<PAGE>
As filed with the Securities and Exchange Commission on April , 2000
Registration No. 333-32472
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2 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)
1745 38th Street
Boulder, CO 80301
(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
1745 38th Street
Boulder, CO 80301
(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
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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
- --------------------------------------------------------------------------------------
<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 April , 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
- ------------------------------------------------------------------
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
--------- -----------
<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.
- ------------------------------------------------------------------
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
Prudential Vector Healthcare
a unit of Prudential Securities
Dain Rauscher Wessels
The date of this Prospectus is , 2000.
<PAGE>
[INSIDE COVER]
The inside cover art includes a gatefold entitled "Our Discovery Manager
Software Supports a Broad Range of Scientific 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
"Common User Interface." Below the Common User Interface rectangle are three
rectangles that correspond to the key tools of Discovery Manager: Sequence
Analysis Tools, Genetic Analysis Tools and Mapping Analysis Tools. Below the
rectangles that represent our tools there are two cylinders labeled Discovery
Manager Database and Reference Database. At the bottom of the page, there is a
caption entitled "Discovery Manager Software Infrastructure."
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary......................................................... 1
Risk Factors............................................................... 5
Forward-Looking Statements................................................. 13
Use of Proceeds............................................................ 14
Dividend Policy............................................................ 14
Conventions Which Apply to this Prospectus................................. 14
Capitalization............................................................. 15
Dilution................................................................... 16
Selected Financial Data.................................................... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 18
Overview of Genomics....................................................... 24
Business................................................................... 26
Management................................................................. 34
Principal Stockholders..................................................... 41
Related-Party Transactions................................................. 43
Description of Capital Stock............................................... 44
Shares Eligible for Future Sale............................................ 47
Plan of Distribution....................................................... 48
Legal Matters.............................................................. 49
Experts.................................................................... 50
Where You Can Find More Information........................................ 50
Index to Financial Statements.............................................. F-1
</TABLE>
<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 believe 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. For the first quarter of 2000, we had total
revenues of $370,000 and net losses of $6.3 million.
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 $300 million on
bioinformatics in the year 2000 and $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. We believe many genomic researchers
currently rely on a patchwork of non-standard, non-integrated, non-
scientific and unsupported software tools.
.Short supply of bioinformaticists. We believe 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
1
<PAGE>
believe that Discovery Manager is the only commercially available product that
integrates human sequence, genetic map, genotype, phenotype and clinical
information.
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 growing
and complex 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
We face competition from other organizations, including internal bioinformatics
departments in implementing our strategy, and these organizations have much
greater resources and name recognition than we do.
Other Information
We were incorporated in Delaware in September 1995. Our principal executive
offices are located at 1745 38th Street, Boulder, Colorado 80301. 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................ 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 March 31,
2000.
The number of shares of common stock outstanding excludes:
. shares of common stock issuable upon the exercise of options
outstanding as of March 31, 2000, at a weighted average exercise price of
$ per share
. shares of common stock issuable upon exercise of warrants outstanding
as of March 31, 2000, at a weighted average exercise price of $ per share
. shares of common stock issuable upon the exercise of options granted
thus far in 2000 with a weighted average exercise price of $
3
<PAGE>
Summary Financial Data
(in thousands, except per share data)
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, March 31,
------------------------- ---------------
1997 1998 1999 1999 2000
------- ------- ------- ------ -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Revenue:
Software licenses and services... $ -- $ 197 $ 622 $ 90 $ 344
Research grants.................. -- -- 159 -- 27
------- ------- ------- ------ -------
Total revenue.................. -- 197 781 90 371
------- ------- ------- ------ -------
Operating expenses:
Costs of revenue................. -- 141 447 62 103
Research and development......... 1,682 2,328 4,869 816 2,818
Selling and marketing............ 495 634 1,722 342 1,366
General and administrative....... 579 884 1,723 125 2,472
------- ------- ------- ------ -------
Total operating expenses....... 2,756 3,987 8,761 1,345 6,759
------- ------- ------- ------ -------
Operating loss..................... (2,756) (3,790) (7,980) (1,255) (6,388)
Interest income.................... 37 90 419 67 114
Interest expense................... (19) (55) (18) (5) (17)
------- ------- ------- ------ -------
Accretion of preferred stock to
redemption value.................. -- -- -- -- (15,009)
Net loss applicable to common
stockholders...................... (2,738) (3,755) (7,579) (1,193) (21,300)
======= ======= ======= ====== =======
Net loss........................... $(2,738) $(3,755) $(7,579) (1,193) (6,291)
======= ======= ======= ====== =======
Net loss per share, basic and
diluted........................... $ (2.80) $ (3.81) $ (7.13) $(1.15) $ (6.29)
======= ======= ======= ====== =======
Weighted average common shares
outstanding, basic and diluted.... 977 986 1,062 1,040 3,388
Pro forma (unaudited):
Net loss per share, basic and
diluted......................... $ (0.68) $(0.36) $ (1.72)
======= ====== =======
Weighted average common shares
outstanding, basic and diluted.. 11,121 3,295 12,391
</TABLE>
<TABLE>
<CAPTION>
March 31, 2000
-------------------
Pro Forma
Actual As Adjusted
------- -----------
<S> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-term investments........... $18,167 $105,980
Working capital............................................. 17,073 105,012
Total assets................................................ 20,696 108,309
Capital lease obligations, long-term portion................ 240 --
Total stockholders' equity.................................. 18,690 106,870
</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, and $ million at
March 31, 2000.
In the first quarter of 2000, we incurred a one-time noncash charge to
earnings of approximately $15 million as a result of the sale of our Series C
preferred stock.
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.
We are likely to continue experiencing operating losses and negative cash flow
from operations for the foreseeable future.
We will incur significant charges to earnings as a result of recent stock
option grants. This will hamper our ability to become profitable.
As a result of recent option grants, we will incur significant non-cash
charges to earnings in future periods, which will hamper our ability to become
profitable. In the first quarter of 2000 these charges were $ and are
expected to be approximately $ for the rest of 2000, $ million for
2001, $ million for 2002 and $ million for future periods.
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. The amount and timing of our
revenues and profitability will be negatively impacted 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
5
<PAGE>
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 operating results 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.
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. We have limited
experience in developing strategic relationships of this type and have entered
into only [two] to date. 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.
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 have generated revenue from product licenses only since 1998 and currently
have only nine customers. Most of our target customers are large
pharmaceutical and biotechnology companies and other research organizations.
We believe that establishing and maintaining brand and name recognition is
critical for attracting and expanding this targeted customer base because we
believe these targeted customers generally prefer to do business with
established brands and companies. We also believe that the importance to us 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. If we are not successful, our ability to generate
revenue will be limited.
We currently have only nine customers. If we do not increase the number 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.
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 potential customers. The loss of any of these contracts would
adversely impact our revenue 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.
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
6
<PAGE>
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. Although we
have an employment agreement with Mr. Marr, he could leave us at anytime. In
addition, we do not have life insurance on Dr. Marr.
Our success depends on the continuing contribution of our other key personnel
who may leave us at any time and our ability to integrate new personnel,
including several key members of our management team.
Our future success depends to a significant extent on the continued service of
our key technical, sales and senior management personnel. In particular, the
loss of the services of Teresa W. Ayres, our president and chief executive
officer, Kenneth Rubin, our executive vice president of commercial
development, and Daniel R. Hudspeth, our chief financial officer could harm
our sales and operations. Although we have an employment with Ms. Aynes, she
and any other of our key personnel may leave us at any time. In addition, we
do not have "key person" life insurance policies on any of our employees.
Several key members of our management team have joined us within the last
year, including Ms. Ayres, Mr. Rubin and Mr. Hudspeth. Additionally, we intend
to hire an executive sales officer. If we cannot effectively integrate these
employees into our business, or if they cannot work together as a management
team to implement our business strategy, successfully achieving our revenue
goals and profitability will be difficult. If any of our management team left
or was seriously injured and unable to work and we were unable to find a
qualified replacement, it could be costly and time consuming to replace them.
If we cannot attract, retain, motivate and integrate additional skilled per-
sonnel, our ability to compete will be impaired.
We are a small company with only employees. [Many of our current and
potential competitors have more employees.] Our success depends in large part
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 ability to successfully execute our
business plan will be jeopardized and our growth will be inhibited.
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 we will be unable to meaningfully improve our
operating results and we may not be able to continue operating our business.
Our failure to manage planned growth could adversely affect our ability to
increase revenue and become profitable.
If we do not effectively manage our planned growth, our ability to signifi-
cantly increase revenue and become profitable will be limited. We need to rap-
idly 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 planned future growth
effectively, our efforts to increase our customer
7
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base and product and service offerings may not be successful. In addition, our
planned 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 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 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 for other potential products, 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 revenue growth and net income.
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.
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 ability to continue our
business could be seriously jeopardized.
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 business depends on our topographer technology license from Cold Spring
Harbor Laboratories.
8
<PAGE>
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. Ways in which we could
breach the license agreement include (1) uncured monetary breaches; (2) our
failure to comply with United States export laws regarding software exports;
(3) any breach of the confidentiality and proprietary information provisions
of the license agreement; (4) our filing of bankruptcy or the imposition of
receivership on our business; or (5) any impermissible assignment of the
license agreement by us.
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, the Chang-Marr algorithm patent included in the
Genome Topographer technology may be challenged, invalidated or circumvented.
This could limit or prevent our ability to make, use or sell this algorithm in
our product.
Our product currently depends on components licensed from other 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.
Discovery Manager incorporates 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 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
9
<PAGE>
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
. reduced revenue or profitablity of our current and potential customers
. 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 demand for our products will diminish and our
ability to generate revenue and profitability would be significantly harmed.
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 ability to generate revenue.
Doing business outside of the United States involves numerous factors that
could affect our financial results.
International operations involve numerous factors not typically present in
domestic operations. If any one or more of these factors adversely affects us
and we cannot effectively manage them, our business, operating results and
financial condition could be significantly harmed. These factors 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
. 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 may fail to engage in strategic acquisitions, which could limit our future
growth.
One of our strategies for growth is to engage in selective strategic
acquisitions of key products, technologies or companies. Our ability to conduct
such acquisitions is limited by our ability to identify potential acquisition
candidates, obtain necessary financing and consummate the acquisitions. In the
event we are unable to identify and take advantage of these opportunities, we
may experience difficulties in growing our business. In addition, pursuing
acquisition opportunities could divert our management's attention from our
ongoing business operations and result in decreased operating performance.
10
<PAGE>
If we engage in acquisitions, we may experience significant costs and
difficulty assimilating the operations or personnel of the acquired companies,
which could threaten our future growth.
If we make any acquisitions, we could have difficulty assimilating the
operations, technologies, or products acquired or integrating or retaining
personnel of acquired companies. In addition, acquisitions may involve
entering markets in which we have no or limited direct prior experience. The
occurrence of any one or more of these factors could disrupt our ongoing
business, distract our management and employees and increase our expenses.
Moreover, our profitability may suffer because of acquisition-related costs or
amortization of acquired goodwill and other intangible assets. Furthermore, we
may have to incur debt or issue equity securities in any future acquisitions.
The issuance of equity securities would dilute our existing shareholders.
If our management does not wisely apply the net proceeds from the offering,
our ability to grow our business will suffer.
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
. acquisition opportunities
We will determine, in our sole discretion without the need for stockholder
approval, how to allocate these proceeds. If our management's allocation of
the net proceeds does not result in growth of our revenue and business
operations, our ability to become profitable will be jeopardized and our stock
price may fall.
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. You
may not be able to sell your shares quickly or at the initial offering price
if trading in our stock is not active. 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 trading price of our common stock is likely to be highly volatile and
could be subject to wide fluctuations in price in response to various factors,
many of which are beyond our control, including:
. announcements of technological innovations or new commercial products by
our competitors or us;
. developments concerning proprietary rights by our competitors or us;
. developments concerning any development or marketing collaborations;
. publicity regarding actual or potential medical results relating to prod-
ucts under development by our competitors or us:
. litigation;
. economic and other external factors, including disasters or crises; or
. period-to period fluctuations in financial results.
In addition, the stock market in general, and the Nasdaq National Market and
the market for technology companies in particular, have experienced extreme
price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of those companies and you may
not be able to sell your common stock at a price at or above the initial
offering price.
If our stock price is volatile, we may become subject to securities litiga-
tion, which is expensive and could divert our resources.
11
<PAGE>
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 April 17, 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.
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.
12
<PAGE>
Forward-Looking Statements
Some of the information in this prospectus contains forward-looking statements
based on our current expectations, assumptions, estimates and projections about
us and our industry. 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.
13
<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:
. $12 million to continue development of Discovery Manager and new products
. $9 million to expand our sales and marketing activities
. acquire complementary technologies, products or companies
. repayment of $398,000 of capital lease obligations
. $80.2 million to 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.
Conventions Which Apply to this Prospectus
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 shares of common stock upon the exercise of warrants
that would otherwise expire upon the closing of the offering.
14
<PAGE>
Capitalization
The following table shows:
. our capitalization on March 31, 2000
. our pro forma as adjusted capitalization on March 31, 2000, 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>
March 31, 2000
--------------------
Actual As Adjusted
------- -----------
(dollars
in thousands)
<S> <C> <C>
Capital lease obligations................................. $ 367 $ --
------- --------
Stockholders' equity:
Common stock, $0.001 par value, 44,000,000 shares
authorized; 1,977,197 shares issued and outstanding;... 2 22
Preferred stock, $0.001 par value, 37,688,178 shares
authorized:
Series A, 12,533,676 shares issued and outstanding.... 7,504 --
Series B, 18,826,959 shares issued and outstanding.... 12,369 --
Series C, 10,022,634 shares issued and outstanding.... 15,009 --
Treasury stock, at cost................................. (7) (7)
Additional paid-in capital.............................. 15,285 138,327
Options and warrants.................................... 32,483 32,483
Deferred compensation................................... (26,438) (26,438)
Accumulated deficit..................................... (37,517) (37,517)
------- --------
Total stockholders' equity............................ 18,690 $106,870
------- --------
Total capitalization................................ $19,057 $106,870
======= ========
</TABLE>
The number of shares of common stock in this table excludes:
. shares of common stock issuable upon exercise of options
outstanding as of March 31, 2000
. shares of common stock issuable upon exercise of warrants
outstanding as of March 31, 2000, of which will expire if not
exercised prior to the closing of the offering
15
<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, which is 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.
16
<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, Three Months
1995) to Year Ended December 31, Ended March 31,
December 31, ---------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
------------- ------- ------- ------- ------- ------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue:
Software licenses and
services............. $-- $ -- $ -- $ 197 $ 622 $ 90 344
Research grants....... -- -- -- -- 159 -- 27
---- ------- ------- ------- ------- ------- --------
Total revenue....... -- -- -- 197 781 90 371
---- ------- ------- ------- ------- ------- --------
Operating expenses:
Costs of revenue...... -- -- -- 141 447 62 103
Research and
development.......... -- 1,533 1,682 2,328 4,869 816 2,818
Selling and marketing. -- 383 495 634 1,722 342 1,366
General and
administrative....... 70 183 579 884 1,723 124 2,472
---- ------- ------- ------- ------- ------- --------
Total operating
expenses........... 70 2,099 2,756 3,987 8,761 1,344 6,759
---- ------- ------- ------- ------- ------- --------
Operating loss.......... (70) (2,099) (2,756) (3,790) (7,980) (1,254) (6,388)
Interest income......... -- 28 37 90 419 67 114
Interest expense........ -- (5) (19) (55) (18) (6) (17)
---- ------- ------- ------- ------- ------- --------
Net loss................ $(70) $(2,076) $(2,738) $(3,755) $(7,579) (1,193) (6,291)
Accretion of preferred
stock to redemption
value.................. -- -- -- -- -- -- (15,009)
---- ------- ------- ------- ------- ------- --------
Net loss applicable to
common
stockholders........... $(70) $(2,076) $(2,738) $(3,755) $(7,579) $(1,193) $(21,300)
==== ======= ======= ======= ======= ======= ========
Net loss per share,
basic and diluted...... $-- $ (2.67) $ (2.80) $ (3.81) $ (7.13) (1.15) (6.29)
==== ======= ======= ======= ======= ======= ========
Weighted average common
shares outstanding,
basic and diluted...... -- 779 977 986 1,062 1,040 3,388
Pro forma (unaudited):
Net loss per share,
basic and diluted.... $0.68 $ (0.36) $ (1.72)
======= ======= ========
Weighted average common shares outstanding, basic and
diluted.................................................... 11,121 3,295 12,391
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------- March 31,
1995 1996 1997 1998 1999 2000
---- ---- ------- ------ ------ ---------
<S> <C> <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 $18,167
Working capital..................... (82) (264) 2,515 4,569 5,246 16,772
Total assets........................ 18 515 3,426 5,649 7,554 20,696
Notes Payable and capital lease
obligations, long-term portion..... -- -- 184 71 268 240
Total stockholders' equity.......... (70) (143) 2,623 4,872 5,681 18,690
</TABLE>
17
<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 March 31, 2000, we had an
accumulated deficit of $37.5 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 24.8 million in
additional charges to earnings in future periods. We recorded 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
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31,
2000.
Total revenue. Total revenue increased to $370,000 from $90,000 for the same
period of 1999, an increase of $280,000. Of this increase, $253,000 was from
licensing our software to an increased number of pharmaceutical and
biotechnology organizations. We also recognized $27,000 of revenue from
research grants in the first quarter of 2000; no such revenue was recognized in
the same period of 1999.
Costs of revenue. Costs of revenue increased to $103,000 from $62,000 for the
same period of 1999, an increase of $41,000. The increase is 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 our 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 our revenue ratably over the
life of our license agreements, our revenue may grow more slowly than our costs
for a time, as we continue building infrastructure to support our customers.
Research and development. Research and development expenses increased to $2.8
million in the first quarter of 2000 compared to $815,000 for the same period
of 1999, an increase of $2.0 million. The increase is primarily related to non-
cash compensation expense of $1.4 million from options for common stock issued
with exercise prices below the deemed market value of common stock used for
financial reporting purposes. There was no non-cash compensation expense in the
same quarter of 1999. The remainder of the increase is primarily related to
salaries and other personnel costs in 2000 associated with our engaging
additional software developers.
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Selling and marketing. Selling and marketing expenses increased to $1.4 million
compared to $342,000 for the same period of 1999, an increase of $1.0 million.
The increase if primarily due to non-cash compensation expense of $700,000 from
options for common stock issued with exercise prices below the deemed market
value of common stock used for financial reporting purposes. Additional
salaries, travel and other personnel costs comprise $174,000 of the change and
represent the majority of the remaining increase in costs due to the expansion
of our selling and marketing team.
General and administrative. General and administrative expenses increased to
$2.5 million compared to $125,000 in the same period of 1999, an increase of
$2.3 million. The increase was due primarily to non-cash compensation expense
of approximately $2.0 million during the first quarter of 2000 from options
issued with exercise prices below the deemed market value of the common stock
for financial reporting purposes. There was no deferred compensation expense
for the comparable period of 1999. The remaining increase was due primarily to
additions to our management team.
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 at exercise prices of
$0.75 and $4.50 per share, we recorded additional deferred stock compensation
of $24.9 million for the quarter ended March 31, 2000.
Deferred compensation is included as a component of stockholder's equity and is
being amortized in accordance with FASB interpretation No. 28 over the vesting
periods of the related options, which are generally four of five years.
Amortization of deferred stock compensation totaled $4.1 million for the
quarter ended March 31, 2000. There was no deferred compensation in the
comparative quarter of 1999. We will recognize additional compensation expense
of $10,727,000, for the remainder of 2000, $8,041,000 in 2001, $4,568,000 in
2002, $2,293,000 in 2003, $ 760,000 in 2004, and $49,000 in 2005.
On March 13, 2000, we issued 10,022,635 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 recorded a one-time charge to earnings applicable
to common stock holders 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 $114,000 for the quarter compared
to $67,000 for the same period in 1999, and increase of $47,000. The increase
was primarily due to our higher average cash and investment balances during the
period.
Interest expense. Interest expense increased to $17,000 compared to $6,000 for
the same period of 1999. The increase is due to higher average outstanding debt
related to capital leases for equipment.
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 $99,000 from
additional customer service and support costs, $57,000 from software royalty
payments for third-party software licenses and $159,000 from 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.
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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
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 $552,000 from salaries, $198,000 from travel and $171,000 from
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.
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Costs of revenue. Costs of revenue were $141,000 in 1998. These costs were
associated with customer service and support expenses.
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 $65,000 from an increase in salaries, and other personnel costs,
and $37,000 from travel 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 March 31, 2000, we had cash, cash equivalents and short-term investments
of approximately $18.2 million, up from the $5.2 million of cash, cash
equivalents and short-term investments at December 31, 1999. This increase
reflects the $15.0 million in net proceeds from our Series C preferred stock
offering closed March 13, 2000, offset by cash used to fund our operations in
the quarter.
During the quarter we used cash of approximately $2.8 million to fund our net
losses of $6.3 million, adjusted for non-cash charges for depreciation and
deferred compensation amortization totaling $4.2 million, and $700,000 for
changes in various operating assets.
Our investing activities for the quarter required cash of $4.8 million, and
consisted primarily of purchases and maturities of short-term investments and
purchases of property and equipment used in our business. We expect to make
additional investments in our infrastructure to support and expand operations
during the remainder of 2000.
Our financing activities for the quarter ended March 31, 2000 generated $15.2
million dollars comprised primarily of $15.0 million in net proceeds from our
Series C preferred stock and $246,000 from the exercise of stock options.
We expect our cash requirements to continue to increase significantly for the
rest of 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.
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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.
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% 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.
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, or FASB, issued
Statement of Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities", or 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", or 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, or SEC, issued Staff
Accounting Bulletin No. 101, "Revenue Recognition", or 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 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.
