ASSET
PURCHASE AGREEMENT
This
ASSET PURCHASE AGREEMENT
, dated as of October 14, 2007 (the
“
Agreement
”), is made by and between Gene Logic Inc.,
a Delaware
corporation (the “
Company
”), and Ocimum Biosolution (India) Limited, a
company incorporated under the Company Act, 1956 in the Republic of India
(“
Parent
”), and Ocimum Biosolutions Inc., a Delaware
corporation
(“
Purchaser
”). Company,
Parent and Purchaser are referred to herein individually as a “
Party
” and
collectively as the “
Parties
.”
RECITAL
The
Company engages in the business of
developing, operating and licensing databases of genomic data and related
software and providing genomic and genetic data generation and analysis
services
and other related services (the “
Business,
” as that term is more fully
defined in
Section 10.13
). Purchaser desires to purchase and
assume, and Company desires to sell and assign (i) substantially all
of
Company’s assets that relate primarily to the Business and (ii) certain
specifically enumerated liabilities relating to the Business on the terms
and
subject to the conditions set forth in this Agreement. The term
“Business” does not include any part of the Company’s Diagnostic Development
Business, Drug Repositioning Business or corporate Shared Services
Division. Capitalized terms shall have the meanings set forth in
Section 10.13
.
NOW,
THEREFORE
, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Company and Purchaser hereby agree as follows:
ARTICLE
I
PURCHASE
AND SALE OF ASSETS
Section
1.01.
Purchase
and Sale of Assets
. (a)
(a)
Subject
to
the terms and conditions of this Agreement, at the Closing, Company agrees
to
sell to Purchaser, Purchaser agrees to purchase, and Parent agrees to
cause
Purchaser to purchase, from Company all the right, title and interest
of Company
and its Affiliates free and clear of all Liens except for Permitted
Encumbrances, in and to the following assets used or held for use by
or for the
Business (“
Acquired Assets
”):
(i)
the
Biorepository;
(ii)
the
Business Intellectual Property;
(iii)
the
Inventory as of the Effective Time;
(iv)
the
Equipment;
(v)
the
Contracts;
(vi)
the
Open
Purchase Orders as of the Effective Time;
(vii)
the
50
West Watkins Mill Road Lease (but excluding any obligations or liabilities
prior, or with respect to periods prior to, the Effective Time);
(viii)
the
Leasehold Improvements;
(ix)
the
Third
Party IP, to the extent assignable without more than a nominal cost to
Company,
and subject to the terms in the applicable licenses;
(x)
the
Business Information, subject to the Seller’s right to retain a copy of such
material and use and modify it to comply with applicable Law or with
a third
party agreement;
(xi)
the
Employee Information;
(xii)
to
the
extent assignable, the Operating Permits;
(xiii)
to
the
extent assignable, the Environmental Permits;
(xiv)
to
the
extent assignable, the Equipment Warranties;
(xv)
the
Prepaid Expenses;
(xvi)
the
Company’s intercompany accounts receivable relating to Company’s Subsidiaries in
Japan and the United Kingdom as of the Effective Time;
(xvii)
all
issued
and outstanding capital stock of Company Subsidiaries; and
(xviii)
to
the
extent not included elsewhere in the this
Section 1.01(a)
the list
identifying Company’s clinical network as it exists on or prior to the Closing
Date and associated information
.
(b)
Retained
Assets
. The Parties acknowledge and agree that, except as
specifically listed in
Section 1.01(a)
, the Acquired Assets shall not
include any assets of the Company that are not necessary for the conduct
of the
Business as it has been conducted during the twelve (12) months prior
to the
date of this Agreement and is currently being conducted by the Company,
including without limitation, the following (“
Retained
Assets
”):
(i)
any
cash
and cash equivalents, accounts and notes receivable and securities (excluding
capital stock of Affiliates) of Company or any of its Affiliates (including
all
intercompany and intracompany receivables other than the intercompany
accounts
receivable relating to Company’s Subsidiaries in Japan and Europe), all bank
account balances and all petty cash) and security deposits or advances
deposited
or paid by or on behalf of Company as lessee, sublessee or guarantor
or pursuant
to any Real Property Leases;
(ii)
any
amounts payable to or claims or causes of action of Company or any of
its
Affiliates in respect of Taxes, including duty drawbacks, Tax credits
and Taxes
refundable to Company or any of its Affiliates in respect of transactions
prior
to the Effective Time or in respect of the period or portion thereof
ending on
or prior to the Effective Time;
(iii)
any
refunds due from, or payments due on, claims with the insurers of Company
or any
of its Affiliates in respect of losses arising prior to the Effective
Time;
(iv)
all
books,
documents, records and files prepared in connection with or relating
to the
transactions contemplated by this Agreement, including bids received
from other
parties and analyses relating to the Business;
(v)
such
portion of the Business Information that Company or its Affiliates are,
in the
reasonable opinion of Company’s counsel, required by Law or by agreement with a
third party to retain, provided that Purchaser shall be provided copies
of such
material unless contrary to Law or agreement with a third party;
(vi)
any
asset
of Company or any of its Affiliates that would constitute an Acquired
Asset if
it were owned by Company on the Closing Date that is conveyed or otherwise
disposed of during the period from the date hereof until the Closing
Date (x) in
the ordinary course of business and not in violation of the terms of
this
Agreement, (y) as otherwise expressly permitted by the terms of this
Agreement
or (z) with the written consent of Purchaser;
(vii)
the
Company Benefit Plans;
(viii)
those
items listed on
Schedule 1.01(b)(i)
(Retained
Diagnostic Development Assets),
1.01(b)(ii)
(Retained Drug Repositioning
Asset) and
1.01(b)(iii)
(Retained Corporate Assets); and
(ix)
any
asset
of Company that is used primarily in connection with the Drug Repositioning
Business or the Diagnostic Development Business.
Section
1.02.
Obligations
and Liabilities
.
(a)
Assumed
Liabilities
. Subject to the terms and conditions of this Agreement, at the
Closing, Purchaser will assume, and Parent will cause Purchaser to assume,
from
the Company and its Affiliates, and thereafter pay, perform or discharge
in
accordance with their terms the following liabilities (“
Assumed
Liabilities
”):
(i)
all
obligations or liabilities of Company or any of its Affiliates with respect
to
accrued and unused paid time off, as set out in
Schedule 4.13
of Business
Employees as at the Effective Time;
(ii)
the
accrued welfare benefits, accrued benefits and payroll liabilities and
all
accrued self-insurance health care benefits as provided on the Closing
Listing
of Assets and Liabilities (the “
Accrued Benefits Liabilities
”);
provided, however
, that in the event that the aggregate amount of such
Accrued Benefits Liabilities exceeds $205,500 no benefit or liability
in excess
of $205,500 shall be, or be deemed to be, an Assumed Liability;
(iii)
all
executory obligations and liabilities in the ordinary course of Business
of
Company or any of its Affiliates arising from or in connection with (x)
the Open
Purchase Orders, and (y) Purchaser’s undertaking and assumption of obligations
and liabilities with respect to events arising from and after the Closing
Date
with regard to all of the Contracts included in the Acquired
Assets;
(iv)
all
of the
Company’s intercompany accounts payable relating to Company’s Subsidiaries in
Japan and Europe as of the Effective Time; and
(v)
personal
property taxes, other
ad valorem
taxes, with respect to the Assets and
any other liabilities or obligations relating to Taxes for any period
or portion
thereof of a tax year or period ending after the Effective Time. For
the avoidance of doubt, such Taxes for the year that includes the Closing
Date
shall be allocated pro rata based on the number of days that occur before
and
after the Closing, with such Taxes being borne by the Seller based on
the ratio
of the number of days in the relevant period prior to and including the
Closing
Date to the total number of days in the actual taxable period with respect
to
which such Taxes are assessed, irrespective of when such Taxes are due,
become a
lien or are assessed, and such Taxes being borne by the Purchaser based
on the
ratio of the number of days in the relevant period after the relevant
Closing
Date to the total number of days in the actual taxable period with respect
to
which such Taxes are assessed, irrespective of when such Taxes are due,
become a
lien or are assessed.
(b)
Retained
Liabilities
. Notwithstanding anything in this Section 1.02(b) or
elsewhere in this Agreement or any other Transaction Document to the
contrary,
the Assumed Liabilities shall not include, and neither the Purchaser
nor any of
its Affiliates will assume at the Closing, any of the following liabilities
or
obligations (collectively, “
Retained Liabilities
”):
(i)
liabilities
or obligations for indebtedness for borrowed money or guarantees, or
other
financial assistance obligations incurred by the Seller or any of its
Affiliates
or relating to the Business or the Assets;
(ii)
liabilities
or obligations with respect to products or services delivered by Seller
prior to
the Effective Time (in the case of subscription services, delivery shall
be
deemed to occur continuously);
(iii)
liabilities
or obligations of Company or any of its Affiliates to its lawyers, accounts,
investment advisors and consultants relating to the execution, delivery
and
consummation of this Agreement and the transactions contemplated hereby
and
thereby;
(iv)
liabilities
or obligations of Company or any of its Affiliates relating to Taxes
for any
period or portion thereof ending on or before the Effective Time;
(v)
except
as
specified otherwise in Section 1.02(a)(i) of this Agreement or as may
otherwise
be required by Law, the liabilities or obligations of Company or any
of its
Affiliates that relate to or arise from or in connection with the employment
or
termination of employment by Company of any of the Business Employees
prior to
Closing Date, or the employment or termination of employment of any of
Company’s
employees who are not Business Employees;
(vi)
the
Environmental Liabilities of Company;
(vii)
any
amounts owing prior to, or with respect to periods prior to, or goods
purchased
or services performed prior to, the Closing pursuant to any Contract,
3
rd
Party
Software
License or Real Property Lease, except with respect to Open Purchase
Orders;
(viii)
any
liabilities or obligations of Company relating to, in connection with
or arising
under the Retained Assets;
(ix)
all
Accrued Benefits Liabilities in excess of $205,500, if and to the extent
the
aggregate amount of such liabilities is greater than $205,500;
(x)
all
obligations and liabilities of the Company with respect to events arising
prior
to the Closing Date with regard to all of the Contracts included in the
Acquired
Assets; and
(xi)
any
and
all other liabilities or obligations of Company or any of its Affiliates,
whether known or unknown, accrued, absolute, contingent, determined,
determinable or otherwise, that are not expressly assumed by the Purchaser
or
the Purchaser’s Affiliates pursuant to Section 1.03(a), but in no event
including liabilities of the Business arising in connection with the
operation
of the Business from and after Closing.
Section
1.03.
Purchase
Price; Payment of Purchase Price
.
(a)
Purchase
Price
. The consideration to be paid for the Acquired Assets (the
“
Purchase Price
”) shall be (i) Ten Million Dollars ($10,000,000), plus or
minus the Purchase Price Adjustment (the “
Total Cash Consideration
”),
(ii) the assumption of the Assumed Liabilities, and (iii) the granting
of the
licenses provided for in the Drug Repositioning License Agreement and
the
Diagnostic Development License Agreement.
(b)
Payment
of Purchase Price
. At the Closing, the Purchase Price, shall be
delivered by Parent and Purchaser to Company as follows:
(i)
Seven
Million Dollars ($7,000,000) (the “
Closing Cash Payment
”) shall be wired
via Federal Fund transfer to Company’s account as set forth in written wire
transfer instructions to be delivered to Purchaser by Company at or prior
to
Closing;
(ii)
Delivery
by Parent and Purchaser of a promissory note payable in full on the eighteen
(18) month anniversary of Closing in substantially the form attached hereto
as
Exhibit 1.03(b)(ii)
in the principal amount of Three Million Dollars
($3,000,000) (the “
Promissory Note
”);
(iii)
Delivery
by Purchaser of either:
(X)
(A) a guarantee in substantially
the form of
Exhibit 1.03(b)(iii)(A)
(the “
Guarantee
”) executed by
Coramandel Prestcrete Private Limited, a company incorporated under the
Company
Act, 1956, in the Republic of India and an affiliate of Parent and Purchaser
(“
Coramandel
”), (B) the Security and Patent and Trademark Security
Agreement in substantially the form of
Exhibit 1.03(b)(iii)(B)
(the
“
Security Agreement
”) executed by Purchaser as maker of the Promissory
Note, (C) Seven-Hundred-Fifty Thousand Dollars ($750,000) deposited with
the
Escrow Agent, together with an escrow agreement executed by Purchaser in
the
form attached hereto as
Exhibit 1.03(b)(iii)(C)
(the “
Escrow
Agreement
”); or
(Y)
a
letter of credit with the following terms (A) in an amount not less than
Three
Million Six-Hundred Thousand Dollars ($3,600,000) for the period ending
twenty
(20) months after Closing or upon payment of all amounts payable under
the
Promissory Note, (B) after such twenty-month period, or the payment of
all
amounts payable under the Promissory Note, the amount of such letter of
credit
may be reduced, on a continuous basis, to be not less than the aggregate
amount
of base rent and additional rent under the remaining term of the 50 West
Watkins
Mill Road Lease in the event that the landlord thereunder were to declare
an
event of default under such lease and (C) issued by the United States office
of
any bank organized and doing business under the laws of the United States
of
America or any state thereof, that is subject to supervision and examination
by
federal or state authorities and has a combined capital and surplus of
at least
$750 million as set forth in its most recent published annual report of
condition in form and substance acceptable to Company in its sole and absolute
discretion providing for payment to Company upon a representation by the
Chief
Financial Officer of the Company in the case of a default under the (I)
Promissory Note or (II) 50 West Watkins Mill Road Lease in the event that
Company has not been released from any and all obligations under such lease
arising from and after Closing, and (D) an expiry date not earlier than
May 30,
2011 (the “
Backstop Letter of Credit
”);
(iv)
assumption
of the Assumed Liabilities by execution and delivery of the Assignment
and
Assumption Agreement, the 50 West Watkins Lease Assignment, Assumption
Agreement
and the Tokyo Lease Assignment and Assumption Agreement and the Third Party
IP
Assignment and Assumption Agreements; and
(v)
the
granting by Purchaser to Company of certain intellectual property
licenses, by execution and delivery of the Drug Repositioning License
Agreement and the Diagnostic Development License Agreement.
The
Purchase Price Adjustment shall be determined and paid in accordance with
Section 1.03(c)
.
(c)
Purchase
Price Adjustment
.
(i)
In
addition to the terms defined elsewhere in this Agreement, for purposes
of this
Agreement, the following capitalized terms shall have the following
meanings:
“
Initial
Listing of Assets and Liabilities
” means the listing of certain assets and
liabilities of the Business as of June 30, 2007 attached hereto as
Exhibit
1.03(c)
.
“
Net
Current Assets
” means the sum of the Inventory, Prepaid Assets, Other
Current Assets, and Intercompany Receivables for Japan and Europe subsidiaries
relating to the Business as provided on the Initial Listing of Assets and
Liabilities or the Closing Listing of Assets and Liabilities, as
applicable.
“
Initial
Net Current Assets
” means the Net Current Assets as provided on the Initial
Listing of Assets and Liabilities.
“
Closing
Net Current Assets
” means the Net Current Assets as of the Closing Date
determined in accordance with the Closing Listing of Assets and
Liabilities.
“
Initial
Unbilled Receivables
” means the Unbilled Receivables of the Business as
provided on the Initial Listing of Assets and Liabilities which are equal
to
Three Million Three-Hundred-Forty-Two Thousand Dollars
($3,342,000).
“
Closing
Unbilled Receivables
” means the Unbilled Receivables of the Business as of
the Closing Date as provided on the Closing Listing of Assets and
Liabilities.
“
Net
Current Assets Adjustment
” means an amount equal to (i) the Closing Net
Current Assets minus (ii) the Initial Net Current Assets;
provided
,
however
, that if the absolute value of such amount is less than
Five
Hundred Thousand Dollars ($500,000), such amount shall be deemed to be
Zero
Dollars ($0.00) for purposes of the Purchase Price Adjustment (as defined
below). In addition, for purposes of determining the Purchase Price Adjustment,
if the absolute value of the Net Current Assets Adjustment is greater than
Five
Hundred Thousand Dollars ($500,000), then in determining the Net Current
Assets
Adjustment Five Hundred Thousand Dollars ($500,000) shall be added to such
Net
Current Assets Adjustment amount if such amount is a negative number and
Five
Hundred Thousand Dollars ($500,000) shall be subtracted from such Net Current
Assets Adjustment if such amount is a positive number (For Example, if
the
Initial Net Current Assets equals $2,700 and the Closing Net Current Assets
equals $2,000, then the Net Current Assets Adjustment for purposes of the
Purchase Price Adjustment calculation shall be -$200).
“
Net
Unbilled Receivable Adjustment
” shall be the difference between the Initial
Unbilled Receivables and the Closing Unbilled Receivables, such that if
the
absolute value of the Closing Unbilled Receivables is larger than the absolute
value of the Initial Unbilled Receivables, then for purposes of the Purchase
Price Adjustment, such difference shall be a negative amount which will
increase
any Purchase Price Adjustment payment to the Purchasers from Company, if
any, or
decrease any Purchase Price Adjustment payment to Company from Purchaser,
if
any;
provided
,
that
if the absolute value of the Closing Unbilled
Receivables is smaller than the absolute value of the Initial Unbilled
Receivables, then for purposes of the Purchase Price Adjustment, such amount
will be treated as equaling Zero Dollars ($0.00). (For example, if the
Initial
Unbilled Receivables is -$1,000 and the Closing Unbilled Receivables is
-$1,600,
then the Net Unbilled Receivables Adjustment would be equal to
-$600).
(ii) The
“
Purchase Price Adjustment
” (which may be a positive or negative number)
will be equal to the sum of the Net Current Assets Adjustment plus the
Net
Unbilled Receivables Adjustment plus the net book value of the Agilent
Equipment
as of the Closing. If the Purchase Price Adjustment is positive, the
Purchase Price Adjustment shall be paid by wire transfer by Purchaser to
an
account specified by Company. If the Purchase Price Adjustment is
negative, the Purchase Price Adjustment shall be paid by wire transfer
by
Company to an account specified by Purchaser. Within ten (10)
Business Days after the calculation of Net Unbilled Receivables Adjustment
and
the Net Current Assets Adjustment becoming binding on the Parties pursuant
to
Subsection 1.03(c)(iv)
below, Purchaser or Company, as the case may be,
shall make the wire transfer payment provided for in this
Section
1.03(c)(ii)
.
(iii)
Company
shall
prepare a listing of assets and liabilities (“
Closing Listing of Assets and
Liabilities
”) of the Company as of the Effective Time in accordance with the
Company’s past practices and on the same basis and applying the same
methodology, accounting principles, policies and practices used in preparing
the
Initial Listing of Assets and Liabilities. Company shall deliver the
Closing Listing of Assets and Liabilities and the calculation of the Purchase
Price Adjustment within thirty-five (35) days following the Closing Date
to
Purchaser.
(iv)
If within thirty (30) days following delivery of the Closing Listing of
Assets
and Liabilities, Purchaser has not given Company written notice of its
objection
as to the Closing Listing of Assets and Liabilities (which notice shall
state
the basis of Purchaser’s objection), then the Closing Listing of Assets and
Liabilities shall be binding and conclusive on the Parties and be used
in
computing the Purchase Price Adjustment.
(v)
If Purchaser duly gives Company such notice of objection, and if Purchaser
and
Company fail to resolve the issues outstanding with respect to the Closing
Listing of Assets and Liabilities within thirty (30) days of Company’s receipt
of Purchaser’s objection notice, Purchaser and Company shall submit the issues
remaining in dispute to PricewaterhouseCoopers LLP, independent public
accountants (the “
Independent Accountants
”) for resolution applying the
principles, policies and practices referred to in
Section
1.03(c)(iii)
. If issues are submitted to the Independent
Accountants for resolution, (A) Company and Purchaser shall furnish or
cause to
be furnished to the Independent Accountants such work papers and other
documents
and information relating to the disputed issues as each party may choose
to
provide and the Independent Accountants may request and are available to
that
Party or its agents and shall be afforded the opportunity to present to
the
Independent Accountants any material relating to the disputed issues and
to
discuss the issues with the Independent Accountants; (B) the determination
by
the Independent Accountants, as set forth in a notice to be delivered to
both
Company and Purchaser within sixty (60) days of the submission to the
Independent Accountants of the issues remaining in dispute, shall be final,
binding and conclusive on the parties and shall be used in the determination
of
the Closing Net Current Assets and Closing Unbilled Receivables; and (C)
Company
and Purchaser will each bear the percentage of the fees and costs of the
Independent Accountants for such determination equal to (i) the dollar
amount
awarded to the other Party in connection with the Independent Accounts
determination, divided by (ii) the total amount in dispute.
Section
1.04.
Allocation
. Prior
to the Closing, Company and Purchaser shall use their best efforts to agree
in
writing to an allocation of the Purchase Price among the Acquired Assets
for all
purposes (including Tax and financial accounting). If Company and Purchaser
have
not agreed on the allocation of the Purchase Price prior to Closing, such
obligation to use their best efforts to agree in writing to such an allocation
shall continue after Closing and if Company and Purchaser are unable to
agree on
such allocation within sixty (60) days of Closing (or such earlier date
as is
five (5) days prior to the due date of IRS Form 8594), Ernst & Young shall
be designated to make such determination and once Ernst & Young makes such
determination, it shall be final and binding on the Parties. The
failure of Company and Purchaser to reach agreement on a Purchase Price
allocation shall not constitute grounds for termination of this Agreement
by any
Party and agreement by Company and Purchaser to a Purchase Price allocation
shall not be a condition to the obligation of any Party to consummate the
transactions contemplated by this Agreement. After the Closing, the
Parties shall make consistent use of such allocation for all Tax purposes
and in
all filings with, and declarations and reports to, the IRS and relevant
state
agencies in respect thereof, including reports required to be filed under
the
Code. Purchaser shall prepare and deliver IRS Form 8594 to Company
within forty-five (45) days after the Closing Date to be filed with the
IRS. In any proceedings related to the determination of any Taxes,
neither Company nor Purchaser shall contend or represent that such allocation is
not a correct allocation.
Section
1.05.
Closing
. The
purchase and sale provided for in this Agreement (the “
Closing
”) will
take place at the office of Gene Logic Inc. located at 50 West Watkins
Mill
Road, Gaithersburg, Maryland as promptly as reasonably possible, but in
any
event no later than the fifth (5
th
) Business
Day
following the day upon which all of the conditions to Closing have been
satisfied or waived (other than those conditions which by their terms cannot
be
satisfied until the Closing), with a target Closing Date of December 14,
2007,
but in no event after December 31, 2007, unless delayed due to a delay
in
distributing the Proxy Statement due to SEC review of the Proxy Statement
or
other Company filings which is ongoing after November 20, 2007 (the “
Closing
Date
”), unless otherwise specifically agreed in writing signed by each of
the Parties. The Closing and all of the transactions contemplated by
this Agreement shall be deemed to have occurred simultaneously and become
effective as of 12:01 a.m. (local time) on the Closing Date (the “
Effective
Time
”).
Section
1.06.
Closing
Obligations
. In addition to any documents to be delivered under
other provisions of this Agreement, at the Closing:
(a)
Company
shall deliver to Purchaser:
(i)
a
bill of
sale for all the Acquired Assets (other than the Contracts, the Real Estate
Leases, Third Party IP and the Registered IP) in the form of
Exhibit
1.06(a)(i)
(the “
Bill of Sale
”) executed by Company;
(ii)
an
assignment of all of the Contracts included in the Acquired Assets in the
form
of
Exhibit 1.06(a)(ii)
, which assignment shall also contain Purchaser’s
undertaking and assumption of obligations and liabilities with respect
to events
arising from and after the Closing Date (the “
Assignment and Assumption
Agreement
”) executed by Company;
(iii)
a
recordable assignment of all (A) the trademarks included in the Registered
IP in
the form of
Exhibit 1.06(a)(iii)(A)
(the “
Trademark Assignment
”),
(B) the patents and patent applications included in the Registered IP in
the
form of
Exhibit 1.06(a)(iii)(B)
(the “
Patent Assignment
”), and (C)
a limited power of attorney in form and substances satisfactory to both
Parties
authorizing Purchaser to undertake with the appropriate registrars the
registrant name change process with respect to the domain names transferred
to
Purchaser pursuant to this Agreement in accordance with the transition
plan
agreed to by the Parties pursuant to the Transition Services Agreement,
executed
by the Company;
(iv)
assignment
and assumption of the Third Party IP, assigning Company’s right thereunder to
Purchaser, executed by Company in the form attached hereto as
Exhibit
1.06(a)(iv)
, including where available and if obtainable prior to Closing at
no more than a nominal cost to Company, any necessary licensor
consents to assignment required under the applicable license agreement,
which
assignment shall also contain Purchaser’s undertaking and assumption, of
obligations and liabilities with respect to events arising from and after
the
Closing Date, of the Third Party IP (the “
Third Party IP Assignment and
Assumption Agreements”)
;
(v)
an
assignment and assumption agreement assigning the 50 West Watkins Mill
Road
Lease in the form of
Exhibit 1.06(a)(v)
, executed by Company and the
landlord, which assignment shall also contain Purchaser’s undertaking and
assumption of obligations and liabilities with respect to events arising
from
and after the Closing Date, of the 50 West Watkins Mill Road Lease (the
“
50
West Watkins Lease Assignment and Assumption Agreement”
);
(vi)
a
sublease
agreement between Purchaser, as landlord, and Company, as tenant, in the
form
attached hereto as
Exhibit 1.06(a)(vi)
, executed by Company (the
“
Sublease
”);
(vii)
a
license
agreement between Purchaser, as licensor, and Company, as licensee, in
the form
attached hereto as
Exhibit 1.06(a)(vii)
(the “
Drug Repositioning
License Agreement
”) executed by Company, granting rights to the Company to
use, license or sublicense, from and after Closing, certain Acquired Assets
and
Registered IP in connection with the Drug Repositioning Business;
(viii)
a
license
agreement between Purchaser, as licensor, and Company, as licensee, in
the form
attached hereto as
Exhibit 1.06(a)(viii)
(the “
Diagnostic Development
License Agreement
”) executed by Company, granting rights to the Company to
use, license or sublicense, from and after Closing, certain Acquired Assets
and
Registered IP in connection with the Diagnostic Development
Business;
(ix)
a
master
services agreement by and between Purchaser and Company in the form attached
hereto as
Exhibit 1.06(a)(ix)
, executed by Company (the “
Drug
Repositioning MSA Agreement
”)
;
(x)
a
master
services agreement by and between Purchaser and Company in the form attached
hereto as
Exhibit 1.06(a)(x)
, executed by Company (the “
Diagnostic
Development MSA Agreement
”);
(xi)
a
transition services agreement by and between Purchaser and Company in the
form
attached hereto as
Exhibit 1.06(a)(xi)
, executed by Company (the
“
Transition Services Agreement
”);
(xii)
a
certificate executed by Company as to the accuracy of its representations
and
warranties as of the date of this Agreement and as of the Closing Date
in
accordance with
Section 5.01
and as to its compliance with and
performance of its covenants and obligations to be performed or complied
with at
or before the Closing in accordance with
Section 5.02
;
(xiii)
in
the
event that a Backstop Letter of Credit is not delivered at Closing by Purchaser
as provided in
Section 1.03(b)(iii)(Y)
, Company shall deliver the
Security Agreement and the Escrow Agreement each executed
by Company;
(xiv)
a
certificate as to the good standing of the Company issued by the Secretary
of
State of the State of Delaware; and
(xv)
a
certificate of the Secretary of Company certifying and attaching all requisite
resolutions or actions of Company’s board of directors and stockholders
approving the execution and delivery of this Agreement and the consummation
of
the Transactions and certifying to the incumbency and signatures of the
officers
of Company executing this Agreement and any other documents relating to
the
Transactions.
(b)
Purchaser
and Parent shall deliver to Company:
(i)
the
Closing Cash Payment by wire transfer to an account specified by
Company;
(ii)
the
Promissory Note executed by Purchaser and Parent;
(iii)
either
(A)
the Guarantee executed by Parent and Coramandel, and the Security Agreement
executed by Purchaser and the Escrow Agreement executed by Purchaser and
Escrow
Agent or (B) a Backstop Letter of Credit;
(iv)
the
Assignment and Assumption Agreement executed by Purchaser;
(v)
the
(A)
Trademark Assignment and (B) Patent Assignment, executed by
Purchaser;
(vi)
the
Drug
Repositioning License Agreement executed by Purchaser;
(vii)
the
Diagnostic Development License Agreement executed by Purchaser;
(viii)
the
50
West Watkins Lease Assignment and Assumption Agreement executed by
Purchaser;
(ix)
the
Sublease executed by Purchase;
(x)
the
Drug
Repositioning MSA executed by Purchaser;
(xi)
the
Diagnostic Development MSA Agreement executed by Purchaser;
(xii)
the
Transition Services Agreement executed by Purchaser;
(xiii)
the
Third
Party IP Assignment and Assumption Agreements executed by
Purchaser;
(xiv)
a
certificate of the good standing of Purchaser as of not more than five
(5) days
prior to Closing issued by the Secretary of State of the State of Delaware
and a
certificate issued by the government of the Republic of India as of a recent
date with similar effect with respect to Parent;
(xv)
a
certificate executed by Purchaser as to the accuracy of its representations
and
warranties as of the date of this Agreement and the Closing Date in accordance
with
Section 6.01
and as to its compliance with and performance of its
covenants and obligations to be performed or complied with at or before
Closing
in accordance with
Section 6.02
; and
(xvi)
a
certificate of the Secretary of Purchaser certifying and attaching all
requisite
resolutions or actions of Purchaser’s board of directors and stockholders
approving the execution and delivery of this Agreement and the consummation
of
the Transactions and certifying to the incumbency and signatures of the
officers
of Purchaser executing this Agreement and any other document relating to
the
Transactions.
ARTICLE
II
REPRESENTATIONS
AND WARRANTIES OF PURCHASER
Purchaser
and Parent hereby represent and warrant to Company as follows:
Section
2.01.
Corporate
.
Parent
is
a company duly organized, validly existing and in good standing under the
Company Act, 1956 of the Republic of India. Purchaser is, or will be
within ten (10) days of the date hereof, a corporation duly organized,
validly
existing and in good standing under the Laws of Delaware. Each of
Parent and Purchaser have all requisite corporate power and authority to
execute
and deliver this Agreement and the other documents and instruments to be
executed and delivered by Parent and Purchaser pursuant hereto and to carry
out
the transactions contemplated hereby and thereby.
Section
2.02.
Authority
.
The
execution and delivery of this Agreement and the other documents and instruments
to be executed and delivered by Parent and Purchaser pursuant hereto and
the
consummation of the transactions contemplated hereby and thereby have been
duly
authorized and approved by the board of directors of Purchaser and Parent
and
the shareholders of Purchaser and Parent.
This Agreement
constitutes, and, when executed and delivered, the other documents and
instruments to be executed and delivered by Purchaser and Parent pursuant
hereto
will constitute, valid and binding agreements of Purchaser and Parent,
enforceable in accordance with their respective terms, except as such may
be
limited by bankruptcy, insolvency, reorganization, moratorium or other
Laws
affecting creditors’ rights generally, and by general equitable
principles.
Section
2.03.
No
Violation
.
Neither
the execution and delivery of this Agreement or the other documents and
instruments to be executed and delivered by Purchaser or Parent pursuant
hereto
or thereto nor the consummation by Purchaser or Parent of the transactions
contemplated hereby and thereby (collectively, the “
Transactions
”)
(a) assuming all notices, reports or other filings described in this
Section 2.03
have been given or made, will violate any Laws or
Orders of any Governmental Entity applicable to Purchaser or Parent,
(b) except for filings as would not, individually or in the aggregate,
prevent or materially delay the consummation of the Transactions, will
require
any authorization, consent, approval, exemption or other action by or notice
to
any Governmental Entity or (c) subject to obtaining the consents described
in clause (b) above, will violate or conflict with, or constitute a default
(or an event that, with notice or lapse of time, or both, would constitute
a
default) under, or will result in the termination of, or accelerate the
performance required by, any term or provision of the charter, bylaws or
similar
organizational documents of Purchaser or Parent or of any Contract or
restriction of any kind or character to which Purchaser or Parent is a
party or
by which Purchaser or Parent or any of their assets or properties may be
bound
or affected.
