables approximate their fair values.
Investments in Marketable Securities
The Company's investments in corporate debt securities are classified as
held-to-maturity and are stated at amortized cost. The investments had the
following values at December 31, 1999:
<TABLE>
<CAPTION>
Gross Gross
Amortized/ Accrued Unrealized Unrealized
Accreted Cost Interest Holding Gains Holding Losses Fair Value
------------- -------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
Corporate debt
securities, maturing
within one year....... $2,824,763 $51,599 $(51,599) $-- $2,824,763
========== ======= ======== ==== ==========
</TABLE>
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Impairment is indicated when the carrying amount of the asset
is greater than amounts recoverable from future undiscounted cash flows.
Revenue Recognition
The Company generates revenue from the license and related maintenance of
its proprietary software products. The Company recognizes revenue when there is
persuasive evidence of an arrangement, delivery has occurred, collection is
probable, and the fee is fixed or determinable. If an acceptance period exists,
license revenues are recognized upon the earlier of customer acceptance or the
expiration of the acceptance period. The Company generally bundles its license
fees and subsequent maintenance, consisting of software updates, content
updates and support. The Company has concluded that there is no basis to
allocate the total license and maintenance fees charged in its software
arrangements to these various elements of the arrangement as the Company
currently does not offer the license fee and maintenance for sale separately.
Accordingly, revenue is generally deferred and recognized ratably over the term
of the arrangement. Certain software arrangements include other elements, such
as services and training. If present, such elements are unbundled based on
vendor-specific objective evidence of their fair value and the related revenue
is recognized when those elements are delivered.
The Company believes its current revenue recognition policies and practices
are consistent with the provisions of Statement of Position 97-2, "Software
Revenue Recognition" ("SOP 97-2"), as amended by SOP 98-4 and SOP 98-9, which
were issued by the American Institute of Certified Public Accountants.
Implementation guidelines for these standards, as well as potential new
standards, could lead to unanticipated changes in the Company's current revenue
recognition policies. Such changes could affect the timing of the Company's
future revenue and results of operations.
F-9
<PAGE>
GENOMICA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Research and Development and Software Development Costs
Research and development costs are charged to expense as incurred and
consist of salaries and other direct costs. Statement of Financial Accounting
Standards No. 86, "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed," requires the capitalization of certain software
development costs subsequent to the establishment of technological feasibility.
The Company's software is deemed to be technologically feasible at the point a
working model of the software product is developed. Through December 31, 1999,
for products developed by the Company, the period since attainment of
technological feasibility has been brief and qualifying costs were not
significant, and, accordingly, the Company has not capitalized any qualifying
software development costs in the accompanying financial statements.
Income Taxes
The current provision for income taxes represents actual or estimated
amounts payable on tax return filings each year. Deferred tax assets and
liabilities are recorded for the estimated future tax effects of temporary
differences between the tax bases of assets and liabilities and amounts
reported in the accompanying balance sheets, and for operating loss and tax
credit carryforwards. The change in deferred tax assets and liabilities for the
period measures the deferred tax provision or benefit for the period. Effects
of changes in enacted tax laws on deferred tax assets and liabilities are
reflected as adjustments to the tax provision or benefit in the period of
enactment. The Company's deferred tax assets have been reduced by a valuation
allowance to the extent it is more likely than not that some or all of the
deferred tax assets will not be realized.
Stock-Based Compensation
The Company accounts for its employee stock option plans in accordance with
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," ("APB No. 25"), and related interpretations. The
Company adopted the disclosure-only requirements of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS
No. 123"), which allows entities to continue to apply the provision of APB No.
25 for transactions with employees and provide pro forma disclosures for
employee stock grants made as if the fair value-based method of accounting in
SFAS No. 123 had been applied to these transactions. Any deferred stock
compensation calculated according to APB No. 25 is amortized over the vesting
period of the individual options, generally four or five years, in accordance
with Financial Accounting Standards Board ("FASB") Interpretation No. 28,
"Accounting for Stock Appreciation Rights and Other Variable Stock Option and
Awards Plans."
The Company applies the provisions of SFAS No. 123 and related
interpretations to stock-based compensation to non-employees.
Reverse Stock Split
On March 13, 2000, the Company's Board of Directors authorized a one for
three reverse stock split of its common stock to be effective upon the
effective date of a Registration Statement on Form S-1 filed by the Company
with the Securities and Exchange Commission (the "SEC"). All common share
amounts, equivalent common share amounts and per share amounts have been
adjusted retroactively to reflect the reverse stock split.
Net Earning or Loss Per Share
The Company presents basic and diluted earnings or loss per share in
accordance with Statement of Financial Accounting Standards No. 128 "Earnings
per Share" ("SFAS No. 128"), which establishes standards for computing and
presenting basic and diluted earnings per share. Under this statement, basic
earnings or loss per share is computed by dividing the net earnings or loss by
the weighted average number of shares of common stock outstanding. Diluted
earnings or loss per share is determined by dividing the net earnings or loss
by the sum of (1) the weighted average number of common shares outstanding, (2)
if not anti-dilutive, the number of shares of convertible preferred stock as if
converted upon issuance, and (3) if not anti-dilutive, the effect of
outstanding stock options and warrants determined utilizing the treasury stock
method.
F-10
<PAGE>
GENOMICA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
For all periods presented, the effects of the convertible preferred stock
and stock options were excluded from the calculation of diluted loss per share
since the result would have been anti-dilutive. The dilutive effect of common
stock options and warrants, without regard to the treasury stock method, that
are excluded from the calculation of diluted loss per share because their
effect is anti-dilutive totaled 413,410 in 1997, 655,027 in 1998 and 1,414,111
in 1999.
Pro Forma Net Loss Per Share (Unaudited)
Pro forma net loss per share for the year ended December 31, 1999 is
computed using the net loss and weighted average number of common shares
outstanding, including the pro forma effects of the assumed conversion of the
Company's Series A and B convertible preferred stock into shares of the
Company's common stock as if such conversion occurred on January 1, 1999, or at
date of original issuance, if later. The resulting pro forma adjustment
includes an increase in the weighted average shares used to compute basic and
diluted net loss per share of 10,058,118 shares for the year ended December 31,
1999. The pro forma effects of these transactions are unaudited.
Comprehensive Income
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
establishes standards for reporting comprehensive income and its components in
financial statements. Comprehensive income includes all changes in equity
during a period from non-owner sources. During each of the three years ended
December 31, 1999 and for the cumulative period from inception, the Company has
not had any transactions that are required to be reported as adjustments to
determine comprehensive income (loss).
Reportable Segments
Statement of Financial Accounting Standards No. 131, "Disclosure About
Segments of and Enterprise and Related Information," establishes standards for
the reporting of information about operating segments. Since its inception, the
Company has conducted its operations in one operating segment.
Recent Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"). The Statement establishes accounting and reporting standards for
derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. It requires an entity to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measures those instruments at fair value. In June 1999,
the FASB issued Statement of Financial Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of SFAS Statement No. 133--an amendment of FASB Statement No.
133" ("SFAS No. 137"). SFAS No. 137 delays the effective date of SFAS No. 133
to fiscal quarters and fiscal years beginning after June 15, 2000. Since
inception, the Company has not entered into arrangements that would fall under
the scope of SFAS No. 133 and thus, management believes that SFAS No. 133 will
not significantly affect its financial condition and results of operations.
F-11
<PAGE>
GENOMICA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue
Recognition" ("SAB 101"). SAB 101 provides the SEC Staff's views in applying
generally accepted accounting principles to selected revenue recognition
issues. The guidance in SAB 101 must be implemented by the Company during its
first fiscal quarter of fiscal 2000. The Company believes it is in compliance
with the guidelines provided in SAB 101, and thus, management believes that the
adoption of SAB 101 will not significantly affect its results of operations.
3. Property and Equipment:
Property and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1998 1999
--------- ----------
<S> <C> <C>
Computer and office equipment...................... $ 540,201 $ 953,361
Furniture and fixtures............................. 18,379 123,218
Software........................................... 4,792 63,894
Leasehold improvements............................. 47,657 47,657
--------- ----------
611,029 1,188,130
Less--Accumulated depreciation..................... (261,635) (514,651)
--------- ----------
$ 349,394 $ 673,479
========= ==========
</TABLE>
Property and equipment are recorded at cost. Depreciation is computed using the
straight-line method based on estimated useful lives ranging from three to five
years. Maintenance and repairs are expensed as incurred. Depreciation expense
was $69,422, $176,926 and $253,016 for the years ended December 31, 1997, 1998
and 1999, respectively.
4. Debt:
Convertible Notes Payable
In December 1996, the Company issued a $500,000 convertible promissory note
with an interest rate of 5.8% to Falcon Technology Partners. In conjunction
with the sale of the Series A Preferred Stock on February 28, 1997, the note
was converted in March 1997 into 830,020 shares of Series A Preferred Stock and
accrued interest of $6,753 was paid in full.
In October 1998, the Company issued $1,000,000 of debt securities with an
interest rate of 8% to various investors. The notes included warrants to
purchase 208,333 shares of Series B Preferred Stock at $0.72 per share. These
warrants were valued at $82,298 using the Black-Scholes option pricing model.
The warrants are considered to be an issuance of equity and the Company has
attributed a portion of the proceeds from the debt offering to the fair value
of the warrants and recorded an initial discount to the carrying value of the
related debt in the amount of $82,298. The discount was amortized using the
effective interest-rate method over the two-year term of the note.
In conjunction with the sale of the Series B Preferred Stock on December 16,
1998, the net amount of the notes of $925,368 and accrued interest of $14,904
were converted into 1,409,589 shares of Series B Preferred Stock.
Loan Agreement
On September 17, 1997, the Company entered into a Bridge Loan and Security
Agreement ("Loan Agreement") with a bank. Under the terms of the Loan
Agreement, the outstanding advances of $400,000 were converted into a term loan
("Term Loan") on October 9, 1997. The principal and interest on the Term Loan
was due in monthly installments through October 9, 1999. Interest accrued at a
rate equal to the bank's prime rate plus 1.5% (9.25% at December 31, 1998), and
the Loan Agreement was collateralized by assets of the Company. On October 9,
1999, the Term Loan and all interest was paid in full.
F-12
<PAGE>
GENOMICA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Capital Lease Obligations
The Company has entered into four capital lease obligations with imputed
interest rates ranging from 8.4% to 15.3%. These leases are collateralized by
the leased assets which have a net book value of $111,930 and $378,753 at
December 31, 1999 and 1998, respectively.
At December 31, 1999, future payments under capital lease obligations are as
follows:
<TABLE>
<S> <C>
2000........................................................... $ 178,735
2001........................................................... 168,120
2002........................................................... 142,181
---------
489,036
Less--amount related to interest............................... (90,737)
---------
398,299
Less--current portion.......................................... (130,142)
---------
$ 268,157
=========
</TABLE>
5. Stockholders' Equity:
Authorized Shares
In December 1998, the Company increased the number of authorized shares of
common and preferred stock to 34,000,000 and 26,785,400, respectively. In
February 1999, the Company increased the number of authorized shares of common
stock and preferred stock to 44,000,000 and 37,688,178, respectively. On March
13, 2000, the Company increased the number of authorized shares of common stock
and preferred stock to 65,000,000 and 47,938,179 shares, respectively.
