-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ItGnFl2Up/ty26h4qAZuTu/C7tIKTqco6b+rILk/LLkj2hNNzG238rN16N9+zWdj j7F1O+gsiTl21G86f6vI7A== 0001017062-97-000965.txt : 19970515 0001017062-97-000965.hdr.sgml : 19970515 ACCESSION NUMBER: 0001017062-97-000965 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNBIOTICS CORP CENTRAL INDEX KEY: 0000719483 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 953737816 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-11303 FILM NUMBER: 97605349 BUSINESS ADDRESS: STREET 1: 11011 VIA FRONTERA CITY: SAN DIEGO STATE: CA ZIP: 92127 BUSINESS PHONE: 6194513771 10QSB 1 QUARTERLY REPORT FOR PERIOD ENDED MARCH 31, 1997 ================================================================================ U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------- FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 OR [_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-11303 SYNBIOTICS CORPORATION (Exact name of small business issuer as specified in its charter) California 95-3737816 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 11011 Via Frontera San Diego, California 92127 (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (619) 451-3771 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] As of April 30, 1997, 7,392,698 shares of Common Stock were outstanding. Transitional Small Business Disclosure Format: Yes [_] No [X] ================================================================================ SYNBIOTICS CORPORATION INDEX
Page ---- Part I. Condensed Statement of Operations - Three months ended March 31, 1997 and 1996 3 Condensed Balance Sheet - March 31, 1997 and December 31, 1996 4 Condensed Statement of Cash Flows - Three months ended March 31, 1997 and 1996 5 Notes to Condensed Financial Statements 6 Management's Discussion and Analysis or Plan of Operation 8 Part II. Other Information 14
-2- Item 1. Financial Statements -------------------- Synbiotics Corporation Condensed Statement of Operations (unaudited) - -------------------------------------------------------------------------------
Three Months Ended March 31, ----------------------- 1997 1996 ---------- ---------- Revenues: Product sales $6,940,000 $5,750,000 License fees and other 79,000 171,000 Interest 60,000 11,000 ---------- ---------- 7,079,000 5,932,000 ---------- ---------- Cost and expenses: Cost of sales 3,382,000 2,779,000 Research and development 307,000 216,000 Selling and marketing 1,300,000 1,229,000 General and administrative 664,000 385,000 ---------- ---------- 5,653,000 4,609,000 ---------- ---------- Income before gain on sale of securities available for sale 1,426,000 1,323,000 Gain on sale of securities available for sale 385,000 ---------- ---------- Income before income taxes 1,426,000 1,708,000 Provision for income taxes 596,000 57,000 ---------- ---------- Net income $ 830,000 $1,651,000 ========== ========== Net income per share $ .11 $ .28 ========== ========== Weighted average shares outstanding 7,485,000 5,911,000 ========== ========== Net income per share was computed based upon the weighted average number of shares outstanding, including common stock equivalents.
See accompanying notes to condensed financial statements. -3- Item 1. Financial Statements (continued) -------------------- Synbiotics Corporation Condensed Balance Sheet - -------------------------------------------------------------------------------
March 31, December 31, 1997 1996 ------------ ------------- (unaudited) (audited) Assets Current assets: Cash and equivalents $ 1,751,000 $ 3,050,000 Securities available for sale 2,214,000 2,872,000 Accounts receivable 4,929,000 1,363,000 Inventories 4,723,000 5,213,000 Deferred tax assets 460,000 1,045,000 Other current assets 818,000 1,353,000 ----------- ----------- Total current assets 14,895,000 14,896,000 Property and equipment, net 668,000 656,000 Goodwill 5,257,000 5,347,000 Deferred tax assets 6,144,000 6,113,000 Other assets 1,699,000 1,555,000 ----------- ----------- $28,663,000 $28,567,000 =========== =========== Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued expenses $ 2,197,000 $ 2,241,000 Other current liabilities 650,000 ----------- ----------- Total current liabilities 2,197,000 2,891,000 ----------- ----------- Shareholders' equity: Common stock, no par value, 24,800,000 shares authorized, 7,393,000 and 7,392,000 shares issued and outstanding at March 31, 1997 and December 31, 1996 35,526,000 35,566,000 Accumulated deficit (9,060,000) (9,890,000) ----------- ----------- Total shareholders' equity 26,466,000 25,676,000 ----------- ----------- $28,663,000 $28,567,000 =========== ===========
See accompanying notes to condensed financial statements. -4- Item 1. Financial Statements (continued) -------------------- Synbiotics Corporation Condensed Statement of Cash Flows (unaudited) - -------------------------------------------------------------------------------
Three Months Ended March 31, ----------------------- 1997 1996 ---------- ----------- Cash flows from operating activities: Net income $ 830,000 $ 1,651,000 Adjustments to reconcile net income to net cash used for operating activities: Depreciation and amortization 264,000 231,000 Gain on sale of securities available for sale (385,000) Changes in assets and liabilities: Accounts receivable (3,566,000) (2,142,000) Inventories 490,000 (643,000) Deferred taxes 554,000 Other assets 273,000 16,000 Accounts payable and accrued expenses (44,000) 450,000 Other liabilities (650,000) (11,000) ----------- ----------- Net cash (used for) operating activities (1,849,000) (833,000) ----------- ----------- Cash flows from investing activities: Acquisition of property and equipment (68,000) (16,000) Investment in securities available for sale (715,000) Proceeds from sale of securities available for sale 658,000 2,167,000 ----------- ----------- Net cash provided by investing activities 590,000 1,436,000 ----------- ----------- Cash flows from financing activities: Proceeds from issuance of common stock, net (40,000) ----------- ----------- Net cash (used for) financing activities (40,000) ----------- ----------- Net (decrease) increase in cash and equivalents (1,299,000) 603,000 Cash and equivalents - beginning of year 3,050,000 1,017,000 ----------- ----------- Cash and equivalents - end of period $ 1,751,000 $ 1,620,000 =========== ===========
See accompanying notes to condensed financial statements. -5- Item 1. Financial Statements (continued) -------------------- SYNBIOTICS CORPORATION Notes to Condensed Financial Statements (unaudited) - ------------------------------------------------------------------------------- Note 1 - Interim Financial Statements: The accompanying balance sheet as of March 31, 1997 and the statements of operations and of cash flows for the three month periods ended March 31, 1997 and 1996 have been prepared by Synbiotics Corporation (the "Company") and have not been audited. These financial statements, in the opinion of management, include all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial position, results of operations and cash flows for all periods presented. The financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB filed for the year ended December 31, 1996. Interim operating results are not necessarily indicative of operating results for the full year. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note 2 - Securities Available for Sale: Included in current assets are securities available for sale which consist primarily of short-term commercial paper. Note 3 - Inventories: Inventories consist of the following:
March 31, December 31, 1997 1996 ---------- ------------ Raw materials $2,209,000 $1,970,000 Work in process 43,000 8,000 Finished goods 2,471,000 3,235,000 ---------- ---------- $4,723,000 $5,213,000 ========== ==========
Note 4 - Earnings per Share: In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". SFAS 128, which applies to entities with publicly held common stock or potential common stock, establishes standards for computing and presenting earnings per share ("EPS"), simplifies the standards for computing EPS previously found in Accounting Principles Board ("APB") Opinion No. 15 and -6- Item 1. Financial Statements (continued) -------------------- SYNBIOTICS CORPORATION Notes to Condensed Financial Statements (unaudited) - -------------------------------------------------------------------------------- makes EPS comparable to international EPS standards. It replaces the presentation of primary EPS with a presentation of basic EPS. It also requires dual presentation of basic and diluted EPS on the face of the statement of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Diluted EPS is computed similarly to fully diluted EPS pursuant to APB 15. The following are unaudited pro forma EPS for the three months ended March 31, 1997 and 1996 assuming that SFAS 128 were in effect as of January 1, 1996:
Three Months Ended March 31, ---------------------------- 1997 1996 ------------- ----------- (unaudited) (unaudited) As reported: Primary EPS $ .11 $ .28 ========= ========= Pro forma: Basic and diluted EPS $ .11 $ .28 ========= =========
-7- Item 2. Management's Discussion and Analysis or Plan of Operation --------------------------------------------------------- The information contained in this Management's Discussion and Analysis or Plan of Operation contains both historical financial information and forward-looking statements. Synbiotics does not provide forecasts of future financial performance. While management is optimistic about the Company's long-term prospects, the historical financial information may not be indicative of future financial performance. In fact, future financial performance may be materially different than the historical financial information presented herein. Moreover, the forward-looking statements about future business or future results of operations are subject to significant uncertainties an risks, which could cause actual future results to differ materially from what is suggested by the forward-looking information. The following risk factors should be considered in evaluating the Company's future financial performance: Competition - ----------- Competition in the animal health care industry is intense. Many competitors, such as Pfizer Animal Health, Mallinckrodt Veterinary and IDEXX Laboratories, have substantially greater financial, manufacturing, marketing and product research resources than the Company. Large companies in particular have extensive expertise in conducting pre-clinical and clinical testing of new products and in obtaining the necessary regulatory approvals to market products. Competition is based on test sensitivity, accuracy and speed; product price; and similar factors. IDEXX Laboratories requires its distributors not to carry the products of competitors such as Synbiotics. There can be no assurance that such competition will not adversely affect Synbiotics' results of operations or ability to maintain or increase sales and market share. History of Operating Losses; Accumulated Deficit - ------------------------------------------------ Although the Company's operations were profitable in the first quarters of 1997 and 1996 and for the year ended December 31, 1996, the Company has had a history of losses. Synbiotics has incurred an accumulated deficit of $9,060,000 at March 31, 1997, even after the release in 1996 of a $7,158,000 valuation allowance related to deferred tax assets. There can be no assurance that Synbiotics can generate sufficient revenue to sustain profitability. No Assurance that Acquired Businesses Can Be Successfully Combined - ------------------------------------------------------------------ There can be no assurance that the anticipated benefits of the acquisition of the business of International Canine Genetics, Inc. ("ICG") or any other future acquisitions, including without limitation the proposed acquisition of the veterinary diagnostics business of Rhone Merieux now being negotiated (collectively, the "Acquired Business"') will be realized. Acquisitions of businesses involve numerous risks, including difficulties in the assimilation of the operations, technologies and products of the Acquired Business, introduction of different distribution channels, potentially dilutive issuances of equity and/or increases in leverage and risk resulting from issuances of debt securities, accounting charges, operating companies in different geographic locations with different cultures, the potential loss of key employees of the Acquired Business, the diversion of management's attention from other business concerns and the risks of entering markets in which Synbiotics has no or limited direct prior experience. In addition, there can be no assurance that the acquisitions will not have a material adverse effect upon Synbiotics' business, results of operations or financial condition, particularly in the quarters immediately following the consummation of the acquisition due to operational disruptions, unexpected expenses and accounting charges which may be associated with the integration of the Acquired Business and Synbiotics. Reliance on Third Party Manufacturers - ------------------------------------- Certain of Synbiotics' products (including its ICT Gold(TM) diagnostic kits and all of its vaccines) are, and certain anticipated new products are expected to be, manufactured by third parties under the terms of distribution and/or -8- manufacturing agreements. The ICT Gold(TM) products and feline leukemia virus vaccine are licensed to Synbiotics by their respective outside manufacturers. In the event that these third parties are, unable (due to operational, licensing, financial or other reasons) to supply Synbiotics with sufficient finished products, Synbiotics would suffer significant disruption of its business. Synbiotics has the right, under certain circumstances, pursuant to the agreements to use alternate manufacturing sources. In some circumstances, however, the Company would lack such a right. If Synbiotics should encounter delays or difficulties in its relationships with manufacturers, the resulting problems could have a material adverse effect on Synbiotics. Sales and Marketing - ------------------- The Company's product distribution strategy results in a large percentage of sales being to only a few customers. During the year ended December 31, 1996, sales to two distributors totalled 37% of the Company's gross revenues. There can be no assurance that Synbiotics will be able to establish an adequate sales and marketing capability in any or all targeted markets or that it will be successful in gaining market acceptance of its products. To the extent Synbiotics enters into distributor arrangements, any revenues received by Synbiotics will be dependent on the efforts of third parties and there can be no assurance that such efforts will be successful. IDEXX Laboratories' requirement that its distributors not carry the products of competitors such as Synbiotics has induced certain distributors to stop doing business with Synbiotics in order to carry IDEXX products instead. In addition, Synbiotics' sales of products, on a private-label basis, toward the over-the-counter market may cause an adverse reaction among Synbiotics' regular distributor and veterinarian customers. Attraction of Key Employees - --------------------------- The success of Synbiotics is highly dependent, in part, on its ability to retain highly qualified personnel, including senior management and scientific personnel. Competition for such personnel is intense and the inability to retain additional key employees or the loss of one or more current key employees could adversely affect Synbiotics. Although Synbiotics has been successful in retaining required personnel to date, there can be no assurance that Synbiotics will be successful in the future. Reliance on New and Recent Products - ----------------------------------- Synbiotics relies on new and recently developed products. There can be no assurance that Synbiotics will obtain and maintain market acceptance of its products. With respect to future products, there can be no assurance that such products will meet applicable regulatory standards, be capable of being produced in commercial quantities at acceptable cost or be successfully commercialized. There can be no assurance that new products can be manufactured at a cost or in quantities necessary to make them commercially viable. If Synbiotics were unable to produce internally, or to contract for, a sufficient supply of its new products on acceptable terms, or if it should encounter delays or difficulties in its relationships with manufacturers, the introduction of new products would be delayed, which could have a material adverse effect on Synbiotics. Future Capital Needs; Uncertainty of Additional Funding - ------------------------------------------------------- The development and commercialization of Synbiotics' products requires substantial funds. Synbiotics' future capital requirements will depend on many factors, including cash flow from operations, the need to finance further acquisitions, if any, continued scientific progress in its products and development programs, the cost of manufacturing scale-up, the costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims, competing technological and market developments, and the cost of establishing effective sales and marketing arrangements. -9- Synbiotics anticipates that its existing, available cash, cash equivalents and short-term investments will be adequate to satisfy its current capital requirements and fund its current operations, although any large acquisition (such as the contemplated Rhone Merieux diagnostics acquisition) would require additional capital resources. There can be no assurance that additional financing, if required, will be available on acceptable terms or at all. If additional funds are raised by issuing equity securities, further dilution to then existing shareholders may result. Debt financing would result in increased leverage and risk. If adequate funds are not available, Synbiotics may be required to delay, scale back or eliminate one or more of its research and development programs or seek to obtain funds through arrangements with collaborative partners or others even if the arrangements would require Synbiotics to relinquish certain rights to certain of its technologies, product candidates or products that Synbiotics would not otherwise relinquish. Seasonality - ----------- Synbiotics has experienced some seasonality in its business, with sales highest in December to April, the time period in which distributors purchase canine heartworm diagnostic products to sell to veterinarians for the heartworm season. There can be no assurance that such seasonality will not have a material adverse impact on Synbiotics' operations. Patents and Proprietary Technology - ---------------------------------- Synbiotics generally has sought and will continue to seek to protect its interests by treating its particular variations in the production of monoclonal antibodies as trade secrets. Synbiotics also has pursued and intends to continue aggressively to pursue protection for new products, new methodological concepts, and compositions of matter through the use of patents and trademarks where obtainable. At present, Synbiotics has been granted eleven U.S. patents. There can be no assurance that Synbiotics will be issued any additional patents or that, if any patents are issued, they will provide Synbiotics with significant protection or will not be challenged. Even if such patents are enforceable, Synbiotics anticipates that any attempt to enforce its patents would be time consuming and costly. Moreover, the laws of some foreign countries do not protect Synbiotics' proprietary rights in its products to the same extent as do the laws of