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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, 1997.
[ ] 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
(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 11, 1998, was $28,741,797
(based upon the March 11, 1998 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, 1998, 3,178,959 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 7, 1998 are incorporated by reference
into Part III.
Part I
Item 1.
Business
Tripos Inc., ("Tripos", the "Company" or the "Registrant"), is a
leader in discovery services, informatics and products for life
science organizations worldwide. Tripos' current proprietary
technologies and strategic relationships expand its reputation in
computational chemistry for efficient pharmacological activity
prediction and analysis, a major factor in customers' cost-effective
new product success. Based on scientific expertise in these areas
as well as a worldwide sales and marketing organization, Tripos
expanded its business model in 1997. The Company now offers the
following products and services: software, software consulting
services, technology transfer, screening libraries, contract
discovery research and risk-based discovery research. The Company
continues to be a reseller of third party hardware products that are
compatible with the Company's software products.
Effective June 1, 1994, Evans & Sutherland Computer Corporation
("E&S") distributed all outstanding shares of Tripos, Inc. common
stock to E&S shareholders ("the Distribution"). Every three shares
of E&S yielded one share of the Company. Prior to the Distribution,
the Company was a wholly owned subsidiary of E&S.
The Company was originally incorporated in the state of Missouri on
October 29, 1979. The Company was reincorporated under the laws of
the State of Utah effective June 1, 1994. The Company maintains its
executive offices and principal facilities at 1699 South Hanley
Road, St. Louis, Missouri 63144. The Company also has wholly owned
subsidiaries with offices in Milton Keynes, England; Antony, France;
Munich, Germany; and Bude, England. There are two leased offices
for sales activities in Shrewsbury, New Jersey and Redwood City,
California.
The remainder of this Item 1 contains certain statements that are
forward-looking and involve risks and uncertainties. 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"). The Company
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 which 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 over 10,000
chemical compounds for each new product brought to market. The
Company's products are used primarily 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. These phases can represent up to 30% of the
expense of new product research and development.
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 billions
of dollars 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. Through the use of effective integrated discovery
information and analysis software in the key initial stages of new
compound research and development, companies in these industries may
be able to evaluate scientific data faster and more cost efficiently
for the creation of new chemical lead candidates. The industries
served by the Company have special requirements for the
communication and analysis of chemical and biological data and the
Company is uniquely qualified to fulfill these requirements.
Pharmaceutical and biotech 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. The Company
believes it is positioned to provide these compounds through its
collaboration with MDS Panlabs, Inc. of Bothell, Washington, its
newly acquired laboratories at Tripos Receptor Research, and its
worldwide sales organization for distribution of compounds from
these sources and from third-party suppliers. By coupling compounds
with discovery informatics, Tripos offers its customers increased
discovery efficiencies.
Tripos Receptor Research has established partnerships with major
companies in the pharmaceutical and biotechnology industries,
supplying pure, novel chemical compounds for biological applications
in new drug discovery. These applications involve the testing or
screening of chemical compounds against a biological target to
refine lead compounds. Tripos Receptor Research has a reputation
for providing excellent medicinal chemistry with specific expertise
in solid phase chemistry. Located in Bude, England, Tripos Receptor
Research is specifically involved in custom chemical synthesis using
solid-phase and solution methods.
The Company's goal is to facilitate and accelerate certain aspects
of the chemical discovery process for our clients. This is achieved
through a combination of both products and services specifically
targeted at the development of new chemical entities for use in the
pharmaceutical, agrochemical, biotechnology and associated markets.
The Collaborative Research business unit draws upon the technology
foundation within Tripos. The Company delivers high value products
to the market including software, custom software development,
specially designed chemical libraries for general screening and for
targeted lead refinement, contract services for drug discovery and
full discovery partnerships.
Products
The Company offers its expertise for customer applications via a
complementary range of new research technologies including Discovery
Software, Software Consulting Services and Accelerated Discovery
Services.
Discovery Software (Chemical Design Software Systems)
The Company's software products and services collectively address
the needs of the customer organizations' new compound research team.
This is achieved though the provision of expert chemical design
tools that 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 next few paragraphs highlight the products and services
available through Tripos Discovery Software.
Discovery Software Products:
Tripos provides a highly integrated set of chemical design systems
consisting of the SYBYL Expert Molecular Design System, UNITY
Chemical Databases System, Alchemy 2000 Desktop Chemical Design
System, and Discovery.Net Chemical Intranet System. These systems
combine to provide a total discovery solution for the pharmaceutical
and biotechnology market. The exact needs of our client base are
met through customization of these systems. These customization
services are provided through the new Software Consulting Services
group. (See Software Consulting Services for more detail.)
The SYBYL Expert Molecular Design System:
SYBYL is a comprehensive computational tool kit for molecular
design and analysis, with a special focus on the creation of
new chemical entities. SYBYL provides essential construction
and analysis tools for both organic and inorganic molecular
structures.
SYBYL/Base gives our customers access to building tools,
molecular mechanics, quantum mechanical calculations, molecular
dynamics, docking, geometric measurements, molecular
comparisons (fits), surfaces and grid displays, journaling,
annotation, hard copy, a programming language, an object
manager, and the Molecular Spreadsheet; all are included in the
core module. Large (proteins, nucleic acids, etc.) and small
molecules are modeled in the same window.
SYBYL is a modular program. Researchers can take advantage of
as many of the specialized tools as necessary by adding
functionality through optional modules. The optional modules
are focused on conformational searching (AdvComp), biopolymer
modeling (Biopolymer), combinatorial chemistry or library
design (Legion, Selector, DiverseSolutions), quantitative
structure activity statistics (QSAR, Advanced CoMFAr), protein
homology modeling and analysis (Composer, MatchMaker,
ProTable), pharmacophore recognition (RECEPTOR, DISCO), and
others. SYBYL also connects seamlessly to UNITY, Tripos'
Chemical Database Searching system.
The UNITY Chemical Database System:
Featuring the industry-standard 3D-flexible search engine,
UNITY produces the most relevant responses to complex customer
interactive queries. UNITY enables effective chemical
structure based searching of multiple, distributed databases of
chemical information. UNITY has been engineered for rapid data
exploration and lead identification. Offering Markush-query
definition, powerful links to relational databases, and
integration with SYBYL and the Molecular Spreadsheet, UNITY
will speed the discovery process.
The new UNITY 3.0 version provides a series of flexible 3D
searching enhancements. UNITY's speed, accuracy and efficient
interface makes it a system of fully integrated analysis tools
to help analyze databases in a way that facilitates new
compound discovery.
The Alchemy 2000 Desktop Chemical Design System:
Alchemy 2000 is a chemical discovery system for the personal
computer with advanced molecular graphic displays, accurate
energy calculations, and customizable tools that allows the
user to tailor the program for their research team. Alchemy
2000 delivers high performance visualization with all types of
chemical structures including proteins, polymers, and small
molecules. Local database storage, graphing, batchmode, and
spreadsheet capabilities provide a means for expanded analysis
and investigation on all families of chemical compounds.
Alchemy 2000 includes application modules for specific research
needs including QSAR, Protein, Polymer, and LogP. This is a
complete chemical discovery system that is easy to use,
comprehensive, and powerful. It is also a key component of
Tripos' intranet chemistry solution.
The New Discovery.Net Chemical Intranet System:
The mission of our Discovery.Net system is to help streamline
the drug candidate discovery and development process by
providing useful, innovative, web-based solutions for the
efficient management and effective use of chemical information
by chemists, modelers, and biologists in a distributed intranet-
based environment. Two Discovery.Net products currently
available are ChemEnlighten and GASP. A tool kit is also
available to allow custom solutions to be assembled either by
customer staff or Tripos personnel.
ChemEnlighten:
Scientists need a tool accessible from multiple platforms that
enables them to filter very large chemical structure data sets
based on a variety of metrics. Tripos has created the
ChemEnlighten environment for the analysis of large or small
data sets. ChemEnlighten integrates visual access to large
tables, the capability to generate a range of metrics, and the
ability to perform analyses (selections) on the data in the
table.
ChemEnlighten is a powerful product for the Intranet age. The
tables, metric engines and analysis routines reside on a UNIX
platform. The ChemEnlighten Graphical User Interface (GUI) is
Web-based, using Java applets that were built with the
Discovery.Net toolkit. Customers access ChemEnlighten through
any Java enabled web browser. Computational or medicinal
chemists who need to choose representative subsets from a very
large number of compounds will be interested in ChemEnlighten.
Researchers who are using hierarchical clustering as a step
towards selection will also want to examine ChemEnlighten for
the OptiSim algorithm, which gives selection sets that have the
same properties as sets from hierarchical clustering.
GASP Chemical Structure Analysis Tool:
GASP (Genetic Algorithm Similarity Program) uses a genetic
algorithm to align sets of flexible molecules, where the
genetic algorithm selects alignments with more pharmacophore
overlaps between the molecules in the set. Drs. Gareth Jones,
Peter Willett and Robert Glen developed the GASP algorithm at
the University of Sheffield and the Wellcome Research
Laboratories. Tripos has incorporated this algorithm in a Web-
based application.
GASP 2.0 is designed to allow medicinal chemists to perform
molecular alignments and analyze the results in order to assist
in the decision process of what compounds should be synthesized
next. It is easy for the medicinal chemists to collaborate
with one or more molecular modelers who can help optimize the
setup and assist in analyzing the pharmacophore information in
the results. GASP 2.0 is very easy to use and requires no
prior knowledge regarding either the constraints or the
pharmacophore.
Software Consulting Services
(Combining innovative web technology with attention to the
customer's specific information system needs)
Tripos offers its skills and experience to help at all stages of an
IS project, whether the customers are only in the planning and
budgeting stages, or are looking for a partner to take on
maintenance of a customer system. The Company has twenty years of
experience developing scientific software applications for the
pharmaceutical and chemical industries. Tripos can work as the
Project Manager for a project, or work with the customer as a
supplier of key integration and development expertise along with
important software components.
Analysis: Tripos is skilled at interviewing end-user scientists to
determine essential business tasks, current business logic, and
workflow. The Company can perform this phase of a project
independently or work with other consultants that are engaged by the
Client, in order to ensure that the highest level of scientific
understanding is part of any ongoing project.
Specification: The Company's scientific software teams are skilled
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.
Design: Tripos software engineers are skilled in data modeling and
object-oriented design, through which they reduce the risks involved
in engineering complex chemical and biological information systems.
Research: The Company's scientific skills can be used to help the
Customer develop novel methods for drug discovery. Tripos has the
inside edge for modifying and extending existing Tripos drug
discovery software to explore new ideas that the Customer may wish
to integrate.
Technology Transfer: The Company can assist in fitting Tripos'
unique ChemSpace technology into a Client's combinatorial library
design needs. ChemSpace technology is available only through
special technology transfer arrangements.
Implementation: Tripos is skilled in all vital web-related
technologies, and has a large staff of skilled Ph.D. scientists with
real industry experience. The Company created the first
significant, and industry recognized chemistry applications to be
written in Java.
Maintenance: The Company is an industry leader in providing high-
quality and high-value customer support for scientific software
applications. Its customers have always ranked the Company highly
when it comes to providing helpful and timely assistance.
Discovery Software products and Software Consulting Services combine
to provide a solid business offering to the pharmaceutical,
agrochemical, and biotechnology markets.
Accelerated Discovery Services
Compounds:
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 compounds by pharmaceutical,
biotechnology and other life science companies. These
companies routinely acquire thousands of compounds a year to
screen in search of novel classes of active compounds. By
applying the Company's compound design technology in
conjunction with the synthesis technology of MDS Panlabs, Inc.,
the Company has brought to market Optiverse, a diverse library
of over 100,000 screening compounds. This library provides an
efficient source of compounds for screening by removing
redundant and ineffective samples from the screening effort.
A key advantage of the Optiverse library is that each compound
is representative of a cluster of similar compounds numbering
in the thousands. When Optiverse compounds demonstrate
activity in pharmaceutical company assays, the Company can
quickly and efficiently provide hundreds of similar compounds
for follow-up screening and lead optimization.
ChemSpace:
Tripos has developed unique and proprietary technology for the
storage and searching of vast numbers of combinatorial products
and related data. The unique searching methods enable the user
to identify new compounds which 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 over 17 trillion synthetically
accessible small organic chemical structures that are
searchable in real time at the rate of 500 billion per hour.
The database can be customized to include reactions and
compounds that are proprietary to its customer base. Tripos is
licensing this technology to a limited number of pharmaceutical
companies.
Contract Research:
The reforms in health care have forced pharmaceutical and
related companies to restructure their operations, including
their research programs. One of the results of this
restructuring is a significant emphasis on outsourcing and
partnering on the part of the large pharmaceutical companies
with smaller technology companies. At the same time, the rapid
development of certain technologies, including combinatorial
chemistry and high throughput screening, have forced many of
the smaller companies to look to outside groups to provide
needed technology rather than invest in it themselves. This
significant trend in outsourcing has presented the opportunity
for the Company to offer its expertise to these organizations
through compound design, molecular analysis, and a complete
suite of lead discovery and lead optimization capabilities.
Tripos leverages these capabilities by entering into research
agreements with its customers.
Collaborative Research:
The Collaborative Research group has two purposes. One is to
focus on internal discovery collaborations with Arena
Pharmaceuticals and the Cruciform Group, and on associated
opportunities such as that provided by our collaboration with
Phase-1 Molecular Toxicology. The second goal is to focus on
external discovery collaborations with customer companies.
Tripos is engaged in finding collaborative partnerships in the
pharmaceutical, biotechnology, and related industries using any
or all aspects of research that Tripos has access to or can
provide directly. Across all areas, Tripos will work with
customers using their own targets or targets that we identify
through our collaborations.
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 lead 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.
Sales, Marketing and Distribution
The Company sells its software products directly in the U.S. and
Europe, through an exclusive distributor arrangement in Japan with
Sumisho Electronics Company, Ltd., and through non-exclusive agency
relationships in Korea with New Technics Co., Ltd., in Taiwan with
Scientek Corporation, and in China and Singapore with 3-Link Systems
Pte. Ltd. On December 31, 1997, the Company's sales force consisted
of 45 management, technical, sales and administrative employees: 20
for the United States and Canada, 23 in Europe, and 2 for the
Pacific Rim. The Company's domestic sales and support center is
located at its headquarters in St. Louis, Missouri. The Company
also maintains sales offices in California, New Jersey, and suburbs
of London, Paris and Munich.
For its software product lines for workstations, the Company employs
pre-sales and post-sales support scientists resident in the United
States, England, France, and Germany. These scientists, working in
collaboration with the Company's sales employees, have developed a
consultative sales approach through which the Company has created
relationships with its key customers. The Company believes these
relationships enable the Company to understand and better serve the
information management needs of its customers. Because the
Company's customers frequently have both domestic and international
operations, the Company's sales staff and scientists in foreign
locations work closely with their counterparts in the United States
to ensure that the customer's international needs are met in a
coordinated and consistent fashion.
The Company's workstation-based software products are sold 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. The Company has also introduced one, two and
three year flexible license options that offer customers the
flexibility to change their product selections periodically and are
renewable at the end of the selected terms. The Company expects to
migrate its customer base to shorter-term license renewals based on
the flexibility to access all of its software products. This will
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 salespersons 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 can last from two weeks up
to two years. The Company provides programming and scientific
expertise on a cost plus margin basis.
Sales of the compound libraries are made through a staff assigned to
the product. Tripos has dedicated sales professionals in the
United States and Europe along with distributors in the Pacific Rim.
The Optiverse library now includes over 100,000 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.
The Company's 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 served by the Company. The Company's sales
representatives are compensated through a combination of base
salary, commissions and bonuses based on quarterly and annual sales
performance. In addition, the Company's pre-sales scientists, all
of whom have Ph.D. degrees in chemistry or a closely related field,
receive a compensation determined in part by their success in
supporting and generating sales in a particular territory.
Contract research relationships are offered through a team comprised
of salespersons, discovery scientists and members of the senior
management staff of the Company. This approach is best suited for
the long cycle of developing meaningful partnerships with key
customers for the outsourcing of discovery research.
The Company exhibits its software at various scientific conferences
and trade exhibitions, including national and regional conferences
of the American Chemical Society and the Pittsburgh Conference.
Company scientists frequently publish and present results of
original research at these and other conferences throughout the
world.
The Company sells its personal computer software products
principally through direct mail and relationships with distributors.
Customer Training, Service and Support
The Company's licenses typically provide a limited warranty for a 90
day period. Thereafter, support of the Company's software products
is provided for an annual fee. Approximately 80% of the Company's
commercial customers and half of the Company's academic customers
have contracted for support service. This service gives customers
access to telephone consultation with the Company's 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 the Company's products
effectively.
The Company offers customer training in the use of its products
through staff knowledgeable in both chemistry and computer science.
The Company sends technical newsletters, bulletins, and advance
notification about future software releases to its customers to keep
them informed and to help them with resource allocation and
scheduling. The Company also sponsors seminars throughout the world
for its customers, involving presentations both by Company personnel
and guest lecturers. These seminars are designed to enhance
customer understanding of the Company's products and their potential
utilization as an aid to customer research requirements. The
Company currently provides its customers with advice on computer
system configuration management and frequently provides customers
with consulting advice in addressing particular research questions
as part of the normal pre- and post-sales process.
Product Development
The Company 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.
The Company intends to continue to make substantial investments in
product and technology development to meet its customers'
requirements.
The Company has 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 the Company will be
able to introduce its products on a timely basis in the future, or
that the Company's new products and product enhancements will
adequately meet the requirements of the marketplace or achieve
market acceptance.
The Company's research and development activities are undertaken by
its Discovery Software group and its Accelerated 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 the
Company's 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, the
Company funds research at certain academic institutions. The
Company believes that this funding allows it to gain access to
significant technology not otherwise available. The Accelerated
Discovery Services group has its own staff of scientists and
programmers that are familiar with the research techniques and goals
of its customers.
Tripos and MDS Panlabs defined the market for diverse screening
libraries with the introduction of Optiverse in late 1995.
Anticipating the shift of the market from screening libraries to
highly purified individual compounds, the Companies jointly
invested to produce a purified version of this library. The
implementation of this strategy challenged the state-of-the-art in
chemical purification. After more than nine months delay, the
development of specialized apparatus to accomplish this task has
been completed. Tripos and MDS Panlabs are vigorously pursuing
synthesis of new library compounds and purification of new and
existing inventory. The Company is also complementing the
internally produced libraries with compounds from external sources.
While the Company anticipates returning to a growth position by the
third quarter of 1998, there remain significant challenges in this
business.
The Company has recently entered into laboratory operations through
its acquisition of Tripos Receptor Research. While the staff at
that organization is experienced and highly skilled, Tripos may
experience delays in expansion and growth of this organization.