These methods of analysis have the greatest need for bioinformatic software to
manage and analyze this data.
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.
. 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.
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. 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.
. 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, including companies that manufacture
devices to generate genomic data, provide genomic data content or have
developed other scientific software development tools. 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
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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.
. 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.
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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 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.
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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 and
we are scheduled to complete the development of this new technology
architecture in 2000. We will transition all existing customers to the
redeveloped product at no additional cost to them. We expect to incur
additional development costs of approximately $ million to complete the
development of the new technology architecture.
Research and Development
As of April 15, 2000, we had 41 employees working in research and development,
of which 16 were working on the development of the current Discovery Manager
product and 25 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 offer a full range of consulting services on a fee-
for-service basis in conjunction with Discovery Manager, including the
following:
. 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.
We intend to expand our research and development and customer service
personnel if demand for these services increase.
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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 April 15, 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.
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.
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As a part of our marketing efforts, we provide our product and other support to
some leading genomics research institutions at no cost to them. These
institutions 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 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 due to
the ability of a wide variety of researchers to use Discovery Manager, the
input of leading genomics researchers in the development of Discovery Manager
and the frequent upgrades of our product.
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
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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 April 15, 2000, we had 65 full-time employees, including 41 employees
primarily engaged in research and development, 11 in sales and marketing, four
in customer support and nine 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 recently entered into a lease agreement
for 24,000 square feet in a different location in Boulder, Colorado. We also
have entered into an amendment to this lease agreement for an additional 14,000
square feet beginning in July 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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Management
Executive Officers and Directors
The following table sets forth, as of April 15, 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.
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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 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.
35
<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
Our audit committee consists of Messrs. Caruthers, Christoffersen and Nelsen.
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.
Our compensation committee consists of Messrs. Caruthers, Nelsen and Rathmann.
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
Dr. 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.
36
<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 $ 9,490,165 $ 15,150,595
33(2) * 0.18 12/1/09 854 1,364
Thomas G. Marr.......... 66,666(2) 9.6% 0.18 6/21/09 1,725,470 2,754,631
33(2) * 0.18 12/1/09 854 1,364
Daniel R. Hudspeth...... 33,333(1) 4.8% 0.18 4/5/09 862,735 1,377,316
33(2) * 0.18 12/1/09 854 1,364
James E. Clemens........ 33(2) * 0.18 12/1/09 854 1,364
Susan E. Strong......... 8,333(3) 1.2% 0.18 4/15/09 215,677 344,319
33(2) * 0.18 12/7/09 854 1,364
</TABLE>
- ------------------
* Less than 1%.
(1) 25% of the options vest on June 21,2000. The remaining 75% vest in 36 equal
monthly installments thereafter.
(2) 100% vested on the grant date.
(3) 25% of the options vest on April 6, 2000. The remaining 75% vest in 36
equal monthly installments thereafter.
(4) 25% of the options vest on December 8, 1999. The remaining 75% vest in 36
equal monthly installments thereafter.
37
<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......... -- -- 2,116 6,250 33,475 98,875
</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 April 15, 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 [ ] 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.
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
38
<PAGE>
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.
Teresa W. Ayers
On March 15, 2000, we entered into an employment agreement with Teresa W.
Ayers, our Chief Executive Officer. The agreement provides for an annual base
salary of $225,000, which will be reviewed at least annually and increased at
the discretion of the board of directors or compensation committee. Ms. Ayers
was also granted an option to purchase 2,100,100 shares of our common stock,
subject to the terms and conditions set forth in the stock option agreement
attached to her employment agreement.
39
<PAGE>
Either of us can terminate Ms. Ayers' employment at any time. However, if we
terminate Ms. Ayers' employment without just cause or if she resigns for good
reason, she will be entitled to receive all or part of her annual salary
depending on how long after the effective date of the employment agreement the
termination or resignation occurs. Upon termination of her employment for any
reason, and at our discretion, Ms. Ayers agreed to enter into a consulting
arrangement with us for a period of up to one year.
Ms. Ayers' employment agreement contains a covenant not to compete which
prohibits her, during her employment and for one year after the termination of
employment with us, from engaging in any activities in competition with us,
from accepting employment or establishing a business relationship with our
competitors, other than those in which she is a passive investor. In addition,
Ms. Ayers' employment agreement contains a non-solicitation provision which
prohibits, during her employment and for one year after the termination of
employment with us, from hiring or soliciting any of our employees or
soliciting our clients, investors, independent contractors and other third
parties to negatively alter their relationship with us.
Thomas G. Marr
On March 15, 2000, we entered into an employment agreement with Thomas G. Marr,
our Chief Operational Officer. The agreement provides for an annual base salary
of $225,000, which will be reviewed at least annually and increased at the
discretion of the board of directors or compensation committee. Mr. Marr also
purchased 1,080,000 shares of the Company's stock for $1,080,000 pursuant to
the stock acquisition agreement attached to his employment agreement. In
addition, Mr. Marr was granted an option to purchase 1,400,100 shares of our
common stock, subject to the terms and conditions set forth in the stock option
agreement attached to his employment agreement.
Either of us can terminate Mr. Marr's employment at any time. However, if we
terminate Mr. Marr's employment without just cause or if he resigns for good
reason, he will be entitled to receive all or part of his annual salary
depending on how long after the effective date of the employment agreement the
termination or resignation occurs. Upon termination of his employment for any
reason, and at our discretion, Mr. Marr agreed to enter into a consulting
arrangement with us for a period of up to one year.
Mr. Marr's employment agreement contains a covenant not to compete which
prohibits him, during his employment and for one year after the termination of
employment with us, from engaging in any activities in competition with us,
from accepting employment or establishing a business relationship with our
competitors, other than those in which he is a passive investor. In addition,
Mr. Marr's employment agreement contains a non-solicitation provision which
prohibits, during his employment and for one year after the termination of
employment with us, from hiring or soliciting any of our employees or
soliciting our clients, investors, independent contractors or other third
parties to negatively alter their relationship with us.
40
<PAGE>
Principal Stockholders
The following table sets forth information with respect to beneficial ownership
of our common stock as of April 15, 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 15,675,705 shares of
common stock outstanding as of April 15, 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 21,675,705 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 April 15, 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, 1745 38th Street, Boulder, CO 80301.
<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 -- 25.4% 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................... 565,587 55,588 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.......... 13,333 13,333 * *
Arnold J. Levine................. 13,333 13,333 * *
Robert T. Nelsen (7)............. 1,727,180 16,493 11.0% 8.0%
James L. Rathmann (8)............ 3,075,987 66,673 19.6% 14.1%
All current directors and
executive officers as a group
(10 persons) (9)................ 6,177,030 166,387 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.
41
<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.
42
<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."
Employment Agreements
We have entered into employment agreements with certain of our officers.
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.
43
<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 April 15, 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 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 April 15, 2000, and assuming conversion of all outstanding preferred
stock into common stock upon the closing of the offering, there were
outstanding [ ] shares of common stock held of record by [ ]
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.
Preferred Stock
As of April 15, 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 become exercisable for 41,500
shares of common stock upon 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.
44
<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.
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
45
<PAGE>
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".
46
<PAGE>
Shares Eligible for Future Sale
When the offering is completed, we will have a total of 21,675,705 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
15,675,705 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 April 15, 2000, will equal
approximately 216,757 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, 12,334,828 shares
of our common stock will be eligible for sale under Rule 144, including
1,053,121 shares under Rule 144(k), and 913,581 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
15,601,120 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 unless permitted by the
underwriters.
47
<PAGE>
Plan of Distribution
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..................................
Prudential Securities Incorporated.......................
Dain Rauscher 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 to investors 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 generally change the offering price and other selling
terms, but no reduction in price shall change the amount of proceeds we will
receive, as set forth on the cover page of this prospectus.
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 civil and other
liabilities relating to this offering as specified in the underwriting
agreement, 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 15,601,120 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
48
<PAGE>
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.
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. We will allocate these reserved shares among prospective
recipients who, after receipt of a preliminary prospectus and no later than
[four] days prior to the effective date of this offering, submit to CIBC World
Markets an indication of interest form specifying the number of shares
requested and supplying other required information. At the effective time of
this offering, CIBC World Markets will inform prospective recipients of the
offering price and the number of shares they may purchase and give the
recipients the opportunity to purchase any portion of such shares or withdraw
their indication of interest. 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 discourage resales of the shares and cause
the price of the shares to be higher than the price that might otherwise
prevail in the open market.
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.
49
<PAGE>
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.
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, 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.
50
<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, March 31,
------------------------- -----------
1998 1999 2000
----------- ------------ -----------
(unaudited)
ASSETS
------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................. $ 5,222,549 $ 3,518,570 $11,108,401
Short-term investments.................... -- 2,824,763 7,058,611
Accounts receivable-trade................. -- 360,000 136,713
Prepaid expenses and other................ 53,151 148,037 233,423
----------- ------------ -----------
Total current assets.................. 5,275,700 6,851,370 18,537,148
----------- ------------ -----------
PROPERTY AND EQUIPMENT, net................. 349,394 673,479 1,455,674
DEFERRED FINANCING COST..................... -- -- 300,736
DEPOSITS.................................... -- -- 350,000
OTHER ASSETS................................ 24,309 28,786 52,392
----------- ------------ -----------
Total assets.......................... $ 5,649,403 $ 7,553,635 $20,695,950
=========== ============ ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable.......................... $ 229,615 $ 318,206 $ 551,117
Accrued compensation and employee
benefits................................. 93,593 289,538 264,250
Current portion of note payable........... 166,667 -- --
Current portion of capital lease
obligations.............................. 44,435 130,142 126,930
Deferred revenue.......................... 123,333 829,601 582,702
Other accrued expenses.................... 49,046 37,429 240,379
----------- ------------ -----------
Total current liabilities............. 706,689 1,604,916 1,765,378
----------- ------------ -----------
LONG-TERM DEBT:
Capital lease obligations, net of current
portion.................................. 70,556 268,157 240,182
----------- ------------ -----------
Total liabilities..................... 777,245 1,873,073 2,005,560
----------- ------------ -----------
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 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 12,369,208
Series C, 10,022,634 shares issued and
outstanding (liquidation value--
$15,033,952)........................... -- -- 15,008,815
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 1,977
Treasury stock, at cost................... (182) (182) (6,807)
Additional paid-in capital................ 25,103 31,228 15,284,889
Options and warrants...................... 82,298 7,764,767 32,482,645
Deferred compensation..................... -- (5,772,446) (26,437,747)
Accumulated deficit....................... (8,638,948) (16,217,419) (37,516,856)
----------- ------------ -----------
Total stockholders' equity............ 4,872,158 5,680,562 18,690,390
----------- ------------ -----------
Total liabilities and stockholders'
equity............................... $ 5,649,403 $ 7,553,635 $20,695,950
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
GENOMICA CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
For The Years Ended December 31, March 31,
------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUE:
Software licenses and
services.............. $ -- $ 196,892 $ 622,230 $ 90,000 $ 343,589
Research grants........ -- -- 159,100 -- 26,680
----------- ----------- ----------- ----------- ------------
Total revenue........ -- 196,892 781,330 90,000 370,269
----------- ----------- ----------- ----------- ------------
OPERATING EXPENSES:
Costs of revenue....... -- 141,490 447,057 62,307 102,930
Research and
development........... 1,681,868 2,327,569 4,868,577 815,797 2,817,572
Selling and marketing.. 495,068 633,551 1,722,141 341,638 1,365,943
General and
administrative........ 578,952 884,267 1,723,364 124,542 2,471,911
----------- ----------- ----------- ----------- ------------
Total operating
expenses............ 2,755,888 3,986,877 8,761,139 1,344,284 6,758,356
----------- ----------- ----------- ----------- ------------
Operating loss...... (2,755,888) (3,789,985) (7,979,809) (1,254,284) (6,388,087)
INTEREST INCOME......... 37,219 90,325 419,279 66,769 114,232
INTEREST EXPENSE........ (19,581) (55,214) (17,941) (5,469) (16,767)
----------- ----------- ----------- ----------- ------------
NET LOSS................ (2,738,250) (3,754,874) (7,578,471) (1,192,984) (6,290,622)
ACCRETION OF PREFERRED
STOCK TO REDEMPTION
VALUE................. -- -- -- -- 15,008,815
NET LOSS APPLICABLE TO
COMMON STOCKHOLDERS... $(2,738,250) $(3,754,874) $(7,578,471) $(1,912,984) $(21,299,437)
=========== =========== =========== =========== ============
NET LOSS PER SHARE,
basic and diluted...... $ (2.80) $ (3.81) $ (7.13) $ (1.15) $ (6.29)
=========== =========== =========== =========== ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING,
basic and diluted...... 976,532 986,015 1,062,392 1,040,271 3,387,681
=========== =========== =========== =========== ============
PRO FORMA NET LOSS PER
SHARE (UNAUDITED--
NOTE 2):
Net loss per share,
basic and diluted.... $ (0.68) $ (0.36) $ (1.72)
=========== =========== ============
Weighted average
common shares
outstanding, basic
and diluted.......... 11,120,510 3,294,547 12,390,619
=========== =========== ============
</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 Series C Common Stock Treasury Stock
--------------------- ---------------------- ---------------------- ---------------- ----------------
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
---------- ---------- ---------- ----------- ---------- ----------- --------- ------ ------- -------
<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)
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)
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........... -- -- -- -- -- -- -- -- -- --
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 -- --
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)
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) -- -- -- -- -- --
Issuance of
common stock
upon exercise of
options......... -- -- -- -- -- -- 34,214 34 -- --
Deferred
compensation.... -- -- -- -- -- -- -- -- -- --
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)
Purchase of
treasury stock
(unaudited)..... -- -- -- -- -- -- -- -- (36,805) (6,625)
Issuance of
common stock
upon exercise of
options
(unaudited)..... -- -- -- -- -- -- 837,124 837 -- --
Deferred
compensation
(unaudited)..... -- -- -- -- -- -- -- -- -- --
Deferred
compensation
adjustment for
terminated
employees
(unaudited)..... -- -- -- -- -- -- -- -- -- --
Amortization of
deferred
compensation
(unaudited)..... -- -- -- -- -- -- -- -- -- --
Sale of Series C
preferred stock
in March 2000
for cash of
$1.50 per share,
net of offering
costs of $25,137
(unaudited)..... -- -- -- -- 10,022,634 $15,008,815 -- -- -- --
Accretion of
preferred stock
to redemption
value
(unaudited)..... -- -- -- -- -- -- -- -- -- --
Net loss
applicable to
common
stockholders
(unaudited)..... -- -- -- -- -- -- -- -- -- --
---------- ---------- ---------- ----------- ---------- ----------- --------- ------ ------- -------
Balances, March
31, 2000
(unaudited)..... 12,533,676 $7,504,266 18,826,959 $12,369,208 10,022,634 $15,008,815 1,977,197 $1,977 (97,569) $(6,807)
========== ========== ========== =========== ========== =========== ========= ====== ======= =======
<CAPTION>
Additional Options Deferred Accumu-
Paid-In and Compen- lated
Capital Warrants sation Deficit Total
----------- ------------ ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balances,
December 31,
1996............ $ 1,953 $ -- $ -- $ (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............ 1,953 -- -- (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 -- -- 82,298
Conversion of
notes payable in
December 1998 at
$0.72 per share. -- -- -- -- 940,272
Issuance of
common stock
upon exercise of
options......... 23,150 -- -- -- 23,279
Net loss........ -- -- -- (3,754,874) (3,754,874)
----------- ------------ ------------- ------------- ------------
Balances,
December 31,
1998............ 25,103 82,298 -- (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........... -- 241,126 -- -- --
Issuance of
common stock
upon exercise of
options......... 6,125 -- -- -- 6,159
Deferred
compensation.... -- 7,441,343 (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............ $ 31,228 $ 7,764,767 $ (5,772,446) $(16,217,419) $ 5,680,562
Purchase of
treasury stock
(unaudited)..... -- -- -- -- (6,625)
Issuance of
common stock
upon exercise of
options
(unaudited)..... 244,846 -- -- -- 245,683
Deferred
compensation
(unaudited)..... -- 24,864,004 (24,864,004 -- --
Deferred
compensation
adjustment for
terminated
employees
(unaudited)..... -- (146,126) 146,126 -- --
Amortization of
deferred
compensation
(unaudited)..... -- -- 4,052,577 -- 4,052,577
Sale of Series C
preferred stock
in March 2000
for cash of
$1.50 per share,
net of offering
costs of $25,137
(unaudited)..... -- -- -- -- 15,008,815
Accretion of
preferred stock
to redemption
value
(unaudited)..... 15,008,815 -- -- -- 15,008,815
Net loss
applicable to
common
stockholders
(unaudited)..... -- -- -- (21,299,437) (21,299,437)
----------- ------------ ------------- ------------- ------------
Balances, March
31, 2000
(unaudited)..... $15,284,889 $32,482,645 $(26,437,747) $(37,516,856) $18,690,390
=========== ============ ============= ============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
GENOMICA CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Three Months
For The Years Ended December 31, Ended March 31,
-------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ------------ ------------ -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss............... $(2,738,250) $(3,754,874) $ (7,578,471) $ (1,192,984) $(6,290,622)
Adjustments to
reconcile net loss to
net cash used in
operating activities--
Depreciation.......... 69,422 176,926 253,016 53,521 103,907
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 -- 4,052,577
Depoists.............. -- -- -- -- (350,000)
Change in Other
Assets............... -- (4,174) (4,477) -- (23,606)
Changes in operating
assets and
liabilities--
Accounts receivable.. -- -- (360,000) -- 223,287
Prepaid Expenses and
Other assets........ 2,168 (13,953) (94,886) (1,470) (85,386)
Accounts payable..... 47,682 83,848 88,591 (77,230) 232,911
Accrued compensation
and employee
benefits............ 93,825 (8,841) 195,945 14,830 25,288
Deferred revenue..... -- 123,333 706,268 (90,000) (246,899)
Other accrued
expenses............ 107,379 (109,652) (11,617) 11,658 202,950
----------- ----------- ------------ ------------ -----------
Net cash used in
operating
activities......... (2,417,774) (3,484,817) (5,098,681) (1,278,735) (2,206,169)
----------- ----------- ------------ ------------ -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Redemptions of held-to-
maturity securities... -- 2,462,412 16,480,000 -- 2,254,684
Purchases of held-to-
maturity securities... (2,462,412) -- (19,342,816) -- (6,488,532)
Purchases of property
and equipment......... (209,071) (157,095) (223,480) (37,418) (886,102)
----------- ----------- ------------ ------------ -----------
Net cash provided by
(used in) investing
activities......... (2,671,483) 2,305,317 (3,086,296) (37,418) (5,119,950)
----------- ----------- ------------ ------------ -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Payments on capital
leases................ (4,683) (11,239) (70,313) (7,591) (31,187)
Proceeds from issuance
of loan............... 400,000 -- -- -- --
Principal payments on
loan.................. (33,333) (200,000) (166,667) (50,000) --
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 7,249,999 15,033,952
Costs related to
issuance of preferred
stock................. (45,943) (332,264) (538,180) (538,180) (25,137)
Deferred Financing
Costs................. -- -- -- -- (300,736)
Proceeds from exercise
of common stock
options............... -- 23,279 6,159 720 245,683
Purchase of treasury
stock................. -- -- -- -- (6,625)
----------- ----------- ------------ ------------ -----------
Net cash provided by
financing
activities......... 5,366,041 5,770,283 6,480,998 6,654,948 14,915,950
----------- ----------- ------------ ------------ -----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS............ 276,784 4,590,783 (1,703,979) 5,338,795 7,589,831
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD.............. 354,982 631,766 5,222,549 5,222,549 3,518,510
----------- ----------- ------------ ------------ -----------
CASH AND CASH
EQUIVALENTS,
END OF PERIOD.......... $ 631,766 $ 5,222,549 $ 3,518,570 $ 10,561,344 $11,108,401
=========== =========== ============ ============ ===========
</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 For The Three Months
December 31, Ended March 31,
------------------------ --------------------
1997 1998 1999 1999 2000
------- ------- -------- -------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest......... $19,581 $32,644 $ 17,941 $ 5,469 $ 16,767
======= ======= ======== ======== ===========
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 $241,126 $ --
======= ======= ======== ======== ===========
Accretion of preferred stock to
redemption value.............. $ -- $ -- $ -- $ -- $15,008,815
======= ======= ======== ======== ===========
</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
(Including Information Related to Unaudited Periods)
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.
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.
F-8
<PAGE>
GENOMICA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Including Information Related to Unaudited Periods)
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>
During the first quarter of 2000, the Company sold one of its debt
securities originally classified as held-to-maturity. The Company realized a
loss of $465 on the sale of this $405,000 debt security. The Company sold this
security to purchase a Certificate of Deposit in order to secure a letter of
credit.
Due to the sale of this security, the Company has concluded that they no
longer have the intent to hold their debt securities to maturity, and thus will
now account for their investments in debt securities as available-for-sale.
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.
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.
F-9
<PAGE>
GENOMICA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Including Information Related to Unaudited Periods)
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.
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
F-10
<PAGE>
GENOMICA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Including Information Related to Unaudited Periods)
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).
During the three months ended March 31, 2000, the Company began accounting
for its short-term investments as available-for-sale Investments. The
difference between the fair market value and the carrying amount of the
Company's short-term investments was immaterial and thus there is no
comprehensive income (loss) to account for as of March 31, 2000.
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.
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.
F-11
<PAGE>
GENOMICA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Including Information Related to Unaudited Periods)
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.
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.
F-12
<PAGE>
GENOMICA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Including Information Related to Unaudited Periods)
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.
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.