Series A and Series B Convertible Preferred Stock
The Company is authorized to issue preferred stock in various series with
rights and privileges as determined by the Board of Directors.
Liquidation Preference
In the event of liquidation, holders of Series A and Series B Preferred
Stock would be entitled to receive in preference to any holders of the
Company's common stock an amount equal to the greater of (i) $0.6024 per share
and $0.72 per share, respectively, plus all accrued or other declared but
unpaid dividends or (ii) such an amount per share as would have been payable
had all shares of Series A and Series B Preferred Stock been converted to the
Company's common stock immediately prior to such liquidation, provided that a
license agreement with a related party of the Company may not be distributed to
the Series A Preferred Stock (Note 7). Remaining assets, if any, would be
distributed to common stockholders.
Conversion Rights
Each share of Series A and Series B Preferred Stock is initially convertible
into one share of common stock. The conversion rate will adjust to 0.3333
shares of common stock per share of preferred held to reflect the common stock
split to be completed upon the effective date of a Registration Statement on
Form S-1 filed by the Company with the SEC. Each share of Series A and Series B
Preferred Stock will be automatically converted into common stock upon the
closing of a $5,000,000 and $15,000,000, respectively, firmly underwritten
public offering of at least $8.00 per share.
Voting Rights
Each holder of Series A and Series B Preferred Stock is entitled to the
number of votes equal to the number of shares of the Company's common stock
into which such shares of Series A and Series B Preferred Stock could be
converted. The holders of Series A Preferred Stock are entitled to elect four
out of the six members of the Board of Directors.
F-13
<PAGE>
GENOMICA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Dividend Rights
The holders of the Series A and B Preferred Stock are not entitled to
receive dividends, except as declared, and at such amounts per share as may be
specified by the Board of Directors. No dividends are to be paid on any common
stock unless a dividend is paid with respect to all outstanding shares of
Series A and B Preferred Stock in an amount equal to or greater than the
aggregate amount of such dividends for all shares of common stock into which
the Series A and B Preferred Stock could then be converted into. As of December
31, 1999, the Company had not declared or paid any dividends.
Stock Option Plan
In May 1996, the Company established the 1996 Stock-Based Incentive
Compensation Plan (the "Plan") under which incentive and nonqualified stock
options may be granted to employees, directors and independent contractors. As
amended, an aggregate of 1,666,667 shares of common stock are reserved for
issuance under the Plan. The exercise price per share of each option granted
will not be less than 110% of the fair market value of the stock in the case of
incentive stock options granted to persons owning 10% or more of the voting
power of the Company, as defined, and otherwise shall not be less than 100% of
the fair market value of the stock. Options generally vest over a four or five-
year term. The exercise period is not more than five years from the date of
grant in the case of incentive stock options granted to persons owning 10% or
more of the voting power of the Company and otherwise not more than ten years.
During the year ended December 31, 1999, in connection with the grant of
certain stock options to employees, the Company recorded deferred stock-based
compensation of $7,441,343, representing the difference between the exercise
price and the deemed fair value (for financial reporting purposes) of the
Company's common stock on the date these stock options were granted. Deferred
compensation is included as a component of stockholders' equity and is being
amortized in accordance with FASB Interpretation No. 28 over the vesting
periods of the related options, which is generally four or five years. Stock
compensation expense recognized for the year ended December 31, 1999, and
remaining compensation expense to be recognized is as follows:
<TABLE>
<CAPTION>
Deferred Stock Expense Unamortized Deferred Stock Expense To Be Recognized
Recognized During During the Years Ending December 31,
The Year Ended ----------------------------------------------------
December 31, 1999 2000 2001 2002 2003
---------------------- ------------- ------------- ------------------------
<S> <C> <C> <C> <C> <C>
Research and
development............ $ 846,131
Selling and marketing... 85,114
General and
administrative......... 737,652
----------
$1,668,897 $ 3,569,612 $ 1,354,324 $ 662,280 $ 186,230
========== ============= ============= =========== ===========
</TABLE>
Restricted Stock
In 1998, the Company issued 112,067 shares of restricted common stock under
the Plan. The holders of such shares of restricted common stock, generally
executives of the Company, have entered into Restricted Stock Purchase
Agreements under which the Company has the right to repurchase unvested common
shares at the original issuance price upon termination of these individuals'
business relationships with the Company. Restrictions on these common shares
lapse over periods ranging from nineteen months to four years, and such lapsing
is subject to acceleration under certain conditions. At December 31, 1998 and
1999, restrictions had lapsed with regard to 39,951 and 105,707 of these
shares, respectively.
Pro Forma Disclosures
SFAS No. 123 defines a fair value-based method of accounting for stock-based
compensation plans. An entity may continue to measure compensation cost for
options granted to employees using the intrinsic value-based method prescribed
by APB No. 25, provided that pro forma disclosures are made of net income or
loss, assuming the fair value-based method of SFAS No. 123 had been applied.
F-14
<PAGE>
GENOMICA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
The Company has elected to account for its stock-based employee compensation
plans under APB No. 25; accordingly, for purposes of the pro forma disclosures
presented below, the Company has computed the fair values of all options
granted during 1997, 1998 and 1999 using the Black-Scholes pricing model and
the following weighted average assumptions:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate........................ 5.55% 5.23% 5.61%
Expected lives................................. 5 years 5 years 4 years
Expected volatility............................ 0.001% 0.001% 0.001%
Expected dividend yield........................ 0% 0% 0%
</TABLE>
Cumulative compensation cost recognized in pro forma net income or loss with
respect to options that are forfeited prior to vesting is adjusted as a
reduction of pro forma compensation expense in the period of forfeiture.
The total fair value of options granted to employees was computed to be
$19,366, $15,885 and $7,541,587 for the years ended December 31, 1997, 1998 and
1999, respectively. Pro forma stock-based compensation, net of the amounts
recorded for amortization of deferred compensation and the effect of
forfeitures, was $6,718, $12,192 and $26,068 for the years ended December 31,
1997, 1998 and 1999, respectively.
If the Company had accounted for its stock-based compensation plans in
accordance with SFAS No. 123, the Company's net loss would have been reported
as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net loss:
As reported...................... $(2,738,250) $(3,754,874) $(7,578,471)
=========== =========== ===========
Pro forma........................ $(2,744,968) $(3,767,066) $(7,604,539)
=========== =========== ===========
Net loss per share:
As reported...................... $ (2.80) $ (3.81) $ (7.13)
=========== =========== ===========
Pro forma........................ $ (2.81) $ (3.82) $ (7.16)
=========== =========== ===========
</TABLE>
A summary of all employee options activity under the Plan for the years
ended December 31, 1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Options Exercise Price
--------- --------------
<S> <C> <C>
Outstanding at December 31, 1996................ 55,000 $0.18
Granted....................................... 307,575 $0.18
Forfeited..................................... (73,998) $0.18
---------
Outstanding at December 31, 1997................ 288,577 $0.18
Granted....................................... 283,099 $0.18
Forfeited..................................... (13,248) $0.18
Exercised..................................... (112,400) $0.18
---------
Outstanding at December 31, 1998................ 446,028 $0.18
Granted....................................... 697,397 $0.18
Forfeited..................................... (105,487) $0.18
Exercised..................................... (34,214) $0.18
---------
Outstanding at December 31, 1999................ 1,003,724 $0.18
=========
</TABLE>
F-15
<PAGE>
GENOMICA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
As of December 31, 1997, 1998 and 1999, 50,459, 106,465 and 261,991 of the
above options were exercisable, respectively, with weighted average exercise
prices of $0.18, $0.18 and $0.18, respectively.
The following table summarizes the weighted average exercise prices of
options granted during the years ended December 31, 1997, 1998 and 1999.
The table includes options for common stock whose exercise price was less
than the fair market value, for financial reporting purposes, of the underlying
common stock at the date of grant and equal to the fair market value at the
date of grant:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
EXERCISE PRICE:
Less than fair market value--
Number of options......................... -- -- 697,397
======== ======== ========
Weighted average exercise price........... $ -- $ -- $ 0.18
======== ======== ========
Weighted average fair value............... $ -- $ -- $ 10.73
======== ======== ========
Equal to fair market value--
Number of options......................... 307,575 283,099 --
======== ======== ========
Weighted average exercise price........... $ 0.18 $ 0.18 $ --
======== ======== ========
Weighted average fair value............... $ 0.06 $ 0.06 $ --
======== ======== ========
</TABLE>
The following table summarizes information about employee stock options
outstanding and exercisable under the Plan at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- ---------------------
Number of Weighted Number
Options Average Weighted Exercisable Weighted
Outstanding at Remaining Average At Average
Exercise December 31, Contractual Exercise December 31, Exercise
Price 1999 Life in Years Price 1999 Price
-------- -------------- ------------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$0.18 1,003,724 8.84 $0.18 261,991 $0.18
</TABLE>
Options Issued to Non-Employees
SFAS No. 123 and related interpretations require that all transactions with
non-employees in which goods or services are the consideration received for the
issuance of equity instruments be accounted for based on the fair value of the
consideration received or the equity instruments issued, whichever is more
reliably measurable. The Company has computed the fair value of all options
granted to non-employees during 1997 and 1998, using the Black-Scholes pricing
model. No expense has been recognized related to these options as their fair
value was determined to be nominal. No options were issued to non-employees in
1999.
F-16
<PAGE>
GENOMICA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
A summary of all non-employee option activity for the years ended December
31, 1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Options Exercise Price
--------- --------------
<S> <C> <C>
Outstanding at December 31, 1996................. 40,000 $0.18
Granted........................................ 34,999 $0.18
Forfeited...................................... (1,666) $0.18
-------
Outstanding at December 31, 1997................. 73,333 $0.18
Granted........................................ 32,000 $0.18
Forfeited...................................... (18,406) $0.18
Exercised...................................... (16,927) $0.18
-------
Outstanding at December 31, 1998................. 70,000 $0.18
Granted........................................ --
Forfeited...................................... --
------- -----
Outstanding at December 31, 1999................. 70,000 $0.18
======= =====
</TABLE>
The following table summarizes information about non-employee stock options
outstanding and exercisable under the Plan at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- ---------------------
Number of Weighted Number
Options Average Weighted Exercisable Weighted
Outstanding Remaining Average At Average
Exercise at December 31, Contractual Exercise December 31, Exercise
Price 1999 Life in Years Price 1999 Price
-------- --------------- ------------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
$0.18 70,000 7.06 $0.18 70,000 $0.18
</TABLE>
Stock Warrants
In December 1996, the Company entered into a warrant agreement with a
related party to purchase the Company's Series A Preferred Stock. On May 31,
1997, under the terms of the warrant agreement, the Company issued a warrant to
that related party to purchase 124,502 shares of the Company's Series A
Preferred Stock for an exercise price of $0.6024 per share. The warrant expires
on the earlier of the closing of an initial public offering of the Company's
common stock or November 30, 2001. No value has been attributed to this warrant
as its value was determined to be nominal.
In September 1997, the Company entered into a warrant agreement with a bank
to purchase the Company's Series A Preferred Stock. On October 9, 1997, under
the terms of the warrant agreement, the Company issued a warrant to the bank to
purchase 30,000 shares of the Company's Series A Preferred Stock for an
exercise price of $0.6024 per share. The warrant expires on September 9, 2004.