Research and development expenses were $3.6 million, $3.4 million,
and $4.4 million in 1995, 1996 and 1997, respectively. Research and
development expenses, including the amount of capitalized costs were
$6.7 million in 1995, $7.0 million in 1996 and $6.9 in 1997,
representing 32%, 24% and 23% of net sales, respectively. The
Company capitalized $3.2 million of product development costs in
1995, $3.6 million in 1996 and $2.6 million in 1997. This
represented 47%, 51% and 37% of total product research and
development expenditures in these periods. The Company anticipates
that its investment in new product research will continue to be
significant as Tripos invests in the growth of web-based tools,
desktop applications, diverse compound libraries, and its recently
acquired laboratory facilities.
The Company has entered into consulting contracts with certain
customers which provide for collaboration with the Company in
customizing chemical compound libraries for drug discovery in
specific therapeutic areas. The Company recognizes revenue related
to such agreements as contractual milestones are achieved and
delivered or, absent such contractual milestones, on a completed
contract basis.
Tripos offers its customers software consulting services by which
the Company builds customized systems solutions. Chemical research
teams require improved information access and usage in their
discovery process. The Company is helping its customers meet these
needs by applying its 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.
Proprietary Rights
The Company relies primarily upon a combination of copyright,
trademark and trade secret laws and license and non-disclosure
agreements to establish and protect the proprietary rights in its
products. In addition, the Company has obtained one patent with
respect to its SYBYL QSAR product which expires June 18, 2008. The
Company has just recently been granted a patent on Hologram QSAR.
During the years 1996 and 1997, the Company applied for five (5)
additional patents. The source code for the Company's products is
protected both as a trade secret and as an unpublished, copyrighted
work. In addition, the Company's software products are developed
and manufactured only at its St. Louis facility and the Company does
not disclose the source code for its products to any of its
subsidiaries or distributors. The Company supplies its source code
under special, restrictive license provisions to customers on
special request. All software products are shipped from its St.
Louis facility. Optiverse chemical compound libraries are
manufactured and shipped by MDS Panlabs, Inc. at its Bothell,
Washington location. Targeted compound libraries are manufactured
and shipped by Tripos Receptor Research from its Bude, England
facilities. Despite these precautions, it may be possible for a
third party to copy or otherwise obtain and use the Company's
products or technology without authorization, or to develop similar
technology independently. In addition, effective copyright and
trade secret protection may be unavailable or limited in certain
foreign countries where the Company does business. Because the
markets in which the Company competes are characterized by rapid
technological change, the Company believes that factors such as the
technological and creative skills of its personnel, new product
development, frequent product enhancements, name recognition and
reliable product maintenance are more important to establishing and
maintaining a technology leadership position than the various legal
protections of its technology.
The Company licenses its workstation software through the execution
of license agreements. The Company licenses its personal computer
software products by use of a "shrink wrap" license. A "shrink
wrap" 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.
The Company has a number of contracts with academic institutions and
individuals providing the Company the right to license, market and
use technology developed outside the Company. These products, while
important for the Company's ability to offer an enriched product
line, do not represent a material percentage of the Company's annual
revenue.
Compound, consulting, contract research and collaborative agreements
require specific documentation regarding defined proprietary rights,
responsibilities of the parties, and/or allowed use of any related
compounds or libraries of compounds.
Competition
The Company operates in a highly competitive industry characterized
by rapidly changing technology, frequent new product introductions
and enhancements, and evolving industry standards. The Company
competes 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. The Company's Accelerated 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 experienced by the Company in its existing and targeted
markets could result in price reductions, reduced margins and loss
of market share, all of which could have an adverse effect on the
Company. A number of the Company's existing competitors have
significantly greater financial, technical and marketing resources
than the Company. The Company believes that the principal factors
affecting competition in its markets are product quality,
performance, reliability, ease of use, technical service and
support, and price. It is expected 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 the Company believes that it
currently competes favorably with respect to these factors, there
can be no assurance that the Company will be able to compete
successfully against current and future competitors or that the
competitive pressures faced by the Company will not have a material
effect on its business, operating results or financial condition.
Production
The Company's software production operations consist of assembling,
packaging and shipping the software and database products and
documentation needed to fulfill orders. Outside vendors provide CD-
ROM duplication, printing of documentation, manufacturing of
packaging materials and assembly of the Company's desktop products.
The Company typically ships its software products promptly after the
acceptance of a customer purchase order and the execution of a
software license agreement. Accordingly, the Company does not
generally have any significant software backlog, and the Company
believes that backlog at any particular time, or fluctuations in
backlog, are not indicative of sales for any succeeding period.
Optiverse chemical compounds are designed by Tripos and manufactured
by MDS Panlabs, Inc. at their Bothell, Washington facility.
Compound sales are shipped shortly after the execution of a sales
contract between the customer, MDS Panlabs 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. While backlogs at Tripos Receptor
Research in Bude, England have been immaterial in the past, they may
experience comparable obstacles in shipment preparation of targeted
libraries (or custom compound libraries).
Significant Customers
The Company does not derive 10% or more of its total sales from any
single customer.
International Sales
The Company sells its software products through its wholly owned
subsidiaries in Europe, through an exclusive distributor in Japan,
and through non-exclusive agency relationships in Singapore, China,
Korea, and Taiwan. Net sales from the Company's activities outside
of North America represented approximately 49%, 48% and 41% of the
Company's total net sales in 1995, 1996, and 1997, respectively.
Net sales in Europe accounted for 39%, 38% and 32% of the Company's
net sales in 1995, 1996, and 1997, respectively, with the balance
from customers in the Pacific Rim. The Company believes that
revenues from its foreign activities will continue to account for a
significant percentage of its total net sales. See Note 8 to the
consolidated financial statements, Geographic Segment Data, in the
Company's Annual Report.
Employees
As of December 31, 1997, the Company had a total of 147 employees,
of whom 111 were based in the United States and 36 were based
internationally. Of that total, 60 were engaged in marketing, sales
and related customer-support services, 46 in product development, 10
in chemistry laboratory activities and 31 in operations,
administration, MIS and finance. The Company's future success is
significantly dependent on the continued service of its key
technical and senior management personnel and its continuing ability
to attract and retain highly qualified technical and managerial
personnel. None of the Company's employees are represented by a
labor union nor covered by a collective bargaining agreement. The
Company has not experienced any work stoppages and considers its
relations with employees to be good.
Executive Officers and Key Employees
The information required by this item is included in the Company's
Proxy Statement in connection with its Annual Meeting of
Shareholders to be held on May 7, 1998 under the caption
"Management", and is incorporated herein by reference.
Item 2. Properties
The Company's principal administrative, sales, marketing and product
development facilities are located in St. Louis, Missouri. These
facilities are owned by the Company and are financed by a mortgage
note to NationsBank, N.A. The Company leases two other domestic
sales and service offices in Shrewsbury, New Jersey and Redwood
City, California. The Company's European subsidiaries lease sales
and service offices in the United Kingdom, France and Germany. The
Company believes that its existing facilities are adequate for its
current needs and that additional space will be available as needed.
Laboratory facilities in Bude, England are currently leased,
however, the Company expects to own and operate new facilities in
1998.
Item 3. Legal Proceedings
The Company 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 the Company's 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 the Company's shareholders
during the fourth quarter of its fiscal year ended December 31,
1997.
Part II
Item 5. Market for Registrant's Common Stock and Related
Shareholder Matters
The Company's 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 Company's
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.
1997
High Low
First quarter...... $23.750 $11.750
Second quarter..... $19.125 $13.250
Third quarter...... $19.500 $12.500
Fourth quarter..... $20.000 $13.375
1996
High Low
First quarter...... $10.000 $ 6.750
Second quarter..... $ 9.750 $ 6.000
Third quarter...... $11.875 $ 6.500
Fourth quarter..... $19.250 $10.750
The Company had approximately 1,000 shareholders of record and 2,700
street name holders as of December 31, 1997. The Company has not
declared or paid any dividends on its Common Stock. The Company
currently intends to retain earnings for use in its business,
therefore, it does not anticipate paying cash dividends in the
foreseeable future to common shareholders.
Item 6. Selected Financial Data
Selected Consolidated Financial
Data
Consolidated Statements Year Year Year Year Year
ended ended ended ended ended
of Operations December December December December December
(In thousands, except 31, 1997 31, 1996 31, 1995 31, 1994 31, 1993
per share amounts)
Net Sales:
Software licenses..... 10,117 $9,186 $8,651 $8,848 $8,467
Support............... 7,209 6,715 6,510 5,564 4,380
Accelerated discovery
services.............. 7,737 9,053 2,111 -
Hardware.............. 5,125 3,832 3,825 5,190 5,130
Total net sales... 30,188 28,786 21,097 19,602 17,977
Cost of sales......... 9,999 9,990 6,458 6,416 5,845
Gross profit........... 20,189 18,796 14,639 13,186 12,132
Operating expenses:
Sales and marketing... 10,065 10,705 9,951 8,259 7,343
Research & development 4,359 3,388 3,559 3,409 2,958
General & administrative 2,391 2,399 1,449 1,208 1,371
Restructuring charge - - 2,165 - -
Total operating expenses 16,815 16,492 17,124 12,876 11,672
Income (loss) from operations 3,374 2,304 (2,485) 310 460
Other income (expense), net 511 408 450 228 (9)
Income (loss) before income
taxes.............. 3,885 2,712 (2,035) 538 451
Income tax expense (benefit) 1,305 760 (339) 186 7
Net income (loss)......... 2,580 $1,952 $(1,696) $352 $444
Basic earnings (loss)
per share (1)(2).. $0.84 $0.67 $(0.59) $0.10 $0.08
Basic weighted average
number of shares 3,085 2,923 2,860 2,845 2,746
Diluted earnings (loss)
per share (1)(2) $0.74 $0.61 $(0.59) $0.10 $0.08
Diluted weighted average
number of shares 3,504 3,222 2,860 2,846 2,746
Consolidated Balance Sheet Data
(at year end) (3)
Working capital $ 8,764 $10,360 $ 8,638 $10,045 $ 2,847
Due to parent $ - $ - $ - $ - $ 6,137
Total assets $ 32,610 $24,509 $ 19,059 $21,134 $12,115
Long-term debt, less
current portion $ 3,367 $ - $ - $ - $ -
Total shareholders'
equity (deficit) $ 18,909 $14,367 $ 11,322 $12,828 $ (290)
(1) The earnings per share calculations for 1994 and 1993 are pro
forma calculations which reflect the effects of adjustments to historical
results of operations for estimates of the costs which would have been
incurred by Tripos during the respective periods on a stand-alone
basis.
(2) Earnings per share for 1996 and prior periods has been restated
to reflect the adoption of FAS 128.
(3) See Note 1 of the Notes to Consolidated Financial Statements for
discussion of 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 discovery research company with unique expertise
in molecular informatics. Tripos supplies software, chemical
compound libraries and collaborative research services to the
pharmaceutical, biotechnology and other life science industries
worldwide.
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." The Company is
under no obligation to update any forward-looking statements in this
section.
The Company's revenues and expenses can vary from quarter to quarter
depending upon, among other things, the capital expenditure budgets
of its customers, lengthy sales cycles, market acceptance of new
products and enhanced versions of existing products, the timing of
new product introductions by the Company and other vendors, changes
in pricing policies by the Company, partners and other vendors, and
changes in general economic and competitive conditions. In
addition, a substantial portion of the Company's 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. The Company typically
experiences greater gross margins on software licenses, contract
research, custom software development and chemical compound sales
than on sales of hardware. The Company's profitability depends in
part on the mix of its revenue components and not necessarily on
total revenues.
The Company provides software licenses that are activated and remain
active based on the date and time of the computer where the software
resides. The Company relies on the hardware suppliers to address
any and all Year 2000 issues and provide letters of compliance to
the Company. The total dollar amount that the Company estimates
will be spent to remediate its Year 2000 issues will not be material
and should not affect future financial results of operations,
liquidity or capital resources.
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):
1997 1996 1995
Net sales:
Software licenses 33% 32% 41%
Support 24 23 31
Accelerated discovery 26 32 10
services
Hardware 17 13 18
Total net sales 100 100 100
Cost of sales:
Software licenses 17 19 19
Support 2 5 3
Accelerated discovery 45 49 56
services
Hardware 91 92 89
Total cost of sales 33 35 31
Gross profit 67 65 69
Operating expenses:
Sales and marketing 33 37 47
Research and development 15 12 17
General and 8 8 7
administrative
Restructuring charge - - 10
Total operating 56 57 81
expenses
Income (loss) from 11 8 (12)
operations
Other income (expense), net 2 1 2
Net income (loss) before
income taxes 13 9 (10)
Income tax expense 4 2 (2)
(benefit)
Net income (loss) 9 7 (8)
Net Sales
Net sales increased approximately 36% from $21.1 million in 1995 to
$28.8 million in 1996, and increased 5% in 1997 to $30.2 million.
These fluctuations in net sales were principally attributable to
sales of diverse chemical compound libraries in the Accelerated
Discovery Services ("ADS") business. The changes were augmented by
increases in software and support sales. New product sales
represented 14% of software license sales in 1995, 11% in 1996, and
17% in 1997. Tripos generates a substantial portion of its revenues
from the pharmaceutical industry. Net sales to this industry
accounted for approximately 58%, 58%, and 62% of the Company's total
net sales in 1995, 1996, and 1997, respectively.
The Company sells its products and services directly in North
America, through its wholly owned subsidiaries in Europe, through an
exclusive distributor arrangement in Japan, and through non-
exclusive agency relationships in China, Korea, Singapore and
Taiwan. Net sales from the Company's activities outside of North
America represented approximately 49%, 48% and 41% of the Company's
total net sales in 1995, 1996 and 1997, respectively. Net sales in
Europe accounted for 39%, 38%, and 32% of the Company's net sales in
1995, 1996, and 1997, respectively, with the balance from customers
in the Pacific Rim area, principally Japan. The Company believes
that revenues from its foreign activities will continue to account
for a significant percentage of its total net sales.
List prices for the Company's products have remained relatively
stable over the last few years. In 1996, the Company started
selling flexible software licenses in addition to perpetual
licenses. A flexible license includes a minimum level of modules
for a minimum total price. In 1997, 18% of software license sales
were sold in the form of a flexible license. As a result of selling
more modules through flexible licenses, the average software license
revenue per customer has increased. The sale price for the chemical
compound libraries increased slightly as a result of the increase in
the size and number of the orders in 1996 versus 1995 when the
product was introduced. In 1997, the demand for a highly purified
product caused a decline in the number of large orders for the
entire chemical compound library resulting in a decline in the
number of orders and the average sales price. In 1997, existing
customers represented 85% of total net sales compared with 87% in
1996. Increasing net sales from period to period is dependent, in
part, on the Company's ability to introduce new products which are
accepted by the market and on the Company's ability to penetrate new
and existing markets.
Software license sales increased 6% from $8.7 million in 1995 to
$9.2 million in 1996 and increased 10% to $10.1 million in 1997. The
increase in 1996 and 1997 is attributable to the increase in the
number of new products introduced, the increase in orders of
worldwide licenses for the large pharmaceutical companies, the
increased penetration into the biotechnology sector, a large custom
software development contract and flexible term licensing.
Support sales increased 3% from $6.5 million in 1995 to $6.7 million
in 1996, and increased 7% to $7.2 million in 1997. The increase in
1996 and 1997 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.
The Company introduced the Accelerated Discovery Services ("ADS")
product line in September 1995. Through an alliance with MDS
Panlabs, Inc., the Company sells diverse compound libraries and
contract research. The Company also licenses its ChemSpace
technology through this product line. ADS sales increased 329% to
$9.1 million in 1996 from $2.1 million in 1995 and decreased 15% to
$7.7 million in 1997. The increase in compound library revenue in
1996 is due to the increase in the number of compounds available for
sale, from 40,000 to 80,000 and a larger sales and distribution
force. The decrease in 1997 is due to a shift in the market which
demanded a highly-purified chemical compound library. Despite the
anticipation of this demand and the purchase of a specialized
apparatus for compound purification, the delay in receipt of
equipment and subsequent further delay in the purification process
caused a nine-month slippage in new product. In April 1997, the
partnership agreed to shift MDS Panlabs' resources from continued
synthesis of the existing product line to purification of the
existing library to generate new products. In December 1997, the
Company and MDS Panlabs started restructuring their agreement. It
is possible that the collaboration will terminate and while the
companies will continue to market the existing chemical compound
library, they may discontinue production of a new library. In
addition, the Company is seeking highly-pure third party diverse
chemical compounds for distribution to continue generating revenue
from this market. The Company expects to return to growth in ADS
sales by third quarter 1998.
Hardware revenues were $3.8 million in 1995 and 1996 and increased
by 34% to $5.1 million in 1997. The increase in 1997 reflects an
increase in the average order amount from customers who purchased
the Company's software bundled with the hardware.
Cost of Sales
Total cost of sales increased 55% from $6.5 million in 1995 to $10
million in 1996 and 1997, which represents 31%, 35% and 33%,
respectively, of total net sales. The cost of the diverse compound
libraries was the principal factor in the overall increase in cost
of sales in 1996. In 1997, the decline in the costs of diverse
compound libraries as a result of the decline in sales was offset by
the increase in hardware costs corresponding to the increase in
hardware sales.
Costs of software licenses represented 19%, 19% and 17% of software
license sales in 1995, 1996, and 1997, respectively. Costs of
software licenses consists 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 decreased in 1997 due to a
decrease in royalties paid to distributors in the Pacific Rim due to
a decline in revenues in that territory for the year.
Costs of support represented 3%, 5% and 2% of support sales in 1995,
1996, and 1997, respectively. Cost of support principally consists
of software product packaging, media and updates to documentation.
The increase in costs of sales for support in 1996 is based on the
shipment of a major release of software to a base of over 700
customers. The decrease in 1997 is due to lowered costs of
documentation.
Costs of ADS represented 56%, 49% and 45% of ADS sales in 1995,
1996, and 1997, respectively. Cost of ADS represent the costs
associated with the design and creation of the diverse compound
libraries. The decrease in the costs of ADS as a percentage of
sales is due to the increase of higher margin contract research and
ChemSpace revenues, and the decrease in the royalties for the
chemical compound libraries as a result of the decline in the sales
of the library. The Company expects the costs of this product line
to decline slightly as a percentage of sales in the future as
contract research and ChemSpace revenues become a higher percentage
of the product mix.