the United States. The patent positions of biotechnology companies, including Synbiotics, are uncertain and involve complex legal and factual issues. Additionally, the coverage claimed in a patent application can be significantly reduced before the patent is issued. As a consequence, there can be no assurance that any of Synbiotics' future patent applications will result in the issuance of patents or, if any patents issue, that they will provide significant proprietary protection or will not be circumvented or invalidated. Because patent applications in the United States are maintained in secrecy until patents issue and publication of discoveries in the scientific or patent literature often lag behind actual discoveries, Synbiotics cannot be certain that it was the first inventor of inventions covered by its pending patent applications or that it was the first to file patent applications for such inventions. Moreover, Synbiotics may have to participate in interference proceedings declared by the U.S. Patent and Trademark Office to determine priority of invention that could result in substantial cost to Synbiotics, even if the eventual outcome is favorable to Synbiotics. There can be no assurance that Synbiotics' patents would be held valid by a court of competent jurisdiction. An adverse outcome of any patent litigation could subject Synbiotics to significant liabilities to third parties, require disputed rights to be licensed from or to third parties or require Synbiotics to cease using the technology in dispute. A patentholder has asserted that the Company's key canine heartworm diagnostic tests infringe its patent. There can be no assurance that such patentholder or other third parties will not assert infringement claims against Synbiotics in the future or that any such assertions will not result in costly litigation or require Synbiotics to obtain a license to intellectual property rights of such parties. There can be no assurance that any such licenses would be available on terms acceptable to Synbiotics, if at all. Furthermore, parties making such claims may be able to obtain injunctive or other equitable relief that could effectively block Synbiotics' ability to further develop, or commercialize, its products in the United States and abroad and could result in the award of substantial damages. -10- Defense of any lawsuit or failure to obtain any such license could have a material adverse effect on Synbiotics. Finally, litigation, regardless of outcome, could result in substantial cost to, and a diversion of efforts by, Synbiotics. Government Regulation - --------------------- Synbiotics' business is subject to substantial regulation by the United States government. See "Business--Government Regulation" in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1996, which is hereby incorporated by reference. In addition, Synbiotics' operations may be subject to future legislation and/or rules issued by domestic or foreign governmental agencies with regulatory authority relating to Synbiotics' business. There can be no assurance that Synbiotics will be found in compliance with any of the various regulations to which it is subject. For marketing outside the United States, Synbiotics will be subject to foreign regulatory requirements in such foreign jurisdictions, which vary widely from country to country and there can be no assurance that Synbiotics will meet and sustain any such requirements. Product Liability and Insurance - ------------------------------- The design, development and manufacture of Synbiotics' products involve an inherent risk of product liability claims and associated adverse publicity. Synbiotics has obtained liability insurance for potential product liability associated with the commercial sale of its products. There can be no assurance, however, that Synbiotics will be able to obtain or maintain such insurance. Although Synbiotics currently maintains general liability insurance, there can be no assurance that the coverage limits of Synbiotics' insurance policies will be adequate. Product liability insurance is expensive, difficult to obtain and may not be available in the future on acceptable terms or at all. A successful claim brought against Synbiotics in excess of Synbiotics' insurance coverage would have a material adverse effect upon Synbiotics. Hazardous Materials - ------------------- Synbiotics' research and development involves the controlled use of hazardous materials, chemicals and various radioactive compounds. Although Synbiotics believes that its safety procedures for handling and disposing of such materials comply with the standards prescribed by local state and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, Synbiotics could be held liable for any damages that result and any such liability could exceed the resources of Synbiotics. Synbiotics may incur substantial costs to comply with environmental regulations. Results of Operations Total revenue for the first quarter of 1997 increased by $1,147,000 or 19% over the first quarter of 1996. Product sales during the first quarter of 1997 increased $1,190,000 or 21%. The increase is due to increase in diagnostic sales of $1,384,000 or 37%, offset by a decrease of $193,000 or 10% in vaccine sales. Diagnostic sales increased due to increased sales of canine heartworm diagnostic products, resulting from a combination of price increases and promotional programs, and canine breeding diagnostic products acquired from ICG in October 1996, offset by a decrease in the sales of D-TEC/(R)/ CB (canine brucellosis) which has been on back order since April 1996 as a result of third- party manufacturer production problems (the Company is currently in the process of transferring the manufacturing of this product in-house). The decreased vaccine sales are due to decreased shipments of bulk feline leukemia vaccine (related to the timing of shipments as requested by OEM customers) and a decrease in average selling prices related to certain potentially short-dated vaccines, offset by an increase in sales of vaccines to private label partners. -11- Interest, license fees and other revenue during the first quarter of 1997 decreased $43,000 or 24% from the first quarter of 1996 due to the non- recurrence of license fees received in conjunction with an exclusive distribution agreement with Daiichi Pharmaceutical Co., Ltd. for the distribution of the Company's vaccine and diagnostic products in Japan. The Daiichi arrangement is not expected to generate significant revenues until 1998 at the earliest. The decrease in license fee revenue was offset by an increase in interest revenue due to an increased level of invested cash resulting from the sale of the Company's investment in Texas Biotechnology Corporation ("TBC") in the first and second quarters of 1996. The total proceeds received from the sale were $4,727,000 ($2,167,000 in the first quarter of 1996 and $2,560,000 in the second quarter of 1996). Sales of TBC stock in the resulted in a $385,000 gain in the first quarter of 1996. The cost of sales as a percentage of product revenue was 48% during the first quarter of 1997 and 1996. Although product sales increased by 21% during the first quarter, the cost of sales as a percentage of product revenue was unchanged due to the fact that a larger percentage of product sales during 1997 being generated from products which are manufactured for the Company by third parties. The Company's manufacturing costs are predominantly fixed costs. Among the Company's major products, DiroCHEK/(R)/ canine heartworm diagnostic products are manufactured at Company facilities, whereas ICT GOLD/(TM)/ HW and all vaccines are manufactured by third parties. In addition to affecting gross margins, this shift in product mix renders the Company relatively more dependent on the third-party manufacturers. The margins during the first quarter 1997 were also affected by the decrease in average selling prices related to certain potentially short-dated vaccines discussed above. Research and development expenses during the first quarter of 1997 increased $91,000 or 42% over the first quarter of 1996. The increase is primarily due to increased contracted research and development expenses and legal expenses related to patent filings. Research and development expenses as a percentage of revenue were 4% during the first quarters of 1997 and 1996. Selling and marketing expenses during the first quarter of 1997 increased by $71,000 or 6% over the first quarter of 1996. The increase is due primarily to increased salaries and consulting expenses related to the acquisition of the operations of ICG, offset by a reduction in advertising and promotional expenses. Selling and marketing expenses as a percentage of revenue were 18% during the first quarter of 1997 as compared to 21% during the first quarter of 1996. General and administrative expenses during the first quarter of 1997 increased by $279,000 or 72% over the first quarter of 1996. The increase is primarily due to amortization of goodwill and additional payroll costs related to the acquisition of the operations of ICG. General and administrative expenses as a percentage of revenue were 9% during the first quarter of 1997 as compared to 6% during the first quarter of 1996. The provision for income taxes during the first quarter of 1997 increased $539,000 or 946% over the first quarter of 1996. The combined Federal and state effective tax rate was 42% during the first quarter of 1997 as compared to 3% during the first quarter of 1996. The income tax provision during the first quarter of 1997 comprises a current income tax provision of $44,000 and a deferred income tax provision of $552,000. The income tax provision during the first quarter of 1996 comprises only a current income tax provision of $57,000. The current provision for income taxes during the first quarters of 1997 and 1996 represent alternative minimum taxes due to the utilization of net operating loss carryforwards. The increase in the deferred provision for income taxes is due to the fact that as of March 31, 1996 the Company provided a deferred tax asset valuation allowance for deferred tax assets which management determined were "more likely than not" to be unrealizable based on recent trends in operating results. At the end of 1996, the Company released the valuation allowance related to its deferred tax assets based on management's assessment that it was "more likely than not" that the Company would realize those assets in future periods due to improvements in the Company's operating results. As a result, although a provision for deferred income taxes was recognized during the first quarter of 1997 and 1996 relating to the utilization of net operating loss carryforwards, a benefit from deferred income taxes was recognized during the first quarter of 1996 as a portion of the valuation allowance, equal to the tax effected net operating loss carryforwards utilized, was released. There was -12- no such benefit during the first quarter of 1997 as the valuation allowance had been fully released as of December 31, 1996. The deferred tax provision during the first quarter of 1997 resulted in a reduction in deferred tax assets, rather than a current tax liability. Financial Condition Management believes that the Company's present capital resources, which included working capital of $12,698,000 at March 31, 1997, are sufficient to meet its current working capital needs. The Company's operations have become seasonal due to the success of its canine heartworm diagnostic products. Sales and profits tend to be concentrated in the December to April time period, as distributors prepare for the heartworm season by purchasing diagnostic products for resale to veterinarians. Other On February 3, 1997, the Company announced that it had entered into a non- binding letter of intent to acquire the world-wide veterinary diagnostics business unit, including the research and development, production and marketing personnel, of Rhone Merieux S.A. ("RM"), a wholly-owned subsidiary of the Rhone Poulenc Group. In addition, Synbiotics and RM intend to enter at the time of the closing, (which is scheduled for the second quarter of 1997), into collaborative agreements whereby RM would provide technology and/or reagents needed by Synbiotics to continue the RM veterinary diagnostics business without interruption, and Synbiotics would have a right of first refusal to license RM technology in the field of veterinary diagnostics. RM, based in Lyon, France, is the fourth largest animal health group in the world. RM develops, produces and markets vaccines and innovative medication for the prevention and treatment of animal diseases. In 1996, RM's consolidated revenue was approximately $900,000,000. RM's veterinary diagnostic business unit approximated $12,000,000 in revenue during 1996. Negotiations relating to the transaction are ongoing, and the Company is currently engaged in negotiations to obtain the necessary financing. There can be no assurance that the Company will enter into a definitive agreement or that the Company will be able to obtain the necessary financing. There can be no assurance that the anticipated benefits of the acquisition will be realized. The acquisition would involve numerous risks, including difficulties in the assimilation of the operations, technologies and products of the RM veterinary diagnostic unit ("RMD"), potentially dilutive issuances of equity and/or debt securities, accounting charges, operating companies in different geographic locations with different cultures, the potential loss of key employees of RMD, the diversion of management's attention from other business concerns and the risks of entering markets in which Synbiotics has no or limited direct prior experience (e.g., large-animal diagnostics and the European market). In addition, there can be no assurance that the acquisition would not have a material adverse effect upon Synbiotics' business, results of operations or financial condition, particularly in the quarters immediately following the consummation of the acquisition due to operational disruptions, unexpected expenses and accounting charges which may be associated with the integration of RMD and Synbiotics. PART II. OTHER INFORMATION --------------------------- Item 1. Legal Proceedings: ------------------ None. -13- Item 2. Changes in Securities: ---------------------- None. Item 3. Defaults Upon Senior Securities: -------------------------------- None. Item 4. Submission of Matters to a Vote of Security Holders: ---------------------------------------------------- None. Item 5. Other Information: ------------------ None. Item 6. Exhibits and Reports on Form 8-K: --------------------------------- (a) Exhibits -------- 10.7 Employment Agreement between the Registrant and Paul A. Rosinack, dated October 25, 1996. 10.61 Patent and Know-How License Agreement Amdex A/S and the Registrant, dated August 29, 1996./(1)/ 10.62 License Agreement between American Home Products Corporation and the Registrant, dated August 16, 1996./(1)/ 10.63 Supply Agreement between the Registrant and American Home Products Corporation, dated August 16, 1996./(1)/ 11.1 Computation of Earnings Per Share. 27 Financial Data Schedule (for electronic filing purposes only). ---------------- (1) Certain confidential portions of this exhibit have been omitted by means of blacking out the text (the "Mark"). This exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 24b-2 under the Securities Exchange Act of 1934, as amended. (b) Reports on Form 8-K ------------------- None. -14- SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereto duly authorized. SYNBIOTICS CORPORATION Date: May 12, 1997 /s/ Michael K. Green ------------------------------ Michael K. Green Vice President of Finance and Chief Financial Officer (signing both as a duly authorized officer and as principal financial officer) -15- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. EXHIBITS TO FORM 10-QSB UNDER SECURITIES EXCHANGE ACT OF 1934 EXHIBIT INDEX Exhibit No. Exhibit - ----------- ------- 10.7 Employment Agreement between the Registrant and Paul A. Rosinack, dated October 25, 1996. 10.61 Patent and Know-How License Agreement Amdex A/S and the Registrant, dated August 29, 1996./(1)/ 10.62 License Agreement between American Home Products Corporation and the Registrant, dated August 16, 1996./(1)/ 10.63 Supply Agreement between the Registrant and American Home Products Corporation, dated August 16, 1996./(1)/ 11.1 Computation of Loss Per Share. 27 Financial Data Schedule (for electronic filing purposes only). - -------------------- (1) Certain confidential portions of this exhibit have been omitted by means of blacking out the text (the "Mark"). This exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 24b-2 under the Securities Exchange Act of 1934, as amended. EX-10.7 2 EMPLOYMENT AGREEMENT EXHIBIT 10.7 ------------ EMPLOYMENT AGREEMENT -------------------- THIS AGREEMENT is made by and between Synbiotics Corporation, a California corporation ("EMPLOYER"), and Paul A. Rosinack ("EMPLOYEE") as of October 25, 1996. RECITALS: --------- WHEREAS, EMPLOYER and EMPLOYEE wish to set forth in this Agreement the terms and conditions under which EMPLOYEE is to be employed by EMPLOYER. NOW, THEREFORE, EMPLOYER and EMPLOYEE, in consideration of the mutual promises set forth herein, agree as follows: ARTICLE I --------- TERM OF AGREEMENT ----------------- 1.1 Term. The term of this Agreement shall commence on the date first written ---- above and shall continue until terminated pursuant to Article 6. ARTICLE 2 --------- EMPLOYMENT DUTIES ----------------- 2.1 Title/Responsibilities. EMPLOYEE shall serve as an employee of EMPLOYER and ---------------------- hold the position of Vice President and General Manager, Animal Health of EMPLOYER, having the powers and responsibilities consistent with such position and reporting to EMPLOYER's Chief Executive Officer, all subject to ultimate direction and management of EMPLOYER's Board of Directors. EMPLOYEE shall also perform all duties which from time to time are assigned to him by EMPLOYER's Chief Executive Officer and/or Board of Directors, and shall provide the Chief Executive Officer and/or Board with periodic reports upon request. EMPLOYEE's job location (subject to change in the discretion of the Board) shall be San Diego, California. 2.2 Full Time Attention. EMPLOYEE shall perform his duties hereunder in a ------------------- diligent and professional manner and devote substantially all of his business time and attention, best efforts, energy and skills to EMPLOYER during the time he is employed hereunder as Vice President and General Manager, Animal Health of EMPLOYER. During the term of this Agreement EMPLOYEE shall not without the express consent of EMPLOYER's Board of Directors serve or act as a shareholder (except passive holdings of less than 1% of the stock), employee, agent, consultant, officer, director, partner, representative or owner of any other business entity, nor (if it would require more than an insubstantial amount of business time or attention) of any non-profit entity. 2.3 Compliance with Rules. EMPLOYEE shall comply with all applicable --------------------- governmental laws, rules and regulations and with all of EMPLOYER's policies, rules and/or regulations applicable to all employees of EMPLOYER. -1- ARTICLE 3 --------- COMPENSATION ------------- 3.1 Base Salary. EMPLOYER shall pay semi-monthly to EMPLOYEE a salary of ----------- $160,000 per annum until such time or times as it may discretionarily be raised (but not lowered) upon annual performance/salary review by EMPLOYER's Chief Executive Officer (upon recommendation of its Compensation Committee). 