-----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, P+LzicWTmR9MIIMfqC7aYhDwjZxgY4SuQP5nY1JNjgCCbBevGzmDKS2U8AQHawWz /BhV6ZjLimeUsBI+9E9PJg== 0000936392-96-001170.txt : 19961212 0000936392-96-001170.hdr.sgml : 19961212 ACCESSION NUMBER: 0000936392-96-001170 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 19 FILED AS OF DATE: 19961211 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIOSITE DIAGNOSTICS INC CENTRAL INDEX KEY: 0000834306 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 330288606 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-17657 FILM NUMBER: 96679321 BUSINESS ADDRESS: STREET 1: 11030 ROSELLE ST CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6194554808 MAIL ADDRESS: STREET 1: 11030 ROSELLE ST CITY: SAN DIEGO STATE: CA ZIP: 92121 S-1 1 FORM S-1 DATED 12-11-96 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 11, 1996 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ BIOSITE DIAGNOSTICS INCORPORATED (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 3826 33-0288606 (STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
11030 ROSELLE STREET SAN DIEGO, CALIFORNIA 92121 (619) 455-4808 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ KIM D. BLICKENSTAFF PRESIDENT AND CHIEF EXECUTIVE OFFICER BIOSITE DIAGNOSTICS INCORPORATED 11030 ROSELLE STREET SAN DIEGO, CALIFORNIA 92121 (619) 455-4808 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE OF PROCESS) ------------------------ COPIES TO: THOMAS E. SPARKS, JR., ESQ. ALAN C. MENDELSON, ESQ. JOHN L. DONAHUE, ESQ. D. BRADLEY PECK, ESQ. GEORGE A. GUCKER, ESQ. NANCY E. DENYES, ESQ. PILLSBURY MADISON & SUTRO LLP COOLEY GODWARD LLP P.O. BOX 7880 4365 EXECUTIVE DRIVE, SUITE 1100 SAN FRANCISCO, CA 94120-7880 SAN DIEGO, CA 92121-2128
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. ------------------------ CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
PROPOSED PROPOSED AMOUNT MAXIMUM MAXIMUM TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE - -------------------------------------------------------------------------------------------------------------------- Common Stock, $.01 par value................. 2,300,000 $13.00 $29,900,000 $9,061 - -------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------
(1) Includes 300,000 shares that the Underwriters have the option to purchase to cover over-allotments, if any. (2) Estimated solely for the purpose of computing the registration fee pursuant to Rule 457(a). ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. PROSPECTUS (Subject to Completion) Dated December 11, 1996 2,000,000 SHARES LOGO COMMON STOCK ------------------------ All of the 2,000,000 shares of Common Stock, $.01 par value per share (the "Common Stock"), offered hereby are being sold by Biosite Diagnostics Incorporated ("Biosite" or the "Company"). Prior to this offering, there has been no public market for the Common Stock of the Company. It is estimated that the initial public offering price will be between $11.00 and $13.00 per share. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. Application has been made to have the Common Stock approved for quotation on the Nasdaq National Market under the symbol "BSTE." ------------------------ THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS TO PUBLIC COMMISSIONS(1) COMPANY(2) - ------------------------------------------------------------------------------------------------- Per Share......................... $ $ $ Total (3)......................... $ $ $ - ------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company, estimated to be $700,000. (3) The Company has granted the Underwriters an option, exercisable within 30 days of the date hereof, to purchase an aggregate of up to 300,000 additional shares at the Price to Public less Underwriting Discounts and Commissions to cover over-allotments, if any. If all such additional shares are purchased, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ------------------------ The Common Stock is offered by the several Underwriters named herein when, as and if received and accepted by them, subject to their right to reject orders in whole or in part and subject to certain other conditions. It is expected that delivery of certificates for the shares will be made at the offices of Cowen & Company, New York, New York on or about , 1997. ------------------------ COWEN & COMPANY ALEX. BROWN & SONS INCORPORATED , 1997 3 TRIAGE(R) PANEL FOR DRUGS OF ABUSE EMERGENCY ROOM SCREENING TRIAGE(R) TRIAGE(R) PLUS TCA PANEL FOR EMERGENCY ROOM SCREENING DRUGS OF ABUSE TRIAGE(R) INTERVENTION WORKPLACE SCREENING MERCK TRIAGE(R) INTERNATIONAL MARKETS [PHOTOGRAPHS SHOWING TRIAGE DOA TEST DEVICE AND VARIOUS TRIAGE DOA PRODUCT CONFIGURATIONS] [ARTWORK] IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. Biosite(R) and Triage(R) are registered trademarks of the Company. Immediate Response Diagnostics(TM), Express Test(SM), Triage CareLink(TM) and the Company's logo are servicemarks or trademarks of the Company. This Prospectus also includes trade names and trademarks of companies other than Biosite. 4 BIOSITE'S TRIAGE PANELS AND TRIAGE CARELINK SYSTEM PRODUCT ATTRIBUTES TRIAGE(R) PANEL FOR DRUGS OF ABUSE IS USED IN A VARIETY OF SETTINGS FOR RAPID DRUG SCREENING RAPID RESULTS EASE OF USE HIGH ANALYTICAL ACCURACY MULTIPLE ANALYTE DETECTION RELIABILITY COST EFFECTIVENESS [PHOTOGRAPHS OF CERTAIN SETTINGS IN WHICH TRIAGE DOA IS USED (HOSPITAL LABORATORIES, EMERGENCY ROOMS AND WORKPLACE SCREENING)] 5 [PHOTOGRAPHS SHOWING THE COMPANY'S PRODUCTS UNDER DEVELOPMENT] TRIAGE(R) PANELS TRIAGE(R) O & P TRIAGE(R) C.DIFF TRIAGE(R) ENTERIC (PARASITE SCREENING) (PATHOGEN DETECTION) (PATHOGEN SCREENING) TRIAGE(R) CARELINK SYSTEM TRIAGE(R) CARDIAC TRIAGE(R) TRANSPLANT (ACUTE MYOCARDIAL (CYCLOSPORIN MONITORING) INFARCTION DETECTION) THE COMPANY'S PRODUCTS IN DEVELOPMENT ARE IN VARIOUS STAGES OF RESEARCH OR DEVELOPMENT AND HAVE NOT BEEN APPROVED BY THE UNITED STATES FOOD AND DRUG ADMINISTRATION FOR COMMERCIAL SALE. THERE CAN BE NO ASSURANCE THAT THE COMPANY'S PRODUCTS IN DEVELOPMENT WILL BE SUCCESSFULLY DEVELOPED OR APPROVED BY REGULATORY AUTHORITIES FOR COMMERCIAL SALE. 6 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements and notes appearing elsewhere in this Prospectus. Except as set forth in the financial statements and notes thereto or otherwise as specified herein, all information in this Prospectus (i) assumes no exercise of the Underwriters' over-allotment option, (ii) reflects the conversion of all outstanding shares of Preferred Stock of the Company into shares of Common Stock upon the closing of this offering and (iii) includes 92,222 shares which will be issued upon conversion of a $1.0 million debenture into shares of Common Stock upon the closing of this offering, assuming an initial public offering price of $12.00 per share and accrued interest on the debenture through January 31, 1997. See "Description of Capital Stock," "Underwriting" and Notes 1, 6 and 7 of Notes to Financial Statements. THE COMPANY Biosite Diagnostics Incorporated ("Biosite" or the "Company") develops, manufactures and markets rapid, accurate and cost-effective diagnostic products that improve the quality of patient care and simplify the practice of laboratory medicine. The Company believes that its Immediate Response Diagnostics can have an important impact on medical decisions, patient care and the cost of medical treatment. The Company's first product, Triage Panel for Drugs of Abuse ("Triage DOA"), a small self-contained test capable of detecting a broad spectrum of commonly overdosed prescription and illicit drugs in approximately 10 minutes, is used by over 2,600 hospitals and emergency departments. Since its introduction in 1992, over 4.2 million Triage DOA panels have been sold worldwide for use in hospital emergency department screening and workplace testing. The Company is developing several additional products for applications where the Company believes its Immediate Response Diagnostics can play an important role in improving patient care. Products under development include tests that are intended to aid in the diagnosis of heart attacks, the dosing of certain therapeutic drugs, the management of certain chronic diseases and the detection of certain bacterial and parasitic infections. In 1995, the worldwide market for immunoassay tests exceeded $5.1 billion. Although early manual immunoassay tests provided high levels of sensitivity for analyte detection, these tests suffered from short shelf lives, long reaction times, a need for radioactive labels and inconsistent results. In response to these limitations, automated immunoassay analyzers have been developed to simplify the performance of antibody-based tests. However, these machines are large and complex, have lengthy turnaround times and require high volumes of sample throughput to justify the significant investment in equipment and technical staff. In recent years, there has been a continuing shift from the use of such analyzers to more technologically advanced point-of-care tests that can be performed in a matter of minutes. Although certain simple single analyte diagnostic tests have been developed, such tests have remained incapable of precise, multi-analyte detection or highly sensitive quantitative measurements. As a result, medical tests that require multiple analytes or precise quantitation of the target analyte have remained the domain of immunoassay analyzers. The Company believes that there is significant market potential for advanced point-of-care diagnostic products that provide quick and accurate diagnosis during a patient visit, shortening the decision time to medical intervention and minimizing the need for additional patient follow-up, thereby reducing overall health care delivery costs. Biosite's Immediate Response Diagnostics technology is based on proprietary advances in several core scientific and engineering disciplines, including antibody development and engineering, analyte cloning and synthesis, signaling chemistry and micro capillary fluidics, which make possible the development and manufacture of rapid, accurate and cost-effective point-of-care diagnostics. The Company has utilized its core technologies to develop two distinct product platforms: the Triage Panel for qualitative visual readings and the Triage CareLink System for quantitative measurements. The Company's products are designed to measure either a single analyte or multiple analytes simultaneously and to allow for the qualitative or quantitative analysis of various samples, including urine, serum, plasma, whole blood and stool. Both of the Company's product platforms are designed to provide rapid results, ease of use, high analytical accuracy and the capability of performing multiple analyses in a reliable and cost-effective testing device. 3 7 Triage DOA, based on the Company's Triage Panel platform, is a qualitative, single sample urine screen that identifies eight commonly abused prescription and illicit drugs or drug classes and provides results in approximately 10 minutes. Emergency physicians have estimated that drug abuse is implicated in 5-10% of the emergency department visits in the United States each year. The Company believes that it is a leading provider of immunoassays for drug screening in hospitals. In 1995, sales of Triage DOA product lines exceeded $25 million. The Company has additional Triage Panel products under development for the qualitative detection of bacterial and parasitic infections. The Triage CareLink System under development is designed to provide rapid, quantitative results for immunoassay tests. The Triage CareLink System consists of two parts: a small single-use test cartridge and a proprietary portable fluorescent meter designed to read the sample at the point-of-care. The Company currently is developing two applications using this technology: Triage Cardiac, to quantify a panel of cardiac markers implicated in acute myocardial infarction ("AMI"), and Triage Transplant, to monitor the concentration of cyclosporine, an immunosuppressant drug prescribed for organ transplant recipients to prevent organ rejection. The Company has entered into several strategic arrangements with major pharmaceutical and diagnostic companies, including Sandoz Pharma Ltd. ("Sandoz") for the development of Triage Transplant; LRE Relais + Electronik GmbH ("LRE") for the development of the fluorescent meter used in the Triage CareLink System; and Merck KGaA ("Merck") and ARKRAY KDK Corporation, formerly known as Kyoto Dai-ichi Kagaku Co., Ltd. ("KDK"), for the development of Triage Cardiac. In addition, the Company uses Curtin Matheson Scientific, Inc., a subsidiary of Fisher International Inc. ("CMS"), to distribute Triage DOA to U.S. hospital-based laboratories and emergency departments and has built a small direct sales force to address the workplace testing segment of the market for Triage DOA. Merck is the exclusive distributor of Triage DOA in certain countries in Europe, Latin America, the Middle East and Africa. The Company was incorporated in Delaware in 1988. The Company's executive offices are located at 11030 Roselle Street, San Diego, California 92121, and its telephone number is (619) 455-4808. THE OFFERING Common Stock offered by the Company.......... 2,000,000 shares Common Stock to be outstanding after the offering................................... 11,885,168 shares(1) Use of proceeds.............................. For expansion of sales and marketing activities, research and development, expansion and development of manufacturing capabilities, working capital and general corporate purposes. Proposed Nasdaq symbol....................... BSTE
- --------------- (1) Excludes 1,180,204 shares reserved for issuance upon exercise of stock options outstanding at November 30, 1996. See "Capitalization," "Management -- Executive Compensation" and Note 7 of Notes to Financial Statements. 4 8 SUMMARY FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, ----------------------------------------------- ------------------- 1991 1992 1993 1994 1995 1995 1996 ------- ------- ------- ------- ------- ------- ------- STATEMENT OF INCOME DATA: Net sales............................... $ -- $ 2,920 $ 9,866 $16,320 $25,147 $18,236 $20,225 Cost of sales........................... -- 1,612 3,268 4,416 5,649 3,781 4,318 ------- ------- ------- ------- ------- ------- ------- Gross profit............................ -- 1,308 6,598 11,904 19,498 14,455 15,907 Research and development................ 2,793 2,593 2,796 3,836 6,553 4,602 6,515 Selling, general and administrative..... 1,771 3,622 4,841 5,960 7,134 5,203 6,116 ------- ------- ------- ------- ------- ------- ------- Total operating expenses................ 4,564 6,215 7,637 9,796 13,687 9,805 12,631 Income (loss) from operations........... (4,564) (4,907) (1,039) 2,108 5,811 4,650 3,276 Interest and other income, net.......... 260 630 613 649 1,647 1,253 1,441 Settlement of patent matters............ -- -- -- (338) (1,217) (743) (2,368) ------- ------- ------- ------- ------- ------- ------- Income (loss) before benefit (provision) for income taxes...................... (4,304) (4,277) (426) 2,419 6,241 5,160 2,349 Benefit (provision) for income taxes.... -- -- -- (63) 1,667 (132) 264 ------- ------- ------- ------- ------- ------- ------- Net income (loss)....................... $(4,304) $(4,277) $ (426) $ 2,356 $ 7,908 $ 5,028 $ 2,613 ======= ======= ======= ======= ======= ======= ======= Net income (loss) per share............. $ (0.61) $ (0.49) $ (0.04) $ 0.22 $ 0.74 $ 0.47 $ 0.24 ======= ======= ======= ======= ======= ======= ======= Common and common equivalent shares used in computing per share amounts(1)..... 7,058 8,754 10,098 10,553 10,766 10,721 10,832
SEPTEMBER 30, 1996 -------------------------- ACTUAL AS ADJUSTED(2) ------- -------------- BALANCE SHEET DATA: Cash, cash equivalents and short-term investments.............................. $10,169 $ 31,789 Working capital................................................................ 13,967 35,667 Total assets................................................................... 28,968 50,588 Notes payable and capital lease obligations, less current portion.............. 3,234 2,234 Stockholders' equity........................................................... 21,181 43,881
- --------------- (1) Computed on the basis described in Note 1 of Notes to Financial Statements. (2) Adjusted to reflect the sale by the Company of 2,000,000 shares of Common Stock offered hereby at an assumed initial public offering price of $12.00 per share and the application of the estimated net proceeds therefrom. See "Use of Proceeds" and "Capitalization." 5 9 The discussion in this Prospectus contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the sections entitled "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," as well as those discussed elsewhere in this Prospectus. RISK FACTORS In evaluating the Company's business, prospective investors should consider carefully the following risk factors in addition to the other information presented in this Prospectus. DEPENDENCE ON DEVELOPMENT AND INTRODUCTION OF NEW PRODUCTS Except for Triage DOA, all of the Company's products are still under development, and there can be no assurance that such products will be successfully developed or commercialized on a timely basis, if at all. The Company believes that its revenue growth and profitability will substantially depend upon its ability to complete development of and successfully introduce these new products. In addition, the successful development of some of these new products will depend on the development of new technologies, including the Triage CareLink System's fluorescent meter and assay devices. The Company will be required to undertake time-consuming and costly development activities and seek regulatory approval for these new products. There can be no assurance that the Company will not experience difficulties that could delay or prevent the successful development, introduction and marketing of these new products, that regulatory clearance or approval of any new products will be granted by the U.S. Food and Drug Administration ("FDA") or foreign regulatory authorities on a timely basis, if at all, or that the new products will be successfully commercialized. The Company has limited resources to devote to the development of all its products and consequently a delay in the development of one product may delay the development of other products. In order to successfully commercialize any new products, the Company will be required to establish and maintain reliable, cost-efficient, high-volume manufacturing capacity for such products. If the Company is unable, for technological or other reasons, to complete the development, introduction or scale-up of manufacturing of any new product or if any new product is not approved for marketing or does not achieve a significant level of market acceptance, the Company's business, financial condition and results of operations would be materially and adversely affected. See "Business -- Products and Products Under Development," "-- Manufacturing" and "-- Government Regulation." FUTURE OPERATING RESULTS AND QUARTERLY FLUCTUATIONS The Company first achieved profitability in fiscal 1994 and prior to that time incurred significant operating losses. There can be no assurance that the Company will remain profitable on a quarterly or annual basis in the future. The Company believes that future operating results will be subject to quarterly fluctuations due to a variety of factors, including whether and when new products are successfully developed and introduced by the Company, market acceptance of current or new products, regulatory delays, product recalls, manufacturing delays, shipment problems, seasonal customer demand, the timing of significant orders, changes in reimbursement policies, competitive pressures on average selling prices, changes in the mix of products sold and patent conflicts. Operating results would also be adversely affected by a downturn in the market for the Company's current and future products, if any, order cancelations or order rescheduling. Because the Company is continuing to increase its operating expenses for personnel and new product development, the Company's operating results would be adversely affected if its sales did not correspondingly increase or if its product development efforts are unsuccessful or subject to delays. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." NEAR-TERM DEPENDENCE ON TRIAGE DOA; RISK OF OBSOLESCENCE; CONCENTRATION OF PRODUCT SALES Sales of Triage DOA have to date accounted for all of the Company's sales. The Company expects its revenue and profitability will substantially depend on the sale of Triage DOA for the foreseeable future. A 6 10 reduction in demand for Triage DOA would have a material adverse effect on the Company's business, financial condition and results of operations. The Company believes that growth in sales of Triage DOA will slow as the available U.S. market becomes saturated. Competitive pressures could also erode the Company's profit margins for Triage DOA. The Company's continued growth will depend on its ability to successfully develop and commercialize other products and to gain additional acceptance of Triage DOA. There can be no assurance that the Company will be able to successfully develop and commercialize new products or that the Company will be able to maintain or expand its share of the drug testing market. Technological change or the development of new or improved diagnostic technologies could result in the Company's products becoming obsolete or noncompetitive. See "Business -- Products and Products Under Development." DEPENDENCE ON OTHERS Biosite's strategy for the research, development, commercialization and distribution of certain of its products entails entering into various arrangements with corporate partners, licensors, licensees and others, and is dependent upon the success of these parties in performing their responsibilities. There can be no assurance that such parties will perform their obligations as expected or that any revenue will be derived from such arrangements. The Company relies upon distributors and its own sales force to distribute Triage DOA and may rely upon distributors to distribute products under development. Triage DOA is currently marketed pursuant to exclusive distribution agreements in the U.S. medical market by CMS (which accounted for 80% of product sales in the first nine months of 1996) and in certain countries in Europe, Latin America, the Middle East and Africa by Merck. The CMS distribution agreement has minimum quarterly sales milestones which, if the milestones are not met, allows the Company to terminate the agreement, obligates CMS to pay Biosite a penalty and allows the Company to appoint a new distributor or to sell Triage DOA directly in the U.S. medical market. The Company anticipates that it may enter into additional distribution agreements with respect to its products currently under development and products that it develops in the future, if any of such products receive the requisite regulatory clearance or approvals. There can be no assurance that the Company will be able to enter into such agreements on acceptable terms, if at all. Biosite has also entered into agreements with, among others, Merck, Sandoz and KDK for the development and marketing of products. The agreements are subject to certain rights of termination, and there can be no assurance that any such agreement will not be terminated. There can be no assurance that the Company's collaborators will abide by their contractual obligations or will not discontinue or sell their current lines of business. Merck has informed the Company that Merck is considering assigning its rights concerning the marketing of Triage Cardiac either to a third party or back to the Company. There also can be no assurance that any of the research for which the Company receives or provides funding will lead to the development of products. The Company intends to enter into additional development and marketing agreements. However, there can be no assurance that the Company will be able to enter into such agreements on acceptable terms, if at all. If any of the Company's distribution or marketing agreements are terminated and the Company is unable to enter into replacement agreements or if the Company elects to distribute new products directly, the Company would have to invest in additional sales and marketing resources, including additional field sales personnel, which would significantly increase future sales and marketing expenses. The Company currently has limited experience in direct sales, marketing and distribution of its products. There can be no assurance that the Company's direct sales, marketing and distribution efforts would be successful or that revenue from such efforts would exceed expenses. Further, there can be no assurance that Biosite would be able to enter into new distribution or marketing agreements on satisfactory terms, if at all. The Company is developing with LRE a hand-held point-of-care fluorescent meter for use in Triage CareLink System products. The meter will be programmed to run a specific test through the use of changeable proprietary software which is also under development by LRE. There can be no assurance that LRE will develop the hardware or software on schedule, if at all, or that new software will be developed to permit the meter to be used for another Triage CareLink System product. See "Business -- Strategic and Distribution Arrangements." 7 11 INTENSELY COMPETITIVE INDUSTRY; RAPID TECHNOLOGICAL CHANGE The market in which the Company competes is intensely competitive. Biosite's competitors include health care companies that manufacture laboratory-based tests and analyzers, as well as clinical and hospital-based laboratories. Currently, the majority of diagnostic tests used by physicians and other health care providers are performed by independent clinical and hospital-based laboratories. The Company expects that these laboratories will compete vigorously to maintain their dominance of the testing market. In order to achieve market acceptance for its products, the Company will be required to demonstrate that its products are an attractive alternative to testing performed by clinical and hospital-based laboratories. This will require physicians to change their established means of having such tests performed. There can be no assurance that the Company's products will be able to compete with the testing services provided by these laboratories. In addition, companies with a significant presence in the diagnostic market, such as Abbott Laboratories, Boehringer Mannheim GmbH ("Boehringer Mannheim"), Chiron Diagnostics, Clinical Diagnostic Systems, a division of Johnson & Johnson, DADE International, and Roche Biosciences, Inc., have developed or are developing diagnostic products that do or will compete with the Company's products. These competitors have substantially greater financial, technical, research and other resources and larger, more established marketing, sales, distribution and service organizations than the Company. Moreover, such competitors offer broader product lines and have greater name recognition than the Company, and offer discounts as a competitive tactic. In addition, several smaller companies are currently making or developing products that compete with or will compete with those of the Company. There can be no assurance that the Company's competitors will not succeed in developing or marketing technologies or products that are more effective or commercially attractive than the Company's current or future products, or that would render the Company's technologies and products obsolete. Moreover, there can be no assurance that the Company will have the financial resources, technical expertise or marketing, distribution or support capabilities to compete successfully in the future. In addition, there can be no assurance that competitors, many of which have made substantial investments in competing technologies that may be more effective than the Company's technologies, will not prevent, limit or interfere with the Company's ability to make, use or sell its products either in the United States or in international markets. See "Business -- Products and Products Under Development," "-- Technology" and "-- Competition." UNCERTAINTY OF PATENT AND PROPRIETARY TECHNOLOGY PROTECTION; LICENSE OF TECHNOLOGY OF THIRD PARTIES The Company's ability to compete effectively will depend in part on its ability to develop and maintain proprietary aspects of its technology, and to operate without infringing the proprietary rights of others or to obtain rights to such proprietary rights. Biosite has U.S. and foreign issued patents and is currently prosecuting patent applications in the United States and with certain foreign patent offices. There can be no assurance that any of the Company's pending patent applications will result in the issuance of any patents or that, if issued, any such patents will offer protection against competitors with similar technologies. There can be no assurance that any patents issued to the Company will not be challenged, invalidated or circumvented in the future or that the rights created thereunder will provide a competitive advantage. Litigation may be necessary to enforce any patents issued to the Company, to protect trade secrets or know-how owned by the Company or to determine the enforceability, scope and validity of the proprietary rights of others. In March 1996, the Company settled a potential patent infringement claim by obtaining a license to the contested patent in return for a one-time payment of $2.2 million. In September 1996, the Company settled a patent infringement lawsuit filed by Abbott Laboratories and obtained a license to the contested patent in return for the payment of $5.5 million and the agreement to pay certain royalties. There can be no assurance that the Company will not in the future become subject to patent infringement claims and litigation or interference proceedings conducted in the U.S. Patent and Trademark Office ("USPTO") to determine the priority of inventions. The defense and prosecution of intellectual property suits, USPTO interference proceedings, and related legal and administrative proceedings will result in substantial expense to the Company and significant diversion of effort by the Company's technical and management personnel. An adverse determination in litigation or interference proceedings to which the Company may become a party could subject the Company to significant liabilities to third parties. Further, either as the result of such 8 12 litigation or proceedings or otherwise, the Company may be required to seek licenses from third parties which may not be available on commercially reasonable terms, if at all. Triage DOA and products under development may incorporate technologies that are the subject of patents issued to, and patent applications filed by, others. The Company has obtained licenses for certain technologies. However, there can be no assurance that the Company will be able to obtain licenses for technology patented by others on commercially reasonable terms, if at all, that it will be able to develop alternative approaches if unable to obtain licenses or that the Company's current and future licenses will be adequate for the operation of Biosite's business. The failure to obtain necessary licenses or to identify and implement alternative approaches would prevent the Company from commercializing certain of its products under development and would have a material adverse effect on the Company's business, financial condition and results of operations. Biosite is aware of a U.S. patent owned by Celltech Limited ("Celltech") relating to the manufacture of antibodies, such as those developed or being developed by Biosite for several products, including Triage Cardiac. Biosite is also aware that this patent is the subject of an interference proceeding in the USPTO which was initiated in February 1991 with a patent application filed by Genentech, Inc. ("Genentech"). In June 1996, the European Patent Office ("EPO") invalidated, following an opposition, certain claims under Celltech's corresponding EPO-granted patent which are relevant to Biosite's products and products under development. Celltech has indicated that it will appeal such decision. If it is determined that certain manufacturing aspects of Biosite's antibodies are covered by patent claims stemming from the interference or if Celltech were to have such claims upheld on appeal, Biosite may be required to obtain a license under such patents and corresponding patents in other countries. There can be no assurance that a license would be made available to Biosite on commercially reasonable terms, if at all. If such license is required and not obtained the Company might be prevented from using certain of its technologies. The Company's failure to obtain any required licenses could have a material adverse effect on the Company's business, financial condition and results of operations. The Company also relies upon trade secrets, technical know-how and continuing invention to develop and maintain its competitive position. There can be no assurance that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to the Company's trade secrets or disclose such technology, that the Company can meaningfully protect its right to its trade secrets, or that the Company will be capable of protecting its rights to its trade secrets. Others may have filed and in the future are likely to file patent applications that are similar or identical to those of the Company. To determine the priority of inventions, the Company may have to participate in interference proceedings declared by the USPTO that could result in substantial cost to the Company. No assurance can be given that any patent application of another will not have priority over patent applications filed by the Company. The commercial success of the Company also depends in part on the Company neither infringing patents or proprietary rights of third parties nor breaching any licenses that may relate to the Company's technologies and products. The Company is aware of several third-party patents that relate to the Company's technology. There can be no assurance that the Company does not or will not infringe these patents, or other patents or proprietary rights of third parties. In addition, the Company has received and may in the future receive notices claiming infringement from third parties as well as invitations to take licenses under third party patents. Any legal action against the Company or its collaborative partners claiming damages and seeking to enjoin commercial activities relating to the Company's products and processes affected by third party rights, in addition to subjecting the Company to potential liability for damages may require the Company or its collaborative partner to obtain a license in order to continue to manufacture or market the affected products and processes. There can be no assurance that the Company or its collaborative partners would prevail in any such action or that any license (including licenses proposed by third parties) required under any such patent would be made available on commercially acceptable terms, if at all. There are a significant number of U.S. and foreign patents and patent applications in the Company's areas of interest, and the Company believes that there may be significant litigation in the industry regarding patent and other intellectual property rights. If the Company becomes involved in such litigation, it could consume a substantial portion of the Company's managerial and financial resources, which could have a material 9 13 adverse effect on the Company's business, financial condition and results of operations. See "Business -- Proprietary Technology and Patents." GOVERNMENT REGULATION The testing, manufacture and sale of the Company's products are subject to regulation by numerous governmental authorities, principally the FDA and corresponding state and foreign regulatory agencies. Pursuant to the Federal Food, Drug, and Cosmetic Act, and the regulations promulgated thereunder, the FDA regulates the preclinical and clinical testing, manufacture, labeling, distribution and promotion of medical devices. Noncompliance with applicable requirements can result in, among other things, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure of the government to grant premarket clearance or premarket approval for devices, withdrawal of marketing clearances or approvals, and criminal prosecution. The FDA also has the authority to request recall, repair, replacement or refund of the cost of any device manufactured or distributed by the Company. Any devices manufactured or distributed by the Company pursuant to FDA clearance or approvals are subject to pervasive and continuing regulation by the FDA and certain state agencies. Before a new device can be introduced in the market, the manufacturer must generally obtain FDA clearance of a 510(k) notification or FDA approval of a pre-market approval ("PMA") application. The PMA approval process is more expensive, uncertain and lengthy than the 510(k) clearance process. The Company is uncertain of the regulatory path to market that the FDA will ultimately apply to the Company's products currently in development. Although Triage DOA received 510(k) clearance, a PMA may be required for Triage Cardiac and Triage Transplant products now in development. There can be no assurance that with respect to any of the Company's products in development, the FDA will not determine that the Company must adhere to the more costly, lengthy and uncertain PMA approval process. Modifications to a device that is the subject of an approved PMA application, its labeling or manufacturing process may require approval by the FDA of a PMA supplement or a new PMA application. For any devices that are cleared through the 510(k) process, modifications or enhancements that could significantly affect safety or effectiveness, or constitute a major change in the intended use of the device, will require new 510(k) submissions. There can be no assurance that the Company will be able to obtain necessary regulatory approvals or clearances for its products on a timely basis, if at all, and delays in receipt of or failure to receive such approvals or clearances, the loss of previously received approvals or clearances, limitations on intended use imposed as a condition of such approvals or clearances, or failure to comply with existing or future regulatory requirements would have a material adverse effect on the Company's business, financial condition and results of operations. Before the manufacturer of a device can submit the device for FDA clearance or approval, it generally must conduct a clinical investigation of the device. Although clinical investigations of most devices are subject to the investigational device exemption ("IDE") requirements, clinical investigations of in vitro diagnostic ("IVD") tests, such as all of the Company's products and products under development, are exempt from the IDE requirements, including the need to obtain the FDA's prior approval, provided the testing is noninvasive, does not require an invasive sampling procedure that presents a significant risk, does not intentionally introduce energy into the subject, and is not used as a diagnostic procedure without confirmation by another medically established test or procedure. In addition, the IVD must be labeled for research use only ("RUO") or investigational use only ("IUO"), and distribution controls must be established to assure that IVDs distributed for research or clinical investigation are used only for those purposes. The Company intends to conduct clinical investigations of its products under development, which will entail distributing them in the United States on an IUO basis. There can be no assurance that the FDA would agree that the Company's IUO distribution of its IVD products under development will meet the requirements for IDE exemption. Furthermore, failure by the Company or the recipients of its products under development to maintain compliance with the IDE exemption requirements could result in enforcement action by the FDA, including, among other things, the loss of the IDE exemption or the imposition of other restrictions on the Company's distribution of its products under development, which would adversely affect the Company's ability to conduct the clinical investigations necessary to support marketing clearance or approval. 10 14 Manufacturers of medical devices for marketing in the United States are required to adhere to applicable regulations setting forth detailed current Good Manufacturing Practices ("cGMP") requirements, which include testing, control and documentation requirements. Manufacturers must also comply with Medical Device Reporting ("MDR") requirements that a manufacturer report to the FDA any incident in which its product may have caused or contributed to a death or serious injury, or in which its product malfunctioned and would be likely to cause or contribute to a death or serious injury upon recurrence. Labeling and promotional activities are subject to scrutiny by the FDA and, in certain circumstances, by the Federal Trade Commission. Current FDA enforcement policy prohibits the marketing of approved medical devices for unapproved uses. The Company is subject to routine inspection by the FDA and certain state agencies for compliance with cGMP requirements, MDR requirements and other applicable regulations. The FDA has recently finalized changes to the cGMP requirements, including the addition of design controls, that will likely increase the cost of compliance. There can be no assurance that the Company will not incur significant costs to comply with laws and regulations in the future or that such laws and regulations will not have a material adverse effect upon the Company's business, financial condition and results of operation. The use of Biosite's products is also affected by the Clinical Laboratory Improvement Amendments of 1988 ("CLIA") and related federal and state regulations which provide for regulation of laboratory testing. The scope of these regulations includes quality control, proficiency testing, personnel standards and federal inspections. CLIA categorizes tests as "waived," "moderately complex" or "highly complex," on the basis of specific criteria. There can be no assurance that any future amendment of CLIA or the promulgation of additional regulations impacting laboratory testing would not have a material adverse effect on the Company's ability to market its products or on its business, financial condition and results of operations. DEPENDENCE ON SOLE-SOURCE SUPPLIERS Certain key components and raw materials used in the manufacture of Triage DOA are currently provided by single-source vendors. Although the Company believes that alternative sources for such components and raw materials are available, any supply interruption in a sole-sourced component of raw material would have a material adverse effect on the Company's ability to manufacture Triage DOA until a new source of supply is qualified and, as a result, would have a material adverse effect on the Company's business, financial condition and results of operations. In addition, an uncorrected impurity or supplier's variation in a raw material, either unknown to the Company or incompatible with the Company's Triage DOA manufacturing process, could have a material adverse effect on the Company's ability to manufacture products. The Company currently has under development products other than Triage DOA which, if developed, may require that the Company enter into additional supplier arrangements. There can be no assurance that the Company will be able to enter into additional supplier arrangements on commercially reasonable terms, if at all. Failure to obtain a supplier for the manufacture of its future products, if any, would have a material adverse effect on the Company's business, financial condition and results of operations. If successfully developed, the Company expects to rely upon LRE for production of the fluorescent meter to be used in connection with its Triage CareLink System platform of products currently under development. The Company's dependence upon LRE for the manufacture of such a meter may adversely affect the Company's profit margins, its ability to develop and manufacture products on a timely and competitive basis, the timing of market introductions and subsequent sales of products incorporating the LRE meter. See "Business -- Strategic and Distribution Arrangements." LIMITED MANUFACTURING EXPERIENCE; RISK OF MANUFACTURING SCALE-UP To be successful, the Company must manufacture its current and future products in compliance with regulatory requirements, in sufficient quantities and on a timely basis, while maintaining product quality and acceptable manufacturing costs. The Company has limited experience manufacturing products other than Triage DOA. To achieve the level of production necessary for commercialization of Biosite's products under development, the Company will need to scale-up current manufacturing capabilities. Significant additional work will be required for the scaling-up of each potential Biosite product prior to commercialization, and there can be no assurance that such work can be completed successfully. In addition, although the Company expects 11 15 that certain of its products under development will share certain production attributes with Triage DOA, production of such products may require the development of new manufacturing technologies and expertise. There can be no assurance that such products can be manufactured by the Company or any other party at a cost or in quantities to make such products commercially viable. If the Company is unable to develop or contract for manufacturing capabilities on acceptable terms for its products under development, the Company's ability to conduct preclinical and clinical testing will be adversely affected, resulting in the delay of submission of products for regulatory clearance or approval and initiation of new development programs, which would have a material adverse effect on the Company's business, financial condition and results of operations. See "Business -- Manufacturing." The Company anticipates making significant expenditures to develop high volume manufacturing capabilities required for each of its products currently under development, if such products are successfully developed. There can be no assurance that manufacturing and quality control problems will not arise as the Company attempts to scale-up its manufacturing or that such scale-up can be achieved in a timely manner or at a commercially reasonable cost, if at all. The Company's manufacturing facilities and those of its contract manufacturers are or will be subject to periodic regulatory inspections by the FDA and other federal and state regulatory agencies and such facilities are subject to cGMP requirements of the FDA. There can be no assurance that the Company or its contractors will satisfy such regulatory requirements, and any failure to do so would have a material adverse effect on the Company's business, financial condition and results of operations. UNCERTAINTY RELATING TO THIRD PARTY REIMBURSEMENT AND POTENTIAL COST CONSTRAINTS In the United States, health care providers that purchase Triage DOA and other diagnostic products, such as hospitals and physicians, generally rely on third party payors, principally private health insurance plans, federal Medicare and state Medicaid, to reimburse all or part of the cost of the procedure. Such third party payors can affect the pricing or the relative attractiveness of the Company's products by regulating the maximum amount of reimbursement provided by such payors for testing services. In addition, the tests performed by public health departments, corporate wellness programs and other large volume users in the drug screening market are generally not subject to reimbursement. Further, certain health care providers are moving towards a managed care system in which such providers contract to provide comprehensive health care for a fixed cost per patient. The Company is unable to predict what changes will be made in the reimbursement methods utilized by third party payors. The Company could be adversely affected by changes in reimbursement policies of governmental or private health care payors, particularly to the extent any such changes affect reimbursement for procedures in which the Company's products are used. Third party payors are increasingly scrutinizing and challenging the prices charged for medical products and services. Decreases in reimbursement amounts for tests performed using the Company's products may decrease amounts physicians and other practitioners are able to charge patients, which in turn may adversely affect the Company's ability to sell its products on a profitable basis. Failure by physicians and other users to obtain reimbursement from third party payors, or changes in government and private third party payors' policies toward reimbursement of tests utilizing the Company's products could have a material adverse effect on the Company's business, financial condition or results of operation. Given the efforts to control and reduce health care costs in the United States in recent years, there can be no assurance that currently available levels of reimbursement will continue to be available in the future for the Company's existing products or products under development. In addition, market acceptance of the Company's products in international markets is dependent, in part, upon the availability of reimbursement within prevailing health care payment systems. Reimbursement and health care payment systems in international markets vary significantly by country, and include both government sponsored health care and private insurance. The Company believes that the overall escalating cost of medical products and services has led to and will continue to lead to increased pressures on the health care industry, both foreign and domestic, to reduce the cost of products and services, including products offered by the Company. There can be no assurance that third party reimbursement and coverage will be available or adequate in either U.S. or foreign markets, that 12 16 current reimbursement amounts will not be decreased in the future or that future legislation, regulation or reimbursement policies of third party payors will not otherwise adversely affect the demand for the Company's products or its ability to sell its products on a profitable basis. POSSIBLE FUTURE CAPITAL REQUIREMENTS While the Company believes that its available cash, cash from operations and funds from existing credit arrangements, together with the proceeds of this offering, will be sufficient to satisfy its funding needs for at least the next 24 months, there can be no assurance the Company will not require additional capital. The Company's future liquidity and capital funding requirements will depend on numerous factors, including the extent to which the Company's products under development are successfully developed and gain market acceptance, the timing of regulatory actions regarding the Company's potential products, the costs and timing of expansion of sales, marketing and manufacturing activities, procurement and enforcement of patents important to the Company's business, results of clinical investigations and competition. There can be no assurance that such additional capital, if needed, will be available on terms acceptable to the Company, if at all. Certain funding arrangements may require the Company to relinquish its rights to certain of its technologies, products or marketing territories. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may include restrictive covenants. The failure by the Company to raise capital on acceptable terms when needed could have a material adverse effect on the Company's business, financial condition and results of operations. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." MANAGEMENT OF GROWTH; DEPENDENCE ON KEY PERSONNEL The Company anticipates increased growth in the number of its employees, the scope of its operating and financial systems and the geographic area of its operations as new products are developed and commercialized. This growth will result in an increase in responsibilities for both existing and new management personnel. The Company's ability to manage growth effectively will require it to continue to implement and improve its operational, financial and management information systems and to train, motivate and manage its employees. There can be no assurance that the Company will be able to manage its expansion, and a failure to do so could have a material adverse effect on the Company's business, financial condition and results of operations. The Company's future success depends in part on the continued service of its key technical, sales, marketing and executive personnel, and its ability to identify and hire additional qualified personnel. Competition for such personnel is intense and there can be no assurance that the Company can retain existing personnel or identify or hire additional personnel. PRODUCT LIABILITY The testing, manufacturing and marketing of medical diagnostic devices such as Triage DOA, as well as the Company's products currently under development, entail an inherent risk of product liability claims. To date, the Company has not experienced any material product liability claims, but any such claims arising in the future could have a material adverse effect on the Company's business, financial condition and results of operations. Potential product liability claims may exceed the amount of the Company's insurance coverage or may be excluded from coverage under the terms of the policy. There can be no assurance that the Company's existing insurance can be renewed at a cost and level of coverage comparable to that presently in effect, if at all. In the event that the Company is held liable for a claim against which it is not indemnified or for damages exceeding the limits of its insurance coverage, such claim could have a material adverse effect on the Company's business, financial condition and result of operations. LACK OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE Prior to this offering, there has been no public market for the Common Stock and there can be no assurance that an active public market for the Common Stock will develop or be sustained after this offering. The initial public offering price will be determined through negotiations between the Company and the Underwriters. See "Underwriting." In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. The market prices of the common stock of many publicly held medical device companies have in 13 17 the past been, and can in the future be expected to be, especially volatile. Announcements of technological innovations or new products by the Company or its competitors, clinical investigation results, release of reports by securities analysts, developments or disputes concerning patents or proprietary rights, regulatory developments, changes in regulatory or medical reimbursement policies, economic and other external factors, as well as period-to-period fluctuations in the Company's financial results, may have a significant impact on the market price of the Common Stock. SHARES ELIGIBLE FOR FUTURE SALE Future sales of Common Stock by existing stockholders under Rules 144 and 701 of the Securities Act of 1933, as amended (the "Securities Act") or through the exercise of outstanding registration rights or otherwise could have an adverse effect on the price of the Common Stock. The 2,000,000 shares offered hereby will be eligible for resale in the public market immediately following this offering. Upon the commencement of this offering, an additional 451,030 shares will be eligible for resale in the public market. Additionally, 1,764,796 and 7,384,595 shares of Common Stock will be eligible for sale in the public market 120 days and 180 days, respectively, after the date of this Prospectus, upon expiration of lockup agreements, in reliance on Rule 144 or Rule 701 under the Securities Act. The Company intends to register approximately 2,215,960 shares of Common Stock reserved for issuance under its stock plans as soon as practicable following the date of this Prospectus. Stockholders who, after consummation of this offering, will hold over 8,400,000 shares of Common Stock have rights to require the Company to register their shares for future sale. See "Description of Capital Stock -- Registration Rights" and "Shares Eligible for Future Sale." BROAD DISCRETION OF MANAGEMENT TO ALLOCATE OFFERING PROCEEDS The Company anticipates that the proceeds of this offering will be used to fund expansion of sales and marketing activities, to fund research and development activities, to expand and develop manufacturing capabilities, and to finance working capital and general corporate requirements. The amounts identified for the foregoing uses under "Use of Proceeds" in this Prospectus are estimates, and the amounts actually expended for each such purpose and the timing of such expenditures may vary depending upon numerous factors. The Company's management will have broad discretion in determining the amount and timing of expenditures and in allocating the proceeds of this offering. Such discretion will be particularly broad with respect to that portion of the proceeds available for working capital and general corporate purposes. See "Use of Proceeds." CONTROL BY DIRECTORS, EXECUTIVE OFFICERS, PRINCIPAL STOCKHOLDERS AND AFFILIATED ENTITIES The Company's directors, executive officers, principal stockholders and entities affiliated with them will, in the aggregate, beneficially own approximately 63.0% of the Company's outstanding Common Stock following the completion of this offering. These stockholders, if acting together, would be able to control substantially all matters requiring approval by the stockholders of the Company, including the election of directors and the approval of mergers or other business combination transactions. See "Principal Stockholders." EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS AND DELAWARE LAW Certain provisions of the Company's Certificate of Incorporation and Bylaws may have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire control of the Company. Such provisions could limit the price that certain investors might be willing to pay in the future for shares of the Company's Common Stock. Certain of these provisions allow the Company to issue Preferred Stock without any vote or further action by the stockholders, provide for a classified board of directors, eliminate the right of stockholders to call special meetings of stockholders or to act by written consent without a meeting. These provisions may make it more difficult for stockholders to take certain corporate actions and could have the effect of delaying or preventing a change in control of the Company. See "Management" and "Description of Capital Stock." DILUTION; ABSENCE OF DIVIDENDS Purchasers of shares of Common Stock in this offering will incur immediate, substantial dilution in net tangible book value per share. The Company has never paid cash dividends on its capital stock and does not anticipate paying any cash dividends in the foreseeable future. See "Dilution" and "Dividend Policy." 14 18 USE OF PROCEEDS The proceeds to the Company from the sale of the shares of Common Stock offered by the Company hereby are estimated to be approximately $21,620,000 ($24,968,000 if the Underwriters' over-allotment option is exercised in full), at an assumed initial public offering price of $12.00 per share, and after deducting estimated underwriting discounts and commissions and estimated offering expenses. The Company anticipates that it will use approximately $7.0 million of the net proceeds of this offering to expand sales and marketing activities (which are expected to include the development of direct sales capabilities in selected markets), approximately $2.0 million to fund the Company's research and development efforts, and approximately $4.0 million for expansion and development of manufacturing capabilities in connection with the launch of the Company's products currently under development. The Company anticipates using the remaining net proceeds for working capital and general corporate purposes. The Company also may use a portion of the net proceeds to acquire businesses, technologies or products complementary to the Company's business, although the Company currently has no specific plans or commitments in this regard. The amounts actually expended for each purpose may vary significantly depending upon numerous factors, including the progress of the Company's research and development, and the costs and timing of expansion of marketing, sales and manufacturing activities, and hence the Company's management will retain broad discretion in the allocation of a substantial portion of the net proceeds. Pending such uses, the Company intends to invest the net proceeds of this offering in interest-bearing, investment grade securities. The Company believes that its available cash, cash from operations and funds from existing credit arrangements, together with the proceeds of this offering, will be sufficient to satisfy its funding needs for at least the next 24 months. DIVIDEND POLICY The Company has never declared or paid dividends on its capital stock and does not anticipate paying any dividends in the foreseeable future. The Company currently intends to retain its earnings, if any, for the operation of its business. 15 19 CAPITALIZATION The following table sets forth as of September 30, 1996 (i) the capitalization of the Company, (ii) the pro forma capitalization of the Company, after giving effect to the conversion of all series of Preferred Stock into Common Stock and the conversion of a $1.0 million debenture and related interest thereon through January 31, 1997 into 92,222 shares of Common Stock at the assumed initial public offering price of $12.00 per share upon the closing of this offering, and (iii) the pro forma capitalization of the Company, as adjusted to give effect to the receipt of the net proceeds from the sale of the 2,000,000 shares of Common Stock offered hereby at an assumed initial public offering price of $12.00 per share and the application of the estimated net proceeds therefrom.
SEPTEMBER 30, 1996 --------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED ------- --------- ----------- (IN THOUSANDS) Notes payable, less current portion(1)......................... $ 3,234 $ 2,234 $ 2,234 ------- ------- ------- Stockholders' equity: Preferred Stock, $.01 par value; 8,328,847 shares authorized and 8,328,847 shares outstanding actual; 5,000,000 shares authorized and no shares outstanding, pro forma and pro forma as adjusted......................................... 83 -- -- Common Stock, $.01 par value; 12,000,000 shares authorized and 1,460,093 outstanding actual; 25,000,000 shares authorized and 9,881,162 shares outstanding pro forma; 25,000,000 shares authorized and 11,881,162 shares outstanding pro forma as adjusted(2)...................... 15 99 119 Additional paid-in capital................................... 21,686 22,792 44,392 Unrealized net loss on marketable securities, net of related tax....................................................... (10) (10) (10) Deferred compensation........................................ (48) (48) (48) Accumulated deficit.......................................... (545) (572) (572) ------- ------- ------- Total stockholders' equity........................... $21,181 $22,261 $43,881 ------- ------- ------- Total capitalization................................. $24,415 $24,495 $46,115 ======= ======= =======
- --------------- (1) See Note 6 of Notes to Financial Statements for a description of the Company's long-term commitments. (2) Excludes 1,180,204 shares of Common Stock reserved for issuance upon exercise of stock options outstanding at November 30, 1996. See "Management -- Executive Compensation" and Note 7 of Notes to Financial Statements. 16 20 DILUTION The pro forma net tangible book value of the Company's Common Stock as of September 30, 1996 was approximately $17,803,000, or $1.80 per share. Pro forma net tangible book value per share represents the amount of the Company's total tangible assets less total liabilities, divided by the number of shares of Common Stock outstanding, after giving effect to the conversion of all series of Preferred Stock into Common Stock and the conversion of a $1.0 million debenture and related interest through January 31, 1997 into 92,222 shares of Common Stock at the assumed initial public offering price of $12.00 per share upon the closing of this offering. After giving effect to the sale of the 2,000,000 shares of Common Stock offered hereby by the Company at an assumed initial public offering price of $12.00 per share and after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company, the pro forma net tangible book value of the Company at September 30, 1996 would have been approximately $39,423,000 or $3.32 per share. This represents an immediate increase in pro forma net tangible book value of $1.52 per share to existing stockholders and an immediate dilution of $8.68 per share to new investors purchasing shares of Common Stock in this offering, as illustrated in the following table: Assumed initial public offering price per share...................... $12.00 Pro forma net tangible book value per share at September 30, 1996............................................................ $ 1.80 Increase per share attributable to investors in the offering....... 1.52 ----- Pro forma net tangible book value per share after the offering....... 3.32 ------ Dilution per share to new investors.................................. $ 8.68 ======
The following table summarizes, on a pro forma basis as of September 30, 1996, the number of shares of Common Stock purchased from the Company, the total consideration paid, and the average price per share by existing stockholders and by purchasers of shares offered by the Company hereby, based upon an assumed initial public offering price of $12.00 per share (before deducting the estimated underwriting discounts and commissions and offering expenses):
SHARES PURCHASED TOTAL CONSIDERATION ---------------------- ----------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ----------- ------- ------------- Existing stockholders................ 9,881,162 83.2% $22,956,884 48.9% $ 2.32 New investors........................ 2,000,000 16.8 24,000,000 51.1 12.00 ---------- ------ ---------- ------ Total.............................. 11,881,162 100.0% $46,956,884 100.0% ========== ====== ========== ======
The foregoing calculations assume no exercise of outstanding options. As of November 30, 1996, there were outstanding options to purchase an aggregate of 1,180,204 shares of Common Stock at a weighted average exercise price of $3.24 per share. To the extent such options are exercised, there will be further dilution to investors in this offering. See "Management -- Executive Compensation" and Note 7 of Notes to Financial Statements. 17 21 SELECTED FINANCIAL DATA The selected financial data set forth below with respect to the Company's statement of income data for each of the three years in the period ended December 31, 1995 and the nine months ended September 30, 1996 and the balance sheet data at December 31, 1994 and 1995 and September 30, 1996 are derived from the financial statements audited by Ernst & Young LLP, independent auditors, which are included elsewhere in this Prospectus and are qualified by reference to such financial statements. The selected financial data with respect to the statement of income data for the two years ended December 31, 1992 and the balance sheet data at December 31, 1991, 1992 and 1993 are derived from the financial statements audited by Ernst & Young LLP which are not included in this Prospectus. The selected financial data with respect to the statement of income for the nine months ended September 30, 1995 are derived from unaudited financial statements included elsewhere in this Prospectus. The unaudited financial statements include all adjustments, consisting only of normal recurring adjustments, that the Company considers necessary for a fair presentation of the financial position and results of operations for these periods. Operating results for the nine months ended September 30, 1996 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 1996. The data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's financial statements and notes thereto included elsewhere in this Prospectus. SUMMARY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30, ------------------------------------------------- --------------------- 1991 1992 1993 1994 1995 1995 1996 ------- ------- ------- -------- -------- -------- -------- STATEMENT OF INCOME DATA: Net sales........................................... $ -- $ 2,920 $ 9,866 $ 16,320 $ 25,147 $ 18,236 $ 20,225 Cost of sales....................................... -- 1,612 3,268 4,416 5,649 3,781 4,318 -------- -------- -------- --------- --------- --------- --------- Gross profit........................................ -- 1,308 6,598 11,904 19,498 14,455 15,907 Research and development............................ 2,793 2,593 2,796 3,836 6,553 4,602 6,515 Selling, general and administrative................. 1,771 3,622 4,841 5,960 7,134 5,203 6,116 -------- -------- -------- --------- --------- --------- --------- Total operating expenses............................ 4,564 6,215 7,637 9,796 13,687 9,805 12,631 Income (loss) from operations....................... (4,564) (4,907) (1,039) 2,108 5,811 4,650 3,276 Interest and other income, net...................... 260 630 613 649 1,647 1,253 1,441 Settlement of patent matters........................ -- -- -- (338) (1,217) (743) (2,368) -------- -------- -------- --------- --------- --------- --------- Income (loss) before benefit (provision) for income taxes............................................. (4,304) (4,277) (426) 2,419 6,241 5,160 2,349 Benefit (provision) for income taxes................ -- -- -- (63) 1,667 (132) 264 -------- -------- -------- --------- --------- --------- --------- Net income (loss)................................... $(4,304) $(4,277) $ (426) $ 2,356 $ 7,908 $ 5,028 $ 2,613 ======== ======== ======== ========= ========= ========= ========= Net income (loss) per share......................... $ (0.61) $ (0.49) $ (0.04) $ 0.22 $ 0.74 $ 0.47 $ 0.24 ======== ======== ======== ========= ========= ========= ========= Common and common equivalent shares used in computing per share amounts(1).................... 7,058 8,754 10,098 10,553 10,766 10,721 10,832
DECEMBER 31, ---------------------------------------------- SEPTEMBER 30, 1991 1992 1993 1994 1995 1996 ------ ------- ------- ------- ------- ------------- BALANCE SHEET DATA: Cash, cash equivalents and marketable securities................. $4,869 $ 6,435 $ 5,129 $ 5,916 $13,979 $10,169 Working capital.................................................. 4,746 7,049 6,407 7,974 14,428 13,967 Total assets..................................................... 6,725 10,287 10,269 14,364 27,935 28,968 Long-term obligations............................................ 237 668 634 772 2,739 3,234 Stockholders' equity............................................. 5,887 8,573 8,155 10,512 18,526 21,181
- --------------- (1) Computed on the basis described in Note 1 of Notes to Financial Statements. 18 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The discussion in this Prospectus contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the sections entitled "Risk Factors" and "Business," as well as those discussed elsewhere in this Prospectus. OVERVIEW Since the Company's inception in 1988, the Company has been primarily involved in the research, development, manufacturing and marketing of point-of-care diagnostic tests. The Company began commercial sales of Triage DOA in February 1992 and currently markets the product worldwide primarily through distributors supported by a small direct sales force. The Company is engaged in research and development of additional point-of-care diagnostic products in the microbiology, cardiology and therapeutic drug monitoring fields. See "Business." Funding for operations was provided primarily from equity financings from the Company's inception through launch of Triage DOA in 1992. Additional funding has come from corporate partners in the form of debt and equity financing, license fees and other corporate funding. The Company has a limited history of operations and first achieved profitability in fiscal 1994. All of the Company's sales to date have been due to sales of the Triage DOA product line. Triage DOA is currently marketed pursuant to exclusive distribution agreements in the U.S. medical market by CMS (which accounted for 80% of product sales in the first nine months of 1996) and in certain countries in Europe, Latin America, the Middle East and Africa by Merck. The CMS distribution agreement has minimum quarterly sales milestones which, if the milestones are not met, allows the Company to terminate the agreement, obligates CMS to pay Biosite a penalty and allows the Company to appoint a new distributor or to sell Triage DOA directly in the U.S. medical market. If the Company chooses to terminate the CMS distribution agreement, the Company may appoint a new distributor or it may have to invest in additional sales and marketing resources including additional field sales personnel which could significantly increase future sales and marketing expenses and may adversely affect sales of Triage DOA. Since the launch of Triage DOA in fiscal 1992, the Company has experienced significant revenue growth primarily as a result of greater demand and more recently, the introduction of Triage Plus TCA Panel for Drugs of Abuse ("Triage DOA Plus TCA"). In order to support increased levels of sales in the future and to augment its long-term competitive position, the Company anticipates that it will be required to make significant additional expenditures in manufacturing, research and development, sales and marketing and administration, both in absolute dollars and as a percentage of sales. In addition, the Company anticipates higher administrative expenses resulting from its obligations as a public reporting company upon completion of this offering. The Company anticipates that its results of operations may fluctuate for the foreseeable future due to several factors, including whether and when new products are successfully developed and introduced by the Company, market acceptance of current or new products, regulatory delays, product recalls, manufacturing delays, shipment problems, seasonal customer demand, the timing of significant orders, changes in reimbursement policies, competitive pressures on average selling prices, changes in the mix of products sold and patent conflicts. Operating results would also be adversely affected by a downturn in the market for the Company's current and future products, if any, order cancelations or order rescheduling. Because the Company is continuing to increase its operating expenses for personnel and new product development, the Company's operating results would be adversely affected if its sales did not correspondingly increase or if its product development efforts are unsuccessful or are subject to delays. The Company's limited operating history makes accurate prediction of future operating results difficult or impossible. Although the Company has experienced growth in recent years, there can be no assurance that, in the future, the Company will sustain revenue growth or remain profitable on a quarterly or annual basis or that its growth will be consistent with predictions made by securities analysts. 19 23 The Company currently manufactures and ships product shortly after receipt of orders and anticipates that it will do so in the future. Accordingly, the Company has not developed a significant backlog and does not anticipate it will develop a material backlog in the future. RESULTS OF OPERATIONS The following table sets forth certain operating data as a percentage of net sales:
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, -------------------------- ---------------------- 1993 1994 1995 1995 1996 ---- ---- ---- ----------- ---- Net sales.............................. 100% 100% 100% 100% 100% Cost of sales.......................... 33 27 22 21 21 ---- ---- ---- ---- ---- Gross profit........................... 67 73 78 79 79 Operating expenses: Research and development............... 28 24 26 25 32 Selling, general and administrative.... 49 37 29 29 30 ---- ---- ---- ---- ---- Total operating expenses............... 77 61 55 54 62 Income (loss) from operations.......... (10) 12 23 25 17 Other income, net...................... 6 4 7 7 7 Settlement of patent matters........... -- (2) (5) (4) (12) ---- ---- ---- ---- ---- Income (loss) before benefit (provision) for income taxes......... (4) 14 25 28 12 Benefit (provision) for income taxes... -- -- 7 -- 1 ---- ---- ---- ---- ---- Net income (loss)...................... (4%) 14% 32% 28% 13% ==== ==== ==== ==== ====
Nine months ended September 30, 1996 and 1995 Revenues. Revenues increased 11% to $20.2 million in the first nine months of 1996 from $18.2 million in the first nine months of 1995. The increase was primarily attributable to the Company's expansion of its Triage DOA product line to include Triage DOA Plus TCA, which was launched in February 1995, and continued growth of the Company's overall market share of abused drug testing worldwide. Gross Profit. Gross profit increased 10% to $15.9 million in the first nine months of 1996 as a result of increased sales of the Triage DOA product line. Gross margin was constant at 79% in the first nine months of 1996 and 1995. Research and Development Expenses. Research and development expenses increased 42% to $6.5 million in the first nine months of 1996 from $4.6 million in the first nine months of 1995. This increase resulted from the expansion of the Company's research and development and manufacturing scale-up efforts on its microbiology, cardiac and therapeutic drug monitoring assays under development. The Company expects its research and development expenses to increase significantly in 1996 and 1997, reflecting increased expenditures primarily related to hiring additional personnel. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 18% to $6.1 million in the first nine months of 1996. This increase was a result of the cost of expanding the Company's direct sales force and in-house marketing and administrative functions to support the Company's expanded operations. The Company expects selling, general and administrative costs to increase in absolute dollars as the Company's level of sales and manufacturing operations increase and as the Company increases its finance and administrative expenditures to meet its obligations as a public reporting entity. Other Income. Contract revenues from a related party increased $469,000 in the first nine months of 1996 as compared to the first nine months of 1995. This increase was primarily due to higher expenditures relating to the Triage Cardiac development program with Merck which resulted in higher revenues to the 20 24 Company. Contract revenues from an unrelated party decreased $300,000 in the first nine months of 1996. The decrease was attributable to the timing of the achievement of milestones under the Company's development agreement with KDK. Settlement of Patent Matters. In September 1996, the Company reached a settlement with Abbott Laboratories, with respect to all claims set forth in a lawsuit filed by Abbott Laboratories in May 1994. The lawsuit alleged that Triage DOA infringed a patent licensed to Abbott Laboratories. The Company vigorously defended the lawsuit. However, to avoid protracted litigation, the Company settled the patent matter in September 1996, paid $2.0 million as a settlement of the litigation and, for an additional $3.5 million and the agreement to pay certain royalties, obtained a license to certain technology. Future amortization of the license will be charged to cost of sales over the life of the license. The $2.0 million litigation settlement payment, as well as the amortization related to prior fiscal years and related legal defense costs were charged to Settlement of Patent Matters in the nine months ended September 30, 1996. Settlement of Patent Matters expenses for the first nine months of 1995 consisted solely of legal expenses associated with the defense of the patent litigation. Benefit (Provision) for Income Taxes. The Company's benefit for income taxes increased to $264,000 for the nine months ended September 30, 1996 from a provision for income taxes of $132,000 for the nine months ended September 30, 1995. The increase in the benefit for income taxes resulted primarily from a reduction in the valuation allowance for deferred taxes of $1.1 million in the nine months ended September 30, 1996, as the realization of such assets became probable. Years ended December 31, 1995 and 1994 Revenues. Revenues increased 54% to $25.1 million for the year ended December 31, 1995 from $16.3 million in 1994. The increase was primarily attributable to the Company's commercialization of Triage DOA Plus TCA which was launched in February 1995, and continued acceptance and expansion of Triage DOA. Gross Profit. Gross profit increased $7.6 million to $19.5 million for the year ended December 31, 1995 as a result of increased sales of the Triage DOA product line. Gross margin increased to 78% for the year ended December 31, 1995 from 73% in 1994. The Company increased its manufacturing efficiency during 1995 and, with increased manufacturing volumes, covered its fixed overhead expenses more efficiently. The Company included in cost of sales $405,000 in license amortization for 1995 relating to the technology license agreement signed in March 1996. Research and Development Expenses. Research and development expenses increased 71% to $6.6 million for the year ended December 31, 1995 from $3.8 million in 1994. This increase resulted from the expansion of the Company's research and development and manufacturing scale-up efforts on the microbiology, cardiac and therapeutic drug monitoring assays. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 20% to $7.1 million for the year ended December 31, 1995 from $6.0 million in 1994. During the year ended December 31, 1995, the Company expanded its direct sales force and its in-house marketing and administrative functions to support the Company's higher level of operations as compared to 1994. Other Income. Contract revenues from related parties increased $217,000 as a result of progress in the development of Triage Cardiac. Contract revenues from unrelated parties increased by $300,000 for the year ended December 31, 1995 from 1994. The increase was attributable to the timing of the achievement of milestones under the Company's development agreement with KDK which was signed in February 1995. Interest income increased $366,000 as a result of income received on increased cash balances in 1995. Settlement of Patent Matters. Settlement of patent matters expenses increased primarily due to increased legal defense costs related to the patent litigation described above. Additionally, in December 1995, the Company accrued a one-time payment of $2.2 million for a worldwide license to technology related to the Triage Panel products. Amortization of this license payment related to fiscal years prior to 1995 of $440,000 was charged to settlement of patent matters in 1995. 21 25 Benefit (Provision) for Income Taxes. The Company's benefit for income taxes increased to $1.7 million for the year ended December 31, 1995 from a provision for income taxes of $63,000 in 1994. The increase in the benefit for income taxes resulted primarily from a reduction in the valuation allowance for deferred tax assets in 1995 of $1.8 million. The Company utilized $2.2 million in net operating loss carryforwards in fiscal 1995. As of December 31, 1995, the Company had net operating loss carryforwards of approximately $3.1 million for federal income tax purposes. The Company's ability to utilize its net operating loss carryforwards and tax credit carryforwards in future years will be subject to an annual limitation pursuant to the "change in ownership rules" under Section 382 of the Internal Revenue Code of 1986, as amended. However, any annual limitation is not expected to have a material adverse effect on the Company's ability to utilize its net operating loss and tax credit carryforwards. Years ended December 31, 1994 and 1993 Revenues. Revenues increased 65% to $16.3 million for the year ended December 31, 1994 from $9.9 million in 1993. The increase was primarily attributable to the continued acceptance of the Company's Triage DOA product line. Gross Profit. Gross profit increased $5.3 million to $11.9 million for the year ended December 31, 1994 from gross profit levels for the year ended December 31, 1993 as a result of increased sales of Triage DOA. Gross margin increased to 73% for the year ended December 31, 1994 from 67% in 1993. The Company increased its manufacturing efficiency during 1994 and, with increased manufacturing volumes, covered its fixed overhead expenses more efficiently. Research and Development Expenses. Research and development expenses increased 37% to $3.8 million for the year ended December 31, 1994 from $2.8 million in 1993. This increase resulted from the expansion of the Company's research and development and manufacturing scale-up efforts on Triage DOA Plus TCA and research and development on Triage Cardiac. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 23% to $6.0 million for the year ended December 31, 1994 from $4.8 million in 1993. During the year ended December 31, 1994, the Company's expanded the direct sales force and the in-house marketing and administrative functions to support the Company's higher level of operations as compared to 1993. Other Income. Contract revenues from related parties increased $344,000 in 1994 as compared to such revenues in 1993 as a result of entering into a collaborative agreement in June 1994 with Merck, which is sharing in the development expenses of Triage Cardiac. Decreases in licensing fee income in 1994 as compared to such income in 1993 resulted from the completion of a license agreement with a third party during 1994. Settlement of Patent Matters. Settlement of patent matters expense in 1994 consisted solely of legal defense costs related to the patent litigation described above. Benefit (Provision) for Income Taxes. The Company utilized $3.2 million in net operating loss carryforwards in fiscal 1994 which reduced the provision for income taxes to $63,000. LIQUIDITY AND CAPITAL RESOURCES The Company has historically financed its operations through private placements of equity securities, revenues from operations, debt and capital lease financing and interest income earned on the net proceeds from the private placements. Since its inception, the Company has raised over $21.7 million in net cash proceeds from the private placement of equity securities and $1.0 million from the issuance of convertible debentures. During the nine months ended September 30, 1996, the Company generated $1.1 million in cash from operating activities. Cash generated from sales were offset primarily by the payments totaling $6.2 million for 22 26 licenses to certain technologies. In addition, the Company paid $2.0 million to settle patent litigation with Abbott Laboratories. During 1995 and 1994, the Company generated $7.9 million and $1.9 million of cash from operating activities, respectively. The Company financed through promissory notes and capital leases $2.3 million and $900,000 in equipment purchases in 1995 and 1994, respectively. At September 30, 1996, the Company had cash and cash equivalents totaling $1.4 million, marketable securities of $8.8 million and working capital of $14.0 million. The Company believes that its available cash, cash from operations and funds from existing credit arrangements, together with the proceeds of this offering, will be sufficient to satisfy its funding needs for at least the next 24 months. 23 27 BUSINESS BACKGROUND Biosite develops, manufactures and markets rapid, accurate and cost-effective diagnostic products that improve the quality of patient care and simplify the practice of laboratory medicine. The Company believes that its Immediate Response Diagnostics can have an important impact on medical decisions, patient care and the cost of medical treatment. The Company's first product, Triage DOA, a small self-contained test capable of detecting a broad spectrum of commonly overdosed prescription and illicit drugs in approximately 10 minutes, is used by over 2,600 hospitals and emergency departments. Since its introduction in 1992, over 4.2 million Triage DOA panels have been sold worldwide for use in hospital emergency department screening and workplace testing. The Company is developing several additional products for applications where the Company believes its Immediate Response Diagnostics can play an important role in improving patient care. Products under development include tests that are intended to aid in the diagnosis of heart attacks, the dosing of certain therapeutic drugs, the management of certain chronic diseases and the detection of certain bacterial and parasitic infections. The Company has two product platforms that are designed to provide rapid results through either qualitative visual readings or quantitative meter readings. These platforms are based upon the Company's proprietary technologies in the areas of reagent development, signaling chemistry and micro capillary fluidics. The Company's testing formats are designed to measure single or multiple analyte targets simultaneously, and to allow for the analysis of various sample sources, including urine, serum, plasma, whole blood and stool. The Company has entered into strategic arrangements with major pharmaceutical and diagnostic companies, including Sandoz for the development of a product to monitor the concentrations of the immunosuppressant drug, cyclosporine; Merck and KDK for the development of a cardiac marker product used in the diagnosis of heart attacks; and LRE for the development of a fluorescent meter. In addition, the Company uses CMS to distribute Triage DOA to hospital-based laboratories and emergency departments in the United States and Merck to distribute Triage DOA in certain countries in Europe, Latin America, the Middle East and Africa. INDUSTRY OVERVIEW In 1995, the worldwide market for immunoassay tests exceeded $5.1 billion, consisting primarily of testing related to infectious disease, endocrinology, therapeutic drug monitoring, drugs of abuse testing, immunology/allergy, tumor markers and blood typing. The global market for immunoassay tests continues to expand as new disease states are identified, new therapies become available, and worldwide standards of living and access to health care improve. Such tests are performed primarily in hospital-based laboratories and commercial laboratories, which account for approximately 80% of all diagnostic tests performed annually. In recent years, diagnostic tests that can be performed nearer to the point of patient care have emerged as an important tool in disease diagnosis and management. It has been estimated that the market for point-of-care tests, primarily hospitals and physician office/satellite facilities, will grow at approximately 27% annually through the year 2000. Immunoassay tests were first developed based on technology developed in the 1960s. Although early immunoassay tests offered unprecedented levels of sensitivity for the detection of low concentration analytes, they suffered from relatively short shelf-lives, long reaction times, a need for radioactive labels to detect completed reactions and lack of consistent results among products from different suppliers. Over time, technological advancements such as the introduction of monoclonal antibodies, enzyme and fluorescent labels and various solid phase mechanisms shortened immunoassay test reaction times, provided higher specificity and allowed development of tests with longer shelf-lives and greater consistency. Such advancements also led to the development of immunoassay analyzers, testing systems utilizing automated liquid handling mechanisms and reagent-adding pipetting systems. Modern immunoassay analyzers are capable of storing and selecting multiple reagents for a variety of analytes, including drugs, hormones and cancer antigens. They also provide accurate and highly sensitive test results and help to simplify the performance of antibody-based tests. However, immunoassay analyzers are large and complex, have lengthy 24 28 turnaround times and require high volumes of sample throughput to justify the investment in equipment, training, staffing and the costs required to operate and support the system. In recent years, there has been a continuing shift from the use of such conventional analyzer systems to more technologically advanced point-of-care tests that can be performed in minutes by less highly trained personnel. Simple, rapid immunoassay tests are capable of detecting a single analyte target with a color change that can be visually interpreted. Formats such as dipsticks, test tubes and wicking membrane test cartridges have been used to provide fast non-instrument read results for conditions where a single analyte target is present in high concentrations and where a simple yes/no non-numeric answer is clinically relevant. Rapid color change test formats are widely available for pregnancy, strep throat and ovulation prediction. Until recently, simple test formats have remained incapable of precise, multi-analyte detection or highly sensitive, quantitative measurements. As a result, medical conditions where the detection of one or more analytes is required or where the precise quantitation of the target analyte is required have remained the domain of immunoassay analyzers. The Company believes that there is significant market potential for advanced point-of-care diagnostic products. Point-of-care testing helps to reduce overall health care delivery costs and can improve patient outcomes by providing diagnosis during the patient visit, thereby minimizing the time to medical intervention and reducing the need for additional patient follow-up. Patients undergoing emergency procedures can benefit from more timely and accurate testing results, both to ensure correct decision making and to avoid unnecessary use of costly inpatient care. Disease management programs such as therapeutic drug monitoring programs can benefit from real-time, point-of-care evaluations that enable care-givers to optimize drug dosing. Quicker diagnosis of infectious agents can also permit earlier prescription of appropriate medications, shortening the duration of illness. TECHNOLOGY Biosite's Immediate Response Diagnostics technology is based on several proprietary advances in the biological and physical sciences that make practical the development and manufacture of rapid, accurate and cost-effective point-of-care diagnostics. The Company's products integrate its expertise in several core scientific and engineering disciplines, including antibody development and engineering, analyte cloning and synthesis, signaling chemistry and micro capillary fluidics, each of which is described below. Biosite's research and development program is supported by 60 full time professionals, including 15 Ph.D.s with expertise in the Company's core technologies. By combining research capabilities in each of these areas, Biosite is able to create novel single and multi-analyte diagnostics which overcome the limitations of traditional rapid diagnostic technologies and seek to address the significant unmet need for effective point-of-care diagnostic information. Antibody Development and Engineering Biosite believes that its internal antibody development and engineering capabilities allow rapid identification and development of antibodies with optimal specificity, affinity and stability characteristics. The Company initially utilized hybridoma technology for the selection and production of its novel antibodies. Two disadvantages of hybridoma technology are the length of time required to develop antibody candidates and the need to restart the antibody development process when unwanted characteristics such as cross reactivities are discovered. The Company has developed a proprietary process that enables the selection and production of antibodies more rapidly and efficiently than is possible using hybridoma technology. In addition, Biosite has isolated the genes encoding the antibodies that permit the genetic engineering of antibodies. As a result, Biosite can alter or add specific amino acids or polypeptides in an antibody in order to improve the antibody's specificity and to facilitate purification of the antibody. This technology accelerates the antibody selection process by rapidly eliminating unwanted cross reactivities discovered in product development. Analyte Cloning and Synthesis The Company has molecular biology capabilities that include the cloning and identification of specific proteins useful in the development of immunoassays. Biosite has developed proprietary expression vectors that 25 29 enable the production and purification of these proteins for the development of antibodies and for use as calibrators and controls in its immunoassay products. In addition, the Company has considerable expertise in synthetic organic chemistry which allows the synthesis of targets and useful derivatives. The Company develops products for which the targeted analyte can be small (i.e., haptens, such as drugs) or large (i.e., proteins, such as cardiac enzymes). The Company believes that the ability to develop, stabilize and manufacture the target analyte or its analogues is key to the development of highly accurate immunoassays. Color/Photochemical Signaling Immunoassays require the attachment of a detectable label to an antibody or target analyte. The Company has developed a variety of labels for the development of its products. For yes/no tests, a visual label that produces color is attached to antibodies or analytes through either non-covalent or covalent chemical methods. For its quantitative products, the Company has developed novel fluorescent dyes which are attached to antibodies or analytes using both noncovalent and covalent chemical means. Although fluorescence is a potentially powerful label for use in immunoassays, its potential has been limited by the lack of available dyes that are stable and have no sample interference, and the requirement of a complex instrument for detection. The Company's novel fluorescent dyes are stable and exhibit properties that permit their use in complex biological samples such as serum, plasma and whole blood without interference from the sample. Furthermore, these novel dyes absorb light at wavelengths where a simple instrument can be used to excite and detect fluorescence for quantitative measurements. Micro Capillary Test Device Technology Biosite has developed proprietary technology to design, develop and manufacture devices containing micro capillaries to control the flow of fluids in immunoassay processes. The qualitative device format uses micro capillaries to draw fluids through a membrane that contains immobilized antibody zones for the detection of specific substances. The quantitative device format uses several different micro capillary designs to control the contact of sample with reagents and to control the flow of fluid throughout the device. When sample is added to the quantitative device, a filter contained within the device separates blood cells from plasma which is further directed by capillary forces into a chamber that contains dried immunoassay reagents. After an incubation time that is determined by another micro capillary element of the device, the volume of sample that contacted the reagents flows down a capillary path that brings it into contact with immobilized antibody zones. The binding of fluorescent reagents at these zones is detected by an instrument and is related to the concentration of the substance being tested for in the sample. The Company has also developed the engineering capability to design unique micro capillary structures in plastic parts and to fabricate them in commercial scale quantities using injection molding processes. Sample Handling The Company has developed proprietary technology relating to sample handling and preparation, including technology that allows whole blood to be passively separated into its plasma component or to be passively lysed to release the target analyte. The Company has also developed technologies for the handling of stool samples which concentrate and purify the target analytes or organisms from solid stool materials. In addition, the Triage Panel platform test formats can be used to assay urine samples. PRODUCT PLATFORMS The Company has used its core technologies to develop two product platforms: the Triage Panel and the Triage CareLink System. Both of the Company's product platforms utilize the Company's expertise in antibody engineering, analyte cloning, signaling chemistry, micro capillary fluidics and sample handling technologies. 26 30 Triage Panel The Triage Panel platform is designed for rapid, qualitative screening of multiple analytes in a small single-use hand-held device. The Triage Panel has a visual (yes/no) display containing simultaneous tests for up to eight analytes and two control standards, can be performed in a simple multi-step process, and is capable of performing tests on both urine and stool. Triage DOA, the first product developed on this platform, tests for up to eight drugs of abuse in approximately 10 minutes. Triage Panel products under development include tests for the detection of microorganisms which cause severe gastrointestinal disease. Triage CareLink System The Triage CareLink System platform is designed to provide rapid quantitative results for immunoassay tests of whole blood, serum and plasma. The Triage CareLink System consists of two parts: a small single-use disposable test cartridge and a proprietary hand-held point-of-care fluorescent meter. After blood is applied to the cartridge, the cartridge is inserted into the meter, which is designed to automatically detect up to six analytes simultaneously and display the results on a numerical electronic read-out. The meter incorporates proprietary software in erasable programmable read-only memory ("EPROM") chips which are intended to be plugged into each meter to perform multiple types of tests and automatically determine which test is being run. In addition, the EPROM chips are designed to automatically calibrate the meter on a lot specific basis. The software may also provide important information regarding the analyte measured, such as normal or abnormal levels of a marker which could then be used to initiate therapy or manage patient disease. The Company believes that the analyte measuring sensitivity of the Triage CareLink System products under development will match or exceed the sensitivity levels of the conventional immunoassay analyzers. The Company is currently developing two applications for this platform, Triage Cardiac, a device for the quantification of three cardiac markers associated with AMI, and Triage Transplant, a product for the monitoring of the concentration of cyclosporine, an immunosuppressant drug prescribed for organ transplant recipients to prevent transplant rejection. PRODUCT ATTRIBUTES Although the current products and products under development are based upon the Triage Panel and Triage CareLink System platforms and utilize different technologies, they share common attributes which the Company believes make them superior to conventional immunoassay analyzers: - RAPID RESULTS: Triage DOA and the Company's products under development are designed to offer complete results in a STAT timeframe, and to have room temperature stability, making them immediately available for use. - EASE OF USE: Triage DOA and the Company's products under development are designed to be simple to use. Triage DOA has only three steps while Triage Cardiac and Triage Transplant are expected to require only one step. - HIGH ANALYTICAL ACCURACY: The Company develops and uses high quality biological and chemical reagents to yield highly specific, accurate and reproducible analytical results. - CAPABILITY OF PERFORMING MULTIPLE ANALYSES: Triage DOA and the Company's products under development are designed to measure one or more target analytes simultaneously, including reagent controls, without sacrificing the quality of the individual analysis. This simultaneous detection capability can provide significant time and cost savings compared to current technologies. - RELIABILITY: Biosite's use of internal thresholds, built-in controls, lockouts and other controlling mechanisms are intended to make its current and future products extremely reliable in any hospital or clinical laboratory setting. - COST EFFECTIVENESS: Triage DOA and the Company's products under development are designed to eliminate the need for highly trained technicians and significant outlays for testing equipment acquisition and maintenance, making them cost-effective alternatives to conventional immunoassay analyzers. 27 31 PRODUCTS AND PRODUCTS UNDER DEVELOPMENT Triage DOA was introduced in 1992 and has been used by hospital emergency departments to screen for up to eight commonly abused prescription and illicit drugs or drug classes. The Company is developing five additional products which apply the Company's Immediate Response Diagnostics technologies to a variety of other medical testing needs. Triage DOA and the Company's five products under development are described in the table below. The table also indicates the Company's corporate partners with respect to Triage DOA and products under development. The Company intends, where appropriate, to enter into additional collaborative arrangements to develop and commercialize future products. There can be no assurance that the Company will be able to negotiate collaborative arrangements on favorable terms, if at all, in the future, or that its current or future collaborative arrangements will be successful. T R I A G E P A N E L S T R I A G E - --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- STATUS/EXPECTED U.S. REGULATORY CORPORATE PRODUCTS APPLICATION ANALYTE TARGETS PATHWAY(1) PARTNER(2) ---------------------------------------------------------------------------------------------------------- Triage Panel Drug Screening Phencyclidine On the Market/ Merck, CMS for Drugs of Benzodiazepines 510(k) cleared Abuse Cocaine (Triage DOA) Amphetamine Tetrahydrocannabinol Opiates Barbiturates Tricyclic antidepressants Methadone ---------------------------------------------------------------------------------------------------------- Triage Panel Parasite Giardia lamblia In Development/ -- for Parasitology Screening Entamoeba 510(k) (Triage O&P) histolytica Cryptosporidium parvum ---------------------------------------------------------------------------------------------------------- Triage Panel for Pathogen C. difficile Antigen In Development/ -- Clostridium Detection C. difficile Toxin A 510(k) difficile (Triage C. diff) ---------------------------------------------------------------------------------------------------------- Triage Panel Pathogen Salmonella In Development/ -- for Enteric Screening Shigella 510(k) Pathogens Campylobacter (Triage Enteric) jejuni/coli - --------------------------------------------------------------------------------------------------------------------- Triage Acute CK-MB In Development/ Merck(3), Cardiac Myocardial Troponin I 510(k) KDK, LRE Infarction Myoglobin Detection ---------------------------------------------------------------------------------------------------------- Triage Drug Monitoring Cyclosporine In Development/ Sandoz, Transplant PMA LRE - --------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------