Costs of hardware represented 89%, 92% and 91% of hardware sales in
1995, 1996 and 1997, respectively. Cost of hardware consists
primarily 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 $14.6 million in 1995, $18.8 million in 1996, and
$20.2 million in 1997, which represents gross profits of 69%, 65%
and 67%, respectively. The decrease in the 1996 gross profit
percentage was due to the increase in compound library sales which
have higher cost of sales than software and support. The increase
in the 1997 gross profit was due to a decline in the percentage of
compound library sales and an increase in higher margin software
license, support, contract research and ChemSpace sales. The Company
believes that gross profit will improve as higher margin contract
research and software license revenues increase.
Sales and Marketing Expenses
Sales and marketing expenses increased 8% from $10.0 million in 1995
to $10.7 million in 1996, and decreased 6% to $10.1 million in 1997.
The increase in 1996 was primarily due to the expansion of the sales
and marketing organization in Europe for the sale of the ADS
product line, the creation of a business development and strategic
relations department, and increases in marketing and selling of new
products. The decrease in 1997 was due to a reclassification of
certain expenses to General & Administrative and a decrease in
overall sales costs. Sales and marketing expenses as a percentage of
net sales decreased from 47% in 1995 to 37% in 1996, and decreased
to 33% in 1997. The decrease in sales and marketing expenses as a
percentage of sales is a function of increased sales along with
improved efficiencies among the sales and marketing staff. The
Company expects total sales and marketing expenses as a percentage
of net sales to decline slightly in the future as cost efficiencies
continue to be implemented in the worldwide sales and marketing
staff.
Research and Development Expenses
Research and development expenses decreased 5% from $3.6 million in
1995 to $3.4 million in 1996, and increased 29% to $4.4 million in
1997, representing 17%, 12%, and 15% of net sales, respectively.
The decrease in 1996 was primarily due to the reduction in
development staff resulting from the discontinuation of the Unison
product in December 1995. The increase in 1997 is due to the
decrease in the amount of capitalized costs as the Company moves
from long-term software development cycles to a shorter-term
development cycle for web-based software applications.
Research and development expenses, including the amount of
capitalized costs were $6.8 million in 1995, $7.0 million in 1996
and $6.9 million in 1997 which represents 32%, 24%, and 23% of net
sales, respectively. In accordance with Statement of Financial
Accounting Standards No. 86, the Company capitalizes software
development costs. The Company also capitalizes compound library
creation and design costs. The total amount of costs capitalized
was $3.2 million, $3.6 million and $2.6 million in 1995, 1996 and
1997, respectively. This represented 47%, 51% and 37% of total
product research and development expenditures in these periods. The
Company anticipates that its investment in new product research will
remain at comparable levels as Tripos continues development in web-
based tools, desktop applications, diverse compound libraries and
expands its recently acquired laboratory facilities.
General and administrative
General and administrative expenses increased 66% from $1.4 million
in 1995 to $2.4 million in 1996 and 1997, representing 7%, 8%, and
8% of net sales, respectively. The increase in expenses in 1996 is
the result of an increase in the bad debt provision, increased
shareholder relations activities and funding the Company incentive
bonus pool for exceeding operating income goals. In 1997, the
decline in the Company sponsored bonus pool was offset by the
reclassification of certain expenses that were considered Sales &
Marketing expenses in 1996. The Company expects general and
administrative to remain at comparable levels in the future.
Restructuring Charge
The Company incurred a non-recurring restructuring charge of
approximately $2.2 million in the fourth quarter of 1995 related to
the discontinuation of development, marketing and sales of the
Unison product line. The Company discontinued this line in
conjunction with an alliance which was formed with its major
competitor in the market where this product was sold. This alliance
allowed the Company to reallocate certain resources to the continued
development of other product lines. The charge represented the write-
off of previously capitalized development costs, write-down of
assets used in product development, settlement of contractual
obligations, and severance costs.
All cash outlays related to the restructuring for severance costs
and settlement of contractual obligations have been paid out as of
December 31, 1996. The amount reserved for these cash outlays was
estimated at $447,000 and occurred principally in the first quarter
of 1996. The source of funding was cash generated from operations.
The remaining components of the restructuring charge represented the
write-down of previously capitalized development costs of $1.6
million and the write-off of equipment used in the development of
the product of $110,000. The effects of the restructuring plan on
operating results for 1996 and 1997 were realized through reduced
annual amortization charges of $139,000 and reduced labor costs of
$350,000. The impact on annual revenues in 1996 and 1997 were
considered minimal as the Unison product contributed less than 5% of
software license sales in 1995.
Interest Income
Interest income of $424,000 in 1995, $425,000 in 1996 and $544,000
in 1997, was from interest earned on investments. The increase in
interest income in 1997 was due to the addition of interest bearing
notes receivable.
Income Tax Expense
The Company's tax expense (benefit) was $(339,000) in 1995, $760,000
in 1996 and $1.3 million in 1997. The Company's effective tax rate
was 17%, 28% and 34% for 1995, 1996 and 1997, respectively. The
effective rates for 1995 and 1996 reflect the impact of net
operating loss carryforwards for which current benefits were not
recognized until the second quarter of 1996.
Liquidity and Capital Resources
The Company's working capital decreased from $10.4 million in 1996
to $8.8 million in 1997. The decrease in working capital is the
result of the Company's investment in Arena Pharmaceuticals
Corporation, the purchase of its corporate office building and the
acquisition of Tripos Receptor Research Ltd.
Net cash provided by operating activities decreased from $4.9
million in 1996 to $4.4 million in 1997. This was primarily due to
an increase in notes receivable of $1.7 million for customer
accounts receivable from flexible license sales offset by an
increase in deferred revenue of $1.4 million due to both increased
support billings at year end and flexible software license contracts
for the year.
Net cash used in investing activities increased from $4.5 million in
1996 to $8.6 million in 1997. The increase relates to the
investment in Arena Pharmaceuticals and Phase-1 Molecular
Toxicology, the purchase of its corporate office building and Tripos
Receptor Research offset by the decrease in capitalized development
costs and the proceeds from sales of investments throughout the
year. The Company invests available cash in bank deposits,
investment-grade securities and, short-term interest-producing
instruments, including government obligations and other money market
instruments. The Company anticipates that 1998 capital purchases
will be comparable to 1997 due to the expansion of the facilities at
the Company's Tripos Receptor Research subsidiary which will be
funded through operating activities.
Net cash provided by financing activities increased from $1.0
million in 1996 to $4.2 million in 1997 as the result of issuance of
long-term debt for the purchase of the corporate office building and
stock issued pursuant to stock purchase and option plans.
Management believes that with the current cash position of $5.3
million, short-term investments of $1.6 million, accounts receivable
of $10.2 million, continued cash flow from operations, availability
of a $2.5 million line-of-credit, and total current liabilities of
$9.5 million, the Company will be able to meet both its liquidity
needs and capital expenditure needs for the next twelve months.
Management believes that the Company will be able to satisfy its
known long-term liabilities and liquidity needs through the funding
sources identified above. The Company may seek to obtain additional
financing at any time in connection with the Company's product
development efforts and its efforts to penetrate existing and new
markets for its products and services, depending upon the associated
working capital requirements.
Foreign Currency Translations
The Company's foreign operations transact the majority of their
business in their respective local currencies and are therefore
generally not exposed to foreign currency gains or losses. Due to
the relative stability of the currency of the countries in which the
Company operates and the level of investment in each country, the
Company's current intent is to retain assets within its foreign
operations to fund those operations. The Company's foreign currency
transaction gains and losses have not been significant to date, and
management believes the Company's exposure to future foreign
currency transaction gains and losses is minimal.
Cautionary Statements-Additional Important Factors to be Considered
The Company's future results could differ materially from those
discussed in this document. Factors that could contribute to such
differences, include, but are not limited to, the following:
Rapid Technological Change.
The software and discovery research industries are characterized by
rapid change and uncertainty due to new and emerging technologies.
The pace of change has recently accelerated due to the Internet,
combinatorial chemistry software products, market demand for high-
throughput purified chemical compound libraries and combinatorial
chemistry companies entering the market. There can be no assurance
that Tripos will be successful in developing or acquiring product
enhancements and new products necessary to keep pace with the
changing technologies.
Customer Acceptance.
While the Company provides a database of the chemical compounds in
its library and performs extensive usability and beta-testing of its
new software products, user acceptance and corporate penetration
rates ultimately dictate the success of development and marketing
efforts.
Competition.
The software and discovery research industry are highly competitive.
A number of companies offer products that target these markets.
Tripos competes with software and discovery research vendors for the
research budgets of pharmaceutical, biotechnology, agrochemical and
related companies. It is possible that there will be consolidation
in the market of competitive software and discovery research
vendors. Certain of the Company's competitors have substantially
greater financial, technical, marketing and sales resources than
Tripos.
Dependence on and Relationship with MDS Panlabs, Inc.
In 1995, the Company announced a collaboration with MDS Panlabs,
Inc., a contract research organization in Bothell, WA. The
collaboration is for contract research sales and the sales of
compound libraries. The Company is responsible for the design,
sales and marketing of the libraries, while MDS Panlabs is
responsible for the synthesis, storage and shipment of the
libraries. In 1996, 32% of the Company's sales were from the ADS
business where the revenues from the collaboration are reported. In
1997, 26% of the Company's revenues were from the sale of chemical
compound libraries, ChemSpace and contract research. This decline
is due to a shift in the market to demand a highly-purified chemical
compound library. Despite the anticipation of this demand and the
purchase of a specialized apparatus for compound purification, the
delay in receipt of equipment and subsequent further delay in the
purification process caused a nine-month slippage in new product.
In April 1997, the partnership agreed to shift MDS Panlabs'
resources from continued synthesis of the existing product line to
purification of the existing library to generate new products. In
December 1997, the Company and MDS Panlabs started restructuring
their agreement. It is possible that the collaboration will
terminate and while the companies will continue to market the
existing chemical compound library, they may discontinue the
production of the new library. The Company is seeking highly-pure
third party diverse chemical compounds for distribution to continue
generating revenue from this market.
Dependence on Key Personnel.
Tripos' continued success depends to a significant degree upon the
continued service of its President and CEO, John P. McAlister, and
other key technical and senior management personnel. The loss of
the services of Dr. McAlister or any other key personnel, and the
inability of the Company to attract and retain suitable replacements
could have a material adverse effect on the Company.
Possible Acquisitions.
The Company may make acquisitions in the future. Acquisitions
involve numerous risks, including difficulties in the assimilation
of the operations and products of the acquired companies, the
diversion of management's attention from other business concerns,
risks of entering markets in which the Company has no or little
direct experience, and potential loss of key employees of the
acquired companies.
Item 8. Financial Statements and Supplementary Data
Consolidated Balance Sheets
Year Year
ended ended
December December
31, 1997 31, 1996
Assets:
Current assets:
Cash and cash equivalents $5,277,469 $5,393,074
Investments 1,647,073 3,335,444
Accounts receivable, less allowance for
doubtful accounts of $78,420 in 1997
and $77,381 in 1996 10,246,743 10,557,620
Inventory 414,626 -
Prepaid expenses 520,440 495,571
Deferred income taxes 137,000 118,000
Total current assets 18,243,351 19,899,709
Notes receivable-trade 1,703,056 -
Notes receivable-other 791,357 -
Property and equipment, less
accumulated depreciation 5,994,500 1,163,645
Capitalized development costs, net of
accumulated amortization of
$7,220,643 in 1997 and $4,945,567
in 1996 3,412,062 3,130,013
Goodwill, net of accumulated amortization
of $12,450 in 1997 1,170,890 -
Other, net 1,295,228 315,667
Total assets $32,610,444 $24,509,034
Liabilities and shareholders' equity:
Current liabilities:
Accounts payable $1,389,946 $ 844,920
Current portion of long-term debt 178,000 -
Accrued expenses 3,216,366 5,305,603
Deferred revenue 4,695,375 3,389,129
Total current liabilities 9,479,687 9,539,652
Long-term debt 3,367,167 -
Deferred income taxes 855,000 602,000
Shareholders' equity
Common stock, $.01 par value; authorized
20,000,000 shares; issued and outstanding
3,171,803 shares in 1997 and 3,012,052
shares in 1996 31,718 30,121
Additional paid-in capital 17,342,956 15,219,679
Retained earnings (deficit) 1,198,360 (1,381,501)
Cumulative translation adjustment 335,556 499,083
Total shareholders' equity 18,908,590 14,367,382
Total liabilities and shareholders' equity $32,610,444 $24,509,034
See notes to consolidated financial statements
Consolidated Statements of Operations
Year Year Year
ended ended ended
December December December
31, 1997 31, 1996 31, 1995
Net sales:
Software licenses $10,117,342 $9,185,917 $8,650,772
Support 7,209,475 6,715,669 6,510,213
Accelerated discovery services 7,736,952 9,053,042 2,111,518
Hardware 5,124,531 3,831,765 3,825,035
Total net sales 30,188,300 28,786,393 21,097,538
Cost of sales:
Software licenses 1,679,025 1,735,380 1,664,070
Support 163,277 305,000 214,088
Accelerated discovery services 3,519,417 4,422,477 1,181,995
Hardware 4,637,861 3,527,871 3,398,023
Total cost of sales 9,999,580 9,990,728 6,458,176
Gross profit 20,188,720 18,795,665 14,639,362
Operating expenses:
Sales and marketing 10,065,100 10,704,959 9,951,160
Research and development 4,359,344 3,387,500 3,559,320
General and administrative 2,390,742 2,399,003 1,449,109
Restructuring charge - - 2,164,462
Total operating expenses 16,815,186 16,491,462 17,124,051
Income (loss) from operations 3,373,534 2,304,203 (2,484,689)
Interest income 543,628 424,826 424,253
Interest expense (49,744) (12,860) (3,425)
Other income (expense), net 17,796 (3,953) 28,707
Income (loss) before income taxes 3,885,214 2,712,216 (2,035,154)
Income tax expense (benefit) 1,305,353 760,000 (339,431)
Net income (loss) $2,579,861 $1,952,216 $(1,695,723)
Basic earnings (loss) per share $0.84 $0.67 $(0.59)
Basic weighted average number of
shares 3,085,077 2,923,284 2,859,533
Diluted earnings (loss) per share $0.74 $0.61 $(0.59)
Diluted weighted average number of
shares 3,503,946 3,221,980 2,859,533
See notes to consolidated financial statements
Consolidated Statements of Cash Flows
Year Year Year
ended ended ended
December December December
31, 1997 31, 1996 31, 1995
Operating activities:
Net income (loss) $2,579,861 $1,952,216 $(1,695,723)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation of property and
equipment 825,854 790,190 1,017,075
Amortization of capitalized
development costs and goodwill 2,302,976 2,484,897 1,404,739
Deferred income taxes 234,000 289,000 (446,431)
Net (gain) loss from sale of
property, plant & equipment - (25,264) 18,292
Non-cash restructuring charge - - 1,717,722
Change in operating assets and liabilities:
Accounts receivable 67,165 (3,055,248) 295,518
Notes receivable, trade (1,703,056) - -
Prepaid expenses and
other current assets (50,257) (1,022) 374,065
Accounts payable and accrued
expenses (1,225,286) 2,449,341 (910,232)
Deferred revenue 1,383,401 25,826 171,013
Net cash provided by operating
activities 4,414,658 4,909,936 1,946,038
Investing activities:
Purchases of investments (851,037) (2,465,000) (3,178,637)
Notes receivable, other (791,357) - -
Sales and maturities of investments 2,539,408 2,308,193 6,855,373
Purchases of property and equipment (5,687,423) (734,604) (680,916)
Capitalized development costs (2,341,589) (3,320,411) (3,176,884)
Acquisition, including equity
investments (1,488,221) (298,385) -
Net cash used in investing activities (8,620,219) (4,510,207) (181,064)
Financing activities:
Proceeds from stock issuance
pursuant to stock purchase and
option plans 657,471 984,297 128,974
Proceeds from issuance of
long-term debt 3,560,000 - -
Payments on long-term debt (14,833) - -
Net cash provided by
financing activities 4,202,638 984,297 128,974
Effect of foreign exchange rate
changes on cash and cash equivalents (112,682) 54,244 128,944
Net increase (decrease) in cash and
cash equivalents (115,605) 1,438,270 2,022,892
Cash and cash equivalents at
beginning of year 5,393,074 3,954,804 1,931,912
Cash and cash equivalents at
end of year $5,277,469 $5,393,074 $3,954,804
See notes to consolidated financial statements
Consolidated Statements of Shareholders' Equity
Additional Retained Foreign Total
Common Stock Paid-in Earnings Currency Shareholders'
Shares Amount Capital (Deficit) Translation Equity
Balance at
December 31, 1994 2,854,740 $28,547 $14,107,982 $(1,637,994) $329,304 $12,827,839
Stock issued under
stock purchase plan 21,890 220 111,082 - - 111,302
Stock issued under
stock option plan 3,133 31 17,641 - - 17,672
Translation
adjustment - - - - 61,265 61,265
Net loss - - - (1,695,723) - (1,695,723)
Balance at
December 31, 1995 2,879,763 28,798 14,236,705 (3,333,717) 390,569 11,322,355
Stock issued under
stock purchase plan 32,602 326 164,435 - - 164,761
Stock issued under
stock option plan 98,264 983 801,803 - - 802,786
Stock issued under
director compensation
plan 1,423 14 16,736 - - 16,750
Translation
adjustment - - - - 108,514 108,514
Net income - - - 1,952,216 - 1,952,216
Balance at
December 31, 1996 3,012,052 30,121 15,219,679 (1,381,501) 499,083 14,367,382
Stock issued under
stock purchase plan 42,321 423 360,729 - - 361,152
Stock issued under
stock option plan 84,780 848 540,163 - - 541,011
Stock issued under
director compensation
plan 2,650 26 44,157 - - 44,183
Stock and warrants
issued related to
acquisition 30,000 300 1,178,228 - - 1,178,528
Translation
adjustment - - - - (163,527) (163,527)
Net income - - - 2,579,861 - 2,579,861
Balance at
December 31, 1997 3,171,803 $31,718 $17,342,956 $1,198,360 $335,556 $18,908,590
See notes to consolidated financial statements
Notes to Consolidated Financial Statements December 31, 1997
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. The Company is also a value-added reseller of third-
party hardware products required to operate its software products.
A substantial portion of the Company's business is conducted with
pharmaceutical companies, however, the Company 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 the Company, distributed all
outstanding shares of the common stock of the Company (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, the Company changed its
name to Tripos, Inc.
Immediately prior to the Distribution, E&S transferred to additional
paid-in capital the Company's intercompany debt owed to E&S totaling
$6,421,380, made a cash contribution to the Company of $6,506,248,
compensated the Company for a $403,000 tax benefit related to net
losses incurred by the Company during the period from January 1,
1994 to May 31, 1994, and transferred to the Company the E&S
European operations related to the Company.