3.2 Additional Compensation (Stock Option). In addition to the salary provided -------------------------------------- in Section 3.1, EMPLOYER hereby grants to EMPLOYEE as additional compensation for EMPLOYEE's Services (but not for any capital-raising purposes or in connection with any capital-raising activities), a non-qualified stock option to purchase 25,000 shares of EMPLOYER Common Stock under EMPLOYER's 1996 Stock Option Plan, with an exercise price equal to the Fair Market Value per share of EMPLOYER Common Stock on the date first written above, such option to vest in sixteen equal quarterly installments. 3.3 Bonus. In addition to the salary provided in Section 3.1, EMPLOYEE shall ----- participate in any executive incentive bonus plan which EMPLOYER may in its discretion establish for 1997 and future years. ARTICLE 4 --------- OTHER BENEFITS -------------- 4.1 Fringe Benefits. EMPLOYEE shall be entitled during the term of his --------------- employment under this Agreement to all other fringe benefits made available from time to time by EMPLOYER to its executives generally and/or its employees generally, including without limitation participation in EMPLOYER's 401(k) plan and group health insurance plan. 4.2 Expenses. EMPLOYER shall reimburse EMPLOYEE, not less often than monthly, -------- for reasonable out-of-pocket business expenses incurred by EMPLOYEE in the course of his duties hereunder, upon submission by EMPLOYEE of appropriate expense account reports and substantiating receipts. 4.3 Vacation. EMPLOYEE shall be entitled to three weeks paid vacation per full -------- year of service, in accordance with and subject to EMPLOYER's vacation accrual plan and policies. EMPLOYEE acknowledges the "cap" on vacation accruals set forth in such plan and policies. 4.4 Relocation. EMPLOYER shall provide EMPLOYEE a loan in the amount of the ---------- following actual and reasonable relocation expenses of EMPLOYEE (but in no event to exceed $50,000): standard brokerage commission and closing costs for selling EMPLOYEE's Pennsylvania home, EMPLOYEE's house hunting travel expenses, up to six months of temporary housing in San Diego County, and the expenses of moving EMPLOYEE's household goods from Pennsylvania to San Diego County, and other reasonable relocation related expenses that EMPLOYEE may incur. Such loan shall bear no interest until maturity, and principal shall (to the extent not previously forgiven) be payable in one lump sum on the day after the earlier of the cessation of EMPLOYEE's employment with EMPLOYER or the fourth anniversary of this Agreement. One-quarter of the original amount of the loan shall be forgiven on each anniversary of this Agreement, provided EMPLOYEE is then employed by EMPLOYER, and the entire loan shall be forgiven if EMPLOYEE's employment with EMPLOYER ceases other than for Cause. -2- ARTICLE 5 --------- FORMER EMPLOYMENT ----------------- 5.1 No Conflict. EMPLOYEE represents and warrants that the execution and ----------- delivery by him of this Agreement, his employment by EMPLOYER and his performance of duties under this Agreement will not conflict with and will not be constrained by any prior employment or consulting agreement or relationship, or any other contractual obligation. 5.2 No Use of Prior Confidential Information. EMPLOYEE will not intentionally ---------------------------------------- disclose to EMPLOYER or use on its behalf any confidential information belonging to any of his former employers, but during his employment by EMPLOYER he will use in the performance of his duties all information (but only such information) which is generally known and used by persons with training and experience comparable to his own or is common knowledge in the industry or otherwise legally in the public domain. ARTICLE 6 --------- TERMINATION ----------- 6.1 Term. This Agreement (including EMPLOYEE'S employment) shall continue until terminated by either EMPLOYER or EMPLOYEE. Such termination (including termination of EMPLOYEE's employment) shall be effected by written notification and may be effected at any time, with or without Cause, for any reason or no reason. 6.2 Severance. If this Agreement and/or EMPLOYEE's employment is terminated as --------- a result of Cause, EMPLOYEE shall be entitled to no severance pay. If this Agreement and/or EMPLOYEE's employment is terminated other than for Cause, EMPLOYEE shall be entitled to severance pay as follows: one month's salary at EMPLOYEE's then base salary rate, for each full year of employment completed by EMPLOYEE, up to a maximum of six months' severance pay. "Service" shall, for this purpose only, include EMPLOYEE's service at International Canine Genetics, Inc. since January 1992 as if it were service at EMPLOYER. Fractional severance pay credit shall be given for a fractional year of service. Furthermore, if EMPLOYEE is terminated (other than for Cause) in connection with an acquisition of EMPLOYER, EMPLOYEE shall be entitled to additional severance pay of six months' salary at EMPLOYEE's then base salary rate (as well as the severance pay described in the previous paragraph) and all of EMPLOYEE's then unvested EMPLOYER stock options shall immediately become fully vested. "Cause" shall be defined to mean: (a) Death; (b) Voluntary resignation (other than because of a material breach by EMPLOYER of its obligations under this Agreement or reassignment of EMPLOYEE, to a location outside San Diego County); (c) EMPLOYEE's repudiation of this Agreement; (d) permanent disability (defined as EMPLOYEE's inability to perform, with or without reasonable accommodation, the essential functions of his position for any 50 business days -- exclusive of vacation days taken -- within any continuous period of 200 days by reason of physical or mental illness or incapacity); (e) EMPLOYEE- being formally charged with the commission of a felony, or being convicted of a misdemeanor involving moral turpitude; -3- (f) EMPLOYEE's demonstrable fraud or dishonesty; (g) EMPLOYEE's use of alcohol, drugs or any illegal substance in such a manner as to interfere with the performance of his duties under this Agreement; (h) EMPLOYEE's intentional, reckless or grossly negligent action materially detrimental to the best interest of the EMPLOYER, including any misappropriation or unauthorized use of EMPLOYER's property or improper use or disclosure of confidential information (but excluding any good faith exercise of business judgment); (i) EMPLOYEE's intentional failure to perform material duties under this Agreement if such failure has continued for 15 days after EMPLOYEE has been notified in writing by EMPLOYER of the nature of EMPLOYEE's failure to perform; (j) EMPLOYEE's chronic absence from work for reasons other than illness or permitted vacation; or (k) EMPLOYEE's violation of policies in EMPLOYER's official Employee Handbook, as it may be amended from time to time. Termination for Cause shall be without prejudice to any other right or remedy to which EMPLOYER may be entitled at law, in equity, or under this Agreement. ARTICLE 7 --------- ARBITRATION ----------- 7.1 Final and Binding Arbitration. Any controversy, claim or dispute between ----------------------------- (a) a party to this Agreement on the one hand, and (b) the other party to this Agreement and/or such second party's parents, subsidiaries or affiliates and/or any of their directors, officers, employees, agents, successors, assigns, heirs, executors, administrators, or legal representatives, on the other hand, arising out of, in connection with, or in relation to (t) the interpretation, validity, performance or breach of this Agreement, (u) EMPLOYEE's stock options and the underlying shares, (v) EMPLOYEE's employment by EMPLOYER, (w) any termination of such employment, (x) any actions during or with respect to EMPLOYEE's work for EMPLOYER, (y) any claims for breach of contract, tort or breach of the covenant of good faith and fair dealing, or (z) any claims of discrimination or other claims under any federal, state or local law or regulation now in existence or hereinafter enacted and as amended from time to time concerning in any way the subject of EMPLOYEE's employment with EMPLOYER or its termination, shall, at the request of either party, be resolved to the exclusion of a court of law by binding arbitration in San Diego, California, in accordance with Exhibit A hereto. Each of EMPLOYEE and EMPLOYER understands and agrees that the arbitration shall be instead of any civil litigation and that the arbitrator's decision shall be final and binding to the fullest extent permitted by law and enforceable, by any court having jurisdiction thereof. The only claims not --- covered by this Section 7.1 are claims for benefits under the workers' compensation laws, claims for unemployment insurance benefits, and matters within the jurisdiction of the California Labor Commissioner, which will be resolved pursuant to those laws. ARTICLE 8 --------- GENERAL PROVISIONS ------------------ 8.1 Governing Law. This Agreement and the rights of the parties thereunder ------------- shall be governed by and interpreted under California law. -4- 8.2 Assignment. EMPLOYEE may not delegate, assign pledge or encumber his rights ---------- or obligations under this Agreement or any part thereof. 8.3 Notice. Any notice required or permitted to be given under this Agreement ------ shall be sufficient if it is in writing and is sent by registered or certified mail, postage prepaid, or personally delivered to the following addresses, or to such other addresses as either party shall specify by giving notice under this section: TO EMPLOYER: Chief Executive Officer, Synbiotics Corporation 11011 Via Frontera San Diego, CA 92127 Copy to: Hayden 1. Trubitt Brobeck, Phleger & Harrison LLP 550 West C Street, Suite 1300 San Diego, CA 92101 TO EMPLOYEE: Paul A. Rosinack 17 Fariston Road Wayne, PA 19087 8.4 Amendment. This Agreement may be waived, amended or supplemented only by an --------- express writing signed by both of the parties hereto. To be valid, EMPLOYER's signature must be by a person specially authorized by EMPLOYER's Board of Directors to sign such particular document. 8.5 Waiver. No waiver of any provision of this Agreement shall be binding ------ unless and until set forth expressly in writing and signed by the waiving party. To be valid, EMPLOYER's signature must be by a person specially authorized by EMPLOYER's Board of Directors to sign such particular document. The waiver by either party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach of the same or any other term or provision or a waiver of any contemporaneous breach of any other term or provision or a continuing waiver of the same or any other term or provision. No failure or delay by a party in exercising any right, power, or privilege hereunder or other conduct by a party shall operate as a waiver thereof, in the particular case or in any past or future case, and no single or partial exercise thereof shall preclude the full exercise or further exercise of any right, power, or privilege. No action taken pursuant to this Agreement shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained herein. 8.6 Severability. All provisions contained herein are severable and in the ------------ event that any of them shall be held to be to any extent invalid or otherwise unenforceable by any court of competent jurisdiction, such provision shall be construed as if it were written so as to effectuate to the greatest possible extent the parties' expressed intent; and in every case the remainder of this Agreement shall not be affected thereby and shall remain valid and enforceable, as if such affected provision were not contained herein. 8.7 Headings. Article and section headings are inserted herein for convenience -------- of reference only and in no way are to be construed to define, limit or affect the construction or interpretation of the terms of this Agreement. 8.8 Drafting Party. The provisions of this Agreement have been prepared, -------------- examined, negotiated and revised by each party hereto, and no implication shall be drawn and no provision shall be construed against either party by virtue of the purported identity of the drafter of this Agreement, or any portion thereof. -5- 8.9 No Outside Representations. No representation, warranty, condition, -------------------------- promise, understanding or agreement of any kind with respect to the subject matter hereof has been made by either party, nor shall any such be relied upon by either party, except those contained herein. There were no inducements to enter into this Agreement, except for what is expressly set forth in this Agreement. 8.10 Entire Agreement. This Agreement together with EMPLOYER's standard ---------------- Proprietary Information and Inventions Agreement, constitutes the entire agreement between the parties pertaining to the subject matter hereof and completely supersedes all prior or contemporaneous agreements, understandings, arrangements, commitments, negotiations and discussions of the parties, whether oral or written (all of which shall have no substantive significance or evidentiary effect). Each party acknowledges, represents and warrants that he or it has not relied on any representation, agreement, understanding, arrangement or commitment which has not been expressly set forth in this Agreement. Each party acknowledges, represents and warrants that this Agreement is fully integrated and not in need of parol evidence in order to reflect the intentions of the parties. The parties specifically intend that the literal words of this Agreement shall, alone, conclusively determine all questions concerning the parties' intent. IN WITNESS WHEREOF, the parties have executed and delivered this Employment Agreement in San Diego, California as of the date first written above. SYNBIOTICS CORPORATION By: /s/ Kenneth M. Cohen ------------------------------------ Kenneth M. Cohen, Chief Executive Officer /s/ Paul A. Rosinack - ----------------------------------------- PAUL A. ROSINACK Attachment: Exhibit A (Arbitration Procedures) -6- EXHIBIT A --------- ARBITRATION PROCEDURES ---------------------- 1. Agreement to Arbitrate ---------------------- In the event that there is any dispute relating to, regarding or arising in connection with EMPLOYEE's employment with EMPLOYER which cannot be resolved through direct discussion or mediation, regardless of the kind or type of dispute (excluding claims for workers' compensation, unemployment insurance or any matters within the jurisdiction of the California Labor Commissioner), all such disputes shall be submitted exclusively to final and binding arbitration pursuant to the provisions of the Federal Arbitration Act or, if inapplicable, the Uniform Arbitration Act (California Code of Civil Procedure (S)1280 et seq.), upon request submitted in writing to the President within one year from the date the dispute first arose, or within one year of the date of termination of employment, whichever occurs first. This procedure shall be the exclusive method for resolving all claims relating to the termination of EMPLOYEE's employment, including but not limited to any alleged violations of federal, state and/or local statutes; all claims based upon any purported breach of duty arising in contract or tort, including but not limited to breach of contract, breach of the covenant of good faith and fair dealing, or violation of public policy; and any other alleged violation of an employee's statutory, contractual or common law rights. Any failure to request arbitration in accordance with the foregoing provisions shall constitute a waiver of all rights to raise or present any claims in any form, in any forum, arising out of any dispute that was subject to arbitration. 2. Selection of Arbitrator ----------------------- All disputes subject to arbitration will be resolved by a single arbitrator selected from a list provided by the California Mediation and Conciliation Service from its Employment Arbitration Panel. The parties shall select the arbitrator by alternately striking names from the list, and the last name remaining on the list shall be the arbitrator selected to resolve the dispute. The arbitrator must be selected within thirty (30) days of receipt of the written request for arbitration. The arbitration hearing shall be held in San Diego, California, at a neutral location selected by the parties or, in the event the parties are unable to agree, at a location designated by the arbitrator. 3. Authority of Arbitrator ----------------------- The arbitrator shall only be authorized to exercise the powers specifically enumerated by this procedure and to decide the dispute in accordance with governing principles of law and equity. The arbitrator shall have no authority to modify the powers granted by the terms of this procedure or to modify the terms of the employee handbook, except as required by law. The arbitrator shall have the authority to rule on motions by the parties, to issue protective orders upon motion of any party or third parties, and to determine only the disputes submitted by the parties based upon the grounds presented. Any dispute or argument not presented by the parties is outside the scope of the arbitrator's jurisdiction and any award invoking such disputes or arguments is subject to a motion to vacate; provided, however, the arbitrator shall have exclusive authority to resolve any dispute relating to the validity, interpretation and enforcement of these arbitration procedures. 4. Discovery --------- The arbitrator shall have the power, in addition to determining the merits of the dispute submitted, to permit discovery regarding the subject matter of arbitration and to enforce the rights, remedies, procedures, duties, liabilities and obligations of discovery by the imposition of the same terms, conditions, consequences, liabilities, sanctions and penalties as may be imposed in the circumstances by a Superior Court under the California Code of Civil Procedure. All discovery must be completed thirty (30) days prior to the date set for the arbitration hearing. A-1 5. Hearing ------- The issue(s) submitted to the arbitrator must be set forth in the request for arbitration. The arbitrator shall have no authority to frame the statement of the issue(s). Unless otherwise agreed by the parties, the arbitration hearing, shall be governed by the formal rules of evidence contained in the California Evidence Code. The parties shall mutually agree on the number of days required for hearing. The hearing shall be recorded and transcribed verbatim by a certified shorthand reporter. Each party shall bear its own costs with respect to a copy of the transcript of the hearing; however, the parties shall each be responsible for one-half the cost of the court reporter's fee and the arbitrator's copy of the hearing transcript. 6. Post Hearing Procedure ---------------------- Each party shall have the right to present closing argument at the conclusion of all sworn testimony and, in addition to or in lieu of closing argument, either party shall have the right to submit post-hearing briefs. The due date and procedure for exchanging post-hearing briefs shall be mutually agreed upon by the parties or as directed by the arbitrator. 7. Opinion and Award ----------------- The arbitrator shall issue a written opinion and award within sixty (60) days of closing arguments or the receipt of post-hearing briefs, whichever is later. The arbitration award and opinion shall be signed and dated by the arbitrator and shall decide all issues submitted and set forth the legal principles supporting each aspect of the opinion and award. The arbitrator shall only be permitted to award those remedies in law or equity which are requested by the parties and which are supported by the credible, relevant evidence. The arbitrator shall have no authority to award punitive or exemplary damages under any circumstances or for any reason. 