No value has been attributed to this warrant as its value was determined to be
nominal.
In October 1998, in connection with the issuance of convertible debt (see
Note 4), the Company entered into warrant agreements to purchase a total to
208,331 shares of the Company's Series B Preferred Stock for an exercise price
of $0.72 per share. The warrants expire on December 16, 2003. The Company
determined the fair value of the warrants to be $82,298 using the Black-Scholes
option pricing model using the following assumptions:
<TABLE>
<S> <C>
Exercise price.................................................... $0.72
Fair market value of Series B Preferred Stock on grant date....... $0.72
Option life....................................................... 5 years
Volatility rate................................................... 60%
Risk free rate of return.......................................... 4.18%
Dividend rate..................................................... 0%
</TABLE>
The fair value of these warrants have been included as a discount to the
related debt.
F-17
<PAGE>
GENOMICA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
In December 1998, the Company entered into a warrant agreement with the
Series B placement agent to purchase 18,055 shares of the Company's common
stock for an exercise price of $2.16 per share. The warrants expire on the
earlier of the closing of an initial public offering of the Company's common
stock or December 16, 2003. No deduction from the Series B proceeds was
recorded related to these warrants as their value was determined to be nominal.
In February 1999, the Company entered into a warrant agreement with the
Series B placement agent to purchase 201,388 shares of the Company's common
stock for an exercise price of $2.16 per share. The warrants expire on the
earlier of the closing of an initial public offering of the Company's common
stock or February 11, 2004. The Company has determined the fair value of the
warrants to be $241,125 using the Black-Scholes option pricing model using the
following assumptions:
<TABLE>
<S> <C>
Exercise price.................................................... $2.16
Fair market value of common stock on grant date................... $0.72
Option life....................................................... 5 years
Volatility rate................................................... 60%
Risk free rate of return.......................................... 4.66%
Dividend rate..................................................... 0%
</TABLE>
The fair value of these warrants have been included as additional offering
costs of the Series B Preferred Stock.
6. Income Taxes:
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Current--
Federal.......................... $ -- $ -- $ --
State............................ -- -- --
---------- ----------- -----------
Total current provision........ -- -- --
---------- ----------- -----------
Deferred--
Federal.......................... (984,000) (1,313,000) (2,025,000)
State............................ (95,000) (127,000) (197,000)
Valuation allowance.............. 1,079,000 1,440,000 2,222,000
---------- ----------- -----------
Total deferred provision
(benefit)..................... -- -- --
---------- ----------- -----------
Total provision................ $ -- $ -- $ --
========== =========== ===========
</TABLE>
The statutory federal income tax rate was 34% for the years ended December
31, 1997, 1998 and 1999.
Differences between the income tax expense reported in the statements of
operations and the amount computed by applying the statutory federal income tax
rate to earnings before income taxes are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Benefit at statutory rate.......... $ (931,000) $(1,276,000) $(2,577,000)
Increase (decrease) due to--
State income taxes............... (90,000) (124,000) (250,000)
Nondeductible expenses........... 2,000 4,000 7,000
Nondeductible stock-based
compensation.................... -- -- 623,000
Research and development tax
credit and other................ (60,000) (44,000) (25,000)
Valuation allowance.............. 1,079,000 1,440,000 2,222,000
---------- ----------- -----------
Income tax provision............... $ -- $ -- $ --
========== =========== ===========
</TABLE>
F-18
<PAGE>
GENOMICA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
Components of net deferred tax assets (liabilities) as of December 31, 1998
and 1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Current--
Accounts receivable............................ $ -- $ (134,000)
Prepaid expenses............................... (7,000) (45,000)
Accounts payable and accrued liabilities....... 139,000 241,000
Deferred revenue............................... 46,000 309,000
Non-current--
Depreciation................................... 16,000 30,000
Capitalized research and development costs for
tax purposes.................................. 916,000 797,000
Net operating losses........................... 2,108,000 4,217,000
Tax credits.................................... 105,000 130,000
---------- ----------
Total net deferred tax assets.................... 3,323,000 5,545,000
Valuation allowance.............................. (3,323,000) (5,545,000)
---------- ----------
Net deferred tax assets........................ $ -- $ --
========== ==========
</TABLE>
For income tax reporting purposes, the Company has approximately $11,306,000
of net operating loss carryforwards that expire at various dates through 2019.
The Tax Reform Act of 1986 contains provisions that may limit the net operating
loss carryforwards available to be used in any given year in the event of a
significant change in ownership interests. The Company also has available
income tax credits of approximately $130,000, expiring at various dates through
2019. Realization of net operating loss and tax credit carryforwards is
dependent on generating sufficient taxable income prior to their expiration
dates.
During 1997, 1998 and 1999, the Company increased its valuation allowance by
$1,079,000, $1,440,000 and $2,222,000, respectively, due mainly to uncertainty
relating to the realizability of the Company's net operating loss carryforwards
and income tax credits. The amount of the deferred tax assets considered
realizable could be adjusted in the near term if future taxable income
materializes.
7. Commitment and Contingencies:
Operating Leases
The Company leases administrative offices, research facilities and certain
equipment under noncancelable operating lease agreements. Rent expense under
these leases was $227,982 and $247,368 for the years ended December 31, 1998
and 1999, respectively. The following is a schedule of future minimum lease
payments for the years ending December 31:
<TABLE>
<S> <C>
2000........................................................... $ 389,159
2001........................................................... 392,221
2002........................................................... 403,449
2003........................................................... 415,013
2004........................................................... 423,077
Thereafter..................................................... 102,984
----------
$2,125,903
==========
</TABLE>
Cold Springs Harbor License Agreement
The Company is the exclusive licensee of a technology owned by Cold Springs
Harbor Laboratory with regard to a specific patent. This license gives the
Company the exclusive right to commercialize the related technology. This
technology is incorporated into the Company's Discovery Manager product.
Accordingly, the Company's business could be materially harmed if the Company
loses or is unable to maintain this license agreement. Cold Springs Harbor
Laboratory is a related party through its ownership of shares of the Company's
common stock.
F-19
<PAGE>
GENOMICA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Concluded)
Licensing Agreement
In April 1996, the Company entered into a licensing and remarketing
agreement with a third-party software company ("licensor"). The Company is
fully licensed to use the licensor's software and documentation. The Company
can sublicense the use of the licensor's software to its worldwide customers.
Under the terms of the two-year sublicense agreement, the Company is required
to pay royalties to the licensor based on product sales. During the years ended
December 31, 1998 and 1999, the Company paid approximately $1,800 and $57,130,
respectively, under the licensing agreement. No royalties were paid during 1997
under this agreement.
8. Major Customers:
The Company did not generate any revenue for the year ended December 31,
1997. The Company's revenue from customers in excess of 10% of net revenue for
the years ended December 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
------ -----
<S> <C> <C>
Customer A................................................... 55.0% 41.0%
Customer B................................................... 45.0% 26.0%
------ -----
100.0% 67.0%
====== =====
</TABLE>
The Company's net accounts receivable-trade as of December 31, 1998 and 1999
are concentrated with the following major customers as follows:
<TABLE>
<CAPTION>
1998 1999
---- ------
<S> <C> <C>
Customer B.................................................... --% 11.0%
Customer C.................................................... --% 89.0%
--- ------
--% 100.0%
=== ======
</TABLE>
9. Geographic Information:
The Company's operations and all assets are based in the United States. The
Company sells its products to both domestic and foreign customers. The Company
did not generate any revenue for the year ended December 31, 1997. The
Company's revenue by geographic area for the years ended December 31, 1998 and
1999 is as follows:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
United States........................................... $108,005 $530,310
Europe.................................................. 88,887 251,020
-------- --------
$196,892 $781,330
======== ========
</TABLE>
10. Employee Benefit Plan:
401(k) and Profit Sharing Plan
Effective January 1, 1998, the Company implemented a defined contribution
plan under Section 401(k) of the Internal Revenue Code ("IRC"). Under the plan,
eligible employees may contribute up to 15% of their compensation, subject to
limitations under the IRC. The Company may make discretionary matching
contributions to the plan upon Board approval. No contributions to the plan
have been made by the Company to date.
11. Subsequent Events:
Subsequent to December 31, 1999 and through March 13, 2000, the Company
granted options to purchase 1,621,980 shares of common stock to employees and
directors at exercise prices ranging from $0.75 to $4.50 per share. In
connection with the stock option grants, the Company will recognize
compensation expense over the related vesting periods of approximately
$24,284,000 relating to these grants for the difference between the exercise
price and the deemed fair market value for financial reporting purposes.
F-20
<PAGE>
GENOMICA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
On March 13, 2000, the Company issued 10,022,634 shares of Series C
convertible preferred stock ($0.001 par value) at $1.50 per share in a private
placement offering to accredited investors, resulting in proceeds of
approximately $15,000,000. As part of this transaction, the Articles of
Incorporation were amended to increase the authorized shares to 112,938,178, of
which 47,938,178 are designated as preferred stock and 65,000,000 are
designated as common stock. The Series C preferred stock is initially
convertible into one share of common stock. However, the conversion rate will
adjust to 0.3333 shares of common stock for each share of preferred stock held
upon the effective date of a Registration Statement on Form S-1 filed by the
Company with the SEC. The issuance of the Series C preferred stock resulted in
a beneficial conversion feature of approximately $15,000,000, calculated in
accordance with Emerging Issues Task Force No. 98-5, "Accounting for
Convertible Securities with Beneficial Conversion Features." The beneficial
conversion feature will be reflected as a preferred dividend in the Statement
of Operations during the first quarter of 2000.
F-21
<PAGE>
- -----------------------------------------------------------------
Genomica Corporation
6,000,000 Shares
Common Stock
--------------
PROSPECTUS
--------------
, 2000
CIBC World Markets
Dain Rauscher Wessels
Prudential Vector Healthcare
a unit of Prudential Securities
- -----------------------------------------------------------------
You should rely only on the information contained in this
prospectus. No dealer, salesperson or other person is
authorized to give information that is not contained in
this prospectus. This prospectus is not an offer to sell
nor is it seeking an offer to buy these securities in any
jurisdiction where the offer or sale is not permitted. The
information contained in this prospectus is correct only as
of the date of this prospectus, regardless of the time of
the delivery of this prospectus or any sale of these
securities.
Until , 2000 (25 days after the commencement of
the offering), all dealers that effect transactions in
these securities, whether or not participating in the
offering, may be required to deliver a prospectus. This is
in addition to the dealer's obligation to deliver a
prospectus when acting as underwriters and with respect to
their unsold allotments or subscriptions.
<PAGE>
Part II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than the
underwriting discount and commissions, payable by the registrant in connection
with the sale of the common stock being registered hereby. All amounts shown
are estimates, except the Securities and Exchange Commission registration fee,
the NASD filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee........ $ 30,967.00
NASD filing fee............................................ $ 12,230.00
Nasdaq National Market listing application fee............. $ 5,000.00
Blue Sky fees and expenses................................. $ 10,000.00
Printing and engraving expenses............................ $ 250,000.00
Legal fees and expenses.................................... $ 500,000.00
Accounting fees and expenses............................... $ 200,000.00
Transfer agent and registrar fees.......................... $ 10,000.00
Miscellaneous expenses..................................... $ 81,803.00
-------------
Total.................................................. $1,100,000.00
=============
</TABLE>
Item 14. Indemnification of Directors and Officers.