Section
2.04.
Brokers
.
Except
for
o3 Capital Advisers, Pvt. Ltd., whose fees will be paid by Purchaser, neither
Purchaser, Parent or any of their directors, officers, employees or agents
has
retained, employed or used any investment banking firm, broker or finder
in
connection with the Transactions or in connection with the negotiation
thereof,
nor are any of them responsible for the payment of any investment banking,
broker’s or finder’s fees.
Section
2.05.
Financing
.
The
Purchaser and Parent have available the funds necessary to consummate the
Transactions (including, without limitation, to make the payments described
in
Section 1.03
), and to pay related fees and expenses. The
letter from ICICI Bank Limited to Parent dated October 10, 2007 attached
hereto
as
Schedule 2.05
(the “
Financing Letter
”) has not been withdrawn
or modified since the date thereof and neither Purchaser nor Parent has
not been
notified in writing or verbally of such bank’s intention to withdrawn or modify
such letter or the commitment to provide financing contained
therein.
Section
2.06.
Litigation
. No
action, suit, claim, investigation or proceeding (legal, administrative
or
arbitrative) is pending or, to the best of Purchaser’s and Parent’s knowledge,
threatened against Purchaser or Parent which seeks to prevent, restrict
or delay
consummation of the Transactions.
Section
2.07.
Limitations
of Company’s Representations
. Purchaser and Parent acknowledge
and agree that, except as expressly set forth in this Agreement, the Company
has
not made any representation or warranty, express or implied, as to the
Company
or the Business or as to the accuracy or completeness of any information
regarding the Company or the Business furnished or made available to Purchaser,
Parent or their Representatives. Except as expressly set forth in
this Agreement, the Company is not and shall not be subject to any Liability
to
Purchaser or Parent resulting from the distribution to Purchaser or Parent,
or
Purchaser’s or Parent’s use of or reliance on, any such information, documents
or material made available to Purchaser or Parent in any data rooms, management
presentations or in any other form in expectation of, or in connection
with, the
Transactions contemplated by this Agreement.
Section
2.08.
Disclosure
Documents
. None of the information provided by Purchaser or
Parent expressly for inclusion and thereafter included in the Proxy Statement
or
any amendment or supplement thereto, will, at the time of mailing of the
Proxy
Statement to the stockholders of the Company, at the time of the meeting
at
which the Company’s stockholders will vote on the Transactions, or at the time
of any amendments thereof or supplements thereto, contain any untrue statement
of a material fact or omit to state any material fact necessary in order
to make
the statements made therein, in light of the circumstances under which
they were
made, not misleading.
Section
2.09.
Financial
Statements
. The Balance Sheet of Parent as of March 31, 2007 and
also the Profit and Loss account and each cash flow statement for the year
ended
on that date previously delivered to the Company give the information required
by the Company Act, 1956, in the manner so required and give a true and
fair
view in conformity with the accounting principles generally accepted in
India as
of the date indicated and since such date no event has occurred with regard
to
Parent which would constitute a material adverse effect under the standards
for
a Material Adverse Effect as defined herein;
provided, however
, that in
applying the Material Adverse Effect,
subsection (x)
thereof shall not
apply for the purposes of this
Section 2.09
. The balance sheet, income
statement and statement of cash flows of Purchaser as of September 30,
2007
previously delivered to the Company are consistent with the books and records
of
the Company and have been prepared in accordance with the past practices
of the
Company.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF COMPANY
Except
as
set forth in the disclosure schedules to this Agreement, Company hereby
represents and warrants to Purchaser as set forth in this
Article
III
. Each item disclosed in the disclosure schedules (the
“
Disclosure Schedules
”) to this Agreement shall constitute an exception
to the representations and warranties to which it makes reference and those
representations and warranties herein to which the relevance of the item
disclosed is reasonably apparent, without the necessity of repetitive disclosure
or cross-reference.
Section
3.01.
Corporate
.
(a)
Company
is
a corporation duly organized, validly existing and in good standing under
the
laws of the State of Delaware, and has all requisite corporate power and
authority to own, lease or otherwise hold the Acquired Assets and to carry
on
the Business as presently conducted.
(b)
Company
is
duly qualified or registered to transact business and is in good standing
as a
foreign and/or alien corporation in each jurisdiction in which the failure
to be
so qualified or registered could reasonably be expected to have a Material
Adverse Effect.
Section
3.02.
Authority
.
Company
has the necessary corporate power and authority to enter into this Agreement
and
to carry out its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by
Company and the consummation by Company of the transactions contemplated
hereby
have been duly authorized and approved by all necessary corporate action
on the
part of Company and no other corporate proceeding is necessary for the
execution
and delivery of this Agreement, the performance by Company of its obligations
hereunder and the consummation by Company of the transactions contemplated
hereby, subject only to the adoption of this Agreement and approval of
the
Transactions by the requisite affirmative vote of the stockholders of Company
as
required by the DGCL at a meeting of the stockholders of
Company. This Agreement has been duly executed and delivered by
Company and, assuming due authorization, execution and delivery by the
Purchaser, constitutes the legal, valid and binding obligation of Company,
enforceable against it in accordance with its terms, except as such may
be
limited by bankruptcy, insolvency, reorganization, moratorium or other
Laws
affecting creditors’ rights generally, and by general equitable
principles.
Section
3.03.
No
Violation
.
(a)
The
execution and delivery of this Agreement by Company do not, and the performance
of this Agreement by Company will not, (i) assuming all notices, reports or
other filings described in
clause (i)
of
Section 3.03(b)
have been given or made, conflict with or violate any Law or Order of any
Governmental Entity applicable to Company or by which any of its property
is
bound or affected, (ii) violate or conflict with either the Certificate of
Incorporation or Bylaws of Company or, (iii) except as set forth in
Schedule 3.03(a)
, result in any violation or breach of or constitute a
default (or an event which with notice or lapse of time or both would become
a
default) under, or give to others any rights of termination, amendment
or
cancellation of, or result in the creation of a lien or encumbrance on
any of
the property or assets of Company pursuant to, any note, bond, mortgage,
indenture, agreement, contract, instrument, permit, license, franchise
or other
obligation to which Company is a party or by which Company or its property
is
bound or affected, except for, in the case of
clauses (i)
and
(iii)
, conflicts, violations, breaches or defaults which would
not,
individually or in the aggregate, have a Material Adverse Effect or prevent
the
consummation of the Transactions.
(b)
Except
for (i) applicable requirements, if any, of the Exchange Act, and
(ii) filings as would not prevent or materially delay the consummation of
the Transactions, Company is not required to submit any notice, report
or other
filing with any Governmental Entity in connection with the execution, delivery
or performance of this Agreement or the consummation of the transactions
contemplated hereby. No waiver, consent, approval or authorization of
any Governmental Entity is required to be obtained or made by Company in
connection with its execution, delivery or performance of this Agreement
or the
consummation of the transactions contemplated hereby, except (A) where the
failure to obtain such waivers, consents, approvals or authorizations would
not
prevent or materially delay the performance by Company of their respective
obligations under this Agreement or (B) in connection with any submission
required above.
Section
3.04.
Tax
Matters
.
(a)
All
Tax
Returns required to be filed by or on behalf of Company with respect to
the
Business or the Acquired Assets have been timely filed. All such Tax
Returns were correct and complete in all material respects. All Taxes
owed by Company have been paid except for Taxes for which payment has not
yet
become due. There are no security interests on any of Company's
assets that arose in connection with any failure or alleged failure to
pay any
Tax.
(b)
Company,
with respect to the Business and Acquired Assets, has duly withheld and
paid all
Taxes that it is required to withhold and pay in connection with amounts
paid or
owing to any employee, independent contractor, creditor or other third
party,
except where the failure to withhold or pay Taxes would not be material
to the
Business.
(c)
The
Tax
Returns of Company with respect to the Business or Acquired Assets that
are
under audit or have been audited by the Internal Revenue Service (“
IRS
”)
or other applicable Tax authorities since July 1, 2004 are set forth in
Schedule 3.04(c)
. Except as would not be material to the
Business, Company has not received from the IRS or any other applicable
Tax
authorities any written notice of underpayment or assessment of Taxes or
other
deficiency with respect to the Business or Acquired Assets that has not
been
paid or any objection to any Tax Return filed by Company with respect to
the
Business or the Acquired Assets. There are no outstanding Contracts
or waivers extending the statutory period of limitations applicable to
any Tax
Return with respect to the Business or Acquired Assets.
(d)
No
claim
has been made by an authority in a jurisdiction in which Company does not
file
Tax Returns that it is subject to Tax in that jurisdiction.
(e)
This
Section 3.04
contains all representations and warranties of the Company
with respect to all matters involving Taxes or Laws with respect to
Taxes.
Section
3.05.
Absence
of Certain Changes
.
Except
as
expressly contemplated by this Agreement or as set forth in
Schedule 3.05
or in any SEC Reports filed and publicly available
prior to the date of this Agreement, since July 1, 2007, (a) the
Business has been conducted in the ordinary course consistent with past
practice; (b) there has not been any event, occurrence or development which
would have a Material Adverse Effect on Company or the Business; (c) there
has not occurred any action, event or failure to act, that if it has occurred
after the date of this Agreement would have required the consent of Purchaser
under
Section 4.01
.
Section
3.06.
No
Litigation
.
Except
as
set forth in
Schedule 3.06
, as of the date hereof, there is no Litigation
pending or, to Company’s Knowledge, threatened against Company, the Acquired
Assets or the Business. Except as set forth in
Schedule 3.06
or in any SEC Reports, as of the date hereof, there are no Orders relating
to
the Business or the Acquired Assets.
Section
3.07.
Compliance
with Laws and Orders; Environmental Laws
.
(a)
Except
as
set forth in
Schedule 3.07(a)
, Company (including the Business and
Acquired Assets) is in compliance with all applicable Laws, except for
such
instances of noncompliance that would not have a Material Adverse Effect,
and
Orders. Except as set forth in
Schedule 3.07(a)
, Company has
not received any written notice of any violation or alleged violation of
any
Laws or Orders that have not been resolved. Except as set forth in
Schedule 3.07(a)
, all reports, filings and returns required to be filed
by or on behalf of Company relating to the Business with any Governmental
Entity
have been filed.
(b)
Company
has all Operating Permits, and all exemptions from requirements to obtain
or
apply for any of the foregoing, for the conduct of the Business (as currently
conducted), except where the failure to have such Operating Permits would
not
have a Material Adverse Effect. All Operating Permits are set forth
in
Schedule 3.07(b)
, are in full force and effect, except where the
failure to be in full force or effect would not have a Material Adverse
Effect. Except as set forth in
Schedule 3.07(b)
, Company
(including the Business and Acquired Assets) is in compliance with all
such
licenses, permits, approvals, certifications, consents and listings, except
for
such instances of noncompliance that would not have a Material Adverse
Effect.
(c)
Except
as
would not have a Material Adverse Effect, (i) Company is in compliance with
all applicable Environmental Laws relating to the Business and the Acquired
Assets; (b) Company has all material permits, licenses and other
authorizations required under any Environmental Law relating to the Business
(“
Environmental Permits
”); (c) Company is in material compliance
with its Environmental Permits; and (d) there are no pending or, to
Company’s Knowledge, threatened claims against Company relating to any
Environmental Law or Hazardous Substance relating to the Business. This
Section 3.07(c)
contains all representations and warranties of the
Company with respect to all matters involving environmental conditions
or
Environmental Laws.
Section
3.08.
Title
to Properties
. Except as set forth on
Schedule 3.08
, Company has
good, valid and marketable title to, or in the case of leased properties
and
assets, valid leasehold interests in, all the Acquired Assets and such
assets
and properties are owned free and clear of all Liens except for Permitted
Encumbrances.
Section
3.09.
Tangible
Personal Property
.
(a)
All
furniture, fixtures, computer systems, equipment, laboratory equipment
and other
tangible personal property, whether owned or leased, by the Company and
used or
held for use primarily in the conduct of the Business during the twelve
(12)
months prior to the date of this Agreement (but excluding embodiments of
Business Intellectual Property, Business Information, Information Assets
and
Third Party IP) and located either at the 50 West Watkins Mill Road Facility
or
Tokyo Facility or in the possession of Business salespeople (collectively,
the
“
Equipment
”) shall be delivered “AS IS”. Except as provided on
Schedule 3.09(a)(1)
, notwithstanding the previous sentence, Equipment
essential to providing the products or services provided by the Business
in the
ordinary course of its business as conducted during the twelve (12) months
prior
to the date of this Agreement (the “
Essential Equipment
”) is in good
operating condition (ordinary wear and tear excepted) and
repair. Such personal property is not held other than in the
possession of the Company or the Business
salespeople.
Schedule 3.09(a)(2)
is a list of the
Equipment owned by the Company that is (i) material for the operation of
the
Business or (ii) that either (A) is reflected on the Initial Listing of
Assets
and Liabilities or was thereafter acquired (except for assets and properties
sold, consumed or otherwise disposed of in the ordinary course of business
since
such date), or, (B) with respect to furniture, fixtures, cubicles, computers,
equipment and other tangible assets, that is or has been located at the
50 West
Watkins Mill Road Facility, the Tokyo Facility or in the possession of
the
Business salespeople since September 30, 2007, is Equipment which during
the
twelve (12) months prior to the date of this Agreement has primarily been
used
or held for use in the conduct of the Business (but not including the Retained
Assets); provided, that if there is no breach of
Section 3.16(b)
, the
absence of an item included on
Schedule 3.09(a)(2)
in the assets
delivered at Closing shall not be a breach of this
Section 3.09(a)
, so
long as the Essential Equipment is included in the assets delivered to
Purchaser
at Closing.
(b)
The
Company has not received notice from any Governmental Entity that any of
the
Equipment is not in compliance with all applicable Law, except for such
failures
to comply, if any, which have been remedied.
Section
3.10.
Real
Property
.
(a)
Company
does not own any real property.
Schedule 3.10(a)
sets forth a
list of all real property leased to and currently used by Company for the
Business (the “
Real Property
”).
(b)
Company
is
not in breach of or default under the terms of the Real Property Leases
(nor has
Company taken or failed to take any action that , with notice or lapse
of time,
or both, would constitute a default) and to Company’s Knowledge the respective
landlords of the Real Property Leases are not in breach of or default under
the
terms of their Real Property Leases (nor has either such landlord taken
or
failed to take any action that , with notice or lapse of time, or both,
would
constitute a default). True and correct copies of the Real Property
Leases have been provided to Purchaser.
(c)
Company
has not entered into any subleases, licenses or other agreements relating
to the
use or occupancy of all or any portion of the Real Property by any
Person.
(d)
the
Real
Property is sufficient and suited, in all material respects, for the Business
as
presently conducted by Company.
(e)
The
Real
Property is not subject to any procedure or action, including without limitation
eminent domain or condemnation, which may affect its quiet use. To
Company’s Knowledge, there is no proposed planning regulation or decision of a
Governmental Entity would result in the taking of all or any part of the
Real
Property or that would prevent or hinder the continued use of the Real
Property
as it is currently used in the conduct of the Business.
(f)
To
Company’s Knowledge, the electrical, mechanical, plumbing, heating,
air-conditioning, ventilating, security and other systems serving the Real
Property are in good working order and there are no major repairs (any
single
repair costing in excess of $10,000, or repairs costing in aggregate in
excess
of $25,000) required to the structure or building systems of the Real
Property.
(g)
Company
has not received (i) actual notice of any threatened special assessments
or
improvements or activities of any Governmental Entity either planned, in
process, or completed which may give rise to any special assessment against
the
Real Property or any portion thereof; or (ii) actual notice of any judicial
or
administrative action, or action by any adjacent landowners, affecting
the Real
Property that would materially and adversely impact the operation of the
Business.
Section
3.11.
Insurance
.
Schedule
3.11
sets forth a true and complete list of all insurance policies carried
by Company with respect to the Business or the Acquired Assets, together
with,
in respect of each such policy, the name of the insurer, the policy number,
the
type of policy, the amount of coverage and the deductible;
provided,
however,
that none of such insurance policies is included in the Acquired
Assets or Assumed Liabilities.
Section
3.12.
Material
Contracts
.
(a)
As
of the
date hereof,
Schedule 3.12(a)
lists all current Contracts, relating
primarily to the Business or the Acquired Assets to which Company is a
party and
which fall within any of the following categories (each a “
Material
Contract”
):
(i)
all
agreements with customers of the Business which contain executory obligations
of
the Business in excess of $300,000 and/or a term of more than 24 months
from the
date hereof;
(ii)
all
agreements with vendors to the Business pursuant to which the Business
has
purchased goods or services in excess of $200,000 in the 6 months prior
to the
date hereof;
(iii)
all
agreements, other than Open Purchase Orders or in excess of $25,000, pursuant
to
which the Company and/or the Business is required to purchase either a
specific
dollar amount of goods or services or a specific percentage of the Business’
requirements;
(iv)
all
agreements with customers of the Business which contain “most favored customer,”
“most favored pricing” or similar terms which require the Company and/or the
Business to deal with any customer on better, equal or similar terms than
any
other customer that is unaffiliated with the first customer;
(v)
any
agreement with any Governmental Entity as a customer;
(vi)
any
agreement requiring an annual payment in excess of $100,000 relating to
the
supply of human tissue samples or to sponsored research with entities that
have
provided or are providing human tissue samples;
(vii)
any
distributor, distribution or reseller agreements;
(viii)
material
Contracts not entered into in the ordinary course of business;
(ix)
Contracts
relating to any outstanding commitment for capital expenditures in excess
of
$25,000;
(x)
indentures,
mortgages, promissory notes, loan agreements, guarantees, letter of credit
or
other agreements or instruments of Company or commitments for the borrowing
or
the lending by Company of amounts in excess of $25,000 providing for the
creation of any charge, security interest, encumbrance or lien upon any
of the
Acquired Assets, to the extent included in Assumed Liabilities;
(xi)
any
non-competition agreement or any other agreement or obligation that purports
to
limit in any respect the manner in which, or the localities in which, the
Business may be conducted;
(xii)
any
Contract that Company reasonably believes would prohibit or materially
delay the
consummation of the Transactions (other than those requiring consent to
assignment as provided
Schedule 3.03(a)
); and
(xiii)
any
Contract with any Affiliate that would affect the Acquired Assets or Business
after Closing (excluding any employment-related agreements).
(b)
Company
has provided Purchaser with true and complete copies of the Material Contracts,
and any proposed written amendment, supplement or modification to an existing
Material Contract have been made available by Company to
Purchaser. Except as set forth in
Schedule 3.12(b)
, each of
the Material Contracts were entered into in a bona fide transaction in
the
ordinary course of business and is legal, valid, binding and enforceable
upon
Company and in full force and effect. There is not under any Material
Contract: (A) any existing material default by Company or, to Company’s
Knowledge, by any other party thereto, or (B) any event which, after notice
or
lapse of time or both, would constitute a default by Company or, to Company’s
Knowledge, by any other party, or result in a right to accelerate or terminate
or result in a loss of rights of Company, which default or event could,
individually or in the aggregate, reasonably be expected to result in a
liability or cost to Company in excess of $25,000.
Section
3.13.
Employee
and Labor Matters
.
Except
as
set forth on
Schedule 3.13
, (a) there is no unfair labor practice
charge or complaint pending or, to Company’s Knowledge, threatened, against
Company relating to the Business; (b) there is no labor strike, slowdown or
stoppage actually pending or, to Company’s Knowledge, threatened, against or
affecting Company relating to the Business nor any secondary boycott with
respect to any products or services of Company relating to the Business;
(c) no labor grievance, nor any arbitration proceeding arising out of or
under collective bargaining agreements applicable to the Company in connection
with the Business, is pending; and (d) there are no administrative charges
or court complaints against Company in connection with the Business concerning
alleged employment discrimination or other employment-related matters pending
or
threatened before the U.S. Equal Employment Opportunity Commission or any
other
Governmental Entity.
Section
3.14.
Employee
Benefit Plans
.
(a)
Schedule
3.14(a)
sets forth a list of all “employee benefit plans” (as defined in
Section 3(3) of ERISA) and all other employee benefit or executive
compensation arrangements, perquisite programs or payroll practices applicable
to Business Employees, including any such arrangements or payroll practices
providing severance pay, sick leave, vacation pay, salary continuation
for
disability, retirement benefits, deferred compensation, bonus pay, incentive
pay, stock options (including those held by directors, employees, and
consultants), hospitalization insurance, medical insurance, life insurance,
scholarships or tuition reimbursements, that are maintained by Company
or any
entity within the same “controlled group” as Company, within the meaning of
Section 4001(a)(14) of ERISA (an “
ERISA Affiliate
”) or to which
Company or ERISA Affiliate is obligated to contribute thereunder for current
or
former employees of the Business (the “
Employee Benefit Plans
”);
provided, however
, that none of such Employee Benefit Plans or the
assets thereof are included in the Acquired Assets or Assumed
Liabilities.
(b)
There
are
no pending actions, claims or lawsuits which have been asserted, instituted
or,
to Company’s Knowledge, threatened, against the Employee Benefit Plans, the
assets of any of the trusts in their capacity as such under such plans
or the
plan sponsor or the plan administrator, or against any fiduciary of the
Employee
Benefit Plans with respect to the operation of such plans (other than routine
benefit claims).
(c)
No
Employee Benefit Plan is subject to Section 412 of the Code or Section
302 or
Title IV of ERISA, nor has any of Company, a Company Subsidiary or an ERISA
Affiliate maintained any such plan for the 5 year period prior to the date
of
this Agreement. No Employee Benefit Plan is a “multiemployer plan”
within the meaning of Section 4001(a)(3) of ERISA or is a “single-employer plan”
subject to Section 4063 or 4064 of ERISA, nor has Company, or any ERISA
Affiliate maintained or contributed to any such plan at any time prior
to the
date of this Agreement.
(d)
With
respect to any Employee Benefit Plan that is intended to be “qualified” under
Section 401(a) of the Code:
(i)
each
Employee Benefit Plan has been operated at all times in compliance with
its
terms and Code Section 401(a);
(ii)
no
Employee Benefit Plan is or has been within the five (5) year period preceding
the date of this Agreement under audit or, to Company’s Knowledge, investigation
by any Governmental Entity; and
(iii)
Company
has provided to the Purchaser a copy of any opinion letter or determination
letter issued by the IRS with respect to such Employee Benefit Plan’s
qualification.
(e)
As
of the
date hereof, the Company has not entered into any written employment agreements
with any of the Business Employees and each of the Business Employees is
employed with the Company on an “at-will” basis.
(f)
This
Section 3.14
contains all representations and warranties of the Company
with respect to all matters regarding Employee Benefit Plans or Laws regarding
employee or incentive plans.
Section
3.15.
Intellectual
Property
.
(a)
Schedule
3.15(a)
lists all of the Registered IP and any licenses or other rights
granted to third parties to use the Registered IP. The Registered IP
is registered in the name of Company and Company has the right to assign
the
Registered IP to Purchaser pursuant to the terms hereof.
(b)
Except
as
set forth in
Schedule 3.15(b)
, Company owns all right, title and interest
in and to all material Business Intellectual Property, and/or, as between
Company and its licensor, has a valid and transferable license to use all
material 3
rd
Party Software Licenses and 3
rd
Party
Databases
subject to the terms of the third party licenses.
(c)
Except
as
set forth in
Schedule 3.15(c)
, and subject to the rights of suppliers
under agreements with suppliers of biological samples (including those
held in
the Biorepository), Company owns all right, title and interest in and to
the
Biorepository.
(d)
Except
set
forth in
Schedule 3.15(d)
, Company is in material compliance with terms
of the public licenses applicable to open source incorporated by the Company
in
the Information Assets, excluding open source incorporated in the Third
Party
IP.
(e)
Except
as
set forth in
Schedule 3.15(e)
, the Business Intellectual Property and the
Third Party IP constitute all of the material Intellectual Property Rights
owned, used or held for use by Company primarily in connection with the
Business.
(f)
Except
as
set forth in
Schedule 3.15(f)
, all renewal fees and other maintenance
fees that have fallen due and for which the payment period has expired
on or
prior to the date of this Agreement with respect to Registered IP have
been
paid, and no Business Intellectual Property is the subject of any proceeding
before any Governmental Entity, in any jurisdiction, including any office
action
or other form of preliminary or final refusal of registration.
(g)
To
Company’s Knowledge, (i) no claim, suit, action or other proceeding with respect
to any infringement of third party intellectual property rights, or violation
of
the respective licenses for the 3
rd
Party
Software, is
threatened in writing or pending against the Company and (ii) the Company's
current use of the 3
rd
Party
Software is
consistent with the terms of the respective licenses to such 3
rd
Party
Software.
(h)
Company
has taken reasonable steps necessary to protect the proprietary status
of all
material trade secrets and other material confidential information relating
to
the Business. Except as described on
Schedule 3.15(h)
, all
employees of the Company who have contributed to or participated in the
conception and development of any material Business Intellectual Property
have
executed a Proprietary Information and Inventions Agreement or other agreements
providing for the assignment of Intellectual Property Rights to their work
product for the Business substantially in scope as those contained in the
form
attached hereto as
Exhibit 3.15(h)
. Except as described on
Schedule 3.15(h)
, consultants of the Company who have contributed to or
participated in the conception and development of any of material Business
Intellectual Property have executed an agreement providing for the assignment
or
license to Customer of Intellectual Property Rights to their work product
for
the Business.
(i)
Except
as
disclosed on
Schedule 3.15(i)
, no written claims, or to Company’s
Knowledge unwritten claims, have been made to Company by any person or
entity
that (i) Company does not own or have the right to use any Intellectual
Property
Right in the conduct of the Business, or (ii) the use of any Business
Intellectual Property by Company, or the conduct of the Business, infringes
upon
or misappropriates the Intellectual Property Rights of a third party, and
Company does not know of any valid basis for any such claim.
(j)
To
Company’s Knowledge, and except as set forth on
Schedule 3.15(j)
, the use
of the Business Intellectual Property and the conduct of the Business by
Company
does not infringe upon or misappropriate the Intellectual Property Rights
of any
Person.
(k)
Except
as
disclosed on
Schedule 3.15(k)
, to Company’s Knowledge, no Person is
infringing or misappropriating any Business Intellectual Property.
Section
3.16.
Financial
Statement
.
(a)
The
Initial Listing of Assets and Liabilities is consistent with the books
and
records of the Company and has been prepared in accordance with the past
practices of the Company.
(b)
As
of June
30, 2007, the Net Fixed Assets of the Business included in the Acquired
Assets
have a book value equal to Eight Million Eighty Thousand Dollars ($8,080,000).
As of the Closing Date, the book value of the Net Fixed Assets of the
Business shall be equal to at least Eight Million Eighty Thousand Dollars
($8,080,000), less normal amortization and depreciation since June 30,
2007. The “
Net Fixed Assets of the Business
” shall be the
plant, property, equipment and leasehold improvements of the Business as
determined by the Company in accordance with past practices of the Company
and
consistent with the books and records of the Company.
(c)
As
of the
Closing Date, the total Other Current Liabilities of the Business (less
the
amount of any increase between the date hereof and the Closing Date of
Other
Current Liabilities due to increases in paid time off accruals) shall not
be
greater than Eight-Hundred-Sixty-Four Thousand Dollars
($864,000). “
Other Current Liabilities of the Business
” shall
be made up of the line items of the Business listed on
Schedule 3.16(c)
hereto.
(d)
Each
of
the consolidated financial statements (including, in each case, any related
notes thereto) contained in Company’s financial statements contained in its 2006
Annual Report on Form 10-K filed with the SEC (the “
Company Financial
Statements
”), was prepared in accordance with GAAP applied on a consistent
basis throughout the periods involved (except as may be indicated in the
notes
thereto) and (ii) was prepared from and in accordance with Seller’s books and
records.
(e)
On
the
date hereof and on the Closing Date, the Company Subsidiaries do not and
will
not have any obligations or liabilities (whether accrued, contingent or
otherwise), in excess of the aggregate amounts set forth on the Company
Subsidiary balance sheets attached hereto as
Schedule 3.16(e)
, other than
liabilities and obligations incurred in the ordinary course of business
since
the date of the Company Subsidiaries’ balance sheet (which excess from ordinary
course liabilities and obligations for each Company Subsidiary shall not
exceed
$100,000).
Section
3.17.
Brokers
. Other
than Company Financial Advisor, no broker, finder or investment banker
is
entitled to any brokerage, finder’s or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by and on behalf of Company.
Section
3.18.
Inventory
.
All Inventories reflected on Company’s financial statements are valued at the
lower of cost or market, in accordance with GAAP applied on a consistent
basis
throughout the periods indicated. Except to the extent of inventory
reserves reflected on the Company Financial Statements, the items included
in
said inventories are (i) normal items of inventory carried by the Business,
and (ii) of a quality and quantity merchantable in the normal course of
business consistent with past practice (which, for the avoidance of doubt,
shall
not include expired Inventory).
Section
3.19.
Customers
and Suppliers
.
(a)
Customers
.
Schedule 3.19(a)
sets forth an accurate and complete list of the ten (10) largest customers
of
the Business (by volume in dollars of sales to such customers) for the
12-month
period ending as of June 30, 2007 (the “
Material Customers
”), and the
amount of revenues accounted for by such customers during such
period. None of such Material Customers which are subscription
customers has given notice to Company that it does not intend to renew
its
subscription and none of such Material Customer for data generation services
has
indicated that upon conclusion of such assignment it will not consider
the
Company for future engagements, nor to Company’s Knowledge is there any fact or
circumstance that would be reasonably likely to result in any such
change.
(b)
Suppliers
.
Schedule 3.19(b)
sets forth an accurate and complete list of the ten (10) largest suppliers
of
Company with respect to the Business (determined on the basis of dollar
volume
for the 12-month period ending as of June 30, 2007 (the “
Material
Suppliers
”) and the amounts paid to each Material Supplier such period
ending. None of such Material Suppliers has given notice to the
Company that it intends to cease doing business with the Company with respect
to
the Business, nor to Company’s Knowledge is there any fact or circumstance that
would be reasonably likely to result in any Material Supplier reducing
or
ceasing its relationship with the Business.
Section
3.20.
Transactions
with Related Persons
. Except as set forth in
Schedule 3.20
, no officer or director of Company (any such
individuals, a “
Related Person
”), or, to the Knowledge of the Company,
any Affiliate or member of the immediate family of any Related Person,
is
involved in any business arrangement or relationship with the Company with
respect to the Business in excess of $25,000 per annum, other than employment
arrangements entered into in the ordinary course of business.
Section
3.21.
Product
Warranties
. To Company’s Knowledge, each product sold or licensed
by the Business (the “
Business Products
”) has been in conformity in all
material respects with the specifications (if any) for such Business Products,
all applicable contractual commitments and all applicable express and implied
warranties. No Business Product is subject to any guaranty, warranty
or other indemnity beyond the applicable terms and conditions of the applicable
sales agreement or license or beyond that which may be implied or imposed
by
applicable Law.
Section
3.22.
Sufficiency
of Assets
. Except for the assets in the Shared Services Division
and the Retained Assets, the Acquired Assets collectively comprise all
of the
assets and rights necessary for the conduct of the Business as it has been
conducted during the twelve (12) months prior to the date of this Agreement
and
is currently being conducted by the Company.
Section
3.23.