(1) The FDA regulatory approval process requires many steps before a product can be approved for marketing. The terms "510(k)" and "PMA" indicate the regulatory approval pathway the Company believes will be applicable to a product, although there can be no assurance that the FDA will agree that the pathway noted is the appropriate pathway for the specific product. See "Risk Factors -- Government Regulation." For a description of the terms 510(k) and PMA see "-- Government Regulation." (2) For a description of the Company's collaboration arrangements, see "-- Strategic and Distribution Arrangements." (3) Merck has informed the Company that Merck is considering assigning its rights under its agreements with the Company concerning the marketing of Triage Cardiac either to a third party or back to the Company. C S A Y R S E T L E I M N S KI,2 32 Triage Panel for Drugs of Abuse The Company believes the worldwide market for abused drug testing is approximately $350 million annually, the majority of which is accounted for by testing performed in the United States. The U.S. market can be divided into three major categories: - MEDICAL TESTING: The medical testing segment represents testing typically performed in a hospital laboratory. Such tests have the highest need for rapid turnaround of results, and generally have the highest cost per result. The results are generally reported to emergency physicians and psychiatrists. - NON-MEDICAL TESTING: The non-medical testing market consists of testing performed for industry, as well as in the criminal justice setting and drug rehabilitation centers. Testing may be performed on-site but generally samples are sent to independent reference laboratories. Typically, the demands for a rapid result are not quite as great as in the medical segment. Additionally, the cost per result is slightly reduced. - REFERENCE LABORATORY TESTING: The reference laboratory testing market accounts for a sizable portion of the total drug testing market. The majority of samples come from the non-medical testing market, although some smaller hospitals in the medical testing market also send their samples to reference laboratories. In general, results are not available for at least 24 hours from the time the specimen is collected. Despite relatively long turnaround times, the reference laboratory market has remained substantial because of its ability to produce results on a low cost per panel basis. Emergency Department Screening A 1988 Substance Abuse and Mental Health Services Administration ("SAMHSA") survey concluded that over 14.5 million Americans had used an illicit drug at least once in the prior month. Emergency physicians have indicated that drug abuse plays a role in 5% to 10% of the emergency medicine cases occurring annually in the United States, either as a primary cause such as an overdose, or as a contributing factor such as in the case of an accident. A diagnostic dilemma confronts physicians when a patient is presented with symptoms that could either be drug related or non-drug related. A patient brought to a hospital emergency department in a coma may be under the influence of narcotics or sedatives, which may require one type of treatment or intervention. Conversely, the same patient may have had a stroke or suffered some form of trauma, requiring a completely different type of care. The ability to have a differential diagnosis in a timely manner greatly aids the course of treatment. Prior to the introduction of Triage DOA, drug or toxicology screening was accomplished by several technologies, primarily Gas Chromatography/Mass Spectroscopy ("GC/MS") and automated immunoassays. Although GC/MS is the most specific identification method commercially available, it is time consuming (requiring an average of approximately three hours per test), complex and expensive, and is generally reserved for final confirmation of specimens that have been screened positive by an immunoassay. Automated immunoassay tests, although less expensive than those performed by GC/MS, also require significant amounts of time (approximately one to two hours) because of the necessity of performing analyses of several drugs sequentially on each patient specimen. Additionally, in many cases the equipment required to perform an immunoassay is not accessible on an immediate or STAT basis. Triage DOA is a rapid qualitative urine screen that analyzes a single test sample for up to eight different illicit and prescription drugs or drug classes and provides results in approximately 10 minutes. Triage DOA is instrument independent, contains built-in controls for accuracy and is capable of a high degree of specificity. Illicit drugs tested for by Triage DOA include Amphetamines/Methamphetamines (speed, crystal), Cocaine (crack), Opiates (heroin), Phencyclidine (angel dust), Tetrahydrocannabinol (pot, marijuana), while prescription drugs tested by Triage DOA include Barbiturates (Phenobarbital), Benzodiazepines (Valium, Librium, Halcion), Tricyclic Antidepressants (Elavil, Tofranil) and Methadone. Triage DOA can be configured to test various combinations of the foregoing drugs. In February 1995, the Company launched Triage DOA Plus TCA, a configuration which includes a test for Tricyclic Antidepressants ("TCA") that otherwise requires a separate blood test. Since its introduction in February 1992, the Company has sold over 29 33 4.2 million Triage DOA panels worldwide, and over 2,600 hospitals and emergency departments in the United States are users of the product. The graphic below summarizes Triage DOA testing process: [GRAPHIC] The Company distributes Triage DOA and Triage DOA Plus TCA to the U.S. medical market through CMS. Merck is the exclusive distributor of Triage DOA and Triage DOA Plus TCA in certain countries in Europe, Latin America, the Middle East and Africa. Workplace Screening It is estimated that in 1996 over 33% of new hires in the U.S. workforce will be screened for drug usage as part of pre-employment physicals. The majority of these test samples are sent to centralized reference laboratories that can provide both the initial immunoassay screening result and the confirmation of presumptive positive results by an alternate method, such as GC/MS. Testing of government and certain government regulated employees and contractors must be performed at SAMHSA certified reference laboratories. Employers that are not government contractors send their drug screens to their laboratory of choice or perform on-site testing. Non-SAMHSA testing is estimated to account for over eight million tests performed annually. The majority of employers with drug screening programs have chosen not to implement "on-site" testing in their facilities due to costly personnel and regulatory burdens on an employer's in-house testing laboratory. These industrial testers, however, still have a need for rapid results since many employment decisions hinge on an employee's ability to pass physical and other examinations that include a test for illegal drugs. Despite this need for rapid results, there is a 24 to 48 hour wait based on the sample transportation and testing process used by all major reference laboratories. Additionally, it is estimated that approximately 90% of all employee tests have negative results. Therefore, an immunoassay test that provides rapid results, such as Triage DOA, can get employees back to work quickly and save employers money. In January 1996, the Company established the Express Test One-Hour Drug Screen service, a marketing program in conjunction with regional suppliers of occupational health services, as a means of expanding the market for Triage DOA. The Express Test program incorporates the Company's "near-site" testing strategy of providing the benefits of rapid drug test results using Triage Intervention (a test for five illicit drugs or drug classes) without the burdens that would be imposed on employers setting up an on-site laboratory. Participating occupational health clinics provide rapid results to industrial clients that send prospective employees to them for pre-employment physicals and drug screens. Biosite's sales force actively supports these selected occupational health clinics in their marketing of the Express Test program to potential 30 34 industrial clients in their regional area. Biosite currently has six sales professionals actively establishing select providers to be a part of the Express Test program. Triage Cardiac In 1992, over 6.0 million people in the United States visited hospital emergency departments exhibiting symptoms of a heart attack. Of those, approximately 650,000 were diagnosed with AMI and approximately 800,000 were diagnosed with unstable angina. In total, approximately 1.9 million of the patients who presented with chest pain were admitted to coronary care units. Of these, approximately 30,000 to 60,000 patients were misdiagnosed as not having an AMI. Additionally, approximately 500,000 of these patients who had not had an AMI were admitted to hospitals and ultimately released within two days. The Company believes that rapid, quantitative results for multiple cardiac markers provided at the point-of-care may have a positive impact on misdiagnosed AMI, and may provide substantial benefits to patients and savings to the hospital. AMI is generally caused by the blocking or "occlusion" of an artery providing oxygen-carrying blood to the heart. Without oxygen, the heart muscle is destroyed, and a prolonged occlusion results in additional muscle damage. The destruction of such cells in the heart muscle results in the release of several markers into the bloodstream, including creatinine kinase ("CK-MB"), Troponin I and Myoglobin. In general, for early diagnosis of AMI clinicians rely on electrocardiograms and on the measurement, over time, of CK-MB. Troponin I and Myoglobin are also emerging as adjuncts to CK-MB to improve the detection of heart attacks. The Company believes that the concentrations of these three markers peak and fall over different time periods and that the simultaneous measurement of these markers is a more accurate diagnostic technique for AMI than the measurement of any one single marker. Studies have shown that serum concentrations of Myoglobin are elevated most quickly post-AMI, followed by CK-MB. Additionally, serial quantitative measurement of Myoglobin has demonstrated a significantly higher sensitivity in diagnosing AMI than CK-MB in patients presenting within 12 hours of AMI symptom onset. Troponin I has been shown to maintain an elevated concentration for a longer period of time than CK-MB and Myoglobin. Several diagnostic tests have recently been developed to quantitatively measure the blood levels of such markers. Unfortunately, the measurement of multiple markers currently requires large, centralized immunoassay systems that cannot directly analyze whole blood and are not always available on a STAT basis. Additionally, these systems require multiple reagent packs, frequent standardization and quality control. Since turnaround time for such test results is critical, current immunoassay systems may not satisfy physician needs. The Company believes that a point-of-care test capable of quantitatively measuring multiple markers of an AMI would have a positive impact on patient care. Accordingly, the Company's Triage Cardiac product under development is being designed to quantitatively measure the level of CK-MB, Troponin I and Myoglobin in a single test device from a sample consisting of two drops of whole blood. The hand-held Triage CareLink meter under development is being designed to provide quantitative results of such measurements at or near the point-of-care. Triage Cardiac may aid in the detection of AMI by providing point-of-care quantitative results in approximately 10 minutes, providing physicians with the ability to make treatment decisions in a timely manner. Triage Cardiac is in the late stages of development with clinical investigations expected to begin in the first half of 1997. If successfully developed and cleared for marketing, the Company anticipates selling Triage Cardiac directly in the United States and through KDK in Japan. The Company currently has an agreement with Merck regarding distribution of Triage Cardiac in certain countries in Europe, Latin America and South Africa. However, Merck has informed the Company that Merck is considering assigning its rights under such agreement either to a third party or back to the Company. Triage C. diff Clostridium difficile ("C. difficile") is an opportunistic pathogen of the intestinal tract that may thrive as a result of broad spectrum antibiotic treatment. The bacteria may be found in asymptomatic carriers or may 31 35 be spread among hospital patients that are immunocompromised or receiving antibiotics. Cytotoxins produced by the bacteria mediate C. difficile-associated disease ("CDAD"), which may include antibiotic-associated diarrhea and antibiotic-associated pseudo-membranous colitis. Due to the contagiousness of CDAD, patients identified as possibly having CDAD are usually placed in isolation until the infection is controlled. Symptoms of CDAD include diarrhea as well as fluid and weight loss. It has been estimated that in 1995, approximately 3.0 million rapid tests for C. difficile were performed in the United States. This number is expected to continue to rise due to the expected increase in the number of patients who are immunocompromised. Until recently, the use of a cytotoxic test, which takes 48 to 72 hours to produce diagnostic results, was the only means to identify the toxin associated with C. difficile. More recently, in response to the need for more rapid identification of the C. difficile toxin, several manufacturers have developed and marketed enzyme-linked immunosorbent assay ("ELISA") tests that can be performed in one to two hours. These ELISA test formats are used by the majority of the hospitals testing for the toxin. Although the ELISA technology has been a great improvement over the cytotoxic test, it still requires several precisely timed steps as well as multiple standards every time the test is performed, making it unlikely the testing will be done whenever an individual specimen is sent to the laboratory. The multiple standards and quality controls required with each run make the processing of individual specimens expensive. As a result, specimens are generally only processed in "batch" mode, delaying the time to a diagnostic result, and the time by which a physician receiving the information can take therapeutic measures. Triage C. diff is designed to simplify the laboratory procedure and improve time to result to the physician by enabling laboratories to complete testing for the bacteria and toxin in approximately 10 minutes. Because the test is being designed with built-in controls and standards, the test may be able to be performed individually or in batches, by any laboratory technician, without compromising the quality of the result. Triage C. diff may thus reduce time to initiate therapy and minimize time in isolation. Rapid, accurate diagnosis of the bacteria and toxin should enable earlier treatment, which may reduce length of stay in the hospital and reduce cost. Triage C. diff is in the late stages of development with clinical investigations expected to begin in the first half of 1997. If successfully developed and cleared for marketing, the Company expects to market this product directly in the United States. Triage O&P Parasitic infection is a common cause of gastrointestinal disease and diarrhea. Some of the more common parasites responsible for such infection are Giardia lamblia ("Giardia"), Cryptosporidium parvum ("C. parvum"), Entamoeba histolytica and Microsporidia species. According to the U.S. Centers for Disease Control and Prevention ("CDC"), more than 900,000 people in the United States become ill each year from waterborne parasites. Additionally, with the increase in world travel, it is probable that the number of cases diagnosed in the United States will rise. Further, parasites frequently infect immunocompromised patients, especially HIV infected patients, which has lead to an increase in the incidence of infection by Microsporidia species. The most commonly employed method of detecting parasites from stool samples is by manual ova and parasite ("O&P") microscopic examination, typically of three consecutive stool specimens from the patient. The preparation of the sample by a laboratory technologist involves stool specimen dilution and the preparation of multiple microscope slides. Each slide must then be observed via microscope by a technologist trained in the identification of parasites. The time to diagnose parasitic infection is prolonged due to the need for manual microscopic examination of multiple stool specimens per patient. The prolonged time to obtain results may delay the treatment of patients, and ultimately increase the cost of health care for such patients. It is estimated that in 1997 over six million O&P microscopic examinations will be performed in the United States. Because of the cumbersome procedure and limited test menu of the current ELISA test formats, these tests have had limited success in hospitals that perform larger volumes of tests in batches. Recently, several manufacturers have developed and marketed ELISA tests for the more rapid identification 32 36 of two of the more common parasites Giardia and C. parvum. Such tests are, however, subject to numerous limitations, including the requirement of multiple timed steps, two hour time to result, a need to run additional standards and controls with patient specimen and availability of tests for two parasites only. Triage O&P is designed to replace the standard O&P microscopic detection method for three of the most commonly encountered parasites: Giardia, C. parvum and Entamoeba histolytica in a single test device. Future versions of Triage O&P may include a test for Microsporidia species. Because each test device includes standards and controls, the product may be able to be used for any volume of tests. If successfully developed and approved for marketing, Triage O&P may make rapid results (approximately 10 minutes) available to hospitals of any size, including facilities that previously sent such testing to a reference lab. The Company expects that Triage O&P will have sensitivity comparable to the current O&P microscopic examination, but will require only a single patient specimen. This should greatly reduce the collection burden for the patient, and reduce the amount of labor for the laboratory technician, thereby reducing costs. Additionally, the length of time physicians wait for results may be reduced. Triage O&P is in the late stages of preclinical development. Triage Enteric Gastroenteritis, commonly described as "food poisoning," often occurs among individuals who have consumed contaminated foods or been exposed to stool contaminated with microorganisms such as Salmonella, Campylobacter jejuni/coli, Shigella and E. coli 0157. Eight to 24 hours after such exposure, individuals may experience abdominal pain, nausea and diarrhea. It is estimated that in the United States over 14 million stool cultures are performed annually for the diagnosis of food poisoning. Microorganisms are often implicated in such cases. According to the CDC, there are over six million cases of foodborne disease annually in the United States. Stool culture, currently the primary method of diagnosing food poisoning, involves the inoculation of multiple culture plates with stool specimen. After 24 to 48 hours, culture plates that exhibit bacterial growth are subjected to biochemical tests that typically take an additional 24 hours. As a result of such a prolonged testing procedure, physicians generally wait 48 to 72 hours for test results. Triage Enteric is being developed for identification of three of the most common enteric bacteria responsible for food poisoning, Salmonella, Campylobacter jejuni/coli and Shigella. Future versions of Triage Enteric may include a test for E. coli 0157. Triage Enteric would enable the laboratory technician to rapidly detect from a stool specimen the presence of such enteric bacteria. This should greatly reduce the amount of labor required of laboratory technicians, thereby reducing costs. Additionally, the length of time by which results can be returned to the physician would be improved. Triage Enteric is in the development stage. Triage Transplant Transplants of human organs generally require suppression of the immune system of the organ recipient. Cyclosporine is the most widely used pharmaceutical for such purposes, with annual worldwide sales in excess of $1.0 billion. Sandoz is the developer and leading supplier of cyclosporine, and is involved in several collaborations in the organ transplant field that include health care management, xenotransplantation, and near-patient testing in an effort to support the use of organ transplantation. Cyclosporine is chronically administered to patients who have received an organ transplant. Over 18,000 patients undergo organ transplantation in the United States annually. In excess of 200,000 organ recipients worldwide take immunosuppressant drugs on a daily basis. The blood level of cyclosporine must be monitored to ensure that a patient receives the appropriate therapeutic dose while minimizing toxicity. Patients receiving cyclosporine must maintain a minimum concentration of the drug for it to be effective, yet maintain a level that is low enough not to be toxic. This 33 37 range is often referred to as the therapeutic window. Physicians primarily rely on large, centralized laboratories to measure cyclosporine blood levels. The physician typically does not receive test results for at least 24 to 48 hours, requiring a call back to the patient if the dose of the drug needs to be adjusted. A smaller share of cyclosporine testing is performed by high performance liquid chromatography ("HPLC"). The current worldwide market for cyclosporine testing by immunoassay is estimated to be over 4.0 million tests per year. Patients are monitored frequently in the immediate post-transplant time-frame with reduced but continued testing, an average of four times per year, for the remainder of the patient's lifetime. Triage Transplant is designed to utilize the Triage CareLink meter to enable a physician to easily, rapidly and accurately measure cyclosporine levels. Triage Transplant is being developed to provide physicians with a cost-effective means of determining cyclosporine levels at the point-of-care which provides the physician with the ability to optimize drug therapy during the patient's visit. As part of its research and development collaboration with Sandoz, Biosite has obtained licenses to certain technology that makes rapid analysis of cyclosporine levels possible. See "-- Strategic and Distribution Arrangements." Triage Transplant is in the preclinical development stage. If successfully developed and approved for marketing, the Company expects Sandoz to support the promotion of Triage Transplant worldwide. RESEARCH AND DEVELOPMENT As of November 30, 1996, the Company had 60 employees in research and development, of which 15 have Ph.D.s. The Company's research and development organization is dedicated to the discovery and development of new technologies which can be applied to future products and the development of new products in its existing platform technologies. The Company has research staff dedicated to the development and production of antibodies through a variety of techniques. Recombinant techniques are used to express proteins for use as diagnostic targets. The Company's staff of chemists and biochemists synthesize drug targets and compounds for use as diagnostic labels as well as seek to perfect techniques for coupling these compounds to biological reagents such as antibodies. The Company's development engineering staff is involved in the design and development of new diagnostic device technologies as well as processes for their fabrication and interface with biological and chemical reagents. The Company's product development group completes final optimization of assays and the Company's regulatory affairs group controls all in-house and external clinical trials of the Company's products and prepares applications to the FDA for pre-market clearance of approval. MANUFACTURING As of November 30, 1996, the Company had 42 employees in manufacturing involved in reagent production, device assembly, engineering, quality assurance/quality control and materials management. Biosite maintains worldwide manufacturing rights to all current and future products. A key strategy of the Company is to provide high quality analytical results in an efficient manner. To this end, the Company invests in the design and development of manufacturing systems and technologies that can produce a high quality product using controlled, cost-effective manufacturing processes and equipment. Triage C. diff, Triage O&P, and Triage Enteric are being developed to utilize the same or similar processes and equipment as Triage DOA. The Company believes that the experience it has acquired in manufacturing Triage DOA will provide benefits in product quality and cost in manufacturing for its products under development. The Company expects its manufacturing capacities will allow such potential products and Triage DOA to be manufactured concurrently in the same facility. All raw materials required to manufacture Triage DOA are obtained from outside suppliers. All antibodies used in the manufacture of Triage DOA were developed by Biosite and the cell lines are owned by Biosite. Production quantities of most of the antibodies are produced by two vendors. In addition, Biosite maintains its own in-house antibody production capability. The Company manufactures Triage DOA at its facility in San Diego, California. The facility has received its registration as a diagnostic product manufacturer from the FDA and from the California Department of 34 38 Health Services. The Company has also been licensed and certified to manufacture products using controlled substances by the U.S. Drug Enforcement Agency. There can be no assurance that the Company can continue to comply with all government requirements and regulations which may lead to the suspension or revocation of its right to manufacture. See "Risk Factors -- Government Regulation" and "-- Government Regulation." The Company is also developing novel and sophisticated processes and equipment for the future production of its Triage Cardiac and Triage Transplant products. LRE will manufacture and supply the meter used in conjunction with the Company's Triage CareLink System platform products. The Company is increasing its manufacturing space at its San Diego facility to accommodate production of Triage Cardiac. SALES AND MARKETING As of November 30, 1996, the Company has 31 employees in various sales and marketing functions. The Company markets its Triage DOA to hospital laboratories and emergency departments in the United States through CMS, a laboratory products distributor, and in certain countries in Europe, Latin America, the Middle East and Africa through Merck. The Company anticipates it may directly market in the United States its cardiac, microbiology and therapeutic drug monitoring products under development. In geographic markets outside the United States, the Company intends to establish relationships with marketing partners, where appropriate, for these potential products. The Company believes it has the management resources necessary to significantly expand its sales force for the promotion of its potential products. There can be no assurance that any of the Company's products under development will be successfully developed and approved for marketing. STRATEGIC AND DISTRIBUTION ARRANGEMENTS Biosite's strategy for the research, development, commercialization and distribution of certain of its products entails entering into various arrangements with corporate partners, licensors, licensees and others, and is dependent upon the success of these parties in performing their responsibilities. There can be no assurance that such parties will perform their obligations as expected or that any revenue will be derived from such arrangements. Curtin Matheson Scientific, Inc. In November 1991, the Company entered into a distribution agreement (the "CMS Agreement") with CMS pursuant to which the Company granted to CMS an exclusive right to distribute Triage DOA to hospitals, non-industrial laboratories and certain other health and medical organizations within the United States. In March 1996, the parties executed an amendment to the CMS Agreement, setting forth certain purchase and cumulative sales targets which if not met gives Biosite the option to terminate the CMS Agreement and further obligates CMS to pay to Biosite a penalty if it fails to meet such purchase and cumulative sales targets for 1996. Since the amendment of the CMS Agreement, CMS has missed certain of these purchase and cumulative sales targets. In August 1996, Biosite agreed to forgive a portion of the penalty each year that CMS meets additional sales milestones through 1999. There can be no assurance that the additional targets will be met. The CMS Agreement provides for a six-month transition period in the event of termination. If Biosite elects to terminate the CMS Agreement, it may appoint a new distributor or expand its own sales force to sell Triage DOA directly in the United States. Merck KGaA In July 1992, the Company entered into a distribution agreement with Merck, pursuant to which the Company granted to Merck an exclusive right to market and distribute Triage DOA in certain countries in Europe, Latin America, the Middle East and Africa. In June 1994, the Company entered into two additional agreements with Merck, a collaborative development agreement and a supply and distribution agreement, in connection with the Company's development of Triage Cardiac. Under the terms of such agreements, the Company and Merck agreed to jointly develop, perform clinical testing of, and obtain regulatory approval for Triage Cardiac. The agreement further provides that the Company is to be responsible for the design, development and manufacturing scale-up of Triage Cardiac and the reagents used in connection therewith, and for the clinical trials and regulatory approval of Triage Cardiac for use in the AMI diagnosis field in Japan and the United States. Merck is obligated to perform clinical trials and obtain regulatory approval for the product for use in the AMI diagnosis field in certain countries in Europe, Latin America and South Africa. Additionally, Biosite is obligated to fund 60% and Merck is obligated to fund the remaining 40% of the costs 35 39 incurred by both parties in developing, manufacturing and obtaining regulatory approval for the product, subject to certain maximum aggregate expenditure limitations and subject further to a reduction in Merck's funding obligations of 40% of payments which Biosite receives from KDK in connection with the development and commercialization of Triage Cardiac in Japan. The agreements further specify that Merck is to be the exclusive distributor of Triage Cardiac for use in the AMI diagnosis field in certain countries in Europe, Latin America and South Africa, while the Company is to retain distribution rights to the product in the remainder of the world and for uses other than the diagnosis of AMI. Merck has informed the Company that Merck is considering assigning its rights under its agreements with the Company concerning the marketing of Triage Cardiac either to a third party or back to the Company. LRE Relais + Elektronik GmbH In September 1994, the Company entered into an agreement with LRE (the "LRE Agreement") for the development of a hand-held meter to be used in all Triage CareLink System products currently under development, including Triage Cardiac and Triage Transplant. Under the terms of the LRE Agreement, LRE is obligated to develop and produce the fluorescent meter according to specifications provided by Biosite. In return, the Company agreed to compensate LRE for certain development and tooling expenses incurred in connection therewith, based upon LRE's successful completion of certain feasibility, prototype and preproduction milestones. In addition, the agreement specifies that LRE is to be the Company's exclusive supplier of the Triage CareLink meter during the term of the LRE Agreement, unless LRE is incapable of satisfying Biosite's needs or is prohibited from producing such meters for a specific immunoassay application. See "Risk Factors -- Dependence on Sole-Source Suppliers." ARKRAY KDK Corporation In February 1995, the Company entered into a development, supply and distribution agreement with KDK, pursuant to which the parties agreed to collaborate in the development and marketing of Triage Cardiac. Under the terms of the agreement, KDK is obligated to provide certain funding of up to $2.0 million for the Company's development of Triage Cardiac, $500,000 of which has been paid and the remainder of which is to be paid based upon the Company's achievement of certain milestones. In exchange for this funding, the Company has granted KDK the exclusive right to distribute Triage Cardiac in Japan and in certain countries of Asia, the Middle East and Pacific Island countries. The Company is responsible for costs associated with performing clinical trials on and obtaining regulatory approval of Triage Cardiac in the United States, while KDK is responsible for such costs in Japan and in certain countries of Asia, the Middle East and Pacific Island countries. KDK can terminate this agreement at any time. Sandoz Pharma Ltd. In September 1995, the Company entered into two license agreements with Sandoz relating to the Company's development of Triage Transplant. The first license is for cyclosporine antibodies and the second license is for certain antibody-based assays for measuring cyclosporine levels in blood and plasma which Sandoz has developed. Under the terms of the agreements, and upon the Company's successful completion of certain feasibility requirements, the Company has the right to make, have made, use and sell Triage Transplant using the licensed Sandoz antibodies and related technologies. Upon entering into the two licenses, the Company made certain initial payments to Sandoz and is obligated to make payments to Sandoz based upon the achievement of certain product development milestones, and to pay royalties on sales of products developed by the Company using such antibodies or related technologies. In connection with the agreement, Sandoz purchased $1.0 million of five-year 8% convertible debentures which convert into 92,222 shares of Common Stock of the Company upon the closing of this offering (based upon interest through January 31, 1997 and an assumed initial public offering price of $12.00 per share). The Company is obligated to sell to Sandoz up to $1.0 million additional five-year 8% convertible debentures upon the attainment of certain milestones. The debentures will be convertible, at the sole option of the Company, into shares of Biosite Common Stock at the initial offering price. 36 40 PROPRIETARY TECHNOLOGY AND PATENTS The Company's ability to compete effectively will depend in part on its ability to develop and maintain proprietary aspects of its technology, and to operate without infringing the proprietary rights of others or to obtain rights to such proprietary rights. Biosite has U.S. and foreign issued patents and is currently prosecuting patent applications in the United States and with certain foreign patent offices. There can be no assurance that any of the Company's pending patent applications will result in the issuance of any patents or that, if issued, any such patents will offer protection against competitors with similar technology. There can be no assurance that any patents issued to the Company will not be challenged, invalidated or circumvented in the future or that the rights created thereunder will provide a competitive advantage. Litigation may be necessary to enforce any patents issued to the Company, to protect trade secrets or know-how owned by the Company or to determine the enforceability, scope and validity of the proprietary rights of others. In March 1996, the Company settled a potential patent infringement claim by obtaining a license to the contested patent in return for a one-time payment of $2.2 million. In September 1996, the Company settled a patent infringement lawsuit filed by Abbott Laboratories and obtained a license to the contested patent in return for the payment of $5.5 million and the agreement to pay certain royalties. There can be no assurance that the Company will not in the future become subject to patent infringement claims and litigation or interference proceedings conducted in the USPTO to determine the priority of inventions. The defense and prosecution of intellectual property suits, USPTO interference proceedings, and related legal and administrative proceedings will result in substantial expense to the Company and significant diversion of effort by the Company's technical and management personnel. An adverse determination in litigation or interference proceedings to which the Company may become a party could subject the Company to significant liabilities to third parties. Further, either as the result of such litigation or proceedings or otherwise, the Company may be required to seek licenses from third parties which may not be available on commercially reasonable terms, if at all. Triage DOA and products under development may incorporate technologies that are the subject of patents issued to, and patent applications filed by, others. The Company has obtained licenses for certain technologies. However, there can be no assurance that the Company will be able to obtain licenses for technology patented by others on commercially reasonable terms, if at all, that it will be able to develop alternative approaches if unable to obtain licenses or that the Company's current and future licenses will be adequate for the operation of Biosite's business. The failure to obtain necessary licenses or to identify and implement alternative approaches would prevent the Company from commercializing certain of its products under development and would have a material adverse effect on the Company's business, financial condition and results of operations. Biosite is aware of a U.S. patent owned by Celltech relating to the manufacture of antibodies, such as those developed or being developed by Biosite for Triage Cardiac, Triage O&P, Triage C. diff and Triage Enteric. Biosite is also aware that this patent is the subject of an interference proceeding in the USPTO which was initiated in February 1991 with a patent application filed by Genentech. In June 1996, the EPO invalidated, following an opposition, certain claims under Celltech's corresponding EPO-granted patent which are relevant to Biosite's products and products under development. Celltech has indicated that it will appeal such decision. If it is determined that certain manufacturing aspects of Biosite's antibodies are covered by patent claims stemming from the interference or if Celltech were to have such claims upheld on appeal, Biosite may be required to obtain a license under such patents and corresponding patents in other countries. There can be no assurance that a license would be made available to Biosite on commercially reasonable terms, if at all. If such license is required and not obtained the Company might be prevented from using certain of its technologies. The Company's failure to obtain any required licenses could have a material adverse effect on the Company's business, financial condition and results of operations. The Company also relies upon trade secrets, technical know-how and continuing invention to develop and maintain its competitive position. There can be no assurance that others will not independently develop substantially equivalent proprietary information and techniques or otherwise gain access to the Company's trade secrets or disclose such technology, or that the Company can meaningfully protect its right to its trade secrets, or that the Company will be capable of protecting its rights to its trade secrets. Others may have filed and in the future are likely to file patent applications that are similar or identical to those of the Company. To determine the priority of inventions, the Company may have to participate in 37 41 interference proceedings declared by the USPTO that could result in substantial cost to the Company. No assurance can be given that any patent application of another will not have priority over patent applications filed by the Company. The commercial success of the Company also depends in part on the Company neither infringing patents or proprietary rights of third parties nor breaching any licenses that may relate to the Company's technologies and products. The Company is aware of several third-party patents that relate to the Company's technology. There can be no assurance that the Company does not or will not infringe these patents, or other patents or proprietary rights of third parties. In addition, the Company has received and may in the future receive notices claiming infringement from third parties as well as invitations to take licenses under third party patents. Any legal action against the Company or its collaborative partners claiming damages and seeking to enjoin commercial activities relating to the Company's products and processes affected by third party rights, in addition to subjecting the Company to potential liability for damages, may require the Company or its collaborative partner to obtain a license in order to continue to manufacture or market the affected products and processes. There can be no assurance that the Company or its collaborative partners would prevail in any such action or that any license (including licenses proposed by third parties) required under any such patent would be made available on commercially acceptable terms, if at all. There are a significant number of U.S. and foreign patents and patent applications in the Company's areas of interest, and the Company believes that there may be significant litigation in the industry regarding patent and other intellectual property rights. If the Company becomes involved in such litigation, it could consume a substantial portion of the Company's managerial and financial resources, which could have a material adverse effect on the Company's business, financial condition and results of operations. COMPETITION The market in which the Company competes is intensely competitive. Biosite's competitors include health care companies that manufacture laboratory-based tests and analyzers, as well as clinical and hospital-based laboratories. Currently, the majority of diagnostic tests used by physicians and other health care providers are performed by independent clinical and hospital-based laboratories. The Company expects that these laboratories will compete vigorously to maintain their dominance of the testing market. In order to achieve market acceptance for its products, the Company will be required to demonstrate that its products are an attractive alternative to testing performed by clinical and hospital-based laboratories. This will require physicians to change their established means of having such tests performed. There can be no assurance that the Company's products will be able to compete with the testing services provided by these laboratories. In addition, companies with a significant presence in the diagnostic market, such as Abbott Laboratories, Boehringer Mannheim, Chiron Diagnostics, Clinical Diagnostic Systems, a division of Johnson & Johnson, DADE International, and Roche Biosciences, Inc., have developed or are developing diagnostic products that do or will compete with the Company's products. These competitors have substantially greater financial, technical, research and other resources and larger, more established marketing, sales, distribution and service organizations than the Company. Moreover, such competitors offer broader product lines and have greater name recognition than the Company, and offer discounts as a competitive tactic. In addition, several smaller companies are currently making or developing products that compete with or will compete with those of the Company. There can be no assurance that the Company's competitors will not succeed in developing or marketing technologies or products that are more effective or commercially attractive than the Company's current or future products, or that would render the Company's technologies and products obsolete. Moreover, there can be no assurance that the Company will have the financial resources, technical expertise or marketing, distribution or support capabilities to compete successfully in the future. In addition, there can be no assurance that competitors, many of which have made substantial investments in competing technologies that may be more effective than the Company's technologies will not prevent, limit or interfere with the Company's ability to make, use or sell its products either in the United States or in international markets. See "-- Products and Products under Development" and "-- Technology." GOVERNMENT REGULATION The testing, manufacture and sale of the Company's products are subject to regulation by numerous governmental authorities, principally the FDA and corresponding state and foreign regulatory agencies. 38 42 Pursuant to the Federal Food, Drug, and Cosmetic Act, and the regulations promulgated thereunder, the FDA regulates the preclinical and clinical testing, manufacture, labeling, distribution and promotion of medical devices. The Company will not be able to commence marketing or commercial sales in the United States of new products under development until it receives clearance or approval from the FDA, which can be a lengthy, expensive and uncertain process. Noncompliance with applicable requirements can result in, among other things, fines, injunctions, civil penalties, recall or seizure of products, total or partial suspension of production, failure of the government to grant premarket clearance or premarket approval for devices, withdrawal of marketing clearances or approvals and criminal prosecution. The FDA also has the authority to request recall, repair, replacement or refund of the cost of any device manufactured or distributed by the Company. In the United States, medical devices are classified into one of three classes (i.e., Class I, II or III) on the basis of the controls deemed necessary by the FDA to reasonably ensure their safety and effectiveness. Class I devices are subject to general controls (e.g., labeling, premarket notification and adherence to cGMP) and Class II devices are subject to general and special controls (e.g., performance standards, postmarket surveillance, patient registries, and FDA guidelines). Generally, Class III devices are those which must receive premarket approval by the FDA to ensure their safety and effectiveness (e.g., life-sustaining, life-supporting and implantable devices, or new devices which have been found not to be substantially equivalent to legally marketed devices). Before a new device can be introduced in the market, the manufacturer must generally obtain FDA clearance or approval through either clearance of a 510(k) notification or approval of a PMA application. A PMA application must be filed if a proposed device is a new device not substantially equivalent to a legally marketed Class I or Class II device, or if it is a preamendment Class III device for which the FDA has called for PMAs. A PMA application must be supported by valid scientific evidence to demonstrate the safety and effectiveness of the device, typically including the results of clinical trials, bench tests, laboratory and animal studies. The PMA application must also contain a complete description of the device and its components, and a detailed description of the methods, facilities and controls used to manufacture the device. In addition, the submission must include the proposed labeling, advertising literature and any training materials. The PMA approval process can be expensive, uncertain and lengthy, and a number of devices for which FDA approval has been sought by other companies have never been approved for marketing. Upon receipt of a PMA application, the FDA makes a threshold determination as to whether the application is sufficiently complete to permit a substantive review. If the FDA determines that the PMA application is sufficiently complete to permit a substantive review, the FDA will accept the application for filing. Once the submission is accepted for filing, the FDA begins an in-depth review of the PMA. The FDA review of a PMA application generally takes one to three years from the date the PMA is accepted for filing, but may take significantly longer. The review time is often significantly extended by the FDA asking for more information or clarification of information already provided in the submission. During the review period, an advisory committee, typically a panel of clinicians, will likely be convened to review and evaluate the application and provide recommendations to the FDA as to whether the device should be approved. The FDA is not bound by the recommendation of the advisory panel. Toward the end of the PMA review process, the FDA generally will conduct an inspection of the manufacturer's facilities to ensure that the facilities are in compliance with applicable cGMP requirements. If FDA evaluations of both the PMA application and the manufacturing facilities are favorable, the FDA may issue either an approval letter or an approvable letter, which usually contains a number of conditions that must be met in order to secure final approval of the PMA. When and if those conditions have been fulfilled to the satisfaction of the FDA, the agency will issue a PMA approval letter, authorizing commercial marketing of the device for certain indications. If the FDA's evaluation of the PMA application or manufacturing facilities is not favorable, the FDA will deny approval of the PMA application or issue a "non-approvable" letter. The FDA may determine that additional clinical trials are necessary, in which case the PMA may be delayed for one or more years while additional clinical trials are conducted and submitted in an amendment to the PMA. Modifications to a device that is the subject of an approved PMA, its labeling, or manufacturing process may require approval by the FDA of PMA supplements or new PMAs. Supplements to an approved PMA often require the submission of the same type 39 43 of information required for an initial PMA, except that the supplement is generally limited to that information needed to support the proposed change from the product covered by the original PMA. A 510(k) clearance will be granted if the submitted information establishes that the proposed device is "substantially equivalent" to a legally marketed Class I or Class II medical device or a preamendment Class III medical device for which the FDA has not called for PMAs. The FDA recently has been requiring more rigorous demonstration of substantial equivalence than in the past, including in some cases requiring submission of clinical data. It generally takes from four to 12 months from submission to obtain 510(k) premarket clearance, but may take longer. The FDA may determine that a proposed device is not substantially equivalent to a legally marketed device, or that additional information is needed before a substantial equivalence determination can be made. A "not substantially equivalent" determination, or a request for additional information, could prevent or delay the market introduction of new products that fall into this category. For any devices that are cleared through the 510(k) process, modifications or enhancements that could significantly affect safety or effectiveness, or constitute a major change in the intended use of the device, will require new 510(k) submissions. The Company has made modifications to its Triage DOA product since receipt of initial 510(k) clearance. With respect to several of these modifications, the Company has filed new 510(k) notices describing the modifications, and has received FDA clearance of those 510(k) notices. The Company has made other modifications to its Triage DOA product which the Company believes do not require the submission of new 510(k) notices. There can be no assurance, however, that the FDA would agree with any of the Company's determinations not to submit a new 510(k) notice for any of these modifications, or would not require the Company to submit a new 510(k) notice for any of these modifications made to Triage DOA. If the FDA requires the Company to submit a new 510(k) notice for any device modification, the Company may be prohibited from marketing the modified Triage DOA until the 510(k) notice is cleared by the FDA. The Company is uncertain of the regulatory path to market that FDA will ultimately apply to the Company's products currently in development. Although Triage DOA received 510(k) clearance, a PMA may be required for Triage Cardiac and Triage Transplant tests now in development. There can be no assurance for any of the Company's products in development that FDA will not determine that the Company must adhere to the more costly, lengthy and uncertain PMA approval process. There can be no assurance that the Company will be able to obtain necessary regulatory approvals or clearances for its products on a timely basis if at all, and delays in receipt of or failure to receive such approvals or clearances, the loss of previously received approvals or clearances, limitations on intended use imposed as a condition of such approvals or clearances, or failure to comply with existing or future regulatory requirements would have a material adverse effect on the Company's business, financial condition and results of operations. Before the manufacturer of a device can submit the device for FDA approval or clearance, it generally must conduct a clinical investigation of the device. Although clinical investigations of most devices are subject to the IDE requirements, clinical investigations of IVD tests, such as all of the Company's products and products under development, are exempt from the IDE requirements, including the need to obtain the FDA's prior approval, provided the testing is noninvasive, does not require an invasive sampling procedure that presents a significant risk, does not intentionally introduce energy into the subject, and is not used as a diagnostic procedure without confirmation by another medically established test or procedure. In addition, the IVD must be labeled for RUO or IUO, and distribution controls must be established to assure that IVDs distributed for research or clinical investigation are used only for those purposes. The Company intends to conduct clinical investigations of its products under development, which will entail distributing them in the United States on an IUO basis. There can be no assurance that the FDA would agree that the Company's IUO distribution of its IVD products under development will meet the requirements for IDE exemption. Furthermore, failure by the Company or the recipients of its products under development to maintain compliance with the IDE exemption requirements could result in enforcement action by the FDA, including, among other things, the loss of the IDE exemption or the imposition of other restrictions on the Company's distribution of its products under development, which would adversely affect the Company's ability to conduct the clinical investigations necessary to support marketing clearance or approval. 40 44 Any devices manufactured or distributed by the Company pursuant to FDA clearance or approvals are subject to pervasive and continuing regulation by FDA and certain state agencies. Manufacturers of medical devices for marketing in the United States are required to adhere to applicable regulations setting forth detailed cGMP requirements, which include testing, control and documentation requirements. Manufacturers must also comply with MDR requirements that a manufacturer report to the FDA any incident in which its product may have caused or contributed to a death or serious injury, or in which its product malfunctioned and, if the malfunction were to recur, it would be likely to cause or contribute to a death or serious injury. Labeling and promotional activities are subject to scrutiny by the FDA and, in certain circumstances, by the Federal Trade Commission. Current FDA enforcement policy prohibits the marketing of approved medical devices for unapproved uses. The Company is subject to routine inspection by the FDA and certain state agencies for compliance with cGMP requirements, MDR requirements, and other applicable regulations. The FDA has recently finalized changes to the cGMP requirements, including the addition of design controls that will likely increase the cost of compliance. Changes in existing requirements or adoption of new requirements could have a material adverse effect on the Company's business, financial condition and results of operation. There can be no assurance that the Company will not incur significant costs to comply with laws and regulations in the future or that laws and regulations will not have a material adverse effect upon the Company's business, financial condition and results of operations. The Company also is subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. There can be no assurance that the Company will not incur significant costs to comply with laws and regulations in the future or that such laws or regulations will not have a material adverse effect upon the Company's business, financial condition and results of operations. The use of Biosite's products is also affected by CLIA and related federal and state regulations which provide for regulation of laboratory testing. The scope of these regulations includes quality control, proficiency testing, personnel standards and federal inspections. CLIA categorizes tests as "waived," or as being "moderately complex" or "highly complex," on the basis of specific criteria. There can be no assurance that any future amendment of CLIA or the promulgation of additional regulations impacting laboratory testing will not have an adverse effect on the Company's ability to market its products or on its business, financial condition and results of operations. EMPLOYEES As of November 30, 1996, Biosite employed 162 individuals. Of these, 17 hold Ph.D.s and 13 hold other advanced degrees. None of the Company's employees is covered by collective bargaining agreement. The Company believes that it maintains good relations with its employees. FACILITIES The Company currently leases approximately 83,000 square feet of space in five buildings in the Sorrento Valley area in San Diego under leases that expire from September 1997 through September 1998 with renewal options through 2001. The Company believes these facilities are adequate for its current needs and that suitable additional or alternative space will be available in the future on commercially reasonable terms as needed. The Company's current facilities are used for its administrative offices, research and development facilities and manufacturing operations. LEGAL PROCEEDINGS The Company is not a party to any material legal proceedings. 41 45 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The directors and executive officers of the Company, their positions with the Company and ages as of September 30, 1996 are as follows:
NAME AGE POSITION - ------------------------------------ --- --------------------------------------------------------- Kim D. Blickenstaff................. 44 President, Chief Executive Officer, Treasurer, Secretary and Director Gunars E. Valkirs, Ph.D. ........... 44 Vice President, Research and Development, Chief Technical Officer and Director Thomas M. Watlington................ 41 Senior Vice President Charles W. Patrick.................. 42 Vice President, Sales and Marketing Christopher J. Twomey............... 37 Vice President, Finance and Chief Financial Officer S. Nicholas Stiso, Ph.D. ........... 52 Vice President, Operations Kenneth F. Buechler, Ph.D. ......... 42 Vice President, Research Timothy J. Wollaeger(1)(2).......... 53 Chairman of the Board Thomas Adams, Ph.D. ................ 53 Director Frederick J. Dotzler(1)(2).......... 51 Director Howard E. Greene, Jr. .............. 53 Director Stephen K. Reidy.................... 46 Director Jesse I. Treu, Ph.D. ............... 49 Director
- --------------- (1) Member of Compensation Committee. (2) Member of Audit Committee. KIM D. BLICKENSTAFF, a founder of the Company, has been a director and the Company's President, Chief Executive Officer, Treasurer and Secretary since April 1988. He has held various positions in finance, operations, research management, sales management, strategic planning, and marketing with Baxter Travenol, National Health Laboratories, and Hybritech Incorporated ("Hybritech"). Mr. Blickenstaff holds an M.B.A. from the Graduate School of Business, Loyola University, Chicago. GUNARS E. VALKIRS, PH.D., a founder of Biosite and a co-inventor of certain of its proprietary technology has been a director since April 1988 and Vice President, Research and Development and Chief Technical Officer since 1988. Prior to forming Biosite, he was a Scientific Investigator with the Diagnostics Research & Development Group at Hybritech, where he was the primary inventor of Hybritech's patented ICON technology. Dr. Valkirs holds a Ph.D. in Physics from the University of California at San Diego. THOMAS M. WATLINGTON joined the Company as Senior Vice President in December 1996. He was formerly Vice President, Marketing for the Diabetes Care Division for Boehringer Mannheim. From 1982 to December 1996, Mr. Watlington held various positions in marketing, strategic analysis and product development with Boehringer Mannheim. Mr. Watlington holds a B.S. degree from the University of Maryland. CHARLES W. PATRICK joined the Company in August 1990 as Vice President, Sales and Marketing. From 1978 to August 1990, Mr. Patrick held various positions in sales, sales management and product and marketing management with Abbott. From 1987 to August 1990, he was Group Marketing Manager for the Abused Drug Business Unit of Abbott where he managed the worldwide product launch of Abbott's TDx and ADx bench top testing systems. Mr. Patrick holds a B.A. from the University of Central Florida. CHRISTOPHER J. TWOMEY joined the Company as Director of Finance in March 1990 and was promoted to Vice President of Finance and Chief Financial Officer in 1993. From 1981 to March 1990, Mr. Twomey worked for Ernst & Young LLP, where from October 1985 to March 1990, he served as Audit Manager. Mr. Twomey holds a B.A. in Business Economics from the University of California at Santa Barbara. 42 46 S. NICHOLAS STISO, PH.D. joined the Company as Vice President, Operations in November 1989. Prior to joining Biosite, he was with Syntex Medical Diagnostics, a division of SYVA Co., where from April 1980 to April 1989, he was Manufacturing Director for the AccuLevel line of quantitative, non-instrumented, therapeutic drug assays. Dr. Stiso holds a Ph.D. in Physical Chemistry from Michigan State University in East Lansing, Michigan. KENNETH F. BUECHLER, PH.D., a founder of Biosite and a co-inventor of certain of Biosite's proprietary technology, has been Vice President, Research since January 1994. Prior to that time, he was Director of Chemistry. Prior to forming Biosite, he was a Senior Scientist in the Diagnostics Research and Development Group at Hybritech. Dr. Buechler holds a Ph.D. in Biochemistry from Indiana University. TIMOTHY J. WOLLAEGER has served as Chairman of the Board of Directors since the Company's inception. He is the general partner of Kingsbury Associates, L.P., a venture capital firm he founded in December 1993. From May 1990 until December 1993, he was Senior Vice President and a director of Columbia Hospital Corporation (now Columbia/HCA Healthcare Corporation). From October 1986 until July 1993, he was a general partner of the general partner of Biovest Partners, A California Limited Partnership ("Biovest"), a seed venture capital firm. From 1983 to 1986, Mr. Wollaeger served as Senior Vice President and Chief Financial Officer of Hybritech. He is a director of Amylin Pharmaceuticals, Inc. ("Amylin") and Phamis, Inc., and a founder and director of several privately held medical products companies. He received an M.B.A. from Stanford University. THOMAS ADAMS, PH.D. joined the Board of Directors in September 1988. Dr. Adams was a founder of Genta Incorporated, a biotechnology company, and has been Chairman of the Board and Chief Executive Officer of Genta since February 1989. He previously served as Chairman of the Board and Chief Executive Officer of Gen-Probe Incorporated ("Gen-Probe"), which he co-founded in 1984. Prior to joining Gen-Probe, he held the positions of Senior Vice President of Research & Development and Chief Technical Officer at Hybritech. He had previously held senior scientific management positions with Technicon Instruments Corp., the Hyland Laboratories Division of Baxter Travenol, and DuPont. Dr. Adams is a director of Genta Incorporated, Life Technologies, Inc., La Jolla Pharmaceutical Company and two private biotechnology companies. He received his Ph.D. in Biochemistry from the University of California at Riverside. FREDERICK J. DOTZLER joined the Board of Directors in July 1989. Mr. Dotzler is General Partner of Medicus Venture Partners, a venture capital firm he founded in 1989. Prior to founding Medicus, Mr. Dotzler was a general partner of Crosspoint Venture Partners. Previously he held management positions with Millipore Corporation, G.D. Searle & Co., and IBM. He is a director of several privately held companies. Mr. Dotzler received a B.S. in Industrial Engineering from Iowa State University, an M.B.A. from the University of Chicago, and a degree in Economics from the University of Louvain, Belgium. HOWARD E. GREENE, JR. joined the Board of Directors in June 1989. Mr. Greene is a founder and Chairman of the Board of Amylin, a biotechnology company in late stage development of a drug candidate for diabetes, and he was Chief Executive Officer of Amylin from inception in September 1987 to July 1996. From October 1986 until July 1993, Mr. Greene was a general partner of the general partner of Biovest. From March 1979 to March 1986, he was Chief Executive Officer of Hybritech, and he was a co-inventor of Hybritech's monoclonal antibody assay technology. Prior to joining Hybritech, he was an executive with the medical diagnostics division of Baxter Healthcare Corporation from 1974 to 1979 and a consultant with McKinsey & Company from 1967 to 1974. He is Chairman of the Board of Cytel Corporation, a director of Allergan, Inc., Neurex Corporation and The International Biotechnology Trust plc, a foreign biotechnology investment company. Mr. Greene received an M.B.A. from Harvard University. STEPHEN K. REIDY joined the Board of Directors in July 1989. Since 1987, Mr. Reidy has been affiliated with Euclid Partners Corporation, a company engaged in venture capital investments in the health care and information technology industries. Mr. Reidy is a general partner of the General Partner of Euclid Partners III, L.P. and Euclid Partners IV, L.P. He is a director of Zynaxis, Inc., a drug delivery company, Chairman of the Board of a privately held neurological company and a director of a privately-held hospital software company. Mr. Reidy has an M.B.A. from Columbia University. 43 47 JESSE I. TREU, PH.D. joined the Board of Directors in June 1990. He has been a general partner of Domain Associates, a venture capital firm specializing in life sciences since 1986. Before joining Domain Associates in 1986, he was a principal of Channing, Weinberg and Company, Inc., and its venture capital spin-off CW Ventures, and was a director of Technicon Corporation responsible for marketing strategy and new product development in immunology and histopathology and previously held research and development, management and corporate staff positions at General Electric Company. Dr. Treu is a director of DNX Corporation, a pharmaceutical testing company, Geltex Pharmaceuticals, Inc., a developer of polymer based pharmaceuticals, and Lumisys, Inc., an electro-optical systems company. Dr. Treu received a Ph.D. in Physics from Princeton University. The Company currently has authorized eight directors. Upon the closing of this offering, the Company will have three classes of directors serving staggered three-year terms. All directors are elected to hold office until the next annual meeting of stockholders of the Company in which their three-year term expires and until their successors have been elected. The Company's officers are appointed by the directors and serve at the discretion of the Board of Directors. There are no family relationships among any of the directors or executive officers of the Company. BOARD COMMITTEES The Board of Directors has established an Audit Committee and a Compensation Committee. The Audit Committee, which consists of Mr. Dotzler and Mr. Wollaeger, reviews the results and scope of the annual audit and the services provided by the Company's independent accountants. The Compensation Committee, which consists of Mr. Dotzler and Mr. Wollaeger, makes recommendations to the Board of Directors with respect to general and specific compensation policies and practices of the Company and administers the Amended and Restated 1989 Stock Plan of Biosite (the "1989 Stock Plan"), the 1996 Stock Incentive Plan of Biosite (the "1996 Stock Plan") and the Biosite Employee Stock Purchase Plan (the "ESPP"). COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The members of the Company's Compensation Committee during 1995 were Mr. Dotzler and Mr. Wollaeger. There were no interlocks or other relationships among the Company's executive officers and directors that are required to be disclosed under applicable executive compensation disclosure regulations. COMPENSATION OF DIRECTORS Directors do not receive any fees for service on the Board of Directors. Directors are reimbursed for their expenses for each meeting attended. Directors are eligible to participate in the 1996 Stock Plan described below, although as of the date of this Prospectus, no options have been granted to non-employee directors. 44 48 EXECUTIVE COMPENSATION The following table sets forth compensation paid or awarded by the Company during the fiscal year ended December 31, 1995 to the Company's Chief Executive Officer and the Company's four most highly compensated executive officers other than the Chief Executive Officer whose salary and bonus exceeded $100,000 during the fiscal year. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS -------------------------------------------- SECURITIES OTHER UNDERLYING NAME AND PRINCIPAL POSITION YEAR SALARY ($)(1) BONUS ($) COMPENSATION ($) OPTIONS - --------------------------------------- ---- ------------- --------- ---------------- ------------ Kim D. Blickenstaff.................... 1995 $ 169,633 $78,462 $ 900 40,000 President and Chief Executive Officer Charles W. Patrick..................... 1995 151,000 27,002 59,290(2) 5,000 Vice President, Sales and Marketing Gunars E. Valkirs...................... 1995 139,208 36,244 793 25,000 Vice President, Research and Development Kenneth F. Buechler.................... 1995 125,823 36,244 709 25,000 Vice President, Research S. Nicholas Stiso...................... 1995 134,554 27,002 1,787 20,000 Vice President, Operations
- --------------- (1) Includes amounts deferred by each individual under the Company's 401(k) plan for the years in which earned. (2) Includes forgiveness of a $36,000 relocation loan made in August 1990 which was forgiven in August 1995 and $22,776 related to income taxes associated with the forgiveness of the loan. The following tables set forth certain information as of December 31, 1995 and for the fiscal year then ended with respect to stock options granted to and exercised by the individuals named in the Summary Compensation Table above. OPTION GRANTS IN FISCAL YEAR 1995 INDIVIDUAL GRANTS
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES PERCENTAGE OF OF STOCK PRICE TOTAL OPTIONS APPRECIATION GRANTED TO EXERCISE OR FOR OPTION TERM(3) OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -------------------------- NAME GRANTED (1) FISCAL YEAR ($/SH)(2) DATE 5% ($) 10% ($) - -------------------------------- ----------- ------------- ----------- ---------- ----------- -------- Kim D. Blickenstaff............. 40,000 13.3% $3.00 4/19/05 $10,312 $ 87,499 Charles W. Patrick.............. 5,000 1.7 3.00 4/19/05 1,289 10,937 Gunars E. Valkirs............... 25,000 8.3 3.00 4/19/05 6,445 54,687 Kenneth F. Buechler............. 25,000 8.3 3.00 4/19/05 6,445 54,687 S. Nicholas Stiso............... 20,000 6.7 3.00 4/19/05 5,156 43,750
- --------------- (1) These options vest daily over a four-year period commencing on the date of grant, except that no options are exercisable for the first six months after grant. (2) The exercise price of each option is equal to 150% of the fair market value of the Common Stock on the date of grant, as determined by the Compensation Committee of the Board of Directors. (3) The potential realizable value of each grant of options has been calculated, pursuant to the regulations promulgated by the Securities and Exchange Commission, assuming that the market price of the Common Stock appreciates in value from the date of grant to the end of the option term at the annualized rates of 5% and 10%, respectively. These values do not represent the Company's estimate or projection of future Common Stock value. There can be no assurance that any of the value reflected in the table will be achieved. 45 49 AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1995 AND OPTION VALUES AT END OF FISCAL 1995
NUMBER OF VALUE OF SECURITIES UNEXERCISED UNDERLYING IN-THE-MONEY UNEXERCISED OPTIONS AT OPTIONS AT FISCAL FISCAL YEAR-END(#) YEAR-END($) ------------------ ---------------- SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/ NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE - ------------------------------------ --------------- ----------- ------------------ ---------------- Kim D. Blickenstaff................. -- $ -- 60,755/42,445 $135,580/$30,620 Charles W. Patrick.................. 25,000 44,000 39,412/ 7,988 105,803/ 9,847 Gunars E. Valkirs................... 10,000 27,000 47,946/30,254 105,378/ 25,572 Kenneth F. Buechler................. 4,000 11,800 47,977/36,223 99,819/ 30,431 S. Nicholas Stiso................... 11,838 11,838 5,383/20,179 4,620/ 12,895
- --------------- (1) Calculated on the basis of the fair market value of the underlying securities at December 31, 1995, the fiscal year-end, minus the exercise price. Amended and Restated 1989 Stock Plan In July 1989, the Company's Board of Directors adopted the 1989 Stock Plan. The 1989 Stock Plan was amended at various times from its adoption to the date of this Prospectus to increase the number of shares available under the 1989 Stock Plan. A total of 1,692,000 shares of Common Stock is currently reserved for issuance under the 1989 Stock Plan pursuant to the direct award or sale of shares or the exercise of options granted under the 1989 Stock Plan. If any option granted under the 1989 Stock Plan expires or terminates for any reason without having been exercised in full, then the unpurchased shares subject to that option will once again be available for additional option grants. Unpurchased shares pursuant to options that expire or terminate under the 1989 Stock Plan shall be available for awards under the 1996 Stock Plan. Under the 1989 Stock Plan, all employees (including officers) and directors of the Company or any subsidiary and any independent contractor or advisor who performs services for the Company or a subsidiary are eligible to purchase shares of Common Stock and to receive awards of shares or grants of nonstatutory options. Employees are also eligible to receive grants of incentive stock options ("ISOs") intended to qualify under Section 422 of the Internal Revenue Code. The 1989 Stock Plan is administered by a committee of the Board of Directors of the Company, which selects the persons to whom shares will be sold or awarded or options will be granted, determines the number of shares to be made subject to each sale, award or grant, and prescribes other terms and conditions, including the type of consideration to be paid to the Company upon sale or exercise and vesting schedules, in connection with each sale, award or grant. The exercise price under the nonstatutory options generally must be at least 85% of the fair market value of the Common Stock on the date of grant. The exercise price under ISOs cannot be lower than 100% of the fair market value of the Common Stock on the date of grant and, in the case of ISOs granted to holders of more than 10% of the voting power of the Company, not less than 110% of such fair market value. The term of an option cannot exceed 10 years, and the term of an ISO granted to a holder of more than 10% of the voting power of the Company cannot exceed five years. Options generally expire not later than 90 days following a termination of employment or six months following the optionee's death or permanent disability. The purchase price of shares sold under the 1989 Stock Plan generally must be at least 85% of the fair market value of the Common Stock and, in the case of a holder of more than 10% of the voting power of the Company, not less than 110% of such fair market value. Under the 1989 Stock Plan, options granted pursuant to the 1989 Stock Plan will generally vest ratably over a period of four years. As of November 30, 1996, the Company had outstanding options to purchase an aggregate of 1,180,204 shares of Common Stock at exercise prices ranging from $0.24 to $8.25 per share, or a weighted average per 46 50 share exercise price of $3.24. At November 30, 1996, a total of 35,756 shares of Common Stock was available for future issuance under the 1989 Stock Plan. 1996 Stock Incentive Plan The 1996 Stock Plan was adopted by the Board of Directors on December 5, 1996, to be effective December 1, 1996, and was approved by the stockholders in December 1996. The 1996 Stock Plan replaces the Company's 1989 Stock Plan. Although all future awards will be made under the 1996 Stock Plan, awards made under the 1989 Stock Plan will continue to be administered in accordance with the 1989 Stock Plan. However, except as otherwise noted, the outstanding options under the 1989 Plan contain substantially the same terms and conditions specified below for option grants under the 1996 Stock Plan. The 1996 Stock Plan is administered by the Board of Directors or its delegate. The Board, or its delegate, selects the employees of the Company who will receive awards, determines the size of any award and establishes any vesting or other conditions. Employees, directors, consultants and advisors of the Company (or any subsidiary of the Company) are eligible to participate in the 1996 Stock Plan, although incentive stock options may be granted only to employees. No individual may receive options or stock appreciation rights ("SARs") covering more than 250,000 shares in any calendar year. The participation of the outside directors of the Company is limited to 20% of shares available under the 1996 Stock Plan. The 1996 Stock Plan provides for awards in the form of restricted shares, stock units, options or SARs, or any combination thereof. No payment is required upon receipt of an award, except that a recipient of newly issued restricted shares must pay the par value of such restricted shares to the Company. Restricted shares are shares of Common Stock that are subject to repurchase by the Company at the employee's purchase price in the event that the applicable vesting conditions are not satisfied, and they are nontransferable prior to vesting (except for certain transfers to a trustee). Restricted shares have the same voting and dividend rights as other shares of Common Stock. A stock unit is an unfunded bookkeeping entry representing the equivalent of one share of Common Stock, and is nontransferable prior to the holder's death. A holder of a stock unit has no voting rights or other privileges as a stockholder but may be entitled to receive dividend equivalents equal to the amount of dividends paid on the same number of shares of Common Stock. Dividend equivalents may be converted into additional stock units or settled in the form of cash, Common Stock or a combination of both. Stock units, when vested, may be settled by distributing shares of Common Stock or by a cash payment corresponding to the fair market value of an equivalent number of shares of Common Stock, or a combination of both. Vested stock units will be settled at the time determined by the Compensation Committee. If the time of settlement is deferred, interest or additional dividend equivalents may be credited on the deferred payment. The recipient of restricted shares or stock units may pay all projected withholding taxes relating to the award with Common Stock rather than cash. Options may include nonstatutory stock options ("NSOs") as well as ISOs intended to qualify for special tax treatment. The term of an ISO cannot exceed 10 years (five years for 10% stockholders), and the exercise price of an ISO must be equal to or greater than the fair market value of the Common Stock on the date of grant (or 110% of fair market value at the date of grant for 10% stockholders). The exercise price of an NSO must be equal to or greater than the par value of the Common Stock on the date of grant. The exercise price of an option may be paid in any lawful form permitted by the Compensation Committee, including (without limitation) the surrender of shares of Common Stock or restricted shares already owned by the optionee. The Compensation Committee may likewise permit optionees to satisfy their withholding tax obligation upon exercise of an NSO by surrendering a portion of their option shares to the Company. The 1996 Stock Plan also allows the optionee to pay the exercise price of an option by giving "exercise/sale" or "exercise/pledge" directions. If exercise/sale directions are given, a number of option shares sufficient to pay the exercise price and any withholding taxes is issued directly to a securities broker selected by the Company who, in turn, sells these shares in the open market. The broker remits to the 47 51 Company the proceeds from the sale of these shares, and the optionee receives the remaining option shares. If exercise/ pledge directions are given, the option shares are issued directly to a securities broker or other lender selected by the Company. The broker or other lender will hold the shares as security and will extend credit for up to 50% of their market value. The loan proceeds will be paid to the Company to the extent necessary to pay the exercise price and any withholding taxes. Any excess loan proceeds may be paid to the optionee. If the loan proceeds are insufficient to cover the exercise price and withholding taxes, the optionee will be required to pay the deficiency to the Company at the time of exercise. An SAR permits the participant to elect to receive any appreciation in the value of the underlying stock from the Company, either in shares of Common Stock or in cash or a combination of the two, with the Compensation Committee having the discretion to determine the form in which such payment will be made. The amount payable on exercise of an SAR is measured by the difference between the market value of the underlying stock at exercise and the exercise price. SARs may, but need not, be granted in conjunction with options. Upon exercise of an SAR granted in tandem with an option, the corresponding portion of the related option must be surrendered and cannot thereafter be exercised. Conversely, upon exercise of an option to which an SAR is attached, the SAR may no longer be exercised to the extent that the corresponding option has been exercised. All options and SARs are nontransferable prior to the optionee's death. As noted above, the Compensation Committee determines the number of restricted shares, stock units, options or SARs to be included in the award as well as the vesting and other conditions. The vesting conditions may be based on the employee's service, his or her individual performance, the Company's performance or other appropriate criteria. In general, the vesting conditions will be based on the employee's service after the date of grant. Vesting may be accelerated in the event of the employee's death, disability or retirement or in the event of a change in control with respect to the Company. For purposes of the 1996 Stock Plan, the term "change in control" does not include this Offering or the consequences of this Offering but thereafter means that (i) any person is or becomes the beneficial owner, directly or indirectly, of at least 50% of the combined voting power of the Company's outstanding securities ordinarily having the right to vote at elections of directors (ii) approval by the stockholders of the Company of a merger or consolidation of the Company with or into another corporation or entity or any other corporate reorganization in which over 50% of the combined voting power of the continuing or surviving entity immediately after the merger, consolidation or reorganization is owned by persons who were not stockholders of the Company immediately prior to the merger, consolidation or reorganization; or (iii) a change in the composition of the Board of Directors in which fewer than half of the incumbent Directors had been Directors 24 months prior to the change or were elected or nominated with the affirmative votes of Directors 24 months prior to the change. Awards under the 1996 Stock Plan may provide that if any payment (or transfer) by the Company to a recipient would be nondeductible by the Company for federal income tax purposes, then the aggregate present value of all such payments (or transfers) will be reduced to an amount which maximizes such value without causing any such payment (or transfer) to be nondeductible. The Board is authorized, within the provisions of the 1996 Stock Plan, to amend the terms of outstanding restricted shares or stock units, to modify or extend outstanding options or SARs or to exchange new options for outstanding options, including outstanding options with a higher exercise price than the new options. Members of the Company's Board of Directors who are not employees of the Company are eligible for awards under the 1996 Stock Plan. However, such outside directors are not eligible for ISO grants. Total shares available to outside directors is limited to 20% of total shares available under the 1997 Stock Plan. As of December 1, 1996, no awards had been made under the 1996 Stock Plan. The total number of restricted shares, stock units, options and SARs available for grant under the 1996 Stock Plan is 900,000 (subject to anti-dilution provisions), increased by the amount of all remaining shares available for grant under the 1989 Stock Plan as of December 1, 1996. If any restricted shares, stock units, options or SARs are forfeited, or if options or SARs terminate for any other reason prior to exercise (other than the exercise of a 48 52 related SAR or option, and including any forfeiture or termination under the 1989 Stock Plan), then they again become available for awards under the 1996 Stock Plan. Employee Stock Purchase Plan The ESPP was adopted by the Board of Directors on December 5, 1996, effective upon the completion of this Offering. The ESPP provides employees of the Company with an opportunity to purchase Common Stock at a discount and pay for their purchases through payroll deductions. All expenses incurred in connection with the implementation and administration of the ESPP will be paid by the Company. A pool of 100,000 shares of Common Stock has been reserved for issuance under the ESPP (subject to anti-dilution provisions). Each regular full-time and part-time employee who works an average of over 20 hours per week will be eligible to participate in the ESPP at the beginning of the first participation period after the employee's date of hire. Eligible employees may elect to contribute up to 10% of their cash compensation under the ESPP. Each calendar year is divided into two six-month "purchase periods," except that the entire period from the date of this offering to June 30, 1997, will be a single purchase period. At the end of each purchase period, the Company will apply the amount contributed by the participant during that period to purchase shares of Common Stock for him or her. The purchase price will be equal to 85% of the lower of (a) the market price of Common Stock immediately before the beginning of the applicable offering period or (b) the market price of Common Stock on the last business day of the purchase period. In general each offering period is 24 months long, but a new offering period begins every six months. Thus up to four overlapping periods may be in effect at the same time. If the market price of Common Stock is lower when a subsequent offering period begins, the subsequent offering period automatically becomes the applicable offering period. No participant may purchase more than 2,500 shares per purchase period, and the value of the Common Stock purchased each year (measured at the beginning of the purchase periods) may not exceed $25,000 per participant. Participants may withdraw their contributions at any time before the close of the purchase period. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Company has adopted provisions in its Certificate of Incorporation that limit the liability of its directors for monetary damages for breach of their fiduciary duty as directors, except for liability that cannot be eliminated under the Delaware General Corporation Law (the "Delaware Law"). The Delaware Law provides that directors of a company will not be personally liable for monetary damages for breach of their fiduciary duty as directors, except for liability (i) for any breach of their duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payment of dividend or unlawful stock repurchase or redemption, as provided in Section 174 of the Delaware Law, or (iv) for any transaction from which the director derived an improper personal benefit. Any amendment or repeal of these provisions requires the approval of the holders of shares representing at least 66-2/3% of the shares of the Company entitled to vote in the election of directors, voting as one class. The Company's Certificate of Incorporation and By-Laws also provide that the Company shall indemnify its directors and officers to the fullest extent permitted by the Delaware Law. The Company has entered into separate indemnification agreements with its directors and officers that could require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified. The Company believes that the limitation of liability provision in its Restated Certificate of Incorporation and the indemnification agreements will facilitate the Company's ability to continue to attract and retain qualified individuals to serve as directors and officers of the Company. 49 53 CERTAIN TRANSACTIONS In June 1994, the Company entered into two agreements with Merck, a collaborative development agreement and a supply and distribution agreement, in connection with the Company's development of Triage Cardiac. Merck beneficially owns more than 5% of the Company's Common Stock and distributes the Triage DOA in certain counties in Europe, Latin America, the Middle East and Africa. See "Business -- Strategic and Distribution Arrangements" and Note 1 and 3 of Notes to Financial Statements. The Company believes that the foregoing transaction was in its best interests. As a matter of policy this transaction was, and all future transactions between the Company and its officers, directors or principal shareholders will be, approved by a majority of the independent and disinterested members of the Board of Directors, on terms no less favorable to the Company than could be obtained from unaffiliated third parties and in connection with bona fide business purposes of the Company. 50 54 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding beneficial ownership of the Company's Common Stock as of December 1, 1996 and as adjusted to reflect the sale by the Company of the shares offered hereby, by: (i) each person who is known by the Company to beneficially own more than 5% of the Company's Common Stock, (ii) each of the Company's directors, (iii) each of the Company's officers named under "Management -- Summary Compensation Table," and (iv) all directors and executive officers of the Company as a group.