Basis of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company 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.
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
The Company's 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 its U.K. subsidiary, Tripos Receptor Research Ltd.,
and is carried at cost using a first-in, first-out method.
Notes Receivable-Trade
Amounts shown for notes receivable-trade represent customer
receivables with maturities in excess of one year.
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, thirty-nine years for the building, 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.
Costs associated with the design and creation of diverse compound
libraries related to the Company's Accelerated Discovery Services
are also 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, the Company is using an estimated economic
life of three to five years. Capitalized costs associated with the
diverse compound libraries are amortized on a two year straight-line
method.
The Company 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.
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, the Company 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
The Company recognizes revenue from software licenses and chemical
compound sales upon product delivery, customer acceptance with all
obligations fulfilled at the date of delivery, and determination
that collectibility of the sale proceeds is probable. The Company
recognizes revenue from software support contracts ratably over the
term of the contract, typically one year. Hardware sales are
recognized on delivery of the product from the Company's vendor to
the Company's customer.
The Company has entered into contract research agreements and
consulting arrangements with certain customers which provide for
collaboration with the Company in defining related software
products, early access to the products, discounts on licenses for
the products developed and compound library design. The Company
recognizes revenue related to contract research and 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
The Company is a reseller of hardware and passes through to its
customers the standard warranties provided by the hardware supplier.
The Company warrants its application software products to perform in
accordance with written user documentation and the agreements
negotiated with the customer. Since the Company 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 the
Company's 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.
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
In 1997, the Financial Accounting Standards Board issued Statement
No. 128 ("FAS 128"), "Earnings per Share". FAS 128 replaced the
calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes all dilutive effects of
options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods
have been presented, and where appropriate, restated to conform to
the FAS 128 requirements.
For the Company, 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 15 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, the Company 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. The Company has adopted the disclosure
only provisions of SFAS 123 as shown in Note 6 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 October 1997, the Accounting Standards Executive Committee of the
AICPA issued statement of Position 97-2 ("SOP 97-2"), "Software
Revenue Recognition". SOP 97-2 is effective for the Company for
transactions entered into beginning on January 1, 1998. Management
is evaluating the impact, if any, of SOP 97-2 on its 1998 financial
statements.
In June 1997, the Financial Accounting Standards Board issued SFAS
130, "Reporting Comprehensive Income" and SFAS 131, "Segment
Information". Both of these stand-ards are effective for the
Company beginning in 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. The adoption of SFAS 130
will not have any impact on the Company's financial position or
results of operations.
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. The Company believes it operates
in one business operating segment and does not believe adoption of
this standard will have a material impact on its financial
statements.
2. Property and Equipment
Property and equipment at the end of each year are summarized below:
1997 1996
Computer equipment........ $4,649,805 $3,843,216
Furniture and fixtures.... 1,705,225 1,599,154
Purchased software........ 1,107,828 988,770
Buildings................. 4,580,927 -
12,043,785 6,431,140
Less accumulated
depreciation............. 6,049,285 5,267,495
$5,994,500 $1,163,645
3. Accrued Expenses
Accrued expenses consist of the following at the end of each year:
1997 1996
Payroll related............ $1,011,821 $1,323,800
Income taxes refundable.... (653,713) (145,413)
Compound development....... 1,426,011 3,047,212
Other...................... 1,432,247 1,080,004
$3,216,366 $5,305,603
4. Restructuring Charge
The Company took a charge of approximately $2.2 million in the
fourth quarter of 1995 related to the discontinuance of its Unison
product line. The charge represents the write-off of previously
capitalized development costs, the write-down of assets used by
developers, the settlement of contractual obligations and severance
costs. The liability established was paid in the first quarter of
1996. A summary of these costs follows:
Total
Restructuring Non-cash Accrued
Costs Costs Costs
Write-off of capitalized
software.............. $1,608,163 $1,608,163 $ -
Severance............... 269,849 - 269,849
Write-down of assets.... 109,559 109,559 -
Other costs............. 176,891 - 176,891
Total restructuring charges $2,164,462 $1,717,722 $446,740
5. Income Taxes
The components of income (loss) before income taxes for the years ended
were as follows:
1997 1996 1995
Domestic................ $3,871,118 $2,523,411 $(1,694,827)
Foreign................. 14,096 188,805 (340,327)
$3,885,214 $2,712,216 $(2,035,154)
The components of income tax expense (benefit) for the years ended were
as follows:
1997 1996 1995
Current tax expense (benefit)
Federal................. $862,000 $ 71,000 $ -
State and local......... 183,353 87,000 -
Foreign................. 26,000 313,000 107,000
Total current....... 1,071,353 471,000 107,000
Deferred tax expense (benefit) 234,000 289,000 (446,431)
Total provision (benefit) $1,305,353 $760,000 $(339,431)
The difference between the effective income tax rate and the U.S.
federal income tax rate for the years ended is explained as follows:
1997 1996 1995
Tax at U.S. federal
statutory rate...... 34.00 % 34.00 % (34.00) %
Effect of foreign
operations (net of
foreign taxes)...... 0.54 0.48 2.36
Valuation allowance... - (10.73) 18.26
Other................. (0.94) 4.25 (3.25)
33.60 % 28.00 % (16.63) %
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:
1997 1996
Current deferred income tax asset:
Allowance for doubtful accounts..... $23,000 $23,000
Vacation accrual.................... 109,000 73,000
Customer deposits................... 3,000 11,000
NOL carryforward.................... 45,000 143,000
Other............................... 2,000 11,000
Tax credit carryforward............. - -
Valuation allowance................. (45,000) (143,000)
$137,000 $118,000
Noncurrent deferred income tax liability:
Capitalized development costs....... $(911,000) $(678,000)
Property and equipment.............. 31,000 51,000
Other............................... 25,000 25,000
$(855,000) $(602,000)
Income tax payments for 1997, 1996 and 1995 were $1,010,000,
$262,000 and $197,000, respectively.
Two of the Company's foreign subsidiaries had loss carryforwards at
December 31, 1997, totaling approximately $132,000 that have no
expiration date. For financial statement purposes, a valuation
allowance has been established to offset the deferred tax asset of
these loss carryforwards. 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
$127,000 at December 31, 1997.
6. Stock Plans
In 1994, the Company 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 has 150,000 shares of common stock reserved for issuance, is
in effect for ten years unless terminated or amended sooner by the
Board of Directors. At December 31, 1997, 106,553 shares have been
purchased under this plan.
In 1994, the Company 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 employees and consultants of the
Company. 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 1997 to increase the number of shares of common
stock reserved for issuance from 704,000 to 1,100,000, is in effect
for ten years unless terminated or amended sooner by the Board of
Directors.
In 1994, the Company 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
1996 to increase the number of shares of common stock reserved for
issuance from 100,000 to 300,000, is in effect for ten years unless
terminated or amended sooner by the Board of Directors.
The Company 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 the
Company's 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 the Company 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 5.62% to 7.83% for 1995, 5.13% to
6.64% for 1996 and 5.45% to 6.50% for 1997; volatility factor of .85
for both 1995 and 1996 and .86 for 1997; and a weighted average
expected life of the option of 5.3 years for 1995, 1996 and 1997.
For the Company's 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
5.57% to 6.38% for 1995, 5.05% to 5.25% for 1996 and 5.7% to 6.4%
for 1997; volatility factors of .85 for both 1995 and 1996, and .86
for 1997; and a weighted average expected life of the option of 6
months. For all years presented, the Company 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 the
Company's 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. The Company's pro forma information follows (in thousands
except for earnings per share information):
Pro Forma 1997 1996 1995
Pro forma net income (loss) $1,915 $1,482 $(1,875)
Pro forma earnings (loss) per share:
Basic $0.62 $0.51 $(0.66)
Diluted $0.55 $0.46 $(0.66)
Options 1997 Weighted 1996 Weighted 1995 Weighted
Outstanding Shares Average Shares Average Shares Average
Summary Exercise Exercise Exercise
Price Price Price
Beginning
outstanding 770,969 $6.0881 669,931 $5.2747 526,009 $5.3654
Granted:
Price = Fair 195,700 $13.0313 215,700 $8.4899 167,350 $5.0881
Value
Exercised (97,316) $5.1889 (98,677) $5.8116 (3,133) $5.6414
Canceled/expired (35,260) $6.8504 (15,985) $6.1111 (20,295) $6.0307
Ending
outstanding 834,093 $7.7899 770,969 $6.0881 669,931 $5.2747
Exercisable at
end of year 417,038 299,929 220,890
Weighted average
fair value per
share of options
granted during
the year $8.22 $5.29 $3.22
12/31/97 Options Outstanding Options Exercisable
Weighted Weighted Weighted
Range of Number Average Average Number Average
Exercise Prices Outstanding Remaining Exercise Exercisable Exercise
Life Price Price
$4.2500-$4.7500 80,952 7.04 $4.3097 55,959 $4.2971
$5.0000-$5.0000 290,322 6.42 $5.0000 235,760 $5.0000
$5.7500-$7.8750 187,492 7.79 $7.3140 98,192 $7.3175
$8.0000-$12.500 228,827 9.17 $11.326 24,627 $8.8249
$13.6875-$20.50 46,500 9.55 $15.784 2,500 $16.625
$4.2500-$20.500 834,093 7.72 $7.7899 417,038 $5.7469
In January 1996, the Board of Directors of the Company 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 of the Company's common stock acquires a total of 20% or more
of the outstanding common stock of the Company.
7. Benefit Plan
In 1994, the Company 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 ($9,500 in 1997). The Company 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 $180,484 in 1997 and $152,282 in 1996.
8. Geographic Segment Data
The Company's foreign operations historically have been conducted
principally through the Company's wholly owned foreign subsidiaries.
Information regarding operations by geographic area for 1997, 1996
and 1995 is as follows :
1997 United Europe Pacific Other Total
States Rim
Net sales.......... $17,039,468 $9,571,174 $2,718,435 $859,223 $30,188,300
Operating income
(loss)............. $3,395,905 $(22,371)
Identifiable assets $24,089,374 $8,521,070
1996 United Europe Pacific Other Total
States Rim
Net sales.......... $14,857,012 $10,935,292 $2,875,718 $118,371 $28,786,393
Operating income... $2,258,459 $45,744
Identifiable assets $19,661,336 $4,847,698
1995 United Europe Pacific Other Total
States Rim
Net sales.......... $10,516,419 $8,192,274 $2,132,607 $256,238 $21,097,538
Operating (loss)... $(2,078,136) $(406,553)
Identifiable assets $15,111,389 $3,947,662
Most services of the Company 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 related to the Pacific Rim category and the Other category
in the preceding table represent export sales from the
United States to the respective category.
9. Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of investments and
trade receivables. The Company invests available cash in bank
deposits, investment-grade securities, and short-term interest-
producing investments, including government obligations and other
money market instruments. The Company 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. Management believes that any risk of
loss is significantly reduced due to the nature of the customers and
distributors with which it does business.
10. Commitments
The Company leases certain office facilities and equipment under
noncancelable operating leases with terms from one to five years.
Rent expense under such arrangements was $757,712, $629,505 and
$730,825 in 1997, 1996, and 1995, respectively. Noncancelable long-
term operating lease commitments are $347,897 for 1998, $233,624 for
1999, $173,559 for 2000, $98,390 for 2001 and $65,593 for 2002.
11. Selected Quarterly Financial Data
(Unaudited)
The following table presents unaudited financial data for
each quarter of 1997 and 1996
(in thousands, except per share data):
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter
Total net sales................ $6,792 $6,351 $9,000 $8,045
Gross profit................... 4,468 3,976 5,889 5,855
Income from operations......... 116 515 1,192 1,551
Net income..................... 168 387 842 1,183
Net income per share:
Basic.......................... $0.06 $0.13 $0.27 $0.38
Diluted........................ $0.05 $0.11 $0.24 $0.34
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
Total net sales................ $4,787 $6,819 $7,553 $9,627
Gross profit................... 3,160 4,308 5,209 6,119
Income (loss) from operations.. (356) 454 891 1,315
Net income (loss).............. (224) 397 688 1,091
Net income (loss) per share:
Basic.......................... $(0.08) $0.14 $0.23 $0.37
Diluted........................ $(0.08) $0.13 $0.22 $0.32
The 1996 and first three quarters of 1997 earnings per share amounts
have been restated as required to comply with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share". 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".
12. Credit Facility
The Company has a Credit Agreement with NationsBank, N.A. The
agreement provides a line of credit facility of $2,500,000. The
Credit Agreement requires the Company to meet certain financial
covenants, including various coverage ratios and a debt to
capitalization ratio. As of December 31, 1997, the Company was in
compliance with these covenants. Interest on borrowings is payable
under several rate options. Additionally, the Company is required
to pay a nominal commitment fee for the unused portion of the
facility. The Company has yet to borrow under the facility.
13. Long-term Debt
On November 14, 1997, the Company acquired its headquarters building
and grounds. Financing for the acquisition was obtained from
NationsBank, N.A. in the amount of $3,560,000. The five year
mortgage note amortizes the loan principal on a straight-line basis
on a twenty year schedule. The variable interest rate on the note
is equivalent to the thirty-day LIBOR rate plus 1.75%. The note
requires the Company to meet certain financial covenants consistent
with those of the Credit Agreement in note 12. The property
acquired acts as security for the borrowing. Concurrent with the
issuance of the mortgage note, the Company entered into an interest
rate swap agreement with NationsBank, N.A. This agreement
effectively changed the Company's floating rate exposure to a fixed
rate of 8.26%. The interest rate swap agreement matures at the same
time as the mortgage note and is for the same notional amount. The
Company is exposed to credit loss in the event of nonperformance by
the counterparty, NationsBank. However, the Company does not
anticipate nonperformance by the counterparty. At December 31, 1997
the thirty-day LIBOR rate plus 1.75% equaled 7.41%. Interest paid
during the periods was $21,300 in 1997. Maturities of long-term
debt are $178,000 for years 1998 through 2001 and $2,833,167 in
2002.
Long-term debt obligations were:
December 31, December 31,
1997 1996
8.26% mortgage note,
due November 14, 2002... $3,545,167 $ -
less current maturities.... (178,000) -
Long-term debt............. $3,367,167 $ -
14. Acquisition of Tripos Receptor Research Ltd.
On November 11, 1997, the Company 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. The warrants
will vest upon Receptor Research's achievement of certain sales and
earnings levels in 1998 and 1999. The warrants were recorded at
their fair market value at the date of the grant. The purchase
price has been 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.
15. Earnings Per Share
The following table sets forth the computation of basis and diluted
earnings per share:
1997 1996 1995
Numerator:
Numerator for basic and
diluted earnings per share -
net income (loss)........... $2,579,861 $1,952,216 $(1,695,723)
Denominator:
Denominator for basic
earnings per share -
weighted average shares..... 3,085,077 2,923,284 2,859,533
Effect of dilutive securities:
Employee stock options..... 418,869 298,696 -
Denominator for diluted
earnings per share -
adjusted weighted average
shares and assumed conversions. 3,503,946 3,221,980 2,859,533
Basic earnings per share.... $0.84 $0.67 $(0.59)
Diluted earnings per share.. $0.74 $0.61 $(0.59)
Under the Receptor Research Ltd stock purchase agreement, if that
subsidiary's sales and earnings exceed a certain threshold for the
years ended December 31, 1998 and 1999, the former stockholders of
Receptor Research would be entitled to exercise their warrants. The
warrants are not included in the computation of diluted earnings per
share because the thresholds have not been met.
Report of Independent Auditors
Board of Directors and Shareholders
Tripos, Inc.
We have audited the accompanying consolidated balance sheets of
Tripos, Inc. as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31,
1997. 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 generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Tripos, Inc. at December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. 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 6, 1998
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 the Company's Proxy Statement in
connection with its Annual Meeting of Shareholders to be held on May
7, 1998 and is incorporated herein by reference. The information
required by this item relating to the Company's executive officers
and key employees is included in the Company's 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 Company's Proxy Statement in connection
with its Annual Meeting of Shareholders to be held on May 7, 1998
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 Company's Proxy Statement in
connection with its Annual Meeting of Shareholders to be held on May
7, 1998 and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The Company 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:
10.11 Loan Agreement dated November 14, 1997 between
NationsBank, N.A. and Tripos Realty, LLC.
10.12 Purchase and Sale Agreement dated June 3, 1997 between
Cahn Realty Associates 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
27.1 Financial Data Schedule - restatement of Earnings Per
Share for the 3-, 6-, and 9-month periods of 1997 and
the 12-month period of 1996 for the effect of FAS 128,
"Earnings per Share".
(b) Reports on Form 8-K filed in the fourth quarter of 1997:
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: John P. McAlister March 27, 1998
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, 1997, 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 27, 1998
John P. McAlister III President and Director
(Principal Executive Officer)
/s/ Colleen A. Martin VP, Chief Financial Officer March 27, 1998
Colleen A. Martin and Secretary
(Principal Financial Officer)
/s/ John D. Yingling U.S. Controller and Treasurer March 27, 1998
John D. Yingling (Principal Accounting Officer)
/s/ Ralph S. Lobdell Chairman of the Board of March 27, 1998
Ralph S. Lobdell Directors
/s/ Stewart Carrell Director March 27, 1998
Stewart Carrell
/s/ Gary Meredith Director March 27, 1998
Gary Meredith
/s/ Ferid Murad Director March 27, 1998
Ferid Murad
/s/ Alfred Alberts Director March 27, 1998
Alfred Alberts
TRIPOS, INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1995, December 31,1996 and December 31, 1997
(in thousands)
Col. A Col. B Col. C Col. D Col. E
Additions
Balance Charged Charged Deductions
at to to Charged Balance
Beginning Cost Other to at
of and Accounts Reserves End of
Description Period Expenses Period
Allowance for
Doubtful Accounts
1995 $66 $2 $-- $28 $40
1996 40 140 -- 103 77
1997 77 1 -- -- 78
Valuation Allowance
for Deferred
Income Tax Assets:
1995 $-- $-- $414 $-- $414
1996 414 -- 143 414 143
1997 143 -- -- 98 45
Exhibit Exhibit Index
Number Description
2.1a Distribution Agreement between Tripos and E&S
3.1p Amended and Restated Articles of Incorporation dated
January 26, 1996
3.2a Amended and Restated Bylaws of Tripos
10.1b Tripos, Inc. 1994 Stock Option Plan
10.2b Tripos, Inc. 1994 Employee Stock Purchase Plan
10.3b Tripos, Inc. 1994 Director Option Plan
10.4b Tripos, Inc. 1994 401(k) Plan
10.5p Amendment to the 1994 401(k) Plan
10.6p Tripos, Inc. 1996 Director Stock Compensation Plan
10.7p Master Collaboration Agreement between Tripos and MDL
Information
Systems, Inc. dated February 2, 1996
10.8p Rights Agreement between Tripos and Boatmen's Trust
Company, as Rights Agent, dated January 26, 1996
10.9p Strategic Business Alliance Teaming Agreement between
Tripos and MDS Panlabs, Inc. dated June 30, 1995
10.10c 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)
10.11 Loan Agreement dated November 14, 1997 between
NationsBank, N.A. and Tripos Realty, LLC.