F-13
<PAGE>
GENOMICA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Including Information Related to Unaudited Periods)
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 Deferred Stock Expense Unamortized Deferred Stock Expense To Be Recognized
Recognized During The Recognized During During the Years Ending December 31,
Year Ended The Quarter Ended ----------------------------------------------------
December 31, 1999 March 31, 1999 2000 2001 2002 2003
---------------------- ---------------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Research and
development............ $ 846,131 $1,370,283
Selling and marketing... 85,114 700,395
General and
administrative......... 737,652 1,981,899
---------- ----------
$1,668,897 $4,052,577 $ 10,726,749 $ 8,041,226 $ 4,567,910 $ 2,293,036
========== ========== ============= ============ ============ ============
</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.
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>
F-14
<PAGE>
GENOMICA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Including Information Related to Unaudited Periods)
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
=========
Granted (unaudited)........................... 1,662,666 $0.35
Forfeited (unaudited)......................... (20,277) $0.06
Exercised (unaudited)......................... (837,000) $0.10
---------
Outstanding at March 31, 2000 (unaudited)....... 1,809,113 $
========= =====
</TABLE>
As of December 31, 1997, 1998 and 1999 and March 31, 2000, 50,459, 106,465,
261,991, and 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 periods ended December 31, 1997, 1998 and 1999 and
March 31, 1999 and 2000.
F-15
<PAGE>
GENOMICA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Including Information Related to Unaudited Periods)
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)
(Including Information Related to Unaudited Periods)
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>
F-17
<PAGE>
GENOMICA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Including Information Related to Unaudited Periods)
The fair value of these warrants have been included as a discount to the
related debt.
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)
(Including Information Related to Unaudited Periods)
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--(Continued)
(Including Information Related to Unaudited Periods)
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 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
F-20
<PAGE>
GENOMICA CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Including Information Related to Unaudited Periods)
vesting periods of approximately $ relating to these grants for the
difference between the exercise price and the deemed fair market value for
financial reporting purposes.
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
Prudential Vector Healthcare
a unit of Prudential Securities
Dain Rauscher Wessels
- -----------------------------------------------------------------
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 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 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 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 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 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.
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.
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 November 1996.
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> <C>
10.24+ Master Lease Agreement between Genomica Corporation and
Transamerica Business Credit Corporation, dated November 3,
1998.
10.25** Project Development and Reseller Agreement between Genomica
Corporation and PE Biosystems, dated April 7, 2000.
10.26 Employment Agreement between Genomica Corporation and Teresa W.
Ayers, dated March 15, 2000.
10.27 Employment Agreement between Genomica Corporation and Thomas G.
Mass, dated March 15, 2000.
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.
**The Company is applying for confidential treatment with respect to portions
of this exhibit.
+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. 2 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 April , 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. 2 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 April , 2000
____________________________________ Directors
James L. Rathmann
* Chief Executive Officer and April , 2000
____________________________________ Director (Principal
Teresa W. Ayers Executive Officer)
* President, Chief Scientist April , 2000
____________________________________ and Director
Thomas G. Marr
Vice President of Finance, April , 2000
____________________________________ Chief Financial Officer,
Daniel R. Hudspeth Secretary and Treasurer
(Principal Financial and
Accounting Officer)
* Director April , 2000
____________________________________
Marvin H. Caruthers
* Director April , 2000
____________________________________
Ralph E. Christoffersen
* Director April , 2000
____________________________________
Arnold J. Levine
* Director April , 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 November
1996.
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.
10.25** Project Development and Reseller Agreement between Genomica
Corporation and PE Biosystems, dated April 7, 2000.
10.26 Employment Agreement between Genomica Corporation and Teresa
W. Ayers, dated March 15, 2000.
10.27 Employment Agreement between Genomica Corporation and Thomas
G. Mass, dated March 15, 2000.
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.
** The Company is applying for confidential treatment with respect to portions
of this exhibit.
+ Previously filed.
<PAGE>
[LETTERHEAD OF COOLEY GODWARD LLP]
April 18, 2000
Genomica Corporation
1745 38th Street
Boulder, Colorado 80301
Ladies and Gentlemen:
You have requested our opinion with respect to certain matters in connection
with the filing by Genomica Corporation, a Delaware corporation (the "Company"),
of a Registration Statement on Form S-1 (the "Registration Statement") with the
Securities and Exchange Commission (the "Commission"), including a prospectus to
be filed with the Commission pursuant to Rule 424(b) of Regulation C promulgated
under the Securities Act of 1933, as amended, and the underwritten public
offering of up to 6,900,000 shares of the Company's Common Stock (the "Shares"),
including 900,000 shares for which the underwriters have been granted an over-
allotment option.
In connection with this opinion, we have (i) examined and relied upon the
Registration Statement, and (ii) reviewed the Company's Certificate of
Incorporation and Bylaws, as currently in effect and as proposed to be amended
prior to the closing of the offering, and the originals or copies certified to
our satisfaction of such records, documents, certificates, memoranda and other
instruments as in our judgment were necessary or appropriate to enable us to
render the opinion expressed below.
On the basis of the foregoing and in reliance thereon, we are of the opinion
that the Shares, when issued and paid for in accordance with the underwriting
agreement filed as an exhibit to the Registration Statement, will be validly
issued, fully paid and nonassessable.
We consent to the reference to our firm under the caption "Legal Matters" in the
Registration Statement and to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
Cooley Godward llp
By: /s/ James C. T. Linfield
--------------------------
James C. T. Linfield
<PAGE>
Exhibit 10.25
[GENOMICA LETTERHEAD]
4001 Discovery Drive, Suite 130
Boulder, Colorado 80303
Phone: (303) 402-9800
Fax: (303) 402-9877
Product Development and
Reseller Agreement
April 7, 2000
The information in this Agreement shall not be disclosed outside PE Biosystems
and shall not be duplicated, used or disclosed in whole or in part for any
purpose other than to evaluate the Agreement, provided that if the Agreement is
signed, PE Biosystems shall have the right to duplicate, use or disclose the
information for archival and other internal purposes, or as otherwise provided
by the Agreement. This restriction does not limit the right of PE Biosystems to
use information contained in the Agreement if it is obtained from another
source authorized to disclose it.
<PAGE>
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Table of Contents...................................................................... 2
Section 1.0 Definitions.............................................................. 7
1.1 Distribute................................................................... 7
1.2 Documentation................................................................ 7
1.3 End-Customer................................................................. 7
1.4 Evaluation Product........................................................... 8
1.5 Exclusive.................................................................... 8
1.6 Genomica Product............................................................. 8
1.7 GeneMapper Product........................................................... 8
1.8 Object Code.................................................................. 8
1.9 Sale......................................................................... 8
1.10 Software License Agreement................................................. 8
1.11 Sold Product............................................................... 9
1.12 Source Code................................................................ 9
1.13 Source Party............................................................... 9
1.14 Technical Support.......................................................... 9
1.15 Technical Support and Maintenance Agreement................................ 9
Section 2.0 APPOINTMENT AS RESELLER................................................ 9
2.1 Appointment of Reseller...................................................... 9
2.2 Conditional Exclusivity...................................................... 9
2.3 Effect of Non-Exclusivity.................................................... 10
2.4 Relationship as Asset........................................................ 10
Section 3.0 GENOMICA PRODUCT LICENSE GRANT......................................... 10
3.1 Distribution License......................................................... 10
3.2 Copying License Grant........................................................ 11
3.3 Evaluation, Training and Demonstration License Grant......................... 11
3.4 Development License Grant.................................................... 11
3.5 Documentation License Grant.................................................. 11
3.6 Proprietary Notices.......................................................... 11
3.7 Ownership.................................................................... 11
3.8 Derivative Rights............................................................ 12
3.9 Remedies..................................................................... 12
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 4.0 REPRESENTATIONS AND OBLIGATIONS.............................................. 12
4.1 Product Feedback................................................................ 12
4.2 Representations on Behalf of the Other Party.................................... 12
4.3 Ethical Conduct................................................................. 12
4.4 Representations................................................................. 13
Section 5.0 MARKETING AND LAUNCH SUPPORT................................................. 13
5.1 Appointment of Principal Marketing Contact Person............................... 13
5.2 Datasheet Development........................................................... 13
5.3 Genomica Collateral Material.................................................... 13
5.4 Tag-Along Marketing............................................................. 13
5.5 Advertising..................................................................... 14
5.6 Co-Marketing Responsibilities................................................... 14
5.7 Industry Events................................................................. 14
5.8 Users Conference Participation.................................................. 14
5.9 PEB Internal Sales Meetings..................................................... 14
5.10 Sales Training................................................................ 14
5.11 Sales Binder.................................................................. 15
5.12 Mutual References............................................................. 15
5.13 Promotional Materials......................................................... 15
5.14 Evaluation, Training and Demonstration License Grant.......................... 15
Section 6.0 BRANDING AND TRADEMARKS...................................................... 15
6.1 Dual-Branding................................................................... 15
6.2 Trademarks...................................................................... 16
6.3 Use of Trademarks............................................................... 16
Section 7.0 GENOMICA PRODUCT DEVELOPMENT................................................. 16
7.1 Appointment of Project Manager.................................................. 16
7.2 Development Schedule Sharing.................................................... 16
7.3 Integration Definition.......................................................... 17
7.4 Integration Testing............................................................. 17
7.5 GeneMapper Product License Grant................................................ 17
7.6 Beta Sites...................................................................... 17
7.7 Pre-Release Evaluation Program Participation.................................... 17
7.8 Genomica Product Updates........................................................ 17
7.9 Retiring Genomica Product....................................................... 17
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
7.10 Retiring GeneMapper Product.................................................................... 18
7.11 Ownership of Integration Intellectual Property................................................. 18
Section 8.0 TECHNICAL SUPPORT........................................................................... 18
8.1 End-Customer Technical Support by Genomica..................................................... 18
8.2 End-Customer Technical Support by PEB.......................................................... 18
8.2.1 PEB Responsible For Total Customer Support................................................... 18
8.2.2 Technical Support Outside of North America and Europe........................................ 18
8.2.3 Technical Support In North America and Europe................................................ 19
8.2.4 Customer Dissatisfaction with Genomica Support............................................... 19
8.2.5 Technical Support Warranties................................................................. 19
8.2.6 Technical Support Assistance from Genomica................................................... 19
8.3 GeneMapper Product Technical Support Requests to Genomica...................................... 19
8.4 Evaluation Product Support..................................................................... 19
Section 9.0 MANUFACTURING AND DISTRIBUTION.............................................................. 20
9.1 Materials Hand-off............................................................................. 20
9.1.1 Materials Acceptance......................................................................... 20
9.2 CD Manufacturing and Quality Assurance......................................................... 20
9.3 Documentation Manufacturing and Quality Assurance.............................................. 20
9.4 Shipping Container Manufacturing and Quality Assurance......................................... 20
9.5 Genomica Product Package Assembly.............................................................. 21
9.6 Genomica Sign-off.............................................................................. 21
9.7 Genomica Product Inventory..................................................................... 21
9.8 Genomica Product Distribution.................................................................. 21
9.9 Distribution of Current Materials.............................................................. 21
9.10 Evaluation Product Distribution.............................................................. 21
9.11 Update Product Distribution.................................................................. 21
Section 10.0 SALES, ORDER PROCESSING AND COLLECTIONS..................................................... 22
10.1 PEB Sales Material........................................................................... 22
10.2 PEB Sales Effort............................................................................. 22
10.3 Genomica Presales Support.................................................................... 22
10.4 Sale of Technical Support and Maintenance Contracts.......................................... 22
10.4.1 Notification of Technical Support and Maintenance Sale...................................... 22
10.5 Sales Leads.................................................................................. 23
10.6 Order Processing............................................................................. 23
10.7 Collections.................................................................................. 23
Section 11.0 PAYMENTS TO GENOMICA........................................................................ 23
11.1 Fees......................................................................................... 23
11.1.1 Payments.................................................................................... 23
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
11.1.2 Fee Payment Schedule..................................................................... 23
11.1.3 Non Fee-Generating Activities............................................................ 23
11.1.4 Returns.................................................................................. 24
11.2 Payments...................................................................................... 24
11.2.1 Form of Payment.......................................................................... 24
11.2.2 Late Payments............................................................................ 24
11.2.3 Right to Challenge....................................................................... 24
11.3 Reporting..................................................................................... 24
11.4 Record Inspection and Audit................................................................... 24
11.4.1 Record Keeping and Archiving............................................................. 24
11.4.2 Auditing................................................................................. 24
11.4.3 Underpayment............................................................................. 25
11.5 Taxes......................................................................................... 25
Section 12.0 TERM AND TERMINATION..................................................................... 25
12.1 Initial Term.................................................................................. 25
12.2 Termination................................................................................... 25
12.2.1 Breach................................................................................... 25
12.2.2 Insolvency............................................................................... 26
12.2.3 Acquisition, Change of Control or Merger................................................. 26
12.3 Effect of Termination......................................................................... 26
12.4 Survival...................................................................................... 26
Section 13.0 CONFIDENTIALITY.......................................................................... 26
13.1 Obligations................................................................................... 26
13.2 Exceptions.................................................................................... 27
13.3 Confidentiality Agreements.................................................................... 27
Section 14.0 WARRANTY................................................................................. 28
14.1 Ownership Warranty............................................................................ 28
14.2 Genomica Warranty Disclaimer.................................................................. 28
Section 15.0 INDEMNITIES.............................................................................. 28
15.1 Indemnity..................................................................................... 28
15.2 Exclusions.................................................................................... 28
15.3 Exclusive Remedies............................................................................ 29
15.4 Sole Obligation............................................................................... 29
15.5 PEB Indemnity................................................................................. 29
15.6 Sole Obligation............................................................................... 29
Section 16.0 LIMITATION OF LIABILITY.................................................................. 29
Section 17.0 MISCELLANEOUS............................................................................ 30
17.1 Confidentiality of Agreement.................................................................. 30
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
17.2 Solicitation.................................................................................... 30
17.3 Assignment...................................................................................... 30
17.4 Parties Independent............................................................................. 30
17.5 Force Majeure................................................................................... 31
17.6 Notices......................................................................................... 31
17.7 Governing Law; Forum Selection.................................................................. 31
17.8 Export Regulations.............................................................................. 31
17.9 Government Rights............................................................................... 32
17.10 Severability.................................................................................... 32
17.11 Waiver.......................................................................................... 32
17.12 Entire Agreement................................................................................ 32
EXHIBIT A--GENOMICA PRODUCT DESCRIPTION................................................................. 33
EXHIBIT B--SOFTWARE LICENSE AGREEMENT................................................................... 34
EXHIBIT C--TECHNICAL SUPPORT AND MAINTENANCE AGREEMENT.................................................. 36
EXHIBIT D--PAYMENTS AND SALES MILESTONES................................................................ 39
EXHIBIT E--TRADEMARKS................................................................................... 40
EXHIBIT F--GENOMICA PRODUCT BILL OF MATERIALS........................................................... 41
EXHIBIT G--MONTHLY AND QUARTERLY REPORTING FORMAT....................................................... 42
</TABLE>
<PAGE>
This Product Development and Reseller ("Agreement") is entered into this 7th day
of April, 2000 (the "Effective Date") by and between Genomica Corporation, a
Delaware Corporation with principal offices at 1745 38th Street, Boulder,
Colorado 80301 ("Genomica"), and PE Corporation, by and through its PE
Biosystems divisions, a Delaware corporation with principal offices at 850
Lincoln Center Drive, Foster City, California 94404 ("PEB").
RECITALS
Whereas, PEB desires that Genomica develop, and Genomica desires to develop, a
functional subset of Genomica genetic analysis software that shall be fully
interoperable with PEB's GeneMapper Software Product and that PEB may resell and
Distribute as provided in this Agreement;
Whereas, the parties entered into a Joint Development And Marketing Ageement,
effective September 17, 1999 (the "Joint Development"), which describes the
cooperation between the parties in developing software products in the field of
high throughput linkage viz-a-viz gene sequencing;
Whereas, the parties now desire to provide further detail respecting the Joint
Development by setting forth, in this Agreement, additional development and
resale provisions applicable to software developed primarily by Genomica, as
described herein.
Now, Therefore, in consideration of the foregoing and the mutual covenants
contained herein, the parties agree as follows:
Section 1.0 Definitions
The following words, terms and phrases shall, in this Agreement, have the
following meanings, which shall apply equally to both the singular and plural
forms of the terms defined:
1.1 Distribute
"Distribute" means to issue, transfer or make available to an End-Customer a
Genomica Product by any means now known or hereafter developed.
1.2 Documentation
"Documentation" means all written or electronic technical documentation
furnished by Genomica during the term of this Agreement that relates to the
Genomica Product.
1.3 End-Customer
"End-Customer" means an entity that has obtained from PEB or its Sub-
Distributors (as defined in Section 3.11) a valid license to the GeneMapper
Product and one or more Sold Products for use internally and not for resale,
service bureau (including, but not limited to an Application Service Provider)
or other non-internal commercial use.
<PAGE>
1.4 Evaluation Product
"Evaluation Product" means an Object Code version of the Genomica Product that
is provided, at no charge, to an End-Customer for the purpose of evaluating the
fitness of the Genomica Product to the needs of the End-Customer. An Evaluation
Product must be Distributed for nonproductive, demonstration use with a usage
limitation consistent with the purpose of fitness evaluation, dictated by
Genomica and subject to approval of PEB, which approval shall not be
unreasonably withheld.
1.5 Exclusive
"Exclusive" means PEB shall be the sole distributor of the Genomica Product
having the specific features of Exhibit A.
1.6 Genomica Product
"Genomica Product" means the Object Code format only of a Genomica software
product, with the features as described in Exhibit A, which shall integrate with
PEB's GeneMapper Product in such a manner as to enhance the utility and
marketability of PEB's GeneMapper Product.
1.7 GeneMapper Product
"GeneMapper Product" means the PEB Software Product that performs Allele
Calling, including Personal Oracle, or any functionally similar product
developed and licensed by PEB.
1.8 Object Code
"Object Code" means unmodified software related to the Genomica Product that is
used in the installation or operation of the Genomica Product or in the
preparation of data for, loading of data into or re-formatting of data exported
from the Genomica Product. Object Code includes any Java code, any Oracle
scripts, stored procedures, etc., and any other scripts or codes whether they be
machine-readable or human readable. Object Code also includes any code or other
information obtained by running analytic or transformation tools (such as
decompilers) on any of the above types of items.
1.9 Sale
"Sale" means the Distribution of a Genomica Product or Technical Support and
Maintenance Agreement, regardless of when billing or fee collection actually
occurs by PEB.
1.10 Software License Agreement
"Software License Agreement" means an agreement between Genomica and an End-
Customer that grants the End-Customer the right to use the Genomica Product. An
example of a Software License Agreement is contained in Exhibit B. In no case
shall the terms of the license in Exhibit B interfer with or impair the terms of
this Agreement.
<PAGE>
1.11 Sold Product
"Sold Product" means a license, acquired by an End-Customer, for a non usage-
limited Object Code version of a Genomica Product.
1.12 Source Code
"Source Code" means any software relevant to this Agreement that is not
specifically defined as Object Code.
1.13 Source Party
"Source Party" means either Genomica or PEB, who in the context of a particular
contract term is the party that is providing the product being discussed.
1.14 Technical Support
"Technical Support" means commercially reasonable efforts, undertaken to provide
End-Customers with answers to questions, or to provide valid Technical Support
and Maintenance Agreement licensees with software updates that repair defects in
Genomica Products or its Documentation. Technical Support specifically excludes
providing scientific expertise or consultation services. Such questions may be
submitted to Genomica under a separate consulting agreement.
1.15 Technical Support and Maintenance Agreement
"Technical Support and Maintenance Agreement" means the agreement on Exhibit C
attached to this Agreement, as it may be amended from time to time by Genomica,
between Genomica and an End-Customer that specifies the terms and conditions
under which Genomica will provide Technical Support and product updates to an
End-Customer.
Section 2.0 APPOINTMENT AS RESELLER
2.1 Appointment of Reseller
Subject to the terms and conditions of this Agreement, Genomica hereby appoints
PEB as an "Authorized Genomica Reseller," with worldwide rights to resell the
Genomica Product. This appointment is Exclusive (as defined in Section 2.2) and
non-transferable.
2.2 Conditional Exclusivity
PEB and Genomica acknowledge and agree that the grant of Exclusive distribution
rights under Section 2.1 herein is in consideration for PEB's on-going
achievement of the Sales Milestones (as defined in Exhibit D. Failure on the
part of PEB to (i) achieve a Sales Milestone in two (2) consecutive quarters, or
(ii) achieve 75% of the aggregate Sales Milestones for four (4) consecutive
quarters, will cause this Agreement to change from a conditionally Exclusive to
a non-exclusive Agreement for the remainder of the term of the Agreement. During
the first four full calendar
<PAGE>
quarters of this Agreement, PEB may choose to fulfill its milestone obligations
by remitting quarterly payments to Genomica equal to the number of Genomica
Product and Technical Support and Maintenance contracts that were to be sold by
PEB for that quarter multiplied by the agreed upon fees for Genomica Product and
Technical Support and Maintenance contracts to be paid to Genomica pursuant to
Exhibit D.
2.3 Effect of Non-Exclusivity
Should this Agreement become non-exclusive, PEB (i) shall have the right to
renegotiate the terms and conditions of this Agreement such that they are no
less favorable than the terms and conditions under which Genomica or any third
party may sell the Genomica Product; (ii) shall have the option at its sole
discretion to continue or discontinue any or all activities related to the
responsibilities outlined in Sections: 5.4, 5.6, 5.7-5.10, 10.1, 10.2 and 10.5;
(iii) shall not have to manufacture and distribute Genomica Products, pursuant
to Section 9 of this Agreement, that are not sold by PEB; (iv) may require that
no PEB Trademarks be associated with Genomica Products that are not sold by PEB.