8. Fees and Costs -------------- Each party shall be responsible for its own attorney's fees, except as provided by law, and for all costs associated with discovery unless otherwise ordered by the arbitrator. Each party shall also be responsible for one-half of the arbitrator's fee and one-half of any costs associated with the facilities for the arbitration hearing. 9. Severability ------------ In the event that any provision of this procedure is determined by the arbitrator or by a court of competent jurisdiction to be illegal, invalid, or unenforceable to any extent, such term or provision shall be enforced to the extent permissible under law and all remaining terms and provisions hereof shall continue in full force and effect. A-2 EX-10.61 3 PATENT AND KNOW-HOW LICENSE AGREEMENT EXHIBIT 10.61 ------------- PATENT AND KNOW-HOW LICENSE AGREEMENT This Agreement is entered into between Amdex A/S Lerso Parkalle 42 DK-2100 Copenhagen 0 Denmark (in the following referred to as the "Licensor") and Synbiotics Corporation 11011 Via Frontera San Diego California 92127 USA (in the following referred to as the "Licensee") Whereas: Licensor is entitled by virtue of the Transfer of Rights Agreement by and between Licensor and [*] to exclusive rights under the Patent and the inventions the subject of the Patent (the "Inventions") and is entitled to license other companies under the Patent and in connection with the Inventions; and Licensor is in possession Of valuable know-how and technical information relating to the Inventions including but not limited to manufacture of water- soluble polymeric conjugates of the type described in the Patent ("Know How"); and Licensor has informed Licensee that the various applications and patents identified in Appendix 8 hereto constitute all of the patent protection relating to the Inventions and that the current status of the applications and patents is as stated in Appendix 8; - ----------------------- [*] Certain confidential portions of this exhibit have been omitted by means of blacking out the text (the "Mark"). This exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 24b-2 under the Securities Exchange Act of 1934, as amended. -1- Licensee has had the opportunity to review the patent application submitted and has reviewed the status thereof with Licensor; Licensor has agreed to supply to Licensee the Licensed Products and has agreed that Licensee may use the Licensed Products and may use and sell Licensee Products. Licensor shall use the Know How which it has developed and which it will in future develop in the development and manufacture of the Licensed Products. Now, therefore, in consideration of the premises and the mutual promises and covenants set forth below, Licensor and Licensee mutually agree as follows: Clause 1 Definitions "Affiliate" shall mean (a) any company owned or controlled to the extent of at - ----------- least fifty percent (50%) of its issued and voting capital by a party to this Agreement and any other company so owned or controlled (directly or indirectly) by any such company or the owner of any such company, or (b) any partnership, joint venture or other entity directly or indirectly controlled by, controlling, or under common control of, to the extent of fifty percent (50%) or more of voting power (or otherwise having power to control its general activities), a party to this Agreement, but in each case only for so long as such ownership or control shall continue. "Agreement" shall mean this Patent and Know-How License Agreement, as amended from time to time. "Development Project" shall mean the development/research work to be performed by Licensor under this Agreement for the creation of the Licensed Product. "Development/Research Terms" shall mean those terms governing the development of the Licensed Product(s) as set forth in Appendix 5 attached hereto. "Escrow Agent" shall have the meaning set forth in Appendix 1 Section (B). "License" shall mean the license granted under this Agreement for the use of the Licensed Products, as defined below. "License Fee" shall have the meaning set forth in Clause 16(i). "Licensed Product" shall mean any and all [*] developed and generated by Licensor (or Licensee solely under the terms of this Agreement and utilizing Licensor Know How and the Manufacturing Details) for use in products for (i) the diagnosis and detection of infectious and other diseases in animals, (ii) the diagnosis and monitoring of allergy in animals and (iii) the measurement of hormones and drugs in animals, and any and all improvements or modifications made thereto. "Licensee Product" shall mean those assay kits and/or other diagnostic products manufactured and sold by Licensee which incorporate the Licensed Product. "Manufacturing Details" shall mean all technical information for the routine manufacture of the Licensed Products as set forth generally in Appendix 1 Section A and as to be deposited by Licensor with the Escrow Agent. "Materials" shall mean all advertising and promotional materials referencing the Licensee Products. -2- "Minimum Payment" shall have the meaning set forth in Clause 17. "Patent" shall mean applications for patents relating to the Inventions and patents granted pursuant to those applications as set forth in Appendix 8 to this Agreement and all applications and granted patents relating to improvements relating to the Inventions and modifications thereof. (Each shall be "a Patent", collectively "the Patents"). "Raw Material" shall mean the antibodies to be supplied by Licensee, or suppliers controlled by Licensee, to Licensor for use in the development and production of the Licensed Products. "Territory" shall mean the geographic scope of the License as set forth in Clause 8. "Transfer of Rights Agreement" shall mean the agreement between [*]. Clause 2 Scope of the License The License hereby granted to Licensee is for the supply of and use and sale of the Licensed Product incorporated into assay kits and other diagnostic products for (i) the diagnosis and detection of any and all infectious and other diseases in animals, (ii) the diagnosis and monitoring of allergy in animals and (iii) the measurement of hormones and drugs in animals (the "Licensee Products"). Excluded from the License is the use and sale of assay kits and other diagnostic products incorporating the Licensed Products in the research and development of medicines for human therapeutic use. Also excluded from the License shall be conjugates developed for hormone determination in animals for research and development purposes and drugs of abuse in animals. In the event of a default by Licensor under the provisions of Clause 25 and Appendix 1 hereof, Licensee is hereby granted an exclusive license to produce, use and sell the Licensed Products directly utilizing the Know-How and Manufacturing Details held in escrow by the Escrow Agent on the same terms and conditions as set forth herein (the "Default License"). Clause 3 Technical Field of Application The License hereby granted is for Licensee's use of the Licensed Product only as labelled with the two classes of labels, enzymes and dyes. The class of enzymes includes, but is not limited to, [*] and [*] and the class of dyes includes, but is not limited to, [*] and [*]. Excluded from the class of dyes are the [*] dyes. The Licensed Product may be used as a primary or as a secondary reagent incorporating [*]. The Licensed Product may be used in all assay formats for example the standard microwell format (i.e. 96 well microtitre plates), dipstics, lateral flow devices or flow-through membrane devices. -3- Clause 4 Exclusivity of License The License is exclusive for the scope defined in Clause 2 and the technical field of application defined in Clause 3 above. The exclusive grant hereunder shall remain in effect for the term of this License and any Default License, except as set forth in Clause 27(i) hereof. Clause 5 Authorization Licensor has all necessary consents, permits or authorizations required under current law from any relevant governmental body or from any other person, firm or corporation under any Agreement to which Licensor may be a party to grant this License to Licensee and to perform the obligations set forth herein. Licensor agrees to keep in force all agreements which would affect the validity of this License including, but not limited to, the Transfer of Rights Agreement. Clause 6 Non Assignment and Non Disposal Neither party shall assign, sub-contract or otherwise dispose of the whole or any part of its rights and obligations under this Agreement without the prior written consent of the other except that either party may assign the benefit of this Agreement to any of its Affiliates. No such assignment shall relieve the assigning party of its obligations hereunder at the time of its assignment. This Agreement shall be assigned to any party that purchases all or substantially all of the assets or the conjugate business of Licensor. Licensor shall provide any purchaser of substantially all of its assets or its conjugate business with a copy of this Agreement and shall obtain from such purchaser written confirmation of their understanding and acceptance of the terms hereof and the obligations contained herein. Clause 7 Grant of Sub-Licenses Licensee shall not grant a sub-license to any party, except an Affiliate of Licensee, without consent from Licensor. Clause 8 Territory of License The License is granted on a worldwide basis. Clause 9 Trademarks Each and every Licensee Product shall be advertised and sold by Licensee under both Licensee's and Licensor's trademark. Licensor's trademark shall be displayed according to the guidelines set out in Appendix 4 attached hereto. -4- Licensee's trademarks shall at all times remain the exclusive property of Licensee and shall not be used by Licensor without the express written permission of Licensee. To the best of Licensor's knowledge, Licensee may lawfully import, distribute, advertise, market, promote, offer for sale, and sell the Licensee Products under Licensor's registered trademark in the Territory. Licensor shall take charge of any negotiation or litigation arising out of any claim against Licensee for infringement. The costs involved in undertaking any such negotiation and/or litigation shall be borne by Licensor. Any damages or penalties assessed against Licensee shall be borne by Licensor. In addition, if Licensor's trademark is determined to infringe a third party trademark, Licensee shall be compensated by Licensor for all costs related to the removal of the infringing trademark from any Licensee Products in production and/or in Licensee's inventory and any promotional or marketing materials incorporating the infringing trademark. Licensee shall use commercially reasonable efforts to mitigate any damages arising from the events set forth in this provision. In the event that either party learns of any perceived infringement of the registered trademark by a third party, the party learning of the alleged infringement will promptly inform the other party hereto and Licensor agrees to advise the third party of the registered trademark. If Licensor notifies Licensee at any time of its decision not to bring any enforcement action against any alleged infringer then Licensee will have the right, but not the obligation, to prosecute any infringement of the trademark at its own expense and in its own name or, if required by law, in the name of Licensor. In the event that this Agreement is terminated, notwithstanding the reason therefore, Licensee shall automatically and immediately lose the right to use Licensor's trademark. Notwithstanding the foregoing, Licensee shall be permitted to sell any Licensee Products in its existing inventory or in production as of the date of termination without being in breach of this Clause 9 in particular or this Agreement in general. Licensee shall not register nor have registered Licensor's trademark set forth in Appendix 4. Clause 10 Technical Information Licensor shall supply Licensee with all relevant technical information required for the purposes only of this Agreement. No information, however, shall be supplied by Licensor enabling Licensee to manufacture the Licensed Products, except as required in Clause 16, cfr. Appendix 1 and Clause 25. Clause 11 Responsibility for Claims by Third Parties Licensor undertakes that the use and/or sale of the Licensed Products by Licensee does not and will not infringe any patent, registered design, trade mark or other intellectual property right of any third party and agrees to indemnify Licensee in respect of any claims, costs (including legal costs), losses, expenses or damages it may incur as a direct result of the breach of this undertaking. This does not extend to loss of profit. Licensor agrees to use its best efforts to remedy any infringement or violation and to mitigate any damages in connection therewith. -5- In the event of an infringement occurring Licensor will, at Licensor's cost, use commercially diligent efforts either to procure the right for Licensee to continue to sell the infringing products, or to replace the infringing products with suitable non-infringing products. In the event of Licensor being unable to procure the right for Licensee to continue to sell the infringing products or to replace the infringing products with suitable non-infringing products within a reasonable time, Licensee will be able to terminate this Agreement forthwith by written notice to the Licensor. Licensor shall compensate Licensee for any Licensee Products in production or inventory which cannot be sold by Licensee or its customers as a result of Licensor's infringement and shall reimburse Licensee for the costs of reproducing any and all promotional, marketing or other commercial materials referencing the infringing products. Licensor's liability hereunder shall be limited to the lesser of (i) actual costs. damages or expenses or (ii) [*] US Dollars (US$[*]). Licensee shall use commercially reasonable efforts to mitigate any damages arising from the events set forth in this provision. Clause 12 Novelty Licensor does not warrant that the Licensed Product is novel but undertakes that it is not aware of any prior art or prior use which might result in the Licensed Product and Inventions being held to be not novel and not inventive. In the event that the Patent is rejected or held to be invalid by reason of prior publication or prior use, Licensee shall as of that point cease paying to Licensor royalties in respect of the Licensed Product (or that portion of the royalties relating to the jurisdiction where the Patent has been rejected or held to be invalid). Licensor shall, however, continue to provide Licensee with the Licensed Product and Licensee shall pay Licensor in respect of the provision of such product in accordance with Clauses 16 and 17 hereof. If the Patent is void and if a reputable third party supplier is able to provide Licensee with products that are equally effective as the Licensed Products at a cost that is at least [*] per cent ([*]%) less than the cost of the Licensed Products under this Agreement, including all applicable royalty or product payments then Licensee shall have the right to terminate this Agreement, after Licensor has had the opportunity to match such price and has refused, on [*] days written notice. Clause 13 Industrial Realization and Commercial Exploitation Licensor does not warrant that the Licensed Product is capable of industrial realization nor shall Licensor be responsible for the consequences of any failure so to realize it. In addition, Licensor does not warrant that the Licensed Product is capable of commercial exploitation, the risks of such exploitation being assumed solely by Licensee. Clause 14 Manufacture and Supply of Licensed Products by Licensor Licensee acknowledges that, except as specifically provided for in this Agreement, it shall not manufacture the Licensed Products directly and shall not have access to Licensor's Know-How. Licensor, therefore, shall be responsible for the manufacture and supply to Licensee of the Licensed Products for incorporation into the Licensee Products. Licensor acknowledges that it is the only source of the Licensed Products and, therefore, must use its best efforts at all times to meet the requirements of Licensee, as set forth in accordance with Appendix 3 attached hereto, for the Licensed Products. -6- (i) Licensor Warranties Licensor warrants as follows: that all Licensed Products manufactured and supplied under this Agreement shall be of good marketable quality and shall accord with the technical specifications set forth in Appendix 2 or such other specification as has been agreed between the parties in writing in substitution thereof; that prior to delivery all tests and quality control procedures set out in Appendix 2 or otherwise agreed will have been carried out in relation to each manufacturing lot of the Licensed Products with satisfactory results which will be made available to Licensee on delivery of the Licensed Products. A certificate of conformity will be supplied by Licensor with each lot delivered to Licensee. (ii) Quality Control Without prejudice to Licensee's rights hereunder Licensor will immediately notify Licensee's Quality -Controller by rapid means of communication (eg. facsimile, telephone) in the event of any circumstance coming to their attention which would be reasonably expected to lead to a claim being made against Licensee, its subsidiaries, affiliates, distributors, agents and their respective employees relating to the Licensed Products including but not limited to any Licensed Products' failure or difficulties disclosed by the quality control tests carried out on the Licensed Products by Licensor or any continued stability testing or of non-Licensee customer complaints to Licensor relating to the materials comprised in its Licensed Products or any other aspect thereof, the details of such notification to be confirmed in writing. Licensor will disclose to Licensee particulars of the results of Licensor's quality control tests carried out on the Licensed Products at Licensee's request and will, at Licensee's request permit a duly authorized representative of Licensee to visit and review the quality control and quality assurance procedures of the Licensor of the Licensed Products on thirty (30) days notice. Alterations in quality control procedures and technical specifications with respect to Licensed Products for Licensee may be introduced from time to time by prior written agreement between Licensor and Licensee. (iii) Claims On receipt of any bona fide claim substantiated by data, Licensor will within thirty (30) days provide Licensee or its subsidiary, affiliate, distributor, agent or customer with replacement Licensed Products, or parts thereof, to the extent necessary to meet Licensor's warranties contained in this clause or to make good any shortages or non completed deliveries. (iv) Storage/Use Licensee undertakes to store the Licensed Products and to make written or verbal claims about the Licensed Products in accordance with the specifications to be agreed between the parties. Licensor will have no obligation to make replacements or otherwise (or have any liability hereunder) as a result of fault or negligence or improper or unauthorized use of the Licensed Products by Licensee or the ultimate user of the Licensed Products. Licensee acknowledges that Licensed Products supplied by Licensor are based on front line research and technology and have yet to be fully characterized in terms of their toxicity, allergenicity and the like. In the light thereof all Licensed Products are sold and delivered under the mutual understanding between the Licensor and the Licensee that the latter or his staff, who shall deal with or use the Licensed Products at -7- any time shall be in possession of