Under Section 145 of the General Corporation Law of Delaware (the "Delaware
Law"), we have broad powers to indemnify our directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act").
Our certificate of incorporation and bylaws include provisions to (i) eliminate
the personal liability of our directors for monetary damages resulting from
breaches of their fiduciary duty to the extent permitted by Section 102(b)(7)
of the Delaware Law and (ii) require us to indemnify our directors and officers
to the fullest extent permitted by Section 145 of the Delaware Law, including
circumstances in which indemnification is otherwise discretionary. Pursuant to
Section 145 of the Delaware Law, a corporation generally has the power to
indemnify its present and former directors, officers, employees and agents
against expenses incurred by them in connection with any suit to which they
are, or are threatened to be made, a party by reason of their serving in such
positions so long as they acted in good faith and in a manner they reasonably
believed to be in or not opposed to, the best interests of the corporation and,
with respect to any criminal action, had no reasonable cause to believe their
conduct was unlawful. We believe that these provisions are necessary to attract
and retain qualified persons as directors and officers. These provisions do not
eliminate the directors' duty of care, and, in appropriate circumstances,
equitable remedies such as injunctive or other forms of non-monetary relief
will remain available under Delaware Law. In addition, each director will
continue to be subject to liability for breach of the director's duty of
loyalty to us, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for acts or omissions that the
director believes to be contrary to our best interests or the best interests of
our stockholders, for any transaction from which the director derived an
improper personal benefit, for acts or omissions involving a reckless disregard
for the director's duty to us or our stockholders when the director was aware
or should have been aware of a risk of serious injury to us or our
stockholders, for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to us or our
stockholders, for improper transactions between the director and us and for
improper distributions to stockholders and loans to directors and officers. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities law or state or federal environmental laws.
We have entered into, or prior to the offering we will enter into, indemnity
agreements with our directors and executive officers that require us to
indemnify such persons against expenses, judgments, fines, settlements and
other amounts incurred (including expenses of a derivative action) in
connection with any proceeding, whether actual or threatened, to which any such
person may be made a party by reason of the fact that such person is or was one
of our directors or executive officers or any of our affiliated enterprises,
provided that such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to our best interests and, with
respect to any criminal
II-1
<PAGE>
proceeding, had no reasonable cause to believe his conduct was unlawful. The
indemnification agreements also set forth certain procedures that will apply in
the event of a claim for indemnification thereunder.
At present, there is no pending litigation or proceeding involving any of our
directors or officers as to which indemnification is being sought nor are we
aware of any threatened litigation that may result in claims for
indemnification by any officer or director.
We have an insurance policy covering our officers and directors with respect to
certain liabilities, including liabilities arising under the Securities Act or
otherwise.
Item 15. Recent Sales of Unregistered Securities.
Described below is information regarding all securities that have been issued
by the Company during the past three years.
On various dates between April 10, 1997 and March 13, 2000, we authorized the
grant of stock options to employees, consultants, directors and officers to
purchase 2,977,070 shares of our common stock at exercise prices ranging from
$0.18 to $4.50 per share. We relied on the exemption provided by Rule 701 of
the Securities Act.
On June 14, 1997 and October 6, 1997, we issued 9,213,276 shares of our Series
A Preferred Stock (which will convert into 3,071,089 shares of common stock
upon the closing of this offering) to certain accredited investors for cash
proceeds in the amount of $5,550,000. We relied on the exemptions provided by
Section 4(2) of the Securities Act.
On December 16, 1998 and February 12, 1999, we issued 18,826,959 shares of our
Series B Preferred Stock (which will convert into 6,275,650 shares of common
stock upon the closing of this offering) to certain accredited investors for
cash proceeds in the amount of $13,540,506. We relied on the exemption provided
by Section 4(2) of the Securities Act.
On March 13, 2000, we issued 10,022,634 shares of our Series C Preferred Stock
(which will convert into 3,340,877 of common stock upon the closing of this
offering) to certain accredited investors for cash proceeds in the amount of
$15,033,951. We relied on the exemptions provided by Rule 506 of Regulation D
of the Securities Act.
On May 31, 1997, we issued a warrant to purchase 124,502 shares of our Series A
Preferred Stock (which will be exercisable for 41,500 shares of common stock
upon the closing of this offering) at an exercise price of $0.60 per share to
one investor. We relied on the exemption provided by Section 4(2) of the
Securities Act.
On September 10, 1997, we issued a warrant to purchase 30,000 shares of our
Series A Preferred Stock (which will be exercisable for 10,000 shares of common
stock upon the closing of this offering) at an exercise price of $0.60 per
share to one lender. We relied on the exemption provided by Section 4(2) of the
Securities Act.
On October 9, 1998, we issued warrants to accredited investors to purchase
208,331 shares of our Series B Preferred Stock (which will be exercisable for
69,443 shares of common stock upon the closing of this offering) at an exercise
price of $0.72 per share in connection with our Series B Preferred Stock
financing. We relied on the exemption provided by Section 4(2) of the
Securities Act.
On December 16, 1998 and February 12, 1999, we issued warrants to a placement
agent to purchase 219,443 shares of our common stock at an exercise price of
$2.16 per share in connection with our Series B Preferred Stock financing. We
relied upon the exemption provided by section 4(2) of the Securities Act.
The recipients of the above-described securities represented their intention to
acquire the securities for investment only and not with a view for distribution
thereof. Appropriate legends were affixed to the stock certificates issued in
such transactions. All recipients had adequate access, through employment or
other relationships, to information about the Company.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1.1+ Form of Underwriting Agreement.
3.1+ Restated Certificate of Incorporation, currently in effect.
3.2+ Bylaws, currently in effect.
3.3+ Form of Restated Certificate of Incorporation, to be filed and become
effective upon the closing of this offering.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
3.4+ Amended and Restated Bylaws, to become effective upon the closing of
this offering.
4.1 Reference is made to Exhibits 3.1 through 3.4.
4.2* Specimen Stock Certificate.
5.1* Form of Opinion of Cooley Godward LLP regarding legality of
securities being issued.
10.1+ Form of Common Stock Acquisition Agreement by and between the Company
and certain investors, and supplemental schedule.
10.2+ Stockholder Agreements by and between the Company and certain
stockholders of the Company, dated March 22, 1996.
10.3+ Founders Agreements by and between the Company and certain
stockholders of the Company, dated March 22, 1996.
10.4+ Voting Agreement, dated March 22, 1996; Supplemental Voting Agreement
dated February 28, 1997; Amendment to Supplemental Voting Agreement,
dated June 14, 1997; Second Amendment to Supplemental Voting
Agreement, dated October 6, 1997; Third Amendment to Supplemental
Voting Agreement, dated October 20, 1997.
10.5+ Series A Convertible Preferred Stock Purchase Agreement, dated March
22, 1996.
10.6+ Series A Convertible Preferred Stock Purchase Agreement, dated
February 28, 1997; Amendment to Series A Convertible Stock Purchase
Agreement, dated June 14, 1997; Second Amendment to Series A
Convertible Preferred Stock Purchase Agreement, dated October 6,
1997.
10.7+ Note and Warrant Purchase Agreement, dated October 9, 1998.
10.8+ Series B Preferred Stock Purchase Agreement, dated December 16, 1998.
10.9 Series B Preferred Stock Purchase Agreement, dated February 12, 1999.
10.10+ Series C Preferred Stock Purchase Agreement, dated March 13, 2000.
10.11+ Amended and Restated Investors' Rights Agreement by and among the
Company and certain stockholders of the Company dated March 13, 2000.
10.12+ Warrant Agreement to purchase shares of Series A Preferred Stock with
Falcon Technology Partners, L.P., dated May 31, 1997.
10.13+ Warrant Agreement to purchase shares of Series A Preferred Stock with
Silicon Valley Bank, dated September 10, 1997.
10.14+ Form of Warrant Agreement to purchase Series B Preferred Stock.
10.15+ Form of Warrant Agreement to purchase shares of Common Stock.
10.16+ Form of Indemnity Agreement to be entered into between the Company
and its directors and executive officers.
10.17+ License Agreement by and between Cold Spring Harbor Laboratory and
Genomica Corporation, dated January 6, 1996.
10.18+ Gemstone Systems, Inc. Domestic Software License Agreement, dated
March 28, 1996.
10.19+ Amended and Restated 1996 Stock Option Plan.
10.20+ 2000 Equity Incentive Plan.
10.21+ Form of Grant Notice and Stock Option Agreement under the Amended and
Restated 1996 Stock Option Plan.
10.22+ Form of Grant Notice and Stock Option Agreement under the 2000 Equity
Incentive Plan.
10.23+ Lease by and between Boulder 38th LLC and Genomica Corporation, dated
December 30, 1999.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.24+ Master Lease Agreement between Genomica Corporation and Transamerica
Business Credit Corporation, dated November 3, 1998.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1+ Powers of Attorney. Reference is made to Page II-5.
27.0* Financial Data Schedule.
</TABLE>
- --------
*To be filed by amendment.
+Previously filed.
(b) Financial Statement Schedules.
No financial statement schedules are provided, because the information called
for is not required or is shown either in the financial statements or the notes
thereto.
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriters at
the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the 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 Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each post-
effective amendment that contains a form of prospectus shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-4
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Boulder, County of Boulder, State of Colorado, on March 16, 2000.
/s/ Daniel R. Hudspeth
By: ____________________________________
Daniel R. Hudspeth
Vice President of Finance, Chief
Financial Officer, Secretary and
Treasurer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman of the Board of March 16, 2000
____________________________________ Directors
James L. Rathmann
* Chief Executive Officer and March 16, 2000
____________________________________ Director (Principal
Teresa W. Ayers Executive Officer)
* President, Chief Scientist March 16, 2000
____________________________________ and Director
Thomas G. Marr
/s/ Daniel R. Hudspeth Vice President of Finance, March 16, 2000
____________________________________ Chief Financial Officer,
Daniel R. Hudspeth Secretary and Treasurer
(Principal Financial and
Accounting Officer)
* Director March 16, 2000
____________________________________
Marvin H. Caruthers
* Director March 16, 2000
____________________________________
Ralph E. Christoffersen
* Director March 16, 2000
____________________________________
Arnold J. Levine
* Director March 16, 2000
____________________________________
Robert T. Nelsen
</TABLE>
<TABLE>
<S> <C> <C>
*By: /s/ Daniel R. Hudspeth
____________________________________
Daniel R. Hudspeth
Attorney-in-Fact
</TABLE>
II-5
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
----------- ----------- ---
<C> <S> <C>
1.1+ Form of Underwriting Agreement.
3.1+ Restated Certificate of Incorporation, currently in effect.
3.2+ Bylaws, currently in effect.
3.3+ Form of Restated Certificate of Incorporation, to be filed
and become effective upon the closing of this offering.
3.4+ Amended and Restated Bylaws, to become effective upon the
closing of this offering.
4.1 Reference is made to Exhibits 3.1 through 3.4.
4.2* Specimen Stock Certificate.
