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48
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. For the fiscal year ended
December 31, 1999.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. For the transition period
from _________ to _________.
Commission file number 0-23666
Tripos, Inc.
(Exact name of registrant as specified in its charter)
Utah 43-1454986
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1699 S. Hanley Rd, St. Louis, MO 63144
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code:
(314) 647-1099
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered:
None None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, $.01 Par Value
Preferred Stock Purchase Rights
(Title of class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K [X].
The aggregate market value of the voting stock held by non-
affiliates of the Registrant as of March 20, 2000, was
$42,510,262 (based upon the March 20, 2000 closing price for
shares of the Registrant's Common Stock as reported by the
NASDAQ National Market). Shares of Common Stock held by each
officer, director and holder of 5% or more of the outstanding
Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other
purposes.
On March 20, 2000, 3,438,919 shares of the Registrant's Common
Stock, $0.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual
Meeting of Shareholders to be held May 11, 2000 are
incorporated by reference into Part III.
Part I
Item 1.
Business
Tripos, Inc. is a leading provider of integrated discovery
software products, software consulting services, and
discovery research services to the pharmaceutical,
biotechnology, agrochemical, and other life sciences
industries. We combine information technology and scientific
research to optimize and accelerate molecular research for
the discovery of new products by our clients.
With a strong foundation in cheminformatics, Tripos provides
its customers with what we believe are distinct competitive
advantages. Our "chemically intelligent" discovery software
tools are able to manage, analyze and share biological and
chemical information. Tripos' software consulting services
help to organize data in a manner that is conducive to
discovery research. Tripos' proprietary chemical compound
libraries couple Tripos' molecular design technology and
synthesis capabilities. Discovery research services leverage
Tripos' cheminformatics expertise in molecular design
analysis and medicinal chemistry. Together, these services
allow our customers to take advantage of recent advances in
high throughput screening for biological activity with a goal
of accelerating the development and commercialization of
major new products.
Our customers, a number of whom are industry leaders, use our
products and services to reduce product discovery costs and
time, and to accelerate the development of major new
products. To date, Tripos has entered into strategic
alliances with pharmaceutical companies that include Warner-
Lambert and Pfizer along with biotechnology companies that
include Arena Pharmaceuticals, LION Biosciences AG and the
Wolfson Institute. Certain of these contracts provide for
recurring payments for products and services over the course
of the contract term as well as milestone payments or royalty
arrangements for new product discoveries. Tripos has a
geographically diverse customer base, with more than half its
1999 revenues derived from European and other customers
outside the United States. Tripos has a worldwide sales
force with offices throughout the United States, and in
England, France and Germany, representatives throughout the
Pacific Rim, and its Tripos Receptor Research chemistry
laboratories in England.
The remainder of this Item 1 contains certain statements that
are forward-looking and involve risks and uncertainties.
Words such as "expects", "anticipates", "projects",
"estimates", "intends", "plans", "believes", variations of
such words and similar expressions are intended to identify
such forward looking statements. These statements are based
on current expectations and projections made by management
and are not guarantees of future performance. Therefore,
actual events, outcomes and results may differ materially
from what is expressed or forecast in such forward-looking
statements. Among the factors that could cause actual
results to differ materially from the forward-looking
statements are set forth under the caption "Cautionary
Statements - Additional Important Factors to be Considered"
in Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A"). Tripos
undertakes no obligation to update any forward-looking
statements in this Form 10-K.
Industry Background
The success of companies in the pharmaceutical,
biotechnology, chemical and agrochemical industries is
substantially dependent upon their ability to identify new
pharmaceutical and chemical compounds with targeted
activities and properties that can be brought to market
rapidly and on a cost-effective basis. The discovery and
development of a new pharmaceutical or chemical product
candidate typically involves many investigative phases,
including storage, retrieval, analysis, review,
communication, management and manipulation of large volumes
of information relating to chemical structures and
properties, molecular patterns, statistical information,
reactions involved in syntheses and biological properties.
Based on industry data, the average pharmaceutical discovery
process requires synthesis and testing of more than 10,000
chemical compounds for each new product brought to market.
Tripos estimates that up to 30% of the expense of new product
research and development arises in the pre-clinical phases of
new pharmaceutical development, the equivalent pre-approval
phase of agrochemical product development and product
discovery phases of chemical research.
Industry pressure to reduce product development cost and time
to market are in part attributable to increased competition
and increased political, regulatory and consumer scrutiny.
By reducing the time to market, pharmaceutical companies can
generate substantial amounts of additional profits. In
addition, environmental regulations and consumer activism are
forcing chemical and agrochemical companies to evaluate
alternative products and means of doing business, thereby
increasing their product development and operating costs.
Pharmaceutical and biotechnology companies have focused their
R&D efforts on both novel compounds exhibiting demonstrable
benefits over existing commercial drugs and on novel targets,
many of which are emerging from work being done on the human
genome project. Many companies are implementing high
throughput screening laboratories with robotic systems for
the rapid analysis of large numbers of compounds for
biological activity. An outgrowth of this development is the
increased need for material to screen, or to test. Companies
are buying thousands of compounds a year to screen in order
to find a novel compound with the desired biological
activity.
Tripos Solution - Integration of Software, Research and Services
Tripos believes it offers a uniquely integrated suite of
discovery information and analysis software tools and related
software support and services, specially designed lead
chemical compounds, and discovery research services. We seek
to accelerate our customers' product discoveries and time to
market through offering the opportunity to outsource research
and discovery activities that can not be efficiently
performed in house. The key elements of this strategy
include:
* State of the art software products and software consulting
services that aid in the identification of new chemical
compounds for use in the product discovery process as well
as in the production of high volumes of new chemical
compounds used in the discovery process;
* A proprietary library of over 50,000 potential lead
compounds which we believe can be used by multiple
customers on multiple projects to support new product
discoveries;
* Discovery research services that enable customers to more
efficiently and rapidly design multiple series of related
chemical compounds to enhance the discovery process;
* Integration of informatics software and discovery research
services to maximize the effective contribution to new
discoveries; and
* A worldwide focus to our customer base, which has resulted
in strategic arrangements with many leading pharmaceutical
as well as emerging biotechnology companies.
Tripos has successfully demonstrated the integration of
software, research and services through its collaborations
with Arena Pharmaceuticals and the Wolfson Institute. The
rapid and efficient discovery in these collaborations
resulted in two lead series of compounds progressing from
inception to in-vivo biology in less than nine months that
are now being actively marketed to the pharmaceutical
industry.
Products and Services.
Tripos offers a complementary range of new research
technologies including Discovery Software, Software
Consulting Services and Discovery Services.
Discovery Software
Tripos offers its customers the ability to accelerate the
speed with which multiple new compounds can be generated
through the use of Tripos' highly integrated expert chemical
design software tools. Our proprietary software is used by
scientists at major research facilities around the world to
manage, analyze and share biological and chemical
information. Software users generally require generation of
multiple series of new compounds, often numbering 10,000 or
more, in order to test reactions to biological agents.
Tripos' expert chemical design tools improve the efficiency
of the chemical design process by providing important
structure and property data to the scientists. This
structure and property data is calculated through complex
pattern analysis and 3D simulation of chemical structures and
behaviors. By reviewing data produced through Tripos'
software products, scientists can avoid costly synthesis and
testing expenses that are not likely to produce positive
results.
The information produced through Tripos' expert design
environment can be easily accessed and reviewed by non-
specialist users of the software such as medicinal chemists
and biologists. This easy communication and collaboration is
accomplished through Tripos' chemical Intranet technology.
The cornerstone of Tripos' discovery software system is its
common interface, the SYBYL(R) Expert Molecular Design System.
SYBYL is a comprehensive computational tool kit for molecular
design and analysis, which simplifies and accelerates the
discovery of drugs and new chemical entities. SYBYL is a
modular collection of programs. Customization to meet the
researcher's specific needs is achieved by incorporating
optional modules. Tripos offers software to support the
following application areas: molecular modeling and
visualization (AdvComp, MOLCAD), chemical information systems
(UnityTM, ChemInfo, MetaLayer), pharmacophore perception
(FlexSTM, RECEPTORTM), combinatorial chemistry and molecular
diversity (LegionTM/CombiLibMaker(R), DiverseSolutionsTM), structure-
activity relationships (QSAR, Advanced CoMFA(R), CharismaTM),
structural biology and bioinformatics (Composer, GeneFoldTM,
MatchMakerTM), macromolecule-based drug design, NMR analysis
and structure generation, and desktop modeling and data
analysis.
Other software products offered include:
UNITY Chemical -industry-standard 3D-flexible search
Database System engine for effective chemical structure
based searching of multiple, distributed
databases of chemical information
FlexXTM -analyzes potential drug libraries for
"fit" into a receptor site
-developed by Professor Lengauer and
associates at the GMD German National
Research Center for Information
Technology
CharismaTM -structure-activity relationship
visualization software classifies
compounds according to their common
substructures and organizes results
SiteIDTM -used to find and visualize sites in
protein molecules where potential drug
compounds would bind
GeneFoldTM -protein fold identification tool
developed with Professors Jeffrey
Skolnick and Adam Godzik, and The
Scripps Research Institute
ChemEnlightenTM -enables filtering of very large
chemical structure data sets based on a
variety of metrics from multiple
platforms
GASPTM (Genetic -genetic algorithm selects alignments of
Algorithm sets of flexible molecules with more
Similarity Program) pharmacophoric features
-developed by Drs. Gareth Jones, Peter
Willett and Robert Glen at the
University of Sheffield and the Wellcome
Research Laboratories.
Software Consulting Services
Tripos is uniquely positioned to meet the growing demand in
the life sciences industries for integration of information
management for all aspects of research data. The highly
specialized research environments of these industries require
an experienced understanding of the discovery process. We
draw upon two decades of experience developing scientific
software applications for the pharmaceutical and
biotechnology industries. Our highly trained consultants
work in scientific software consulting teams to build
exceptional enterprise applications specifically designed for
research.
Tripos' consulting services are available to assist at all
stages of an information technology project, including:
Analysis and Specification: Tripos is skilled at
interviewing end-user scientists to determine essential
business tasks, current business logic, and workflow.
We can perform this phase of a project independently or
work with other consultants that are engaged by the
customer, in order to ensure that the highest level of
scientific understanding is part of any ongoing project.
Our scientific software teams are experienced at
determining the functional, performance and interface
requirements of a new application. Tripos enlists real
users for paper prototype systems to assist in
validating requirements, as well as ensuring a complete
and shared understanding of the system requirements.
Research and Design: Tripos' scientific skills help the
Customer develop novel methods for drug discovery. We
have the inside edge for modifying and extending
existing Tripos drug discovery software to explore new
ideas. Our software engineers are skilled in data
modeling and object-oriented design, which reduce the
risks involved in engineering complex chemical and
biological information systems.
Implementation and Maintenance: Tripos' large staff of
Ph.D. scientists with real industry experience is
skilled in all vital web-related technologies. We
created the first significant, and industry recognized
chemistry applications to be written in Java and we are
an industry leader in providing high-quality and high-
value customer support for scientific software
applications. Our customers have always ranked us
highly when it comes to providing helpful and timely
assistance.
Discovery Research Services
With the rapid changes in technology and the fluctuating
demand for high-level capabilities driven by project
initiations and terminations, outsourcing chemistry in
discovery research is increasingly valuable to the life
science industries. Tripos provides discovery research
services in high-throughput and medicinal chemistry to
identify, refine, and optimize compounds for our customers
guided by our specialized design and analysis expertise.
Recent advances in the area of high throughput screening
(rapid screening of compounds for biological activity) have
given rise to the need for large numbers of information-dense
compounds by pharmaceutical, biotechnology and other life
science companies. These companies routinely acquire
thousands of compounds per year to screen in search of novel
classes of active compounds. By applying Tripos' compound
design technology in conjunction with its synthesis
capabilities, we have brought to market LeadQuestTM, a growing
compound library that now includes over 50,000 compounds that
meet our diversity and purity criteria. This library
provides an efficient source of compounds for screening
eliminating the redundant and impure samples from the
screening effort that are characteristic of other commercial
and internal screening collections. When LeadQuest compounds
demonstrate activity in pharmaceutical company assays, we can
quickly and efficiently provide hundreds of similar compounds
for follow-up screening, lead optimization and scale-up
synthesis for interesting compounds.
Tripos has invested substantially in state-of-the-art
chemistry in the form of screening libraries, follow-up
target-focused libraries and medicinal chemistry. In 1997,
we purchased Receptor Research Limited. Tripos Receptor
Research is now fully integrated into our worldwide
operations and is drawing strength from and providing
invaluable insights to the overall organization. This aspect
of the business is both product and service oriented. We
sell, broadly and non-exclusively, designed libraries of
chemicals for biological screening and also offer specialized
libraries designed to customer requirements based on the
results of their biological testing.
Tripos also uses the Tripos Receptor Research facilities to
participate with collaborators in its own therapeutic
discovery projects. Our unique position with respect to
informatics and analysis gives us a distinct advantage in
this competitive chemistry market.
The Collaborative Research group's focus is on internal
discovery collaborations with Arena Pharmaceuticals and the
Wolfson Institute. Tripos is combining its strengths in
molecular design, combinatorial chemistry, and data capture
with the pioneering expertise of complimentary organizations.
Our investments and collaborative efforts are structured to
deliver long-term revenue and profits based on successful
research that leads to new broad-based products when
partnered with pharmaceutical, biotechnology, and related
companies. This unit is dedicated to managing efforts
critical to the success of these projects and investments.
Our goal is to partner these compounds with pharmaceutical
companies for an upfront license fee and milestones related
to any further development.
Tripos has developed a unique and proprietary technology for
the storage and searching of vast numbers of combinatorial
products and related data called ChemSpaceTM. The unique
searching methods enable the user to identify new compounds
that are likely to have similar activity to the original
molecule while avoiding problematic side effects or toxicity.
Using this technology, Tripos has rapidly created a database
of trillions of synthetically accessible small organic
chemical structures that are searchable in real time at the
rate of two trillion per hour. The database can be
customized to include reactions and compounds that are
proprietary to an individual customer project. Tripos may
license this technology to a limited number of pharmaceutical
companies as a highly valuable part of contract research
relationships. ChemSpace has proven to be an invaluable tool
in performing the compound design activities in both contract
research and collaborative research relationships.
Hardware Sales
Tripos resells computer systems manufactured by Silicon
Graphics Inc. to its customers upon request. We do not have
an inventory of systems on-hand, but merely facilitate the
customers' orders. We provide this service as a convenience
to our customers and do not expect nor realize high margins
on these products.
Sales, Marketing and Distribution
Tripos sells its software products directly in the U.S. and
Europe, through an exclusive distributor arrangement in
Japan, and through non-exclusive agency relationships in
Korea, China, Singapore, India and Australia. On December
31, 1999, our sales force consisted of 39 management,
technical, sales and administrative employees: 17 for the
United States and Canada, 20 in Europe, and 2 for the Pacific
Rim. Our domestic sales and support center is located at our
headquarters in St. Louis, Missouri. We also maintain sales
offices in California, New Jersey, Massachusetts, and near
London, Paris and Munich.
Historically, for our software product lines for
workstations, Tripos employed separate teams selling each
product or service. These teams, which included scientists
working in collaboration with our sales employees, have
developed a consultative sales approach through which we have
created relationships with our key customers. We believe
these relationships enable us to understand and better serve
the needs of our customers. Because our customers frequently
have both domestic and international operations, our sales
staff and scientists in foreign locations work closely with
their counterparts in the United States to ensure that our
customers' international needs are met in a coordinated and
consistent fashion. For 2000, Tripos' sales organization
will leverage its customer contacts by having each team
represent all products and services.
Tripos sells its workstation-based software products in a
variety of ways, one of which is term licenses on the basis
of a fixed number of simultaneous users per module. Network-
based licensing is available, based on a count of the number
of simultaneous users. We have also introduced one, two and
three year token license options that offer customers the
ability to tailor their product selections to their specific
research needs and that are renewable at the end of the
selected terms. We expect our customer base to migrate to
shorter-term license renewals based on the flexibility to
access more of our software products. These arrangements are
expected to provide a predictable recurring revenue stream
from periodic renewals. Software packages consisting of
modules typically purchased by customers in particular
industry segments have been defined and have been specially
priced to facilitate customer purchase of an optimal module
set for their problems.
Software Consulting Services are sold on a collaborative
basis, by direct salespeople and scientists, to the end user
chemist and information technology departments at the
customer site. Each contract is negotiated based on the
custom software service needs of the customer. The term of
the contract is highly variable but current examples range
from two weeks up to two years. Tripos provides programming
and scientific expertise on a cost plus margin basis.
Services may include specifications, gap and risk assessment,
and full biological and chemical data integration.
Historically, sales of the compound libraries were made
through a staff dedicated to the product, however, beginning
in 2000, all sales representatives will offer these products.
The LeadQuest library now includes over 50,000 compounds that
are available for purchase. The compounds are sold on a
nonexclusive basis to all purchasers and Tripos retains no
trailing rights to the compounds once they are purchased by a
customer.
Tripos' sales staff includes employees with Ph.D. degrees in
chemistry, various advanced degrees in the sciences and work
experience with various hardware and software suppliers as
well as with the industries we serve. Our sales
representatives are compensated through a combination of base
salary, commissions and bonuses based on quarterly and annual
sales performance. In addition, our pre-sales scientists,
all of whom have Ph.D. degrees in chemistry or a closely
related field, receive total compensation determined in part
by their success in supporting and generating sales in a
particular territory.
Contract research and software development relationships are
offered through a team comprised of salespeople, discovery
scientists and members of the senior management staff. This
approach is best suited for the long cycle required to
develop meaningful partnerships with key customers for the
outsourcing of discovery research.
Tripos exhibits its products and services at various
scientific conferences and trade exhibitions, including
national and regional conferences of the American Chemical
Society, at the IBC Drug Discovery Conference, Society for
Biomolecular Screening and the CHI High Throughput Screening
for Drug Discovery Conference. Tripos scientists frequently
publish and present results of original research at these and
other conferences throughout the world.
Tripos sells its personal computer software products
principally through direct mail and relationships with
distributors.
Customer Training, Service and Support
Tripos' licenses typically provide a limited warranty for a
90-day period. Thereafter, support of our software products
is provided for an annual fee. Approximately 85% of our
commercial customers and 68% of our academic customers have
contracted for support service. This service gives customers
access to telephone consultation with our technical personnel
in local offices, on-line access to a company-operated
computer bulletin board, new release versions of licensed
software and other support required to utilize our products
effectively.
Tripos offers customer training in the use of its products
through staff knowledgeable in both chemistry and computer
science. We send technical newsletters, bulletins, and
advance notification about future software releases to our
customers to keep them informed and to help them with
resource allocation and scheduling. We also sponsor seminars
throughout the world for our customers, involving
presentations both by our personnel and guest lecturers.
These seminars are designed to enhance customer understanding
of our products and their potential utilization as an aid to
customer research requirements. We currently provide our
customers with advice on computer system configuration
management and frequently provide customers with consulting
advice in addressing particular research questions as part of
the normal pre- and post-sales process.
Product Development
Tripos believes that its position as a leader in discovery
products and services will depend in large part on its
ability to enhance its current product line, develop new
products, maintain technological competitiveness, integrate
complimentary third-party products and meet a rapidly
evolving range of customer requirements. We intend to
continue to make substantial investments in product and
technology development to meet our customers' demands.
We have previously experienced delays in developing new
products ranging from a few days to approximately twelve
months. The complexity of developing new and enhanced
scientific information management software in a client/server
environment is significant. Delays or unexpected
difficulties in any segment of a development project can
result in late or undeliverable product. In view of this
complexity, there can be no certainty that we will be able to
introduce our products on a timely basis in the future, or
that our new products and product enhancements will
adequately meet the requirements of the marketplace or
achieve market acceptance.
Tripos' research and development activities are undertaken by
its Discovery Software group and its Discovery Services
group. The Discovery Software group, composed of chemists
and other scientists, works closely with customers to
identify market needs for new products. Upon identification
of a market need for a new product, the Discovery Software
group collaborates with our software engineers to develop
requirements and specifications, implement code and perform
regression tests for the new product. Separate quality
assurance, environment management and systems groups manage
the final release, documentation and porting of the new
product to all supported platforms. In addition, Tripos
funds research at certain academic institutions. We believe
that this funding allows us to gain access to significant
technology not otherwise available. We enter into funded
research and development arrangements with major
pharmaceutical customers to develop software tools crucial to
data capture and management in high throughput environments.
Tripos derives Discovery Service revenues from its compound
library product, LeadQuestTM, and Discovery Contract Research
services. Through an alliance with MDS Panlabs, Inc., we
sold the OptiverseTM compound library in 1997 and the first
quarter of 1998. Optiverse was a general screening library
of over 100,000 diverse chemical compounds. In early 1997, a
shift in the market demanded an increase in the level of
purity of this product. Despite the anticipation of this
demand and the purchase of a specialized apparatus for
compound purification, the delay in receipt of this equipment
and subsequent further delay in the purification process
caused a nine-month slippage in new product. In early 1998,
we restructured our agreement with MDS Panlabs terminating
our distribution of the Optiverse product. Simultaneously,
we shifted the focus of our newly acquired laboratory, Tripos
Receptor Research in Bude, England, from contract research
synthesis to synthesis for general screening libraries and
announced the launch of our own LeadQuest compound library
product. In June 1998, we purchased an inventory of highly-
pure diverse chemical compounds from a third-party for
distribution to continue generating revenue from this market.
In September 1998, we opened our first laboratory facility
suitable for all chemical synthesis operations. We began
production of newly designed screening libraries, started
pilot projects for contract research and generated focused
libraries in our internal therapeutic collaborative work with
Arena Pharmaceuticals and the Wolfson Institute. In May 1999
we opened our second and larger laboratory facility,
providing us with the capacity to accommodate large library
synthesis and contract research operations simultaneously.
By the end of 1999, we had reached our targeted monthly
synthesis and purification rate. The inventory of compounds
of the LeadQuest library has increased to over 50,000 highly
pure compounds available for sale and we completed several
contract research projects.
Research and development expenses include all costs of
software development and maintenance, all necessary expenses
to deliver upon software consulting service contracts, all
non-capitalized costs associated with the production of
compound libraries and all costs of fulfilling discovery
research projects. In accordance with Statement of Financial
Accounting Standards No. 86 and SOP 98-1, Tripos capitalizes
software development costs for both external and internal
use.
Tripos has entered into consulting contracts with certain
customers that provide for collaboration in customizing
chemical compound libraries for drug discovery in specific
therapeutic areas. We recognize revenue related to such
agreements as contractual milestones are achieved and
delivered or, absent such contractual milestones, on a
completed contract basis.
Our software consulting services consist of building
customized systems solutions for our customers. Chemical
research teams require improved information access and usage
in their discovery process. We help our customers meet these
needs by applying our expertise in web technologies, chemical
information systems, and biological data handling to build
integrated systems designed specifically for the customer's
environment and discovery process. Revenue is recognized as
technology is delivered or services are performed.
Proprietary Rights
Tripos relies upon a combination of patent, copyright,
trademark and trade secret laws. License and non-disclosure
agreements are used to establish and protect the proprietary
rights in our products. We hold two key patents in the area
of analysis of the relationship of chemical structure to
activity; one issued in the early 1990's on our SYBYL QSAR
product and the other issued in 1998 on our Hologram QSAR.
From 1996 to 1998, Tripos applied for nine (9) other software
patents and, jointly with collaborators, for an additional
four (4) composition-of-matter or related use patents, all of
which are patent-pending. The source code for our products
is protected both as a trade secret and as an unpublished,
copyrighted work. In addition, our core software products
are developed and manufactured only at our St. Louis
facility. Tripos does not disclose the source code for its
products to any of its distributors. We supply our source
code under special, restrictive license provisions to a very
limited number of customers only on special request, none of
which has been received in the last five years. Also, upon
request, Tripos has placed source code in escrow for use by a
minimal number of designated customers for limited support
purposes on a contingency basis. All major software products
are shipped from our St. Louis facility under a technical
license management system that governs access. Despite these
precautions, it may be possible for a third party to gain use
of our products or technology without prior authorization, or
to develop similar technology independently. Effective
copyright and trade secret protection may be unavailable or
limited in certain foreign countries where Tripos does
business. The markets in which we compete are characterized
by rapid technological change. While we believe that legal
protection of our technology is an important competitive
factor, we are aware that such factors as the technological
and creative skills of our personnel, new product
development, frequent product enhancements, name recognition
and reliable product support are important in maintaining a
sustained technology leadership position.
Tripos licenses its workstation software through the
execution of license agreements. We license our personal
computer software products by use of a "shrinkwrap" license.
A "shrinkwrap" license agreement is a printed license
agreement included within packaged software that sets forth
the terms and conditions under which the purchaser can use
the product and is intended to bind the purchaser, by the
purchaser's acceptance of the software, to such terms and
conditions.