10.12 Purchase and Sale Agreement dated June 3, 1997
between Cahn Realty Associates and Tripos, Inc.
21 Subsidiaries of the Registrant: Tripos Realty, LLC.,
Tripos Associates S.A.R.L., Tripos GMBH, Tripos UK Holdings Ltd.,
Tripos UK Ltd. and Tripos Receptor Research Ltd.
23.1 Consent of Ernst & Young LLP, Independent Auditors
24 Power of Attorney, See the signature page
27 Financial Data Schedule
27.1 Financial Data Schedule - restatement of Earnings Per
Share for the 3-, 6-, and 9-month periods of 1997 and the 12-month
period of 1996 for the effect of FAS 128, "Earnings per Share".
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.
c Previously filed as an exhibit to the Company's Form 10-Q
for the period ended September 30, 1996 and incorporated herein by
reference.
Exhibit 10.11
NationsBank, N.A.
LOAN AGREEMENT
This Loan Agreement (the "Agreement") dated as of November 14,
1997, by and between NationsBank, N.A. a national banking
association ("Bank") and the Borrower described below.
In consideration of the Loan described below and the mutual
covenants and agreements contained herein, and intending to be
legally bound hereby, Bank and Borrower agree as follows:
1. DEFINITIONS AND REFERENCE TERMS. In addition to any other
terms defined herein, the following terms shall have the meaning set
forth with respect thereto:
A. Borrower: Tripos Realty, LLC.
B. Borrower's Address: 1699 South Hanley Road
St. Louis, Missouri 63144
C. Guarantor: Tripos, Inc.
D. Hazardous Materials. Hazardous Materials include all
materials defined as hazardous materials or substances under any
local, state or federal environmental laws, rules or regulations,
and petroleum, petroleum products, oil and asbestos.
E. Loan. The loan described in Section 2 hereof.
F. Loan Documents. Loan Documents means this Loan
Agreement and any and all promissory notes relating thereto
executed by Borrower in favor of Bank and all other documents,
instruments, guarantees, certificates and agreements executed
and/or delivered by Borrower, any guarantor or third party in
connection with the Loan.
G. Accounting Terms. All accounting terms not
specifically defined or specified herein shall have the meanings
generally attributed to such terms under generally accepted
accounting principles ("GAAP"), as in effect from time to time,
consistently applied, with respect to the financial statements
referenced in Section 3.H. hereof.
2. LOANS.
A. Loan. Bank hereby agrees to make a loan to Borrower
in the aggregate principal face amount of three million five hundred
sixty thousand dollars ($3,560,000). The obligation to repay the
loan is evidenced by a promissory note dated November 14, 1997 (the
promissory note, together with any and all renewals, extensions or
rearrangements thereof being hereafter collectively referred to as
the "Note") having a maturity date, repayment terms and interest
rate as set forth in the Note.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby
represents and warrants to Bank as follows:
A. Good Standing. Borrower is a limited liability
company duly organized, validly existing and in good standing under
the laws of the State of Missouri and has the power and authority to
own its property and to carry on its business in the State of
Missouri.
B. Authority and Compliance. Borrower has full power
and authority to execute and deliver the Loan Documents and to incur
and perform the obligations provided for therein, all of which have
been duly authorized by all proper and necessary action of the
appropriate governing body of Borrower. No consent or approval of
any public authority or other third party is required as a condition
to the validity of any Loan Document, and Borrower is in material
compliance with all laws and regulatory requirements to which it is
subject.
C. Binding Agreement. This Agreement and the other Loan
Documents executed by Borrower constitute valid and legally binding
obligations of Borrower, enforceable in accordance with their terms.
D. Litigation. There is no proceeding involving
Borrower pending or, to the knowledge of Borrower, threatened before
any court or governmental authority, agency or arbitration
authority, except as disclosed to Bank in writing and acknowledged
by Bank prior to the date of this Agreement.
E. No Conflicting Agreements. There is no charter,
bylaw, stock provision, partnership agreement or other document
pertaining to the organization, power or authority of Borrower and
no provision of any existing agreement, mortgage, indenture or
contract binding on Borrower or affecting its property, which would
conflict with or in any way prevent the execution, delivery or
carrying out of the terms of this Agreement and the other Loan
Documents.
F. Ownership of Assets. Borrower has good title to its
assets, and its assets are free and clear of liens, except those
granted to Bank and as disclosed to Bank in writing prior to the
date of this Agreement.
G. Taxes. All taxes and assessments due and payable by
Borrower have been paid or are being contested in good faith by
appropriate proceedings and the Borrower has filed all tax returns
which it is required to file.
H. Financial Statements. The financial statements of
Guarantor heretofore delivered to Bank have been prepared in
accordance with GAAP applied on a consistent basis throughout the
period involved and fairly present Guarantor's financial condition
as of the date or dates thereof, and there has been no material
adverse change in the Guarantor's financial condition or operations
since June 30, 1997. All factual information furnished by
Borrower and Guarantor to Bank in connection with this Agreement and
the other Loan Documents is and will be accurate and complete on the
date as of which such information is delivered to Bank and is not
and will not be incomplete by the omission of any material fact
necessary to make such information not misleading. The Bank
acknowledges that Borrower is a newly formed limited liability
company that was formed on October 23, 1997, and that Borrower has
not yet provided any financial statements of Borrower to Bank.
I. Place of Business. Borrower's chief executive office
is located at 1699 South Hanley Road, Saint Louis, Missouri, 63144.
J. Environmental. The conduct of Borrower's business
operations and the condition of Borrower's property does not and
will not violate any federal laws, rules or ordinances for
environmental protection, regulations of the Environmental
Protection Agency, any applicable local or state law, rule,
regulation or rule of common law or any judicial interpretation
thereof relating primarily to the environment or Hazardous
Materials.
K. Continuation of Representations and Warranties. All
representations and warranties made under this Agreement shall be
deemed to be made at and as of the date hereof and at and as of the
date of any advance under any Loan.
4. AFFIRMATIVE COVENANTS. Until full payment and performance
of all obligations of Borrower under the Loan Documents, Borrower
will, unless Bank consents otherwise in writing (and without
limiting any requirement of any other Loan Document):
A. Financial Condition. Maintain Guarantor's financial
condition as follows, determined in accordance with GAAP applied on
a consistent basis throughout the period involved except to the
extent modified by the following definitions:
i. Maintain a current ratio (defined as total
current assets, divided by total current liabilities)
of not less than 1.75:1.0 to be tested on a quarterly
basis.
ii. Maintain a ratio of total liabilities divided
by tangible net worth of not more than 1.25:1.0 to
be tested on a quarterly basis.
iii. Maintain a Fixed Charge Coverage Ratio (defined
as the aggregate of net income after taxes plus
interest plus depreciation and other non-cash
expenses divided by the aggregate of the current
portion of long-term debt and capital lease
obligations plus interest expense) of not less than
1.30:1.0 to be tested on a quarterly basis.
iv. Maintain a minimum trailing twelve month EBITDA
(to be defined as the aggregate of net income plus
interest expense plus income tax expense plus
depreciation plus amortization) of $4,500,000 to be
tested on a quarterly basis.
B. Financial Statements and Other Information. Maintain
a system of accounting satisfactory to Bank and in accordance with
GAAP applied on a consistent basis throughout the period involved,
permit Bank's officers or authorized representatives to visit and
inspect Borrower's books of account and other records at such
reasonable times upon written notice from Bank, to be exercised no
more often than once each calendar year during the term of the Loan,
unless Borrower is in default, in which event Bank shall have the
right to perform such review as often as it desires. Borrower shall
reimburse Bank for the reasonable fees and disbursements of any
accountants or other agents of Bank selected by Bank for the
foregoing purposes if the Bank's inspection reveals that the
Borrower's financial statements materially misstate the Borrower's
financial condition, or if the Borrower is in default at the time of
such review. Unless written notice of another location is given to
Bank, Borrower's books and records will be located at Borrower's
chief executive office set forth above. All financial statements
called for below shall be prepared in form and content acceptable
to Bank.
In addition, Borrower and Guarantor will:
i. Furnish to Bank quarterly, within forty-five (45)
days of the end of each fiscal quarter, internally
prepared financial statements of Borrower and
Guarantor, to include a balance sheet, income
statement, and statement of cash flows.
ii. Furnish to Bank annually, within one hundred
twenty (120) days following the end of the Borrower's
and the Guarantor's fiscal year, financial statements
prepared in accordance with generally accepted
accounting principles. The annual statements of the
Guarantor must be prepared on an audited basis by an
independent certified public accountant acceptable to
the Bank, and must include a balance sheet, income
statement, statement of cash flows, and statement of
changes in shareholders equity.
iii. Concurrently with and dated as of the date of
delivery of each of the financial statements as
required in paragraphs i and ii above, Borrower and
Guarantor will furnish to Bank a compliance
certificate for Borrower and Guarantor in the form of
Exhibit A attached hereto and including computations
of all quantitative covenants.
iv. Furnish to Bank copies of all SEC filings within
10 days of filing.
v. Furnish to Bank promptly such additional
information, reports and statements respecting the
business operations and financial condition of
Borrower and Guarantor, from time to time, as Bank
may reasonably request.
C. Insurance. Maintain insurance with responsible
insurance companies on such of its properties, in such amounts and
against such risks as is customarily maintained by similar
businesses operating in the same vicinity, including fire,
liability, and casualty insurance, all to be with such companies and
in such amounts as are satisfactory to Bank and providing for at
least 30 days prior notice to Bank of any cancellation thereof.
Satisfactory evidence of such insurance will be supplied to Bank
prior to funding under the Loan and within 30 days of each policy
renewal.
D. Existence and Compliance. Maintain its existence,
good standing and qualification to do business, where required and
comply with all laws, regulations and governmental requirements
including, without limitation, environmental laws applicable to it
or to any of its property, business operations and transactions.
E. Adverse Conditions or Events. Promptly advise Bank
in writing of (i) any litigation filed by or against Borrower, and
(ii) any event that has occurred that would constitute an event of
default under any Loan Documents.
F. Taxes and Other Obligations. Pay all of its taxes,
assessments and other obligations, including, but not limited to
taxes, costs or other expenses arising out of this transaction, as
the same become due and payable, except to the extent the same are
being contested in good faith by appropriate proceedings in a
diligent manner. In addition, Borrower must provide Bank with proof
of payment of property taxes by December 31 of each calendar year,
said proof to be provided within thirty (30) days after the end of
each calendar year.
G. Maintenance. Maintain all of its tangible property
in good condition and repair and make all necessary replacements
thereof, and preserve and maintain all licenses, trademarks,
privileges, permits, franchises, certificates and the like necessary
for the operation of its business.
H. Environmental. Immediately advise Bank in writing
of (i) any and all enforcement, cleanup, remedial, removal, or other
governmental or regulatory actions instituted, completed or
threatened pursuant to any applicable federal, state, or local laws,
ordinances or regulations relating to any Hazardous Materials
affecting Borrower's business operations; and (ii) all claims made
or threatened by any third party against Borrower relating to
damages, contribution, cost recovery, compensation, loss or injury
resulting from any Hazardous Materials. Borrower shall immediately
notify Bank of any remedial action taken by Borrower with respect to
Borrower's business operations. Borrower will not use or permit any
other party to use any Hazardous Materials at any of Borrower's
places of business or at any other property owned by Borrower except
such materials as are incidental to Borrower's normal course of
business, maintenance and repairs and which are handled in
compliance with all applicable environmental laws. Borrower agrees
to permit Bank, its agents, contractors and employees to enter and
inspect any of Borrower's places of business or any other property
of Borrower at any reasonable times upon three (3) days prior notice
for the purposes of conducting an environmental investigation and
audit (including taking physical samples) to insure that Borrower is
complying with this covenant and, if such audit reveals that
Borrower is not in compliance with this covenant, Borrower shall
reimburse Bank on demand for the costs of any such environmental
investigation and audit. Borrower shall provide Bank, its agents,
contractors, employees and representatives with access to and copies
of any and all data and documents relating to or dealing with any
Hazardous Materials used, generated, manufactured, stored or
disposed of by Borrower's business operations within five (5) days
of the request therefore.
5. NEGATIVE COVENANTS. Until full payment and performance of
all obligations of Borrower under the Loan Documents, Borrower will
not, without the prior written consent of Bank (and without limiting
any requirement of any other Loan Documents):
A. Transfer of Assets. Sell, lease, assign or otherwise
dispose of or transfer any assets, except in the normal course of
its business.
B. Liens. Grant, suffer or permit any contractual or
noncontractual lien on or security interest in its assets, except in
favor of Bank, and except to the extent Borrower is contesting any
mechanics' liens in good faith by appropriate proceedings in a
diligent manner, or fail to promptly pay when due all lawful claims,
whether for labor, materials or otherwise.
C. Extensions of Credit. Make any loan or advance to
any person or entity, or guaranty or otherwise become liable for or
upon the obligations of others.
D. Borrowings. Create, incur, assume or become liable
in any manner for any indebtedness (for borrowed money, deferred
payment for the purchase of assets, lease payments, as surety or
guarantor for the debt for another, or otherwise) other than to
Bank, except for normal trade debts incurred in the ordinary course
of Borrower's business, and except for existing indebtedness
disclosed to Bank in writing and acknowledged by Bank prior to the
date of this Agreement.
6. DEFAULT. Each of the following shall severally be
considered an "Event of Default" for the purposes of this Agreement:
A. Failure by Borrower, any endorser or any guarantor of
the Loan to pay any principal or interest amounts due and owing
under the Loan or any other indebtedness owing to Bank within three
(3) days of its due date.
B. Failure to timely cure, within 30 days of written
notice from the Bank, and properly observe, keep or perform any
term, covenant, agreement or condition in any of the Loan Documents
or in any other loan agreement, promissory note, security agreement,
deed of trust, deed to secure debt, mortgage, assignment or other
contract securing or evidencing payment of any indebtedness of
Borrower, any endorser or any Guarantor of any loan to Bank or to
any affiliate or subsidiary of NationsBank Corporation.
C. Occurrence of any event or condition which
constitutes, or upon the lapse of time or the giving of notice, or
both, would constitute, a default or an event of default under any
other agreement or evidence of indebtedness relating to any
obligation of Borrower for borrowed money, or failure by Borrower to
pay under any obligation for borrowed money to which it is a party
or which is binding upon it.
If any fact or warranty made in this Agreement or in any other of
the Loan Documents should prove to be untrue in any material
respect, as of the date made.
D. Occurrence of any of the following:
i. Adjudication by a court of competent jurisdiction that Borrower
is bankrupt or insolvent or the appointment of a receiver for
Borrower or for all or a substantial part of its property:
ii. Filing by Borrower (or by any of its creditors, if not
dismissed within 60 days) of a petition under the provisions of the
Bankruptcy Code as now enacted or hereafter amended;
iii. Making by Borrower of a general assignment for the benefit of
creditors
E. If any judgment against the Borrower or any attachment
or other levy against any of its property for an amount in excess of
$100,000 remains unpaid, unstayed on appeal, undischarged, unbonded,
or undismissed for more than 30 days.
F. Any Reportable Event that Bank determines in good
faith would constitute grounds for the termination of any Plan or
for the appointment by the appropriate United States District Court
of a trustee to administer any Plan shall have occurred and shall
continue for 30 days after written notice to such effect shall have
been given to Borrower by Bank, or any Plan shall be terminated for
such reason, or the Pension Benefit Guaranty Corporation shall
institute proceedings to terminate any plan or to appoint a trustee
to administer any Plan.
7. REMEDIES UPON DEFAULT. If an event of default shall
occur, Bank shall have all rights, powers and remedies available
under each of the Loan Documents as well as all rights and remedies
available at law or in equity.
8. NOTICES. All notices, requests or demands which any party
is required or may desire to give to any other party under any
provision of this Agreement must be in writing delivered to the
other party at the following address:
Borrower:
Tripos Realty, LLC
1699 South Hanley Road
St. Louis, MO 63144
Attn: John D. Yingling
Fax. No. (314) 647-9241
Bank:
NationsBank, N.A.
800 Market Street, 12th Floor
St. Louis, MO 63101
Attn: Susan D. Patterson
Fax No. (314) 466-7010
or to such other address as any party may designate by written
notice to the other party. Each such notice, request and demand
shall be deemed given or made as follows:
A. If sent by mail, upon the earlier of the date of
receipt or five (5) days after deposit in the U.S. Mail, first class
postage prepaid;
B. If sent by any other means , upon delivery.
9. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay
to Bank immediately upon demand the full amount of all costs and
expenses, including reasonable attorneys' fees (to include outside
counsel fees), incurred by Bank in connection with the negotiation
and preparation of this Agreement and each of the Loan Documents,
the costs of any environmental investigation and audit appraisal,
title insurance premiums, survey and inspection fees, and all other
costs and attorneys' fees incurred by Bank. The Bank agrees that
the Borrower will not be responsible for Bank legal counsel fees in
excess of four thousand dollars ($4,000).
10. MISCELLANEOUS. Borrower and Bank further covenant and
agree as follows, without limiting any requirement of any other Loan
Document:
A. Cumulative Rights and No Waiver. Each and every
right granted to Bank under any Loan Document, or allowed it by law
or equity shall be cumulative of each other and may be exercised in
addition to any and all other rights of Bank, and no delay in
exercising any right shall operate as a waiver thereof, nor shall
any single or partial exercise by Bank of any right preclude any
other or future exercise thereof or the exercise of any other right.
Borrower expressly waives any presentment, demand, protest or other
notice of any kind, including but not limited to notice of intent to
accelerate and notice of acceleration. No notice to or demand on
Borrower in any case shall, of itself, entitle Borrower to any other
or future notice or demand in similar or other circumstances.
B. Applicable Law. This Loan Agreement and the rights
and obligations of the parties hereunder shall be governed by and
interpreted in accordance with the laws of the State of Missouri and
applicable United States federal law.