Contract
Rights
. The rights and benefits granted to Company pursuant to
the agreements listed in Section 5(b)(i)-(iv) of
Schedule 1.01(b)(1)
are
not as of the date hereof, and have not within the twelve (12) months prior
to
the date hereof, been used by the Company in connection with the conduct
of the
Business.
EXCEPT
AS EXPRESSLY SET FORTH IN THIS
ARTICLE III
, NEITHER THE COMPANY NOR ANY
OF ITS AFFILIATES MAKES, OR HAS MADE, ANY REPRESENTATIONS OR WARRANTIES
WHATSOEVER, EXPRESS OR IMPLIED, STATUTORY OR BASED ON COURSE OF DEALING
OR USAGE
OF TRADE, RELATING TO THE COMPANY OR THE BUSINESS, ASSETS OR
LIABILITIES. ALL SUCH OTHER REPRESENTATIONS AND WARRANTIES ARE HEREBY
EXPRESSLY DISCLAIMED INCLUDING WITHOUT LIMITATION ANY WARRANTY OF
MERCHANTABILITY, AND FITNESS FOR A PARTICULAR PURPOSE. WITHOUT
LIMITATION OF THE FOREGOING, NOTWITHSTANDING ANY OTHER PROVISION OF THIS
AGREEMENT, NOTHING IN THIS AGREEMENT IS INTENDED TO BE A WARRANTY OR
REPRESENTATION BY COMPANY OF NON-INFRINGEMENT OF INTELLECTUAL
PROPERTY RIGHTS, OR FREEDOM TO OPERATE UNDER INTELLECTUAL PROPERTY
RIGHTS WITH RESPECT TO THE COMPANY, ANY ACQUIRED ASSETS OR THE BUSINESS,
AND ANY
AND ALL SUCH WARRANTIES AND REPRESENTATIONS ARE HEREBY DISCLAIMED IN
FULL.
ARTICLE
IV
COVENANTS
Section
4.01.
Conduct
of Business by Company Pending the Closing
. From the date of this
Agreement to the Effective Time, except as required or permitted by this
Agreement or otherwise with the prior written consent of Purchaser and
Company
shall (a) carry on the Business in the ordinary course consistent in all
material respects with past practice, (b) use commercially reasonable
efforts to preserve intact in all material respects the Business and keep
available the services of the senior managers of the Business, (c) use
commercially reasonable efforts to preserve in all material respects the
Company’s business relationships with principal customers and suppliers of the
Business with which it has business dealings and (d) comply in all material
respects with all Laws applicable to the Company or any of its properties
and
assets relating to the Business. Without limiting the generality of
the foregoing, Company shall not, between the date of this Agreement and
the
Effective Time, except as expressly required or permitted by this Agreement,
directly or indirectly, do, or commit to do, any of the following without
the
prior written consent of Purchaser (which consent shall not be unreasonably
withheld or delayed):
(i)
Sell,
dispose of, transfer, or further encumber any of the Acquired Assets, except
in
the ordinary course of business or pursuant to an Acquisition Proposal
in
accordance with the terms of
Section 4.02
;
(ii)
Incur
a
non-ordinary course obligation or commitment which is or will become an
Assumed
Liability in excess of $50,000 for any single obligation
or commitment or in the aggregate in the excess of
$250,000;
(iii)
Enter
into, or modify, amend or terminate, any Material Contract other than in
the
ordinary course of business;
(iv)
Materially
increase the compensation or fringe benefits of any of the Business Employees,
except as required by contractual obligations existing as of the date hereof
and
except for increases in salary or wages in connection with a promotion
or change
in position granted to employees (other than executive officers) of Company
in
the ordinary course of business in accordance with past practice;
(v)
Except
as
may be required as a result of a change in Law or in generally accepted
accounting principles or audit practices, change in any material respect
any of
the accounting methods, practices or principles used by the Company relating
to
the Business; or
(vi)
Agree
to
take in writing, any of the actions described in this
Section 4.01
.
Section
4.02.
No
Solicitation
. Until this Agreement has been terminated in
accordance with
Section 8.01
, Company shall not, and shall not permit any
of its Affiliates to, and shall cause its Affiliates’ officers, directors,
employees, consultants, representatives and other agents, including, but
not
limited to, investment bankers, attorneys and accountants (collectively,
“
Representatives
”), not to, directly or indirectly, (i) solicit, initiate
or knowingly encourage the making of, or take any other action to facilitate
any
inquiries or the making of any proposal that constitutes or may reasonably
be
expected to lead to, any Acquisition Proposal, (ii) participate in
discussions or negotiations with, or furnish or disclose any nonpublic
information to, any Person (other than Purchaser or their Representatives)
in
connection with any Acquisition Proposal, (iii) approve or recommend, or
propose to approve or recommend, any Acquisition Proposal, or (iv) enter
into any agreement, letter of intent or similar document contemplating
or
otherwise relating to any Acquisition Proposal;
provided, however,
that
this
Section 4.02
shall not prohibit Company or the Representatives
from:
(i)
participating
in discussions or negotiations with, or furnishing or disclosing nonpublic
information to, any Person in response to an unsolicited, bona fide and
written
Acquisition Proposal that is submitted to Company by such Person after
the date
of this Agreement and prior to the Effective Time if (I) none of Company,
any of its Affiliates or any of the Representatives shall have violated
in any
material respect any of the provisions of this
Section 4.02
, (II) a
majority of the members of the Board of Directors of Company determines
in good
faith, (x) that such Person is reasonably capable of consummating such
Acquisition Proposal taking into account the legal, financial, regulatory
and
other aspects of such Acquisition Proposal and (y) that such Acquisition
Proposal could reasonably lead to a Superior Proposal, and (III) a majority
of the members of the Board of Directors determines in good faith that
failing
to take such action would be a breach of its fiduciary duties to the Company’s
stockholders; or
(ii)
approving
or recommending, or entering into, a definitive agreement with respect
to an
unsolicited Acquisition Proposal that is submitted to Company after the
date of
this Agreement and prior to the Effective Time if (I) none of Company, any
of its Affiliates or any of the Representatives have violated in any material
respect any of the provisions of this
Section 4.02
, (II) Company
provides Purchaser with written notice at least three Business Days prior
to any
meeting of the Board of Directors at which such Board of Directors will
consider
whether such Acquisition Proposal constitutes a Superior Proposal, during
which
three-Business Day period Company shall cause its financial and legal advisors
to negotiate in good faith with Purchaser in an effort to make such adjustments
in the terms and conditions of this Agreement as would enable Company to
proceed
with the transactions contemplated herein on such adjusted terms,
(III) notwithstanding such negotiations and adjustments pursuant to
clause (II)
above, the Board of Directors makes the determination
necessary for such Acquisition Proposal to constitute a Superior Proposal,
(IV) a majority of the members of the Board of Directors determines in good
faith that failing to take such action would be a breach its fiduciary
duties to
Company’s stockholders, and (V) Company does not approve or recommend or
enter into a definitive agreement with respect to such Acquisition Proposal
at
any time before the day that is the third Business Day after Purchaser
receives
written notice from Company stating that the Board of Directors has determined
such Acquisition Proposal constitutes a Superior Proposal;
provided,
further
, that if, in accordance with subsections (i) or (ii) above, Company
determines that an Acquisition Proposal constitutes a Superior Proposal,
then
upon termination of this Agreement in accordance with the terms of
Section
8.01(d)
, Company shall pay to Purchaser an amount equal to the sum of
$400,000.
Section
4.03.
Access
to Information
.
(a)
Except
for
competitively sensitive information, and subject to applicable Law, during
the
period commencing on the date hereof and ending on the earlier of (i) the
Closing Date and (ii) the date on which this Agreement is terminated
pursuant to
Section 8.01
, Company shall upon reasonable notice, afford
Purchaser, and its Representatives, reasonable access during normal business
hours to the employees, properties, books and records of the Business so
that
they may have the opportunity to make such investigations as they shall
desire
of the affairs of Business;
provided, however,
that such investigation
shall not affect the representations and warranties made by Company in
this
Agreement. Company agrees to cause its Representatives, in a manner
consistent with the fulfillment of their ongoing duties and obligations,
to
furnish such additional financial and operating data and other information
and
respond to such inquiries relating to the Business as Purchaser shall from
time
to time reasonably request. Notwithstanding the foregoing, nothing
herein shall require Company to disclose any information that would cause
a
violation of Law or any confidentiality agreement or contractual requirement
or
waive any attorney-client privilege (provided that if Company refrains
from
disclosing information requested by Purchaser for any of the foregoing
reasons
Company shall so advise Purchaser, including an explanation of the basis
for
withholding the information);
provided further
, that all requests for
such access, inspection or information pursuant to this
Section 4.03
shall be made through Company’s General Counsel or such other person as he shall
designate in writing to Purchaser. All nonpublic information provided
to, or obtained by, Purchaser in connection with the transactions contemplated
hereby shall be “
Confidential Information
” for purposes of the
Confidentiality Agreement.
(b)
Except
for
competitively sensitive information, and subject to applicable Law, during
the
period commencing on the date hereof and ending on the earlier of (i) the
Closing Date and (ii) the date on which this Agreement is terminated
pursuant to
Section 8.01
, Purchaser and Parent shall cause their
Representatives to furnish such information and respond to such inquiries
as
Company shall from time to time reasonably request regarding post-closing
integration and operational issues. Notwithstanding the foregoing,
nothing herein shall require Purchaser or Parent to disclose any information
that would cause a violation of Law or any confidentiality agreement or
contractual requirement or waive any attorney-client privilege (provided
that if
Purchaser or Parent refrains from disclosing information requested by Company
for any of the foregoing reasons Purchaser and Parent shall so advise Company,
including an explanation of the basis for withholding the information);
provided further
, that all requests for such access, inspection or
information pursuant to this
Section 4.03
shall be made through
Purchaser’s Chief Financial Officer or such other person as he shall designate
in writing to Company. All nonpublic information provided to, or
obtained by, Company in connection with the transactions contemplated hereby
shall be Confidential Information for purposes of the Confidentiality
Agreement.
Section
4.04.
Notification
of Certain Matters
.
(a) From
the date hereof until Closing, Company shall endeavor to promptly notify
Purchaser in writing if to the Company’s Knowledge: (x) any
event, condition, fact or circumstance has occurred, or existed on or prior
to
the date of this Agreement and that caused or constitutes a breach of any
representation or warranty made by Company in this Agreement; (y) any
event, condition, fact or circumstance occurs, arises or exists after the
date
of this Agreement and that would cause or constitute a breach of any
representation or warranty made by Company in this Agreement if (i) such
representation or warranty had been made as of the time of the occurrence,
existence or discovery of such event, condition, fact or circumstance,
or
(ii) such event, condition, fact or circumstance had occurred, arisen or
existed on or prior to the date of this Agreement; and (c) any material
breach of any covenant or obligation of Company. If any event,
condition, fact or circumstance arises after the date of this Agreement
that is
required to be disclosed pursuant to this
Section 4.04
and requires
any change in the Disclosure Schedules, or if any such event, condition,
fact or
circumstance would require such a change assuming the Disclosure Schedule
were
dated as of the date of the occurrence, existence or discovery of such
event,
condition, fact or circumstance, then Company shall promptly deliver to
Purchaser an update to the Disclosure Schedule specifying such change and,
when
accepted by Purchaser, such update shall be deemed to supplement or amend
the
Disclosure Schedule for the purpose of (i) determining the accuracy of any
representation or warranty made by Company in this Agreement or any closing
certificate, or (ii) determining whether any of the conditions set forth in
Article V
has been satisfied, unless in accordance with
Section
5.07
such update is not accepted by the Purchaser.
(b) From
the date hereof until Closing: (i) Purchaser and Parent shall promptly
notify
Company in writing if Purchaser or Parent receives notice, whether written
or
verbal, of (A) ICICI Bank’s withdrawal or modification of the Financing Letter
or the commitment to provide financing contained therein, (B) ICICI Bank’s
intention to withdraw or modify such letter or the commitment to provide
financing contained therein, or (C) any event related to the financing
of the
Transaction occurs or fails to occur which would cause the Purchaser or
Parent
not to proceed to Closing; and (ii) Company shall promptly notify Purchaser
in
writing if Company determines that stockholder approval of the Transactions
will
not be or has not been obtained.
Section
4.05.
Public
Announcements
.
So
long as
this Agreement is in effect, Purchaser and Company shall consult with each
other
before issuing, and provide each other a reasonable opportunity to review
and
comment upon, any press release or other public statements with respect
to this
Agreement and the Transactions and shall not issue, or permit their Affiliates
or Representatives to issue, any such press release or make any such public
statement prior to such consultation, except as may be required by Law
(including, but not limited to, filing of this Agreement on a Current Report
on
Form 8-K and the filing of a Schedule 14A and distribution of the related
Proxy
Statement pursuant to the federal securities Laws) or in accordance with
any
listing agreement with, or the rules, requirements or requests of, any
securities exchange on which such Party’s securities are listed or
quoted.
Section
4.06.
Commercially
Reasonable Efforts; Cooperation
.
Upon
the
terms and subject to the conditions hereof, each of the Parties hereto
shall use
its commercially reasonable efforts to obtain in a timely manner all necessary
waivers, consents and approvals and to effect all necessary registrations
and
filings, and shall use its commercially reasonable efforts to take, or
cause to
be taken, all other actions and to do, or cause to be done, all other things
necessary, proper or advisable to consummate and make effective as promptly
as
practicable the transactions contemplated by this Agreement, including,
without
limitation, (a) cooperating in responding to inquiries from, and making
requests and presentations to, stockholders, customers, suppliers, regulatory
authorities and other third parties, (b) cooperating in the preparation and
filing of the Proxy Statement and (c) promptly making all regulatory
filings and applications and any amendments thereto as are necessary for
the
consummation of the transactions contemplated by this Agreement;
provided,
however
, that (i) nothing in this
Section 4.06
shall require a Party
to (x) respond to or defend against any Litigation challenging or relating
to
this Agreement or the transactions contemplated hereby, including seeking
to
have any stay or temporary restraining order entered, by any court or other
Governmental Entity vacated or reversed, or (y) divest or otherwise transfer
or
assign any material assets or cease any material business activities as
a
condition of the approval of this transaction by any Governmental Entity,
and
(ii) if the Company is unable to obtain consents to assignment of the Sponsored
Research Agreements prior to Closing, Purchaser shall hold the biological
tissue
samples provided pursuant to such agreements in escrow (and shall not make
use
of such tissue samples until such consents are obtained) and Company and
Purchaser will continue for a reasonable period after Closing to attempt
in good
faith to obtain such consents to assignment, or such earlier time as Company
determines it is unable to obtain such consents (but in no event shall
Company
be required to pursue such consents for more than ninety (90) days after
Closing) and if Company or Purchaser determine that they will be unable
to
obtain such consents, then either Purchaser or Company may require such
tissue
samples be removed and destroyed and after such removal and destruction
Purchaser shall certify such removal and destruction to Company;
provided,
however
, that Purchaser will not be required to (A) remove and destroy in
excess of five percent (5%) of such tissue samples contained in the
Biorepository as of the date of Closing at the direction of the Company
or (B)
hold in escrow in excess of ten percent (10%) of such tissue samples contained
in the Biorepository as of the date of Closing.
Section
4.07.
Retention
of Books and Records
.
(a)
To
the
extent documents and records pertaining to the periods before the Closing
are
included in the Acquired Assets, after Closing Purchaser will retain and
maintain, in an organized and retrievable manner, all documents and records
pertaining to the periods before the Closing in accordance with standards
of
commercial reasonableness. Purchaser will retain and maintain all
machine-sensible records, such as computer tapes, disks, diskettes, etc.,
which
are considered books and records within the meaning of Code Section
6001. Purchaser will make available such documents and records,
machine sensible records, computer time, and assistance from Purchaser’s
personnel as may be requested by Company in order to expeditiously comply
with
all pertinent requests from the Internal Revenue Service, state taxing
authorities or other governmental regulatory agencies that relate to periods
prior to the Closing Date.
(b)
Purchaser
and Company agree to retain all Tax returns, related schedules and work
papers
and all other material records and other documents relating to the Company
or
the Business (the “
Documents
”) for periods prior to, or including the
Closing until December 31, 2014 (the “
Document Period
”) or any longer
period of time required by law as applicable to Purchaser or Company or
that is
reasonably requested in writing by Purchaser or Company. During the
Document Period, upon reasonable notice, each of Purchaser and Company
will
give, or cause to be given, to the Representatives of the other access
to and
permission to copy, at the requesting Party’s expense, during normal business
hours, Documents in the custody of such Party and access to its employees
with
knowledge of such matters, to the extent reasonably requested by the other
Party
in connection with financial reporting matters, audits, legal proceedings,
employee benefit claims, governmental investigations and other reasonable
business purposes;
provided, however
, that nothing herein will obligate
any Party to take actions that would unreasonably disrupt the normal course
of
its business, violate the terms of any contract to which it is a party
or to
which it or any of its assets is subject, or grant access to any of its
proprietary, confidential or classified information to the extent not related
to
the Business or the Acquired Assets. In no event shall Purchaser (i)
file any amended Tax Return of the Business for any period prior to Closing
or
(ii) extend the statute of limitations on assessment of any Tax of the
Business
for any period prior to Closing, without the written consent of Company,
which
cannot be unreasonably withheld.
(c)
In
the
event and for so long as any Party is actively pursuing an affirmative
recovery
or contesting or defending against any charge, complaint, action, suit,
proceeding, hearing, investigation, claim or demand in connection with
(i) the
Transactions or (ii) any fact, situation, circumstance, status, condition,
activity, practice, plan, occurrence, event, incident, action, failure
to act or
transaction on or prior to the Closing Date involving the Business or the
Acquired Assets, the other Parties will cooperate with such Party and its
counsel in the pursuit, contest or defense as may be reasonably
requested.
Section
4.08.
Expenses;
Proration
. Except as otherwise provided herein, all costs and
expenses incurred in connection with this Agreement and the Transactions
shall
be paid by the Party incurring such costs and expenses. Any
installment of rent due with respect to any leases assigned in connection
with
the Transactions, and any utility or similar charges and assessments payable
with respect to any of the Acquired Assets, and all expenses related to
the
operation and maintenance of the Acquired Assets, for the period in which
the
Closing occurs shall be adjusted pro rata between Company and Purchaser
to the
Closing Date (with Company responsible for periods of time prior to Closing
and
Purchaser and Parent responsible for periods of time after
Closing). All costs, expenses, filing and prosecution fees, annuities
and maintenance fees payable from and after the Closing relating to the
Registered IP shall be paid by Purchaser or Parent.
Section
4.09.
Assignment
of Contracts, Rights, etc
. Notwithstanding anything contained in
this Agreement to the contrary, this Agreement shall not constitute an
agreement
to assign the right, title or interest of Company or its Affiliates in,
to or
under any contract, license, lease, commitment, sales order, purchase order
or
other agreement or any claim or right of any benefit arising thereunder
or
resulting therefrom if any attempted assignment thereof, without the consent
of
a third party thereto, would constitute a breach thereof or in any way
adversely
affect the rights of Company or its Affiliates, unless and until such consent
has been obtained. Company shall use its reasonable best efforts to
obtain, and Purchaser agrees to cooperate with Company in its efforts to
obtain,
any required third party consent to the assignment or transfer thereof
to
Purchaser. If such consent is not obtained, Company and Purchaser
shall cooperate in any reasonable arrangements designed to provide Purchaser
with the benefits thereunder, including enforcement for the benefit of
Purchaser
of any and all rights of Company or any of its Affiliates against such
third
party arising out of the cancellation by such third party or
otherwise. Notwithstanding the foregoing, the obligations of Company
or any of its Affiliates under this
Section 4.09
shall not include any
obligation to make any material payment or to incur any material economic
burden.
Section
4.10.
Transfer
Taxes and Recording Fees
. All sales, use, transfer taxes and
other non-income taxes and any fees (including deed recordation fees, Registered
IP recordation fees, and filing fees) incurred in connection with this
Agreement
and the Transactions (the “
Transfer Fees
”) will be borne 50% by Purchaser
and 50% by Company. Company will cooperate with Purchaser and
Purchaser will cooperate with Company to the extent reasonably necessary
to
enable Purchaser or Company, as required, to make such filings and join
in the
execution of any tax returns or other documents as may be required in order
for
Purchaser and Company to comply with the provisions of this
Section. Upon receipt by Purchaser or Parent of reasonable
documentation provided by Company, Purchaser and Parent will pay directly
to
Company 50% of the sales tax incurred in connection with the Transactions
so
that Company may remit such taxes directly to the applicable Governmental
Entity
and Company covenants to remit such sales tax directly to such Governmental
Entity. In the event that Company receives a refund of any such sales
taxes, Company will pay 50% of such returned funds received by the Company
to
Purchaser or Parent.
Section
4.11.
Tax
Matters
.
(a)
Company
will be responsible for the preparation and filing of all federal, state
and
local franchise, property, payroll, and other non-income tax returns necessary
with respect to the purchase and the ownership of the Acquired Assets,
for all
periods as to which such tax returns are due prior to the date of Closing
and
Company will make all payments required with respect to any such tax
returns.
(b)
Purchaser
will be responsible for the preparation and filing of all federal, state
and
local franchise, property, payroll, and other non-income tax returns necessary
with respect to the purchase and the ownership of the Acquired Assets,
for all
periods as to which such tax returns are due after the date of Closing
and
Purchaser will make all payments required with respect to any such tax
returns;
provided, however
, that for the avoidance of doubt, such taxes for the
year that includes the Closing Date shall be allocated pro rata based on
the
number of days that occur before and after the Closing, with such taxes
being
borne Company based on the ratio of the number of days in the relevant
period
prior to and including the Closing Date to the total number of days in
the
actual taxable period with respect to which such Taxes are assessed,
irrespective of when such Taxes are due, become a lien or are assessed,
and such
Taxes being borne by the Purchaser based on the ratio of the number of
days in
the relevant period after the relevant Closing Date to the total number
of days
in the actual taxable period with respect to which such Taxes are assessed,
irrespective of when such Taxes are due, become a lien or are assessed,
and,
further provided
, that upon written notice from Purchaser to Company
that Purchaser shall be making a payment for which Company is liable hereunder
(which notice shall include reasonable detail on the amount and calculation
of
the pre-Closing portion), Company shall forward to Purchaser, in immediately
available funds, the Company’s share of such payment prior to the due date of
such tax.
Section
4.12.
Mail
Received After Closing
.
(a)
Following
the Closing, Purchaser shall deliver or cause to be delivered to Company,
promptly after receipt by Purchaser, all mail addressed to Company or any
of its
Affiliates.
(b)
Following
the Closing, Company may receive and open all mail addressed to Company
and may
deal with the contents thereof in its discretion to the extent that such
mail
and the contents thereof do not relate to the Business. Company shall
deliver or cause to be delivered to Purchaser, promptly after receipt by
Company, all mail, including, without limitation, payments of accounts
or claims
receivable, addressed to Company or Purchaser which relates to the
Business.
Section
4.13.
Personnel
Matters
.
(a)
Transfer
of Employees
. The Company has provided a true and correct list of
all of the employees of the Company that devote the primary portion of
their
activities as Company employees to the Business, a copy of which is attached
hereto as
Schedule 4.13(a)
.
Schedule 4.13(a)
also
provides the following information for each such employee: (i) name, (ii)
initial employment date, (iii) job title, (iv) annual base salary, (v)
target
incentive compensation for fiscal year 2007, (vi) tenure of employment,
(vii)
paid time off accrual, and (viii) exempt/non exempt status with regard
to
overtime pay. Offers of employment by Purchaser to any such employees
(whether employed prior to the Transactions by the Company or an Affiliate
thereof) listed on
Schedule 4.13(a)
, shall include the following terms
and conditions (1) a base salary and incentive compensation that, in the
aggregate, is not less than such person’s current salary and incentive
compensation and (2) benefits as are set forth in
Section
4.13(b)
. All such offers shall be contingent upon the
Closing, with employment to begin immediately following Closing. Such employees
that accept Purchaser’s offer of employment and commence work for Purchaser are
referred to herein as the “
Business Employees
.” For
clarity, the parties acknowledge and agree that “incentive compensation” shall
not be deemed to include any retention plans or bonuses provided by Company
to
such Business Employees.
(b)
Benefit
Plans
. Purchaser shall, from and after the Effective Time, (1)
until the first anniversary thereof, make available to the Business Employees
benefits under employee benefit plans that are substantially similar in
the
aggregate to those provided by the Company to the Business Employees on
the date
hereof (the “
Company Benefit Plans
”) and severance benefits on an
individual-by-individual basis as described on
Schedule 4.13(b)
, (2)
provide Business Employees credit for years of service with Company or
any of
its subsidiaries or their predecessors prior to the Effective Time for
the
purpose of eligibility and vesting under employee benefit plans of Purchaser,
(3) to the extent permitted (whether upon payment by Purchaser of additional
premiums or other terms) under Purchaser’s group health plans, cause any and all
pre-existing condition limitations (to the extent such limitations did
not apply
to a pre-existing condition under comparable Company Benefit Plans) and
eligibility waiting periods under group health plans of Purchaser to be
waived
with respect to Business Employees who become employees of Purchaser or
its
subsidiaries (and their eligible dependents) and (4) cause to be reimbursed
any
deductibles or out-of-pocket expenses incurred by Business Employees and
their
beneficiaries and dependents under Purchaser’s group health plan to the extent
such deductibles or out of pocket expenses were already incurred by such
employee (or his or her beneficiaries or dependents) during the prior portion
of
the calendar year in which they first participate in Purchaser’s health plans,
with the objective that there be no duplication of such deductibles or
out-of-pocket expenses during the year in which the Closing Date
occurs.
(c)
WARN
Act Notices
. Purchaser shall be responsible for and assume all
liability for any and all notices, payments, fines or assessments due to
any
government authority, pursuant to any applicable federal, state or local
law,
common law, statute, rule or regulation with respect to the employment,
discharge or layoff of employees of the Business as of or within 45 days
after
the Closing, including but not limited to the WARN Act.
(d)
COBRA
.
Company shall be responsible for compliance with all requirements under
Sections
4980B and 9801of the Code and Section 601, et seq. of ERISA with respect
to any
(a) Business Employee or (b) dependent of such Business Employee, in each
case
who, on or prior to the Closing Date, becomes a qualified beneficiary within
the
meaning of Section 4980B(g)(1) of the Code as the result of any "qualifying
event" within the meaning of Section 4980B(f)(3) of the Code occurring
on or
prior to the Closing Date or who, on or prior to the Closing Date, ceases
to be
covered under Company's group health plan. Purchaser shall be responsible
for
compliance with all requirements under Sections 4980B and 9801 of the Code
and
Section 601, et seq. of ERISA with respect to any (a) Business Employee
or (b)
dependent of such Business Employee, in each case who, after the Closing
Date,
becomes a qualified beneficiary within the meaning of Section 4980B(g)(1)
of the
Code as the result of any "qualifying event" within the meaning of Section
4980B(f)(3) of the Code occurring after the Closing Date or who, after
the
Closing Date, ceases to be covered under Purchaser's group health
plan.
(e)
401(k)
Rollover
. Purchaser shall have amended its 401(k) Plan, or established a
401(k) Plan if Purchaser does not currently have such a plan, as necessary
to
permit the rollover transfer of funds from the Company’s 401(k) Plan to a
Purchaser 401(k) Plan and the Purchaser shall accept into such a Purchaser
401(k) Plan all loans to Business Employees outstanding under the Company’s
401(k) Plan.
(f)
Paid
Time Off
. To the extent in excess of vacation benefits available pursuant to
Purchaser’s vacation policies, Purchaser shall grant Business Employees accrued
and unused paid time off to which such Business Employees have a right
as of the
Closing Date pursuant to Company’s paid time off policy. Notwithstanding any
other provision in Purchaser’s vacation pay policy, to the extent permitted
under Company’s paid time off pay policy as of the Closing Date and to the
extent not previously used, Purchaser shall permit the Business Employees
to
carry over and use such accrued and unused paid time off remaining under
the
Company’s policy as in effect on the Closing Date in future years and Purchaser
shall pay such paid time off benefits upon termination of
employment.
(g)
Termination
of Employment of Business Employees
. As of immediately prior to
Closing, Company shall terminate the employment of each Business Employee
that
has accepted an offer of employment with Purchaser.
(h)
Employee
Status
. The Company shall promptly notify Purchaser of any
Business Employee that terminates employment with the Company or if such
an
employee takes a leave of absence from the Company.
Section
4.14.
Non-Solicitation
and Non-Compete
.
(a)
Non-Solicitation
.
(i)
For
a
period beginning on the date hereof and ending on the last day of the eighteenth
(18
th
) month
after the Closing Date (the “
Nonsolicitation Period
”), except with
respect to the Business Employees listed on
Schedule 4.13(a)
to whom
Purchaser may make offers of employment at or prior to Closing that may
be
accepted by such Business Employees during the first thirty (30) days of
the
Nonsolicitation
Period, neither Purchaser, Parent, their
Affiliates, or Representatives, shall in any manner, directly or indirectly
(i)
solicit or assist any other party to solicit any employee of Company or
any
Affiliate of Company to terminate his or her employment with Company or
its
Affiliate, or (ii) otherwise recruit or encourage any such employee to
become an
employee of, or a consultant to, Purchaser or its Affiliate unless Company
has
consented in advance in writing.
(ii)
During
the
Nonsolicitation Period, neither Company, its Affiliates, or its Representatives,
shall in any manner, directly or indirectly (i) solicit or assist any other
party to solicit any employee of Purchaser or any Affiliate of Purchaser
to
terminate his or her employment with Purchaser or its Affiliate, or (ii)
otherwise recruit or encourage any such employee to become an employee
of, or a
consultant to, Company or its Affiliate unless Purchaser has consented
in
advance in writing.
(b)
Non-Compete
. For
a period beginning on the date hereof and ending on the fifth anniversary
hereof
(the “
Restricted Period
”), Company and its Affiliates will not, anywhere
in the world engage in the Business as it was conducted by Company
prior to Closing, or have any financial or other interests in, any person,
firm,
corporation or line of business that competes with such Business, directly
or
indirectly in a material respect;
provided, however,
that the following
shall not be a violation of this
Subsection 4.14(b)
: (A) ownership or
control by the Company and its Affiliates of less than a 5% interest, as
a
passive investor, of the equity securities of a company which is in competition
with the Business; (B) activities associated with the Company’s and its
Affiliates’ conduct of the Diagnostic Development Business or the Drug
Repositioning Business; (C) ownership of a minority, non-controlling
interest in Xceed Molecular, and (D) activities of the Company and its
Affiliates, or a division or portion of the Company, following their
acquisition, whether by merger, sale of assets, or other business
combination by a Person engaged, prior to such acquisition, directly
or indirectly, in whole or in part, in a business that competes with the
Business.
Section
4.15
Minimum Conditions for
Assignment of Lease
. Parent will cause Purchaser to have a
minimum net worth of at least Three Million Dollars ($3,000,000) as of
the
Closing Date.
ARTICLE
V
CONDITIONS
TO OBLIGATIONS OF PURCHASER AND PARENT
The
obligations of Purchaser and Parent to consummate the transactions contemplated
by this Agreement shall be subject, to the extent not waived by Purchaser
or
Parent, to the satisfaction of each of the following conditions before
or at the
Closing:
Section
5.01.
Representations
and Warranties
. Except for changes contemplated by this
Agreement, the representations and warranties of Company contained in
Article
III
of this Agreement shall be true and correct in all material respects
as
of the date of this Agreement and as of Closing.
Section
5.02.
Performance
of this Agreement
. Company shall have in all material respects
performed all obligations and complied with all conditions required by
this
Agreement to be performed or complied with by it before or at the
Closing.
Section
5.03.
Consents
and Approvals
. Subject to the provisions of
Section 4.09
,
all consents, authorizations, orders or approvals which Company is required
to
obtain in order for Company to transfer the Acquired Assets to Purchaser
and
which are material to the future conduct of the Business by Purchaser shall
have
been obtained by Company, including, without limitation, all waiting periods
specified by law with respect thereto shall have passed.