5.1* Form of Opinion of Cooley Godward LLP regarding legality of
securities being issued.
10.1+ Form of Common Stock Acquisition Agreement by and between
the Company and certain investors, and supplemental
schedule.
10.2+ Stockholder Agreements by and between the Company and
certain stockholders of the Company, dated March 22, 1996.
10.3+ Founders Agreements by and between the Company and certain
stockholders of the Company, dated March 22, 1996.
10.4+ Voting Agreement, dated March 22, 1996; Supplemental Voting
Agreement dated February 28, 1997; Amendment to Supplemental
Voting Agreement, dated June 14, 1997; Second Amendment to
Supplemental Voting Agreement, dated October 6, 1997; Third
Amendment to Supplemental Voting Agreement, dated October
20, 1997.
10.5+ Series A Convertible Preferred Stock Purchase Agreement,
dated March 22, 1996.
10.6+ Series A Convertible Preferred Stock Purchase Agreement,
dated February 28, 1997; Amendment to Series A Convertible
Stock Purchase Agreement, dated June 14, 1997; Second
Amendment to Series A Convertible Preferred Stock Purchase
Agreement, dated October 6, 1997.
10.7+ Note and Warrant Purchase Agreement, dated October 9, 1998.
10.8+ Series B Preferred Stock Purchase Agreement, dated December
16, 1998.
10.9 Series B Preferred Stock Purchase Agreement, dated February
12, 1999.
10.10+ Series C Preferred Stock Purchase Agreement, dated March 13,
2000.
10.11+ Amended and Restated Investors' Rights Agreement by and
among the Company and certain stockholders of the Company
dated March 13, 2000.
10.12+ Warrant Agreement to purchase shares of Series A Preferred
Stock with Falcon Technology Partners, L.P., dated May 31,
1997.
10.13+ Warrant Agreement to purchase shares of Series A Preferred
Stock with Silicon Valley Bank, dated September 10, 1997.
10.14+ Form of Warrant Agreement to purchase Series B Preferred
Stock.
10.15+ Form of Warrant Agreement to purchase shares of Common
Stock.
10.16+ Form of Indemnity Agreement to be entered into between the
Company and its directors and executive officers.
10.17+ License Agreement by and between Cold Spring Harbor
Laboratory and Genomica Corporation, dated January 6, 1996.
10.18+ Gemstone Systems, Inc. Domestic Software License Agreement,
dated March 28, 1996.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- ----------- ---
<C> <S> <C>
10.19+ Amended and Restated 1996 Stock Option Plan.
10.20+ 2000 Equity Incentive Plan.
10.21+ Form of Grant Notice and Stock Option Agreement under the
Amended and Restated 1996 Stock Option Plan.
10.22+ Form of Grant Notice and Stock Option Agreement under the
2000 Equity Incentive Plan.
10.23+ Lease by and between Boulder 38th LLC and Genomica
Corporation, dated December 30, 1999.
10.24+ Master Loan and Security Agreement between Genomica
Corporation and Transamerica Business Credit Corporation,
dated September 10, 1998.
23.1 Consent of Arthur Andersen LLP.
23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1.
24.1+ Powers of Attorney, Reference is made to Page II-5.
27.0* Financial Data Schedule.
</TABLE>
- ------------------
* To be filed by amendment.
<PAGE>
Exhibit 10.9
GENOMICA CORPORATION
SERIES B PREFERRED STOCK
PURCHASE AGREEMENT
February 12, 1999
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. AGREEMENT TO SELL AND PURCHASE................................ 1
1.1 Authorization of Shares............................................ 1
1.2 Sale and Purchase.................................................. 1
Section 2. CLOSING, DELIVERY AND PAYMENT................................. 2
2.1 Closing............................................................ 2
2.2 Delivery........................................................... 2
Section 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................. 2
3.1 Organization, Good Standing and Qualification...................... 2
3.2 Subsidiaries....................................................... 2
3.3 Capitalization; Voting Rights...................................... 2
3.4 Authorization; Binding Obligations................................. 3
3.5 Financial Statements............................................... 3
3.6 Liabilities........................................................ 3
3.7 Agreements; Action................................................. 4
3.8 Obligations to Related Parties..................................... 4
3.9 Absence of Changes................................................. 5
3.10 Title to Properties and Assets; Liens, Etc......................... 6
3.11 Patents and Trademarks............................................. 6
3.12 Compliance with Other Instruments.................................. 6
3.13 Litigation......................................................... 7
3.14 Tax Returns and Payments........................................... 7
3.15 Employees.......................................................... 7
3.16 Proprietary Information and Inventions Agreements.................. 8
3.17 Obligations of Management.......................................... 8
3.18 Registration Rights................................................ 8
3.19 Compliance with Laws; Permits...................................... 8
3.20 Offering Valid..................................................... 8
3.21 Full Disclosure.................................................... 9
Section 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.............. 9
4.1 Requisite Power and Authority...................................... 9
</TABLE>
i.
<PAGE>
Table of Contents
(continued)
<TABLE>
<CAPTION>
Page
<S> <C>
4.2 Investment Representations......................................... 9
4.3 Transfer Restrictions.............................................. 10
Section 5. CONDITIONS TO CLOSING......................................... 10
5.1 Conditions to Purchasers' Obligations at the Closing............... 10
5.2 Conditions to Obligations of the Company........................... 11
Section 6. MISCELLANEOUS................................................. 12
6.1 Governing Law...................................................... 12
6.2 Survival........................................................... 12
6.3 Successors and Assigns............................................. 12
6.4 Entire Agreement................................................... 12
6.5 Severability....................................................... 13
6.6 Amendment and Waiver............................................... 13
6.7 Delays or Omissions................................................ 13
6.8 Notices............................................................ 13
6.9 Titles and Subtitles............................................... 13
6.10 Counterparts....................................................... 13
6.11 Broker's Fees...................................................... 14
6.12 Expenses........................................................... 14
6.13 Attorneys' Fees.................................................... 14
6.14 Exculpation Among Purchasers....................................... 14
</TABLE>
ii.
<PAGE>
Index of Exhibits
Schedule of Purchasers Exhibit A
Restated Certificate of Incorporation Exhibit B
Investors' Rights Agreement Exhibit C
Form of Legal Opinion Exhibit D
<PAGE>
GENOMICA CORPORATION
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
This Series B Preferred Stock Purchase Agreement (the "Agreement") is
entered into as of this 12/th/ day of February, 1999, by and among Genomica
Corporation, a Delaware corporation (the "Company"), and each of those persons
and entities, severally and not jointly, whose names are set forth on the
Schedule of Purchasers attached hereto as Exhibit A (which persons and entities
are hereinafter collectively referred to as "Purchasers" and each individually
as a "Purchaser").
RECITALS
Whereas, the Company has authorized the sale and issuance of an aggregate
of twenty five million (25,000,000) shares of its Series B Preferred Stock (the
"Shares");
Whereas, Purchasers desire to purchase the Shares on the terms and
conditions set forth herein; and
Whereas, the Company desires to issue and sell the Shares to Purchasers on
the terms and conditions set forth herein.
Now, Therefore, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
SECTION 1. AGREEMENT TO SELL AND PURCHASE
1.1 Authorization of Shares. On or prior to the Closing (as defined in
Section 2 below), the Company shall have authorized (i) the sale and issuance to
Purchasers of the Shares and (ii) the issuance of such shares of Common Stock to
be issued upon conversion of the Shares (the "Conversion Shares"). The Shares
and the Conversion Shares shall have the rights, preferences, privileges and
restrictions set forth in the Restated Certificate of Incorporation of the
Company, in the form attached hereto as Exhibit B (the "Certificate").
1.2 Sale and Purchase. Subject to the terms and conditions hereof, at
the Closing (as hereinafter defined), the Company hereby agrees to issue and
sell to each Purchaser, severally and not jointly, and each Purchaser agrees to
purchase from the Company, severally and not jointly, the number of Shares set
forth opposite such Purchaser's name on Exhibit A at a purchase price of $0.72
per share.
SECTION 2. CLOSING, DELIVERY AND PAYMENT
2.1 Closing. The closing of the sale and purchase of the Shares under
this Agreement (the "Closing") shall take place on the date hereof, at the
offices of Cooley Godward llp, 2595 Canyon Boulevard, Suite 250, Boulder,
Colorado 80302, or at such other time or place as the Company and Purchasers may
mutually agree (such date is hereinafter referred to as a "Closing Date").
1.
<PAGE>
2.2 Delivery. At the Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchasers certificates representing the
number of Shares to be purchased at the Closing by each Purchaser, against
payment of the purchase price therefor, by check or wire transfer made payable
to the order of the Company or cancellation of indebtedness.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the Schedule of Exceptions delivered to the
Purchasers, the Company hereby represents and warrants to each Purchaser as
follows:
3.1 Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement and the Investors' Rights Agreement, in the form attached hereto
as Exhibit C (the "Investors' Rights Agreement"), to issue and sell the Shares
and the Conversion Shares and to carry out the provisions of this Agreement, the
Investors' Rights Agreement and the Certificate and to carry on its business as
presently conducted and as presently proposed to be conducted. The Company is
duly qualified and is authorized to do business and is in good standing as a
foreign corporation in all jurisdictions in which the nature of its activities
and of its properties (both owned and leased) make such qualifications
necessary, except for those jurisdictions in which failure to do so would not
have a material adverse effect on the Company or its business. The Company has
made available to the Purchasers true, correct and complete copies of the
Company's Certificate of Incorporation and Bylaws, each as amended to date.
3.2 Subsidiaries. The Company owns no equity securities of any other
corporation, limited partnership or similar entity. The Company is not a
participant in any joint venture, partnership or similar arrangement.
3.3 Capitalization; Voting Rights. The authorized capital stock of the
Company, immediately prior to the Closing, will consist of (a) thirty-four
million (34,000,000) shares of Common Stock, of which three million one hundred
thirty-five thousand two hundred ninety-six (3,135,296) shares are issued and
outstanding, and (b) twenty-six million seven hundred eighty-five thousand four
hundred (26,785,400) shares of Preferred Stock, of which twelve million six
hundred eighty-eight thousand one hundred seventy-eight (12,688,178) shares are
designated Series A Preferred Stock, of which twelve million five hundred
thirty-three thousand six hundred seventy-six (12,533,676) are issued and
outstanding, and of which fourteen million ninety-seven thousand two hundred
twenty-two (14,097,222) shares are designated Series B Preferred Stock, none of
which are issued and outstanding. All issued and outstanding shares of the
Company's Common Stock and Preferred Stock (i) have been duly authorized and
validly issued, (ii) are fully paid and nonassessable and (iii) were issued in
compliance with all applicable state and federal laws concerning the issuance of
securities. The rights, preferences, privileges and restrictions of the Shares
are as stated in the Certificate. The Conversion Shares have been duly and
validly reserved for issuance. Except as may be granted pursuant to this
Agreement, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements, or agreements of any kind for the purchase or
acquisition from the Company of any of its securities. The Shares and the
Conversion Shares
2.
<PAGE>
have been duly authorized and, when issued in compliance with the provisions of
this Agreement and the Certificate, will be validly issued (including, without
limitation, issued in compliance with applicable state and federal securities
laws), fully paid and nonassessable and will be free of any liens or
encumbrances; provided, however, that the Shares and the Conversion Shares may
be subject to restrictions on transfer under state and/or federal securities
laws as set forth herein or as otherwise required by such laws at the time
transfer is proposed.