C. Amendment. No modification, consent, amendment or
waiver of any provision of this Loan Agreement, nor consent to any
departure by Borrower therefrom, shall be effective unless the same
shall be in writing and signed by an officer of Bank, and then shall
be effective only in the specified instance and for the purpose for
which given. This Loan Agreement is binding upon Borrower, its
successors and assigns, and inures to the benefit of Bank, its
successors and assigns; however, no assignment or other transfer of
Borrower's rights or obligations hereunder shall be made or be
effective without Bank's prior written consent, nor shall it relieve
Borrower of any obligations hereunder. There is no third party
beneficiary of this Loan Agreement.
D. Documents. All documents, certificates and other
items required under this Loan Agreement to be executed and/or
delivered to Bank shall be in form and content satisfactory to Bank
and its counsel.
E. Partial Invalidity. The unenforceability or
invalidity of any provision of this Loan Agreement shall not affect
the enforceability or validity of any other provision herein and the
invalidity or unenforceability of any provision of any Loan
Document to any person or circumstance shall not affect the
enforceability or validity of such provision as it may apply to
other persons or circumstances.
F. Indemnification. Notwithstanding anything to the
contrary contained in Section 10(G), Borrower shall indemnify,
defend and hold Bank and its successors and assigns harmless from
and against any and all claims, demands, suits, losses, damages,
assessments, fines, penalties, costs or other expenses (including
reasonable attorneys' fees and court costs) arising from or in any
way related to any of the transactions contemplated hereby,
including but not limited to actual or threatened damage to the
environment, agency costs of investigation, personal injury or
death, or property damage, due to a release or alleged release of
Hazardous Materials, arising from Borrower's business operations,
any other property owned by Borrower or in the surface or ground
water arising from Borrower's business operations, or gaseous
emissions arising from Borrower's business operations or any other
condition existing or arising from Borrower's business operations
resulting from the use or existence of Hazardous Materials, whether
such claim proves to be true or false. Borrower further agrees that
its indemnity obligations shall include, but are not limited to,
liability for damages resulting from the personal injury or death of
an employee of the Borrower, regardless of whether the Borrower has
paid the employee under the workmen' s compensation laws of any
state or other similar federal or state legislation for the
protection of employees. The term "property damage" as used in this
paragraph includes, but is not limited to, damage to any real or
personal property of the Borrower, the Bank, and of any third
parties. The Borrower's obligations under this paragraph shall
survive the repayment of the Loan and any deed in lieu of
foreclosure or foreclosure of any Deed to Secure Debt, Deed of
Trust, Security Agreement or Mortgage securing the Loan.
G. Survivability. All covenants, agreements,
representations and warranties made herein or in the other Loan
Documents shall survive the making of the Loan and shall continue in
full force and effect so long as the Loan is outstanding.
11. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG
THE PARTIES HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF
OR RELATING TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED
INSTRUMENTS, AGREEMENTS OR DOCUMENTS, INCLUDING ANY CLAIM BASED ON
OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING
ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF
NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF
J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE
"SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY INCONSISTENCY,
THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO
THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO
WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER
SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN
THE CITY OF THE BORROWER'S DOMICILE AT TIME OF THE EXECUTION OF THIS
INSTRUMENT, AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO
WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY
PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN
ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL
BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER,
THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO
EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION
PROVISION SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY
OTHERWISE APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY
WAIVERS CONTAINED IN THIS ARBITRATION PROVISION; OR (II) BE A WAIVER
BY THE BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR
ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF
THE BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT
LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL
PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR
ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF,
WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE BANK MAY
EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR
OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO
THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF
SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION
FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL
CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE
CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
12. NO ORAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE
OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed under seal by their duly authorized
representatives as of the date first above written.
Tripos Realty, LLC: NationsBank, N.A.:
By: Tripos, Inc. its sole member
By: By:
John Yingling Susan D. Patterson
U.S.Controller and Corporate Treasurer Assistant Vice President
EXHIBIT A
CERTIFICATE OF COMPLIANCE
I, , Authorized Signatory for TRIPOS REALTY, L.L.C.
("Borrower") under the Loan Agreement (as amended, modified, or
supplemented from time to time, the "Loan Agreement") between
Borrower and NATIONSBANK, N.A. ("Bank"), dated effective as of
November 14, 1997, do hereby certify that:
1. This Compliance Certificate is furnished pursuant to the Loan
Agreement and is made as of , 19 ; unless
otherwise defined herein, terms used in this Compliance Certificate
have the meanings assigned to such terms in the Loan Agreement.
2. As of the date of this Compliance Certificate, no Default or
Event of Default has occurred and is continuing.
3. Borrower and Guarantor are in compliance with all requirements,
covenants, and agreements of Borrower and Guarantor contained in the
Loan Agreement. Borrower warrants and represents that the attached
calculations accurately represent the financial condition of the
Guarantor as of the dates set forth therein (and as of the date
hereof if not otherwise specified) and the calculations are computed
in compliance with the financial covenants required pursuant to the
Loan Agreement.
4. The most recent financial statements furnished by Borrower and
Guarantor pursuant to the Loan Agreement fairly present the
financial condition of Borrower and Guarantor as of the respective
dates thereof.
5. There has not been any material adverse change in the financial
condition of the Borrower or the Guarantor from that reflected on,
and as of the date of, the financial statements most recently
furnished to the Bank.
6. There is no pending or, to the best of the Borrower's
knowledge, threatened material litigation against Borrower or
Guarantor which, if adversely determined, could reasonably be
expected to have a material adverse effect on the Borrower's or
Guarantor's financial condition.
7. Neither the Borrower nor the Guarantor is a party to any
agreement or instrument or subject to any other order, rule,
regulation, or other restriction materially and adversely affecting
Borrower's or Guarantor's properties, assets, or financial
condition, or Borrower's or Guarantor's ability to perform the
agreements contained in the Loan Agreement.
Done and executed on this, the day of , 19 .
Authorized Signatory under the LoanAgreement
Exhibit 10.12
PURCHASE AND SALE AGREEMENT
THIS is made as of the Effective Date (as hereinafter
defined) ("Agreement") by and between CAHN REALTY ASSOCIATES, a
Missouri general partnership ("Seller") and TRIPOS, INC., a Utah
corporation ("Purchaser").
WITNESSETH:
WHEREAS, Purchaser desires to purchase and Seller desires to
sell the Property (as hereinafter defined) on the terms and subject
to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises herein
contained and the respective undertakings of the parties hereinafter
set forth, the Seller and Purchaser hereby agree as follows:
1. Purchase and Sale. Subject to the terms and conditions of
this Agreement, Seller agrees to sell to Purchaser and Purchaser
agrees to purchase from Seller all of the following described
property (collectively, the "Property"):
(a) Real Property. That certain real property located in
the City of Brentwood, County of St. Louis, Missouri being
approximately 2.564 acres, depicted in the drawing attached
hereto as Exhibit A, (legal description from Purchaser's survey
(if any) or title Commitment to govern), and located at 1699-
1701 South Hanley Road (the aforesaid real property, together
with all tenements, hereditaments, easements, rights-of-way and
appurtenances belonging or in any way pertaining to the same
are collectively the "Real Property");
(b) Improvements. All buildings, structures, parking
areas, fixtures and other improvements located on the Real
Property (collectively, the "Improvements");
(c) Personal Property. Seller's interest in all
equipment, mechanical systems, leasehold improvements,
appliances, tools, machinery, supplies, building materials,
office equipment, and other personal property of every kind and
character owned by Seller (and not by any tenants) and attached
to, appurtenant to, located in, or used exclusively in
connection with the operation of, the Improvements or Real
Property, and described on Exhibit B attached hereto (said
items being hereinafter collectively referred to as the
"Personal Property"); and
(d) Intangible Property. Seller's interest in the
following intangible property (collectively, the "Intangible
Property") owned or held by Seller in connection with the Real
Property, the Improvements or the Personal Property: (i) all
leases and tenancy agreements including, without limitation,
those identified on Exhibit C attached hereto and security
deposits thereunder, (said items being hereinafter collectively
referred to as the "Tenant Leases"), (ii) all transferable
service contracts or similar instruments related to the Real
Property and Improvements including, without limitation, those
identified on the Schedule of Contracts attached hereto as
Exhibit D (said items being hereinafter referred to as the
"Contracts"), provided that Purchaser may, at its option,
require Seller to cancel any such contracts effective as of
Closing to the extent such contracts permit cancellation, (iii)
all transferrable licenses and warranties owned by Seller
covering the Property or any part thereof including, without
limitation, those identified on the List of Licenses and
Warranties attached hereto as Exhibit E (collectively, the
"Warranties"), and (iv) all transferable permits owned by
Seller covering the Property or any part thereof including,
without limitation, those identified on the list of permits
attached hereto as Exhibit F (collectively, "Permits").
2. Purchase Price. Subject to the prorations and credits
hereinafter provided, the Purchase Price ("Purchase Price") for the
Property shall be Four Million Five Hundred Fifty Thousand and
00/100 Dollars ($4,550,000.00), which shall be payable and allocated
as follows:
(a) Earnest Money: Within two (2) days after the
Effective Date, Purchaser shall deposit, as earnest money, One
Hundred Thousand and 00/100 Dollars ($100,000.00) (said monies,
together with any and all interest accrued thereon, are
collectively the "Earnest Money") into escrow pursuant to the
terms hereof ("Escrow") with U.S. Title Guaranty ("Title
Insurer"), as escrowee. The Earnest Money shall be held in
escrow pursuant to the terms hereof and disbursed only in
accordance with the provisions hereof. The Earnest Money shall
be invested in a federally insured account approved by Seller
and Purchaser, and all interest earned thereon shall accrue to
the benefit of the party entitled to the Earnest Money. The
Earnest Money shall be applied against the Purchase Price at
Closing (as hereinafter defined). In the event Closing does
not occur by the Closing Date (as hereinafter defined) owing to
failure of performance by Purchaser, the Earnest Money shall be
forfeited by Purchaser as liquidated damages. Notwithstanding
any provision herein to the contrary, in the event Closing does
not occur by the Closing Date for any other reason, the Earnest
Money shall be returned to Purchaser; and
(b) Cash Balance. On or before the Closing Date (as
hereinafter defined), Purchaser shall deposit with Title
Insurer, as escrowee, the balance of the Purchase Price in
cash, certified or cashier's check or by federal wire transfer,
as adjusted as provided in paragraphs 5 and 6 below.
3. Closing. Unless an earlier or later date is established
by mutual agreement between the parties, the closing of the
transaction contemplated by this Agreement shall be held at the
office of Title Insurer at 10:00 a.m. on the first business day
following the date which is thirty (30) days subsequent to the
expiration of the Inspection Period (herein referred to as the
"Closing" or "Closing Date").
4. Deliveries at Closing.
(a) At Closing, Seller shall deliver to Title Insurer, as
escrowee, to be held in escrow by Title Insurer for completion
of all closing requirements, the following documents:
(i) Special warranty deed from Seller conveying
to Purchaser the Real Property and Improvements, subject
only to the Permitted Exceptions (as hereinafter defined)
and the Tenant Leases (the "Deed");
(ii) A bill of sale with respect to the Personal
Property;
(iii) A Certificate of Non-Foreign Status of
Seller as required by Section 1445 of the Internal Revenue
Code;
(iv) An Assignment of the Tenant Leases and the
Contracts, together with the original copy of each Tenant
Lease certified by Seller to be a true, correct and
complete copy.
(v) A termination of any Contract that
Purchaser has not elected to retain and to include in the
Assignment of Tenant Leases and Contracts;
(vi) An assignment of the Warranties and
Permits;
(vii) All keys, originals of Contracts,
Permits, and Warranties and all of the other Property
Information (as hereinafter defined), all to the extent in
Seller's possession or actual control;
(viii) Releases of all Objectionable
Exceptions that Seller has elected to cure pursuant to
subparagraph 7(b) hereof.
(ix) Such proof of Seller's authority and
authorization to enter into this transaction as may be
reasonably required by Purchaser and/or Title Insurer;
(x) Any reasonable and customary documentation
required by Title Insurer in order for Title Insurer to
issue the Title Policy;
(xi) Such additional documents or instruments,
which in the reasonable opinion of Purchaser and/or Title
Insurer, are necessary for the proper consummation of the
transaction contemplated by this Agreement, provided none
of said additional documents or instruments impose any
cost or obligation upon Seller not otherwise specifically
imposed upon Seller pursuant to the terms of this
Agreement;
(xii) A notice to tenants under the Tenant
Leases advising of the sale to Purchaser and advising the
tenants to pay all future rentals to Purchaser in form and
substance satisfactory to Purchaser; and
(xiii) A written certification from Seller or
the management company engaged by Seller of: (A) all
rents and other charges paid by tenants under the Tenant
Leases for both the current year (to date) and the month
during which the Closing takes place, and (B) all
estimated charges due from tenants to the Closing Date on
account of taxes, common area maintenance, operating
expenses, escalations and other rent adjustments, if any.
(b) At Closing, Purchaser shall deliver to Title Insurer,
as escrowee, to be held in escrow for completion of all closing
requirements, the following:
(i) The balance of the Purchase Price in
accordance with paragraph 2(b) above;
(ii) An original executed counterpart of the
Assignment of Leases and Contracts;
(iii) Such proof of Purchaser's authority
and authorization to enter into this transaction as may be
reasonably required by Seller and/or Title Insurer; and
(iv) Any reasonable and customary documentation
required by Title Insurer in order for Title Insurer to
issue the Title Policy;
(v) Such additional documents or instruments,
which in the reasonable opinion of Seller and/or Title
Insurer, are necessary for the proper consummation of the
transaction contemplated by this Agreement, provided none
of said additional documents or instruments impose any
cost or obligation upon Purchaser not otherwise
specifically imposed upon Purchaser pursuant to the terms
of this Agreement.
(c) At Closing, Purchaser and Seller shall deliver to
Title Insurer, as escrowee, six (6) originals of a closing
statement which reflect the applicable proration items as set
forth in Paragraphs 5 and 6 of this Agreement.
5. Allocation of Closing Costs and Expenses. Seller shall
bear the cost to record any instruments necessary to clear Seller's
title (except for the Permitted Exceptions and the Tenant Leases),
one-half the cost of the Escrow and one-half the Closing cost.
Purchaser shall bear the cost of the Title Policy, any recording
fees with respect to the Deed, all costs incurred in connection with
obtaining Purchaser's financing for this transaction, if any, one-
half the cost of the Escrow and one-half of the Closing cost. All
other costs and expenses in connection with the transaction
contemplated by this Agreement shall be borne by Purchaser and
Seller in the manner in which such cost and expenses are customarily
allocated between the parties at closings of real property similar
to the Property in the St. Louis County, Missouri area. Except as
provided in subparagraph 18(l) below, each party hereto shall pay
its own attorneys' fees incurred in the preparation and negotiation
of this Agreement and the closing of the transaction contemplated
hereby.
6. Prorations. The following prorations, except as
specifically provided herein to the contrary, shall be made as of
the Closing Date based on a 365 day year and the actual days per
month and shall be applied to reduce or increase the balance of the
Purchase Price, as applicable:
(a) Rentals. Subject to the terms and conditions of
subparagraph 6(c) below, prorations of rents, revenues, and
other income, if any, (collectively "Rentals") collected by
Seller from the Property during the month of Closing shall be
prorated as of 11:59 p.m. on the Closing Date ("Proration
Date"). It is agreed between the parties, the Closing Date
shall be an income and expense day for Seller. Seller and
Purchaser hereby acknowledge and agree that Seller shall be
entitled to all Rentals accruing on and prior to the Closing
Date and Purchaser shall be entitled to all Rentals accruing
after the Closing Date.
(b) Real Estate Taxes and Assessments. Ad valorem real
property taxes and special assessments for the year in which
Closing occurs shall be prorated between Purchaser and Seller
as of the Proration Date, Seller to have the last day. If the
actual general ad valorem taxes for the year in which Closing
occurs are not ascertainable by the parties as of the Proration
Date, such proration shall be based upon the assessed valuation
and tax rate for the Property for the 1996 tax year and shall
be re-prorated and readjusted when final tax bills for 1997 are
issued, and Seller or Purchaser as appropriate shall within 30
days of request therefor, pay to the other party the difference
between the original adjustment and the readjustment. Special
municipal taxes other than special assessments, if any,
assessed prior to Closing shall be discharged by Seller.
Seller shall be and remain responsible for any ad valorem real
property taxes and special assessments due and payable for 1996
and prior calendar years. The terms, provisions and conditions
of this subparagraph 6(b) shall survive Closing.
(c) Delinquent Rentals. All rents or other charges,
including pass through charges, paid by tenants shall be
prorated as of the Proration Date; provided no delinquent
rents, pass through charges, or other delinquent charges not
paid as of Closing shall be prorated at Closing in favor of
Seller. For a period of one (1) year after the Proration Date,
Purchaser shall pay to Seller any amounts as it shall collect
which are attributable to a time prior to the Proration Date;
provided, however, that all rents, pass through charges, or
other charges collected by Purchaser shall always first be
applied to satisfy all current rents and other payments due
Purchaser. Notwithstanding the foregoing, any rental amounts
due from Purchaser as tenant as of the date of Closing but not
paid as of the date of Closing shall be prorated between Seller
and Purchaser as of the Proration Date, and Seller shall not be
entitled to receive any portion of any later collection of such
amounts. To the extent that pass through charges paid by
tenants are paid on an estimated basis and later adjusted when
the actual amounts become known, any such pass through charge
adjustments payable by tenants but not due as of the Proration
Date shall, to the extent collected by Purchaser, be allocated
between Seller and Purchaser by reference to the period to
which such pass through charges relate, notwithstanding the
date on which such pass through charge adjustments become
payable. At the request of either Seller or Purchaser made
within the later of sixty days after the calendar year within
which the applicable pass through changes were accrued, or
sixty days after the last date by which the Landlord under the
leases for such tenants may determine the actual amounts of
such pass throughs, and Seller or Purchaser shall, within 30
days of request therefor, pay the other party the difference
between the original adjustment and the re-adjustment (which re-
adjustment shall include a proration of amounts due from the
Landlord to the tenant on account of any inaccurate estimated
pass-through payments). To the extent any delinquent rentals
due for the calendar month in which Closing occurs are received
by Seller or Purchaser after the Closing Date but prior to the
first (1st) day of the calendar month following the calendar
month in which Closing occurs, the parties hereby agree the
party who received said Rentals shall prorate the same and
remit to the other party, within three (3) business days
thereafter, said party's prorated share. Seller shall have the
right to pursue its legal rights against any tenant(s) owing
delinquent rentals relating to the period prior to the
Proration Date; provided, however, Seller agrees to take no
action which would (i) have the effect of terminating any then
existing Tenant Lease or (ii) disturb any of said tenant's
right to quiet possession of its premises or (iii) cause
Purchaser to incur any cost. The terms, provisions and
conditions of this subparagraph 6(c) shall survive Closing.