Section
5.04.
Injunction,
Litigation, etc.
No order of any court or administrative agency
shall be in effect which restrains or prohibits the consummation of the
Transactions, and there shall not have been threatened, nor shall there
be
pending, any action or proceeding by or before any Governmental Entity
which is
likely to prohibit, delay or successfully challenge the validity of any
of the
transactions contemplated by this Agreement.
Section
5.05.
Legislation
. No
statute, rule or regulation shall have been enacted which prohibits or
restricts
the consummation of the Transactions.
Section
5.06.
Deliveries
. Company
shall have caused the documents and instruments required by
Section
1.06(a)
to be delivered (or tendered subject only to Closing) to
Purchaser.
Section
5.07.
Matters
Disclosed Pursuant to Section 4.04
. Any amendments to this
Agreement or the Disclosure Schedules that are deemed made pursuant to
Section 4.04
of this Agreement, which would reasonably be expected
to have a Material Adverse Effect or have had a Material Adverse Effect,
must be
reasonably satisfactory to Purchaser.
Section
5.08.
Stockholder
Approval
. Company shall have obtained the Stockholder
Approval.
Section
5.09.
No
Material Adverse Change
. There shall not have occurred a Material
Adverse Effect.
ARTICLE
VI
CONDITIONS
TO OBLIGATIONS OF COMPANY
The
obligations of Company to consummate Transactions shall be subject, to
the
extent not waived by Company, to the satisfaction of each of the following
conditions before or at Closing:
Section
6.01.
Representations
and Warranties
. Except for changes contemplated by this
Agreement, the representations and warranties of Purchaser and Parent contained
in
Article II
of this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing
Date.
Section
6.02.
P
erformance
of this Agreement
. Purchaser and Parent shall have in all
material respects performed all obligations and complied with all conditions
required by this Agreement to be performed or complied with by it before
or at
the Closing, to the extent not waived.
Section
6.03.
Stockholder
Approval
. This Agreement and the Transactions contemplated hereby
shall have been approved and adopted by the requisite affirmative vote
of the
stockholders of the Company in accordance with the DGCL (“
Stockholder
Approval
”).
Section
6.04.
Consents
and Approvals
. All consents, authorizations, orders or approvals
of any Governmental Entity and of other Persons which Purchaser and Parent
are
required to obtain in order to consummate the transactions contemplated
by this
Agreement shall have been obtained by Purchaser and Parent and all waiting
periods specified by law with respect thereto shall have passed.
Section
6.05.
Injunction,
Litigation, etc.
No order of any court or administrative agency
shall be in effect which restrains or prohibits the consummation of the
transactions contemplated hereby or which would limit or affect Company’s rights
to transfer the Acquired Assets to Purchaser or Purchaser’s and Parent’s ability
to consummate the Transactions and there shall not have been threatened,
nor
shall there be pending, any action or proceeding by or before any Governmental
Entity which is likely to prohibit, delay or successfully challenge the
validity
of any of the transactions contemplated by this Agreement.
Section
6.06.
Legislation
. No
statute, rule or regulation shall have been enacted which prohibits or
restricts
the consummation of the transactions contemplated hereby.
Section
6.07.
Deliveries
. Purchaser
and Parent shall have caused the documents and instruments required by
Section 1.06(b)
to be delivered (or tendered subject only to Closing) to
Company.
ARTICLE
VII
INDEMNIFICATION
Section
7.01.
Indemnification
by Company
. Subject to the limitations contained in this
Article VII
, Company shall, from and after Closing, indemnify and hold
Purchaser and Parent harmless against all Losses arising out of:
(a)
any
breach
of a representation or warranty made by Company in
Article III
of this
Agreement;
(b)
the
breach
of any agreement of Company contained in this Agreement; or
(c)
any
liability or obligation of Company other than the Assumed
Liabilities.
Section
7.02.
Indemnification
by Purchaser and Parent
. Subject to the limitations contained in
this
Article VII
, Purchaser and Parent shall, jointly and severally,
indemnify and hold Company harmless against all Losses arising out
of:
(a)
any
breach
of a representation or warranty made by Purchaser or Parent in
Article II
of this Agreement;
(b)
the
breach
of any agreement of Purchaser or Parent contained in this Agreement;
or
(c)
any
Assumed Liability or the failure by Purchaser or Parent to discharge any
Assumed
Liability.
Section
7.03.
Survival
Date
. The indemnification obligations of each party (the
“
Indemnitor
”) obligated to provide indemnification to the other (the
“
Indemnitee
”) under
Sections 7.01
an
7.02
shall lapse and
become of no further force and effect with respect to all claims not made
by
Indemnitee’s delivery to the Indemnitor of written notice containing details
reasonably sufficient to disclose to Indemnitor the nature and scope of
the
claim by March 31, 2009 (the “
Claims Period
”);
provided,
however
, that notwithstanding the forgoing, the Claims Period during which
a claim for indemnification may be asserted with respect to:
(a) Assumed
Liabilities or Retained Liabilities shall continue indefinitely;
(b) Sections
2.01 (Corporate), 2.02 (Authority), 3.01 (Corporate), 3.02 (Authority),
3.08
(Title to Properties) shall continue indefinitely; and
(c) Sections
3.04 (Tax Matters) and 3.07(c) (Compliance with Laws and Orders; Environmental
Laws) shall begin on the Closing Date and shall terminate as of the date
of the
expiration of the statute of limitations applicable to the subject matter
thereof to which the claim for indemnification relates.
(d)
Sections
7.01(b)
and
7.02(b)
shall continue in effect as to each agreement
referenced in such Sections that contemplates performance after the Closing,
in
accordance with the terms of such agreements, as long as any claim for
indemnification in respect of a breach of such agreements is brought within
six
(6) months after the other party has become aware of facts giving reasonable
notice that a breach has occurred.
Any
indemnification obligations arising under
Section 7.01
or
7.02
shall lapse and become of no further force and effect with respect to all
claims
with respect to which Indemnitee does not timely give notice to Indemnitor
in
accordance with
Section 7.06
or
Section 7.07(b)
, as
applicable. The intention of this
Section 7.03
is to shorten
the applicable statute of limitations for which to bring claims for indemnity
under this Agreement.
Section
7.04.
Limitations
on Indemnification
.
(a) Notwithstanding
anything to the contrary herein, the Company shall not be required to indemnify
Purchaser or Parent and Purchaser and Parent shall not be obligated to
indemnify
Company unless and until the aggregate Losses of the Indemnitee exceeds
One-Hundred-Fifty Thousand Dollars ($150,000) (the “
Threshold
”), and if
such Losses are exceeded, only the amount of Losses above the Threshold,
subject
to the other limitations provided herein Agreement
provided, however
,
that Losses arising from the items covered in
Sections 1.02(a)
(Assumed
Liabilities),
1.02(b)
(Retained Liabilities),
2.04
(Brokers),
3.17
(Brokers),
4.08
(Expenses; Proration), and
4.10
(Transfer Taxes and Recording Fees) (collectively, the “
Exceptional
Items
”) shall not be subject to this
Section 7.04(a
).
(b) The
total indemnification obligations of Company in this Agreement shall not
exceed,
in the collective aggregate for Company, One Million Dollars ($1,000,000.00)
(the “
Cap
”);
provided, however
, that (i) the Cap shall not apply
to items covered in
Sections 1.02(b)
(Retained Liabilities),
3.08
(Title to Properties),
3.17
(Brokers),
4.08
(Expenses; Proration),
and
4.10
(Transfer Taxes and Recording Fees), (the “
Company Uncapped
Items
”) and (ii) actual fraud committed by Company, shall not be subject
to
the Cap and such Damages shall not count towards satisfaction of the
Cap.
(c) The
total indemnification obligations of Purchaser and Parent in this Agreement
shall not exceed, in the collective aggregate for Purchaser and Parent,
the
Cap
;
provided, however
, that (i) the Cap shall not apply to the
items covered in
Sections 1.02(a)
(Assumed Liabilities),
2.04
(Brokers),
4.08
(Expenses; Proration), and
4.10
(Transfer Taxes
and Recording Fees) (the “Purchaser Uncapped Items”) and (ii) a knowing or
intentional misrepresentation by Purchaser or Parent, or actual fraud committed
by Purchaser or Parent, shall not be subject to the Cap and such Damages
shall
not count towards satisfaction of the Cap.
(d) The
parties hereto shall have no liability to the other parties hereto (for
indemnification or otherwise) for the breach of any representation or warranty
to the extent that such other party had actual knowledge at or prior to
the time
of Closing that such representation or warranty was not true at the time
of
Closing;
provided, however
, that Purchaser and Parent shall only be
deemed to have actual knowledge in event that Seller can establish with
clear
and convincing evidence of actual knowledge by any of Anu Acharya, Subash
Lingareddy or Sujata Pammi based upon written documentation.
(e) Except
for actions grounded in fraud, the parties hereto acknowledge and agree,
the
indemnification provisions in this
Article VII
shall be the exclusive
remedy of the Parties with respect to breaches of the representations and
warranties set forth in this Agreement. As used in this section,
fraud shall not include any claims grounded in an allegation that a
representation or warranty in this Agreement was false, inaccurate or
incomplete. In order to prove fraud, it shall be the burden of the
party alleging fraud to establish that the acts alleged were committed
intentionally and with the specific intent to defraud the other.
Section
7.05.
Definition
of Loss
. For purposes of this
Article VII
, “
Losses
”
shall mean claims, losses, liabilities, damages, deficiencies,
penalties, costs
and expenses incurred by an Indemnitee entitled to indemnification hereunder
as
a result of a matter giving rise to a claim for indemnification hereunder,
including, without limitation, reasonable expenses of investigation and
reasonable attorneys’ fees and expenses incurred in connection with any action,
suit or proceeding (“
Legal Action
”) instituted against the Indemnitee;
provided, however,
that Loss shall be determined net of:
(a)
any
Tax
Benefit (as defined below) inuring to the Indemnitee on account of such
Loss.
For purposes of this subsection, “Tax Benefit” shall mean, after utilizing all
deductions, credits and losses otherwise available to it, any refund of
Taxes
paid or an actual reduction in the amount of Taxes (including, without
limitation, by deduction, reduction of income by reason of increased tax
basis
or otherwise, entitlement to refund, credit or otherwise) that would otherwise
be required to be paid in the particular year. A Tax Benefit shall be
calculated at the then-present value, utilizing a discount rate of five
percent
(5%), of such benefit to be realized in the current period or reasonably
anticipated to be realized in any future period by reason of the facts
and
circumstances giving rise to the indemnification claim;
(b)
insurance
proceeds actually recovered by the Indemnitee in respect of such matter
(it
being understood that Indemnitee will pursue such claims for insurance
proceeds
in good faith), net of any increase in the Indemnitee’s insurance premiums
directly resulting from such recovery and Indemnitee’s reasonable costs in
obtaining such recovery; and
(c)
indemnity
payments actually received by the Indemnitee from parties other than the
indemnifying party hereunder in respect of such matter (it being understood
that
Indemnitee will pursue such claims for payment in good faith) net of
Indemnitee’s reasonable costs in obtaining such payments.
Notwithstanding
any provision of this
Article VII
, other than with respect to claims by
Third Parties pursuant to
Section 7.07
, consequential, incidental and
punitive damages or any damages to the extent attributable to a failure
to take
commercially reasonable actions to mitigate damages shall not constitute
Losses.
Section
7.06.
Notice
of Claims
. The Indemnitee shall notify the Indemnitor in writing promptly
after becoming aware of any Losses which an Indemnitee shall have determined
has
given rise to a claim for indemnification under this
Article
VII
. Such written notice (a “
Claim Notice
”) shall include
an estimate of the Losses, if known, the method of computation thereof
and a
reference to the specific provisions of this Agreement in respect of which
it
seeks indemnification. As soon as practicable after the date of such
Claim Notice, the Indemnitee shall provide the Indemnitor or his or her
agents
access to all books and records in the possession or control of the Indemnitee
which the Indemnitor reasonably determines to be related to such
claim. If the Indemnitor notifies the Indemnitee that it does not
dispute the claim or the estimated amount of Losses described in such Claim
Notice, or fails to notify the Indemnitee within thirty (30) days after delivery
of such Claim Notice whether the Indemnitor disputes the claim or the estimated
amount of Losses described in such Claim Notice, the estimated Losses in
the
amount specified in the Indemnitee’s Claim Notice will be conclusively deemed a
Loss owed by the Indemnitor to the Indemnitee and the Indemnitor shall
pay the
amount of such Losses to the Indemnitee. If the Indemnitor has timely
disputed its liability with respect to such claim or the estimated amount
of
Losses, the dispute shall be resolved, and the amount, if any, of Losses
payable
by the Indemnitor to the Indemnitee shall be determined, in accordance
with
Section 10.08
below. It is agreed that no delay on the part of
any Indemnitee in notifying the Indemnitor shall relieve the Indemnitor
from its
obligations hereunder, except to the extent said Indemnitor is prejudiced
by
such failure to give notice. The provisions of this
Section
7.06
do not apply to third party claims referred to below in
Section
7.07
.
Section
7.07.
Third
Party Claims
.
(a)
Each
of
the parties must follow the procedures set forth in the following paragraphs
of
this
Section 7.07
in order to be entitled to indemnification with respect
to claims resulting from the assertion of liability by persons or entities
not
parties to this Agreement, including claims by any Governmental Entity
for
penalties, fines and assessments.
(b)
The
party
seeking indemnification shall give prompt written notice to the party from
whom
indemnification is sought of any assertion of liability by a third party
which
might give rise to a claim by the indemnified party against the indemnifying
party based on the indemnity agreements contained in this Agreement, stating
the
nature and basis of the assertion and the amount thereof, to the extent
known;
provided, however
, that the indemnified party’s failure to give such
notice shall not affect any rights or remedies of such indemnified party
hereunder with respect to indemnification for Losses except to the extent
that
the indemnifying party is materially prejudiced thereby.
(c)
In
the
event that any Legal Action is brought against an indemnified party with
respect
to which the indemnifying party may have liability under an indemnity agreement
contained in this Agreement, the Legal Action shall, upon the written agreement
of the indemnifying party that it is obligated to indemnify under such
an
indemnity agreement, be defended by the indemnifying party and such defense
shall include all appeals or reviews which counsel for the indemnifying
party
shall deem appropriate. In any such Legal Action the indemnified
party shall have the right to be represented by advisory counsel and
accountants, at its own expense, and the indemnifying party shall keep
the
indemnified party fully informed as to such Proceeding at all stages thereof,
whether or not the indemnified party is represented by its own
counsel.
(d)
Until
the
indemnifying party shall have assumed the defense of any Legal Action,
or if the
indemnified and indemnifying parties are both named parties in such Legal
Action
and the indemnified party shall have reasonably concluded that there may
be
defenses available to it that are materially different from or in addition
to
the defenses available to the indemnifying party (in which case the indemnifying
party shall not be entitled to assume the defense of such Legal Action,
but
shall remain responsible for its obligation as an indemnitor), all reasonable
out-of-pocket legal and other expenses reasonably incurred by the indemnified
party as a result of such Legal Action shall be borne by the indemnifying
party. In such event, the indemnified party shall make available to
the indemnifying party and its attorneys and accountants, for review and
copying, its books and records relating to such Legal Action and the parties
shall render to each other such assistance as may reasonably be requested
to
facilitate the proper and adequate defense of any such Legal
Action.
(e)
The
indemnifying party shall not make any settlement of any claim without the
written consent of the indemnified party, which consent shall not be
unreasonably withheld or delayed if the settlement unconditionally releases
the
indemnified party from all liabilities and obligations with respect to
such
third party action, does not impose injunctive or other equitable relief
against
the indemnified party, and does not establish future obligations under
which the
indemnified party or any of its Affiliates would be required to operate;
provided, however
, that if the indemnified party refuses to provide its
written consent to such a settlement offer, the liability of the indemnifying
party with regard to such claim shall not exceed the amount offered in
such
settlement and the indemnified party shall thereafter be responsible for
any
liability in excess of the liability that would have arisen under such
settlement.
Section
7.08.
Subrogation
Rights; No Duplication
.
(a)
Any
Indemnitor required to make a payment under this
Article VII
shall be
subrogated, to the extent of such payment, to the rights of the entity
to which
such payment has been made for reimbursement or indemnification against
third
parties relating to the claim on which such payment has been based.
(b)
Notwithstanding
anything in this
Article VII
to the contrary, the obligations of each
Indemnitor and its Affiliates pursuant to this
Article VII
shall be
without duplication as between entities to which such Indemnitor and its
Affiliates are required to make payments.
Section
7.09.
Exclusive
Remedies
. The remedies of the parties set forth in this
Article VII
are intended to be the sole and exclusive remedies and sole
and exclusive liabilities of the parties for all matters related to breaches
of
this Agreement, or the Transactions contemplated by this Agreement, regardless
of the legal theory pursuant to which liability is claimed, except for
(i) the
remedies of injunctive relief provided in
Section 10.09
with respect to
the specific matters to which such Section relates and (ii) in the case
of
fraud.
Section
7.10.
Indemnity
Offset
. For so long as payment to Seller by Purchaser or Parent is to be
made pursuant to the Promissory Note then, any payment required hereunder
to be
made by Seller as the Indemnitor to Purchaser or Parent as the Indemnitee,
may,
at Sellers sole and absolute discretion, be satisfied by offsetting and
reducing
the outstanding payments remaining on the Promissory Note. Seller
shall within a reasonably period of time after making such election notify
the
Purchaser or Parent of such election.
ARTICLE
VIII
TERMINATION,
AMENDMENT AND WAIVER
Section
8.01.
Termination
.
This
Agreement may be terminated and the Transactions may be abandoned at any
time
prior to the Effective Time:
(a)
By
the
mutual written consent of Purchaser and Company, by action of their respective
Boards of Directors;
(b)
By
either
Purchaser or Company if the Closing shall not have occurred by December
31,
2007;
provided
,
however
, that (i) the right to terminate this
Agreement under this subsection (b) shall not be available to (A) Company
where
the Closing has not occurred on or before December 31, 2007 by reason of
the
failure of any condition precedent under Article V (unless such failure
was
within the control of Purchaser or is a failure for reasons beyond the
control
of Company (including SEC review of the Proxy Statement or other Company
filings
which is ongoing after November 20, 2007, or other Company filing with
the SEC
that delays distribution of the Proxy Statement)) or (B) Purchaser where
the
Closing has not occurred on or before December 31, 2007 by reason of the
failure
of any condition precedent under Article VI (unless such failure was within
the
control of Company) and (ii) in the event that Company receives an Acquisition
Proposal less than three Business Days prior to December 31, 2007, Company
shall
have three Business Days from the date of receipt of such Acquisition Proposal
to determine whether or not such Acquisition Proposal is a Superior Proposal
and
Purchaser may not terminate this Agreement during such three Business Day
period
without the consent of Company;
(c)
By
either
Purchaser or Company if any Law shall have been promulgated that prohibits
the
consummation of the Transactions or if any Governmental Entity of competent
jurisdiction shall have issued an Order or taken any other action, in each
case
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such Order or other action shall have
become
final and non-appealable;
provided
,
however
, that the party
seeking termination pursuant to this subsection (c) is not then in breach
of any
of its representations, warranties, covenants or agreements contained in
this
Agreement;
(d)
By
either
Company or Purchaser, if the Board of Directors shall have (i) approved
or
recommended any Acquisition Proposal in respect of Company or (ii) resolved
to
take any of the foregoing actions, in each case in compliance with the
provisions contained in this Agreement;
(e)
By
either
Company or Purchaser if there has been a material breach by Company, which,
if
arising due to facts or circumstances occurring after the date
hereof, constitutes a Material Adverse Effect, on the one hand, or
Purchaser, on the other, of such parties’ representations or warranties
contained herein or in the due and timely performance of any covenant or
agreement contained herein and the non-breaching party shall have notified
the
breaching party of such breach in writing and the breach has not been cured
within thirty (30) days after notice of the breach is received by the breaching
party; or
(f)
By
either
Company or Purchaser, in the event that Closing shall not have occurred
by
January 31, 2008.
Section
8.02.
Effect
of Termination
.
In
the
event of termination of this Agreement by Company or Purchaser as provided
in
Section 8.01
, (i) this Agreement shall forthwith become void and have no
effect, without any Liability on the part of Purchaser or Company, except
that
(i)
Section 4.14
,
Section 10.02
and this
Section
8.02
shall survive any termination of this Agreement, (ii) the
Confidentiality Agreement shall survive any termination of this Agreement
pursuant to the terms of such Confidentiality Agreement, and (iii) nothing
in this
Section 8.02
shall relieve any Party to this Agreement for
Liability for breach of this Agreement.
Section
8.03.
Amendment
.
This
Agreement may be amended by mutual agreement of the Parties hereto at any
time
prior to the Effective Time. This Agreement may not be amended except
by an instrument in writing signed by all of the Parties hereto.
Section
8.04.
Extension;
Waiver
.
At
any
time prior to the Effective Time, any Party hereto may (a) extend the time
for the performance of any of the obligations or other acts of the other
Party
hereto, (b) waive any inaccuracies in the representations and warranties of
the other Party hereto contained herein or in any document delivered pursuant
hereto, and (c) waive compliance by the other Party hereto with any of
their agreements or conditions contained herein. Any agreement on the
part of a Party hereto to any such extension or waiver shall be valid only
if
set forth in an instrument in writing signed by such Party. The
failure of any Party hereto to assert any of its rights under this Agreement
or
otherwise shall not constitute a waiver of those rights.
ARTICLE
IX
POST-CLOSING
AGREEMENTS
Section
9.01
Severance
Obligations
. As of immediately prior to Closing, Company shall
terminate the employment of each Business Employee that has accepted an
offer of
employment with Purchaser. Purchaser shall reimburse the Company for
all severance payments that would be payable upon termination as of the
Closing
Date, that are then or thereafter paid by the Company to any employee who
is not
a Business Employee but is included on
Schedule 4.13(a)
(such persons
being “
Non-Continuing Employee
”), provided such termination occurs on or
before March 31, 2008. The Purchaser shall pay to the Company at
Closing an amount equal to seventy-five percent (75%) of the aggregate
of
potential severance payments due to the Non-Continuing Employees as of
the
Closing Date. Within thirty (30) days after Closing, the Company
shall provide the Purchaser with a reconciliation of such amount versus
severance payments actually made and reasonable documentation supporting
severance payments made. In the event of any excess of severance
payments over the Purchaser’s Closing payment, the Purchaser shall within ten
(10) Business Days of receipt of the reconciliation pay the Company the
amount
of the shortfall; and in the event of an excess, within ten (10) Business
Days
the Company shall pay the Purchaser the amount of the excess. From
time to time thereafter until April 30, 2008, the Company shall provide
the
Purchaser with supporting documentation relating to additional severance
made to
Non-Continuing Employees who are terminated on or before March 31, 2008
and
within ten (10) Business Days the Purchaser shall reimburse the Company
for such
severance payments. In the event that Purchaser terminates a Business
Employee within sixty days of the Closing Date, Purchaser shall make severance
payments that would be due to such terminated employees consistent with
Company’s severance policies specific to a sale of the Business as described on
Schedule 9.01(a)
hereto (the
“Company Severance
Policies
”). In the event that the total severance payment
obligations of Purchaser to the Company in respect of employees listed
on
Schedule 4.13(a)
, including (i) the Business Employees, included in the
Assumed Liabilities arising prior to the end of the sixtieth day following
the
Closing Date in accordance with the Company Severance Policies (the
“
Severance Payment Obligations
”) and (ii) the Non-Continuing Employees
who are terminated by the Company prior to March 31, 2008, are greater
than One
Million Dollars ($1,000,000) (the “
Severance Liability Cap
”), then
Company shall reimburse Purchaser the amount over the Severance Liability
Cap
not more than ten (10) Business Days following receipt of notice (the
“
Severance Payment Notice
”) that payments have been made to such
employees of the Business together with a summary of the calculation of
payments
and basis for all Severance Payment Obligations. If Company or Purchaser
dispute
the severance payment obligations of the other or Purchaser’s or Company’s
compliance with the Company Severance Policies, Company or Purchaser shall
submit an objection notice to the other not later than ten (10) Business
Days
following receipt of such notice and the Parties shall then endeavor for
a
period of thirty (30) days to resolve the dispute by agreement. If
the Parties are unable to resolve the dispute by mutual agreement within
such
thirty (30) day period, then the dispute shall be resolved by the Independent
Accountants in accordance with the procedures described in
Section
1.03(c)(v)
.
Section
9.02
Release of
Guarantees, Security Agreement and Escrow Funds
.
(a)
If at
any time prior to satisfaction of the Promissory Note, the Purchaser delivers
a
Backstop Letter of Credit consistent with the terms provided for in
Section
1.03(b)(iii)(Y)
, then Company shall release the Guarantee and the Security
Agreement delivered pursuant to
Section 1.03(b)(iii)(X)
and the
Promissory Note shall not bear interest at any time thereafter
;
provided
, that in the event that such a Backstop Letter of Credit is
delivered not more than ninety (90) days after the Closing, any interest
accrued
under the Promissory Note shall be forgiven (except interest accruing as
a
result of a default under the Promissory Note) and shall no longer be due
and
payable by Purchaser to Company.
(b)
If at
any time prior to (i) the expiration of the term of the 50 West Watkins
Mill
Road Lease or (ii) the time at which landlord under such lease releases
the
Company from any and all obligations thereunder arising from and after
Closing,
the Purchaser delivers a Backstop Letter of Credit meeting the requirements
of
Section 1.03(iii)(Y)
, then the Company shall instruct the Escrow Agent to
deliver the funds held by such Escrow Agent pursuant to the Escrow Agreement
to
Purchaser and to terminate the Escrow Agreement.
ARTICLE
X
GENERAL
PROVISIONS
Section
10.01.
Limitation
on Warranties
.
(a)
Except
for
the representations and warranties contained in this Agreement, or in any
instrument delivered pursuant to this Agreement, Company makes no other
express
or implied representation or warranty to Purchaser. Purchaser
acknowledges that, in entering into this Agreement, it has not relied on
any
representations or warranties of Company other than the representations
and
warranties of Company set forth in this Agreement or any instrument delivered
pursuant to this Agreement.
(b)
Except
for
the representations and warranties contained in this Agreement or in any
instrument delivered pursuant to this Agreement, Purchaser and Parent make
no
other express or implied representation or warranty to
Company. Company acknowledges that, in entering into this Agreement,
it has not relied on any representations or warranties of Purchaser or
Parent
other than the representations and warranties of Purchaser and Parent set
forth
in this Agreement or any instrument delivered pursuant to this
Agreement.
(c)
In
connection with Purchaser’s investigation of Company, Purchaser received certain
projections, including projected statements of operating revenues and income
from operations of the Business and certain Business plan
information. Purchaser acknowledges that there are uncertainties
inherent in attempting to make such estimates, projections and other forecasts
and plans, that Purchaser is familiar with such uncertainties and that
Purchaser
is taking full responsibility for making its own evaluation of the adequacy
and
accuracy of all estimates, projections and other forecasts and plans so
furnished to it, including, without limitation, the reasonableness of the
assumptions underlying such estimates, projections and
forecasts. Accordingly, Purchaser and Parent hereby acknowledges that
Company is making no representation or warranty with respect to such estimates,
projections and other forecasts and plans, including, without limitation,
the
reasonableness of the assumptions underlying such estimates, projections
and
forecasts.
Section
10.02.
Expenses
. Except
for Transfer Fees, which are dealt with in Section 4.10, whether or not
the
Transactions are consummated, all fees, costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby
shall be
paid by the party incurring such fees, costs and expenses.
Section
10.03.
Entire
Agreement
.
This
Agreement constitutes the entire agreement and supersedes any and all other
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof.
Section
10.04.
Assignment
.
Neither
this Agreement nor any of the rights, interests or obligations hereunder
shall
be assigned by any of the parties hereto (whether by operation of Law or
otherwise) without the prior written consent of the other parties hereto
(except
that Purchaser may assign its rights, interest and obligations to any Affiliate
of Purchaser without the consent of Company). Subject to the
preceding sentence, this Agreement shall be binding upon, inure to the
benefit
of and be enforceable by the parties and their respective successors and
assigns.
Section
10.05.
Parties
in Interest
.
This
Agreement shall be binding upon and inure solely to the benefit of each
party
hereto, and nothing in this Agreement, express or implied, is intended
to confer
upon any other Person any rights or remedies of any nature whatsoever under
or
by reason of this Agreement.
Section
10.06.
Validity
.
If
any
term or other provision of this Agreement is invalid, illegal or incapable
of
being enforced by any rule of Law, or public policy, all other conditions
and
provisions of this Agreement shall nevertheless remain in full force and
effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to
modify
this Agreement so as to effect the original intent of the parties as closely
as
possible in an acceptable manner to the end that transactions contemplated
hereby are fulfilled to the maximum extent possible.
Section
10.07.
Notices
.
All
notices and other communications given or made pursuant hereto shall be
in
writing (and shall be deemed to have been duly given or made when received)
by
delivery in person, by facsimile, electronic mail, cable, telecopy, telegram
or
telex (if being sent electronically, a written confirmation shall be required
to
be mailed to the receiving parties), by registered or certified mail (postage
prepaid, return receipt requested), or by express mail through a nationally
recognized overnight courier, in each case to the parties at the following
addresses (or at such other address for a party as shall be specified by
like
notice):
(a)
If
to
Company:
|
|
50
West Watkins Mill Road
|
|
|
Gaithersburg,
Maryland 20878
|
|
|
Attention: Chief
Financial Officer
|
|
|
Facsimile: (301)
987-1863
|
|
|
E-Mail: prohrer@genelogic.com
|
With
a
copy to:
|
|
Attention: Ariel
Vannier, Esquire
|
|
|
Facsimile: (410)
244-7742
|
|
|
E-Mail: AVannier@Venable.com
|
(b)
If
to
Purchaser or Parent:
|
|
#8765,
Guion Road, Suite #G
|
|
|
Indianapolis,
IN 46268, USA
|
|
|
Attention: Subash
Lingareddy
|
|
|
E-Mail: subash@ocimumbio.co
|
With
a
copy to:
|
|
O3
Capital Advisors Pvt. Ltd.
|
|
|
Attention: Shiraz
Bugwadia
|
|
|
Facsimile: +91-80-4112-0153
|
|
|
E-Mail: shiraz.bugwadia@o3capital.com
|
And
to:
|
|
Baker
Donelson Bearman Caldwell and Berkowitz PC
|
|
|
211
Commerce Street, Suite 1000
|
|
|
Nashville,
Tennessee 37201
|
|
|
Attention: Robert
J. Looney, Esq.
|
|
|
Facsimile: 615-744-5647
|
|
|
E-mail: blooney@bakerdonelson.com
|
Section
10.08.
Law
Governing Agreement; Jurisdiction; Jury Trial Waiver
.
(a)
This
Agreement shall be construed and interpreted according to the internal
Laws of
the State of Maryland, excluding any choice of Law rules that may direct
the
application of the Laws of another jurisdiction. The Parties agree
that the Uniform Computer Information Transactions Act as enacted anywhere
and
the United Nations Convention of the International Sale of Goods do not
apply to
this Agreement or the Transactions.
(b)
The
State
or Federal Courts located in the State of Maryland shall have jurisdiction
over
any and all disputes between the Parties, whether in law or equity, arising
out
of or relating to this Agreement and the Transactions and the Parties consent
to
and agree to submit to the jurisdiction of such courts, except as otherwise
provided in
Section 9.01
hereof. Each of the Parties hereby waives and
agrees not to assert in any such dispute, to the fullest extent permitted
by
applicable Law, any claim that (i) such Party is not personally subject
to the
jurisdiction of such courts, (ii) such Party and such Party’s property is immune
from any legal process issued by such courts or (iii) any litigation or
other
proceeding commenced in such courts is brought in an inconvenient
forum.