2.4 Relationship as Asset
Both parties agree that the relationship established in this Agreement is a
valuable business asset, and subject to Section 17.4 agree at all times, and in
good faith, to promote and protect the interests of the other party, as
described herein.
Section 3.0 GENOMICA PRODUCT LICENSE GRANT
3.1 Distribution License
3.1.1 Distribution License Grant
Subject to the terms and conditions of this Agreement, Genomica hereby grants to
PEB, under all of Genomica's intellectual property rights in and to the Genomica
Product, a conditionally Exclusive (as described in Section 2.2 above), non-
transferable license, without right of sublicense, to Distribute on worldwide
basis: (i) Sold Products directly, or indirectly through other resellers (the
"Sub-Distributors") solely to End-Customers, and (ii) Evaluation Products
directly or indirectly through Sub-Distributors to End-Customers.
3.1.2 License Grant Restriction
PEB shall have no rights to Distribute Genomica Product Source Code.
3.1.3 End-Customer Licenses
Distribution of the Genomica Products pursuant to Section 3.1.1 above shall only
be permitted to End-Customers pursuant to the Software License Agreement between
Genomica and the End-Customer, and optionally the End-Customer Technical Support
and Maintenance Agreement between Genomica and the End-Customer, attached as
Exhibits B and C respectively, as may be
<PAGE>
amended from time to time by Genomica, subject to the requirement that such
amendments not interfere with or impair in any way the terms and conditions of
this Agreement.
3.2 Copying License Grant
PEB may and is hereby granted the right and license to make copies of the master
copy of the Genomica Product provided to PEB pursuant to Section 9 solely in
support of its rights granted in this Section 3, and such copies may be
Distributed strictly in accordance with the provisions specified in Section 9.
3.3 Evaluation, Training and Demonstration License Grant
Subject to the terms and conditions of this Agreement, Genomica grants to PEB a
nontransferable evaluation, training and demonstration license to use and
reproduce the Genomica Product and its associated Documentation, solely (i) for
training PEB employees on the use of the product, and (ii) demonstrating
Genomica Products to potential End-Customers. Licenses issued pursuant to this
Section 3.3 may not be used by PEB or any of its subsidiaries or affiliates for
its own research or the research of its subsidiaries or affiliates.
3.4 Development License Grant
PEB may, at no cost, use properly acquired Genomica Products to develop and test
the integration of the GeneMapper Product with the Genomica Product. Genomica
shall provide PEB, at no cost, technical support for these licenses.
3.5 Documentation License Grant
Genomica hereby grants to PEB a non-transferable license to reproduce, and
distribute unmodified Documentation to End-Customers.
3.6 Proprietary Notices
PEB agrees that each copy of the Genomica Product and Documentation shall
include reproductions of the copyright notices and other proprietary legends of
Genomica and its suppliers, in Object Code format or otherwise, which accompany
such items. PEB shall not remove, efface or obscure any copyright notices or
other proprietary notices or legends from any Genomica materials provided
hereunder.
3.7 Ownership
Genomica shall retain all right, title and interest, including all intellectual
property rights, in and to the Genomica Product (including, but not limited to,
Object Code and Source Code formats) and Documentation. PEB shall retain all
right, title and interest, including all intellectual property rights, in and to
the GeneMapper Product (including, but not limited to, Object Code and Source
Code formats) and Documentation.
<PAGE>
3.8 Derivative Rights
Both parties acknowledge that only the Source Party is permitted to enhance,
improve, modify or change a Source Party Product. Both parties further agree
that any and all enhancements, improvements, modifications, and changes of any
sort to a Source Party product and documentation (such as, but not limited to,
addition of new functionality, creation of new algorithms, design changes, code
changes, ideas, concepts, know-how, approaches, processes, methodologies and
techniques) regardless of origin, are the exclusive property of Source Party.
The non-Source Party agrees to assign to the Source Party all of its right,
title and interest in and to each enhancement, improvement, modification and
change, and further agrees to execute any and all documents requested by the
Source Party in order to perfect the Source Party's right in same.
3.9 Remedies
3.9.1 Improper Copying or Distribution
The parties acknowledge that any copying, use or distribution of the Genomica
Product or the GeneMapper Product not explicitly authorized by this Agreement is
a breach of this Agreement and an infringement of the parties' rights in and to
their respective products. In the event of such breach, and in addition to and
not in lieu or limitation of any other remedies to which it may be entitled,
each party shall be entitled to equitable relief to terminate such unauthorized
activities, as well as to monetary relief at law and in equity.
Section 4.0 REPRESENTATIONS AND OBLIGATIONS
4.1 Product Feedback
Each party agrees promptly to report in writing to the Source Party all
suspected and actual problems with any Source Party product.
4.2 Representations on Behalf of the Other Party
Each party shall refrain from making any representations, warranties or
guarantees to End-Customers with respect to the specifications, features or
capabilities of the other party's products that are inconsistent with the
Documentation provided by Genomica and generally available product documentation
provided by PEB. The Source Party shall have no obligation to honor any
warranties that the other party makes or is deemed to have made to its End-
Customers with respect to any Source Party product. Each Source Party is
responsible only for the warranties provided by the Source Party in the license
agreement under which the product is made available to Source Party's End-
Customer.
4.3 Ethical Conduct
Both parties agree to exhibit the highest level of ethical conduct when dealing
with End-Customers. In particular, each party agrees to (i) conduct business in
a manner that reflects favorably at all times on the products, goodwill and
reputation of the other party, (ii) avoid deceptive, misleading
<PAGE>
or unethical practices that are or might be detrimental to the other party or
its products and (iii) refrain from making any false or misleading
representations with regard to other party, the other party's products, or the
relationship between the parties.
4.4 Representations
Each party hereby represents, warrants and covenants that (i) it is not
restricted in any way, by agreement or otherwise, from entering into this
Agreement and performing any of its responsibilities as described herein; and
(ii) that neither the execution nor performance of this Agreement will breach
any agreement or other obligation to keep in confidence, or to refrain from
using, the confidential, proprietary or trade secret information of a former
employer, another client or any other person or entity; and (iii) will not use
any such information in connection with performing its responsibilities as
described herein.
Section 5.0 MARKETING AND LAUNCH SUPPORT
5.1 Appointment of Principal Marketing Contact Person
Each party shall assign a principal marketing contact person as its principal
contact to coordinate the Genomica Product requirements gathering and related
marketing activities. Such manager may be changed at the discretion of the
naming party.
5.2 Datasheet Development
Genomica shall develop, with assistance from PEB, a Genomica Product datasheet
that shall be the primary printed marketing literature to be provided to
potential customers in presales situations (the "Datasheet"). PEB shall have the
right to approve the Datasheet. Genomica shall, at its own expense, print and
deliver to a single, pre-specified PEB address in the United States, one
thousand (1000) copies of the Datasheet. The payment for printing of additional
Datasheets shall be mutually agreed to by the parties prior to the printing.
5.3 Genomica Collateral Material
PEB agrees to include mutually approved Genomica collateral material with each
Evaluation Copy and Sold Copy of the Genomica Product. The cost of printing such
collateral materials and shipping them to PEB for inclusion in Genomica Products
shall be borne solely by Genomica. The parties agree that a Genomica corporate
overview/description and a datasheet that describes an upgrade from the Genomica
Product to a more feature-rich version of the Genomica Product will be included.
All other Genomica collateral materials must be mutually agreed to in writing.
5.4 Tag-Along Marketing
PEB agrees that Genomica may participate, at Genomica's expense, in any
GeneMapper Product-related marketing activities. PEB agrees to provide Genomica
with sufficient, advanced written notification of all such activities, so that
Genomica may have adequate time to prepare any required marketing materials.
<PAGE>
5.5 Advertising
Either party may create and place print and on-line advertisments that reference
the other party's product. Any such advertisment may not be placed until first
having been approved in writing by the non-creating party. The cost of
designing and placing each advertisment shall be borne by the originating party.
Genomica agrees to take reasonable efforts to advertise the Genomica Product in
print publications.
5.6 Co-Marketing Responsibilities
PEB shall use reasonable commercial efforts to promote the acceptance and
licensing of the Genomica Product. PEB shall promote the Genomica Product in a
commercially reasonable manner and will transmit Genomica-supplied information
and promotional materials to potential customers as reasonably necessary.
5.7 Industry Events
The parties agree to use commercially reasonable efforts to mutually identify
and participate in such industry-sponsored events as may be mutually acceptable
to jointly publicize and promote the GeneMapper Product and Genomica Product.
Each party hereby offers the other party, at no cost, a demonstration station in
its booth. Acceptance of any such offer is at the sole discretion of the party
receiving the offer.
5.8 Users Conference Participation
During the term of this Agreement, each party guarantees the other party the
opportunity to attend and participate each other's respective Users Conferences.
There shall be no participation fee charged to the attending party by the
hosting party; however, the attending party shall be responsible for its own
travel and living expenses.
5.9 PEB Internal Sales Meetings
During the term of this Agreement, PEB shall make available to Genomica a
presentation opportunity at internal PEB sales meetings in which Genomica shall
provide Genomica Product information to PEB personnel.
5.10 Sales Training
At a frequency of once per calendar quarter, or more frequently if mutually
agreed upon in writing by the parties, Genomica shall provide training to a
minimum of five (5) PEB's sales personnel and/or distribution channel personnel
at a time, at a mutually agreed upon location. PEB shall bear the costs of
securing the training facility and the reasonable and actual travel and living
expenses of the Genomica instructor. Genomica shall bear the cost of paying for
its instructors time. The parties agree, at the earliest possible opportunity,
that Genomica shall provide sales training to all GeneMapper Product sales
personnel in conjunction with PEB regularly scheduled sales training.
<PAGE>
5.11 Sales Binder
The parties agree to collaborate on the development and on-going maintenance of
a sales binder that shall contain information to assist PEB sales personnel in
selling the Genomica Product.
5.12 Mutual References
At a mutually agreed time, but no later than thirty (30) days after the
Effective Date:
(a) Each party shall provide a statement of written endorsement of the other
party (the "Quotation") from an executive (Vice President level or higher)
providing a positive representation of the other party (the company) and its
products, which may be included in press releases and promotional materials
in all formats (including, but not limited to printed and electronic);
(b) Genomica and PEB shall issue a joint press release, announcing the
relationship contemplated by this Agreement with mutual endorsements for PEB
and Genomica Products;
(c) Pursuant to Section 6, Genomica and PEB each grant to the other party, the
right to include the logo of the other party on its respective website, a
hyperlink to the other party's Website and a mutually agreed upon
description of the relationship contemplated by this Agreement with mutual
endorsements for PEB and Genomica Products.
5.13 Promotional Materials
Pursuant to Section 6, the parties hereto agree that each may use the other's
name, logo, and Quotation on the other's promotional materials for the
GeneMapper Product and Genomica Product respectively, in all formats (including,
but not limited to printed and electronic), at no cost to such party.
5.14 Evaluation, Training and Demonstration License Grant
Subject to the terms and conditions of this Agreement, PEB grants to Genomica a
nontransferable evaluation, training and demonstration license to use and
reproduce the GeneMapper Product and its associated Documentation, solely (i)
for training Genomica employees on the use of the product, and (ii)
demonstrating GeneMapper Product to potential End-Customers. Licenses issued
pursuant to this Section 5.14 may not be used by Genomica or any of its
subsidiaries or affiliates for its own research or the research of its
subsidiaries or affiliates.
Section 6.0 BRANDING AND TRADEMARKS
6.1 Dual-Branding
The parties agree that the Genomica Product marketing materials shall be dual-
branded, including both the Genomica and PEB trademarks. The parties further
agree that Genomica Product materials and product-related artwork designed by
Genomica shall be designed at the sole discretion of Genomica, but shall include
the appropriate PEB logo(s) as designed by PEB. These materials shall
<PAGE>
include appropriate items listed in Exhibit F, as well as, but not limited to
the Genomica Product splash screen.
6.2 Trademarks
Each party acknowledges that the symbols, trademarks and service marks adopted
by the other party or its suppliers to identify its products, as set forth in
Exhibit E attached to this Agreement (the "Trademarks"), including any
modifications hereinafter furnished by one party to the other, belong to the
owning party and its suppliers and that the non-owning party shall have no
rights in such Trademarks except as expressly set forth herein. At no time
during or after the term of this Agreement will either party challenge or assist
others to challenge the Trademarks, or the registration thereof, or attempt to
register any trademarks, service marks or trade names confusingly similar to
those of the other party or that tend to dilute the distinctive quality of any
of such trademarks.
6.3 Use of Trademarks
During the term of this Agreement, each party may, when marketing the GeneMapper
Product or Genomica Product, use in a way that will not impair or lessen the
brand equity, the other party's Trademarks in the advertising and promotional
media, provided that the party using such Trademarks receives advance
authorization from the Owning Party of any such use. The Owning Party may in its
sole and unrestricted discretion approve or not approve all materials that
reference the Owning Party, its products, its Trademarks or the relationship
created by this Agreement; such approval shall not be unreasonably withheld.
Upon termination of this Agreement for any reason, the Using Party immediately
shall cease all use of the Owning Party's Trademarks and cease all reference to
the Owning Party. At the Using Party's election, the Using Party shall destroy
or deliver to the Owning Party all materials in the using party's control or
possession which bear such Trademarks, and if requested by the Owning Party,
shall certify in writing as to the destruction of such materials.
Section 7.0 GENOMICA PRODUCT DEVELOPMENT
7.1 Appointment of Project Manager
Each party shall assign a Project Manager as its principal technical contact
with the authority to act for its company in all technical decision making
regarding the integration of the GeneMapper Product and the Genomica Product.
Such manager may be changed at the discretion of the naming party.
7.2 Development Schedule Sharing
Both parties agree that the respective project managers shall hold conference
calls on a regular basis to share their respective software development
schedules, product definitions, and all other necessary and relevant technical
specifications needed to ensure the integration of the GeneMapper Product and
the Genomica Product and to implement this Agreement.
<PAGE>
7.3 Integration Definition
Both parties agree to dedicate the necessary resources to define the initial and
on-going integration of the GeneMapper Product and the Genomica Product
according to the terms of this Agreement.
7.4 Integration Testing
Genomica shall have primary responsibility for integration testing, and PEB
agree to dedicate the necessary resources to ensure the successful initial and
on-going integration of the Genomica Product and GeneMapper Product. The parties
shall work together to develop and define compliance tests for the integration
of the Genomica Product and GeneMapper Product.
7.5 GeneMapper Product License Grant
PEB shall provide to Genomica at no cost, sufficient GeneMapper Product
licenses to develop and test the integration of the GeneMapper Product with the
Genomica Product. PEB shall provide Genomica, at no cost, technical support for
these licenses.
7.6 Beta Sites
At the request of Genomica, PEB will solicit and help establish beta test sites
for the Genomica Product. Genomica will be responsible for administering any
Genomica Product beta test program.
7.7 Pre-Release Evaluation Program Participation
PEB shall participate in Genomica's pre-release evaluation programs, if
requested by Genomica. Such participation shall include, without limitation,
testing and evaluating new Genomica products and new versions of existing
Genomica products, and reporting to Genomica on a timely basis any
inconsistencies or defects found during such testing and evaluating processes.
7.8 Genomica Product Updates
During the Term of this Agreement, Genomica shall (within the constraints of its
development resources, and in congruence with its business model) make
reasonable efforts to update, revise, and modify the Genomica Product so that it
remains compatible with future releases of the GeneMapper Product. PEB shall
provide sufficient advance notification to Genomica of the feature changes for
each subsquence release of the GeneMapper Product so as to provide Genomica with
reasonable time to evaluate and understand the GeneMapper changes and plan for
and implement appropriate updates to the Genomica Product. Genomica will make
reasonable efforts to ensure that it updates the Genomica Product in such a
manner as to ensure interoperability of the Genomica Product with the GeneMapper
Product.
7.9 Retiring Genomica Product
Genomica shall provide End-Customer licensees of its Genomica Product with
reasonable notice (no less than six (6) months), prior to retiring or
withdrawing support for the Genomica Product. Upon receipt of such notice, PEB
immediately may terminate this Agreement, by providing thirty (30) days written
notice to Genomica.
<PAGE>
7.10 Retiring GeneMapper Product
PEB shall provide Genomica with reasonable notice (no less than six (6) months),
prior to retiring or withdrawing support for the GeneMapper Product. Upon
receipt of such notice, Genomica immediately may terminate this Agreement, by
providing thirty (30) days written notice to PEB.
7.11 Ownership of Integration Intellectual Property
Any and all intellectual property, including patent rights, copyrights, trade
secrets and confidential information, developed in the course of integrating the
Genomica Product with the GeneMapper Product and which cannot be clearly shown
to belong exclusively to a Source Party shall be owned jointly as to all right,
title and interest equally by both parties.
Section 8.0 TECHNICAL SUPPORT
8.1 End-Customer Technical Support by Genomica
Genomica shall, at its own expense, be solely responsible for providing
Technical Support to End-Customers in North America and Europe. Genomica shall
provide valid End-Customer Technical Support licensees with Technical Support
and Genomica Product updates according to the terms and conditions of the
Technical Support and Maintenance Agreement sold to the End-Customer. Genomica
shall have no obligation to provide Technical Support or product updates to End-
Customers who do not have in place a valid Technical Support and Maintenance
Agreement at the point in time when the request for support or product update is
made.
8.2 End-Customer Technical Support by PEB
8.2.1 PEB Responsible For Total Customer Support
PEB retains rights and responsibilities for worldwide, total customer support
and customer satisfaction for systems sold to its customers, which include
instruments, reagents and software (which may include the Genomica Product).
Within the context of PEB's overall responsibility for customer support,
Genomica has the responsibility for providing Technical Support to Genomica
Product End-Customers as described in this Section 8.2.
8.2.2 Technical Support Outside of North America and Europe
PEB shall, in accordance with the terms specified in the Technical Support and
Maintenance Agreement, provide front-line Technical Support to Genomica Product
End-Customers outside of North America and Europe. Such support shall consist
of product installation and basic product usage support. Genomica shall provide
backup support directly to PEB support personnel as described in Section 8.2.6.
<PAGE>
8.2.3 Technical Support In North America and Europe
In North America and Europe, should End-Customers call upon PEB to provide
Technical Support, PEB's obligation with respect to such inquiries shall be to
ensure that the inquiries from End-Customers regarding the use or operation of
the Genomica Product are promptly addressed to Genomica via the pre-approved
Genomica Technical Support submission means.
8.2.4 Customer Dissatisfaction with Genomica Support
If PEB believes there is a reasonable risk that an End-Customer, who also
purchased PEB hardware or reagents, may wish to return any or all of its
purchase directly or indirectly as a result of being dissatistifed with the
Technical Support provided by Genomica, PEB may provide the End-Customer, at its
sole discretion and cost, any Genomica Product Technical Support that it deems
necessary.
8.2.5 Technical Support Warranties
With respect to PEB rights and obligations in this Section 8.2, should PEB
provide direct Technical Support to an End-Customer in North America or Europe,
Genomica shall have no obligation to honor any warranties or to fulfill any
obligations that PEB provides to End-Customers with respect to such Technical
Support.
8.2.6 Technical Support Assistance from Genomica
In support of Section 8.2, Genomica shall provide appropriately authorized PEB
employees with electronic mail, fax, and telephone Technical Support during
Genomica's then-current published Technical Support days and times. Under this
Section 8.2.6, Genomica shall not provide support to PEB or any affiliate or
subsidiary who is using the Genomica Product for research purposes, unless the
entity requesting support is also an End-Customer with a valid Technical Support
and Maintenance Agreement in place with Genomica.
8.3 GeneMapper Product Technical Support Requests to Genomica
PEB shall, at its own expense, be solely responsible for providing Technical
Support to GeneMapper Product customers. PEB shall ensure that all questions
from GeneMapper Product customers regarding the use or operation of the
GeneMapper Product are addressed to and answered by PEB. Genomica shall refer
any questions regarding the GeneMapper Product to PEB. PEB shall be solely
responsible for, and Genomica shall have no obligation to honor, any warranties
that PEB provides to its customers with respect to the GeneMapper Product.
8.4 Evaluation Product Support
Any Technical Support provided to Evaluation Product licensees shall be at
Genomica's sole discretion.
<PAGE>
Section 9.0 MANUFACTURING AND DISTRIBUTION
9.1 Materials Hand-off
For each release of the Genomica Product, Genomica shall provide to PEB,
according to a mutually agreed upon product schedule, the final bill of
materials for producing a Genomica Product for Distribution. The materials
included in a "Hand-off" are more fully described on Exhibit F attached to this
Agreement, as it may be amended from time to time by Genomica, subject to prior
approval by PEB.
9.1.1 Materials Acceptance
PEB shall, upon receipt of final materials from Genomica for a given Genomica
Product release, have ten (10) business days to inform Genomica in writing of
any perceived quality problems with the final materials provided. Upon receipt
of written notification of quality issues, Genomica shall employ best efforts to
correct any mutually agreed upon problems and resubmit final materials to PEB
for re-acceptance. Barring any such written notification, the final materials
shall be deemed accepted by PEB.
9.2 CD Manufacturing and Quality Assurance
Genomica shall provide to PEB a Master CD containing the final software to be
replicated on Genomica Product CDs intended for End-Customer Distribution. PEB
shall, at its own expense, reproduce the Genomica Product CDs using the contents
of the Master CD. PEB shall also imprint the artwork provided by Genomica onto
the CD itself and its associated Jewel case coverings. PEB shall be solely
responsible for the quality of the CD manufacturing process and the appearance
and readability of the resulting CDs.
9.3 Documentation Manufacturing and Quality Assurance
Genomica shall provide to PEB Postscript versions of the final Documentation
manuals, Postscript artwork for the Documentation manual covers, and complete
manufacturing specifications. PEB shall, at its own expense, reproduce
according to the supplied manufacturing specifications, the Genomica
Documentation manuals using the Postscript files provided by Genomica. PEB
shall be solely responsible for the quality of the Documentation manufacturing
process and the appearance and readability of the resulting Documentation
manuals.