adequate education and all other relevant skills necessary for the proper and rightful handling and use of such potentially hazardous Licensed Products. (v) Quantity; Forecasts Appendix 3 attached hereto sets forth in detail the requirements for forecasting and submitting orders. (vi) Delivery Deliveries from the Licensor shall be FCA (Incotenns) Copenhagen. Licensor shall upon Licensee's request arrange for shipping of the Licensed Product to a location specified by Licensee. Shipping and insurance charges and all other costs related to transportation of the Licensed Product from Licensor's premises shall be borne by Licensee. Licensee shall satisfy itself as to the requirements of law or other regulations governing the import and entry of the Licensed Products into its own country and to obtain all necessary licenses, consent or approval required to import the goods, whereas Licensor shall arrange for any approval from the Danish authorities for export of the Licensed Products. (vii) Licensed Product Price The parties agree to negotiate in good faith the price per liter of Licensed Product on the basis that current knowledge is insufficient to arrive at a justifiable price ("Licensed Product Price"). In the event that the parties are unable to reach an agreement as to the Licensed Product Price within three (3) months of the date of this agreement Licensor agrees to submit manufacturing details to an independent contract producer, agreed to by Licensee, and Licensee will submit volume requirements and QC specifications for the Licensee Products. The parties hereby agree to be bound by the price per liter established by the contract producer. The Raw Material shall at all times be supplied by Licensee to Licensor free of charge. If production costs for Licensor change significantly during the course of this Agreement Licensee and Licensor agree to negotiate an adjustment in the Licensed Product Price, to be held constant thereafter for a minimum of 12 months. Proprietary rights and title to the Licensed Product shall remain with Licensor until the Licensed Product Price has been received by Licensor, whether or not Licensee has taken delivery of the Licensed Product. (viii) Indemnification Licensor shall indemnify Licensee against any and all liability, damages, costs and expenses, including without limitation reasonable attorneys' fees, made against or sustained by Licensee or any Affiliate arising from the use of the Licensed Product and any reasonable out-of- pocket costs to Licensee and/or its Affiliate for the recall of any Licensee Products as a direct result of a manufacturing defect in the Licensed Product. Any liability arising under this provision shall be limited to the lesser of (i) actual damages, costs and expenses or (ii) [*] US Dollars (US$[*]). (ix) Authorization Licensor has all necessary consents, permits or authorizations required under current law from any governmental body where the Licensed Product is manufactured and/or supplied from or from any other person, firm or corporation under any Agreement to which Licensor may be a party to manufacture and supply the Licensed Products to Licensee. -8- Clause 15 Modifications and Improvements to Licensed Products Licensor shall disclose and make available to Licensee, free of charge, any and all material modifications and improvements to the Licensed Products devised by Licensor during the course of this Agreement. Clause 16 Payment of License (i) One-time License Fee In consideration for the License granted under this Agreement and the entering into by the parties of the Development/Research Terms attached hereto as Appendix 5, Licensee shall pay to Licensor a one-time non- refundable license fee in the amount of [*] US Dollars (US $[*]) (the "License Fee"). The License Fee shall be paid in accordance with Appendix 9 attached hereto. (ii) Royalty Payments Licensee shall pay to Licensor a royalty on its sales of Licensee Products in countries where Patent protection is subsisting based upon the net sale price. The royalty shall be calculated as follows: a) Existing products manufactured and sold by Licensee (including updated or modified versions of such existing products) into which currently used reagents are substituted with Licensed Products (an exhaustive list of existing products is attached hereto as Appendix 6): i) a [*] per cent royalty on any sale of Licensee Products by Licensee; and ii) an additional [*] per cent royalty on those sales of a particular Licensee Product that exceed the 1996 sales of that same product. For products introduced during 1996 the royalty shall be based on annualized sales, not actual sales b) Products not previously manufactured and sold by Licensee, i. e. products not mentioned or specified in Appendix 6 and into which Licensed Products are incorporated: i) a [*] per cent royalty on any sale. (iii) Product Fees a) If a Patent is not granted in any one of the countries listed on Appendix 7 attached hereto, with claims covering [*] as used in the Licensed Product then the royalty payments described in (ii)(a) through (ii)(c) above shall not apply as to sales made in that country and Licensee shall pay to Licensor a product fee in the amount of [*] per cent on sales of Licensee Products in that country for the remaining period of this Agreement. b) When a Patent and the protection connected thereto ceases in a particular country, the royalty payments described in (ii)(a) through (ii)(c) shall no longer be payable as from the date of cessation in respect of sales in that country. Licensee shall be obligated to pay to Licensor a product fee in the amount of [*] per cent of the sales of Licensee Products in that country for the remaining period of this Agreement. -9- c) In those countries where Licensee is selling products but where Licensor has no subsisting Patent protection the provisions of sections (ii)(a) through (ii)(c) shall not apply and Licensee shall pay to Licensor a product fee in the amount of [*] per cent of the sales of Licensee Products in those countries for the term of this Agreement. (iv) In the event that Licensee is producing the Licensed Products itself for any of the reasons set forth in Clause 25 and/or Appendix 1, Licensee shall continue to pay a royalty or payment, as appropriate, on sales of Licensee Products in accordance with Sections (ii) and (iii) above. (v) Each party shall at all times be responsible for its own charges, taxes and duties relating to the sale or purchase, as appropriate, of the Licensed Product(s). Clause 17 Minimum Payments Licensee shall pay to Licensor a minimum payment of [*] US Dollars (US$[*]) per year (the "Minimum Payment"). The Minimum Payment shall commence on January 1, 1997, however, payments shall not begin until the initial commercial sale of a Licensee Product. If there are no sales of Licensee Products during 1997, Licensor shall receive a one-time payment of [*] US Dollars (US$[*]) within 10 working days of December 31, 1997 (the "Sales Payment"). In the event of the Patent not being granted, Patent protection ceasing or no Patent protection is subsisting in a country listed on Appendix 7, the Minimum Payment shall be reduced by the percentage applicable to that country, as set forth on Appendix 7. For example, if the Patent is not granted in the United States, the Minimum Payment shall be reduced, pro rata, by [*]% from the date that the relevant examination authority or court, as the case may be, issues its rejection/decision of invalidity. In the event that an appeal of that decision is successful and the patent is reinstated Licensee shall as from the date of the Appeal decision pay the full minimum payment. The Minimum Payment shall continue for the Term of this Agreement in accordance with the provisions of Clause 27(i) hereof. Clause 18 Time when Right to Payment Accrues The right to payment accrues on the date of the Licensee's receipt of payment from its customer. The provision of the payment shall be made in accordance with Clause 20 below. Clause 19 Reports and Inspection of Accounts Licensee shall provide to Licensor on a semi-annual basis a report of the exact number of Licensee Products sold and any other information relevant for determining the payment due. Licensor shall have the right by means of an independent accountant appointed by Licensor and approved by Licensee (such approval not to be unreasonably withheld) to examine semiannually whether the reports provided are consistent with the general accounts of Licensee. The costs of such inspection and examination shall be borne by Licensor. Licensor shall ensure that the independent accountant shall limit its review to a reconciliation of the reports and accounts and that he/she shall keep confidential any information regarding Licensee's business or customers from Licensor and/or any third party. -10- Clause 20 Settlement of Accounts and Payment Accounts shall be rendered and settled quarterly in arrears. Until the parties agree otherwise, the quarterly payment shall be the Minimum Payment stipulated in Clause 17, i.e. a Minimum Payment paid quarterly of [*] US dollars (US$[*]), or such greater amount as may be determined in accordance with Clause 17. For example, if the initial commercial sale of a Licensee Product is made in March 1997, Licensor shall receive three (3) quarterly payments of [*] dollars and [*] cents ($[*]) each. After the expiry of each calendar year Licensee shall, within thirty (30) days, send to Licensor a complete and accurate account of the sales of Licensee Products in the previous calendar year showing any sum in excess of the Minimum Payment due to the Licensor thereunder. Settlement of the excess payment due shall be made on or before the 15th February, or the next business day if the 15th falls on a weekend or public holiday, and shall be made in US dollars. The Licensor shall be entitled to interest on any sum overdue, the interest being calculated at [*] per cent ([*]%) per month. Clause 21 Manufacture or Sale of Competing Products The Licensee shall not manufacture or sell products which would be in direct competition with the Licensed Products or any improvement made available to Licensee by Licensor during the period of this Agreement. Nothing in this Clause shall prevent Licensee from manufacturing or selling products which incorporate products which compete with the Licensed Products. Clause 22 Maintenance in Force of the Patent Once a Patent has been granted in a particular country, Licensor shall keep in force that Patent. Licensor shall keep Licensee informed of the status of the Patent applications and shall give Licensee notice of any grant or rejection and any subsequent appeal, of a particular application, and any subsequent appeal, within ten (10) business days of their receipt of notification from the relevant patent authority. Clause 23 Protection of the Patent In those countries where a Patent has been granted and Licensee has been informed that the Patent is in effect, Licensee shall notify Licensor of any infringement of the Patent that Licensee becomes aware of. Licensor may take proceedings against the infringer and Licensee shall provide all necessary assistance at Licensor's expense. If Licensor determines not to proceed against the infringer and, if the applicable taw permits, Licensee may proceed with the prior written consent of Licensor, such consent not to be unreasonably withheld. In the event of the foregoing, Licensor shall provide all necessary assistance to Licensee, at Licensee's expense. -11- Clause 24 Exploitation of the License Licensee shall use its best efforts to exploit the License in a commercially reasonable manner. Licensee shall use the Licensed Products wherever commercially practicable in all products listed in Appendix 6. Clause 25 Events of Default In addition to any other remedies set forth in this Agreement or provided for at law, either party shall have the right to terminate this Agreement if the other party shall have materially defaulted in the performance of any material agreement, condition or covenant contained in this Agreement which default has not been remedied after notice and the opportunity to cure. In addition to those Release Events set forth in Appendix I Section B, a material default shall be deemed to have occurred in a case where any obligation of payment is not settled within thirty (30) days of notice thereof. In the event of any default hereunder, the non-defaulting party shall give the defaulting party written notice of such default and the opportunity to cure such default within thirty (30) days, unless otherwise limited herein. Within thirty (30) days of the parties reaching an agreement as to the final specifications of the Licensed Product, Licensor shall deposit the information necessary to enable Licensee to start its own production of the Licensed Product to be held in escrow by the Escrow Agent. Such information shall be released to Licensee in the event of the conditions outlined in Appendix I having taken place. The Terms and Conditions for the Escrow Agent's obligations to deliver and release information to Licensee are listed in Appendix 1. In the event of Licensee taking over production of the Licensed Products, Licensee shall pay a royalty to Licensor in accordance with the provisions contained in Clause 16 (iv) above. Clause 26 Provisions to be Observed in Case of Licensee's Own Production In the event of Licensee taking over production of the Licensed Products, no authorization of Licensor shall be required for making modifications or improvements to the Licensed Products, provided that any modifications or improvements made shall be communicated to Licensor. Licensor shall be entitled to make use, free of charge, of any modifications and improvements suggested by the Licensee. Clause 27 Term of the Agreement and Termination (i) Term The Agreement shall take effect on the date set forth on the signature page hereof. The Agreement shall run for a period of ten (10) years. On the fifth anniversary of this Agreement the parties shall meet to -12- review the terms of the Agreement. Minimum Payments for the first five year period shall be as set forth in Clause 17 hereof. If at the end of the first five year period the royalty/payment stream set forth in Clause 16 hereof does not exceed the Minimum Payment set forth in clause 17 hereof then Licensor shall have the right to make this Agreement non-exclusive. In the event of the foregoing, for the second five year period there will be no Minimum Payment as set forth in Clause 17 and percentage royalties, where applicable, shall be paid at a rate of [*]% of sales of Licensee Product. During the term of this Agreement the parties shall meet every three (3) years to review those areas in the scope of this Agreement that Licensee is not actively pursuing. Unless Licensee commits to a development program in those areas, agreed to by Licensor Licensor shall be free to license to third parties the Inventions and Know-How in those areas only from that time. In the event of the foregoing, Licensee shall have non exclusive rights to the non-exclusive areas of activity. (ii) Termination The Agreement may be terminated prior to the end of the Term only in the event of any of the following': (a) at any time, upon mutual written agreement of the parties; or (b) by a non-defaulting party in accordance with the provisions of Clause 25; or (c) by Licensee in the event that the Development Project is not completed in accordance with Appendix 5 attached hereto. Clause 28 Mutual Confidentiality Neither party shall, during the period of this Agreement or after termination, either by expiry or by breach, for a period of ten (10) years, communicate to third parties, either parties' trade or manufacturing secrets or any other confidential information disclosed by either party pursuant to this Agreement. After termination of this Agreement, both parties shall cease using any confidential information received in connection with this Agreement and shall return to the other party immediately all documents relating to the manufacture of either the Licensed Products or the Licensee Products, except for one copy retained for legal/archival purposes. Clause 29 Applicable Law This Agreement shall be governed by the laws of the Kingdom of Denmark. -13- Clause 30 Competent Jurisdiction/Arbitration Should any dispute arise between the Parties concerning the execution and/or interpretation of this Agreement, the Parties will endeavor to solve the dispute in an amicable way. If no amicable settlement can be reached between the parties concerning a dispute, such dispute shall be settled finally by binding arbitration. Arbitration shall be held in The Hague, the Netherlands and shall be conducted in English in accordance with the Rules of Conciliation and Arbitration of the International Chamber of Commerce, as in effect on the date of the commencement of the arbitration. Clause 31 Entire Agreement This Agreement, including the Appendices hereto which are incorporated into this Agreement, contains the entire agreement of the parties regarding the subject matter hereof and supersedes all prior agreements, understandings and negotiations regarding the same. This Agreement may not be changed, modified, amended or supplemented except by a written instrument signed by both parties. Furthermore, it is the intention of the parties that this Agreement be controlling over additional or different terms of any order, confirmation, invoice or similar document, even if accepted in writing by both parties, and that waivers and amendments shall be effective only if made by non-pre-printed agreements clearly understood by both parties to be an amendment or waiver. Clause 32 Controlling Language The official text of this Agreement shall be the English language, and such English text shall be controlling in all respects, notwithstanding any translation hereof required under the laws or regulations of any other country. The par-ties undertake to use the English language in respect of all documents and communications contemplated hereby, except where another language must be used under the laws and regulations of another country. In any such a case, a certified English translation shall be supplied to the other party by the party using such document or making such communication. Clause 33 Severability If any provision of this Agreement shall be held illegal or unenforceable, that provision shall be limited or eliminated to the minimum extent necessary so that this Agreement shall otherwise remain in full force and effect and enforceable. Clause 34 Further Assurances Each party hereto agrees to execute, acknowledge and deliver such further instruments, and to do all such other acts, as may be necessary or appropriate in order to carry out the purposes and intent of this Agreement. -14- Clause 35 Notice and Reports All notices, consents or approvals required by this Agreement shall be in writing sent by certified or registered air mail, postage prepaid or by facsimile or cable (confirmed by such certified or registered mail) to the parties at the addresses set forth on page 1 of this Agreement or such other addresses as may be designated in writing by the respective parties. Notices shall be deemed effective on the date of mailing. Clause 36 Relationships of the Parties Both parties are independent contractors under this Agreement. Nothing contained in this Agreement is intended nor is to be construed so as to constitute Licensor and Licensee as partners, agents or joint venturers with respect to this Agreement. Neither party hereto shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other party or to bind the other party to any contract, agreement or undertaking with any third party. Clause 37 Waiver The waiver by either party of a breach of any provisions contained herein shall be in writing and shall in no way be construed as a waiver of any succeeding breach of such provision or the waiver of the provision itself. Clause 38 Captions Paragraph captions are inserted for convenience only and in no way are to construed to define, limit or affect the construction or interpretation hereof. Clause 39 Force Majeure A party shall not be liable for nonperformance or delay in performance (other than of obligations regarding payment of money or confidentiality) caused by any event reasonably beyond the control of such party including, but not limited to wars, hostilities, revolutions, riots, civil commotion, national emergency, strikes, lockouts, epidemics, fire, flood, earthquake, force of nature, explosion, embargo, or any other Act of God, or any law, proclamation, regulation, ordinance, or other act or order of any court, government or governmental agency. Clause 40 Export Control The parties hereto agree to comply with all export laws, restrictions and regulations of the United States as well as those of any relevant foreign agency or authority. -15- Clause 41 Counterparts This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall be one and the same document. [The remainder of this page has been left intentionally blank] -16- The parties hereto have executed this Agreement to be effective as of this 29th day of August, 1996. As Licensor: As Licensee: /s/ Anders Weber /s/ Kenneth M. Cohen - ------------------------- ------------------------------- By: Anders Weber By: Kenneth Cohen Title: Managing Director Title: Chief Executive Officer /s/ Gunnar Aass - ------------------------- By: Gunnar Aass Title: Chairman The undersigned hereby agree to be made a party to this Agreement solely as to Clauses 1, 2, 3, 4, 29 and 30 hereof and agree to be bound by the foregoing provisions notwithstanding any rights or obligations set forth in the Transfer of Rights Agreement. [*] [*] /s/ Anders Weber /s/ Gunnar Aass - ------------------------- ------------------------------- By: By: Title: Title: -17- Appendices: ----------- Appendix 1: Manufacture by Licensee of Licensed Product. Appendix 2: Technical Specifications of Licensed Product. Appendix 3: Forecasting/Scheduling/Delivery of Licensed Product. Appendix 4: Trademark Guidelines. Appendix 5: Development/Research Terms. Appendix 6: Existing Products. Appendix 7: Countries Appendix 8: The Patent Appendix 9: License Fee -18- APPENDIX 1 Manufacture by Licensee of Licensed Product A. Manufacture of Licensed Product by Licensee. ------------------------------------------- What follows is a broad description of Production information which will be placed in escrow when the specifications of particular Licensed Products are established under the terms of Appendix 5. The list is not comprehensive as the number of Licensed Products is anticipated to increase with time: 1. Specification. 