(c)
EACH
OF
THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES, AND AGREES TO
CAUSE ITS
AFFILIATES TO WAIVE, ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
Section
10.09.
Enforcement
of Agreement
.
Each
of
the parties hereto acknowledges, understands and agrees that any breach
or
threatened breach by such Party or such Party’s Affiliates of
Sections 4.05,
4.07(b), 4.14
or the Confidentiality Agreement will cause irreparable injury
to the other Party and that money damages will not provide an adequate
remedy
therefor. Accordingly, in the event of any such breach or threatened
breach, a non-breaching Party shall have the right and remedy (in addition
to
any other rights or remedies available at law or in equity, including,
money
damages) to have the provisions of such
Sections 4.05
or
4.07(b)
specifically enforced by, and to seek injunctive relief and other equitable
remedies in, any court having competent jurisdiction. Each Party
further agrees to waive any requirement for the securing or posting of
any bond
or other security in connection with seeking such remedies.
Section
10.10.
Bulk
Sales
. To the extent applicable, if at all, the parties hereto
waive compliance with the provisions of the so-called bulk sales or transfer
laws of any jurisdiction in connection with the Transfer of the Assets
pursuant
to this Agreement.
Section
10.11.
Headings
.
The
headings contained in this Agreement are for reference purposes only and
shall
not affect in any way the meaning or interpretation of this
Agreement.
Section
10.12.
Counterparts
.
This
Agreement may be executed in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed shall
be
deemed to be an original but all of which shall constitute one and the
same
agreement.
Section
10.13.
Definitions
.
For
purposes of this Agreement, the term:
“
3
rd
Party Databases
” shall mean the KEGG, SNOMed and BioCarta third
party licensed databases.
“
3
rd
Party
Software Licenses
” shall mean the software and software applications used or
held for use primarily in the Business under license from any Person, subject
to
the terms of such licenses and excluding the software licenses on
Schedule
10.13(a)
hereto.
“
50
West Watkins Lease Assignment and Assumption Agreement
” shall have the
meaning set forth in
Section 1.06(a)(iv)
.
“
50
West Watkins Mill Road Facility
” shall mean that real property and
improvements leased by the Company prior to the Effective Time and located
at 50
West Watkins Mill Road, Gaithersburg, Maryland.
“
50
West Watkins Mill Road Lease
” shall mean that certain Lease Agreement by and
between Company and ARE-50 West Watkins Mill, LLC, a Delaware limited liability
company (“
Landlord
”), dated July 21, 2000 and all amendments
thereto, including the assignment of Landlord’s interest therein to 50West
Watkins Mill Road, LLC.
“
401(k)
Plan
” shall mean a Defined Contribution Retirement Plan under Section 401(k)
of the Code.
“
Accrued
Benefits Liabilities
” shall have the meaning set forth in
Section
1.02(a)(ii)
.
“
Acquired
Assets
” shall have the meaning set forth in
Section 1.01
.
“
Acquisition
Proposal
” shall mean any proposal or offer from any Person relating to
(i) any direct or indirect acquisition or purchase of substantially all of
the assets of Company or of a material part of the assets of the Business
or of
over 50% of any class of equity securities of Company, (ii) any tender
offer or exchange offer that, if consummated, would result in any Person
beneficially owning 50% or more of any class of equity securities of Company,
(iii) any merger, consolidation, business combination, sale of
substantially all the assets of the Company or a material part of the Business,
recapitalization, liquidation, dissolution or similar transaction involving
Company or (iv) any other transaction, the consummation of which would
reasonably be expected to impede, interfere with, prevent or materially
delay
the Transactions.
“
Affiliate
”
of a Person shall mean a Person that directly or indirectly, through one
or more
intermediaries, controls, is controlled by, or is under common control
with, the
first mentioned Person. For the purposes of this definition, the term
“control” means (i) beneficial ownership of at least fifty percent (50%) of the
voting securities of a corporation or other business organization with
voting
securities or (ii) a fifty percent (50%) or greater interest in the net
assets
or profits or interests of a partnership or other business organization
without
voting securities.
“
Agilent
Equipment
” shall mean the microarray scanner bundle, hybridization ovens,
hybridization chamber, oven rotator, and related software and accessories
generally described in Quote No. 674327 and any amended or replacement
quote
therefor issued by Agilent Technologies, to be procured by Company for
use by
the Business prior to Closing.
“
Agreement
”
shall have the meaning set forth in the preamble of this Agreement.
“
Assigned
Patents
” shall mean the patents and patent applications listed on
Schedule 10.13(b)
hereto which are the patents and patents applications
to be assigned to Purchaser at Closing.
“
Assignment
and Assumption Agreement
” shall have the meaning set forth in
Section 1.06(a)(ii)
.
“
Assumed
Liabilities
” shall have the meaning set forth in
Section
1.02
.
“
Backstop
Letter of Credit
” shall have the meaning set forth in
Section
1.03(b)(iii)
.
“
Bill
of Sale
” shall have the meaning set forth in
Section 1.06(a)(i)
.
“
Biorepository
”
shall mean the biological samples and associated clinical data and any
material derived from the manipulation of such samples used by or under
the
control of the Business, expressly subject to any rights of, or ownership
by,
customers of and suppliers to the Business that have provided any material,
including derivatives thereof, in such repository and associated clinical
data.
“
Board
of Directors
” shall mean the board of directors of the Company.
“
Business
”
shall mean all of Company’s activities and operations in connection with,
arising from or relating to (i) the design, development and operation of
gene
expression and toxicogenomic databases and related software tools, toxicogenomic
services, microarray data generation and analysis services (e.g. gene
expression, SNP genotyping, miRNA and aCGH), (ii) the licensing of the
foregoing
to end-users, including the provision of hosted services to allow end-users
to utilize the databases and (iii) the provision of professional services
related to the foregoing, including without limitation microarray data
generations and analysis services;
provided, however
, that the term
“Business” does not include the Diagnostic Development Business, the Drug
Repositioning Business or the corporate Shared Services Division..
“
Business
Day
” means a day other than Saturday, Sunday or any day on which banks
located in the states of New York or Maryland are authorized or obligated
to
close.
“
Business
Employees
” shall have the meaning set forth in
Section
4.13(a)
.
“
Business
Information
” shall mean, subject to applicable limitations necessary for
compliance with privacy Laws governing employee information and to any
rights of
and limitations in agreements with customers and third parties (including
any
obligations of confidentiality and non-disclosure), originals or copies
of all
books, records, files and documentation, used or held for use primarily
with
respect to the Business or the Acquired Assets, including information,
policies
and procedures for the conduct of the Business, Equipment manuals and materials
procurement documentation utilized in connection with the Business, but
excluding (i) any Intellectual Property Rights, (ii) employee data, (iii)
the
Contracts, and (iv) information collected or generated by the Shared Services
Division, any Company back up tapes and files, and (v) any information
generated
or used by the Company's Cambridge, Massachusetts location.
“
Business
Intellectual Property
” shall mean Intellectual Property Rights owned by
Company for use primarily in the Business, including without limitation
the
Assigned Patents and the Information Assets, excluding Third Party IP and
Retained Assets.
“
Certificate
of Incorporation
” shall refer to the Certificate of Incorporation of the
Company, as amended as of the date hereof, on filed with the Secretary
of State
of the State of Delaware.
“
Claim
Notice
” shall have the meaning set forth in
Section 7.06
.
“
Closing
”
shall have the meaning set forth in
Section 1.05
.
“
Closing
Cash Payment
” shall have the meaning set forth in
Section
1.03(b)(i)
.
“
Closing
Date
”
shall have the meaning set forth in
Section 1.05
.
“
Closing
Listing of Assets and Liabilities
” shall have the meaning set forth in
Section 1.03(c)(iii)
.
“
COBRA
”
shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985,
as
amended.
“
Code
”
shall mean the Internal Revenue Code of 1986, as amended.
“
Company
”
shall have the meaning set forth in the preamble of this Agreement.
“
Company
Benefit Plans
” shall have the meaning set forth in
Section 4.13(b)
.
“
Company
Financial Advisor
” shall mean Aquilo Partners, Inc.
“
Company
Severance Policies
” shall have the meaning set forth in
Section 9.01(a)
.
“
Company
Subsidiaries
” shall mean Gene Logic K.K. and, if existing at the Closing
Date, Gene Logic Ltd.
“
Company’s
Knowledge
” shall mean the actual knowledge, after reasonable inquiry, of
Larry Tiffany, Charles L. Dimmler, III, F. Dudley Staples, Jr., Louise
Campbell-Blair, and/or Philip L. Rohrer, Jr. acquired in the performance
of such
officers’ respective duties in the ordinary course of business.
“
Confidential
Information
” shall have the meaning set forth in
Section
4.03(a)
.
“
Confidentiality
Agreement
” means that certain confidentiality agreement, effective June 18,
2007, between Purchaser and Company.
“
Contract
”
shall mean, except for the Real Property Leases and the Third Party IP
agreements, all oral and written contracts, purchase orders, sales orders,
licenses, leases and other agreements, commitments, arrangements and
understandings.
“
Data
Management Agreement
” shall have the meaning set forth in
Section
1.06(a)(x)
.
“
DGCL
”
shall mean the Delaware General Corporation Law.
“
Diagnostic
Development Business
” shall mean the Company’s business of researching,
developing and commercializing diagnostic, prognostic and monitoring tests
for
human and animal health care, whether or not such tests receive regulatory
review and approval.
“
Diagnostic
Development License Agreement
” shall have the meaning set forth in
Section 1.06(a)(vii)
.
“
Diagnostic
Development Master Services Agreement
” shall have the meaning set forth in
Section 1.06(a)(x)
.
“
Disclosure
Schedules
” shall have the meaning set forth in preamble of
Article
III
.
“
Documents
”
shall have the meaning set forth in
Section 4.07(b)
.
“
Document
Period
” shall have the meaning set forth in
Section
4.07(b)
.
“
Drug
Repositioning Business
” means the Company’s business of (i) researching,
developing and commercializing potential therapies owned by Company or
third
parties, or available either off patent or as generics in one or more regions
of
the world, for purposes of determining new or additional therapeutic
indications, (ii) expanding indications for currently marketed drugs, (iii)
prioritizing and identifying indications for customers’ proprietary compounds in
discovery or preclinical development, (iv) working with third parties to
promote
development of compounds in their original indications, but under enhanced
clinical development plans, and/or (v) using the Company's drug indication
seeking technologies for other similar or related uses.
“
Drug
Repositioning License Agreement
” shall have the meaning set forth in
Section 1.06(a)(vi)
.
“
Drug
Repositioning Master Services Agreement
” shall have the meaning set forth in
Section 1.06(a)(ix)
.
“
Effective
Time
” shall have the meaning set forth in
Section 1.05
.
“
Employee
Benefit Plans
” shall have the meaning set forth in
Section 3.12(a)
.
“
Employee
Information
” means the employee data listed or described on
Schedule
4.13(a)
relating to the Business Employees.
“
Environmental
Law
” shall mean any federal, state, or municipal statutes, laws, ordinances,
rules or regulations relating to regulation of pollution or the protection
of
human health or the environment, including without limitation the following
federal statutes and their state counterparts, as each may be amended from
time
to time, and any regulations promulgated thereunder: the Atomic Energy
Act, the
Clean Air Act, the Clean Water Act, the Comprehensive Environmental Response,
Compensation, and Liability Act, the Federal Insecticide, Fungicide, and
Rodenticide Act, the Hazardous Materials Transportation Act, the Occupational
Safety and Health Act, the Resource Conservation and Recovery Act and the
Safe
Drinking Water Act.
“
Environmental
Liabilities of Company
” means any and all liabilities arising in connection
with or relating to the Business or the Acquired Assets, whether accrued,
contingent, absolute, determined or determinable, that (i) arise under
or relate
to any Environmental Law or to any Environmental Permit in relation to
acts
occurring or conditions arising prior to the Effective Time for such Closing;
(ii) relate to actions occurring or conditions existing prior to the Effective
Time, attributable to the acts of Company or any of its Affiliates; (iii)
relate
to actions occurring or conditions arising after the Effective Time,
attributable to the acts of Company or any of its Affiliates; or (iv) arise
as a
result of (x) the presence of any Hazardous Substance that is introduced
by, or
caused by human error of, the employees, agents or representatives of Company
or
any of its Affiliates before the Effective Time; or (y) the presence of
any
Hazardous Substance caused by a decision by Company or any of its Affiliates
to
use, manufacture, generate or release a Hazardous Substance before the
Effective
Time.
“
Environmental
Permits
” shall have the meaning set forth in
Section 3.07(c).
“
Equipment
”
shall mean have the meaning set forth in
Section 3.09
.
“
Equipment
Warranties”
shall mean all warranty rights and associated claims of the
Seller with respect to all manufacturers’ warranties covering the Equipment from
and after the Closing.
“
ERISA
”
means the Employee Retirement Income Security Act of 1974, as
amended.
“
ERISA
Affiliate
” shall have the meaning set forth in
Section 3.12(a)
.
“
Escrow
Agent
” shall mean The Columbia Bank, located in Columbia, Maryland, or such
other party as the Parties mutually agree.
“
Essential
Equipment
” shall have the meaning set forth in
Section 3.09(a)
.
“
Exchange
Act
”
shall mean the Securities Exchange Act of 1934,
as amended (including the rules and regulations promulgated
thereunder).
“
Financing
Letter
” shall have the meaning set forth in
Section
2.05
.
“
GAAP
”
shall mean United States generally accepted accounting principles as in
effect
on the applicable date, consistently applied.
“
Governmental
Entity
” shall mean any court, arbitrator, department, commission, board,
bureau, agency, authority, instrumentality or other body, whether federal,
state, municipal, county, local, foreign or other.
“
Guarantee
”
shall have the meaning set forth in
Section 1.03(b)(iii)
.
“
Hazardous
Substance
” shall mean any pollutant or contaminant or any hazardous or toxic
substance, waste, chemical, or material, including as those terms are defined
in
any Environmental Law, and including (a) petroleum and petroleum products
including crude oil and any fractions thereof; (b) natural gas, synthetic
gas, and mixtures thereof; (c) radon; and (d) asbestos and
asbestos-containing materials.
“
Indemnitee
”
shall have the meaning set forth in
Section 7.03
.
“
Indemnitor
”
shall have the meaning set forth in
Section 7.03
.
“
Independent
Accountant
” shall have the meaning set forth in
Section 1.03(c)(v)
.
“
Information
Assets
” shall mean (i) any existing databases of the Business which comprise
genomic, genetic and clinical data, and data from the public domain, all
of
which are organized in a manner allowing direct user access and the ability
to
export and interrogate such information, including the following named
database
products: BioExpress System, ToxExpress System, Ascenta System,
Sciantis System, TRIMS database, BX Freezer database, (ii) any existing
software
owned by the Company that is necessary or primarily held for the use of
such
databases and their existing information content, analysis tools, or interfaces
allowing databases to be used in conjunction with other data, other analysis
programs, or LIMS based systems, including the following named software
products: Genesis Enterprise System Software, TRIMS Software, GX
Connect Software, ToxEdge Software, and ToxShield Software, and (iii)
proprietary know-how, show how, manufacturing and production methods, processes
and techniques and residual knowledge relating to the foregoing, all of
the
foregoing expressly subject to any rights of, or ownership by, customers
of and
suppliers to the Business of (a) any material, including derivatives thereof,
in
such repository and associated clinical data, (b) any data provided to
the
Business or developed by the Business solely for a customer, (c) the software
and databases that comprise the Third Party IP.
“
Initial
Listing of Assets and Liabilities
” shall have the meaning set forth in
Section 1.03(c)(i)
.
“
IRS
”
shall have the meaning set forth in
Section 3.04(c)
.
“
Intellectual
Property Rights
” shall mean all proprietary and intellectual property rights
recognized by law in any jurisdiction, including but not limited to the
following: (i) all United States and foreign patents and pending
and filed applications therefor (including all provisional, divisional,
continuation in part and reissue patents), utility models, inventors’
certificates and invention disclosures; (ii) all trade secret rights,
proprietary know-how and all other rights in or to confidential business
or
technical information, whether patentable, copyrightable or not; (iii) all
writings and other works of authorship, including all copyrights and moral
rights related to each of the foregoing, copyrights, copyright registrations
and
applications therefor and all other rights corresponding thereto throughout
the
world; (iv) trademarks, service marks, brand names, distinguishing guises,
trade dress rights and similar designation of origin and rights therein
and all
goodwill of the Business associated therewith; (v) all registrant’s rights to
uniform resource locators, web site addresses and domain names; (vi) industrial
designs; and (vii) rights to limit the access, use or disclosure of confidential
information by any Person; in each case including all registrations of,
and
applications to register, any of the foregoing with any Governmental Entity
and
any renewals or extensions thereof; the goodwill associated with each of
the
foregoing; and any claims or causes of action or defenses arising out of
or
related to any of the foregoing.
“
Inventory
”
shall mean all (i) microarrays (excluding microarrays listed in paragraph
3 of
Schedule 1.01(b)(1), (ii) reagents (excluding reagents listed in paragraph
3 of
Schedule 1.01(b)(1), and (iii) consumables (excluding consumables listed
in
paragraph 3 of Schedule 1.01(b)(1) and (iv) tissue samples acquired to
provide
data for the BioExpress and ToxExpress databases.
“
Laws
”
shall mean any applicable statute, law, ordinance, rule or
regulation.
“
Legal
Action
” shall have the meaning set forth in
Section 7.05
.
“
Leasehold
Improvements
” shall mean the improvements described on
Schedule
3.09(a)
;
“
Liability
”
means any direct or indirect indebtedness, guaranty, endorsement, claim,
loss,
damage, deficiency, cost, expense, obligation or responsibility, fixed
or
unfixed, known or unknown, asserted or unasserted, liquidated or unliquidated,
secured or unsecured.
“
Liens
”
means any mortgages, liens (statutory or otherwise), security interests,
pledges, equities, options, conditional sales contracts, assessments, levies,
easements, reservations, hypothecations, rights-of-way, rights
of reversion, rights of refusal or title encumbrances of any nature whatsoever
on Acquired Assets.
“
Litigation
”
means any complaint, action, suit, proceeding, arbitration or other alternate
dispute resolution procedure, demand, investigation or inquiry, whether
civil,
criminal or administrative.
“
Losses
”
shall have the meaning set forth in
Section 7.05
.
“
Material
Adverse Effect
” shall mean any change, effect, condition, factor or
circumstance that is or is reasonably likely to be materially adverse to
the
Business (including its results of operations, properties or financial
condition), Acquired Assets or Assumed Liabilities, taken as a whole;
provided, however,
that, in no event shall any of the following be
taken into account in determining whether there has occurred (or whether
there
is reasonably likely to be) a Material Adverse Effect: (i) any change or
effect
resulting from changes in general economic conditions, conditions in the
United
States or worldwide capital markets or any outbreak of hostilities or war
(except for any changes which disproportionately affect the Business, results
of
operations, properties, condition, assets or Liabilities of Company, taken
as a
whole, as compared to other industry participants); (ii) any change or
effect
resulting from conditions generally affecting the industries in which Company
conducts the Business (except for any changes which disproportionately
affect
the Business, results of operations, properties, condition, assets or
Liabilities of Company as compared to other industry participants); (iii)
any
failure by Company to meet revenue or earnings predictions of equity analysts;
(iv) any change or effect resulting from the announcement of this Agreement
or
the Transactions; (v) changes in any Laws applicable to Company after the
date
hereof (except for any changes which disproportionately affect the Business,
results of operations, properties, condition, assets or Liabilities of
Company
as compared to other industry participants), (vi) changes in GAAP after
the date
hereof; (vii) any actions taken, or failures to take action, or such other
effects, changes, occurrences or developments to which Purchaser or Parent
has
specifically consented in writing after the date hereof and prior to such
actions, failures, effects, changes, occurrences or developments; (viii)
terrorist activities or the material commencement or worsening of hostilities
or
war; (ix) changes in Company’s relationships with existing vendors, customers or
suppliers resulting from Company’s public announcement of impairment charges
(but only to the extent such impairment charges do not exceed amounts or
potential amounts made known to Purchaser or Parent prior to the execution
of
this Agreement); or (x) the trend of declining revenue of the Business
from
January 1, 2007 until the date hereof.
“
Material
Contract
” shall have the meaning set forth in
Section 3.10(a)
.
“
Open
Purchase Orders
” shall mean all purchase orders or other commitments issued
by Company in the ordinary course of business before the Closing Date for
the
supply of tangible assets (including Inventory) and services to or for
use in
the Business to the extent that such tangible assets have not already been
supplied and accepted by, or such services performed for, the Business
on or
prior to the Effective Time.
“
Operating
Permits
” shall mean, except for the Environmental Permits, all licenses,
permits, approvals, certifications, consents and listings of all Governmental
Entities and all certification organizations required, and all exemptions
from
requirements to obtain or apply for any of the foregoing, necessary for
the
conduct of the Business (as currently conducted as conducted within the
last
twelve (12) months).
“
Orders
”
shall mean any order, writ, injunction, judgment, plan or decree.
“
Parent
”
shall have the meaning set forth in the preamble of this Agreement.
“
Party
”
and “
Parties
” shall have the meanings set forth in the preamble of this
Agreement.
“
Patent
Assignment
” shall have the meaning set forth in
Section
1.06(a)(iii)(B)
.
“
Permitted
Encumbrances
” shall mean (i) Liens for real or personal property taxes which
are not yet due and payable, (ii) mechanic’s, carrier’s, workmen’s, repairmen’s
or other similar statutory Liens arising or incurred in the ordinary course
of
business, (iii) minor imperfections of title, conditions, easements and
reservations of rights, (iv) Purchase Money Security Interests in amounts
less
than $25,000, and (v) Liens and operating leases that are listed on
Schedule
10.13(c)
, and (vi) restrictions on the use, disclosure or transfer of
Acquired Assets or information imposed by contract or by confidentiality
obligations to third parties that are disclosed on the appropriate Schedule
to
this Agreement.
“
Person
”
shall mean an individual, corporation, partnership, association, trust,
any
unincorporated organization or group (within the meaning of
Section 13(d)(3) of the Exchange Act).
“
Prepaid
Expenses
” shall mean all the prepaid expenses of Company relating to the
Business or the Acquired Assets, excluding security deposits or advances
deposited or paid by or on behalf of Company as lessee or sublessee or
pursuant
to any Real Property Lease.
“
Promissory
Note
” shall have the meaning set forth in
Section
1.03(b)(ii)
.
“
Proxy
Statement
” shall mean a proxy statement to be sent to the stockholders of
Company in connection with a meeting of Company stockholders to consider
this
Agreement and the Transactions, as amended or supplemented.
“
Purchase
Price
” shall have the meaning set forth in
Section 1.03(a)
.
“
Purchase
Price Adjustment
” shall have the meaning set forth in
Section 1.03(c)(ii)
.
“
Purchaser
”
shall have the meaning set forth in the preamble of this Agreement.
“
Purchase
Money Security Interest
” shall have the meaning given to such term in
Section 9-103 of the Commercial Law Article of Annotated Code of
Maryland.
“
Real
Property
” shall have the meaning set forth in
Section
3.08(b)
.
“
Real
Property Leases
” shall mean the 50 West Watkins Mill Lease and the Tokyo
Lease.
“
Registered
IP
” shall mean all United States, international and foreign Intellectual
Property Rights that are the subject of an application, certificate, filing,
registration or other document issued, filed with, or recorded by any state,
government or other public legal authority and that are owned by the Company
and
used or held for use primarily in connection with the Business.
“
Representatives
”
shall have the meaning set forth in
Section 4.02
.
“
Retained
Assets
” shall have the meaning set forth in
Section 1.01
.
“
Retained
Liabilities
” shall have the meaning set forth in
Section 1.02
.
“
SEC
”
shall mean the United States Securities and Exchange Commission.
“
SEC
Reports
” shall mean all forms, reports, schedules, proxy statements,
registration statements and other documents (including all exhibits thereto)
required to be filed with the SEC by Company.
“
Security
Agreement
” shall have the meaning set forth in
Section
1.03(b)(iii)
.
“
Severance
Liability Cap
” shall have the meaning set forth in
Section 9.01(a)
.
“
Severance
Payment Notice
” shall have the meaning set forth in
Section 9.01(a)
.
“
Severance
Payment Obligations
” shall have the meaning set forth in
Section 9.01(a)
.
“
Shared
Services Division
” consists of the Company’s corporate and support functions
that are not particular to any operating division and include the office
of the
Company’s Chief Executive Officer and the officers and other personnel
performing the following functions: finance, legal, human resources, purchasing,
facilities maintenance, management information systems and investor
relations.
“
Sponsored
Research Agreements
” shall mean those agreements (however titled and
including related documents such as task orders, research plans and material
transfer agreements) pursuant to which Company has obtained biological
samples
and related clinical data for the primary purpose of generating data that
can be incorporated into its commercially available databases.
“
Stockholder
Approval
” shall have the meaning set forth in
Section
6.03
.
“
Subsidiary
”
shall mean any corporation or other legal entity of which another corporation
or
other legal entity (either alone or through or together with another Subsidiary)
(a) owns, directly or indirectly, more than 50% of the stock or other
equity interests the holders of which are generally entitled to vote for
the
election of the board of directors or other governing body of such corporation
or other legal entity, or (b) in the case of partnerships, serves as a
general partner, or (c) in the case of a limited liability company, serves
as managing member or (d) otherwise has the ability to elect a majority of
the directors, trustees or managing members thereof.
“
Superior
Proposal
” shall mean a bona fide proposal made by any Person to acquire all
of the issued and outstanding shares pursuant to a tender offer or a merger
or
to acquire substantially all of the assets of Company or a material part
of the
assets of the Business on terms and conditions that a majority of the members
of
the Board of Directors determines in good faith, taking into account all
the
terms and conditions of such proposal (including, without limitation, any
expense reimbursement provisions, termination fees and conditions), is
more
favorable to Company’s stockholders, from a financial point of view, than the
transactions contemplated hereby.
“
Tax
Returns
” shall mean any return, declaration, report, estimate, claim for
refund, or information return or statement relating to, or required to
be filed
in connection with, any Taxes, including any schedule, form, attachment
or
amendment.
“
Tax
”
or “
Taxes
” shall mean any federal, state, county, local, territorial,
provincial, or foreign income, net income, gross receipts, single business,
unincorporated business, license, payroll, employment, excise, severance,
stamp,
occupation, premium, windfall profits, environmental (including taxes under
Section 49A of the Code), customs duties, capital stock, franchise, profits,
gains, withholding, social security (or similar), payroll, unemployment,
disability, workers compensation, real property, personal property, ad
valorem,
replacement, sales, use, transfer, registration, value added, alternative
or
add-on minimum, estimated, or other tax of any kind whatsoever, including
any
interest, penalty, or addition, whether or not disputed and whether or
not
disputed and whether imposed by Law, Order, Contract or otherwise.
“
Third
Party IP
” shall mean the rights of the Company to (i) the 3
rd
Party Software
Licenses, (ii) the 3
rd
Party
Databases,
and (iii) other licensed Intellectual Property Rights held by the Company
for
use solely in connection with the Business other than rights referred to
in
clauses (i) and (ii), subject in each case to the terms of the applicable
licenses.
“
Threshold
”
shall have the meaning set forth in
Section 7.04(a)
.
“
Tokyo
Facility
” shall mean that real property and improvements leased by the
Company prior to the Effective Time and located at Cerulean Tower 15th
Floor,
15th Floor, Cerulean Tower, 26-1 Sakuragaoka-cho, Shibuya-ku,
Tokyo.
“
Tokyo
Lease
” shall mean that certain Lease Agreement by and between Company and
The Executive Centre Japan K.K. for a term commencing on November 15,
2004
and all amendments thereto and extensions thereof for Unit Number Seven
located at Cerulean Tower 15th Floor, 15th Floor, Cerulean Tower, 26-1
Sakuragaoka-cho, Shibuya-ku, Tokyo.
“
Tokyo
Lease Assignment and Assumption Agreement”
shall have the meaning set forth
in
Section 1.06(a)(v)
.
“
Total
Cash Consideration
” shall have the meaning set forth in
Section 1.03(a)
.
“
Trademark
Assignment
” shall have the meaning set forth in
Section
1.06(a)(iii)(A)
.
“
Transactions
”
shall have the meaning set forth in
Section 2.03
.
“
Transfer
Fees
” shall have the meaning set forth in
Section 4.10
.
“
Transition
Services Agreement
” shall have the meaning set forth in
Section
1.06(a)(xi)
.
“
Unbilled
Receivables
” means the unbilled receivables of the Business. Unbilled
Receivables is comprised of both Debit and Credit Balances, all accounted
for in
accordance with the books and records of the Company and applying the same
methodology, accounting principles, policies and practices used in preparing
the
Initial Listing of Assets and Liabilities consistent with the past practice
of
the Company. “
Credit Balances
” represent prepayments for future services
under the terms of individual customer contracts. “
Debit Balances
”
represent amounts relating to services performed by the Business
for which the
Company does not have the right to bill the customer until the next milestone
is
met or a contract modification is approved.
IN
WITNESS
WHEREOF, Purchaser, Parent and Company have caused this Agreement to be
executed
as of the date first written above by their respective officers thereunto
duly
authorized.
|
|
Gene
Logic, Inc. (Company):
|
|
|
|
|
|
|
|
|
By:
|
/s/ Charles
L. Dimmler, III
|
|
|
|
|
Name:
Charles L. Dimmler, III
|
|
|
|
|
Title:
Chief Executive Officer and President
|
|
|
|
|
|
|
|
|
OCIMUM
BIOSOLUTIONS (INDIA) LIMITED (Parent):
|
|
|
|
|
|
|
|
|
By:
|
/s/ Subash
Lingareddy
|
|
|
|
|
Name:
Subash Lingareddy
|
|
|
|
|
Title:
President and Chief Financial Officer
|
|
|
|
|
|
|
|
|
OCIMUM
BIOSOLUTIONS INC. (Purchaser):
|
|
|
|
|
|
|
|
|
By:
|
/s/ Subash
Lingareddy
|
|
|
|
|
Name:
Subash Lingareddy
|
|
|
|
|
Title:
President and Chief Financial Officer
|
|
|
|
|
|
|
FORM
OF CERTIFICATE OF AMENDMENT
OF
AMENDED
AND RESTATED CERTIFICATE OF INCORPORATION
OF
GENE
LOGIC INC.
Gene
Logic
Inc. (the “Corporation”), a corporation duly organized and existing under the
General Corporation Law of the State of Delaware (the “DGCL”), does, by its
_______________ __________________________, hereby certify that:
1.
The
name of the Corporation is Gene Logic Inc.
2.
The
Amended and Restated Certificate of Incorporation of the Corporation (the
“Certificate of Incorporation”) was filed on November 26, 1997 under the name
Gene Logic Inc.
3. Pursuant
to Section 242 of the DGCL, at a meeting duly convened and held on October
23,
2007, the Board of Directors of the Corporation found that the following
proposed amendment of the Certificate of Incorporation was advisable and
directed that such proposed amendment be submitted for consideration and
action
thereon by the stockholders of the Corporation at a special meeting of
stockholders.
Article
I of the Certificate of
Incorporation is amended in its entirety to read as follows:
“I
The
name
of this Corporation is Ore Pharmaceuticals Inc.”
4.
Pursuant to Section 242 of the DGCL, the holders of a majority of the issued
and
outstanding shares of capital stock of the Corporation entitled to vote
on the
matter, including the holders of a majority of the issued and outstanding
shares
of each class entitled to vote on the matter, voted in favor of, approved
and
adopted the foregoing proposed amendment of the Certificate of Incorporation
at
a special meeting of the Corporation convened and held on ______ __,
200__.