PERCENT BENEFICIALLY OWNED(1) SHARES ----------------------- NAME AND ADDRESS BENEFICIALLY BEFORE AFTER OF BENEFICIAL OWNER OWNED OFFERING OFFERING - ---------------------------------------------------------- ------------ -------- -------- Medicus Venture Partners(2)............................... 1,662,559 16.8% 14.0% 2180 Sand Hill Road Suite 400 Menlo Park, CA 94025 Kleiner, Perkins, Caufield & Byers V(3)................... 1,485,476 15.0 12.3 2750 Sand Hill Road Menlo Park, CA 94025 Merck KGaA................................................ 1,041,667 10.5 8.8 Frankfurter Strasse 250 D-6100 Darmstadt 1 Federal Republic of Germany Euclid Partners III, L.P. ................................ 1,005,869 10.2 8.5 50 Rockefeller Plaza New York, NY 10020 Kingsbury Capital Partners, L.P. ......................... 635,417 6.4 5.4 3655 Nobel Drive, Suite 490 San Diego, CA 92122 Frederick J. Dotzler(2)................................... 1,662,559 16.8 14.0 Stephen K. Reidy(4)....................................... 1,005,869 10.2 8.5 Timothy J. Wollaeger(5)................................... 707,015 7.2 6.0 Jesse I. Treu, Ph.D.(6)................................... 329,167 3.3 2.8 Howard E. Greene, Jr.(7).................................. 297,927 3.0 2.5 Thomas Adams, Ph.D. ...................................... 53,833 * * Gunars E. Valkirs(8)(9)................................... 290,512 2.9 2.4 Kim D. Blickenstaff(8).................................... 288,232 2.9 2.4 Kenneth F. Buechler(8).................................... 280,478 2.8 2.4 S. Nicholas Stiso(8)...................................... 81,582 * * Charles W. Patrick(8)..................................... 73,030 * * All directors and executive officers as a group (12 persons)(8)(10)......................................... 5,120,557 50.5% 42.2%
- --------------- * Less than 1%. (1) To the Company's knowledge, the persons named in the table have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them, subject to community property laws where applicable and the information contained in the footnotes to this table. (2) Includes (i) 704,225 shares held by Medicus Venture Partners 1989, (ii) 520,833 shares held by Medicus Venture Partners 1990, (iii) 333,334 shares held by Medicus Venture Partners 1991 and 51 55 (iv) 104,167 shares held by Medicus Venture Partners 1992 (collectively, the "Medicus Entities"). A limited partnership affiliated with The Hillman Company and a limited partnership with general partners Frederick J. Dotzler and John Reher are each general partners of each of the Medicus Entities, and therefore may be deemed to be the beneficial owner of these shares because they share the power to vote and dispose of these shares. The Hillman Company is controlled by Henry L. Hillman, Elsie Hilliard Hillman and C.G. Grefenstette, trustees (the "HLH Trustees") of the Henry L. Hillman Trust U/A dated November 18, 1985 (the "HLH Trust"), which three trustees share the power to vote and dispose of shares representing a majority of the voting shares of The Hillman Company. Does not include 50,409 shares held directly by the HLH Trust or 134,423 shares held directly by Wilmington Interstate Corporation, an indirect, wholly-owned subsidiary of The Hillman Company. Also does not include an aggregate of 20,164 shares held by four irrevocable trusts for the benefit of members of the Hillman family (the "Family Trusts"), as to which shares the HLH Trustees (other than Mr. Grefenstette) disclaim beneficial ownership. C.G. Grefenstette and Thomas G. Bigley are trustees of the Family Trusts and share voting and dispositive power over the assets of the Family Trusts. (3) Includes 56,044 shares held by KPCB Zaibatsu Fund I. (4) Includes 1,005,869 shares held by Euclid Partners III, L.P. Mr. Reidy is a general partner of the general partner of Euclid Partners III, L.P., and as such, may be deemed to share voting and investment power with respect to such shares. Mr. Reidy disclaims beneficial ownership of such shares except to the extent of his pecuniary interest in such partnership. (5) Includes 635,417 shares held by Kingsbury Capital Partners I, L.P. Mr. Wollaeger is a general partner of the general partner of Kingsbury Capital Partners I, L.P., and as such, may be deemed to share voting and investment power with respect the shares held by the partnership. Mr. Wollaeger disclaims beneficial ownership of such shares, except to the extent of his pecuniary interest in such partnership. Includes 6,722 shares held in a trust for the benefit of Mr. Wollaeger's family as to which Mr. Wollaeger has shared voting and investment power. (6) Includes 329,167 shares held by Domain Partners, L.P. Dr. Treu is a general partner of the general partner of Domain Partners, L.P., and as such, may be deemed to share voting and investment power with respect to such shares. Dr. Treu disclaims beneficial ownership except to the extent of his pecuniary interest in such partnership. Excludes 429,167 shares beneficially held by Biotechnology Investments Ltd. ("BIL"). Dr. Treu is a general partner of Domain Associates, the United States venture capital advisor to BIL pursuant to a contractual arrangement. Domain Associates has no voting or investment power over BIL. Dr. Treu disclaims beneficial ownership of the shares held by BIL. (7) Includes 297,927 shares held in a trust for the benefit of Mr. Greene's family as to which Mr. Greene has shared voting and investment power. (8) Includes shares which may be acquired pursuant to the exercise of options within 60 days of December 1, 1996 as follows: Mr. Blickenstaff, 61,565, Dr. Valkirs, 54,678, Dr. Buechler, 65,644, Dr. Stiso, 14,744, Mr. Patrick, 44,696 and all directors and executive officers as a group (12 persons), 263,105. (9) Includes 235,834 shares held of record by the Valkirs Family Trust. (10) Includes shares held by entities referenced in footnotes 2, 3, 5, 6, 7 and 8 which are affiliated with certain directors, except for shares excluded in footnote 6. 52 56 DESCRIPTION OF CAPITAL STOCK Upon the closing of this offering, the authorized capital stock of the Company, after giving effect to the conversion of all outstanding Preferred Stock into Common Stock, and the amendment of the Company's Certificate of Incorporation, will consist of 25,000,000 shares of Common Stock, $.01 par value, and 5,000,000 shares of Preferred Stock, $.01 par value. COMMON STOCK As of November 30, 1996 there were 9,885,168 shares of Common Stock outstanding held by approximately 165 stockholders of record. Such figures assume the conversion of each outstanding share of Preferred Stock and the conversion of convertible debt issued to Sandoz (at the assumed offering price of $12.00 per share) upon the closing of this offering. The holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Subject to preferences that may be applicable to any then outstanding Preferred Stock, holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available therefor. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of the Company, holders of the Common Stock and the Preferred Stock are entitled to share ratably on an as-converted basis in all assets remaining after payment of liabilities and the liquidation preference of any then outstanding Preferred Stock. The Common Stock has no preemptive or conversion rights or other subscription rights and there are no redemptive or sinking funds provisions applicable to the Common Stock. All outstanding shares of Common Stock are, and the Common Stock to be outstanding upon completion of this offering will be, fully paid and nonassessable. PREFERRED STOCK Upon the closing of this offering, all outstanding shares of Preferred Stock will be converted into Common Stock. See Note 7 of Notes to Financial Statements for a description of the currently outstanding Preferred Stock. Following the conversion, the Company's Certificate of Incorporation will be restated to delete all references to the prior series of Preferred Stock, and 5,000,000 shares of undesignated Preferred Stock will be authorized. The Board of Directors has the authority, without further action by the stockholders, to issue from time to time the Preferred Stock in one or more series and to fix the number of shares, designations, preferences, powers, and relative, participating, optional or other special rights and the qualifications or restrictions thereof. The preferences, powers, rights and restrictions of different series of Preferred Stock may differ with respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions, and purchase funds and other matters. The issuance of Preferred Stock could decrease the amount of earnings and assets available for distribution to holders of Common Stock or affect adversely the rights and powers, including voting rights, of the holders of Common Stock, and may have the effect of delaying, deferring or preventing a change in control of the Company. The Company has no present plan to issue any shares of Preferred Stock. REGISTRATION RIGHTS After this offering, the holders of 6,870,513 shares of Common Stock issued upon conversion of the Company's Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock (collectively, "Registrable Shares") or their permitted transferees, are entitled to certain rights with respect to the registration of such shares under the Securities Act of 1933, as amended (the "Securities Act"). If the Company proposes to register any of its securities under the Securities Act, either for its own account or for the account of other security holders, holders of Registrable Shares are entitled to notice of such registration and are entitled to include Registrable Shares therein, provided, among other conditions, that the underwriters of any such offering have the right to limit the number of shares included in such registration. Holders of the 1,458,334 shares of Common Stock issued upon conversion of the Company's Series E Preferred Stock and holders of shares of Common Stock issued upon conversion of the convertible debt issued to Sandoz are entitled to similar "piggyback" rights, on no more than two occasions, commencing 53 57 two years after the effective date of this offering. In addition, commencing 180 days after the effective date of this offering, holders of at least 30% of the Registrable Shares may require the Company to prepare and file a registration statement under the Securities Act, at the Company's expense covering at least 30% of the shares entitled to registration rights and with an offering price (net of underwriting discounts and commissions) of more than $7,500,000, and the Company is required to use its best efforts to effect such registration, subject to certain conditions and limitations. The Company is not obligated to effect more than two of these stockholder-initiated registrations. Further, holders of Registrable Shares may require the Company to file additional registration statements on Form S-3, subject to certain conditions and limitations. DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS The Company is subject to the provisions of Section 203 of the Delaware Law, an anti-takeover law. In general, the statute prohibits a publicly held Delaware corporation from engaging in a business combination with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. A "business combination" includes a merger, asset sale or other transaction resulting in financial benefit to the stockholder. An "interested stockholder" is a person who, together with affiliates and associates, owns (or within three years prior, did own) 15% or more of the corporation's voting stock. Upon the closing of this offering, the Company's Restated Certification of Incorporation will be amended to require that any action permitted to be taken by stockholders of the Company must be effected at a duly-called annual or special meeting of stockholders and will not be able to be effected by a consent in writing. The Board of Directors will be composed of a classified board where only one-third of the directors are eligible for election in any given year. The Company's Restated Certificate of Incorporation will also be amended to require the approval of at least two-thirds of the total number of authorized directors in order to adopt, amend or repeal the Company's Bylaws. In addition, the Company's Restated Certificate of Incorporation will similarly be amended to permit the stockholders to adopt, amend or repeal the Company's Bylaws only upon the affirmative vote of the holders of at least two-thirds of the voting power of all then outstanding shares of stock entitled to vote. Lastly, the foregoing provisions of the Restated Certificate of Incorporation and certain other provisions pertaining to the limitation of liability and indemnification of directors will be able to be amended or repealed only with the affirmative vote of the holders of at least two-thirds of the voting power of all then outstanding shares of stock entitled to vote. These provisions may have the effect to deterring hostile takeovers or delaying changes in control or management of the Company. Upon the closing of this offering, the Company's Bylaws will also be amended to contain certain of the above provisions found in the Company's Restated Certificate of Incorporation. The Company's Bylaws, as amended (the "Restated Bylaws"), will not permit stockholders to call a special meeting. In addition, the Company's Restated Bylaws will establish an advance notice procedure with regard to the nomination, other than by or at the direction of the Board of Directors, of candidates for election as directors and with regard to certain matters to be brought before an annual meeting of stockholders of the Company. Also, a director will be removable only for cause. In addition, the Restated Bylaws will provide that the business permitted to be conducted in any annual meeting or special meeting of stockholders will be limited to business properly brought before the meeting. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is . 54 58 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering there has been no public market for the Common Stock of the Company, and no predictions can be made regarding the effect, if any, that market sales of shares or the availability of shares for sale will have on the market price prevailing from time to time. As described below, a limited number of shares will be available for sale shortly after this offering due to certain contractual and legal restrictions on resale. Nevertheless, sales of substantial amounts of Common Stock of the Company in the public market after the restrictions lapse could adversely affect the prevailing market price. Upon completion of this offering, the Company will have outstanding 11,885,168 shares of Common Stock. The 2,000,000 shares of Common Stock being sold hereby will be freely tradable (other than by an "affiliate" of the Company as such term is defined in the Securities Act) without restriction or registration under the Securities Act. All remaining shares were issued and sold by the Company in private transactions ("Restricted Shares") and are eligible for public sale if registered under the Securities Act or sold in accordance with Rule 144 or Rule 701 thereunder. Upon the commencement of this offering, an additional 451,030 shares will be eligible for immediate sale without restriction under Rule 144(k). In addition, approximately 192,525 shares will be eligible for immediate sale under Rule 701, beginning 90 days after the date of this Prospectus. Certain stockholders, who collectively hold an aggregate of 1,764,796 shares of Common Stock, have agreed pursuant to certain agreements with the Company that they will not sell such Common Stock for a period of 120 days from the effective date of the Registration Statement of which this Prospectus is a part. Following the expiration of such 120-day lockup period, all such shares will be available for immediate sale without restriction under Rule 144(k). The Company's directors, executive officers and certain other stockholders, who collectively hold an aggregate of 7,384,595 shares of Common Stock, have agreed pursuant to certain agreements that they will not sell any Common Stock owned by them without the prior written consent of the Representatives of the Underwriters for a period of 180 days from the effective date of the Registration Statement of which this Prospectus is a part. Following the expiration of such lockup period, all such shares will be available for sale in the public market subject to compliance with Rule 144 or Rule 701, including approximately 2,527,143 shares eligible for the sale under Rule 144(k). See "Underwriting." In general, under Rule 144 as currently in effect, beginning 90 days after the date of this Prospectus, an affiliate of the Company, or a holder of Restricted Shares who owns beneficially shares that were not acquired from the Company or an affiliate of the Company within the previous two years, would be entitled to sell within any three-month period a number of shares that does not exceed the greater of 1% of the then outstanding shares of Common Stock (approximately 118,851 shares immediately after this offering, assuming no exercise of the Underwriters' over-allotment option) or the average weekly trading volume of the Common Stock during the four calendar weeks preceding the date on which notice of the sale is filed with the Securities and Exchange Commission (the "Commission"). Sales under Rule 144 are subject to certain requirements relating to manner of sale, notice and availability of current public information about the Company. However, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of the Company at any time during the 90 days immediately preceding the sale and who owns beneficially Restricted Shares is entitled to sell such shares under Rule 144(k) without regard to the limitations described above; provided that at least three years have elapsed since the later of the date the shares were acquired from the Company or from an affiliate of the Company. The foregoing is a summary of Rule 144 and is not intended to be a complete description of it. Subject to certain limitations on the aggregate offering price of a transaction and other conditions, Rule 701 may be relied upon with respect to the resale of securities originally purchased from the Company by its employees, directors, officers, consultants or advisers prior to the closing of this offering, pursuant to written compensatory benefit plans or written contracts relating to the compensation of such persons. In addition, the Commission has indicated that Rule 701 will apply to stock options granted by the Company before this offering, along with the shares acquired upon exercise of such options. Securities issued in reliance on Rule 701 are deemed to be Restricted Shares and, beginning 90 days after the date of this Prospectus (unless subject to the contractual restrictions described above), may be sold by persons other than affiliates subject 55 59 only to the manner of sale provisions of Rule 144 and by affiliates under Rule 144 without compliance with its two-year minimum holding period requirements. The Company intends to file a registration statement under the Securities Act covering approximately 2,215,960 shares of Common Stock reserved for issuance under the stock plans. Such registration statement is expected to be filed soon after the date of this Prospectus and will automatically become effective upon filing. Accordingly, shares registered under such registration statement will be available for sale in the open market, unless such shares are subject to vesting restrictions with the Company or the contractual restrictions described above. In addition, after this offering, the holders of approximately 6,870,513 shares of Common Stock will be entitled to certain rights to demand that the Company to register the sale of such shares under the Securities Act. Such holders and holders of 1,458,334 shares of Common Stock and 92,222 shares issued upon conversion of convertible debt issued to Sandoz (at the assumed offering price of $12.00 per share) are also entitled to be included in certain Company registrations. Registration of such shares under the Securities Act would result in such shares becoming freely tradable without restriction under the Securities Act (except for shares purchased by affiliates of the Company) immediately upon the effectiveness of such registration. See "Description of Capital Stock -- Registration Rights." 56 60 UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement, the Underwriters named below (the "Underwriters"), through their representatives, Cowen & Company and Alex. Brown & Sons Incorporated, have severally agreed to purchase from the Company the following respective number of shares at the initial public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus:
NUMBER NAME OF SHARES ------------------------------------------------------------------ --------- Cowen & Company................................................... Alex. Brown & Sons Incorporated................................... -------- Total................................................... 2,000,000 ========
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent, including the absence of any material adverse change in the Company's business and the receipt of certain certificates, opinions and letters from the Company and its counsel and independent auditors. The nature of the Underwriters' obligation is such that they are committed to purchase all shares of Common Stock offered hereby if any of such shares are purchased. The Underwriters propose to offer the shares of Common Stock directly to the public at the initial public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow and such dealers may re-allow a concession not in excess of $ per share to certain other dealers. The Underwriters have informed the Company that they do not intend to confirm sales to any accounts over which they exercise discretionary authority. After the initial public offering of the shares, the offering price and other selling terms may from time to time be varied by the Underwriters. The Company has granted to the Underwriters an option, exercisable no later than 30 days after the date of this Prospectus, to purchase up to 300,000 additional shares of Common Stock at the initial public offering price, less the underwriting discounts and commissions, set forth on the cover page of this Prospectus, to cover over-allotments, if any. If the Underwriters exercise such over-allotment option, the Underwriters have severally agreed, subject to certain conditions, to purchase approximately the same percentage thereof that the number of shares of Common Stock to be purchased by each of them shown in the foregoing table bears to the total number of shares of Common Stock offered hereby. The Underwriters may exercise such option only to cover over-allotments made in connection with the sale of shares of Common Stock offered hereby. The Company's officers and directors and certain other stockholders of the Company holding in the aggregate approximately 7,384,595 shares of Common Stock have agreed that they will not, without the prior written consent of Cowen & Company, offer, sell or otherwise dispose of any shares of Common Stock, options, rights or warrants to acquire shares of Common Stock, or securities exchangeable for or convertible into shares of Common Stock owned by them during the 180-day period commencing on the effective date of the Registration Statement. Certain other stockholders of the Company holding in the aggregate approximately 1,764,796 shares of Common Stock have agreed that they will not sell or otherwise transfer or dispose of any such shares of Common Stock owned by them during the 120-day period commencing on the effective date of the Registration Statement. In addition, the Company has agreed that it will not, without the prior written consent of Cowen & Company, offer, sell or otherwise dispose of any shares of Common Stock options, rights or warrants to acquire shares of Common Stock, or securities exchangeable for or convertible into shares of Common Stock during such 180-day period except in certain limited circumstances. 57 61 The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments the Underwriters may be required to make in respect thereof. Prior to this offering, there has been no public market for the Common Stock. The initial public offering price for the Common Stock will be determined by negotiation among the Company and the Representatives. Among the factors considered in determining the initial public offering price will be prevailing market and economic conditions, market valuations of other companies engaged in activities similar to the Company, estimates of the business potential and prospects of the Company, the present state of the Company's business operations, the Company's management and other factors deemed relevant. The estimated initial public offering price range set forth on the cover of this Prospectus is subject to change as a result of market conditions and other factors. LEGAL MATTERS Certain legal matters with respect to the validity of the Common Stock offered hereby will be passed upon for the Company by Pillsbury Madison & Sutro LLP, San Francisco, California. A member of Pillsbury Madison & Sutro LLP owns 18,360 shares of Common Stock. Cooley Godward LLP, San Diego, California, is acting as counsel for the Underwriters in connection with certain legal matters relating to the sale of the Common Stock offered hereby. EXPERTS The financial statements of Biosite at December 31, 1994 and 1995, and September 30, 1996 and for each of the three years in the period ended December 31, 1995 and the nine months ending September 30, 1996, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement under the Securities Act with respect to the Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company and the Common Stock offered hereby, reference is hereby made to such Registration Statement, exhibits and schedules. Statements contained in this Prospectus regarding the contents of any contract or other document are not necessarily complete; with respect to each such contract or document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. A copy of the Registration Statement, including the exhibits and schedules thereto, may be inspected without charge at the principal office of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of such material may be obtained from such office upon payment of the fees prescribed by the Commission. In addition, the Commission maintains a World Wide Web site on the Internet at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The Company intends to furnish its stockholders with annual reports containing financial statements audited by independent certified public accountants and quarterly reports containing unaudited financial information for the first three quarters of each fiscal year. 58 62 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Report of Ernst & Young LLP, Independent Auditors..................................... F-2 Balance Sheets at December 31, 1994 and 1995 and September 30, 1996................... F-3 Statements of Income for each of the three years in the period ended December 31, 1995 and the nine months ended September 30, 1995 (unaudited) and 1996................... F-4 Statements of Stockholders' Equity for each of the three years in the period ended December 31, 1995 and the nine months ended September 30, 1996...................... F-5 Statements of Cash Flows for each of the three years in the period ended December 31, 1995 and the nine months ended September 30, 1995 (unaudited) and 1996.............. F-6 Notes to Financial Statements......................................................... F-7
F-1 63 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders Biosite Diagnostics Incorporated We have audited the accompanying balance sheets of Biosite Diagnostics Incorporated as of December 31, 1994 and 1995 and September 30, 1996, and the related statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995 and the nine months ended September 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Biosite Diagnostics Incorporated at December 31, 1994 and 1995 and September 30, 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 and the nine months ended September 30, 1996 in conformity with generally accepted accounting principles. ERNST & YOUNG LLP San Diego, California November 12, 1996, except for Note 7, as to which the date is December 5, 1996 F-2 64 BIOSITE DIAGNOSTICS INCORPORATED BALANCE SHEETS
PRO FORMA DECEMBER 31, LIABILITIES AND -------------------------- SEPTEMBER 30, STOCKHOLDERS' 1994 1995 1996 EQUITY AT ------------ ----------- ------------------ SEPTEMBER 30, 1996 ------------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents......................... $ 392,433 $ 2,276,403 $ 1,410,620 Marketable securities, available-for-sale......... 5,523,160 11,702,607 8,758,654 Accounts receivable............................... 3,175,899 3,801,755 4,153,326 Receivable from stockholder....................... 471,000 141,000 620,000 Inventory......................................... 1,137,830 1,689,124 1,709,016 Deferred income taxes............................. -- 1,073,000 1,279,000 Prepaid expenses and other current assets......... 353,302 413,917 589,675 ------------ ----------- ----------- Total current assets........................ 11,053,624 21,097,806 18,520,291 Property, equipment and leasehold improvements, net............................................... 1,859,573 3,599,969 3,941,520 Deferred income taxes............................... -- 754,000 884,000 Patents and license rights, net..................... 472,060 1,759,809 4,458,074 Deposits and other assets........................... 978,347 723,349 1,164,199 ------------ ----------- ----------- $ 14,363,604 $27,934,933 $ 28,968,084 ============ =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable.................................. $ 608,085 $ 776,393 $ 1,345,799 $ 1,345,799 Accrued salaries and other........................ 591,393 912,259 898,320 818,320 Accrued contract payable.......................... 423,807 1,053,052 1,281,276 1,281,276 Accrued settlement of patent matters.............. -- 2,200,000 -- -- Contract advance.................................. 500,000 -- -- -- Deferred revenue from stockholder................. 316,330 615,282 -- -- Current portion of long-term obligations.......... 640,453 1,112,712 1,027,579 1,027,579 ------------ ----------- ----------- ----------- Total current liabilities................... 3,080,068 6,669,698 4,552,974 4,472,974 Long-term obligations............................... 771,563 2,739,473 3,233,643 2,233,643 Commitments and contingencies Stockholders' equity: Convertible preferred stock, $.01 par value, 8,328,847 shares authorized (5,000,000 pro forma); 8,328,847 shares issued and outstanding (no shares pro forma), liquidation value, $21,662,030..................................... 83,288 83,288 83,288 -- Common stock, $.01 par value, 12,000,000 shares authorized (25,000,000 shares pro forma); 1,154,066, 1,369,595, and 1,460,093 shares issued and outstanding at December 31, 1994, 1995, and September 30, 1996, respectively (9,881,162 shares pro forma).................... 11,541 13,696 14,601 98,812 Additional paid-in capital........................ 21,483,800 21,570,516 21,686,698 22,792,442 Unrealized net gain (loss) on marketable securities, net of related tax effect of $11,058 and $(6,754) at December 31, 1995 and September 30, 1996, respectively.......................... -- 16,588 (10,131) (10,131) Deferred compensation............................. -- -- (48,023) (48,023) Accumulated deficit............................... (11,066,656) (3,158,326) (544,966) (571,633) ------------ ----------- ----------- ----------- Total stockholders' equity.................. 10,511,973 18,525,762 21,181,467 22,261,467 ------------ ----------- ----------- ----------- $ 14,363,604 $27,934,933 $ 28,968,084 $ 28,968,084 ============ =========== =========== ===========
See accompanying notes. F-3 65 BIOSITE DIAGNOSTICS INCORPORATED STATEMENTS OF INCOME
NINE MONTHS ENDED YEARS ENDED DECEMBER 31, SEPTEMBER 30, --------------------------------------- ------------------------- 1993 1994 1995 1996 ----------- ----------- ----------- 1995 ----------- ----------- (UNAUDITED) Net sales....................... $ 9,866,297 $16,319,752 $25,146,540 $18,235,729 $20,224,976 Cost of sales................... 3,268,030 4,415,344 5,648,786 3,781,316 4,317,648 ----------- ----------- ----------- ----------- ----------- Gross profit.................... 6,598,267 11,904,408 19,497,754 14,454,413 15,907,328 Operating expenses: Research and development...... 2,796,248 3,835,649 6,553,454 4,601,467 6,515,097 Sales and marketing........... 3,390,201 3,851,933 4,943,392 3,625,541 3,894,885 General and administrative.... 1,450,755 2,109,150 2,190,246 1,577,951 2,221,599 ----------- ----------- ----------- ----------- ----------- 7,637,204 9,796,732 13,687,092 9,804,959 12,631,581 ----------- ----------- ----------- ----------- ----------- Operating income (loss)......... (1,038,937) 2,107,676 5,810,662 4,649,454 3,275,747 Other income (expense): Interest income............... 217,610 238,990 605,002 380,851 579,073 Contract revenue-related party...................... -- 343,678 561,048 388,261 856,880 Contract revenue.............. -- -- 300,000 300,000 -- Licensing and other income.... 395,201 66,207 181,683 184,057 5,942 Settlement of patent matters.................... -- (338,004) (1,217,065) (743,173) (2,368,282) ----------- ----------- ----------- ----------- ----------- 612,811 310,871 430,668 509,996 (926,387) Income (loss) before benefit (provision) for income taxes......................... (426,126) 2,418,547 6,241,330 5,159,450 2,349,360 Benefit (provision) for income taxes......................... -- (63,000) 1,667,000 (132,000) 264,000 ----------- ----------- ----------- ----------- ----------- Net income (loss)............... $ (426,126) $ 2,355,547 $ 7,908,330 $ 5,027,450 $ 2,613,360 =========== =========== =========== =========== =========== Net income (loss) per share..... $ (.04) $ .22 $ .74 $ .47 $ .24 =========== =========== =========== =========== =========== Shares used in calculating per share amounts................. 10,098,000 10,553,000 10,766,000 10,721,000 10,832,000 =========== =========== =========== =========== ===========
See accompanying notes. F-4 66 BIOSITE DIAGNOSTICS INCORPORATED STATEMENTS OF STOCKHOLDERS' EQUITY
UNREALIZED PREFERRED STOCK COMMON STOCK ADDITIONAL NET GAIN (LOSS) ------------------- --------------------- PAID-IN ON MARKETABLE SHARES AMOUNT SHARES AMOUNT CAPITAL SECURITIES --------- ------- --------- ------- ----------- --------------- Balance at January 1, 1993....... 8,328,847 $83,288 1,138,069 $11,381 $21,474,142 $ -- Issuance of common stock........ -- -- 14,298 143 8,146 -- Net loss........................ -- -- -- -- -- -- ---------- ------- ---------- ------- ----------- --------- Balance at December 31, 1993...... 8,328,847 83,288 1,152,367 11,524 21,482,288 -- Issuance of common stock........ -- -- 1,699 17 1,512 -- Net income...................... -- -- -- -- -- -- ---------- ------- ---------- ------- ----------- --------- Balance at December 31, 1994..... 8,328,847 83,288 1,154,066 11,541 21,483,800 -- Issuance of common stock........ -- -- 215,529 2,155 86,716 -- Change in unrealized net gain (loss) on marketable securities, net of income taxes of $11,058.............. -- -- -- -- -- 16,588 Net income...................... -- -- -- -- -- -- ---------- ------- ---------- ------- ----------- --------- Balance at December 31, 1995...... 8,328,847 83,288 1,369,595 13,696 21,570,516 16,588 Issuance of common stock........ -- -- 90,498 905 67,397 -- Change in unrealized net gain (loss) on marketable securities, net of income taxes of $6,754............... -- -- -- -- -- (26,719) Deferred compensation related to issuance of stock options.. -- -- -- -- 48,785 -- Amortization of deferred compensation.................. -- -- -- -- -- -- Net income...................... -- -- -- -- -- -- ---------- ------- ---------- ------- ----------- --------- Balance at September 30, 1996..... 8,328,847 $83,288 1,460,093 $14,601 $21,686,698 $ (10,131) ========== ======= ========== ======= =========== ========= TOTAL DEFERRED ACCUMULATED STOCKHOLDERS' COMPENSATION DEFICIT EQUITY ------------ ------------ ------------- Balance at January 1, 1993....... $ -- $(12,996,077) $ 8,572,734 Issuance of common stock........ -- -- 8,289 Net loss........................ -- (426,126 ) (426,126) ---------- ------------- ----------- Balance at December 31, 1993...... -- (13,422,203 ) 8,154,897 Issuance of common stock........ -- -- 1,529 Net income...................... -- 2,355,547 2,355,547 ---------- ------------- ----------- Balance at December 31, 1994..... -- (11,066,656 ) 10,511,973 Issuance of common stock........ -- -- 88,871 Change in unrealized net gain (loss) on marketable securities, net of income taxes of $11,058.............. -- -- 16,588 Net income...................... -- 7,908,330 7,908,330 ---------- ------------- ----------- Balance at December 31, 1995...... -- (3,158,326 ) 18,525,762 Issuance of common stock........ -- -- 68,302 Change in unrealized net gain (loss) on marketable securities, net of income taxes of $6,754............... -- -- (26,719) Deferred compensation related to issuance of stock options.. (48,785) -- -- Amortization of deferred compensation.................. 762 -- 762 Net income...................... -- 2,613,360 2,613,360 ---------- ------------- ----------- Balance at September 30, 1996..... $ (48,023) $ (544,966 ) $21,181,467 ========== ============= ===========
See accompanying notes. F-5 67 BIOSITE DIAGNOSTICS INCORPORATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED YEARS ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------------- ---------------------------- 1993 1994 1995 1995 1996 ----------- ----------- ----------- ----------- ------------ (UNAUDITED) OPERATING ACTIVITIES Net income (loss)............................ $ (426,126) $ 2,355,547 $ 7,908,330 $ 5,027,450 $ 2,613,360 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.............. 524,984 544,332 1,787,386 658,468 1,861,614 Amortization of deferred compensation...... -- -- -- -- 762 Deferred income taxes...................... -- -- (1,827,000) -- (336,000) Changes in operating assets and liabilities: Accounts receivable...................... (535,453) (1,712,708) (625,856) (644,571) (351,571) Receivable from stockholder.............. (59,000) (412,000) 330,000 211,660 (479,000) Inventory................................ (161,701) (402,193) (551,294) (526,981) (19,892) Prepaid expenses and other current assets................................. (340,948) 147,309 (71,673) (19,764) (157,946) Accounts payable......................... 216,486 50,979 168,308 (31,849) 569,406 Accrued liabilities...................... 282,026 487,385 950,111 853,692 (1,985,715) Contract advance......................... -- 500,000 (500,000) (500,000) -- Deferred revenue from a stockholder...... -- 316,330 298,952 471,739 (615,282) ----------- ----------- ----------- ----------- ------------ Net cash provided by (used in) operating activities................................. (499,732) 1,874,981 7,867,264 5,499,844 1,099,736 INVESTING ACTIVITIES Proceeds from sales and maturities of marketable securities...................... 4,373,730 4,531,676 8,189,035 6,041,413 11,605,384 Purchase of marketable securities............ (7,731,313) (5,712,424) (14,340,836) (8,968,435) (8,705,962) Purchase of property, equipment and leasehold improvements............................... (142,972) (1,063,418) (2,682,315) (2,061,707) (1,378,923) Patents, license rights, deposits and other assets..................................... (155,232) (409,423) 321,782 254,752 (3,963,357) ----------- ----------- ----------- ----------- ------------ Net cash used in investing activities........ (3,655,787) (2,653,589) (8,512,334) (4,733,977) (2,442,858) FINANCING ACTIVITIES Proceeds from issuance of convertible debentures................................. -- -- 1,000,000 1,000,000 -- Proceeds from issuance of equipment loans payable.................................... -- 919,988 2,290,561 1,832,653 1,364,137 Principal payments under long-term obligations................................ (516,684) (536,769) (850,392) (596,714) (955,100) Proceeds from issuance of stock, net......... 8,289 1,529 88,871 69,170 68,302 ----------- ----------- ----------- ----------- ------------ Net cash provided by (used in) financing activities................................. (508,395) 384,748 2,529,040 2,305,109 477,339 ----------- ----------- ----------- ----------- ------------ Increase (decrease) in cash and cash equivalents................................ (4,663,914) (393,860) 1,883,970 3,070,976 (865,783) Cash and cash equivalents at beginning of period..................................... 5,450,207 786,293 392,433 392,433 2,276,403 ----------- ----------- ----------- ----------- ------------ Cash and cash equivalents at end of period... $ 786,293 $ 392,433 $ 2,276,403 $ 3,463,409 $ 1,410,620 ========== ========== ========== ========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid.............................. $ 139,022 $ 172,512 $ 208,623 $ 145,593 $ 212,329 ========== ========== ========== ========== =========== Income taxes paid.......................... $ 987 $ 38,800 $ 171,243 $ 176,412 $ 103,874 ========== ========== ========== ========== =========== SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Accrued liability for license rights acquired................................. $ -- $ -- $ 2,200,000 $ -- $ -- ========== ========== ========== ========== =========== Capital lease obligations entered into for equipment................................ $ 417,260 $ -- $ -- $ -- $ -- ========== ========== ========== ========== ===========
See accompanying notes. F-6 68 BIOSITE DIAGNOSTICS INCORPORATED NOTES TO FINANCIAL STATEMENTS (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT POLICIES ORGANIZATION AND BUSINESS ACTIVITY Biosite Diagnostics Incorporated (the "Company") was established in 1988. The Company has been primarily involved in the research, development, manufacturing and marketing of point-of-care assays. The Company's first product is Triage DOA, a urine test for the rapid detection of common drugs of abuse. The Company began commercial sales of Triage DOA in February 1992 and currently markets the product worldwide primarily through distributors supported by a small direct sales force. The principal markets of the Company are hospital laboratories and emergency departments. The Company is also engaged in research and development of several additional point-of-care diagnostic products in the microbiology, cardiology and therapeutic drug monitoring fields. REVENUE RECOGNITION AND SIGNIFICANT CUSTOMERS The Company recognizes sales upon shipment. The Company's U.S. distributor accounted for 87%, 85% and 88% of the product sales in 1993, 1994 and 1995, respectively, and 88% and 80% for the nine months ended September 30, 1995 and 1996, respectively. The Company's agreement with its U.S. distributor contains sales milestones based on the U.S. distributor's sales performance that allows the Company, if the milestones are not met by the U.S. distributor, to terminate the agreement, collect a penalty payment based on sales levels actually achieved in 1996, and appoint a new distributor or sell the product directly in the U.S. medical market. Export sales to international customers amounted to $943,000, $1,457,000 and $1,944,000 in 1993, 1994 and 1995, respectively, and $1,362,000 and $2,248,000 for the nine months ended September 30, 1995 and 1996, respectively. Sales to a stockholder amounted to approximately $838,000, $1,242,000 and $1,345,000 in 1993, 1994 and 1995, respectively, and $978,000 and $1,652,000 for the nine months ended September 30, 1995 and 1996, respectively. Accounts receivable from a stockholder were approximately $471,000, $141,000, and $378,000 at December 31, 1994 and 1995, and September 30, 1996, respectively. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of cash and highly liquid debt investments with maturities of 90 days or less when purchased. MARKETABLE SECURITIES Effective January 1, 1994 the Company adopted Financial Accounting Standards Board ("FASB") Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities", which requires that investments in equity securities that have readily determinable fair values and investments in debt securities be classified in three categories: held-to-maturity, trading and available-for-sale. Based on the nature of the assets held by the Company and management's investment strategy, the Company's investments have been classified as available-for-sale. Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Securities classified as available-for-sale are carried at estimated fair value, as determined by quoted market prices, with unrealized gains and losses, net of tax, reported in a separate component of stockholders' equity. At September 30, 1996, the Company had no investments that were classified as trading or held-to-maturity as defined by the Statement. The amortized cost of debt securities classified as available-for-sale is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized F-7 69 BIOSITE DIAGNOSTICS INCORPORATED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED) gains and losses are included in interest income. The cost of securities sold is based on the specific identification method. Interest on securities classified as available-for-sale is included in interest income. INVENTORY Inventories are carried at the lower of cost (first-in, first-out) or market. PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Property, equipment and leasehold improvements are stated at cost. DEPRECIATION AND AMORTIZATION Depreciation of property and equipment is computed using the straight-line method over five years. Amortization of leased equipment is computed using the straight-line method over the estimated useful lives of the assets or the lease term. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the estimated useful lives of the assets or the remaining lease term. PATENTS AND LICENSE RIGHTS The Company has been issued patents covering its threshold immunoassay and other related technologies. Capitalized patent costs associated with issued patents are amortized over five to seventeen years. License rights related to products for sale are amortized to cost of sales over the life of the license using a systematic method based on the estimated revenues generated from products during such license period. STOCK OPTIONS In October 1995, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," effective for fiscal years beginning after December 15, 1995. SFAS No. 123 establishes the fair value-based method of accounting for stock-based compensation arrangements, under which compensation is determined using the fair value of the stock option at the grant date and the number of options vested, and is recognized over the periods in which the related services are rendered. The Company has made the decision to continue with the current intrinsic value-based method, as allowed by SFAS No. 123, and will be required to disclose the pro forma effect of adopting the fair value-based method in future fiscal years beginning with the fiscal year ending December 31, 1996. CONCENTRATION OF CREDIT RISK The Company sells its products primarily to its U.S. distributor. Credit is extended based on an evaluation of the customer's financial condition, and generally collateral is not required. Credit losses have been minimal and within management's expectations. The Company invests its excess cash in debt instruments of financial institutions and corporations with strong credit ratings. The Company has established guidelines relative to diversification and maturities that maintain safety and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates. The Company has not experienced any realized losses on its marketable securities. ASSET IMPAIRMENT In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which requires impairment losses to be recorded on long-lived F-8 70 BIOSITE DIAGNOSTICS INCORPORATED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED) assets used in operations when indicators of impairment are present and the estimated undiscounted cash flows to be generated by those assets are less than the assets' carrying amount. SFAS No. 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Company adopted the provisions of SFAS No. 121 effective January 1, 1996. There was no effect of such adoption on the Company's financial position or results of operations. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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. RECLASSIFICATION Certain amounts in the 1993, 1994 and 1995 financial statements have been reclassified to conform to the September 30, 1996 presentation. NET INCOME (LOSS) PER SHARE Net income (loss) per share is computed using the weighted average number of common shares and common equivalent shares outstanding during each period. Common equivalent shares are computed using the treasury stock method and consist of common stock which may be issuable upon exercise of outstanding common stock options, when dilutive. Pursuant to the requirements of the Securities and Exchange Commission, common stock issued by the Company during the twelve months immediately preceding the initial public offering, plus the number of common equivalent shares which became issuable during the same period pursuant to the grant of stock options, have been included in the calculation of the shares used in computing net income (loss) per share as if these shares were outstanding for all periods presented using the treasury stock method. In addition, the calculation of the shares used in computing net income (loss) per share also includes the convertible preferred stock which will convert into 8,328,847 shares of common stock and an outstanding $1.0 million convertible debenture and related accrued interest through January 31, 1997 which will convert into 92,222 common shares (based on the assumed initial public offering price of $12.00 per share) upon the completion of the initial public offering contemplated by this Prospectus, as if they were converted into common stock as of the original dates of issuance. INTERIM FINANCIAL INFORMATION The accompanying financial statements for the nine months ended September 30, 1995 are unaudited but include all adjustments (consisting only of normal recurring adjustments) which the Company considers necessary for a fair statement of the financial position at such dates and the operating results and cash flows for those periods. Results for the interim periods are not necessarily indicative of results for the entire year or future periods. PRO FORMA LIABILITIES AND STOCKHOLDERS' EQUITY In December 1996, the Board of Directors authorized management of the Company to file a Registration Statement with the Securities and Exchange Commission for the Company to sell shares of its common stock in an initial public offering. If the initial public offering contemplated by this Prospectus is consummated under the terms presently anticipated, all outstanding shares of convertible preferred stock at September 30, 1996 will automatically convert into 8,328,847 common shares and an outstanding $1.0 million convertible F-9 71 BIOSITE DIAGNOSTICS INCORPORATED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED) debenture and related interest through January 31, 1997 will convert into 92,222 common shares. Unaudited pro forma stockholders' equity as of September 30, 1996, as adjusted for the assumed conversion of the preferred stock and the convertible debenture, is disclosed in the accompanying balance sheet. 2. LICENSING AGREEMENTS The Company has entered into licensing agreements to utilize certain antibodies and/or technologies in exchange for up-front, annual milestone, or royalty payments or a combination thereof. Certain of the upfront and annual payments are creditable towards future royalties payable. Royalties may be payable at rates up to 5% of product sales derived from the licensed technologies. The Company purchased license rights for technologies utilized in products for sale of $2.2 million and $3.5 million during the year ended December 31, 1995 and the nine months ended September 30, 1996, respectively. Accumulated amortization of license rights at December 31, 1995, and September 30, 1996, was $845,467 and $1,666,488 respectively. 3. COLLABORATIVE AGREEMENTS In September 1994, the Company entered into a collaborative development and distribution agreement with a preferred stockholder for the development and marketing of a new diagnostic product (the "European development and distribution agreement"). In exchange for distribution rights to the product in Europe, the stockholder has agreed to fund 40% of the Company's product development costs, subject to certain maximum limits, plus certain clinical trial costs. The total cost of the project is estimated to be approximately $10.0 million. The stockholder's obligation to fund its share of the development costs of the product is reduced by 40% of the consideration received from other parties for the development of the new product and marketing rights in Japan. The stockholder paid $660,000 in 1994 and paid an additional $660,000 in 1995. At September 30, 1996, the Company has a receivable from the stockholder of $242,000 under the agreement. Additionally, the stockholder will directly incur certain of the clinical trial costs. The Company recognizes revenue under this agreement on the percentage of completion basis as costs are incurred. For the years ended December 31, 1994 and 1995, the Company incurred $962,000 and $2,453,000, respectively, in expenses under this agreement and recognized $344,000 and $561,000, respectively, as contract revenue. For the nine months ended September 30, 1995 and 1996, the Company incurred $1,781,000 and $1,940,000, respectively, in expenses under the agreement and recognized $388,000 and $857,000, respectively, as contract revenue. In February 1995, the Company entered into a collaborative development and distribution agreement that included the Asian marketing rights to a new diagnostic product being developed. Under this agreement, the Company will receive up to $2,000,000 upon the completion of certain milestones. Recognition of revenue under this agreement will occur as the milestones are attained. As of September 30 1996, the Company has received $500,000, of which $300,000 was recognized as contract revenue in 1995 and in accordance with the European development and distribution agreement, the remaining $200,000 was applied against the stockholder's obligation to fund its share of the development costs. F-10 72 BIOSITE DIAGNOSTICS INCORPORATED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED) 4. CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES The following is a summary of cash, cash equivalents and available-for-sale securities by balance sheet classification at December 31, 1994:
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ----------- ---------- ---------- ----------- Cash and cash equivalents: Cash..................................... $ 119,646 $ -- $ -- $ 119,646 Money market fund........................ 22,729 -- -- 22,729 Corporate debt securities................ 250,058 -- -- 250,058 ----------- ------- -------- ----------- 392,433 -- -- 392,433 Marketable securities: Commercial paper......................... 493,669 -- -- 493,669 Corporate debt securities................ 5,029,491 -- -- 5,029,491 ----------- ------- -------- ----------- 5,523,160 -- -- 5,523,160 ----------- ------- -------- ----------- Total cash, cash equivalents and marketable securities.......... $ 5,915,593 $ -- $ -- $ 5,915,593 =========== ======= ======== ===========
The following is a summary of cash, cash equivalents and available-for-sale securities by balance sheet classification at December 31, 1995:
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ----------- ---------- ---------- ----------- Cash and cash equivalents: Cash..................................... $ 964,854 $ -- $ -- $ 964,854 Money market fund........................ 915,359 -- -- 915,359 Commercial paper......................... 396,190 -- -- 396,190 ----------- ------- -------- ----------- 2,276,403 -- -- 2,276,403 Marketable securities: Commercial paper......................... 1,662,383 -- (1,337) 1,661,046 Corporate debt securities................ 10,012,578 52,109 (23,126) 10,041,561 ----------- ------- -------- ----------- 11,674,961 52,109 (24,463) 11,702,607 ----------- ------- -------- ----------- Total cash, cash equivalents and marketable securities.......... $13,951,364 $ 52,109 $ (24,463) $13,979,010 =========== ======= ======== ===========
F-11 73 BIOSITE DIAGNOSTICS INCORPORATED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED) The following is a summary of cash, cash equivalents and available-for-sale securities by balance sheet classification at September 30, 1996:
GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE ----------- ---------- ---------- ----------- Cash and cash equivalents: Cash..................................... $ 341,948 $ -- $ -- $ 341,948 Money market fund........................ 1,068,672 -- -- 1,068,672 ----------- ------ -------- ----------- 1,410,620 -- -- 1,410,620 Marketable securities: Certificates of deposit.................. 898,503 1,497 -- 900,000 Commercial paper......................... 386,683 -- (1,603) 385,080 Corporate debt securities................ 7,490,353 -- (16,779) 7,473,574 ----------- ------ -------- ----------- 8,775,539 1,497 (18,382) 8,758,654 ----------- ------ -------- ----------- Total cash, cash equivalents and marketable securities............................... $10,186,159 $1,497 $ (18,382) $10,169,274 =========== ====== ======== ===========
The amortized cost and estimated fair value of available-for-sale securities at September 30, 1996, by contractual maturity, are as follows:
ESTIMATED COST FAIR VALUE ---------- ---------- Marketable securities: Due in one year or less................................... $7,581,858 $7,569,462 Due after one year through two years...................... 1,193,681 1,189,192 ---------- ---------- $8,775,539 $8,758,654 ========== ==========
5. BALANCE SHEET INFORMATION Inventories consist of the following:
DECEMBER 31, ------------------------- SEPTEMBER 30, 1994 1995 1996 ---------- ---------- ------------- Raw materials................................. $ 521,889 $ 645,097 $ 417,302 Work in process............................... 526,787 965,925 1,102,610 Finished goods................................ 89,154 78,102 189,104 ---------- ---------- ---------- $1,137,830 $1,689,124 $ 1,709,016 ========== ========== ==========
F-12 74 BIOSITE DIAGNOSTICS INCORPORATED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED) Property, equipment and leasehold improvements consist of the following:
DECEMBER 31, SEPTEMBER --------------------------- 30, 1994 1995 1996 ----------- ----------- ----------- Machinery and equipment..................... $ 3,623,954 $ 5,666,978 $ 6,868,726 Furniture and fixtures...................... 376,084 548,824 631,570 Leasehold improvements...................... 185,784 652,335 746,764 ----------- ----------- ----------- 4,185,822 6,868,137 8,247,060 Less accumulated depreciation and amortization.............................. (2,326,249) (3,268,168) (4,305,540) ----------- ----------- ----------- $ 1,859,573 $ 3,599,969 $ 3,941,520 =========== =========== ===========
6. DEBT AND LEASE COMMITMENTS Debt and capital lease obligations consist of the following:
DECEMBER 31, SEPTEMBER ------------------------- 30, 1994 1995 1996 ---------- ---------- ---------- Convertible debenture, payable on September 29, 2000, including interest at 8% per annum..... $ -- $1,000,000 $1,000,000 Equipment financing notes, payable $122,687 monthly including interest at 8.1% to 11.8%, due October 1996 to November 2001 secured by equipment.................................... 963,538 2,648,272 3,261,222 Capital lease obligations...................... 448,478 203,913 -- ---------- ---------- ---------- 1,412,016 3,852,185 4,261,222 Less current portion........................... 640,453 1,112,712 1,027,579 ---------- ---------- ---------- $ 771,563 $2,739,473 $3,233,643 ========== ========== ==========
At the sole option of the Company, the debenture is convertible into shares of common stock of the Company upon consummation of a public offering of common stock with aggregate proceeds in excess of $7,500,000 and at a price of not less than $9.00 per share. The debenture is convertible at the public offering price. In the event a public offering is not consummated on or before December 31, 1996, the debenture is convertible, at the sole option of the Company, into shares of the Company's preferred stock, at the initial issue price for such shares in connection with a private placement of the Company's preferred stock. Under a licensing agreement, the Company is obligated to issue up to a maximum of $1,000,000 of additional convertible debentures with five-year terms upon the attainment of certain milestones. The debentures are convertible, at the option of the Company, into shares of common stock at the initial public offering price. As of September 30, 1996, approximate future principal payments of the equipment financing notes are due as follows: 1996 - $275,000; 1997 - $957,000; 1998 - $740,000; 1999 - $635,000; 2000 - $506,000 and 2001 - $148,000. The Company leases its office and research facilities and certain equipment under operating and capital leases. The minimum annual rent on the facilities is subject to increases based on changes in the Consumer Price Index, taxes, insurance and operating costs, subject to certain minimum and maximum annual increases. The Company has options to renew certain of the facilities leases for a period of two years. Included in deposits and other assets in the accompanying balance sheets is approximately $728,000, $367,000 and $271,000 of security deposits in conjunction with operating lease and equipment financing agreements at December 31, 1994, 1995 and September 30, 1996, respectively. F-13 75 BIOSITE DIAGNOSTICS INCORPORATED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED) Approximate annual future minimum lease payments as of September 30, 1996 are as follows:
OPERATING YEAR LEASES ---- ---------- 1996............................................................. $ 247,000 1997............................................................. 949,000 1998............................................................. 105,000 ---------- Total minimum lease payments........................... $1,301,000 ==========
Rent expense for the years ended December 31, 1993, 1994 and 1995 was approximately $392,000, $550,000 and $734,000, respectively. Rent expense for the nine months ended September 30, 1995 and 1996 was $527,000 and $628,000, respectively. Equipment under equipment financing notes and capital leases was approximately $2,443,000, $4,407,000 and $4,832,000 at December 31, 1994 and 1995, and September 30, 1996, respectively. Accumulated depreciation of equipment under equipment loans and capital leases at December 31, 1994 and 1995 and September 30, 1996 was approximately $945,000, $1,465,000 and $1,643,000, respectively. 7. STOCKHOLDERS' EQUITY CONVERTIBLE PREFERRED STOCK A summary of the convertible preferred stock issued and outstanding is as follows:
SHARES PREFERENCE ISSUED AND IN OUTSTANDING PAR VALUE LIQUIDATION ---------- --------- ----------- Series A......................................... 610,000 $ 6,100 $ 610,000 Series B......................................... 2,156,336 21,563 3,061,997 Series C......................................... 2,204,167 22,042 5,290,000 Series D......................................... 1,900,010 19,000 5,700,030 Series E......................................... 1,458,334 14,583 7,000,003 --------- ------- ------------ 8,328,847 $ 83,288 $21,662,030 ========= ======= ============
The Series A, Series B, Series C, Series D and Series E preferred stock is convertible on a one to one basis into a total of 8,328,847 shares of the Company's common stock, respectively, subject to certain antidilution adjustments. Additionally, outstanding preferred stock will automatically convert into common stock immediately upon the closing of an underwritten public offering of the common stock of the Company at an offering price of at least $9.00 per share and having an aggregate offering price to the public of at least $7.5 million. The holder of each share of preferred stock is entitled to one vote for each share of common stock into which it would convert. On or after September 7, 1997, upon consent of at least two thirds of the existing Series A, Series B, Series C, Series D and Series E preferred stockholders, the preferred stock may be redeemed, at the option of the Board of Directors, for $1.10, $1.56, $2.64, $3.30 and $5.28 per share for the Series A, Series B, Series C, Series D and Series E preferred stock, respectively, plus any accrued and unpaid dividends. Annual dividends of $.08, $.1278, $.216, $.27 and $.432 per share of Series A, Series B, Series C, Series D and Series E preferred stock, respectively, are payable whenever funds are legally available when and as declared by the Board of Directors. No dividends have been declared to date. F-14 76 BIOSITE DIAGNOSTICS INCORPORATED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED) COMMON STOCK 1989 Stock Plan The Company has adopted a stock plan which provides for both the direct sale of common stock and for the grant of options to purchase common stock to employees, directors, consultants and advisors of the Company. A total of 1,692,000 shares have been reserved for issuance under the plan. As of September 30, 1996, 144,476 shares have been sold directly under the plan. Information with respect to the Company's option activity is as follows:
SHARES PRICE --------- ------------- Balance at December 31, 1992............................. 413,300 $0.24 -- 1.00 Granted................................................ 252,800 $1.00 -- 2.00 Exercised.............................................. (15,514) $0.24 -- 1.00 Cancelled.............................................. (37,686) $0.24 -- 1.00 --------- ------------ Balance at December 31, 1993............................. 612,900 $0.24 -- 2.00 Granted................................................ 109,150 $2.00 Exercised.............................................. (1,699) $0.50 -- 2.00 Cancelled.............................................. (5,701) $0.50 -- 2.00 --------- ------------ Balance at December 31, 1994............................. 714,650 $0.24 -- 2.00 Granted................................................ 300,750 $2.00 -- 3.25 Exercised.............................................. (215,529) $0.07 -- 2.00 Cancelled.............................................. (11,616) $0.24 -- 2.00 --------- ------------ Balance at December 31, 1995............................. 788,255 $0.24 -- 3.25 Granted................................................ 819,700 $3.25 -- 9.00 Exercised.............................................. (90,498) $0.24 -- 3.25 Cancelled.............................................. (353,590) $0.50 -- 9.00 --------- ------------ Balance at September 30, 1996............................ 1,163,867 $0.24 -- 8.25 ========= ============
The options are generally subject to four year vesting and expire ten years from the date of grant. At September 30, 1996, 454,411 shares were exercisable and 56,099 shares were available for future issuance of common stock or grant of options to purchase common stock under the 1989 Stock Plan. During the period of May 17, 1996 to September 6, 1996, the Company granted options to purchase 331,950 shares of common stock at $8.25 to $9.00 per share. On September 6, 1996, these stock options were repriced to $5.50 per share. 1996 Stock Incentive Plan In December 1996, the Company adopted the 1996 Stock Incentive Plan (the "1996 Stock Plan") effective as of December 1, 1996. The 1996 Stock Plan replaces the Company's 1989 Stock Plan. Although all future awards will be made under the 1996 Stock Plan, awards made under the 1989 Stock Plan will continue to be administered in accordance with the 1989 Stock Plan. The 1996 Stock Plan provides for awards in the form of restricted shares, stock units, options or stock appreciation rights or any combination thereof. A pool of 900,000 shares, increased by the amount of all unpurchased shares of common stock pursuant to expired or terminated options, as of November 30, 1996, under the 1989 Stock Plan, has been reserved for issuance under the 1996 Stock Plan. F-15 77 BIOSITE DIAGNOSTICS INCORPORATED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED) Deferred Compensation The Company records and amortizes over the related vesting periods deferred compensation representing the excess of the deemed value for accounting purposes of the options granted over their aggregate exercise price. In October, November and December 1996, the Company granted additional options to purchase 128,350 shares of Common Stock at the exercise price of $5.50 per share. The Company will record compensation expense of approximately $390,225 over the vesting period of these options. Employee Stock Purchase Plan In December 1996, the Company adopted an Employee Stock Purchase Plan ("ESPP") which provides employees the opportunity to purchase common stock at a discount and pay for such purchases through payroll deductions. A pool of 100,000 shares of common stock has been reserved for issuance under the ESPP (subject to anti-dilution provisions). 8. INCOME TAXES Significant components of the income tax benefit (provision) are as follows:
YEARS ENDED DECEMBER 31, ------------------------------------ NINE MONTHS ENDED 1993 1994 1995 SEPTEMBER 30, 1996 -------- -------- ---------- ------------------ Current: Federal....................... $ -- $(63,000) $ (150,000) $ (69,000) State......................... -- -- (10,000) (3,000) -------- -------- ---------- --------- -- (63,000) (160,000) (72,000) Deferred: Federal....................... -- -- 1,668,000 454,000 State......................... -- -- 159,000 (118,000) -------- -------- ---------- --------- -- -- 1,827,000 336,000 -------- -------- ---------- --------- $ -- $(63,000) $1,667,000 $ 264,000 ======== ======== ========== =========
The provision for income taxes for the nine months ended September 30, 1996 was determined utilizing an effective tax rate based on the estimated operating results for 1996, expected utilization of net operating loss carryforwards and other tax credits and changes in deferred tax assets including a reduction of the valuation allowance for deferred tax assets of $1,119,000. As of December 31, 1995, the Company had a federal net operating loss carryforward of approximately $3,058,000 and no tax loss carryforward for California. The Company also had federal and California research and development credit carryforwards of approximately $906,000 and $92,000, respectively. The difference between the federal and California tax loss carryforwards is primarily attributable to the capitalization of research and development expenses for California tax purposes and the fifty percent limitation on California loss carryforwards. The federal tax loss and research credit carryforwards will begin expiring in 2003 unless previously utilized. In 1995, the Company utilized federal and state net operating loss carryforwards of approximately $7,108,000 and $4,473,000, respectively, to offset taxable income. F-16 78 BIOSITE DIAGNOSTICS INCORPORATED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED) Significant components of the Company's deferred tax assets as of December 31, 1994 and 1995 are shown below. For the year ended December 31, 1995, and the nine months ended September 30, 1996, the Company decreased the valuation allowance for deferred tax assets $1,827,000 and $1,119,000, respectively, as the realization of such assets became probable.
DECEMBER 31, --------------------------- 1994 1995 ----------- ----------- Deferred tax assets: Capitalized research expenses........................... $ 247,000 $ 154,000 Net operating loss carryforwards........................ 3,275,000 1,070,000 Research and development credits........................ 1,258,000 998,000 Other................................................... 338,000 854,000 ---------- ---------- Total deferred tax assets....................... 5,118,000 3,076,000 Deferred tax liability: Tax over book depreciation.............................. (80,000) (130,000) ---------- ---------- 5,038,000 2,946,000 Valuation allowance for deferred tax assets............... (5,038,000) (1,119,000) ---------- ---------- Net deferred tax assets................................... $ -- $ 1,827,000 ========== ==========
The reconciliation of income tax computed at the federal statutory tax rate to the (provision) benefit for income taxes is as follows:
NINE MONTHS ENDED SEPTEMBER 30, 1993 1994 1995 1996 ---- ---- ---- ------------- Tax at federal statutory rate..................... (35 )% 35 % 35 % 35% Permanent tax differences......................... -- 5 1 1 Increase (decrease) of the valuation allowance for deferred tax assets............... 35 % (36 ) (63 ) (25) Other............................................. -- (1 ) -- -- ---- ---- ---- --- Effective rate.................................... -- 3 % (27 )% 11% ==== ==== ==== ==========
Pursuant to Internal Revenue Code Section 382, use of the Company's net operating loss and tax credit carryforwards may be limited if a cumulative change in ownership of more than 50% occurs within any three year period. However, any annual limitation is not expected to have a material adverse effect on the Company's ability to utilize its net operating loss and tax credit carryforwards. 9. EMPLOYEE SAVINGS PLAN In 1991, the Company implemented a 401(k) program which allows all qualifying employees to contribute up to a maximum of 20% of their annual salary, subject to annual limits. The Board of Directors may, at its sole discretion, approve Company contributions. No such contributions have been approved or made. 10. SETTLEMENT OF PATENT MATTERS In September 1996, the Company reached a settlement with a competitor with respect to all claims in a lawsuit filed by the competitor in May 1994. The complaint alleged that the Company's Triage Panel for F-17 79 BIOSITE DIAGNOSTICS INCORPORATED NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED) Drugs of Abuse product infringed a patent licensed to the competitor. The Company vigorously defended the lawsuit. However, to avoid protracted litigation, the Company settled the patent matter in September 1996, and paid $2 million as a settlement of the litigation and, for an additional $3.5 million and the agreement to pay certain royalties, obtained a license to certain technology. The Company has charged to settlement of patent matters in the accompanying statements of income the $2 million litigation settlement, applicable license costs related to prior years and the related legal defense costs. Legal defense costs totaled $338,004 and $777,070 for the years ended December 31, 1994 and 1995, respectively, and $743,173 and $17,119 for the nine months ended September 30, 1995 and 1996, respectively. Additionally, in December 1995, the Company was notified that it should evaluate whether its current products infringe upon certain patent claims held by another company. In March 1996, the Company settled this matter by obtaining a world-wide license to the technology. The Company accrued the one-time license fee of $2.2 million in December 1995. Amortization of this license related to fiscal years prior to 1995 was charged to Settlement of Patent Matters in 1995. F-18 80 [PHOTOGRAPHS SHOWING TRIAGE DOA AND PERSONS PERFORMING TRIAGE DOA TESTING PROCEDURE] BIOSITE(R) DIAGNOSTICS DEVELOPS, MANUFACTURES AND MARKETS IMMEDIATE RESPONSE DIAGNOSTICS(TM) 81 ====================================================== NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS OR BY ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY A SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY, TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary..................... 3 Risk Factors........................... 6 Use of Proceeds........................ 15 Dividend Policy........................ 15 Capitalization......................... 16 Dilution............................... 17 Selected Financial Data................ 18 Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 19 Business............................... 24 Management............................. 42 Certain Transactions................... 50 Principal Stockholders................. 51 Description of Capital Stock........... 53 Shares Eligible for Future Sale........ 55 Underwriting........................... 57 Legal Matters.......................... 58 Experts................................ 58 Additional Information................. 58 Index to Financial Statements.......... F-1
------------------------ UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ====================================================== ====================================================== 2,000,000 SHARES LOGO COMMON STOCK ------------------------ PROSPECTUS ------------------------ COWEN & COMPANY ALEX. BROWN & SONS INCORPORATED , 1997 ====================================================== 82 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the various expenses expected to be incurred by the Registrant in connection with the sale and distribution of the securities being registered hereby, other than underwriting discounts and commissions. All amounts are estimated except the Securities and Exchange Commission registration fee, the Nasdaq listing fee and the National Association of Securities Dealers, Inc. ("NASD") filing fee. SEC registration fee...................................................... $ 9,061 NASD filing fee........................................................... 3,490 Nasdaq listing fee........................................................ 47,963 NASD expenses............................................................. 2,000 Accounting fees and expenses.............................................. 150,000 Legal fees and expenses................................................... 250,000 Printing and engraving expenses........................................... 150,000 Registrar and Transfer Agent's fees....................................... 25,000 Miscellaneous fees and expenses........................................... 62,486 -------- Total........................................................... $700,000 ========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law provides for the indemnification of officers, directors, and other corporate agents in terms sufficiently broad to indemnify such persons under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the "Act"). Article VII of the Registrant's Restated Certificate of Incorporation (Exhibit 3.(i).3 hereto) and Article V of the Registrant's Bylaws (Exhibit 3.(ii).2 hereto) provide for indemnification of the Registrant's directors, officers, employees and other agents to the extent and under the circumstances permitted by the Delaware General Corporation Law. The Registrant has also entered into agreements with its directors and officers that will require the Registrant, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers to the fullest extent not prohibited by law. The Underwriting Agreement (Exhibit 1.1) provides for indemnification by the Underwriters of the Registrant, its directors and officers, and by the Registrant of the Underwriters, for certain liabilities, including liabilities arising under the Act, and affords certain rights of contribution with respect thereto. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Since December 1, 1993, the Registrant has sold and issued the following unregistered securities: (a) On various dates through December 1, 1996, the Registrant issued 323,240 shares of its Common Stock to employees pursuant to the exercise of options granted under its 1989 Stock Plan. The exercise prices per share ranged from $0.24 to $3.25, for an aggregate consideration of $167,076. The Registrant relied on the exemption provided by Rule 701 under the Act. (b) In September 1995, the Company issued a $1,000,000 convertible debenture to Sandoz Pharma Ltd. relying on the exemption provided by Section 4(2) under the Act. The recipients of the above-described securities represented their intention to acquire the securities for investment only and not with a view to distribution thereof. Appropriate legends were affixed to the stock certificates and debenture issued in such transactions. All recipients had adequate access, through employment or other relationships, to information about the Registrant. II-1 83 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (A) EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - -------- ---------------------------------------------------------------------------------- 1.1 Form of Underwriting Agreement. 3.(i)1 Restated Certificate of Incorporation. 3.(i)2 Form of Certificate of Amendment of Restated Certificate of Incorporation to be filed prior to the effective date of this Registration Statement. 3.(i)3 Form of Restated Certificate of Incorporation, to be filed upon closing of the offering to which this Registration Statement relates. 3.(ii)1 Bylaws of the Registrant, as amended. 3.(ii)2 Proposed Amended and Restated Bylaws of the Registrant. 4.1* Form of Common Stock Certificate. 5.1 Legal opinion of Pillsbury Madison & Sutro LLP. 10.1 Amended and Restated 1989 Stock Plan of Biosite Diagnostics Incorporated. 10.2 1996 Stock Incentive Plan of Biosite Diagnostics Incorporated ("1996 Stock Plan"). 10.3 Form of Incentive Stock Option Agreement under the 1996 Stock Plan. 10.4 Form of Nonstatutory Stock Option Agreement under the 1996 Stock Plan. 10.5 Biosite Diagnostics Incorporated Employee Stock Purchase Plan. 10.6 Form of Indemnity Agreement between the Registrant and its officers and directors. 10.7* Lease Agreement between the Registrant and General Atomics, dated November 30, 1989, with related addenda, as amended on December 1, 1987 and May 30, 1990. 10.8(+)* Antibody License Agreement between the Registrant and Sandoz Pharma Ltd., dated September 22, 1995, as amended on July 26, 1996. 10.9(+)* Easy Assay License Agreement between the Registrant and Sandoz Pharma Ltd., dated September 22, 1995. 10.10(+)* Distribution Agreement between the Registrant and Curtin Matheson Scientific, Inc., dated November 11, 1991, as amended on March 7, 1994, March 12, 1996 and August 9, 1996. 10.11(+)* Development, Supply and Distribution Agreement between the Registrant and Kyoto Dai-Ichi Kagaku Co., Ltd., dated as of February 14, 1995. 10.12(+)* Development and Supply Agreement between the Registrant and LRE Relais + Elektronik GmbH -- Medical Technology, dated September 23, 1994. 10.13(+)* Distributorship Agreement between the Registrant and E. Merck KGaA, dated July 27, 1992, as amended on November 10, 1993, January 13, 1994 and December 11, 1995. 10.14(+)* Collaborative Development Agreement between the Registrant and Merck KGaA, dated July 1, 1994. 10.15(+)* Supply and Distribution Agreement between the Registrant and E. Merck KGaA, dated as of June 28, 1994. 10.16(+)* Research and Development Agreement between the Registrant and Ixsys, Inc., dated July 1, 1992. 10.17 Stock Purchase Agreement dated as of October 30, 1991 between the Registrant and certain purchasers of Series D Preferred Stock. 10.18 Stock Purchase Agreement dated as of November 25, 1992 between the Registrant and Merck KGaA concerning Series E Preferred Stock. 10.19(+)* Debenture Purchase Agreement between the Registrant and Sandoz Pharma Ltd., dated as of September 22, 1995. 10.20(+)* Settlement and License Agreement & Agreement of Dismissal with Prejudice, dated as of September 6, 1996, by and between the Registrant and Abbott Laboratories. 11.1 Statement of computation of earnings per share.
II-2 84
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - -------- ---------------------------------------------------------------------------------- 23.1 Consent of Ernst & Young LLP, independent auditors. 23.2 Consent of Pillsbury Madison & Sutro LLP (included in Exhibit 5.1). 24.1 Power of Attorney (see Page II-4). 27.1 Financial Data Schedule.