Tripos has a number of contracts with academic institutions
and individuals providing it the right to license, market and
use technology developed outside the company. These products
enhance our ability to offer an enriched product line and
represent a material percentage of our annual revenue.
Tripos' general screening and targeted compound libraries,
which are manufactured and shipped by Tripos Receptor
Research from its Bude, England facilities, and the related
synthesis methods and approaches, are protected by non-
disclosure agreements during the prospective customer's
evaluation and/or use. Compound, consulting, contract
research and collaborative agreements entered into by Tripos
require specific documentation regarding defined proprietary
rights, responsibilities of the parties, and/or allowed use
of any related compounds or libraries of compounds.
Competition
Tripos operates in a highly competitive industry
characterized by rapidly changing technology, frequent new
product introductions and enhancements, and evolving industry
standards. We compete with other vendors of software products
designed for applications in analytical chemistry,
computational chemistry, chemical information management, and
combinatorial chemistry; the four principal areas in the
chemical and pharmaceutical research market. Our Discovery
Services group competes with other vendors for the sale of
contract research, targeted libraries and diverse compound
libraries.
Competition is likely to intensify as current competitors
expand their product offerings and as new companies enter the
market. The competition we experience in our existing and
targeted markets could result in price reductions, reduced
margins and loss of market share, all of which could have a
material adverse effect on us. A number of our existing
competitors have significantly greater financial, technical
and marketing resources than we do. We believe that the
principal factors affecting competition in our markets are
product quality, performance, reliability, ease of use,
technical service, support, and price. We expect that these
factors will remain major competitive issues in the future,
but additional factors will become increasingly important,
including contribution to the overall efficiency of the
research effort through enhanced integration, communication
and analysis. Although we believe that we currently compete
favorably with respect to these factors, there can be no
assurance that we will be able to compete successfully
against current and future competitors or that the
competitive pressures we face will not have a material effect
on our business, operating results or financial condition.
Production
Our software production operations consist of assembling,
packaging, shipping of software and database products along
with documentation needed to fulfill orders. Outside vendors
provide printing of documentation, manufacturing of packaging
materials and assembly of our desktop products. We typically
ship our software products promptly after the acceptance of a
customer purchase order and the execution of a software
license agreement. Accordingly, we do not generally have any
significant software backlog, and we believe that a backlog
at any particular time, or fluctuations in backlog, are not
indicative of sales for any succeeding period.
LeadQuest chemical compounds are designed and manufactured at
Tripos Receptor Research in Bude, England. Compound sales
are shipped shortly after the execution of a sales contract
between the customer and Tripos. The potential for backlogs
exists in the delivery of compounds due to the nature of the
materials to be accumulated, packaged and shipped along with
the sometimes lengthy compound selection process of the
customer. Backlogs will fluctuate based on the number, size
and timing of orders received, and availability of product.
Significant Customers
Tripos does not derive 10% or more of its total sales from
any single customer.
International Sales
Tripos sells its software products through its wholly owned
subsidiaries in Europe and through a network of distributors
in the Pacific Rim, Australia and India. Net sales from the
Company's activities outside of North America represented
approximately 41%, 48% and 55% of total net sales in 1997,
1998, and 1999, respectively. Net sales in Europe accounted
for 32%, 40% and 46% of net sales in 1997, 1998, and 1999,
respectively, with the balance from customers in the Pacific
Rim. We believe that revenues from our foreign activities
will continue to account for a significant percentage of
total net sales. See Note 7 to the consolidated financial
statements, Geographic Segment Data, later in this Annual
Report.
Employees
As of December 31, 1999, Tripos had a total of 206 employees,
of whom 114 were based in the United States and 92 were based
internationally. Of that total, 59 were engaged in
marketing, sales and related customer-support services, 49 in
product development, 58 in chemistry laboratory activities
and 40 in operations, administration, MIS and finance. Our
future success is significantly dependent on the continued
service of our key technical and senior management personnel
and our continuing ability to attract and retain highly
qualified technical and managerial personnel. None of our
employees are represented by a labor union nor covered by a
collective bargaining agreement. We have not experienced any
work stoppages and consider our relations with employees to
be good.
Executive Officers of the Registrant
The information required by this item is included in the
Tripos' Proxy Statement in connection with its Annual Meeting
of Shareholders to be held on May 11, 2000 under the caption
"Management", and is incorporated herein by reference.
Item 2. Properties
Tripos' principal administrative, sales, marketing and
product development facilities are located in St. Louis,
Missouri. Tripos owns these facilities which are financed by
a mortgage note. Laboratory facilities in Bude, England are
owned by the Company. Tripos leases two domestic sales and
service offices in Shrewsbury, New Jersey and South San
Francisco, California. Our European subsidiaries lease sales
and service offices in the United Kingdom, France and
Germany. We believe that our existing facilities are
adequate for our current needs and that additional space will
be available as needed.
Item 3. Legal Proceedings
Tripos is currently not a party to any material litigation
and is currently not aware of any pending or threatened
litigation that could have any material adverse effect upon
its business, operating results or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of Tripos' shareholders
during the fourth quarter of its fiscal year ended December
31, 1999.
Part II
Item 5. Market for Registrant's Common Stock and Related
Shareholder Matters
Tripos' common stock trades on The NASDAQ National Market
System under the symbol "TRPS". The following table sets
forth the range of the high and low sales prices per share of
the common stock for the fiscal quarters indicated, as
reported by NASDAQ. Quotations represent actual transactions
in NASDAQ's quotation system but do not include retail markup,
markdown, or commission.
1999 High Low
First quarter...... $11.250 $7.625
Second quarter..... $ 9.000 $7.125
Third quarter...... $ 8.250 $6.000
Fourth quarter..... $15.250 $6.375
1998 High Low
First quarter...... $14.875 $ 9.000
Second quarter..... $14.750 $11.000
Third quarter...... $14.000 $ 6.625
Fourth quarter..... $ 9.625 $ 5.250
Tripos had approximately 1,000 shareholders of record and
2,600 street name holders as of December 31, 1999. We have
not declared or paid any dividends on our Common Stock. We
currently intend to retain earnings for use in our business,
therefore, we do not anticipate paying cash dividends in the
foreseeable future to common shareholders. Subsequent to
December 31, 1999, Tripos sold 409,091 shares of Series B
Convertible Preferred Stock in a private placement
transaction. The Series B shares carry a dividend rate of 5%
payable in cash or stock at the holder's option, are
redeemable in February 2005, and are initially convertible
into shares of Commons Stock on a one-for-one basis.
Item 6. Selected Financial Data
Selected Consolidated Financial Data
Year Year Year Year Year
ended ended ended ended ended
Consolidated Statements Dec 31, Dec 31, Dec 31, Dec 31, Dec 31,
of Operations
In thousands, except per 1999 1998 1997 1996 1995
share amounts
Net Sales:
Software licenses.............. $10,909 $11,639 $10,117 $9,186 $8,651
Support........................ 8,154 7,928 7,209 6,715 6,510
Discovery services............. 5,185 2,831 7,737 9,053 2,111
Hardware....................... 3,001 3,174 5,125 3,832 3,825
Total net sales............. 27,249 25,572 30,188 28,786 21,097
Cost of sales.................... 6,755 6,685 9,999 9,990 6,458
Gross profit..................... 20,494 18,887 20,189 18,796 14,639
Operating expenses:
Sales and marketing............ 9,673 9,737 10,065 10,705 9,951
Research and development....... 8,450 6,263 3,810 2,796 2,978
General and administrative..... 5,569 4,182 2,940 2,991 2,030
Restructuring charge........... - - - - 2,165
Total operating expenses......... 23,692 20,182 16,815 16,492 17,124
Income (loss) from operations.... (3,198) (1,295) 3,374 2,304 (2,485)
Other income (expense), net...... 1,183 1,404 511 408 450
Income (loss) before income taxes (2,015) 109 3,885 2,712 (2,035)
Income tax expense (benefit)..... 274 38 1,305 760 (339)
Net income (loss)................ $(2,289) $71 $2,580 $1,952 $(1,696)
Basic earnings (loss) per share(1) $(0.70) $0.02 $0.84 $0.67 $(0.59)
Basic weighted average number
of shares...................... 3,277 3,208 3,085 2,923 2,860
Diluted earnings (loss) per
share (1)...................... $(0.70) $0.02 $0.74 $0.61 $(0.59)
Diluted weighted average
number of shares............... 3,277 3,480 3,504 3,222 2,860
Consolidated Balance Sheet Data
(at year end) (2)
Working capital.................. $ 6,351 $ 9,115 $9,544 $10,589 $ 8,800
Total assets..................... $40,390 $36,810 $32,610 $24,509 $19,059
Long-term obligations,
less current portion........... $ 8,224 $ 5,514 $ 3,367 $ - $ -
Total shareholders' equity....... $17,583 $19,509 $18,909 $14,367 $11,322
(1) Earnings per share for 1996 and prior periods has been restated
to reflect the adoption of FAS 128.
(2) See Note 1 of the Notes to Consolidated Financial Statements for
discussion regarding the comparability of consolidated balance sheet data.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should be read in conjunction with
the audited consolidated financial statements and notes
thereto.
Overview
Tripos, Inc. is a leading provider of an integrated array of
discovery software, software consulting services, and
discovery research services to the pharmaceutical,
biotechnology, agrochemical, and other life sciences
industries. Tripos combines information technology and
scientific research to optimize and accelerate molecular
research for the discovery of new products by its clients.
Tripos generates its revenues from a diversified offering of
products and services. Our foundation is the software license
and support products we sell to the life sciences industries.
In 1999, over 80% of software license revenues were sold to
the pharmaceutical and biotechnology industries; however, no
single customer represented more than 10% of revenues to
Tripos. Tripos licenses its software and support in the form
of one to three year renewable contracts for any of its more
than 50 software modules available for sale. In 1999, 70% of
revenues were derived from the sale of software licenses and
support.
Tripos' integration of chemistry and biological data in the
life sciences industries creates a revenue stream for
software consulting services. Tripos maintains a staff of
specialists who use its proprietary data integration
framework to configure customized solutions for data
management. Revenues in 1999 were 2% of total revenues, and
we expect to increase sales activity to support future
revenue growth. Revenue is generated on a billable rate per
day and is recognized as services are performed.
Tripos leverages its expertise in chemical compound library
design technology to develop and manufacture general
screening libraries for sale to the life sciences industries.
Its current library of over 50,000 highly pure and diverse
compounds, is marketed under the name LeadQuestTM. In 1999,
12% of revenues were derived from the sale of this product.
Tripos' sale and manufacture of chemical compound libraries
has created the opportunity to offer follow-up contract
research services to customers for design and synthesis of
focused libraries for lead optimization. A contract of this
nature may be derived from the follow-up of positive
biological activity in a LeadQuest compound sold to a
customer or may come from compounds originated by the
customer. In 1999, 7% of Tripos revenues were generated by
this activity.
In 2000, Tripos plans to market a comprehensive research
process to its life sciences customers for rapid and cost
effective discovery. The process combines advanced
informatics, chemistry and biology products and services, and
proprietary discovery technologies for efficient lead
development, refinement, and optimization. Tripos will also
work with its collaborators to achieve the milestones
associated with this type of contract. These would be multi-
million dollar contracts and may include royalties and
milestones.
In February 2000, Tripos entered into a strategic alliance
with LION Biosciences AG to integrate LION's bioinformatics
with Tripos' cheminformatics expertise. The companies intend
to jointly market their products and services to the life
sciences industry. As part of this alliance, LION made a
$9.0 million investment in convertible preferred stock of
Tripos. These funds are being used for general corporate
purposes.
In 1999, Tripos created a strategic alliance with Cyprotex, a
newly formed company whose focus is development of in-vitro
screens and data modeling capabilities to predict biological
reactions of new chemical entities. These reactions are
essential in determining the survival of new drug candidates.
Tripos and Cyprotex will jointly market their services to the
drug discovery market.
In 1999, Tripos completed its investment in collaborative
internal drug discovery programs with Arena Pharmaceuticals
and the Wolfson Institute. These collaborations generated,
in a relatively brief nine-month period, patented lead
compounds that are actively being marketed for commercial
development in partnership with a pharmaceutical company.
Tripos does not expect to receive revenues from the licensing
of these compounds before the second half of 2000.
Tripos also acts as a reseller of computer hardware in
conjunction with software sales. Hardware sales are
generally made to facilitate integration of Tripos' software
into customer research activities and are not a focus of
Tripos' sales activities. Tripos acts merely as an
authorized reseller for a single vendor and does not maintain
any inventory. Accordingly, margins on these sales are
relatively modest.
Tripos licenses its discovery software tools to customers,
provides ongoing support, including upgrades selected by
customers, and provides consulting services to its customers
that enable integration of Tripos' discovery tools to
customers' discovery operations. Certain long-term software
licenses may, subject to certain rules of SOP 97-2 and SOP 98-
4, be recognized over the life of the contract. Tripos
generally expenses its research and development costs
associated with software enhancements and new software tools.
Thus, a significant portion of the costs associated with
development and enhancement of software is accounted for as
research and development and not as a cost of software sales.
Over the past two years, Tripos has staffed its worldwide
operations to efficiently execute its current business plan.
The quarterly expenses include the fixed costs of research
and development for software development, software consulting
services, and contract research. Tripos believes that its
selling and administrative costs will remain constant on a
quarterly basis. Variability in quarterly expenses primarily
occurs in relation to the level of revenues for sales
compensation and bonuses.
Over the past two years Tripos has used its capital resources
to fund investments in the building of chemistry production
facilities, chemical compound library inventories,
collaborative drug discovery programs, staffing new business
segments, and investments in Arena Pharmaceuticals. In the
future, Tripos expects to dedicate available cash to maintain
capital infrastructure and conduct operations.
Tripos' revenues and expenses vary from quarter to quarter
depending upon, among other things, the timing of customers
budget processes, the success of our sales efforts, the
lengthy sales cycle and Tripos' ability to influence
customers and prospective customers to make decisions to
outsource portions of their discovery process, the size of
the customers' capital expenditure budgets, the ability to
produce compound libraries in a timely manner, market
acceptance of new products and enhanced versions of existing
products, the timing of new product introductions by Tripos
and other vendors, changes in pricing policies by Tripos,
partners and other vendors, consolidation in customer base,
and changes in general economic and competitive conditions.
In addition, Tripos may choose to negotiate a long-term
software license contract that may, subject to certain rules
of SOP 97-2 and SOP 98-4, be recognized ratably over the life
of the contract. See Note 1 of the Notes to Consolidated
Financial Statements for a further discussion of revenue
recognition policies. A substantial portion of revenues for
each quarter is attributable to a limited number of orders
and tends to be realized toward the end of each quarter.
Thus, even short delays or deferrals of sales near the end of
a quarter can cause quarterly results to fluctuate
substantially. Tripos' quarterly results can be effected by
the mix of its revenue components.
Except for the historical information and statements
contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A"), the
matters and items contained in this document, including MD&A,
contain certain forward-looking statements that involve
uncertainties and risks, some of which are discussed below,
including, under the caption "Cautionary Statements-
Additional Important Factors to be Considered." Tripos is
under no obligation to update any forward-looking statements
in this section. Words such as "expects", "anticipates",
"projects", "estimates", "intends", "plans", "believes",
variations of such words and similar expressions are intended
to identify such forward looking statements.
Results of Operations
The following table sets forth, for the periods indicated,
certain consolidated financial data as a percentage of net
sales, (except costs of sales data, which is set forth as a
percentage of the corresponding net sales data):
1999 1998 1997
Net sales:
Software licenses 40% 46% 33%
Support 30 31 24
Discovery services 19 11 26
Hardware 11 12 17
Total net sales 100 100 100
Cost of sales:
Software licenses 17 21 17
Support 2 1 2
Discovery services 37 44 45
Hardware 93 91 91
Total cost of sales 25 26 33
Gross profit 75 74 67
Operating expenses:
Sales and marketing 36 38 33
Research and development 31 25 13
General and administrative 20 16 10
Total operating expenses 87 79 56
Income (loss) from operations (12) (5) 11
Interest income 1 2 2
Interest expense (3) (1) -
Other income (expense), net 7 5 -
Net income (loss)
before income taxes (7) 1 13
Income tax expense 1 0 4
Net income (loss) (8)% 1% 9%
Net Sales. Net sales decreased approximately 15% from $30.2
million in 1997 to $25.6 million in 1998, and increased 7% in
1999 to $27.2 million. These fluctuations in net sales were
principally attributable to sales of diverse chemical
compound libraries and contract research in the Discovery
Services business. The increases in the Discovery Services
business in 1999 were offset by declines in sales in the
software license business. New product sales represented 17%
of sales in 1997, 8% in 1998, and 11% in 1999. Tripos
generates a substantial portion of its revenues from the
pharmaceutical industry. Net sales to this industry
accounted for approximately 62%, 52%, and 57% of total net
sales in 1997, 1998, and 1999, respectively.
Net sales from activities outside of North America
represented approximately 41%, 48% and 53% of total net sales
in 1997, 1998 and 1999, respectively. Net sales in Europe
accounted for 32%, 40%, and 44% of net sales in 1997, 1998,
and 1999, respectively, with the balance from customers in
the Pacific Rim area, principally Japan. Tripos believes that
revenues from its foreign activities will continue to account
for a significant percentage of its total net sales.
List prices for Tripos' software products have remained
relatively stable over the last few years. In 1997, Tripos
started selling token software licenses in addition to term
licenses. A token license includes a minimum level of
modules for a minimum total price. In 1997, 1998 and 1999,
18%, 38%, and 54%, respectively of software license sales
were sold in the form of a token license. As a result of
selling more modules through token licenses, the average
software license revenue per customer has increased. The
average sale price for chemical compound libraries decreased
in 1997 and 1998 due to the demand for a highly purified
product which caused a decline in the size and number of
orders based on the availability of purified product for
sale. In 1999, Tripos' new product offering which guaranteed
greater than 70% purity for every compound, allowed the price
per compound to increase as the value of the compounds to
customers increased. Existing customers represented 85% of
total net sales in 1997 and 1998 and increased to 89% in
1999. Increasing net sales from period to period is
dependent, in part, on Tripos' ability to introduce new
products and services, which are accepted by the market, and
on Tripos' ability to penetrate new and existing markets.
Software license sales increased 15% from $10.1 million in
1997 to $11.6 million in 1998 and decreased 6% to $10.9
million in 1999. The increase from 1997 to 1998 was due to
the strength of the sales to the biotechnology customer base
in 1998. The decrease in 1999 was due to a decline in sales
to the West Coast biotechnology customer base which was not
entirely offset by the increase in sales due to a new
software development contract, the introduction of four new
software products, and an increase in European and Japanese
software sales of 21%.
Support sales increased 10% from $7.2 million in 1997 to $7.9
million in 1998, and increased 3% to $8.2 million in 1999.
The increase for the three-year period is primarily due to a
larger installed base of customers with more modules per
customer as a result of the overall increase in software
license sales in the prior years.
Tripos derives Discovery Service revenues from its compound
library product, LeadQuestT, and Discovery Contract Research
services. Discovery Services sales decreased 63% to $2.8
million in 1998 from $7.7 million in 1997 and increased 83%
to $5.2 million in 1999. Fluctuations in these sales are
attributable to the repositioning of this business from the
distribution of compounds manufactured by third parties to
the distribution of compounds designed and manufactured with
Tripos staff and facilities. Prior to mid-1998, Tripos
distributed a series of chemical compounds manufactured by a
third party. Since that time, Tripos has constructed a
chemistry laboratory facility and produced a library of
chemical compounds with the purity and in amounts sufficient
to meet Tripos' projected sales needs. Tripos also offers
contract research and other services for customers through
these facilities. See the "Business - Product Development"
section of this Form 10-K for further discussion.
Hardware revenues decreased 38% to $3.2 million in 1998 from
$5.1 million in 1997 and decreased by 5% to $3.0 million in
1999. The decrease in 1998 and 1999 reflects the absence of
new models of hardware offered during the past two years as
well as customers decision to move from Unix based platforms
to Windows NT systems.
Cost of Sales. Total cost of sales decreased 33% from $10.0
million in 1997 to $6.7 million in 1998, and increased 1% to
$6.8 million in 1999, which represents 33%, 26% and 25%,
respectively, of total net sales. The decrease in 1998 was
due to the decrease in costs of diverse compound libraries as
a result of the decline in sales of compound libraries. In
1999, the slight increase in cost of sales was caused by a
50% increase in costs of sales corresponding to the increase
in the compound library sales offset by a 20% decrease in
software license costs based on lower software amortization
and royalty costs.
Costs of software licenses represented 17%, 21% and 17% of
software license sales in 1997, 1998, and 1999, respectively.
Costs of software licenses consist of amortization of
capitalized software, royalties to third-party developers,
and the cost of software product packaging and media. The
cost of software licenses as a percentage of software license
sales increased in 1998 due to an increase in third-party
royalties based on an increase in the number of third-party
software modules sold during the year. In 1999, the costs of
software licenses as a percentage of sales declined based on
a decrease in amortization in previously capitalized software
and a decrease in third-party royalties based on the mix of
software modules sold.
Costs of support represented 2%, 1% and 2% of support sales
in 1997, 1998, and 1999, respectively. Cost of support
principally consists of software product packaging, media and
updates to documentation. The decrease in costs of sales for
support in 1998 is due to lowered costs of documentation and
electronic delivery of software applications. The increase
in 1999 is due to the costs of the release of a major upgrade
to software.
Costs of Discovery Services represented 45%, 44% and 37% of
Discovery Service sales in 1997, 1998, and 1999,
respectively. The cost of the Discovery Services business is
represented by the costs of compound libraries. In 1999, the
decrease in the costs as a percentage of Discovery Services
sales was due to the significant increase in contract
research sales, costs of which are reflected in R&D.
Costs of hardware represented 93%, 91% and 91% of hardware
sales in 1997, 1998 and 1999, respectively. Cost of hardware
consists of the costs of hardware sold. The Company expects
the cost of hardware as a percentage of hardware sales to
remain relatively stable in future periods.
Gross Profit. Gross profit was $20.2 million in 1997, $18.9
million in 1998, and $20.4 million in 1999, which represents
gross profits of 67%, 74% and 75%, respectively. The
increase in the gross profit margin in 1998 was due to the
increase in software license and support sales and the
decrease in the compound library and hardware sales. The
slight improvement in the gross margin in 1999 was due to the
increase in contract research revenues in the Discovery
Services business.
Sales and Marketing Expenses. Sales and marketing expenses
decreased 3% from $10.1 million in 1997 to $9.7 million in
1998, and decreased 1% to $9.67 million in 1999. The
decrease in 1998 and 1999 was due to the overall decrease in
commission-based revenues and efficiencies created in sales
management expenses. Sales and marketing expenses as a
percentage of net sales increased from 33% in 1997 to 38% in
1998, and decreased to 36% in 1999. The fluctuation in sales
and marketing expenses as a percentage of sales is a function
of the overall fluctuation in sales.
Research and Development Expenses. Research and development
expenses increased 64% from $3.8 million in 1997 to $6.3
million in 1998, and increased 35% to $8.5 million in 1999,
representing 13%, 25%, and 31% of net sales, respectively.
The increases in 1998 and 1999 are due to the increase in
chemistry staff at Tripos Receptor Research, shared costs for
the collaborations with Arena Pharmaceuticals and the Wolfson
Institute, and an increase in staff and facilities for
software consulting programmers.
Research and development expenses, including the amount of
capitalized costs were $6.4 million in 1997, $6.3 million in
1998 and $10.9 million in 1999 which represents 21%, 25%,
and 40% of net sales, respectively. In accordance with
Statement of Financial Accounting Standards No. 86 and SOP 98-
1, the Company capitalizes software development costs for
both external and internal use. In 1997, the capitalized
costs of compound development were classified on the balance
sheet under "Capitalized Discovery Services". Beginning in
1998, Tripos capitalized compound library production and
design costs to inventory. The total amount of costs
capitalized were $2.6 million, $1.3 million, and $2.4
million in 1997, 1998 and 1999, respectively. This
represented 41%, 21% and 22% of total product research and
development expenditures in these periods. Tripos anticipates
that its investment in new product research will increase
significantly as Tripos continues to develop four new
software modules per year, works on funded software
development contracts with customers, increases diverse
compound library production and performs contract research
and software consulting services. Tripos reflects costs to
fulfill discovery research, funded software development and
software consulting service agreements in R&D to better
reflect the synergies of staff interaction, variability of
staff utilization and of the outcomes from certain of these
consulting contracts.
General and Administrative Expenses. General and
administrative expenses increased 42% from $2.9 million in
1997 to $4.2 million in 1998 and increased 33% to $5.6
million in 1999, representing 10%, 16%, and 20% of net sales,
respectively. The increase as a percentage of sales in 1998
and 1999 is due to the addition of Tripos Receptor Research
administrative staff, worldwide infrastructure and IT
expansion, and a bonus reserve. Tripos expects general and
administrative expenses to remain at comparable levels to
1999 in the future.