5.
The
foregoing amendment of the Certificate of Incorporation, was duly adopted
in
accordance with the provisions of Section 242 of the DGCL.
6. This
Certificate of Amendment shall become effective at _______ Eastern Time
on
__________, 200___.
The
Corporation has caused this
Certificate of Amendment to be signed and executed in its corporate name
by its
____________________ and attested to by its _________________, who declare,
affirm, acknowledge and certify, under the penalties of perjury, that this
is
their free act and deed and that the facts stated herein are true as of
the ___
day of __________, 200___.
|
ATTEST
|
GENE
LOGIC INC.
,
|
|
|
A
Delaware corporation
|
|
|
|
|
By:
|
By:
|
|
|
|
|
|
|
[NAME],
[TITLE]
|
[NAME],
[TITLE]
|
|
|
|
GENE
LOGIC INC.
UNAUDITED
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The
following unaudited pro forma consolidated condensed financial statements
as of
and for the nine months ended September 30, 2007 and for the year ended
December
31, 2006 have been derived from the historical consolidated financial statements
of Gene Logic Inc. (the “Company”) to give effect to the sale of the assets
of the Company’s Genomics Business associated with the business of developing,
operating and licensing databases of genomics and toxicogenomic data and
related
software and providing genomic and genetic data generation and analysis
services
and other related services (the “Genomics Assets”) to and the assumption of
certain liabilities and ongoing contractual obligations by Ocimum Biosolutions
Inc. (“Ocimum”) or its affiliate that is expected to occur at closing as if it
occurred as of the earlier dates described below. The following
unaudited pro forma consolidated condensed financial statements reflect
the
Company’s continued ownership of its molecular diagnostics and drug
repositioning assets.
The
unaudited pro forma consolidated condensed balance sheet as of September
30,
2007 reflects the financial position of the Company after giving effect
to the
disposition of the Genomics Assets, the assumption of certain liabilities
and
ongoing contractual obligations and the receipt of net proceeds as if the
disposition occurred on September 30, 2007.
The
unaudited pro forma consolidated condensed statement of operations for
the nine
months ended September 30, 2007 assumes the disposition of the Genomics
Assets
and the assumption of certain liabilities and ongoing contractual obligations
occurred on January 1, 2007. The unaudited pro forma consolidated
condensed statement of operations for the year ended December 31, 2006
assumes
the disposition of the Genomics Assets and the assumption of certain liabilities
and ongoing contractual obligations occurred on January 1, 2006.
The
sale
price included in the unaudited pro forma consolidated condensed financial
statements is $10,000,000 (including $7,000,000 in cash and a $3,000,000
promissory note due 18 months from the date of closing), subject to adjustment
based on certain potential revisions to the carrying value of assets and
liabilities assumed by Ocimum or its affiliate at closing. The net
proceeds of the sale of the Genomics Assets (net of costs associated with
the
sale) are estimated to be $8,600,000, of which, $981,000 have already been
recorded in the Company’s historical consolidated financial
statements.
The
pro
forma adjustments are described in the accompanying notes and are based
upon
available information and various assumptions that management believes
are
reasonable. These adjustments give effect to events directly
attributable to the transaction.
The
accompanying unaudited pro forma financial information should be read in
conjunction with the historical consolidated financial statements and the
related notes thereto of the Company. The unaudited pro forma
financial information is not necessarily indicative of the operating results
or
financial position that would have occurred if the transaction had been
consummated at the times indicated, nor is it necessarily indicative of
the
future financial position and the results of operations of the
Company.
|
GENE
LOGIC INC.
|
|
|
UNAUDITED
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
|
|
|
(in
thousands)
|
|
|
|
|
September
30, 2007
|
|
|
|
|
Gene
Logic
|
|
|
|
Pro
Forma
|
|
|
|
|
|
Total
|
|
|
|
|
Historical
|
|
|
|
Adjustments
|
|
|
|
|
|
Pro
Forma
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
22,640
|
|
|
|
$
|
6,581
|
|
(1)
|
|
|
|
$
|
29,221
|
|
|
Marketable
securities available-for-sale
|
|
|
8,917
|
|
|
|
|
-
|
|
|
|
|
|
|
8,917
|
|
|
Accounts
receivable, net
|
|
|
615
|
|
|
|
|
973
|
|
(1)
|
|
|
|
|
1,588
|
|
|
Unbilled
services
|
|
|
602
|
|
|
|
|
(474
|
)
|
(1)
|
|
|
|
|
128
|
|
|
Inventory,
net
|
|
|
1,156
|
|
|
|
|
(1,156
|
)
|
(1)
|
|
|
|
|
-
|
|
|
Prepaid
expenses
|
|
|
1,592
|
|
|
|
|
(834
|
)
|
(1)
|
|
|
|
|
758
|
|
|
Other
current assets
|
|
|
2,610
|
|
|
|
|
(232
|
)
|
(1)
|
|
|
|
|
2,378
|
|
|
Total
current assets
|
|
|
38,132
|
|
|
|
|
4,858
|
|
|
|
|
|
|
42,990
|
|
|
Property
and equipment, net
|
|
|
10,415
|
|
|
|
|
(7,974
|
)
|
(1)
|
|
|
|
|
2,441
|
|
|
Long-term
investments
|
|
|
2,964
|
|
|
|
|
-
|
|
|
|
|
|
|
2,964
|
|
|
Goodwill
|
|
|
2,677
|
|
|
|
|
(2,039
|
)
|
(2)
|
|
|
|
|
638
|
|
|
Other
intangibles, net
|
|
|
7,122
|
|
|
|
|
(6,229
|
)
|
(1)
|
|
|
|
|
893
|
|
|
Other
assets
|
|
|
483
|
|
|
|
|
3,000
|
|
(1)
|
|
|
|
|
3,483
|
|
|
Total
assets
|
|
$
|
61,793
|
|
|
|
$
|
(8,384
|
)
|
|
|
|
|
$
|
53,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
2,383
|
|
|
|
$
|
-
|
|
|
|
|
|
$
|
2,383
|
|
|
Payable
to Bridge Pharmaceuticals
|
|
|
119
|
|
|
|
|
-
|
|
|
|
|
|
|
119
|
|
|
Accrued
compensation and employee benefits
|
|
|
4,169
|
|
|
|
|
(739
|
)
|
(1)
|
|
|
|
|
3,430
|
|
|
Other
accrued expenses
|
|
|
2,406
|
|
|
|
|
-
|
|
|
|
|
|
|
2,406
|
|
|
Accrued
restructuring costs
|
|
|
309
|
|
|
|
|
-
|
|
|
|
|
|
|
309
|
|
|
Current
portion of long-term debt
|
|
|
501
|
|
|
|
|
-
|
|
|
|
|
|
|
501
|
|
|
Deferred
revenue
|
|
|
5,018
|
|
|
|
|
(2,572
|
)
|
(1)
|
|
|
|
|
2,446
|
|
|
Total
current liabilities
|
|
|
14,905
|
|
|
|
|
(3,311
|
)
|
|
|
|
|
|
11,594
|
|
|
Deferred
revenue
|
|
|
137
|
|
|
|
|
(137
|
)
|
(1)
|
|
|
|
|
-
|
|
|
Long-term
debt, net of current portion
|
|
|
40
|
|
|
|
|
-
|
|
|
|
|
|
|
40
|
|
|
Deferred
rent
|
|
|
882
|
|
|
|
|
(838
|
)
|
(3)
|
|
|
|
|
44
|
|
|
Stockholders'
equity
|
|
|
45,829
|
|
|
|
|
(4,098
|
)
|
(1)
|
|
|
|
|
41,731
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
61,793
|
|
|
|
$
|
(8,384
|
)
|
|
|
|
|
$
|
53,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying Notes to Unaudited Pro Forma Consolidated Condensed
Financial
Statements.
|
|
|
|
|
|
|
|
|
|
GENE
LOGIC INC.
|
|
|
UNAUDITED
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF
OPERATIONS
|
|
|
(in
thousands, except per share data)
|
|
|
|
|
Nine
Months Ended September 30, 2007
|
|
|
|
|
Gene
Logic
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Historical
|
|
|
Genomics
(4)
|
|
|
|
|
|
Pro
Forma
|
|
|
Revenue
|
|
$
|
13,235
|
|
|
$
|
12,356
|
|
|
|
|
|
$
|
879
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Database
production
|
|
|
15,765
|
|
|
|
15,765
|
|
(5)
|
|
|
|
|
|
-
|
|
|
Research
and development
|
|
|
7,859
|
|
|
|
(705
|
)
|
(5)
|
|
|
|
|
|
8,564
|
|
|
Selling,
general and administrative
|
|
|
17,044
|
|
|
|
8,393
|
|
|
|
|
|
|
|
8,651
|
|
|
Total expenses
|
|
|
40,668
|
|
|
|
23,453
|
|
|
|
|
|
|
|
17,215
|
|
|
Loss
from operations
|
|
|
(27,433
|
)
|
|
|
(11,097
|
)
|
|
|
|
|
|
|
(16,336
|
)
|
|
Interest
(income), net
|
|
|
(1,594
|
)
|
|
|
-
|
|
|
|
|
|
|
|
(1,594
|
)
|
|
Other
(income) expense
|
|
|
46
|
|
|
|
46
|
|
|
|
|
|
|
|
-
|
|
|
Loss
from continuing operations
|
|
$
|
(25,885
|
)
|
|
$
|
(11,143
|
)
|
|
|
|
|
|
$
|
(14,742
|
)
|
|
Basic
and diluted loss per share from continuing operations
|
|
$
|
(0.81
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(0.46
|
)
|
|
Basic
and diluted weighted average shares outstanding
|
|
|
31,865
|
|
|
|
|
|
|
|
|
|
|
|
31,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying Notes to Unaudited Pro Forma Consolidated Condensed
Financial
Statements.
|
|
|
GENE
LOGIC INC.
|
|
|
UNAUDITED
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF
OPERATIONS
|
|
|
(in
thousands, except per share data)
|
|
|
|
|
Year
Ended December 31, 2006
|
|
|
|
|
Gene
Logic
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
Historical
|
|
|
Genomics
(4)
|
|
|
|
|
|
Pro
Forma
|
|
|
Revenue
|
|
$
|
24,346
|
|
|
$
|
24,310
|
|
|
|
|
|
$
|
36
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Database
production
|
|
|
27,408
|
|
|
|
27,408
|
|
(5)
|
|
|
|
|
|
-
|
|
|
Research
and development
|
|
|
9,876
|
|
|
|
(656
|
)
|
(5)
|
|
|
|
|
|
10,532
|
|
|
Selling,
general and administrative
|
|
|
22,422
|
|
|
|
10,000
|
|
|
|
|
|
|
|
12,422
|
|
|
Genomics
Division restructuring
|
|
|
5,258
|
|
|
|
2,831
|
|
(6)
|
|
|
|
|
|
2,427
|
|
|
Total expenses
|
|
|
64,964
|
|
|
|
39,583
|
|
|
|
|
|
|
|
25,381
|
|
|
Loss
from operations
|
|
|
(40,618
|
)
|
|
|
(15,273
|
)
|
|
|
|
|
|
|
(25,345
|
)
|
|
Interest
(income), net
|
|
|
(2,694
|
)
|
|
|
-
|
|
|
|
|
|
|
|
(2,694
|
)
|
|
Other
(income) expense
|
|
|
55
|
|
|
|
55
|
|
|
|
|
|
|
|
-
|
|
|
Write-down
of long-term equity investment
|
|
|
275
|
|
|
|
-
|
|
|
|
|
|
|
|
275
|
|
|
Loss
from continuing operations
|
|
$
|
(38,254
|
)
|
|
$
|
(15,328
|
)
|
|
|
|
|
|
$
|
(22,926
|
)
|
|
Basic
and diluted loss per share from continuing operations
|
|
$
|
(1.20
|
)
|
|
|
|
|
|
|
|
|
|
$
|
(0.72
|
)
|
|
Basic
and diluted weighted average shares outstanding
|
|
|
31,807
|
|
|
|
|
|
|
|
|
|
|
|
31,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying Notes to Unaudited Pro Forma Consolidated Condensed
Financial
Statements.
|
|
NOTES
TO UNAUDITED PRO FORMA CONSOLIDATED
CONDENSED
FINANCIAL STATEMENTS
(in
thousands)
The
pro
forma adjustments footnoted in the unaudited pro forma consolidated
condensed financial statements are explained below:
|
(1)
|
These
amounts reflect the disposition of the Genomics Assets, the
assumption, by Ocimum or its affiliate, of certain liabilities
and ongoing
contractual obligations and the sale price that includes the
receipt of
cash proceeds of $7,000 and a $3,000 promissory note, which will
be due 18
months from the date of closing. Estimated costs associated
with the sale ($419) have been reflected in the net proceeds
on the
Unaudited Pro Forma Consolidated Condensed Balance Sheet at September
30,
2007. The Company will also retain accounts receivable whether
earned or unearned as of closing.
|
|
(2)
|
Amount
represents an allocation of the historical goodwill amount from
the
Company’s Genomics Business to the disposition of the Genomics
Assets.
|
|
(3)
|
Amount
represents the elimination of the historical deferred rent amount
due to
the assumption by Ocimum or its affiliate of a related ongoing
contractual
lease obligation.
|
|
(4)
|
This
column represents the operating results of the Company’s Genomics Assets
(“Genomics”) for the respective period. These operating results
were consolidated in the historical consolidated condensed financial
statements of Gene Logic Inc. and are subtracted to reflect the
disposition.
|
|
(5)
|
Expenses
classified as Database Production that were not eliminated as
a result of
the disposition of the Genomics Assets have been reclassified
to Research
and Development.
|
|
(6)
|
Amount
not eliminated consists of facility expenses related to ongoing
contractual lease obligations that would not have been assumed
by Ocimum
or its affiliate.
|
Gene
Logic Inc.
Index
to Consolidated Financial Statements
|
|
Page
|
|
Report
of Independent Registered Public Accounting Firm - Internal
Control Over
Financial Reporting
|
D-2
|
|
Report
of Independent Registered Public Accounting Firm - Consolidated
Financial
Statements
|
D-3
|
|
Consolidated
Balance Sheets as of December 31, 2006 and 2005
|
D-4
|
|
Consolidated
Statements of Operations for the three years ended December
31,
2006
|
D-5
|
|
Consolidated
Statements of Stockholders’ Equity for the three years ended December 31,
2006
|
D-6
|
|
Consolidated
Statements of Cash Flows for the three years ended December
31,
2006
|
D-7
|
|
Notes
to Consolidated Financial Statements
|
D-8
|
Report
of Independent Registered Public Accounting Firm -
Internal
Control Over Financial Reporting
The
Board
of Directors and Stockholders of Gene Logic Inc.
We
have
audited management’s assessment, included in the accompanying Management’s
Report on Internal Controls Over Financial Reporting listed as Item 9A,
that
Gene Logic Inc. maintained effective internal control over financial
reporting
as of December 31, 2006, based on criteria established in
Internal
Control-Integrated Framework
issued by
the Committee of Sponsoring Organizations of the Treadway Commission
(the COSO
criteria). Gene Logic Inc.’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on management’s assessment and an opinion on the
effectiveness of the company’s internal control over financial reporting based
on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control
over
financial reporting, evaluating management’s assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing
such
other procedures as we considered necessary in the circumstances. We
believe
that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in
accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to
the maintenance of records that, in reasonable detail, accurately and
fairly
reflect the transactions and dispositions of the assets of the company;
(2)
provide reasonable assurance that transactions are recorded as necessary
to
permit preparation of financial statements in accordance with generally
accepted
accounting principles, and that receipts and expenditures of the company
are
being made only in accordance with authorizations of management and directors
of
the company; and (3) provide reasonable assurance regarding prevention
or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because
of
its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation
of
effectiveness to future periods are subject to the risk that controls
may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In
our
opinion, management’s assessment that Gene Logic Inc. maintained effective
internal control over financial reporting as of December 31, 2006 is
fairly
stated, in all material respects, based on the COSO criteria. Also, in
our
opinion, Gene Logic Inc. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2006, based
on the
COSO criteria.
We
also
have audited, in accordance with the standards of the Public Company
Accounting
Oversight Board (United States), the consolidated balance sheets of Gene
Logic
Inc. as of December 31, 2006 and 2005, and the related consolidated statements
of operations, stockholders’ equity, and cash flows for each of the three years
in the period ended December 31, 2006, and our report dated March 14,
2007
expressed an unqualified opinion thereon.
/s/
ERNST
& YOUNG LLP
Baltimore,
Maryland
March
14,
2007
Report
of Independent Registered Public Accounting Firm -
Consolidated
Financial Statements
The
Board
of Directors and Stockholders Gene Logic Inc.
We
have
audited the accompanying consolidated balance sheets of Gene Logic Inc.
as of
December 31, 2006 and 2005, and the related consolidated statements of
operations, stockholders’ equity, and cash flows for each of the three years in
the period ended December 31, 2006. Our audits also included the financial
statement schedule listed in the Index at Item 15(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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the
financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide
a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in
all
material respects, the consolidated financial position of Gene Logic
Inc. at
December 31, 2006 and 2005, and the consolidated results of its operations
and
its cash flows for each of the three years in the period ended December
31, 2006
in conformity with U.S. 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.
As
discussed in Note 1 to the consolidated financial statements, in 2006,
the
Company changed its method of accounting for stock-based compensation
upon the
adoption of Statement of Financial Accounting Standard No. 123(R), “Shared-Based
Payments”.
We
also
have audited, in accordance with the standards of the Public Company
Accounting
Oversight Board (United States), the effectiveness of Gene Logic Inc.’s internal
control over financial reporting as of December 31, 2006, based on criteria
established in
Internal
Control-Integrated Framework
issued by
the Committee of Sponsoring Organizations of the Treadway Commission
and our
report dated March 14, 2007 expressed an unqualified opinion thereon.
/s/
ERNST
& YOUNG LLP
Baltimore,
Maryland
March
14,
2007
GENE
LOGIC INC.
Consolidated
Balance Sheets
as
of December 31, 2006 and 2005
(in
thousands, except share data)
|
|
|
2006
|
|
2005
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
25,700
|
|
$
|
43,946
|
|
|
Marketable
securities available-for-sale
|
|
|
24,410
|
|
|
38,179
|
|
|
Accounts
receivable, net of allowance of $45 and $255 in 2006 and
2005,
respectively
|
|
|
3,327
|
|
|
1,779
|
|
|
Unbilled
services
|
|
|
589
|
|
|
3,001
|
|
|
Inventory,
net
|
|
|
2,180
|
|
|
3,091
|
|
|
Prepaid
expenses
|
|
|
1,260
|
|
|
1,548
|
|
|
Other
current assets
|
|
|
3,551
|
|
|
839
|
|
|
Assets
of discontinued operations held-for-sale
|
|
|
-
|
|
|
32,889
|
|
|
Total
current assets
|
|
|
61,017
|
|
|
125,272
|
|
|
Property
and equipment, net
|
|
|
12,829
|
|
|
15,603
|
|
|
Long-term
investments
|
|
|
2,964
|
|
|
3,239
|
|
|
Goodwill
|
|
|
2,677
|
|
|
2,677
|
|
|
Other
intangibles, net
|
|
|
10,060
|
|
|
13,399
|
|
|
Other
assets
|
|
|
726
|
|
|
529
|
|
|
Total
assets
|
|
$
|
90,273
|
|
$
|
160,719
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
3,703
|
|
$
|
4,802
|
|
|
Payable
to Bridge Pharmaceuticals
|
|
|
1,727
|
|
|
-
|
|
|
Accrued
compensation and employee benefits
|
|
|
2,883
|
|
|
6,277
|
|
|
Other
accrued expenses
|
|
|
3,751
|
|
|
3,554
|
|
|
Accrued
restructuring costs
|
|
|
1,941
|
|
|
-
|
|
|
Current
portion of long-term debt
|
|
|
499
|
|
|
497
|
|
|
Acquired
technologies payable
|
|
|
-
|
|
|
3,492
|
|
|
Deferred
revenue
|
|
|
3,299
|
|
|
9,738
|
|
|
Liabilities
of discontinued operations held-for-sale
|
|
|
-
|
|
|
5,374
|
|
|
Total
current liabilities
|
|
|
17,803
|
|
|
33,734
|
|
|
Deferred
revenue
|
|
|
228
|
|
|
-
|
|
|
Long-term
debt, net of current portion
|
|
|
78
|
|
|
127
|
|
|
Deferred
rent
|
|
|
1,074
|
|
|
2,002
|
|
|
Total
liabilities
|
|
|
19,183
|
|
|
35,863
|
|
|
Commitments
and contingencies
|
|
|
-
|
|
|
-
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $.01 par value; 10,000,000 shares authorized; and
no shares
issued
|
|
|
|
|
|
|
|
|
and
outstanding as of December 31, 2006 and 2005
|
|
|
-
|
|
|
-
|
|
|
Common
stock, $.01 par value; 60,000,000 shares authorized; 31,820,273
and
|
|
|
|
|
|
|
|
|
31,771,835
shares issued and outstanding as of December 31, 2006 and
2005,
respectively
|
|
|
318
|
|
|
318
|
|
|
Additional
paid-in-capital
|
|
|
386,530
|
|
|
385,586
|
|
|
Accumulated
other comprehensive loss
|
|
|
(78
|
)
|
|
(78
|
)
|
|
Accumulated
deficit
|
|
|
(315,680
|
)
|
|
(260,970
|
)
|
|
Total
stockholders' equity
|
|
|
71,090
|
|
|
124,856
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
90,273
|
|
$
|
160,719
|
|
GENE
LOGIC INC.
Consolidated
Statements of Operations
For
the Years Ended December 31, 2006, 2005 and 2004
(in
thousands, except per share data)
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Genomics
services
|
|
$
|
24,310
|
|
$
|
56,602
|
|
$
|
52,171
|
|
|
Drug
repositioning services
|
|
|
36
|
|
|
588
|
|
|
-
|
|
|
Total
revenue
|
|
|
24,346
|
|
|
57,190
|
|
|
52,171
|
|
|
Expenses
(1):
|
|
|
|
|
|
|
|
|
|
|
|
Database
production
|
|
|
27,408
|
|
|
31,689
|
|
|
41,870
|
|
|
Research
and development
|
|
|
9,876
|
|
|
6,812
|
|
|
2,449
|
|
|
Selling,
general and administrative
|
|
|
22,422
|
|
|
26,788
|
|
|
19,224
|
|
|
Genomics
Division restructuring
|
|
|
5,258
|
|
|
-
|
|
|
-
|
|
|
Purchased
research and development
|
|
|
-
|
|
|
-
|
|
|
8,817
|
|
|
Total
expenses
|
|
|
64,964
|
|
|
65,289
|
|
|
72,360
|
|
|
Loss
from operations
|
|
|
(40,618
|
)
|
|
(8,099
|
)
|
|
(20,189
|
)
|
|
Interest
(income), net
|
|
|
(2,694
|
)
|
|
(2,625
|
)
|
|
(1,395
|
)
|
|
Other
(income) expense
|
|
|
55
|
|
|
(813
|
)
|
|
-
|
|
|
Write-down
of other-than-temporary decline in the value of
|
|
|
|
|
|
|
|
|
|
|
|
marketable
securities available-for-sale
|
|
|
-
|
|
|
719
|
|
|
-
|
|
|
Write-down
of long-term equity investment
|
|
|
275
|
|
|
-
|
|
|
-
|
|
|
Loss
from continuing operations before income tax expense
|
|
|
(38,254
|
)
|
|
(5,380
|
)
|
|
(18,794
|
)
|
|
Income
tax expense
|
|
|
-
|
|
|
-
|
|
|
287
|
|
|
Loss
from continuing operations
|
|
|
(38,254
|
)
|
|
(5,380
|
)
|
|
(19,081
|
)
|
|
Loss
from discontinued operations
|
|
|
(16,456
|
)
|
|
(42,924
|
)
|
|
(9,439
|
)
|
|
Net
loss
|
|
$
|
(54,710
|
)
|
$
|
(48,304
|
)
|
$
|
(28,520
|
)
|
|
Basic
and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(1.20
|
)
|
$
|
(0.17
|
)
|
$
|
(0.61
|
)
|
|
Loss
from discontinued operations
|
|
|
(0.52
|
)
|
|
(1.35
|
)
|
|
(0.30
|
)
|
|
Net
loss
|
|
$
|
(1.72
|
)
|
$
|
(1.52
|
)
|
$
|
(0.91
|
)
|
|
Shares
used in computing basic and diluted net loss per share
|
|
|
31,807
|
|
|
31,744
|
|
|
31,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Line items include non-cash stock compensation expense as
follows (see
Note 1):
|
|
|
|
|
|
|
|
|
|
|
|
Database
production
|
|
$
|
149
|
|
$
|
-
|
|
$
|
-
|
|
|
Research
and development
|
|
|
92
|
|
|
-
|
|
|
-
|
|
|
Selling,
general and administrative
|
|
|
390
|
|
|
-
|
|
|
-
|
|
|
Loss
from discontinued operations
|
|
|
158
|
|
|
-
|
|
|
-
|
|
|
Total
non-cash stock compensation expense
|
|
$
|
789
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GENE
LOGIC INC.
Consolidated
Statements of Stockholders’ Equity
For
the Years Ended December 31, 2004, 2005 and 2006
(in
thousands, except number of shares)
|
|
|
Common
Stock
|
|
Additional
|
|
Other
|
|
|
|
|
|
|
|
|
Number
|
|
Par
|
|
Paid-In
|
|
Comprehensive
|
|
Accumulated
|
|
Comprehensive
|
|
|
|
|
of
Shares
|
|
Value
|
|
Capital
|
|
Income
(Loss)
|
|
Defecit
|
|
Loss
|
|
|
Balance
at January 1, 2004
|
|
|
31,131,198
|
|
$
|
311
|
|
$
|
383,377
|
|
$
|
47
|
|
$
|
(184,146
|
)
|
$
|
-
|
|
|
Issuance
of common stock in connection with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exercise
of stock options
|
|
|
255,479
|
|
|
3
|
|
|
948
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Issuance
of common stock in connection with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
Stock Purchase Plan
|
|
|
120,215
|
|
|
1
|
|
|
445
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Issuance
of common stock in connection with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
drug
repositioning technologies acquisition
|
|
|
147,521
|
|
|
2
|
|
|
543
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Net
change in unrealized gains from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
marketable
securities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(183
|
)
|
|
-
|
|
$
|
(183
|
)
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(28,520
|
)
|
|
(28,520
|
)
|
|
Comprehensive
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
(28,703
|
)
|
|
Balance
at December 31, 2004
|
|
|
31,654,413
|
|
$
|
317
|
|
$
|
385,313
|
|
$
|
(136
|
)
|
$
|
(212,666
|
)
|
$
|
-
|
|
|
Issuance
of common stock in connection with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exercise
of stock options
|
|
|
54,609
|
|
|
-
|
|
|
111
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Issuance
of common stock in connection with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
Stock Purchase Plan
|
|
|
62,813
|
|
|
1
|
|
|
162
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Net
change in unrealized gains from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
marketable
securities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
58
|
|
|
-
|
|
$
|
58
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(48,304
|
)
|
|
(48,304
|
)
|
|
Comprehensive
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
(48,246
|
)
|
|
Balance
at December 31, 2005
|
|
|
31,771,835
|
|
$
|
318
|
|
$
|
385,586
|
|
$
|
(78
|
)
|
$
|
(260,970
|
)
|
$
|
-
|
|
|
Issuance
of common stock in connection with
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
exercise
of stock options
|
|
|
48,438
|
|
|
-
|
|
|
155
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Non-cash
stock-based compensation
|
|
|
-
|
|
|
-
|
|
|
789
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Foreign
currency translation adjustments
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(38
|
)
|
|
-
|
|
$
|
(38
|
)
|
|
Net
change in unrealized gains from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
marketable
securities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
38
|
|
|
-
|
|
|
38
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(54,710
|
)
|
|
(54,710
|
)
|
|
Comprehensive
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
(54,710
|
)
|
|
Balance
at December 31, 2006
|
|
|
31,820,273
|
|
$
|
318
|
|
$
|
386,530
|
|
$
|
(78
|
)
|
$
|
(315,680
|
)
|
|
|
|
GENE
LOGIC INC.
Consolidated
Statements of Cash Flows
For
the Years Ended December 31, 2006, 2005 and 2004
(in
thousands)
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
$
|
(38,254
|
)
|
$
|
(5,380
|
)
|
$
|
(19,081
|
)
|
|
Adjustments
to reconcile loss from continuing operations to net cash
flows from
continuing operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
10,568
|
|
|
10,788
|
|
|
13,281
|
|
|
Non-cash
purchased research and development
|
|
|
-
|
|
|
-
|
|
|
7,908
|
|
|
Non-cash
Genomics Division restructuring
|
|
|
3,329
|
|
|
-
|
|
|
-
|
|
|
Write-down
of marketable securities available-for-sale
|
|
|
-
|
|
|
719
|
|
|
-
|
|
|
Write-down
of equity investment
|
|
|
275
|
|
|
-
|
|
|
-
|
|
|
Inventory
impairment
|
|
|
1,025
|
|
|
-
|
|
|
-
|
|
|
Non-cash
stock compensation expense
|
|
|
631
|
|
|
-
|
|
|
-
|
|
|
Other
non-cash items
|
|
|
24
|
|
|
350
|
|
|
348
|
|
|
Changes
in continuing operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable and unbilled services
|
|
|
864
|
|
|
(628
|
)
|
|
1,280
|
|
|
Inventory
|
|
|
(114
|
)
|
|
(1,432
|
)
|
|
3,321
|
|
|
Prepaids
and other assets
|
|
|
(1,115
|
)
|
|
(442
|
)
|
|
(119
|
)
|
|
Accounts
payable
|
|
|
(1,090
|
)
|
|
999
|
|
|
14
|
|
|
Accrued
expenses and deferred rent
|
|
|
(562
|
)
|
|
3,695
|
|
|
1,788
|
|
|
Accrued
technologies payable
|
|
|
(3,492
|
)
|
|
-
|
|
|
-
|
|
|
Deferred
revenue
|
|
|
(6,087
|
)
|
|
(2,613
|
)
|
|
614
|
|
|
Net
cash flows from continuing operating activities
|
|
|
(33,998
|
)
|
|
6,056
|
|
|
9,354
|
|
|
Loss
from discontiuned operations
|
|
|
(16,456
|
)
|
|
(42,924
|
)
|
|
(9,439
|
)
|
|
Adjustments
to reconcile loss from discontinued operations to net cash
flows from
discontinued operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
charges, depreciation and amortization and other non-cash
items
|
|
|
14,011
|
|
|
36,077
|
|
|
3,670
|
|
|
Changes
in discontinued operating assets and liabilities
|
|
|
(517
|
)
|
|
1,199
|
|
|
(3,865
|
)
|
|
Net
cash flows from discontinued operating activities
|
|
|
(2,962
|
)
|
|
(5,648
|
)
|
|
(9,634
|
)
|
|
Net
cash flows from operating activities
|
|
|
(36,960
|
)
|
|
408
|
|
|
(280
|
)
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(2,015
|
)
|
|
(9,870
|
)
|
|
(2,994
|
)
|
|
Purchases
of licenses and patent costs
|
|
|
(1,127
|
)
|
|
(813
|
)
|
|
(569
|
)
|
|
Software
development costs
|
|
|
(983
|
)
|
|
(2,070
|
)
|
|
(3,327
|
)
|
|
Database
upgrade costs
|
|
|
(2,584
|
)
|
|
(4,168
|
)
|
|
(569
|
)
|
|
Proceeds
from sale and maturity of marketable securities
available-for-sale
|
|
|
44,486
|
|
|
59,414
|
|
|
83,372
|
|
|
Purchase
of marketable securities available-for-sale
|
|
|
(30,687
|
)
|
|
(47,576
|
)
|
|
(70,128
|
)
|
|
Net
proceeds received from sale of Preclinical
Division
|
|
|
12,117
|
|
|
-
|
|
|
-
|
|
|
Net
investing activities of discontinued operations
|
|
|
(460
|
)
|
|
(4,707
|
)
|
|
(2,217
|
)
|
|
Net
cash flows from investing activities
|
|
|
18,747
|
|
|
(9,790
|
)
|
|
3,568
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock to employees
|
|
|
155
|
|
|
274
|
|
|
1,397
|
|
|
Repayments
of an equipment loans
|
|
|
(47
|
)
|
|
(44
|
)
|
|
(42
|
)
|
|
Net
financing activities of discontinued operations
|
|
|
(141
|
)
|
|
(139
|
)
|
|
(124
|
)
|
|
Net
cash flows from financing activities
|
|
|
(33
|
)
|
|
91
|
|
|
1,231
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(18,246
|
)
|
|
(9,291
|
)
|
|
4,519
|
|
|
Cash
and cash equivalents, beginning of year
|
|
|
43,946
|
|
|
53,237
|
|
|
48,718
|
|
|
Cash
and cash equivalents, end of year
|
|
$
|
25,700
|
|
$
|
43,946
|
|
$
|
53,237
|
|
|
Supplemental
disclosure:
|
|
|
|
|
|
|
|
|
|
|
|
Taxes
paid
|
|
$
|
-
|
|
$
|
-
|
|
$
|
569
|
|
|
Interest
paid
|
|
$
|
19
|
|
$
|
35
|
|
$
|
49
|
|
|
Non-cash
financing and investing transactions:
|
|
|
|
|
|
|
|
|
|
|
|
In
connection with the acquisition of the Drug Repositioning
technologies:
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of research and development and purchase of laboratory equipment,
in
|
|
|
|
|
|
|
|
|
|
|
|
exchange
for issuance of common stock, acquired technology payable
and a ToxExpress
subscription license
|
|
$
|
-
|
|
|
-
|
|
$
|
7,971
|
|
GENE
LOGIC INC.