3.4 Authorization; Binding Obligations. All corporate action on the part
of the Company, its officers, directors and stockholders necessary for the
authorization of this Agreement and the Investors' Rights Agreement, the
performance of all obligations of the Company hereunder and thereunder at the
Closing and the authorization, sale, issuance and delivery of the Shares
pursuant hereto and the Conversion Shares pursuant to the Certificate has been
taken or will be taken prior to the Closing. The Agreement and the Investors'
Rights Agreement, when executed and delivered, will be valid and binding
obligations of the Company enforceable in accordance with their terms, except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application affecting enforcement of creditors' rights;
(ii) general principles of equity that restrict the availability of equitable
remedies; and (iii) to the extent that the enforceability of the indemnification
provisions in Section 3.11 of the Investors' Rights Agreement may be limited by
applicable laws. The sale of the Shares and the subsequent conversion of the
Shares into Conversion Shares are not and will not be subject to any preemptive
rights or rights of first refusal that have not been properly waived or complied
with.
3.5 Financial Statements. The Company has delivered to each Purchaser
(i) its audited balance sheet as at December 31, 1997 and audited statement of
income and cash flows for the twelve months ending December 31, 1997 and (ii)
its unaudited balance sheet as at October 31, 1998 (the "Statement Date") and
unaudited statement of income and cash flows for the ten month period ending on
the Statement Date (collectively, the "Financial Statements"). The Financial
Statements, together with the notes thereto, are complete and correct in all
material respects, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated, except as disclosed therein, and present fairly the financial
condition and position of the Company as of December 31, 1997 and the Statement
Date; provided, however, that the unaudited financial statements are subject to
normal recurring year-end audit adjustments (which are not expected to be
material), and do not contain all footnotes required under generally accepted
accounting principles.
3.6 Liabilities. The Company has no material liabilities and, to the
best of its knowledge, has no material contingent liabilities not otherwise
disclosed in the Financial Statements, except current liabilities incurred in
the ordinary course of business subsequent to the Statement Date which have not
been, either in any individual case or in the aggregate, materially adverse.
3.7 Agreements; Action.
(a) Except for agreements explicitly contemplated hereby and
agreements between the Company and its employees with respect to the sale of the
Company's Common
3.
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Stock, there are no agreements, understandings or proposed transactions between
the Company and any of its officers, directors, affiliates or any affiliate
thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or to its knowledge by which it is bound which may
involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $25,000, or (ii) the license of any patent, copyright,
trade secret or other proprietary right to or from the Company (other than
licenses arising from the purchase of "off the shelf" or other standard
products), or (iii) provisions restricting or affecting the development,
manufacture or distribution of the Company's products or services, or (iv)
indemnification by the Company with respect to infringements of proprietary
rights.
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities (other than with respect to dividend obligations,
distributions, indebtedness and other obligations incurred in the ordinary
course of business or as disclosed in the Financial Statements) individually in
excess of $25,000 or, in the case of indebtedness and/or liabilities
individually less than $25,000, in excess of $75,000 in the aggregate, (iii)
made any loans or advances to any person, other than ordinary advances for
travel expenses or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights, other than the sale of its inventory in the ordinary course of
business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
3.8 Obligations to Related Parties. There are no obligations of the
Company to officers, directors, stockholders, or employees of the Company other
than (a) for payment of salary for services rendered, (b) reimbursement for
reasonable expenses incurred on behalf of the Company and (c) for other standard
employee benefits made generally available to all employees (including stock
option agreements outstanding under any stock option plan approved by the Board
of Directors of the Company). No such officer, director or stockholder, or any
member of their immediate families is, directly or indirectly, interested in any
material contract with the Company (other than such contracts as relate to any
such person's ownership of capital stock or other securities of the Company).
The Company is not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.
3.9 Absence of Changes. Except as set forth in Schedule 3.9, since the
Statement Date, there has not been to the Company's knowledge:
(a) Any change in the assets, liabilities, financial condition or
operations of the Company from that reflected in the Financial Statements, other
than changes in the ordinary course of business, none of which individually or
in the aggregate has had or is expected to have a material adverse effect on
such assets, liabilities, financial condition or operations of the Company;
4.
<PAGE>
(b) Any resignation or termination of any key officers of the
Company; and the Company, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer;
(c) Any material change, except in the ordinary course of business,
in the contingent obligations of the Company by way of guaranty, endorsement,
indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a material
debt owed to it;
(f) Any direct or indirect loans made by the Company to any
stockholder, employee, officer or director of the Company, other than advances
made in the ordinary course of business;
(g) Any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder;
(h) Any declaration or payment of any dividend or other distribution
of the assets of the Company or any direct or indirect redemptions of shares of
the Company's stock;
(i) Any labor organization activity;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets or any sale, transfer lease
or pledge of a material asset, except in the ordinary course of business;
(l) Any change in any material agreement to which the Company is a
party or by which it is bound which materially and adversely affects the
business, assets, liabilities, financial condition, operations or prospects of
the Company; or
(m) Any other event or condition of any character that, either
individually or cumulatively, has materially and adversely affected the
business, assets, liabilities, financial condition, operations or prospects of
the Company. For purposes of this subsection (m), a material and adverse effect
shall only be deemed to occur if its monetary impact exceeds, or with the
passage of time, will exceed $75,000.
3.10 Title to Properties and Assets; Liens, Etc. The Company has good and
marketable title to its properties and assets, and good title to its leasehold
estates, in each case subject to no mortgage, pledge, lien, lease, encumbrance
or charge, other than (i) those resulting
5.
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from taxes which have not yet become delinquent, (ii) minor liens and
encumbrances which do not materially detract from the value of the property
subject thereto or materially impair the operations of the Company and (iii)
those that have otherwise arisen in the ordinary course of business. All
facilities, machinery, equipment, fixtures, vehicles and other properties owned,
leased or used by the Company are in good operating condition and repair and are
reasonably fit and usable for the purposes for which they are being used. The
Company is in compliance with all material terms of each lease to which it is a
party or is otherwise bound.
3.11 Patents and Trademarks. To its knowledge, the Company owns or
possesses sufficient legal rights to all patents, trademarks, service marks,
trade names, copyrights, trade secrets, information and other proprietary rights
and processes necessary for its business as now conducted and as proposed to be
conducted, without any known infringement of the rights of others. There are no
outstanding options, licenses or agreements of any kind relating to the
foregoing, nor is the Company bound by or a party to any options, licenses or
agreements of any kind with respect to the patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes of any other person or entity other than such
licenses or agreements arising from the purchase of "off the shelf" or standard
products. The Company has not received any communications alleging that the
Company has violated or, by conducting its business as proposed, would violate
any of the patents, trademarks, service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity. The Company
is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments or any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with their duties to the Company's business by the
employees of the Company. The conduct of the Company's business as proposed,
will not, to the Company's knowledge, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any employee is now obligated. The Company
does not believe it is or will be necessary to utilize any inventions, trade
secrets or proprietary information of any of its employees made prior to their
employment by the Company, except for inventions, trade secrets or proprietary
information that have been assigned to the Company.
3.12 Compliance with Other Instruments. The Company is not in violation or
default of any term of its Certificate or Bylaws, or of any provision of any
mortgage, indenture, contract, agreement, instrument or contract to which it is
party or by which it is bound or of any judgment, decree, order, writ or, to its
knowledge, any statute, rule or regulation applicable to the Company which would
materially and adversely affect the business, assets, liabilities, financial
condition, operations or prospects of the Company. The execution, delivery, and
performance of and compliance with this Agreement and the Investors' Rights
Agreement, and the issuance and sale of the Shares pursuant hereto and of the
Conversion Shares pursuant to the Certificate, will not, with or without the
passage of time or giving of notice, result in any such material violation, or
be in conflict with or constitute a default under any such term, or result in
the creation of any mortgage, pledge, lien, encumbrance or charge upon any of
the properties or assets of the Company or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to the Company, its business or operations or any of its
assets or properties.
6.
<PAGE>
3.13 Litigation. There is no action, suit, proceeding or investigation
pending, or to the Company's knowledge, currently threatened against the Company
that questions the validity of this Agreement or the Investors' Rights Agreement
or the right of the Company to enter into any of such agreements, or to
consummate the transactions contemplated hereby or thereby, or which might
result, either individually or in the aggregate, in any material adverse change
in the assets, condition, affairs or prospects of the Company, financially or
otherwise, or any change in the current equity ownership of the Company, nor is
the Company aware that there is any basis for the foregoing. The foregoing
includes, without limitation, actions pending or threatened (or any basis
therefor known to the Company) involving the prior employment of any of the
Company's employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
3.14 Tax Returns and Payments. The Company has timely filed all tax
returns (federal, state and local) required to be filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and to the
Company's knowledge all other taxes due and payable by the Company on or before
the Closing have been paid or will be paid prior to the time they become
delinquent. The Company has not been advised (i) that any of its returns,
federal, state or other, have been or are being audited as of the date hereof,
or (ii) of any deficiency in assessment or proposed judgment to its federal,
state or other taxes. The Company has no knowledge of any liability of any tax
to be imposed upon its properties or assets as of the date of this Agreement
that is not adequately provided for.
3.15 Employees. The Company is not a party to or bound by any currently
effective employment contract, deferred compensation arrangement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other employee
compensation plan or agreement. To the Company's knowledge, no employee of the
Company, nor any consultant with whom the Company has contracted, is in
violation of any term of any employment contract, proprietary information
agreement or any other agreement relating to the right of any such individual to
be employed by, or to contract with, the Company because of the nature of the
business to be conducted by the Company; and to the Company's knowledge the
continued employment by the Company of its present employees, and the
performance of the Company's contracts with its independent contractors, will
not result in any such violation. The Company has not received any notice
alleging that any such violation has occurred. No employee of the Company has
been granted the right to continued employment by the Company or to any material
compensation following termination of employment with the Company. The Company
is not aware that any officer or key employee, or that any group of key
employees, intends to terminate, his, her or their employment with the Company,
nor does the Company have a present intention to terminate the employment of any
officer, key employee or group of key employees.
3.16 Proprietary Information and Inventions Agreements. Each current
employee, officer and consultant of the Company has executed a Proprietary
Information and Inventions Agreement in a form acceptable to the Purchasers. No
current employee, officer or consultant of the Company has excluded works or
inventions made prior to his or her employment with the
7.
<PAGE>
Company from his or her assignment of inventions pursuant to such employee,
officer or consultant's Proprietary Information and Inventions Agreement.
3.17 Obligations of Management. Each officer of the Company is currently
devoting one hundred percent (100%) of his business time to the conduct of the
business of the Company. The Company is not aware of any officer or key
employee of the Company who plans to work less than full time at the Company in
the future.
3.18 Registration Rights. Except as required pursuant to the Investors'
Rights Agreement, the Company is presently not under any obligation, and has not
granted any rights, to register (as defined in Section 1 of the Investors'
Rights Agreement) any of the Company's presently outstanding securities or any
of its securities that may hereafter be issued.