Interest Income. Interest income of $543,000 in 1997,
$471,000 in 1998 and $347,000 in 1999, was from interest
earned on investments.
Interest Expense. Interest expense of $50,000 in 1997,
$304,000 in 1998, and $976,000 in 1999 was from interest due
on the long-term note payable for the corporate building, the
line-of-credit, the term loan, and interest on capital
leases.
Other Income (Expense). Other income (expense) was $18,000
in 1997, $1.2 million in 1998, and $1.8 million in 1999. In
1998, other income was primarily from the recognition of the
guaranteed settlement payment attributable to the transfer by
Tripos of the marketing and distribution rights of the
Optiverse product to MDS Panlabs. In 1999, other income was
primarily from the gain on the sale of all of Tripos' equity
holdings in Phase-1 Molecular Toxicology, Inc.
Income Tax Expense. Tripos' tax expense was $1.3 million in
1997, $38,000 in 1998 and $274,000 in 1999. The effective
tax rate was 34%, 35% and (14%) for 1997, 1998 and 1999,
respectively. The effective tax rate in 1999 reflects a 100%
valuation allowance on the net operating losses for
subsidiaries in the United Kingdom. Tripos believes that it
will fully utilize these losses to offset future income tax
expenses in the United Kingdom. The estimated tax benefit of
these losses, to be realized in a future period, is
approximately $1.1 million. The tax expense in 1999 is
attributable to taxes on net income in the United States,
France and Germany.
Liquidity and Capital Resources
Tripos' working capital decreased from $10.3 million in 1998
to $7.5 million in 1999. The decrease in working capital is
the result of the expansion of Tripos Receptor Research
Limited and build-up of compound inventories.
Net cash used by operating activities in 1999 increased to
$1.5 million from $0.4 million in 1998. This was primarily
due to an increase in prepaid and other current assets of
$1.1 million, an increase in accounts payable and accrued
expenses of $1.1 million, an increase in amortization of $0.5
million, an increase in depreciation of $1.7 million offset
by a decrease in net income of $2.3 million and a decrease in
short-term receivables of $1.9 million along with a gain from
the disposition of Tripos' equity interest in Phase-1
Molecular Toxicology of $1.5 million. In 1998, net cash
provided by operating activities decreased from $4.4 million
in 1997 to net cash used of $0.4 million. This was primarily
due to a decrease in net income of $2.5 million, an increase
in short-term receivables of $2.2 million, an increase in
inventory of $2.0 million, an increase in notes receivable of
$0.6 million for customer accounts receivable due to long-
term installment sales offset by an increase in deferred
revenue of $2.6 million due to both increased support
billings at year-end and token license contracts for the
year.
Net cash used in investing activities decreased from $5.6
million in 1998 to $4.5 million in 1999. The decrease
relates to the proceeds from the disposal of the Phase-1
investment partially offset by the note receivable from Phase-
1 and the reduced level of investment in property and
equipment at the laboratory facility in England. Tripos
invests available cash in bank deposits, investment-grade
securities and, short-term interest-producing investments,
including government obligations and other money market
instruments. Tripos anticipates that fiscal 2000 capital
purchases will decrease substantially below those of 1999 as
the expansion of the facilities at Tripos Receptor Research
have been completed.
Net cash provided by financing activities increased from $2.5
million in 1998 to $5.1 million in 1999 as Tripos increased
its utilization of its line-of-credit, issued a $4.0 million
term loan and financed equipment additions with capital
leases. The debt issuance was partially offset by principal
payments on the long-term debt and capital leases.
On February 4, 2000, LION Biosciences AG invested $9.0
million in the form of a convertible preferred private
placement. The proceeds from this investment were used to
pay off the $1.0 million term loan outstanding with LaSalle
Bank. The balance of the investment will be used to fund
short-term liabilities or to pay down the existing line-of-
credit if warranted by changes in interest rates.
Tripos believes that with its cash and accounts receivable
balances, projected cash flow from operations, availability
under a $4 million line-of-credit, and the recent funding by
LION BioSciences, it will be able to meet both its liquidity
needs and capital expenditure needs for the next twelve
months. See Note 12 later in this Annual Report for further
discussion of the credit facilities available to Tripos.
Tripos may seek to obtain additional financing in the future
in connection with its product development efforts and its
efforts to penetrate existing and new markets for its
products and services. Decisions to access additional
capital will reflect projected working capital needs,
business expansion needs, possible acquisitions of
complimentary business entities, and the availability of
attractive financing alternatives.
Foreign Currency Translations
Tripos' foreign operations transact the majority of their
business in their respective local currencies and are
generally not exposed to foreign currency gains or losses.
Due to the relative stability of the currency of the
countries in which it operates and the level of investment in
each country, Tripos' current intent is to retain assets
within its foreign operations to fund those operations.
Tripos' foreign currency transaction gains and losses have
not been significant to date, and it believes the exposure to
future foreign currency transaction gains and losses is
minimal.
Cautionary Statements-Additional Important Factors to be Considered
Tripos' future results could differ materially from those
discussed in this Annual Report. Factors that could
contribute to such differences, include, but are not limited
to, the following:
Expansion of services and sales activities. Tripos' strategy
of providing direct integration of sophisticated information
technology with the experimental sciences in the form of
chemical laboratories to produce faster, more cost-effective
new product discovery has not yet garnered widespread
commercial acceptance. This integrated approach also requires
Tripos' sales force to broaden their existing knowledge base
in selling discovery software to include selling software
consulting services and discovery research services. There
can be no assurance that the market will accept Tripos'
integrated approach or that competitors will not offer other
approaches that gain greater technological acceptance.
Future capital needs. Tripos may be required to raise
additional capital in the near future to conduct operations
through additional public or private equity financings,
collaborative arrangements, borrowings or other available
sources. There can be no assurance that additional funding,
if necessary, will be available on favorable terms, if at
all. If additional capital is raised through the sale of
equity or securities convertible into equity, the issuance of
these securities could result in dilution to our existing
stockholders.
Dependence on pharmaceutical and biotechnology industries.
Tripos has benefited to date from the increasing trend among
pharmaceutical and biotechnology companies to outsource
chemical research and development projects. A reversal or
slowing down of this trend, a general economic downturn in
these industries, could have a material adverse effect on our
business, financial condition and results of operations.
Competition. Tripos competes with the research departments
of pharmaceutical companies, biotechnology companies,
combinatorial chemistry companies, contract research
companies and research and academic institutions in size,
relative expertise and sophistication, speed and costs of
identifying and optimizing potential lead compounds and
developing and optimizing chemical processes. These
competitors may have greater financial and other resources
and more experience than Tripos in certain research and
development methods.
Protection of proprietary technology. Tripos' success will
depend, in part, on our ability to obtain and enforce
patents, protect trade secrets and copyrights, enforce
restrictive licenses granted to third parties, obtain
licenses to technology owned by third parties when necessary
or developed in collaboration with us, and conduct our
business without infringing the proprietary rights of others.
Variations in quarterly operating results. Tripos
historically has experienced stronger financial performance
in the third and fourth quarters of each fiscal year followed
by a comparative decline in the first and second quarters.
Quarterly operating results may continue to fluctuate as a
result of a number of factors, including lengthy sales
cycles, market acceptance of new products and upgrades,
timing of new product introductions, changes in pricing
policies, changes in general economic and competitive
conditions, seasonal slowdowns, and the timing and
integration of acquisitions.
Dependence on collaborators. Tripos' commercial success
depends on its ability to enter into joint venture or other
collaborative arrangements with third parties. To date, we
have entered into numerous such arrangements with large
pharmaceutical companies and emerging biotechnology
companies. There can be no assurance that we will be able to
continue to establish these collaborations, that any such
collaborations will be on favorable terms, or that current or
future collaborations will ultimately be successful.
Dependence on key personnel. Tripos' future success depends
to a significant degree upon the continued service of key
technical and senior management personnel, in particular, its
President and Chief Executive Officer, Dr. John P. McAlister,
as well as key technical personnel on the software and
laboratory side. None of our key personnel is bound by an
employment agreement or covered by an insurance policy where
Tripos is the beneficiary. The loss of one or more key
members could have a material adverse effect on the Company's
business, financial condition and results of operations.
Competitive market for experienced scientists and
programmers. Tripos competes with the research departments
of pharmaceutical companies, biotechnology companies,
combinatorial chemistry companies, contract research
companies and research and academic institutions for new
scientific personnel. We compete with consulting companies
for experienced computer programmers to carry out our
software consulting services. We cannot assure that we will
continue to be successful in attracting and retaining
qualified personnel should the worldwide demand for these
skilled individuals increase.
Potential adverse impact of pharmaceutical and health care
reform. Tripos expects that a substantial portion of its
revenues in the foreseeable future will be derived from
services provided to the pharmaceutical and biotechnology
industries. If legislative proposals or reforms are adopted
that have a material adverse effect on the businesses,
financial condition, and results of operations of
pharmaceutical and biotechnology companies that are actual or
prospective customers, Tripos' business, financial condition
and results of operations could be materially and adversely
effected as well.
Year 2000 compliance. In prior years, Tripos discussed the
nature and progress of its plans to become Year 2000 ready.
In late 1999, we completed our remediation and testing of
systems. As a result of those planning and implementation
efforts, we experienced no significant disruptions in mission
critical information technology systems and believe those
systems successfully responded to the Year 2000 date change.
The cost of remediating our systems was included in the
capital and expense budgets for 1999 and did not materially
differ from prior years. We are not aware of any material
problems resulting from Year 2000 issues, either with
products, internal systems, or the products and services of
third parties. Tripos will continue to monitor mission
critical systems throughout the Year 2000 to ensure that any
latent Year 2000 matters that may arise are addressed
promptly.
Item 7a. Market Risks
Tripos' exposure to market risks is limited to foreign
exchange variances and fluctuations in interest rates.
Neither foreign exchange nor interest rate exposure has
resulted in a material impact on Tripos.
Tripos' foreign exchange risk is presently limited to
currencies that historically have exhibited only minor
fluctuations. Assets outside the United States are primarily
located in England. Tripos' investments in foreign
subsidiaries with a functional currency other than the U.S.
dollar are not hedged. The net assets in foreign
subsidiaries translated into U.S. dollars using the year-end
exchange rates were approximately $2.5 million and $4.3
million at December 31, 1998 and 1999, respectively. The
potential loss in fair value resulting from a hypothetical
10% adverse change in foreign currency exchange rates would
be approximately $0.25 million and $0.43 million at December
31, 1998 and 1999, respectively. Any loss in fair value
would be reflected in Other Comprehensive Income and would
not impact Tripos' net income. Tripos' foreign currency
transaction gains and losses for 1998 and 1999 were
immaterial.
Tripos' interest rate risk is attributable to its outstanding
borrowings under its line-of-credit and mortgage loan. Tripos
has fixed its floating rate interest risk on the mortgage
loan through the purchase of a swap instrument. Tripos will
continue to monitor its exposure to floating interest rate
risk on outstanding line-of-credit borrowings and endeavor to
mitigate this risk through the use of appropriate hedging
instruments.
Item 8. Financial Statements and Supplementary Data
Consolidated Balance Sheets
Year ended Year ended
In thousands December December
31, 31,
1999 1998
Assets:
Current assets:
Cash and cash equivalents................. $ 813 $ 1,774
Accounts receivable, less allowance for
doubtful accounts of $127 in 1999
and $99 in 1998.......................... 14,182 12,451
Inventory................................. 2,595 2,389
Prepaid expenses.......................... 242 1,278
Deferred income taxes..................... 1,418 1,434
Total current assets................... 19,250 19,326
Notes receivable-trade..................... 2,448 2,304
Notes receivable-other..................... 1,764 863
Property and equipment,
less accumulated depreciation............ 13,899 11,076
Capitalized development costs, net of
accumulated amortization of $2,372
in 1999 and $1,858 in 1998............... 572 877
Goodwill, net of accumulated amortization
of $200 in 1999 and $109 in 1998........... 1,082 1,147
Investment in unconsolidated affiliates.... 2,423 1,982
Other, net................................. 144 427
Total assets........................... $ 41,582 $ 38,002
Liabilities and shareholders' equity:
Current liabilities:
Current portion of long-term debt
capital leases.......................... $ 2,245 $ 328
Accounts payable.......................... 1,443 828
Accrued expenses.......................... 3,187 2,858
Deferred revenue.......................... 4,832 5,005
Total current liabilities.............. 11,707 9,019
Long-term portion of capital leases........ 1,223 225
Long-term debt............................. 7,001 5,289
Long-term deferred revenue................. 2,485 2,303
Deferred income taxes...................... 1,583 1,657
Shareholders' equity
Common stock, $.01 par value; authorized
20,000 shares; issued and outstanding 3,314
shares in 1999 and 3,257 shares in 1998... 33 33
Additional paid-in capital................ 18,431 17,980
Retained earnings (deficit)............... (1,020) 1,269
Other comprehensive income................ 139 227
Total shareholders' equity................ 17,583 19,509
Total liabilities and shareholders' equity. $ 41,582 $ 38,002
See notes to consolidated financial statements
Consolidated Statements of Operations
Year ended Year ended Year ended
In thousands, except per share December December December
amounts 31, 31, 31,
1999 1998 1997
Net sales:
Software licenses.......... $ 10,909 $ 11,639 $ 10,117
Support.................... 8,154 7,928 7,209
Discovery services......... 5,185 2,831 7,737
Hardware................... 3,001 3,174 5,125
Total net sales......... 27,249 25,572 30,188
Cost of sales:
Software licenses.......... 1,900 2,436 1,679
Support.................... 136 113 163
Discovery services......... 1,928 1,248 3,519
Hardware................... 2,791 2,888 4,638
Total cost of sales..... 6,755 6,685 9,999
Gross profit................. 20,494 18,887 20,189
Operating expenses:
Sales and marketing........ 9,673 9,737 10,065
Research and development... 8,450 6,263 3,810
General and administrative. 5,569 4,182 2,940
Total operating expenses 23,692 20,182 16,815
Income (loss) from operations (3,198) (1,295) 3,374
Interest income.............. 347 471 543
Interest expense............. (976) (304) (50)
Gain on sale of unconsolidated
affiliate.................. 1,581 - -
Marketing rights settlement.. - 977 -
Other income (expense), net.. 231 260 18
Income (loss) before income taxes (2,015) 109 3,885
Income tax expense........... 274 38 1,305
Net income (loss)............ $ (2,289) $ 71 $ 2,580
Basic earnings (loss) per share $(0.70) $0.02 $0.84
Basic weighted average number
of shares.................. 3,277 3,208 3,085
Diluted earnings (loss)
per share.................. $(0.70) $0.02 $0.74
Diluted weighted average
number of shares........... 3,277 3,480 3,504
See notes to consolidated financial statements
Consolidated Statements of Cash Flows
Year Year Year
ended ended ended
In thousands December December December
31, 31, 31,
1999 1998 1997
Operating activities:
Net income (loss)...................... $(2,289) $ 71 $ 2,580
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation of property and equipment 1,749 970 826
Amortization of capitalized development
costs and goodwill.................. 542 2,890 2,303
Deferred income taxes................. (58) (496) 234
Change in operating assets and liabilities:
Accounts receivable................... (1,930) (2,189) 67
Notes receivable, trade............... (144) (601) (1,703)
Inventories........................... (271) (2,017) (396)
Prepaid expenses and other current assets 1,058 (776) 346
Accounts payable and accrued expenses. 1,085 (860) (1,225)
Deferred revenue...................... 298 2,606 1,383
Gain from the sale of equity investment (1,551) - -
Net cash provided (used) by
operating activities................ (1,511) (402) 4,415
Investing activities:
Purchases of investments.............. - - (851)
Notes receivable, other............... (901) (72) (791)
Sales and maturities of investments... - 1,647 2,539
Purchases of property and equipment... (4,758) (5,690) (5,687)
Capitalized development costs......... (209) (224) (2,342)
Proceeds from the sale of
equity investment................... 1,820 - -
Acquisition, including investments
in unconsolidated affiliates........ (441) (1,232) (1,488)
Net cash used in investing activities.. (4,489) (5,571) (8,620)
Financing activities:
Proceeds from stock issuance pursuant
to stock purchase and option plans.. 451 638 657
Proceeds from capital lease
financing transaction............... 2,354 439 -
Proceeds from issuance of long-term debt 5,870 2,100 3,560
Payments on long-term debt and
capital lease obligations........... (3,533) (669) (15)
Net cash provided by financing activities 5,142 2,508 4,202
Effect of foreign exchange rate
changes on cash and cash equivalents.. (102) (38) (113)
Net (decrease) in cash and
cash equivalents.................... (960) (3,503) (116)
Cash and cash equivalents at
beginning of year................... 1,774 5,277 5,393
Cash and cash equivalents at
end of year......................... $ 813 $ 1,774 $ 5,277
See notes to consolidated financial statements
Consolidated Statements of Shareholders' Equity
In thousands Additional Retained Other Total
Common Stock Paid-in Earnings Comprehensive Shareholders'
Shares Amount Capital (Deficit) Income Equity
Balance at
December 31, 1996 3,012 $ 30 $ 15,220 $(1,382) $ 499 $14,367
Stock issued under
stock purchase plan 42 - 361 - - 361
Stock issued under
stock option plan 85 1 540 - - 541
Stock issued under
director compensation
plan 3 - 44 - - 44
Stock and warrants
issued related to
acquisition 30 1 1,178 - - 1,179
Comprehensive income:
Translation adjustment - - - - (164) (164)
Net income - - - 2,580 - 2,580
Total comprehensive
income 2,416
Balance at
December 31, 1997 3,172 32 17,343 1,198 335 18,908
Stock issued under
stock purchase plan 43 1 376 - - 377
Stock issued under
stock option plan 39 - 229 - - 229
Stock issued under
director compensation
plan 3 - 32 - - 32
Comprehensive income:
Translation adjustment - - - - (108) (108)
Net income - - - 71 - 71
Total comprehensive
income (37)
Balance at
December 31, 1998 3,257 33 17,980 1,269 227 19,509
Stock issued under
stock purchase plan 48 - 384 - - 384
Stock issued under
stock option plan 5 - 35 - - 35
Stock issued under
director compensation
plan 4 - 32 - - 32
Comprehensive income:
Translation adjustment - - - - (88) (88)
Net loss - - - (2,289) - (2,289)
Total comprehensive
income (2,377)
Balance at
December 31, 1999 3,314 $ 33 $ 18,431 $(1,020) $ 139 $ 17,583
See notes to consolidated financial statements
Notes to Consolidated Financial Statements December 31, 1999
In thousands, except per share data
1. Description of Business and Summary of Significant
Accounting Policies
Description of Business and Company Organization Tripos, Inc.
delivers science, tools and analysis services that advance
customers' creativity and productivity in pharmaceutical,
agrochemical, biotechnology and related research industries
worldwide. We are also a value-added reseller of third-party
hardware products required to operate our software products.
A substantial portion of the Tripos' business is conducted
with pharmaceutical companies, however, Tripos is not
economically dependent on any customer on an ongoing basis.
Effective June 1, 1994, Evans and Sutherland Computer Company
("E&S"), the former parent of Tripos, distributed all
outstanding shares of the common stock of the Tripos (formerly
Tripos Associates, Inc.) to E&S shareholders ("the
Distribution") such that every three shares of E&S yielded one
share of the Company. Shortly before the Distribution, we
changed our company name to Tripos, Inc.
Basis of Consolidation The accompanying consolidated
financial statements include the accounts of Tripos and its
wholly owned subsidiaries. All significant intercompany
accounts and transactions are eliminated in consolidation.
Investments in affiliates, owned more than 20%, but not in
excess of 50%, are recorded on the equity method. Investments
in unconsolidated affiliates less than 20% owned are accounted
for under the cost method.
Cash and Cash Equivalents All highly liquid investments with
a maturity of three months or less when purchased are
considered to be cash equivalents.
Investments Investments, which consist primarily of U.S.
government and other high-quality debt securities with
maturities of less than five years, have been classified as
available-for-sale and are carried at fair value. There were
no unrealized holding gains and losses since the fair value
approximated the amortized cost of investments at each year-
end.
Inventory Inventory consists of finished chemical compounds,
supplies and work in process at our U.K. subsidiary, Tripos
Receptor Research Ltd., and is carried at the lower of cost
(standard cost method approximating FIFO) or market.
Notes Receivable-Trade Amounts shown for notes receivable-
trade represent customer receivables with maturities in excess
of one year net of imputed interest discount.
Property and Equipment Property and equipment are stated at
cost. Depreciation is computed by applying an accelerated
method over the estimated useful lives of the assets, which
range from five to ten years for equipment and furniture,
twenty-five to thirty-nine years for buildings, the shorter of
the useful life of the improvement or the life of the related
lease for leasehold improvements, and three years for
purchased software.
Development Costs Development costs consist of software
development costs which are capitalized after the
establishment of technological feasibility in accordance with
Statement of Financial Accounting Standards No. 86. For 1997,
costs associated with the design and creation of diverse
compound libraries, within the Company's Discovery Services
relationship with MDS Panlabs, were capitalized. Amortization
of capitalized software development costs is provided on a
product-by-product basis as the greater of (a) the ratio of
current gross revenues for a product to the total current and
anticipated future gross revenues or (b) the straight-line
method over the remaining estimated economic life of the
product. Currently, Tripos is using an estimated economic
life of three to five years. Capitalized costs associated
with the diverse compound libraries were amortized on a two-
year straight-line method up until the time of the
restructuring of the Agreement with MDS Panlabs, at which time
all remaining costs were written off to cost of sales.
Beginning in 1998, library design and production costs
associated with the LeadQuest compound library are accounted
for under the inventory method of accounting.
Tripos assesses the recoverability of capitalized development
costs by comparing the remaining unamortized balance to the
net realizable value of the related product. Any excess is
written off. All other research and development expenditures
are charged to research and development expense in the period
incurred.
Effective January 1, 1998, we adopted AICPA's Statement of
Position 98-1 ("SOP 98-1") which requires capitalization of
certain costs incurred in connection with developing or
obtaining internal use software. Capitalized costs are
amortized over the lesser of three years or the remaining
useful life of the software.
Goodwill Goodwill represents the excess of the cost of the
net assets acquired of Tripos Receptor Research Ltd. over its
fair value. It is being amortized on a straight-line basis
over 15 years. On a periodic basis, Tripos evaluates goodwill
for impairment by comparing estimated future discounted cash
flows of the business to which the goodwill relates to its
carrying value.
Revenue Recognition In late 1997, the Accounting Standards
Executive Committee of the AICPA issued statement of Position
97-2 ("SOP 97-2"), "Software Revenue Recognition" and updated
it in early 1998 with SOP 98-4. These SOPs became effective
for us for transactions entered into after January 1, 1998.
Tripos recognizes revenue from software licenses in accordance
with these SOPs upon product delivery, customer acceptance
with all obligations fulfilled at the date of delivery, and
determination that collectibility of the sale proceeds is
probable. Tripos recognizes revenue from software support
contracts ratably over the term of the contract, typically one
to three years. In software arrangements that include rights
to multiple software products, specified upgrades, software
support services and/or other services, we allocate the total
arrangement fee among each deliverable based on the relative
fair value of each of the deliverables determined based on
vendor-specific objective evidence. Revenue from chemical
compound sales is recognized upon delivery of the product.
Hardware sales are recognized on delivery of the product from
our vendor to the customer.
Tripos has entered into contract research agreements and
software consulting arrangements with certain customers which
provide for collaboration with us in defining related software
products, early access to the products, discounts on licenses
for the products developed and compound library design. We
recognize revenue related to contract research and software
consulting agreements as contractual milestones are achieved
and delivered or, absent such contractual milestones, on a
completed contract basis or a percentage of completion basis.
Warranty Tripos is a reseller of hardware and passes through
to its customers the standard warranties provided by the
hardware supplier. We warrant our application software
products to perform in accordance with written user
documentation and the agreements negotiated with our
customers. Since Tripos does not customize its applications
software, software warranty costs are insignificant and
expensed as incurred.
Foreign Currency Translation The local foreign currency is
the functional currency for each of our foreign operations.
Assets and liabilities of foreign operations are translated to
U.S. dollars at the current exchange rates as of the
applicable balance sheet date. Revenues and expenses are
translated at the average exchange rates prevailing during the
period. Adjustments resulting from translation are reported
as a separate component of shareholders' equity. Net gains
and losses from foreign currency transactions were not
significant during any of the years presented.
Comprehensive Income In June 1997, the Financial Accounting
Standards Board issued SFAS 130, "Reporting Comprehensive
Income" which became effective for Tripos for 1998. SFAS 130
establishes standards for reporting and display of
comprehensive income and its components (revenue, gains and
losses) in a full set of general purpose financial statements.
SFAS 130 requires that all components of comprehensive income,
including net income, be reported in a financial statement
that is displayed with the same prominence as other financial
statements. Comprehensive income is defined as the change in
equity during a period from transactions and other events and
circumstances from non-owner sources. Net income and other
comprehensive income, including foreign currency translation
adjustments, and unrealized gains and losses on investments,
shall be reported, net of their related tax effect, to arrive
at comprehensive income.