(d) Tenant Security Deposits. Purchaser shall be
entitled to a credit against the Purchase Price in an amount
equal to all tenant security deposits, if any, being held by
Seller under all Tenant Leases transferred to Purchaser as of
the Proration Date. To the extent that Purchaser so received a
credit for such deposit at Closing, Purchaser shall indemnify
and hold Seller harmless from and against all liabilities or
claims by a tenant under a Tenant Lease arising from any breach
by Purchaser of its obligation to return to such tenant any
portion of such tenant's security deposit. This
indemnification by Purchaser shall survive Closing hereunder.
(e) Property Expenses. Charges under all Contracts shall
be prorated on a per diem basis as of the Proration Date on the
basis of the billing period of the person levying such charges.
Except as otherwise may be set forth in this Agreement, Seller
shall be responsible for the payment of all operating expenses
for the Property incurred on or prior to the Closing Date and
Purchaser shall be responsible for the payment of all operating
expenses for the Property incurred after the Closing Date.
(f) Finality of Prorations. Unless otherwise provided
herein, all prorations hereunder shall be final.
7. Title Insurance.
(a) Title Commitment and Survey. Purchaser shall order
from Title Insurer a current Owner's Title Policy Commitment
("Commitment") for the issuance of a standard form Owner's
Policy of Title Insurance to Purchaser from Title Insurer,
together with such copies of documents constituting exceptions
to title as Purchaser deems necessary (collectively, "Title
Documents"). Purchaser may also obtain, and if so a copy shall
be furnished to Seller, a survey of the Real Property and
Improvements (the "Survey").
(b) Title Approval. Purchaser shall have a period of
seventy (70) days from the Effective Date ("Inspection Period")
in which to review the Commitment, the Survey and the Title
Documents and deliver to Seller in writing, such objections as
Purchaser may have to such matters that are contained in the
Commitment, Title Documents or Survey ("Purchaser's Objection
Notice") (any of said objections listed on Purchaser's
Objection Notice are deemed the "Objectionable Exceptions").
Copies of the Commitment and Title Documents shall be delivered
to Seller together with Purchaser's Objection Notice. If
Purchaser delivers a Purchaser's Objection Notice, Seller shall
notify Purchaser in writing within ten (10) business days of
receipt of such Notice, of which Objectionable Exceptions, if
any, it wishes to remedy and which it will not remedy. In the
event that Seller fails to so timely notify Purchaser as to any
Objectionable Exception, Seller shall be deemed to have elected
not to remedy such Objectionable Exception. If Seller chooses
not to remedy all Objectionable Exceptions, Purchaser shall
have the right to either (a) terminate this Agreement by
delivering written notice to Seller within twenty (20) days of
receipt of Seller's notice, in which event, the Earnest Money
shall be returned to Purchaser and each party shall be released
from further liability to the other or (b) if Purchaser does
not so terminate this Agreement, Purchaser shall be deemed to
have elected to consummate the transaction contemplated by this
Agreement in accordance with the terms hereof, without a
reduction in the Purchase Price, in which event, subject to the
following grammatical paragraph, all exceptions to title listed
on Schedule B of the Commitment (modified as described in
subparagraph (c) below) as of the expiration of the Inspection
Period and all matters contained in the Survey shall
conclusively be deemed to constitute Permitted Exceptions (as
hereinafter defined). In the event Purchaser fails to deliver
Purchaser's Objection Notice on or prior to the expiration of
the Inspection Period, subject to the following grammatical
paragraph, then all Schedule B exceptions contained in the
Commitment (modified as described in subparagraph (c) below)
and all matters contained on the Survey shall conclusively be
deemed "Permitted Exceptions." The parties agree to amend this
Agreement promptly after the expiration of the Inspection
Period to attach to this Agreement, as Exhibit G, the Permitted
Exceptions determined pursuant to this subparagraph 7(b). The
parties acknowledge and agree that a cross access easement or
other agreement may exist that affects Purchaser's right to
retain, use or demolish the existing 10,000 square foot
building located on the Property, and that the existence, if
any, of such an easement shall be deemed an Objectionable
Exception, and that if Seller chooses, pursuant to this
paragraph 7(b), to remedy such Objectionable Exception, such
remedy shall require confirmation to Purchaser's satisfaction
prior to Closing that Purchaser will have the full legal right,
at its option, to retain, use or demolish such building without
penalty.
In the event (i) Seller shall fail to cure any Objectionable
Exceptions, if any, it notified Purchaser it would remedy
within the time period herein provided or (ii) further defects,
liens, encumbrances, adverse claims, restrictions, rights-of-
way, easements or other matters relating to Seller's title to
the Property arise or are discovered after the effective date
of the Commitment and are not removed by Seller or approved by
Purchaser on or before the Closing Date, Purchaser shall have
the right to cancel this Agreement by giving written notice to
Seller. In such event, this Agreement shall be null and void
and of no further force and effect and the Earnest Money shall
be returned to Purchaser.
(c) Title Policy. Purchaser's obligation to close
hereunder shall be subject to the availability to Purchaser
from Title Insurer for the normal premium a standard ALTA form
Owner's Policy of Title Insurance or irrevocable commitment to
issue same ("Title Policy") covering the Property in the amount
of the Purchase Price, subject only to (i) taxes for the year
1997 and subsequent years, (ii) the Permitted Exceptions, and
(iii) the Tenant Leases. The Permitted Exceptions and
Purchaser's determination as to the availability of the
aforesaid Policy (subject to Seller's delivery of affidavits
and other documents required under paragraph 4 hereof) shall be
established in writing prior to the expiration of the
Inspection Period as provided in subparagraph 7(b) above.
8. Lease with Elan-Polo.
The obligation of Purchaser to Close under this Agreement
is expressly contingent upon execution, prior to the date that
is two (2) weeks after the Effective Date, of a written lease
agreement by Elan-Polo, Inc. in a form acceptable to Purchaser,
providing for the lease of the space currently occupied by Elan-
Polo on the Property, being two spaces of 10,449 and 5,684
square feet, respectively, for a base rent of not less than
$12.50 and $17.50, respectively, for a minimum term of two (2)
years, providing Purchaser as landlord the right to terminate
Elan-Polo's lease without penalty upon ten month's prior
written notice. If such a lease is not executed and delivered
by Elan-Polo, Inc. prior to the date that is two (2) weeks
after the Effective Date, this Agreement shall automatically be
null and void and of no force and effect and the Earnest Money
shall be returned to Purchaser.
9. Purchaser's Additional Contingencies.
The obligation of Purchaser to Close under this Agreement
is expressly contingent upon compliance with each of the
following conditions precedent and occurrence of each of the
following events:
(a) Purchaser and Purchaser's representatives shall have
made such inspections of the Property and shall have conducted
or obtained at Purchaser's sole cost such examinations, tests,
building inspections, structural and systems reports,
environmental studies and other studies and reports of the
Property as it shall deem desirable, and the results of any
such inspections, examinations, tests, studies or reports shall
be satisfactory to Purchaser in Purchaser's sole discretion.
Seller hereby agrees to permit Purchaser or its representatives
to enter the Property for such purposes at any time upon
reasonable notice to Seller provided that such investigations
cause no more than insubstantial damage to the Property and
that any such damage is immediately repaired by Purchaser.
Purchaser shall indemnify and hold Seller harmless from and
against all losses or damages, including without limitation any
mechanics lien claims, arising from Purchaser's inspection
activities on the Property.
(b) Purchaser shall have reviewed the Tenant Leases and
determined that the Tenant Leases are satisfactory to Purchaser
in Purchaser's sole discretion. Within ten (10) days after the
Effective Date, Seller shall deliver to Purchaser copies of the
Tenant Leases. Without limitation of the foregoing, the
parties acknowledge that Purchaser may declare this contingency
unsatisfied if the Tenant Lease with Bellevue Radiology, Inc.
is not amended to remove any option to renew, so that the Lease
expires on or before March 31, 1998.
(c) Purchaser shall have obtained confirmation of all
permits and approvals from St. Louis County, the City of
Brentwood, and any other applicable governmental or quasi-
governmental entity necessary in Purchaser's opinion for the
use and occupancy of the Property for Purchaser's intended use.
(d) Information and Documentation. Purchaser shall have
reviewed the "Property Information" (hereinafter defined) and
determined it satisfactory to Purchaser, in Purchaser's sole
discretion. Within one week after the Effective Date, Seller
shall deliver to Purchaser all of the following documentation
or information pertaining to the Property to the extent Seller
is in possession of same (all of said documents or information
are collectively the "Property Information"):
(i) copies of all Contracts related
to the Property;
(ii) copies of all Warranties and
Permits;
(iii) as-built plans and
specifications of the Improvements; and
(iv) copies of any surveys of the
Property, environmental reports, building
inspections or similar studies or reports
regarding the Property.
From time to time, within three (3) business days of
Purchaser's request therefor, Seller shall also provide
Purchaser or its agents with access to (and at Purchaser's
request and expense, copies of) Seller's books and records and
other documentation in Seller's possession or control
pertaining to Seller's ownership and operation for the current
fiscal year and two immediately preceding fiscal years, and
such information shall also be deemed "Property Information."
(e) Results of Investigation Period. If Purchaser is
dissatisfied with any of the items in subparagraphs 9(a) - (d)
above, Purchaser shall give notice to Seller prior to the
expiration of the Inspection Period and Seller may cure such
objection prior to Closing. If such objection is not cured to
Purchaser's satisfaction or waived by Purchaser prior to
Closing, Purchaser may elect to terminate this Agreement by
written notice thereof to Seller. In the event Purchaser
terminates this Agreement as provided in this subparagraph
9(e), the Earnest Money shall be returned to Purchaser and each
of the parties shall be released from further liability to the
other. In the event Purchaser does not so terminate this
Agreement, this Agreement shall continue in full force and
effect. In the event Purchaser shall fail to so notify Seller
on or prior to the expiration of the Inspection Period of
Purchaser's objections as provided in this paragraph 9(e),
Purchaser's right to terminate this Agreement pursuant to this
paragraph 9(e) shall expire.
(f) Financing. Purchaser shall within two (2) weeks
after the Effective Date apply for financing for its
acquisition of the Property. Purchaser shall thereafter use
all due diligence to secure the requisite financing for the
acquisition herein contemplated. If, prior to the expiration
of the Inspection Period, Purchaser has not received a
financing commitment for terms acceptable to Purchaser in its
sole discretion, for a loan for the purchase of the Property,
then Purchaser may elect to terminate this Agreement by written
notice thereof to Seller given prior to expiration of the
Inspection Period. In such event, the Earnest Money shall be
returned to Purchaser and each of the parties shall be released
from further liability to the other. In the event that
Purchaser shall fail to timely notify Seller of the
satisfaction or waiver of the contingency contained in this
paragraph 9(f), Purchaser's right to terminate this Agreement
pursuant to this paragraph 9(f) shall expire.
(g) Estoppel Certificates. Purchaser's obligation to
close hereunder shall be conditioned upon receipt at least two
days prior to Closing of an estoppel certificate from each
tenant under the Tenant Leases in the form requested by
Purchaser's lender, and containing at least the following:
stating that there is no known default in the lease by lessor
or lessee, stating the monthly or annual rental and the date to
which the rent has been paid, which shall not be paid more than
thirty (30) days in advance, and stating the amount of tenant
deposit, if any, held by the lessor. If any tenant fails or
refuses to respond to Seller's request for a tenant estoppel
certificate Seller may, but shall not be obligated to,
substitute a certificate executed to Seller's best knowledge as
to the matters described in this subparagraph 9(g), and
Purchaser may, but shall not be obligated to, accept such
certificate in lieu of the tenant estoppel certificate and in
satisfaction of the contingencies of this subparagraph 9(g).
(h) Title Policy. Purchaser's obligation to close
hereunder shall be subject to the availability to Purchaser
from Title Insurer of the Title Policy in the form described in
subparagraph 7(c) above.
(i) Condition of the Property. Purchaser's
obligation to close hereunder shall be conditioned upon
the Property being in as good a condition at Closing as it
was on the Effective Date of this Agreement, excepting
damage or destruction by fire or other casualty (which
shall be governed by Paragraph 12 hereof) and normal wear
and tear; provided that if the Property is not in such
condition at Closing, Seller shall have a period expiring
on the earlier of thirty (30) days after notice thereof by
Purchaser or the expiration of Purchaser's loan
commitment, if any, to repair or restore the Property to
such condition or to agree to a reduction in the Purchase
Price acceptable to Purchaser and Seller, and Closing
hereunder shall be delayed for such period.
10. Seller's and Purchaser's Representations.
(a) Representations and Warranties of Seller. In
addition to any other representations and warranties of Seller
specifically set forth herein, the following constitute
representations and warranties of Seller made as of the
Effective Date, and (except to the extent Seller discloses
otherwise in writing at or before Closing, which disclosure
will excuse Purchaser's obligation to close unless Purchaser
accepts such disclosure in writing) as of the Closing Date. As
used herein, "Seller's actual knowledge" shall mean knowledge
of Paul Cahn, and no information known, discovered by or
imparted to any employee, officer, agent or partner of Seller
(other than Paul Cahn) shall be deemed to be the actual
knowledge of Seller.
(i) Legal Matters. Seller has received no
written notice of any pending legal action, lawsuit, or
judicial proceeding, including without limitation, a
condemnation proceeding, affecting title to the Property
or to any portion thereof.
(ii) Seller's Authority. Seller is a general
partnership duly organized, validly existing and in good
standing under the laws of the State of Missouri. This
Agreement and all agreements, instruments and documents
herein provided to be executed by Seller are duly
authorized, executed and delivered by and binding upon
Seller in accordance with their terms. All requisite
action (corporate, partnership or otherwise) has been
taken or obtained by Seller in connection with the
entering into this Agreement and the consummation of the
transactions contemplated hereby, or, as to the
consummation of the transaction contemplated hereby, will
be taken prior to the Closing Date.
(iii) Mechanics' Liens. Seller has received
no written notice of any claims for mechanics' liens for
any labor, services or materials for the benefit of the
Property.
(iv) Utilities. Seller has received no written
notice that the Property is not served by water, sewer,
gas, telephone and electricity.
(v) Governmental Compliance/Notices. Seller
has received no written notice from any governmental or
quasi-governmental agency requiring the correction of any
violation of law or regulation with respect to the
existing condition of the Property or the Improvements and
to the best of Seller's actual knowledge, without inquiry
Seller knows of no violations or alleged violations of any
federal, state or local law which affect the Property.
(vi) Condemnation. Seller has received no
written notice of, and to Seller's actual knowledge Seller
is not aware of, any pending condemnation action with
respect to the Property or the Improvements.
(vii) Claims. Seller has received no
written notice of any claims or actions against the
Property or Seller that would limit or prohibit Seller, in
any material respect, from performing all of the terms,
covenants and provisions of this Agreement by Seller.
(viii) Outstanding Contracts. To the best of
Seller's actual knowledge, there are no outstanding or
unperformed contracts for improvements or repairs to the
Property or to the Improvements, or any unpaid or disputed
bills for labor, materials or services in connection with
any repairs or improvements to any portion of the Property
or the Improvements that could give rise to a mechanics'
lien which will not be paid in the ordinary course of
business. To the Seller's actual best knowledge all of
the management, employment and service agreements or other
Contracts encumbering or affecting the Property are set
forth on Exhibit D, and can be cancelled upon thirty (30)
days notice without penalty or premium, unless otherwise
set forth on Exhibit D hereto.
(ix) Leases. As of Closing, none of the Tenant
Leases and none of the other rents or other amounts
payable thereunder are or will be assigned, pledged, or
encumbered by Seller. To Seller's actual knowledge, no
material default exists by any tenants under the Tenant
Leases which has not been cured. Seller has not received
any written notice from any tenant of the Property that
Seller as landlord is, and to Seller's actual knowledge,
the landlord under the Tenant Leases is not, in default of
any of its material obligations thereunder.
(x) Insurance. Seller has not received any
written notice from any insurance company or rating
organization to the effect that the physical condition of
the Property would prevent obtaining new insurance
policies at present rates.
(xi) Environmental. To the best of Seller's
actual knowledge without inquiry, and except as may be set
forth on Exhibit H attached hereto, there are and have
been no violations of applicable federal, state or local
environmental laws, and no hazardous or toxic substances
or materials (including without limitation, oil or
petroleum products, PCB's, urea formaldehyde foam
insulation, asbestos, or underground storage tanks of any
kind) as those terms are used in any applicable federal,
state and local environmental laws which regulate such
substances or materials or tanks, brought or placed by
Seller on the Property, and no written notice has been
given to Seller with respect to the possible presence of
any such substances, materials or tanks on the property.
Seller's warranties and representations and Seller's
liability for breach of any of its representations and
warranties under this paragraph 10 shall survive Closing for a
period of one (1) year, and shall not otherwise be merged into
any deed or other document given at Closing.
Except as specifically set forth in this Agreement, Seller
makes no representations or warranties with respect to the
Property, and Purchaser is accepting the same in its present
"AS IS" condition.
(b) Representations and Warranties of Purchaser. In
addition to any other representations and warranties of
Purchaser specifically contained herein, the following
constitute representations and warranties of Purchaser made as
of the Effective Date and as of the Closing Date.
(i) Purchaser's Authority. Purchaser is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Utah, and is
qualified to do business in the State of Missouri. This
Agreement and all agreements, instruments and documents
herein provided to be executed by Purchaser are duly
authorized, executed and delivered by and binding upon
Purchaser in accordance with their terms. All requisite
action (corporate, partnership or otherwise) has been
taken or obtained by Purchaser in connection with the
entering into this Agreement and the consummation of the
transactions contemplated hereby, or, as to the
consummation of the transaction contemplated hereby, will
be taken prior to the Closing Date. This representation
and warranty shall survive Closing for a period of one (1)
year.
11. Covenants of Seller. Seller covenants and agrees with
Purchaser that from the date of this Agreement until the Closing
Date:
(a) Seller shall not execute any new leases or modify or
terminate any existing Tenant Lease without the prior written
consent of Purchaser (which consent shall not be reasonably
withheld), and Seller shall perform its material obligations as
landlord under the Tenant Leases.
(b) Seller shall maintain the Property in substantially
the same condition existing on the date of this Agreement,
ordinary wear and tear and casualty excepted. Except for
charges incurred in the month of Closing and prorated pursuant
to paragraph 6(e) hereof, Seller shall pay on a timely basis
all bills and discharge all of Seller's obligations arising
from ownership, operation, management, repair, maintenance and
leasing of the Property in Seller's ordinary course of
business, and in all events prior to Closing.
(c) Seller will not enter into any service, employment or
management contract encumbering or affecting the Property which
is not cancelable upon thirty (30) days notice without penalty.