3.19 Compliance with Laws; Permits. The Company is not in violation of any
applicable statute, rule, regulation, order or restriction of any domestic or
foreign government or any instrumentality or agency thereof in respect of the
conduct of its business or the ownership of its properties which violation would
materially and adversely affect the business, assets, liabilities, financial
condition, operations or prospects of the Company. No governmental orders,
permissions, consents, approvals or authorizations are required to be obtained
and no registrations or declarations are required to be filed in connection with
the execution and delivery of this Agreement and the issuance of the Shares or
the Conversion Shares, except such as has been duly and validly obtained or
filed, or with respect to any filings that must be made after the Closing, as
will be filed in a timely manner. The Company has all franchises, permits,
licenses and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could materially and adversely
affect the business, properties, prospects or financial condition of the Company
and believes it can obtain, without undue burden or expense, any similar
authority for the conduct of its business as planned to be conducted.
3.20 Offering Valid. Assuming the accuracy of the representations and
warranties of the Purchasers contained in Section 4.2 hereof, the offer, sale
and issuance of the Shares and the Conversion Shares will be exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and will have been registered or qualified (or are exempt
from registration and qualification) under the registration, permit or
qualification requirements of all applicable state securities laws. Neither the
Company nor any agent on its behalf has solicited or will solicit any offers to
sell or has offered to sell or will offer to sell all or any part of the Shares
to any person or persons so as to bring the sale of such Shares by the Company
within the registration provisions of the Securities Act or any state securities
laws.
3.21 Full Disclosure. This Agreement, the Exhibits hereto, the Investors'
Rights Agreement and all other documents delivered by the Company to Purchasers
or their attorneys or agents in connection herewith or therewith or with the
transactions contemplated hereby or thereby, do not contain any untrue statement
of a material fact nor, to the Company's knowledge, omit to state a material
fact necessary in order to make the statements contained herein or therein not
misleading.
8.
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SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby represents and warrants to the Company as follows
(such representations and warranties do not lessen or obviate the
representations and warranties of the Company set forth in this Agreement):
4.1 Requisite Power and Authority. Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and the Investors' Rights Agreement and to carry out their provisions.
All action on Purchaser's part required for the lawful execution and delivery of
this Agreement and the Investors' Rights Agreement have been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Investors' Rights Agreement will be valid and binding
obligations of Purchaser, enforceable in accordance with their terms, except (i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application affecting enforcement of creditors' rights,
(ii) general principles of equity that restrict the availability of equitable
remedies and (iii) to the extent that the enforceability of the indemnification
provisions of the Investors' Rights Agreement may be limited by applicable laws.
4.2 Investment Representations. Purchaser understands that neither the
Shares nor the Conversion Shares have been registered under the Securities Act.
Purchaser also understands that the Shares are being offered and sold pursuant
to an exemption from registration contained in the Securities Act based in part
upon Purchaser's representations contained in the Agreement. Purchaser hereby
represents and warrants as follows:
(a) Purchaser Bears Economic Risk. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Purchaser must bear the economic risk of
this investment indefinitely unless the Shares (or the Conversion Shares) are
registered pursuant to the Securities Act, or an exemption from registration is
available. Purchaser understands that the Company has no present intention of
registering the Shares, the Conversion Shares or any shares of its Common Stock.
Purchaser also understands that there is no assurance that any exemption from
registration under the Securities Act will be available and that, even if
available, such exemption may not allow Purchaser to transfer all or any portion
of the Shares or the Conversion Shares under the circumstances, in the amounts
or at the times Purchaser might propose.
(b) Acquisition for Own Account. Purchaser is acquiring the Shares
and the Conversion Shares for Purchaser's own account for investment only, and
not with a view towards their distribution.
(c) Purchaser Can Protect Its Interest. Purchaser represents that by
reason of its, or of its management's, business or financial experience,
Purchaser has the capacity to protect its own interests in connection with the
transactions contemplated in this Agreement. Further, Purchaser is aware of no
publication of any advertisement in connection with the transactions
contemplated in the Agreement.
9.
<PAGE>
(d) Accredited Investor. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
(e) Rule 144. Purchaser acknowledges and agrees that the Shares,
and, if issued, the Conversion Shares must be held indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available. Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act as in effect from
time to time, which permits limited resale of shares purchased in a private
placement subject to the satisfaction of certain conditions, including, among
other things, the availability of certain current public information about the
Company, the resale occurring following the required holding period under Rule
144 and the number of shares being sold during any three-month period not
exceeding specified limitations.
(f) Residence. If the Purchaser is an individual, then the Purchaser
resides in the state or province identified in the address of the Purchaser set
forth on Exhibit A; if the Purchaser is a partnership, corporation, limited
liability company or other entity, then the office or offices of the Purchaser
in which its investment decision was made is located at the address or addresses
of the Purchaser set forth on Exhibit A.
4.3 Transfer Restrictions. Each Purchaser acknowledges and agrees that
the Shares and, if issued, the Conversion Shares are subject to restrictions on
transfer as set forth in the Investors' Rights Agreement.
SECTION 5. CONDITIONS TO CLOSING
5.1 Conditions to Purchasers' Obligations at the Closing. Purchasers'
obligations to purchase the Shares at the Closing are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
(a) Representations and Warranties True; Performance of Obligations.
The representations and warranties made by the Company in Section 3 hereof shall
be true and correct in all material respects as of the Closing Date with the
same force and effect as if they had been made as of the Closing Date, and the
Company shall have performed all obligations and conditions herein required to
be performed or observed by it on or prior to the Closing.
(b) Legal Investment. On the Closing Date, the sale and issuance of
the Shares and the proposed issuance of the Conversion Shares shall be legally
permitted by all laws and regulations to which Purchasers and the Company are
subject.
(c) Consents, Permits, and Waivers. The Company shall have obtained
any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement and the
Investors' Rights Agreement (except for such as may be properly obtained
subsequent to the Closing).
(d) Filing of Certificate. The Certificate shall have been filed
with the Secretary of State of the State of Delaware.
10.
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(e) Reservation of Conversion Shares. The Conversion Shares issuable
upon conversion of the Shares shall have been duly authorized and reserved for
issuance upon such conversion.
(f) Compliance Certificate. The Company shall have delivered to
Purchasers a Compliance Certificate, executed by an officer of the Company,
dated as of the Closing Date, to the effect that the conditions specified in
subsections (a), (c), (d) and (e) of this Section 5.1 have been satisfied.
(g) Investors' Rights Agreement. An Investors' Rights Agreement,
substantially in the form attached hereto as Exhibit C, shall have been executed
and delivered by the parties thereto.
(h) Board of Directors. Upon the Closing, the authorized size of the
Board of Directors of the Company shall be six (6) members and the Board shall
consist of Drs. Marvin Caruthers, Ralph Christoffersen, Arnold Levine and Thomas
Marr and Messrs. Robert Nelsen and James Rathmann.
(i) Legal Opinion. The Purchasers shall have received from legal
counsel to the Company an opinion addressed to them, dated as of the Closing
Date, in substantially the form attached hereto as Exhibit D.
(j) Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated at the Closing hereby, all
documents and instruments incident to such transactions and all documents,
instruments and proceedings related to the Purchasers' business, technical and
legal due diligence shall be reasonably satisfactory in substance and form to
the Purchasers and their special counsel, and the Purchasers and such special
counsel shall have received all such counterpart originals or certified or other
copies of such documents as they may reasonably request.
(k) Minimum Investment. The Company shall have received a minimum
investment of $5,000,000 at the first closing, including cancellation of
indebtedness.
5.2 Conditions to Obligations of the Company. The Company's obligation to
issue and sell the Shares at the Closing is subject to the satisfaction, on or
prior to the Closing, of the following conditions:
(a) Representations and Warranties True. The representations and
warranties made by the Purchasers in Section 4 hereof shall be true and correct
in all material respects as of the Closing Date, with the same force and effect
as if they had been made on and as of said date.
(b) Performance of Obligations. Purchasers shall have performed and
complied with all agreements and conditions herein required to be performed or
complied with by Purchasers on or before the Closing.
(c) Filing of Certificate. The Certificate shall have been filed
with the Secretary of State of the State of Delaware.
11.
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(d) Investors' Rights Agreement. An Investors' Rights Agreement,
substantially in the form attached hereto as Exhibit C, shall have been executed
and delivered by the Purchasers.
(e) Consents, Permits, and Waivers. The Company shall have obtained
any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement and the
Investors' Rights Agreement (except for such as may be properly obtained
subsequent to the Closing).
(f) Minimum Investment. The Company shall have received a minimum
investment of $5,000,000 at the first Closing, including cancellation of
indebtedness.
SECTION 6. MISCELLANEOUS
6.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of Colorado as such laws are applied to agreements between
Colorado residents entered into and performed entirely in Colorado.
6.2 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by any Purchaser and the
closing of the transactions contemplated hereby. All statements as to factual
matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
6.3 Successors and Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time.
6.4 Entire Agreement. This Agreement, the Exhibits and Schedules
hereto, including the Investors' Rights Agreement, and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and no party
shall be liable or bound to any other in any manner by any representations,
warranties, covenants and agreements except as specifically set forth herein and
therein.
6.5 Severability. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
6.6 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the written
consent of the Company and holders of at least a majority of the Shares (treated
as if converted and including any Conversion Shares into which the Shares have
been converted that have not been sold to the public).
12.
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(b) The obligations of the Company and the rights of the holders of
the Shares and the Conversion Shares under the Agreement may be waived only with
the written consent of the holders of at least a majority of the Shares (treated
as if converted and including any Conversion Shares into which the Shares have
been converted that have not been sold to the public).
6.7 Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement, the Investors'
Rights Agreement or the Certificate, shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach, default or
noncompliance thereafter occurring. It is further agreed that any waiver,
permit, consent or approval of any kind of character on any Purchaser's part of
any breach, default or noncompliance under this Agreement, the Investors' Rights
Agreement or under the Certificate or any waiver on such party's part of any
provisions or conditions of the Agreement, the Investors' Rights Agreement or
the Certificate must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, the Investors' Rights Agreement, the Certificate, by law, or
otherwise afforded to any party, shall be cumulative and not alternative.
6.8 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified; (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
Company at the address as set forth on the signature page hereof and to
Purchaser at the address set forth on Exhibit A attached hereto or at such other
address as the Company or Purchaser may designate by ten (10) days advance
written notice to the other parties hereto.
6.9 Titles and Subtitles. The titles of the sections and subsections of
the Agreement are for convenience of reference only and are not to be considered
in construing this Agreement.
6.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.11 Broker's Fees. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein; provided, however, that the Company is
obligated to pay a fee to Punk, Ziegel & Co. related to purchases by certain of
the Purchasers. Each party hereto further agrees to indemnify each other party
for any claims, losses or expenses incurred by such other party as a result of
the representation in this Section 6.11 being untrue.
6.12 Expenses. The Company shall pay all costs and expenses that it incurs
with respect to the negotiation, execution, delivery and performance of the
Agreement. The Company
13.
<PAGE>
shall reimburse the reasonable fees and expenses of one counsel to the
Purchasers, not to exceed $25,000, incurred in connection with the negotiation,
execution and delivery of this Agreement.