Income Taxes The provision for income taxes is computed
using the liability method. The primary difference between
financial statement and taxable income results from the use of
different methods of computing depreciation, capitalized
development costs, accrued vacation and customer deposits.
Earnings Per Common and Dilutive Share Basic earnings per
common share is computed using the weighted average number of
common shares outstanding during the year. Diluted earnings
per common share is computed using the weighted average number
of common shares and potential dilutive common shares that
were outstanding during the period. Potential dilutive common
shares consist of outstanding stock options. See Note 14 for
additional information regarding earnings per share.
Stock-based Compensation The Financial Accounting Standards
Board issued SFAS 123, "Accounting For Stock-Based
Compensation", effective for years beginning after December
1995. However, Tripos has elected to continue following
Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees", and related
Interpretations in accounting for its stock-based
transactions. Under APB 25, generally no compensation expense
is recognized because the exercise price of the options equal
the fair value of the stock at the grant date. Tripos has
adopted the disclosure-only provisions of SFAS 123 as shown in
Note 5 to these financial statements.
Accounting Estimates The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets, 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.
Recent Accounting Pronouncements In June 1998, the Financial
Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133"), which is required to be adopted in
years beginning after June 15, 1999. The FASB has since
delayed the effective date until years beginning after June
15, 2000, with the issuance of FAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FAS No. 133". FAS 133 permits early
adoption as of the beginning of any fiscal quarter after its
issuance. Tripos expects to adopt the new Statement
effective January 1, 2001. FAS 133 will require us to
recognize all derivatives on the balance sheet at fair value.
We have not yet determined what the effect FAS 133 will be on
earnings and financial position.
2. Property and Equipment
Property and equipment at the end of each year are summarized
below:
1999 1998
Computer equipment................. $ 5,801 $ 5,204
Capital leases-laboratory equipment 765 469
Furniture and fixtures............. 4,565 3,106
Purchased software................. 648 1,336
Company vehicles................... 25 25
Land............................... 1,593 1,593
Buildings.......................... 8,375 6,293
21,772 18,026
Less accumulated depreciation...... (7,873) (6,950)
$13,899 $11,076
3. Accrued Expenses
Accrued expenses consist of the following at the end of each year:
1999 1998
Payroll related................ $ 1,383 $ 1,224
Income taxes refundable........ (304) (714)
Product royalties.............. 730 798
Compound development........... - 105
Other............................. 1,378 1,445
$ 3,187 $ 2,858
4. Income Taxes
The components of income (loss) before income taxes for the
years ended were as follows:
1999 1998 1997
Domestic................... $ 634 $ 712 $3,871
Foreign.................... (2,649) (603) 14
$(2,015) $109 $3,885
The components of income tax expense (benefit) for the years
ended were as follows:
1999 1998 1997
Current tax expense (benefit)
Federal.................... $ 146 $ 344 $ 862
State and local............ 71 83 183
Foreign.................... 129 107 26
Total current............. 346 534 1,071
Deferred tax expense (benefit) (72) (496) 234
Total provision $ 274 $ 38 $1,305
The difference between the effective income tax rate and the
U.S. federal income tax rate for the years ended is explained
as follows:
1999 1998 1997
Tax at U.S. federal
statutory rate........... 34.00 % 34.00 % 34.00 %
Effect of foreign operations
(net of foreign taxes).... (48.89) 18.26 0.54
State taxes................. (1.15) 13.04 5.62
R&D tax credits............. 3.44 (39.04) (5.15)
Other....................... (1.00) 8.94 (1.41)
(13.60)% 35.20 % 33.60 %
The tax effects of temporary differences that give rise to
deferred tax assets and liabilities at the end of each year
are summarized as follows:
1999 1998
Current deferred income tax asset:
Allowance for doubtful accounts... $ 32 $ 25
Vacation accrual.................. 161 129
NOL carryforward.................. 2,322 1,452
Other............................. 36 46
Tax credit carryforward........... - 45
Valuation allowance............... (1,133) (263)
$ 1,418 $ 1,434
Noncurrent deferred income tax liability:
Capitalized development costs..... $ (413) $ (516)
Property and equipment............ (1,178) (1,188)
Other............................. 8 47
$(1,583) $(1,657)
Income tax payments for 1999, 1998 and 1997 were $123, $361, and
$1,010, respectively.
Three of the Tripos' foreign subsidiaries had loss
carryforwards at December 31, 1999, totaling approximately
$7,740 that have no expiration date. Undistributed earnings
of subsidiaries outside the United States are considered to be
permanently invested. Accordingly, no provision for U.S.
income taxes was made for undistributed earnings of such
subsidiaries, which aggregated $319 at December 31, 1999.
5. Stock-based Compensation Plans
In 1994, Tripos adopted the 1994 Employee Stock Purchase Plan,
which allows eligible employees to purchase stock at the lower
of 85% of the fair market value of the stock on the enrollment
date or exercise date as defined by the plan. Pursuant to the
plan, employee purchases are limited to 10% of compensation.
The plan, which was amended in 1998 to raise the number of
shares reserved for issuance from 150 to 350 shares, is in
effect for ten years unless terminated or amended sooner by
the Board of Directors. At December 31, 1999, 198 shares have
been purchased under this plan.
In 1994, Tripos adopted the 1994 Stock Plan which is
administered by the Compensation Committee and provides for
incentive stock options, nonstatutory stock options and stock
purchase rights to be granted to our employees and
consultants. Pursuant to the plan, incentive stock options
can be exercised at a price which is not less than the fair
value of the stock on the grant date, and nonstatutory stock
options and stock purchase rights can be exercised at a price
which is determined by the Compensation Committee. The
Compensation Committee is responsible for establishing the
period over which options and rights can be exercised.
Options vest at the rate of 25% on the first anniversary of
each grant and 1/48th per month over the next three years.
All options granted have 10-year terms. The plan, which was
amended in 1998 to increase the number of shares of common
stock reserved for issuance from 1,100 to 1,280, is in effect
for ten years unless terminated or amended sooner by the Board
of Directors.
In 1994, Tripos adopted the 1994 Director Option Plan which
provides for nonstatutory stock options to be granted to non-
employee directors at the fair market value of the stock at
the date of grant. Options can be exercised in 25%
increments on the anniversary of its date of grant. The
plan, which was amended in 1998 to decrease the number of
shares of common stock reserved for issuance from 300 to 240,
is in effect for ten years unless terminated or amended
sooner by the Board of Directors.
Tripos has elected to follow APB 25, "Accounting for Stock
Issued to Employees", and related interpretations in
accounting for its employee and director stock options
because, as discussed below, the alternative fair value
accounting provided for under SFAS 123, "Accounting for Stock-
Based Compensation", requires use of option valuation models
that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of our
employee and director stock options equals the market price of
the underlying stock on the date of grant, no compensation
expense is recognized.
Pro-forma information regarding net income and earnings per
share is required by SFAS 123 and has been determined as if
Tripos had accounted for its employee and director stock
options under the fair value method of that Statement. The
fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the
following weighted average assumptions: risk-free interest
rates ranging from 5.45% to 6.50% for 1997, 4.26% to 5.65% for
1998 and 4.96% to 6.03% for 1999; volatility factor of .86 for
1997, .94 for 1998 and .90 for 1999; and a weighted average
expected life of the option of 5.3 years for 1997, 4.2 years
for 1998 and 5.3 years for 1999. For the Tripos Employee
Stock Purchase Plan, compensation expense was also estimated
using a Black-Scholes option pricing model with the following
assumptions: risk-free interest rates ranging from 5.7% to
6.4% for 1997, 5.36% to 5.65% for 1998 and 4.96% to 6.03% for
1999; volatility factors of .86 for 1997, .94 for 1998 and .90
for 1999; and a weighted average expected life of the option
of 6 months. For all years presented, we used a dividend rate
of zero.
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective
assumptions including the expected stock price volatility.
Because Tripos' employee and director stock options have
characteristics significantly different from those of traded
options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its
employee and director stock options.
For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options'
vesting period. Tripos' pro forma information follows (in
thousands except for earnings per share information):
Pro Forma 1999 1998 1997
Pro forma net income (loss) $(3,432) $(1,311) $1,580
Pro forma earnings (loss) per share:
Basic $(1.05) $(0.41) $0.51
Diluted $(1.05) $(0.41) $0.48
Options Outstanding 1999 Weighted 1998 Weighted 1997 Weighted
Summary Shares Average Shares Average Shares Average
Exercise Exercise Exercise
Price Price Price
Beginning outstanding 881 $ 8.4890 834 $ 7.7899 771 $ 6.0881
Granted 234 7.7228 161 12.1595 195 13.0313
Exercised (5) 6.5215 (42) 5.7222 (97) 5.1889
Canceled/expired (49) 10.7861 (72) 10.2501 (35) 6.8504
Ending outstanding 1,061 $ 8.2621 881 $ 8.4890 834 $ 7.7899
Exercisable-
end of year 657 547 417
Weighted average
Fair value per
share of options
granted during
the year $ 4.40 $ 8.43 $ 7.19
December 31, 1999 Options Outstanding Options Exercisable
Weighted Weighted Weighted
Average Average Average
Range of Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
$4.2500-$5.0000 337 4.56 $ 4.4826 337 $ 4.8426
$5.7500-$7.6875 276 8.52 7.4461 58 6.6431
$7.8750-$12.375 273 7.32 9.8723 166 9.2980
$12.500-$20.500 175 7.67 13.6344 96 13.5539
$4.2500-$20.500 1,061 $ 8.2621 657 $ 7.3974
In January 1996, the Board of Directors of Tripos authorized
and declared a dividend of one preferred share purchase right
(a "right") for each share of common stock outstanding on
January 26, 1996. Each right represents the right to purchase
one preferred share of stock. These rights can be exercised
only if certain events occur, which include, among other
things, when a beneficial owner Tripos' common stock acquires
a total of 20% or more of our outstanding common stock.
6. Benefit Plan
In 1994, Tripos established a defined contribution 401(k) Plan
covering all domestic employees who are at least 21 years of
age and have completed at least six months of service
(provided that such service represents a minimum of 1,000
hours worked). Employees may contribute to the plan up to 17%
of their compensation, which is further limited by law.
Tripos will match employee contributions for an amount up to
50% of the first 6% of each employee's compensation deferral.
Contributions made by the Company were $202 in 1999 and $178
in 1998.
7. Geographic Segment Data
In June 1997, the Financial Accounting Standards Board issued
SFAS 131, "Segment Information" which became effective for
Tripos for 1998. SFAS 131 amends the requirements for public
companies to report financial and descriptive information
about its reportable operating segments in annual financial
statements and selected information about operating segments
in interim reports issued to shareholders. It also
establishes standards for related disclosures about products
and services, geographic areas, and major customers.
Operating segments, as defined in SFAS 131, are components of
the enterprise for which separate financial information is
available and is evaluated regularly by the Company in
deciding how to allocate resources and assess performance. We
believe we operate in one reportable business operating
segment and therefore present only the following geographic
data as representative segment information.
Tripos' foreign operations historically have been conducted
principally through our wholly owned foreign subsidiaries and
distributors. Information regarding operations by geographic
area for 1999, 1998 and 1997 is as follows:
U.S.A. U.K. Germany France Pacific Total
1999 Rim
Net sales $12,356 $ 3,976 $ 5,776 $ 2,673 $ 2,468 $27,249
Long-lived assets 5,393 9,483 78 27 - 14,981
1998
Net sales 13,263 2,622 5,502 2,184 2,000 25,571
Long-lived assets 6,191 6,385 90 45 - 12,711
1997
Net sales 17,899 4,205 3,700 1,666 2,718 30,188
Long-lived assets 5,955 1,551 115 59 - 7,680
Most of our services are provided on an integrated worldwide
basis. Because of the integration of U.S. and non-U.S.
services, it is not practical to separate precisely the U.S.-
oriented services from services resulting from operations
outside the United States and performed for customers outside
the United States; accordingly, the separation set forth in
the preceding table is based upon internal allocations, which
involve certain management judgments.
Net sales and long-lived assets in the preceding table are
attributable to the country or territory in which our
subsidiaries or distributors are located.
8. Concentrations of Credit Risk
Financial instruments that potentially subject Tripos to
concentrations of credit risk have consisted principally of
investments and trade receivables. Tripos invests available
cash in bank deposits, investment-grade securities, and short-
term interest-producing investments, including government
obligations and other money market instruments. Tripos has
adopted credit policies and standards to evaluate the risk
associated with its sales and requires collateral, such as
letters of credit and bank guarantees, whenever deemed
necessary. Our management believes that any risk of loss is
significantly reduced due to the nature of the customers and
distributors with which we do business.
9. Lease Obligations
Tripos leases certain office facilities and equipment under
noncancelable operating and capital leases with terms from one
to five years. The capital leases specifically pertain to the
acquisition of certain laboratory equipment totaling $2,755.
During 1999, we entered into capital leases in which
previously acquired equipment was sold and leased back to
accomplish a financing of that equipment. The proceeds from
this transaction were used to pay principal on the then
outstanding $4.0 million term loan at LaSalle Bank. The terms
of these capital leases are two and three years. Rent expense
under the operating leases was $468, $406, and $758 in 1999,
1998, and 1997, respectively. Noncancelable future minimum
lease commitments as of December 31, 1999 are:
Year Operating Capital
Leases Leases
2000 $ 465 $1,211
2001 395 960
2002 262 420
2003 132 -
2004 45 -
1,299 2,591
Less amount representing interest - (289)
Present value of minimum
lease payments $1,299 $2,302*
* Includes the current portion of capital lease obligations of $1,079
10. Selected Quarterly Financial Data (Unaudited)
The following table presents unaudited financial data
for each quarter of 1999 and 1998:
1999 3/31/99 6/30/99 9/30/99 12/31/99
Total net sales.......... $6,155 $6,122 $5,507 $9,465
Gross profit............. 4,285 4,646 4,523 7,040
Income (loss) from operations (905) (1,719) (1,293) 719
Net income (loss) (1).... (486) (1,173) (836) 206
Net income (loss) per share:
Basic............. $(0.15) $(0.36) $(0.25) $0.06
Diluted............ $(0.15) $(0.36) $(0.25) $0.06
1998 3/31/98 6/30/98 9/30/98 12/31/98
Total net sales.......... $6,184 $5,529 $5,587 $8,272
Gross profit............. 4,016 4,549 4,258 6,063
Income (loss) from operations (541) (321) (769) 336
Net income (loss)........ (302) 41 70 262
Net income (loss) per share:
Basic............. $(0.10) $0.01 $0.02 $0.08
Diluted............ $(0.10) $0.01 $0.02 $0.08
(1) In the fourth quarter of 1999, Tripos recorded a
valuation allowance of $1.1 million on deferred tax assets
relating to the net operating losses for subsidiaries in the
United Kingdom.
For further discussion of earnings per share and the impact
of Statement No. 128, see note 1 of the consolidated
financial statements, "Description of Business and Summary of
Significant Accounting Policies, Earnings Per Common and
Dilutive Share".
11. Inventory
Tripos maintains a physical inventory of chemical compound
libraries in various states of completion. Costs associated
with the manufacture of compounds are calculated using the
standard cost method and are carried at the lower of cost or
market. Compounds that are acquired from third parties are
also carried at the lower of cost or market. Finished Goods
inventory may periodically contain costs of computer hardware
that has been acquired for resale to our customers.
December 31, December 31,
1999 1998
Raw materials............ $ 256 $ 44
Work in process.......... 533 1,764
Finished goods........... 1,806 581
$ 2,595 $ 2,389
12. Long-term Debt
Tripos entered into a five-year $12,000 Credit Agreement with
a bank on October 16, 1998. The Credit Agreement required
Tripos to meet certain financial covenants, including various
coverage ratios and a debt to capitalization ratio. The line
of credit was secured by all of our U.S. assets as well as a
pledge of our European assets. At December 31, 1998, we were
in violation of one covenant which was subsequently waived by
the bank for that quarterly reporting period. At December
31, 1998, $2,100 of borrowings were outstanding. Average
borrowings under the facility for 1998 were $1,153 from the
date of the first draw until December 31, 1998. The weighted-
average interest rate incurred from the date of inception
until December 31, 1998 was 7.02%.
On November 14, 1997, Tripos acquired its headquarters
building and grounds. Financing in the amount of $3,560 for
the acquisition was obtained from the same bank that provided
the line of credit in 1998. The five-year mortgage note
amortized the loan principal on a straight-line basis on a
twenty-year schedule. The variable interest rate on the note
was equivalent to the thirty-day LIBOR rate plus 1.75%. The
note required Tripos to meet certain financial covenants
consistent with those of the Credit Agreement above. The
property acquired acted as security for the borrowing.
Interest paid during the period was $292 for 1998.
On March 22, 1999, Tripos received a credit commitment from
LaSalle Bank that refinanced the existing $12,000 Credit
Agreement and the mortgage note. The credit commitment was
for a total of $15,333 which was broken into three separate
secured credit facilities: a $3,333 real estate mortgage for
property with a carrying value of $4,476, $4,000 three-year
term loan, and an $8,000 three-year revolving line of credit.
The credit commitment is collateralized by substantially all
of Tripos' U.S. assets and stock pledges for each of the U.S.
and foreign subsidiaries. The commitment also required
Tripos to meet certain financial covenants, including various
coverage ratios and a debt to capitalization ratio. During
1999, Tripos violated the terms of the covenants, however,
the bank waived the violations and later amended the terms of
the credit facility.
The mortgage note under the current credit commitment calls
for even quarterly principal payments based on a twenty-year
amortization schedule which began June 30, 1999. Borrowings
under the mortgage are subject to a variable interest rate at
LIBOR plus 2.25%. An interest rate swap agreement was
entered into which fixed the interest rate at 7.81%. The
$4,000 term note under the credit commitment required
quarterly principal payments of $250 plus interest beginning
April 1, 2000 and was later amended to require payment in
full by June 30, 2000. This note has since been repaid in
its entirety in three installments; $3,000 during the fourth
quarter of 1999 and the balance on February 10, 2000. The
revolving line of credit under the credit commitment requires
quarterly interest-only payments with any remaining
borrowings due at the end of the three-year commitment
period. The original $8,000 line of credit was reduced to
$4,000 effective September 30, 1999. Availability under the
revolving line of credit is based on eligible U.S. accounts
receivable. Borrowings under the term loan and the revolving
line of credit bear interest at variable rates tied to LIBOR
or the bank's prime rate. At December 31, 1999, $3,930 of
borrowings were outstanding. Average borrowings under the
facility for 1999 were $2,350 from the date of the first draw
until December 31, 1999. The weighted-average interest rate
incurred from the date of inception until December 31, 1999
was 9.4%.
Long-term debt obligations were:
December 31, December 31,
1999 1998
Borrowings outstanding under
Credit Agreement......... $ 3,930 $ 2,100
Mortgage note, due March 31, 2002 3,237 3,367
Term Loan due June 30, 2000... 1,000 -
Less current maturities....... (1,166) (178)
Long-term debt................ $ 7,001 $ 5,289
Scheduled maturities of long-term debt are $1,166 for 2000,
$178 for 2001 and $6,823 for 2002.
13. Acquisition of Tripos Receptor Research Ltd.
On November 11, 1997, Tripos purchased all the outstanding
common stock of Receptor Research Ltd., a U.K. company, for a
mixture of cash, warrants and common stock of Tripos, Inc.
Warrants for 20 shares of Tripos, Inc. Common Stock vested at
December 31, 1998 while warrants for 30 shares vested on
December 31, 1999. The warrants were recorded at their fair
market value at the date of the grant. The purchase price
was allocated to net identifiable assets with the excess
recorded as goodwill. The goodwill is being amortized over
15 years on a straight-line basis. The results of operations
for Receptor Research are included in these financial
statements from the date of the acquisition. Pro-forma
results of operations, assuming the acquisition of Receptor
Research had occurred on January 1, 1997, would not
materially differ from the reported results of operations.
The name of the company was changed to Tripos Receptor
Research Ltd. on January 7, 1998.
14. Earnings Per Share
The following table sets forth the computation of basis and
diluted earnings per share:
1999 1998 1997
Numerator:
Numerator for basic and diluted
earnings per share-net income $(2,289) $ 71 $2,580
Denominator:
Denominator for basic earnings
per share-weighted
average shares................ 3,277 3,208 3,085
Effect of dilutive securities:
Employee stock options..... - 272 419
Denominator for diluted
earnings per share-
adjusted weighted average
shares and assumed conversions 3,277 3,480 3,504
Basic earnings per share...... $(0.70) $0.02 $0.84
Diluted earnings per share.... $(0.70) $0.02 $0.74
15. Subsequent Event
On February 4, 2000, Tripos issued 409 shares of Series B
Preferred Stock for an aggregate purchase price of $9,000.
Cumulative dividends of $1.10 per share per annum are payable
upon the earlier of the conversion or redemption of such
share. Each share of preferred stock may be converted, at the
option of the holder, into one share of Tripos' common stock.
The preferred stock is mandatory redeemable at a price of $22
per share plus accreted dividends on February 4, 2005 provided
that the holder has provided notice of its intention to have
its shares redeemed on or prior to February 4, 2004.
Report of Independent Auditors
Board of Directors and Shareholders
of Tripos, Inc.
We have audited the accompanying consolidated balance
sheets of Tripos, Inc. as of December 31, 1999 and 1998, and
the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1999. Our audits also
included the financial statement schedule listed in the index
at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and schedule 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 consolidated financial statements
referred to above present fairly, in all material respects,
the consolidated financial position of Tripos, Inc. at
December 31, 1999 and 1998, and the consolidated results of
its operations and its cash flows for each of the three years
in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United
States. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
St. Louis, Missouri
February 7, 2000
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Part III
Item 10. Directors and Officers of the Registrant
The information required by this item is included under the
captions "Election of Directors" in our Proxy Statement in
connection with the Annual Meeting of Shareholders to be held
on May 11, 2000 and is incorporated herein by reference. The
information required by this item relating to Tripos'
executive officers and key employees is included in that same
Proxy Statement under the caption "Management" and is
incorporated herein by reference.
Item 11. Executive Compensation
The information required by this item is included under the
caption "Election of Directors - Director Remuneration" and
under the caption "Executive Compensation and Related
Information", except for the "Report of the Compensation
Committee" and the "Comparison of Shareholder Return", in the
Proxy Statement in connection with the Tripos Annual Meeting
of Shareholders to be held on May 11, 2000 and is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by this item is included under the
caption "Ownership of Securities" in the Proxy Statement in
connection with the Annual Meeting of Shareholders to be held
on May 11, 2000 and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Tripos has not engaged in any transaction or had any
relationship with any executive officer or director that is
required to be disclosed pursuant to Item 404 of Regulation S-K.
Part IV
Item 14. Exhibits, Financial Statement Schedule and Reports
on Form 8-K
(a) The following documents are filed as part of this Annual
Report on Form 10-K:
1. Financial Statements.
See Part II, Item 8 Financial Statements and
Supplementary Data
2. Financial Statement Schedule
The following financial statement schedule of
Tripos, Inc. is included in this annual report on
Form 10-K.
Page Number
Schedule II - Valuation and Qualifying Accounts II-1
Schedules other than that which is listed above have
been omitted since they are either not required, are
not applicable, or the required information is shown
in the financial statements or related items.
3. Exhibits - see the following Exhibit Index of this report.
The following exhibits listed in the Exhibit Index
are filed with this report:
3.3 Articles of Amendment to the Articles of
Incorporation of Tripos, Inc. dated February 4, 2000
4.1 Investor's Rights Agreement dated February 4, 2000
between LION Bioscience AG and Tripos, Inc.
10.16 Agreement on Collaboration Terms dated February 4, 2000
between LION Bioscience AG and Tripos, Inc.
10.17 Stock Purchase Agreement dated February 4, 2000
between LION Bioscience AG and Tripos, Inc.
12 See Part II, Item 8; Financial Statements and
Supplementary Data
23.1 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule
(b) Reports on Form 8-K filed in the fourth quarter of 1999:
None.
(c) Exhibits - see Exhibit Index:
Management Contracts and Compensatory Plans - the
following exhibits listed in the Exhibit Index are listed
below pursuant to item 14(a)-3 of Form 10-K:
10.1 Tripos, Inc. 1994 Stock Option Plan
10.2 Tripos, Inc. 1994 Employee Stock Purchase Plan
10.3 Tripos, Inc. 1994 Director Option Plan
10.4 Tripos, Inc. 1994 401(k) Plan
10.5 Amendment to the 1994 401(k) Plan
10.6 Tripos, Inc. 1996 Director Stock Compensation Plan
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SIGNATURES
TRIPOS, INC.
By: /s/John P. McAlister March 26, 2000
John P. McAlister, III Date
President, Chief Executive Officer
and Member of the Board of Directors
POWER OF ATTORNEY
Know all men by these presents, that each person whose
signature appears below constitutes and appoints John P.