- --------------- * To be filed by amendment. (+) Confidential treatment requested. (B) FINANCIAL STATEMENT SCHEDULES Schedules other than those referred to above have been omitted because they are not applicable or not required or because the information is included elsewhere in the Financial Statements or the notes thereto. ITEM 17. UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Act"), may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) It will provide to the underwriters at the closing(s) specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. II-3 85 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, State of California, on the 11th day of December, 1996. BIOSITE DIAGNOSTICS INCORPORATED By /s/ KIM D. BLICKENSTAFF ------------------------------------ Kim D. Blickenstaff President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kim D. Blickenstaff, Christopher J. Twomey and S. Nicholas Stiso and each of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this Registration Statement, and to sign any registration statement filed under Rule 462 under the Securities Act of 1933, and including any amendments, including post-effective amendments, thereto, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE - ------------------------------------------ ------------------------------ ------------------ /s/ KIM D. President, Chief Executive December 11, 1996 BLICKENSTAFF Officer (Principal Executive - ------------------------------------------ Officer) and Director Kim D. Blickenstaff /s/ CHRISTOPHER J. TWOMEY Vice President and Chief December 11, 1996 - ------------------------------------------ Financial Officer (Principal Christopher J. Twomey Financial Officer and Accounting Officer) /s/ TIMOTHY J. WOLLAEGER Chairman of the Board December 11, 1996 - ------------------------------------------ Timothy J. Wollaeger /s/ GUNARS E. VALKIRS, PH.D. Director December 11, 1996 - ------------------------------------------ Gunars E. Valkirs, Ph.D. /s/ THOMAS H. ADAMS, PH.D. Director December 11, 1996 - ------------------------------------------ Thomas H. Adams, Ph.D.
II-4 86
NAME TITLE DATE - ------------------------------------------ ------------------------------ ------------------ /s/ HOWARD E. GREENE, JR. Director December 11, 1996 - ------------------------------------------ Howard E. Greene, Jr. /s/ FREDERICK J. DOTZLER Director December 11, 1996 - ------------------------------------------ Frederick J. Dotzler /s/ STEPHEN K. REIDY Director December 11, 1996 - ------------------------------------------ Stephen K. Reidy /s/ JESSE I. TREU, Director December 11, 1996 PH.D. - ------------------------------------------ Jesse I. Treu, Ph.D.
II-5 87 EXHIBIT INDEX
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF DOCUMENT PAGE - -------- ----------------------------------------------------------------------------------------------- 1.1 Form of Underwriting Agreement. 3.(i)1 Restated Certificate of Incorporation. 3.(i)2 Form of Certificate of Amendment of Restated Certificate of Incorporation to be filed prior to the effective date of this Registration Statement. 3.(i)3 Form of Restated Certificate of Incorporation, to be filed upon closing of the offering to which this Registration Statement relates. 3.(ii)1 Bylaws of the Registrant, as amended. 3.(ii)2 Proposed Amended and Restated Bylaws of the Registrant. 4.1* Form of Common Stock Certificate. 5.1 Legal opinion of Pillsbury Madison & Sutro LLP. 10.1 Amended and Restated 1989 Stock Plan of Biosite Diagnostics Incorporated. 10.2 1996 Stock Incentive Plan of Biosite Diagnostics Incorporated ("1996 Stock Plan"). 10.3 Form of Incentive Stock Option Agreement under the 1996 Stock Plan. 10.4 Form of Nonstatutory Stock Option Agreement under the 1996 Stock Plan. 10.5 Biosite Diagnostics Incorporated Employee Stock Purchase Plan. 10.6 Form of Indemnity Agreement between the Registrant and its officers and directors. 10.7* Lease Agreement between the Registrant and General Atomics, dated November 30, 1989, with related addenda, as amended on December 1, 1987 and May 30, 1990. 10.8(+)* Antibody License Agreement between the Registrant and Sandoz Pharma Ltd., dated September 22, 1995, as amended on July 26, 1996. 10.9(+)* Easy Assay License Agreement between the Registrant and Sandoz Pharma Ltd., dated September 22, 1995. 10.10(+)* Distribution Agreement between the Registrant and Curtin Matheson Scientific, Inc., dated November 11, 1991, as amended on March 7, 1994, March 12, 1996 and August 9, 1996. 10.11(+)* Development, Supply and Distribution Agreement between the Registrant and Kyoto Dai-Ichi Kagaku Co., Ltd., dated as of February 14, 1995. 10.12(+)* Development and Supply Agreement between the Registrant and LRE Relais + Elektronik GmbH -- Medical Technology, dated September 23, 1994. 10.13(+)* Distributorship Agreement between the Registrant and E. Merck KGaA, dated July 27, 1992, as amended on November 10, 1993, January 13, 1994 and December 11, 1995. 10.14(+)* Collaborative Development Agreement between the Registrant and Merck KGaA, dated July 1, 1994. 10.15(+)* Supply and Distribution Agreement between the Registrant and E. Merck KGaA, dated as of June 28, 1994. 10.16(+)* Research and Development Agreement between the Registrant and Ixsys, Inc., dated July 1, 1992. 10.17 Stock Purchase Agreement dated as of October 30, 1991 between the Registrant and certain purchasers of Series D Preferred Stock. 10.18 Stock Purchase Agreement dated as of November 25, 1992 between the Registrant and Merck KGaA concerning Series E Preferred Stock. 10.19(+)* Debenture Purchase Agreement between the Registrant and Sandoz Pharma Ltd., dated as of September 22, 1995. 10.20(+)* Settlement and License Agreement & Agreement of Dismissal with Prejudice, dated as of September 6, 1996, by and between the Registrant and Abbott Laboratories. 11.1 Statement of computation of earnings per share. 23.1 Consent of Ernst & Young LLP, independent auditors. 23.2 Consent of Pillsbury Madison & Sutro LLP (included in Exhibit 5.1). 24.1 Power of Attorney (see Page II-4). 27.1 Financial Data Schedule.
- --------------- * To be filed by amendment. (+) Confidential treatment requested. EX-1.1 2 EXHIBIT 1.1 1 2,000,000 Shares* BIOSITE DIAGNOSTICS INCORPORATED COMMON STOCK UNDERWRITING AGREEMENT _____________, 1996 COWEN & COMPANY ALEX. BROWN & SONS INCORPORATED As Representatives of the several Underwriters c/o Cowen & Company Financial Square New York, New York 10005 Dear Sirs: 1. INTRODUCTORY. Biosite Diagnostics Incorporated, a Delaware corporation (the "Company"), proposes to sell, pursuant to the terms of this Agreement, to the several underwriters named in Schedule A hereto (the "Underwriters," or, each, an "Underwriter"), an aggregate of 2,000,000 shares of Common Stock $0.01 par value (the "Common Stock") of the Company. The aggregate of 2,000,000 shares so proposed to be sold is hereinafter referred to as the "Firm Stock." The Company also proposes to sell to the Underwriters, upon the terms and conditions set forth in Section 3 hereof, up to an additional 300,000 shares of Common Stock (the "Optional Stock"). The Firm Stock and the Optional Stock are hereinafter collectively referred to as the "Stock." Cowen & Company ("Cowen") and Alex. Brown & Sons Incorporated are acting as representatives of the several Underwriters and in such capacity are hereinafter referred to as the "Representatives." 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to, and agrees with, the several Underwriters that: (a) A registration statement on Form S-1 (File No. 333-___________) in the form in which it became or becomes effective and also in such form as it may be when any post-effective amendment thereto shall become - -------- * Plus 300,000 shares of Common Stock subject to the over-allotment option granted to the Representatives pursuant to Section 3. 1. 2 effective with respect to the Stock, including any preeffective prospectuses included as part of the registration statement as originally filed or as part of any amendment or supplement thereto, or filed pursuant to Rule 424 under the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder, copies of which have heretofore been delivered to you, has been carefully prepared by the Company in conformity with the requirements of the Securities Act and has been filed with the Commission under the Securities Act; one or more amendments to such registration statement, including in each case an amended preeffective prospectus, copies of which amendments have heretofore been delivered to you, have been so prepared and filed. If it is contemplated, at the time this Agreement is executed, that a post-effective amendment to the registration statement will be filed and must be declared effective before the offering of the Stock may commence, the term "Registration Statement" as used in this Agreement means the registration statement as amended by said post-effective amendment. The term "Registration Statement" as used in this Agreement shall also include any registration statement relating to the Stock that is filed and declared effective pursuant to Rule 462(b) under the Securities Act. The term "Prospectus" as used in this Agreement means the prospectus in the form included in the Registration Statement, or, (A) if the prospectus included in the Registration Statement omits information in reliance on Rule 430A under the Securities Act and such information is included in a prospectus filed with the Commission pursuant to Rule 424(b) under the Securities Act, the term "Prospectus" as used in this Agreement means the prospectus in the form included in the Registration Statement as supplemented by the addition of the Rule 430A information contained in the prospectus filed with the Commission pursuant to Rule 424(b) and (B) if prospectuses that meet the requirements of Section 10(a) of the Securities Act are delivered pursuant to Rule 434 under the Securities Act, then (i) the term "Prospectus" as used in this Agreement means the "prospectus subject to completion" (as such term is defined in Rule 434(g) under the Securities Act) as supplemented by (a) the addition of Rule 430A information or other information contained in the form of prospectus delivered pursuant to Rule 434(b)(2) under the Securities Act or (b) the information contained in the term sheets described in Rule 434(b)(3) under the Securities Act, and (ii) the date of such prospectuses shall be deemed to be the date of the term sheets. The term "Preeffective Prospectus" as used in this Agreement means the prospectus subject to completion in the form included in the Registration Statement at the time of the initial filing of the Registration Statement with the Commission, and as such prospectus shall have been amended from time to time prior to the date of the Prospectus. (b) The Commission has not issued or, to the Company's knowledge threatened to issue any order preventing or suspending the use of any Preeffective Prospectus, and, at its date of issue, each Preeffective Prospectus conformed in all material respects with the requirements of the Securities Act and did not include any statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under 2. 3 which they were made, not misleading other than any such nonconformance or untrue statement or omission in a Preeffective Prospectus which has been corrected in the Prospectus; and, when the Registration Statement becomes effective and at all times subsequent thereto up to and including the Closing Dates, the Registration Statement and the Prospectus and any amendments or supplements thereto contained and will contain all material statements and information required to be included therein by the Securities Act and conformed and will conform in all material respects to the requirements of the Securities Act and neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, included or will include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that the foregoing representations, warranties and agreements shall not apply to information contained in or omitted from any Preeffective Prospectus or the Registration Statement or the Prospectus or any such amendment or supplement thereto in reliance upon, and in conformity with, written information furnished to the Company by or on behalf of any Underwriter, directly or through you, specifically for use in the preparation thereof; there is no franchise, lease, contract, agreement or document required to be described in the Registration Statement or Prospectus or to be filed as an exhibit to the Registration Statement which is not described or filed therein as required; and all descriptions of any such franchises, leases, contracts, agreements or documents contained in the Registration Statement are accurate and complete descriptions of such documents in all material respects. (c) Subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, and except as set forth or contemplated in the Prospectus, the Company has not incurred any liabilities or obligations, direct or contingent, nor entered into any transactions not in the ordinary course of business, and there has not been any material adverse change in the condition (financial or otherwise), properties, business, management, prospects, net worth or results of operations of the Company or any change in the capital stock, short-term or long-term debt of the Company. (d) The financial statements, together with the related notes and schedules, set forth in the Prospectus and elsewhere in the Registration Statement fairly present, on the basis stated in the Registration Statement, the financial position and the results of operations and changes in financial position of the Company at the respective dates or for the respective periods therein specified. Such statements and related notes and schedules have been prepared in accordance with generally accepted accounting principles applied on a consistent basis except as may be set forth in the Prospectus. The selected financial and statistical data set forth in the Prospectus under the caption "Selected Financial Data" fairly present, on the basis stated in the Registration Statement, the information set forth therein. 3. 4 (e) Ernst & Young LLP, who have expressed their opinions on the audited financial statements and related schedules included in the Registration Statement and the Prospectus are independent public accountants as required by the Securities Act and the Rules and Regulations. (f) The Company has been duly organized and is validly existing and in good standing as a corporation under the laws of the State of Delaware, with power and authority (corporate and other) to own or lease its properties and to conduct its business as described in the Prospectus; the Company is in possession of and operating in compliance with all franchises, grants, authorizations, licenses, permits, easements, consents, certificates and orders required for the conduct of its business, all of which are valid and in full force and effect or the absence of which would not have a material adverse effect in the business or financial condition of the Company; and the Company is duly qualified to do business and in good standing as a foreign corporation in all other jurisdictions where its ownership or leasing of properties or the conduct of its business requires such qualification except where the failure to so qualify would not have a material adverse effect on the business or financial condition of the Company. Except as described in the Registration Statement, the Company has all requisite power and authority, and all necessary consents, approvals, authorizations, orders, registrations, qualifications, licenses and permits of and from all public regulatory or governmental agencies and bodies to own, lease and operate its properties and conduct its business as now being conducted and as described in the Registration Statement and the Prospectus, and no such consent, approval, authorization, order, registration, qualification, license or permit contains a materially burdensome restriction not adequately disclosed in the Registration Statement and the Prospectus. (g) The Company's authorized and outstanding capital stock as of ______, 1996 is as set forth under the heading "Capitalization" in the Prospectus; the outstanding shares of common stock of the Company conform to the description thereof in the Prospectus and have been duly authorized and validly issued and are fully paid and nonassessable and have been issued in compliance with all federal and state securities laws and were not issued in violation of or subject to any preemptive rights or similar rights to subscribe for or purchase securities and conform to the description thereof contained in the Prospectus. Except as disclosed in and or contemplated by the Prospectus and the financial statements of the Company and related notes thereto included in the Prospectus, the Company does not have outstanding any options or warrants to purchase, or any preemptive rights or other rights to subscribe for or to purchase any securities or obligations convertible into, or any contracts or commitments to issue or sell, shares of its capital stock or any such options, rights, convertible securities or obligations, except for options granted subsequent to the date of information provided in the Prospectus pursuant to the Company's employee and stock option plans as disclosed in the Prospectus. The description of the Company's stock option and other stock plans or arrangements, and the options or other rights granted or exercised 4. 5 thereunder, as set forth in the Prospectus, accurately and fairly presents the information required to be shown with respect to such plans, arrangements, options and rights. (h) The Stock to be issued and sold by the Company to the Underwriters hereunder has been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, will be duly and validly issued, fully paid and nonassessable and free of any preemptive or similar rights and will conform to the description thereof in the Prospectus. (i) Except as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company is a party, which, if determined adversely to the Company, might individually or in the aggregate (i) prevent or adversely affect the transactions contemplated by this Agreement, (ii) suspend the effectiveness of the Registration Statement, (iii) prevent or suspend the use of the Preeffective Prospectus in any jurisdiction or (iv) result in a material adverse change in the condition (financial or otherwise), properties, business, management prospects, net worth or results of operations of the Company; and to the best of the Company's knowledge no such proceedings are threatened or contemplated against the Company by governmental authorities or others. The Company is not a party nor subject to the provisions of any material injunction, judgment, decree or order of any court, regulatory body or other governmental agency or body. The description of the Company's litigation under the heading "Legal Proceedings" in the Prospectus is true and correct and complies with the Rules and Regulations. (j) The execution, delivery and performance of this Agreement and the consummation of the transactions herein contemplated will not result in a breach or violation of any of the terms or provisions of or constitute a default under any indenture, mortgage, deed of trust, note agreement or other agreement or instrument to which the Company is a party or by which it or any of its properties is or may be bound, the Certificate of Incorporation, Bylaws or other organizational documents of the Company, or any law, order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its properties or will result in the creation of a lien. (k) No consent, approval, authorization or order of any court or governmental agency or body is required for the consummation by the Company of the transactions contemplated by this Agreement, except such as may be required by the National Association of Securities Dealers, Inc. (the "NASD") or under the Securities Act or the securities or "Blue Sky" laws of any jurisdiction in connection with the purchase and distribution of the Stock by the Underwriters. (l) The Company has the full corporate power and authority to enter into this Agreement and to perform its obligations hereunder (including to issue, sell and 5. 6 deliver the Stock), and this Agreement has been duly and validly authorized, executed and delivered by the Company and is a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent that rights to indemnity and contribution hereunder may be limited by federal or state securities laws or the public policy underlying such laws. (m) The Company is in all material respects in compliance with, and conducts its businesses in conformity with, all applicable federal, state, local and foreign laws, rules and regulations or any court or governmental agency or body including, without limitation, those of the United States Food and Drug Administration (the "FDA"), except where the failure to be so in compliance would not materially adversely affect the financial position, business or operations of the Company; to the knowledge of the Company, otherwise than as set forth in the Registration Statement and the Prospectus, no prospective change in any of such federal, state, local or foreign laws, rules or regulations has been adopted which, when made effective, would have a material adverse effect on the operations of the Company. In the ordinary course of business, employees of the Company conduct periodic reviews of the effect of Environmental Laws (as defined below) on the business operations and properties of the Company, in the ordinary course of which they seek to identify and evaluate associated costs and liabilities. Except as disclosed in the Registration Statement, the Company is in compliance with all applicable existing federal, state, local and foreign laws and regulations relating to the protection of human health or the environment or imposing liability or requiring standards of conduct concerning any Hazardous Materials ("Environmental Laws"), except for such instances of noncompliance which, either singly or in the aggregate, would not have a material adverse effect. The term "Hazardous Material" means (i) any "hazardous substance" as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, (ii) any "hazardous waste" as defined by the Resource Conservation and Recovery Act, as amended, (iii) any petroleum or petroleum product, (iv) any polychlorinated biphenyl and (v) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material, waste or substance regulated under or within the meaning of any other Environmental Law. (n) The Company has filed all necessary federal, state, local and foreign income, payroll, franchise and other tax returns and has paid all taxes shown as due thereon or with respect to any of its properties, and there is no tax deficiency that has been, or to the knowledge of the Company is likely to be, asserted against the Company or any of its properties or assets that would adversely affect the financial position, business or operations of the Company. (o) Except as set forth in the Registration Statement, no person or entity has the right to require registration of shares of Common Stock or other securities of the Company because of the filing or effectiveness of the Registration Statement or otherwise, except for persons and entities who have expressly waived such right or who 6. 7 have been given proper notice and have failed to exercise such right within the time or times required under the terms and conditions of such right. (p) The Company has not taken and will not take, directly or indirectly, any action designed or intended to stabilize or manipulate the price of any security of the Company, or which caused or resulted in, or which might in the future reasonably be expected to cause or result in, stabilization or manipulation of the price of any security of the Company. (q) The Company has provided you with all financial statements since [_______, 1996] to the date hereof that are available to the officers of the Company, including financial statements for the months of [______ and _______ of 1996]. (r) The Company owns or possesses all patents, trademarks, trademark registrations, service marks, service mark registrations, tradenames, copyrights, licenses, inventions, trade secrets and rights described in the Prospectus as being owned by it or necessary for the conduct of its business, and except as disclosed in the Registration Statement, the Company is not aware of any claim to the contrary or any challenge by any other person to the rights of the Company with respect to the foregoing. Except as disclosed in the Registration Statement, the Company's business as now conducted and as proposed to be conducted does not and will not infringe or conflict with in any material respect patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses or other intellectual property or franchise right of any person. Except as described in the Prospectus, no claim has been made against the Company alleging the infringement by the Company of any patent, trademark, service mark, tradename, copyright, trade secret, license in or other intellectual property right or franchise right of any person and the Company has no knowledge of such infringement. To the best of the Company's knowledge, no U.S. patent issued to date is or would be infringed by the activities of the Company in the manufacture, use or sale of any product as described in the Registration Statement and Prospectus. (s) The Company has performed all material obligations required to be performed by it under all contracts required by Item 601(b)(10) of Regulation S-K under the Securities Act to be filed as exhibits to the Registration Statement, and neither the Company nor to the Company's knowledge, any other party to such contract is in default under or in breach of any such obligations. The Company has not received any notice of such default or breach. (t) The Company is not involved in any labor dispute nor, to the Company's knowledge, is any such dispute threatened. The Company is not aware that (A) any executive, key employee or significant group of employees of the Company plans to terminate employment with the Company or (B) any such executive or key employee is subject to any noncompete, nondisclosure, confidentiality, employment, consulting or 7. 8 similar agreement that would be violated by the present or proposed business activities of the Company. The Company does not have or expect to have any liability for any prohibited transaction or funding deficiency or any complete or partial withdrawal liability with respect to any pension, profit sharing or other plan which is subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), to which the Company makes or ever has made a contribution and in which any employee of the Company is or has ever been a participant. With respect to such plans, the Company is in compliance in all material respects with all applicable provisions of ERISA. (u) The Company has obtained the written agreement described in Section 8(m) of this Agreement from each of its officers, directors and holders of Common Stock listed on Schedule B hereto. (v) The Company has, and the Company as of the Closing Dates will have, good and marketable title to all real property and good and marketable title to all personal property owned or proposed to be owned by it which is material to the business of the Company, in each case free and clear of all liens, encumbrances and defects except such as are described the Prospectus or such as would not have a material adverse effect on the Company; and any real property and buildings held under lease by the Company or proposed to be held after giving effect to the transactions described in the Prospectus are, or will be as of the Closing Dates, held by it under valid, subsisting and enforceable leases with such exceptions as would not have a material adverse effect on the Company, in each case except as described in or contemplated by the Prospectus. (w) The Company is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are customary in the businesses in which it is engaged or proposes to engage after giving effect to the transactions described in the Prospectus; and the Company does not have any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not materially and adversely affect the condition, financial or otherwise, or the earnings, business or operations of the Company, except as described in or contemplated by the Prospectus. (x) Other than as contemplated by this Agreement, there is no broker, finder or other party that is entitled to receive from the Company any brokerage or finder's fee or other fee or commission as a result of any of the transactions contemplated by this Agreement. (y) The Company has complied with all provisions of Section 517.075 Florida Statutes (Chapter 92-198; Laws of Florida). 8. 9 (z) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (aa) To the Company's knowledge, neither the Company nor any employee or agent of the Company has made any payment of funds of the Company or received or retained any funds in violation of any law, rule or regulation, which payment, receipt or retention of funds is of a character required to be disclosed in the Prospectus. (bb) The Company is not an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended and the Company intends in the future to conduct its business in a manner that will not result in either such classification under such Act. (cc) Each certificate signed by any officer of the Company and delivered to the Underwriters or counsel for the Underwriters shall be deemed to be a representation and warranty by the Company as to the matters covered thereby. 3. PURCHASE BY, AND SALE AND DELIVERY TO, UNDERWRITERS; CLOSING DATES. On the basis of the representations, warranties, covenants and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Underwriters and the Underwriters agree, severally and not jointly, to purchase the Firm Stock, the number of shares of Firm Stock to be purchased by each Underwriter being set opposite its name in Schedule A, subject to adjustment in accordance with Section 12 hereof. The purchase price per share to be paid by the Underwriters to the Company will be $_____ per share (the "Purchase Price"). The Company will deliver the Firm Stock to the Representatives for the respective accounts of the several Underwriters (in the form of definitive certificates, issued in such names and in such denominations as the Representatives may direct by notice in writing to the Company given at or prior to 12:00 Noon, New York Time, on the second full business day preceding the First Closing Date (as defined below) or, if no such direction is received, in the names of the respective Underwriters or in such other names as Cowen may designate (solely for the purpose of administrative convenience and in such denominations as Cowen may determine), against payment of the aggregate Purchase 9. 10 Price therefor wire transfer to such account as the Company shall designate. The time and date of the delivery and closing shall be at 10:00 A.M., New York Time, on [ , 1996], in accordance with Rule 15c6-1 of the Exchange Act. The time and date of such payment and delivery are herein referred to as the "First Closing Date". The Closing Date and the location of delivery of, and the form of payment for, the Firm Stock may be varied by agreement between the Company and Cowen. The Closing Date may be postponed pursuant to the provisions of Section 12. The Company shall make the certificates for the Stock available to the Representatives for examination on behalf of the Underwriters not later than 10:00 A.M., New York Time, on the business day preceding the First Closing Date at the offices of Cowen, Financial Square, New York, New York 10005. It is understood that Cowen or Alex. Brown & Sons Incorporated, individually and not as Representatives of the several Underwriters, may (but shall not be obligated to) make payment to the Company on behalf of any Underwriter or Underwriters, for the Stock to be purchased by such Underwriter or Underwriters. Any such payment by Cowen or Alex. Brown & Sons Incorporated shall not relieve such Underwriter or Underwriters from any of its or their other obligations hereunder. The several Underwriters agree to make an initial public offering of the Firm Stock at the initial public offering price as soon after the effectiveness of the Registration Statement as in their judgment is advisable. The Representatives shall promptly advise the Company of the making of the initial public offering. For the purpose of covering any over-allotments in connection with the distribution and sale of the Firm Stock as contemplated by the Prospectus, the Company hereby grants to the Underwriters an option to purchase, severally and not jointly, up to [______] shares of Optional Stock. The price per share to be paid for the Optional Stock shall be the Purchase Price. The option granted hereby may be exercised as to all or any part of the Optional Stock at any time, and from time to time, not more than thirty (30) days subsequent to the effective date of this Agreement. No Optional Stock shall be sold and delivered unless the Firm Stock previously has been, or simultaneously is, sold and delivered. The right to purchase the Optional Stock or any portion thereof may be surrendered and terminated at any time upon notice by the Underwriters to the Company. The option granted hereby may be exercised by the Underwriters by giving written notice from Cowen to the Company setting forth the number of shares of the Optional Stock to be purchased by them and the date and time for delivery of and payment for the Optional Stock. Each date and time for delivery of and payment for the Optional Stock (which may be the First Closing Date, but not earlier) is herein called the "Option Closing Date" and shall in no event be earlier than two (2) business days nor later than ten (10) business days after written notice is given. (The Option Closing Date and the 10. 11 First Closing Date are herein called the "Closing Dates".) All purchases of Optional Stock from the Company shall be made on a pro rata basis. Optional Stock shall be purchased for the account of each Underwriter in the same proportion as the number of shares of Firm Stock set forth opposite such Underwriter's name in Schedule A hereto bears to the total number of shares of Firm Stock (subject to adjustment by the Underwriters to eliminate odd lots). Upon exercise of the option by the Underwriters, the Company agrees to sell to the Underwriters the number of shares of Optional Stock set forth in the written notice of exercise and the Underwriters agree, severally and not jointly, and subject to the terms and conditions herein set forth, to purchase the number of such shares determined as aforesaid. The Company will deliver the Optional Stock to the Underwriters (in the form of definitive certificates, issued in such names and in such denominations as the Representatives may direct by notice in writing to the Company given at or prior to 12:00 Noon, New York Time, on the second full business day preceding the Option Closing Date or, if no such direction is received, in the names of the respective Underwriters or in such other names as Cowen may designate (solely for the purpose of administrative convenience) and in such denominations as Cowen may determine, against payment of the aggregate Purchase Price therefor wire transfer to such account as the Company shall designate. The Company shall make the certificates for the Optional Stock available to the Underwriters for examination not later than 10:00 A.M., New York Time, on the business day preceding the Option Closing Date at the offices of Cowen, Financial Square, New York, New York 10005. The Option Closing Date and the location of delivery of, and the form of payment for, the Option Stock may be varied by agreement between the Company and Cowen. The Option Closing Date may be postponed pursuant to the provisions of Section 12. 4. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants and agrees with the several Underwriters that: (a) The Company will (i) if the Company and the Representatives have determined not to proceed pursuant to Rule 430A, use its best efforts to cause the Registration Statement to become effective, (ii) if the Company and the Representatives have determined to proceed pursuant to Rule 430A, use its best efforts to comply with the provisions of and make all requisite filings with the Commission pursuant to Rule 430A and Rule 424 of the Rules and Regulations and (iii) if the Company and the Representatives have determined to deliver Prospectuses pursuant to Rule 434 of the Rules and Regulations, to use its best efforts to comply with all the applicable provisions thereof. The Company will advise the Representatives promptly as to the time at which the Registration Statement becomes effective, will advise the Representatives promptly of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of the institution of any proceedings for that purpose, and will use its best efforts to prevent the issuance of any such stop order and to obtain as soon as 11. 12 possible the lifting thereof, if issued. The Company will advise the Representatives promptly of the receipt of any comments of the Commission or any request by the Commission for any amendment of or supplement to the Registration Statement or the Prospectus or for additional information and will not at any time file any amendment to the Registration Statement or supplement to the Prospectus which shall not previously have been submitted to the Representatives a reasonable time prior to the proposed filing thereof or to which the Representatives shall reasonably object in writing or which is not in compliance with the Securities Act and the Rules and Regulations. (b) The Company will prepare and file with the Commission, promptly upon the request of the Representatives, any amendments or supplements to the Registration Statement or the Prospectus which in the opinion of the Representatives may be necessary to enable the several Underwriters to continue the distribution of the Stock and will use its best efforts to cause the same to become effective as promptly as possible. (c) If at any time after the effective date of the Registration Statement when a prospectus relating to the Stock is required to be delivered under the Securities Act any event relating to or affecting the Company occurs as a result of which the Prospectus or any other prospectus as then in effect would include an untrue statement of a material fact, or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus to comply with the Securities Act, the Company will promptly notify the Representatives thereof and will prepare an amended or supplemented prospectus which will correct such statement or omission; and in case any Underwriter is required to deliver a prospectus relating to the Stock nine (9) months or more after the effective date of the Registration Statement, the Company upon the request of the Representatives and at the expense of such Underwriter will prepare promptly such prospectus or prospectuses as may be necessary to permit compliance with the requirements of Section 10(a)(3) of the Securities Act. (d) The Company will deliver to the Representatives, at or before the Closing Dates, signed copies of the Registration Statement, as originally filed with the Commission, and all amendments thereto including all financial statements and exhibits thereto, and will deliver to the Representatives such number of copies of the Registration Statement, including such financial statements but without exhibits, and all amendments thereto, as the Representatives may reasonably request. The Company will deliver or mail to or upon the order of the Representatives, from time to time until the effective date of the Registration Statement, as many copies of the Preeffective Prospectus as the Representatives may reasonably request. The Company will deliver or mail to or upon the order of the Representatives on the date of the initial public offering, and thereafter from time to time during the period when delivery of a prospectus relating to the Stock is required under the Securities Act, as many copies of the Prospectus, in final form or as thereafter amended or supplemented as the Representatives may reasonably request; 12. 13 provided, however, that the expense of the preparation and delivery of any prospectus required for use nine (9) months or more after the effective date of the Registration Statement shall be borne by the Underwriters required to deliver such prospectus. (e) The Company will make generally available to its shareholders as soon as practicable, but not later than fifteen (15) months after the effective date of the Registration Statement, an earnings statement which will be in reasonable detail (but which need not be audited) and which will comply with Section 11(a) of the Securities Act, covering a period of at least twelve (12) months beginning after the "effective date" (as defined in Rule 158 under the Securities Act) of the Registration Statement. (f) The Company will cooperate with the Representatives to enable the Stock to be registered or qualified for offering and sale by the Underwriters and by dealers under the securities laws of such jurisdictions as the Representatives may designate and at the request of the Representatives will make such applications and furnish such consents to service of process or other documents as may be required of it as the issuer of the Stock for that purpose; provided, however, that the Company shall not be required to qualify to do business or to file a general consent (other than that arising out of the offering or sale of the Stock) to service of process in any such jurisdiction where it is not now so subject. The Company will, from time to time, prepare and file such statements and reports as are or may be required of it as the issuer of the Stock to continue such qualifications in effect for so long a period as the Representatives may reasonably request for the distribution of the Stock. The Company will advise the Representatives promptly after the Company becomes aware of the suspension of the qualifications or registration of (or any such exception relating to) the Common Stock of the Company for offering, sale or trading in any jurisdiction or of any initiation or threat of any proceeding for any such purpose, and in the event of the issuance of any orders suspending such qualifications, registration or exception, the Company will, with the cooperation of the Representatives use its best efforts to obtain the withdrawal thereof. (g) The Company will furnish to its shareholders annual reports containing financial statements certified by independent public accountants and with quarterly summary financial information in reasonable detail which may be unaudited. During the period of five (5) years from the date hereof, the Company will deliver to the Representatives and, upon request, to each of the other Underwriters, as soon as they are available, copies of each annual report of the Company and each other report furnished by the Company to its shareholders and will deliver to the Representatives, (i) as soon as they are available, copies of any other reports (financial or other) which the Company shall publish or otherwise make available to any of its shareholders as such, (ii) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange and (iii) from time to time such other information concerning the Company as you may request. 13. 14 (h) The Company will use its best efforts to list, subject to official notice of issuance, on the Nasdaq National Market, the Stock to be issued and sold by the Company. (i) The Company will maintain a transfer agent and registrar for its Common Stock. (j) For a period of one year after the date hereof, prior to filing its quarterly statements on Form 10-Q, the Company will have its independent auditors perform a limited quarterly review of its quarterly numbers. (k) The Company will not offer, sell, assign, transfer, encumber, contract to sell, grant an option to purchase or otherwise dispose of any shares of Common Stock or securities convertible into or exercisable or exchangeable for Common Stock (including, without limitation, Common Stock of the Company which may be deemed to be beneficially owned by the undersigned in accordance with the Rules and Regulations) during the one hundred eighty (180) days following the date on which the price of the Common Stock to be purchased by the Underwriters is set, other than the Company's sale of Common Stock hereunder and the Company's issuance of Common Stock upon the exercise of warrants and stock options which are presently outstanding and described in the Prospectus or pursuant to the Company's stock plans which are described in the Prospectus. (l) The Company will apply the net proceeds from the sale of the Stock as set forth in the description under "Use of Proceeds" in the Prospectus, which description complies in all respects with the requirements of Item 504 of Regulation S-K. (m) The Company will supply you with copies of all correspondence to and from, and all documents issued to and by, the Commission in connection with the registration of the Stock under the Securities Act, and the NASD in connection with the listing of the stock on the Nasdaq National Market. (n) Prior to the Closing Dates the Company will furnish to you, as soon as they have been prepared, copies of any unaudited interim consolidated financial statements of the Company for any periods subsequent to the periods covered by the financial statements appearing in the Registration Statement and the Prospectus. (o) Prior to the Closing Dates the Company will issue no press release or other communications directly or indirectly and hold no press conference with respect to the Company, the financial condition, results of operation, business, prospects, assets or liabilities of the Company, or the offering of the Stock, without your prior written consent, which shall not be unreasonably withheld. If at any time during the 30-day period after the Registration Statement becomes effective, any rumor, publication or event relating to or affecting the Company shall occur as a result of which in your 14. 15 opinion the market price of the Common Shares has been or is likely to be affected materially (regardless of whether such rumor, publication or event necessitates a supplement to or amendment of the Prospectus), the Company will, after notice from you, which is subsequently confirmed in writing, advising the Company to the effect set forth above, forthwith, if appropriate, prepare, consult with you concerning the substance and, subject to its obligations under applicable law, disseminate a press release or other public statement, reasonably satisfactory to you and the Company's counsel, responding to or commenting on such rumor, publications or event. (p) During the period of five (5) years hereafter, the Company will furnish to the Representatives, and upon request of the Representatives, to each of the Underwriters: (i) as soon as practicable after the end of each fiscal year, copies of the Annual Report of the Company containing the balance sheet of the Company as of the close of such fiscal year and statements of income, stockholder's equity and cash flows for the year then ended and the opinion thereon of the Company's independent public accountants; (ii) as soon as practicable after the filing thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Report on Form 8-K or other report filed by the Company with the Commission, or the NASD or any securities exchange; and (iii) as soon as available, copies of any report or communication of the Company mailed generally to holders of its Common Stock. 5. PAYMENT OF EXPENSES. (a) The Company will pay (directly or by reimbursement) all costs, fees and expenses incurred in connection with expenses incident to the performance of its obligations under this Agreement and in connection with the transactions contemplated hereby, including but not limited to (i) all expenses and taxes incident to the issuance and delivery of the Stock to the Representatives; (ii) all expenses incident to the registration of the Stock under the Securities Act; (iii) the costs of preparing stock certificates (including printing and engraving costs); (iv) all fees and expenses of the registrar and transfer agent of the Stock; (v) all necessary issue, transfer and other stamp taxes in connection with the issuance and sale of the Stock to the Underwriters; (vi) fees and expenses of the Company's counsel and the Company's independent accountants; (vii) all costs and expenses incurred in connection with the preparation, printing filing, shipping and distribution of the Registration Statement, each Preeffective Prospectus and the Prospectus (including all exhibits and financial statements) and all amendments and supplements provided for herein, the "Agreement Among Underwriters" between the Representatives and the Underwriters, the Master Selected Dealers' Agreement, the Underwriters' Questionnaire and the Blue Sky memoranda and this Agreement; (viii) all filing fees, attorneys' fees and expenses incurred by the Company or the Underwriters in connection with exemptions from the qualifying or registering (or obtaining qualification or registration of) all or any part of the Stock for offer and sale and determination of its eligibility for investment under the Blue Sky or other securities laws of such jurisdictions as the Representatives may designate; (ix) all fees and expenses paid or incurred in connection with filings made with 15. 16 the NASD; and (x) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section. (b) In addition to its other obligations under Section 6(a) hereof, the Company agrees that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding arising out of or based upon (i) any statement or omission or any alleged statement or omission or (ii) any breach or inaccuracy in its representations and warranties, it will reimburse each Underwriter (and, to the extent applicable, each other Underwriter Indemnified Party (as defined in Section 6(a) below)) on a quarterly basis for all reasonable legal or other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Company's obligation to reimburse each Underwriter (and, to the extent applicable, each other Underwriter Indemnified Party) for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. To the extent that any such interim reimbursement payment is so held to have been improper, each Underwriter (and, to the extent applicable, each other Underwriter Indemnified Party) shall promptly return it to the Company together with interest, compounded daily, determined on the basis of the prime rate (or other commercial lending rate for borrowers of the highest credit standing) announced from time to time by Chemical Bank, New York, New York (the "Prime Rate"). Any such interim reimbursement payments that are not made to an Underwriter (and, to the extent applicable, each other Underwriter Indemnified Party) in a timely manner as provided below shall bear interest at the Prime Rate from the due date for such reimbursement. This expense reimbursement agreement will be in addition to any other liability that the Company may otherwise have. (c) In addition to its other obligations under Section 6(b) hereof, each Underwriter severally agrees that, as an interim measure during the pendency of any claim, action, investigation, inquiry or other proceeding arising out of or based upon any statement or omission, or any alleged statement or omission, described in Section 6(b) hereof which relates to information furnished by any of the Underwriters to the Company for use in connection with the preparation of the Registration Statement and the Prospectus, it will reimburse the Company (and, to the extent applicable, each other Company Indemnified Party (as defined in Section 6(b) below)) on a quarterly basis for all reasonable legal or other expenses incurred in connection with investigating or defending any such claim, action, investigation, inquiry or other proceeding, notwithstanding the absence of a judicial determination as to the propriety and enforceability of the Underwriters' obligation to reimburse the Company (and, to the extent applicable, each other Company Indemnified Party) for such expenses and the possibility that such payments might later be held to have been improper by a court of competent jurisdiction. To the extent that any such interim reimbursement payment is so held to have been improper, the Company (and, to the extent applicable, each other 16. 17 Company Indemnified Party) shall promptly return it to the Underwriters together with interest, compounded daily, determined on the basis of the Prime Rate. Any such interim reimbursement payments which are not made to the Company within thirty (30) days of a request for reimbursement shall bear interest at the Prime Rate from the date of such request. This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have. (d) It is agreed that any controversy arising out of the operation of the interim reimbursement arrangements set forth in paragraph (b) and/or (c) of this Section 5, including the amounts of any requested reimbursement payments and the method of determining such amounts, shall be settled by arbitration conducted under the provisions of the Constitution and Rules of the Board of Governors of the New York Stock Exchange, Inc. or pursuant to the Code of Arbitration Procedure of the NASD. Any such arbitration must be commenced by service of a written demand for arbitration or written notice of intention to arbitrate, therein electing the arbitration tribunal. In the event the party demanding arbitration does not make such designation of an arbitration tribunal in such demand or notice, then the party responding to said demand or notice is authorized to do so. Such an arbitration would be limited to the operation of the interim reimbursement provisions contained in paragraph (b) and/or (c) of this Section 5 and would not resolve the ultimate propriety or enforceability of the obligation to reimburse expenses which is created by the provisions of Section 6. 6. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls such Underwriter within the meaning of the Securities Act and the respective officers, directors, partners, employees, representatives and agents of each of such Underwriter (collectively, the "Underwriter Indemnified Parties" and, each, an "Underwriter Indemnified Party"), against any losses, claims, damages, liabilities or expenses (including, unless the Company elects to assume the defense, the reasonable cost of investigating and defending against any claims therefor and counsel fees incurred in connection therewith), joint or several, which arise out of or are based in whole or in part upon the Securities Act, or any other federal, state, local or foreign statute or regulation or at common law, on the ground or alleged ground that any Preeffective Prospectus, the Registration Statement or the Prospectus (or any Preeffective Prospectus, the Registration Statement or the Prospectus as from time to time amended or supplemented) includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading, unless such statement or omission was made in reliance upon, and in conformity with, written information furnished to the Company by any Underwriter, directly or through the Representatives, specifically for use in the preparation thereof; provided that, with respect to any untrue statement or omission or alleged untrue statement or omission made in any 17. 18 Preeffective Prospectus, the indemnity agreement contained in this subsection (a) shall not inure to the benefit of any Underwriter Indemnified Party from whom the person asserting any such losses, claims, damages or liabilities purchased the shares of Stock concerned to the extent that any such loss, claim, damage or liability of such Underwriter Indemnified Party results from the fact that a copy of the Prospectus was not sent or given to such person at or prior to the written confirmation of the sale of such shares of Stock to such person as required by the Securities Act and if the untrue statement or omission concerned has been corrected in the Prospectus. The Company will be entitled to participate at its own expense in the defense or, if it so elects, to assume the defense of any suit brought to enforce any such liability, but if the Company elects to assume the defense, such defense shall be conducted by counsel chosen by it. In the event the Company elects to assume the defense of any such suit and retain such counsel, any Underwriter Indemnified Parties, defendant or defendants in the suit, may retain additional counsel but shall bear the fees and expenses of such counsel unless (i) the Company shall have specifically authorized the retaining of such counsel or (ii) the parties to such suit include any such Underwriter Indemnified Parties, and the Company and such Underwriter Indemnified Parties at law or in equity have been advised by counsel to the Underwriters that one or more legal defenses may be available to it or them which may not be available to the Company, in which case the Company shall not be entitled to assume the defense of such suit notwithstanding its obligation to bear the fees and expenses of such counsel. This indemnity agreement is not exclusive and will be in addition to any liability which the Company might otherwise have and shall not limit any rights or remedies which may otherwise be available at law or in equity to each Underwriter Indemnified Party. (b) Each Underwriter severally agrees to indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the Registration Statement and each person, if any, who controls the Company within the meaning of the Securities Act (collectively, the "Company Indemnified Parties") against any losses, claims, damages, liabilities or expenses (including, unless the Underwriter or Underwriters elect to assume the defense, the reasonable cost of investigating and defending against any claims therefor and counsel fees incurred in connection therewith), joint or several, which arise out of or are based in whole or in part upon the Securities Act or any other federal, state, local or foreign statute or regulation, or at common law, on the ground or alleged ground that any Preeffective Prospectus, the Registration Statement or the Prospectus (or any Preeffective Prospectus, the Registration Statement or the Prospectus, as from time to time amended or supplemented) includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading, but only insofar as any such statement or omission was made in reliance upon, and in conformity with, written information furnished to the Company by such Underwriter, directly or through the Representatives, specifically for use in the preparation thereof; provided, however, that in no case is such Underwriter to 18. 19 be liable with respect to any claims made against any Company Indemnified Party against whom the action is brought unless such Company Indemnified Party shall have notified such Underwriter in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon the Company Indemnified Party, but failure to notify such Underwriter of such claim shall not relieve it from any liability which it may have to any Company Indemnified Party otherwise than on account of its indemnity agreement contained in this paragraph. Such Underwriter shall be entitled to participate at its own expense in the defense, or, if it so elects, to assume the defense of any suit brought to enforce any such liability, but, if such Underwriter elects to assume the defense, such defense shall be conducted by counsel chosen by it. In the event that any Underwriter elects to assume the defense of any such suit and retain such counsel, the Company Indemnified Parties and any other Underwriter or Underwriters or controlling person or persons, defendant or defendants in the suit, shall bear the fees and expenses of any additional counsel retained by them, respectively. The Underwriter against whom indemnity may be sought shall not be liable to indemnify any person for any settlement of any such claim effected without such Underwriter's consent. This indemnity agreement is not exclusive and will be in addition to any liability which such Underwriter might otherwise have and shall not limit any rights or remedies which may otherwise be available at law or in equity to any Company Indemnified Party. (c) If the indemnification provided for in this Section 6 is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages, liabilities or expenses (or actions in respect thereof) referred to herein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Stock. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bears to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the 19. 20 Company or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or expenses (or actions in respect thereof) referred to above shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating, defending, settling or compromising any such claim. Notwithstanding the provisions of this subsection (c), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the shares of the Stock underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. The Underwriters' obligations to contribute are several in proportion to their respective underwriting obligations and not joint. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 7. SURVIVAL OF INDEMNITIES, REPRESENTATIONS, WARRANTIES, ETC. The respective indemnities, covenants, agreements, representations, warranties and other statements of the Company and the several Underwriters, as set forth in this Agreement or made by them respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation made by or on behalf of any Underwriter, the Company or any of its officers or directors or any controlling person, and shall survive delivery of and payment for the Stock. 8. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The respective obligations of the several Underwriters hereunder shall be subject to the accuracy, at and (except as otherwise stated herein) as of the date hereof and at and as of the Closing Dates, of the representations and warranties made herein by the Company, to compliance at and as of the Closing Dates by the Company with its covenants and agreements herein contained and other provisions hereof to be satisfied at or prior to the Closing Dates, and to the following additional conditions: (a) The Registration Statement shall have become effective and no stop order suspending the effectiveness thereof shall have been issued and no proceedings for that purpose shall have been initiated or, to the knowledge of the Company or the Representatives, shall be threatened by the Commission, and any request for additional information on the part of the Commission (to be included in the Registration Statement or the Prospectus or otherwise) shall have been complied with to the reasonable satisfaction of the Representatives. Any filings of the Prospectus, or any supplement 20. 21 thereto, required pursuant to Rule 424(b) or Rule 434 of the Rules and Regulations, shall have been made in the manner and within the time period required by Rule 424(b) and Rule 434 of the Rules and Regulations, as the case may be. (b) The Representatives shall have been satisfied that there shall not have occurred any change prior to the Closing Dates in the condition (financial or otherwise), properties, business, management, prospects, net worth or results of operations of the Company, or any change in the capital stock, short-term or long-term debt of the Company, such that (i) the Registration Statement or the Prospectus, or any amendment or supplement thereto, contains an untrue statement of fact which, in the opinion of the Representatives, is material, or omits to state a fact which, in the opinion of the Representatives, is required to be stated therein or is necessary to make the statements therein not misleading, or (ii) it is unpracticable in the reasonable judgment of the Representatives to proceed with the public offering or purchase the Stock as contemplated hereby. (c) The Representatives shall be satisfied that no legal or governmental action, suit or proceeding affecting the Company which is material and adverse to the Company or which affects or may affect the Company's ability to perform its obligations under this Agreement shall have been instituted or threatened and there shall have occurred no material adverse development in any existing such action, suit or proceeding. (d) At the time of execution of this Agreement, the Representatives shall have received from Ernst & Young LLP, independent certified public accountants, a letter, dated the date hereof, in form and substance satisfactory to the Underwriters. (e) The Representatives shall have received from Ernst & Young LLP, independent certified public accountants, letters, dated the Closing Dates, to the effect that such accountants reaffirm, as of the Closing Dates, and as though made on the Closing Dates, the statements made in the letter furnished by such accountants pursuant to paragraph (d) of this Section 8. In addition, the Representatives shall have received from Ernst & Young LLP a letter addressed to the Company and made available to the Representatives for use by the Underwriters stating that their review of the Company's system of internal accounting controls, to the extent that they deemed necessary in establishing the scope of their examination of the Company's financial statements as of December 31, 1995, did not disclose any weaknesses in internal controls that they considered to be material weaknesses. (f) The Representatives shall have received from Pillsbury Madison & Sutro LLP, counsel for the Company, an opinion, dated as of each of the Closing Dates, to the effect set forth in Exhibit I hereto. 21. 22 (g) The Representatives shall have received from Kaye, Scholer, Fierman & Hays, patent counsel for the Company, an opinion, dated as of each of the Closing Dates, to the effect set forth in Exhibit II hereto. (h) The Representatives shall have received from Townsend & Townsend, patent counsel for the Company, an opinion, dated as of each of the Closing Dates, to the effect set forth in Exhibit III hereto. (i) The Representatives shall have received from Lyon & Lyon, patent counsel for the Company, an opinion, dated as of each of the Closing Dates, to the effect set forth in Exhibit IV hereto. (j) The Representatives shall have received from Campbell & Flores, patent counsel for the Company, an opinion, dated as of each of the Closing Dates, to the effect set forth in Exhibit V hereto. (k) The Representatives shall have received from Hogan & Hartson LLP, regulatory counsel for the Company, an opinion, dated as of each of the Closing Dates, to the effect set forth in Exhibit VI hereto. (l) The Representatives shall have received from Cooley Godward LLP, counsel for the Underwriters, their opinion or opinions dated as of each of the Closing Dates with respect to the incorporation of the Company, the validity of the Stock, the Registration Statement and the Prospectus and such other related matters as it may reasonably request, and the Company shall have furnished to such counsel such documents as they may request for the purpose of enabling them to pass upon such matters. (m) The Representatives shall have received a certificate, dated as of each of Closing Dates, of the chief executive officer or the President and the chief financial or accounting officer of the Company to the effect that: (i) No stop order suspending the effectiveness of the Registration Statement has been issued, and, to the best of the knowledge of the signers, no proceedings for that purpose have been instituted or are pending or contemplated under the Securities Act; (ii) Neither any Preeffective Prospectus, as of its date, nor the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, as of the time when the Registration Statement became effective and at all times subsequent thereto up to the delivery of such certificate, included any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; 22. 23 (iii) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, and except as set forth or contemplated in the Prospectus, the Company has not incurred any material liabilities or obligations, direct or contingent, nor entered into any material transactions not in the ordinary course of business and there has not been any material adverse change in the condition (financial or otherwise), properties, business, management, prospects, net worth or results of operations of the Company, or any change in the capital stock, short-term or long-term debt of the Company; (iv) The representations and warranties of the Company in this Agreement are true and correct at and as of the Closing Dates, and the Company has complied with all the agreements and performed or satisfied all the conditions on its part to be performed or satisfied at or prior to the Closing Dates; and (v) Since the respective dates as of which information is given in the Registration Statement and the Prospectus, and except as disclosed in or contemplated by the Prospectus, (i) there has not been any material adverse change or a development involving a material adverse change in the condition (financial or otherwise), properties, business, management, prospects, net worth or results of operations of the Company; (ii) the business and operations conducted by the Company have not sustained a loss by strike, fire, flood, accident or other calamity (whether or not insured) of such a character as to interfere materially with the conduct of the business and operations of the Company; (iii) no legal or governmental action, suit or proceeding is pending or threatened against the Company which is material to the Company, whether or not arising from transactions in the ordinary course of business, or which may materially and adversely affect the transactions contemplated by this Agreement; (iv) since such dates and except as so disclosed, the Company has not incurred any material liability or obligation, direct, contingent or indirect, nor entered into any material transaction not in the ordinary course of business, made any change in its capital stock (except pursuant to its stock plans), made any material change in its short-term or funded debt or repurchased or otherwise acquired any of the Company's capital stock; and (v) the Company has not declared or paid any dividend, or made any other distribution, upon its outstanding capital stock payable to stockholders of record on a date prior to the Closing Date. (n) The Company shall have furnished to the Representatives such additional certificates as the Representatives may have reasonably requested as to the accuracy, at and as of the Closing Dates, of the representations and warranties made herein by it and as to compliance at and as of the Closing Dates by it with its covenants and agreements herein contained and other provisions hereof to be satisfied at or prior to the Closing Dates, and as to satisfaction of the other conditions to the obligations of the Underwriters hereunder. 23. 24 (o) Cowen shall have received the written agreements of each officer, director and holder of Common Stock of the Company listed in Schedule ___ that each will not offer, sell, assign, transfer, encumber, contract to sell, grant an option to purchase or otherwise dispose of, other than by operation of law, gifts, pledges or dispositions by estate representatives, any shares of Common Stock (including, without limitation, Common Stock of the Company which may be deemed to be beneficially owned by such person or entity in accordance with the Rules and Regulations) during the one hundred eighty (180) days following the date of the final Prospectus. All opinions, certificates, letters and other documents will be in compliance with the provisions hereunder only if they are satisfactory in form and substance to the Representatives. The Company will furnish to the Representatives conformed copies of such opinions, certificates, letters and other documents as the Representatives shall reasonably request. If any of the conditions hereinabove provided for in this Section shall not have been satisfied when and as required by this Agreement, this Agreement may be terminated by the Representatives by notifying the Company of such termination in writing or by telegram at or prior to the Closing Dates, but Cowen shall be entitled to waive any of such conditions. 9. EFFECTIVE DATE. This Agreement shall become effective immediately as to Sections 5, 6, 7, 9, 10, 11, 13, 14, 15, 16 and 17 and, as to all other provisions, at 11:00 a.m. New York City time on the first full business day following the effectiveness of the Registration Statement or at such earlier time after the Registration Statement becomes effective as the Representatives may determine on and by notice to the Company or by release of any of the Stock for sale to the public. For the purposes of this Section 9, the Stock shall be deemed to have been so released upon the release for publication of any newspaper advertisement relating to the Stock or upon the release by you of telegrams (i) advising Underwriters that the shares of Stock are released for public offering or (ii) offering the Stock for sale to securities dealers, whichever may occur first. 10. TERMINATION. This Agreement (except for the provisions of Section 5) may be terminated by the Company at any time before it becomes effective in accordance with Section 9 by notice to the Representatives and may be terminated by the Representatives at any time before it becomes effective in accordance with Section 9 by notice to the Company. In the event of any termination of this Agreement under this or any other provision of this Agreement, there shall be no liability of any party to this Agreement to any other party, other than as provided in Sections 5, 6 and 11 and other than as provided in Section 12 as to the liability of defaulting Underwriters. This Agreement may be terminated after it becomes effective by the Representatives by notice to the Company (i) if at or prior to the First Closing Date or the Option Closing Date trading in securities on any of the New York Stock Exchange, American Stock Exchange, Nasdaq National Market, Chicago Board of Options 24. 25 Exchange, Chicago Mercantile Exchange or Chicago Board of Trade shall have been suspended or minimum or maximum prices shall have been established on any such exchange or market, or a banking moratorium shall have been declared by New York or United States authorities; (ii) trading of any securities of the Company shall have been suspended on any exchange or in any over-the-counter market; (iii) if at or prior to the First Closing Date or the Option Closing Date there shall have been (A) an outbreak or escalation of hostilities between the United States and any foreign power or of any other insurrection or armed conflict involving the United States or (B) any change in financial markets or any calamity or crisis which, in the judgment of the Representatives, makes it impractical or inadvisable to offer or sell the Firm Stock or Optional Stock, as applicable on the terms contemplated by the Prospectus; (iv) if there shall have been any development or prospective development involving particularly the business or properties or securities of the Company or the transactions contemplated by this Agreement, which, in the judgment of the Representatives, makes it impracticable or inadvisable to offer or deliver the Firm Stock or the Optional Stock, as applicable on the terms contemplated by the Prospectus; (v) if there shall be any litigation or proceeding, pending or threatened, which, in the judgment of the Representatives, makes it impracticable or inadvisable to offer or deliver the Firm Stock or Optional Stock, as applicable, on the terms contemplated by the Prospectus; or (vi) if there shall have occurred any of the events specified in the immediately preceding clauses (i) - (v) together with any other such event that makes it, in the judgment of the Representatives, impractical or inadvisable to offer or deliver the Firm Stock or Optional Stock, as applicable, on the terms contemplated by the Prospectus. 11. REIMBURSEMENT OF UNDERWRITERS. Notwithstanding any other provisions hereof, if this Agreement shall not become effective by reason of any election of the Company pursuant to the first paragraph of Section 10 or shall be terminated by the Representatives under Section 8 or Section 10, the Company will bear and pay the expenses specified in Section 5 hereof and, in addition to its obligations pursuant to Section 6 hereof, the Company will reimburse the reasonable out-of-pocket expenses of the several Underwriters (including reasonable fees and disbursements of counsel for the Underwriters) incurred in connection with this Agreement and the proposed purchase of the Stock, and promptly upon demand the Company will pay such amounts to you as Representatives. 12. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters shall default in its or their obligations to purchase shares of Stock hereunder and the aggregate number of shares which such defaulting Underwriter or Underwriters agreed but failed to purchase does not exceed ten percent (10%) of the total number of shares underwritten, the other Underwriters shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the shares which such defaulting Underwriter or Underwriters agreed but failed to purchase. If any Underwriter or Underwriters shall so default and the aggregate number of shares with respect to which such default or defaults 25. 26 occur is more than ten percent (10%) of the total number of shares underwritten and arrangements satisfactory to the Representatives and the Company for the purchase of such shares by other persons are not made within forty-eight (48) hours after such default, this Agreement shall terminate. If the remaining Underwriters or substituted Underwriters are required hereby or agree to take up all or part of the shares of Stock of a defaulting Underwriter or Underwriters as provided in this Section 12, (i) the Company shall have the right to postpone the Closing Dates for a period of not more than five (5) full business days in order that the Company may effect whatever changes may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or arrangements, and the Company agrees promptly to file any amendments to the Registration Statement or supplements to the Prospectus which may thereby be made necessary, and (ii) the respective numbers of shares to be purchased by the remaining Underwriters or substituted Underwriters shall be taken as the basis of their underwriting obligation for all purposes of this Agreement. Nothing herein contained shall relieve any defaulting Underwriter of its liability to the Company or the other Underwriters for damages occasioned by its default hereunder. Any termination of this Agreement pursuant to this Section 12 shall be without liability on the part of any non-defaulting Underwriter or the Company, except for expenses to be paid or reimbursed pursuant to Section 5 and except for the provisions of Section 6. 13. NOTICES. All communications hereunder shall be in writing and, if sent to the Underwriters shall be mailed, delivered or telegraphed and confirmed to you, as their Representatives c/o Cowen at Financial Square, New York, New York 10005 except that notices given to an Underwriter pursuant to Section 6 hereof shall be sent to such Underwriter at the address furnished by the Representatives or, if sent to the Company, shall be mailed, delivered or telegraphed and confirmed c/o Kim D. Blickenstaff, President and Chief Executive Officer, Biosite Diagnostics Incorporated, 11030 Roselle Street, San Diego, California 92121. 14. SUCCESSORS. This Agreement shall inure to the benefit of and be binding upon the several Underwriters, the Company and their respective successors and legal representatives. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person other than the persons mentioned in the preceding sentence any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained, this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such persons and for the benefit of no other person; except that the representations, warranties, covenants, agreements and indemnities of the Company contained in this Agreement shall also be for the benefit of the person or persons, if any, who control any Underwriter or Underwriters within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and the indemnities of the several Underwriters shall 26. 27 also be for the benefit of each director of the Company, each of its officers who has signed the Registration Statement and the person or persons, if any, who control the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act. 15. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 16. AUTHORITY OF THE REPRESENTATIVES. In connection with this Agreement, you will act for and on behalf of the several Underwriters, and any action taken under this Agreement by Cowen, as Representative, will be binding on all the Underwriters. 17. PARTIAL UNENFORCEABILITY. The invalidity or unenforceability of any Section , paragraph or provision of this Agreement shall not affect the validity or enforceability of any other Section , paragraph or provision hereof. If any Section , paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it valid and enforceable. 18. GENERAL. This Agreement constitutes the entire agreement of the parties to this Agreement and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations with respect to the subject matter hereof. In this Agreement, the masculine, feminine and neuter genders and the singular and the plural include one another. The section headings in this Agreement are for the convenience of the parties only and will not affect the construction or interpretation of this Agreement. This Agreement may be amended or modified, and the observance of any term of this Agreement may be waived, only by a writing signed by the Company and the Representatives. 19. COUNTERPARTS. This Agreement may be signed in two (2) or more counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 27. 28 If the foregoing correctly sets forth our understanding, please indicate your acceptance thereof in the space provided below for that purpose, whereupon this letter and your acceptance shall constitute a binding agreement between us. Very truly yours, BIOSITE DIAGNOSTICS INCORPORATED By:______________________________________ Kim D. Blickenstaff, President and Chief Executive Officer Accepted and delivered in San Diego, California as of the date first above written. COWEN & COMPANY ALEX BROWN & SONS INCORPORATED Acting on their own behalf and as Representatives of several Underwriters referred to in the foregoing Agreement. By: Cowen Incorporated, its general partner By:________________________________ Title:_____________________________ 28. 29 SCHEDULE A
Number Number of of Firm Optional Shares Shares to be to be Name Purchased Purchased - ----------------------------------------- --------- --------- Cowen & Company.......................... Alex. Brown & Sons Incorporated.......... Total.................................... ========= =========
1. 30 EXHIBIT I MATTERS TO BE COVERED IN THE OPINION OF PILLSBURY MADISON & SUTRO LLP, COUNSEL FOR THE COMPANY 1. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, to the knowledge of such counsel, is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in the United States in which the nature of the activities conducted by it or the character of the assets owned or leased by it makes such qualification necessary, except to the extent that the failure to so qualify would not have a material adverse effect on the Company or its business and has full corporate power and authority to conduct all the activities conducted by it, to own or lease all the assets owned or leased by it and to conduct its business as described in the Registration Statement and the Prospectus. To the best of such counsel's knowledge, the Company does not own or control, directly or indirectly, any corporation, association or other entity. 2. The issued and outstanding shares of capital stock of the Company have been, and the Shares will be, when issued and sold to and paid for by the Underwriters in accordance with the terms of the Underwriting Agreement, duly authorized validly issued, fully paid and nonassessable and were not and will not be issued in violation of any preemptive or to the knowledge of such counsel similar right. All outstanding shares of capital stock of the Company were issued in compliance with the registration and qualification provisions of all applicable securities laws. The certificate evidencing the common stock of the Company filed as an exhibit to the Registration Statement is in due and proper form under Delaware law. 3. No consent, approval, authorization or order of, or any or filing or declaration with, any court or governmental agency or body is required in connection with the execution, delivery and performance of the Underwriting Agreement by the Company, the authorization, issuance, transfer, sale or delivery of the Shares or the taking by the Company of any action provided for in the Underwriting Agreement, except such as have been obtained under the Securities Act and the Rules and Regulations and such as may be required under applicable state securities or Blue Sky laws and by the By-laws and rules of the NASD in connection with the purchase and distribution by the Underwriters of the Shares. 4. The authorized and outstanding capital stock of the Company as of _________________, 1996 was set forth in the Registration Statement and the Prospectus. The capital stock of the Company conforms as to legal matters in all material respects to the description thereof contained in the Prospectus under the caption "Description of Capital Stock." Except as disclosed in or specifically provided for in the Prospectus, there are, to the 1. 31 knowledge of such counsel, no outstanding options, warrants or other rights requiring the issuance of, and no commitments to issue, any shares of capital stock of the Company or security convertible into or exercisable for capital stock of the Company. 5. The Registration Statement and the Prospectus comply as to form in all material respects with the requirements of the Securities Act and the Rules and Regulations (except that such counsel need express no opinion as to financial statements and related notes, schedules and other financial and statistical data contained in the Registration Statement and the Prospectus). 6. The Registration Statement is effective under the Securities Act and, to the best knowledge of such counsel, no order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been instituted or is threatened or pending. 7. Such counsel reviewed all contracts or other documents filed as exhibits to the Registration Statement and such contracts or other documents are fairly summarized or disclosed in the Registration Statement to the extent required under the Securities Act and the Rules and Regulations, and such counsel does not know of any contract or other document required to be so summarized or disclosed or filed which has not been so summarized or disclosed or filed. 8. The Company has full corporate power and authority to enter into the Underwriting Agreement, and such agreement has been duly authorized, executed and delivered by the Company, and is a valid and binding agreement of the Company, enforceable in accordance with its terms, except for the indemnification and contribution provisions of the Underwriting Agreement, as to which such counsel need express no opinion, and except as enforcement may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other laws relating to or affecting creditors' rights generally or by general principles of equity and limitations on availability of equitable remedies. 9. The execution and delivery of the Underwriting Agreement by the Company, the consummation by the Company of the transactions contemplated therein (other than the indemnification and contribution obligations of the Company thereunder) do not conflict with, or result in a breach or violation of any terms or provisions of, or constitute a material default under, or result in the creation or imposition of any lien, charge or encumbrance upon, any property or assets of the Company pursuant to (A) the terms of the Amended and Restated Certificate of Incorporation or Bylaws of the Company, (B) any agreement or instrument of the Company that is filed as an exhibit to the Registration Statement, (C) any statute, rule or regulation of any regulatory body or administrative agency or other governmental agency or body having jurisdiction over the Company or its activities or properties or (D) to the best of such counsel's knowledge, any judgment, decree or order of any government, arbitrator, court, regulatory body or administrative agency or other governmental agency or body having 2. 32 jurisdiction over the Company or any of its activities or properties, and no consent, approval, authorization or order of any court, regulatory body or administrative agency or other governmental agency or body is required for the Company's performance of the Underwriting Agreement or the consummation by the Company of the transactions contemplated thereby, except such as have been obtained under the Securities Act and except as may be required under the rules of the NASD and applicable Blue Sky laws, as to which such counsel need express no opinion. 10. Upon delivery of and payment for the Shares as provided in the Underwriting Agreement and upon registration of such Shares in the names of the Underwriters (or their nominees) in the stock records of the Company, good and marketable title will have been transferred to the Underwriters free and clear of any adverse claim, provided that the Underwriters are purchasing such shares in good faith and without notice of any adverse claim. 11. Such counsel knows of no action, suit or proceeding pending or threatened against the Company or any of its officers in their capacities as such, before or by any federal or state court, commission, regulatory body, administrative agency or other governmental body of a character required to be disclosed in the Registration Statement or Prospectus by the Securities Act or the applicable Rules and Regulations, other than those described therein. 12. To the knowledge of such counsel, the Company (A) is not presently in material violation of its Amended and Restated Certificate of Incorporation or Bylaws, (B) is not in material default (nor has an event occurred which with notice or lapse of time or both would constitute a default or acceleration) in the performance of any obligation, agreement or condition contained in any material indenture, mortgage, deed of trust, voting trust agreement, loan agreement, bond, debenture, note agreement or other evidence of indebtedness, lease, contract or other agreement or instrument known to such counsel to which the Company is a party or by which it or its properties is bound or affected, (C) has not received any claims from governmental agencies or bodies having jurisdiction over the Company that it is in material breach of any applicable statute, rule or regulation or (D) is not in material breach of any order, writ or decree of any court or governmental agency or body having jurisdiction over the Company or over any of its properties or operations. 13. To such counsel's knowledge, except as set forth in the Registration Statement and Prospectus, no holders of Common Stock or other securities of the Company have registration rights with respect to securities of the Company, and, except as set forth in the Registration Statement and Prospectus, all holders of securities of the Company having rights known to us to registration of such shares of Common Stock or other securities because of the filing of the Registration Statement by the Company have, with respect to the offering contemplated thereby, waived such rights or such rights have been complied with or have expired by reason of lapse of time following notification of the Company's intent to file the Registration Statement. 3. 33 14. The Company is not an "investment company" or a "promoter" or "principal underwriter" for an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended. 15. The Shares have been duly included for quotation on the Nasdaq National Market. 16. To the knowledge of such counsel, no person or entity has the right to require registration of shares of Common Stock or other securities of the Company because of the filing or effectiveness of the Registration Statement or otherwise, except for persons and entities who have expressly waived such right or who have been given proper notice and have failed to exercise such right within the time or times required under the terms and conditions of such right. Counsel rendering the foregoing opinion may rely as to questions of law not involving the laws of the United States or of the State of California, upon opinions of local counsel satisfactory in form and scope to counsel for the Underwriters. Copies of any opinion so relied upon shall be delivered to the Representatives and to counsel for the Underwriters and the foregoing opinion shall also state that counsel knows of no reason the Underwriters are not entitled to rely upon the opinions of such local counsel. In addition to the matters set forth above, counsel rendering the foregoing opinion shall also include a statement to the effect that nothing has come to the attention of such counsel that leads them to believe that the Registration Statement (except as to the financial statements and schedules and other financial data contained therein, as to which such counsel need not express any statement or belief) at the Effective Date contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein no misleading, that the Prospectus (except as to the financial statements and schedules and other financial data contained therein, as to which such counsel need not express any statement or belief) as of its date or at the Closing Date (or any later date on which Optional Stock is purchased), contained or contains any untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 4. 34 EXHIBIT II MATTERS TO BE COVERED IN THE OPINION OF KAYE, SCHOLER, FIERMAN & HAYS, PATENT COUNSEL FOR THE COMPANY 1. Such counsel represents the Company in certain matters relating to intellectual property and the Company's diagnostics assays, including patents and trade secrets. 2. Such counsel is familiar with the technology used by the Company in its business and the manner of its use and has read the portions of the Registration Statement and the Prospectus entitled "Risk Factors -- Uncertainty of Patent and Proprietary Technology Protection; License of Technology of Third Parties" and "Business -- Proprietary Technology and Patents" (collectively, the "Intellectual Property Portion"). 3. Such counsel has no knowledge of any facts that the Company lacks or will be unable to obtain rights to all Intellectual Property necessary to conduct its business as now or proposed to be conducted by the Company as described in the Prospectus. Such counsel is not aware of any facts that (i) would preclude the Company from having clear title to the Patents and Applications, or (ii) would lead such counsel to conclude that any of the Patents are invalid or unenforceable or that any patent issued from an Application would be invalid or unenforceable. 4. Such counsel knows of no notification, pending or threatened action, suit, proceeding or claim by others or governmental authorities that the Company is infringing or otherwise violating any patents, copyrights, trademarks, trade secrets or intellectual property not owned or licensed by the Company. 5. Such counsel is not aware of any pending or threatened actions, suits, proceedings or claim by governmental authorities or others challenging the validity, unenforceability or scope of the Applications or the Patents, other than the patent application proceedings themselves. 6. Such counsel is not aware of any infringement on the part of others of the Patents, Applications, Trademarks or trade secrets, know-how or other proprietary rights of the Company. 7. Such counsel has no knowledge of any patent rights of others which are or would be infringed by the Company's products or applications of the Company's products referred to in the Prospectus. 1. 35 8. Nothing has come to the attention of such counsel which causes such counsel to believe that the information contained in the statements under the captions "Risk Factors -- Uncertainty of Patent and Proprietary Technology protection; License of Technology to Third Parties," "Business -- Technology" and "Business -- Proprietary Technology and Patents" in (a) the Registration Statement, or any amendments thereof, contained or contains an untrue statement of a material fact, or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or (b) the Prospectus, or any amendments thereof, contained or contains an untrue statement of a material fact or omitted or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 2. 36 EXHIBIT III MATTERS TO BE COVERED IN THE OPINION OF TOWNSEND & TOWNSEND, PATENT COUNSEL FOR THE COMPANY 1. Such counsel represents the Company in certain matters relating to intellectual property and antibody technology, including patents and trade secrets. 2. Such counsel is familiar with the technology used by the Company in its business and the manner of its use and has read the portions of the Registration Statement and the Prospectus entitled "Risk Factors -- Uncertainty of Patent and Proprietary Technology Protection; License of Technology of Third Parties" and "Business -- Proprietary Technology and Patents" (collectively, the "Intellectual Property Portion"). 3. The Company is either assignee of record at the PTO or the exclusive licensee of each of the patents listed under the heading "U.S. Patents of the Company" on Schedule B hereof (the "U.S. Patents") and each of the patent applications listed under the heading "U.S. Patent Applications of the Company" on Schedule B hereof (the "U.S. Applications"). To the best of knowledge of such counsel, the Company owns ____ issued U.S. Patents, ____ allowed U.S. Applications and ____ pending U.S. Applications. Such counsel knows of no claims by others to any ownership interest or lien with respect to any of the U.S. Patents or U.S. Applications. To such counsel's knowledge, none of the U.S. Patents are subject to an interference, reexamination, reissue examination or declaration action. To such counsel's knowledge, none of the U.S. Applications has been appealed, finally rejected or subject to an interference. 4. The Company is either the assignee of record at the appropriate foreign patent office or the exclusive licensee of each of the foreign patents listed under the heading "Non-U.S. Patents of the Company" on Schedule C hereof (the "Non-U.S. Patents") (collectively, the U.S. Patents and Non-U.S. Patents are referred to herein as the "Patents") and each of the foreign patent applications listed under the heading "Non-U.S. Patent Applications of they Company" on Schedule C hereof (the "Non-U.S. Applications") (collectively, the U.S. Applications and the Non-U.S. Applications are referred to herein as the "Applications"). Such counsel knows of no claims by others to any of such Non-U.S. Patents or Non-U.S. Applications. To such counsel's knowledge, none of the Non-U.S. Patents are subject to an opposition, national invalidation proceeding or national court proceeding. To such counsel's knowledge, none of the Non-U.S. Applications has been finally rejected or appealed. 5. Such counsel has no knowledge of any facts that the Company lacks or will be unable to obtain rights to all Intellectual Property necessary to conduct its business as now or proposed to be conducted by the Company as described in the Prospectus. Such counsel is 1. 37 not aware of any facts that (i) would preclude the Company from having clear title to the Patents and Applications, or (ii) would lead such counsel to conclude that any of the Patents are invalid or unenforceable or that any patent issued from an Application would be invalid or unenforceable. 6. Such counsel is not aware of any material defects of form in the preparation, filing or prosecution of the Application on behalf of the Company or Licensors of the Applications. To the best of such counsel's knowledge, the Company, Company's Patent Counsel and Patent Counsel of the Licensors have complied with the duty of candor and disclosure before the PTO for each of the U.S. Patents and U.S. Patent Applications. The Applications are being diligently pursued by the Company. 