Notes
to Consolidated Financial Statements
December
31, 2006, 2005 and 2004
(in
thousands, except share and per share data)
Note
1 - Organization and summary of significant accounting policies
Description
of Business
Gene
Logic
Inc., including its wholly owned subsidiaries, Gene Logic Ltd. (United
Kingdom
subsidiary) and Gene Logic K.K. (Japan subsidiary), (collectively “Gene Logic”
or the “Company”), provides pharmaceutical development services that allow the
Company to uncover new development paths for drug candidates provided
by its
customers for which development has been discontinued for reasons other
than
safety. In addition, the Company has developed and commercialized proprietary
genomic and toxicogenomic databases, toxicogenomic services, software
tools and
other services that enable customers worldwide to discover and prioritize
drug
targets, identify biomarkers, predict toxicity and understand mechanisms
of
toxicity, and understand mechanisms of action of specific compounds.
From
January until July 2004, the Company’s services were organized into two business
segments: genomics and toxicogenomics services (“Genomics Division”) and
preclinical contract research services (“Preclinical Division”). In July, 2004,
as a result of the acquisition of certain technologies and the hiring
of certain
personnel from Millennium Pharmaceuticals, Inc. (“Millennium”) (see Note 2), the
Company added a third business segment: drug repositioning services (“Drug
Repositioning Division”). On December 15, 2006, the Company sold its Preclinical
Division, which has now been classified as a discontinued operation (see
Note
3).
The
Drug
Repositioning Division is a pharmaceutical development division that
identifies
and develops new or expanded uses for small molecule therapeutics. The
Company
is building a therapeutic pipeline by applying its proprietary drug indication
discovery platform consisting of genomics databases and bioinformatics
software,
and the biological screening technologies acquired from Millennium and
which
subsequently have undergone further development, to find new and expanded
uses
for drug candidates supplied by major pharmaceutical companies.
In
2006,
the Company began to redirect its Genomics Division in response to its
customers’ shifting their research activities from early-stage drug discovery
into later-stage development and validation efforts. Management examined
the
business for new avenues to create value and concluded that its expertise
in
biomarker discovery and validation could be used as a potential new platform
for
molecular diagnostics development. As a result, the Company has engaged
outside
financial advisors to identify strategic alternatives for our Genomics
business.
The Company continues to serve new and existing Genomics customers.
Principles
of Consolidation
The
consolidated financial statements include the accounts of Gene Logic
Inc. and
its wholly owned subsidiaries. All material inter-company accounts, transactions
and profits have been eliminated in consolidation.
U
se
of
Estimates
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States requires management
to make
estimates and assumptions that affect the reported amounts of assets
and
liabilities and disclosure of contingent assets and liabilities at the
date of
the consolidated financial statements and the reported amounts of revenue
and
expenses during the reporting period. Actual results could differ from
those
estimates.
Basis
of Presentation
As
a
result of the Company’s sale of its Preclinical Division and in accordance with
Statement of Financial Accounting Standards No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), the Company has
classified the net assets of the Preclinical Division as assets and liabilities
held for sale at December 31, 2005 and the results of operations of the
Preclinical Division as discontinued operations for all periods.
Foreign
Currency Translation
The
financial statements of subsidiaries outside the United States are measured
using the local currency as the functional currency. Assets and liabilities
of
these subsidiaries are translated at the rates of exchange at the balance
sheet
date, as appropriate. The resulting translation adjustments are included
in
accumulated other comprehensive loss, a separate component of stockholders’
equity. Income and expense items are translated at average monthly rates
of
exchange.
Com
prehensive
Loss
The
Company accounts for comprehensive loss as prescribed by Statement of
Financial
Accounting Standards No. 130, “Reporting Comprehensive Income”. Comprehensive
loss is the total net loss plus all changes in equity during the applicable
period except those changes resulting from investment by owners and distribution
to owners. Total comprehensive loss was $54,710, $48,246 and $28,703
for the
years ended December 31, 2006, 2005 and 2004, respectively.
Concentration
of Credit Risk
Cash,
cash
equivalents and marketable securities available-for-sale are financial
instruments that potentially subject the Company to concentrations of
credit
risk. The estimated fair value of financial instruments approximates
the
carrying value based on available market information. The Company primarily
invests its excess available funds in money market funds, commercial
paper,
corporate bonds and securities issued by the U.S. Government and its
agencies
and, by policy, seeks to ensure both liquidity and safety of principal.
The
policy also limits investments to certain types of instruments issued
by
institutions with strong investment grade credit ratings and places restrictions
on their terms, geographic origin and concentrations by type and issuer.
Cash
and Cash Equivalents
Cash
and
cash equivalents are defined as liquid investments with maturities of
90 days or
less when purchased. All other investments are reported as marketable
securities
available-for-sale. Cash and cash equivalents as of December 31 are comprised
of:
|
|
|
2006
|
|
2005
|
|
|
Cash
|
|
$
|
1,076
|
|
$
|
2,326
|
|
|
Money
market funds
|
|
|
8,415
|
|
|
6,949
|
|
|
Commercial
paper
|
|
|
16,209
|
|
|
34,671
|
|
|
Total
|
|
$
|
25,700
|
|
$
|
43,946
|
|
Marketable
Securities Available-for-Sale
All
marketable securities are classified as available-for-sale. Available-for-sale
securities are carried at fair value, with unrealized gains and temporary
losses
reported as accumulated other comprehensive income (loss) included in
stockholders’ equity. Realized gains and losses and declines in value judged to
be other-than-temporary for available-for-sale securities are included
in the
Consolidated Statements of Operations. The cost of securities sold is
based on
the specific identification method. In 2006, 2005 and 2004, realized
gains
and/or losses resulting from the sale of marketable securities were immaterial.
As
of
December 31, 2006, the Company’s investment portfolio consisted of commercial
paper, corporate bonds and mortgage-backed securities of U.S. Government
agencies. All marketable securities had original maturities greater than
90
days, but less than two years. All investments in corporate bonds mature
in
2007. All marketable securities with a gross unrealized loss as of December
31,
2006 have been in an unrealized loss position for less than 12 months.
The
Company reviews marketable securities for impairment based on criteria
that
include the extent to which the investment’s carrying value exceeds its related
market value, the duration of the market decline, the Company’s ability to hold
the investment to recovery and the financial strength and specific prospects
of
the issuer of the security. During 2005, the Company determined that
one of its
marketable securities had an other-than-temporary decline in its value
and
accordingly, recorded a loss of $719 (see Note 6). As of December 31,
2006, all
of the Company’s investments were classified as current because the Company may
not hold its investments until maturity in order to take advantage of
market
conditions.
Marketable
securities available-for-sale as of December 31 are comprised of:
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Commercial
paper
|
|
$
|
8,929
|
|
$
|
-
|
|
$
|
-
|
|
$
|
8,929
|
|
$
|
22,455
|
|
$
|
-
|
|
$
|
(14
|
)
|
$
|
22,441
|
|
|
Corporate
bonds
|
|
|
13,498
|
|
|
-
|
|
|
(28
|
)
|
|
13,470
|
|
|
13,501
|
|
|
-
|
|
|
(53
|
)
|
|
13,448
|
|
|
Equity
securities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
281
|
|
|
-
|
|
|
-
|
|
|
281
|
|
|
U.S.
Government
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
securities
|
|
|
2,023
|
|
|
-
|
|
|
(12
|
)
|
|
2,011
|
|
|
2,020
|
|
|
-
|
|
|
(11
|
)
|
|
2,009
|
|
|
Total
|
|
$
|
24,450
|
|
$
|
-
|
|
$
|
(40
|
)
|
$
|
24,410
|
|
$
|
38,257
|
|
$
|
-
|
|
$
|
(78
|
)
|
$
|
38,179
|
|
Allowances
for Doubtful Accounts Receivable
The
Company uses estimates to determine the amount of the allowance for doubtful
accounts necessary to reduce accounts receivable and unbilled services
to their
expected net realizable value. The Company estimates the amount of the
required
allowance by reviewing the status of past-due receivables and by establishing
general provisions for estimated losses by analyzing current customer
credit
worthiness and historical bad debt trends. Actual collection experience
has not
varied significantly from the Company’s estimates, due primarily to collection
policies and the financial strength of the Company’s customers. Receivables that
are ultimately deemed uncollectible are written-off as a reduction of
accounts
receivable and the allowance for doubtful accounts.
Inventory
Inventory
is stated at the lower of cost or market. Cost for microarrays and laboratory
reagents is determined using the first-in, first-out method and cost
for tissue
samples is determined using the average cost method. All inventory is
reviewed
for impairment and appropriate reserves are recorded. All inventory is
classified as raw materials. Inventory as of December 31 is comprised
of:
|
|
|
2006
|
|
2005
|
|
|
Microarrays
|
|
$
|
2,233
|
|
$
|
2,199
|
|
|
Laboratory
reagents
|
|
|
510
|
|
|
298
|
|
|
Tissue
samples
|
|
|
1,788
|
|
|
2,248
|
|
|
|
|
|
4,531
|
|
|
4,745
|
|
|
Less
-- microarray reserves
|
|
|
(647
|
)
|
|
-
|
|
|
Less
-- tissue samples reserves
|
|
|
(1,704
|
)
|
|
(1,654
|
)
|
|
Inventory,
net
|
|
$
|
2,180
|
|
$
|
3,091
|
|
Property
and Equipment
Property
and equipment is carried at cost, less accumulated depreciation and
amortization. Depreciation and amortization is recorded using the straight-line
method over the estimated useful lives of the assets as follows:
|
Furniture
|
|
|
10
years
|
|
|
Computer
and office equipment
|
|
|
1-5
years
|
|
|
Laboratory
equipment
|
|
|
5
years
|
|
|
Leasehold
improvements
|
|
|
Lesser
of the lease term or the useful life
|
|
Long-Term
Investments
The
Company has made equity investments in companies whose businesses may
be
complementary to the Company’s business. All of the Company’s current equity
investments are accounted for under the cost method of accounting, as
the
Company holds less than 20% of the voting stock outstanding under such
arrangements and does not exert significant influence over these companies.
At
December 31, 2006, the Company’s only equity investment with a remaining book
value was Xceed Molecular (“Xceed”) (See Note 6).
Goodwill
The
goodwill on the Company’s Consolidated Balance Sheet resulted from the
acquisition of Oncormed, Inc. in 1998 and represents the excess of the
purchase
price over the fair value of the net assets acquired. These assets are
part of
the Genomics Division.
The
Company accounts for goodwill under the provisions of Statement of Financial
Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS
142”). Under SFAS 142, the Company is required to perform an annual impairment
test of its goodwill. The Company’s annual impairment test is performed October
1. In addition, the Company is required to test for impairment at any
point at
which it has an indication that impairment may exist.
The
goodwill impairment test involves a two-step approach. Under the first
step, the
Company determines the fair value of each reporting unit to which goodwill
has
been assigned. Reporting units are defined as the Company’s business segments.
The Company then compares the fair value of each reporting unit to its
carrying
value, including goodwill. The Company estimates the fair value of each
reporting unit by estimating the present value of the reporting unit’s future
cash flows. If the fair value exceeds the carrying value, no impairment
loss is
recognized. If the carrying value exceeds the fair value, the goodwill
of the
reporting unit is considered potentially impaired and the second step
is to
measure the impairment loss. Under the second step, the Company calculates
the
implied fair value of goodwill by deducting the fair value of all tangible
and
intangible net assets, including any unrecognized intangible assets,
of the
reporting unit from the fair value of the reporting unit, as determined
in the
first step. The Company then compares the implied fair value of goodwill
to the
carrying value of goodwill. If the implied fair value of goodwill is
less than
the carrying value of goodwill, the Company recognizes an impairment
loss equal
to the difference.
Based
on
the results of the Company’s annual impairment test, no impairment loss was
identified in the carrying value of the $2,677 of goodwill of the Company’s
Genomics Division.
Other
Intangible Assets
Other
intangible assets consist primarily of licenses, patent costs, software
development costs and database upgrade costs.
The
Company has licensed from third parties the proprietary rights and technical
information covered by various patents and patent applications. These
licenses
will continue for the term of the agreement or the life of the respective
patent, whichever is shorter. License costs are being amortized over
their
expected useful lives, but not greater than the lesser of the term of
the
agreement or the life of the respective patent. Certain agreements call
for the
payment of royalties and maintenance fees.
Patent
costs include issued patents and patent applications and are stated at
cost.
Amortization of issued patent costs is recorded using the straight-line
method
over the shorter of their expected useful life or the legal lives of
the
patents, generally for periods ranging up to 20 years. The Company wrote
off
certain patent costs in the amount of $1,110 ($1,086 was written-off
in
connection with the Genomics Division restructuring-see Note 4),
$52
and
$275 during 2006, 2005 and 2004, respectively, after determining that
the
technologies underlying such patents and applications would no longer
be
utilized in the Company’s business.
In
accordance with the provisions of the Financial Accounting Standards
Board
Statement No. 86, “Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed,” the Company has capitalized certain software
development costs incurred in developing software, beginning upon the
demonstration of technological feasibility. The Company ceases capitalizing
such
costs when the software is available for general release to its customers.
Software development costs are being amortized over their expected useful
life
of up to three years, commencing upon release of the software or
upgrades.
Database
upgrade costs consist mainly of upgrades of existing gene expression
data
utilizing Affymetrix’s new versions of microarrays. These costs are capitalized
and amortized over their expected useful life of two years, commencing
upon
release of the update.
Impairment
of Long-Lived Assets
Long-lived
assets, consisting principally of property and equipment, long-term investments
and other intangible assets (including licenses, patent costs, software
development costs and database upgrade costs), are evaluated for possible
impairment. If an impairment loss is indicated, the Company will measure
the
amount of the impairment by comparing the carrying value of the asset
to the
present value of the expected future cash flows associated with the use
of the
asset.
Research
and Development
Research
and development costs, including those costs incurred in acquiring and
developing the drug repositioning technologies, are charged to operations
when
incurred or acquired.
Database
Production
Except
for
database upgrade costs which are capitalized and amortized over their
expected
useful life, costs related to the acquisition and processing of tissues
and
overhead expenses needed to support the Company’s databases are expensed as
incurred. These costs include labor, microarrays, tissues, licensing
agreements,
reagents, outside consultants and overhead.
Revenue
Recognition
Through
2006, the majority of Genomics Division services revenue consists of
fees earned
under subscription agreements for all or parts of the Company’s gene expression
reference databases, the BioExpress System and ToxExpress System, and
which are
typically for a specific multi-year term for subscriptions to the larger
databases and annual terms for smaller parts of the databases. The Company
has
also granted to some customers perpetual licenses to all or parts of
the
Company’s BioExpress and ToxExpress System databases and software tools. In
addition, the Company generates a smaller, but growing, percentage of
revenue
from providing other services, including various toxicogenomics reports,
microarray data generation and analysis and other professional services.
Revenue
from subscription agreements is recognized ratably over the period during
which
the customer has access to the database. Certain subscription agreements
have
included a right of early termination (which, in some instances, is subject
to
conditions) by the customer, without penalty, on a specified date prior
to the
normal expiration of the term. If an agreement has a right of early termination,
revenue is recognized ratably over the subscription term up to the possible
date
of early termination, based on subscription fees earned under the agreement
through the possible date of early termination. If such early termination
does
not occur, the balance of the subscription fees earned under the agreement
is
recognized as revenue ratably over the remaining term of the agreement.
Revenue
from perpetual licenses to data and software for which the Company is
not
obligated to provide continuing support or services is recognized when
the data
and/or software has been delivered. Revenue for perpetual licenses for
which the
Company is obligated to provide continuing support or services is recognized
during the period such support or services are provided. Revenue from
other
services is recognized when the services are performed. The Company’s agreements
generally provide for termination in the event of a breach of the agreement
by
either party or a bankruptcy or insolvency of either party. Agreements
with the
Company’s customers, other than its Japanese customers, are dollar-denominated.
Agreements with the Company’s Japanese customers, since 2005, have been
denominated in Japanese Yen and may be subject to fluctuations due to
changes in
currency exchange rates.
Revenue
recognized for any multiple-element contract is allocated to each element
of the
arrangement based on the relative fair value of the element. The determination
of fair value of each element is based on the Company’s analysis of objective
and reliable evidence from comparable internal or third-parties’ sales of the
individual element. If the Company is unable to determine evidence of
fair value
for an undelivered element of the arrangement, revenue for the arrangement
is
deferred and recognized using the revenue recognition method appropriate
to the
predominant undelivered element.
The
Company has entered into several contractual arrangements with multiple
deliverables, such as licenses to access its BioExpress and ToxExpress
System
databases and microarray data generation and analysis and other professional
services. For some of these arrangements, the Company was unable to determine
objectively and reliably the fair value of some undelivered elements,
and in
such arrangements, the Company recognizes all revenue using the revenue
recognition method appropriate to the predominant undelivered element.
The
Company also defers the direct and incremental expenses associated with
the
delivery of services for which revenue has been deferred and recognizes
these
expenses as the Company recognizes the related revenue. These types of
arrangements have resulted in an increase in the Company’s deferred costs and
deferred revenue as of December 31, 2006. The timing of revenue recognition
associated with future agreements may also be dependent on its ability
to
objectively and reliably determine the fair value of deliverables included
in
those agreements.
Unbilled
services are recorded for revenue recognized to date that has not been
billed to
the customer pursuant to the contractual terms. Typically, the Company’s
arrangements require that payments be made in advance, upon the achievement
of
milestones or in accordance with predetermined payment schedules. Deferred
revenue is recorded for cash received from customers for whom services
have not
yet been performed as of the balance sheet date.
Foreign
Currency Transactions
Foreign
currency transaction (gains) and losses are included in the Company’s
Consolidated Statements of Operations. During 2006 and 2005, foreign
currency
losses and (gains) totaled $55 and ($813), respectively, and are included
in
Other (Income) Expense on the Company’s Consolidated Statements of Operations.
Prior to 2005, the Company was not subject to foreign currency transactions
as
its agreements were dollar denominated.
Income
Taxes
The
Company accounts for income taxes under the provisions of Statement of
Financial
Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”). Under
the asset and liability method of SFAS 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and net operating loss and
tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
SFAS 109,
the effect on deferred tax assets and liabilities of a change in tax
rates is
recognized in operations in the period that includes the enactment
date.
Basic
and Diluted Net Loss Per Share
Net
loss
per share is computed using the weighted average number of shares of
Common
Stock outstanding. Common equivalent shares from all outstanding stock
options
are excluded from the computation, as their effect is
anti-dilutive.
Stock-Based
Compensation
Prior
to
January 1, 2006, the Company accounted for all of its stock-based compensation
awards under the recognition and measurement provisions of Accounting
Principles
Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”).
Accordingly, the Company recognized compensation expense, if any, only
to the
extent that the fair value of the underlying stock on the date of grant
exceeded
the exercise or acquisition price of the stock or stock-based award.
Any
resulting compensation expense was recognized ratably over the associated
service period, which was generally the option vesting period.
Effective
January 1, 2006, the Company adopted the fair value recognition provisions
of
Statement of Financial Accounting Standards (“SFAS”) No. 123(R) (revised 2004),
“Share-Based Payment,” (“SFAS 123R”), using the modified prospective transition
method and therefore has not restated results for prior periods. Under
this
transition method, stock-based compensation expense for 2006 included
compensation expense for all stock-based compensation awards granted
(i) prior
to, but not yet vested as of, January 1, 2006 based on the grant date
fair value
estimated in accordance with the original provisions of SFAS No. 123,
“Accounting for Stock-Based Compensation”
(“SFAS
123”), and (ii) after January 1, 2006 based on the grant date fair value
determined in accordance with the provisions of SFAS 123R. For 2006,
stock-based
compensation awards consisted of options awarded under the 1997 Equity
Incentive
Plan and the 1997 Non-Employee Directors’ Stock Option Plan. The Company
recognizes these compensation costs on a straight-line basis over the
requisite
service period of the award, which is generally the option vesting period
and
typically occurs ratably over periods ranging from one to four years.
In March
2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) regarding the
SEC’s interpretation of SFAS 123R and the valuation of share-based payments
for
public companies. The Company has applied the provisions of SAB 107 in
its
adoption of SFAS 123R. See Note 13 for a further discussion on stock-based
compensation.
As
a
result of adopting SFAS 123R, the Company’s net loss from continuing operations
and total net loss in the Consolidated Financial Statements for 2006
was $631
and $789, respectively, higher than if the Company had continued to account
for stock-based compensation under APB 25. The impact on basic and diluted
net
loss per share for 2006 was $0.02 per share. The impact of stock compensation
expense in future periods will be dependent on the number and type of
share-based payments issued to employees and non-employee
directors.
Prior
to
January 1, 2006, the Company provided pro forma disclosure amounts in
accordance
with SFAS No. 148 “Accounting for Stock-Based Compensation—Transition and
Disclosure”, as if the fair value method defined by SFAS 123 had been applied to
its stock-based compensation.
The
following table illustrates the effect on net loss and net loss per share
as if
the Company had applied the fair value recognition provisions of SFAS
123 to
stock-based compensation for the indicated period:
|
|
|
2005
|
|
2004
|
|
|
Net
loss, as reported
|
|
$
|
(48,304
|
)
|
$
|
(28,520
|
)
|
|
Add:
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
included
in reported net loss
|
|
|
-
|
|
|
-
|
|
|
Deduct:
Stock-based compensation expense
|
|
|
|
|
|
|
|
|
determined
under fair value based method for all awards
|
|
|
(2,010
|
)
|
|
(2,513
|
)
|
|
Pro
forma net loss
|
|
$
|
(50,314
|
)
|
$
|
(31,033
|
)
|
|
Basic
and diluted net loss per share:
|
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(1.52
|
)
|
$
|
(0.91
|
)
|
|
Pro
forma
|
|
$
|
(1.58
|
)
|
$
|
(0.99
|
)
|
The
fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model for the years ended December 31, 2006,
2005
and 2004 with the following assumptions:
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Expected
volatility
|
|
|
55%
|
|
|
52%
|
|
|
60%
|
|
|
Risk-free
interest rate
|
|
|
4.49%
to 5.11%
|
|
|
3.41%
to 4.42%
|
|
|
2.02%
to 3.26%
|
|
|
Expected
lives
|
|
|
3
years
|
|
|
3
years
|
|
|
3
years
|
|
|
Dividend
rate
|
|
|
0%
|
|
|
0%
|
|
|
0%
|
|
Reclassifications
Certain
reclassifications have been made to the prior years’ financial statements to
conform to the current year presentation.
For
2006,
2005 and 2004 respectively, $3,711, $4,208 and $2,179 in costs previously
allocated to the Preclinical Division have been re-allocated to the Genomics
and
Drug Repositioning Divisions. These amounts represent costs that the
Company has
now determined will not be eliminated as a result of the sale of its
Preclinical
Division.
New
Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value,
establishes a framework for measuring fair value under generally accepted
accounting principles and expands disclosures about fair value measurements.
SFAS 157 emphasizes that fair value is a market-based measurement, not
an
entity-specific measurement, and states that a fair value measurement
should be
determined based on the assumptions that market participants would use
in
pricing the asset or liability. This Statement applies under other accounting
pronouncements that require or permit fair value measurements, for which
the
FASB previously concluded in such accounting pronouncements that fair
value is
the relevant measurement attribute. Accordingly, this Statement does
not require
any new fair value measurements. SFAS 157 is effective for fiscal years
beginning after November 15, 2007 and the Company intends to adopt it
on January
1, 2008. The Company is currently evaluating the impact, if any, that
SFAS 157
will have on its financial position, results of operations and cash flows,
but
does not believe the effect will be material.
In
July
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (“FIN 48”) which clarifies the accounting for income taxes by
prescribing the minimum recognition threshold a tax position is required
to meet
before being recognized in the financial statements. FIN 48 also provides
guidance on derecognition, measurement, classification, interest and
penalties,
accounting in interim periods, disclosure and transition. FIN 48 is effective
for fiscal years beginning after December 15, 2006. The Company does
not expect
the adoption of this Interpretation to have a material impact on its
financial
statements.
Note
2
- Drug Repositioning technologies acquisition
In
July
2004, the Company acquired certain drug repositioning technologies and
related
assets (the “Drug Repositioning technologies”) and hired a research team from
Millennium Pharmaceuticals, Inc. (“Millennium”). The Drug Repositioning Division
uses a drug-indication discovery platform that integrates biological
screening
technologies acquired from Millennium with the Company’s genomics and
toxicogenomics capabilities.
Consideration
by the Company included: (i) $3,500 paid in cash in 2006; (ii) $1,000
paid and
issued in cash and stock to certain employees who left Millennium and
joined the
Company; (iii) limited grant-back licenses to certain technologies acquired
from
Millennium; and (iv) approximately $488 in transaction costs. In addition,
Millennium received a license to use the Company’s ToxExpress System database
for three years (subsequently amended to terminate on December 30, 2005),
valued
at $4,500, for which the Company recorded $4,048 and $452 in revenue
in 2005 and
2004, respectively. The Company also contractually agreed to, and subsequently
met, a commitment to spend an aggregate of $14,500 over the first two
and
one-half years following the acquisition to develop and commercialize
the
acquired technologies. After completing its evaluation of the Drug Repositioning
technologies and purchased in-process research and development activities,
and
in order to reflect the cost of acquiring the Drug Repositioning technologies,
the Company recorded an $8,817, one-time, purchased research and development
expense in Operating Expenses in the Company’s Consolidated Statements of
Operations for the year ended December 31, 2004.
Note
3 - Discontinued operations
As
previously discussed in Note 1, the Company changed its strategic focus
and sold
its Preclinical Division on December 15, 2006 for a sales price of $15,000,
including $13,500 paid at closing less transaction costs of $1,383 and
$1,500
held in escrow for 12 months to guarantee certain obligations under the
agreement. The sales price remains subject to final adjustment to reflect
certain changes in working capital and the assumption of certain liabilities
associated with the business. In addition, the Company’s guarantee of two leases
continue in effect pending their assignment to and assumption by the
buyer and
the Company provides certain transition services under an agreement with
the
buyer. If either of the guarantees cannot be assumed by the buyer, then
the
buyer is obligated to indemnify the Company with respect to such
guarantee.
As
a
result of the Company’s sale of its Preclinical Division, the Company recorded a
loss on disposal of $10,900 which represented the excess carrying value
of the
net assets of the Preclinical Division over the sales price received
less costs
to sell which is included in the loss from discontinued operations. The
Company
may further adjust the loss on disposal, which could result in a further
gain or
loss, if required to reflect higher actual fees and expenses incurred,
final
adjustments to the sale price or claims made against the escrow amount
that are
determined to be valid.
Due
to the
operations and cash flows of the Preclinical Division being eliminated
from
continuing operations of the Company, and the fact that the Company does
not
have any significant continuing involvement in the business, the operations
of
the Preclinical Division have been classified as discontinued operations
for all
periods presented. Summarized operating results from the discontinued
operations
included in the Company’s Consolidated Condensed Statements of Operations are as
follows:
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
25,961
|
|
$
|
22,180
|
|
$
|
23,766
|
|
|
Loss
from discontinued operations (1)(2)
|
|
$
|
(16,456
|
)
|
$
|
(42,924
|
)
|
$
|
(9,439
|
)
|
|
(1)
Includes $10,900 loss on disposal in 2006.
|
|
|
|
|
|
|
|
|
|
|
|
(2)
Includes $32,794 impairment charge associated with the impairment
of
goodwill in 2005.
|
|
|
|
|
|
|
|
|
|
|
Assets
and
liabilities of the discontinued operations are as follows as of the indicated
date:
|
|
|
December
31,
|
|
|
|
|
2005
|
|
|
Current
assets
|
|
$
|
7,546
|
|
|
Property
and equipment, net
|
|
|
15,079
|
|
|
Goodwill
|
|
|
10,236
|
|
|
Other
long-term assets
|
|
|
28
|
|
|
Current
liabilities
|
|
|
(3,969
|
)
|
|
Noncurrent
liabilities
|
|
|
(1,405
|
)
|
|
Net
assets of discontinued operations
|
|
$
|
27,515
|
|
Note
4 - Genomics Division restructuring expenses
During
2006, the Company initiated a restructuring of its Genomics Division,
which it
expects to substantially complete by December 31, 2007, and recorded
total
restructuring costs of $5,258. The components of the restructuring
are:
|
·
|
the
termination of 70 employees, effective October 5, 2006, which
resulted in
severance costs of $1,521;
|
|
·
|
the
acceleration of future costs of $2,426 for certain laboratory
and office
facilities that were no longer needed for continuing operations
and which
were either abandoned or for which the Company has entered
into sublease
arrangements; and
|
|
·
|
the
impairment of certain intangible assets of $1,311, primarily
patent and
license costs, which the Company determined would no longer
be utilized by
its Genomics Division.
|
The
major
components of the Genomics Division restructuring liability as of December
31,
2006 are comprised of:
|
|
|
|
2006
Charges
to
Operations
|
|
2006
Charges
Utilized
|
|
Accrual
Balance
as of
December
31,
2006
|
|
|
|
Severance
and related beenfits
|
|
$
|
1,521
|
|
$
|
(1,399
|
)
|
$
|
122
|
|
|
|
Lease
obligations
|
|
|
2,426
|
|
|
(607
|
)
|
|
1,819
|
|
|
|
Total
|
|
$
|
3,947
|
|
$
|
(2,006
|
)
|
$
|
1,941
|
|
Note
5 - Property and equipment
Property
and equipment includes the following as of December 31:
|
|
|
|
2006
|
|
2005
|
|
|
|
Furniture
|
|
$
|
1,651
|
|
$
|
1,717
|
|
|
|
Computer
and office equipment
|
|
|
13,431
|
|
|
14,674
|
|
|
|
Laboratory
equipment
|
|
|
16,362
|
|
|
15,024
|
|
|
|
Leasehold
improvements
|
|
|
10,474
|
|
|
12,975
|
|
|
|
|
|
|
41,918
|
|
|
44,390
|
|
|
|
Less
-- accumulated depreciation and amortization
|
|
|
(29,089
|
)
|
|
(28,787
|
)
|
|
|
Property
and equipment, net
|
|
$
|
12,829
|
|
$
|
15,603
|
|
Depreciation
expense was $3,875, $3,806 and $4,079 for the years ended December 31,
2006,
2005 and 2004, respectively.