McAlister, III, Colleen A. Martin and John D. Yingling, and
each of them (with full power to each of them to act alone),
his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any
or all amendments to this report on Form 10-K for the fiscal
year ended December 31, 1999, and to file the same, with all
exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full
power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, or any of them, or their
substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and
on the dates indicated.
Name Title Date
/s/ John P. McAlister Chief Executive Officer, March 26, 2000
John P. McAlister III President and Director
(Principal Executive Officer)
/s/ Colleen A. Martin VP, Chief Financial Officer March 26, 2000
Colleen A. Martin and Secretary
(Principal Financial Officer)
/s/ John D. Yingling Corporate Controller March 26, 2000
John D. Yingling and Treasurer
(Principal Accounting Officer)
/s/ Ralph S. Lobdell Chairman of the Board of March 26, 2000
Ralph S. Lobdell Directors
/s/ Stewart Carrell Director March 26, 2000
Stewart Carrell
/s/ Gary Meredith Director March 26, 2000
Gary Meredith
/s/ Ferid Murad Director March 26, 2000
Ferid Murad
/s/ Alfred Alberts Director March 26, 2000
Alfred Alberts
/s/ Friedrich Von Bohlen Director March 26, 2000
Friedrich Von Bohlen
TRIPOS, INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1997, December 31,1998 and December 31, 1999
(in thousands)
Col. A Col. B Col. C Col. D Col. E
Additions
Balance at Charged to Charged to Deductions Balance at
Description Beginning Cost and Other Charged to End of
of Period Expenses Accounts Reserves Period
Allowance for
Doubtful Accounts
1997 $77 $ 1 $-- $-- $ 78
1998 78 60 -- 39 99
1999 99 28 -- -- 127
Valuation Allowance
for Deferred Income
Tax Assets:
1997 $143 $-- $-- $98 $ 45
1998 45 -- -- 45 --
1999 -- 1,133 -- -- 1,133
Exhibit Exhibit Index
Number Description
2.1 a Distribution Agreement between Tripos and E&S
3.1 p Amended and Restated Articles of Incorporation dated
January 26, 1996
3.2 a Amended and Restated Bylaws of Tripos
3.3 Articles of Amendment to the Articles of Incorporation of
Tripos, Inc. dated February 4, 2000.
4.1 Investor's Rights Agreement dated February 4, 2000
between LION Bioscience AG and Tripos, Inc.
10.1 b Tripos, Inc. 1994 Stock Option Plan
10.2 b Tripos, Inc. 1994 Employee Stock Purchase Plan
10.3 b Tripos, Inc. 1994 Director Option Plan
10.4 b Tripos, Inc. 1994 401(k) Plan
10.5 p Amendment to the 1994 401(k) Plan
10.6 p Tripos, Inc. 1996 Director Stock Compensation Plan
10.7 p Master Collaboration Agreement between Tripos and MDL
Information Systems, Inc. dated February 2, 1996
10.8 p Rights Agreement between Tripos and Boatmen's Trust
Company, as Rights Agent, dated January 26, 1996
10.9 p Strategic Business Alliance Teaming Agreement between
Tripos and MDS Panlabs, Inc. dated June 30, 1995
10.10 Credit Agreement-Line of Credit, dated as of September
12, 1996, between Tripos and NationsBank, N.A. (formerly
known as Boatmen's National Bank of St. Louis).
Previously filed as an exhibit to the Company's Form 10-Q
for the period ended September 30, 1996 and incorporated
herein by reference.
10.11f Loan Agreement dated November 14, 1997 between
NationsBank, N.A. and Tripos Realty, LLC.
10.12f Purchase and Sale Agreement dated June 3, 1997 between
Cahn Realty Associates and Tripos, Inc.
10.13 Settlement Agreement between Tripos, Inc. and Panlabs,
Inc. dated March 30, 1998. Previously filed as an
exhibit to the Company's Form 10-Q for the period ended
June 30, 1998 and incorporated herein by reference.
10.14 Loan Agreement between Tripos, Inc. and NationsBank,
N.A. dated October 16, 1998. Previously filed as an
exhibit to the Company's Form 10-Q for the period ended
September 30, 1998 and incorporated herein by reference.
10.15 Loan Agreement between Tripos, Inc. and LaSalle
National Bank dated April 30, 1999. Previously filed as an
exhibit to the Company's Form 10-Q for the period ended June
30, 1999 and incorporated herein by reference.
10.16 Agreement on Collaboration Terms dated February 4, 2000
between LION Bioscience AG and Tripos, Inc.
10.17 Stock Purchase Agreement dated February 4, 2000
between LION Bioscience AG and Tripos, Inc.
21 Subsidiaries of the Registrant: Tripos Realty, LLC,
Tripos S.A.R.L., Tripos GMBH, Tripos UK Holdings Limited,
Tripos UK Limited, and Tripos Receptor Research Limited
23.1 Consent of Ernst & Young LLP, Independent Auditors
24 Power of Attorney, See the signature page
27 Financial Data Schedule
a Previously filed as an exhibit to the Company's
Registration Statement on Form 10 dated May 27, 1994
and incorporated herein by reference
b Previously filed as an exhibit to the Company's
Registration Statement on Form S-8, 33-79610 dated
May 31, 1994 and incorporated herein by reference.
p Previously filed as an exhibit to the Company's Form 10-K
for the fiscal year ended December 31, 1995 and incorporated
herein by reference.
f Previously filed as an exhibit to the Company's Form 10-K
for the fiscal year ended December 31, 1997 and incorporated
herein by reference.
Exhibit 3.3
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
TRIPOS, INC.
Pursuant to the authority vested in the Board of
Directors of TRIPOS, INC., a Utah corporation (the
"Corporation"), by and through the Articles of Incorporation
of the Corporation, and as permitted by Sections 602, 1002 and
1006 of the Utah Revised Business Corporation Act, the Board
of Directors of the Corporation has adopted the following
amendments to the Articles of Incorporation of the
Corporation, without shareholder action, by unanimous written
consent dated effective as of February 4, 2000 (shareholder
action was not required):
Article III, Section 2 of the Articles of Incorporation
of this Corporation is hereby amended, by adding the following
to the end of such Section, following the Designation of
Rights and Preferences of TRIPOS, INC. Series A Preferred
Stock, as set forth in the Articles of Amendment to the
Corporation's Articles of Incorporation, filed with the Utah
Department of Commerce, Division of Corporations and
Commercial Code, effective as of April 22, 1996:
DESIGNATION OF RIGHTS AND PREFERENCES
OF TRIPOS, INC.
SERIES B CONVERTIBLE PREFERRED STOCK
Section 1. Designation and Amount. Four hundred nine
thousand ninety-one (409,091) of the authorized and previously
undesignated shares of Preferred Stock are designated as
"Series B Convertible Preferred Stock" (the "Series B Preferred Stock").
Section 2. Dividends.
(a) The holders of shares of Series B Preferred Stock shall
be entitled to receive, out of funds legally available
therefor, dividends of $1.10 per share per annum (subject to
appropriate adjustment in the event of any stock dividend,
stock split, combination or other similar recapitalization
affecting such shares). Such dividends shall accrue and shall
be cumulative from the date of issuance of each share of
Series B Preferred Stock to which such dividends relate, until
the earlier of the conversion or redemption of such share of
Series B Preferred Stock and all such accrued dividends shall
be payable by the Company simultaneously with such conversion
or redemption in cash or, at the option of the holder, shares
of the Corporation's Common Stock with an aggregate market
value equal to the cash dividend amount. For purposes of
determining the number of shares of Common Stock to be issued
in lieu of a cash dividend, the fair market value of the
Common Stock shall be equal to the average closing price of
the Common Stock for the 5 trading days preceding such delivery.
(b) Upon the conversion or redemption of the Series B
Preferred Stock, the Corporation shall not declare or pay any
distributions (as defined below) on shares of Common Stock
until the holders of the Series B Preferred Stock then
outstanding shall have first received the distribution
required under paragraph (a) of this Section 2.
(c) For purposes of this Section 2, unless the context
requires otherwise, "distribution" shall mean the transfer of
cash or property without consideration, whether by way of
dividend or otherwise, payable other than in Common Stock or
other securities of the Corporation, or the purchase or
redemption of shares of the Corporation for cash or property,
including any such transfer, purchase or redemption by a
subsidiary of this Corporation.
Section 3. Liquidation, Dissolution or Winding Up;
Certain Mergers, Consolidations and Asset Sales.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of
shares of Series B Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be
distributed to the holders of any other class or series of
shares of the Corporation ranking on liquidation prior and in
preference to the Series B Preferred Stock (collectively
referred to as "Senior Preferred Stock"), but before any
payment shall be made to the holders of Common Stock, the
Series A Preferred Stock or any other class or series of
shares ranking on liquidation junior to the Series B Preferred
Stock (such Common Stock and other stock being collectively
referred to as "Junior Stock") by reason of their ownership
thereof, an amount equal to $22 per share (subject to
appropriate adjustment in the event of any stock dividend,
stock split, combination or other similar recapitalization
affecting such shares), plus any dividends accrued but
undeclared and any dividends declared but unpaid on such
shares. If upon any such liquidation, dissolution or winding
up of the Corporation the remaining assets of the Corporation
available for distribution to its stockholders shall be
insufficient to pay the holders of shares of Series B
Preferred Stock the full amount to which they shall be
entitled, the holders of shares of Series B Preferred Stock
and any other class or series of shares ranking on liquidation
on a parity with the Series B Preferred Stock shall share
ratably in any distribution of the remaining assets and funds
of the Corporation in proportion to the respective amounts
which would otherwise be payable in respect of the shares held
by them upon such distribution if all amounts payable on or
with respect to such shares were paid in full.
(b) After the payment of all preferential amounts required to
be paid to the holders of Senior Preferred Stock, the Series B
Preferred Stock and any other class or series of shares of the
Corporation ranking on liquidation on a parity with the Series
B Preferred Stock, upon the dissolution, liquidation or
winding up of the Corporation, the remaining assets and funds
of the Corporation available for distribution to its
stockholders shall be distributed among the holders of shares
of Junior Stock in accordance with the terms of such Junior Stock.
(c) Any merger or consolidation of the Corporation into or
with another corporation (except one in which the holders of
capital stock of the Corporation immediately prior to such
merger or consolidation continue to hold at least 60% by
voting power of the capital stock of the surviving
corporation), or sale of all or substantially all the assets
of the Corporation, shall be deemed to be a liquidation of the
Corporation for purposes of this Section 3, and the agreement
or plan of merger or consolidation with respect to such
merger, consolidation or sale shall provide that the
consideration payable to the stockholders of the Corporation
(in the case of a merger or consolidation), or consideration
payable to the Corporation, together with all other available
assets of the Corporation (in the case of an asset sale),
shall be distributed to the holders of capital stock of the
Corporation in accordance with Subsections 3(a) and 3(b) above
and the holders of Series B Preferred Stock shall receive an
amount (the "Liquidation Amount") determined in accordance
with such Subsections. The amount deemed distributed to the
holders of shares of Series B Preferred Stock upon any such
merger, consolidation or sale shall be the cash or the value
of the property, rights or securities distributed to such
holders by the acquiring person, firm or other entity. The
value of such property, rights or other securities shall be
determined in good faith by the Board of Directors of the
Corporation.
Section 4. Voting.
(a) Each holder of outstanding shares of Series B Preferred
Stock shall be entitled to such number of votes as is equal to
the number of whole shares of Common Stock into which the
shares of Series B Preferred Stock held by such holder are
then convertible (as adjusted from time to time pursuant to
Section 5 hereof), at each meeting of stockholders of the
Corporation (and written actions of stockholders in lieu of
meetings) with respect to any and all matters presented to the
stockholders of the Corporation for their action or
consideration. Except as provided by law, or by the
provisions of Subsections 4(b) or 4(c) below, holders of
Series B Preferred Stock shall vote together with the holders
of Common Stock as a single class.
(b) The Corporation shall not (i) amend, alter or repeal the
preferences, special rights or other powers of the Series B
Preferred Stock so as to affect adversely the Series B
Preferred Stock, or (ii) increase the number of authorized
shares of Series B Preferred Stock, without the written
consent or affirmative vote of the holders of a majority of
the then outstanding shares of Series B Preferred Stock, given
in writing or by vote at a meeting, consenting or voting (as
the case may be) separately as a class.
(c) The consent or affirmative vote of holders of a majority
of the then outstanding shares of Series B Preferred Stock
given in writing or by vote at a meeting, consenting or voting
(as the case may be) separately as a class, shall be entitled
to elect one member of the Board of Directors of the Company.
Section 5. Optional Conversion. The holders of the
Series B Preferred Stock shall have conversion rights as
follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series B Preferred Stock
shall be convertible at the option of the holder thereof, at
any time and from time to time, and without the payment of
additional consideration by the holder thereof, into such
number of fully paid and nonassessable shares of Common Stock
as is determined by dividing $22 by the Conversion Price (as
defined below) in effect at the time of conversion The
"Conversion Price" shall initially be $22. Such initial
Conversion Price, and the rate at which shares of Series B
Preferred Stock may be converted into shares of Common Stock,
shall be subject to adjustment as provided below.
In the event of a liquidation of the Corporation, the
Conversion Rights shall terminate at the close of
business on the first full day preceding the date fixed
for the payment of any amounts distributable on
liquidation to the holders of Series B Preferred Stock.
In addition, the Conversion Rights shall terminate on the
fifth business day preceding the Redemption Date, as
defined below.
(b) Fractional Shares. No fractional shares of Common Stock
shall be issued.
(c) Mechanics of Conversion.
(i) In order for a holder of Series B Preferred Stock to
convert shares of Series B Preferred Stock into shares of
Common Stock, such holder shall surrender the certificate or
certificates for such shares of Series B Preferred Stock, at
the office of the transfer agent for the Series B Preferred
Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with
written notice that such holder elects to convert all or any
number of the shares of the Series B Preferred Stock
represented by such certificate or certificates. Such notice
shall state such holder's name or the names of the nominees in
which such holder wishes the certificate or certificates for
shares of Common Stock to be issued. If required by the
Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments
of transfer, in form satisfactory to the Corporation, duly
executed by the registered holder or his or its attorney duly
authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the
Corporation if the Corporation serves as its own transfer
agent) shall be the conversion date ("Conversion Date"). The
Corporation shall, as soon as practicable after the Conversion
Date, issue and deliver at such office to such holder of
Series B Preferred Stock, or to his or its nominees, a
certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled, together with
cash in lieu of fractional shares.
(ii) The Corporation shall at all times while any shares of
Series B Preferred Stock shall be outstanding, reserve and
keep available out of its authorized but unissued stock, for
the purpose of effecting the conversion of the Series B
Preferred Stock, such number of duly authorized shares of
Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of Series B
Preferred Stock. Before taking any action which would cause
an adjustment reducing the Conversion Price below the then par
value of the shares of Common Stock issuable upon conversion
of the Series B Preferred Stock, the Corporation will take any
corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common
Stock at such adjusted Conversion Price.
(iii) All shares of Series B Preferred Stock which shall
have been surrendered for conversion as herein provided shall
no longer be deemed to be outstanding and all rights with
respect to such shares, including the rights, if any, to
receive notices and to vote, shall immediately cease and
terminate on the Conversion Date, except only the right of the
holders thereof to receive shares of Common Stock in exchange
therefor. Any shares of Series B Preferred Stock so converted
shall be retired and cancelled and shall not be reissued, and
the Corporation (without the need for shareholder action) may
from time to time take such appropriate action as may be
necessary to reduce the number of shares of authorized Series
B Preferred Stock accordingly.
(iv) The Corporation shall pay any and all issue and other
taxes that may be payable in respect of any issuance or
delivery of shares of Common Stock upon conversion of shares
of Series B Preferred Stock pursuant to this Section 5. The
Corporation shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in
the issuance and delivery of shares of Common Stock in a name
other than that in which the shares of Series B Preferred
Stock so converted were registered, and no such issuance or
delivery shall be made unless and until the person or entity
requesting such Issuance has paid to the Corporation the
amount of any such tax or has established, to the satisfaction
of the Corporation, that such tax has been paid.
(d) Adjustments to Conversion Price for Diluting Issues:
(i) Special Definitions. For purposes of this Subsection
5(d), the following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities.
(B) "Original Issue Date" shall mean the date on which a
share of Series B Preferred Stock was first issued.
(C) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities directly or
indirectly convertible into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all shares
of Common Stock or fractions thereof issued (or, pursuant to
Subsection 5(d)(iii) below, deemed to be issued) by the
Corporation after the Original Issue Date, other than shares
of Common Stock issued or issuable:
(I) upon conversion of any Convertible Securities or exercise
any warrants or options outstanding on the Original Issue
Date;
(II) by reason of a dividend, stock split, split-up or other
distribution on shares of Common Stock that is covered by
Subsection 5(e) or 5(f) below; or
(III)to employees or directors of, or consultants to, the
Corporation pursuant to a plan or arrangement approved by the
Board of Directors of the Corporation; or
(IV) in connection with the acquisition by the Corporation of
the shares or assets of another business or company.
(ii) No Adjustment of Conversion Price. No adjustment in the
number of shares of Common Stock into which the Series B
Preferred Stock is convertible shall be made, by adjustment in
the applicable Conversion Price thereof: (a) unless the
consideration per share (determined pursuant to Subsection
5(d)(v)) for Additional Shares of Common Stock issued or
deemed to be issued by the Corporation is less than the
applicable Conversion Price in effect immediately prior to the
issue of such Additional Shares of Common Stock, or (b) if
prior to such issuance, the Corporation receives written
notice from the holders of a majority of the then outstanding
shares of Series B Preferred Stock agreeing that no such
adjustment shall be made as the result of the issuance of
Additional Shares of Common Stock.
(iii) Issue of Securities; Deemed Issue of Additional
Shares of Common Stock. If the Corporation at any time or
from time to time after the Original Issue Date shall issue
any Options (excluding Options covered by Subsection
5(d)(i)(D)(iii) above) or Convertible Securities or shall fix
a record date for the determination of holders of any class of
securities entitled to receive any such Options or Convertible
Securities, then the maximum number of shares of Common Stock
(as set forth in the instrument relating thereto without
regard to any provision contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such
Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common
Stock issued as of the time of such issue or, in case such a
record date shall have been fixed, as of the close of business
on such record date, provided that Additional Shares of Common
Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to Subsection
5(d)(v) hereof) of such Additional Shares of Common Stock
would be less than the applicable Conversion Price in effect
on the date of and immediately prior to such issue, or such
record date, as the case may be, and provided further that in
any such case in which Additional Shares of Common Stock are
deemed to be issued:
(A) No further adjustment in the Conversion Price shall be
made upon the subsequent issue of Convertible Securities or
shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(B) If such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any
increase or decrease in the consideration payable to the
Corporation, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original issue
thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming effective, be
recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange
under such Convertible Securities;
(C) Upon the expiration or termination of any unexercised
Option, the Conversion Price shall not be readjusted, but the
Additional Shares of Common Stock deemed issued as the result
of the original issue of such Option shall not be deemed
issued for the purposes of any subsequent adjustment of the
Conversion Price;
(D) In the event of any change in the number of shares of
Common Stock issuable upon the exercise, conversion or
exchange of any Option or Convertible Security, including, but
not limited to, a change resulting from the anti-dilution
provisions thereof, the Conversion Price then in effect shall
forthwith be readjusted to such Conversion Price as would have
obtained had the adjustment which was made upon the issuance
of such Option or Convertible Security not exercised or
converted prior to such change been made upon the basis of
such change; and
(E) No readjustment pursuant to clause (B) or (D) above shall
have the effect of increasing the Conversion Price to an
amount which exceeds the lower of (i) the Conversion Price on
the original adjustment date, or (ii) the Conversion Price
that would have resulted from any issuances of Additional
Shares of Common Stock between the original adjustment date
and such readjustment date.
In the event the Corporation, after the Original Issue
Date, amends the terms of any Options or Convertible
Securities (whether such Options or Convertible Securities
were outstanding on the Original Issue Date or were issued
after the Original Issue Date), then such Options or
Convertible Securities, as so amended, shall be deemed to have
been issued after the Original Issue Date and the provisions
of this Subsection 5(d)(iii) shall apply.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the
Corporation shall at any time after the Original Issue Date
issue Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to
Subsection 5(d)(iii), but excluding shares issued as a
dividend or distribution as provided in Subsection 5(e)),
without consideration or for a consideration per share less
than the applicable Conversion Price in effect on the date of
and immediately prior to such issue, then and in such event,
such Conversion Price shall be reduced, concurrently with such
issue, to a price (calculated to the nearest .001 of a cent)
determined by multiplying such Conversion Price by a fraction:
(A) the numerator of which shall be (i) the number of shares
of Common Stock outstanding immediately prior to such issue or
sale plus (ii) the number of shares of Common Stock which the
aggregate consideration (determined pursuant to Subsection
5(d)(v)) for the total number of such Additional Shares of
Common Stock so issued or sold would purchase at the then
Conversion Price; and
(B) the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such issue or sale.
(v) Determination of Consideration. For purposes of this
Subsection 5(d), the consideration received by the Corporation
for the issue of any Additional Shares of Common Stock shall
be computed as follows:
(A) Cash and Property: Such consideration shall:
(I) insofar as it consists of cash, be computed at the
aggregate of cash received by the Corporation, excluding
amounts paid or payable for accrued interest;
(II) insofar as it consists of property other than cash, be
computed at the fair market value thereof at the time of such
issue, as determined in good faith by the Board of Directors;
and
(III) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other
assets of the Corporation for consideration which covers both,
be the proportion of such consideration so received, computed
as provided in clauses (I) and (II) above, as determined in
good faith by the Board of Directors.
(B) Options and Convertible Securities. The consideration
per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Subsection
4(d)(iii), relating to Options and Convertible Securities,
shall be determined by dividing
(x) the total amount, if any,
received or receivable by the Corporation as consideration for
the issue of such Options or Convertible Securities, plus the
minimum aggregate amount of additional consideration (as set
forth in the instruments relating thereto, without regard to
any provision contained therein for a subsequent adjustment of
such consideration) payable to the Corporation upon the
exercise of such Options or the conversion or exchange of such
Convertible Securities, or in the case of Options for
Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such
Convertible Securities, by
(y) the maximum number of shares of
Common Stock (as set forth in the instruments relating
thereto, without regard to any provision contained therein for
a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such
Convertible Securities.
(e) Adjustment for Stock Splits and Combinations. If the
Corporation shall at any time or from time to time after the
Original Issue Date effect a subdivision of the outstanding
Common Stock, the Conversion Price then in effect immediately
before that subdivision shall be proportionately decreased.
If the Corporation shall at any time or from time to time
after the Original Issue Date combine the outstanding shares
of Common Stock, the Conversion Price then in effect
immediately before the combination shall be proportionately
increased. Any adjustment under this paragraph shall become
effective at the close of business on the date the subdivision
or combination becomes effective.
(f) Adjustment for Certain Dividends and Distributions. In
the event the Corporation at any time, or from time to time
after the Original Issue Date shall make or issue, or fix a
record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable
in additional shares of Common Stock, then and in each such
event the Conversion Price for the Series B Preferred Stock
then in effect immediately before such event shall be
decreased as of the time of such issuance or, in the event
such a record date shall have been fixed, as of the close of
business on such record date, by multiplying the Conversion
Price for the Series B Preferred Stock then in effect by a
fraction:
(1) the numerator of which shall be the total
number of shares of Common Stock issued
and outstanding immediately prior to the
time of such issuance or the close of
business on such record date, and
(2) the denominator of which shall be the
total number of shares of Common Stock
issued and outstanding immediately prior
to the time of such issuance or the close
of business on such record date plus the
number of shares of Common Stock issuable
in payment of such dividend or
distribution;
provided, however, if such record date shall have been fixed
and such dividend is not fully paid or if such distribution is
not fully made on the date fixed therefor, the Conversion
Price for the Series B Preferred Stock shall be recomputed
accordingly as of the close of business on such record date
and thereafter the Conversion Price for the Series B Preferred
Stock shall be adjusted pursuant to this paragraph as of the
time of actual payment of such dividends or distributions.
(g) Adjustments for Other Dividends and Distributions. In
the event the Corporation at any time or from time to time
after the Original Issue Date for the Series B Preferred Stock
shall make or issue, or fix a record date for the
determination of holders of Common Stock entitled to receive,
a dividend or other distribution payable in securities of the
Corporation other than shares of Common Stock, then and in
each such event provision shall be made so that the holders of
the Series B Preferred Stock shall receive upon conversion
thereof in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the
Corporation that they would have received had the Series B
Preferred Stock been converted into Common Stock on the date
of such event and had they thereafter, during the period from
the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid
during such period, giving application to all adjustments
called for during such period under this paragraph with
respect to the rights of the holders of the Series B Preferred
Stock; and provided further, however, that no such adjustment
shall be made if the holders of Series B Preferred Stock
simultaneously receive a dividend or other distribution of
such securities in an amount equal to the amount of such
securities as they would have received if all outstanding
shares of Series B Preferred Stock had been converted into
Common Stock on the date of such event.