9.4 Shipping Container Manufacturing and Quality Assurance
Genomica shall provide to PEB Postscript versions of the artwork for the
shipping container, and complete manufacturing specifications. PEB shall, at
its own expense, manufacture the shipping containers according to the supplied
manufacturing specifications, imprinted with the shipping container artwork
provided by Genomica. PEB shall be solely responsible for the quality of the
shipping container manufacturing process and the appearance of the resulting
shipping containers.
<PAGE>
9.5 Genomica Product Package Assembly
Genomica shall provide PEB with package assembly specifications. PEB shall, at
its own expense, assemble a Genomica Product package according to the supplied
manufacturing specifications.
9.6 Genomica Sign-off
PEB shall provide to Genomica one complete Genomica Product Package Assembly for
Genomica quality assurance inspection. Genomica shall have three (3) business
days from receipt of the Genomica Product Package Assembly to respond in writing
to PEB if Genomica believes there is a quality assurance problem with the
supplied Genomica Product Package Assembly. PEB shall take appropriate steps to
remedy any such quality assurance issue identified by Genomica, and shall
resubmit a revised Genomica Product Package Assembly for re-inspection by
Genomica.
9.7 Genomica Product Inventory
PEB shall, at its own expense, be responsible for maintaining an adequate supply
of Genomica Product inventory to meet its predicted sales demands and drop-
shipment time obligations.
9.8 Genomica Product Distribution
PEB shall, at its own expense, be responsible for shipping Genomica Product
packages to End-Customer delivery addresses.
9.9 Distribution of Current Materials
PEB agrees, at all times, to Distribute the most current materials to new End-
Customers. On a frequency of no more than once a quarter, PEB shall distribute
the most current materials to current Technical Support and Maintenance End-
Customers.
9.10 Evaluation Product Distribution
PEB agrees to manufacture and Distribute an Evaluation Product with every
GeneMapper Product. The reasonable cost to manufacture Evaluation Product CDs
shall be borne by Genomica. PEB shall, in the calendar quarter in which the
Evaluation Product CD production costs are incurred, deduct the production costs
from the revenue due Genomica for that calendar quarter per Section 11 of this
Agreement.
9.11 Update Product Distribution
PEB agrees to manufacture and distribute, on a timely basis, all Genomica
Product upgrades that End-Customers are entitled to receive under a valid
Technical Support and Maintenance Agreement. PEB shall have no obligation to
send Genomica Product upgrades to North American and European End-Customers who
have purchased their second or subsequent years of Technical Support and
Maintenance directly from Genomica pursuant to Section 10.4. PEB shall provide
to Genomica, at Genomica's written request, a specific number of Genomica
Product upgrade packages so that Genomica may provide such upgrades directly to
its Technical Support and
<PAGE>
Maintenance End-Customers. The reasonable cost to manufacture Genomica Product
upgrade shall be borne by Genomica. PEB shall, in the calendar quarter in which
the Genomica Product upgrade production costs are incurred, deduct the
production costs from the revenue due Genomica for that calendar quarter per
Section 11 of this Agreement.
Section 10.0 SALES, ORDER PROCESSING AND COLLECTIONS
10.1 PEB Sales Material
PEB agrees that the Genomica Product shall be included on all PEB price lists
that include the GeneMapper Product or a product that bundles the GeneMapper
Product during the term of this Agreement.
10.2 PEB Sales Effort
PEB shall use commercially reasonable efforts to sell the Genomica Product in
manner intended to achieve or exceed the Sales Milestones of Exhibit D,
employing an effort level and distribution channels at least equal to what PEB
uses to sell the GeneMapper Product.
10.3 Genomica Presales Support
At the request of either party, Genomica personnel may, but are not required to,
assist PEB with presales activities that have the potential to sell the
GeneMapper Product and the Genomica Product. Such activities shall include, but
are not limited to: (i) making customer sales calls, (ii) preparing client
proposals, (iii) capturing requirements for future revisions to the Genomica
Product, and (iv) other activities reasonably deemed necessary and agreed to by
the parties. Unless otherwise specified and agreed to in writing prior to work
being performed, each party shall be responsible for its own costs incurred in
any marketing and sales activities.
10.4 Sale of Technical Support and Maintenance Contracts
Genomica hereby grants PEB the right to sell Genomica Technical Support and
Maintenance contracts to PEB End-Customers. PEB shall not be permitted to sell
renewal technical support licenses for any Genomica Product in North America and
Europe. All renewal technical support for North America and European End-
Customers for years two and subsequently, shall be sold exclusively by Genomica
or its authorized representatives.
10.4.1 Notification of Technical Support and Maintenance Sale
PEB shall immediately notify Genomica of each End-Customer who purchases
Technical Support and Maintenance. Unless Genomica knows that an End-Customer is
a valid support customer, it is not required to provide the End-Customer with
support. Genomica shall not be liable for failing to provide support to those
customers who request support before notification of their support purchase has
been received from PEB.
<PAGE>
10.5 Sales Leads
Included in PEB's quarterly reports to Genomica, as described in Section 11.3,
PEB shall provide to Genomica a list of those organizations that (i) purchased
the GeneMapper Product; (ii) did not purchase the Genomica Product, (iii) would,
in PEB's opinion, have been likely purchasers of the Genomica Product; and (iv)
have agreed to be contacted by Genomica. This list shall be constructed and
provided by the PEB Product Manager. Genomica shall have the right to contact
these organizations directly as part of its market research, and to attempt to
sell these organizations any products not covered by this Agreement. Any sale
of the Genomica Product resulting from Genomica having spoken with an
organization on a report provided by PEB shall be routed through the appropriate
PEB sales personnel, and treated as a standard sale of the Genomica Product by
PEB. Genomica agrees that information provided pursuant to this Section 10.5
shall be considered confidential, and shall be governed by the terms of Section
13. Genomica also agrees that in pursuing these sales leads that it will not
represent itself as an entity of PEB.
10.6 Order Processing
PEB shall process all Genomica Product orders from its sales personnel. Order
processing shall involve all necessary activities from taking the order to
ensuring delivery of the Genomica Product package to the End-Customer.
10.7 Collections
PEB shall have full responsibility for collecting monies from End-Customer for
the sale of Genomica Products and Technical Support and Maintenance contracts.
Genomica fees are earned when a Sale occurs, not when collection is completed.
Section 11.0 PAYMENTS TO GENOMICA
11.1 Fees
11.1.1 Payments
During the term of this Agreement, Genomica shall be entitled to receive
payments for Sales as specified in Exhibit D, as may be amended from time to
time by mutual agreement of the parties.
11.1.2 Fee Payment Schedule
PEB shall pay to Genomica fees as described in Section 11.1.1. All payments will
be made within thirty (30) days after the last business day of each calendar
quarter for all Genomica Products and Technical Support and Maintenance
Agreements Distributed during such quarter, and shall be accompanied by the
documentation specified in Section 11.3.
11.1.3 Non Fee-Generating Activities
No fees shall be owed for
<PAGE>
11.1.4 Returns
Genomica will provide PEB a credit against payments, as described in Section
11.1.1., for each Genomica Product that an End-Customer returns to PEB for a
refund within thirty (30) days from shipment of product by PEB. PEB shall
provide documentary evidence of each valid return in conjunction with the
quarterly report specified in Section 11.3.
11.2 Payments
11.2.1 Form of Payment
All dollar amounts referred to herein are expressed in U.S. currency. All
payments due Genomica shall be made in U.S. currency by wire transfer, unless
otherwise specified by Genomica.
11.2.2 Late Payments
Late payments shall incur interest at the rate of per month from the date such
payments were originally due.
11.2.3 Right to Challenge
The receipt or acceptance by Genomica of any fee statement or payment shall not
prevent Genomica from subsequently challenging the validity or accuracy of such
statement or payment.
11.3 Reporting
PEB will provide Genomica within ten (10) days after the end of each calendar
month a Monthly Report containing at least the information indicated on Exhibit
G, and fifteen (15) days after the end of each calendar quarter a Quarterly
Report containing at least the information indicated on Exhibit G summarizing
the Genomica fees accrued during the previous quarter. Each report shall be
certified as accurate by a duly authorized officer of PEB reciting, on a
country-by-country basis, the Genomica Product sold. Such statements shall be
furnished to Genomica regardless of whether any GeneMapper Products were sold
during the period or whether any actual fees were owed.
11.4 Record Inspection and Audit
11.4.1 Record Keeping and Archiving
PEB shall keep records adequate to verify the requirements of fees and payments
to be made pursuant to this Agreement for three (3) full years following the
submission of each such fee or payment to Genomica.
11.4.2 Auditing
At a frequency of no more than once a year, PEB shall, upon five (5) days
written request from Genomica, provide access to accounting books and records
and all other documents and material in
<PAGE>
PEB's possession or control with respect to the volume of Sales made pursuant to
this Agreement, to Genomica or an independent auditor chosen by Genomica for the
purposes of audit.
11.4.3 Underpayment
Subject to challenge by PEB, in the event that such audit by an independent
auditor reveals an underpayment by PEB of the actual amount owed Genomica, PEB
shall pay the difference plus interest calculated at the rate of per month from
the time the underpayment first occurred. If such underpayment is in excess of
of the amount for the period in question, PEB shall also immediately reimburse
Genomica for the cost of the audit. Disputed underpayments discovered by audits
undertaken by Genomica itself shall be subject to the dispute resolution
provisions of this Agreement.
11.5 Taxes
PEB agrees that amounts paid pursuant to this Agreement are not subject to sales
and use tax. PEB agrees to provide Genomica with satisfactory documentation
(including, but not limited to resale exemption or other certificates)
supporting such status. PEB agrees that the amounts to be remitted to Genomica
are to be the actual amounts due without withholding taxes or other assessments
by authorities anywhere in the foreign location. If any withholding tax is
imposed under the laws of a country or other taxing jurisdiction outside of the
United States on any amounts paid to the Genomica, such amounts will be
increased by the amount of the withholding tax. PEB shall be solely responsible
for and shall pay any and all amounts required in the foreign location to be
withheld, charged, deducted, or assessed against such payment amounts, and will
promptly furnish Genomica with certificates evidencing payment of such amounts.
Section 12.0 TERM AND TERMINATION
12.1 Initial Term
This Agreement shall become effective on the Effective Date and shall remain in
effect for an initial term of three (3) years thereafter unless the Agreement is
terminated as provided below. Upon the expiration of the initial term, this
Agreement shall automatically renew for additional one (1) year periods under
the same terms and conditions as the previous period, unless the Agreement is
terminated as provided below.
12.2 Termination
12.2.1 Breach
If either party defaults in any material obligation under this Agreement and
continues in default for a period of thirty (30) days after written notice of
default is given to it by the other party, the other party may terminate and
cancel this Agreement, in accordance with the provisions of Section 12, upon
written notice of termination given to the defaulting party.
<PAGE>
12.2.2 Insolvency
Either party may terminate and cancel this Agreement immediately by notice to
the other if:
(a) the other ceases to carry on its business; or
(b) a receiver or similar officer is appointed for the other and is not
discharged within thirty (30) days; or
(c) the other admits in writing its inability to pay debts as they mature, is
adjudicated bankrupt, or makes an assignment for the benefit of its
creditors or another arrangement of similar import; or
(d) proceedings under bankruptcy or insolvency laws are commenced by or against
the other and are not dismissed within (30) days.
12.2.3 Acquisition, Change of Control or Merger
Should either party in whole or in part, acquire, be acquired by, or merge with
any legal entity that the other party, in its sole discretion, deems to be
competitive to its business, the other party may on thirty (30) days' written
notice terminate this Agreement upon written notice to party who experienced the
event.
12.3 Effect of Termination
Upon termination of this Agreement, (i) the rights and licenses granted to PEB
and Genomica pursuant to this Agreement, including but not limited to Sections
3, 5 and 8, shall automatically terminate; (ii) PEB shall certify in writing to
Genomica that all unpaid copies of Genomica Products and Documentation have been
destroyed or removed from PEB's equipment and inventory except for a sufficient
number of copies to fulfill PEB's and support obligations to End-Customers and;
(iii) PEB shall cease all use of Genomica's intellectual property as described
herein, including, but not limited to, the Genomica Product, Documentation, and
Trademarks.
12.4 Survival
The provisions of Sections 3.6 (Ownership), 13 (Confidentiality), 16 (Limitation
of Liability) and 17 (Miscellaneous) shall survive the termination or
cancellation of this Agreement for any reason.
Section 13.0 CONFIDENTIALITY
13.1 Obligations
Each party acknowledges and agrees that computer programs, code, algorithms,
names and expertise of employees and consultants, know-how, formulas, processes,
ideas, inventions (whether patentable or not), schematics and other technical,
business, financial and product development plans, customer lists, information
regarding distribution channels, forecasts, and strategies, provided to either
party hereunder, whether or not such items are marked "Confidential,"
constitutes the proprietary confidential information (collectively,
"Confidential Information") of the
<PAGE>
disclosing party, and that the other party's protection thereof is essential to
this Agreement. Each party shall retain in strict confidence and not disclose to
any third party (except as authorized by this Agreement) without the other
party's express written consent any and all such information and may only use
such information as permitted under this Agreement. The prohibitions contained
in this Section 13.1 preclude dissemination of such information to PEB's
subsidiaries or affiliates.
13.2 Exceptions
The receiving party shall be relieved of this obligation of confidentiality to
the extent any such information that:
(i) was in the public domain at the time it was disclosed or has become in
the public domain through no fault of receiving party;
(ii) the receiving party can prove was known to receiving party, without
restriction or other obligation of confidentiality, at the time of
disclosure as shown by the files of the receiving party in existence at
the time of disclosure;
(iii) is disclosed by the receiving party with the prior written approval of
disclosing party;
(iv) the receiving party can prove was independently developed by it without
any use of disclosing party's confidential information and by employees
or other agents of the receiving party who have not had access to any of
disclosing party's confidential information; or
(v) becomes known to the receiving party, without restriction, from a source
other than the disclosing party without breach of this Agreement by
receiving party and otherwise not in violation of disclosing party's
rights.
(vi) the receiving party is legally compelled to disclose; provided, however,
that prior to any such compelled disclosure, the receiving party will (a)
assert the confidential nature of the Confidential Information against
the third party seeking disclosure and (b) cooperate fully with the
disclosing party in protecting against any such disclosure and/or
obtaining a protective order narrowing the scope of such disclosure
and/or use of the Confidential Information. In the event that such
protection against disclosure is not obtained, the receiving party will
be entitled to disclose the Confidential Information, but only as and to
the extent necessary to legally comply with such compelled disclosure.
13.3 Confidentiality Agreements
Either party, prior to permitting access by any individual who has a need to
know any Confidential Information discussed under this Agreement to any of the
other party's Confidential Information, shall enter into a confidentiality
agreement with each such individual that (i) incorporates the protections and
restrictions set forth herein for the other party's Confidential Information;
(ii) provides that the individual's obligations with respect to the other
party's Confidential Information shall continue after termination of the
individual's employment, consulting relationship or other relationship with the
party; and (iii) provides that the other party is a direct and intended
beneficiary of the agreement and entitled to enforce it directly against the
individual.
<PAGE>
Section 14.0 WARRANTY
14.1 Ownership Warranty
Genomica warrants that it is the owner of the Genomica Product and that it has
the right to grant the licenses described in Section 3 above. PEB's sole remedy
and Genomica's sole obligation for a breach of this Section 14.1 shall be the
obligations set forth in Sections 15.1 and 15.3 below.
14.2 Genomica Warranty Disclaimer
GENOMICA HEREBY DISCLAIMS ALL OTHER WARRANTIES TO PEB OR ITS END-CUSTOMERS,
EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO THE GENOMICA PRODUCTS,
INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE. THE EXPRESS LIMITED WARRANTY STATED ABOVE IS IN LIEU
OF ALL LIABILITIES OR OBLIGATIONS OF GENOMICA FOR DAMAGES OR OTHER MONETARY
RELIEF INCLUDING, BUT NOT LIMITED TO, INCIDENTAL OR CONSEQUENTIAL DAMAGES
OCCURRING OUT OF OR IN CONNECTION WITH THE USE OR PERFORMANCE OF THE GENOMICA
PRODUCTS.
Section 15.0 INDEMNITIES
15.1 Indemnity
Genomica shall defend PEB against any claim that the Genomica Product used
within the scope of this Agreement infringes a United States patent, copyright,
trade secret or United States mask work right, and shall pay any settlements
entered into or damages awarded against PEB to the extent based on such a claim,
provided that (i) PEB notifies Genomica promptly in writing of the claim; (ii)
Genomica has sole control of the defense and all related settlement
negotiations; and (iii) PEB provides Genomica with all necessary assistance,
information, and authority to perform the above. PEB shall have the right to
participate at its expense in any such dispute.
15.2 Exclusions
Genomica shall have no liability for any claim of infringement based on (i) use
of other than the latest modification of the Genomica Product provided to PEB
with sufficient opportunity for replacement of prior versions of the Genomica
Product, if the infringement would have been avoided by use of the latest
modification; (ii) modification of the Genomica Product by PEB without knowledge
and approval if the infringement would have been avoided without such
modification; or (iii) the combination or use of the Genomica Product furnished
hereunder with materials not furnished by Genomica if such infringement would
have been avoided by use of the Genomica materials alone and where the Genomica
Product may be used in isolation for its intended purposes without such
infringement.
<PAGE>
15.3 Exclusive Remedies
In the event a Genomica Product is held to, or Genomica believes is likely to be
held to, infringe a United States patent, copyright, United States trade secret
or United States mask work right, Genomica shall without limiting its
indemnification obligations hereunder, have the right at its sole option and
expense to (i) substitute or modify the Genomica Product so that it is non-
infringing; or (ii) obtain for PEB a license to continue using the Genomica
Product; or (iii) if (i) and (ii) are not reasonably practicable, remove the
infringing Genomica Product or Products from the list of Genomica Products that
PEB may resell.
15.4 Sole Obligation
The foregoing states the sole obligation and exclusive liability of Genomica
(express, implied, statutory, or otherwise) for infringements or claims of
infringement of any patent, copyright, trademark, trade secret, or other
intellectual property right.
15.5 PEB Indemnity
Except for warranty claims for which Genomica is liable under Section 14 and
infringement claims covered by Section 15.1, PEB agrees to indemnify and hold
Genomica harmless from and against any cost, loss or expense (including
attorney's fees) resulting from any and all claims by third parties for loss,
damage or injury (including death) allegedly caused by the actions of the PEB,
its agents or employees resulting from the acts, representations, or omissions
of the PEB with respect to the Genomica Product or any part or parts thereof,
including its Sale, Distribution and use, provided that (a) Genomica notifies
PEB promptly in writing of the claim; (b) PEB has sole control of the defense
and all related settlement negotiations; and (c) Genomica provides PEB with all
necessary assistance, information, and authority to perform the above. Genomica
shall have the right to participate at its expense in any such dispute.
15.6 Sole Obligation
The foregoing states the sole obligation and exclusive liability of PEB
(express, implied, statutory, or otherwise) for infringements or claims of
infringement of any patent, copyright, trademark, trade secret, or other
intellectual property right.
Section 16.0 LIMITATION OF LIABILITY
EXCEPT WITH REGARD TO BREACHES OF SECTION 13 OR 15, IN NO EVENT SHALL EITHER
PARTY HAVE ANY LIABILITY FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL
DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, ARISING OUT OF THIS
AGREEMENT, INCLUDING BUT NOT LIMITED TO LOSS OF ANTICIPATED PROFITS, EVEN IF
SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. IN NO EVENT
SHALL GENOMICA'S LIABILITY FOR ANY AND ALL CLAIMS RELATING TO OR ARISING FROM
THIS AGREEMENT OR THE ACTIVITIES CONDUCTED HEREUNDER EXCEED THE AMOUNTS PAID TO
GENOMICA
<PAGE>
BY PEB IN THE TWELVE MONTH PERIOD PRECEDING THE DATE THE ALLEGED LIABILITY
ACCRUED.
Section 17.0 MISCELLANEOUS
17.1 Confidentiality of Agreement
Both Genomica and PEB agree that the terms and conditions of this Agreement
shall be treated as confidential information and that no reference to the terms
and conditions of this Agreement or to activities pertaining thereto can be made
in any form without the prior written consent of the other party; provided,
however, that the general existence of this Agreement shall not be treated as
confidential information and that either party may disclose the terms and
conditions of this Agreement:
(i) as required by any court or other governmental body;
(ii) as otherwise required by law;
(iii) to legal counsel of the parties;
(iv) in confidence, to accountants, banks, proposed investors, and financing
sources and their advisors;
(v) in confidence, in connection with the enforcement of this Agreement or
rights under this Agreement; or
(vi) in confidence, in connection with a merger or acquisition or proposed
merger or acquisition, or the like.
17.2 Solicitation
Both parties acknowledge that their relationships with their employees are
valuable business assets. Both parties agree that, during the term of the
Agreement and for six (6) months thereafter, neither shall, directly or
indirectly divert or attempt to divert any such employee through solicitation or
otherwise.
17.3 Assignment
Neither party may assign this Agreement or any rights or obligations hereunder,
except by operation of law, without the prior written consent of the other
party.
17.4 Parties Independent
In making and performing this Agreement, the parties act and shall act at all
times as independent contractors and nothing contained in this Agreement shall
be construed or implied to create an agency, partnership or employer and
employee relationship between PEB and Genomica or between any party hereto and
any officer or employee of the other party. At no time shall any party make
commitments or incur any charges or expenses for or in the name of the other
party.