7. Such counsel knows of no notification, pending or threatened action, suit, proceeding or claim by others or governmental authorities that the Company is infringing or otherwise violating any patents, copyrights, trademarks, trade secrets or intellectual property not owned or licensed by the Company. 8. Such counsel is not aware of any pending or threatened actions, suits, proceedings or claim by governmental authorities or others challenging the validity, unenforceability or scope of the Applications or the Patents, other than the patent application proceedings themselves. 9. Such counsel is not aware of any infringement on the part of others of the Patents, Applications, Trademarks or trade secrets, know-how or other proprietary rights of the Company. 10. Such counsel has no knowledge of any patent rights of others which are or would be infringed by the Company's products or applications of the Company's products referred to in the Prospectus. 11. Nothing has come to the attention of such counsel which causes such counsel to believe that the information contained in the statements under the captions "Risk Factors -- Uncertainty of Patent and Proprietary Technology protection; License of Technology to Third Parties," "Business -- Technology" and "Business -- Proprietary Technology and Patents" in (a) the Registration Statement, or any amendments thereof, contained or contains an untrue statement of a material fact, or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or (b) the Prospectus, or any amendments thereof, contained or contains an untrue statement of a material fact or omitted or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 2. 38 EXHIBIT IV MATTERS TO BE COVERED IN THE OPINION OF LYON & LYON, PATENT COUNSEL FOR THE COMPANY 1. Such counsel represents the Company in certain matters relating to intellectual property, including patents, copyrights, trade secrets and certain trademark matters. 2. Such counsel is familiar with the technology used by the Company in its business and the manner of its use and has read the portions of the Registration Statement and the Prospectus entitled "Risk Factors -- Uncertainty of Patent and Proprietary Technology Protection; License of Technology of Third Parties" and "Business -- Proprietary Technology and Patents" (collectively, the "Intellectual Property Portion"). 3. The Company is either assignee of record at the PTO or the exclusive licensee of each of the patents listed under the heading "U.S. Patents of the Company" on Schedule B hereof (the "U.S. Patents") and each of the patent applications listed under the heading "U.S. Patent Applications of the Company" on Schedule B hereof (the "U.S. Applications"). To the best of knowledge of such counsel, the Company owns ____ issued U.S. Patents, ____ allowed U.S. Applications and ____ pending U.S. Applications. Such counsel knows of no claims by others to any ownership interest or lien with respect to any of the U.S. Patents or U.S. Applications. To such counsel's knowledge, none of the U.S. Patents are subject to an interference, reexamination, reissue examination or declaration action. To such counsel's knowledge, none of the U.S. Applications has been appealed, finally rejected or subject to an interference. 4. The Company is either the assignee of record at the appropriate foreign patent office or the exclusive licensee of each of the foreign patents listed under the heading "Non-U.S. Patents of the Company" on Schedule C hereof (the "Non-U.S. Patents") (collectively, the U.S. Patents and Non-U.S. Patents are referred to herein as the "Patents") and each of the foreign patent applications listed under the heading "Non-U.S. Patent Applications of they Company" on Schedule C hereof (the "Non-U.S. Applications") (collectively, the U.S. Applications and the Non-U.S. Applications are referred to herein as the "Applications"). Such counsel knows of no claims by others to any of such Non-U.S. Patents or Non-U.S. Applications. To such counsel's knowledge, none of the Non-U.S. Patents are subject to an opposition, national invalidation proceeding or national court proceeding. To such counsel's knowledge, none of the Non-U.S. Applications has been finally rejected or appealed. 5. Such counsel has no knowledge of any facts that the Company lacks or will be unable to obtain rights to all Intellectual Property necessary to conduct its business as now or proposed to be conducted by the Company as described in the Prospectus. Such counsel is 1. 39 not aware of any facts that (i) would preclude the Company from having clear title to the Patents and Applications, or (ii) would lead such counsel to conclude that any of the Patents are invalid or unenforceable or that any patent issued from an Application would be invalid or unenforceable. 6. Such counsel is not aware of any material defects of form in the preparation, filing or prosecution of the Application on behalf of the Company or Licensors of the Applications. To the best of such counsel's knowledge, the Company, Company's Patent Counsel and Patent Counsel of the Licensors have complied with the duty of candor and disclosure before the PTO for each of the U.S. Patents and U.S. Patent Applications. The Applications are being diligently pursued by the Company. 7. Such counsel knows of no notification, pending or threatened action, suit, proceeding or claim by others or governmental authorities that the Company is infringing or otherwise violating any patents, copyrights, trademarks, trade secrets or intellectual property not owned or licensed by the Company. 8. Such counsel is not aware of any pending or threatened actions, suits, proceedings or claim by governmental authorities or others challenging the validity, unenforceability or scope of the Applications or the Patents, other than the patent application proceedings themselves. 9. Such counsel is not aware of any infringement on the part of others of the Patents, Applications, Trademarks or trade secrets, know-how or other proprietary rights of the Company. 10. Such counsel has no knowledge of any patent rights of others which are or would be infringed by the Company's products or applications of the Company's products referred to in the Prospectus. 11. Nothing has come to the attention of such counsel which causes such counsel to believe that the information contained in the statements under the captions "Risk Factors -- Uncertainty of Patent and Proprietary Technology protection; License of Technology to Third Parties," "Business -- Technology" and "Business -- Proprietary Technology and Patents" in (a) the Registration Statement, or any amendments thereof, contained or contains an untrue statement of a material fact, or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or (b) the Prospectus, or any amendments thereof, contained or contains an untrue statement of a material fact or omitted or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 2. 40 EXHIBIT V MATTERS TO BE COVERED IN THE OPINION OF CAMPBELL & FLORES, PATENT COUNSEL FOR THE COMPANY 1. Such counsel represents the Company in certain matters relating to intellectual property and the Company's antibody technology, including patents and trade secrets. 2. Such counsel is familiar with the technology used by the Company in its business and the manner of its use and has read the portions of the Registration Statement and the Prospectus entitled "Risk Factors -- Uncertainty of Patent and Proprietary Technology Protection; License of Technology of Third Parties" and "Business -- Proprietary Technology and Patents" (collectively, the "Intellectual Property Portion"). 3. Such counsel has no knowledge of any facts that the Company lacks or will be unable to obtain rights to all Intellectual Property necessary to conduct its business as now or proposed to be conducted by the Company as described in the Prospectus. Such counsel is not aware of any facts that (i) would preclude the Company from having clear title to the Patents and Applications, or (ii) would lead such counsel to conclude that any of the Patents are invalid or unenforceable or that any patent issued from an Application would be invalid or unenforceable. 4. Such counsel knows of no notification, pending or threatened action, suit, proceeding or claim by others or governmental authorities that the Company is infringing or otherwise violating any patents, copyrights, trademarks, trade secrets or intellectual property not owned or licensed by the Company. 5. Such counsel is not aware of any pending or threatened actions, suits, proceedings or claim by governmental authorities or others challenging the validity, unenforceability or scope of the Applications or the Patents, other than the patent application proceedings themselves. 6. Such counsel is not aware of any infringement on the part of others of the Patents, Applications, Trademarks or trade secrets, know-how or other proprietary rights of the Company. 7. Such counsel has no knowledge of any patent rights of others which are or would be infringed by the Company's products or applications of the Company's products referred to in the Prospectus. 1. 41 8. Nothing has come to the attention of such counsel which causes such counsel to believe that the information contained in the statements under the captions "Risk Factors -- Uncertainty of Patent and Proprietary Technology protection; License of Technology to Third Parties," "Business -- Technology" and "Business -- Proprietary Technology and Patents" in (a) the Registration Statement, or any amendments thereof, contained or contains an untrue statement of a material fact, or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or (b) the Prospectus, or any amendments thereof, contained or contains an untrue statement of a material fact or omitted or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 2. 42 EXHIBIT VI MATTERS TO BE COVERED IN THE OPINION OF HOGAN & HARTSON LLP, REGULATORY COUNSEL FOR THE COMPANY The statements in the Prospectus under the captions "Risk Factors -- Government Regulation," "Business -- Products and Products Under Development," and "Business -- Government Regulation," insofar as such statements purport to summarize applicable provisions of the Orphan Drug Act, the Federal Food, Drug and Cosmetic Act and the FDA regulations promulgated thereunder, are accurate summaries in all material respects of the provisions purported to be summarized under such captions in the Prospectus. During the course of preparation of the Registration Statement, we participated in certain discussions with officers of the Company as to the FDA regulatory matters dealt with under the captions "Risk Factors -- Government Regulation" and Business -- Government Regulation" in the Prospectus. While we have not undertaken to determine independently, and we do not assume any responsibility for, the accuracy, completeness or fairness of the statements under such captions of the Prospectus, we may state on the basis of these discussions that no facts have come to our attention which cause us to believe that the statements in the Prospectus under the captions "Risk Factors -- Government Regulation" and Business -- Government Regulation," insofar as such statements relate to FDA regulatory matters, at the time the Registration Statement became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statement therein not misleading, or as of the date hereof, contains an untrue statement of material fact or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. 1. EX-3.I.1 3 EXHIBIT 3.(I)1 1 Exhibit 3.(i)1 RESTATED CERTIFICATE OF INCORPORATION OF BIOSITE DIAGNOSTICS INCORPORATED Biosite Diagnostics Incorporated, a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: FIRST. The name of the corporation is Biosite Diagnostics Incorporated. SECOND. The date of filing of its original Certificate of Incorporation with the Secretary of State of Delaware was March 30, 1988. THIRD. The Restated Certificate of Incorporation of said corporation shall be amended and restated to read in full as follows: ARTICLE 1. The name of the corporation is Biosite Diagnostics Incorporated. ARTICLE 2. The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE 3. The nature of the business or purposes to be conducted or promoted is medical diagnostic products and otherwise to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE 4. (A) Classes of Stock. The total number of shares of all classes of capital stock which the corporation shall have authority to issue is Twenty Million Three Hundred Twenty-Eight Thousand Eight Hundred Forty-Seven (20,328,847) of which Twelve Million (12,000,000) shares of the par value of One Cent ($.01) each shall be Common Stock (the "Common Stock") and Eight Million Three Hundred Twenty-Eight Thousand Eight Hundred Forty- 2 Seven (8,328,847) shares of the par value of One Cent ($.01) each shall be Preferred Stock (the "Preferred Stock"). The Preferred Stock shall be designated the "Series A Preferred Stock," the "Series B Preferred Stock," the "Series C Preferred Stock," the "Series D Preferred Stock" and the Series E Preferred Stock, which series shall consist of 610,000 shares, 2,156,336 shares, 2,204,167 shares, 1,900,010 shares and 1,458,334 shares, respectively. Subject to Section 6, the Preferred Stock may be issued from time to time in one or more series. Except for the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock, the Board of Directors is authorized to fix the number of shares of any series of Preferred Stock and to determine the designation of any such shares. The Board of Directors is also authorized to determine or alter the rights (including, but not limited to, the voting rights), preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series by filing a certificate pursuant to the applicable law of the State of Delaware. (B) Rights, Preferences and Restrictions of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock. The Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall have the respective voting power, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, as follows: 1. Dividend Provisions. (a) The holders of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefore, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock of this corporation) on the Common Stock of this corporation, at the rate of $.08 per share of Series A Preferred Stock per annum, $.1278 per share of Series B Preferred Stock per annum, $.216 per share of Series C Preferred Stock per annum, $.27 per share of Series D Preferred Stock per annum and $.432 per share of Series E Pre- -2- 3 ferred Stock per annum, payable quarterly when, as and if declared by the Board of Directors. (b) Dividends on Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall not be cumulative, and no rights under this Section 1 shall accrue to the holders of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock, as the case may be, by reason of the fact that the corporation may have failed to declare or pay dividends on Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock, as the case may be, in any previous fiscal year of the corporation, whether or not the earnings of the corporation were sufficient to pay such dividends. (c) Dividends, if declared, must be declared and paid with respect to all series of Preferred Stock contemporaneously, and if less than full dividends are declared with respect to the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock, the same percentage of the dividend rate of each such series of Preferred Stock will be payable to each such series of Preferred Stock. 2. Liquidation Preference. (a) In the event of any liquidation, dissolution or winding up of this corporation, either voluntary or involuntary, the holders of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of this corporation to the holders of Series E Preferred Stock or Common Stock by reason of their ownership thereof, an amount per share equal to the sum of (a) $1.00 for each outstanding share of Series A Preferred Stock (the "Original Series A Issue Price"), (b) $1.42 for each outstanding share of Series B Preferred Stock (the "Original Series B Issue Price"), (c) $2.40 for each outstanding share of Series C Preferred Stock (the "Original Series C Issue Price"), (d) $3.00 for each outstanding share of Series D Preferred Stock (the "Original Series D Issue Price") and (e) in each case, an amount equal to all declared but unpaid dividends thereon to and including the date full payment shall be tendered to the holders of such Preferred Stock with respect to such liquidation, dissolution or winding up. If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire assets and funds of this corporation legally available for distribution -3- 4 shall be distributed ratably among the holders of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock in proportion to the product of the liquidation preference of each such share and the number of such shares owned by each such holder. (b) Upon the completion of the distribution required by section (a) above, if assets remain in this corporation, the holders of Series E Preferred Stock shall be entitled to receive, prior to and in preference to any distribution of the assets of this corporation to the holders of Common Stock by reason of their ownership thereof, an amount equal to the sum of (f) $4.80 for each outstanding share of Series E Preferred Stock (the "Original Series E Issue Price"), and (g) an amount equal to all declared but unpaid dividends thereon to and including the date full payment shall be tendered to the holders of such Preferred Stock with respect to such liquidation, dissolution or winding up. If upon the occurrence of such event, the assets and funds thus distributed among the holders of Series E Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire assets and funds of this corporation legally available for distribution shall be distributed ratably among the holders of the Series E Preferred Stock in proportion to the product of the liquidation preference of each such share and the number of such shares owned by each such holder. (c) Upon the completion of the distribution required by sections (a) and (b) above, if assets remain in this corporation, the holders of Common Stock shall receive an amount equal to $.07 per share (adjusted to reflect any stock splits, stock dividends or other recapitalizations). (d) After the distributions described in sections (a), (b) and (c) above have been paid, the remaining assets of this corporation available for distribution to stockholders shall be distributed among the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Common Stock pro rata based on the number of shares of Common Stock held by each (assuming conversion of all Preferred Stock). (e) Notwithstanding anything set forth above, if upon any liquidation, dissolution or winding up of this corporation, the amount available for distribution to the holders of Common Stock (assuming conversion of all outstanding shares of Preferred Stock) would equal or exceed an amount per share equal to the Reference Amount (as defined below) in effect at the time of such liquidation, dissolution or winding up of this corporation, then all assets of this corporation shall be distributed among the holders of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Common Stock pro rata based upon -4- 5 the number of shares of Common Stock held by each such holder (assuming conversion of all Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock). The Reference Amount shall be an amount equal to: $4.15 on or before June 7, 1993; $4.98 subsequent to June 7, 1993 and on or before June 7, 1994; $5.97 subsequent to June 7, 1994 and on or before June 7, 1995; $7.17 subsequent to June 7, 1995 and on or before June 7, 1996; and $7.50 subsequent to June 7, 1996. (f) A consolidation or merger of this corporation or sale of all or substantially all of its assets shall be deemed to be a liquidation for all purposes of this Section 2, unless stockholders of this corporation are holders of at least 50% of the voting equity securities of the surviving corporation. 3. Redemption. (a) On or at any time after June 7, 1997, upon the receipt by this corporation from the holders of 66-2/3% of the votes represented by the then outstanding shares of Preferred Stock, voting as one class in accordance with Section 5, of their written consent to redemption hereunder of their respective shares, this corporation may at any time it may lawfully do so, at the option of the Board of Directors, redeem in whole or in part the Preferred Stock hereunder by paying in cash therefor a sum per share equal to $1.10 per share of the Series A Preferred Stock, $1.56 per share of the Series B Preferred Stock, $2.64 per share of the Series C Preferred Stock, $3.30 per share of the Series D Preferred Stock and $5.28 per share of the Series E Preferred Stock, respectively, together with any declared but unpaid dividend on such shares to the Redemption Date (such total amounts are hereinafter referred to as the "Redemption Price"). (b) (i) In the event of any redemption of only a part of the then outstanding Preferred Stock, this corporation shall effect such redemption pro rata among the outstanding shares of Preferred Stock based upon the number of shares of each such series outstanding. Such redemption shall be effected pro rata within each series according to the number of shares held by each holder thereof. (ii) At least 30, but no more than 60 days prior to the date fixed for any redemption of Preferred Stock (a "Redemption Date"), written notice shall be mailed, first class postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which notice is given) of Preferred Stock to be redeemed, at the address last shown on the records of this corporation for such holder or given by the holder to this corporation for the purpose of notice or if no such address appears or is given at the place where the principal executive office of this corporation is -5- 6 located, notifying such holder of the redemption to be effected, specifying the number of shares to be redeemed from such holder, the Redemption Date, the Redemption Price, the place at which payment may be obtained and the date on which such holder's Conversion Rights (as hereinafter defined) as to such shares terminate, and calling upon such holder to surrender to this corporation, in the manner and at the place designated, such holder's certificate or certificates representing the shares to be redeemed (the "Redemption Notice"). Except as provided in subsection 3(b)(iii), on or after the Redemption Date, each holder of Preferred Stock to be redeemed shall surrender to this corporation the certificate or certificates representing such shares, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be cancelled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (iii) From and after the Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of shares being redeemed as holders of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock, as the case may be (except the right to receive the Redemption Price without interest upon surrender of their certificate or certificates), shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of this corporation or be deemed to be outstanding for any purpose whatsoever. If the funds of this corporation legally available for redemption of shares of Preferred Stock on any Redemption Date are insufficient to redeem the total number of shares of Preferred Stock to be redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of shares pro rata between each series according to the number of outstanding shares of each series and pro rata among the holders of a series according to the number of shares held by each holder thereof. The shares of Preferred Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of this corporation are legally available for the redemption of shares of Preferred Stock, such funds will immediately be used to redeem the balance of the shares which this corporation has become obligated to redeem on any Redemption Date but which it has not redeemed. (iv) Three days prior to the Redemption Date, this corporation shall deposit the Redemption Price of all outstanding shares of Preferred Stock designated for redemption in the -6- 7 Redemption Notice, and not yet redeemed or converted, with a bank or trust company having aggregate capital and surplus in excess of $50,000,000 as a trust fund for the benefit of the respective holders of the shares designated for redemption and not yet redeemed. Simultaneously, this corporation shall deposit irrevocable instructions and authority to such bank or trust company to pay, on and after the date fixed for redemption or prior thereto, the Redemption Price of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock, as the case may be, to the holders thereof upon surrender of their certificates. Any moneys deposited by this corporation pursuant to this subsection 3(b)(iv) for the redemption of shares which are thereafter converted into shares of Common Stock pursuant to Section 4 hereof no later than the close of business on the Redemption Date shall be returned to this corporation forthwith upon such conversion. The balance of any moneys deposited by this corporation pursuant to this subsection 3(b)(iv) remaining unclaimed at the expiration of two years following the Redemption Date shall thereafter be returned to this corporation, provided that the stockholder to which such moneys would be payable hereunder shall be entitled, upon proof of its ownership of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock, as the case may be, and payment of any bond requested by this corporation, to receive such moneys but without interest from the Redemption Date. 4. Conversion. The holders of Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) Incidents Causing Conversion. (i) Voluntary Conversion. Some or all of the outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock, as designated by the holder thereof, shall be converted into shares of Common Stock pursuant to subsection 4(c) upon the election of the holder of such shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock effected pursuant to subsection 4(b)(i). (ii) Automatic Conversion. All outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall be automatically converted into shares of Common Stock pursuant to subsections 4(b)(ii) and 4(c) immediately upon the occurrence of the closing of the issuance of shares of Common Stock of this corporation in an underwritten public offering, pursuant to an effective registration statement under the Securities Act of 1933, as amended, in which the gross proceeds received by this corporation exceed $7,500,000 and the -7- 8 public offering price per share of Common Stock is not less than $9.00 per share (adjusted to reflect subsequent stock dividends, stock splits or recapitalization). (b) Mechanics of Conversion. (i) Voluntary Conversion. As a condition to any conversion of Preferred Stock into shares of Common Stock pursuant to the voluntary conversion privilege set forth in subsection 4(a)(i), the holder of Preferred Stock to be converted shall surrender the certificate or certificates therefor, duly endorsed, at the office of the corporation or any authorized transfer agent for such stock, along with a written notice of his election to convert the same, which notice shall specifically designate the number of shares of Preferred Stock which the holder elects to convert. The corporation or the transfer agent shall, promptly thereafter, issue and deliver at such office to such holder of Preferred Stock a certificate or certificates for the number of shares of Common Stock to which such holder is thereby entitled and a certificate or certificates for the number of shares of Preferred Stock represented by the surrendered certificate but not converted. The effective date of such conversion shall be the date upon which a proper notice and the duly endorsed certificate or certificates are received by the corporation or the transfer agent. (ii) Automatic Conversion. In the event of an automatic conversion of all outstanding shares of Preferred Stock pursuant to subsection 4(a)(ii), the effective date of such conversion shall be the date of the occurrence of the event that triggered such automatic conversion. Notwithstanding the fact that such conversion shall be deemed to have taken place automatically, each holder of outstanding shares of Preferred Stock so converted shall be obligated to surrender to the corporation all certificates representing his shares of Preferred Stock so converted, the satisfaction of which obligation shall be a condition to the corporation's obligation to issue a certificate representing the shares of Common Stock he received upon such automatic conversion. (c) Conversion Ratio. Each share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock to be converted into shares of Common Stock shall be converted into the number of fully paid and nonassessable shares of Common Stock determined by dividing the Original Series A Issue Price, the Original Series B Issue Price, the Original Series C Issue Price, the Original Series D Issue Price and the Original Series E Issue Price, respectively, by the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price, Series D Conversion Price or Series E Conversion Price, as the case may be, in effect for such shares on the effective date of conversion. The initial Series A Conversion Price shall be the -8- 9 Original Series A Issue Price, the initial Series B Conversion Price shall be the Original Series B Issue Price, the initial Series C Conversion Price shall be the Original Series C Issue Price, the initial Series D Conversion Price shall be the Original Series D Issue Price and the initial Series E Conversion Price shall be the Original Series E Issue Price, respectively; provided, however, that the Conversion Price for shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall be subject to adjustment as set forth in subsection 4(d). (d) Adjustment of Conversion Price for Diluting Issues, etc. (i) Certain Definitions. As used in this Section 4, the following terms have the following respective meanings: (A) Options: rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities; (B) Convertible Securities: any evidences of indebtedness, shares of stock (other than Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Series E Preferred Stock and Common Stock) or other securities directly or indirectly convertible into or exchangeable for Common Stock; (C) Issue; Issued: with respect to any security (including Options), the grant, issue, sale or assumption thereof, as the case may be; and (D) Additional Shares of Common Stock: For purposes of adjusting the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price, Series D Conversion Price and Series E Conversion Price, "Additional Shares of Common Stock" are all shares (including reissued shares) of Common Stock Issued (or, pursuant to subsection 4(d)(ii), deemed to be Issued) by the corporation after July 21, 1989 without consideration or for a consideration (determined pursuant to subsection 4(d)(vi)) per share less than the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price, Series D Conversion Price or Series E Conversion Price, as the case may be, in effect on the date of and immediately prior to such Issue, whether or not subsequently reacquired or retired by the corporation, other than: (aa) shares of Common Stock Issued upon conversion of Series A Preferred Stock, Series B Pre- -9- 10 ferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock, as the case may be; (bb) 1,011,000 shares of Common Stock Issued to employees, directors, consultants or advisors under a stock plan, through the corporation's stock purchase or stock option agreements approved by the Board of Directors and such other number of shares of Common Stock as may be fixed by written consent of the holders of a majority of the outstanding shares of Preferred Stock of this corporation and by the Board of Directors of this corporation, issuable or issued to employees, directors, consultants or advisors of this corporation directly or pursuant to a stock option or a restricted stock purchase plan approved by the stockholders and directors of this corporation; and (cc) shares of Common Stock currently outstanding or hereafter issued under subsection 4(d)(i)(D)(bb) which are sold to employees, directors, consultants or advisors of the corporation after such shares have been repurchased from other employees, directors, consultants or advisors of the corporation upon the termination of their employment with the corporation. For the purposes of this subsection 4(d)(i)(D) and the first paragraph of subsection 4(d)(ii)(A) below, if different shares of Series C Preferred Stock, Series D Preferred Stock and/or Series E Preferred Stock have more than one Conversion Price as a result of a waiver of adjustment of Conversion Price under subsection 4(d)(v), the Conversion Price for Series C Preferred Stock, Series D Preferred Stock and/or Series E Preferred Stock, as the case may be, shall be the lowest Conversion Price in effect with respect to shares of Series C Preferred Stock, Series D Preferred Stock and/or Series E Preferred Stock, respectively. (ii) Issue of Securities Deemed Issue of Additional Shares of Common Stock. (A) Options and Convertible Securities. In case the corporation at any time or from time to time after the effective date hereof shall Issue any Options or Convertible Securities, or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to the provisions contained therein for a sub- -10- 11 sequent adjustment of such number) of Common Stock issuable upon the exercise of such Options, or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such Issue or, in case such a record date shall have been fixed, as of the close of business on such record date; provided, however, that Additional Shares of Common Stock shall not be deemed to have been Issued for purposes of adjusting the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price, Series D Conversion Price or Series E Conversion Price unless the consideration per share (determined pursuant to subsection 4(d)(vi)) of such Additional Shares of Common Stock would be less than the applicable Series A Conversion Price, Series B Conversion Price, Series C Conversion Price, Series D Conversion Price or Series E Conversion Price, as the case may be, in effect on the date of and immediately prior to such Issue, or such record date, as the case may be. In any such case in which Additional Shares of Common Stock are deemed to be Issued: (1) no further adjustment of the Series A Conversion Price, Series B Conversion Price or Series C Conversion Price, Series D Conversion Price or Series E Conversion Price, as the case may be, shall be made upon the subsequent Issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or the conversion or exchange of such Convertible Securities; (2) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the corporation, or increase or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof (by change of rate or otherwise), the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price, Series D Conversion Price or Series E Conversion Price, as the case may be, computed upon the original Issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options, or the rights of conversion or exchange under such Convertible Securities, which are outstanding at such time; -11- 12 (3) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price, Series D Conversion Price or Series E Conversion Price, as the case may be, computed upon the original Issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if: (aa) in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common Stock Issued were the shares of Common Stock, if any, actually Issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the corporation for the Issue of all such Options, whether or not exercised, plus the consideration actually received by the corporation upon such exercise, or for the Issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the corporation upon such conversion or exchange, and (bb) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually Issued upon the exercise thereof were Issued at the time of the Issue of such Options, and the consideration received therefor was the consideration actually received by the corporation (determined pursuant to subsection 4(d)(vi)) upon the Issue of the Convertible Securities with respect to which such Options were actually exercised; (4) no readjustment pursuant to clause (2) or (3) above shall have the effect of increasing the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price, Series D Conversion Price or Series E Conversion Price, as the case may be, by an amount in excess of the amount of the adjustment thereof originally made in respect of the Issue of such Options or Convertible Securities; and (5) in the case of any Options which expire by their terms not more than 30 days after the date of Issue thereof, no adjustment of the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price, Series D Conversion Price or Series E Conversion Price, as the case may be, shall be made until the expiration or exercise of all such Options, -12- 13 whereupon such adjustment shall be made in the manner provided in clause (3) above. (B) Stock Splits; Stock Dividends. In case the corporation at any time or from time to time after the effective date hereof shall declare or pay any dividend on the Common Stock payable in Common Stock, or effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock, Additional Shares of Common Stock shall not be deemed to have been Issued as a result thereof; provided, however, that if the corporation shall at any time or from time to time after the effective date hereof effect a subdivision of the outstanding Common Stock (and not effect a corresponding subdivision of Preferred Stock) the applicable Series A Conversion Price, Series B Conversion Price, Series C Conversion Price, Series D Conversion Price and Series E Conversion Price then in effect immediately before that subdivision shall be proportionately decreased; and provided, further, that if the corporation at any time or from time to time after the effective date hereof shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the applicable Series A Conversion Price, Series B Conversion Price, Series C Conversion Price, Series D Conversion Price and Series E Conversion Price then in effect shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the applicable Series A Conversion Price, Series B Conversion Price, Series C Conversion Price, Series D Conversion Price and Series E Conversion Price then in effect by a fraction: (1) the numerator of which shall be the total number of shares of Common Stock outstanding immediately prior to the time of such issuance or the close of business on such record date, and (2) the denominator of which shall be the total number of shares of Common Stock outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution. Notwithstanding anything herein to the contrary, with respect to each such series of Preferred Stock, no Additional Shares of Common Stock shall be deemed to -13- 14 be Issued as the result of the distribution as a dividend of Common Stock, or Options or Convertible Securities, as to which such series of Preferred Stock participates pro rata with all holders receiving such dividend on an as-converted basis. (iii) Adjustment of Conversion Price of Series A, Series B and Series E Preferred Stock for Sales at Less Than the Conversion Price. In case the corporation shall Issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be Issued pursuant to subsection 4(d)(ii)) then and in each such case, the Series A Conversion Price, Series B Conversion Price or Series E Conversion Price, as the case may be, in effect on the date of and immediately prior to such Issue shall be reduced, concurrently with such Issue, to a price (calculated to the nearest cent) determined by multiplying such Series A Conversion Price, Series B Conversion Price or Series E Conversion Price by a fraction: (x) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such Issue (for purposes of this calculation only, including in the number of shares of Common Stock outstanding the number of shares of Common Stock presently issuable upon the conversion of all outstanding shares of Preferred Stock) plus the number of shares of Common Stock which the aggregate consideration received by the corporation for the total number of such Additional Shares of Common Stock so Issued would purchase at such Series A Conversion Price, Series B Conversion Price or Series E Conversion Price, as the case may be, and (y) the denominator of which shall be the number of shares of Common Stock (for purposes of this calculation only, including in the number of shares of Common Stock outstanding the number of shares of Common Stock presently issuable upon the conversion of all outstanding shares of Preferred Stock) outstanding immediately prior to such Issue plus the number of such Additional Shares of Common Stock so Issued, provided that the Series A Conversion Price, the Series B Conversion Price or the Series E Conversion Price shall not be so reduced at such time if the amount of any such reduction would be an amount less than two cents, but any such amount shall be carried forward and reduction with respect thereto made at the time of and together with any subsequent reduction which, together with such amount and any other amount or amounts so carried forward, shall aggregate two cents or more. For the purposes of this subsection 4(d)(iii), immediately after any Additional Shares of Common Stock are deemed Issued pursuant to -14- 15 subsection 4(d)(ii), such Additional Shares of Common Stock shall be deemed to be outstanding. Any series of issuances of Additional Shares of Common Stock consisting of Common Stock or the same series of Preferred Stock, Issued at the same price and occurring within a six-month period, shall be treated as one issuance of Additional Shares of Common Stock for the purposes of this calculation. (iv) Adjustment of Conversion Price of the Series C and Series D Preferred Stock for Sales at Less Than the Conversion Price. In case the corporation shall Issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be Issued pursuant to subsection 4(d)(ii)) then and in each such case, the applicable Series C Conversion Price or Series D Conversion Price, as the case may be, in effect on the date of and immediately prior to such Issue shall be reduced, concurrently with such Issue, to a price (calculated to the nearest cent) determined by multiplying such Series C Conversion Price or Series D Conversion Price by a fraction: (x) the numerator of which shall be the number of shares of Common Stock issuable upon the conversion of all shares of Series C Preferred Stock or Series D Preferred Stock, as the case may be, plus the number of shares of Common Stock issued upon any conversion of previously outstanding shares of Series C Preferred Stock or Series D Preferred Stock, as the case may be, plus the number of shares of Common Stock which the aggregate consideration received by the corporation for the total number of such Additional Shares of Common Stock so Issued would purchase at such Series C Conversion Price or Series D Conversion Price, and (y) the denominator of which shall be the number of shares of Common Stock issuable upon the conversion of all outstanding shares of Series C Preferred Stock or Series D Preferred Stock, as the case may be, plus the number of shares of Common Stock issued upon any conversion of previously outstanding shares of Series C Preferred Stock or Series D Preferred Stock, as the case may be, plus the number of such Additional Shares of Common Stock so Issued, provided that the applicable Series C Conversion Price or Series D Conversion Price shall not be so reduced at such time if the amount of any such reduction would be an amount less than two cents, but any such amount shall be carried forward and reduction with respect thereto made at the time of and together with any subsequent reduction which, together with such amount and any other amount or amounts so carried forward, shall aggregate two cents or more. For the purposes of this subsection 4(d)(iv), immediately after any Additional Shares of Common Stock are deemed Issued pursuant to subsection 4(d)(ii), such -15- 16 Additional Shares of Common Stock shall be deemed to be outstanding. Any series of issuances of Additional Shares of Common Stock consisting of Common Stock or the same series of Preferred Stock, Issued at the same price and occurring within a six-month period, shall be treated as one issuance of Additional Shares of Common Stock for the purposes of this calculation. (v) Waiver of Adjustment of Series C, Series D and Series E Conversion Price. Notwithstanding anything herein to the contrary, the operation of, and any adjustment of the Series C Conversion Price, Series D Conversion Price or Series E Conversion Price, as the case may be, pursuant to subsections 4(d)(iii) and 4(d)(iv) may be waived with respect to any specific share or shares of Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock, either prospectively or retroactively and either generally or in a particular instance by a writing executed by the registered holder of such share or shares. Any waiver pursuant to this subsection 4(d)(v) shall bind all future holders of shares of Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock for which rights have been waived. In the event that a waiver of adjustment of Conversion Price under this subsection 4(d)(v) results in different Conversion Prices for shares of Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock, the Secretary of the corporation shall maintain a written ledger identifying the Conversion Price for each share of Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock. Such information shall be made available to any person upon request. (vi) Computation of Consideration. For the purposes of this subsection 4(d), the consideration received by the corporation for the Issue of any Additional Shares of Common Stock shall be computed as follows: (A) Nature of Consideration. Such consideration shall, (1) insofar as it consists of cash, be computed at the gross amount of cash received by the corporation, excluding amounts paid or payable for accrued interest or accrued dividends, before deducting any expenses paid or incurred by the corporation and any commissions and compensation paid and concessions and discounts allowed to underwriters, dealers or others performing similar services in connection with such Issue; (2) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such Issue, as determined in good faith by the Board of Directors (provided, however, that no value shall be attributed to any -16- 17 services performed by any employee, officer or director of the corporation); and (3) in case Additional Shares of Common Stock are Issued together with other stock or securities or other assets of the corporation for consideration which covers both, be the proportion of such consideration received with respect to the Additional Shares of Common Stock, computed as provided in clauses (1) and (2) above, as determined in good faith by the Board of Directors. (B) Options and Convertible Securities. The consideration per share received by the corporation for Additional Shares of Common Stock deemed to have been Issued pursuant to subsection 4(d)(ii)(A), relating to Options and Convertible Securities, shall be determined by dividing: (x) the total amount, if any, received or receivable by the corporation as consideration for the Issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities or, in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (y) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (e) Adjustments for Combinations, etc. In case the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the applicable Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price, Series D Conversion Price and Series E Conversion Price in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased. -17- 18 (f) Fractional Shares and Certificate as to Adjustments. (i) No fractional shares shall be issuable upon conversion; and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. If a fractional share interest arises upon any conversion of Preferred Stock, the corporation shall eliminate such fractional share interest upon payment to the former holder of such converted stock of an amount of cash computed by multiplying such fractional interest by the current market value of a full share of Common Stock. (ii) Upon the occurrence of each adjustment or readjustment of the Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price, Series D Conversion Price or Series E Conversion Price, as the case may be, pursuant to this Section 4, the corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and cause independent certified public accountants selected by the corporation to verify such computation and prepare and furnish to each holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock, as the case may be, a certificate setting forth such adjustment or readjustment and the facts upon which such adjustment or readjustment is based. The corporation shall, upon the written request at any time of any holder of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock, as the case may be, furnish or cause to be furnished to such holder a certificate setting forth the Series A Conversion Price, the Series B Conversion Price, the Series C Conversion Price, Series D Conversion Price or the Series E Conversion Price, as the case may be, in effect for such holder's shares upon the date thereof and the series of adjustments and readjustments leading to such Series A Conversion Price, Series B Conversion Price, Series C Conversion Price, Series D Conversion Price or Series E Conversion Price, as the case may be. (g) Reservation of Stock Issuable Upon Conversion. The corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all outstanding shares of Preferred Stock, the corporation will take such corporate action as is necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. -18- 19 (h) Notices. Any notice required to be given to holders of shares of Preferred Stock shall be deemed given upon deposit in the United States mail, postage prepaid, addressed to such holder of record at his address appearing on the books of the corporation, or upon personal delivery to the aforementioned address. In the event of any taking by the corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, this corporation shall mail to each holder of Preferred Stock at least 20 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. 5. Voting Rights. The holder of each share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock shall have the right to one vote for each share of Common Stock into which such share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock could then be converted. In all cases any fractional share, determined on an aggregate conversion basis, shall be rounded to the nearest whole share. With respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders' meeting in accordance with the bylaws of this corporation, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. 6. Protective Provisions. So long as shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock are outstanding, this corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Preferred Stock (voting in accordance with Section 5): (a) alter or change the rights, preferences or privileges of the shares of Preferred Stock so as to affect adversely the shares; or (b) create any new class or series of stock (h) having a preference over, or being on a parity with the outstanding Preferred Stock with respect to voting, dividends or upon -19- 20 liquidation or redemption, or (i) having rights equal or superior to any of the rights of the Preferred Stock under this Section 6; (c) declare or pay any dividend on any securities junior to the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock; or (d) sell, convey or otherwise dispose of or encumber all or substantially all of its property or business or merge into or consolidate with any other corporation (other than a wholly owned subsidiary corporation) or effect any transaction or series of related transactions in which more than 50% of the voting power of this corporation is disposed of. In accordance with Delaware law, this corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series C Preferred Stock (voting in accordance with Section 5) alter or change the powers, preferences or special rights of the Series C Preferred Stock so as to affect them adversely, without so affecting the entire class of Preferred Stock. In accordance with Delaware law, this corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series D Preferred Stock (voting in accordance with Section 5) alter or change the powers, preferences or special rights of the Series D Preferred Stock so as to affect them adversely, without so affecting the entire class of Preferred Stock. In accordance with Delaware law, this corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Series E Preferred Stock (voting in accordance with Section 5) alter or change the powers, preferences or special rights of the Series E Preferred Stock so as to affect them adversely, without so affecting the entire class of Preferred Stock. 7. Status of Converted or Redeemed Stock. In the event any shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred Stock shall be redeemed or converted pursuant to Section 3 or Section 4 hereof, the shares so converted or redeemed shall be cancelled and shall not be issuable by the corporation, and the Restated Certificate of this corporation shall be appropriately amended to effect the corresponding reduction in this corporation's authorized capital stock. -20- 21 8. No Preemptive Rights. The holders of Preferred Stock shall not have any preemptive rights. (C) Common Stock. 1. Relative Rights of Preferred Stock and Common Stock. All preferences, voting powers, relative, participating, optional or other special rights and privileges, and qualifications, limitations, or restrictions of the Common Stock are expressly made subject and subordinate to those that may be fixed with respect to any shares of Preferred Stock. 2. Voting Rights. Except as otherwise required by law or this Restated Certificate of Incorporation, each holder of Common Stock shall have one vote in respect of each share of stock held by him of record on the books of the corporation for the election of directors and on all matters submitted to a vote of stockholders of the corporation. 3. Dividends. Subject to the preferential rights of Preferred Stock, the holders of shares of Common Stock shall be entitled to receive, when and if declared by the board of directors, out of the assets of the corporation which are by law available therefor, dividends payable either in cash, in property or in shares of capital stock. 4. Dissolution, Liquidation or Winding Up. In the event of any dissolution, liquidation or winding up of the affairs of the corporation, Common Stock shall be entitled to receive assets of the corporation as provided by this Restated Certificate of Incorporation. 5. No Preemptive Rights. The holders of Common Stock shall not have any preemptive rights. ARTICLE V The corporation is to have perpetual existence. ARTICLE VI In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware: (A) The board of directors of the corporation is expressly authorized to adopt, amend or repeal the bylaws of the corporation. (B) Elections of directors need not be by written ballot unless the bylaws of the corporation shall so provide. -21- 22 (C) The books of the corporation may be kept at such place within or without the State of Delaware as the bylaws of the corporation may provide or as may be designated from time to time by the board of directors of the corporation. ARTICLE VII A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (a) for any breach of the director's duty of loyalty to the corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under section 174 of the Delaware General Corporation Law or (d) for any transaction from which the director derived an improper personal benefit. ARTICLE VIII The corporation reserves the right to amend or repeal any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon a stockholder herein are granted subject to this reservation. FOURTH. This Restated Certificate of Incorporation was duly adopted by the Board of Directors of this corporation. FIFTH. This Restated Certificate of Incorporation was duly adopted by written consent of the stockholders in accordance with sections 228, 245 and 242 of the General Corporation Law of the State of Delaware and written notice of such action has been given as provided in section 228. -22- 23 IN WITNESS WHEREOF, said Biosite Diagnostics Incorporated has caused its corporate seal to be hereunto affixed and this certificate to be signed by its President, Kim D. Blickenstaff, and its Secretary, Kim D. Blickenstaff, this 25th day of November, 1992. BIOSITE DIAGNOSTICS INCORPORATED By /s/ KIM D. BLICKENSTAFF ---------------------------------- Kim D. Blickenstaff President Attest: /s/ KIM D. BLICKENSTAFF - ------------------------------ KIM D. Blickenstaff Secretary -23- EX-3.I.2 4 EXHIBIT 3.(I)2 1 EXHIBIT 3.(i)2 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF BIOSITE DIAGNOSTICS INCORPORATED Biosite Diagnostics Incorporated, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That resolutions were duly adopted by the Board of Directors of Biosite Diagnostics Incorporated, providing that the Restated Certificate of Incorporation of the Corporation be amended by changing so much of Section (A) of Article IV as now reads: "ARTICLE IV (A) Classes of Stock. The total number of shares of all classes of capital stock which the corporation shall have authority to issue is Twenty Million Three Hundred Twenty-Eight Thousand Eight Hundred Forty-Seven (20,328,847) of which Twelve Million (12,000,000) shares of the par value of One Cent ($.01) each shall be Common Stock (the "Common Stock") and Eight Million Three Hundred Twenty-Eight Thousand Eight Hundred Forty-Seven (8,328,847) shares of the par value of One Cent ($.01) each shall be Preferred Stock (the "Preferred Stock"). The Preferred Stock shall be designated the "Series A Preferred Stock," the "Series B Preferred Stock," the "Series C Preferred Stock," the "Series D Preferred Stock" and the Series E Preferred Stock, which series shall consist of 610,000 shares, 2,156,336 shares, 2,204,167 shares, 1,900,010 shares and 1,458,334 shares, respectively. Subject to Section 6, the Preferred Stock may be issued from time to time in one or more series. Except for the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock, the Board of Directors is authorized to fix the number of shares of any series of Preferred Stock and to determine the designation of any such shares. The Board of Directors is also authorized to determine or alter the rights (including, but not limited to, the voting rights), preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series by filing a certificate pursuant to the applicable law of the State of Delaware." to read as follows: 2 "ARTICLE IV (A) Classes of Stock. The total number of shares of all classes of capital stock which the corporation shall have authority to issue is Thirty Million (30,000,000) of which Twenty-One Million Six Hundred Seventy-One Thousand One Hundred Fifty-Three (21,671,153) shares of the par value of One Cent ($.01) each shall be Common Stock (the "Common Stock") and Eight Million Three Hundred Twenty-Eight Thousand Eight Hundred Forty-Seven (8,328,847) shares of the par value of One Cent ($.01) each shall be Preferred Stock (the "Preferred Stock"). The Preferred Stock shall be designated the "Series A Preferred Stock," the "Series B Preferred Stock," the "Series C Preferred Stock," the "Series D Preferred Stock" and the Series E Preferred Stock, which series shall consist of 610,000 shares, 2,156,336 shares, 2,204,167 shares, 1,900,010 shares and 1,458,334 shares, respectively. Subject to Section 6, the Preferred Stock may be issued from time to time in one or more series. Except for the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock, the Board of Directors is authorized to fix the number of shares of any series of Preferred Stock and to determine the designation of any such shares. The Board of Directors is also authorized to determine or alter the rights (including, but not limited to, the voting rights), preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series by filing a certificate pursuant to the applicable law of the State of Delaware." -2- 3 SECOND: That said amendment was duly adopted in accordance with the provisions of section 242 of the General Corporation Law of the State of Delaware. Written consent of the stockholders has been given with respect to the foregoing amendment in accordance with section 228 of the General Corporation Law of the State of Delaware, and written notice has been given as provided in section 228. IN WITNESS WHEREOF, said corporation has caused this certificate to be signed by Kim D. Blickenstaff, its President, and attested by Christopher J. Twomey, its Assistant Secretary, as of this ____ day of __________, 1997. By _____________________________ Kim D. Blickenstaff President Attest: ___________________________________ Christopher J. Twomey Assistant Secretary -3- EX-3.I.3 5 EXHIBIT 3.(I)3 1 Exhibit 3.(i)3 RESTATED CERTIFICATE OF INCORPORATION OF BIOSITE DIAGNOSTICS INCORPORATED Biosite Diagnostics Incorporated, a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: FIRST. The name of the corporation is Biosite Diagnostics Incorporated. SECOND. The date of filing of the corporation's original Certificate of Incorporation with the Secretary of State of Delaware was March 30, 1988. THIRD. The Certificate of Incorporation of the corporation shall be amended and restated to read in full as follows: ARTICLE I The name of the corporation is Biosite Diagnostics Incorporated. ARTICLE II The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE III The nature of the business or purposes to be conducted or promoted is medical diagnostic products and otherwise to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV (A) Classes of Stock. The total number of shares of all classes of capital stock which the corporation shall have authority to issue is thirty million (30,000,000), of which twenty five million (25,000,000) shares of the par value of one cent ($.01) each shall be Common Stock (the "Common Stock") and five million (5,000,000) shares of the par value 2 of one cent ($.01) each shall be Preferred Stock (the "Preferred Stock"). The number of authorized shares of Common Stock or Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the then outstanding shares of Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such Preferred Stock holders is required pursuant to the provisions established by the Board of Directors of this corporation (the "Board of Directors") in the resolution or resolutions providing for the issue of such Preferred Stock, and if such holders of such Preferred Stock are so entitled to vote thereon, then, except as may otherwise be set forth in this Restated Certificate of Incorporation, the only stockholder approval required shall be the affirmative vote of a majority of the combined voting power of the Common Stock and the Preferred Stock so entitled to vote. (B) Preferred Stock. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is expressly authorized to provide for the issue, in one or more series, of all or any of the remaining shares of Preferred Stock and, in the resolution or resolutions providing for such issue, to establish for each such series the number of its shares, the voting powers, full or limited, of the shares of such series, or that such shares shall have no voting powers, and the designations, preferences and relative, participating, optional or other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof. The Board of Directors is also expressly authorized (unless forbidden in the resolution or resolutions providing for such issue) to increase or decrease (but not below the number of shares of the series then outstanding) the number of shares of any series subsequent to the issuance of shares of that series. In case the number of shares of any such series shall be so decreased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. (C) Common Stock 1. Relative Rights of Preferred Stock and Common Stock. All preferences, voting powers, relative, participating, optional or other special rights and privileges, and qualifications, limitations, or restrictions of the Common Stock are expressly made subject and subordinate to those that may be fixed with respect to any shares of the Preferred Stock. 2. Voting Rights. Except as otherwise required by law or this Restated Certificate of Incorporation, each holder of Common Stock shall have one vote in respect of each share of stock held by such holder of record on the books of the 2 3 corporation for the election of directors and on all matters submitted to a vote of stockholders of the corporation. 3. Dividends. Subject to the preferential rights of the Preferred Stock, the holders of shares of Common Stock shall be entitled to receive, when and if declared by the Board of Directors, out of the assets of the corporation which are by law available therefor, dividends payable either in cash, in property or in shares of capital stock. 4. Dissolution, Liquidation or Winding Up. In the event of any dissolution, liquidation or winding up of the affairs of the corporation, after distribution in full of the preferential amounts, if any, to be distributed to the holders of shares of the Preferred Stock, holders of Common Stock shall be entitled, unless otherwise provided by law or this Restated Certificate of Incorporation, to receive all of the remaining assets of the corporation of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. ARTICLE V The corporation is to have perpetual existence. ARTICLE VI In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware: (A) Amendment to Charter. Notwithstanding any other provision of this Certificate of Incorporation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of all of the then outstanding shares of the stock of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend in any respect or repeal this Article VI and Articles VII and VIII below. (B) Amendment of Bylaws. The Board of Directors of the corporation is expressly authorized to adopt, amend or repeal the Bylaws of the corporation, provided, however, that any adoption, amendment or repeal of Bylaws of the corporation by the Board of Directors shall require the approval of at least sixty-six and two-thirds percent (66 2/3%) of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any resolution providing for adoption, amendment or repeal is presented to the Board of Directors). The stockholders shall also have power to adopt, amend or repeal Bylaws of the corporation, provided, however, that in addition to any vote of the holders of any class or series of stock of the corporation required by law or by this Restated Certificate of -3- 4 Incorporation the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting power of all of the then outstanding shares of the stock of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required for such adoption, amendment or repeal by the stockholders of any provisions of the Bylaws of the corporation. (C) Written Ballot Not Required. Elections of directors need not be by written ballot unless the Bylaws of the corporation shall so provide. (D) Classified Board. The Board of Directors shall be divided into three classes, designated Class I, Class II and Class III, as nearly equal in number as possible, and the term of office of directors of one class shall expire at each annual meeting of stockholders, and in all cases as to each director until his or her successor shall be elected and shall qualify or until his or her earlier resignation, removal from office, death or incapacity. Additional directorships resulting from an increase in number of directors shall be apportioned among the classes as equally as possible. At each annual meeting of stockholders the number of directors equal to the number of directors of the class whose term expires at the time of such meeting (or, if less, the number of directors properly nominated and qualified for election) shall be elected to hold office until the third succeeding annual meeting of stockholders after their election. (E) No Action by Written Consent. No action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. Special meetings of the stockholders of the corporation may be called only by the Chairman of the Board or the Chief Executive Officer of the corporation or by a resolution adopted by the affirmative vote of a majority of the Board of Directors. (F) Corporate Records. The books of the corporation may be kept at such place within or without the State of Delaware as the Bylaws of the corporation may provide or as may be designated from time to time by the Board of Directors of the corporation. ARTICLE VII (A) No Personal Liability. A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith -4- 5 or which involve intentional misconduct or a knowing violation of law, (iii) under section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. (B) Indemnification. Each person who is or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in the second paragraph hereof, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the corporation. The right to indemnification conferred in this section shall be a contract right and shall include the right to be paid by the corporation any expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this section or otherwise. The corporation may, by action of its Board of Directors, -5- 6 provide indemnification to employees and agents of the corporation with the same scope and effect as the foregoing indemnification of directors and officers. If a claim under the first paragraph of this section is not paid in full by the corporation within thirty (30) days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the corporation. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Restated Certificate of Incorporation, Bylaw, agreement, vote of stockholders or disinterested directors or otherwise. (C) The corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. (D) Any repeal or modification of the foregoing provisions of this Article VII shall not adversely affect any right or protection of any director, officer, employee or agent of the corporation existing at the time of such repeal or modification. -6- 7 ARTICLE VIII The corporation reserves the right to amend or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon a stockholder herein are granted subject to this reservation. FOURTH. This Restated Certificate of Incorporation was duly adopted by the Board of Directors of the corporation. FIFTH. This Restated Certificate of Incorporation was duly adopted by the stockholders in accordance with sections 242 and 245 of the General Corporation Law of the State of Delaware. Written consent of the stockholders has been given with respect to this Restated Certificate of Incorporation in accordance with section 228 of the General Corporation Law of the State of Delaware, and written notice has been given as provided in section 228. IN WITNESS WHEREOF, said Biosite Diagnostics Incorporated has caused this Certificate to be signed by its President, Kim D. Blickenstaff, and attested to by its Assistant Secretary, Christopher J. Twomey, this ___ day of _______, 1997. By --------------------------------- Kim D. Blickenstaff President Attest: ____________________________ Christopher J. Twomey Assistant Secretary -7- EX-3.II.1 6 EXHIBIT 3.(II)1 1 Exhibit 3.(ii)1 As adopted April 13, 1988 BYLAWS OF BIOSITE DIAGNOSTICS INCORPORATED ARTICLE I MEETING OF STOCKHOLDERS Section 1. Place of Meetings. All meetings of the stockholders shall be held at such place within or without the State of Delaware as may be fixed from time to time by the board of directors or the chief executive officer, of if not so designated, at the registered office of the corporation. Section 2. Annual Meeting. Annual meetings of stockholders shall be held on the second Tuesday in April in each year if not a legal holiday, and if a legal holiday, then on the next secular day following, at 10:00 a.m., or at such other date and time as shall be designated from time to time by the board of directors or the chief executive officer, at which meeting the stockholders shall elect by a plurality vote a board of directors and shall transact such other business as may properly be brought before the meeting. If no annual meeting is held in accordance with the foregoing provisions, the board of directors shall cause the meeting to be held as soon thereafter as convenient, which meeting shall be designated a special meeting in lieu of annual meeting. Section 3. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, may, unless otherwise prescribed by statute or by the certificate of incorporation, be called by the board of directors or the chief executive officer and shall be called by the chief executive officer or secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders owning ten percent of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at any special meeting shall be limited to matters relating to the purpose or purposes stated in the notice of meeting. Section 4. Notice of Meetings. Except as otherwise provided by law, written notice of each meeting of stockholders, annual or special, stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given not less than ten or more than sixty days before the date of the meeting, to each stockholder entitled to vote at such meeting. -1- 2 Section 5. Voting List. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city or town where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 6. Quorum. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by statute, the certificate of incorporation or these bylaws. Section 7. Adjournments. Any meeting of stockholders may be adjourned from time to time to any other time and to any other place at which a meeting of stockholders may be held under these bylaws, which time and place shall be announced at the meeting, by a majority of the stockholders present in person or represented by proxy at the meeting and entitled to vote, though less than a quorum, or, if no stockholder is present or represented by proxy, by any officer entitled to preside at or to act as secretary of such meeting, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 8. Action at Meetings. When a quorum is present at any meeting, the vote of the holders of a majority of the stock present in person or represented by proxy and entitled to vote on the question shall decide any question brought before such meeting, unless the question is one upon which by express provision of the law, the certificate of incorporation or these bylaws, a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 9. Voting and Proxies. Unless otherwise provided in the certificate of incorporation, each stockholder shall at -2- 3 every meeting of the stockholders be entitled to one vote for each share of capital stock having voting power held of record by such stockholder. Each stockholder entitled to vote at a meeting of stockholders, or to express consent or dissent to corporate action in writing without a meeting, may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Section 10. Action Without Meeting. Any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE II DIRECTORS Section 1. Number, Election, Tenure and Qualification. The number of directors which shall constitute the whole board shall not be less than three nor more than eight. Within such limit, the number of directors shall be determined by resolution of the board of directors or by the stockholders at the annual meeting or at any special meeting of stockholders. The directors shall be elected at the annual meeting or at any special meeting of the stockholders, except as provided in Section 3 of this Article, and each director elected shall hold office until his successor is elected and qualified, unless sooner displaced. Directors need not be stockholders. Section 2. Enlargement. The number of the board of directors may be increased at any time by vote of a majority of the directors then in office. Section 3. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. In the event of a vacancy in the board of directors, the remaining directors, -3- 4 except as otherwise provided by law or these bylaws, may exercise the powers of the full board until the vacancy is filled. Section 4. Resignation and Removal. Any director may resign at any time upon written notice to the corporation at its principal place of business or to the chief executive officer or the secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. Any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors, unless otherwise specified by law or the certificate of incorporation. Section 5. General Powers. The business and affairs of the corporation shall be managed by its board of directors, which may exercise all powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these bylaws directed or required to be exercised or done by the stockholders. Section 6. Chairman of the Board. If the board of directors appoints a chairman of the board, he shall, when present, preside at all meetings of the stockholders and the board of directors. He shall perform such duties and possess such powers as are customarily vested in the office of the chairman of the board or as may be vested in him by the board of directors. Section 7. Place of Meetings. The board of directors may hold meetings, both regular and special, either within or without the State of Delaware. Section 8. Regular Meetings. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board; provided that any director who is absent when such a determination is made shall be given prompt notice of such determination. A regular meeting of the board of directors may be held without notice immediately after and at the same place as the annual meeting of stockholders. Section 9. Special Meetings. Special meetings of the board may be called by the chief executive officer, secretary, or on the written request of two or more directors, or by one director in the event that there is only one director in office. Two days' notice to each director, either personally or by telegram, cable, telecopy, commercial delivery service, telex or similar means sent to his business or home address, or three days' notice by written notice deposited in the mail, shall be given to each director by the secretary or by the officer or one of the directors calling the meeting. A notice or waiver of notice of a meeting of the board of directors need not specify the purposes of the meeting. -4- 5 Section 10. Quorum, Action at Meeting, Adjournments. At all meetings of the board, a majority of the board of directors then in office, but in no event less than one third of the entire board, shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by law or by the certificate of incorporation. For purposes of this section, the term "entire board" shall mean the number of directors last fixed by the stockholders or directors, as the case may be, in accordance with law and these bylaws; provided, however, that if less than all the number so fixed of directors were elected, the "entire board" shall mean the greatest number of directors so elected to hold office at any one time pursuant to such authorization. If a quorum shall not be present at any meeting of the board of directors, a majority of the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 11. Action by Consent. Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. Section 12. Telephonic Meetings. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the board of directors or of any committee thereof may participate in a meeting of the board of directors or of any committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 13. Committees. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the board of directors, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the -5- 6 sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the bylaws of the corporation; and, unless the resolution designating such committee or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Each committee shall keep regular minutes of its meetings and make such reports to the board of directors as the board of directors may request. Except as the board of directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by the directors or in such rules, its business shall be conducted as nearly as possible in the same manner as is provided in these bylaws for the conduct of its business by the board of directors. Section 14. Compensation. Unless otherwise restricted by the certificate of incorporation or these bylaws, the board of directors shall have the authority to fix from time to time the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and the performance of their responsibilities as directors and may be paid a fixed sum for attendance at each meeting of the board of directors and/or a stated salary as director. No such payment shall preclude any director from serving the corporation or its parent or subsidiary corporations in any other capacity and receiving compensation therefor. The board of directors may also allow compensation for members of special or standing committees for service on such committees. ARTICLE III OFFICERS Section 1. Enumeration. The officers of the corporation shall be chosen by the board of directors and shall be a president, a secretary and a treasurer and such other officers with such titles, terms of office and duties as the board of directors may from time to time determine, including a chairman of the board, one or more vice-presidents, and one or more assistant secretaries and assistant treasurers. If authorized by resolution of the board of directors, the chief executive officer may be empowered to appoint from time to time assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, unless the certificate of incorporation or these bylaws otherwise provide. Section 2. Election. The board of directors at its first meeting after each annual meeting of stockholders shall choose a president, a secretary and a treasurer. Other officers may be -6- 7 appointed by the board of directors at such meeting, at any other meeting, or by written consent. Section 3. Tenure. The officers of the corporation shall hold office until their successors are chosen and qualify, unless a different term is specified in the vote choosing or appointing him, or until his earlier death, resignation or removal. Any officer elected or appointed by the board of directors or by the chief executive officer may be removed at any time by the affirmative vote of a majority of the board of directors or a committee duly authorized to do so, except that any officer appointed by the chief executive officer may also be removed at any time by the chief executive officer. Any vacancy occurring in any office of the corporation may be filled by the board of directors, at its discretion. Any officer may resign by delivering his written resignation to the corporation at its principal place of business or to the chief executive officer or the secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. Section 4. President. The president shall be the chief operating officer of the corporation. He shall also be the chief executive officer unless the board of directors otherwise provides. The president shall, unless the board of directors provides otherwise in a specific instance or generally, preside at all meetings of the stockholders and the board of directors, have general and active management of the business of the corporation and see that all orders and resolutions of the board of directors are carried into effect. The president shall execute bonds, mortgages, and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. Section 5. Vice-Presidents. In the absence of the president or in the event of his inability or refusal to act, the vice-president, or if there be more than one vice-president, the vice-presidents in the order designated by the board of directors or the chief executive officer (or in the absence of any designation, then in the order determined by their tenure in office) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice-presidents shall perform such other duties and have such other powers as the board of directors or the chief executive officer may from time to time prescribe. Section 6. Secretary. The secretary shall have such powers and perform such duties as are incident to the office of secretary. He shall maintain a stock ledger and prepare lists of stockholders and their addresses as required and shall be the -7- 8 custodian of corporate records. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be from time to time prescribed by the board of directors or chief executive officer, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. Section 7. Assistant Secretaries. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors, the chief executive officer or the secretary (or if there be no such determination, then in the order determined by their tenure in office), shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors, the chief executive officer or the secretary may from time to time prescribe. In the absence of the secretary or any assistant secretary at any meeting of stockholders or directors, the person presiding at the meeting shall designate a temporary or acting secretary to keep a record of the meeting. Section 8. Treasurer. The treasurer shall perform such duties and shall have such powers as may be assigned to him by the board of directors or the chief executive officer. In addition, the treasurer shall perform such duties and have such powers as are incident to the office of treasurer. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. He shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the chief executive officer and the board of directors, when the chief executive officer or board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. Section 9. Assistant Treasurers. The assistant treasurer, or if there shall be more than one, the assistant treasurers in -8- 9 the order determined by the board of directors, the chief executive officer or the treasurer (or if there be no such determination, then in the order determined by their tenure in office), shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors, the chief executive officer or the treasurer may from time to time prescribe. Section 10. Bond. If required by the board of directors, any officer shall give the corporation a bond in such sum and with such surety or sureties and upon such terms and conditions as shall be satisfactory to the board of directors, including without limitation a bond for the faithful performance of the duties of his office and for the restoration to the corporation of all books, papers, vouchers, money and other property or whatever kind in his possession or under his control and belonging to the corporation. ARTICLE IV NOTICES Section 1. Delivery. Whenever, under the provisions of law, or of the certificate of incorporation or these bylaws, written notice is required to be given to any director or stockholder, such notice may be given by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Unless written notice by mail is required by law, written notice may also be given by telegram, cable, telecopy, commercial delivery service, telex or similar means, addressed to such director or stockholder at his address as it appears on the records of the corporation, in which case such notice shall be deemed to be given when delivered into the control of the persons charged with effecting such transmission, the transmission charge to be paid by the corporation or the person sending such notice and not by the addressee. Oral notice or other in-hand delivery (in person or by telephone) shall be deemed given at the time it is actually given. Section 2. Waiver of Notice. Whenever any notice is required to be given under the provisions of law or of the certificate of incorporation or of these bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. -9- 10 ARTICLE V INDEMNIFICATION Section 1. Actions Other than by or in the Right of the Corporation. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceedings, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Section 2. Actions by or in the Right of the Corporation. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of -10- 11 Chancery of the State of Delaware or such other court shall deem proper. Section 3. Success on the Merits. To the extent that any person described in Section 1 or 2 of this Article V has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in said Sections, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Section 4. Specific Authorization. Any indemnification under Section 1 or 2 of this Article V (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of any person described in said Sections is proper in the circumstances because he has met the applicable standard of conduct set forth in said Sections. Such determination shall be made (1) by the board of directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders of the corporation. Section 5. Advance Payment. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding as authorized by the board of directors in the manner provided for in Section 4 of this Article V upon receipt of an undertaking by or on behalf of any person described in said Section to repay such amount unless it shall ultimately be determined that he is entitled to indemnification by the corporation as authorized in this Article V. Section 6. Non-Exclusivity. The indemnification provided by this Article V shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be director, officer, employee or agent of the corporation and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 7. Insurance. The board of directors may authorize, by a vote of the majority of the full board, the corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him -11- 12 in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article V. Section 8. Severability. If any word, clause or provision of this Article V or any award made hereunder shall for any reason be determined to be invalid, the provisions hereof shall not otherwise be affected thereby but shall remain in full force and effect. Section 9. Intent of Article. The intent of this Article V is to provide for indemnification to the fullest extent permitted by Section 145 of the General Corporation Law of Delaware. To the extent that such Section or any successor section may be amended or supplemented from time to time, this Article V shall be amended automatically and construed so as to permit indemnification to the fullest extent from time to time permitted by law. ARTICLE VI CAPITAL STOCK Section 1. Certificate of Stock. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the chairman or vice-chairman of the board of directors, or the president or a vice-president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Certificates may be issued for partly paid shares and in such case upon the face or back of the certificates issued to represent any such partly paid shares, the total amount of the consideration to be paid therefor, and the amount paid thereon shall be specified. Section 2. Lost Certificates. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to give reasonable evidence of such loss, theft or destruction, to advertise the same in such manner -12- 13 as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificates alleged to have been lost, stolen or destroyed or the issuance of such new certificate. Section 3. Transfer of Stock. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares, duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, and proper evidence of compliance with other conditions to rightful transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 4. Record Date. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty days nor less then ten days before the date of such meeting, nor more than sixty days prior to any other action to which such record date relates. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day before the day on which notice is given, or, if notice is waived, at the close of business on the day before the day on which the meeting is held. The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the board of directors is necessary, shall be the day on which the first written consent is expressed. The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating to such purpose. Section 5. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. -13- 14 ARTICLE VII CERTAIN TRANSACTIONS Section 1. Transactions with Interested Parties. No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee thereof which authorizes the contract or transaction or solely because his or their votes are counted for such purpose, if: (a) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (b) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) the contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee thereof, or the stockholders. Section 2. Quorum. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board of directors or of a committee which authorizes the contract or transaction. ARTICLE VIII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the capital stock of the corporation, if any, may be declared by the board of directors at any regular or special meeting or by written consent, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. -14- 15 Section 2. Reserves. The directors may set apart out of any funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Section 3. Checks. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. Section 4. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the board of directors. Section 5. Seal. The board of directors may, by resolution, adopt a corporate seal. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the word "Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. The seal may be altered from time to time by the board of directors. ARTICLE IX AMENDMENTS These bylaws may be altered, amended or repealed or new bylaws may be adopted by the stockholders or by the board of directors, when such power is conferred upon the board of directors by the certificate of incorporation, at any regular meeting of the stockholders or of the board of directors or at any special meeting of the stockholders or of the board of directors provided, however, that in the case of a regular or special meeting of stockholders, notice of such alteration, amendment, repeal or adoption of new bylaws be contained in the notice of such meeting. -15- EX-3.II.2 7 EXHIBIT 3.(II)2 1 Exhibit 3.(ii)2 Amended and Restated effective ____/97 AMENDED AND RESTATED BYLAWS OF BIOSITE DIAGNOSTICS INCORPORATED ARTICLE I MEETINGS OF STOCKHOLDERS Section 1. Place of Meetings. All meetings of the stockholders shall be held at such place within or without the State of Delaware as may be fixed from time to time by the Board of Directors or the chief executive officer, or if not so designated, at the registered office of the corporation. Section 2. Annual Meeting. Annual meetings of stockholders shall be held at such date and time as shall be designated from time to time by the Board of Directors or the chief executive officer and stated in the notice of meeting. At the annual meeting the stockholders shall elect by a plurality vote the number of directors equal to the number of directors of the class whose term expires at such meetings (or, if fewer, the number of directors properly nominated and qualified for election) to hold office until the third succeeding annual meeting of stockholders after their election. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, otherwise properly brought before the meeting by or at the direction of the Board of Directors, or otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation, not less than fifty (50) days nor more than seventy-five (75) days prior to the meeting; provided, however, that in the event that less than sixty-five (65) days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 15th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder's notice to -1- 2 the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder and (iv) any material interest of the stockholder in such business. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 2 by any stockholder of any business properly brought before the annual meeting in accordance with said procedure. The chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section, and if the chairman should so determine, the chairman shall so declare to the meeting, and any such business not properly brought before the meeting shall not be transacted. Section 3. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, may, unless otherwise prescribed by statute or by the certificate of incorporation, be called only by the chairman of the Board of Directors or the chief executive officer or by a resolution adopted by the affirmative vote of a majority of the Board of Directors. Business transacted at any special meeting shall be limited to matters relating to the purpose or purposes stated in the notice of meeting. Section 4. Notice of Meetings. Except as otherwise provided by law, written notice of each meeting of stockholders, annual or special, stating the place, date and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting, to each stockholder entitled to vote at such meeting. Section 5. Voting List. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city or town where the meeting is to be held, which place shall be specified 2 3 in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 6. Quorum. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by statute, the certificate of incorporation or these bylaws. Section 7. Adjournments. Any meeting of stockholders may be adjourned from time to time to any other time and to any other place at which a meeting of stockholders may be held under these bylaws, which time and place shall be announced at the meeting, by a majority of the stockholders present in person or represented by proxy at the meeting and entitled to vote, though less than a quorum, or, if no stockholder is present or represented by proxy, by any officer entitled to preside at or to act as secretary of such meeting, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such reconvened meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the reconvened meeting, a notice of the reconvened meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 8. Action at Meetings. When a quorum is present at any meeting, the vote of the holders of a majority of the stock present in person or represented by proxy and entitled to vote on the question shall decide any question brought before such meeting, unless the question is one upon which by express provision of law, the certificate of incorporation or these bylaws, a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 9. Voting and Proxies. Unless otherwise provided in the certificate of incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote for each share of capital stock having voting power held of record by such stockholder. Each stockholder entitled to vote at a meeting of stockholders, or to express consent or dissent to corporate action in writing without a meeting, may authorize another person or persons to act for such stockholder by proxy; provided that the instrument authorizing such proxy to act shall have been executed in writing (which shall include telegraphing, cabling or other means of electronically transmitted written copy) by the stockholder personally or by the stockholder's duly -3- 4 authorized attorney in fact. No such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. Section 10. Action Without Meeting. No action required or permitted to be taken at any annual or special meeting of the stockholders of the corporation may be taken without a meeting and the power of the stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied. ARTICLE II DIRECTORS Section 1. Number, Election, Tenure and Qualification. The number of directors which shall constitute the whole board shall not be less than three nor more than eight. Within such limit, the number of directors shall be determined by resolution of the Board of Directors or by the stockholders at the annual meeting or at any special meeting of stockholders. The directors shall be elected at the annual meeting or at any special meeting of the stockholders, except as provided in Section 3 of this Article, and each director elected shall hold office until such director's successor is elected and qualified, unless sooner displaced. Directors need not be stockholders. Section 2. Enlargement. The number of the Board of Directors may be increased at any time by vote of a majority of the directors then in office. Section 3. Nominations. Subject to the rights of holders of any class or series of stock having a preference over the common stock as to dividends or upon liquidation, nominations for election to the Board of Directors of the corporation at a meeting of stockholders may be made on behalf of the board by the nominating committee appointed by the board, or by any stockholder of the corporation entitled to vote for the election of directors at such meeting. Such nominations, other than those made by the nominating committee on behalf of the board, shall be made by notice in writing delivered or mailed by first class United States mail or a nationally recognized courier service, postage prepaid, to the secretary or assistant secretary of the corporation, and received by such officer not less than one hundred twenty (120) days prior to any meeting of stockholders called for the election of directors; provided, however, that if less than one hundred (100) days' notice of the meeting is given to stockholders, such nomination shall have been mailed or delivered to the secretary or the assistant secretary of the corporation not later than the close of business on the seventh day following the day on which the notice of meeting was mailed. Such notice shall set forth as to each proposed nominee who is not an incumbent director (i) the -4- 5 name, age, business address and, if known, residence address of each nominee proposed in such notice; (ii) the principal occupation or employment of each such nominee; (iii) the number of shares of stock of the corporation which are beneficially owned by each such nominee and by the nominating stockholder; and (iv) any other information concerning the nominee that must be disclosed of nominees in proxy solicitations regulated by Regulation 14A of the Securities Exchange Act of 1934, as amended. The chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if the chairman should so determine, the chairman shall so declare the meeting and the defective nomination shall be disregarded. Section 4. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election at which the term of the class to which they have been elected expires and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. In the event of a vacancy in the Board of Directors, the remaining directors, except as otherwise provided by law or these bylaws, may exercise the powers of the full board until the vacancy is filled. Section 5. Resignation and Removal. Any director may resign at any time upon written notice to the corporation at its principal place of business or to the chief executive officer or the secretary. Such resignation shall be effective upon receipt of such notice unless the notice specifies such resignation to be effective at some other time or upon the happening of some other event. Any director or the entire Board of Directors may be removed, but only for cause, by the holders of a majority of the shares then entitled to vote at an election of directors, unless otherwise specified by law or the certificate of incorporation. Section 6. General Powers. The business and affairs of the corporation shall be managed by its Board of Directors, which may exercise all powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these bylaws directed or required to be exercised or done by the stockholders. Section 7. Chairman of the Board. If the Board of Directors appoints a chairman of the board, such chairman shall, when present, preside at all meetings of the stockholders and the Board of Directors. The chairman shall perform such duties and possess such powers as are customarily vested in the office -5- 6 of the chairman of the board or as may be vested in the chairman by the Board of Directors. Section 8. Place of Meetings. The Board of Directors may hold meetings, both regular and special, either within or without the State of Delaware. Section 9. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the board; provided that any director who is absent when such a determination is made shall be given prompt notice of such determination. A regular meeting of the Board of Directors may be held without notice immediately after and at the same place as the annual meeting of stockholders. Section 10. Special Meetings. Special meetings of the board may be called by the chief executive officer, secretary, or on the written request of two or more directors, or by one director in the event that there is only one director in office. Four (4) hours' notice to each director, either personally or by telegram, cable, telecopy, commercial delivery service, telex or similar means sent to such director's business or home address, or two (2) days' notice by written notice deposited in the mail or delivered by a nationally recognized courier service, shall be given to each director by the secretary or by the officer or one of the directors calling the meeting. A notice or waiver of notice of a meeting of the Board of Directors need not specify the purposes of the meeting. Section 11. Quorum, Action at Meeting, Adjournments. At all meetings of the board, a majority of directors then in office, but in no event less than one third of the entire board, shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by law or by the certificate of incorporation. For purposes of this section, the term "entire board" shall mean the number of directors last fixed by the stockholders or directors, as the case may be, in accordance with law and these bylaws; provided, however, that if less than all the number so fixed of directors were elected, the "entire board" shall mean the greatest number of directors so elected to hold office at any one time pursuant to such authorization. If a quorum shall not be present at any meeting of the Board of Directors, a majority of the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 12. Action by Consent. Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken -6- 7 without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. Section 13. Telephonic Meetings. Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board of Directors or of any committee thereof may participate in a meeting of the Board of Directors or of any committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. Section 14. Committees. The Board of Directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the bylaws of the corporation; and, unless the resolution designating such committee or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and make such reports to the Board of Directors as the Board of Directors may request. Except as the Board of Directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by the directors or in such rules, its business shall be conducted as nearly as possible in the same manner as is provided in these bylaws for the conduct of its business by the Board of Directors. Section 15. Compensation. Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board of Directors shall have the authority to fix from time to time the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of -7- 8 Directors and the performance of their responsibilities as directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors and/or a stated salary as director. No such payment shall preclude any director from serving the corporation or its parent or subsidiary corporations in any other capacity and receiving compensation therefor. The Board of Directors may also allow compensation for members of special or standing committees for service on such committees. ARTICLE III OFFICERS Section 1. Enumeration. The officers of the corporation shall be chosen by the Board of Directors and shall be a president, a secretary and a chief financial officer and such other officers with such titles, terms of office and duties as the Board of Directors may from time to time determine, including one or more vice-presidents, and one or more assistant secretaries and assistant financial officers. If authorized by resolution of the Board of Directors, the chief executive officer may be empowered to appoint from time to time assistant secretaries and assistant financial officers. Any number of offices may be held by the same person, unless the certificate of incorporation or these bylaws otherwise provide. Section 2. Election. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose a president, a secretary and a chief financial officer. Other officers may be appointed by the Board of Directors at such meeting, at any other meeting, or by written consent. Section 3. Tenure. The officers of the corporation shall hold office until their successors are chosen and qualify, unless a different term is specified in the vote choosing or appointing such officer, or until such officer's earlier death, resignation or removal. Any officer elected or appointed by the Board of Directors or by the chief executive officer may be removed at any time by the affirmative vote of a majority of the Board of Directors or a committee duly authorized to do so, except that any officer appointed by the chief executive officer may also be removed at any time by the chief executive officer. Any vacancy occurring in any office of the corporation may be filled by the Board of Directors, at its discretion. Any officer may resign by delivering such officer's written resignation to the corporation at its principal place of business or to the chief executive officer or the secretary. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event. Section 4. President. The president shall be the chief operating officer of the corporation. The president shall also be the chief executive officer unless the Board of Directors -8- 9 otherwise provides. The president shall, unless the Board of Directors provides otherwise in a specific instance or generally, preside at all meetings of the stockholders and the Board of Directors, have general and active management of the business of the corporation and see that all orders and resolutions of the Board of Directors are carried into effect. The president shall execute bonds, mortgages, and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the corporation. Section 5. Vice-Presidents. In the absence of the president or in the event of the president's inability or refusal to act, the vice-president, or if there be more than one vice-president, the vice-presidents in the order designated by the Board of Directors or the chief executive officer (or in the absence of any designation, then in the order determined by their tenure in office) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice-presidents shall perform such other duties and have such other powers as the Board of Directors or the chief executive officer may from time to time prescribe. Section 6. Secretary. The secretary shall have such powers and perform such duties as are incident to the office of secretary. The secretary shall maintain a stock ledger and prepare lists of stockholders and their addresses as required and shall be the custodian of corporate records. The secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be from time to time prescribed by the Board of Directors or chief executive officer, under whose supervision the secretary shall be. The secretary shall have custody of the corporate seal of the corporation and the secretary, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the secretary's signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by such officer's signature. Section 7. Assistant Secretaries. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the Board of Directors, the chief executive officer or the secretary (or if there be no such determina- -9- 10 tion, then in the order determined by their tenure in office), shall, in the absence of the secretary or in the event of the secretary's inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the Board of Directors, the chief executive officer or the secretary may from time to time prescribe. In the absence of the secretary or any assistant secretary at any meeting of stockholders or directors, the person presiding at the meeting shall designate a temporary or acting secretary to keep a record of the meeting. Section 8. Chief Financial Officer. The chief financial officer shall perform such duties and shall have such powers as may be assigned to such officer by the Board of Directors or the chief executive officer. The chief financial officer shall also be the treasurer unless the Board of Directors otherwise provides. In addition, the chief financial officer shall perform such duties and have such powers as are incident to the office of chief financial officer. The chief financial officer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. The chief financial officer shall disburse the funds of the corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the chief executive officer and the Board of Directors, when the chief executive officer or Board of Directors so requires, an account of all such officer's transactions as chief financial officer and of the financial condition of the corporation. Section 9. Assistant Financial Officers. The assistant financial officer, or if there shall be more than one, the assistant financial officers in the order determined by the Board of Directors, the chief executive officer or the chief financial officer (or if there be no such determination, then in the order determined by their tenure in office), shall, in the absence of the chief financial officer or in the event of the chief financial officer's inability or refusal to act, perform the duties and exercise the powers of the chief financial officer and shall perform such other duties and have such other powers as the Board of Directors, the chief executive officer or the chief financial officer may from time to time prescribe. Section 10. Bond. If required by the Board of Directors, any officer shall give the corporation a bond in such sum and with such surety or sureties and upon such terms and conditions as shall be satisfactory to the Board of Directors, including without limitation a bond for the faithful performance of the duties of such officer's office and for the restoration to the corporation of all books, papers, vouchers, money and other -10- 11 property of whatever kind in such officer's possession or under such officer's control and belonging to the corporation. Section 11. Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof. ARTICLE IV NOTICES Section 1. Delivery. Whenever, under the provisions of law, or of the certificate of incorporation or these bylaws, written notice is required to be given to any director or stockholder, such notice may be given by mail, addressed to such director or stockholder, at such person's address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail or delivered to a nationally recognized courier service. Unless written notice by mail is required by law, written notice may also be given by telegram, cable, facsimile, commercial delivery service, telex or similar means, addressed to such director or stockholder at such person's address as it appears on the records of the corporation, in which case such notice shall be deemed to be given when delivered into the control of the persons charged with effecting such transmission, the transmission charge to be paid by the corporation or the person sending such notice and not by the addressee. Oral notice or other in-hand delivery (in person or by telephone) shall be deemed given at the time it is actually given. Section 2. Waiver of Notice. Whenever any notice is required to be given under the provisions of law or of the certificate of incorporation or of these bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V INDEMNIFICATION Section 1. Actions Other than by or in the Right of the Corporation. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other -11- 12 enterprise, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceedings, had no reasonable cause to believe such person's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person's conduct was unlawful. Section 2. Actions by or in the Right of the Corporation. The corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of such person's duty to the corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of the State of Delaware or such other court shall deem proper. Section 3. Success on the Merits. To the extent that any person described in Section 1 or 2 of this Article V has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in said Sections, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. -12- 13 Section 4. Specific Authorization. Any indemnification under Section 1 or 2 of this Article V (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of any person described in said Sections is proper in the circumstances because such person has met the applicable standard of conduct set forth in said Sections. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding; or (ii) if such a quorum is not obtainable, or even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion; or (iii) by the stockholders of the corporation. Section 5. Advance Payment. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the manner provided for in Section 4 of this Article V upon receipt of an undertaking by or on behalf of any person described in said Section to repay such amount unless it shall ultimately be determined that such person is entitled to indemnification by the corporation as authorized in this Article V. Section 6. Non-Exclusivity. The indemnification provided by this Article V shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be director, officer, employee or agent of the corporation and shall inure to the benefit of the heirs, executors and administrators of such a person. Section 7. Insurance. The Board of Directors may authorize, by a vote of the majority of the full board, the corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of this Article V. Section 8. Severability. If any word, clause or provision of this Article V or any award made hereunder shall for any reason be determined to be invalid, the provisions hereof shall not otherwise be affected thereby but shall remain in full force and effect. -13- 14 Section 9. Intent of Article. The intent of this Article V is to provide for indemnification to the fullest extent permitted by section 145 of the General Corporation Law of Delaware. To the extent that such Section or any successor section may be amended or supplemented from time to time, this Article V shall be amended automatically and construed so as to permit indemnification to the fullest extent from time to time permitted by law. ARTICLE VI CAPITAL STOCK Section 1. Certificates of Stock. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the chairman or vice-chairman of the Board of Directors, or the president or a vice-president and the chief financial officer or an assistant financial officer, or the secretary or an assistant secretary of the corporation, certifying the number of shares owned by such stockholder in the corporation. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. Certificates may be issued for partly paid shares and in such case upon the face or back of the certificates issued to represent any such partly paid shares, the total amount of the consideration to be paid therefor, and the amount paid thereon shall be specified. Section 2. Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or such owner's legal representative, to give reasonable evidence of such loss, theft or destruction, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of such new certificate. Section 3. Transfer of Stock. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares, duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, and proper evidence of compliance with other conditions to rightful -14- 15 transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 4. Record Date for Action at a Meeting or for Other Purposes. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action to which such record date relates. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. If no record date is fixed, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day before the day on which notice is given, or, if notice is waived, at the close of business on the day before the day on which the meeting is held. The record date for determining stockholders for any other purpose within this Section 4 shall be at the close of business on the day on which the Board of Directors adopts the resolution relating to such purpose. Section 5. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII CERTAIN TRANSACTIONS Section 1. Transactions with Interested Parties. No contract or transaction between the corporation and one or more of its directors or officers, or between the corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the board or committee thereof which authorizes the contract or -15- 16 transaction or solely because the vote or votes of such director or officer are counted for such purpose, if: (a) the material facts as to such person's relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (b) the material facts as to such person's relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (c) the contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof, or the stockholders. Section 2. Quorum. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. ARTICLE VIII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the capital stock of the corporation, if any, may be declared by the Board of Directors at any regular or special meeting or by written consent, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 2. Reserves. The directors may set apart out of any funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Section 3. Checks. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. Section 4. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. Section 5. Seal. The Board of Directors may, by resolution, adopt a corporate seal. The corporate seal shall have inscribed thereon the name of the corporation, the year of its -16- 17 organization and the word "Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced. The seal may be altered from time to time by the Board of Directors. ARTICLE IX AMENDMENTS The Board of Directors is expressly empowered to adopt, amend or repeal these bylaws, provided, however, that any adoption, amendment or repeal of these bylaws by the Board of Directors shall require the approval of at least sixty-six and two-thirds percent (66 2/3%) of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any resolution providing for adoption, amendment or repeal is presented to the board). The stockholders shall also have power to adopt, amend or repeal these bylaws, provided, however, that in addition to any vote of the holders of any class or series of stock of this corporation required by law or by the certificate of incorporation of this corporation, the affirmative vote of the holders of at least sixty-six and two- thirds percent (66 2/3%) of the voting power of all of the then outstanding shares of the stock of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required for such adoption, amendment or repeal by the stockholders of any provisions of these bylaws. -17- 18 CERTIFICATE OF SECRETARY I hereby certify: 1. That I am the duly elected and acting Secretary of Biosite Diagnostics Incorporated, a Delaware corporation; and 2. That the foregoing bylaws, comprising 17 pages, constitute the amended and restated bylaws of such corporation as duly adopted by directors of the corporation at a duly held meeting of the Board of Directors on December __, 1996, subject to the corporation consummating an initial public offering of its Common Stock, such offering having been consummated on ______ __, 1997, became effective as of that date. IN WITNESS WHEREOF, I have hereunder subscribed my name this _____ day of __________, 1997. -------------------------------- Kim D. Blickenstaff Secretary -18- EX-5.1 8 EXHIBIT 5.1 1 Exhibit 5.1 PILLSBURY MADISON & SUTRO LLP P.O. BOX 7880 SAN FRANCISCO, CA 94120 Tel: (415) 983-1000 Fax: (415) 983-1200 December 11, 1996 Biosite Diagnostics Incorporated 11030 Roselle Street San Diego, California 92121 Re: Registration Statement on Form S-1 Ladies and Gentlemen: We are acting as counsel for Biosite Diagnostics Incorporated, a Delaware corporation (the "Company"), in connection with the registration under the Securities Act of 1933, as amended, of 2,300,000 shares of Common Stock, par value $.01 per share (the "Common Stock"), of the Company (including 300,000 shares subject to the underwriters' over-allotment option) to be offered and sold by the Company. In this regard we have participated in the preparation of a Registration Statement on Form S-1 relating to such 2,300,000 shares of Common Stock. (Such Registration Statement, as amended, and including any registration statement related thereto and filed pursuant to Rule 462(b) under the Securities Act (a "Rule 462(b) registration statement") is herein referred to as the "Registration Statement.") We are of the opinion that the shares of Common Stock to be offered and sold by the Company (including any shares of Common Stock registered pursuant to a Rule 462(b) registration statement) have been duly authorized and, when issued and sold by the Company in the manner described in the Registration Statement and in accordance with the resolutions adopted by the Board of Directors of the Company, will be legally issued, fully paid and nonassessable. We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the use of our name under the caption "Legal Matters" in the Registration Statement and in the Prospectus included therein. Very truly yours, /s/ Pillsbury Madison & Sutro LLP EX-10.1 9 EXHIBIT 10.1 1 Exhibit 10.1 AMENDED AND RESTATED 1989 STOCK PLAN OF BIOSITE DIAGNOSTICS INCORPORATED AS ADOPTED ON JULY 20, 1989, AND AMENDED ON MAY 17, 1996 SECTION 1. ESTABLISHMENT AND PURPOSE. The Plan was established in 1989 to offer selected employees, directors, advisers and consultants an opportunity to acquire a proprietary interest in the success of the Company, or to increase such interest, by purchasing Shares of the Company's Common Stock. The Plan was adopted by the Board of Directors on July 20, 1989. The Plan was amended and restated by the Board of Directors on April 24, 1990, on January 17, 1991, on October 24, 1991 on November 5, 1992, January 14, 1993, April 19, 1995 and May 17, 1996. The Plan provides both for the direct award or sale of Shares and for the grant of Options to purchase Shares. Options granted under the Plan may include Nonstatutory Options as well as ISOs intended to qualify under section 422 of the Code. SECTION 2. DEFINITIONS. (a) "Board of Directors" shall mean the Board of Directors of the Company, as constituted from time to time. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended. (c) "Committee" shall mean a committee of the Board of Directors, as described in Section 3(a). 2 (d) "Company" shall mean Biosite Diagnostics Incorporated, a Delaware corporation. (e) "Employee" shall mean (i) any individual who is a common-law employee of the Company or of a Subsidiary, (ii) a member of the Board of Directors and (iii) an independent contractor who performs services for the Company or a Subsidiary. Service as a member of the Board of Directors or as an independent contractor shall be considered employment for all purposes of the Plan except the second sentence of Section 4(a). (f) "Exercise Price" shall mean the amount for which one Share may be purchased upon exercise of an Option, as specified by the Committee in the applicable Stock Option Agreement. (g) "Fair Market Value" shall mean the fair market value of a Share, as determined by the Committee in good faith. Such determination shall be conclusive and binding on all persons. (h) "ISO" shall mean an employee incentive stock option described in section 422(b) of the Code. (i) "Nonstatutory Option" shall mean an employee stock option not described in section 422 or 423(b) of the Code. (j) "Offeree" shall mean an individual to whom the Committee has offered the right to acquire Shares under the Plan (other than upon exercise of an Option). -2- 3 (k) "Option" shall mean an ISO or Nonstatutory Option granted under the Plan and entitling the holder to purchase Shares. (l) "Optionee" shall mean an individual who holds an Option. (m) "Plan" shall mean this 1989 Stock Plan of Biosite Diagnostics Incorporated. (n) "Purchase Price" shall mean the consideration for which one Share may be acquired under the Plan (other than upon exercise of an Option), as specified by the Committee. (o) "Service" shall mean service as an Employee. (p) "Share" shall mean one share of Stock, as adjusted in accordance with Section 9 (if applicable). (q) "Stock" shall mean the Common Stock of the Company. (r) "Stock Option Agreement" shall mean the agreement between the Company and an Optionee which contains the terms, conditions and restrictions pertaining to his Option. (s) "Stock Purchase Agreement" shall mean the agreement between the Company and an Offeree who acquires Shares under the Plan which contains the terms, conditions and restrictions pertaining to the acquisition of such Shares. (t) "Subsidiary" shall mean any corporation, if the Company and/or one or more other Subsidiaries own not -3- 4 less than 50 percent of the total combined voting power of all classes of outstanding stock of such corporation. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date. (u) "Total and Permanent Disability" shall mean that the Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than one year. SECTION 3. ADMINISTRATION. (a) Committee Membership. The Plan shall be administered by the Committee, which shall consist of members of the Board of Directors. The members of the Committee shall be appointed by the Board of Directors. If no Committee has been appointed, the entire Board of Directors shall constitute the Committee. (b) Committee Procedures. The Board of Directors shall designate one of the members of the Committee as chairman. The Committee may hold meetings at such times and places as it shall determine. The acts of a majority of the Committee members present at meetings at which a quorum exists, or acts reduced to or approved in writing by all Committee members, shall be valid acts of the Committee. -4- 5 (c) Committee Responsibilities. Subject to the provisions of the Plan, the Committee shall have full authority and discretion to take the following actions: (i) To interpret the Plan and to apply its provisions; (ii) To adopt, amend or rescind rules, procedures and forms relating to the Plan; (iii) To authorize any person to execute, on behalf of the Company, any instrument required to carry out the purposes of the Plan; (iv) To determine when Shares are to be awarded or offered for sale and when Options are to be granted under the Plan; (v) To select the Offerees and Optionees; (vi) To determine the number of Shares to be offered to each Offeree or to be made subject to each Option; (vii) To prescribe the terms and conditions of each award or sale of Shares, including (without limitation) the Purchase Price, and to specify the provisions of the Stock Purchase Agreement relating to such award or sale; (viii) To prescribe the terms and conditions of each Option, including (without limitation) the Exercise Price, to determine whether such Option is to be classified as an ISO or as a Nonstatutory -5- 6 Option, and to specify the provisions of the Stock Option Agreement relating to such Option; (ix) To amend any outstanding Stock Purchase Agreement or Stock Option Agreement, subject to applicable legal restrictions and to the consent of the Offeree or Optionee who entered into such agreement; (x) To prescribe the consideration for the grant of each Option or other right under the Plan and to determine the sufficiency of such consideration; and (xi) To take any other actions deemed necessary or advisable for the administration of the Plan. All decisions, interpretations and other actions of the Committee shall be final and binding on all Offerees, all Optionees, and all persons deriving their rights from an Offeree or Optionee. No member of the Committee shall be liable for any action that he has taken or has failed to take in good faith with respect to the Plan, any Option, or any right to acquire Shares under the Plan. (d) Financial Reports. Not less often than annually, the Company shall furnish to Optionees and Offerees reports of its financial condition, unless such Optionees and Offerees have access to equivalent information through their employment. Such reports need not be audited. -6- 7 SECTION 4. ELIGIBILITY. (a) General Rule. Only Employees shall be eligible for designation as Optionees or Offerees by the Committee. In addition, only individuals who are employed as common-law employees by the Company or a Subsidiary shall be eligible for the grant of ISOs. (b) Ten-Percent Stockholders. An Employee who owns more than 10 percent of the total combined voting power of all classes of outstanding stock of the Company or any of its Subsidiaries shall not be eligible for designation as an Optionee or Offeree unless (i) the Exercise Price or Purchase Price (if any) is at least 110 percent of the Fair Market Value of a Share on the date of grant and (ii) in the case of an ISO, such ISO by its terms is not exercisable after the expiration of five years from the date of grant. (c) Attribution Rules. For purposes of Subsection (b) above, in determining stock ownership, an Employee shall be deemed to own the stock owned, directly or indirectly, by or for his brothers, sisters, spouse, ancestors and lineal descendants. Stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be deemed to be owned proportionately by or for its shareholders, partners or beneficiaries. Stock with respect to which such Employee holds an option shall not be counted. (d) Outstanding Stock. For purposes of Subsection (b) above, "outstanding stock" shall include all stock actually issued and outstanding immediately after the grant. -7- 8 "Outstanding stock" shall not include shares authorized for issuance under outstanding options held by the Employee or by any other person. SECTION 5. STOCK SUBJECT TO PLAN. (a) Basic Limitation. Shares offered under the Plan shall be authorized but unissued Shares or treasury Shares. The aggregate number of Shares which may be issued under the Plan (upon exercise of Options or other rights to acquire Shares) shall not exceed 1,692,000 Shares, subject to adjustment pursuant to Section 9 and Section 12(a). The number of Shares which are subject to Options or other rights outstanding at any time under the Plan shall not exceed the number of Shares which then remain available for issuance under the Plan. The Company, during the term of the Plan, shall at all times reserve and keep available sufficient Shares to satisfy the requirements of the Plan. (b) Additional Shares. In the event that any outstanding Option or other right for any reason expires or is canceled or otherwise terminated, the Shares allocable to the unexercised portion of such Option or other right shall again be available for the purposes of the Plan, or on or after the date of the Company's initial public offering, shall again be available for purposes of the 1996 Stock Option Plan of Biosite Diagnostics Incorporated. In the event that Shares issued under the Plan are reacquired by the Company pursuant to a forfeiture provision, a right of repurchase or a right of first offer, such Shares shall again be available for the purposes of the Plan, on or after the date of the Company's initial public offering, shall again be available for purposes of the 1996 Stock Option Plan of Biosite Diagnostics Incorporated. -8- 9 SECTION 6. TERMS AND CONDITIONS OF AWARDS OR SALES. (a) Stock Purchase Agreement. Each award or sale of Shares under the Plan (other than upon exercise of an Option) shall be evidenced by a Stock Purchase Agreement between the Offeree and the Company. Such award or sale shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Committee deems appropriate for inclusion in a Stock Purchase Agreement. The provisions of the various Stock Purchase Agreements entered into under the Plan need not be identical. (b) Duration of Offers and Nontransferability of Rights. Any right to acquire Shares under the Plan (other than an Option) shall automatically expire if not exercised by the Offeree within 30 days after the grant of such right was communicated to him by the Committee. Such right shall not be transferable and shall be exercisable only by the Offeree to whom such right was granted. (c) Purchase Price. The Purchase Price of Shares to be offered under the Plan shall not be less than 85 percent of the Fair Market Value of such Shares, except as otherwise provided in Section 4(b). Subject to the preceding sentence, the Purchase Price shall be determined by the Committee at its sole discretion. The Purchase Price shall be payable in a form described in Section 8. -9- 10 (d) Withholding Taxes. As a condition to the purchase of Shares, the Offeree shall make such arrangements as the Committee may require for the satisfaction of any federal, state or local withholding tax obligations that may arise in connection with such purchase. (e) Restrictions on Transfer of Shares. Any Shares awarded or sold under the Plan shall be subject to such special forfeiture conditions, rights of repurchase, rights of first offer and other transfer restrictions as the Committee may determine. Such restrictions shall be set forth in the applicable Stock Purchase Agreement and shall apply in addition to any general restrictions that may apply to all holders of Shares. Any service-based vesting conditions shall not be less rapid than the schedule set forth in Section 7(e). SECTION 7. TERMS AND CONDITIONS OF OPTIONS. (a) Stock Option Agreement. Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company. Such Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Committee deems appropriate for inclusion in a Stock Option Agreement. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical. -10- 11 (b) Number of Shares. Each Stock Option Agreement shall specify the number of Shares that are subject to the Option and shall provide for the adjustment of such number in accordance with Section 9. The Stock Option Agreement shall also specify whether the Option is an ISO or a Nonstatutory Option. (c) Exercise Price. Each Stock Option Agreement shall specify the Exercise Price. The Exercise Price of an ISO shall not be less than 100 percent of the Fair Market Value of a Share on the date of grant, except as otherwise provided in Section 4(b). The Exercise Price of a Nonstatutory Option shall not be less than 85 percent of the Fair Market Value of a Share on the date of grant, except as otherwise provided in Section 4(b). Subject to the preceding two sentences, the Exercise Price under any Option shall be determined by the Committee at its sole discretion. The Exercise Price shall be payable in a form described in Section 8. (d) Withholding Taxes. As a condition to the exercise of an Option, the Optionee shall make such arrangements as the Committee may require for the satisfaction of any federal, state or local withholding tax obligations that may arise in connection with such exercise. The Optionee shall also make such arrangements as the Committee may require for the satisfaction of any federal, state or local withholding tax obligations that may arise in connection -11- 12 with the disposition of Shares acquired by exercising an Option. (e) Exercisability and Term. Each Stock Option Agreement shall specify the date when all or any installment of the Option is to become exercisable. An Option shall become exercisable at least as rapidly as set forth in the following schedule:
Anniversary of Percentage of Shares Date of Grant Exercisable -------------- ---------------- First ..................... 20% Second .................... 40% Third ..................... 60% Fourth .................... 80% Fifth ..................... 100%
Subject to the preceding sentence, the vesting of any Option shall be determined by the Committee at its sole discretion. The Stock Option Agreement shall also specify the term of the Option. The term shall not exceed 10 years from the date of grant, except as otherwise provided in Section 4(b). Subject to the preceding sentence, the Committee at its sole discretion shall determine when an Option is to expire. (f) Nontransferability. During an Optionee's lifetime, his Option(s) shall be exercisable only by him and shall not be transferable. In the event of an Optionee's -12- 13 death, his Option(s) shall not be transferable other than by will, by a beneficiary designation executed by the Optionee and delivered to the Company or by the laws of descent and distribution. (g) Termination of Service (Except by Death). If an Optionee's Service terminates for any reason other than his death, then his Option(s) shall expire on the earliest of the following occasions: (i) The expiration date determined pursuant to Subsection (e) above; (ii) The date 90 days after the termination of his Service for any reason other than Total and Permanent Disability; or (iii) The date six months after the termination of his Service by reason of Total and Permanent Disability. The Optionee may exercise all or part of his Option(s) at any time before the expiration of such Option(s) under the preceding sentence, but only to the extent that such Option(s) had become exercisable before his Service terminated or became exercisable as a result of the termination. The balance of such Option(s) shall lapse when the Optionee's Service terminates. In the event that the Optionee dies after the termination of his Service but before the expiration of his Option(s), all or part of such Option(s) may be exercised (prior to expiration) by the executors or administrators of the Optionee's estate or by any person who has acquired such Option(s) directly from him by bequest, beneficiary designation or inheritance, but only to the extent that such Option(s) had -13- 14 become exercisable before his Service terminated or became exercisable as a result of the termination. (h) Leaves of Absence. For purposes of Subsection (g) above, Service shall be deemed to continue while the Optionee is on military leave, sick leave or other bona fide leave of absence (as determined by the Committee). The foregoing notwithstanding, in the case of an ISO granted under the Plan, Service shall not be deemed to continue beyond the first 90 days of such leave, unless the Optionee's reemployment rights are guaranteed by statute or by contract. (i) Death of Optionee. If an Optionee dies while he is in Service, then his Option(s) shall expire on the earlier of the following dates: (i) The expiration date determined pursuant to Subsection (e) above; or (ii) The date six months after his death. All or part of the Optionee's Option(s) may be exercised at any time before the expiration of such Option(s) under the preceding sentence by the executors or administrators of his estate or by any person who has acquired such Option(s) directly from him by bequest, beneficiary designation or inheritance, but only to the extent that such Option(s) had become exercisable before his death or became exercisable as a result of his death. The balance of such Option(s) shall lapse when the Optionee dies. -14- 15 (j) No Rights as a Stockholder. An Optionee, or a transferee of an Optionee, shall have no rights as a stockholder with respect to any Shares covered by his Option until the date of the issuance of a stock certificate for such Shares. No adjustments shall be made, except as provided in Section 9. (k) Modification, Extension and Renewal of Options. Within the limitations of the Plan, the Committee may modify, extend or renew outstanding Options or may accept the cancellation of outstanding Options (to the extent not previously exercised) in return for the grant of new Options at the same or a different price. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, impair his rights or increase his obligations under such Option. (l) Restrictions on Transfer of Shares. Any Shares issued upon exercise of an Option shall be subject to such special forfeiture conditions, rights of repurchase, rights of first offer and other transfer restrictions as the Committee may determine. Such restrictions shall be set forth in the applicable Stock Option Agreement and shall apply in addition to any general restrictions that may apply to all holders of Shares. Any service-based vesting conditions shall not be less rapid than the schedule set forth in Subsection (e) above. -15- 16 SECTION 8. PAYMENT FOR SHARES. (a) General Rule. The entire Purchase Price or Exercise Price of Shares issued under the Plan shall be payable in lawful money of the United States of America at the time when such Shares are purchased, except as follows: (i) In the case of Shares sold under the terms of a Stock Purchase Agreement subject to the Plan, payment shall be made only pursuant to the express provisions of such Stock Purchase Agreement. However, the Committee (at its sole discretion) may specify in the Stock Purchase Agreement that payment may be made in one or both of the forms described in Subsections (e) and (f) below. (ii) In the case of an ISO granted under the Plan, payment shall be made only pursuant to the express provisions of the applicable Stock Option Agreement. However, the Committee (at its sole discretion) may specify in the Stock Option Agreement that payment may be made in one or more of the forms described in Subsections (b), (c), (d) or (f) below. (iii) In the case of a Nonstatutory Option granted under the Plan, the Committee (at its sole discretion) may accept payment in one or more of the forms described in Subsections (b), (c), (d) or (f) below. (b) Surrender of Stock. To the extent that this Subsection (b) is applicable, payment may be made all or in -16- 17 part with Shares which have already been owned by the Optionee or his representative for more than 12 months and which are surrendered to the Company in good form for transfer. Such Shares shall be valued at their Fair Market Value on the date when the new Shares are purchased under the Plan. (c) Exercise/Sale. To the extent that this Subsection (c) is applicable, if and when there is a public market for the Company's Common Stock, payment may be made by the delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker approved by the Committee to sell Common Shares and to deliver all or part of the sales proceeds to the Company in payment of all or part of the Purchase Price or Exercise Price and any withholding taxes. This Subsection (c) shall be inapplicable to a person who is considered a director or officer of the Company, to the extent required by section 16 of the Exchange Act or any rule thereunder. (d) Exercise/Pledge. To the extent that this Subsection (d) is applicable, if and when there is a public market for the Company's Common Stock, payment may be made by the delivery (on a form prescribed by the Company) of an irrevocable direction to pledge Common Shares to a securities broker or lender approved by the Company, as security for a loan and to deliver all or part of the loan proceeds to the Company in payment of all or part of the Exercise Price and any withholding taxes. -17- 18 (e) Services Rendered. To the extent that this Subsection (e) is applicable, Shares may be awarded under the Plan in consideration of services rendered to the Company or a Subsidiary prior to the award. If Shares are awarded without the payment of a Purchase Price in cash, the Committee shall make a determination (at the time of the award) of the value of the services rendered by the Offeree and the sufficiency of the consideration to meet the requirements of Section 6(c). (f) Promissory Note. To the extent that this Subsection (f) is applicable, a portion of the Purchase Price or Exercise Price, as the case may be, of Shares issued under the Plan may be payable by a full-recourse promissory note, provided that (i) the par value of such Shares must be paid in lawful money of the United States of America at the time when such Shares are purchased, (ii) the Shares are security for payment of the principal amount of the promissory note and interest thereon, and (iii) the interest rate payable under the terms of the promissory note shall be no less than the minimum rate (if any) required to avoid the imputation of additional interest under the Code. Subject to the foregoing, the Committee (at its sole discretion) shall specify the term, interest rate, amortization requirements (if any), and other provisions of such note. -18- 19 SECTION 9. ADJUSTMENT OF SHARES. (a) General. In the event of a subdivision of the outstanding Stock, a declaration of a dividend payable in Shares, a declaration of a dividend payable in a form other than Shares in an amount that has a material effect on the value of Shares, a combination or consolidation of the outstanding Stock (by reclassification or otherwise) into a lesser number of Shares, a recapitalization or a similar occurrence, the Committee shall make appropriate adjustments in one or more of (i) the number of Shares available for future grants under Section 5, (ii) the number of Shares covered by each outstanding Option or (iii) the Exercise Price under each outstanding Option. (b) Mergers; Consolidations. In the event that the Company is a party to a merger or consolidation, outstanding Options shall be subject to the agreement of merger or consolidation. Such agreement may provide for the assumption of outstanding Options by the surviving corporation or its parent or for their continuation by the Company (if the Company is the surviving corporation). In the event the Company is not the surviving corporation and the surviving corporation will not assume the outstanding Options, the agreement of merger or consolidation may provide for payment of a cash settlement for exercisable Options equal to the difference between the amount to be paid for one Share under such agreement and the Exercise Price -19- 20 and for the cancellation of Options not exercised or settled, in either case without the Optionees' consent. (c) Reservation of Rights. Except as provided in this Section 9, an Optionee or Offeree shall have no rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend or any other increase or decrease in the number of shares of stock of any class. Any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to an Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets. -20- 21 SECTION 10. SECURITIES LAWS. Shares shall not be issued under the Plan unless the issuance and delivery of such Shares complies with (or is exempt from) all applicable requirements of law, including (without limitation) the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, state securities laws and regulations, and the regulations of any stock exchange on which the Company's securities may then be listed. SECTION 11. NO EMPLOYMENT RIGHTS. No provision of the Plan, nor any right or Option granted under the Plan, shall be construed to give any person any right to become, to be treated as, or to remain an Employee. The Company and its Subsidiaries reserve the right to terminate any person's Service at any time and for any reason. SECTION 12. DURATION AND AMENDMENTS. (a) Term of the Plan. The Plan, as set forth herein, shall become effective on May 17, 1996, the date the Board of Directors amended and restated the Plan. In the event that the stockholders fail to approve the amendment to Section 5(a) of the Plan increasing the number of Shares subject to the Plan by 300,000 Shares within 12 months after its adoption by the Board of -21- 22 Directors, on May 17, 1996, subject to the approval of the Company's Stockholders of such amendment any Option grants or Stock awards made in excess of an aggregate of 1,392,000 Shares shall be null and void. The Plan shall terminate automatically 10 years after its amendment and restatement by the Board of Directors on May 17, 1996 and may be terminated on any earlier date pursuant to Subsection (b) below. (b) Right to Amend or Terminate the Plan. The Board of Directors may amend, suspend or terminate the Plan at any time and for any reason; provided, however, that any amendment of the Plan which increases the number of Shares available for issuance under the Plan (except as provided in Section 9), or which materially changes the class of persons who are eligible for the grant of ISOs, shall be subject to the approval of the Company's stockholders. Stockholder approval shall not be required for any other amendment of the Plan. (c) Effect of Amendment or Termination. No Shares shall be issued or sold under the Plan after the termination thereof, except upon exercise of an Option granted prior to such termination. The termination of the Plan, or any amendment thereof, shall not affect any Share previously issued or any Option previously granted under the Plan. -22- 23 SECTION 13. EXECUTION. To record the amendment of the Plan by the Board of Directors on May 17, 1996, the Company has caused its authorized officer to execute the same. BIOSITE DIAGNOSTICS INCORPORATED By /s/ KIM D. BLICKENSTAFF ----------------------------- -23- EX-10.2 10 EXHIBIT 10.2 1 Exhibit 10.2 1996 STOCK INCENTIVE PLAN OF BIOSITE DIAGNOSTICS INCORPORATED (Adopted Effective December 1, 1996) 2 TABLE OF CONTENTS ARTICLE 1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE 2. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.1 Committee Composition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.2 Committee Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE 3. SHARES AVAILABLE FOR GRANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3.1 Basic Limitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3.2 Additional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3.3 Dividend Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE 4. ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 4.1 General Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 4.2 Outside Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 4.3 Incentive Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE 5. OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5.1 Stock Option Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5.2 Number of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5.3 Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5.4 Exercisability and Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 5.5 Effect of Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 5.6 Modification or Assumption of Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 5.7 Other Requirements Prior to Company's Initial Public Offering . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE 6. PAYMENT FOR OPTION SHARES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 6.1 General Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 6.2 Surrender of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 6.3 Exercise/Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 6.4 Exercise/Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 6.5 Promissory Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 6.6 Other Forms of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ARTICLE 7. STOCK APPRECIATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 7.1 SAR Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 7.2 Number of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7.3 Exercise Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7.4 Exercisability and Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7.5 Effect of Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7.6 Exercise of SARs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7.7 Modification or Assumption of SARs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 8.1 Time, Amount and Form of Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 8.2 Payment for Awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 8.3 Vesting Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 8.4 Form and Time of Settlement of Stock Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 8.5 Death of Recipient . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 8.6 Creditors' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
-i- 3 ARTICLE 9. VOTING AND DIVIDEND RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 9.1 Restricted Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 9.2 Stock Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE 10. PROTECTION AGAINST DILUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 10.1 Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 10.2 Reorganizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE 11. AWARDS UNDER OTHER PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE 12. PAYMENT OF DIRECTOR'S FEES IN SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 12.1 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 12.2 Elections to Receive NSOs, Restricted Shares or Stock Units . . . . . . . . . . . . . . . . . . . . . . . . 9 12.3 Number and Terms of NSOs, Restricted Shares or Stock Units . . . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE 13. LIMITATION ON RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 13.1 Retention Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 13.2 Stockholders' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 13.3 Regulatory Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE 14. LIMITATION ON PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 14.1 Basic Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 14.2 Reduction of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 14.3 Overpayments and Underpayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 14.4 Related Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE 15. WITHHOLDING TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 15.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 15.2 Share Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE 16. ASSIGNMENT OR TRANSFER OF AWARDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 16.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 16.2 Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE 17. FUTURE OF THE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 17.1 Term of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 17.2 Amendment or Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE 18. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE 19. EXECUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-ii- 4 1996 STOCK INCENTIVE PLAN OF BIOSITE DIAGNOSTICS INCORPORATED ARTICLE 1. INTRODUCTION. The Plan was adopted by the Board on December 5, 1996, subject to approval by the Company's stockholders. The Plan is effective December 1, 1996. However, Articles 7, 8 and 9 shall not apply prior to the Company's initial public offering. The purpose of the Plan is to promote the long-term success of the Company and the creation of stockholder value by (a) encouraging Key Employees to focus on critical long-range objectives, (b) encouraging the attraction and retention of Key Employees with exceptional qualifications and (c) linking Key Employees directly to stockholder interests through increased stock ownership. The Plan seeks to achieve this purpose by providing for Awards in the form of Restricted Shares, Stock Units, Options (which may constitute incentive stock options or nonstatutory stock options) or stock appreciation rights. The Plan shall be governed by, and construed in accordance with, the laws of the State of California. ARTICLE 2. ADMINISTRATION. 2.1 Committee Composition. The Plan shall be administered by the Committee. Except as provided below, the Committee shall consist exclusively of directors of the Company, who shall be appointed by the Board. In addition, the composition of the Committee shall satisfy: (a) Such requirements, if any, as the Securities and Exchange Commission may establish for administrators acting under plans intended to qualify for exemption under Rule 16b-3 (or its successor) under the Exchange Act; and (b) Such requirements as the Internal Revenue Service may establish for outside directors acting under plans intended to qualify for exemption under section 162(m)(4)(C) of the Code. The Board may act on its own behalf with respect to Outside Directors and may also appoint one or more separate committees composed of one or more officers of the Company who need not be directors of the Company and who need not satisfy the foregoing requirements, who may administer the Plan with respect to Key Employees who are not "covered employees" under section 162(m)(3) of the Code and who are not required to report pursuant to Section 16(a) of the Exchange Act. -1- 5 2.2 Committee Responsibilities. The Committee shall (a) select the Key Employees who are to receive Awards under the Plan, (b) determine the type, number, vesting requirements and other features and conditions of such Awards, (c) interpret the Plan and (d) make all other decisions relating to the operation of the Plan. The Committee may adopt such rules or guidelines as it deems appropriate to implement the Plan. The Committee's determinations under the Plan shall be final and binding on all persons. ARTICLE 3. SHARES AVAILABLE FOR GRANTS. 3.1 Basic Limitation. Common Shares issued pursuant to the Plan may be authorized but unissued shares or treasury shares. The aggregate number of Common Shares available for Restricted Shares, Stock Units, Options and SARs awarded under the Plan shall not exceed 900,000. Of the Common Shares available hereunder, no more than 20% in aggregate shall be available with respect to Outside Directors. The limitation of this Section 3.1 shall be subject to adjustment pursuant to Article 10. The number of Common Shares available under this Plan shall be increased by unexercised or forfeited Common Shares under the Company's 1989 Stock Plan. 3.2 Additional Shares. If Stock Units, Options or SARs are forfeited or if Options or SARs terminate for any other reason before being exercised, then the corresponding Common Shares shall again become available for Awards under the Plan. If Restricted Shares are forfeited before any dividends have been paid with respect to such Shares, then such Shares shall again become available for Awards under the Plan. If Stock Units are settled, then only the number of Common Shares (if any) actually issued in settlement of such Stock Units shall reduce the number available under Section 3.1 and the balance shall again become available for Awards under the Plan. If SARs are exercised, then only the number of Common Shares (if any) actually issued in settlement of such SARs shall reduce the number available under Section 3.1 and the balance shall again become available for Awards under the Plan. 3.3 Dividend Equivalents. Any dividend equivalents distributed under the Plan shall not be applied against the number of Restricted Shares, Stock Units, Options or SARs available for Awards, whether or not such dividend equivalents are converted into Stock Units. ARTICLE 4. ELIGIBILITY. 4.1 General Rules. Only Key Employees (including, without limitation, independent contractors who are not members of the Board) shall be eligible for designation as Participants by the Committee. -2- 6 4.2 Outside Directors. The Committee may provide that the NSOs that otherwise would be granted to an Outside Director under this Plan shall instead be granted to an affiliate of such Outside Director. Such affiliate shall then be deemed to be an Outside Director for purposes of the Plan, provided that the service-related vesting and termination provisions pertaining to the NSOs shall be applied with regard to the service of the Outside Director. 4.3 Incentive Stock Options. Only Key Employees who are common-law employees of the Company, a Parent or a Subsidiary shall be eligible for the grant of ISOs. In addition, a Key Employee who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company or any of its Parents or Subsidiaries shall not be eligible for the grant of an ISO unless the requirements set forth in section 422(c)(6) of the Code are satisfied. ARTICLE 5. OPTIONS. 5.1 Stock Option Agreement. Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company. Such Option shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The Stock Option Agreement shall specify whether the Option is an ISO or an NSO. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical. Options may be granted in consideration of a cash payment or in consideration of a reduction in the Optionee's other compensation. A Stock Option Agreement may provide that a new Option will be granted automatically to the Optionee when he or she exercises a prior Option and pays the Exercise Price in the form described in Section 6.2. 5.2 Number of Shares. Each Stock Option Agreement shall specify the number of Common Shares subject to the Option and shall provide for the adjustment of such number in accordance with Article 10. Options granted to any Optionee in a single calendar year shall in no event cover more than 250,000 Common Shares, subject to adjustment in accordance with Article 10. 5.3 Exercise Price. Each Stock Option Agreement shall specify the Exercise Price; provided that the Exercise Price under an ISO shall in no event be less than 100% of the Fair Market Value of a Common Share on the date of grant and the Exercise Price under an NSO shall in no event be less than the par value of the Common Shares subject to such NSO. In the case of an NSO, a Stock Option Agreement may specify an Exercise Price that varies in accordance with a predetermined formula while the NSO is outstanding, provided that prior to the Company's initial public offering, the NSO Exercise Price shall be at least 85% (110% for 10% shareholders) of the Fair Market Value of a Common Share of Stock on the date of grant. -3- 7 5.4 Exercisability and Term. Each Stock Option Agreement shall specify the date when all or any installment of the Option is to become exercisable, provided that prior to the Company's initial public offering, Options shall become exercisable pursuant to a schedule providing for at least 20% vesting per year over a five-year period (or, in the case of performance options, to the extent permitted under applicable regulations of the California Department of Corporations). The Stock Option Agreement shall also specify the term of the Option; provided that the term of an ISO shall in no event exceed 10 years from the date of grant. A Stock Option Agreement may provide for accelerated exercisability in the event of the Optionee's death, disability or retirement or other events and may provide for expiration prior to the end of its term in the event of the termination of the Optionee's service. Notwithstanding the foregoing, no Options may be accelerated prior to the Company's initial public offering. Options may be awarded in combination with SARs, and such an Award may provide that the Options will not be exercisable unless the related SARs are forfeited. NSOs may also be awarded in combination with Restricted Shares or Stock Units, and such an Award may provide that the NSOs will not be exercisable unless the related Restricted Shares or Stock Units are forfeited. Prior to the Company's initial public offering, Options must be exercised within 30 days of the termination of employment (six months for termination on account of death or disability). 5.5 Effect of Change in Control. The Committee may determine, at the time of granting an Option or thereafter, that such Option shall become fully exercisable as to all Common Shares subject to such Option in the event that a Change in Control occurs with respect to the Company. 5.6 Modification or Assumption of Options. Within the limitations of the Plan, the Committee may modify, extend or assume outstanding options or may accept the cancellation of outstanding options (whether granted by the Company or by another issuer) in return for the grant of new options for the same or a different number of shares and at the same or a different exercise price. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, alter or impair his or her rights or obligations under such Option. 5.7 Other Requirements Prior to Company's Initial Public Offering. Prior to the Company's initial public offering, Optionees shall receive Company financial statements at least annually. ARTICLE 6. PAYMENT FOR OPTION SHARES. 6.1 General Rule. The entire Exercise Price of Common Shares issued upon exercise of Options shall be payable in cash at the time when such Common Shares are purchased, except as follows: -4- 8 (a) In the case of an ISO granted under the Plan, payment shall be made only pursuant to the express provisions of the applicable Stock Option Agreement. The Stock Option Agreement may specify that payment may be made in any form(s) described in this Article 6. (b) In the case of an NSO, the Committee may at any time accept payment in any form(s) described in this Article 6. 6.2 Surrender of Stock. To the extent that this Section 6.2 is applicable, payment for all or any part of the Exercise Price may be made with Common Shares which have already been owned by the Optionee for more than six months. Such Common Shares shall be valued at their Fair Market Value on the date when the new Common Shares are purchased under the Plan. 6.3 Exercise/Sale. To the extent that this Section 6.3 is applicable, payment may be made by the delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker approved by the Company to sell Common Shares and to deliver all or part of the sales proceeds to the Company in payment of all or part of the Exercise Price and any withholding taxes. 6.4 Exercise/Pledge. To the extent that this Section 6.4 is applicable, payment may be made by the delivery (on a form prescribed by the Company) of an irrevocable direction to pledge Common Shares to a securities broker or lender approved by the Company, as security for a loan, and to deliver all or part of the loan proceeds to the Company in payment of all or part of the Exercise Price and any withholding taxes. 6.5 Promissory Note. To the extent that this Section 6.5 is applicable, payment may be made with a full-recourse promissory note; provided that the par value of the Common Shares shall be paid in cash. 6.6 Other Forms of Payment. To the extent that this Section 6.6 is applicable, payment may be made in any other form that is consistent with applicable laws, regulations and rules. ARTICLE 7. STOCK APPRECIATION RIGHTS. 7.1 SAR Agreement. Each grant of an SAR under the Plan shall be evidenced by an SAR Agreement between the Optionee and the Company. Such SAR shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various SAR Agreements entered into under the Plan need not be identical. SARs may be granted in consideration of a reduction in the Optionee's other compensation. -5- 9 7.2 Number of Shares. Each SAR Agreement shall specify the number of Common Shares to which the SAR pertains and shall provide for the adjustment of such number in accordance with Article 10. SARs granted to any Optionee in a single calendar year shall in no event pertain to more than 250,000 Common Shares, subject to adjustment in accordance with Article 10. 7.3 Exercise Price. Each SAR Agreement shall specify the Exercise Price. An SAR Agreement may specify an Exercise Price that varies in accordance with a predetermined formula while the SAR is outstanding. 7.4 Exercisability and Term. Each SAR Agreement shall specify the date when all or any installment of the SAR is to become exercisable. The SAR Agreement shall also specify the term of the SAR. An SAR Agreement may provide for accelerated exercisability in the event of the Optionee's death, disability or retirement or other events and may provide for expiration prior to the end of its term in the event of the termination of the Optionee's service. SARs may also be awarded in combination with Options, Restricted Shares or Stock Units, and such an Award may provide that the SARs will not be exercisable unless the related Options, Restricted Shares or Stock Units are forfeited. An SAR may be included in an ISO only at the time of grant but may be included in an NSO at the time of grant or thereafter. An SAR granted under the Plan may provide that it will be exercisable only in the event of a Change in Control. 7.5 Effect of Change in Control. The Committee may determine, at the time of granting an SAR or thereafter, that such SAR shall become fully exercisable as to all Common Shares subject to such SAR in the event that a Change in Control occurs with respect to the Company. 7.6 Exercise of SARs. The exercise of an SAR shall be subject to the restrictions imposed by Rule 16b-3 (or its successor) under the Exchange Act, if applicable. If, on the date when an SAR expires, the Exercise Price under such SAR is less than the Fair Market Value on such date but any portion of such SAR has not been exercised or surrendered, then such SAR shall automatically be deemed to be exercised as of such date with respect to such portion. Upon exercise of an SAR, the Optionee (or any person having the right to exercise the SAR after his or her death) shall receive from the Company (a) Common Shares, (b) cash or (c) a combination of Common Shares and cash, as the Committee shall determine. The amount of cash and/or the Fair Market Value of Common Shares received upon exercise of SARs shall, in the aggregate, be equal to the amount by which the Fair Market Value (on the date of surrender) of the Common Shares subject to the SARs exceeds the Exercise Price. 7.7 Modification or Assumption of SARs. Within the limitations of the Plan, the Committee may modify, extend or assume outstanding SARs or may accept the cancellation of outstanding -6- 10 SARs (whether granted by the Company or by another issuer) in return for the grant of new SARs for the same or a different number of shares and at the same or a different exercise price. The foregoing notwithstanding, no modification of an SAR shall, without the consent of the Optionee, alter or impair his or her rights or obligations under such SAR. ARTICLE 8. RESTRICTED SHARES AND STOCK UNITS. 8.1 Time, Amount and Form of Awards. Awards under the Plan may be granted in the form of Restricted Shares, in the form of Stock Units, or in any combination of both. Restricted Shares or Stock Units may also be awarded in combination with NSOs or SARs, and such an Award may provide that the Restricted Shares or Stock Units will be forfeited in the event that the related NSOs or SARs are exercised. 8.2 Payment for Awards. To the extent that an Award is granted in the form of newly issued Restricted Shares, the Award recipient, as a condition to the grant of such Award, shall be required to pay the Company in cash an amount equal to the par value of such Restricted Shares. To the extent that an Award is granted in the form of Restricted Shares from the Company's treasury or in the form of Stock Units, no cash consideration shall be required of the Award recipients. 8.3 Vesting Conditions. Each Award of Restricted Shares or Stock Units shall become vested, in full or in installments, upon satisfaction of the conditions specified in the Stock Award Agreement. A Stock Award Agreement may provide for accelerated vesting in the event of the Participant's death, disability or retirement or other events. The Committee may determine, at the time of making an Award or thereafter, that such Award shall become fully vested in the event that a Change in Control occurs with respect to the Company. 8.4 Form and Time of Settlement of Stock Units. Settlement of vested Stock Units may be made in the form of (a) cash, (b) Common Shares or (c) any combination of both, as determined by the Committee. The actual number of Stock Units eligible for settlement may be larger or smaller than the number included in the original Award, based on predetermined performance factors. Methods of converting Stock Units into cash may include (without limitation) a method based on the average Fair Market Value of Common Shares over a series of trading days. Vested Stock Units may be settled in a lump sum or in installments. The distribution may occur or commence when all vesting conditions applicable to the Stock Units have been satisfied or have lapsed, or it may be deferred to any later date. The amount of a deferred distribution may be increased by an interest factor or by dividend equivalents. Until an Award of Stock Units is settled, the number of such Stock Units shall be subject to adjustment pursuant to Article 10. -7- 11 8.5 Death of Recipient. Any Stock Units Award that becomes payable after the recipient's death shall be distributed to the recipient's beneficiary or beneficiaries. Each recipient of a Stock Units Award under the Plan shall designate one or more beneficiaries for this purpose by filing the prescribed form with the Company. A beneficiary designation may be changed by filing the prescribed form with the Company at any time before the Award recipient's death. If no beneficiary was designated or if no designated beneficiary survives the Award recipient, then any Stock Units Award that becomes payable after the recipient's death shall be distributed to the recipient's estate. 8.6 Creditors' Rights. A holder of Stock Units shall have no rights other than those of a general creditor of the Company. Stock Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the applicable Stock Award Agreement. ARTICLE 9. VOTING AND DIVIDEND RIGHTS. 9.1 Restricted Shares. The holders of Restricted Shares awarded under the Plan shall have the same voting, dividend and other rights as the Company's other stockholders. A Stock Award Agreement, however, may require that the holders of Restricted Shares invest any cash dividends received in additional Restricted Shares. Such additional Restricted Shares shall be subject to the same conditions and restrictions as the Award with respect to which the dividends were paid. Such additional Restricted Shares shall not reduce the number of Common Shares available under Article 3. 9.2 Stock Units. The holders of Stock Units shall have no voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under the Plan may, at the Committee's discretion, carry with it a right to dividend equivalents. Such right entitles the holder to be credited with an amount equal to all cash dividends paid on one Common Share while the Stock Unit is outstanding. Dividend equivalents may be converted into additional Stock Units. Settlement of dividend equivalents may be made in the form of cash, in the form of Common Shares, or in a combination of both. Prior to distribution, any dividend equivalents which are not paid shall be subject to the same conditions and restrictions as the Stock Units to which they attach. ARTICLE 10. PROTECTION AGAINST DILUTION. 10.1 Adjustments. In the event of a subdivision of the outstanding Common Shares, a declaration of a dividend payable in Common Shares, a declaration of a dividend payable in a form other than Common Shares in an amount that has a material effect on the price of Common Shares, a combination or consolidation of the outstanding Common Shares (by reclassification or otherwise) into a lesser number of Common Shares, a recapitalization, a spinoff or a similar occurrence, the Committee shall make such adjustments as -8- 12 it, in its sole discretion, deems appropriate in one or more of (a) the number of Options, SARs, Restricted Shares and Stock Units available for future Awards under Article 3, (b) the limitations set forth in Sections 5.2 and 7.2, (c) the number of NSOs to be granted to Outside Directors under Section 4.2, (d) the number of Stock Units included in any prior Award which has not yet been settled, (e) the number of Common Shares covered by each outstanding Option and SAR or (f) the Exercise Price under each outstanding Option and SAR. Except as provided in this Article 10, a Participant shall have no rights by reason of any issue by the Company of stock of any class or securities convertible into stock of any class, any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class. 10.2 Reorganizations. In the event that the Company is a party to a merger or other reorganization, outstanding Options, SARs, Restricted Shares and Stock Units shall be subject to the agreement of merger or reorganization. Such agreement may provide, without limitation, for the assumption of outstanding Awards by the surviving corporation or its parent, for their continuation by the Company (if the Company is a surviving corporation), for accelerated vesting and accelerated expiration (provided the Company has previously had its initial public offering), or for settlement in cash. ARTICLE 11. AWARDS UNDER OTHER PLANS. The Company may grant awards under other plans or programs. Such awards may be settled in the form of Common Shares issued under this Plan. Such Common Shares shall be treated for all purposes under the Plan like Common Shares issued in settlement of Stock Units and shall, when issued, reduce the number of Common Shares available under Article 3. ARTICLE 12. PAYMENT OF DIRECTOR'S FEES IN SECURITIES. 12.1 Effective Date. No provision of this Article 12 shall be effective unless and until the Board has determined to implement such provision. 12.2 Elections to Receive NSOs, Restricted Shares or Stock Units. An Outside Director may elect to receive his or her annual retainer payments and meeting fees from the Company in the form of cash, NSOs, Restricted Shares, Stock Units, or a combination thereof, as determined by the Board. Such NSOs, Restricted Shares and Stock Units shall be issued under the Plan. An election under this Article 12 shall be filed with the Company on the prescribed form. 12.3 Number and Terms of NSOs, Restricted Shares or Stock Units. The number of NSOs, Restricted Shares or Stock Units to be granted to Outside Directors in lieu of annual retainers and meeting fees that would otherwise be paid in cash shall be calculated -9- 13 in a manner determined by the Board. The terms of such NSOs, Restricted Shares or Stock Units shall also be determined by the Board. ARTICLE 13. LIMITATION ON RIGHTS. 13.1 Retention Rights. Neither the Plan nor any Award granted under the Plan shall be deemed to give any individual a right to remain an employee, consultant or director of the Company, a Parent or a Subsidiary. The Company and its Parents and Subsidiaries reserve the right to terminate the service of any employee, consultant or director at any time, with or without cause, subject to applicable laws, the Company's certificate of incorporation and by-laws and a written employment agreement (if any). 13.2 Stockholders' Rights. A Participant shall have no dividend rights, voting rights or other rights as a stockholder with respect to any Common Shares covered by his or her Award prior to the issuance of a stock certificate for such Common Shares. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date when such certificate is issued, except as expressly provided in Articles 8, 9 and 10. 13.3 Regulatory Requirements. Any other provision of the Plan notwithstanding, the obligation of the Company to issue Common Shares under the Plan shall be subject to all applicable laws, rules and regulations and such approval by any regulatory body as may be required. The Company reserves the right to restrict, in whole or in part, the delivery of Common Shares pursuant to any Award prior to the satisfaction of all legal requirements relating to the issuance of such Common Shares, to their registration, qualification or listing or to an exemption from registration, qualification or listing. ARTICLE 14. LIMITATION ON PAYMENTS. 14.1 Basic Rule. Any provision of the Plan to the contrary notwithstanding, in the event that the independent auditors most recently selected by the Board (the "Auditors") determine that any payment or transfer by the Company under the Plan to or for the benefit of a Participant (a "Payment") would be nondeductible by the Company for federal income tax purposes because of the provisions concerning "excess parachute payments" in section 280G of the Code, then the aggregate present value of all Payments shall be reduced (but not below zero) to the Reduced Amount; provided that the Committee, at the time of making an Award under this Plan or at any time thereafter, may specify in writing that such Award shall not be so reduced and shall not be subject to this Article 14. For purposes of this Article 14, the "Reduced Amount" shall be the amount, expressed as a present value, which maximizes the aggregate present value of the Payments without causing any -10- 14 Payment to be nondeductible by the Company because of section 280G of the Code. 14.2 Reduction of Payments. If the Auditors determine that any Payment would be nondeductible by the Company because of section 280G of the Code, then the Company shall promptly give the Participant notice to that effect and a copy of the detailed calculation thereof and of the Reduced Amount, and the Participant may then elect, in his or her sole discretion, which and how much of the Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the Reduced Amount) and shall advise the Company in writing of his or her election within 10 days of receipt of notice. If no such election is made by the Participant within such 10-day period, then the Company may elect which and how much of the Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the Reduced Amount) and shall notify the Participant promptly of such election. For purposes of this Article 14, present value shall be determined in accordance with section 280G(d)(4) of the Code. All determinations made by the Auditors under this Article 14 shall be binding upon the Company and the Participant and shall be made within 60 days of the date when a Payment becomes payable or transferable. As promptly as practicable following such determination and the elections hereunder, the Company shall pay or transfer to or for the benefit of the Participant such amounts as are then due to him or her under the Plan and shall promptly pay or transfer to or for the benefit of the Participant in the future such amounts as become due to him or her under the Plan. 14.3 Overpayments and Underpayments. As a result of uncertainty in the application of section 280G of the Code at the time of an initial determination by the Auditors hereunder, it is possible that Payments will have been made by the Company which should not have been made (an "Overpayment") or that additional Payments which will not have been made by the Company could have been made (an "Underpayment"), consistent in each case with the calculation of the Reduced Amount hereunder. In the event that the Auditors, based upon the assertion of a deficiency by the Internal Revenue Service against the Company or the Participant which the Auditors believe has a high probability of success, determine that an Overpayment has been made, such Overpayment shall be treated for all purposes as a loan to the Participant which he or she shall repay to the Company, together with interest at the applicable federal rate provided in section 7872(f)(2) of the Code; provided, however, that no amount shall be payable by the Participant to the Company if and to the extent that such payment would not reduce the amount which is subject to taxation under section 4999 of the Code. In the event that the Auditors determine that an Underpayment has occurred, such Underpayment shall promptly be paid or transferred by the Company to or for the benefit of the Participant, together with interest at the applicable federal rate provided in section 7872(f)(2) of the Code. -11- 15 14.4 Related Corporations. For purposes of this Article 14, the term "Company" shall include affiliated corporations to the extent determined by the Auditors in accordance with section 280G(d)(5) of the Code. ARTICLE 15. WITHHOLDING TAXES. 15.1 General. To the extent required by applicable federal, state, local or foreign law, a Participant or his or her successor shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise in connection with the Plan. The Company shall not be required to issue any Common Shares or make any cash payment under the Plan until such obligations are satisfied. 15.2 Share Withholding. The Committee may permit a Participant to satisfy all or part of his or her withholding or income tax obligations by having the Company withhold all or a portion of any Common Shares that otherwise would be issued to him or her or by surrendering all or a portion of any Common Shares that he or she previously acquired. Such Common Shares shall be valued at their Fair Market Value on the date when taxes otherwise would be withheld in cash. Any payment of taxes by assigning Common Shares to the Company may be subject to restrictions, including any restrictions required by rules of the Securities and Exchange Commission. ARTICLE 16. ASSIGNMENT OR TRANSFER OF AWARDS. 16.1 General. An Award granted under the Plan shall not be anticipated, assigned, attached, garnished, optioned, transferred or made subject to any creditor's process, whether voluntarily, involuntarily or by operation of law, except as approved by the Committee. Notwithstanding the foregoing, ISOs and, prior to the Company's initial public offering, NSOs may not be transferable. However, this Article 16 shall not preclude a Participant from designating a beneficiary who will receive any outstanding Awards in the event of the Participant's death, nor shall it preclude a transfer of Awards by will or by the laws of descent and distribution. 16.2 Trusts. Neither this Article 16 nor any other provision of the Plan shall preclude a Participant from transferring or assigning Restricted Shares to (a) the trustee of a trust that is revocable by such Participant alone, both at the time of the transfer or assignment and at all times thereafter prior to such Participant's death, or (b) the trustee of any other trust to the extent approved in advance by the Committee in writing. A transfer or assignment of Restricted Shares from such trustee to any person other than such Participant shall be permitted only to the extent approved in advance by the Committee in writing, and Restricted Shares held by such trustee shall be subject to all of the conditions and restrictions set forth in the Plan and in the -12- 16 applicable Stock Award Agreement, as if such trustee were a party to such Agreement. ARTICLE 17. FUTURE OF THE PLAN. 17.1 Term of the Plan. The Plan, as set forth herein, was adopted on December 5, 1996, and shall become effective December 1, 1996, except that Articles 7, 8 and 9 shall not be effective prior to the date of the Company's initial public offering. The Plan shall remain in effect until it is terminated under Section 17.2, except that no ISOs shall be granted after December 1, 2006. 17.2 Amendment or Termination. The Board may, at any time and for any reason, amend or terminate the Plan. An amendment of the Plan shall be subject to the approval of the Company's stockholders only to the extent required by applicable laws, regulations or rules. No Awards shall be granted under the Plan after the termination thereof. The termination of the Plan, or any amendment thereof, shall not affect any Award previously granted under the Plan. ARTICLE 18. DEFINITIONS. 18.1 "Award" means any award of an Option, an SAR, a Restricted Share or a Stock Unit under the Plan. 18.2 "Board" means the Company's Board of Directors, as constituted from time to time. 18.3 "Change in Control" shall mean the occurrence of any of the following events: (a) The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than 50% of the combined voting power of the continuing or surviving entity's securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization; (b) A change in the composition of the Board, as a result of which fewer than one-half of the incumbent directors are directors who either: (A) Had been directors of the Company 24 months prior to such change; or (B) Were elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the directors who had been directors of the Company 24 months prior to such change and who were -13- 17 still in office at the time of the election or nomination; or (c) Any "person" (as such term is used in sections 13(d) and 14(d) of the Exchange Act) by the acquisition or aggregation of securities is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities ordinarily (and apart from rights accruing under special circumstances) having the right to vote at elections of directors (the "Base Capital Stock"); except that any change in the relative beneficial ownership of the Company's securities by any person resulting solely from a reduction in the aggregate number of outstanding shares of Base Capital Stock, and any decrease thereafter in such person's ownership of securities, shall be disregarded until such person increases in any manner, directly or indirectly, such person's beneficial ownership of any securities of the Company. The term "Change in Control" shall not include the Company's initial public offering or a transaction, the sole purpose of which is to change the state of the Company's incorporation. 18.4 "Code" means the Internal Revenue Code of 1986, as amended. 18.5 "Committee" means a committee of the Board, as described in Article 2. 18.6 "Common Share" means one share of the common stock of the Company. 18.7 "Company" means Biosite Diagnostics Incorporated, a Delaware corporation. 18.8 "Exchange Act" means the Securities Exchange Act of 1934, as amended. 18.9 "Exercise Price," in the case of an Option, means the amount for which one Common Share may be purchased upon exercise of such Option, as specified in the applicable Stock Option Agreement. "Exercise Price," in the case of an SAR, means an amount, as specified in the applicable SAR Agreement, which is subtracted from the Fair Market Value of one Common Share in determining the amount payable upon exercise of such SAR. 18.10 "Fair Market Value" means the market price of Common Shares, determined by the Committee as follows: (a) If the Common Shares were traded over-the-counter on the date in question but was not traded on the Nasdaq Stock Market or the Nasdaq National Market, then the Fair Market Value shall be equal to the mean between the last -14- 18 reported representative bid and asked prices quoted for such date by the principal automated inter-dealer quotation system on which the Common Shares are quoted or, if the Common Shares are not quoted on any such system, by the "Pink Sheets" published by the National Quotation Bureau, Inc.; (b) If the Common Shares were traded over-the-counter on the date in question and were traded on the Nasdaq Stock Market or the Nasdaq National Market, then the Fair Market Value shall be equal to the last-transaction price quoted for such date by the Nasdaq Stock Market or the Nasdaq National Market; (c) If the Common Shares were traded on a stock exchange on the date in question, then the Fair Market Value shall be equal to the closing price reported by the applicable composite transactions report for such date; and (d) If none of the foregoing provisions is applicable, then the Fair Market Value shall be determined by the Committee in good faith on such basis as it deems appropriate. Whenever possible, the determination of Fair Market Value by the Committee shall be based on the prices reported in the Western Edition of The Wall Street Journal. Such determination shall be conclusive and binding on all persons. 18.11 "ISO" means an incentive stock option described in section 422(b) of the Code. 18.12 "Key Employee" means (a) a common-law employee of the Company, a Parent or a Subsidiary, (b) an Outside Director and (c) a consultant or adviser who provides services to the Company, a Parent or a Subsidiary as an independent contractor. Service as an Outside Director or as an independent contractor shall be considered employment for all purposes of the Plan, except as provided in Sections 4.2 and 4.3. 18.13 "NSO" means a stock option not described in sections 422 or 423 of the Code. 18.14 "Option" means an ISO or NSO granted under the Plan and entitling the holder to purchase one Common Share. 18.15 "Optionee" means an individual or estate who holds an Option or SAR. 18.16 "Outside Director" shall mean a member of the Board who is not a common-law employee of the Company, a Parent or a Subsidiary. 18.17 "Parent" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns -15- 19 stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date. 18.18 "Participant" means an individual or estate who holds an Award. 18.19 "Plan" means this 1996 Stock Incentive Plan of Biosite Diagnostics Incorporated, as amended from time to time. 18.20 "Restricted Share" means a Common Share awarded under the Plan. 18.21 "SAR" means a stock appreciation right granted under the Plan. 18.22 "SAR Agreement" means the agreement between the Company and an Optionee which contains the terms, conditions and restrictions pertaining to his or her SAR. 18.23 "Stock Award Agreement" means the agreement between the Company and the recipient of a Restricted Share or Stock Unit which contains the terms, conditions and restrictions pertaining to such Restricted Share or Stock Unit. 18.24 "Stock Option Agreement" means the agreement between the Company and an Optionee which contains the terms, conditions and restrictions pertaining to his or her Option. 18.25 "Stock Unit" means a bookkeeping entry representing the equivalent of one Common Share, as awarded under the Plan. 18.26 "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date. -16- 20 ARTICLE 19. EXECUTION. To record the adoption of the Plan by the Board, the Company has caused its duly authorized officer to affix the corporate name and seal hereto. BIOSITE DIAGNOSTICS INCORPORATED [SEAL] By /s/ Kim D. Blickenstaff ----------------------------- -17- EX-10.3 11 EXHIBIT 10.3 1 Exhibit 10.3 1996 STOCK INCENTIVE PLAN OF BIOSITE DIAGNOSTICS INCORPORATED: INCENTIVE STOCK OPTION AGREEMENT Biosite Diagnostics Incorporated, a Delaware corporation (the "Company"), hereby grants an option to purchase shares of its common stock to the optionee named below. The terms and conditions of the option are set forth in this cover sheet, in the attachment and in the 1996 Stock Incentive Plan of Biosite Diagnostics Incorporated (the "Plan"). Date of Option Grant: ___________ ___, 199__ Name of Optionee: ____________________________ Optionee's Social Security Number: ____-___-_____ Number of Shares of Company Common Stock Covered by Option: _______ Exercise Price per Share: $__.