2. Procedure for [*]. 3. Procedure for [*]. 4. Characterization of [*] through Characterization of the coupled label. 5. Characterization of [*] through coupling of standard antibody ligand to [*]. 6. Characterization of [*] through Characterization of [*] and [*] conjugated with standard antibody by [*]. 7. Characterization of [*] Production through test of [*] standard [*]. 8.1 Procedure for Production of [*] intended for [*] and characterization of Conjugate in [*]. 8.2 Procedure for Production of [*] intended for use in the [*] and characterization of Conjugates in [*]. 8.3 Procedure for Production of [*] intended for [*] and characterization of Conjugate in [*]. B. Escrow Instructions ------------------- In accordance with the provisions of Clause 25 of the Agreement certain circumstances set forth therein and in items 1-4 below shall trigger the release by the Escrow Agent of the Manufacturing Details as described generally in Section A of this Appendix and as deposited with the Escrow Agent by Licensor. By their signature to the Agreement and this present Appendix, the parties jointly appoint the lawyer Christian Schow Madsen of the law firm Hjejle, Gersted & Mogensen, to act as escrow agent ("Escrow Agent") and in that capacity to act on behalf of both parties to keep in escrow the Manufacturing Details, as amended from time to time. The Escrow Agent shall within thirty (30) days of completion of the Development Project, receive from the Licensor the Manufacturing Details and shall by way of a signed copy of this Appendix, to be delivered to the Licensee, confirm safe receipt thereof. The Escrow Agent's confirmation shall entail no guarantee that the Manufacturing Details fulfil the Licensor's obligations under the Agreement. Information on manufacture of a particular Licensed Product not mentioned in Appendix 5 which in the future may fall under the present Agreement shall similarly be transferred to the Escrow Agent upon final specifications of the product. -19- The parties hereby agree that the Escrow Agent shall have the authority to deliver to Licensee the Manufacturing Details without any delay and without Licensor or his successors having any right or means to prevent such delivery, in the event of any of the following (each a "Release Event"): 1. Any material breach of the Agreement on the part of Licensor, which has not been cured in accordance with the provisions of the Agreement, it being understood that acts or omissions assessed by the Escrow Agent to constitute a material breach of the Agreement in relation to the release of the Manufacturing Details be deemed such a breach; or 2. Licensor shall fail to deliver to Licensee the entire quantity of the Licensed Product set forth in the orders submitted in accordance with Appendix 3 provided, however, that the non-delivery by Licensor is not a result of Licensee's failure to supply Raw Material and that the non- delivery shall not have been remedied within fourteen (14) days' of written notice from Licensee, which notice must have been sent within ten (10) working days following the failure to deliver, and provided that the non- delivery by Licensor shall not be due to a force majeure as defined in Clause 40, for which the Licensor cannot reasonably be held responsible; or 3. Licensor shall not deliver the Licensed Product at any time to Licensee in accordance with the specifications listed in Appendix 2, as amended from time to time by the mutual written agreement of the parties. It is a requirement that it be certified in writing that the Licensed Product does not meet the specifications and the documentation thereon be sent to the Escrow Agent by an independent reference laboratory, to be selected in accordance with the provisions of Appendix 3, within 7 days of the receipt of the noncomplying Licensed Product; or 4. Licensor shall be declared bankrupt or enter into a composition for the benefit of its creditors. Requests by Licensee for delivery of the Manufacturing Details shall be made in writing to the Escrow Agent with a copy to Licensor and it is the obligation of the Escrow Agent, provided that he has been supplied with the necessary documentation and evidence by Licensee, to hand out to Licensee the Manufacturing Details, following which the Escrow Agent shall be fully released and discharged from any and all duties and obligations hereunder. Licensor and Licensee expressly declare that the following provisions shall apply in favor of the Escrow Agent: 1. Provided that the Escrow Agent has not acted negligently or fraudulently when exercising his discretionary powers under the Agreement, the Escrow Agent shall not be liable for any loss, cost, damages or expenses which may result from anything done or omitted to be done by him; 2. The Escrow Agent shall be at liberty to place the Manufacturing Details in any safe deposit, safe or other receptacle selected by the Escrow Agent, in any part of the world, or with any bank or banking company believed to be of good repute, and the Escrow Agent shall not be responsible for or be required to insure against any loss incurred in connection with any such deposit and Licensor and Licensee shall pay all sums required to be paid on account of or in respect of any such deposit; 3. Whenever the Escrow Agent is under the provisions of this Agreement bound to act he shall nevertheless not be so bound unless first indemnified to his satisfaction against all actions, proceedings, claims and demands from third parties, to which he may render himself liable and all costs, charges, damages, expenses and liabilities, which he may incur by so doing; -20- 4. Any documentation and/or evidence assessed by the Escrow Agent to be sufficient to prove that a Release Event has occurred is deemed to be so; 5. Without prejudice to the above mentioned provisions it is agreed that the liability of the Escrow Agent cannot exceed the fees received by the Escrow Agent in his capacity as such under this Agreement. The Escrow Agent acknowledges that time is of the essence in the performance of its obligations and that a delay in production of the Licensed Product could have a serious adverse impact on Licensee's business. The Escrow Agent, therefore, shall ensure delivery of the Manufacturing Details to Licensee within ten (10) working days of receipt of notice and evidence from Licensee of a Release Event. The Licensor and Licensee are jointly and severally liable for the payment of all fees payable to and costs, charges, damages, expenses and liabilities which are incurred by the Escrow Agent in performance of the duties hereunder. Invoices for services should be sent to each party at the address listed on page 1 of the Agreement. As Licensor: As Licensee: /s/Anders Weber /s/ Kenneth M. Cohen - ------------------------- ------------------------------- By: Anders Weber By: Kenneth Cohen Title: Managing Director Title: President and Chief Executive Officer /s/ Gunnar Aass - ------------------------- By: Gunnar Aass Title: Chairman Accepted as Escrow Agent: /s/ Christian Schow Madsen - -------------------------- Christian Schow Madsen -21- APPENDIX 2 The Licensed Product manufactured by the Licensor is defined as any reagent supplied to the Licensee that incorporates a specific binding agent, a [*] and an enzyme or dye label. The Licensed products will vary in technical specification depending upon the exact nature of the specific binding agent and label. Antibodies supplied by the Licensee may behave differently to those sourced by the Licensor. As a general guideline the following provisional technical specifications have been determined for other products manufactured by the Licensor and it is expected that the Licensed Product supplied to the Licensee will fall within these guidelines. [*] conjugates 1. [*] 2. [*] 3. [*] [*] conjugates 1. [*] 2. [*] 3. [*] It is anticipated that more detailed specifications will be prepared at a later date for each specific product to be supplied by the Licensor to the Licensee on completion of the development program in the Licensor's laboratory. -22- APPENDIX 3 Forecasting/Scheduling/Delivery of Licensed Product In accordance with Clause 14 of the Agreement, this Appendix shall set forth the procedures to be followed in connection with (i) the ordering by Licensee and delivery by Licensor of the Licensed Product to the Licensee and (ii) the provision of Raw Material. Planning/forecast: At the latest by December 15 in any year, beginning on December 15, 1996, Licensee shall submit to Licensor its forecast for required deliveries of the Licensed Product during the following year. In addition, Licensee shall provide to Licensor a schedule for its requirements as to when on a quarterly basis deliveries of the Licensed Product must be made by Licensor. Licensor shall within fourteen (14) working days from receipt of said forecast submit to Licensee a schedule for its requirement for Raw Material corresponding to the forecast. Placing of Firm Order for Licensed Product: Neither Licensee nor Licensor shall be bound by the figures and indications given in the annual forecasts as described above. Licensee shall within (seven) 7 days of the beginning of each quarter give a precise and firm commitment of its requirements for manufacture and delivery in the following calendar quarter (the "Licensee Order"). Placing of Order for Raw Materials: Licensor shall within seven (7) working days from the receipt of the Licensee Order and on the basis of the Licensee Order place its order for Raw Material to be provided by Licensee (the "Licensor Order"). Licensee shall deliver to Licensor the Raw Material within fourteen (14) working days of receipt of the Licensor Order. Acceptance of Raw Material Within fourteen (14) working days from the receipt of a particular shipment of Raw Material, Licensor may reject the shipment if the Raw Material fails to meet mutually accepted quality specifications to be agreed between the parties. Licensor shall provide documentation to Licensee regarding the manner in which the Raw Material fails to meet the specifications and Licensee shall, upon agreement, provide to Licensor replacement Raw Material within seven (7) working days. Pre-delivery Sample: Licensor shall within thirty (30) days following the receipt of a Licensee Order forward to Licensee a pre-delivery sample. Such pre-delivery samples shall be forwarded to Licensee's premises at 11011 Via Frontera, San Diego, CA 92127, USA, attn: Clifford Frank, or his designee. If Licensee's evaluation of the pre-delivery sample concludes that it is not acceptable and does not meet the technical specifications as described in Appendix 2, Licensee shall within ten working days after having received the pre-delivery sample give notification in writing to this effect to Licensor who. If Licensor has not received such notification, Licensor shall regard the pre- delivery sample as accepted by the Licensee and shall be under the obligation to ship the Licensed Product described in the relevant order and based on the pre- delivery sample Licensee or Licensee's appointee. -23- Replacement Batch: If Licensor is notified within ten (10) working days that the sample is not acceptable, Licensor shall, save for the situation described below, be obligated to provide and send to Licensee a replacement batch within twenty (20) days of receipt of Raw Material sufficient to produce a replacement batch. Dispute: If Licensor does not agree with Licensee's claim on batch failure, Licensor may within said time limit of thirty (30) days ask an independent testing laboratory to give an opinion and statement as to whether the pre-delivery sample sent to the Licensee meets the technical specification of the Licensed Product as defined in Appendix 2. If Licensee does not agree with Licensor's claim of batch failure and subsequent rejection of a particular shipment of Raw Material, the Licensor shall within fourteen (14) working days submit samples and other evidence substantiating his claims to an independent testing laboratory to obtain an opinion and statement as to whether the disputed batch of Raw Material meets the mutually accepted quality specification. The parties agree to accept an independent testing laboratory selected by the Clinical Laboratory Research Association of Germany which shall be approached by the parties at the time of any dispute hereunder. Stock held by Licensee: Licensee intends at any time during the duration of this Agreement to order quantities of the Licensed Product which will result in a sufficient stock to support his requirements under this Agreement and will endeavor to hold a stock of a minimum two batches of the Licensed Product at all times. As Licensor: As Licensee: /s/Anders Weber /s/Kenneth M. Cohen - ------------------------- ------------------------------- By: Anders Weber By: Kenneth Cohen Title: Managing Director Title: Chief Executive Officer /s/ Gunnar Aass - -------------------------- By: Gunnar Aass Title: Chairman -24- APPENDIX 4 Description and Use of Licensor's Trademarks Licensor is the proprietor of the trademark registrations; AMDEX 'word', VA 01.615 1996, registered in Denmark on March 15, 1996 (priority date January 9, 1995) and AMDEX 'figure' (an "X") VR 01.977 1995, shown on Schedule 1 attached hereto, registered in Denmark on March 24, 1995, priority date January 9, 1995. The attached Schedule 2 indicates the territories in the world where these trademarks have been filed and their status in each territory. The trademark registration generally covers all goods in the international classes 1 and 5, although the specification of goods eventually might vary according to the result of the prosecution of the applications. Licensor intends, but is not obliged under the present Agreement, to extend the protection of the mark to other countries as commercial conditions dictate and/or by requests from the Licensee. Licensor intends to discuss with Licensee the filing of new trade marks covering the Licensed Product with the aim of jointly promoting the Licensee Products and Licensor reagents in general. Licensee must display the above trademarks in the Materials in accordance with the following: (i) The trademarks must generally be placed prominently on the Materials. (ii) The trademarks must be at least twenty five per cent (25%) of the size of the largest name or trademarks of the Licensee displayed on the Materials. (iii) Licensee shall supply Licensor with a copy of the Materials within sixty (60) days of its publication and shall, where reasonably practicable, accommodate any comments made by Licensor regarding the use of the trademarks in future Materials produced. Licensee may request written permission to display the trademarks in a manner outside the guidelines set forth above. Such permission cannot be assumed to be given until it has been received in writing by the Licensee. (iv) Licensee must indicate the status as a registered trademark by the use of the international signs " or 3, as appropriate, placed close to the trademarks. The Materials must indicate that the word and the figure are trademarks of Licensor. -25- SCHEDULE 1 This schedule is a graphical image representing the trademark of Amdex. The graphical image is a blackened circle with a white "X" in the middle. -26- SCHEDULE 2
Proprietor Country Trademark Classes App. No. App. Date Reg. No. Reg. Date Status Goods - ------------------------------------------------------------------------------------------------------------ [*] [*] [*] [*] [*] [*] [*] [*] [*] [*] ============================================================================================================