Note
6
- Long-term investments
In
November 2003, the Company’s subsidiary, then named MetriGenix, Inc. (which has
since been dissolved), sold substantially all of its assets for cash
to a
privately held company (the “Buyer”, referred to herein as “Xceed”, formerly
MetriGenix). The proceeds of sale were used to satisfy then known liabilities
of
the Company’s subsidiary. In connection with the sale, Xceed received a fully
paid BioExpress System subscription with a term through December 31,
2006, which
thereafter renewed automatically on an annual basis unless either party
elected
not to renew, under which no additional fees are payable for the subscription
so
long as the Company owns 15% of the outstanding stock of Buyer. In consideration
for the consent to the assignment, the Company received convertible preferred
stock of Xceed, valued at $2,911, and a warrant, valued at $275, exercisable
at
$0.0001 per additional share, intended to enable the Company to maintain
a 15%
equity interest in Xceed, which along with additional convertible preferred
stock previously held by the Company of $53, represented 15.3% of the
equity of
Xceed. The Company also received the right to appoint a person to the
Board of
Directors of the Buyer. The Company accounts for its investment in Xceed
using
the cost method of accounting and has recorded the investment value,
$3,186, as
revenue over the term of the subscription agreement. During 2006, the
subscription agreement was terminated by mutual agreement and the warrant
was
therefore terminated. As a result, the Company recorded a $275 write-down
of the
fair value of the warrant. During 2006, 2005 and 2004, the Company recorded
$1,027, $1,027 and $1,060, respectively, in revenue relating to the subscription
agreement. At December 31, 2006, the remaining book value of the Company’s
investment in Xceed was $2,964, which it believes approximates fair
value.
During
2004, the Company accounted for its investment in Avalon Pharmaceuticals,
Inc.
(“Avalon”) under the cost method of accounting. During 2005, Avalon
completed an initial public offering and the Company reclassified its
$1,000
investment to marketable securities available-for-sale and the Company also
recorded a $719 write-down of its investment in Avalon due to an
other-than-temporary decline in Avalon’s estimated market value. During 2006,
the Company sold its remaining investment in Avalon and recorded a gain,
after
the write-down, of $31.
Note
7 - Other intangible assets
Information
regarding the Company’s other intangible assets at December 31 is as
follows:
|
|
|
2006
|
|
2005
|
|
|
Carrying
amount:
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
414
|
|
$
|
1,600
|
|
|
Patent
costs
|
|
|
2,684
|
|
|
3,185
|
|
|
Software
development costs
|
|
|
6,289
|
|
|
13,170
|
|
|
Database
upgrade costs
|
|
|
6,865
|
|
|
4,737
|
|
|
Total
carrying amount
|
|
$
|
16,252
|
|
$
|
22,692
|
|
|
Accumulated
amortization:
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
179
|
|
$
|
993
|
|
|
Patent
costs
|
|
|
48
|
|
|
272
|
|
|
Software
development costs
|
|
|
3,408
|
|
|
7,432
|
|
|
Database
upgrade costs
|
|
|
2,557
|
|
|
596
|
|
|
Total
accumulated amortization
|
|
$
|
6,192
|
|
$
|
9,293
|
|
|
Net
carrying value:
|
|
|
|
|
|
|
|
|
Licenses
|
|
$
|
235
|
|
$
|
607
|
|
|
Patent
costs
|
|
|
2,636
|
|
|
2,913
|
|
|
Software
development costs
|
|
|
2,881
|
|
|
5,738
|
|
|
Database
upgrade costs
|
|
|
4,308
|
|
|
4,141
|
|
|
Total
net carrying value
|
|
$
|
10,060
|
|
$
|
13,399
|
|
Amortization
expense for the years ended December 31, 2006, 2005 and 2004 was $6,693,
$6,982
and $9,202, respectively, including amortization of software development
costs
of $3,750, $5,197 and $6,600, respectively. Estimated amortization expense
for
existing intangible assets for each of the five succeeding years ending
December
31 will be as follows:
|
2007
|
|
$
|
5,025
|
|
|
2008
|
|
|
2,243
|
|
|
2009
|
|
|
222
|
|
|
2010
|
|
|
50
|
|
|
2011
|
|
|
50
|
|
Note
8 - Long-term debt
Long-term
debt as of December 31 consists of the following:
|
|
|
|
|
2006
|
|
|
2005
|
|
|
|
Loan
for facility -- bearing interest at 5.0% per annum and due
in
|
|
|
|
|
|
|
|
|
|
quarterly
installments through September 2009
|
|
$
|
127
|
|
$
|
174
|
|
|
|
Loan
for facility -- bearing interest at 4.5% and due upon
demand
|
|
|
450
|
|
|
450
|
|
|
|
|
|
|
577
|
|
|
624
|
|
|
|
Less
-- current portion
|
|
|
(499
|
)
|
|
(497
|
)
|
|
|
Long-term
debt
|
|
$
|
78
|
|
$
|
127
|
|
As
of
December 31, 2006, future principal payments on long-term debt for the
years
ending December 31 are as follows:
|
2007
|
|
$
|
499
|
|
|
2008
|
|
|
51
|
|
|
2009
|
|
|
27
|
|
|
|
|
$
|
577
|
|
Interest
expense was $8, $10 and $12 for the years ended December 31, 2006, 2005
and
2004, respectively.
Note
9 - Income taxes
Income
tax
expense reflected in the Company’s 2004 Consolidated Statements of Operations
represents withholding taxes on certain payments by Japanese customers.
During
2004, the U.S. and Japan entered into a new tax treaty eliminating this
withholding tax effective July 1, 2004. The actual income tax expense
for the
years ended December 31, 2006, 2005 and 2004 is different from the amount
computed by applying the statutory federal income tax rates to loss before
income tax expense. The reconciliation of these differences for the years
ended
December 31 is as follows:
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
Tax
benefit at federal statutory rate
|
|
$
|
(18,614
|
)
|
$
|
(16,433
|
)
|
$
|
(9,599
|
)
|
|
State
income taxes, net of federal income tax effect
|
|
|
(2,526
|
)
|
|
(2,233
|
)
|
|
(1,304
|
)
|
|
Impairment
losses
|
|
|
4,310
|
|
|
12,665
|
|
|
-
|
|
|
Other
|
|
|
(1,204
|
)
|
|
(2,973
|
)
|
|
(2,314
|
)
|
|
Increase
in valuation allowance
|
|
|
18,034
|
|
|
8,974
|
|
|
13,504
|
|
|
Income
tax expense
|
|
$
|
-
|
|
$
|
-
|
|
$
|
287
|
|
The
tax
effect of cumulative temporary differences at December 31 is as
follows:
|
|
|
2006
|
|
2005
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
NOL
and tax credit carryforwards
|
|
$
|
113,499
|
|
$
|
97,147
|
|
|
Contract
revenue
|
|
|
-
|
|
|
404
|
|
|
Net
loss in unconsolidated investee
|
|
|
3,483
|
|
|
3,483
|
|
|
Purchased
research and development
|
|
|
2,838
|
|
|
3,065
|
|
|
Depreciation
|
|
|
2,812
|
|
|
2,649
|
|
|
Accrued
vacation
|
|
|
399
|
|
|
587
|
|
|
Other
|
|
|
4,380
|
|
|
4,035
|
|
|
|
|
|
127,411
|
|
|
111,370
|
|
|
Less
-- valuation allowance
|
|
|
(126,241
|
)
|
|
(109,055
|
)
|
|
Net
deferred tax assets
|
|
$
|
1,170
|
|
$
|
2,315
|
|
|
Deferred
tax liabilities:
|
|
|
|
|
|
|
|
|
Capitalized
software costs
|
|
$
|
1,113
|
|
$
|
2,217
|
|
|
Other
|
|
|
57
|
|
|
98
|
|
|
Net
deferred tax liabilities
|
|
$
|
1,170
|
|
$
|
2,315
|
|
At
December 31, 2006, net operating loss carryforwards (“NOLs”) for income tax
purposes were $267,587, including approximately $1,300 and $30,000 related
to
the acquisitions of TherImmune and Oncormed, respectively. The Company
also has
research and development tax credit carryforwards of $10,156 as of December
31,
2006. The carryforwards, if not utilized, will expire in increments from
2008
through 2026. Utilization of the net operating losses and credits may
be subject
to an annual limitation as provided by the Internal Revenue Code of 1986,
and
there can be no guarantee that such NOLs and tax credits will ever be
fully
utilized. During the fourth quarter of 2006, the Company, with the assistance
of
an independent third party, performed an Internal Revenue Code Section
382 study
on its NOLs, excluding NOLs assumed from acquisitions. Based on the study,
the
Company does not believe that there are presently any material limitations
on
the use of its NOLs. As a result of cumulative losses, the Company has
recorded
a full valuation allowance against its net deferred tax assets as management
believes it is more likely than not that the assets will not be
realizable.
Note
10 - Commitments and contingencies
Operating
Leases
The
Company conducts all of its operations from leased facilities, under
operating
leases with varying terms expiring through 2011, in Gaithersburg, Maryland
and
Cambridge, Massachusetts. These leases obligate the Company to pay building
operating costs and also contain renewal provisions which may extend
their term.
Future
minimum lease payments under all operating lease agreements for the years
ending
December 31 are as follows:
|
2007
|
|
$
|
1,858
|
|
|
2008
|
|
|
1,633
|
|
|
2009
|
|
|
1,171
|
|
|
2010
|
|
|
1,200
|
|
|
2011
|
|
|
228
|
|
|
2012
and thereafter
|
|
|
285
|
|
|
|
|
$
|
6,375
|
|
Rent
expense for the years ended December 31, 2006, 2005 and 2004, was $2,532,
$3,398
and $3,089,
respectively.
Contingencies
In
connection with the sale of its Preclinical Division, the Company may
recognize
an additional gain or loss in future periods to reflect higher actual
fees and
expenses incurred, final adjustment to the sales price, or claims made
against
the escrow amount that are determined to be valid. In addition, under
the stock
purchase agreement, the Company agreed to indemnify the buyer in the
event of a
breach of its representations and warranties to, and agreements with,
the buyer
and retained certain liabilities relating to the activities of the business
prior to the sale.
The
Company had also guaranteed leases for two properties formerly leased
to, and
used by, the Company’s Preclinical Division. These leases were among the
obligations transferred in connection with the sale of its Preclinical
Division.
The buyer had agreed, subject to landlord consent, to accept assignment
from the
Company and to assume such guarantees, terminating Company’s liability
thereunder. If either landlord does not agree to such assignment and
assumption,
the buyer has agreed to indemnify the Company for claims against either
of such
guarantees that continue. At this time, the buyer has not completed its
negotiations with either landlord.
Litigation
The
Company is not currently a party to any legal proceedings that would
have a
material adverse effect on the Company’s financial condition or results of
operations.
Note
11 - 401(k) retirement plan
During
1996, the Company established the Gene Logic Inc. 401(k) Retirement Plan
(the
“401(k) Plan”) for its employees under Section 401(k) of the Internal Revenue
Code. Under the 401(k) Plan all employees 18 years of age or older are
eligible,
starting on the calendar quarter, to contribute up to 100% of their eligible
compensation and in the case of employees age 50 or older make certain
catch-up
contributions, subject to maximum deferrals allowed under IRS regulations.
Employee contributions are 100% vested. In 2004, the Company initiated
a
matching contribution in the amount of 25% of up to 3% of an employee’s eligible
compensation. Beginning April 2006, the Company’s matching contributions
increased to 50% of up to 6% of an employee’s eligible compensation. Employees
hired before January 1, 2004 are fully vested in the Company matching
contributions. Employees hired after December 31, 2003 vest ratably over
three
years. These matching contributions, which are expensed, amounted to
$370,
$125
and
$111 in 2006, 2005 and 2004, respectively.
Note
12 - Segment information
For
2004,
the Company managed its business as two business segments: Genomics Division
and
Preclinical Division. Beginning in 2005, the Company added a third business
segment: Drug Repositioning Division. On December 15, 2006, the Company
sold its
Preclinical Division, which has now been classified as discontinued operations
(see Note 3). The prior period’s segment information has been restated to
conform to the current period presentation.
The
following table presents revenue and operating income (loss) for the
Genomics
and Drug Repositioning segments, which comprise the Company’s continuing
operations for the indicated periods. Management uses these measures
to evaluate
segment performance. To arrive at operating income (loss) for each segment,
management has included all direct costs for providing the segment’s services
and an allocation for corporate overhead on a consistent and reasonable
basis.
Management has excluded purchased research and development expenses,
interest
(income) expense, other (income) expense and write-downs. Operating income
(loss) and could also exclude certain unusual or corporate-related costs
in the
future.
The
following table sets forth information on reportable segments for the
years
ended December 31:
|
|
|
2006
|
|
2005
|
|
2004
|
|
|
Genomics
services
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
24,310
|
|
$
|
56,602
|
|
$
|
52,171
|
|
|
Operating
income (loss)
|
|
|
(25,541
|
)
|
|
5,631
|
|
|
(6,437
|
)
|
|
Depreciation
and amortization expense
|
|
|
9,544
|
|
|
10,073
|
|
|
12,978
|
|
|
Drug
repositioning services
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
36
|
|
$
|
588
|
|
$
|
-
|
|
|
Operating
income (loss)
|
|
|
(15,077
|
)
|
|
(13,730
|
)
|
|
(4,935
|
)
|
|
Depreciation
and amortization expense
|
|
|
1,024
|
|
|
715
|
|
|
303
|
|
A
reconciliation of segment operating income (loss) to net loss from continuing
operations before income tax expense for the years ended December 31
is as
follows:
|
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Segment
operating income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
Genomics
services
|
|
$
|
(25,541
|
)
|
$
|
5,631
|
|
$
|
(6,437
|
)
|
|
Drug
repositioning services
|
|
|
(15,077
|
)
|
|
(13,730
|
)
|
|
(4,935
|
)
|
|
Purchased
research and development
|
|
|
-
|
|
|
-
|
|
|
8,817
|
|
|
|
|
|
(40,618
|
)
|
|
(8,099
|
)
|
|
(20,189
|
)
|
|
Interest
(income), net
|
|
|
(2,694
|
)
|
|
(2,625
|
)
|
|
(1,395
|
)
|
|
Other
(income) expense
|
|
|
55
|
|
|
(813
|
)
|
|
-
|
|
|
Write-down
of other-than-temporary decline in the
|
|
|
|
|
|
|
|
|
|
|
|
value
of marketable securities available-for-sale
|
|
|
-
|
|
|
719
|
|
|
-
|
|
|
Write-down
of long-term equity investment
|
|
|
275
|
|
|
-
|
|
|
-
|
|
|
Loss
before income tax expense
|
|
$
|
(38,254
|
)
|
$
|
(5,380
|
)
|
$
|
(18,794
|
)
|
For
2006,
three customers each accounted for 10% or more of the Company’s revenue
(Customer A-20%, Customer B-12% and Customer C-10%). For 2005, two customers
each accounted for 10% or more of the Company’s revenue (Customer D-15% and
Customer E-14%). During 2004, one customer accounted for 10% or more
of the
Company’s revenue (Customer A-15%). The following is a breakdown of the
Company’s total revenue by geographic region as determined by the location of
the customer identified in the Company’s agreement:
|
|
|
North
America
|
|
Pacific
Rim
|
|
Europe
|
|
|
December
31, 2006
|
|
|
40%
|
|
|
39%
|
|
|
21%
|
|
|
December
31, 2005
|
|
|
34%
|
|
|
40%
|
|
|
26%
|
|
|
December
31, 2004
|
|
|
35%
|
|
|
46%
|
|
|
19%
|
|
Note
13 - Stock-based compensation
At
December 31, 2006, the Company has the following stock-based compensation
plans:
1997 Equity Incentive Plan (the “Stock Plan”), 1997 Non-Employee Directors’
Stock Option Plan (the “Directors’ Plan”) and Employee Stock Purchase Plan (the
“ESPP”).
Stock
Plan
The
Company has a Stock Plan, under which the Compensation Committee (the
“Committee”) of the Company’s Board of Directors, at its discretion, can grant
stock options to employees and certain employee directors of the Company
and
related corporations. The Stock Plan currently authorizes the grant of
stock
options for up to 10,600,000 shares of Common Stock. The stock options granted
under the Stock Plan generally expire at the earlier of a specified period
after
termination of service or the date specified by the Committee at the
date of
grant, but not more than ten years from such grant date. The Stock Plan
was
amended upon approval of the Stockholders in June 2006, to allow the
issuance of
restricted stock awards and to make certain other
changes.
No
restricted stock awards were issued in 2006.
Directors’
Plan
The
Company has a Directors’ Plan to provide for granting of stock options to
purchase up to 900,000 shares of Common Stock to non-employee directors
of the
Company. Stock options are to be granted at the fair market value of
the Common
Stock at the grant date. The stock options granted under the Directors’ Plan
expire at the earlier of a specified period after termination of service
or ten
years from such grant date.
ESPP
The
Company has an ESPP, which was suspended effective February 1, 2005,
that
allowed for an aggregate of 1,250,000 shares of Common Stock to be purchased.
The ESPP allowed employees to purchase shares of Common Stock of the
Company at
each purchase date, through payroll deductions of up to a maximum of
15% of
their combined salary and bonus, at 85% of the lesser of the market price
of the
shares at the time of purchase or the market price on the beginning date
of an
offering (or, if later, the date during the offering when the employee
was first
eligible to participate).
The
following is a summary of option activity for the year ended December
31,
2006:
|
|
|
|
|
Shares
Subject to
|
|
|
|
|
|
|
Outstanding
Options
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Shares
|
|
|
|
Weighted
|
|
Remaining
|
|
Aggregate
|
|
|
|
|
Available
|
|
|
|
Average
|
|
Contractual
|
|
Intrinsic
|
|
|
|
|
For
Grant
|
|
Shares
|
|
Exercise
Price
|
|
Life
(Years)
|
|
Value
|
|
|
Balance
at January 1, 2006
|
|
|
2,338,093
|
|
|
5,515,504
|
|
$
|
6.86
|
|
|
|
|
|
|
|
|
Options
granted
|
|
|
(117,314
|
)
|
|
117,314
|
|
$
|
2.53
|
|
|
|
|
|
|
|
|
Options
exercised
|
|
|
-
|
|
|
(48,438
|
)
|
$
|
3.20
|
|
|
|
|
|
|
|
|
Options
cancelled
|
|
|
1,055,424
|
|
|
(1,055,424
|
)
|
$
|
6.43
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
3,276,203
|
|
|
4,528,956
|
|
$
|
6.88
|
|
|
|
|
|
|
|
|
Vested
and expected to vest at December 31, 2006
|
|
|
|
|
|
4,454,818
|
|
$
|
6.94
|
|
|
4.5
|
|
$
|
43
|
|
Options
to
purchase a total of 4,199,885, 4,287,254 and 3,829,996 shares at December
31,
2006, 2005 and 2004, respectively, were exercisable. The weighted-average
grant-date fair value of options granted during the years ended December
31,
2006, 2005 and 2004 was $1.05, $1.40 and $1.67, respectively.
The
aggregate intrinsic value in the table above represents the total intrinsic
value (the difference between the Company’s closing stock price on the last
trading day of 2006 and the exercise price, multiplied by the number
of
in-the-money options) that would have been received by the option holders
had
all option holders exercised their options on December 31, 2006. This
amount is
subject to change based on changes to the fair market value of the Company’s
Common Stock. Total intrinsic value of options exercised for 2006 was
not
material. Total intrinsic value of options exercised for 2005 and 2004,
respectively, was $101 and $416.
As
of
December 31, 2006, $286 of total unrecognized compensation cost related
to stock
options is expected to be recognized over a weighted-average period of
1.6
years. This estimate does not include the impact of other possible stock-based
awards that may be made during future periods.
Cash
received from option exercises for 2006, 2005 and 2004 was $155, $111
and $951,
respectively.
The
following table summarizes information about stock options outstanding
at
December 31, 2006:
|
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
Average
|
|
Weighted
|
|
Number
|
|
Weighted
|
|
|
|
|
Outstanding
at
|
|
Remaining
|
|
Average
|
|
Exercisable
at
|
|
Average
|
|
|
Range
of
|
|
December
31,
|
|
Contractual
|
|
Exercise
|
|
December
31,
|
|
Exercise
|
|
|
Exercise
Price
|
|
2006
|
|
Life
|
|
Price
|
|
2006
|
|
Price
|
|
|
$0.15--$4.50
|
|
|
2,001,023
|
|
|
5.5
Years
|
|
$
|
3.47
|
|
|
1,701,030
|
|
$
|
3.53
|
|
|
$4.51--$6.00
|
|
|
917,118
|
|
|
4.0
Years
|
|
$
|
5.17
|
|
|
888,252
|
|
$
|
5.17
|
|
|
$6.01--$7.20
|
|
|
88,840
|
|
|
3.6
Years
|
|
$
|
6.60
|
|
|
88,840
|
|
$
|
6.60
|
|
|
$7.21--$62.88
|
|
|
1,521,975
|
|
|
3.8
Years
|
|
$
|
12.42
|
|
|
1,521,763
|
|
$
|
12.42
|
|
|
$0.15--$62.88
|
|
|
4,528,956
|
|
|
4.6
Years
|
|
$
|
6.88
|
|
|
4,199,885
|
|
$
|
7.16
|
|
Note
14 - Quarterly results of operations (unaudited)
The
following is a summary of the quarterly results of operations for the
years
ended December 31, 2006 and 2005.
|
|
|
March
31
|
|
June
30
|
|
September
30 (1)
|
|
December
31
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
8,768
|
|
$
|
4,692
|
|
$
|
3,704
|
|
$
|
7,181
|
|
|
Income
(Loss) from continuing operations
|
|
|
(7,905
|
)
|
|
(9,682
|
)
|
|
(14,844
|
)
|
|
(5,826
|
)
|
|
Income
(Loss) from discontinued operations
|
|
|
(3,892
|
)
|
|
(1,604
|
)
|
|
(11,811
|
)
|
|
854
|
|
|
Net
loss
|
|
$
|
(11,797
|
)
|
$
|
(11,286
|
)
|
$
|
(26,655
|
)
|
$
|
(4,972
|
)
|
|
Basic
and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from continuing operations
|
|
$
|
(0.25
|
)
|
$
|
(0.30
|
)
|
$
|
(0.47
|
)
|
$
|
(0.18
|
)
|
|
Income
(Loss) from discontinued operations
|
|
|
(0.12
|
)
|
|
(0.05
|
)
|
|
(0.37
|
)
|
|
0.02
|
|
|
Net
loss
|
|
$
|
(0.37
|
)
|
$
|
(0.35
|
)
|
$
|
(0.84
|
)
|
$
|
(0.16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
13,306
|
|
$
|
14,313
|
|
$
|
11,821
|
|
$
|
17,749
|
|
|
Income
(Loss) from continuing operations
|
|
|
(2,197
|
)
|
|
(926
|
)
|
|
(3,269
|
)
|
|
1,013
|
|
|
Income
(Loss) from discontinued operations
|
|
|
(1,904
|
)
|
|
(1,684
|
)
|
|
(36,211
|
)
|
|
(3,126
|
)
|
|
Net
loss
|
|
$
|
(4,101
|
)
|
$
|
(2,610
|
)
|
$
|
(39,480
|
)
|
$
|
(2,113
|
)
|
|
Basic
and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from continuing operations
|
|
$
|
(0.07
|
)
|
$
|
(0.03
|
)
|
$
|
(0.10
|
)
|
$
|
0.03
|
|
|
Income
(Loss) from discontinued operations
|
|
|
(0.06
|
)
|
|
(0.05
|
)
|
|
(1.14
|
)
|
|
(0.10
|
)
|
|
Net
loss
|
|
$
|
(0.13
|
)
|
$
|
(0.08
|
)
|
$
|
(1.24
|
)
|
$
|
(0.07
|
)
|
The
quarterly data above differs from the amounts previously reported in
the
Company’s Quarterly Report on Form 10-Q filed for the respective quarter because
of the classification of the Preclinical Division as discontinued operations,
which occurred in the quarter ended September 30, 2006. In addition,
certain
costs previously allocated to the Preclinical Division have been re-allocated
to
continuing operations based on a final determination as to what specific
costs
were in fact eliminated as a result of the sale of the Preclinical Division.
The
table above presents quarterly information as if the Preclinical Division
had
been classified as a discontinued operation as of January 1, 2005.
(1)
Includes $11,000 impairment charge for the Preclinical Division and $32,794
impairment charge associated with the impairment of goodwill for the
Preclinical
Division for the three months ended September 30, 2006 and 2005,
respectively.
GENE
LOGIC INC.
Schedule
II - Valuation and Qualifying Accounts
December
31, 2006, 2005 and 2004
(in
thousands)
INVENTORY
RESERVE FOR TISSUE SAMPLES AND MICROARRAYS:
|
|
|
Balance
at
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
New
|
|
Reserves
|
|
Balance
at
|
|
|
|
|
of
Year
|
|
Reserves
|
|
Used
|
|
End
of Year
|
|
|
December
31, 2006
|
|
$
|
1,654
|
|
$
|
1,377
|
|
$
|
(680
|
)
|
$
|
2,351
|
|
|
December
31, 2005
|
|
|
1,489
|
|
|
383
|
|
|
(218
|
)
|
|
1,654
|
|
|
December
31, 2004
|
|
|
994
|
|
|
495
|
|
|
-
|
|
|
1,489
|
|
ALLOWANCE
FOR DOUBTFUL ACCOUNTS:
|
|
|
Balance
at
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
New
|
|
Accounts
|
|
Collected
|
|
Adjustment
|
|
Balance
at
|
|
|
|
|
of
Year
|
|
Reserves
|
|
Written-Off
|
|
Amounts
|
|
to
Reserves
|
|
End
of Year
|
|
|
December
31, 2006
|
|
$
|
255
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(210
|
)
|
$
|
-
|
|
$
|
45
|
|
|
December
31, 2005
|
|
|
34
|
|
|
221
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
255
|
|
|
December
31, 2004
|
|
|
28
|
|
|
6
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
34
|
|
VALUATION
ALLOWANCE FOR DEFERRED TAX ASSETS:
|
|
|
Balance
at
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
New
|
|
Reserves
|
|
Balance
at
|
|
|
|
|
of
Year
|
|
Reserves
|
|
Used
|
|
End
of Year
|
|
|
December
31, 2006
|
|
$
|
109,055
|
|
$
|
17,186
|
|
$
|
-
|
|
$
|
126,241
|
|
|
December
31, 2005
|
|
|
100,082
|
|
|
8,973
|
|
|
-
|
|
|
109,055
|
|
|
December
31, 2004
|
|
|
86,578
|
|
|
13,504
|
|
|
-
|
|
|
100,082
|
|
GENE
LOGIC INC.
PROXY
SOLICITED BY THE BOARD OF DIRECTORS
FOR
THE SPECIAL MEETING OF STOCKHOLDERS
TO
BE HELD ON DECEMBER 10, 2007
The
undersigned hereby appoints the Chief Executive Officer, Chief Financial
Officer
and General Counsel of Gene Logic Inc. (the “Company”), or any one of them, as
attorneys and proxies of the undersigned, with full power of substitution,
to
vote all of the shares of stock of the Company which the undersigned may
be
entitled to vote at the Special Meeting of Stockholders of the Company
to be
held at the Company's offices located at 50 West Watkins Mill Road,
Gaithersburg, Maryland 20878, on Monday, December 10, 2007 at 3:00 p.m.
local
time, and at any and all postponements, continuations and adjournments
thereof,
with all powers that the undersigned would possess if personally present,
upon
and in respect of the following matters and in accordance with the following
instructions, with discretionary authority as to any and all other matters
that
may properly come before the meeting.
UNLESS
A
CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSALS
1, 2 AND
3, AS MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC
INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE
THEREWITH.
(CONTINUED
AND TO BE SIGNED ON OTHER SIDE.)
|
Address
Change/Comments
(Mark the corresponding box on the reverse
side)
|
|
|
|
-----------------------------------------------------------------------------------------------------------------------------------------------------------------
|
/
FOLD
AND DETACH HERE /
|
Please
Mark
Here
for
Address
Change
or
Comments
SEE
REVERSE SIDE
|
|
MANAGEMENT
RECOMMENDS A VOTE FOR PROPOSAL 1.
Proposal
1:
To
ratify and approve the sale by the Company of the Genomics Assets to Ocimum
Biosolutions, Inc. (“Ocimum”), a Delaware corporation that is a subsidiary of
Ocimum Biosolutions (India) Limited (“Ocimum India”) or its affiliate
substantially upon the terms set forth in an asset purchase agreement dated
as
of October 14, 2007 by and between the Company, Ocimum and Ocimum
India.
[ ]
FOR [ ]
AGAINST [ ]
ABSTAIN
MANAGEMENT
RECOMMENDS A VOTE FOR PROPOSAL 2.
Proposal
2:
To
approve the sale by the Company of all or substantially all of the Genomics
Business assets to one or more third parties other than Ocimum on or before
June
30, 2008 at a price not less than $6,000,000 and on such terms and conditions
as
the Board of Directors may approve in the event that, among others, the
Asset
Purchase Agreement with Ocimum and Ocimum India is terminated for any
reason.
[ ]
FOR [ ]
AGAINST [ ]
ABSTAIN
MANAGEMENT
RECOMMENDS A VOTE FOR PROPOSAL 3.
Proposal
3:
To
approve an amendment of the Amended and Restated Certificate of Incorporation
of
the Company to change the Company’s name to Ore Pharmaceuticals
Inc.
[ ]
FOR [ ]
AGAINST [ ]
ABSTAIN
PLEASE
VOTE, SIGN, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE,
WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
Signature___________________
Signature _____________________ Date__________
Please
sign exactly as your name appears hereon. If the stock is registered
in the names of two or more persons, each should sign. Executors,
administrators, trustees, guardians and attorneys-in-fact should add their
titles. If signer is a corporation, please give full corporate name
and have a duly authorized officer sign, stating title. If signer is
a partnership, please sign in partnership name by authorized
person.
|
-----------------------------------------------------------------------------------------------------------------------------------------------------------------
|
/FOLD
AND
DETACH HERE /
WE
ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE VOTING; BOTH ARE
AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK.
Internet
and telephone voting is available through 11:59 PM Eastern Time
the
day
prior to the special meeting day.
Your
Internet or telephone vote authorizes the named proxies to vote your shares
in
the same manner as if you marked, signed and returned your proxy
card.
|
INTERNET
http://www.proxyvoting.com/glgc
Use
the internet to vote you proxy. Have your proxy card in hand
when you access the web site.
|
OR
|
TELEPHONE
1-866-540-5760
Use
any touch-tone telephone to vote your proxy. Have your proxy
card in hand when you call.
|
If
you
vote your proxy by Internet or by telephone, you do NOT need to mail back
your
proxy card. To vote by mail, mark, sign and date your proxy card and
return it in the enclosed postage-paid envelope.
You
can now access your GENE LOGIC INC. account online.
Access
your Gene Logic Inc. shareholder/stockholder account online via Investor
ServiceDirect® (ISD).
The
Transfer Agent for Gene Logic Inc. now makes it easy and convenient to
get
current information on your shareholder account.
|
·
View
account status
·
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certificate history
·
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book-entry information
|
·
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payment history for dividends
·
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address changes
·
Obtain
a duplicate 1099 tax form
·
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your PIN
|
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