6.13 Attorneys' Fees. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
6.14 Exculpation Among Purchasers. Each Purchaser acknowledges that it is
not relying upon any person, firm, or corporation, other than the Company and
its officers and directors, in making its investment or decision to invest in
the Company. Each Purchaser agrees that no Purchaser nor the respective
controlling persons, officers, directors, partners, agents, or employees of any
Purchaser shall be liable for any action heretofore or hereafter taken or
omitted to be taken by any of them in connection with the Shares and Conversion
Shares.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
14.
<PAGE>
In Witness Whereof, the parties hereto have executed the Series B Preferred
Stock Purchase Agreement as of the date set forth in the first paragraph hereof.
COMPANY: PURCHASERS:
Genomica Corporation Falcon Technology Partners, L.P.
4001 Discovery Drive
Boulder, CO 80303
By: /s/ Thomas G. Marr By: /s/ James L. Rathmann
- ----------------------------------- -----------------------------------
Name: Thomas G. Marr Name: James L. Rathmann
- ----------------------------------- -----------------------------------
Title: President & Chief Scientist Title: General Partner
- ----------------------------------- -----------------------------------
Series B Preferred Stock Purchase Agreement
<PAGE>
COMPANY: PURCHASERS:
Genomica Corporation ARCH Ventures Fund III, L.P.
4001 Discovery Drive
Boulder, CO 80303 By: ARCH Venture Partners, L.L.C.,
general partner
By:________________________________ By: /s/ Robert Nelsen
Name:______________________________ Name: Robert Nelsen
Title:_____________________________ Title: Managing Director
Series B Preferred Stock Purchase Agreement
<PAGE>
COMPANY: PURCHASERS:
Genomica Corporation Boulder Ventures, L.P.
4001 Discovery Drive
Boulder, CO 80303 By: BV Partners, L.L.C., general
partner
By:________________________________ By: /s/ Kyle Lefkoff
Name:______________________________ Name:______________________________
Title:_____________________________ Title:_____________________________
Boulder Ventures II, L.P.
By: BV Partners II, L.L.C., general
partner
By: /s/ Kyle Lefkoff
Name:______________________________
Title:_____________________________
Boulder Ventures II (Annex), L.P.
By: BV Partners II, L.L.C., general
partner
By: /s/ Kyle Lefkoff
Name:______________________________
Title:_____________________________
Series B Preferred Stock Purchase Agreement
<PAGE>
COMPANY: PURCHASERS:
Genomica Corporation The Caruthers Family L.L.C.
4001 Discovery Drive
Boulder, CO 80303
By: By: /s/ Marvin H. Caruthers
________________________________ ________________________________
Name: Name: Marvin H. Caruthers
______________________________ ______________________________
Title: Title: Manager
_____________________________ _____________________________
Series B Preferred Stock Purchase Agreement
<PAGE>
COMPANY: PURCHASERS:
Genomica Corporation Nominee of Invesco
4001 Discovery Drive Global Health Sciences Fund
Boulder, CO 80303
By:________________________________ By: /s/ Glen A. Payne
Name:______________________________ Name: Glen A. Payne
Title:_____________________________ Title: Secretary
Series B Preferred Stock Purchase Agreement
<PAGE>
COMPANY: PURCHASERS:
Genomica Corporation Anvers, L.P.
4001 Discovery Drive by: FSIP LLC
Boulder, CO 80303 General Partner
By: By: /s/ Leopold Swergold
________________________________ ________________________________
Name: Name: Leopold Swergold
______________________________ ______________________________
Title: Title: Sr. Managing Director
_____________________________ _____________________________
Series B Preferred Stock Purchase Agreement
<PAGE>
COMPANY: PURCHASERS:
Genomica Corporation Anvers II, L.P.
4001 Discovery Drive by: FSIP LLC
Boulder, CO 80303 General Partner
By: By: /s/ Leopold Swergold
________________________________ _______________________________
Name: Name: Leopold Swergold
______________________________ _____________________________
Title: Title: Sr. Managing Director
_____________________________ ____________________________
Series B Preferred Stock Purchase Agreement
<PAGE>
COMPANY: PURCHASERS:
Genomica Corporation
4001 Discovery Drive
Boulder, CO 80303
By: By: /s/ Stuart Epstein
________________________________ ________________________________
Stuart Epstein
Name:______________________________
Title:_____________________________
2.
<PAGE>
COMPANY: PURCHASERS:
Genomica Corporation
4001 Discovery Drive
Boulder, CO 80303
By: By: /s/ Marc Epstein
________________________________ ________________________________
Marc Epstein
Name:______________________________
Title:_____________________________
3.
<PAGE>
COMPANY: PURCHASERS:
Genomica Corporation GC&H Investments
4001 Discovery Drive
Boulder, CO 80303
By: By: /s/ John L. Cardoza
________________________________ ________________________________
Name: Name: John L. Cardoza
______________________________ ______________________________
Title: Title: Executive Partner
_____________________________ _____________________________
Series B Preferred Stock Purchase Agreement
<PAGE>
COMPANY: PURCHASERS:
Genomica Corporation
4001 Discovery Drive
Boulder, CO 80303
By:________________________________ By: /s/ Joseph Klein III
--------------------------------
Name:______________________________ Name: Joseph Klein III
------------------------------
Title:_____________________________ Title: Health Analyst
-----------------------------
Series B Preferred Stock Purchase Agreement
<PAGE>
Tyjo Corp. Defined Benefit
Plan and Trust
70 Redland Woods Way
Tiburon, CA 94920
By: /s/ Robert K. Schalter
-------------------------------------
Name: Robert K. Schalter
-----------------------------------
Title: President
----------------------------------
<PAGE>
Exhibit A
Series B Preferred Stock Purchase Agreement
<TABLE>
<CAPTION>
Shares of Series B
------------------
Name Preferred Stock Purchase Price
- ---- --------------- --------------
<S> <C> <C>
Initial Closing December 16, 1998:
Falcon Technology Partners, L.P.
Attn: James L. Rathmann
600 Dorset Road 2,594,310 $ 1,867,903.20
Devon, PA 19333
Invesco Global Health Sciences Fund
Attn: Buck Phillips
7800 East Union Avenue
Mail Stop 1102
Denver, CO 80237 1,899,865 1,367,902.80
ARCH Ventures Fund III, L.P.
Attn: Robert Nelsen
1000 2/nd/ Avenue, Suite 3700
Seattle, WA 98104 1,723,667 1,241,040.24
Boulder Ventures II, L.P.
Attn: Kyle Lefkoff
1634 Walnut Street, Suite 301
Boulder, CO 80302 1,208,334 870,000.48
Anvers, L.P.
Attn: Leo Swergold
230 Park Avenue, 13/th/ Floor
New York, NY 10169 555,556 400,000.32
Anvers II, L.P.
Attn: Leo Swergold
230 Park Avenue, 13/th/ Floor
New York, NY 10169 277,778 200,000.16
Boulder Ventures II (Annex), L.P.
Attn: Kyle Lefkoff
1634 Walnut Street, Suite 301
Boulder, CO 80302 180,556 130,000.32
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Shares of Series B
------------------
Name Preferred Stock Purchase Price
- ---- --------------- --------------
<S> <C> <C>
The Caruthers Family L.L.C.
Attn: Marvin H. Caruthers
2450 Cragmoor
Boulder, CO 80303 108,600 78,192.00
Boulder Ventures, L.P.
Attn: Kyle Lefkoff
1634 Walnut Street, Suite 301
Boulder, CO 80302 69,962 50,372.64
GC&H Investments
Attn: Jim Kindler
One Maritime Plaza, 20/th/ Floor
San Francisco, CA 94111 69,444 49,999.68
Second Closing: December 17, 1998
Marc Epstein
3091 Miro Drive North
Palm Beach Gardens, FL 33411 34,722 24,999.84
Stuart A. Epstein
3091 Miro Drive North
Palm Beach Gardens, FL 33411 34,722 24,999.84
Third Closing: February 12, 1999
Kaufmann Fund, Inc.
Attn: Skip Klein
25 Light Street, Suite 300 9,722,222 6,999,999.84
Baltimore, MD 21202
Punk, Ziegel & Company
Investors, L.L.C. 208,333 149,999.76
520 Madison Avenue
New York, NY 10022
Tyjo Corporation Defined Benefit
Plan and Trust 138,888 99,999.36
70 Reedland Woods Way
Tiburon, CA 94920
Total 18,826,959 $13,555,410.48
</TABLE>
2.
<PAGE>
Exhibit B
Restated Certificate of Incorporation
See Tabs 5 and 22
<PAGE>
Exhibit C
Investors' Rights Agreement
See Tab 21
<PAGE>
Exhibit D
Legal Opinion
1. The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of Delaware.
2. The Company has the requisite corporate power to own its property and
assets and to conduct its business as it is currently being conducted.
3. The Series B Preferred Stock Purchase Agreement (the "Purchase
Agreement") and the Investors' Rights Agreement (collectively, the "Agreements")
have been duly and validly authorized, executed and delivered by the Company and
constitute valid and binding obligations of the Company enforceable against the
Company in accordance with their terms.
4. The authorized capital stock of the Company, immediately prior to the
Closing, will consist of (a) thirty-four million (34,000,000) shares of Common
Stock, of which three million one hundred sixty-one thousand six hundred eighty-
five (3,161,685) shares are issued and outstanding, and (b) twenty-six million
seven hundred eighty-five thousand four hundred (26,785,400) shares of Preferred
Stock, of which twelve million six hundred eighty-eight thousand one hundred
seventy-eight (12,688,178) shares are designated Series A Preferred Stock, of
which twelve million five hundred thirty-three thousand six hundred seventy-six
(12,533,676) are issued and outstanding, and of which fourteen million ninety-
seven thousand two hundred twenty-two (14,097,222) shares are designated Series
B Preferred Stock, none of which are issued and outstanding. The outstanding
shares of Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable. The rights, preferences and privileges of the
Series B Preferred Stock are as stated in the Restated Certificate of
Incorporation. The Shares have been duly authorized, and upon issuance and
delivery against payment therefor in accordance with the terms of the Purchase
Agreement, will be validly issued, outstanding, fully paid and nonassessable.
The shares of Common Stock issuable upon conversion of the Shares have been duly
authorized and reserved for issuance, and upon issuance and delivery against
payment therefor in accordance with the terms of the Shares, will be validly
issued, outstanding, fully paid and nonassessable. Except as disclosed in the
Purchase Agreement or the Schedule of Exceptions, there are no options,
warrants, conversion privileges, preemptive rights or other rights presently
outstanding to purchase any of the authorized but unissued capital stock of the
Company, other than the conversion privileges of the Series A Preferred Stock
and Series B Preferred Stock and rights created in connection with the
transactions contemplated by the Agreements.
5. The execution and delivery of the Agreements by the Company and the
issuance of the Shares pursuant to the Purchase Agreement do not violate any
provision of the Company's Restated Certificate of Incorporation or Bylaws.
6. There is no action, proceeding or investigation pending or threatened
against the Company before any court or administrative agency that questions the
validity of the Agreements or might result, either individually on in the
aggregate, in any material adverse change in the assets, financial condition, or
operations of the Company.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated March 13, 2000 and to all references to our Firm included in or made a
part of this registration statement.
/s/ Arthur Andersen LLP
Denver, Colorado,
March 16, 2000.