-27- APPENDIX 5 DEVELOPMENT/RESEARCH TERMS These Development/Research terms set forth the understanding between Licensor and Licensee regarding the Development Project. The development/research work shall be carried out by Licensor in its laboratories in Copenhagen. The Development Project shall run for twelve consecutive months starting on the 1st August 1996. The work outlined below shall be the minimum acceptable by Licensee. Licensee shall be permitted to review the progress of the Development Project on a monthly basis. If the work as listed below is substantially completed within the twelve month period, the Licensee shall add other products to be included in the contract period. If Licensor has not completed the Development Project outlined below by July 31, 1997 Licensee shall have the right to terminate the Agreement and shall be released from all obligations set forth therein. Licensee agrees to make any parties under Licensee's control having access to Licensor's technical information under this Agreement bound to the confidentiality provisions of the Agreement. PROJECTS FOR DEVELOPMENT BY LICENSOR 1. [*] The number one priority is the upgrading of the [*] test. This product, although having adequate sensitivity, is perceived as having a [*]. It depends on a [*] for signal development. The signal must be improved by the substitution of an [*]. The need for urgency arises from the seasonality of [*] sales in the United States. In order to meet the 1997 [*] season with an improved product, the product must be ready for sale by early January of 1997. The product and its current components are indicated on the attached diagram 1. Licensee desires to replace the [*] pad, with a [*]. Licensee intends ultimately to have the [*] for all procedural control lines in all [*] diagnostics. Since the Licensee's logo is a [*], this would be the [*] for the universal procedural line. Thus, the [*] chosen for the sample signal generator must not be [*]. It is because of the constraints of time that in this first improvement Licensee has decided not to opt for the development of the [*]. In order to accomplish the change to the diagnostic, Licensee will provide Licensor with the following, in mutually agreeable quantities. Some of the items are proposed (and are so indicated), since they are the property of [*] and are not within Licensee' control. However, Licensee will make every effort to see that they are made available to Licensor. a) [*] b) [*] c) [*] d) [*] e) [*] f) [*] g) [*] -28- [*]. 2. [*] The second product is a combination product for the detection of [*], in [*] serum or plasma. The product will be developed in conjunction with a party to be named by Licensee, and will have a format and housing similar to that in the attached diagram 2. This diagram also indicates the proposed principles for the test. The tests are run on [*]. It is proposed that Licensee employ three different colors. One color will be for the [*] and will be the same for both tests. The other two colors will be separately employed for signal generation with [*]. Since Licensee envisions other products with these attributes Licensee would like to standardize the procedural control for all such products. Since Licensee's logo is a [*]. we would propose that a [*] be developed for the [*]. Choice of the other two colors should depend only on development of adequate [*] when the device is run with [*] samples. For the purpose of developing these reagents, Licensee will provide Licensor with the following materials in amounts that are mutually agreeable. a) [*] b) [*] c) [*] d) [*] e) [*] f) [*] g) [*] h) [*] i) [*] j) [*] It is anticipated that as soon as the agreement between Licensor and Licensee is finalized, that Licensee will initiate the development of the diagnostic at the party to be named by Licensee. As the product is developed, Licensee will ensure, to the best of its ability, that there is adequate communication between the party to be named by Licensee and Licensor. To facilitate this and the initiation of the project, a scientist from Licensee will spend time at the party to be named by Licensee at an early stage in the project program. In addition, if it is necessary to facilitate and expedite the program, the same scientist can visit Licensor, during the same time frame or at a later stage. 3. [*] This is an existing product developed and marketed by Licensee. It is for use in detecting [*]. It uses a [*] format, with [*] as the signal generator. Licensee desires that Licensor improve the product by increasing the [*]. This will permit [*]. For the purposes of improving the diagnostic, Licensee will provide Licensor with the following materials in quantities mutually agreeable. a) [*] b) [*] c) [*] d) [*] e) [*] f) [*] -29- As Licensor: As Licensee: /s/ Anders Weber /s/ Kenneth M. Cohen - ------------------------- ------------------------------- By: Anders Weber By: Kenneth Cohen Title: Managing Director Title: Chief Executive Officer /s/ Gunnar Aass - ------------------------- By: Gunnar Aass Title: Chairman -30- DIAGRAM 1 [*] DIAGRAM 2 [*] -31- APPENDIX 6 EXISTING PRODUCTS
Product Name Description Species Test Method ===================================================== [*] [*] [*] [*] - -----------------------------------------------------
-32- APPENDIX 7 COUNTRIES
PERCENTAGE OF COUNTRY TOTAL LICENSEE SALES Australia [*]% Austria [*]% Belgium [*]% Canada [*]% France [*]% Germany [*]% Greece [*]% Holland [*]% [*] India [*]% [*] Israel [*]% Italy [*]% Japan [*]% Korea [*]% [*] Malaysia [*]% [*] New Zealand [*]% Nordic [*]% [*] Portugal [*]% [*] South Africa [*]% Spain [*]% Switzerland [*]% [*] Taiwan [*]% [*] Thailand [*]% [*] Turkey [*]% U.K [*]% U.S.A [*]%
* [*] ** This Appendix 7 may be amended from time to time by Licensee to accurately reflect its market positions. Licensee shall provide any amended version of this Appendix to Licensor and such amended version shall not be binding until receipt has been acknowledged by Licensor. -33- APPENDIX 8 The Patent
- ----------------------------------------------------- COUNTRY NUMBER STATUS - ----------------------------------------------------- [*] [*] [*] - -----------------------------------------------------
-34- APPENDIX 9 License Fee
Payment Amount - ------- ------ August 29, 1996 US$[*] October 28, 1996 US$[*]
-35- EX-10.62 4 LICENSE AGREEMENT EXHIBIT 10.62 LICENSE AGREEMENT ----------------- THIS LICENSE AGREEMENT (the "Agreement") made as of the 16th day of August, 1996, by and between AMERICAN HOME PRODUCTS CORPORATION ("Licensor"), a Delaware corporation, having an office at Five Giralda Farms, Madison, NJ 07940, and SYNBIOTICS CORPORATION ("Licensee"), a California corporation having an office at 11011 Via Frontera, San Diego, CA 92127-1702. BACKGROUND A. Licensor owns certain patents relating to [*] vaccines. B. Licensee intends to sell modified live [*] vaccines. THE PARTIES AGREE AS FOLLOWS: DEFINITIONS "[*] Products" means any vaccine containing, as its only antigen, a [*] antigen. - -------------- "Combination Products" means any vaccine containing a [*] antigen and one or - ---------------------- more other antigens that, if used as the only antigen in a vaccine, would not constitute a [*] Product. "Earned Royalty" means (a) for Net Sales of Licensed Products other than - ---------------- Combination Products, [*]% of Net Sales; and (b) for Net Sales of Combination Products, [*]% of Net Sales. "Licensed Patents" means United States Patents Numbers [*] and any extensions, - ------------------ reissues and renewals thereof and any patents issued on any divisions, continuations, or continuations in part thereof and any of Licensor's non-United States counterparts to any of the above. "Licensed Products" means Products covered by one or more claims of a Licensed - ------------------- Patent in the country of manufacture, use or sale. "Minimum Royalty" means, for each calendar quarter or portion thereof in 1996 or - ----------------- 1997 after USDA approval of a [*] Product, $[*]; for each calendar quarter of 1998, $[*]; for each calendar quarter of 1999, $[*]; for each calendar quarter of 2000, $[*]; for each calendar quarter of 2001 and each year thereafter until the expiration of the Term, $[*]. - --------------------- [*] Certain confidential portions of this exhibit have been omitted by means of blacking out the text (the "Mark"). This exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 24b-2 under the Securities Exchange Act of 1934, as amended. -1- "Net Sales" means the gross receipts of Licensee and its affiliates from sales - ----------- of Licensed Products made or sold in the United States of America less the following deductions where applicable: (A) customary cash, trade or quantity discounts actually allowed; (B) sales, use, tariff, import/export duties or other excise taxes imposed upon particular sales; and (C) transportation charges and allowances or credits to customers because of rejections or returns. Licensed Products are considered sold at the earlier of their delivery or invoicing by Licensee to a non-affiliate. "Products" means any [*] Product(s) and/or combination Product(s). - ---------- GRANTS Licensed Patents. Subject to payment by Licensee of its initial payment and its - ---------------- subsequent royalty obligations, Licensor hereby grants to Licensee a [*] license, without the right to sublicense others, under the Licensed Patents to make, have made, use, offer for sale, import, and sell the Licensed Products. Nothing in this Agreement confers rights to use inactivated [*] vaccines, United States Letters Patent No. [*], or any name, trade name or other designation. Initial Payment. Licensee shall pay Licensor on the date hereof the non- - --------------- refundable Initial Payment of [*] U.S. dollars ($[*]). Royalty Accruals. Royalties accrue each calendar quarter. Royalties accrue at - ---------------- the greater of the Earned Royalty or the Minimum Royalty. Licensee has an Earned Royalty Allowance of $[*]. Licensee may offset [*] of Earned Royalty payments against the Earned Royalty Allowance. The cumulative total of all such offsets cannot exceed $[*]. Remittance of Royalties. Royalties are payable quarterly, for the calendar - ----------------------- quarters ending March 31, June 30, September 30 and December 31. All taxes of any nature incurred on any payments under this Agreement will be assumed and paid by Licensee, except for income taxes levied on Licensor. If such income taxes must be withheld by Licensee, Licensee will get a receipt therefor and send it to Licensor. Quarterly Sales Reports. Licensee shall provide at the end of each calendar - ----------------------- quarter a full and accurate accounting of all Net Sales by product category by Licensee and its affiliates for that quarter. Each report shall include: (a) The number of dosage units of each Licensed Product sold by Licensee and its Affiliates; (b) Gross receipts and Net Sales for each Licensed Product; (c) The credits against royalties payable for such period that Licensee claims under Section 3.1; and (d) Licensee's computation of the aggregate earned royalties payable to Licensor. Records. Licensee shall keep full and accurate books of account containing all - ------- particulars that may be necessary for calculating royalties. These books of account shall be kept at the principal place of business of Licensee within the United States, together with all necessary supporting data. All such reports and data shall be open for inspection on a confidential basis. Licensor may conduct an audit of these accounts at its own expense. If an audit shows that Licensee underpaid the royalties due to Licensor by more than [*]%, then Licensee shall immediately reimburse Licensor for the cost of such audit and immediately pay to Licensor any such deficiency with interest thereon. Books and records required to be maintained by Licensee hereunder shall be preserved for at least five (5) years from the date of the royalty payment to which they pertain. -2- Interest. All payments that are not paid to Licensor when due shall bear - -------- interest at the reference rate ("prime rate") charged from time-to-time by the Citibank N.A. from the date due until paid. Term. This Agreement shall remain in effect from the date hereof until - ---- expiration of the last to expire Licensed Patent, unless otherwise terminated by operation of law or in accordance with the terms of this Agreement. Material Breach. If either party breaches any material obligation of this - --------------- Agreement, including failure by Licensee to make payments when due, the other party may terminate this Agreement in its entirety by giving thirty (30) days advance written notice of such termination and of the reasons therefor, unless the breach is cured within such thirty (30) day period. Termination on Insolvency. In the event that Licensee ceases conducting - ------------------------- business in the normal course, becomes insolvent, makes a general assignment for the benefit of creditors, suffers or permits the appointment of a receiver for its business or assets or becomes subject to any proceeding relating to insolvency or the protection of rights of creditors, then this Agreement may be terminated effective on the date of such event or at anytime thereafter by Licensor, by notice electing to terminate this Agreement. Effect of Termination. Termination of this Agreement does not release either - --------------------- party from their continuing obligations hereunder nor create a right to rescind any payment or other consideration given under this Agreement prior to the time such termination becomes effective. Patent Infringement Suits. In the event of the institution of any suit by a - ------------------------- third party against Licensee for patent infringement by a Licensed Product, the Licensee shall promptly notify Licensor in writing. Licensee may defend such suits at its own expense. Licensor may participate in the defense at its own expense. Licensor need not enforce any Licensed Patent against third parties. Licensee and its affiliates shall mark all Licensed Products with the words "Patent" or "Patents" and the number(s) of the Licensed Patents applicable thereto. Warranties. Licensee is responsible for the performance hereunder by its - ---------- affiliates, including the payment of royalties, the provision of reports, and the collection and transmittal of royalties accruing on Net Sales by any affiliates. The parties expressly disclaim all warranties, express or implied, including without limitation warranties of merchantability, fitness for a particular purpose, or non-infringement of third party patents. Indemnity. Licensee hereby agrees indemnify, hold harmless and defend Licensor, - --------- its officers, directors, employees and agents, against any and all claims, suits, losses, damages, costs, fees and expenses resulting from or arising out of the exercise of the license by Licensee and its affiliates. This indemnity includes without limitation; (a) the packaging, making, importing, use, offering for sale, or sale of Products by Licensee or any affiliate of Licensee; and (b) any representation made or warranty given by Licensee or any affiliate of Licensee with respect to any Product. Waiver. No waiver by either party hereto of any breach or default of any of the - ------ covenants or agreements herein waivers any subsequent or similar breach or default. Non-Assignment. Neither party can transfer this Agreement without prior written - -------------- consent of the other party. Notice. Any notice to be given to either party hereto shall be in writing. - ------ Notices are effective on the date of delivery. Notices may be delivered in person, by telecopier, or by registered or certified mail, postage paid, to the other party at the following address: -3- In the case of Licensor: Fort Dodge Laboratories Suite 1500 9401 Indian Creek Parkway Overland Park, Kansas 66225-5945 Telecopier: (913) 664-7120 Attn: President With a copy to: American Home Products Corporation 5 Giralda Farms Madison, New Jersey 07940 Telecopier (201) 660-6281 Attn: Senior Vice President & General Counsel In the case of Licensee: Synbiotics Corporation 11011 Via Frontera San Diego, CA 92127-1702 Telecopier (619) 451-5719 Attn: President Agreement not to Bring Declaratory Judgment Action. Licensee will not file any - -------------------------------------------------- declaratory judgment action regarding validity or infringement of any Licensed Patent during this Agreement so long as Licensor takes no legal action against Licensee in relation to this Agreement. Headings. The headings of the several sections are inserted for convenience of - -------- reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. Amendment. All amendments hereto must be in writing and signed by both parties. - --------- Independent Contractors. This Agreement does not create an agency, partnership - ----------------------- or employment relationship between Licensor and Licensee. At no time shall any party make commitments in the name of the other party. Entire Agreement. This Agreement embodies the entire understanding of the - ---------------- parties and supersedes all previous understandings between the parties relating to the Licensed Patents. If any provision of this Agreement is held to be unenforceable, the provision shall be interpreted to be enforceable to the extent possible. All other provisions of this Agreement shall remain valid and enforceable to their full extent. Construction. This Agreement is governed by and construed in accordance with - ------------ the laws of the State of New York without regard to its conflict of laws rules. -4- IN WITNESS WHEREOF, both Licensor and Licensee have executed this Agreement by their respective duly authorized officers. Licensor: AMERICAN HOME PRODUCTS CORPORATION By: /s/ E. Thomas Corcoran ---------------------------------------- Title: President - Fort Dodge Animal Health Licensee: SYNBIOTICS CORPORATION By: /s/ Kenneth M. Cohen ---------------------------------------- Title: President and Chief Executive Officer -5- EX-10.63 5 SUPPLY AGREEMENT EXHIBIT 10.63 ------------- SUPPLY AGREEMENT AGREEMENT, by and between SYNBIOTICS CORPORATION, a corporation organized and existing under the laws of California, having a place of business at 11011 Via Frontera, San Diego, California 92127-1702 ("SC") and American Home Products Corporation, a corporation of Delaware, acting through its Fort Dodge Animal Health division, having a place of business at 9401 Indian Creek Parkway, Suite 1500, Overland Park, Kansas 66225-5945 ("FDL"). A. FDL and SC have concurrently herewith entered into a license agreement ("License Agreement") wherein FDL granted SC [*] rights under certain U. S. patents relating to modified live canine corona vaccines and their production. B. FDL has experience and expertise in the manufacture and supply of commercial vaccines. C. FDL desires to manufacture and supply to SC [*] vaccine components as hereinafter defined and SC desires to have FDL manufacture and supply it with such components. ARTICLE I DEFINITIONS As used in this Agreement, the following terms shall have the following respective meanings: 1.1 "[*] Vaccines" shall mean a vaccine containing, as its only antigen, a [*]. 1.2 "Products" shall mean any of the [*] vaccine components listed on Exhibit A hereto and as may be amended in writing by the parties. 1.3 "Specifications" shall mean all specifications for or concerning the testing, manufacturing, storage, handling, packaging and quality assurance of Products in bulk form as set forth in Exhibit B hereto, or as may be agreed upon by the parties in writing from time to time. 1.4 "USDA" means the United States Department of Agriculture, or any of its successor agencies or departments. 1.5 "Territory" shall mean the United States of America and its territories and possessions. 1.6 "Affiliate(s)" shall mean any company(ies) directly or indirectly controlling, controlled by, or under common control with a respective party. For purposes of this definition, "control" shall mean possession of the power to direct or cause the direction of the management and policies of the company, whether pursuant to the ownership of voting securities, by contract, or otherwise. 1.7 "Effective Date" shall mean the effective date of the License Agreement. - ------------- [*] Certain confidential portions of this exhibit have been omitted by means of blacking out the text (the "Mark"). This exhibit has been filed separately with the Secretary of the Commission without the Mark pursuant to the Company's Application Requesting Confidential Treatment under Rule 24b-2 under the Securities Exchange Act of 1934, as amended. -1- 1.8 "$" shall mean United States dollars. ARTICLE II SUPPLY OF PRODUCTS 2.1 Except as provided below, during the term of this Agreement, FDL shall manufacture for and supply to SC all quantities of the Products as may be required of FDL by SC in the Territory, and SC shall purchase all of its requirements for the Products in the Territory from FDL. 2.2 Within thirty (30) days after the Effective Date and thereafter within three (3) months of the first day of each calendar quarter, SC shall provide FDL with a non-binding estimate of its expected purchases of each of the Products in each of the following four (4) calendar quarters. SC may amend its quarterly forecast up to sixty (60) days prior to the applicable calendar quarter after which time such forecast shall become binding (except as provided under Section 2.4 hereof). 