<PAGE>
17.5 Force Majeure
Neither party shall be liable for any delays in the performance of any of its
obligations hereunder due to causes beyond its reasonable control, including but
not limited to, fire, strike, war, riots, acts of any civil or military
authority, judicial action, acts of God, or other casualty or natural calamity.
17.6 Notices
All notices between the parties shall be in writing and shall be deemed to have
been given if personally delivered, sent by certified or registered mail (return
receipt), delivered by a national overnight express service, or telecopy to the
addresses set forth as follows, or such other address as is provided by notice
as set forth herein:
If to Genomica to:
Original to: Copy to:
Contract Administrator Kenneth S. Rubin
1745 38th Street 1745 38th Street
Boulder, Colorado 80301 Boulder, Colorado 80301
If to PEB to:
Original to: Copy to:
Robert C. Jones Matthew P. Ruby
PE Biosystems PE Biosystems, Legal Department
3833 North First Street 850 Lincoln Center Drive
San Jose, CA 95134 Foster City, CA 94404
Notices shall be deemed effective upon receipt or, if delivery is not effected
by reason of some fault of the addressee, when tendered.
17.7 Governing Law; Forum Selection
This Agreement will be governed by the laws of the State of Colorado, without
giving effect to choice of law principles.
17.8 Export Regulations
PEB understands that Genomica is subject to regulation by agencies of the U.S.
government, including the U.S. Department of Commerce, which prohibit export or
diversion of certain technical products to certain countries. PEB warrants that
it will comply in all respects with the export and re-export restrictions
applicable to the Genomica Products licensed hereunder.
<PAGE>
17.9 Government Rights
PEB agrees to (i) identify the Genomica Products in all its proposals and
agreements involving the Genomica Product with the United States Government or
any contractor for the United States Government; and (ii) identify or mark the
Genomica Products provided pursuant to any agreement with the United States
Government or any contractor for the United States Government as necessary to
obtain protection substantially equivalent to that afforded commercial computer
software and related documentation developed at private expense and provided
with Restricted Rights as defined in DOD FAR Supplement 48 C.F.R. 252.227-
7013(c)(1)(ii) in effect as of May 18, 1987 or any successor regulation.
17.10 Severability
Any term or provision of this Agreement held to be illegal or unenforceable
shall, if possible, be interpreted so as to be construed as valid, but in any
event the validity or enforceability of the remainder hereof shall not be
affected.
17.11 Waiver
The waiver of, or failure to enforce, any breach or default hereunder shall not
constitute the waiver of any other or subsequent breach or default.
17.12 Entire Agreement
This Agreement, along with the Exhibits attached hereto and the Joint
Development Agreement that are incorporated herein by reference, sets forth the
entire Agreement between the parties and supersedes any and all prior proposals,
agreements, and representations between them, whether written or oral. This
Agreement may be changed only by mutual agreement of the parties in writing.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by duly authorized officers or representatives as of the Effective Date.
[GENOMICA] [PE Biosystems]
By: By:
Name: Kenneth S. Rubin Name:
Title: EVP of Commercial Development Title:
Date: April 7, 2000 Date:
<PAGE>
EXHIBIT A--GENOMICA PRODUCT DESCRIPTION
<PAGE>
EXHIBIT B--SOFTWARE LICENSE AGREEMENT
Software License Agreement
Genomica, Inc. ("Licensor" or "Genomica") is willing to license the enclosed
software and documentation (the "Software") to you only on the condition that
you accept all of the terms in this Agreement.
Please read these terms carefully before opening, installing, using, accessing
or manipulating the Software, as by such actions you acknowledge that you have
read this Agreement, understand it and agree to be bound by its terms.
If you do not agree to these terms, Licensor is unwilling to license the
Software to you. You should immediately return this product for a refund.
1. License. You are permitted to install and use the Software in machine-
readable form only and solely for your internal business use. You may copy the
Software only for backup purposes, provided that you reproduce all copyright and
other proprietary notices that are on the original copy of the Software.
2. Restrictions. You may not use, copy, modify, or transfer the Software, or
any copy thereof, in whole or in part, except as expressly provided in this
Agreement. You may not reverse engineer, disassemble, decompile, or translate
the Software, or otherwise attempt to derive the source code of the Software, or
authorize any third party to do any of the foregoing, except to the extent
allowed under any applicable law. Any attempt to transfer any of the rights,
duties or obligations hereunder is void. You may not rent, lease, loan, resell
for profit, or distribute the Software, or any part thereof. You may not use the
Software to operate a service bureau or otherwise perform services on behalf of
third parties.
3. Ownership. The Software is licensed, not sold, to you for use only under
the terms of this Agreement, and Licensor reserves all rights not expressly
granted to you. You own the media, if any, on which the Software is recorded,
but Licensor retains all right, title and interest, including all intellectual
property rights, in and to all copies of the Software itself.
4. Trademarks. You may not use the Genomica name or any of its trademarks,
trade names, service marks or logos, or indicate any affiliation with Genomica,
for any reason, including, but not limited to, in connection with your use, sale
or license of any output or results.
5. Term. This Agreement will terminate immediately upon notice to you if you
materially breach any term or condition of this Agreement. You agree upon
termination to promptly destroy the Software and all copies thereof.
6. Warranty Disclaimer. the Software is provided to you "As Is" and Licensor
and its suppliers expressly disclaim all warranties and conditions including the
implied warranties or conditions of merchantability, fitness for a particular
purpose, and non-infringement. No oral or written information or advice given by
Licensor, its employees, distributors, dealers, or agents shall increase the
scope of the above warranties or create any new warranties. Additionally,
Licensor neither warrants the results achieved by using the Software or the
accuracy of any data used in conbination with such Software. Some jurisdictions
do not allow the disclaimer of certain implied warranties, so the above
disclaimer may not apply to you.
7. Limitation of Remedies. Regardless of whether any remedy set forth herein
fails of its essential purpose or otherwise, in no event will Licensor or its
suppliers be liable to you or to any third party for any lost profits, lost
data, interruption of business, or other special, indirect, incidental or
consequential damages of any kind arising out of the use or inability to
<PAGE>
use the Software or any data supplied therewith, even if Licensor has been
advised of the possibility of such loss or damages and whether or not such
loss or damages are foreseeable. In no event shall the liability of
Licensor exceed the amount received by Licensor from you for this software
license. Some jurisdictions do not allow the exclusion or limitation of
incidental, consequential, indirect or special damages, so the above
limitations may not apply to you.
8. U. S. Government End Users. The Software is a "commercial item" as
that term is defined at FAR 2.101 (Oct 1995), consisting of "commercial
computer software" and "commercial computer software documentation" as such
terms are used in 48 C.F.R. 12.212 (Sep 1995) and is provided to the U.S.
Government only as a commercial end item. Consistent with FAR. 12.212 and
DFARS 227.7202 (Jun 1995), all U.S. Government End Users acquire the
Software with only those rights set forth herein.
9. Export Law. The Software and related technology are subject to U.S.
export control laws and may be subject to export or import regulations in
other countries. You agree to strictly comply with all such laws and
regulations and acknowledge that you have the responsibility to obtain such
licenses to export, re-export or import as may be required.
10. General. This Agreement will be governed by the laws of the State of
Colorado in the United States of America, without regard to or application
of conflicts of law rules or principles. The Federal and State Courts
located in Denver County shall have sole jurisdiction over any disputes
arising hereunder. If any provision of this Agreement is held to be
unenforceable, that provision will be removed and the remaining provisions
will remain in full force. This Agreement is the complete and exclusive
statement of the agreement between us, which supersedes any proposal or
prior agreement, oral or written, and any other communications between us
in relation to the subject matter of this Agreement.
If you have any questions regarding this Agreement or the Software, please
contact the party that supplied the Software to you.
The Software is protected by United States Copyright Law and
international treaty.
Unauthorized reproduction or distribution is subject to civil
and criminal penalties.
copyright (C) 2000, Genomica Corporation. All rights reserved. Protected by
copyright and licenses restricting use, copying, distribution and decompilation.
Genomica and Discovery Manager are trademarks of Genomica Corporation in the
United States and other countries.
<PAGE>
EXHIBIT C--TECHNICAL SUPPORT AND MAINTENANCE AGREEMENT
Software Maintenance And Support Agreement
This Software Maintenance and Support Agreement (the "Agreement") contains the
terms and conditions under which Genomica will maintain and support the Software
sold to you ("Customer") along with the Software License Agreement (the "License
Agreement") between you and Genomica.
. Definitions. The following words, terms and phrases shall, in this
Agreement, have the following meanings, which shall apply equally to both
the singular and plural forms of the terms defined:
1.1 "Defect" means an Incident that is confirmed by Genomica to be the
result of the Software not performing in accordance with the Documentation.
1.2 "Documentation" means the printed or electronic documentation
supplied with the Software.
1.3 "Effective Date" means the date on which the Software was shipped
to Customer.
1.4 "Enhancement" means a Support Request that Genomica determines is a
request for a new Software feature, or a change to an existing Software feature
that is currently performing according to its respective specification.
1.5 "Genomica Holidays" means those days publicly disclosed by Genomica
to be official company holidays on a country-by-country basis.
1.6 "Incident" means an occurrence during Customer's use of the
Software in accordance with the License Agreement in which Customer believes the
Software has failed to work as set forth in the Documentation, or Customer
believes the Documentation to be incorrect.
1.7 "Question" means a question regarding Software installation or
configuration, or Customer's general use of the Software.
1.8 "Software Update" means a revision, patch or work-around, that when
applied to the Software or Documentation, shall prevent one or more Incidents
from reoccurring.
1.9 "Support Request" means communication of a Question or Incident
from the Customer to Genomica via electronic mail, fax or telephone.
1.10 "Technical Support" means commercially reasonable efforts,
undertaken by Genomica, to provide Customer with answers to Customer Support
Requests, or to provide Customer with Software Updates that repair Defects in
the Software or its Documentation.
1.11 "Update Release" means a subsequent release of the Software that
includes some Software Updates, upgrades in features, functionality or
performance of the Software, but may not include any release, option or future
product that Genomica licenses separately.
. Support Services
1.12 Standard Support. Genomica shall provide Customer with electronic
mail, fax, and telephone Technical Support every day, excluding weekends and
Genomica Holidays, during Genomica's then-published hours in each country where
Genomica offers direct Technical Support. Genomica shall provide Customer with a
single electronic mail address, fax number and telephone number to be used for
submission of all Support Requests. Support hours and
<PAGE>
contact information may be changed by Genomica at anytime by publicizing the new
support information on Genomica's Website.
1.13 Support Exclusions. Genomica shall not provide Technical Support
for: (i) Software that has been modified or altered in any way by Customer; (ii)
hardware failures or malfunctions; (iii) use of the Software on a computer
system (hardware or operating system version) other than that for which it is
licensed
1.14 Named Individual. Genomica does not offer or guarantee Customer
that a particular named individual shall provide any Technical Support services.
. Support Request Handling
1.15 Replication Information. Customer agrees to provide all necessary
assistance to aid Genomica efforts to duplicate an Incident.
1.16 Support Request Closure. A Support Request shall be considered
closed upon the occurrence of any of the following: (i) Genomica provides an
answer to a Customer Question; (ii) Genomica provides a Software Update that
addresses a Support Request; (iii) Genomica acknowledges receipt of a Customer
Enhancement request; (iv) Genomica is unable to reproduce the Incident after
applying commercially reasonable efforts; (v) Genomica concludes that an
Incident is not the result of a Defect in the Software, but is a result of
hardware or software not developed by Genomica; (vi) Customer fails to respond
to two (2) or more consecutive Genomica communications regarding the Support
Request in a ten (10) business day period.
1.17 Defect Repair. Genomica shall employ commercially reasonable
efforts to develop Software Updates or Update Releases to provide corrections to
Defects.
1.18 Enhancement Requests. Support Requests for Software Enhancements
shall be reviewed by Genomica for possible inclusion in a future release.
Genomica does not guarantee that any such request shall be included in any
future release.
. Software Releases
1.19 Software Updates. Genomica shall promptly make available, by
download from its Website any Software Updates developed in response to Customer
Incidents. Each Software Update, when incorporated into the Software, shall be
considered part of the Software and shall thereupon be subject to all of the
terms and conditions of the License Agreement.
1.20 Update Releases. During the term of this Agreement, Customer
shall, free of charge, be provided Update Releases. Each Update Release shall be
regarded as the Software that it supersedes, and shall thereupon be subject to
all of the terms and conditions of the License Agreement. Upon download or other
distribution of the Update Release to Customer, the new Update Release shall
become the currently supported version of the Software.
1.21 Support for Non-current Versions. Genomica reserves the right, at
any time after a particular Update Release has been superceded by another Update
Release, to terminate support with respect to the superceded Update Release.
Genomica will not terminate support for any Update Release sooner than ninety
(90) days after the first commercial shipment of such Update Release.
. Term and Termination
1.22 Term. The term of this Agreement shall commence on the Effective
Date, and shall end one (1) year thereafter unless renewed or earlier terminated
as provided herein below.
1.23 Renewal. This Agreement may be renewed for an additional term at
the end of the current term by Customer's prompt payment to Genomica of
Genomica's then-current Technical Support and Maintenance Fee for the Software.
<PAGE>
1.24 Termination. If Customer defaults in a payment or other material
obligation under this Agreement and continues in default for a period of thirty
(30) days after written notice of default is given to Customer, Genomica may
terminate and cancel this Agreement, upon written notice of termination given to
Customer.
. Miscellaneous
1.25 Survival. Sections 6.2 ("Warranty Disclaimers") and 6.3
("Limitation of Liability") will survive any termination, expiration, or
cancellation of the maintenance and support services provided hereunder.
1.26 Warranty Disclaimers. Genomica does not warrant that any
Software Update or Update Release furnished to Customer hereunder will meet
Customer's requirements, that the operation of the Software, including any such
releases, will be uninterrupted or error-free, or that all Defects will be
corrected. The warranties in the License Agreement are exclusive and in lieu of
all other warranties, express or implied, including the implied warranties of
non-infringement, merchantability, and fitness for a particular purpose.
1.27 Limitation of Liability. IN NO EVENT SHALL GENOMICA BE LIABLE FOR
INDIRECT, CONSEQUENTIAL INCIDENTAL OR SPECIAL DAMAGES, HOWEVER CAUSED AND ON ANY
THEORY OF LIABILITY, ARISING OUT OF THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO
LOSS OF ANTICIPATED PROFITS, EVEN IF GENOMICA HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. IN NO EVENT SHALL GENOMICA'S LIABILITY ARISING OUT
OF THIS AGREEMENT OR THE BREACH OR TERMINATION OF THIS AGREEMENT EXCEED THE
AMOUNTS PAID BY LICENSEE TO PURSUANT TO THIS AGREEMENT. THESE LIMITATIONS SHALL
APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
1.28 Force Majeure. Genomica shall not be liable for any delays in the
performance of any of its obligations hereunder due to causes beyond its
reasonable control, including but not limited to, fire, strike, war, riots, acts
of any civil or military authority, judicial action, acts of God, or other
casualty or natural calamity.
1.29 Severability. Any term or provision of this Agreement held to be
illegal or unenforceable shall, if possible, be interpreted so as to be
construed as valid, but in any event the validity or enforceability of the
remainder hereof shall not be affected.
1.30 Governing Law; Forum Selection. This Agreement will be governed by
the laws of the State of Colorado in the United States of America, without
regard to or application of conflicts of law rules or principles. The Federal
and State Courts located in Boulder County shall have sole jurisdiction over any
disputes arising hereunder.
1.31 Entire Agreement. This Agreement is the complete and exclusive
statement of the agreement between the parties, which supersedes any proposal or
prior agreement, oral or written, and any other communications between us in
relation to the subject matter of this Agreement.
<PAGE>
EXHIBIT D--PAYMENTS AND SALES MILESTONES
This exhibit defines the payments due Genomica for the sale of Genomica Products
and Technical Support and Maintenance Agreements. It also outlines the specific
sales milestones agreed to by the parties.
- --------------------------------------------------------------------------------
Product Description Price
- --------------------------------------------------------------------------------
Genomica Product
- --------------------------------------------------------------------------------
Technical Support and Maintenance
Agreement
- --------------------------------------------------------------------------------
Sales Milestones
- --------------------------------------------------------------------------------
Q3'00
- --------------------------------------------------------------------------------
Q4'00
- --------------------------------------------------------------------------------
Q1'01
- --------------------------------------------------------------------------------
Q2'01
- --------------------------------------------------------------------------------
Q3'01 TBD 30 days prior to Q3'01
- --------------------------------------------------------------------------------
Q4'01 TBD 30 days prior to Q3'01
- --------------------------------------------------------------------------------
Q1'02 TBD 30 days prior to Q3'01
- --------------------------------------------------------------------------------
Q2'02 TBD 30 days prior to Q3'01
- --------------------------------------------------------------------------------
Q3'02 TBD 30 days prior to Q3'02
- --------------------------------------------------------------------------------
Q4'02 TBD 30 days prior to Q3'02
- --------------------------------------------------------------------------------
Q1'03 TBD 30 days prior to Q3'02
- --------------------------------------------------------------------------------
Q2'03 TBD 30 days prior to Q3'02
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT E--TRADEMARKS
<PAGE>
EXHIBIT F--GENOMICA PRODUCT BILL OF MATERIALS
<TABLE>
<CAPTION>
Quantity Item Description
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1
- -------------------------------------------------------------------------------------------------------------------
1
- -------------------------------------------------------------------------------------------------------------------
3
- -------------------------------------------------------------------------------------------------------------------
3
- -------------------------------------------------------------------------------------------------------------------
1
- -------------------------------------------------------------------------------------------------------------------
2
- -------------------------------------------------------------------------------------------------------------------
1
- -------------------------------------------------------------------------------------------------------------------
TBD
- -------------------------------------------------------------------------------------------------------------------
1
- -------------------------------------------------------------------------------------------------------------------
1 Software License Agreement The "Shrink-wrapped" Software License Agreement
- -------------------------------------------------------------------------------------------------------------------
1 Technical Support and Maintenance The agreement to be provided in conjunction with the sale of
Agreement Technical Support and Maintenance
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT G--MONTHLY AND QUARTERLY REPORTING FORMAT
MONTHLY REPORT
- --------------
Total Number of Units Invoiced during the previous month
PEB's quarterly reports to Genomica shall contain the following information:
For each Genomica Product Sale:
Organization Name, Customer Name, Address, Telephone, Fax, and Email
Date of Sale, and date that technical support begins
Number of Genomica Product Licenses Purchased
Total revenue from sale of Genomica Products
Total payments due Genomica for sales of Genomica Products
Total revenue from sale of Technical Support and Maintenance
Total payments dues Genomica for sales of Technical Support and Maintenance
QUARTERLY REPORT
- ----------------
All of the information contained in a Monthly Report for Sales Leads pursuant to
Section 10.5:
Organization Name, Customer Name, Address, Telephone, Fax, and Email
Total number of Genomica Products returned to PEB for refund
Subtract costs associated with production of
Subtract costs associated with upgrade packages sent to Genomica
<PAGE>
Exhibit 10.26
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made as of March 15, 2000,
by and between Genomica Corporation, with principal offices at 4001 Discovery
Drive, Suite 130, Boulder, Colorado 80303 (the "Company"), and Teresa W. Ayers
("Executive").
Whereas, Executive is currently employed by the Company as its Chief
Executive Officer and a Director; and
Whereas, the terms and conditions of Executive's employment are currently
governed by an offer letter dated May 26, 1999 ("Offer Letter"); and
Whereas, the Company desires to replace the terms of the Offer Letter and
employ the Executive in the capacity and under the terms and conditions
hereinafter set forth, and Executive is willing to be so employed by the
Company;
Now, Therefore, in consideration of the promises and the mutual agreements
herein set forth, the parties hereto agree to the following terms and conditions
of the Executive's employment:
1. Employment. The Company hereby continues to employ Executive and
Executive hereby accepts such continued employment upon the terms and conditions
set forth herein and agrees to perform such duties as are commensurate with her
office as prescribed by the Board of Directors of the Company, effective March
15, 2000 ("Effective Date"). The Executive's employment, as provided herein,
shall commence on the Effective Date of this Agreement and shall continue until
terminated pursuant to the provisions of paragraph 11 hereof.
It is understood and agreed by the Company and Executive that this
Agreement does not contain any promise or representation concerning the
duration of Executive's employment with the Company. Executive
specifically acknowledges that her employment with the Company is at-will
and may be altered or terminated by either Executive or the Company at any
time, with or without cause and/or with or without notice. In addition,
that the rate of salary, other compensation, or stock option vesting
schedules are stated in units of years or months does not alter the at-will
nature of the employment, and does not mean and should not be interpreted
to mean that Executive is guaranteed employment to the end of any period of
time or for any period of time. Any oral representation, custom, habit or
practice, or any other writing cannot change the nature, terms or
conditions of Executive's employment with the Company. In the event of
conflict between this disclaimer and any other statement, oral or written,
present or future, concerning terms and conditions of employment, the at-
will relationship confirmed by this disclaimer shall control. This at-will
status cannot be altered except in writing signed by Executive and the
Chairman of the Board of Directors.
2. Duties. Executive shall render exclusive, full-time services to the
Company as its Chief Executive Officer and a Director. Executive's
responsibilities, title, working conditions,
<PAGE>
duties and/or any other aspect of Executive's employment may be changed, added
to or eliminated during her employment at the sole discretion of the Company.
During the term of her employment hereunder, the Executive shall devote her best
efforts and her full business time, skill and attention to the performance of
her duties on behalf of the Company.
3. Policies and Procedures. Executive agrees that she is subject to and
will comply with the policies and procedures of the Company, as such policies
and procedures may be modified, added to or eliminated from time to time at the
sole discretion of the Company, except to the extent any such policy or
procedure specifically conflicts with the express terms of this Agreement.