(h) Adjustment for Reclassification, Exchange or
Substitution. If the Common Stock issuable upon the
conversion of the Series B Preferred Stock shall be changed
into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization,
reclassification, or otherwise (other than a subdivision or
combination of shares or stock dividend provided for above, or
a reorganization, merger, consolidation, or sale of assets
provided for below), then and in each such event the holder of
each such share of Series B Preferred Stock shall have the
right thereafter to convert such share into the kind and
amount of shares of stock and other securities and property
receivable upon such reorganization, reclassification, or
other change, by holders of the number of shares of Common
Stock into which such shares of Series B Preferred Stock might
have been converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustment
as provided herein.
(i) Adjustment for Merger or Reorganization, etc. In case of
any consolidation or merger of the Corporation with or into
another corporation or the sale of all or substantially all of
the assets of the Corporation to another corporation (other
than a consolidation, merger or sale which is treated as a
liquidation in accordance with Subsection 3(c)), each share of
Series B Preferred Stock shall thereafter be convertible (or
shall be converted into a security which shall be convertible)
into the kind and amount of shares of stock or other
securities or property to which a holder of the number of
shares of Common Stock of the Corporation deliverable upon
conversion of such Series B Preferred Stock would have been
entitled upon such consolidation, merger or sale; and, in such
case, appropriate adjustment (as determined in good faith by
the Board of Directors) shall be made in the application of
the provisions in this Section 5 set forth with respect to the
rights and interest thereafter of the holders of the Series B
Preferred Stock, to the end that the provisions set forth in
this Section 5 (including provisions with respect to changes
in and other adjustments of the Conversion Price) shall
thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter
deliverable upon the conversion of the Series B Preferred Stock.
(j) No Impairment. The Corporation will not, by amendment of
its Articles of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 5 and in
the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the
holders of the Series B Preferred Stock against impairment.
(k) Certificate as to Adjustments. Upon the occurrence of
each adjustment or readjustment of the Conversion Price
pursuant to this Section 5, the Corporation at its expense
shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to each holder of
Series B Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any
holder of Series B Preferred Stock, furnish or cause to be
furnished to such holder a similar certificate setting forth
(i) such adjustments and readjustments, (ii) the Conversion
Price then in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property which then
would be received upon the conversion of Series B Preferred Stock.
(l) Notice of Record Date. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or
other securities of the Corporation;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its
outstanding shares of Common Stock or a stock dividend or
stock distribution thereon), or of any consolidation or merger
of the Corporation into or with another corporation, or of the
sale of all or substantially all of the assets of the
Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation
or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal
office or at the office of the transfer agent of the Series B
Preferred Stock, and shall cause to be mailed to the holders
of the Series B Preferred Stock at their last addresses as
shown on the records of the Corporation or such transfer
agent, at least ten days prior to the date specified in (A)
below or twenty days before the date specified in (B) below, a
notice stating
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to be
taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution,
subdivision or combination are to be determined, or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is
expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution or
winding up.
Section 6. Mandatory Conversion.
(a) Upon the closing price per share of the Common Stock as
reported on the Nasdaq National Stock Market being in excess
of $44 (subject to appropriate adjustment in the event of any
stock dividend, stock split, combination or similar
recapitalization) for a period of thirty consecutive trading
days (the "Mandatory Conversion Date") provided that all
accrued dividends on all shares of Series A Preferred Stock
through the Mandatory Conversion Date have been paid in full
in cash, or, at the option of the holder, shares of Common
Stock as determined in accordance with Section 2(a), all
outstanding shares of Series B Preferred Stock shall
automatically be converted into shares of Common Stock at the
then effective conversion rate in the manner provided in
Subsection 5(a).
(b) All holders of record of shares of Series B Preferred
Stock shall be given written notice of the Mandatory
Conversion Date and the place designated for mandatory
conversion of all such shares of Series B Preferred Stock
pursuant to this Section 6. Such notice shall be sent by
first class or registered mail, postage prepaid, to each
record holder of Series B Preferred Stock at such holder's
address last shown on the records of the transfer agent for
the Series B Preferred Stock (or the records of the
Corporation, if it serves as its own transfer agent). Upon
receipt of such notice, each holder of shares of Series B
Preferred Stock shall surrender his or its certificate or
certificates for all such shares to the Corporation at the
place designated in such notice, and shall thereafter receive
certificates for the number of shares of Common Stock plus any
cash payments (or additional shares of Common Stock in lieu of
the cash dividend) to which such holder is entitled pursuant
to this Section 6. On the Mandatory Conversion Date, all
rights with respect to the Series B Preferred Stock so
converted, including the rights, if any, to receive notices
and vote (other than as a holder of Common Stock) will
terminate, except only the rights of the holders thereof, upon
surrender of their certificate or certificates therefor, to
receive certificates for the number of shares of Common Stock
into which such Series B Preferred Stock has been converted.
If so required by the Corporation, certificates surrendered
for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to
the Corporation, duly executed by the registered holder or by
his or its attorney duly authorized in writing. As soon as
practicable after the Mandatory Conversion Date and the
surrender of the certificate or certificates for Series B
Preferred Stock, the Corporation shall cause to be issued and
delivered to such holder, or on his or its written order, a
certificate or certificates for the number of full shares of
Common Stock issuable on such conversion in accordance with
the provisions hereof and cash as provided in Section 6.
(c) All certificates evidencing shares of Series B Preferred
Stock which are required to be surrendered for conversion in
accordance with the provisions hereof shall, from and after
the Mandatory Conversion Date, be deemed to have been retired
and cancelled and the shares of Series B Preferred Stock
represented thereby converted into Common Stock for all
purposes, notwithstanding the failure of the holder or holders
thereof to surrender such certificates on or prior to such
date. Such converted Series B Preferred Stock shall not be
reissued, and the Corporation may thereafter take such
appropriate action (without the need for stockholder action)
as may be necessary to reduce the authorized number of shares
of Series B Preferred Stock accordingly.
Section 7. Mandatory Redemption.
(a) On February 4, 2005 (the "Redemption Date"), the
Corporation shall redeem all of the then outstanding shares of
Series B Preferred Stock by paying $22 per share in cash plus
all accrued dividends thereon through the Redemption Date in
cash (or, at the option of the holder, shares of Common Stock
as determined in accordance with Section 2(a)) for each share
of Series B Preferred Stock (hereinafter referred to as the
"Redemption Price"), provided that the holder has provided
notice of its intention to have its shares redeemed on or
prior to February 4, 2004 and not subsequently revoked such
notice on or prior to the fifth business day preceding the
Redemption Date.
(b) At least 30 days prior to the Redemption Date, written
notice shall be mailed, by first class or registered mail,
postage prepaid, to each holder of record of Series B
Preferred Stock to be redeemed, at his or its address last
shown on the records of the transfer agent of the Series B
Preferred Stock (or the records of the Corporation, if it
serves as its own transfer agent), notifying such holder of
such redemption, specifying the Redemption Date) and calling
upon such holder to surrender to the Corporation, in the
manner and at the place designated, his or its certificate or
certificates representing the shares to be redeemed (such
notice is hereinafter referred to as the "Redemption Notice").
On or prior to the Redemption Date, each holder of Series B
Preferred Stock to be redeemed shall surrender his or its
certificate or certificates representing such shares to the
Corporation, in the manner and at the place designated in the
Redemption Notice, and thereupon the Redemption Price of such
shares shall be payable to the order of the person whose name
appears on such certificate or certificates as the owner
thereof and each surrendered certificate shall be issued
representing the unredeemed shares. From and after the
Redemption Date, unless there shall have been a default in
payment of the Redemption Price, all rights of the
stockholders of the Series A Preferred Stock designated for
redemption in the Redemption Notice as holders of Series A
Preferred Stock of the corporation (except the right to
receive the Redemption Price without interest (upon surrender
of their certificate or certificates) shall cease with respect
to such shares, and such shares shall not thereafter be
transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever.
(c) On or prior to the Redemption Date, the Corporation shall
deposit the Redemption Price of all shares of Series B
Preferred Stock designated for redemption in the Redemption
Notice and not yet redeemed with a bank or trust company
having aggregate capital and surplus in excess of $100,000,000
as a trust fund for the benefit of the respective holders of
the shares designated for redemption and not yet redeemed,
with irrevocable instructions and authority to the bank or
trust company to pay the Redemption Price for such shares to
their respective holders on or after the Redemption Date upon
receipt of notification from the Corporation that such holder
has surrendered his or its share certificate to the
Corporation. The balance of any monies deposited by the
Corporation pursuant to this Subsection 7(c) remaining
unclaimed at the expiration of one year following the
Redemption Date shall thereafter be returned to the
Corporation upon its request expressed in a resolution of its
Board of Directors.
(d) The shares of Series B Preferred Stock so redeemed shall
permanently be retired, shall no longer be deemed outstanding
and shall not under any circumstances be reissued. Nothing
herein contained shall prevent or restrict the purchase by the
Corporation, from time to time either at public or private
sale, of the whole or any part of the Series B Preferred Stock
at such price or prices as the Corporation may determine,
subject to the provisions of applicable laws.
IN WITNESS WHEREOF, these Articles of Amendment are
hereby executed, effective as of the 4th day of February,
2000.
TRIPOS, INC.
By: John P. McAlister
Title: President & CEO
Exhibit 4.1
INVESTOR'S RIGHTS AGREEMENT
THIS INVESTOR'S RIGHTS AGREEMENT is made as of
February 4, 2000, by and between Tripos, Inc., a Utah
corporation (the "Company"), and LION Bioscience AG, a German
corporation (the "Investor")".
RECITALS
WHEREAS, the Investor and the Company are party to
the Stock Purchase Agreement dated February 4, 2000 (the
"Purchase Agreement");
NOW, THEREFORE, in consideration of the promises,
covenants, and conditions set forth herein, the parties hereto
hereby agree as follows:
1. DEFINITIONS. For purposes of this Agreement:
The term "Act" means the Securities Act of 1933, as amended.
The term "Change of Control" means the consummation of
any single transaction or series of related transactions the
result of which is that the holders of voting securities of
the Company immediately before such transaction or
transactions cease to own or have the right to acquire voting
securities that have 60% of the voting power of all voting
securities of the Company or the surviving entity after the
consummation of such transaction or transactions.
The term "Closing" means the closing of the sale and
issuance of the Series B Preferred Stock pursuant to the terms
and conditions of the Purchase Agreement.
The term "Common Stock" means the common stock, par
value $0.01 per share, of the Company.
The term "Expiration Date" means the later of five (5)
years from the Closing or such time as the Investor together
with any affiliate of the Investor owns or has the right to
acquire less than five percent (5%) of the issued and
outstanding shares of Common Stock.
The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the
Act subsequently adopted by the SEC that permits inclusion or
incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee
thereof in accordance with Section 2.10 hereof.
The term "1934 Act" shall mean the Securities Exchange
Act of 1934, as amended.
The term "register," "registered," and "registration"
refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with
the Act, and the declaration or ordering of effectiveness of
such registration statement or document.
The term "Registrable Securities" means (i) the Common
Stock issuable or issued upon conversion of the Series B
Preferred Stock, (ii) any Common Stock issued in payment of
dividends on the Series B Preferred Stock and (iii) any Common
Stock issued as (or issuable upon the conversion or exercise
of any warrant, right or other security that is issued as) a
dividend or other distribution with respect to, or in exchange
for, or in replacement of the shares referenced in (i) and
(ii) above.
The term "Series B Preferred Stock" shall mean the
Series B Convertible Preferred Stock issued in accordance with
the Purchase Agreement.
The term "SEC" shall mean the Securities and Exchange Commission.
2. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
2.1 SHELF REGISTRATION.
(a) Within ninety (90) days after the Closing, the Company
shall prepare and file with the SEC a shelf registration
statement on Form S-3 pursuant to Rule 415 under the
Securities Act, covering the resale of the Registrable
Securities. The Company shall use its best efforts to cause
such registration statement to be declared effective pursuant
to Rule 415 by the SEC within one hundred eighty (180) days
after the Closing, and promptly notify the Holders (x) when
such registration statement becomes effective, (y) when any
amendment to such registration statement becomes effective and
(z) of any request by the SEC for any amendment or supplement
to such registration statement or any prospectus relating
thereto or for additional information. A draft of such
registration statement shall be provided to each Holder for
its review and comment at least five (5) days prior to filing
with the SEC.
(b) If the Company registers the Registrable Securities on
Form S-3 and subsequently becomes ineligible to use such form,
then the Company will use its best efforts to promptly
register the Registrable Securities on a registration
statement on Form S-1 or other available form and will file
any amendments or supplements to such registration statement
as may be necessary to allow the Holders to meet the
prospectus delivery requirements of the Securities Act in
connection with its sales of Registrable Securities under such
registration statement.
(c) The Company will use its best efforts to cause the
registration statement filed pursuant to this Section 2.1 to
remain effective until the Registrable Securities may be sold
pursuant to Rule 144(k) under the Securities Act.
2.2 COMPANY REGISTRATION.
(a) Until the Expiration Date, if (but without any obligation
to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for
stockholders other than the Holders) any of its common stock
(or securities convertible into, exchangeable into, or
exercisable for common stock) under the Act in connection with
the public offering of such securities solely for cash (other
than a registration relating solely to the sale of securities
to or by participants in a Company stock plan, a registration
statement of Form S-4 or any similar form for transaction
issued in a merger or pursuant to a vote of security holders,
a registration on any form that does not include substantially
the same information as would be required to be included in a
registration statement covering the sale of the Registrable
Securities or a registration in which the only Common Stock
being registered is Common Stock issuable upon conversion of
debt securities that are also being registered), the Company
shall, at such time, promptly give each Holder written notice
of such registration. Upon the written request of each Holder
given within twenty (20) days after mailing of such notice by
the Company in accordance with Section 4.5, the Company shall,
subject to the provisions of Section 2.7, cause to be
registered under the Act all of the Registrable Securities
that each such Holder has requested to be registered.
(b) The Company will use its best efforts to cause such
registration statement to become effective, and, upon the
request of the Holders of a majority of the Registrable
Securities registered thereunder, keep such registration
statement effective for a period of up to one hundred twenty
(120) days or until the distribution contemplated in the
Registration Statement has been completed.
2.3 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 2 to effect the registration of any Registrable
Securities, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus
used in connection with such registration statement as may be
necessary to comply with the provisions of the Act with
respect to the disposition of all securities covered by such
registration statement.
(b) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity
with the requirements of the Act, and such other documents as
they may reasonably request in order to facilitate the
disposition of Registrable Securities owned by them.
(c) Use its best efforts to register and qualify the
securities covered by such registration statement under such
other securities or blue sky laws of such jurisdictions as
shall be reasonably requested by the Holders; provided that
the Company shall not be required in connection therewith or
as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or
jurisdictions.
(d) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing
underwriter of such offering. Each Holder participating in
such underwriting shall also enter into and perform its
obligations under such an agreement.
(e) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Act of
the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the
light of the circumstances then existing.
(f) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which
similar securities issued by the Company are then listed.
2.4 FURNISH INFORMATION. It shall be a condition precedent
to the obligations of the Company to take any action pursuant
to this Section 2 with respect to the Registrable Securities
of any selling Holder that such Holder shall furnish to the
Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition
of such securities as shall be required to effect the
registration of such Holder's Registrable Securities.
2.5 EXPENSES OF SHELF REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection
with registrations, filings or qualifications pursuant to
Section 2.1, including (without limitation) all registration,
filing and qualification fees, printers' and accounting fees,
fees and disbursements of counsel for the Company and the
reasonable fees and disbursements of one counsel for the
selling Holders shall be borne by the Company.
2.6 EXPENSES OF COMPANY REGISTRATION. The Company shall bear
and pay all expenses incurred in connection with any
registration, filing or qualification of Registrable
Securities with respect to the registrations pursuant to
Section 2.2 for each Holder, including (without limitation)
all registration, filing, and qualification fees, printer's
and accounting fees relating or apportionable thereto and the
fees and disbursements of one counsel for the selling Holders
selected by them, but excluding underwriting discounts and
commissions relating to Registrable Securities.
2.7 SUSPENSION OF REGISTRATION. Notwithstanding anything in
this Agreement to the contrary, if after any registration
statement to which the rights hereunder apply becomes
effective (and prior to completion of any sales thereunder),
the Board of Directors determines in good faith that the
failure of the Company to (i) suspend sales of stock under the
registration statement or (ii) amend or supplement the
registration statement, would have a material adverse effect
on the Company, the Company shall so notify each Holder
participating in such registration and each Holder shall
suspend any further sales under such registration statement
until the Company advises the Holder that the registration
statement has been amended or that conditions no longer exist
which would require such suspension, provided that the Company
may impose any such suspension for no more than thirty (30)
days and no more than two (2) times during any twelve month
period.
2.8 UNDERWRITING REQUIREMENTS In connection with any offering
involving an underwriting of shares of the Company's capital
stock, the Company shall not be required under Section 2.2 to
include any of the Holders' securities in such underwriting
unless they accept the terms of the underwriting as agreed
upon between the Company and the underwriters selected by it
(or by other persons entitled to select the underwriters), and
then only in such quantity as the underwriters determine in
their sole discretion will not jeopardize the success of the
offering by the Company. If the total amount of securities,
including Registrable Securities, requested by stockholders to
be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine
in their sole discretion is compatible with the success of the
offering, then the Company shall be required to include in the
offering only that number of such securities, including
Registrable Securities, that the underwriters determine in
their sole discretion will not jeopardize the success of the
offering (the securities so included to be apportioned pro
rata among the selling stockholders according to the total
amount of securities entitled to be included therein owned by
each selling stockholder or in such other proportions as shall
mutually be agreed to by such selling stockholders).
2.9 INDEMNIFICATION. In the event any Registrable Securities
are included in a registration statement under this Section 2:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, any underwriter (as
defined in the Act) for such Holder, and each person, if any,
who controls such Holder or underwriter within the meaning of
the Act or the 1934 Act, against any losses, claims, damages,
or liabilities (joint or several) to which they may become
subject under the Act, the 1934 Act or other federal or state
law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon
any of the following statements, omissions or violations
(collectively, a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus
or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of the
Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act, the 1934 Act or any
state securities law; and the Company will pay to each such
Holder, underwriter or controlling person, as incurred, any
legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that
the indemnity agreement contained in this subsection 2.8(a)
shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is
effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out of or is
based upon a Violation that occurs in reliance upon and in
conformity with written information furnished expressly for
use in connection with such registration by any such Holder,
underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed the
registration statement, each person, if any, who controls the
Company within the meaning of the Act, any underwriter, any
other Holder selling securities in such registration statement
and any controlling person of any such underwriter or other
Holder, against any losses, claims, damages or liabilities
(joint or several) to which any of the foregoing persons may
become subject under the Act, the 1934 Act or other federal or
state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or
are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by
such Holder expressly for use in connection with such
registration; and each such Holder will pay, as incurred, any
legal or other expenses reasonably incurred by any person
intended to be indemnified pursuant to this subsection 2.8(b)
in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that
the indemnity agreement contained in this subsection 2.8(b)
shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is
effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided that, in no event
shall any indemnity under this subsection 2.8(b) exceed the
gross proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 2.8 of notice of the commencement of any action
(including any governmental action), such indemnified party
will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 2.8, deliver to the
indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly
noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an
indemnified party (together with all other indemnified parties
that may be represented without conflict by one counsel) shall
have the right to retain one separate counsel, with the fees
and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due
to actual or potential differing interests between such
indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of
the commencement of any such action, if prejudicial to its
ability to defend such action, shall relieve such indemnifying
party of any liability to the indemnified party under this
Section 2.8, but the omission so to deliver written notice to
the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under
this Section 2.8.
(d) If the indemnification provided for in this Section 2.8
is held by a court of competent jurisdiction to be unavailable
to an indemnified party with respect to any loss, liability,
claim, damage or expense referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or
payable by such indemnified party as a result of such loss,
liability, claim, damage or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the
other in connection with the statements or omissions that
resulted in such loss, liability, claim, damage or expense as
well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement
of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or
by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in
the underwriting agreement entered into in connection with the
underwritten public offering are in conflict with the
foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 2.8 shall survive the completion of any offering of
Registrable Securities in a registration statement under this
Section 2, and otherwise.
2.10 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a
view to making available to the Holders the benefits of Rule
144 promulgated under the Act and any other rule or regulation
of the SEC that may at any time permit a Holder to sell
securities of the Company to the public without registration
or pursuant to a registration on Form S-3, the Company agrees
to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, at all times
after the effective date of the first registration statement
filed by the Company for the offering of its securities to the
general public;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the
1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written
statement by the Company that it has complied with the
reporting requirements of SEC Rule 144 (at any time after
ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the
1934 Act (at any time after it has become subject to such
reporting requirements), or that it qualifies as a registrant
whose securities may be resold pursuant to Form S-3, (ii) a
copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of
the SEC that permits the selling of any such securities
without registration or pursuant to such form.
2.11 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause
the Company to register Registrable Securities pursuant to
this Section 2 may be assigned (but only with all related
obligations) by a Holder to a transferee or assignee of such
securities provided: (a) the Company is, within a reasonable
time after such transfer, furnished with written notice of the
name and address of such transferee or assignee and the
securities with respect to which such registration rights are
being assigned, and (b) such assignment shall be effective
only if immediately following such transfer the further
disposition of such securities by the transferee or assignee
is restricted under the Act.
3. COVENANTS OF THE COMPANY.
3.1 DELIVERY OF FINANCIAL STATEMENTS. Until the Expiration
Date, the Company shall deliver to the Investor:
(a) as soon as practicable, but in any event within ninety
(90) days after the end of each fiscal year of the Company, an
income statement for such fiscal year, a balance sheet of the
Company and statement of stockholder's equity as of the end of
such year, and a statement of cash flows for such year, such
year-end financial reports to be in reasonable detail,
prepared in accordance with generally accepted accounting
principles ("GAAP"), and audited and certified by independent
public accountants of nationally recognized standing selected
by the Company;
(b) as soon as practicable, but in any event within forty-
five (45) days after the end of each of the first three (3)
quarters of each fiscal year of the Company, an unaudited
income statement, statement of cash flows for such fiscal
quarter and an unaudited balance sheet and a statement of
stockholder's equity as of the end of such fiscal quarter;
(c) within thirty (30) days of the end of each month, an
unaudited income statement and statement of cash flows and
balance sheet for and as of the end of such month, in
reasonable detail;
(d) as soon as practicable and available to the Board of
Directors of the Company, but in any event within ninety (90)
days of the end of each fiscal year, a budget for the next
fiscal year; and
(e) with respect to the financial statements called for in
subsections (b) and (c) of this Section 3.1, an instrument
executed by the Chief Financial Officer or President of the
Company certifying that such financials were prepared in
accordance with GAAP consistently applied with prior practice
for earlier periods (with the exception of footnotes that may
be required by GAAP) and fairly present the financial
condition of the Company and its results of operation for the
period specified, subject to year-end audit adjustment and
customary year-end accruals.
3.2 INSPECTION. Until the Expiration Date, the Company shall
permit the Investor, at the Investor's expense, to visit and
inspect the Company's properties, to examine its books of
account and records and to discuss the Company's affairs,
finances and accounts with its officers, all at such
reasonable times as may be requested by the Investor;
provided, however, that the Company shall not be obligated
pursuant to this Section 3.2 to provide access to any
information that it reasonably considers to be a trade secret
or similar confidential information.
3.3 PREEMPTIVE RIGHT. Until the Expiration Date and subject
to the terms and conditions specified in this paragraph 3.3.,
the Company grants to the Investor a preemptive right to
purchase a portion of any offering of Common Stock, or any
other security convertible into or exchangeable for Common
Stock, such that the Investor's percentage ownership interest
in the Company (assuming full conversion of all convertible
securities and full exercise of all options and warrants)
would remain unchanged. Prior to the closing of any offering
giving rise to rights under this paragraph 3.3., the Company
shall give the Investor ten (10) business days' notice of any
proposed financing, stating the transaction price, the closing
date and all other material terms of the proposed transaction.
Investor shall have the right to participate at closing, as
described above, to the extent necessary to maintain its
ownership interest. Investor shall providing at least two (2)
business days' notice prior to the closing date of its intent
to participate at closing and shall deliver the purchase price
to the Company or its designee at least one (1) business day
prior to such closing. Failure to strictly comply with the
provisions of this paragraph shall render Investor's rights
with respect to a particular transaction null and void. In no
event shall these preemptive rights apply to transactions
where the consideration consists in whole or in part of
anything other than cash, nor shall these rights apply to the
exercise of stock options or stock warrants authorized by the
Board.
3.4 BOARD REPRESENTATION. Until the Expiration Date, the
Investor will be entitled to designate one (1) member of the
Company's Board of Directors, which right shall apply only to
the extent that there is not then in effect a similar
provision in the Company's Articles of Incorporation creating
the Series B Preferred Stock.