2.3 SC shall place purchase orders for each of the Products with FDL from time to time specifying the quantities of the Products desired, and the place(s) to which and the manner and dates by which delivery is to be made; said delivery dates to be no earlier than thirty (30) days from the purchase order date. All orders on a per vial or per dose basis shall be in [*] dose lots or as otherwise agreed to by the parties. To the extent the terms of any purchase order or acknowledgement thereof are inconsistent with the terms of this Agreement, this Agreement shall control. 2.4 (a) SC shall order at least [*]% and not more than [*]% of its binding quarterly forecast of Products within the applicable calendar quarter. (b) FDL shall have no obligation to supply more than [*]% of SC's quarterly forecast of Products in that calendar quarter. However, in instances wherein SC orders more than [*]% of its quarterly forecast of Products, FDL agrees to use commercially reasonable efforts to supply up to [*]% of SC's quarterly forecast of Products during that calendar quarter. 2.5 FDL shall execute all purchase orders by delivery of all ordered quantities of the Products no later than the delivery dates provided in SC's purchase orders to the destinations directed by SC. Title and risk of loss will pass to SC when each order of Products is delivered to SC's designated carrier. 2.6 As of the time of delivery by FDL, each lot of the Products will conform to the Specifications. FDL shall provide to SC a certificate of analysis with each shipment of the Products to SC stating that the Products conform to the Specifications. ARTICLE III MANUFACTURE OF PRODUCTS 3.1 FDL agrees to keep complete records of all direct and ancillary operations in the manufacture and supply of the Products to SC which shall upon reasonable advance notice be available to examination, audit and copying by SC and its representatives. FDL further agrees to promptly advise SC of its receipt from the USDA of any correspondence relating to the Products and/or their manufacture, and to supply SC with copies of said correspondence upon the request of SC. -2- 3.2 SC shall have the right to inspect at all reasonable times during normal business hours, and on reasonable prior notice, the operations and facilities of FDL wherein the Products are manufactured, packaged, inspected, tested, labelled, stored or shipped. ARTICLE IV PURCHASE PRICE 4.1 SC shall purchase and FDL shall sell to SC all quantities of the Products as may be ordered by SC at prices per dose as set forth in Exhibit A. 4.2 SC shall pay all actual freight, insurance and government sales tax imposed on purchasers for resale, and import and export duties and other fees (except tax on income to FDL) incurred in connection with the sale and shipment of the Products to SC. 4.3 On January 1, 1998, and on each twelve-month anniversary of that date, the prices set forth in Section 4.1 may be adjusted by FDL to reflect (1) any increase or decrease in FDL's cost of raw materials required for the manufacture of the Products and (2) any increase or decrease in FDL's cost of manufacturing such Products (so long as FDL complies with the following sentence). FDL shall notify SC of any such increases or decreases at least ninety (90) days prior to such anniversary dates and provide SC with documentation for cost adjustments relating to changes in FDL's costs of raw materials under Section 4.3(1) above. Price adjustments shall become effective on all quantities of Products ordered by SC for delivery after such adjustment date. 4.4 FDL shall keep complete records of FDL's costs of manufacturing the Products, and shall permit SC's independent auditors at SC's expense to inspect and review such records during normal business hours and upon reasonable prior notice in order to verify or determine such costs and whether an increase or decrease in such costs has occurred. The auditors may not disclose to SC specific manufacturing cost breakdowns, but only whether or not the increase or decrease in FDL's costs of manufacturing reported by FDL are correct. SC shall bear the costs and fees associated with such inspections and reviews unless it is determined that such price adjustment was unjustified, in which case FDL shall bear the costs and fees of such audit. 4.5 Payments to FDL for the purchase price of delivered Products shall be made by SC within thirty (30) days after the date of actual delivery thereof to the destination specified by SC, except as to Product orders which are not accepted by SC or which the parties dispute are nonconforming to Specifications. ARTICLE V INSPECTION OF PRODUCT 5.1 Acceptance of Products delivered to SC shall be subject to inspection and approval by SC,s quality assurance personnel or such other technical representatives as SC may select, with respect to whether each lot of the Products conforms to the Specifications. 5.2 SC shall as promptly as practical, but not more than thirty (30) working days after actual receipt of a Product order, notify FDL of any disapproval of samples of such Product inspected and its nonacceptance of the Product order, or portion thereof. 5.3 If FDL disputes any finding by SC that a Product sample fails to conform to the Specifications, such dispute shall be resolved by an independent, USDA approved laboratory selected by FDL, acceptable to SC. All fees and -3- disbursements incurred in connection with the independent determination shall be borne by the party which determined incorrectly that the Product sample does or does not conform to the Specifications. 5.4 FDL shall replace any Product order, or portion thereof, not conforming to the Specifications, (unless such non-conformance is due to any negligent or wrongful act or omission by SC or its agents or subcontractors), at its cost and expense, including shipping costs, forthwith. 5.5 SC may return, at FDL's expense including shipping costs, any Product order, or portion thereof, which does not conform to the Specifications and FDL agrees to accept such returned Product. ARTICLE VI WARRANTIES AND INDEMNITIES 6.1 (a) Except as may be modified by Section 6.1(b) hereof, FDL warrants that the Products conform to the Specifications. THE FOREGOING WARRANTY IS EXCLUSIVE, AND IS IN LIEU OF ALL OTHER WARRANTIES (WHETHER WRITTEN, ORAL OR IMPLIED) INCLUDING A WARRANTY OF MERCHANTABILITY IN OTHER RESPECTS THAN EXPRESSLY SET FORTH ABOVE AND A WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE. (b) The warranty set forth in Section 6.1(a) relating to any desiccated component shall be valid only if the desiccated component of the Products are prepared and dried by FDL. 6.2 FDL shall indemnify, defend and hold SC, its officers, directors, shareholders, Affiliates, subsidiaries, employees, agents and representatives harmless from any claims, losses, liabilities, costs, expenses (including reasonable attorney's fees) and damages, including any related to property or personal injury, arising out of or in any way related to (a) FDL's representations, warranties or covenants contained herein or breach thereof; or (b) any violation by FDL of any applicable Federal, State or local regulation, statute or order in the manufacture of Products. However, FDL shall have no obligations to SC under this Section unless SC (i) gives FDL prompt notice of any claim or lawsuit or other action for which it seeks to be indemnified under this Agreement and (ii) cooperates fully with FDL and its agents in defense of the claims or lawsuit or other action. SC shall have the right to participate in the defense of any such claim, complaint, suit, proceeding or cause of action referred to in this section utilizing attorneys of its choice. SC shall bear the costs associated with its participation. 6.3 SC shall indemnify, defend and hold FDL, its officers, directors, shareholders, Affiliates, subsidiaries, employees, agents and representatives harmless from any claims, losses, liabilities, costs, expenses (including reasonable attorney's fees) , costs, liabilities or any other loss as the result of claims for personal injury or property damage to third parties arising out of or in connection with SC's activities occurring in the course of its sales efforts related to sale of Products, provided that, SC shall not be liable hereunder for any matter that may be covered by FDL's indemnity above. SC shall have no obligations under this Section unless FDL (i) gives SC prompt notice of any claim or lawsuit or other action for which it seeks to be indemnified under this Agreement, and (ii) cooperates fully with SC and its agents in defense of the claims or lawsuit or other action. FDL shall have the right to participate in the defense of any such claim, complaint, suit, proceeding or cause of action referred to in this Section utilizing attorneys of its choice. FDL shall bear the costs associated with its participation. -4- ARTICLE VII INSURANCE SC shall obtain and maintain at all times during the term of this Agreement Comprehensive General Liability Insurance, including Products Liability, naming FDL as an additional insured, with limits of liability of not less than [*] Dollars ($[*]) per occurrence. SC shall provide FDL with a Certificate of Insurance evidencing this coverage within thirty (30) days of the Effective Date. ARTICLE VIII VACCINE RECALLS 8.1 In the event of a recall of any Product required by a governmental agency or authority of competent jurisdiction or if recall of any Product is jointly deemed advisable by FDL and SC, such recall shall be promptly implemented and administered by SC in a manner which is appropriate and reasonable under the circumstances and in conformity with accepted trade practices. The costs of any such recall shall be borne by the party or parties whose actions caused the recall to be necessary. FDL will have no obligation to pay costs of recalls of Products caused by actions of third parties occurring after such Product is sold by SC. 8.2 The provisions and obligations of this Article VIII shall survive any termination of this Agreement. ARTICLE IX CONTRACTUAL RELATIONSHIP The relationship of the parties under this Agreement is that of independent contractors and not as agents of each other or partners or joint venturers, and neither party shall have the power to bind the other in any way with respect to any obligation to any third party unless a specific power of attorney is provided for such purpose. Each party shall be solely and exclusively responsible for its own employees and operations. ARTICLE X TERM AND TERMINATION 10.1 This Agreement shall become effective upon the Effective Date and, unless earlier terminated as provided below, shall remain in full force and effect for a period of five (5) years ("Initial Term"). This Agreement will automatically renew and continue in force for successive one (1) year renewal(s) term(s) until terminated at the expiration of the Initial Term or thereafter upon at least one (1) year's written notice by either party. 10.2 FDL may terminate this Agreement, except as limited hereinafter, immediately upon written notice, in the event (a) SC fails to make any payment due and owing within sixty (60) days after notice thereof; or (b) SC commits breach of any material provision of this Agreement which is not cured within sixty (60) days after notice thereof. This right of termination, however, cannot be exercised by FDL if at any time during said sixty (60) days period, SC advises FDL in writing that it challenges the alleged payment owed or breach. In such event the parties will negotiate in good faith to resolve the dispute concerning the alleged payment owed or breach. 10.3 SC may terminate this Agreement immediately upon written notice in the event FDL commits breach of any material provision of this Agreement which is not cured within sixty (60) days after notice thereof. -5- 10.4 Either party may terminate this Agreement if the other party is declared insolvent or bankrupt by a court of competent jurisdiction, or files a voluntary petition of bankruptcy in any court of competent jurisdiction, or shall make or execute an assignment of substantially all its assets for the benefit of creditors. 10.5 This Agreement will automatically terminate upon termination of the License Agreement. 10.6 Termination of this Agreement for any cause shall not release either party from any obligation theretofore accrued. 10.7 The failure on the part of either party to exercise or enforce any right conferred upon it hereunder shall not be deemed to be a waiver of any such right nor operate to bar the exercise or enforcement thereof at any time thereafter. 10.8 Upon termination of this Agreement for any reason, FDL shall fill all outstanding orders of SC for the Products, unless otherwise instructed by SC. ARTICLE XI ASSIGNABILITY SC shall not at any time assign or transfer this Agreement to any person, firm, organization or company whomsoever without the prior written consent of FDL (such consent not to be unreasonably withheld or delayed) except that SC may assign this Agreement to any Affiliate without any such consent. ARTICLE XII SEVERABILITY The illegality or invalidity of any provisions of this Agreement shall not impair, affect or invalidate the other provisions of this Agreement. ARTICLE XIII GOVERNING LAW This Agreement shall be governed by and interpreted according to the laws of the State of New Jersey without regard to principles of conflict of laws. The appropriate state and federal courts of the State of New Jersey shall have exclusive jurisdiction over any dispute between the parties, and each party unconditionally submits to the jurisdiction of such courts. ARTICLE XIV NOTICES Any notice required or permitted under this Agreement shall be deemed to have been sufficiently provided and effectively made as of the delivery date if hand- delivered, or as of the mailing date if mailed by registered mail, postage- prepaid, and addressed to the receiving party at the following respective address: -6- FORT DODGE ANIMAL HEALTH 9401 Indian Creek Parkway, Suite 1500 Overland Park, KS 66225-5945 Attention: President With a copy to: AMERICAN HOME PRODUCTS CORPORATION Five Giralda Farms Madison, New Jersey 07940 Attention: Senior Vice President and General Counsel SYNBIOTICS CORPORATION 11011 Via Frontera San Diego, CA 92127-1702 Attention: President or such other address which the receiving party has given notice pursuant to the terms of this Article XIV. ARTICLE XV ANNOUNCEMENTS Unless required by law, neither party shall, without the other party's prior written consent, make any announcement or other disclosure regarding the existence or terms of this Agreement. ARTICLE XVI CONFIDENTIALITY 16.1 During the term hereof, SC agrees not to disclose to any third party or use for any purpose not required of SC under either this Agreement or the License Agreement any and all proprietary information of FDL (hereinafter "INFORMATION"). INFORMATION shall not include information which: a. Is in or comes into the public domain, provided that such information does not come into the public domain through any act, negligence or fault of SC; or b. Can be shown by competent proof to have been in the possession of SC at or prior to the date of disclosure by FDL; or c. Is properly provided to SC without restriction by an independent third party under no obligation of confidentiality to FDL; or d. Is disclosed by FDL on a non-confidential basis to third parties. 16.2 That all rights, title and interest in or to INFORMATION is at the date hereof, and shall at all times remain exclusively in FDL, and that SC shall not at any time claim any right, title, license under or interest in or to the INFORMATION for itself or on behalf of any other entity or person. -7- 16.3 SC shall keep the INFORMATION strictly secret and confidential, shall not make any use thereof except for purposes permitted under this Agreement and/or the License Agreement, and shall maintain this confidentiality for a period of five (5) years from the termination date of this Agreement. 16.4 The obligations of confidentiality and non-use set forth in this Article 16 shall supersede all other such obligations between the parties. ARTICLE XVII FORCE MAJEURE 17.1 Neither party shall be liable for delay in performance or non-performance caused by circumstances beyond the reasonable control of the party affected, including, but not limited to, acts of God, fires, floods, acts of war or violence, labor disputes or shortages, plant shutdown, governmental actions, or inability to obtain material, equipment or transportation. 17.2 SC acknowledges that FD's ability to supply Product and meet its obligations hereunder is contingent upon FDL's possession of all required USDA approvals. ARTICLE XVIII ENTIRE UNDERSTANDING Except as set forth in the License Agreement, this Agreement represents the entire understanding between FDL and SC, and supersedes all other understandings and agreements, express or implied, concerning the supply of the Products. Any modification or waiver of this Agreement to be effective must be in writing, specifically refer to this Agreement, and be signed by both parties. AMERICAN HOME PRODUCTS CORPORATION, ACTING THROUGH ITS FORT DODGE ANIMAL HEALTH DIVISION By: /s/ E. Thomas Corcoran ---------------------------------------- Title: President - Fort Dodge Animal Health SYNBIOTICS CORPORATION By: /s/ Kenneth M. Cohen ---------------------------------------- Title: President and Chief Executive Officer -8- EXHIBIT A PRODUCTS and PURCHASE PRICE --------------------------- Product: per dose equivalent 1x virus fluid $[*] EXHIBIT B SPECIFICATIONS --------------
1x Fluid - -------- Sterility - Passes 9 C.F.R. 113.27 Mycoplasma - Passes 9 C.F.R. 113.28 Minimum Titer - 5.3 (log 10) Identity - Passes 9 C.F.R. 113.300(c) Conforms to 9 C.F.R. 113.300
EX-11.1 6 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11.1 ------------ Synbiotics Corporation Computation of Earnings Per Share - --------------------------------------------------------------------------------
Three Months Ended March 31, ------------------------------ 1997 1996 ---------- ---------- Primary Earnings Per Share: Net income per statement of operations $ 830,000 $1,651,000 ========== ========== Weighted average number of shares outstanding 7,485,000 5,911,000 ========== ========== Primary earnings per share $ .11 $ .28 ========== ========== Fully Diluted Earnings Per Share: Net income per statement of operations $ 830,000 $1,651,000 ========== ========== Reconciliation of weighted average number of shares per primary computation above, to amount used for fully diluted computation: Weighted average number of shares outstanding, per primary computation 7,485,000 5,911,000 Add-effect of outstanding options (as determined by the application of the treasury method) 7,000 13,000 ---------- ---------- Weighted average number of shares, as adjusted 7,492,000 5,924,000 ========== ========== Fully diluted earnings per share $ .11 $ .28 ========== ==========
-1- EX-27 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED BALANCE SHEET AS OF MARCH 31, 1997 AND THE RELATED CONDENSED STATEMENTS OF OPERATIONS AND OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1997 CONTAINED ELSEWHERE IN THIS FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 1,751 2,214 4,985 56 4,723 14,895 4,409 3,741 28,663 2,197 0 0 0 35,526 (9,060) 28,663 6,940 7,079 3,382 3,382 2,271 0 0 1,426 596 830 0 0 0 830 .11 .11
-----END PRIVACY-ENHANCED MESSAGE-----