12. Casualty or Condemnation Prior to Closing.
(a) In the event of the damage or destruction of all or
any of the Property prior to Closing, Purchaser, at its option,
shall either: (i) terminate this Agreement by written notice
to Seller within fifteen (15) days of receiving notice of such
casualty, whereupon neither party shall have any further
obligations hereunder (provided that in the event of a casualty
reasonably estimated to cost less than $20,000 to repair,
Seller may, at its option, repair such damage and restore the
property to Purchaser's reasonable satisfaction prior to
Closing, or agree on an adjustment to the Purchase Price
reasonably acceptable to Purchaser and Seller to reflect the
cost of such repair and restoration, and in either such event
Purchaser shall have no option to terminate); or (ii) enforce
this Agreement whereupon Seller shall assign to Purchaser any
insurance proceeds payable as a result of such damage or
destruction, with no reduction in the Purchase Price. In the
event Purchaser shall fail to notify Seller with such fifteen
(15) day period of Purchaser's election, Purchaser shall be
deemed to have elected to enforce this Agreement; provided that
if insurance proceeds are not available and assigned to
Purchaser for the full cost of repair of such casualty and
restoration of the Property, Purchaser shall receive a credit
against the Purchase Price for the cost of such repair and
restoration.
(b) In the event that prior to Closing, any portion of
the Property is taken by eminent domain, or is the subject of
eminent domain proceedings threatened or commenced, Seller
shall promptly notify Purchaser thereof, and immediately
provide Purchaser with copies of any written communication from
any condemning authority. If any of said events shall occur
then, in that event, Purchaser shall have the option to
terminate this Agreement by written notice to Seller within
fifteen (15) days of receiving Seller's notice, whereupon
neither party shall have any further obligations hereunder. If
Purchaser fails to timely give such notice, Purchaser shall be
deemed to have elected to close. If any of said events shall
occur and Purchaser elects to close, (i) if the transfer of the
condemning authority takes place prior to Closing hereunder,
the remainder of the Property shall be conveyed to Purchaser at
Closing; (ii) if the transfer of the condemning authority has
not taken place prior to Closing, the entire Property shall be
conveyed to Purchaser at Closing hereunder; (iii) if Seller has
received payment for such condemnation or taking prior to the
Closing hereunder, the amount of such payment shall be a credit
against the Purchase Price payable by Purchaser hereunder; and
(iv) if Seller has not received such payment at the time of
Closing, Seller shall assign to Purchaser all claims and rights
to or arising out of such taking, including the right to
conduct any litigation in respect of such condemnation.
13. Real Estate Commission.
(a) Seller covenants and agrees with Purchaser that no
real estate commissions, finders' fees or brokers' fees have
been or will be incurred in connection with this Agreement or
the sale contemplated hereby, except a commission to Tripp
Hardin at Nooney Krombach Company who was retained by Seller
("Seller's Agent") and to Tim Convy of CB Commercial Real
Estate Group, Inc. who was retained by Purchaser ("Purchaser's
Agent"). Seller shall pay the commission due to Seller's Agent
in cash at Closing if, as and when the sale contemplated hereby
is consummated, in accordance with the terms of the listing
agreement between Seller and Seller's Agent. Purchaser shall
be responsible for paying the commission due to the Purchaser's
Agent in accordance with the terms of the agreement between
Purchaser and Purchaser's Agent. Seller shall be solely
responsible for the payment of any and all real estate
commissions, claims to such commissions and/or similar type
fees arising, directly or indirectly, out of this transaction
and based upon the actions of Seller. Seller does hereby agree
to indemnify Purchaser against and hold Purchaser harmless from
any and all such real estate commissions, claims to such
commissions or similar fees, including reasonable attorneys'
fees incurred in any lawsuit regarding such commissions or fees
to the extent such claims or liabilities are based upon the
actions of Seller (except for claims brought by Purchaser's
Agent). Purchaser hereby represents and warrants that
Purchaser has dealt with no broker, finder, or other person
except Seller's Agent and Purchaser's Agent in connection with
the purchase of the Property in any manner that might give rise
to any claim or lien for commission or fee against Seller.
Purchaser does hereby agree to indemnify Seller and hold Seller
harmless from and against any costs or claims, including
reasonable attorneys' fees, arising from such real estate
commissions or similar fees or lien of Purchaser's Agent or any
other broker, finder or other person claiming by or through
Purchaser, except Seller's Agent. Notwithstanding anything
contained in this Agreement to the contrary, the terms,
provisions, conditions and indemnifications of this
Subparagraph 13(a) shall survive Closing and the delivery of
the Deed or the termination of this Agreement.
14. Default.
(a) If Purchaser fails to consummate the purchase
contemplated herein when required to do so pursuant to the
provisions hereof, then the Purchaser shall forfeit the Earnest
Money to Seller as full and complete liquidated damages, and as
the exclusive and sole right and remedy of Seller, whereupon
this Agreement shall terminate and neither party shall have any
further obligations or liabilities to any other party.
(b) Except for any breaches waived in writing by
Purchaser, if Seller has (i) breached any of its covenants or
obligations under this Agreement and such breach (except for
any breach that can be cured by the payment of money to
Purchaser, for which Seller shall have no cure period) has not
been cured five (5) days after notice thereof by Purchaser, or
(ii) has failed, refused or in unable to consummate the sale
contemplated herein by the Closing Date, then Purchaser shall
have all remedies available to it at law or in equity.
15. Possession. Seller shall deliver possession of the
Property to Purchaser on the Closing Date, free of all leases,
tenancies, licenses and occupants other the rights of tenants
pursuant to the Tenant Leases assigned to Purchaser pursuant to the
Assignment of Leases and Contracts.
16. Successors and Assigns. Purchaser shall have the right to
assign its rights under this Agreement: (1) to any affiliated
entity, without Seller's prior consent; and (2) to any other entity
provided that Seller consents to such assignment, such consent not
to be unreasonably withheld. Upon Purchaser's assignment of the
Agreement, such assignee shall be deemed substituted, by novation,
for the named Purchaser, and such assignee shall assume Purchaser's
obligations hereunder. Notwithstanding any assignment, substitution
or novation of this Agreement, unless such assignee substitutes the
Earnest Money payable under this Agreement, the Earnest Money paid
by Purchaser shall not be released from Escrow and shall remain at
risk; and Seller shall have all rights to such monies pursuant to
the terms hereof should Purchaser (or any successor assignee)
default under this Agreement.
17. Notices. All notices or other communications required or
permitted hereunder shall be in writing, and shall be personally
delivered by overnight air express service providing confirmation of
delivery or by registered or certified mail, postage prepaid, return
receipt requested, addressed to the parties hereto at their
respective addresses set forth below. Such notice or other
communication shall be deemed given (a) upon receipt or upon refusal
to accept delivery if delivered by facsimile telecommunication or
Registered or Certified Mail or (b) one (1) business day after
tendering to an overnight air express service.
Seller: Cahn Realty Associates
1699 S. Hanley Road
Brentwood, Missouri 63144
Attention: Mr. Paul Cahn
Telephone No.: 645-3018
With a copy to: Fredericks, Melloway & Ghahremani
7701 Forsyth Blvd.
Suite 300
Clayton, Missouri 63105
Attention: James A. Fredericks
Telephone No.: (314) 854-0629
Purchaser: Tripos, Inc.
1699 S. Hanley Road
St. Louis, Missouri 63144
Attention: John Yingling
Telephone No: 647-1099
With a copy to: Peper, Martin, Jensen, Maichel and Hetlage
720 Olive St., 24th Floor
St. Louis, Missouri 63101
Attention: Laura K. Rebbe
Telephone No.: (314) 444-6507
Notice of change of address shall be given by written notice in the
manner detailed in this Paragraph 17.
18. Miscellaneous.
(a) This Agreement contains the entire Agreement between
the parties respecting the matters herein set forth and
supersedes all prior agreements between the parties hereto
respecting such matters, (including, without limitation, that
certain letter agreement executed by Seller on March 25, 1997
and by Purchaser on March 24, 1997) there being no other oral
or written promises, conditions, representations,
understandings, warranties or terms of any kind as conditions
or inducements to the execution hereof and none have been
relied upon by either party.
(b) Time is of the essence of this Agreement.
(c) Paragraph headings shall not be used in construing
this Agreement.
(d) Except as herein expressly provided, no waiver by a
party of any breach of this Agreement by the other party shall
be deemed to be a waiver of any other breach by such other
party (whether preceding or succeeding and whether or not of
the same or similar nature), and no acceptance of payment or
performance by a party after any breach by the other party
shall be deemed to be a waiver of any breach of this Agreement
or of any representation or warranty hereunder by such other
party whether or not the first party knows of such breach at
the time it accepts such payment or performance.
(e) No failure or delay by a party to exercise any right
it may have by reason of the default of the other party shall
operate as a waiver of default or as a modification of this
Agreement or shall prevent the exercise of any right by the
first party while the other party continues to be so in
default.
(f) Except as otherwise expressly provided herein, any
approval or consent provided to be given by a party hereunder
may be given or withheld in the reasonable discretion of such
party.
(g) This Agreement shall be construed and enforced in
accordance with the laws of the State of Missouri.
(h) No agreement, amendment, modification, understanding
or waiver of or with respect to this Agreement or any term,
provision, covenant or condition hereof, nor any approval or
consent given under or with respect to this Agreement, shall be
effective for any purpose unless contained in a writing signed
by the party against which such agreement, amendment,
modification, understanding, waiver, approval or consent is
asserted.
(i) If the final day of any period or any date of
performance under this Agreement falls on a Saturday, Sunday or
legal holiday, then the final day of the period or the date of
such performance shall be extended to the next business day.
(j) Seller shall be responsible for any contractual
obligations Seller incurred prior to the Closing with respect
to the Property attributable to the time period prior to the
Closing, and Purchaser shall be responsible for any contractual
obligations with respect to the Property attributable to the
time period at or after the Closing. Neither party assumes or
agrees to pay, or indemnify the other party or any other person
or entity against any liability, obligation or expense of said
party relating to the Property prior to the Closing Date, in
any way except, and only to the extent, if any, expressly
provided for herein or in the documents executed at Closing.
(k) In the event it becomes necessary for either party
hereto to file a suit to enforce this Agreement or any
provisions contained herein, the party prevailing in such
action shall be entitled to recover, in addition to all other
remedies or damages expressly provided herein, reasonable
attorneys' fees and court costs, including appellate costs,
incurred in such suit.
(l) The "Effective Date" hereunder shall be the last date
set forth next to the parties signatures provided below.
(m) The Exhibits attached to this Agreement are
hereby incorporated into and made a part of this Agreement
the same as if fully set forth in the body of this
Agreement.
(n) SELLER'S TAX DEFERRED EXCHANGE: Seller hereby
reserves the right to dispose of the Property as part of an
Internal Revenue Code Section 1031 Tax Deferred Exchange for
the benefit of Seller. In the event Seller so elects, Seller
shall assign all contract rights and obligations hereunder to
an intermediary, as part of, and in furtherance of, such Tax
Deferred Exchange. Purchaser agrees to assist and cooperate
with Seller in such exchange, provided Purchaser does not incur
any liability with respect to any exchange property, and on the
condition that Seller reimburse Purchaser at Closing for all
costs and expenses incurred by Purchaser in connection with
such exchange. Purchaser further agrees to execute any and all
documents (subject to the reasonable approval of Purchaser's
legal counsel) as are reasonably necessary in connection with
such exchange. As part of such exchange, Seller shall convey
the Property described herein directly to Purchaser, and
Purchaser shall not be obligated to acquire or convey any other
property as part of such exchange. In the event that Seller
elects to dispose of the Property pursuant to a Tax Deferred
Exchange, Seller agrees to indemnify and hold Purchaser free
and harmless from any cost, expense and liability, including
reasonable attorney's fees, resulting from Purchaser's
participation in such exchange.
WHEREFORE, the parties have executed this Agreement as of the
Effective Date.
CAHN REALTY ASSOCIATES, TRIPOS, INC.,
a Missouri general partnership a Utah Corporation
By: /s/ Paul Cahn By: /s/ Colleen A. Martin
Name: Paul Cahn Name: Colleen A. Martin
Title: Managing Partner Title: VP Finance
Date: June 3, 1997 Date: June 2, 1997
ESCROW RECEIPT
The undersigned escrow agent, as "Title Insurer" hereby: a)
acknowledges receipt of a copy of the foregoing Purchase and Sale
Agreement executed by Tripos, Inc. as Purchaser and Cahn Realty
Associates as Seller; b) acknowledges receipt of the Earnest Money
thereunder; and c) agrees that the Earnest Money shall be held and
disbursed pursuant to the terms of such Purchase and Sale Agreement.
DATE: , 1997
By:
Printed Name:
Title:
EXHIBIT A
REAL PROPERTY
EXHIBIT B
PERSONAL PROPERTY
Any window washing equipment or mechanical system
equipment specially designed or adapted to the
specifications of the Property or to use on the Property.
EXHIBIT C
TENANT LEASES
Tenant Suite Square Feet Expiration
1699 South Hanley:
Tripos 24,221 8/31/2000
Bellevue Radiology 1,654 3/31/98; with one
3 year renewal option
Lodging/Hospitality
Management Corp. 1,705 7/31/99
1701 South Hanley Road
Spencer Restaurant Supply 10,000 12/31/97
Seller agrees and confirms that any Lease to Elan-Polo, Inc. or
any related entity(ies) (written or verbal) existing on the
Effective Date of this Agreement will be cancelled as of
Closing (to be replaced by the lease negotiated and executed
pursuant to paragraph 8 hereof).
EXHIBIT D
SCHEDULE OF CONTRACTS
A. Contracts that can be cancelled on 30 days' notice
Mitch Murch Maintenance Management Company, dated July 25, 1996
(unsigned) for certain janitorial services.
B. Contracts that cannot be cancelled on 30 days' notice, if any
Otis Elevator Company, dated January 6, 1988 for elevator
maintenance and repair work.
Purchaser acknowledges receipt from Seller of copies of the
aforesaid contracts.
EXHIBIT E
LIST OF LICENSES AND WARRANTIES
As of the Effective Date of this Agreement, Seller is not aware
of any Warranties affecting the Property.
EXHIBIT F
PERMITS
As of the Effective Date of this Agreement, Seller is not aware
of any Permits affecting the Property
EXHIBIT G
PERMITTED EXCEPTIONS
1.Office Building Lease dated August 19, 1996, between Cahn Realty
Associates, as Landlord, and Lodging/Hospitality Management
Corporation, as Tenant.
2. Commercial Lease dated December 12, 1991, between Paul J.
O'Brien, as Landlord, and Spener Restaurant Design, Inc., as Tenant;
as amended by First Amendment to Commercial Lease dated November 21,
1994; as amended by Second Amendment to Commercial Lease dated June
10, 1996; and subject to Assignment and Assumption of Lease dated
December 8, 1994 between Paul J. O'Brien and Ruth L. O'Brien, as
Assignor, and Cahn Realty Associates, as Assignee.
3. Unrecorded month-to-month tenancy of Elan-Polo, Inc. that will
terminate at the closing of this Agreement and a new lease by and
between Elan-Polo, Inc. and Purchaser dated June 17, 1997 that will
commence in place thereof.
4.Office Building Lease dated July 11, 1995 between Cahn Realty
Associates, as Landlord, and Tripos, Inc., as Tenant; as amended
by First Amendment to Lease dated May 1, 1996; and as amended by
Second Amendment to Lease dated September 25, 1997.
5.General taxes for the year 1997 and subsequent years, and special
taxes arising after the date of closing on the Agreement.
6.Easement Agreement according to Deed recorded in Book 8134 Page
1456.
7.Easement granted to Laclede Gas Company, by instrument recorded in
Book 2639 Page 149 and Book 7177 Page 1125.
8.Roadway Easement Agreement by and between Cahn Realty Associates,
a Missouri General Partnership, and Paul J. O'Brien and Ruth L.
O'Brien, husband and wife, according to instrument recorded in
Book 10381 Page 2017.
9.Easement granted to Union Electric Company of Missouri, by
instrument recorded in Book 2508 Page 241.
10. Sewer Assessments, if any; none now due and payable.
11. Parking Easement Agreement dated December 8, 1994, by and
between Cahn Realty Associates, a Missouri general partnership,
and Paul J. O'Brien and Ruth L. O'Brien, husband and wife,
recorded in Book 10381, Page 2033, as amended by First Amendment
to Parking Easement Agreement dated September 17, 1997 by and
between Cahn Realty Associates, a Missouri general partnership,
and Paul J. O'Brien and Ruth L. O'Brien, husband and wife.
EXHIBIT H
ENVIRONMENTAL MATTERS
Phase I Environmental Site Assessment, of subject site 1701
South Hanley Road, dated August 25, 1994, prepared by Terra
Resource Group.
Purchaser acknowledges receipt from Seller of a copy of the
above Phase I Site Assessment.
Exhibit 21
Subsidiaries of the Registrant
Registrant: Tripos, Inc.
1699 South Hanley Road
St. Louis, Missouri 63144 U.S.A.
First Tier Subsidiaries: Tripos Realty, LLC.
1699 South Hanley Road
St. Louis, Missouri 63144 U.S.A.
Tripos GmbH
Martin Kollar Strasse, 13
D-81829 Munich, Germany
Tripos Associates SARL
Buromaster
2 Rue Luigi Galvani
92160 Antony, France
Tripos UK Holdings Limited
The Courtyard, High Street
Ascot, Berkshire SL5 7HP England
Second Tier Subsidiaries: Tripos UK Limited
13 Shenley Pavilions, Chalkdell Drive
Milton Keynes, Buckinghamshire MK5 6LB England
Tripos Receptor Research Limited
Higher Grimscott, Launcells
Bude, Cornwall EX23 9LU England
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration
Statements (Form S-8, No. 33-79610) pertaining to the Tripos, Inc.
1994 Stock Plan, the Tripos, Inc. 1994 Director Option Plan, and the
Tripos, Inc. 1994 Employee Stock Purchase Plan, (Form S-8, No. 333-
09459) pertaining to the Tripos, Inc. 1996 Director Stock
Compensation Plan and the amendment of the 1994 Director Option
Plan, and (Form S-8, No. 333-33163) pertaining to the Tripos, Inc.
1996 Director Stock Compensation Plan, the 1994 Stock Option Plan,
and the 1994 Director Option Plan of our report dated February 6,
1998, with respect to the consolidated financial statements and
schedule of Tripos, Inc. included in its Annual Report (Form 10-K)
for the year ended December 31, 1997.
/s/ Ernst & Young LLP
St. Louis, Missouri
March 25, 1998