3.5 SALE OF ASSETS. Until the Expiration Date, unless and
until the Investor has given its approval, the Company shall
not:
(a) sell, transfer or otherwise dispose of all or
substantially all of the assets of the Company in any single
transaction or series of related transaction; provided,
however, that no such approval of the Holders if the Board of
Directors of the Company determines in good faith that the
consideration to be received by the Company is equivalent to
at least US $ 60 per share(as adjusted for subsequent stock
splits, recombinations or reclassifications); or
(b) enter into any single transaction or series of related
transactions which would result in a Change of Control of the
Company; provided, however, that no such approval of the
Holders shall be required if the transaction results in the
sale of the Company's Common Stock for an amount per share
exceeding US $ 60 (as adjusted for subsequent stock splits,
recombinations or reclassifications).
3.6 SUPERMAJORITY VOTING REQUIREMENTS. Until the Expiration
Date, the Board of Directors shall consist of at least seven
(7) and no more than nine (9) members and the affirmative vote
of at least two-thirds of the members of the Board of
Directors shall be required for the Company to take or commit
to take any of the actions described below (whether in a
single transaction or series of related transactions):
(a) to issue any equity security of the Company senior to the
Series B Preferred Stock;
(b) to purchase, redeem or otherwise acquire or retire for
value (including, without limitation, in connection with any
merger or consolidation involving the Company) any equity
security of the Company that is junior to the Series B
Preferred Stock;
(c) to declare or pay any dividend or make any other payment
or distribution on account of the Company's equity interests
that are junior to the Series B Preferred Stock (including,
without limitation, in connection with any merger or
consolidation involving the Company) (other than dividends
payable in stock of the same or of a junior class); or
(d) to issue any shares of preferred stock that are not
junior to the Series B Preferred Stock in dividend and
liquidation rights.
4. MISCELLANEOUS.
4.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the respective
successors and assigns of the parties (including transferees
of any shares of Registrable Securities). Nothing in this
Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
4.2 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Delaware as applied
to agreements among Delaware residents entered into and to be
performed entirely within Delaware.
4.3 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument.
4.4 TITLES AND SUBTITLES. The titles and subtitles used in
this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
4.5 NOTICES. Unless otherwise provided, any notice required
or permitted under this Agreement shall be given in writing
and shall be deemed effectively given (i) upon personal
delivery to the party to be notified, (ii) upon delivery by
nationally recognized overnight courier service addressed to
the party to be notified at the address indicated for such
party on the signature page hereof or (iii) upon delivery by
facsimile transmission to the party to be notified at the
facsimile number indicated for such party on the signature
page hereof, or at such other address or facsimile number as
such party may designate by ten (10) days' advance written
notice to the other parties.
4.6 EXPENSES. If any action at law or in equity is necessary
to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorneys'
fees, costs and necessary disbursements in addition to any
other relief to which such party may be entitled.
4.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may
be waived (either generally or in a particular instance and
either retroactively or prospectively), only with the written
consent of the Company and the holders of a majority of the
Registrable Securities then outstanding; provided, however,
that in the event such amendment or waiver adversely affects
the rights and/or obligations of the holders of Series B
Preferred Stock under this Agreement in a different manner
than the other Holders, such amendment or waiver shall also
require the written consent of the holders of a majority of
the shares of Series B Preferred Stock (or shares of Common
Stock issued upon conversion thereof) then outstanding
(calculated on an as-converted basis). Any amendment or waiver
effected in accordance with this paragraph shall be binding
upon each holder of any Registrable Securities then
outstanding, each future holder of all such Registrable
Securities, and the Company.
4.8 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such
provision shall be excluded from this Agreement and the
balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in
accordance with its terms.
4.9 ENTIRE AGREEMENT. This Agreement (including the Exhibits
hereto, if any) constitutes the full and entire understanding
and agreement between the parties with regard to the subjects
hereof and thereof.
* * * * *
(Signature pages follow)
INVESTOR'S RIGHTS AGREEMENT
Counterpart Signature Page
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
TRIPOS, INC.
1699 South Hanley Road
St. Louis, Missouri 63144
By: /s/ John P. McAlister
Name: John P. McAlister
Title: President & CEO
INVESTOR'S RIGHTS AGREEMENT
Counterpart Signature Page
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
LION BIOSCIENCE AG
Im Neuenheimer Feld 515-517
69120 Heidelberg
Germany
By: /s/ Friedrich von Bohlen und Halbach
Name: Friedrich von Bohlen und Halbach
Title: CEO
Exhibit 10.16
** Indicates confidential material has been omitted pursuant
to Rule 406 under the Securities Act of 1933. as amended.
AGREEMENT ON
COLLABORATION TERMS
between
LION Bioscience AG,
Im Neuenheimer Feld 515-517,
D-69120 Heidelberg, Germany
represented by its managing board
-called "LION" hereinafter-
and
Tripos Inc.
St. Louis, MO 63144, USA
represented by its CEO John McAlister and its VP Mary Woodward
-called "Tripos" hereinafter-
-collectively called "Parties" hereinafter-
Table of Contents
Preamble
1 Definitions
2 Scope of the Agreement
3 Confidentiality
4 Fee Allocation
5 Acquisition Fee
6 Managing Party`s Responsibilities
7 Intellectual Property
8 Warranty
9 Liability
10 Term and Termination
11 Governing Law and Place of Jurisdiction and Arbitration
12 Tripos Affiliates
13 Miscellaneous
Preamble
WHEREAS the Parties have engaged in various business
discussions and activities since the year 1997 and
WHEREAS the Parties have since then entered contractual
relationships including but not limited to general
collaboration principles in the "Genomics/Chemistry
Informatics Collaboration Agreement" of July 14th 1998 and
"LION/Tripos further specification of [intentionaly omitted]
and future collaboration terms" of August 26th 1999 and
WHEREAS the Parties have jointly entered a certain consulting
project with a major European pharmaceutical organization and
WHEREAS the Parties desire to form an even closer relationship
by jointly approaching other potential customers and offering
combined services to such customers,
NOW THEREFOR and for other good and valueable considerations
the Parties have agreed to the following:
1 Definitions
The following terms listed on the left have the exclusive
meaning as defined on the right, if not otherwise stated in
this Agreement:
a) Acquisition Fee The fee set forth in 5.
b) Affiliate A corporation or other entity
which controls, is controlled
by , or is under common
control with a party. A
corporation or other entity
shall be deemed to control
another corporation or entity
if it owns, directly or
indirectly, more than fifty
percent (50%) of the voting
shares or other interest, or
has the power to elect more
than half the directors, of
such other corporation or entity.
c) Agreement This agreement including
attachments and formal
changes and additions to this
agreement and attachments.
d) Collaboration The cooperation of LION and
Tripos in the field as
specified in 2.
e) Confidential Information Such information as defined
in 3.
f) LION The LION bioscience AG, 69123
Heidelberg, Germany and Affiliates.
g) LION`s expertise This includes but is not
limited to bioinformatics and
text analysis.
h) Management Fee The fee set forth in 6.
i) Managing Party The Party to whom the
Management Fee is allocated.
j) Project Any joint customer projects
of the Parties that was the
result of an acquisition as
set forth in 5.
k) Third Party Any party being neither LION
nor Tripos.
l) Tripos The Tripos Inc., St. Louis,
MO 63144, USA and Affiliates.
m) Tripos` expertise This includes but is not
limited to cheminformatics,
modelling and data analysis
2 Scope of the Agreement
(1) This Agreement merges all prior agreements between the
Parties relating to the subject-matter thereof. This Agreement
explicitly merges and supersedes the "Genomics/Chemistry
Informatics Collaboration Agreement" of July 14th 1998 and
"LION/Tripos further specification of [intentionaly omitted]
and future collaboration terms" of August 26th 1999.
(2) On the terms and subject to the conditions contained in
this Agreement, the Parties will apply their respective
skills, know-how, resources and technologies in the
development and marketing of products, training and services
for the specific Project. Each party will conduct its related
activities under this Agreement so as to provide a primary
competitive advantage to the other party in the other party's
respective area of expertise (as defined in 1).
(3) The Parties agree to cooperate in the following field:
LION uses Tripos as primary partner for enterprise-scale
discovery data managemant and data sharing in the field of
cheminformatics. Tripos uses LION as primary partner for
enterprise-scale discovery data managemant and data sharing in
the field of bioinformatics. To best ensure full and open
collaboration as described herein while protecting each
party's Confidential Information, as well as to avoid any
conflicts of interest, the Parties agree that they will
collaborate as set forth herein on a primary basis as follows:
(a) except as either party may be otherwise allowed
hereunder for reasons due to the failure or inability of
the other to act or execute agreed-to plans hereunder,
neither party shall directly or indirectly enter into or
effect a similar relationship with a Third Party for a
Collaboration. In case a customer states in writing that
either of the Parties is not acceptable to the customer
(as determined at the customer`s free discretion), the
respective other party shall be free of the obligation
set forth in this 2 (3);
(b) the Parties shall coordinate their related marketing
and sales efforts, including provision for joint
representation at customer presentations and sharing of
mutually agreed-to marketing activities;
(c) nothing herein shall preclude a party from making its
proprietary software or other products generally
available to the public upon any commercial release of
such or from promoting or licensing its respective
individual informatics product components;
(d) to promote collaboration, each party shall execute
proper care, including technical team coordination, to
best safeguard of the other party's Confidential
Information as it may receive hereunder.
(4) It is anticipated that more than one Project may be
defined and pursued under this Agreement. Each such Project
shall have a written Project plan describing the nature and
purpose of the Project. It is intended that such plans will
be developed at the beginning of each Project and updated at
regular time periods as mutually specified to be appropriate
for the individual Project(s). Each plan is intended to
include a statement of the Project's overall vision;
targeted customer solution(s); Project definition(s); goals;
a business plan including anticipated Project ownership
issues and including intended technology transfer, revenue
and cost-sharing rules, and expected resource allocation;
timelines and issues for related technical, marketing and
sales execution; an overall Project timeline (including
deliverables and responsibilities); and any special
considerations such as customer issues and Third Party
interaction effects. Project plans will require mutual
written approval by each party's designated project chair.
Each party shall in its sole discretion designate its
project-chair for each Project related hereto.
(5) Each party acknowledges that this Agreement is not
intended to cover all product and technology areas in which
one or both Parties may have expertise, and that there shall
remain areas where the Parties may not cooperate and remain
completely separate.
(6) Each party agrees that any Project reports generated as
preliminary steps or as part of a customer collaboration to
a broader collaboration with any customer shall not be used
with any Third Party or solely by one party in subsequent
phases of the interaction with such customer in any manner
that does not take into account the other party`s
contribution and skill set in such Project reports.
(7) The Parties agree that for any individual customer they
shall within a reasonable period of time reach an agreement
on how to approach such customer, this agreement including
at least a reasonable estimate of the deal value (as defined
in 5) and the allocations of the Acquisition Fee and the
Management Fee. After such an agreement 9 (3) applies.
3 Confidentiality
(1) "Confidential Information" consists of (i) any
information designated by either party as confidential; (ii)
product source code; and (iii) any information relating to a
party's product plans, product designs, product costs, product
prices, product names, finances, marketing plans, business
opportunities, personnel, research, development or know-how.
Each party agrees not to use the Confidential Information of
the other party for any purpose not reasonably required by
this Agreement. Each party agrees that it will not disclose
the other party's Confidential Information to any Third Party
and will treat the Confidential Information with the same
degree of care, but no less than reasonable care, as it uses
to protect its own Confidential Information of like
importance. Access to Confidential Information will be
restricted to employees with a need to know and who have
executed a written confidentiality agreement protecting Third
Party information. The obligations of this 3 shall survive
any termination of this Agreement for a period of five (5)
years.
(2) The obligations of confidentiality shall not apply to
Confidential Information which a party can clearly establish
(a) was in the possession of, or was known by it without an
obligation to maintain its confidentiality prior to its
receipt from the other party and not in violation of any
confidentiality obligation; (b) is or becomes generally known
to the public without violation of this Agreement without
violation of this Agreement or any other confidentiality
obligation; (c) is obtained from a Third Party having the
right to disclose it without an obligation of confidentiality;
or (d) was independently developed without participation of
individuals who have had access to the Confidential
Information. In addition, either party may disclose
Confidential Information to the extent required to be
disclosed by a government agency or a court of law, provided
that such party gives the other party written notice of the
proposed disclosure with sufficient time to seek relief and
that such disclosure, if made, is made in a fashion to
maximize the protection of the Confidential Information from
further disclosure.
4 Fee Allocation
(1) The party acquiring a customer for a common project shall
receive an Acquisition Fee for that acquisition. The details
of such acquisition are set forth under 5.
(2) The party managing the relationship with a customer for a
Project shall receive a Management Fee for that service. The
Managing Party shall be the party acquiring the customer, if
not agreed upon by the Parties otherwise in writing. The
Management Fee shall be a lump sum of six percent (6%) of the
deal value. Deal value in this context shall have the meaning
as set forth in 5. The obligations of the Managing Party are
set out in 6.
(3) After deduction of the Acquisition Fee and the Management
Fee, the remaining deal value (as defined in 5) shall be
distributed to the Parties according to their respective total
percentage contribution to the Project as indicated by the
allocated personnel and to be proven by each party through
documentation of such allocation provided however that the
Parties shall ensure in their negotiations between the Parties
and in relation to the customer that the remaining deal value
shall remain acceptable for the respective business
requirements. It is agreed that this acceptability is
generally reflected in the Parties` standard fully loaded rate
for a full-time-equivalent.
(4) License fees for proprietary software and related support
provided solely by one party as part of a separate
collaboration shall not be subject to any fee allocation as
specified herein.
(5) Travel and out-of-pocket expenses shall be billed
separately to the customer by the respective party or as
otherwise mutually agreed in writing for a specific
collaboration.
(6) In the event that a party who is not earning the
Acquisition and/or Managing Fee for a specific collaboration
executes material tasks that should be the other's
responsibility, the executing party may charge, and be due
within ten (10) days after receipt of payment by the customer
to the other party its direct costs for its contribution plus
a reasonable profit of ** percent (**%). Such billing may be
at the time the first collaboration payment is due but shall
reasonably be allocated to parallel the customer payment
timelines.
5 Acquisition Fee
(1) The Acquisition Fee for acquiring a customer as
defined in 5 (2) shall be as follows:
(a) for deal-values of less than $US** -- **%;
(b) for deal-values of more than $US** less than $** -- **%;
(c) for deal-values of $US** -- or greater **%.
(2) Acquiring a customer cumulatively means: entering
negotiations with the customer, including taking the lead
role in definition of the business scope, development of the
budget, and execution of the Project plan for presentation
to the customer; generating a validated interest as partly
demonstrated by winning award of the bid or acceptance of
the proposal by the customer; generating and successfully
negotiating a Project agreement to which Tripos and LION are
both parties (directly or as a subcontractor to the other
party) in that said agreement and which agreement reflects
elements of the validated interest as evidenced by each
party's necessary application of personnel resources to
execute specific Project components based on the party's
respective skill set. Neither party shall commit the other
to terms not authorized by the represented party. The
Parties agree that one or both may have simultaneous
independent non-joint projects or product activity on-going
for a customer designated hereunder and that such
independent projects are not subject to this Agreement.
(3) In case one party contacts a customer and brings in the
other party at this customer and an agreement only between
the customer and the other party is agreed upon between
them, the one party shall be entitled to a commission-fee of
**% of the deal value (as defined in 5 (4) between the
other two parties (the above does not include a sub-
contractor-role as set forth in 5 (2)).
(4) Deal value means: all payments under paragraphs 5 (2)
and (3) one party receives for new products created,
services and other duties performed to the customers under a
Project or in case of 5 (3), excluding any equity
payments. For the avoidance of doubt it is agreed that a
follow-up deal shall also generate an Acquisition Fee, if
the above is met (e.g. customer X acquired by party Y awards
an evaluation project worth 100.000 (A) to the Parties and
in a second step awards the follow-up project worth
5.000.000 (B) to the Parties, then party Y is entitled to **
for (A) and ** for (B).
(5) The party acquiring the customer will be the party the
customer contacts on primary business matters relating to
the Project. The party acquiring the customer shall without
delay forward all communication with the customer to the
other party. A list of customers acquired by each of the
Parties is attached to this Agreement as Attachment A (LION)
and Attachment B (Tripos).
6 Managing Party`s Responsibilities
The Managing Partner shall be responsible for the
following activities:
(a) billing and collection of the all payments under the
Project, with subsequent forwarding to the non-managing
partner within fifteen (15) business days of receipt of
any customer payment of any respective non-managing
partner amount(s) along with a copy of the detailed total
billing to the customer;
(b) first-line contact support and resolution for all
customer issues related to the overall collaboration and
any shared interface created under the collaboration
development that are neither clearly Tripos' nor LION's
expertise, provided however that the Managing Partner
shall not be responsible for questions specifically
related to the operation of the other partner's
proprietary software and provided however that the
Managing Partner shall keep the other party informed on
a bi-weekly basis of all customer issues and questions
related to the collaboration;
(c) coordination and planning of regular meetings of the
Parties with customer representatives;
(d) regular monitoring and profiling for the Party's
shared evaluation of Project progress and satisfaction
by relevant customer employees, representatives, or
departments who may not be part of the scheduled meeting
with LION and Tripos or in the circle of the direct
interaction but who have the potential to affect the
Project's progress and success;
(e) coordination of any related Third Party activities
(e.g. suppliers) consistent with the Parties' joint aims.
All such Third Parties shall be mutually-agreed upon in
writing prior to any initial contact by either partner;
(f) coordination and first-level financial responsibility
in any intellectual property application opportunities
that may arise under a Project and which the Parties
mutually agree to pursue in writing provided however that
the non-managing partner shall reimburse the Managing
Partner for its designated share of costs related to any
such mutually agreed-to activity upon any subsequent
receipt of a proper invoice for related amounts paid by
the Managing Partner. The Managing Partner shall provide
the non-managing partner with copies of all documents,
filings, and bills associated with joint intellectual
property matters and shall not submit any document or
filing in the other's name without the other's prior
review and approval;
(g) responsibility for sole or primary liability to the
customer, to the maximum extent that applicable laws
allow except for the other party's negligence, willful
misconduct, or sole infringement of Third Party
intellectual property rights. The Managing Partner shall
NOT be liable towards the customer concerning the non-
managing partner`s software and any infringements
generated through that. For the avoidance of doubt this
does not affect the liability issues between the Parties;
(h) monitoring of issues or changes that may impact
Project payments or allocations, or increment Project
expenses through best efforts with existing financial
staff, with prompt written notification to the other
party;
(i) ensuring that proper assignment of any intellectual
property to the respective Party(ies) hereto is made by
the customer and/or the Managing Partner as appropriate.
7 Intellectual Property
(1) For any individual Project the Parties shall negotiate the
terms of and the questions relating to Intellectual Property
in a separate agreement which shall become an attachment to
this Agreement. If the Parties are unable to agree on terms
for such individual Projects the following shall apply:
(a) All know-how, data, documents, technology, and
inventions (whether or not patentable) possessed by
either party prior to this Agreement shall remain the
exclusive property of the respective owning party.
(b) The Parties agree that their intent is to create
maximum intellectual property leverage from the Projects
anticipated and the party designated as acquiring the
customer shall make best good faith attempts to ensure
such result in its negotiation with the customer. At a
minimum, the Parties agree that their intent is to
negotiate with any customer under a Project that all
rights, title and interest to any software developments
and any associated algorithms, scientific or process
methodologies, research data models except as embodying
or derived from a customer's proprietary and confidential
information shall be assigned to LION and/or Tripos.
Neither party shall enter into a customer contract under
this Agreement, thereby binding the other party, that
does not meet the minimum intention set forth herein
without the prior written consent of the other party.
(c) Inventions and inventorship shall be determined
according to the applicable laws.
(d) The Parties hereby represent that each has previously
existing consulting methodology know-how as they enter
this Agreement.
(e) For inventions, software code or the like where both
parties have contributed, each party owns such invention/
or copyrightable work in proportion to the party`s
respective total percentage contribution to the invention
as reasonably determined by the Parties.
(2) Neither party shall use any trademark, service mark or
logo of the other party without such other party`s prior
written approval.
8 Warranty
(1) Each party represents and warrants that the products and
technology which will be the subject of the Projects
contemplated hereunder do not, to the best of its knowledge,
infringe any intellectual property rights of any Third Party,
and agrees promptly to inform the other of any potential
infringement issues that may arise. Each party hereby
represents and warrants that it has the unrestricted right to
enter into and perform this Agreement. Each party shall be
solely responsible and liable for their respective proprietary
products and technologies.
(2) EXCEPT AS SPECIFIED IN THIS AGREEMENT, ALL EXPRESS OR
IMPLIED REPRESENTATIONS AND WARRANTIES, INCLUDING ANY IMPLIED
WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE
OR NON-INFRINGEMENT, ARE HEREBY EXCLUDED.
9 Liability
(1) IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY
INDIRECT, PUNITIVE, SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGE IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT
(INCLUDING LOSS OF PROFITS, USE, DATA OR OTHER ECONOMIC
ADVANTAGE), HOWEVER IT ARISES, EXCEPT FOR BREACH OF ANY OF THE
MATERIAL PROVISIONS OF THIS AGREEMENT, INCLUDING BUT NOT
LIMITED TO BREACH OF WARRANTY, OR IN TORT,OR BREACH OF
CONTRACT, OR WILLFULL MISCONDUCT OR GROSS NEGLIGENCE.
(2) Independently of the legal basis each party`s liability
shall be limited to the damages such party was able to foresee
at the time of closing of this Agreement AND in no event shall
the overall liability exceed the amount of two hundret and
fifty thousand USD ($US 250.000,--).
(3) For the avoidance of doubt: after a written agreement
between the Parties on how to approach any individual customer
(as set forth in 2 (7)), a party breaching such an agreement
or otherwise culpable for a loss of the other party shall be
fully liable in respect to that individual Project to the
other party if not agreed upon differently between the Parties
in writing.
(4) A party is not liable for non-performance of this
Agreement to the extent that the non-performance is caused by
events or conditions beyond that party's or its Board's
control and the party gives prompt notice and makes all
reasonable efforts to perform.
10 Term and Termination
(1) This Agreement becomes effective upon full execution by
the Parties and remains in full force and effect for an
unlimited period of time unless terminated in accordance with
the provisions hereof.
(2) The Parties may terminate this Agreement at any time by
mutual written consent or by unilateral written notice with a
period of notice of at least three (3) months prior to the end
of any calendar year. Any payment obligations for Fee
Allocation (as set forth under 4) shall remain unaffected.
(3) Either party may terminate this Agreement:
a) upon written notice to the other party if the
other party fails to perform or observe any of its
material obligations under this Agreement, and such
failure cannot be remedied or, if remediable, is not
cured within sixty (60) days after written notice thereof
from the terminating party;
b) by a non-merging or -acquired party hereto in
the event that the substantially all of the business or
assets of the other are acquired by, or merged with, a
Third Party; or
c) by a party hereto in the event that the decision-
making process of the other is materially impeded by a
mandate or mandates from its board such that effective
execution and necessary evolution of the collaboration
hereunder is made unbearable.
(4) Upon termination of this Agreement, each party shall
return all technical, marketing and other materials received
from the other party provided however that in the event of
any breach or termination for cause, the non-breaching or
non-effecting party may retain and use such materials of the
other party solely as may be necessary to continue customer
support until it has developed an alternative plan and
transition strategy.
11 Governing Law and Place of Jurisdiction and
Arbitration
(1) This Agreement shall be governed by the laws of the
Federal Republic of Germany under exclusion of its choice of
law provisions. Exclusive place of jurisdiction shall be
Heidelberg, Germany.
(2) The Parties agree that any and all disputes arising
directly or indirectly out of or relating in any way to this
Agreement which can not be satisfactorily resolved by the
Parties shall be submitted first to mediation and if not
resolved by mediation then to binding arbitration pursuant to
the Rules then in effect of the American Arbitration
Association (AAA). Arbitration shall be held by three
arbitrators. Arbitration shall be held in the English
language. The arbitrators shall decide the matters submitted
to them based upon the evidences presented and the terms of
this Agreement. The arbitrators shall issue a written decision
which shall state the reasons of the decision and which shall
include findings of fact and conclusions of law. The decision
of the arbitration shall be final, non-appealable and binding
upon the parties and their respective successors and permitted
assigns.
12 Tripos Affiliates
For any individual customer contract related to this
Agreement, Tripos may at its option elect that one of its
Affiliates shall act on its behalf in the performance thereof.
In case of any such designation, Tripos agrees that it is
responsible and liable for its designated Affiliates.