Executive further agrees and acknowledges that any written or oral policies and
procedures of the Company do not constitute contracts between the Company and
Executive.
4. Compensation. For all services rendered and to be rendered
hereunder, and for the other agreements by the Executive contained herein, the
Company agrees to pay to the Executive, and the Executive agrees to accept a
salary of $225,000 per annum. Such salary will be reviewed no less frequently
than annually, and may be increased (but not decreased, unless as set forth
herein) at the discretion of the Company's Board of Directors or Compensation
Committee. Any such salary shall be payable pursuant to the Company's payroll
procedures which may be changed by the Company from time to time and shall be
subject to such deductions or withholdings as the Company is required to make
pursuant to law, or by further agreement with the Executive.
5. Stock Options. The Company, pursuant to its Amended and Restated
1996 Stock Option Plan (the "Plan"), the Stock Option Agreement ("Option
Agreement") and the Stock Option Grant Notice, including Attachments I, II, and
III thereto, dated May 27, 1999 ("First Grant Notice"), granted Executive an
option to purchase 1,100,000 shares of the Company Common Stock at an exercise
price of $.06 per share. The terms and conditions of the Plan, the Option
Agreement and the First Grant Notice shall remain in full force and effect and
are not modified by anything contained herein. The Plan, the Option Agreement
and the First Grant Notice are attached hereto as Exhibits A, B & C
respectively.
6. Additional Stock Options. The Company, pursuant to its Plan, the
Option Agreement, and the Stock Option Grant Notices, including Attachments I,
II, and III thereto, dated November 30, 1999 and January 27, 2000 respectively
(" Second Grant Notices"), granted Executive an option to purchase 100 shares of
the Company Common Stock at an exercise price of $.06 per share and 1,000,000
shares of the Company Common Stock at an exercise price of $.25 per share. The
terms and conditions of the Plan, the Option Agreement and the Second Grant
Notices shall remain in full force and effect and are not modified by anything
contained herein. The Plan, the Option Agreement and the Second Grant Notices
are attached hereto as Exhibits A, B, D & E respectively.
7. Other Benefits. While employed by the Company as provided herein:
(a) The Executive shall be entitled to all benefits to which other
executive officers of the Company are entitled, on terms comparable thereto,
including, without limitation, participation in any and all pension and profit
sharing plans, group insurance policies and plans, medical, health, and
disability insurance policies and plans, and the like, which may be
2.
<PAGE>
maintained by the Company for the benefit of its executives. The Company
reserves the right to from time to time alter and amend the benefits received by
Executive, at the Company's sole discretion.
(b) The Executive shall receive, against presentation of proper
vouchers, reimbursement for direct and reasonable out-of-pocket expenses
incurred by her in connection with the performance of her duties hereunder,
according to the policies of the Company.
(c) The Executive shall be entitled to personal time off, sick time
off, holidays and other paid absences in accordance with Company policies in
effect from time to time.
8. Proprietary and Other Obligations. Executive agrees to continue to
be bound by the terms and conditions contained in Executive's Employee
Proprietary Information and Inventions Agreement dated November 20, 1999,
effective July 19, 1999 ("Confidentiality Agreement") attached as Exhibit F and
acknowledges that the Confidentiality Agreement remains in full force and
effect.
9. Non-competition and Non-Solicitation. Executive acknowledges that
she will be a member of executive and management personnel at the Company.
Executive further acknowledges that during her employment at the Company, she
will be privy to extremely sensitive, confidential and valuable commercial
information, which constitutes trade secrets belonging to the Company, the
disclosure of which information and secrets would greatly harm the Company.
(a) Definitions.
(i) Conflicting Product or Service. As used in this Agreement
a "Conflicting Product or Service" means any computer program, product, process,
system, development tool, application, or service of any person or organization
other than the Company, in existence or under development, which competes with a
computer program, product, process, system, development tool, application, or
service of the Company, that is being or has been marketed, under development,
or part of the Company's business development plans at such time as the
Executive terminates employment with the Company.
(ii) Conflicting Organization. As used in this Agreement, a
"Conflicting Organization" means any person or organization other than the
Company that is engaged in or is about to become engaged in the design,
research, development, production, marketing, distribution, leasing, licensing,
selling, or servicing of a Conflicting Product or Service.
(b) Covenant Not to Compete. As a reasonable measure to protect the
Company from the harm of such disclosure and use of its information and trade
secrets against it, Executive agrees to the following as part of this Agreement:
Executive agrees that she shall not, individually or together with others,
directly or indirectly, during her employment with the Company and for a period
of one year following the separation of Executive's employment with the Company,
for any reason, whether as an owner, consultant, partner, joint venturer,
stockholder, broker, agent, financial agent, principal, trustee, licensor or in
any other capacity
3.
<PAGE>
whatsoever (a) own, manage, operate, join, control, finance or participate in
the ownership, management, operation, control or financing of, or be connected
as an officer, director, executive, partner, principal, agent, representative,
consultant, licensor, licensee or otherwise with, any business or enterprise
which is a Conflicting Organization, and (b) sell or assist in the design,
development, manufacture, licensing, sale, marketing or support of any
Conflicting Product or Service, or engage in any other manner, in any
Conflicting Organization. The parties agree that no more than 1% of the
outstanding voting stock of a publicly traded company or any stock owned by
Executive shall not constitute a violation of this paragraph. Executive further
agrees and acknowledges that because of the nature and type of business that the
Company engages in, the geographic scope of the covenant not to compete shall
include all counties, cities, and states of the United States and any other
country, territory or region in which the Company conducts business and that
such a geographic scope is reasonable. Nothing in this paragraph should be
construed to narrow the obligations of Executive imposed by any other provision
herein, any other agreement, law or other source.
(c) Non-solicitation Covenant. As a reasonable measure to protect
the Company from the harm of such disclosure and use of its information and
trade secrets against it, the parties agree to the following as part of this
Agreement: Executive acknowledges and agrees that information regarding
employees of the Company is Confidential Information, including without
limitation, the names of the Company employees; information regarding the skills
and knowledge of employees of the Company; information regarding any past,
present, or intended compensation, benefits, policies and incentives for
employees of the Company; and information regarding the management and reporting
structure of the Company. Executive agrees that she will not, individually or
with others, directly or indirectly (including without limitation, individually
or through any business, venture, proprietorship, partnership, or corporation in
which they control or own more than a five (5) percent interest, through any
agents, through any contractors, through recruiters, by their successors, by
their employees, or by their assigns) hire, solicit, or induce any employee of
the Company to leave the Company during the period she is employed by the
Company and for a period of one year following the separation, resignation, or
termination of Executive's employment with the Company. Executive further agrees
that during the period she is employed by the Company and for one year
thereafter, she will not, either directly or indirectly, solicit or attempt to
solicit any customer, client, supplier, investor, vendor, consultant or
independent contractor of the Company to terminate, reduce or negatively alter
his, her or its relationship with the Company. The geographic scope of the
covenants in this paragraph 9(c) shall include any city, county, or state of the
United States and any such other city, territory, country, or jurisdiction in
which the Company does business. Nothing in this paragraph should be construed
to narrow the obligations of Executive imposed by any other provision herein,
any other agreement, law or other source.
(d) Reasonable. Executive agrees and acknowledges that the time
limitation and the geographic scope on the restrictions in this paragraph 9 and
its subparts are reasonable. Executive also acknowledges and agrees that the
limitation in this paragraph 9 and its subparts is reasonably necessary for the
protection of the Company, that through this Agreement she shall receive
adequate consideration for any loss of opportunity associated with the
provisions herein, and that these provisions provide a reasonable way of
protecting the Company's business value which was imparted to her. In the event
that any term, word, clause, phrase, provision,
4.
<PAGE>
restriction, or section of this paragraph 9 of this Agreement is more
restrictive than permitted by the law of the jurisdiction in which the Company
seeks enforcement thereof, the provisions of this Agreement shall be limited
only to that extent that a judicial determination finds the same to be
unreasonable or otherwise unenforceable. Moreover, notwithstanding any judicial
determination that any term, word, clause, phrase, provision, restriction, or
section of this Agreement is not specifically enforceable, the parties intend
that the Company shall nonetheless be entitled to recover monetary damages as a
result of any breach hereof.
(e) Legal and Equitable Remedies. In view of the nature of the
rights in goodwill, employee relations, trade secrets, and business reputation
and prospects of the Company to be protected under this paragraph 9 of this
Agreement, Executive understands and agrees that the Company could not be
reasonably or adequately compensated in damages in an action at law for
Executive's breach of their obligations (whether individually or together)
hereunder. Accordingly, Executive specifically agrees that the Company shall be
entitled to temporary and permanent injunctive relief, specific performance, and
other equitable relief to enforce the provisions of this paragraph 9 of this
Agreement and that such relief may be granted without the necessity of proving
actual damages, and without bond. Executive acknowledges and agrees that the
provisions in this paragraph 9 and its subparts are essential and material to
this Agreement, and that upon breach of this paragraph 9 by her, the Company is
entitled to withhold providing payments or consideration, to equitable relief to
prevent continued breach, to recover damages and to seek any other remedies
available to the Company. This provision with respect to injunctive relief shall
not, however, diminish the right of the Company to claim and recover damages or
other remedies in addition to equitable relief.
(f) Extension of Time. In the event that Executive breaches any
covenant, obligation or duty in this paragraph 9 or its subparts, any such duty,
obligation, or covenants to which the parties agreed by this paragraph 9 and its
subparts shall automatically toll from the date of the first breach, and all
subsequent breaches, until the resolution of the breach through private
settlement, judicial or other action, including all appeals. The duration and
length of Executive's duties and obligations as agreed by this paragraph 9 and
its subparts shall continue upon the effective date of any such settlement, or
judicial or other resolution.
10. Consulting Arrangement. Upon termination of Executive's employment
by the Company for any reason and at the Company's sole discretion, Executive
agrees to enter into a consulting arrangement the terms and conditions of which
shall be mutually agreed to by the Company and Executive. Unless otherwise
agreed to, the duration of the consulting arrangement shall be no longer than
one year from such date of termination or resignation.
11. Termination. Executive and the Company each acknowledge that either
party has the right to terminate Executive's employment with the Company at any
time for any reason whatsoever, with or without cause or advance notice pursuant
to the following:
(a) Termination by Death or Disability. In the event Executive
shall die during the period of her employment hereunder or become permanently
disabled, as evidenced by Executive's inability to carry out her job
responsibilities for a continuous period of six months, Executive's employment
and the Company's obligation to make payments hereunder shall terminate on the
date of her death, or the date upon which, in the sole reasonable
5.
<PAGE>
determination of the Board of Directors, Executive has failed to carry out her
job responsibilities for six months. The Company's ability to terminate
Executive as a result of any disability shall be to the extent permitted by
state and/or federal law.
(b) Voluntary Resignation by Executive. In the event Executive
voluntarily resigns from her employment with the Company (other than for Good
Reason as defined below), the Company's obligation to make payments hereunder
shall cease upon such resignation, except the Company shall pay Executive (a)
any salary earned but unpaid prior to the resignation and all accrued but unused
vacation, and (b) any business expenses referred to in paragraph 7(b) that were
incurred but not reimbursed as of the date of resignation. Vesting of any shares
pursuant to the Plan, the Option Agreement, the First Grant Notice and the
Second Grant Notices or any other unvested shares shall cease on the date of
resignation. Should Executive voluntarily resign from her employment with the
Company, Executive agrees to be bound by the provisions of paragraph 9 (Non-
competition/Non-solicitation) for a period of one year from the date of such
resignation.
(c) Termination for Just Cause. In the event Executive is
terminated by the Company for Just Cause (as defined below), the Company's
obligation to make payments hereunder shall cease upon the date of receipt by
Executive of written notice and explanation of such termination (the "date of
termination" for purposes of this paragraph 11(c)), except the Company shall:
pay Executive any salary earned but unpaid prior to termination, all accrued but
unused vacation and any business expenses referred to in paragraph 7(b) that
were incurred but not reimbursed as of the date of termination. Vesting of any
shares pursuant to the Plan, the Option Agreement, the First Grant Notice and
the Second Grant Notices or any other unvested shares shall cease on the date of
termination. In the event the Company terminates Executive for Just Cause,
Executive agrees to be bound by the provisions of paragraph 9 (Non-
competition/Non-solicitation) for a period of one year from the date of
termination.
(d) Termination by the Company without Just Cause or Resignation for
Good Reason. In the event that Executive is terminated by the Company for any
reason other than Just Cause (as defined below), or if the Executive shall
resign her employment for Good Reason (as defined below), the following shall
occur provided Executive signs a release, releasing all claims that Executive
may have against the Company related specifically to the cause of the
termination as documented by the Company as of the date Executive signs such
release, and upon the written acknowledgment of her continuing obligations under
the Confidentiality Agreement, attached as Exhibit F, Executive shall receive
the following severance benefits: a) if the termination without Just Cause or
the resignation for Good Reason occurs within the first 12 months of Employment
with the Company (for purposes of this paragraph 11(d) the 12 month period shall
be measured from the Effective Date), Executive shall receive 12 months of her
then currently salary, payable monthly and less all applicable deductions and
withholdings; b) if the termination without Just Cause or the resignation for
Good Reason occurs within the second 12 months of employment with the Company,
Executive shall receive 6 months of her then currently salary, payable monthly
and less all applicable deductions and withholdings; and (c) if the termination
without Just Cause or the resignation for Good Reason occurs after 24 months of
employment with the Company, Executive shall receive 3 months of her then
currently salary, payable monthly and less all applicable deductions and
6.
<PAGE>
withholdings ("Severance Payments"). The payments shall be calculated based on
her then current salary as of the termination date and shall be paid in the
normal course of the Company's payroll cycle, less all applicable deductions and
withholdings. Vesting of any shares pursuant to the Plan, the Option Agreement,
the First Grant Notice and the Second Grant Notices or any other unvested shares
shall cease on the date of termination. In the event the Company terminates
Executive without Just Cause or Executive resigns for Good Reason, Executive
agrees to be bound by the provisions of paragraph 9 (Non-competition/Non-
solicitation) for a period of one year from the date of termination.
(i) "Just Cause" for termination shall mean: That the Company,
acting in good faith based upon the information then known to the Company,
determines that Executive has committed or engaged in: willful misconduct, gross
negligence, charges of theft, fraud, or other illegal or dishonest conduct which
are considered to be harmful to the Company by the majority vote of its Board of
Directors; refusal or unwillingness to perform material job duties, failure to
adequately perform job duties, habitual absenteeism, substantial dependence on
alcohol or any controlled substance, sexual or other forms of illegal
harassment, conduct that reflects adversely upon, or making any remarks
disparaging of the Company, its Board, Officers, Directors, advisors,
executives, affiliates or subsidiaries; insubordination; any willful act that is
likely to and which does, in fact, have the effect of materially injuring the
reputation, business, or business relationship of the Company, violation of
fiduciary duty, violation of any duty of loyalty, material breach of any
material term of this Agreement, including the Confidentiality Agreement,
Exhibit F, and matters of similar gravity to any of the above enumerated
grounds. Termination with Just Cause must be made with written notice to
Executive. In the event Executive is terminated for Just Cause she will not be
entitled to any Severance Payments, pay in lieu of notice, vesting of any shares
under any option, vesting of any unrestricted shares, or any other such
compensation set forth herein, but she will be entitled to all compensation,
benefits and unreimbursed expenses accrued through the date of termination. The
parties acknowledge that this definition of "Just Cause" in not intended and
does not apply to any aspect of the relationship between the Company and any of
its employees, including Executive, beyond determining Executive's eligibility
for the Severance Payments.
(ii) "Good Reason" shall mean (i) relocation of your place of
work greater than fifty miles from your current work location; (ii) a decrease
in compensation; (iii) a material change in the business direction of the
Company, or (iv) the Company unilaterally makes significant detrimental changes
to the Executive's job responsibilities which action is not remedied after
twenty (20) days written notice, and Executive notifies the Company at
termination that she is terminating for Good Reason; provided, however, that
upon the occurrence of one of the preceding events, the Executive shall be
deemed to have waived any rights to receive Severance Payments if she does not
notify the company of her intention to resign within 90 days after such event.
12. Miscellaneous.
(a) Executive agrees to be responsible for the payment of any taxes
due on any and all compensation provided by the Company pursuant to this
Agreement. Executive agrees to indemnify the Company and hold the Company
harmless from any and all claims or penalties asserted against the Company for
any failure to pay taxes due on any compensation
7.
<PAGE>
provided by the Company pursuant to this Agreement. Executive expressly
acknowledges that the Company has not made, nor herein makes, any representation
about the tax consequences of any consideration provided by the Company to
Executive pursuant to this Agreement.
(b) This Agreement may not be amended, modified, superseded,
canceled, renewed or expanded, or any terms or covenants hereof waived, except
by a writing executed by each of the parties hereto or, in the case of a waiver,
by the party waiving compliance. Failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect her or its
right at a later time to enforce the same. No waiver by a party of a breach of
any term or covenant contained in this Agreement, whether by conduct or
otherwise, in any one or more instances shall be deemed to be or construed as a
further or continuing waiver of agreement contained in the Agreement.
(c) This Agreement shall be binding upon and shall inure to the
benefit of any successor or assignee of the business of the Company. This
Agreement shall not be assignable by the Executive.
(d) All notices given hereunder shall be given by certified mail,
addressed, or delivered by hand, to the other party at her or its address as set
forth herein, or at any other address hereafter furnished by notice given in
like manner. Each notice shall be dated the date of its mailing or delivery and
shall be deemed given, delivered or completed on such date.
(e) 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, including conflict of
laws provisions of the State of Colorado.
(f) This Agreement together with the Exhibits attached hereto sets
forth the entire agreement and understanding of the parties hereto with regard
to the employment of the Executive by the Company and supersede all prior
agreements, arrangements and understandings, written or oral, pertaining to the
subject matter hereof. No representation, promise or inducement relating to the
subject matter hereof has been made to a party that is not embodied in these
Agreements, and no party shall be bound by or liable for any alleged
representation, promise or inducement not so set forth.
(g) The Executive and the Company represent and warrant to each
other that neither has incurred any liability for any employment agency or
finders fees or commissions, or the like, in connection with the employment
contemplated herein. The Executive and the Company hereby agree to indemnify and
hold each other harmless from and against and in respect of any claim for
employment agency or finders fees or commissions or the like relating to the
employment contemplated by this Agreement.
(h) The following exhibits to this Agreement are attached hereto and
constitute a part of this Agreement:
Exhibit A - the Amended and Restated 1996 Stock Option Plan
Exhibit B - the Stock Option Agreement
8.
<PAGE>
Exhibit C - the Stock Option Grant Notice, including
Attachments I, II, an III thereto, dated May 27,
1999
Exhibit D - the Stock Option Grant Notice, including
Attachments I, II, an III thereto, dated November
30, 1999
Exhibit E - the Stock Option Grant Notice, including
Attachments I, II, an III thereto, dated January
27, 1999
Exhibit F - Employee Proprietary Information and Inventions
Agreement dated November 20, 1999, effective July
19, 1999
In Witness Whereof, the parties have each duly executed this Employment
Agreement as of the day and year first above written.
Genomica Corporation
By:
-----------------------------------
Title:
--------------------------------
Executive:
--------------------------------------
Teresa W. Ayers
9.
<PAGE>
Exhibit A
Amended and Restated 1996 Stock Option Plan
<PAGE>
Exhibit B
Stock Option Agreement
<PAGE>
Exhibit C
Stock Option Grant Notice, including Attachments I, II, an III
thereto, dated May 27, 1999
<PAGE>
Exhibit D
Stock Option Grant Notice, including Attachments I, II, an III
thereto, dated November __, 1999
<PAGE>
Exhibit E
Stock Option Grant Notice, including Attachments I, II, an III
thereto, dated March __, 2000
<PAGE>
Exhibit F
Employee Proprietary Information and Inventions Agreement dated
November 20, 1999, effective July 19, 1999
<PAGE>
Exhibit 10.27
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made as of March 15, 2000,
by and between Genomica Corporation, with principal offices at 4001 Discovery
Drive, Suite 130, Boulder, Colorado 80303 (the "Company"), and Thomas G. Marr
("Executive").
Whereas, Executive is currently employed by the Company as its President,
Chief Scientist and a Director; and
Whereas, the Company desires to employ the Executive in the capacity and
under the terms and conditions hereinafter set forth, and Executive is willing
to be so employed by the Company;
Now, Therefore, in consideration of the promises and the mutual agreements
herein set forth, the parties hereto agree to the following terms and conditions
of the Executive's employment:
1. Employment. The Company hereby continues to employ Executive and
Executive hereby accepts such continued employment upon the terms and conditions
set forth herein and agrees to perform such duties as are commensurate with his
office as prescribed by the Board of Directors of the Company, effective March
15, 2000 ("Effective Date"). The Executive's employment, as provided herein,
shall commence on the Effective Date of this Agreement and shall continue until
terminated pursuant to the provisions of paragraph 11 hereof.
It is understood and agreed by the Company and Executive that this
Agreement does not contain any promise or representation concerning the
duration of Executive's employment with the Company. Executive
specifically acknowledges that his employment with the Company is at-will
and may be altered or terminated by either Executive or the Company at any
time, with or without cause and/or with or without notice. In addition,
that the rate of salary, other compensation, or stock option vesting
schedules are stated in units of years or months does not alter the at-will
nature of the employment, and does not mean and should not be interpreted
to mean that Executive is guaranteed employment to the end of any period of
time or for any period of time. Any oral representation, custom, habit or
practice, or any other writing cannot change the nature, terms or
conditions of Executive's employment with the Company. In the event of
conflict between this disclaimer and any other statement, oral or written,
present or future, concerning terms and conditions of employment, the at-
will relationship confirmed by this disclaimer shall control. This at-will
status cannot be altered except in writing signed by Executive and the
Chairman of the Board of Directors.