13 Miscellaneous
(1) Any provision or provisions of this Agreement which are
deemed illegal, invalid, or unenforceable in any state or
country in which this Agreement is effective, shall in such
state or country, to the extent of such illegality,
invalidity, or unenforceability, be deemed severed and shall
not affect the legality, validity or enforceability of any
other provision hereof. The invalid provision or the gap shall
be filled by an appropriate provision which to the extent
legally possible, comes closest to the parties` intent of what
the parties`would have layed down, had they been aware of the
invalidity or gap in order to meet the spirit and purpose of
this Agreement.
(2) The Parties are independent contractors under this
Agreement and no partnership, franchise, agency, or employer-
employee relationship is intended except as explicitly
provided for in this Agreement. Neither party will act in a
manner which expresses or implies any such relationship, nor
bind the other party except as explicitly provided for in this
Agreement.
(3) The terms and conditions of this Agreement will be
considered Confidential Information of both parties and may
not be disclosed without the prior written consent of the
other party. The parties will cooperate on a joint press
release and related publicity themes and statements to
announce their entering into this Agreement.
(4) All notices must be in writing and delivered to the
addresses specified above or as otherwise notified in writing.
Such notices will be effective upon receipt.
(5) Except as contemplated in provisions involving Affiliates
as allowed herein, neither party may assign or otherwise
transfer any of its right or obligations under this Agreement
without the prior written consent of the other party. In the
event of a merger or acquisition of a party hereunder, the
merging or acquiring party will promptly inform the other in
as timely a manner as allowed by securities or other
applicable law.
(6) Any waiver of any provision of this Agreement, or delay
by either party in the enforcement of any right hereunder,
will neither be construed as a continuing waiver nor create an
expectation of non-enforcement of that or any other right.
(7) No modification to this Agreement will be binding, unless
in writing and signed by a duly authorized representative of
each party.
Executed by and on behalf of LION bioscience AG
Heidelberg, 4 February 2000
/s/ Friedrich von Bohlen und Halbach /s/ Klaus Sprockamp
Dr. Friedrich von Bohlen und Halbach Dipl.- Wirtsch.Ing. Klaus Sprockamp
CEO CFO
Executed by and on behalf of Tripos Inc..
St. Louis, 4 February 2000
/s/ John P. McAlister /s/ Mary P. Woodward
John P. McAlister Mary P. Woodward
Attachment A
Customers acquired by LION according to the requirements
as set forth in 4 (as per August 26th 1999)
**
Executed by and on behalf of LION bioscience AG
Heidelberg, 4 February 2000___________________
/s/ Friedrich von Bohlen und Halbach /s/ Klaus Sprockamp
Dr. Friedrich von Bohlen und Halbach Dipl.- Wirtsch.Ing. KlausSprockamp
CEO CFO
Executed by and on behalf of Tripos Inc..
St. Louis, 4 February 2000
/s/ John P. McAlister /s/ Mary P. Woodward
John P. McAlister Mary P. Woodward
Attachment B
Customers acquired by Tripos according to the requirements as
set forth in 4 (as per February 4th 2000)
[NONE]
Executed by and on behalf of LION bioscience AG
Heidelberg, 4 February 2000
/s/ Friedrich von Bohlen und Halbach /s/ Klaus Sprockamp
Dr. Friedrich von Bohlen und Halbach Dipl.- Wirtsch.Ing. KlausSprockamp
CEO CFO
Executed by and on behalf of Tripos Inc..
St. Louis, 4 February 2000
/s/ John P. McAlister /s/ Mary P. Woodward
John P. McAlister Mary P. Woodward
Exhibit 10.17
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made
as of February 4, 2000 between Tripos, Inc., a Utah
corporation (the "Company"), and LION Bioscience AG, a German
corporation ("Investor").
SECTION I
SALE OF PREFERRED STOCK
Subject to the terms and conditions hereof, at the
Closing (as defined below), the Company will issue and sell to
the Investor, and the Investor will buy from the Company at
the Closing, 409,091 shares of Series B Convertible Preferred
Stock of the Company (the "Shares") for an aggregate purchase
price of $9,000,000.
SECTION II
CLOSING DATE; DELIVERY
2.1. Closing Date. The closing of the purchase and sale
of the Shares shall be held at the offices of McDermott, Will
& Emery, 227 West Monroe Street, Chicago, Illinois 60606 at
10:00 a.m. local time on February 4, 2000 (the "Closing") or
at such other time and place upon which the Company and the
Investor shall agree (the date of the Closing is hereinafter
referred to as the "Closing Date").
2.2. Delivery. At the Closing, the Company will deliver
to the Investor a duly executed certificate, registered in the
Investor's name, representing the Shares to be purchased by
the Investor, against payment of the purchase price therefor,
by wire transfer per the Company's instructions.
SECTION III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1. Representation and Warranties of the Company. The
Company represents and warrants to the Investor that the
statements contained in this Section 3 are correct and
complete as of the date of this Agreement and will be correct
and complete as of the Closing Date, except as set forth in
the disclosure schedule accompanying this Agreement (the
"Disclosure Statement). The Disclosure Statement will be
arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Section 3.
(a) Organization, Qualification, and Corporate Power. Each
of the Company and its Subsidiaries (as defined below) is a
corporation duly organized, validly existing, and in good
standing under the laws of the jurisdiction of its
incorporation. Each of the Company and its Subsidiaries is
duly authorized to conduct business and is in good standing
under the laws of each jurisdiction where such qualification
is required. Each of the Company and its Subsidiaries has
full power and authority to carry on the businesses in which
it is engaged and to own and use the properties owned and used
by it.
For purposes of this Agreement, "Subsidiary"
means any Persons with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of
the common stock or has the power to vote or direct
the voting of sufficient securities to elect a
majority of the directors; and "Person" means an
individual, a partnership, a corporation, an
association, a joint stock company, a limited
liability company or partnership, a trust, a joint
venture, an unincorporated organization, or a
governmental entity (or any department, agency, or
political subdivision thereof).
(b) Capitalization. As of the Closing and after giving
effect to the transactions contemplated hereby, the entire
authorized capital stock of the Company will consist of
20,000,000 shares of Common Stock, par value $.01 per share
("Common Stock"), of which 3,363,846 shares will be issued and
outstanding, and 10,000,000 shares of preferred stock, par
value $.01 per share, of which 100,000 shares will be
designated as Series A Preferred Stock and 409,091 shares will
be designated as Series B Convertible Preferred Stock, of
which no shares of Series A Preferred Stock and 409,091 shares
of Series B Convertible Preferred Stock, consisting of the
Shares, will be issued and outstanding. All of the issued and
outstanding shares of Common Stock have been duly authorized
and are validly issued, fully paid, and nonassessable. The
relative rights, preferences and other provisions relating to
the Shares are as set forth in the Company's Articles of
Incorporation, as amended. The Company has authorized and
reserved for issuance upon the terms set forth in its Rights
Plan 100,000 shares of Series A Preferred Stock. The Company
has authorized and reserved for issuance upon conversion of
the Shares 409,091 shares of Common Stock (as appropriately
adjusted for any stock split, combination, reorganization,
recapitalization, reclassification, stock distribution, stock
dividend or similar event) (the "Conversion Shares"), and the
Conversion Shares issuable upon such conversion will, upon
such issuance, be duly and validly authorized and issued,
fully paid and nonassessable and not subject to any preemptive
rights and will be issued in compliance with federal and state
securities laws. Except as set forth in the Disclosure
Statement, there are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments
that could require the Company to issue, sell, or otherwise
cause to become outstanding any of its capital stock. Except
as set forth in the Disclosure Statement, there are no
outstanding or authorized stock appreciation, phantom stock,
profit participation, or similar rights with respect to the
Company.
(c) Authorization of Transaction. The Company has full power
and authority (including full corporate power and authority)
to execute and deliver this Agreement and to perform its
obligations hereunder. The execution, delivery and
performance of this Agreement by the Company has been duly
authorized and approved by its Board of Directors and no other
corporate proceedings on the part of the Company are necessary
to authorized this Agreement and the transactions contemplated
hereby. This Agreement constitutes the valid and legally
binding obligation of the Company, enforceable in accordance
with its terms and conditions.
(d) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions
contemplated hereby, will (i) violate any constitution,
statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which any of the
Company and its Subsidiaries is subject or any provision of
the charter or bylaws of any of the Company and its
Subsidiaries or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate,
modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument or other arrangement to
which any of the Company and its Subsidiaries is a party or by
which it is bound or to which any of its assets is subject (or
result in the imposition of any Security Interest (as defined
below) upon any of its assets). None of the Company and its
Subsidiaries needs to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the parties
hereto to consummate the transactions contemplated by this
Agreement.
For purposes of this Agreement, "Security
Interest" means any encumbrance, mortgage, charge,
claim, restriction, pledge, or other security
interest, excluding purchase money security
interests arising in the ordinary course of business
and liens arising by operation of law for taxes not
yet due and payable.
(e) Subsidiaries. Section 3(e) of the Disclosure Statement
sets forth for each Subsidiary of the Company (i) its name and
jurisdiction of incorporation, (ii) the number of shares of
authorized capital stock of each class of its capital stock,
(iii) the number of issued and outstanding shares of each
class of its capital stock, the names of the holders thereof,
and the number of shares held by each such holder, and (iv)
the number of shares of its capital stock held in treasury.
All of the issued and outstanding shares of capital stock of
each Subsidiary of the Company have been duly authorized and
are validly issued, fully paid, and nonassessable. The
Company holds of record and owns beneficially all of the
outstanding shares of each Subsidiary of the Company, free and
clear of any restrictions on transfer (other than restrictions
under the Securities Act of 1933, as amended, and state
securities laws), taxes, security interests, options,
warrants, purchase rights, contracts, commitments, equities,
claims, and demands. There are no outstanding or authorized
options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights, or other contracts or
commitments that could require any of the Company and its
Subsidiaries to sell, transfer, or otherwise dispose of any
capital stock of any of its Subsidiaries or that could require
any Subsidiary of the Company to issue, sell, or otherwise
cause to become outstanding any of its own capital stock.
There are no outstanding stock appreciation, phantom stock,
profit participation, or similar rights with respect to any
Subsidiary of the Company. There are no voting trusts,
proxies, or other agreements or understandings with respect to
the voting of any capital stock of any Subsidiary of the
Company. None of the Company and its Subsidiaries controls
directly or indirectly or has any direct or indirect equity
participation in any corporation, partnership, trust, or other
business association which is not a Subsidiary of the Company.
(f) Filings with the SEC. The Company has made all filings
with the SEC that it has been required to make under the
Securities Act and the Securities Exchange Act (collectively
the "Public Reports"). Each of the Public Reports has
complied with the Securities Act and the Securities Exchange
Act in all material respects. None of the Public Reports, as
of their respective dates, contained any untrue statement of a
material fact or omitted to state a material fact necessary in
order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(g) Financial Statements. The Company has filed a Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30,
1999 (the "Most Recent Fiscal Quarter End") and an Annual
Report on Form 10-K for the fiscal year ended December 31,
1998. The financial statements included in or incorporated by
reference into these Public Reports (including the related
notes and schedules) have been prepared in accordance with
generally accepted accounting principles applied on a
consistent basis throughout the periods covered thereby,
present fairly the financial condition of the Company and its
Subsidiaries as of the indicated dates and the results of
operations of the Company and its Subsidiaries for the
indicated periods, are correct and complete in all respects,
and are consistent with the books and records of the Company
and its Subsidiaries, provided, however, that the interim
statements are subject to normal year-end adjustments.
(h) Events Subsequent to Most Recent Fiscal Quarter End.
Since the Most Recent Fiscal Quarter End, there has not been
any material adverse change in the business, financial
condition, operations, results of operations, or future
prospects of the Company, and none of the Company or its
Subsidiaries have entered into any agreement, or otherwise
operated, other than in the ordinary course of business.
(i) Undisclosed Liabilities. None of the Company and its
Subsidiaries has any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, and whether due or to become due), including
any liability for taxes, except for (i) liabilities set forth
on the face of the balance sheet dated as of the Most Recent
Fiscal Quarter End (rather than in any notes thereto) and (ii)
liabilities which have arisen after the Most Recent Fiscal
Quarter End in the ordinary course of business (none of which
results from, arises out of, relates to, is in the nature of,
or was caused by any breach of contract, breach of warranty,
tort, infringement, or violation of law).
(j) Legal Compliance. Each of the Company, its Subsidiaries
and their respective predecessors and affiliates has complied
with all applicable laws (including rules, regulations, codes,
injunctions, judgments, orders, decrees) and rulings of
federal, state, local, and foreign governments (and all
agencies thereof), and no action, suit, proceeding, hearing,
complaint, claim, demand, notice or investigation has been
filed or commenced, or to the knowledge of the Company,
threatened against the Company alleging any failure so to
comply, except in each case where such noncompliance or action
would not have a material adverse effect on the Company.
(k) Tax Matters. Except as set forth in the Disclosure
Statement, each of the Company and its Subsidiaries has filed
all tax returns it was required to file. All such tax returns
were correct and complete in all respects. All taxes owed by
any of the Company and its Subsidiaries (whether or not shown
on any tax return) have been paid. None of the Company and
its Subsidiaries currently is the beneficiary of any extension
of time within which to file any tax return. No claim is
currently pending by an authority in a jurisdiction where any
of the Company and its Subsidiaries do not file tax returns
that any of the Company or its Subsidiaries is or may be
subject to taxation by that jurisdiction. There are no
security interests on any of the assets of any of the Company
and its Subsidiaries that arose in connection with any failure
(or alleged failure) to pay any tax.
(l) Intellectual Property. Except in each case where the
failure to comply would not have a material adverse effect on
the Company:
(i) The Company and its Subsidiaries owns or has the right to
use pursuant to license, sublicense, agreement, or permission
all Intellectual Property (as defined below) necessary or
desirable for the operation of the businesses of the Company
and its Subsidiaries as presently conducted and as presently
proposed to be conducted. None of the Company and its
Subsidiaries has interfered with, infringed upon,
misappropriated or otherwise come into conflict with any
Intellectual Property rights of third parties and none of the
Company and its Subsidiaries has ever received any complaint,
claim, demand, or notice alleging any such interference,
infringement or misappropriation (including any claim that any
of the Company and its Subsidiaries must license or refrain
from using any Intellectual Property rights of any third
party).
(ii) "Intellectual Property" means (a) all trade secrets
and confidential business information (including customer and
supplier lists, ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes
and techniques, technical data, designs, drawings,
specifications, pricing and cost information, and business and
marketing plans and proposals), (b) all trademarks, service
marks, trade dress, logos, trade names, and corporate names,
together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals
in connection therewith, (c) all inventions (whether
patentable or unpatentable and whether or not reduced to
practice), all improvements thereto, and all patents, patent
applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions,
extensions, and reexaminations thereof, (d) all copyrightable
works, all copyrights, and all applications, registrations,
and renewals in connection therewith, (e) all mask works and
all applications, registrations, and renewals in connection
therewith, (f) all computer software (including data and
related documentation), (g) databases, (h) all other
proprietary rights, and (i) all copies and tangible
embodiments of (a) to (h) (in whatever form or medium).
(m) Litigation. Section 3(m) of the Disclosure Statement
sets forth each instance in which any of the Company and its
Subsidiaries (i) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) is a party
or is threatened to be made a party to any action, suit,
proceeding, hearing, or investigation of, in, or before any
court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any
arbitrator. None of the actions, suits, proceedings,
hearings, and investigations set forth in Section 3(m) of the
Disclosure Statement is likely to result in any material
adverse change in the business, financial condition,
operations, results of operations, or future prospects of any
of the Company and its Subsidiaries. None of the Company and
its Subsidiaries has any reason to believe that any such
action, suit, proceeding, hearing, or investigation may be
brought or threatened against any of the Company and its
Subsidiaries.
(n) Brokers' Fees. None of the Company and its Subsidiaries
has any liability or obligation to pay any fees or commissions
to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
SECTION IV
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor hereby represents and warrants, on the date
hereof and as of the Closing Date, to the Company with respect
to the purchase of the Shares as follows:
4.1. Experience. It has substantial experience in
evaluating and investigating private placement transactions of
securities in companies similar to the Company so that it is
capable of evaluating the merits and risks of its investment
in the Company and has the capacity to protect its own
interests.
4.2. Investment. It is acquiring the Shares for
investment for its own account, not as a nominee or agent, and
not with the view to, or for resale in connection with, any
distribution thereof. It understands that the Shares have not
been, and will not be, registered under the Securities Act by
reason of a specific exemption from the registration
provisions of the Securities Act, the availability of which
depends upon, among other things, the bona fide nature of the
investment intent and the accuracy of the Investor's
representations as expressed herein.
4.3. Rule 144. It acknowledges that the Shares must be
held indefinitely unless (a) subsequently registered under the
Securities Act, (b) an exemption from such registration is
available, or (c) sold or transferred pursuant to Rule 144
promulgated under the Securities Act ("Rule 144").
4.4. Access to Data. It has had an opportunity to
discuss the Company's business, management and financial
affairs with the Company's management and has had the
opportunity to review the Company's facilities. It has also
had an opportunity to ask questions of officers of the
Company, which questions were answered to its satisfaction.
It understands that such discussions, as well as any written
information issued by the Company, were intended to describe
certain aspects of the Company's business and prospects but
were not a thorough or exhaustive description.
4.5. Authorization. This Agreement when executed and
delivered by the Investor will constitute a valid and binding
obligation of the Investor, enforceable against the Investor
in accordance with its terms. All corporate action on the
part of the Investor, its directors and shareholders necessary
for the authorization, execution, delivery and performance of
this Agreement by the Investor, and the performance of all of
the Investor's obligations hereunder has been taken or will be
taken prior to the Closing.
4.6. Brokers or Finders. The Company will not incur,
directly or indirectly, as a result of any action taken by the
Investor, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with
this Agreement.
4.7. Accredited Investor. Purchaser is an "accredited
investor" as such term is defined in the Securities Act.
SECTION V
INVESTORS' CONDITIONS TO CLOSING
The Investor's obligation to purchase the Shares at the
Closing is subject to the fulfillment of the following
conditions, the waiver of which shall not be effective against
the Investor without a consent in writing thereto:
5.1. Representations and Warranties Correct. The
representations and warranties made by the Company in Section
3 hereof shall be true and correct when made and shall be true
and correct on the Closing Date.
5.2. Covenants. All covenants, agreements and conditions
contained in this Agreement to be performed or complied with
by the Company on or prior to the Closing Date shall have been
performed or complied with.
5.3. Compliance Certificate. The Company shall have
delivered to the Investor a certificate of the Company,
executed by the Chairman of the Company, dated the Closing
Date, and certifying, among other things, to the fulfillment
of the conditions specified in Sections 5.1 and 5.2 of this
Agreement.
5.4. Qualifications and Consents. All authorizations,
approvals or permits, if any, of any governmental authority or
regulatory body of the United States or of any state and all
consents of third parties that are required in connection with
the lawful issuance and sale of the Shares and the
transactions contemplated hereby shall have been duly obtained
and shall be effective on and as of the Closing Date, and a
copy thereof shall have been delivered to the Investor.
5.5. Legal Opinions. The Investor shall have received
opinions of counsels to the Company, dated as of the Closing
Date in forms attached hereto as Exhibit A and Exhibit B.
5.6. Election of Directors. The size of the Board of
Directors of the Company shall have been expanded to seven
(7), and one individual designated by the Investor shall have
been elected to the Board of Directors of the Company.
5.7. Articles of Amendment. Articles of Amendment to the
Articles of Incorporation of the Company containing the
Designations of Right and Restrictions of Tripos Series B
Convertible Preferred Stock in the form attached hereto as
Exhibit C shall have been filed with the Utah Department of
Commerce, Division of Corporations and Commercial Code, and
such Articles shall be effective in accordance with Utah law.
5.8. Amended and Restated Bylaws. The Bylaws of the
Company shall have been amended as contemplated by Exhibit D.
5.9. Strategic Alliance. The Investor and the Company
shall have entered into a strategic alliance providing for
cooperation in the co-marketing and co-development of life
sciences infomatic products and solutions on the terms set
forth on Exhibit E.
SECTION VI
COMPANY'S CONDITIONS TO CLOSING
The Company's obligation to sell and issue the Shares at
the Closing, at the option of the Company, are subject to the
fulfillment of the following conditions:
6.1. Representations. The representations made by the
Investor in Section 4 hereof shall be true and correct when
made, and shall be true and correct on the Closing Date.
6.2. Compliance Certificate. The Investor shall have
executed and delivered to the Company a certificate of the
Investor, dated the Closing Date, and certifying, among other
things, that the representations made by the Investor in
Section 4 hereof are true and correct when made, and shall be
true and correct on the Closing Date, and that all covenants,
agreements and conditions contained in this Agreement to be
performed by the Investor on or prior to the Closing Date
shall have been performed or complied with.
SECTION VII
MISCELLANEOUS
7.1. Governing Law. This Agreement shall be governed in
all respects by the internal laws of the State of Delaware.
7.2. Survival. The representations, warranties,
covenants and agreements made herein shall survive any
investigation made by the Investor and the closing of the
transactions contemplated hereby and shall continue in full
force and effect until the sixtieth (60th) day after the
Company has given to the Investor audited financial statements
for the year ended December 31, 2000.
7.3. Successors and Assigns. Except as otherwise
provided herein, the provisions hereof shall inure to the
benefit of, and be binding upon, the successors, assigns,
heirs, executors and administrators of the parties hereto,
provided, however, that the rights of the Investor to purchase
the Shares shall not be assignable without the consent of the
Company.
7.4. Entire Agreement; Amendment. This Agreement and the
other documents delivered pursuant hereto at the Closing
constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and
thereof, and no party shall be liable or bound to any other
party in any manner by any warranties, representations or
covenants except as specifically set forth herein or therein.
Except as expressly provided herein, neither this Agreement
nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the
party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
7.5. Notices, etc. Unless otherwise provided, any notice
required or permitted under this Agreement shall be given in
writing and shall be deemed effectively given (i) upon
personal delivery to the party to be notified, (ii) upon
delivery by nationally recognized overnight courier service
addressed to the party to be notified at the address indicated
for such party on the signature page hereof or (iii) upon
delivery by facsimile transmission to the party to be notified
at the facsimile number indicated for such party on the
signature page hereof, or at such other address or facsimile
number as such party may designate by ten (10) days' advance
written notice to the other party.
7.6. Delays or Omissions. Except as expressly provided
herein, no delay or omission to exercise any right, power or
remedy accruing to any holder of any Shares, upon any breach
or default of the Company under this Agreement, shall impair
any such right, power or remedy of such holder nor shall it be
construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Except
as provided in Section 7.4 hereof, any waiver, provisions or
conditions of this agreement, must be in writing and shall be
effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law
or otherwise afforded to any holder, shall be cumulative and
not alternative.
7.7. Expenses. Each of the Company and the Investor
shall bear their own expenses incurred on their behalf with
respect to this Agreement and the transactions contemplated
hereby. In addition, the Company shall pay for all broker and
finders fees incurred as a result of the consummation of the
transactions contemplated hereby.
7.8. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and
all of which together shall constitute one instrument.
7.9. Severability. In the event that any provision of
this Agreement becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said
provision; provided that no such severability shall be
effective if it materially changes the economic benefit of
this Agreement to any party.
7.10. Titles and Subtitles. The titles and subtitles used
in this Agreement are used for convenience only and are not
considered in construing or interpreting this Agreement.
7.11. Announcement. No announcement of the terms of this
Agreement or the transactions contemplated hereby shall be
made by any party without the written approval of the other
party (which consent shall not be unreasonably withheld).
[The remainder of this page is intentionally left blank]
STOCK PURCHASE AGREEMENT
SIGNATURES
The foregoing Agreement is hereby executed as of the date
first above written.
TRIPOS, INC.
By:
Name:
Title:
Address: 1699 South Hanley Road
St. Louis, Missouri 63144
United States
LION BIOSCIENCE AG
By:
Name:
Title:
Address: Im Neuenheimer Feld 515-517
69120 Heidelberg
Germany
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the following
registration statements of our report dated February 7, 2000,
with respect to the consolidated financial statements and
financial statement schedule of Tripos, Inc., included in the
Annual Report (Form 10-K) for the year ended December 31,
1999.
Form Registration
Number Statement Description
Number
Form S-8 33-79610 Tripos, Inc. 1994 Stock Plan, the Tripos,
Inc. 1994 Director Option Plan, and Tripos,
Inc. 1994 Employee Stock Purchase Plan
Form S-8 333-09459 Tripos, Inc. 1996 Director Stock
Compensation Plan and Tripos, Inc. 1994
Director Option Plan, amendment
Form S-8 333-33163 Tripos, Inc. 1996 Director Stock
Compensation Plan, amendment, Tripos, Inc.
1994 Stock Option Plan, amendment, and
Tripos, Inc. 1994 Director Option Plan,
amendment
Form S-8 333-61829 Tripos, Inc. 1994 Employee Stock Purchase
Plan, amendment, and Tripos, Inc. 1994 Stock
Option Plan, amendment
/s/ Ernst & Young LLP
St. Louis, Missouri
March 24, 2000