2. Duties. Executive shall render exclusive, full-time services to the
Company as its President, Chief Scientist and a Director. Executive's
responsibilities, title, working conditions, duties and/or any other aspect of
Executive's employment may be changed, added to or eliminated during his
employment at the sole discretion of the Company. During the term of his
<PAGE>
employment hereunder, the Executive shall devote his best efforts and his full
business time, skill and attention to the performance of his duties on behalf of
the Company.
3. Policies and Procedures. Executive agrees that he is subject to and
will comply with the policies and procedures of the Company, as such policies
and procedures may be modified, added to or eliminated from time to time at the
sole discretion of the Company, except to the extent any such policy or
procedure specifically conflicts with the express terms of this Agreement.
Executive further agrees and acknowledges that any written or oral policies and
procedures of the Company do not constitute contracts between the Company and
Executive.
4. Compensation. For all services rendered and to be rendered hereunder,
and for the other agreements by the Executive contained herein, the Company
agrees to pay to the Executive, and the Executive agrees to accept a salary of
$225,000 per annum. Such salary will be reviewed no less frequently than
annually, and may be increased (but not decreased, unless as set forth herein)
at the discretion of the Company's Board of Directors or Compensation Committee.
Any such salary shall be payable pursuant to the Company's payroll procedures
which may be changed by the Company from time to time and shall be subject to
such deductions or withholdings as the Company is required to make pursuant to
law, or by further agreement with the Executive.
5. Stock. Executive, pursuant to the terms and conditions set forth in
the Common Stock Acquisition Agreement and the Founders Purchase Agreement
(collectively referred to herein as the "Founders Agreement") purchased
1,080,000 shares of the Company's stock for the price of $1,080.00. The terms
and conditions of Founders Agreement shall remain in full force and effect and
are not modified by anything contained herein. The Common Stock Acquisition
Agreement and the Founders Purchase Agreement are attached hereto as Exhibit A.
6. Stock Options. The Company, pursuant to its Amended and Restated 1996
Stock Option Plan (the "Plan"), the Stock Option Agreement dated April 10, 1997
(the "1997 Option Agreement") and the Notice of Grant of Stock Options and
Option Agreement dated April 10, 1997 (the "Grant Notice"), granted Executive an
option to purchase 200,000 shares of the Company Common Stock at an exercise
price of $.06 per share. The terms and conditions of the Plan, the 1997 Option
Agreement and the Grant Notice shall remain in full force and effect and are not
modified by anything contained herein. The Plan, the 1997 Option Agreement and
the Grant Notice are attached hereto as Exhibits B, C & D respectively. In
addition, the Company, pursuant to the Plan, the Stock Option Agreement (the
"Option Agreement"), and the Stock Option Grant Notices, including Attachments
I, II, and III thereto, dated May 27, 1999, November 30, 1999 and January 27,
2000 ("Second Grant Notices"), granted Executive an option, to purchase 200,00
shares of the Company Common Stock at an exercise price of $.06 per share, to
purchase 100 shares of the Company Common Stock at an exercise price of $.06 per
share and to purchase 1,000,000 shares of the Company Common Stock at an
exercise price of $.25 per share respectively. The terms and conditions of the
Plan, the Option Agreement and the Second Grant Notices shall remain in full
force and effect and are not modified by anything contained herein. The Plan,
the Option Agreement and the Second Grant Notices are attached hereto as
Exhibits B, E, F, G & H respectively. In addition, Executive is a Named
Executive pursuant to the Plan.
2.
<PAGE>
7. Other Benefits. While employed by the Company as provided herein:
(a) The Executive shall be entitled to all benefits to which other
executive officers of the Company are entitled, on terms comparable thereto,
including, without limitation, participation in any and all pension and profit
sharing plans, group insurance policies and plans, medical, health, and
disability insurance policies and plans, and the like, which may be maintained
by the Company for the benefit of its executives. The Company reserves the right
to from time to time alter and amend the benefits received by Executive, at the
Company's sole discretion.
(b) The Executive shall receive, against presentation of proper
vouchers, reimbursement for direct and reasonable out-of-pocket expenses
incurred by him in connection with the performance of his duties hereunder,
according to the policies of the Company.
(c) The Executive shall be entitled to personal time off, sick time
off, holidays and other paid absences in accordance with Company policies in
effect from time to time.
8. Proprietary and Other Obligations. Executive agrees to continue to
be bound by the terms and conditions contained in Executive's Employee
Proprietary Information and Inventions Agreement dated December 15, 1999
("Confidentiality Agreement") attached as Exhibit I and acknowledges that the
Confidentiality Agreement remains in full force and effect.
9. Non-competition and Non-solicitation. Executive acknowledges that he
will be a member of executive and management personnel at the Company. Executive
further acknowledges that during his employment at the Company, he will be privy
to extremely sensitive, confidential and valuable commercial information, which
constitutes trade secrets belonging to the Company, the disclosure of which
information and secrets would greatly harm the Company.
(a) Definitions.
(i) Conflicting Product or Service. As used in this Agreement,
a "Conflicting Product or Service" means any computer program, product, process,
system, development tool, application, or service of any person or organization
other than the Company, in existence or under development, which competes with a
computer program, product, process, system, development tool, application, or
service of the Company, that is being or has been marketed, under development,
or part of the Company's business development plans at such time as the
Executive terminates employment with the Company.
(ii) Conflicting Organization. As used in this Agreement, a
"Conflicting Organization" means any person or organization other than the
Company that is engaged in or is about to become engaged in the design,
research, development, production, marketing, distribution, leasing, licensing,
selling, or servicing of a Conflicting Product or Service.
(b) Covenant Not to Compete. As a reasonable measure to protect the
Company from the harm of such disclosure and use of its information and trade
secrets against it,
3.
<PAGE>
Executive agrees to the following as part of this Agreement: Executive agrees
that he shall not, individually or together with others, directly or indirectly,
during his employment with the Company and for a period of one year following
the separation of Executive's employment with the Company, for any reason,
whether as an owner, consultant, partner, joint venturer, stockholder, broker,
agent, financial agent, principal, trustee, licensor or in any other capacity
whatsoever (a) own, manage, operate, join, control, finance or participate in
the ownership, management, operation, control or financing of, or be connected
as an officer, director, executive, partner, principal, agent, representative,
consultant, licensor, licensee or otherwise with, any business or enterprise
which is a Conflicting Organization, and (b) sell or assist in the design,
development, manufacture, licensing, sale, marketing or support of any
Conflicting Product or Service, or engage in any other manner, in any
Conflicting Organization. The parties agree that no more than 1% of the
outstanding voting stock of a publicly traded company or any stock currently
owned by Executive shall not constitute a violation of this paragraph. Executive
further agrees and acknowledges that because of the nature and type of business
that the Company engages in, the geographic scope of the covenant not to compete
shall include all counties, cities, and states of the United States and any
other country, territory or region in which the Company conducts business and
that such a geographic scope is reasonable. Nothing in this paragraph should be
construed to narrow the obligations of Executive imposed by any other provision
herein, any other agreement, law or other source.
(c) Non-solicitation Covenant. As a reasonable measure to protect
the Company from the harm of such disclosure and use of its information and
trade secrets against it, the parties agree to the following as part of this
Agreement: Executive acknowledges and agrees that information regarding
employees of the Company is Confidential Information, including without
limitation, the names of the Company employees; information regarding the skills
and knowledge of employees of the Company; information regarding any past,
present, or intended compensation, benefits, policies and incentives for
employees of the Company; and information regarding the management and reporting
structure of the Company. Executive agrees that he will not, individually or
with others, directly or indirectly (including without limitation, individually
or through any business, venture, proprietorship, partnership, or corporation in
which they control or own more than a five (5) percent interest, through any
agents, through any contractors, through recruiters, by their successors, by
their employees, or by their assigns) solicit, or induce any employee of the
Company to leave the Company during the period he is employed by the Company and
for a period of one year following the separation, resignation, or termination
of Executive's employment with the Company. Executive further agrees that during
the period he is employed by the Company and for one year thereafter, he will
not, either directly or indirectly, solicit or attempt to solicit any customer,
client, supplier, investor, vendor, consultant or independent contractor of the
Company to terminate, reduce or negatively alter his, her or its relationship
with the Company. The geographic scope of the covenants in this paragraph 9(c)
shall include any city, county, or state of the United States and any such other
city, territory, country, or jurisdiction in which the Company does business.
Nothing in this paragraph should be construed to narrow the obligations of
Executive imposed by any other provision herein, any other agreement, law or
other source.
(d) Reasonable. Executive agrees and acknowledges that the time
limitation and the geographic scope on the restrictions in this paragraph 9 and
its subparts are reasonable.
4.
<PAGE>
Executive also acknowledges and agrees that the limitation in this paragraph 9
and its subparts is reasonably necessary for the protection of the Company, that
through this Agreement he shall receive adequate consideration for any loss of
opportunity associated with the provisions herein, and that these provisions
provide a reasonable way of protecting the Company's business value which was
imparted to him. In the event that any term, word, clause, phrase, provision,
restriction, or section of this paragraph 9 of this Agreement is more
restrictive than permitted by the law of the jurisdiction in which the Company
seeks enforcement thereof, the provisions of this Agreement shall be limited
only to that extent that a judicial determination finds the same to be
unreasonable or otherwise unenforceable. Moreover, notwithstanding any judicial
determination that any term, word, clause, phrase, provision, restriction, or
section of this Agreement is not specifically enforceable, the parties intend
that the Company shall nonetheless be entitled to recover monetary damages as a
result of any breach hereof.
(e) Legal and Equitable Remedies. In view of the nature of the
rights in goodwill, employee relations, trade secrets, and business reputation
and prospects of the Company to be protected under this paragraph 9 of this
Agreement, Executive understands and agrees that the Company could not be
reasonably or adequately compensated in damages in an action at law for
Executive's breach of their obligations (whether individually or together)
hereunder. Accordingly, Executive specifically agrees that the Company shall be
entitled to temporary and permanent injunctive relief, specific performance, and
other equitable relief to enforce the provisions of this paragraph 9 of this
Agreement and that such relief may be granted without the necessity of proving
actual damages, and without bond. Executive acknowledges and agrees that the
provisions in this paragraph 9 and its subparts are essential and material to
this Agreement, and that upon breach of this paragraph 9 by him, the Company is
entitled to withhold providing payments or consideration, to equitable relief to
prevent continued breach, to recover damages and to seek any other remedies
available to the Company. This provision with respect to injunctive relief shall
not, however, diminish the right of the Company to claim and recover damages or
other remedies in addition to equitable relief.
(f) Extension of Time. In the event that Executive breaches any
covenant, obligation or duty in this paragraph 9 or its subparts, any such duty,
obligation, or covenants to which the parties agreed by this paragraph 9 and its
subparts shall automatically toll from the date of the first breach, and all
subsequent breaches, until the resolution of the breach through private
settlement, judicial or other action, including all appeals. The duration and
length of Executive's duties and obligations as agreed by this paragraph 9 and
its subparts shall continue upon the effective date of any such settlement, or
judicial or other resolution.
10. Consulting Arrangement. Upon termination of Executive's employment
by the Company for any reason and at the Company's sole discretion, Executive
agrees to enter into a consulting arrangement the terms and conditions of which
shall be mutually agreed to by the Company and Executive. Unless otherwise
agreed to, the duration of the consulting arrangement shall be no longer than
one year from such date of termination or resignation.
11. Termination. Executive and the Company each acknowledge that either
party has the right to terminate Executive's employment with the Company at any
time for any reason whatsoever, with or without cause or advance notice pursuant
to the following:
5.
<PAGE>
(a) Termination by Death or Disability. In the event Executive
shall die during the period of his employment hereunder or become permanently
disabled, as evidenced by Executive's inability to carry out his job
responsibilities for a continuous period of six months, Executive's employment
and the Company's obligation to make payments hereunder shall terminate on the
date of his death, or the date upon which, in the sole reasonable determination
of the Board of Directors, Executive has failed to carry out his job
responsibilities for six months. The Company's ability to terminate Executive as
a result of any disability shall be to the extent permitted by state and/or
federal law.
(b) Voluntary Resignation by Executive. In the event Executive
voluntarily resigns from his employment with the Company (other than for Good
Reason as defined below), the Company's obligation to make payments hereunder
shall cease upon such resignation, except the Company shall pay Executive (a)
any salary earned but unpaid prior to the resignation and all accrued but unused
vacation, and (b) any business expenses referred to in paragraph 7(b) that were
incurred but not reimbursed as of the date of resignation. Vesting of any shares
pursuant to the Plan, the Option Agreement, the First Grant Notice and the
Second Grant Notices or any other unvested shares shall cease on the date of
resignation. Should Executive voluntarily resign from his employment with the
Company, Executive agrees to be bound by the provisions of paragraph 9 (Non-
competition/Non-solicitation) for a period of one year from the date of such
resignation.
(c) Termination for Just Cause. In the event Executive is
terminated by the Company for Just Cause (as defined below), the Company's
obligation to make payments hereunder shall cease upon the date of receipt by
Executive of written notice and explanation of such termination (the "date of
termination" for purposes of this paragraph 11(c)), except the Company shall:
pay Executive any salary earned but unpaid prior to termination, all accrued but
unused vacation and any business expenses referred to in paragraph 7(b) that
were incurred but not reimbursed as of the date of termination. Vesting of any
shares pursuant to the Plan, the Option Agreement, the First Grant Notice and
the Second Grant Notices or any other unvested shares shall cease on the date of
termination. In the event the Company terminates Executive for Just Cause,
Executive agrees to be bound by the provisions of paragraph 9 (Non-
competition/Non-solicitation) for a period of one year from the date of
termination.
(d) Termination by the Company without Just Cause or Resignation
for Good Reason. In the event that Executive is terminated by the Company for
any reason other than Just Cause (as defined below), or if the Executive shall
resign his employment for Good Reason (as defined below), the following shall
occur provided Executive signs a full general release, releasing all claims,
known or unknown that Executive may have against the Company related to
Executive's employment with the Company or the termination of said employment as
documented by the Company as of the date Executive signs such release, and upon
the written acknowledgment of his continuing obligations under the
Confidentiality Agreement, attached as Exhibit F, Executive shall receive the
following severance benefits: a) if the termination without Just Cause or the
resignation for Good Reason occurs within the first 12 months of Employment with
the Company (for purposes of this paragraph 11(d) the 12 month period shall be
measured from the Effective Date), Executive shall receive 12 months of his then
currently salary, payable monthly and less all applicable deductions and
withholdings; b) if the termination without Just
6.
<PAGE>
Cause or the resignation for Good Reason occurs within the second 12 months of
employment with the Company, Executive shall receive 6 months of his then
currently salary, payable monthly and less all applicable deductions and
withholdings; and (c) if the termination without Just Cause or the resignation
for Good Reason occurs after 24 months of employment with the Company, Executive
shall receive 3 months of his then currently salary, payable monthly and less
all applicable deductions and withholdings ("Severance Payments"). The payments
shall be calculated based on his then current salary as of the termination date
and shall be paid in the normal course of the Company's payroll cycle, less all
applicable deductions and withholdings. Vesting of any shares pursuant to the
Plan, the Option Agreement, the First Grant Notice and the Second Grant Notices
or any other unvested shares shall cease on the date of termination. In the
event the Company terminates Executive for without Just Cause or Executive
resigns for Good Reason, Executive agrees to be bound by the provisions of
paragraph 9 (Non-competition/Non-solicitation) for a period of one year from the
date of termination.
(i) "Just Cause" for termination shall mean: That the Company,
acting in good faith based upon the information then known to the Company,
determines that Executive has committed or engaged in: willful misconduct, gross
negligence, charges of theft, fraud, or other illegal or dishonest conduct which
are considered to be harmful to the Company by the majority vote of its Board of
Directors; refusal or unwillingness to perform material job duties, failure to
adequately perform job duties, habitual absenteeism, substantial dependence on
alcohol or any controlled substance, sexual or other forms of illegal
harassment, conduct that reflects adversely upon, or making any remarks
disparaging of the Company, its Board, Officers, Directors, advisors,
executives, affiliates or subsidiaries; insubordination; any willful act that is
likely to and which does, in fact, have the effect of materially injuring the
reputation, business, or business relationship of the Company, violation of
fiduciary duty, violation of any duty of loyalty, material breach of any
material term of this Agreement, including the Confidentiality Agreement,
Exhibit I, and matters of similar gravity to any of the above enumerated
grounds. Termination with Just Cause must be made with written notice to
Executive. In the event Executive is terminated for Just Cause he will not be
entitled to any Severance Payments, pay in lieu of notice, vesting of any shares
under any option, vesting of any unrestricted shares, or any other such
compensation set forth herein, but he will be entitled to all compensation,
benefits and unreimbursed expenses accrued through the date of termination. The
parties acknowledge that this definition of "Just Cause" in not intended and
does not apply to any aspect of the relationship between the Company and any of
its employees, including Executive, beyond determining Executive's eligibility
for the Severance Payments.
(ii) "Good Reason" shall mean (i) relocation of your place of
work greater than fifty miles from your current work location; (ii) a decrease
in compensation; (iii) a material change in the business direction of the
Company, or (iv) the Company unilaterally makes significant detrimental changes
to the Executive's job responsibilities, which action is not remedied after
twenty (20) days written notice, and Executive notifies the Company at
termination that he is terminating for Good Reason; provided, however, that upon
the occurrence of one of the preceding events, the Executive shall be deemed to
have waived any rights to receive Severance Payments if he does not notify the
company of his intention to resign within 90 days after such event.
7.
<PAGE>
12. Miscellaneous.
(a) Executive agrees to be responsible for the payment of any taxes
due on any and all compensation provided by the Company pursuant to this
Agreement. Executive agrees to indemnify the Company and hold the Company
harmless from any and all claims or penalties asserted against the Company for
any failure to pay taxes due on any compensation provided by the Company
pursuant to this Agreement. Executive expressly acknowledges that the Company
has not made, nor herein makes, any representation about the tax consequences of
any consideration provided by the Company to Executive pursuant to this
Agreement.
(b) This Agreement may not be amended, modified, superseded,
canceled, renewed or expanded, or any terms or covenants hereof waived, except
by a writing executed by each of the parties hereto or, in the case of a waiver,
by the party waiving compliance. Failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect his or its
right at a later time to enforce the same. No waiver by a party of a breach of
any term or covenant contained in this Agreement, whether by conduct or
otherwise, in any one or more instances shall be deemed to be or construed as a
further or continuing waiver of agreement contained in the Agreement.
(c) This Agreement shall be binding upon and shall inure to the
benefit of any successor or assignee of the business of the Company. This
Agreement shall not be assignable by the Executive.
(d) All notices given hereunder shall be given by certified mail,
addressed, or delivered by hand, to the other party at his or its address as set
forth herein, or at any other address hereafter furnished by notice given in
like manner. Each notice shall be dated the date of its mailing or delivery and
shall be deemed given, delivered or completed on such date.
(e) 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, including conflict of
laws provisions of the State of Colorado.
(f) This Agreement together with the Exhibits attached hereto sets
forth the entire agreement and understanding of the parties hereto with regard
to the employment of the Executive by the Company and supersede all prior
agreements, arrangements and understandings, written or oral, pertaining to the
subject matter hereof. No representation, promise or inducement relating to the
subject matter hereof has been made to a party that is not embodied in these
Agreements, and no party shall be bound by or liable for any alleged
representation, promise or inducement not so set forth.
(g) The Executive and the Company represent and warrant to each
other that neither has incurred any liability for any employment agency or
finders fees or commissions, or the like, in connection with the employment
contemplated herein. The Executive and the Company hereby agree to indemnify and
hold each other harmless from and against and in respect of any claim for
employment agency or finders fees or commissions or the like relating to the
employment contemplated by this Agreement.
8.
<PAGE>
(h) The following exhibits to this Agreement are attached hereto and
constitute a part of this Agreement:
Exhibit A -- the Common Stock Acquisition Agreement and the
Founders Agreement
Exhibit B -- the Amended and Restated 1996 Stock Option Plant
Exhibit C - the Stock Option Agreement dated April 10, 1997
Exhibit D -- the Notice of Grant of Stock Options and Option
Agreement dated April 10, 1997
Exhibit E -- The Stock Option Agreement
Exhibit F -- the Stock Option Grant Notice, including
Attachments I, II, an III thereto, dated May 27,
1999
Exhibit G -- the Stock Option Grant Notice, including
Attachments I, II, an III thereto, dated
November 30, 1999
Exhibit H -- the Stock Option Grant Notice, including
Attachments I, II, an III thereto, dated January
27, 2000
Exhibit I -- Employee Proprietary Information and Inventions
Agreement dated December 15, 1999
In Witness Whereof, the parties have each duly executed this Restated
Employment Agreement as of the day and year first above written.
Genomica Corporation
By:
--------------------------------------
Title:
-----------------------------------
Executive:
-----------------------------------------
Thomas G. Marr
9.
<PAGE>
Exhibit A
Common Stock Acquisition Agreement and the Founders
Agreement
<PAGE>
Exhibit B
Amended and Restated 1996 Stock Option Plan
<PAGE>
Exhibit C
Stock Option Agreement dated April 10, 1997
<PAGE>
Exhibit D
Notice of Grant of Stock Options and Option Agreement dated April
10, 1997
<PAGE>
Exhibit E
Stock Option Agreement
<PAGE>
Exhibit F
Stock Option Grant Notice, including Attachments I, II, an III
thereto, dated May 27, 1999
<PAGE>
Exhibit G
Stock Option Grant Notice, including Attachments I, II, an III
thereto, dated November 30, 1999
<PAGE>
Exhibit H
Stock Option Grant Notice, including Attachments I, II, an III
thereto, dated January 27, 2000
<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.