____ Vesting Start Date: ___________ ___, 199__ BY SIGNING THIS COVER SHEET, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED IN THE ATTACHMENT AND IN THE PLAN. Optionee: _________________________________ (Signature) Company: ______________________________________ (Signature) Title: ___________________________ Attachment 2 1996 STOCK INCENTIVE PLAN OF BIOSITE DIAGNOSTICS INCORPORATED: INCENTIVE STOCK OPTION AGREEMENT INCENTIVE STOCK OPTION This option is intended to be an incentive stock option under section 422 of the Internal Revenue Code and will be interpreted accordingly. VESTING Your right to exercise this option shall become exercisable on a daily basis over a four-year period starting on the Vesting Start Date, as shown on the cover sheet. Except as provided below, your vested shares of Company Common Stock shall be determined by multiplying your days of Service since the Vesting Start Date by .000684931 and by the number of shares of Company Common Stock covered by this option, as shown on the cover sheet. The resulting number of shares will be rounded to the nearest whole number. Notwithstanding the foregoing, no part of this option is exercisable until you have completed six consecutive months of Service. "Service" means your service as an employee, director, consultant or advisor of the Company or any affiliated company. No additional shares become exercisable after your Company service has terminated for any reason. TERM Your option will expire in any event at the close of business at Company headquarters on the day before the 10th anniversary of the Date of Option Grant, as shown on the cover sheet. (It will expire earlier if your Service terminates, as described below.) REGULAR TERMINATION If your Service terminates for any reason except death or total and permanent disability, then your option will expire at the close of business at Company headquarters on the 90th day after your termination date. The Company determines when your service terminates for this purpose. -2- Initial Grant 3 DEATH If you die while still in Service, then your option will expire at the close of business at Company headquarters on the date 12 months after the date of death. During that 12-month period, your estate, heirs or designated beneficiary may exercise the vested portion of your option. DISABILITY If your Service terminates because of your total and permanent disability, then your option will expire at the close of business at Company headquarters on the date 12 months after your termination date. During that period, you may exercise the vested portion of your option. "Total and permanent disability" means that you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than one year. LEAVES OF ABSENCE For purposes of this option, Service does not terminate when you go on a military leave, a sick leave or another bona fide leave of absence, if the leave was approved by the Company in writing. But Service will be treated as terminating 90 days after you went on leave, unless your right to return to active work is guaranteed by law or by a contract. Service terminates in any event when the approved leave ends, unless you immediately return to Service. The Company determines which leaves count for this purpose. RESTRICTIONS ON The Company will not permit you to exercise this EXERCISE option if the issuance of shares at that time would violate any law or regulation. NOTICE OF EXERCISE When you wish to exercise this option, you must notify the Company by filing the proper "Notice of Exercise" form at the address given on the form. Your notice must specify how many shares you wish to purchase. Your notice must also specify how your shares should be registered (in your name only or in your and your spouse's names as community property or as joint tenants with right of survivorship). The notice will be effective when it is received by the Company. -3- 4 If someone else wants to exercise this option after your death, that person must prove to the Company's satisfaction that he or she is entitled to do so. FORM OF PAYMENT When you submit your notice of exercise, you must include payment of the option price for the shares you are purchasing. Payment may be made in one (or a combination of two or more) of the following forms: o Your personal check, a cashier's check or a money order. o Certificates for Company stock that you have owned for at least six months, along with any forms needed to effect a transfer of the shares to the Company. The value of the shares, determined as of the effective date of the option exercise, will be applied to the option price. o Irrevocable directions to a securities broker approved by the Company to sell your option shares and to deliver all or a portion of the sale proceeds to the Company in payment of the option price. (The balance of the sale proceeds, if any, will be delivered to you.) The directions must be given by signing a special "Notice of Exercise" form provided by the Company. WITHHOLDING TAXES You will not be allowed to exercise this option unless you make acceptable arrangements to pay any withholding taxes that may be due as a result of the option exercise. RESTRICTIONS ON RESALE By signing this Agreement, you agree not to sell any option shares at a time when applicable laws or Company policies prohibit a sale. This restriction will apply as long as you are in the Service of the Company. TRANSFER OF OPTION Prior to your death, only you may exercise this option. You cannot transfer or assign this option. For instance, you may not sell this option or use it as security for a loan. If you attempt to do any of these things, this option will immediately become invalid. You may, however, dispose of this option in your will. -4- 5 RETENTION RIGHTS Your option or this Agreement do not give you the right to be retained by the Company (or any subsidiaries) in any capacity. The Company (and any subsidiaries) reserve the right to terminate your service at any time, with or without cause. STOCKHOLDER RIGHTS You, or your estate or heirs, have no rights as a stockholder of the Company until a certificate for your option shares has been issued. No adjustments are made for dividends or other rights if the applicable record date occurs before your stock certificate is issued, except as described in the Plan. ADJUSTMENTS In the event of a stock split, a stock dividend or a similar change in Company stock, the number of shares covered by this option and the exercise price per share may be adjusted pursuant to the Plan. APPLICABLE LAW This Agreement will be interpreted and enforced under the laws of the State of California. THE PLAN AND OTHER The text of the Plan is incorporated in this AGREEMENTS Agreement by reference. This Agreement and the Plan constitute the entire understanding between you and the Company regarding this option. Any prior agreements, commitments or negotiations concerning this option are superseded. BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN. -5- EX-10.4 12 EXHIBIT 10.4 1 Exhibit 10.4 1996 STOCK INCENTIVE PLAN OF BIOSITE DIAGNOSTICS INCORPORATED: NONSTATUTORY STOCK OPTION AGREEMENT Biosite Diagnostics Incorporated, a Delaware corporation (the "Company"), hereby grants an option to purchase shares of its common stock to the optionee named below. The terms and conditions of the option are set forth in this cover sheet, in the attachment and in the 1996 Stock Incentive Plan of Biosite Diagnostics Incorporated (the "Plan"). Date of Option Grant: ___________ ___, 199__ Name of Optionee: ____________________________ Optionee's Social Security Number: ____-___-_____ Number of Shares of Company Common Stock Covered by Option: Exercise Price per Share: $__.____ Vesting Start Date: ___________ ___, 199__ BY SIGNING THIS COVER SHEET, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED IN THE ATTACHMENT AND IN THE PLAN. Optionee: _________________________________ (Signature) Company: ______________________________________ (Signature) Title: ___________________________ Attachment 2 1996 STOCK INCENTIVE PLAN OF BIOSITE DIAGNOSTICS INCORPORATED: NONSTATUTORY STOCK OPTION AGREEMENT NONSTATUTORY STOCK OPTION This option is not intended to be an incentive stock option under section 422 of the Internal Revenue Code. VESTING Your right to exercise this option shall become exercisable on a daily basis over a four-year period starting on the Vesting Start Date, as shown on the cover sheet. Except as provided below, your vested shares of Company Common Stock shall be determined by multiplying your days of Service since the Vesting Start Date by .000684931 and by the number of shares of Company Common Stock covered by this option, as shown on the cover sheet. The resulting number of shares will be rounded to the nearest whole number. Notwithstanding the foregoing, no part of this option is exercisable until you have completed six consecutive months of Service. "Service" means your service as an employee, director, consultant or advisor of the Company or any affiliated company. No additional shares become exercisable after your Company service has terminated for any reason. TERM Your option will expire in any event at the close of business at Company headquarters on the day before the 10th anniversary of the Date of Option Grant, as shown on the cover sheet. (It will expire earlier if your Service terminates, as described below.) REGULAR TERMINATION If your Service terminates for any reason except death or total and permanent disability, then your option will expire at the close of business at Company headquarters on the 90th day after your termination date. The Company determines when your service terminates for this purpose. -2- 3 DEATH If you die while still in Service, then your option will expire at the close of business at Company headquarters on the date 12 months after the date of death. During that 12-month period, your estate, heirs or designated beneficiary may exercise the vested portion of your option. DISABILITY If your Service terminates because of your total and permanent disability, then your option will expire at the close of business at Company headquarters on the date 12 months after your termination date. During that 12-month period, you may exercise the vested portion of your option. "Total and permanent disability" means that you are unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last, for a continuous period of not less than one year. LEAVES OF ABSENCE For purposes of this option, Service does not terminate when you go on a military leave, a sick leave or another bona fide leave of absence, if the leave was approved by the Company in writing. But Service terminates immediately when the approved leave ends, unless you immediately return to Service. Service terminates in any event when the approved leave ends, unless you immediately return to Service. RESTRICTIONS ON EXERCISE The Company will not permit you to exercise this option if the issuance of shares at that time would violate any law or regulation. NOTICE OF EXERCISE When you wish to exercise this option, you must notify the Company by filing the proper "Notice of Exercise" form at the address given on the form. Your notice must specify how many shares you wish to purchase. Your notice must also specify how your shares should be registered (in your name only or in your and your spouse's names as community property or as joint tenants with right of survivorship). The notice will be effective when it is received by the Company. -3- 4 If someone else wants to exercise this option after your death, that person must prove to the Company's satisfaction that he or she is entitled to do so. FORM OF PAYMENT When you submit your notice of exercise, you must include payment of the option price for the shares you are purchasing. Payment may be made in one (or a combination of two or more) of the following forms: o Your personal check, a cashier's check or a money order. o Certificates for Company stock that you have owned for at least six months, along with any forms needed to effect a transfer of the shares to the Company. The value of the shares, determined as of the effective date of the option exercise, will be applied to the option price. o Irrevocable directions to a securities broker approved by the Company to sell your option shares and to deliver all or a portion of the sale proceeds to the Company in payment of the option price. (The balance of the sale proceeds, if any, will be delivered to you.) The directions must be given by signing a special "Notice of Exercise" form provided by the Company. WITHHOLDING TAXES You will not be allowed to exercise this option unless you make acceptable arrangements to pay any withholding taxes that may be due as a result of the option exercise. RESTRICTIONS ON RESALE By signing this Agreement, you agree not to sell any option shares at a time when applicable laws or Company policies prohibit a sale. This restriction will apply as long as you are in the Service of the Company (or a subsidiary). TRANSFER OF OPTION Prior to your death, only you may exercise this option. You cannot transfer or assign this option. For instance, you may not sell this option or use it as security for a loan. If you attempt to do any of these things, this option will immediately become invalid. You may, however, dispose of this option in your will. -4- 5 TRANSFER OF OPTION Prior to your death, only you may exercise this option. You cannot transfer or assign this option. For instance, you may not sell this option or use it as security for a loan. If you attempt to do any of these things, this option will immediately become invalid. You may, however, dispose of this option in your will. RETENTION RIGHTS Your option or this Agreement do not give you the right to be retained by the Company (or any subsidiaries) in any capacity. The Company (and any subsidiaries) reserve the right to terminate your service at any time, with or without cause. STOCKHOLDER RIGHTS You, or your estate or heirs, have no rights as a stockholder of the Company until a certificate for your option shares has been issued. No adjustments are made for dividends or other rights if the applicable record date occurs before your stock certificate is issued, except as described in the Plan. ADJUSTMENTS In the event of a stock split, a stock dividend or a similar change in Company stock, the number of shares covered by this option and the exercise price per share may be adjusted pursuant to the Plan. APPLICABLE LAW This Agreement will be interpreted and enforced under the laws of the State of California. THE PLAN AND OTHER AGREEMENTS The text of the Plan is incorporated in this Agreement by reference. This Agreement and the Plan constitute the entire understanding between you and the Company regarding this option. Any prior agreements, commitments or negotiations concerning this option are superseded. BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE TERMS AND CONDITIONS DESCRIBED ABOVE AND IN THE PLAN. -5- EX-10.5 13 EXHIBIT 10.5 1 Exhibit 10.5 BIOSITE DIAGNOSTICS INCORPORATED EMPLOYEE STOCK PURCHASE PLAN SECTION 1. PURPOSE OF THE PLAN. The Plan was adopted by the Company's Board of Directors on December 5, 1996. The purpose of the Plan is to provide Eligible Employees with an opportunity to increase their proprietary interest in the success of the Company by purchasing Stock from the Company on favorable terms and to pay for such purchases through payroll deductions. The Plan is intended to qualify under section 423 of the Internal Revenue Code of 1986, as amended. SECTION 2. ADMINISTRATION OF THE PLAN. (a) The Committee. The Plan shall be administered by the Committee. The interpretation and construction by the Committee of any provision of the Plan or of any right to purchase Stock granted under the Plan shall be conclusive and binding on all persons. (b) Rules and Forms. The Committee may adopt such rules and forms under the Plan as it considers appropriate. SECTION 3. ENROLLMENT AND PARTICIPATION. (a) Offering Periods. While the Plan is in effect, two overlapping Offering Periods shall commence in each calendar year. Except for the first Offering Period, Offering Periods shall consist of the 24-month periods commencing on each January 1 and July 1. The first Offering Period shall commence on the effective date of the Company's initial public offering and end on December 31, 1998. (b) Accumulation Periods. While the Plan is in effect, two Accumulation Periods shall commence in each calendar year. Except for the first Accumulation Period, Accumulation Periods shall consist of the six-month periods commencing on each January 1 and July 1. The first Accumulation Period shall commence on the effective date of the Company's initial public offering and end on June 30, 1997. (c) Enrollment. Any individual who, on the day preceding the first day of an Offering Period, qualifies as an Eligible Employee may elect to become a Participant in the Plan for such Offering Period by executing the enrollment form prescribed for this purpose by the Committee. The enrollment form shall be filed with the Company not later than one week 2 prior to the last working day prior to the commencement of such Offering Period. (d) Duration of Participation. Once enrolled in the Plan, a Participant shall continue to participate until he or she ceases to be an Eligible Employee, withdraws from the Plan or reaches the end of the Accumulation Period in which he or she discontinued contributions. A Participant who discontinued contributions under Section 4(d) or withdrew from the Plan under Section 5(a) may again become a Participant, if he or she then is an Eligible Employee, by following the procedure described in Subsection (c) above. (e) Applicable Offering Period. For purposes of calculating the Purchase Price under Section 7(b), the applicable Offering Period shall be determined as follows: (i) Once a Participant is enrolled in the Plan for an Offering Period, such Offering Period shall continue to apply to him or her until the earliest of (A) the end of such Offering Period, (B) the end of his or her participation under Subsection (d) above or (C) reenrollment in a subsequent Offering Period under Paragraph (ii) below. (ii) In the event that the Fair Market Value of Stock on the last trading day before the commencement of the Offering Period in which the Participant is enrolled is higher than on the last trading day before the commencement of any subsequent Offering Period, the Participant shall automatically be re-enrolled for such subsequent Offering Period. (iii) When a Participant reaches the end of an Offering Period but his or her participation is to continue, then such Participant shall automatically be re-enrolled for the Offering Period that commences immediately after the end of the prior Offering Period. SECTION 4. EMPLOYEE CONTRIBUTIONS. (a) Frequency of Payroll Deductions. A Participant may purchase shares of Stock under the Plan solely by means of payroll deductions. Payroll deductions, as designated by the Participant pursuant to Subsection (b) below, shall occur on each payday during participation in the Plan. (b) Amount of Payroll Deductions. An Eligible Employee shall designate on the enrollment form the portion of his or her Compensation that he or she elects to have withheld for the purchase of Stock. Such portion shall be a whole percentage of the Eligible Employee's Compensation, but not less than 1% nor more than 15%. -2- 3 (c) Changing Withholding Rate. If a Participant wishes to change the rate of payroll withholding, he or she may do so by filing a new enrollment form with the Company not later than one week prior to the last working day prior to the commencement of the Accumulation Period for which such change is to be effective. (d) Discontinuing Payroll Deductions. If a Participant wishes to discontinue employee contributions entirely, he or she may do so by filing a new enrollment form at any time. Payroll withholding shall cease as soon as reasonably practicable after such form has been received by the Company. SECTION 5. WITHDRAWAL FROM THE PLAN. (a) Withdrawal. A Participant may elect to withdraw from the Plan by filing the prescribed form with the Company at any time before the last day of an Accumulation Period. As soon as reasonably practicable thereafter, payroll deductions shall cease and the entire amount credited to the Participant's Plan Account shall be refunded to him or her in cash, without interest. No partial withdrawals shall be permitted. (b) Re-Enrollment After Withdrawal. A former Participant who has withdrawn from the Plan shall not be a Participant until he or she re-enrolls in the Plan under Section 3(b). SECTION 6. TERMINATION OF EMPLOYMENT OR DEATH. (a) Termination of Employment. Termination of employment as an Eligible Employee for any reason, including death, shall be treated as an automatic withdrawal from the Plan under Section 5(a). (A transfer from one Participating Company to another shall not be treated as a termination of employment.) (b) Death. In the event of the Participant's death, the amount credited to his or her Plan Account shall be paid to a beneficiary designated by him or her for this purpose on the prescribed form or, if none, to the Participant's estate. Such form shall be valid only if it was filed with the Company before the Participant's death. SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES. (a) Plan Accounts. The Company shall maintain a Plan Account on its books in the name of each Participant. Whenever an amount is deducted from the Participant's Compensation under the Plan, such amount shall be credited to the Participant's Plan Account. No interest shall be credited to Plan Accounts. -3- 4 (b) Purchase Price. The Purchase Price for each share of Stock purchased at the close of an Accumulation Period shall be the lower of: (i) 85% of the Fair Market Value of such share on the last trading day before the commencement of the applicable Offering Period (as determined under Section 3(e)); or (ii) 85% of the Fair Market Value of such share on the last trading day in such Accumulation Period. (c) Number of Shares Purchased. As of the last day of each Accumulation Period, each Participant shall be deemed to have elected to purchase the number of shares of Stock calculated in accordance with this Subsection (c), unless the Participant has previously elected to withdraw from the Plan in accordance with Section 5(a). The amount then in the Participant's Plan Account shall be divided by the Purchase Price, and the number of shares that results shall be purchased from the Company with the funds in the Participant's Plan Account. The foregoing notwithstanding, no Participant shall purchase more than a maximum of 2,500 shares of Stock with respect to any Accumulation Period nor shares of Stock in excess of the amounts set forth in Sections 8 and 12(a). The Committee may determine with respect to all Participants that any fractional share, as calculated under this Subsection (c), shall be rounded down to the next lower whole share. (d) Available Shares Insufficient. In the event that the aggregate number of shares that all Participants elect to purchase during an Accumulation Period exceeds the maximum number of shares remaining available for issuance under Section 12(a), then the number of shares to which each Participant is entitled shall be determined by multiplying the number of shares available for issuance by a fraction, the numerator of which is the number of shares that such Participant has elected to purchase and the denominator of which is the number of shares that all Participants have elected to purchase. (e) Issuance of Stock. Certificates representing the shares of Stock purchased by a Participant under the Plan shall be issued to him or her as soon as reasonably practicable after the close of the applicable Accumulation Period, except that the Committee may determine that such shares shall be held for each Participant's benefit by a broker designated by the Committee (unless the Participant has elected that certificates be issued to him or her). Shares may be registered in the name of the Participant or jointly in the name of the Participant and his or her spouse as joint tenants with right of survivorship or as community property. -4- 5 (f) Unused Cash Balances. An amount remaining in the Participant's Plan Account that represents the Purchase Price for any fractional share shall be carried over in the Participant's Plan Account to the next Accumulation Period. Any amount remaining in the Participant's Plan Account that represents the Purchase Price for whole shares that could not be purchased by reason of Subsection (c) above or Section 12(a) shall be refunded to the Participant in cash, without interest. (g) Failure of Shareholders to Approve Plan. In the event shareholders of the Company do not approve this Plan, the Participant's Plan Account shall be repaid to the Participant in cash and no Company shares will be purchased for the Participant under this Plan. SECTION 8. LIMITATIONS ON STOCK OWNERSHIP. Any other provision of the Plan notwithstanding, no Participant shall be granted a right to purchase Stock under the Plan if: (a) Such Participant, immediately after his or her election to purchase such Stock, would own stock possessing more than 5% of the total combined voting power or value of all classes of stock of the Company or any parent or Subsidiary of the Company; or (b) Under the terms of the Plan, such Participant's rights to purchase stock under this and all other qualified employee stock purchase plans of the Company or any parent or Subsidiary of the Company would accrue at a rate that exceeds $25,000 of the fair market value of such stock (determined at the time when such right is granted) for each calendar year for which such right or option is outstanding at any time. Ownership of stock shall be determined after applying the attribution rules of section 424(d) of the Internal Revenue Code of 1986, as amended. For purposes of this Section 8, each Participant shall be considered to own any stock that he or she has a right or option to purchase under this or any other plan, and each Participant shall be considered to have the right to purchase 2,500 shares of Stock under this Plan with respect to each Accumulation Period. SECTION 9. RIGHTS NOT TRANSFERABLE. The rights of any Participant under the Plan, or any Participant's interest in any Stock or moneys to which he or she may be entitled under the Plan, shall not be transferable by voluntary or involuntary assignment or by operation of law, or in any other manner other than by beneficiary designation -5- 6 or the laws of descent and distribution. If a Participant in any manner attempts to transfer, assign or otherwise encumber his or her rights or interest under the Plan, other than by beneficiary designation or the laws of descent and distribution, then such act shall be treated as an election by the Participant to withdraw from the Plan under Section 5(a). SECTION 10. NO RIGHTS AS AN EMPLOYEE. Nothing in the Plan shall be construed to give any person the right to remain in the employ of a Participating Company. Each Participating Company reserves the right to terminate the employment of any person at any time, with or without cause. SECTION 11. NO RIGHTS AS A STOCKHOLDER. A Participant shall have no rights as a stockholder with respect to any shares that he or she has purchased, or may have a right to purchase, under the Plan until the date of issuance of a stock certificate for such shares. SECTION 12. STOCK OFFERED UNDER THE PLAN. (a) Authorized Shares. The aggregate number of shares of Stock available for purchase under the Plan shall be 100,000, subject to adjustment pursuant to this Section 12. (b) Anti-Dilution Adjustments. The aggregate number of shares of Stock offered under the Plan, the 2,500-share limitation described in Section 7(c) and the price of shares that any Participant has elected to purchase shall be adjusted proportionately by the Committee for any increase or decrease in the number of outstanding shares of Stock resulting from a subdivision or consolidation of shares, the payment of a stock dividend, any other increase or decrease in such shares effected without receipt or payment of consideration by the Company or the distribution of the shares of a Subsidiary to the Company's stockholders. (c) Reorganizations. In the event of a dissolution or liquidation of the Company, or a merger or consolidation to which the Company is a constituent corporation, the Plan shall terminate unless the plan of merger, consolidation or reorganization provides otherwise, and all amounts that have been withheld but not yet applied to purchase Stock hereunder shall be refunded, without interest. The Plan shall in no event be construed to restrict in any way the Company's right to undertake a dissolution, liquidation, merger, consolidation or other reorganization. SECTION 13. AMENDMENT OR DISCONTINUANCE. The Board of Directors shall have the right to amend, suspend or terminate the Plan at any time and without notice. -6- 7 Except as provided in Section 12, any increase in the aggregate number of shares of Stock to be issued under the Plan shall be subject to approval by a vote of the stockholders of the Company. In addition, any other amendment of the Plan shall be subject to approval by a vote of the stockholders of the Company to the extent required by an applicable law or regulation. SECTION 14. DEFINITIONS. (a) "Accumulation Period" means a six-month period during which contributions may be made toward the purchase of Stock under the Plan, as determined pursuant to Section 3(b). (b) "Board of Directors" means the Board of Directors of the Company, as constituted from time to time. (c) "Committee" means a committee of the Board of Directors, consisting of one or more directors appointed by the Board of Directors. (d) "Company" means Biosite Diagnostics Incorporated, a Delaware corporation. (e) "Compensation" means the total compensation paid in cash to a Participant by a Participating Company, including salaries, wages, overtime pay and commissions, but excluding bonuses, incentive compensation, moving or relocation allowances, car allowances, imputed income attributable to cars or life insurance, taxable fringe benefits and similar items, all as determined by the Committee. (f) "Eligible Employee" means any employee of a Participating Company: (i) Whose customary employment is for more than five months per calendar year and for more than 20 hours per week; and (ii) Who has been an employee of a Participating Company for not less than one month. (g) "Fair Market Value" shall mean the market price of Stock, determined by the Committee as follows: (i) If Stock was traded over-the-counter on the date in question but was not traded on the Nasdaq Stock Market or the Nasdaq National Market, then the Fair Market Value shall be equal to the mean between the last reported representative bid and asked prices quoted for such date by the principal automated inter-dealer quotation system on which Stock is quoted or, if the Stock is not quoted on any such system, by the "Pink Sheets" published by the National Quotation Bureau, Inc.; -7- 8 (ii) If Stock was traded over-the-counter on the date in question and was traded on the Nasdaq Stock Market or the Nasdaq National Market, then the Fair Market Value shall be equal to the last-transaction price quoted for such date by the Nasdaq Stock Market or the Nasdaq National Market; (iii) If the Stock was traded on a stock exchange on the date in question, then the Fair Market Value shall be equal to the closing price reported by the applicable composite transactions report for such date; and (iv) If none of the foregoing provisions is applicable, then the Fair Market Value shall be determined by the Committee in good faith on such basis as it deems appropriate. Whenever possible, the determination of Fair Market Value by the Committee shall be based on the prices reported in the Western Edition of The Wall Street Journal or as reported directly to the Company by Nasdaq or a comparable exchange. Such determination shall be conclusive and binding on all persons. (h) "Offering Period" means a 24-month period with respect to which the right to purchase Stock may be granted under the Plan, as determined pursuant to Section 3(a). (i) "Participant" means an Eligible Employee who elects to participate in the Plan, as provided in Section 3(c). (j) "Participating Company" means the Company and each present or future Subsidiary, except Subsidiaries excluded by the Committee. (k) "Plan" means this Biosite Diagnostics Incorporated Employee Stock Purchase Plan, as amended from time to time. (l) "Plan Account" means the account established for each Participant pursuant to Section 6(a). (m) "Purchase Price" means the price at which Participants may purchase Stock under the Plan, as determined pursuant to Section 7(b). (n) "Stock" means the Common Stock of the Company. (o) "Subsidiary" means a corporation, 50% or more of the total combined voting power of all classes of stock of which is owned by the Company or by another Subsidiary. -8- 9 SECTION 15. EXECUTION. To record the adoption of the Plan by the Board of Directors, the Company has caused its duly authorized officer to affix the corporate name and seal hereto. BIOSITE DIAGNOSTICS INCORPORATED [SEAL] By: /s/ Kim D. Blickenstaff ----------------------- -9- EX-10.6 14 EXHIBIT 10.6 1 Exhibit 10.6 INDEMNITY AGREEMENT THIS INDEMNITY AGREEMENT, dated as of ______ ___, 199_, between Biosite Diagnostics Incorporated, a Delaware corporation (the "Corporation"), and ______________ (the "Indemnitee"), W I T N E S S E T H: WHEREAS, Indemnitee is a member of the board of directors of the Corporation (the "Board of Directors") or is an officer of the Corporation, and in such capacity is performing a valuable service for the Corporation; and WHEREAS, Indemnitee is willing to serve, continue to serve, and take on additional service for or on behalf of the Corporation on the condition that he or she be indemnified as herein provided; and WHEREAS, it is intended that Indemnitee shall be paid promptly by the Corporation all amounts necessary to effectuate in full the indemnity provided herein: NOW THEREFORE, in consideration of the premises and the covenants in this Agreement, and intending to be legally bound hereby, the parties hereto agree as follows: 1. Services by Indemnitee. Indemnitee agrees to serve as a director or officer of the Corporation so long as he or she is duly appointed or elected and qualified in accordance with the applicable provisions of the Restated Certificate of Incorporation and Bylaws of the Corporation or any subsidiary of the Corporation and until such time as he or she resigns or fails to stand for election or is removed from his or her position. Indemnitee may at any time and for any reason resign or be removed from such position (subject to any other contractual obligation or other obligation imposed by operation of law), in which event the Corporation shall have no obligation under this Agreement to continue Indemnitee in any such position. 2. Indemnification. (a) The Corporation shall indemnify Indemnitee against Expenses and Liabilities in connection with any Proceeding arising out of acts or omissions of Indemnitee occurring during Indemnitee's service as a director or as an officer of the Corporation to the fullest extent permitted by applicable law or the Restated Certificate of Incorporation of the Corporation in effect on the date hereof or as such law or Restated Certificate of Incorporation may from time to time be amended (but, in the case of any such amendment, only to the extent such amendment permits the Corporation to provide broader indemnification 2 rights than the law or Restated Certificate of Incorporation permitted the Corporation to provide before such amendment). The right to indemnification provided in the Restated Certificate of Incorporation shall be presumed to have been relied upon by Indemnitee in serving or continuing to serve the Corporation and shall be enforceable as a contract right. Without diminishing the scope of the indemnification provided by this Section 2, the Corporation shall indemnify Indemnitee whenever he or she is or was a party or is threatened to be made a party to any Proceeding, including without limitation any such Proceeding brought by or in the right of the Corporation, because he or she is or was a director or officer of the Corporation or because of anything done or not done by Indemnitee in such capacity, against Expenses and Liabilities actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such Proceeding, including the costs of any investigation, defense, settlement or appeal, except that no indemnification shall be made with respect to any claim, issue or matter if Indemnitee was finally adjudged to be liable to the Corporation by a court of competent jurisdiction due to his or her gross negligence or willful misconduct unless and to the extent that a Delaware Court of Chancery or the court in which the action was heard determines that Indemnitee is entitled to indemnification for such amounts as the court deems proper. In addition to, and not as a limitation of, the foregoing, the rights of indemnification of Indemnitee provided under this Agreement shall include those rights set forth in Sections 3, 7, 8 and 13 below. (b) Indemnitee shall be paid promptly by the Corporation all amounts necessary to effectuate the foregoing indemnity. 3. Advancement of Expenses. All reasonable Expenses incurred by or on behalf of Indemnitee shall be advanced from time to time by the Corporation to Indemnitee within thirty (30) days after the Corporation's receipt of a written request for an advance of Expenses, whether prior to or after final disposition of a Proceeding (except to the extent that there has been a Final Adverse Determination that Indemnitee is not entitled to be indemnified for such Expenses), including without limitation any Proceeding brought by or in the right of the Corporation. The written request for an advancement of any and all Expenses under this paragraph shall contain reasonable detail of the Expenses incurred by Indemnitee. If required by law at the time of such advance, Indemnitee hereby agrees to repay the amounts advanced if it is ultimately determined that Indemnitee is not entitled to be indemnified pursuant to the terms of this Agreement. 4. Limitations. The foregoing indemnity and advancement of Expenses shall apply only to the extent that Indemnitee has not been indemnified and reimbursed pursuant to such insurance as the Corporation may maintain for Indemnitee's benefit, or -2- 3 otherwise; provided, however, that notwithstanding the availability of such other indemnification and reimbursement, Indemnitee may claim indemnification and advancement of Expenses pursuant to this Agreement by assigning to the Corporation, at its request, Indemnitee's claims under such insurance to the extent Indemnitee has been paid by the Corporation. 5. Insurance and Funding. The Corporation may purchase and maintain insurance to protect itself and/or Indemnitee against any Expenses and Liabilities in connection with any Proceeding to the fullest extent permitted by applicable laws. The Corporation may create a trust fund, grant an interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification or advancement of Expenses as provided in this Agreement. 6. Procedure for Determination of Entitlement to Indemnification. (a) Whenever Indemnitee believes that he or she is entitled to indemnification pursuant to this Agreement, Indemnitee shall submit a written request for indemnification to the Corporation. Any request for indemnification shall include sufficient documentation or information reasonably available to Indemnitee to support his or her claim for indemnification. Indemnitee shall submit such claim for indemnification within a reasonable time not to exceed five years after any judgment, order, settlement, dismissal, arbitration award, conviction, acceptance of a plea of nolo contendere or its equivalent, final termination or other disposition or partial disposition of any Proceeding, whichever is the later date for which Indemnitee requests indemnification. The President or the Secretary or other appropriate officer shall, promptly upon receipt of Indemnitee's request for indemnification, advise the Board of Directors in writing that Indemnitee has made such request. Determination of Indemnitee's entitlement to indemnification shall be made not later than ninety (90) days after the Corporation's receipt of his or her written request for such indemnification. (b) The Indemnitee shall be entitled to select the forum in which Indemnitee's request for indemnification will be heard, which selection shall be included in the written request for indemnification required in Section 6(a). The forum shall be any one of the following: (i) The stockholders of the Corporation; (ii) A quorum of the Board of Directors consisting of Disinterested Directors; -3- 4 (iii) Independent Legal Counsel, who shall make the determination in a written opinion; or (iv) A panel of three arbitrators, one selected by the Corporation, another by Indemnitee and the third by the first two arbitrators selected. If for any reason three arbitrators are not selected within thirty (30) days after the appointment of the first arbitrator, then selection of additional arbitrators shall be made by the American Arbitration Association. If any arbitrator resigns or is unable to serve in such capacity for any reason, the American Arbitration Association shall select such arbitrator's replacement. The arbitration shall be conducted pursuant to the commercial arbitration rules of the American Arbitration Association now in effect. If Indemnitee fails to make such designation, his or her claim shall be determined by an appropriate court of the State of Delaware. 7. Fees and Expenses of Independent Legal Counsel. The Corporation agrees to pay the reasonable fees and expenses of Independent Legal Counsel or a panel of three arbitrators should such Counsel or such panel of arbitrators be retained to make a determination of Indemnitee's entitlement to indemnification pursuant to Section 6 of this Agreement, and to fully indemnify such Counsel or arbitrators against any and all expenses and losses incurred by any of them arising out of or relating to this Agreement or their engagement pursuant hereto. 8. Remedies of Indemnitee. (a) In the event that (i) a determination pursuant to Section 6 hereof is made that Indemnitee is not entitled to indemnification, (ii) advances of Expenses are not made pursuant to this Agreement, (iii) payment has not been timely made following a determination of entitlement to indemnification pursuant to this Agreement, or (iv) Indemnitee otherwise seeks enforcement of this Agreement, Indemnitee shall be entitled to a final adjudication in an appropriate court of the State of Delaware of his or her rights. The Corporation shall not oppose Indemnitee's right to seek any such adjudication. (b) In the event that a determination that Indemnitee is not entitled to indemnification, in whole or in part, has been made pursuant to Section 6 hereof, the decision in the judicial proceeding provided in paragraph (a) of this Section 8 shall be made de novo and Indemnitee shall not be prejudiced by reason of a determination that he or she is not entitled to indemnification. -4- 5 (c) If a determination that Indemnitee is entitled to indemnification has been made pursuant to Section 6 hereof or otherwise pursuant to the terms of this Agreement, the Corporation shall be bound by such determination in the absence of (i) a misrepresentation or omission of a material fact by Indemnitee or (ii) a specific finding (which has become final) by an appropriate court of the State of Delaware that all or any part of such indemnification is expressly prohibited by law. (d) In any court proceeding pursuant to this Section 8, the Corporation shall be precluded from asserting that the procedures and presumptions of this Agreement are not valid, binding and enforceable. The Corporation shall stipulate in any such court that the Corporation is bound by all the provisions of this Agreement and is precluded from making any assertion to the contrary. (e) Expenses reasonably incurred by Indemnitee in connection with his or her request for indemnification under this Agreement, seeking enforcement of this Agreement or to recover damages for breach of this Agreement shall be borne by the Corporation. 9. Modification, Waiver, Termination and Cancellation. No supplement, modification, termination, cancellation or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. 10. Subrogation. In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Corporation effectively to bring suit to enforce such rights. 11. Notice by Indemnitee and Defense of Claim. Indemnitee shall promptly notify the Corporation in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any matter, whether civil, criminal, administrative or investigative, but the omission so to notify the Corporation will not relieve it from any liability which it may have to Indemnitee if such omission does not prejudice the Corporation's rights. If such omission does prejudice the Corporation's rights, the Corporation will be relieved from liability only to the extent of such prejudice; nor will such omission relieve the Corporation from any liability which it may have to Indemnitee otherwise than under this Agreement. With respect to any -5- 6 Proceeding as to which Indemnitee notifies the Corporation of the commencement thereof: (a) The Corporation will be entitled to participate therein at its own expense; and (b) The Corporation jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel reasonably satisfactory to Indemnitee; provided, however, that the Corporation shall not be entitled to assume the defense of any Proceeding if Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Corporation and Indemnitee with respect to such Proceeding. After notice from the Corporation to Indemnitee of its election to assume the defense thereof, the Corporation will not be liable to Indemnitee under this Agreement for any Expenses subsequently incurred by Indemnitee in connection with the defense thereof, other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ his or her own counsel in such Proceeding but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Indemnitee unless: (i) The employment of counsel by Indemnitee has been authorized by the Corporation; (ii) Indemnitee shall have reasonably concluded that counsel engaged by the Corporation may not adequately represent Indemnitee; or (iii) The Corporation shall not in fact have employed counsel to assume the defense in such Proceeding or shall not in fact have assumed such defense and be acting in connection therewith with reasonable diligence; in each of which cases the fees and expenses of such counsel shall be at the expense of the Corporation. (c) The Corporation shall not settle any Proceeding in any manner which would impose any penalty or limitation on Indemnitee without Indemnitee's written consent; provided, however, that Indemnitee will not unreasonably withhold his or her consent to any proposed settlement. 12. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed: -6- 7 (a) If to Indemnitee, to: ---------------------------- ---------------------------- ---------------------------- ---------------------------- (b) If to the Corporation, to: Biosite Diagnostics Incorporated 11030 Roselle Street San Diego, California 92121 Attention: President or to such other address as may have been furnished to Indemnitee by the Corporation or to the Corporation by Indemnitee, as the case may be. 13. Nonexclusivity. The rights of Indemnitee hereunder shall not be deemed exclusive of any other rights to which Indemnitee may now or in the future be entitled under the Delaware General Corporation Law, the Corporation's Restated Certificate of Incorporation or Bylaws, or any agreements, vote of stockholders, resolution of the Board of Directors or otherwise. 14. Certain Definitions. (a) "Disinterested Director" shall mean a director of the Corporation who is not or was not a party to the Proceeding in respect of which indemnification is being sought by Indemnitee. (b) "Expenses" shall include all direct and indirect costs (including, without limitation, attorneys' fees, retainers, court costs, transcripts, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, all other disbursements or out-of-pocket expenses and reasonable compensation for time spent by Indemnitee for which he or she is otherwise not compensated by the Corporation) actually and reasonably incurred in connection with a Proceeding or establishing or enforcing a right to indemnification under this Agreement, applicable law or otherwise; provided, however, that "Expenses" shall not include any Liabilities. (c) "Final Adverse Determination" shall mean that a determination that Indemnitee is not entitled to indemnification shall have been made pursuant to Section 6 hereof and either (1) a final adjudication in a Delaware court pursuant to Section 8(a) hereof shall have denied Indemnitee's right to indemnification hereunder, or (2) Indemnitee shall have failed to file a complaint in a Delaware court pursuant to Section 8(a) -7- 8 for a period of one hundred twenty (120) days after the determination made pursuant to Section 6 hereof. (d) "Indemnification Period" shall mean the period of time during which Indemnitee shall continue to serve as a director or as an officer of the Corporation, and thereafter so long as Indemnitee shall be subject to any possible Proceeding arising out of acts or omissions of Indemnitee as a director or as an officer of the Corporation. (e) "Independent Legal Counsel" shall mean a law firm or a member of a law firm selected by the Corporation and approved by Indemnitee (which approval shall not be unreasonably withheld) and that neither is presently nor in the past five (5) years has been retained to represent: (i) the Corporation, in any material matter, or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Legal Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Corporation or Indemnitee in an action to determine Indemnitee's right to indemnification under this Agreement. (f) "Liabilities" shall mean liabilities of any type whatsoever including, but not limited to, any judgments, fines, ERISA excise taxes and penalties, penalties and amounts paid in settlement (including all interest assessments and other charges paid or payable in connection with or in respect of such judgments, fines, penalties or amounts paid in settlement) of any proceeding. (g) "Proceeding" shall mean any threatened, pending or completed action, claim, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding whether civil, criminal, administrative or investigative, including any appeal therefrom. 15. Binding Effect, Duration and Scope of Agreement. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Corporation), spouses, heirs and personal and legal representatives. This Agreement shall continue in effect during the Indemnification Period, regardless of whether Indemnitee continues to serve as a director or as an officer. 16. Severability. If any provision or provisions of this Agreement (or any portion thereof) shall be held to be invalid, illegal or unenforceable for any reason whatsoever: -8- 9 (a) the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby; and (b) to the fullest extent legally possible, the provisions of this Agreement shall be construed so as to give effect to the intent of any provision held invalid, illegal or unenforceable. 17. Governing Law and Interpretation of Agreement. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware, as applied to contracts between Delaware residents entered into and to be performed entirely within Delaware. If the laws of the State of Delaware are hereafter amended to permit the Corporation to provide broader indemnification rights than said laws permitted the Corporation to provide prior to such amendment, the rights of indemnification and advancement of expenses conferred by this Agreement shall automatically be broadened to the fullest extent permitted by the laws of the State of Delaware, as so amended. 18. Consent to Jurisdiction. The Corporation and Indemnitee each irrevocably consent to the jurisdiction of the courts of the State of Delaware for all purposes in connection with any action or proceeding which arises out of or relates to this Agreement and agree that any action instituted under this Agreement shall be brought only in the state courts of the State of Delaware. 19. Entire Agreement. This Agreement represents the entire agreement between the parties hereto, and there are no other agreements, contracts or understandings between the parties hereto with respect to the subject matter of this Agreement, except as specifically referred to herein or as provided in Section 13 hereof. 20. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. BIOSITE DIAGNOSTICS INCORPORATED By: __________________________ Its: ________________________ ______________________________ -9- EX-10.17 15 EXHIBIT 10.17 1 Exhibit 10.17 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 30th day of October, 1991 by and between BIOSITE DIAGNOSTICS INCORPORATED, a Delaware corporation (the "Company"), and the investors listed on Schedule A hereto, each of which is herein referred to as an "Investor." THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Purchase and Sale of Stock. 1.1 Sale and Issuance of Series D Preferred Stock. (a) The Company shall adopt and file with the Secretary of State of the State of Delaware on or before the first Closing (as defined below) the Restated Certificate of Incorporation in the form attached hereto as Exhibit A (the "Restated Certificate"). (b) Subject to the terms and conditions of this Agreement, each Investor agrees, severally, to purchase at the Closing and the Company agrees to sell and issue to each Investor at the Closing that number of shares of the Company's Series D Preferred Stock set forth opposite such Investor's name on Schedule A hereto for the purchase price of $3.00 per share. (c) The Company may sell authorized but unissued shares of Series D Preferred Stock not sold at the Closing referred to in Section 1.2 below at one or more additional closings to any purchaser who makes the representations set forth in Section 3.8 hereof at a price of $3.00 per share, provided that the agreements with respect to such sales are executed not later than December 29, 1991 and provided further that the terms and conditions in such agreement are no more favorable to such purchaser than those contained in this Agreement. Any such purchaser shall be deemed to be an Investor for purposes of this Agreement, and the shares so sold shall be deemed to have been acquired hereunder. 1.2 Closing. A purchase and sale of the Series D Preferred Stock shall take place at the offices of Pillsbury Madison & Sutro, 235 Montgomery Street, San Francisco, California, at 10:00 A.M., on October 30, 1991 or at such other time and place as the Company and Investors acquiring in the aggregate more than half the shares of Series D Preferred Stock sold at such time and place pursuant hereto mutually agree upon (verbally or in writing) (which time and place are designated as the "Closing"). At the Closing the Company shall deliver to each Investor a certificate representing the Series D Preferred Stock which such Investor is purchasing against delivery to the -1- 2 Company by such Investor of a bank check or bank wire in the amount of the purchase price therefor payable to the Company's order or by delivery of evidences of indebtedness of the Company for cancellation by the Company. 2. Representations and Warranties of the Company. The Company hereby represents and warrants to each Investor that, except as set forth on the Schedule of Exceptions furnished to each Investor and specifically identifying the relevant subparagraph hereof, which exceptions shall be deemed to be representations and warranties as if made hereunder: 2.1 Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties. 2.2 Capitalization. The authorized capital of the Company consists, or will consist prior to the Closing, of: (i) Preferred Stock. 6,970,503 shares of preferred stock (the "Preferred Stock"), 610,000 shares of which have been designated Series A Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"), 2,156,336 shares of which have been designated Series B Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), 2,204,167 shares of which have been designated Series C Preferred Stock, par value $.01 per share (the "Series C Preferred Stock") and 2,000,000 shares of which have been designated Series D Preferred Stock, par value $.01 per share (the "Series D Preferred Stock"). There are 610,000 shares of Series A Preferred Stock, 2,156,336 shares of Series B Preferred Stock and 2,204,167 shares of Series C Preferred Stock issued and outstanding and, based upon the Company's records, such outstanding shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock are owned by the persons and in the numbers specified in the stockholder list provided supplementally to special counsel to the Investors. The rights, preferences and privileges of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock are or as of the Closing will be as stated in the Company's Restated Certificate. (ii) Common Stock. 12,000,000 shares of common stock (the "Common Stock"), of which 1,134,397 shares -2- 3 are issued and outstanding and, based upon the Company's records, are owned by the persons, and in the numbers specified in the stockholder list provided supplementally to special counsel to the Investors. (iii) Agreements for Purchase of Shares. Except for (a) the conversion privileges of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock, (b) the right of first offer of the Investors provided in Section 8.4 hereof, (c) the right of first offer provided for in Section 8.4 of the Series A Preferred Stock Purchase Agreement dated as of May 5, 1988 between the Company and the investors listed therein (the "Series A Agreement"), (d) the right of first offer provided for in Section 8.4 of the Series B Preferred Stock Purchase Agreement dated as of July 24, 1989 between the Company and the investors listed therein (the "Series B Agreement"), (e) the right of first offer provided for in Section 8.4 of the Series C Preferred Stock Purchase Agreement dated as of June 7, 1990 between the Company and the investors listed therein (the "Series C Agreement") and (f) Options to Purchase an aggregate of 151,150 shares of Common Stock granted pursuant to the Amended and Restated 1989 Stock Plan of the Company (the "Plan"), there are no outstanding options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Company of any shares of its capital stock. 2.3 Subsidiaries. The Company does not presently own or control, directly or indirectly, any interest in any other corporation, association, partnership or other business entity. 2.4 Authorization. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the performance of all obligations of the Company hereunder and the authorization, issuance (or reservation for issuance) and delivery of the Series D Preferred Stock being sold hereunder and the Common Stock issuable upon conversion of the Series D Preferred Stock, to the extent that the foregoing requires performance on or prior to the Closing, has been taken or will be taken on or prior to the Closing, and this Agreement constitutes a valid and legally binding obligation of the Company enforceable in accordance with its terms. 2.5 Valid Issuance of Preferred and Common Stock. (a) The Series D Preferred Stock which is being purchased by the Investors hereunder, when issued, delivered and paid for in accordance with the terms hereof for the consideration expressed herein, will be duly and validly authorized and -3- 4 issued, fully paid and nonassessable and, based in part upon the representations of the Investors in this Agreement, will be issued in compliance with all applicable federal and state securities laws. The Common Stock issuable upon conversion of the Series D Preferred Stock purchased under this Agreement has been or will be on or prior to the Closing, duly and validly reserved for issuance and, upon issuance, will be duly and validly issued, fully paid and nonassessable. (b) The outstanding shares of Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock are duly and validly authorized and issued, fully paid and nonassessable, and were issued in compliance with federal and state securities laws. 2.6 Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state, local or provincial governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement, except for the filing pursuant to section 25102(f) of the California Corporate Securities Law of 1968, as amended, and the rules thereunder, and any other post-sale filings pursuant to applicable state securities laws, which filings will be effected prior to any applicable deadlines. 2.7 Litigation. There is no action, suit, proceeding or investigation pending or currently threatened against the Company which questions the validity of this Agreement or the right of the Company to enter into it, or to consummate the transactions contemplated hereby, or which might result, either individually or in the aggregate, in any material adverse change in the assets, condition, affairs or prospects of the Company, financially or otherwise, or any change in the current equity ownership of the Company, nor is the Company aware that there is any basis for the foregoing. The foregoing includes, without limitation, actions pending or threatened (or any basis therefor known to the Company) involving the prior employment of any of the Company's employees, their use in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company currently pending or which the Company intends to initiate. 2.8 Invention and Secrecy and Common Stock Purchase Agreements. Each key employee of the Company has executed an Employee's Invention and Proprietary Information Agreement in substantially the form provided to special counsel to the Investors. The Company, after reasonable investigation, is not aware -4- 5 that any of its key employees are in violation thereof, and the Company will use its best efforts to prevent any such violation. Each holder of Common Stock of the Company has entered into a Common Stock Purchase Agreement in substantially the form made available to special counsel to the Investors. 2.9 Patents and Trademarks. The Company has sufficient title and ownership of all patents, trademarks, service marks, trade names, copyrights, trade secrets, information, proprietary rights and processes necessary for its business as now conducted and as proposed to be conducted without any conflict with or infringement of the rights of others. There are no outstanding options, licenses or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity. The Company has not received any communications alleging that the Company has violated or, by conducting its business as proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity. The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of his best efforts to promote the interests of the Company or that would conflict with the Company's business as proposed to be conducted. Neither the execution nor delivery of this Agreement, nor the carrying on of the Company's business by the employees of the Company, nor the conduct of the Company's business as proposed, will, to the Company's knowledge, after due inquiry, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees is now obligated, which conflict, breach or default would be materially adverse to the Company. It is not and it will not be necessary for the Company to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to their employment by the Company. 2.10 Compliance with Other Instruments. The Company is not in violation or default of any provisions of its Certificate of Incorporation or Bylaws, as amended, or of any instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound or, to its knowledge, of any provision of federal or state statute, rule or regulation applicable to the Company, which violation or default would be materially adverse to the Company. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under -5- 6 any such provision, instrument, judgment, order, writ, decree or contract or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company, which violation, default, conflict or event would be materially adverse to the Company. 2.11 Agreements; Action. (a) Except for the agreements explicitly contemplated hereby, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors, affiliates or any affiliate thereof. (b) There are no agreements, understandings, instruments, contracts or proposed transactions to which the Company is a party or by which it is bound which involve (i) obligations of, or payments to the Company in excess of, $50,000, other than liabilities or obligations of the Company for compensation under employment agreements, (ii) the license of any patent, copyright, trade secret or other proprietary right of the Company or (iii) joint venture, partnership or other contract or arrangement involving the sharing of profits or proprietary information or know how (other than nondisclosure agreements), (iv) any contract or agreement limiting the Company's right to engage in any business activity or compete with any person or entity, or (v) any other material agreement. (c) The Company has not (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or incurred any other liabilities individually in excess of $50,000 or in excess of $100,000 in the aggregate, other than liabilities or obligations of the Company for compensation under employment agreements, (iii) made any loans or advances to any person, other than ordinary advances for travel expenses or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. (d) The Company is not a party to and is not bound by any contract, agreement or instrument, or subject to any restriction under its Restated Certificate of Incorporation or Bylaws, which adversely affects in any material respect its business as now conducted or as proposed to be conducted, its properties or its financial condition. (e) The Company has not engaged in the past three months in any discussion (i) with any representative of any corporation or corporations regarding the consolidation or merger of the Company with or into any such corporation or corporations, (ii) with any corporation, partnership, association or other business entity or any individual regarding the sale, conveyance or disposition of all or substantially all of -6- 7 the assets of the Company or a transaction or series of related transactions in which more than 50 percent of the voting power of the Company is disposed of, or (iii) regarding any other form of liquidation, dissolution or winding up of the Company. 2.12 Disclosure. The Company believes it has fully provided each Investor with all the information which such Investor has requested for deciding whether to purchase the Series D Preferred Stock and all information reasonably necessary to enable such Investor to make such decision. Neither this Agreement nor any other statement or certificate made or delivered in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading. 2.13 Registration Rights. Except as provided in Section 7 of this Agreement, Section 7 of the Series A Agreement, Section 7 of the Series B Agreement and Section 7 of the Series C Agreement, the Company has not granted or agreed to grant any registration rights, including piggy-back rights, to any person or entity. 2.14 Corporate Documents. The Restated Certificate of Incorporation and Bylaws of the Company are in the form previously provided special counsel to the Investors. 2.15 Title to Property and Assets. The Company owns its property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens which arise in the ordinary course of business and do not materially impair the Company's ownership or use of such property or assets. With respect to the property and assets it leases, the Company is in compliance with such leases and, to the best of its knowledge, holds a valid leasehold interest free of any material liens, claims or encumbrances. All the Company's personal properties, whether owned or leased, are in good operating condition, normal wear and tear excepted, and are adequate and suitable for the purposes for which they are currently being used. 2.16 Employee Benefit Plans. The Company does not have any Employee Benefit Plan as described in section 3(2)(A) or section 3(2)(B) of the Employee Retirement Income Security Act of 1974. 2.17 Tax Returns and Payments. The Company has filed all tax returns and reports as required by law. These returns and reports are true and correct in all material respects. The Company has paid all taxes and other assessments due prior to the time penalties would accrue thereon. The provision for taxes of the Company is adequate for taxes due or accrued as of the date thereof. -7- 8 2.18 Insurance. The Company has in full force and effect fire and casualty insurance policies, with extended coverage, sufficient in amount (subject to reasonable deductibles) to allow it to replace any of its properties that might be damaged or destroyed. 2.19 Minute Books. The minute books of the Company made available to special counsel to the Investors contain a complete summary of all meetings of directors and stockholders since the time of incorporation and reflect all transactions referred to in such minutes accurately in all material respects. 2.20 Labor Agreements and Actions. The Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the knowledge of the Company, has sought to represent any of the employees, representatives or agents of the Company. There is no strike or other labor dispute involving the Company pending, or to the knowledge of the Company threatened, nor is the Company aware of any labor organization activity involving its employees. The Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate their employment with the Company, nor does the Company have a present intention to terminate the employment of any of the foregoing. 2.21 Real Property Holding Company. The Company is not a "United States real property holding corporation" (as that term is defined in Treasury Regulation section 1.897-2(b)). If at any time in the future the Company shall become a "United States real property holding corporation," the Company shall, as promptly as practicable, notify each foreign investor. Within 30 days after receipt of a request from a foreign investor, the Company shall prepare and deliver to such foreign investor the statement required under Treasury Regulation section 1.897-2(h)(1)(i) and either or both of the following documents: (i) an affidavit in conformance with the requirements of Internal Revenue Code of 1986, as amended ("IRC") section 1445(b)(3) or (ii) a notarized statement, executed by an officer having actual knowledge of the facts, that the shares of Company stock held by such foreign investor are of a class that is regularly traded on an established securities market, within the meaning of IRC section 1445(b)(6). If the Company is unable to provide either document described in (i) or (ii) above, if requested, it shall promptly notify such foreign investor in writing of the reasons for such inability. Finally, upon the request of a foreign investor and without regard to whether either document described in (i) or (ii) above has been requested, the Company shall cooperate fully with the efforts of such foreign investor to obtain a "qualifying statement," within the meaning of IRC section 1445(b)(4), or such other documents as would excuse a transferee of a foreign investor's interest -8- 9 from withholding of income tax imposed pursuant to IRC section 897(a). 2.22 Financial Statements. The Company has delivered to each Investor its audited financial statements (balance sheet and profit and loss statement) at and for the period from inception through December 31, 1990, and its unaudited interim financial statements at and for the period from January 1, 1991 through August 31, 1991 (the "Financial Statements"). The Financial Statements are complete and correct in all material respects and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the period indicated and are consistent with each other. The Financial Statements accurately set out and describe the financial condition and operating results of the Company as of the date, and for the period, indicated therein. Except as set forth in the Financial Statements, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to August 31, 1991, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Financial Statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company. The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with generally accepted accounting principles. 2.23 Voting Arrangements. Except as may be provided in Section 5.6 hereof, to the Company's knowledge there are no outstanding stockholder agreements, voting trusts, proxies or other arrangements or understandings among the stockholders of the Company relating to the voting of their respective shares. 3. Representations, Warranties, Covenants and Agreements of Each Investor. Each Investor hereby represents, warrants, covenants and agrees that: 3.1 Authorization. This Agreement constitutes its valid and legally binding obligation. 3.2 Purchase Entirely for Own Account. This Agreement is made with each Investor in reliance upon such Investor's representation to the Company, which by such Investor's execution of this Agreement such Investor hereby confirms, that the Series D Preferred Stock to be received by such Investor and the Common Stock issuable upon conversion thereof (collectively, the "Securities") will be acquired for investment for such Investor's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, each Investor further represents that such Investor does not have any contract, undertaking, agreement -9- 10 or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. Each Investor represents that it has full power and authority to enter into this Agreement. 3.3 Disclosure of Information. Each Investor believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Series D Preferred Stock. Each Investor further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Series D Preferred Stock. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement. 3.4 Investment Experience. Each Investor is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Series D Preferred Stock. If other than an individual, Investor also represents it has not been organized solely for the purpose of acquiring the Series D Preferred Stock. 3.5 Restricted Securities. Each Investor understands that the shares of Series D Preferred Stock it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold only in certain limited circumstances without registration under the Securities Act of 1933, as amended (the "Securities Act"). In this connection each Investor represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. 3.6 Further Limitations on Disposition. Without in any way limiting the representations set forth above, each Investor further agrees not to make any disposition of all or any portion of the Series D Preferred Stock (or the Common Stock issuable upon the conversion thereof) unless and until: (a) There is then in effect a Registration Statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such Registration Statement; or (b) (i) Such Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (ii) if reasonably requested by the Company, such Investor shall have furnished the Company with an -10- 11 opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Securities Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144, as currently in existence, except in unusual circumstances. (c) Notwithstanding the provisions of subsections (a) and (b) above, no such registration statement or opinion of counsel shall be necessary for a transfer by an Investor which is a partnership to a partner of such partnership or a retired partner of such partnership who retires after the date hereof, or to the estate of any such partner or retired partner or the transfer by gift, will or intestate succession of any partner to his spouse or lineal descendants or ancestors, if the transferee agrees in writing to be subject to the terms of this Agreement to the same extent as if he were an original Investor hereunder; provided, however, that the provisions of Section 3.6(b) above shall apply if the Company or its counsel are unable to determine if such transfer may be made in compliance with federal and applicable state securities laws. 3.7 Legends. It is understood that the certificates evidencing the Series D Preferred Stock (and the Common Stock issuable upon conversion thereof) may bear one or all of the following legends: (a) "The shares represented hereby have not been registered under the United States Securities Act of 1933, and may not be sold, transferred, assigned, pledged or hypothecated absent an effective registration thereof under such act or compliance with Rule 144 promulgated under such act, or unless the Company has received an opinion of counsel, satisfactory to the Company and its counsel, that such registration is not required." (b) Any legend required by the laws of the State of California or other jurisdiction, including any legend required by the California Department of Corporations. (c) "The Provisions of Article IV, Section (B)4(d) of the Company's Restated Certificate of Incorporation may result in more than one Conversion Price for shares of Series D Preferred Stock. The Company shall maintain a ledger of such conversion prices for each holder of Series D Preferred Stock, which information shall be available upon request to the Secretary of the Company by any Person." (d) "The Company and the original purchaser of the shares of Series D Preferred Stock represented by this certificate have entered into an agreement which waives the adjustment of the Conversion Price of such shares in certain circumstances. A copy of the agreement is available from the Secretary of the Company upon request." -11- 12 3.8 Accredited or Foreign Investor. Except as disclosed to the Company in writing, each Investor either (i) is an accredited investor as defined in Rule 501(a) of Regulation D, as amended, of the SEC under the Securities Act, or (ii) is neither (x) a national or resident of the United States, its territories, possessions or any area subject to its jurisdiction, nor (y) a corporation, partnership, trust or other entity created or organized in the United States, its territories, possessions or any area subject to its jurisdiction, nor (z) a corporation, partnership, trust or other entity, any of the equity owners of which is described in clause (x) or (y) above and agrees not to sell, hypothecate, pledge or otherwise dispose of any interest in the Securities in the United States, its territories, possessions or any area subject to its jurisdiction, or to any person who is a national thereof or resident therein (including any estate of such person), or any corporation, partnership or other entity created or organized therein, unless such securities have been either registered under the Securities Act, or are exempt from the registration requirements of the Securities Act, in the opinion of the Company's counsel, and the Investor has complied with any restrictions on transfer contained in this Agreement. 3.9 Confidentiality. Each Investor hereby represents, warrants and covenants that it shall maintain in confidence, and shall not use (except to evaluate its investment in the Company) or disclose without the prior written consent of the Company, any confidential information that is furnished to it by the Company in connection with this Agreement, including (without limitation) all financial statements, budgets and other information delivered or provided to Investors pursuant to Section 8 hereof. This obligation of confidentiality shall not apply, however, to any information (a) in the public domain through no unauthorized act or failure to act by any Investor, (b) lawfully disclosed to such Investor by a third party who possessed such information without any obligation of confidentiality or (c) lawfully developed by such Investor independent of any disclosure by the Company. Each Investor further covenants that it shall return to the Company all tangible materials containing such information upon reasonable request by the Company if such Investor is no longer a holder of shares of capital stock of the Company. 3.10 Removal of Legends; Further Covenants. (a) Any legend endorsed on a certificate pursuant to Section 3.7(a) hereof shall be removed (i) if the shares of the Series D Preferred Stock or Common Stock issued upon conversion thereof represented by such certificate shall have been effectively registered under the Securities Act or otherwise lawfully sold in a public transaction or in accordance with Rule 144, (ii) if such shares may be transferred in compliance with Rule 144(k) promulgated under the Securities Act, or (iii) if the holder of such shares shall have provided the Company with -12- 13 an opinion of counsel, in form and substance acceptable to the Company and its counsel and from attorneys reasonably acceptable to the Company and its counsel, stating that a public sale, transfer or assignment of such shares may be made without registration. (b) Any legend endorsed on a certificate pursuant to Section 3.7(b) hereof shall be removed if the Company receives an order of the appropriate state authority authorizing such removal or if the holder of the Series D Preferred Stock or Common Stock issued upon conversion thereof provides the Company with an opinion of counsel, in form and substance acceptable to the Company and its counsel and from attorneys reasonably acceptable to the Company and its counsel, stating that such state legend may be removed. (c) Each Investor further covenants that such Investor will not transfer the Series D Preferred Stock or any securities received in exchange therefor or on conversion thereof, in violation of the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the rules of the Commission promulgated thereunder, including rule 144 under the Securities Act. Further, each Investor agrees that, prior to the closing of the corporation's initial public offering, such Investor will not transfer any of such securities in a public offering without the Company's prior consent, even if he is otherwise permitted to transfer them pursuant to Rule 144(k); provided that the foregoing shall not affect Investor's rights under Section 7. 3.11 Waiver of Antidilution Adjustment. (a) Each Investor purchasing shares of Series D Preferred Stock hereunder hereby agrees that in the event that: (i) the Company shall give a holder of Series D Preferred Stock twenty calendar days notice of the Company's intent to offer a Dilutive Issuance (as defined below) together with the terms and conditions of such Dilutive Issuance, and (ii) the Company shall offer such holder of Series D Preferred Stock that portion (a "Pro-Rata Portion") of such Dilutive Issuance which equals the proportion that the number of shares of Common Stock issuable upon conversion of the Series D Preferred Stock then held by such holder bears to the total number of shares of Common Stock issuable upon conversion of the Preferred Stock then outstanding (excluding the Series A Preferred Stock), or such lesser portion as the Company may specify in writing, and -13- 14 (iii) such holder fails to tender to the Company, other than at the written request of the Company, the purchase price of such holder's Pro-Rata Portion (or such lesser portion as the Company may specify in writing) of such Dilutive Issuance on the scheduled closing of such Dilutive Issuance (which shall not be less than 20 days after the written notice provided in (i) above), then no adjustment of the Conversion Price shall be made (other than adjustments made prior to the time of such Dilutive Issuance), and any future adjustment shall be deemed waived, with respect to the shares of Series D Preferred Stock held by such holder. Notwithstanding the foregoing: (a) if no holder of Series D Preferred Stock purchases any part of such Dilutive Issuance, the provisions of this Section 3.11(a) shall not apply to such Dilutive Issuance; (b) in the event any Dilutive Issuance is in excess of $8,000,000, the provisions of this Section 3.11(a) shall not apply to any holder who purchases less than such holder's Pro-Rata Portion of such Dilutive Issuance if the purchase price of such lesser portion is an amount equal to or greater than such holder's Pro-Rata Portion of $8,000,000; (c) it is understood and agreed that if the Company only offers an Investor an opportunity to purchase less than an Investor's Pro Rata Portion, that no waiver shall result from Investor purchasing such lesser portion (including, without limitation, the portion of such Dilutive Issuance Investor may purchase under Section 8.4); and (d) the provisions of this Section 3.11(a) shall apply to the closing of only one Dilutive Issuance in any 12-month period. (b) A "Dilutive Issuance" shall mean an issuance and sale of Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be Issued pursuant to Article IV, Section (B)4(d)(ii) of the Restated Certificate) with respect to the Series D Preferred Stock in excess of $250,000. Defined terms in this Section 3.11 not otherwise defined in this Agreement shall have the meanings given such terms in the Restated Certificate. (c) Any offer of a Dilutive Issuance pursuant to this Section 3.11 shall be subject to the rights of first offer described in Section 2.2(iii) hereof. (d) In the event the provisions of this Section 3.11 result in more than one Conversion Price for the Series D Preferred Stock, the Secretary of the Company shall keep a written ledger identifying the Conversion Price in effect for each share of Series D Preferred Stock outstanding, which information shall be made available to any person upon request. (e) The waiver of adjustment of Conversion Price provided for in this Section 3.11 shall bind any transferee of shares of Series D Preferred Stock. Each Investor agrees that, -14- 15 prior to transferring any shares of Series D Preferred Stock to any person or entity, such Investor will ensure that such transferee shall have delivered to the Company a written agreement to be bound by the provisions of this Section 3.11. 4. California Commissioner of Corporations. 4.1 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTIONS 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 5. Conditions of Investors' Obligations at Closing and Subsequent Closings. The obligations of each Investor under subsections 1.1(b) of this Agreement are subject to the fulfillment on or before Closing of each of the following conditions, the waiver of which shall not be effective against any Investor who does not consent in writing thereto: 5.1 Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing. 5.2 Performance. The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing; provided that the obligations of the Investors shall not be conditional upon the issuance by the Company of the Series D Preferred Stock to the persons or entities listed on Schedule A who have not performed or tendered the performance of their obligations under this Agreement required to be performed on or prior to the Closing except as provided in Section 5.7 hereof. 5.3 Compliance Certificate. The President of the Company shall deliver to each Investor at the Closing a certificate certifying that the conditions specified in Sections 5.1 and 5.2 have been fulfilled and stating that there has been no material adverse change in the business, affairs, prospects, operations, properties, assets or condition of the Company since the date of the Agreement. 5.4 Qualifications. The Commissioner of Corporations of the State of California shall have issued a permit qualifying the offer and sale of the Series D Preferred Stock and the underlying Common Stock to the Investors pursuant to this -15- 16 Agreement, or such offer and sale shall be exempt from such qualification under the California Corporate Securities Law of 1968, as amended. 5.5 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to special counsel to the Investors and to each Investor, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. 5.6 Board of Directors. The Board of Directors at the Closing shall consist of eight duly elected members: Thomas H. Adams, Kim D. Blickenstaff, Frederick J. Dotzler, Howard E. Greene, Stephen K. Reidy, Jesse I. Treu, Gunars E. Valkirs and Timothy J. Wollaeger. 5.7 Minimum Investment. The Investors shall have purchased at the Closing specified in Section 1.2, an aggregate of at least 1,000,000 shares of Series D Preferred Stock. 5.8 Opinion of Company Counsel. Each Investor shall have received from Pillsbury Madison & Sutro, counsel for the Company, an opinion, dated as of the Closing, in form and substance satisfactory to the Investors, to the effect that: (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and the Company has the requisite corporate power and authority to own its properties and to conduct its business. (b) The Company is qualified to do business as a foreign corporation in the State of California. (c) The Company has the requisite corporate power and authority to execute, deliver and perform the Agreement. The Agreement has been duly and validly authorized by the Company, duly executed and delivered by an authorized officer of the Company and constitutes a legal, valid and binding obligation of the Company. (d) The capitalization of the Company is as follows: (i) Preferred Stock. 6,970,503 shares of Preferred Stock, $.01 par value per share, 610,000 shares of which have been designated Series A Preferred Stock, 2,156,336 shares of which have been designated Series B Preferred Stock, 2,204,167 shares of which have been designated Series C Preferred Stock and 2,000,000 shares of which have been designated Series D Preferred Stock. 610,000 shares of Series A Preferred Stock, 2,156,336 shares of Series B -16- 17 Preferred Stock and 2,204,167 shares of Series C Preferred Stock have been duly authorized, issued and delivered, are validly outstanding, fully paid and nonassessable, and have been approved by all requisite corporate action and, based in part on the representations and warranties of the investors in such securities, were issued in compliance with all applicable federal and California securities laws. The shares of Series D Preferred Stock being issued under this Agreement, when issued, delivered and paid for, will be duly authorized, issued and delivered and will be validly outstanding, fully paid and nonassessable, and have been approved by all requisite corporate action and, to the best of counsel's knowledge, are free of any liens and encumbrances. The rights, privileges and preferences of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock are as stated in the Company's Restated Certificate. The shares of Common Stock issuable upon the conversion of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock have been duly and validly reserved for issuance and, when issued in accordance with the Company's Restated Certificate, will be validly issued, fully paid and nonassessable. (ii) Common Stock. 12,000,000 shares of Common Stock, of which 1,134,397 shares have been duly authorized, issued and delivered and are validly outstanding, fully paid and nonassessable. (iii) Except for (A) the conversion privileges of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, (B) the right of first offer of the Investors provided for in Section 8.4 of this Agreement, (C) the right of first offer provided for in Section 8.4 of the Series A Agreement, (D) the right of first offer provided in Section 8.4 of the Series B Agreement, (E) the right of first offer provided for in Section 8.4 of the Series C Agreement and (F) options to purchase Common Stock of the Company issued under the 1989 Stock Plan of the Company, there are no preemptive rights or, to the best of counsel's knowledge, options, warrants, conversion privileges or other rights (or agreements for any such rights) outstanding to purchase from or otherwise obtain from the Company any shares of its capital stock. (e) The certificates representing shares of the Series D Preferred Stock are in due and proper form and have been duly and validly executed by the officers of the Company named thereon. -17- 18 (f) The execution, delivery, performance and compliance with the terms of this Agreement do not violate any provision of any applicable federal, state law, rule or regulation or any provision of the Company's Restated Certificate or Bylaws and, to the best of such counsel's knowledge, do not conflict with or constitute a default under the provision of any material judgment, writ, decree, order or agreement to which the Company is a party or by which it is bound, which violation, conflict or default would be materially adverse to the Company. (g) All consents, approvals, orders or authorizations of, and all qualifications, registrations, designations, declarations or filings with, any federal or state governmental authority on the part of the Company (other than by federal or state securities laws which are covered in paragraph (h) below) required to be made prior to the Closing in connection with the consummation of the transactions contemplated by this Agreement have been obtained, and are effective, as of the Closing and such counsel is not aware of any proceedings, or threat thereof, which question the validity thereof. (h) Based in part upon the representations of the Investors, the offer and sale of the Series D Preferred Stock pursuant to the terms of this Agreement are exempt from the registration requirements of section 5 of the Securities Act of 1933, as amended, by virtue of section 4(2) thereof and from the qualification requirements of the California Corporate Securities Law of 1968, as amended, by virtue of section 25102(f) thereof. No opinion need be expressed as to compliance with applicable antifraud statutes, rules and regulations of any applicable law governing the issuance of securities. (i) Such counsel is not aware, after making inquiry of the Company's chief executive officer (but without any other investigation), that there is any action, proceeding or investigation pending against the Company or any of its officers, directors or employees, or that any of the foregoing has received any threat thereof, which questions the validity of the Agreement, or which might result, either individually or in the aggregate, in any material adverse change in the assets, condition, affairs or prospects of the Company. The opinion of counsel for the Company under this Section 5.8 shall be subject to such matters as are set forth in the Schedule of Exceptions to this Agreement. 5.9 Restated Certificate. The Restated Certificate in substantially the same form attached hereto as Exhibit A shall have been filed with the Delaware Secretary of State. 5.10 Lawful Issuance. At the Closing, the purchase of the Series D Preferred Stock by the Investors shall be -18- 19 legally permitted by all laws and regulations to which the Investors and the Company are subject. 5.11 Amended Co-Sale Agreement. The Company shall have entered into an amended and restated Co-Sale Agreement in substantially the form of Exhibit B hereto together with the Principal Stockholders (as defined therein). 6. Conditions of the Company's Obligations at the Closing. The obligations of the Company to each Investor under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions by such Investor: 6.1 Representations and Warranties. The representations and warranties of the Investor contained in Section 3 hereof shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 6.2 Payment of Purchase Price. Each Investor shall have delivered the purchase price specified in Section 1.2 and Investors shall collectively have acquired and paid for at the Closing specified in Section 1.2, an aggregate of at least 1,000,000 shares of Series D Preferred Stock. 6.3 California Qualification. The Commissioner of Corporations of the State of California shall have issued a permit qualifying the offer and sale to the Investors of the Series D Preferred Stock and Common Stock issuable upon the conversion thereof or such offer and sale shall be exempt from such qualification under the California Corporate Securities Law of 1968, as amended. 7. Registration Rights. The Company covenants and agrees as follows: 7.1 Definitions. For purposes of this Section 7: (a) The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document; (b) The term "Registrable Securities" means (i) the Common Stock issuable or issued upon conversion of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and any other series of Preferred Stock of the Company with respect to which, and in accordance with this Agreement, registration rights substantially similar to the registration rights provided in this Section 7 may be granted, and (ii) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) -19- 20 a dividend or other distribution with respect to, or in exchange for or in replacement of, such Preferred Stock or Common Stock, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which such person's registration rights are not assigned; (c) The number of shares of "Registrable Securities then outstanding" shall be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are exercisable or convertible into, Registrable Securities; (d) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 7.13 hereof; and (e) The term "Form S-3" means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the Securities and Exchange Commission ("SEC") in lieu of Form S-3 which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. 7.2 Request for Registration. (a) If the Company shall receive at any time after the earlier of January 15, 1994 or six months after the effective date of the Company's first registered public offering of stock a written request from the Holders of at least 30% of the Registrable Securities then outstanding that the Company file a registration statement under the Securities Act covering the registration of at least 30% of the Registrable Securities and with an offering price, net of underwriting discounts and commissions, of more than $7,500,000 then the Company shall, within ten days of the receipt thereof, give written notice of such request to all Holders and shall, subject to the limitations of subsection 7.2(b), file as soon as practicable, and in any event within 60 days of the receipt of such request, a registration statement under the Securities Act covering all Registrable Securities which the Holders request to be registered within 20 days of the mailing of such notice by the Company in accordance with Section 9.6. (b) If the Holders initiating the registration request hereunder ("Initiating Holders") intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 7.2 and the Company shall include such information in the written notice referred to in subsection 7.2(a). In such event, the right of any Holder to include such Holder's Registrable Securities in such registration shall be conditioned upon such Holder's participation in -20- 21 such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 7.4(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders. Notwithstanding any other provision of this Section 7.2, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Initiating Holders, in proportion (as nearly as practicable) to the number of shares of Registrable Securities of the Company owned by each Holder. (c) The Company is obligated to effect only two such registrations pursuant to this Section 7.2; provided, however, that the Company shall not be obligated to effect any such registration if the Company has, within twelve months preceding the date of receipt of the request for such registration, already effected one such demand registration pursuant to this Section 7.2. (d) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 7.2, a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer such filing for a period of not more than 60 days after receipt of the request of the Initiating Holders; provided, however, that the Company may not utilize this right more than once in any 12-month period. 7.3 Company Registration. If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its stock or other securities under the Securities Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan, or a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities), the Company shall, at such time, promptly give each Holder written notice of -21- 22 such registration. Upon the written request of each Holder given within 20 days after mailing of such notice by the Company in accordance with Section 9.6, the Company shall, subject to the provisions of Section 7.8, cause to be registered under the Securities Act all of the Registrable Securities that each such Holder has requested to be registered. 7.4 Obligations of the Company. Whenever required under this Section 7 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to 120 days. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact -22- 23 or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 7, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 7, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 7.5 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 7 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them, and the intended method of disposition of such securities as shall be required to effect the registration of the Registrable Securities. 7.6 Expenses of Demand Registration. All expenses other than underwriting discounts and commissions and fees and expenses of counsel for the selling Holders, incurred in connection with registrations, filings or qualifications pursuant to Section 7.2, including (without limitation) all registration, filing and qualification fees, printer's and accounting fees, fees and disbursements of counsel for the Company, shall be borne by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 7.2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 7.2; provided further, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business or prospects of the Company from that known to the Holders at the time of their request, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 7.2. -23- 24 7.7 Expenses of Company Registration. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 7.3 for each Holder (which right may be assigned as provided in Section 7.13), including (without limitation) all registration, filing and qualification fees, printer's and accounting fees relating or apportionable thereto, but excluding underwriting discounts and commissions relating to Registrable Securities and the fees and disbursements of counsel for the selling Holders. 7.8 Underwriting Requirements. In connection with any offering involving an underwriting of shares being issued by the Company, the Company shall not be required under Section 7.3 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it, and then only in such quantity as will not, in the opinion of the underwriters, jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters reasonably believe compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters believe will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling stockholders according to the total amount of securities entitled to be included therein owned by each selling stockholder or in such other proportions as shall mutually be agreed to by such selling stockholders) but: (i) in no event shall the amount of securities of the selling Holders included in the offering be reduced below 30% of the total amount of securities included in such offering, unless such offering is the initial public offering of the Company's securities in which case the selling stockholders may be excluded if the underwriters make the determination described above and no other stockholder's securities are included; and (ii) in no event shall any shares being sold by a stockholder exercising a demand registration right similar to that granted in Section 7.2 be excluded from such offering. 7.9 Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 7. 7.10 Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 7: -24- 25 (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the officers and directors of each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), against any losses, claims, damages or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively, a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law; and the Company will reimburse each such Holder, officer or director, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection 7.10(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, officer, director, underwriter or controlling person. (b) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Holder selling securities in such registration statement or any of its directors or officers or any person who controls such Holder, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, or underwriter or controlling person, or other such Holder or director, officer or controlling person may become subject, under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect -25- 26 thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or controlling person, other Holder, officer, director, or controlling person in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 7.10(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this subsection 7.10(b) exceed the gross proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 7.10 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 7.10, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 7.10, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 7.10. (d) The obligations of the Company and Holders under this Section 7.10 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 7, and otherwise. 7.11 Reports Under Securities Exchange Act of 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act and any other rule or regulation of the SEC that may at any time permit a Holder to -26- 27 sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after 90 days after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public; (b) take such action, including the voluntary registration of its Common Stock under section 12 of the Exchange Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective; (c) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (d) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after 90 days after the effective date of the first registration statement filed by the Company), the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. 7.12 Form S-3 Registration. In case the Company shall receive from any Holder or Holders a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and (b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' -27- 28 Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within 15 days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 7.12: (i) if Form S-3 is not available for such offering by the Holders; (ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters' discounts or commissions) of less than $1,000,000; (iii) if the Company shall furnish to the Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 Registration Statement for a period of not more than 60 days after receipt of the request of the Holder or Holders under this Section 7.12; provided, however, that the Company shall not utilize this right more than once in any 12 month period; (iv) if the Company has, within the 12 month period preceding the date of such request, already effected one registration on Form S-3 for the Holders pursuant to this Section 7.12; (v) if the Company has, within the preceding 180 days, effected any other registration of its securities; or (vi) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. (c) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. All expenses other than underwriting discounts and commissions incurred in connection with a registration requested pursuant to Section 7.12, including (without limitation) all registration, filing, qualification, printer's and accounting fees and the reasonable fees and disbursements of counsel for the selling Holder or Holders and counsel for the Company, shall be borne by the Company. Registrations effected pursuant to this Section 7.12 shall not be counted as demands for registration effected pursuant to Section 7.2. 7.13 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 7 may be assigned by a purchaser of Registrable Securities under this Agreement to a transferee or assignee of an amount of such securities representing at least 50% of the aggregate number of shares of Registrable Securities of such -28- 29 purchaser or to a partner or retired partner of such purchaser; provided, that such transferee or assignee is approved by the Board of Directors of the Company, which approval shall not be unreasonably withheld, and that the Company is, within a reasonable time after such approved transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; and provided, further, that such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the approved transferee or assignee is restricted under the Securities Act. 7.14 Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the outstanding Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder (a) to include such securities in any registration filed under Section 7.2 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of his securities will not reduce the amount of the Registrable Securities of the Holders which is included or (b) to make a demand registration which could result in such registration statement being declared effective prior to the earlier of either of the dates set forth in subsection 7.2(a) or within 120 days of the effective date of any registration effected pursuant to Section 7.2. 7.15 "Market Stand-Off" Agreement. Each Investor hereby agrees that it shall not, to the extent requested by the Company and an underwriter of Common Stock (or other securities) of the Company, sell or otherwise transfer or dispose (other than to donees who agree to be similarly bound) of any Registrable Securities during the 120-day period following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that: (a) such agreement shall be applicable only to the first such registration statement of the Company which covers shares (or securities) to be sold on its behalf to the public in an underwritten offering; and (b) all officers and directors of the Company and all other persons with registration rights (whether or not pursuant to this Agreement) enter into similar agreements. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Investor (and the shares or securities of every other person subject to the foregoing restriction) until the end of such 120-day period. -29- 30 7.16 Amendment of Registration Rights. Any provision of this Section 7 may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the Registrable Securities; provided that (i) consent of a Major Investor (as defined in the Stock Purchase Agreement under which such Registrable Securities were purchased) shall be required for any amendment which materially increases the obligations of such Major Investor, and (ii) consent of a majority of the inequitably affected Registrable Securities shall be required for any waiver of a material right of a Major Investor (as defined in the Stock Purchase Agreement under which such Registrable Securities were purchased) which does not apply equally to all Major Investors (as defined in the Stock Purchase Agreements under which Registrable Securities were purchased) who hold Registrable Securities. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities are convertible), each future holder of all such securities, and the Company. 7.17 Termination of Registration Rights. The Company's obligations pursuant to this Section 7 shall terminate seven years from the date of consummation of the Company's sale of its common stock in a bona fide, firm commitment underwriting pursuant to a registration statement on Form S-1 under the Securities Act which results in gross offering proceeds to the Company of more than $7,500,000, the public offering price of which was not less than $9.00 per share (adjusted to reflect stock dividends, stock splits or recapitalizations). 8. Covenants. 8.1 Delivery of Financial Statements. The Company shall deliver to (i) each Investor who holds 100,000 shares of Series D Preferred Stock (or the securities into which they are convertible) ("Major Investor") and (ii) each assignee of any Major Investor who acquires 50% of such Major Investor's Series D Preferred Stock purchased hereunder: (a) as soon as practicable, but in any event within 90 days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles ("GAAP"), and audited and certified by independent public accountants of nationally recognized standing selected by the Company (the Company will include, upon request, the Company's management letter for such audited reports); and -30- 31 (b) (i) within 30 days of the end of each month, an unaudited statement of operations, statement of cash flows and balance sheet for and as of the end of such month, in reasonable detail; such monthly statements shall also contain the foregoing information on a year-to-date basis and shall also compare actual performance to budget; (ii) At least annually, a comprehensive operating budget for the next fiscal year forecasting the Company's revenues, expenses and cash position, prepared on a monthly basis, including balance sheets and sources and applications of funds statements for such months and, as soon as prepared, any other budgets or revised budgets prepared by the Company; and (iii) such other information relating to the financial condition, business, prospects or corporate affairs of the Company as the Investor or any such assignee of the Investor may from time to time request, provided, however, that the Company shall not be obligated to provide information which it deems in good faith to be proprietary; and (c) with respect to the financial statements called for in subsection (b)(i) of this Section 8.1, an instrument executed by the Treasurer or the President of the Company and certifying that such financials were prepared in accordance with internally consistent accounting methods consistently applied with prior practice for earlier periods and fairly present the financial condition of the Company and its results of operation for the period specified, subject to year-end audit adjustment. For purposes of this Section 8, a Major Investor includes affiliated investing entities of that Investor. 8.2 Inspection. The Company shall permit each Investor, at such Investor's expense, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Investor; provided, however, that the Company shall not be obligated pursuant to this Section 8.2 to provide access to any information which it reasonably considers to be a trade secret or similar confidential or proprietary information. 8.3 Termination of Covenants. The covenants set forth in Sections 8.1, 8.2 and 8.5 shall terminate and be of no further force or effect when the sale of securities pursuant to a registration statement filed by the Company under the Securities Act in connection with the firm commitment underwritten offering of its securities to the general public is consummated or when the Company first becomes subject to the periodic reporting requirements of Section 13(a) or 15(d) of the Exchange Act, whichever event shall first occur; provided that the Company shall furnish to each Major Investor (as defined in Section 8.4) copies of its reports on Forms 10-K and 10-Q within 10 days after filing with the SEC. -31- 32 8.4 Right of First Offer. Subject to the terms and conditions specified in this Section 8.4, the Company hereby grants to each Major Investor a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined). For purposes of this Section 8.4, a "Major Investor" includes any partners or affiliates of that Investor. A Major Investor shall be entitled to apportion the right of first offer hereby granted it among itself and its partners and affiliates in such proportions as it deems appropriate. Each time the Company proposes to offer any shares of, or securities convertible into or exercisable for, any class of its capital stock ("Shares"), the Company shall first make an offering of such Shares to each Major Investor in accordance with the following provisions: (a) The Company shall deliver a notice by certified mail ("Notice") to the Major Investors stating (i) its bona fide intention to offer or issue such Shares, (ii) the number of such Shares to be offered, and (iii) the price, if any, for which it proposes to offer such Shares. (b) Within 20 calendar days after receipt of the Notice, the Major Investor may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Shares which equals the proportion that the number of shares of Common Stock issuable (or issued and held) upon conversion of the Series D Preferred Stock then held, by such Major Investor bears to the total number of shares of outstanding Common Stock and Common Stock issuable upon conversion of the Preferred Stock then outstanding. The Company shall promptly, in writing, inform each Major Investor which purchases all the shares available to it ("Fully Exercising Investor") of any other Major Investor's failure to do likewise. During the 10-day period commencing after receipt of such information, each Fully Exercising Investor shall be entitled to obtain that portion of the shares subject to such right of first refusal and not subscribed for by the Major Investors which is equal to the proportion that the number of shares of Common Stock issuable (or issued and held) upon conversion of the Series D Preferred Stock then held by such Fully Exercising Investor bears to the total number of shares of Common Stock issuable (or issued and held) upon conversion of the Series D Preferred Stock then held by all Fully Exercising Investors who wish to purchase some of the unsubscribed shares. (c) If all such Shares referred to in the Notice are not elected to be obtained as provided in subsection 8.4(b) hereof, the Company may, during the 60 day period following the expiration of the period provided in subsection 8.4(b) hereof, offer the remaining unsubscribed Shares to any person or persons at a price not less than that, and upon terms no more favorable to the offeree than those, specified in the Notice. If the -32- 33 Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within 60 days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to the Major Investors in accordance herewith. (d) The right of first offer granted in this Section 8.4 shall not be applicable (i) to the issuance or sale of shares of Common Stock (or options therefor), to employees, directors, consultants or advisors of the Company, provided each such person executes an agreement, in substantially the form as approved by the Company's Board of Directors, (ii) shares offered in the acquisition of another company, to strategic partners of the Company or to companies with business relationships with the Company or in connection with research and development partnerships sponsored by the Company, or (iii) to or after consummation of a bona fide, firmly underwritten public offering of shares of the Company's Common Stock registered under the Securities Act pursuant to a registration statement on Form S-1, which results in gross proceeds to the Company of more than $7,500,000 at a price per share of at least $9.00 (adjusted for any stock splits, stock dividends or other recapitalizations). 8.5 Issuance of Debt. The Company shall not borrow in excess of $250,000 annually without the approval of the Company's Board of Directors, including the approval of a majority of Directors who represent the Investors hereunder. 9. Miscellaneous. 9.1 Survival of Warranties. The warranties, representations and covenants of the Company contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Investors. 9.2 Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 9.3 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California except as it regards choice of law. 9.4 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an -33- 34 original, but all of which together shall constitute one and the same instrument. 9.5 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 9.6 Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified or upon deposit with the United States Post Office, by registered or certified mail, postage prepaid and addressed to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate by 10 days' advance written notice to the other parties. 9.7 Finder's Fee. Each party represents that it neither is nor will be obligated for any finder's fee or commission in connection with this transaction. Each Investor agrees to indemnify and hold harmless the Company from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which the Investor or any of its officers, partners, employees or representatives is responsible. The Company agrees to indemnify and hold harmless each Investor from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 9.8 Expenses. Irrespective of whether the Closing is effected, the Company shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement. If the Closing is effected, the Company shall reimburse the Investors no more than $10,000 for the reasonable fees and expenses of the law firm of Wilson, Sonsini, Goodrich & Rosati, counsel to the Investors. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement or the Restated Certificate, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 9.9 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the Common Stock issued or issuable upon conversion of the Series D Preferred Stock purchased by the Investors pursuant to -34- 35 this Agreement, except: (i) as specified in Section 7.16, and (ii) no amendment shall increase the price of the Series D Preferred Stock without the consent of all Investors, and any material amendment or waiver which does not apply equally to all Major Investors shall not be effective unless it has been consented to or approved in writing by a majority of the inequitably affected Major Investors. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities are convertible), each future holder of all such securities, and the Company; provided, however, that no condition set forth in Section 5 hereof may be waived with respect to any Investor who does not consent thereto. 9.10 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 9.11 Aggregation of Stock. All shares of Series D Preferred Stock held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 9.12 Amendment to Series A, Series B and Series C Registration Rights. Pursuant to Section 7.16 of the Series A Agreement, Section 7.16 of the Series B Agreement and Section 7.16 of the Series C Agreement, the Company and the holders of Series A Preferred Stock purchased under the Series A Agreement, the holders of Series B Preferred Stock purchased under the Series B Agreement and the holders of the Series C Preferred Stock purchased under the Series C Agreement hereby consent to the deletion of Section 7 of the Series A Agreement in its entirety, the deletion of Section 7 of the Series B Agreement in its entirety and the deletion of Section 7 of the Series C Agreement in its entirety effective upon the Closing and thereafter the registration rights applicable to the Common Stock issuable or issued upon conversion of the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, and any Common Stock of the Company issued (or issuable upon the conversion or exercise of any warrant, right or other security which is issued) as a dividend or other distribution with respect to, in exchange for, or in replacement of, such Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock (excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which his rights under Section 7 are not assigned), shall be determined solely under Section 7 hereof. 9.13 Waiver of Right of First Offer. Pursuant to Section 9.9 of the -35- 36 Series A Agreement, Section 9.9 of the Series B Agreement and Section 9.9 of the Series C Agreement, the holders of Series A Preferred Stock purchased under the Series A Agreement, the holders of Series B Preferred Stock purchased under the Series B Agreement and the holders of the Series C Preferred Stock purchased under the Series C Agreement hereby waive the rights of first offer of the Series A Holders, the Series B Holders and the Series C Holders, respectively, under the Series A Agreement, the Series B Agreement and the Series C Agreement to the purchase and sale of Series D Preferred Stock and the issuance of Common Stock thereof, except to the extent of such holders' purchase of shares hereunder. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. BIOSITE DIAGNOSTICS INCORPORATED By /s/ Kim D. Blickenstaff ______________________________ Address: 11030 Roselle Street, Suite D San Diego, CA 92121 INVESTORS: CHC Venture Co. By /s/ Timothy J. Wollaeger _____________________________ Title President __________________________ Address: c/o Sutter Corporation 9425 Chesapeake Drive San Diego, CA 92123 Attn: Timothy J. Wollaeger SENTRON MEDICAL, INC. By /s/ Vincent M. Paglino ______________________________ Vincent M. Paglino Vice President Address: c/o Senmed Medical Ventures 4445 Lake Forest Drive, Suite 600 Cincinnati, OH 45242 -36- 37 MEDICUS VENTURE PARTNERS 1991 A CALIFORNIA LIMITED PARTNERSHIP By MEDICUS MANAGEMENT PARTNERS, General Partner By /s/ Frederick J. Dotzler ___________________________ Frederick J. Dotzler General Partner Address: 2180 Sand Hill Road, Suite 400 Menlo Park, CA 94025 KLEINER PERKINS CAUFIELD & BYERS V, A CALIFORNIA LIMITED PARTNERSHIP By KPCB V ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP, its General Partner By /s/ Brook H. Byers ______________________________ Brook H. Byers Address: Four Embarcadero Center Suite 3520 San Francisco, CA 94111 EUCLID PARTNERS III, L.P., A DELAWARE LIMITED PARTNERSHIP By EUCLID ASSOCIATES III, L.P. A DELAWARE LIMITED PARTNERSHIP, General Partner By /s/ Stephen K. Reidy ______________________________ Stephen K. Reidy General Partner Address: Euclid Partners Corporation 50 Rockefeller Plaza, Suite 1022 New York, NY 10020 DOMAIN PARTNERS, L.P. By One Palmer Square Associates, L.P. -37- 38 Biosite Diagnostics Incorporated Series D Preferred Stock Counterpart Signature Page By /s/ Jesse Treu ______________________________ Jesse Treu General Partner Address: Domain Associates One Palmer Square Princeton, NJ 08542 BIOTECHNOLOGY INVESTMENTS LIMITED By N. M. ROTHSCHILD AND SONS (C.I.) LIMITED By /s/ Jesse Treu _______________________________ Jesse Treu Attorney in Fact Address: P. O. Box 58 St. Julian's Court St. Peter Port Guernsey Channel Islands /s/ Peter Preuss _______________________________ Peter Preuss Address: The Preuss Foundation 201 Lomas Santa Fe Drive Suite 340 Solana Beach, CA 92075 -38- 39 Biosite Diagnostics Incorporated Series D Preferred Stock Counterpart Signature Page /s/ Harris Kaplan __________________________________ Harris Kaplan Address: 1802 Bywood Lane Stevenson, MD 21153 STANFORD UNIVERSITY By /s/ Carol Gilmer _______________________________ Title Assistant Secretary, Board of Trustees ___________________________ Address: c/o Stanford Management Company 2770 Sand Hill Road Menlo Park, Ca 94025 Attn: Ms. Carol Gilmer /s/ D. Jim Grellas __________________________________ D. Jim Grellas Address: c/o Sutter Corporation 3350 Scott Boulevard #52 Santa Clara, CA 95054 /s/ Karen Grellas __________________________________ Karen Grellas Address: c/o Sutter Corporation 3350 Scott Boulevard #52 Santa Clara, CA 95054 /s/ Timothy J. Wollaeger __________________________________ Timothy J. Wollaeger Address: c/o Sutter Corporation 9425 Chesapeake Drive San Diego, CA 92123-1302 -39- 40 Biosite Diagnostics Incorporated Series D Preferred Stock Counterpart Signature Page /s/ Daniel P. Wollaeger __________________________________ Daniel P. Wollaeger Address: 210 Sylvester St. Louis, MO 63119 /s/ Robert E. Zarwell __________________________________ Robert E. Zarwell Address: c/o Pen Station 11661 West Bluemound Road Milwaukee, WI 53226 /s/ Sarah A. Zarwell __________________________________ Sarah A. Zarwell Address: c/o Pen Station 11661 West Bluemound Road Milwaukee, WI 53226 /s/ R. Putnam Kingsbury __________________________________ R. Putnam Kingsbury Address: 674 West Street Keene, NH 03431 /s/ Thomas W. Kintner __________________________________ Thomas W. Kintner Address: 1663 Bush Street San Francisco, CA 94109 /s/ Kim D. Blickenstaff __________________________________ Kim D. Blickenstaff Address: c/o Biosite Diagnostics Inc. 11030 Roselle Street, Suite D San Diego, CA 92121 -40- 41 Biosite Diagnostics Incorporated Series D Preferred Stock Counterpart Signature Page THE VALKIRS FAMILY TRUST By /s/ Gunars E. Valkirs _____________________________ Gunars E. Valkirs, Trustee Address: c/o Biosite Diagnostics Inc. 11030 Roselle Street, Suite D San Diego, CA 92121 /s/ Charles Patrick _________________________________ Charles Patrick Address: c/o Biosite Diagnostics Inc. 11030 Roselle Street, Suite D San Diego, CA 92121 /s/ Richard Anderson _________________________________ Richard Anderson Address: c/o Biosite Diagnostics Inc. 11030 Roselle Street, Suite D San Diego, CA 92121 /s/ Kenneth Buechler _________________________________ Kenneth Buechler Address: c/o Biosite Diagnostics Inc. 11030 Roselle Street, Suite D San Diego, CA 92121 /s/ S. Nicholas Stiso _________________________________ S. Nicholas Stiso Address: c/o Biosite Diagnostics Inc. 11030 Roselle Street, Suite D San Diego, CA 92121 -41- 42 Biosite Diagnostics Incorporated Series D Preferred Stock Counterpart Signature Page The undersigned hereby agree to the terms and provisions of Sections 9.12 and 9.13 hereof. BIOVEST PARTNERS By Biovest Associates, A California Limited Partnership By /s/ Timothy J. Wollaeger ___________________________ Timothy J. Wollaeger General Partner Address: c/o Timothy J. Wollaeger Sutter Corporation 9425 Chesapeake Drive San Diego, CA 92123-1302 MEDICUS VENTURE PARTNERS 1989 A CALIFORNIA LIMITED PARTNERSHIP By MEDICUS MANAGEMENT PARTNERS, General Partner By /s/ Frederick J. Dotzler ___________________________ Frederick J. Dotzler General Partner Address: 2180 Sand Hill Road, Suite 400 Menlo Park, CA 94025 MEDICUS VENTURE PARTNERS 1990 A CALIFORNIA LIMITED PARTNERSHIP By MEDICUS MANAGEMENT PARTNERS, General Partner By /s/ Frederick J. Dotzler ___________________________ Frederick J. Dotzler General Partner Address: 2180 Sand Hill Road, Suite 400 Menlo Park, CA 94025 -42- 43 44 SCHEDULE A BIOSITE DIAGNOSTICS INCORPORATED SERIES D PREFERRED STOCK
Investors Shares Amount - --------- ------ ------ CHC Venture Co. 500,000 $1,500,000 Sentron Medical Inc. 333,334 1,000,002 Medicus Venture Partners 1991 333,334 1,000,002 Kleiner Perkins Caufield & Byers V 333,334 1,000,002 Euclid Partners III, L.P. 166,667 500,001 Domain Partners, L.P. 16,667 50,001 Biotechnology Investments Ltd. 116,667 350,001 Peter Preuss 33,334 100,002 Harris Kaplan 8,334 25,002 Stanford Management Company 3,334 10,002 D. Jim & Karen Grellas 6,667 20,001 Timothy J. Wollaeger 1,667 5,001 Daniel P. Wollaeger 1,667 5,001 Robert & Sarah A. Zarwell 1,667 5,001 Thomas W. Kintner 1,667 5,001 Kim D. Blickenstaff 6,667 20,001 Valkirs Family Trust 13,334 40,002 Charles Patrick 3,334 10,002 Richard Anderson 3,334 10,002 Kenneth Buechler 8,334 25,002 S. Nicholas Stiso 5,000 15,000 ----- ------ 1,898,343 $5,695,029 ========= ==========
EX-10.18 16 EXHIBIT 10.18 1 Exhibit 10.18 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 25th day of November, 1992 by and between BIOSITE DIAGNOSTICS INCORPORATED, a Delaware corporation (the "Company"), and the investors listed on Schedule A hereto, each of which is herein referred to as an "Investor." THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Purchase and Sale of Stock. 1.1 Sale and Issuance of Series E Preferred Stock. (a) The Company shall adopt and file with the Secretary of State of the State of Delaware on or before the first Closing (as defined below) the Restated Certificate of Incorporation in the form attached hereto as Exhibit A (the "Restated Certificate"). (b) Subject to the terms and conditions of this Agreement, each Investor agrees, severally, to purchase at the Closing and the Company agrees to sell and issue to each Investor at the Closing that number of shares of the Company's Series E Preferred Stock set forth opposite such Investor's name on Schedule A hereto for the purchase price of $4.80 per share payable in cash or cancelation of indebtedness. (c) The Company may sell authorized but unissued shares of Series E Preferred Stock not sold at the Closing referred to in Section 1.2 below at one or more additional closings to any purchaser who makes the representations set forth in Section 3.8 hereof at a price of $4.80 per share payable in cash or cancelation of indebtedness, provided that the agreements with respect to such sales are executed not later than December 15, 1992 and provided further that the terms and conditions in such agreement are no more favorable to such purchaser than those contained in this Agreement. Any such purchaser shall be deemed to be an Investor for purposes of this Agreement, and the shares so sold shall be deemed to have been acquired hereunder. 1.2 Closing. A purchase and sale of the Series E Preferred Stock shall take place at the offices of Pillsbury Madison & Sutro, 235 Montgomery Street, San Francisco, California, at 10:00 A.M., on November 25, 1992 or at such other time and place as the Company and Investors acquiring in the aggregate more than half the shares of Series E Preferred Stock sold at such time and place pursuant hereto mutually agree upon (verbally or in writing) (which time and place are designated as the "Closing"). At the Closing the Company shall deliver to -1- 2 each Investor a certificate representing the Series E Preferred Stock which such Investor is purchasing against delivery to the Company by such Investor of a bank check or bank wire in the amount of the purchase price therefor payable to the Company's order or by delivery of evidences of indebtedness of the Company for cancellation by the Company. 2. Representations and Warranties of the Company. The Company hereby represents and warrants to each Investor that, except as set forth on the Schedule of Exceptions furnished to each Investor and specifically identifying the relevant subparagraph hereof, which exceptions shall be deemed to be representations and warranties as if made hereunder: 2.1 Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties. 2.2 Capitalization. The authorized capital of the Company consists, or will consist prior to the Closing, of: (i) Preferred Stock. 8,328,847 shares of preferred stock (the "Preferred Stock"), 610,000 shares of which have been designated Series A Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"), 2,156,336 shares of which have been designated Series B Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), 2,204,167 shares of which have been designated Series C Preferred Stock, par value $.01 per share (the "Series C Preferred Stock"), 1,900,010 shares of which have been designated Series D Preferred Stock, par value $.01 per share (the "Series D Preferred Stock") and 1,458,334 shares of which have been designated Series E Preferred Stock, par value $.01 per share (the "Series E Preferred Stock"). There are 610,000 shares of Series A Preferred Stock, 2,156,336 shares of Series B Preferred Stock, 2,204,167 shares of Series C Preferred Stock and 1,900,010 shares of Series D Preferred Stock issued and outstanding and, based upon the Company's records, such outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock are owned by the persons and in the numbers specified in the stockholder list made available supplementally to the Investors upon request. The rights, preferences and privileges of the Series A Preferred Stock, Series B Preferred Stock, Series C -2- 3 Preferred Stock, Series D Preferred Stock and Series E Preferred Stock are or as of the Closing will be as stated in the Company's Restated Certificate. (ii) Common Stock. 12,000,000 shares of common stock (the "Common Stock"), of which 1,138,069 shares are issued and outstanding and, based upon the Company's records, are owned by the persons, and in the numbers specified in the stockholder list provided supplementally to the Investors. (iii) Agreements for Purchase of Shares. Except for (a) the conversion privileges of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock, (b) the right of first offer of the Investors provided in Section 8.4 hereof, (c) the right of first offer provided for in Section 8.4 of the Series A Preferred Stock Purchase Agreement dated as of May 5, 1988 between the Company and the investors listed therein (the "Series A Agreement"), (d) the right of first offer provided for in Section 8.4 of the Series B Preferred Stock Purchase Agreement dated as of July 24, 1989 between the Company and the investors listed therein (the "Series B Agreement"), (e) the right of first offer provided for in Section 8.4 of the Series C Preferred Stock Purchase Agreement dated as of June 7, 1990 between the Company and the investors listed therein (the "Series C Agreement"), (f) the right of first offer provided for in Section 8.4 of the Series D Preferred Stock Purchase Agreement, dated as of October 30, 1991 between the Company and the investors listed therein (and the supplemental signature pages thereto)(the "Series D Agreement") and (g) Options to Purchase an aggregate of 408,250 shares of Common Stock granted pursuant to the Amended and Restated 1989 Stock Plan of the Company (the "Plan"), there are no outstanding options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Company of any shares of its capital stock. 2.3 Subsidiaries. Except for Biosite Diagnostics GmbH, its wholly owned subsidiary, the Company does not presently own or control, directly or indirectly, any interest in any other corporation, association, partnership or other business entity. 2.4 Authorization. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the performance of all obligations of the Company hereunder and the authorization, issuance (or reservation for -3- 4 issuance) and delivery of the Series E Preferred Stock being sold hereunder and the Common Stock issuable upon conversion of the Series E Preferred Stock, to the extent that the foregoing requires performance on or prior to the Closing, has been taken or will be taken on or prior to the Closing, and this Agreement constitutes a valid and legally binding obligation of the Company enforceable in accordance with its terms. 2.5 Valid Issuance of Preferred and Common Stock. (a) The Series E Preferred Stock which is being purchased by the Investors hereunder, when issued, delivered and paid for in accordance with the terms hereof for the consideration expressed herein, will be duly and validly authorized and issued, fully paid and nonassessable and, based in part upon the representations of the Investors in this Agreement, will be issued in compliance with all applicable federal and state securities laws. The Common Stock issuable upon conversion of the Series E Preferred Stock purchased under this Agreement has been or will be on or prior to the Closing, duly and validly reserved for issuance and, upon issuance, will be duly and validly issued, fully paid and nonassessable. (b) The outstanding shares of Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock are duly and validly authorized and issued, fully paid and nonassessable, and were issued in compliance with federal and state securities laws. 2.6 Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state, local or provincial governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement, except for the filing pursuant to section 25102(f) of the California Corporate Securities Law of 1968, as amended, and the rules thereunder, and any other post-sale filings pursuant to applicable state securities laws, which filings will be effected prior to any applicable deadlines. 2.7 Litigation. There is no action, suit, proceeding or investigation pending or currently threatened against the Company which questions the validity of this Agreement or the right of the Company to enter into it, or to consummate the transactions contemplated hereby, or which might result, either individually or in the aggregate, in any material adverse change in the assets, condition, affairs or prospects of the Company, financially or otherwise, or any change in the current equity ownership of the Company, nor is the Company aware that there is any basis for the foregoing. The foregoing includes, without limitation, actions pending or threatened (or any basis therefor known to the Company) involving the prior employment of any of the Company's employees, their use in connection with the -4- 5 Company's business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company currently pending or which the Company intends to initiate. 2.8 Invention and Secrecy and Common Stock Purchase Agreements. Each key employee of the Company has executed an Employee's Invention and Proprietary Information Agreement in substantially the form made available to the Investors upon request. The Company, after reasonable investigation, is not aware that any of its key employees are in violation thereof, and the Company will use its best efforts to prevent any such violation. Each holder of Common Stock of the Company has entered into a Common Stock Purchase Agreement in substantially the form made available to the Investors upon request. 2.9 Patents and Trademarks. The Company has sufficient title and ownership of all patents, trademarks, service marks, trade names, copyrights, trade secrets, information, proprietary rights and processes necessary for its business as now conducted and as proposed to be conducted without any conflict with or infringement of the rights of others. There are no outstanding options, licenses or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity. The Company has not received any communications alleging that the Company has violated or, by conducting its business as proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity. The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of his best efforts to promote the interests of the Company or that would conflict with the Company's business as proposed to be conducted. Neither the execution nor delivery of this Agreement, nor the carrying on of the Company's business by the employees of the Company, nor the conduct of the Company's business as proposed, will, to the Company's knowledge, after due inquiry, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees is now obligated, which conflict, breach or default would be materially adverse to the Company. It is not and it will not be necessary for the Company to utilize any inventions -5- 6 of any of its employees (or people it currently intends to hire) made prior to their employment by the Company. 2.10 Compliance with Other Instruments. The Company is not in violation or default of any provisions of its Certificate of Incorporation or Bylaws, as amended, or of any instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound or, to its knowledge, of any provision of federal or state statute, rule or regulation applicable to the Company, which violation or default would be materially adverse to the Company. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a material default under any such provision, instrument, judgment, order, writ, decree or contract or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company, which violation, default, conflict or event would be materially adverse to the Company. 2.11 Agreements; Action. (a) Except for the agreements explicitly contemplated hereby, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors, affiliates or any affiliate thereof. (b) There are no agreements, understandings, instruments, contracts or proposed transactions to which the Company is a party or by which it is bound which involve (i) obligations of, or payments to the Company in excess of, $100,000, other than liabilities or obligations of the Company for compensation under employment agreements, (ii) the license of any patent, copyright, trade secret or other proprietary right of the Company or (iii) joint venture, partnership or other contract or arrangement involving the sharing of profits or proprietary information or know how (other than nondisclosure agreements), (iv) any contract or agreement limiting the Company's right to engage in any business activity or compete with any person or entity, or (v) any other material agreement. (c) The Company has not (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or incurred any other liabilities individually in excess of $100,000 or in excess of $200,000 in the aggregate, other than liabilities or obligations of the Company for compensation under employment agreements, (iii) made any loans or advances to any person, other than ordinary advances for travel expenses or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business. -6- 7 (d) The Company is not a party to and is not bound by any contract, agreement or instrument, or subject to any restriction under its Restated Certificate of Incorporation or Bylaws, which adversely affects in any material respect its business as now conducted or as proposed to be conducted, its properties or its financial condition. (e) The Company has not engaged in the past three months in any discussion (i) with any representative of any corporation or corporations regarding the consolidation or merger of the Company with or into any such corporation or corporations, (ii) with any corporation, partnership, association or other business entity or any individual regarding the sale, conveyance or disposition of all or substantially all of the assets of the Company or a transaction or series of related transactions in which more than 50 percent of the voting power of the Company is disposed of, or (iii) regarding any other form of liquidation, dissolution or winding up of the Company. 2.12 Disclosure. The Company believes it has fully provided each Investor with all the information which such Investor has requested for deciding whether to purchase the Series E Preferred Stock and all information reasonably necessary to enable such Investor to make such decision. Neither this Agreement nor any other statement or certificate made or delivered in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading. 2.13 Registration Rights. Except as provided in Section 7 of this Agreement, Section 7 of the Series A Agreement, Section 7 of the Series B Agreement, Section 7 of the Series C Agreement and Section 7 of the Series D Agreement, the Company has not granted or agreed to grant any registration rights, including piggy-back rights, to any person or entity. 2.14 Corporate Documents. The Restated Certificate of Incorporation and Bylaws of the Company are in the form previously made available to the Investors upon request. 2.15 Title to Property and Assets. The Company owns its property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens which arise in the ordinary course of business and do not materially impair the Company's ownership or use of such property or assets. With respect to the property and assets it leases, the Company is in compliance with such leases and, to the best of its knowledge, holds a valid leasehold interest free of any material liens, claims or encumbrances. All the Company's personal properties, whether owned or leased, are in good operating condition, normal wear and tear excepted, and are adequate and suitable for the purposes for which they are currently being used. -7- 8 2.16 Employee Benefit Plans. The Company does not have any Employee Benefit Plan as described in section 3(2)(A) or section 3(2)(B) of the Employee Retirement Income Security Act of 1974. 2.17 Tax Returns and Payments. The Company has filed all tax returns and reports as required by law in a timely fashion. These returns and reports are true and correct in all material respects. The Company has paid all taxes and other assessments due prior to the time penalties would accrue thereon. The provision for taxes of the Company is adequate for taxes due or accrued as of the date thereof. 2.18 Insurance. The Company has in full force and effect fire and casualty insurance policies, with extended coverage, sufficient in amount (subject to reasonable deductibles) to allow it to replace any of its properties that might be damaged or destroyed. 2.19 Minute Books. The minute books of the Company made available to the Investors upon request contain a complete summary of all meetings of directors and stockholders since the time of incorporation and reflect all transactions referred to in such minutes accurately in all material respects. 2.20 Labor Agreements and Actions. The Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the knowledge of the Company, has sought to represent any of the employees, representatives or agents of the Company. There is no strike or other labor dispute involving the Company pending, or to the knowledge of the Company threatened, nor is the Company aware of any labor organization activity involving its employees. The Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate their employment with the Company, nor does the Company have a present intention to terminate the employment of any of the foregoing. 2.21 Real Property Holding Company. The Company is not a "United States real property holding corporation" (as that term is defined in Treasury Regulation section 1.897-2(b)). Within 45 days after receipt of a request from a foreign investor, the Company shall prepare and deliver to such foreign investor the statement required under Treasury Regulation section 1.897-2(h)(1)(i) and either or both of the following documents: (i) an affidavit in conformance with the requirements of Internal Revenue Code of 1986, as amended ("IRC") section 1445(b)(3) or (ii) a notarized statement, executed by an officer having actual knowledge of the facts, that the shares of Company stock held by such foreign investor are of a class that is regularly traded on an established securities market, within the meaning of IRC section 1445(b)(6). If the -8- 9 Company is unable to provide either document described in (i) or (ii) above, if requested, it shall promptly notify such foreign investor in writing of the reasons for such inability. Finally, upon the request of a foreign investor and without regard to whether either document described in (i) or (ii) above has been requested, the Company shall cooperate fully with the efforts of such foreign investor to obtain a "qualifying statement," within the meaning of IRC section 1445(b)(4), or such other documents as would excuse a transferee of a foreign investor's interest from withholding of income tax imposed pursuant to IRC section 897(a). 2.22 Financial Statements. The Company has delivered to each Investor its audited financial statements (balance sheet and profit and loss statement) at and for the period from inception through December 31, 1991, and its unaudited interim financial statements at and for the period from January 1, 1992 through September 30, 1992 (the "Financial Statements"). The Financial Statements are complete and correct in all material respects and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the period indicated and are consistent with each other. The Financial Statements accurately set out and describe the financial condition and operating results of the Company as of the date, and for the period, indicated therein. Except as set forth in the Financial Statements, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to September 30, 1992, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Financial Statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company. The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with generally accepted accounting principles. 2.23 Voting Arrangements. Except as may be provided in Section 5.6 hereof, to the Company's knowledge there are no outstanding stockholder agreements, voting trusts, proxies or other arrangements or understandings among the stockholders of the Company relating to the voting of their respective shares. 3. Representations, Warranties, Covenants and Agreements of Each Investor. Each Investor hereby represents, warrants, covenants and agrees that: 3.1 Authorization. This Agreement constitutes its valid and legally binding obligation. 3.2 Purchase Entirely for Own Account. This Agreement is made with each Investor in reliance upon such Investor's representation to the Company, which by such Investor's -9- 10 execution of this Agreement such Investor hereby confirms, that the Series E Preferred Stock to be received by such Investor and the Common Stock issuable upon conversion thereof (collectively, the "Securities") will be acquired for investment for such Investor's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, each Investor further represents that such Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. Each Investor represents that it has full power and authority to enter into this Agreement. 3.3 Disclosure of Information. Each Investor believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Series E Preferred Stock. Each Investor further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Series E Preferred Stock. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement. 3.4 Investment Experience. Each Investor is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Series E Preferred Stock. If other than an individual, Investor also represents it has not been organized solely for the purpose of acquiring the Series E Preferred Stock. 3.5 Restricted Securities. Each Investor understands that the shares of Series E Preferred Stock it is purchasing are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold only in certain limited circumstances without registration under the Securities Act of 1933, as amended (the "Securities Act"). In this connection each Investor represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. 3.6 Further Limitations on Disposition. Without in any way limiting the representations set forth above, each Investor further agrees not to make any disposition of all or any portion of the Series E Preferred Stock (or the Common Stock issuable upon the conversion thereof) unless and until: -10- 11 (a) There is then in effect a Registration Statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such Registration Statement; or (b) (i) Such Investor shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (ii) if reasonably requested by the Company, such Investor shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Securities Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144, as currently in existence, except in unusual circumstances. (c) Notwithstanding the provisions of subsections (a) and (b) above, no such registration statement or opinion of counsel shall be necessary for a transfer by an Investor which is a partnership to a partner of such partnership or a retired partner of such partnership who retires after the date hereof, or to the estate of any such partner or retired partner or the transfer by gift, will or intestate succession of any partner to his spouse or lineal descendants or ancestors, if the transferee agrees in writing to be subject to the terms of this Agreement to the same extent as if he were an original Investor hereunder; provided, however, that the provisions of Section 3.6(b) above shall apply if the Company or its counsel are unable to determine if such transfer may be made in compliance with federal and applicable state securities laws. 3.7 Legends. It is understood that the certificates evidencing the Series E Preferred Stock (and the Common Stock issuable upon conversion thereof) may bear one or all of the following legends: (a) "The shares represented hereby have not been registered under the United States Securities Act of 1933, and may not be sold, transferred, assigned, pledged or hypothecated absent an effective registration thereof under such act or compliance with Rule 144 promulgated under such act, or unless the Company has received an opinion of counsel, satisfactory to the Company and its counsel, that such registration is not required." (b) Any legend required by the laws of the State of California or other jurisdiction, including any legend required by the California Department of Corporations. (c) "The Provisions of Article IV, Section (B)4(d) of the Company's Restated Certificate of Incorporation may result in more than one Conversion Price for shares of Series E Preferred Stock. The Company shall maintain a ledger of such -11- 12 conversion prices for each holder of Series E Preferred Stock, which information shall be available upon request to the Secretary of the Company by any Person." (d) "The Company and the original purchaser of the shares of Series E Preferred Stock represented by this certificate have entered into an agreement which waives the adjustment of the Conversion Price of such shares in certain circumstances. A copy of the agreement is available from the Secretary of the Company upon request." 3.8 Accredited or Foreign Investor. Except as disclosed to the Company in writing, each Investor either (i) is an accredited investor as defined in Rule 501(a) of Regulation D, as amended, of the SEC under the Securities Act, or (ii) is neither (x) a national or resident of the United States, its territories, possessions or any area subject to its jurisdiction, nor (y) a corporation, partnership, trust or other entity created or organized in the United States, its territories, possessions or any area subject to its jurisdiction, nor (z) a corporation, partnership, trust or other entity, any of the equity owners of which is described in clause (x) or (y) above and agrees not to sell, hypothecate, pledge or otherwise dispose of any interest in the Securities in the United States, its territories, possessions or any area subject to its jurisdiction, or to any person who is a national thereof or resident therein (including any estate of such person), or any corporation, partnership or other entity created or organized therein, unless such securities have been either registered under the Securities Act, or are exempt from the registration requirements of the Securities Act, in the opinion of the Company's counsel, and the Investor has complied with any restrictions on transfer contained in this Agreement. 3.9 Confidentiality. Each Investor hereby represents, warrants and covenants that it shall maintain in confidence, and shall not use (except to evaluate its investment in the Company) or disclose without the prior written consent of the Company, any confidential information that is furnished to it by the Company in connection with this Agreement, including (without limitation) all financial statements, budgets and other information delivered or provided to Investors pursuant to Section 8 hereof. This obligation of confidentiality shall not apply, however, to any information (a) in the public domain through no unauthorized act or failure to act by any Investor, (b) lawfully disclosed to such Investor by a third party who possessed such information without any obligation of confidentiality or (c) lawfully developed by such Investor independent of any disclosure by the Company. Each Investor further covenants that it shall return to the Company all tangible materials containing such information upon reasonable request by the Company if such Investor is no longer a holder of shares of capital stock of the Company. -12- 13 3.10 Removal of Legends; Further Covenants. (a) Any legend endorsed on a certificate pursuant to Section 3.7(a) hereof shall be removed (i) if the shares of the Series E Preferred Stock or Common Stock issued upon conversion thereof represented by such certificate shall have been effectively registered under the Securities Act or otherwise lawfully sold in a public transaction or in accordance with Rule 144, (ii) if such shares may be transferred in compliance with Rule 144(k) promulgated under the Securities Act, or (iii) if the holder of such shares shall have provided the Company with an opinion of counsel, in form and substance acceptable to the Company and its counsel and from attorneys reasonably acceptable to the Company and its counsel, stating that a public sale, transfer or assignment of such shares may be made without registration. (b) Any legend endorsed on a certificate pursuant to Section 3.7(b) hereof shall be removed if the Company receives an order of the appropriate state authority authorizing such removal or if the holder of the Series E Preferred Stock or Common Stock issued upon conversion thereof provides the Company with an opinion of counsel, in form and substance acceptable to the Company and its counsel and from attorneys reasonably acceptable to the Company and its counsel, stating that such state legend may be removed. (c) Each Investor further covenants that such Investor will not transfer the Series E Preferred Stock or any securities received in exchange therefor or on conversion thereof, in violation of the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the rules of the Commission promulgated thereunder, including rule 144 under the Securities Act. Further, each Investor agrees that, prior to the closing of the corporation's initial public offering, such Investor will not transfer any of such securities in a public offering without the Company's prior consent, even if he is otherwise permitted to transfer them pursuant to Rule 144(k); provided that the foregoing shall not affect Investor's rights under Section 7. 3.11 Waiver of Antidilution Adjustment. (a) Each Investor purchasing shares of Series E Preferred Stock hereunder hereby agrees that in the event that: (i) the Company shall give a holder of Series E Preferred Stock twenty calendar days notice of the Company's intent to offer a Dilutive Issuance (as defined below) together with the terms and conditions of such Dilutive Issuance, and (ii) the Company shall offer such holder of Series E Preferred Stock that portion (a "Pro-Rata -13- 14 Portion") of such Dilutive Issuance which equals the proportion that the number of shares of Common Stock issuable upon conversion of the Series E Preferred Stock then held by such holder bears to the total number of shares of Common Stock issuable upon conversion of the Preferred Stock then outstanding (excluding the Series A Preferred Stock), or such lesser portion as the Company may specify in writing, and (iii) such holder fails to tender to the Company, other than at the written request of the Company, the purchase price of such holder's Pro-Rata Portion (or such lesser portion as the Company may specify in writing) of such Dilutive Issuance on the scheduled closing of such Dilutive Issuance (which shall not be less than 20 days after the written notice provided in (i) above), then no adjustment of the Conversion Price shall be made (other than adjustments made prior to the time of such Dilutive Issuance), and any future adjustment shall be deemed waived, with respect to the shares of Series E Preferred Stock held by such holder. Notwithstanding the foregoing: (a) if no holder of Series E Preferred Stock purchases any part of such Dilutive Issuance, regardless of the amount of the dilutive issuance, the provisions of this Section 3.11(a) shall not apply to such Dilutive Issuance; (b) in the event any Dilutive Issuance is in excess of $8,000,000, the provisions of this Section 3.11(a) shall not apply to any holder who purchases less than such holder's Pro-Rata Portion of such Dilutive Issuance if the purchase price of such lesser portion is an amount equal to or greater than such holder's Pro-Rata Portion of $8,000,000; (c) it is understood and agreed that if the Company only offers an Investor an opportunity to purchase less than an Investor's Pro Rata Portion, that no waiver shall result from Investor purchasing such lesser portion (including, without limitation, the portion of such Dilutive Issuance Investor may purchase under Section 8.4); (d) if Investors are not entitled to purchase any part of such Dilutive Issuance pursuant to Section 8.4(d)(iv), the provisions of this Section 3.11(a) shall not apply to such Dilutive Issuance; and (e) the provisions of this Section 3.11(a) shall apply to the closing of only one Dilutive Issuance in any 12-month period. (b) A "Dilutive Issuance" shall mean an issuance and sale of Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be Issued pursuant to Article IV, Section (B)4(d)(ii) of the Restated Certificate) with respect to the Series E Preferred Stock in excess of $250,000. Defined terms in this Section 3.11 not otherwise defined in this Agreement shall have the meanings given such terms in the Restated Certificate. -14- 15 (c) Any offer of a Dilutive Issuance pursuant to this Section 3.11 shall be subject to the rights of first offer described in Section 2.2(iii) hereof. (d) In the event the provisions of this Section 3.11 result in more than one Conversion Price for the Series E Preferred Stock, the Secretary of the Company shall keep a written ledger identifying the Conversion Price in effect for each share of Series E Preferred Stock outstanding, which information shall be made available to any person upon request. (e) The waiver of adjustment of Conversion Price provided for in this Section 3.11 shall bind any transferee of shares of Series E Preferred Stock. Each Investor agrees that, prior to transferring any shares of Series E Preferred Stock to any person or entity, such Investor will ensure that such transferee shall have delivered to the Company a written agreement to be bound by the provisions of this Section 3.11. 4. California Commissioner of Corporations. 4.1 Corporate Securities Law. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTIONS 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 5. Conditions of Investors' Obligations at Closing and Subsequent Closings. The obligations of each Investor under subsections 1.1(b) of this Agreement are subject to the fulfillment on or before Closing of each of the following conditions, the waiver of which shall not be effective against any Investor who does not consent in writing thereto: 5.1 Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing. 5.2 Performance. The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing; provided that the obligations of the Investors shall not be conditional upon the issuance by the Company of the Series E Preferred Stock to the persons or entities listed on Schedule A who have not performed or tendered the performance of their obligations under this -15- 16 Agreement required to be performed on or prior to the Closing except as provided in Section 5.7 hereof. 5.3 Compliance Certificate. The President of the Company shall deliver to each Investor at the Closing a certificate certifying that the conditions specified in Sections 5.1 and 5.2 have been fulfilled and stating that there has been no material adverse change in the business, affairs, prospects, operations, properties, assets or condition of the Company since the date of the Agreement. 5.4 Qualifications. The Commissioner of Corporations of the State of California shall have issued a permit qualifying the offer and sale of the Series E Preferred Stock and the underlying Common Stock to the Investors pursuant to this Agreement, or such offer and sale shall be exempt from such qualification under the California Corporate Securities Law of 1968, as amended. 5.5 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to each Investor, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. 5.6 Board of Directors. The Board of Directors at the Closing shall consist of eight duly elected members: Thomas H. Adams, Kim D. Blickenstaff, Frederick J. Dotzler, Howard E. Greene, Stephen K. Reidy, Jesse I. Treu, Gunars E. Valkirs and Timothy J. Wollaeger. 5.7 Minimum Investment. The Investors shall have purchased at the Closing specified in Section 1.2, an aggregate of at least 1,041,667 shares of Series E Preferred Stock. 5.8 Opinion of Company Counsel. Each Investor shall have received from Pillsbury Madison & Sutro, counsel for the Company, an opinion, dated as of the Closing, in form and substance satisfactory to the Investors, to the effect that: (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and the Company has the requisite corporate power and authority to own its properties and to conduct its business in the manner presently conducted. (b) The Company is qualified to do business as a foreign corporation in the State of California. (c) The Company has the requisite corporate power and authority to execute, deliver and perform the Agreement. The Agreement has been duly and validly authorized by the Company, -16- 17 duly executed and delivered by an authorized officer of the Company and constitutes a legal, valid and binding obligation of the Company. (d) The capitalization of the Company is as follows: (i) Preferred Stock. There are authorized 8,328,847 shares of Preferred Stock, $.01 par value per share, 610,000 shares of which have been designated Series A Preferred Stock, 2,156,336 shares of which have been designated Series B Preferred Stock, 2,204,167 shares of which have been designated Series C Preferred Stock, 1,900,010 shares of which have been designated Series D Preferred Stock and 1,458,334 shares of which have been designated Series E Preferred Stock. 610,000 shares of Series A Preferred Stock, 2,156,336 shares of Series B Preferred Stock, 2,204,167 shares of Series C Preferred Stock and 1,900,010 shares of Series D Preferred Stock have been duly issued and delivered, are validly outstanding, fully paid and nonassessable, and have been approved by all requisite corporate action and, based in part on the representations and warranties of the investors in such securities, were issued in compliance with all applicable federal and California securities laws. The shares of Series E Preferred Stock being issued under this Agreement, when issued, delivered and paid for, will be duly authorized, issued and delivered and will be validly outstanding, fully paid and nonassessable, and have been approved by all requisite corporate action and, to the best of counsel's knowledge, are free of any liens and encumbrances. The rights, privileges and preferences of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and Series E Preferred Stock are as stated in the Company's Restated Certificate. The shares of Common Stock issuable upon the conversion of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock and Series E Preferred Stock have been duly and validly reserved for issuance and, when issued in accordance with the Company's Restated Certificate, will be validly issued, fully paid and nonassessable. (ii) Common Stock. There are authorized 12,000,000 shares of Common Stock, of which 1,138,069 shares have been duly issued and delivered and are validly outstanding, fully paid and nonassessable. (iii) Except for (A) the conversion privileges of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred -17- 18 Stock and Series E Preferred Stock, (B) the right of first offer of the Investors provided for in Section 8.4 of this Agreement, (C) the right of first offer provided for in Section 8.4 of the Series A Agreement, (D) the right of first offer provided in Section 8.4 of the Series B Agreement, (E) the right of first offer provided for in Section 8.4 of the Series C Agreement, (F) the right of first offer provided for in Section 8.4 of the Series D Agreement and (G) options to purchase Common Stock of the Company issued under the 1989 Stock Plan of the Company, there are no preemptive rights or similar rights or, to the best of counsel's knowledge, options, warrants, conversion privileges or other rights (or agreements for any such rights) outstanding to purchase from or otherwise obtain from the Company any shares of its capital stock. (e) The certificates representing shares of the Series E Preferred Stock are in due and proper form and have been duly and validly executed by the officers of the Company named thereon. (f) The execution, delivery, performance and compliance with the terms of this Agreement do not violate any provision of any applicable federal, state law, rule or regulation or any provision of the Company's Restated Certificate or Bylaws and do not conflict with or constitute a material default under the provision of any judgment, writ, decree, order or material agreement known by counsel by which the Company is a party or by which it is bound, which violation, conflict or default would be materially adverse to the Company. (g) All consents, approvals, orders or authorizations of, and all qualifications, registrations, designations, declarations or filings with, any federal or state governmental authority on the part of the Company (other than by federal or state securities laws which are covered in paragraph (h) below) required to be made prior to the Closing in connection with the consummation of the transactions contemplated by this Agreement have been obtained, and are effective, as of the Closing and such counsel is not aware of any proceedings, or threat thereof, which question the validity thereof. (h) Based in part upon the representations of the Investors, the offer and sale of the Series E Preferred Stock pursuant to the terms of this Agreement are exempt from the registration requirements of section 5 of the Securities Act of 1933, as amended, by virtue of section 4(2) thereof and from the qualification requirements of the California Corporate Securities Law of 1968, as amended, by virtue of section 25102(f) thereof. No opinion need be expressed as to compliance with applicable antifraud statutes, rules and regulations of any applicable law governing the issuance of securities. -18- 19 (i) Such counsel is not aware, after making inquiry of the Company's chief executive officer (but without any other investigation), that there is any action, proceeding or investigation pending against the Company or any of its officers, directors or employees, or that any of the foregoing has received any threat thereof, which questions the validity of the Agreement, or which might result, either individually or in the aggregate, in any material adverse change in the assets, condition, affairs or prospects of the Company. The opinion of counsel for the Company under this Section 5.8 shall be subject to such matters as are set forth in the Schedule of Exceptions to this Agreement. 5.9 Restated Certificate. The Restated Certificate in substantially the same form attached hereto as Exhibit A shall have been filed with the Delaware Secretary of State. 5.10 Lawful Issuance. At the Closing, the purchase of the Series E Preferred Stock by the Investors shall be legally permitted by all laws and regulations to which the Investors and the Company are subject. 5.11 Amended Co-Sale Agreement. The Company shall have entered into an amended and restated Co-Sale Agreement in substantially the form of Exhibit B hereto together with the Principal Stockholders (as defined therein). 5.12 Letter Agreement. The Company shall have entered into a letter agreement with E. Merck in form and substance satisfactory to each party regarding the negotiation of the joint development of cardiac markers. 6. Conditions of the Company's Obligations at the Closing. The obligations of the Company to each Investor under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions by such Investor: 6.1 Representations and Warranties. The representations and warranties of the Investor contained in Section 3 hereof shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing. 6.2 Payment of Purchase Price. Each Investor shall have delivered the purchase price specified in Section 1.2 and Investors shall collectively have acquired and paid for at the Closing specified in Section 1.2, an aggregate of at least 1,041,667 shares of Series E Preferred Stock. 6.3 California Qualification. The Commissioner of Corporations of the State of California shall have issued a permit qualifying the offer and sale to the Investors of the Series E Preferred Stock and Common Stock issuable upon the -19- 20 conversion thereof or such offer and sale shall be exempt from such qualification under the California Corporate Securities Law of 1968, as amended. 6.4 Amendment to Distributorship Agreement. The Company shall have entered into a letter agreement with E. Merck in form and substance satisfactory to each party amending the Distributorship Agreement dated as of July 27, 1992 between the Company and E. Merck. 7. Registration Rights. The Company covenants and agrees as follows: 7.1 Definitions. For purposes of this Section 7: (a) The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document; (b) The term "Registrable Securities" means (i) the Common Stock issuable or issued upon conversion of the Series E Preferred Stock and (ii) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such Series E Preferred Stock or Common Stock, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which such person's registration rights under this Section 7 are not assigned; (c) The number of shares of "Registrable Securities then outstanding" shall be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are exercisable or convertible into, Registrable Securities; and (d) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 7.10 hereof. 7.2 Company Registration. (a) Commencing two years after the effective date of the Company's first registered public offering of stock, if (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its stock or other securities under the Securities Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan, or a -20- 21 registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within 20 days after mailing of such notice by the Company in accordance with Section 9.6, the Company shall, subject to the provisions of Section 7.6, cause to be registered under the Securities Act all of the Registrable Securities that each such Holder has requested to be registered. (b) The Company is obligated to effect only two such registrations pursuant to this Section 7.2 on behalf of the Holders of Series E Preferred Stock. 7.3 Obligations of the Company. Whenever required under this Section 7 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to 120 days. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such -21- 22 underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 7, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 7, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 7.4 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 7 that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them, and the intended method of disposition of such securities as shall be required to effect the registration of the Registrable Securities. 7.5 Expenses of Company Registration. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 7.2 for each Holder (which right may be assigned as provided in Section 7.10), including (without limitation) all registration, filing and qualification fees, printer's and accounting fees relating or apportionable thereto, but excluding underwriting discounts and commissions relating to Registrable Securities and the fees and disbursements of counsel for the selling Holders. 7.6 Underwriting Requirements. In connection with any offering involving an underwriting of shares being issued by -22- 23 the Company, the Company shall not be required under Section 7.2 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it, and then only in such quantity as will not, in the opinion of the underwriters, jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters reasonably believe compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters believe will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling stockholders according to the total amount of securities entitled to be included therein owned by each selling stockholder or in such other proportions as shall mutually be agreed to by such selling stockholders) but in no event shall the amount of securities of the selling Holders, together with all other securities to be registered pursuant to the exercise of registration rights, included in the offering be reduced below 30% of the total amount of securities included in such offering. 7.7 Delay of Registration. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 7. 7.8 Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 7: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the officers and directors of each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), against any losses, claims, damages or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively, a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not mis- -23- 24 leading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law; and the Company will reimburse each such Holder, officer or director, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection 7.8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, officer, director, underwriter or controlling person. (b) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Holder selling securities in such registration statement or any of its directors or officers or any person who controls such Holder, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, or underwriter or controlling person, or other such Holder or director, officer or controlling person may become subject, under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or controlling person, other Holder, officer, director, or controlling person in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 7.8(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this subsection 7.8(b) exceed the gross proceeds from the offering received by such Holder. -24- 25 (c) Promptly after receipt by an indemnified party under this Section 7.8 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 7.8, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 7.8, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 7.8. (d) The obligations of the Company and Holders under this Section 7.8 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 7, and otherwise. 7.9 Reports Under Securities Exchange Act of 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after 90 days after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public; (b) take such action, including the voluntary registration of its Common Stock under section 12 of the Exchange Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective; -25- 26 (c) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (d) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after 90 days after the effective date of the first registration statement filed by the Company), the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. 7.10 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 7 may be assigned by a purchaser of Registrable Securities under this Agreement to a transferee or assignee of an amount of such securities representing at least 50% of the aggregate number of shares of Registrable Securities of such purchaser or to a partner or retired partner of such purchaser; provided, that such transferee or assignee is approved by the Board of Directors of the Company, which approval shall not be unreasonably withheld, and that the Company is, within a reasonable time after such approved transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; and provided, further, that such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the approved transferee or assignee is restricted under the Securities Act. 7.11 "Market Stand-Off" Agreement. Each Investor hereby agrees that it shall not, to the extent requested by the Company and an underwriter of Common Stock (or other securities) of the Company, sell or otherwise transfer or dispose (other than to donees who agree to be similarly bound) of any Registrable Securities during a reasonable and customary period of time as agreed to by the Company and the underwriters (not to exceed 180 days) following the effective date of a registration statement of the Company filed under the Securities Act; provided, however, that: (a) such agreement shall be applicable only to the first such registration statement of the Company which covers shares (or securities) to be sold on its behalf to the public in an underwritten offering; and -26- 27 (b) all officers and directors of the Company and all other persons with registration rights (whether or not pursuant to this Agreement) enter into similar agreements. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Investor (and the shares or securities of every other person subject to the foregoing restriction) until the end of such reasonable and customary period. 7.12 Amendment of Registration Rights. Any provision of this Section 7 may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the Registrable Securities. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities are convertible), each future holder of all such securities, and the Company. 7.13 Termination of Registration Rights. The Company's obligations pursuant to this Section 7 shall terminate seven years from the date of consummation of the Company's sale of its common stock in a bona fide, firm commitment underwriting pursuant to a registration statement on Form S-1 under the Securities Act which results in gross offering proceeds to the Company of more than $7,500,000, the public offering price of which was not less than $9.00 per share (adjusted to reflect stock dividends, stock splits or recapitalizations). 8. Covenants. 8.1 Delivery of Financial Statements. The Company shall deliver to (i) each Investor who acquires at least $1,000,000 of Series E Preferred Stock ("Major Investor") and (ii) each assignee of any Major Investor who acquires 50% of such Major Investor's Series E Preferred Stock purchased hereunder: (a) as soon as practicable, but in any event within 90 days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles ("GAAP"), and audited and certified by independent public accountants of nationally recognized standing selected by the Company (the Company will include, upon request, the Company's management letter for such audited reports); and -27- 28 (b) (i) within 30 days of the end of each month, an unaudited statement of operations, statement of cash flows and balance sheet for and as of the end of such month, in reasonable detail; such monthly statements shall also contain the foregoing information on a year-to-date basis and shall also compare actual performance to budget; and (ii) At least annually, a comprehensive operating budget for the next fiscal year forecasting the Company's revenues, expenses and cash position, prepared on a monthly basis, including balance sheets and sources and applications of funds statements for such months and, as soon as prepared, any other budgets or revised budgets prepared by the Company; and (iii) such other information relating to the financial condition, business, research, prospects or corporate affairs of the Company as the Investor or any such assignee of the Investor may from time to time request, provided, however, that the Company shall not be obligated to provide information which it deems in good faith to be proprietary; and (c) with respect to the financial statements called for in subsection (b)(i) of this Section 8.1, an instrument executed by the Treasurer or the President of the Company and certifying that such financials were prepared in accordance with internally consistent accounting methods consistently applied with prior practice for earlier periods and fairly present the financial condition of the Company and its results of operation for the period specified, subject to year-end audit adjustment. For purposes of this Section 8, a Major Investor includes affiliated investing entities of that Investor. 8.2 Inspection. The Company shall permit each Investor, at such Investor's expense, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Investor; provided, however, that the Company shall not be obligated pursuant to this Section 8.2 to provide access to any information which it reasonably considers to be a trade secret or similar confidential or proprietary information. 8.3 Termination of Covenants. The covenants set forth in Sections 8.1, 8.2 and 8.5 shall terminate and be of no further force or effect when the sale of securities pursuant to a registration statement filed by the Company under the Securities Act in connection with the firm commitment underwritten offering of its securities to the general public is consummated or when the Company first becomes subject to the periodic reporting requirements of Section 13(a) or 15(d) of the Exchange -28- 29 Act, whichever event shall first occur; provided that the Company shall furnish for a period of five years from the termination of such covenants to each Major Investor copies of its reports on Forms 10-K and 10-Q within 10 days after filing with the SEC. 8.4 Right of First Offer. Subject to the terms and conditions specified in this Section 8.4, the Company hereby grants to each Investor a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined). A Investor shall be entitled to apportion the right of first offer hereby granted it among itself and its partners and affiliates in such proportions as it deems appropriate. Each time the Company proposes to offer any shares of, or securities convertible into or exercisable for, any class of its capital stock ("Shares"), the Company shall first make an offering of such Shares to each Investor in accordance with the following provisions: (a) The Company shall deliver a notice by certified mail ("Notice") to the Investors stating (i) its bona fide intention to offer or issue such Shares, (ii) the number of such Shares to be offered, and (iii) the price, if any, for which it proposes to offer such Shares. (b) Within 20 calendar days after receipt of the Notice, the Investor may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Shares which equals the proportion that the number of shares of Common Stock issuable (or issued and held) upon conversion of the Series E Preferred Stock then held, by such Investor bears to the total number of shares of outstanding Common Stock and Common Stock issuable upon conversion of the Preferred Stock then outstanding. The Company shall promptly, in writing, inform each Investor which purchases all the shares available to it ("Fully Exercising Investor") of any other Investor's failure to do likewise. During the 10-day period commencing after receipt of such information, each Fully Exercising Investor shall be entitled to obtain that portion of the shares subject to such right of first refusal and not subscribed for by the Investors which is equal to the proportion that the number of shares of Common Stock issuable (or issued and held) upon conversion of the Series E Preferred Stock then held by such Fully Exercising Investor bears to the total number of shares of Common Stock issuable (or issued and held) upon conversion of the Series E Preferred Stock then held by all Fully Exercising Investors who wish to purchase some of the unsubscribed shares. (c) If all such Shares referred to in the Notice are not elected to be obtained as provided in subsection 8.4(b) hereof, the Company may, during the 60 day period following the expiration of the period provided in subsection 8.4(b) hereof, -29- 30 offer the remaining unsubscribed Shares to any person or persons at a price not less than that, and upon terms no more favorable to the offeree than those, specified in the Notice. If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within 60 days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to the Investors in accordance herewith. (d) The right of first offer granted in this Section 8.4 shall not be applicable (i) to the issuance or sale of shares of Common Stock (or options therefor), to employees, directors, consultants or advisors of the Company, provided each such person executes an agreement, in substantially the form as approved by the Company's Board of Directors, (ii) shares offered in the acquisition of another company, to strategic partners of the Company or to companies with business relationships with the Company or in connection with research and development partnerships sponsored by the Company, (iii) to or after consummation of a bona fide, firmly underwritten public offering of shares of the Company's Common Stock registered under the Securities Act pursuant to a registration statement on Form S-1, which results in gross proceeds to the Company of more than $7,500,000 at a price per share of at least $9.00 (adjusted for any stock splits, stock dividends or other recapitalizations), or (iv) in the event of an offering of Shares by the Company to which the holders of a majority of the then outstanding Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock have waived their respective rights of first offer provided for in Section 8.4 of the Series A Agreement, the Series B Agreement, the Series C Agreement and the Series D Agreement, as the case may be. 9. Miscellaneous. 9.1 Survival of Warranties. The warranties, representations and covenants of the Company contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Investors. 9.2 Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. -30- 31 9.3 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California except as it regards choice of law. 9.4 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 9.5 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 9.6 Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified or upon deposit with the United States Post Office, by registered or certified mail, postage prepaid and addressed to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate by 10 days' advance written notice to the other parties. 9.7 Finder's Fee. Each party represents that it neither is nor will be obligated for any finder's fee or commission in connection with this transaction. Each Investor agrees to indemnify and hold harmless the Company from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which the Investor or any of its officers, partners, employees or representatives is responsible. The Company agrees to indemnify and hold harmless each Investor from any liability for any commission or compensation in the nature of a finder's fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 9.8 Expenses. Irrespective of whether the Closing is effected, the Company shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement or the Restated Certificate, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 9.9 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with -31- 32 the written consent of the Company and the holders of a majority of the Common Stock issued or issuable upon conversion of the Series E Preferred Stock purchased by the Investors pursuant to this Agreement, except: (i) as specified in Section 7.12 and Section 8.4(d), and (ii) no amendment shall increase the price of the Series E Preferred Stock without the consent of all Investors, and any material amendment or waiver which does not apply equally to all Major Investors shall not be effective unless it has been consented to or approved in writing by a majority of the inequitably affected Major Investors. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities are convertible), each future holder of all such securities, and the Company; provided, however, that no condition set forth in Section 5 hereof may be waived with respect to any Investor who does not consent thereto. 9.10 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 9.11 Aggregation of Stock. All shares of Series E Preferred Stock held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. BIOSITE DIAGNOSTICS INCORPORATED By /s/ Kim D. Blickenstaff ----------------------------- Address: 11030 Roselle Street, Suite D San Diego, CA 92121 -32- 33 INVESTORS: E. Merck By /s/ ppa. Koch ------------------------------------- Title General Manager Diagnostics Division --------------------------------- By /s/ ppa. Dr. Bardorff ------------------------------------- Title General Manager Sales & Marketing --------------------------------- Address: Diagnostics Division Frankfurter Strasse 250 D-6100 Darmstadt 1 Federal Republic of Germany Attn: Alfred Koch -33- 34 SCHEDULE A BIOSITE DIAGNOSTICS INCORPORATED SERIES E PREFERRED STOCK
Investors Shares Amount - --------- ------ ------ E. Merck 1,041,667 $5,000,001.60
35 Biosite Diagnostics Incorporated Supplemental Signature Pages To Series E Preferred Stock Purchase Agreement Dated as of November 25, 1992 Second Closing--December 15, 1992 By their execution hereof, BIOSITE DIAGNOSTICS INCORPORATED, a Delaware corporation (the "Company"), and each of the undersigned investors (the "investors") hereby become parties to the Stock Purchase Agreement dated as of November 25, 2993 (the "Agreement") between the Company and the parties thereto. As of the Second Closing, as defined below, the Company and each of the undersigned investors hereby acknowledge and agree to be bound by all of the provisions, terms and conditions of the Agreement and each of the undersigned investors represents and warrants on its own behalf that the representations and warranties set forth in Section 3 of the Agreement are true and correct. The shares of Series E Preferred Stock acquired by each of the undersigned investors at the Second Closing shall be deemed to have been acquired under the Agreement. the Company will deliver at the Second Closing an updated Schedule of Exceptions to the Agreement. Each of the undersigned investors agrees to purchase and the Company agrees to sell and issue the number of shares of the Company's Series E Preferred Stock set forth opposite such investor's name on the attached Supplement No. 1 to Schedule A to the Agreement (the "Series E Preferred Stock"), for the purchase price of $4.80 per share. The purchase and sale of the Series E Preferred Stock shall take place at the offices of Pillsbury Madison & Sutro, 235 Montgomery Street, San Francisco, California at 2:00 p.m. on December 15, 1992 or at such other time and place as the Company and a majority of the undersigned investors shall agree (the "Second Closing"). BIOSITE DIAGNOSTICS INCORPORATED By /s/ Kim D. Blickenstaff ---------------------------------------- Address: 11030 Rosell Street, San Diego, CA 92121 36 Biosite Diagnostics Incorporated Supplemental Signature Pages to Series E Preferred Stock Purchase Agreement dated as of November 25, 1992 Second Closing -- December 15, 1992 INVESTORS: KLEINER PERKINS CAUFIELD & BYERS V, A CALIFORNIA LIMITED PARTNERSHIP By: KPCB V ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP, its General Partner By: /s/ Brook H. Byers ---------------------------------------- Brook H. Byers General Partner Address: 2200 Geng Road, Suite 205 Two Embarcadero Place Palo Alto, CA 94303 CHC Venture Co. By: /s/ Timothy J. Wollaeger ----------------------------------------- Timothy J. Wollaeger President Address: c/o Sutter Corporation 9425 Chesapeake Drive San Diego, CA 92123 Attn: Timothy J. Wollaeger SENTRON MEDICAL, INC. By: /s/ Vincent M. Paglino ------------------------------------------ Vincent M. Paglino, Vice President Address: c/o Senmed Medical Ventures 4445 Lake Forest Drive, Suite 600 Cincinnati, OH 45242 2 37 Biosite Diagnostics Incorporated Supplemental Signature Pages to Series E Preferred Stock Purchase Agreement dated as of November 25, 1992 Second Closing -- December 15, 1992 MEDICUS VENTURE PARTNERS 1992 A CALIFORNIA LIMITED PARTNERSHIP By: MEDICUS MANAGEMENT PARTNERS, General Partner By: /s/ Frederick J. Dotzler --------------------------------------- Frederick J. Dotzler General Partner Address: 2180 Sand Hill Road, Suite 400 Menlo Park, CA 94025 EUCLID PARTNERS III, L.P., A DELAWARE LIMITED PARTNERSHIP By: EUCLID ASSOCIATES III, L.P. A DELAWARE LIMITED PARTNERSHIP, General Partner By: /s/ Stephen K. Reidy ----------------------------------------- Stephen K. Reidy General Partner Address: Euclid Partners Corporation 50 Rockefeller Plaza, Suite 1022 New York, NY 10020 GREENE FAMILY TRUST By: /s/ Howard E. Greene, Jr. ------------------------------------------- Howard E. Greene, Jr. Trustee Address: c/o Amylin Pharmaceuticals, Inc. 9373 Towne Center Drive, Suite 250 San Diego, CA 92121 Attn: Howard E. Greene, Jr. 3 38 Biosite Diagnostics Incorporated Supplemental Signature Pages to Series E Preferred Stock Purchase Agreement dated as of November 25, 1992 Second Closing -- December 15, 1992 Wyverne A. Blickenstaff /s/ Wyverne A. Blickenstaff -------------------------------------------- Address: RR # 1 East Peoria, Illinois 61611 Betty J. Blickenstaff /s/ Betty J. Blickenstaff -------------------------------------------- Address: RR # 1 East Peoria, Illinois 61611 Peter Preuss /s/ Peter Preuss --------------------------------------------- Address: 201 Lomas Santa Fe Drive Suite 340 Solana Beach, CA 92075 Henry W. Goodwin /s/ Henry W. Goodwin ---------------------------------------------- Address: 2923 Kings Forest Drive Kingwood, TX 77339 M. David White /s/ M. David White ---------------------------------------------- Address: 5405 Huckelberry Houston, TX 77056 4 39 Biosite Diagnostics Incorporated Supplemental Signature Pages to Series E Preferred Stock Purchase Agreement dated as of November 25, 1992 Second Closing -- December 15, 1992 Stephen I. Chazen /s/ Stephen I. Chazen ---------------------------------------------- Address: Dellwood Parkway East Madison, NJ 07940 Thomas H. Patrick /s/ Thomas H. Patrick ---------------------------------------------- Address: 122 Brinker Road Barrington Hills, IL 60010 John L. Steffens /s/ John L. Steffens ---------------------------------------------- Address: 358 Wendover Princeton, NJ 08540 Charles A. Lewis /s/ Charles A. Lewis ----------------------------------------------- Address: 1501 Asbury Avenue Evanston, IL 60201 5 40 BIOSITE DIAGNOSTICS INCORPORATED Series E Preferred Stock Second Closing - December 15, 1992 Supplement No. 1 To Schedule A SCHEDULE OF INVESTORS
Number Aggregate Investors of Shares Purchase Price --------- --------- -------------- Kleiner Perkins Caufield & Byers V 31,250 $ 150,000.00 CHC Venture Co. 93,750 450,000.00 Sentron Medical Inc. 31,250 150,000.00 Medicus Venture Partners 1992 104,167 500,001.60 Euclid Partners III, L.P. 104,167 500,001.60 Greene Family Trust 10,417 50,001.60 Wyverne A. and Betty J. Blickenstaff 2,000 9,600.00 Peter Preuss 10,417 50,001.60 Henry W. Goodwin 4,875 23,400.00 John L. Steffens 4,875 23,400.00 M. David White 4,874 23,395.20 Stephen I. Chazen 4,875 23,400.00 Thomas H. Patrick 4,875 23,400.00 Charles A. Lewis 4,875 23,400.00 ------- ------------ Total 416,667 $2,000,001.60 ======= =============
A-1 EX-11.1 17 EXHIBIT 11.1 1 EXHIBIT 11.1 STATEMENT OF COMPUTATION OF EARNINGS PER SHARE (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ---------------------------- ----------------- 1993 1994 1995 1996 ------ ------ ------ 1995 ------ ------ (UNAUDITED) Net income (loss)............................. $ (426) $2,356 $7,908 $5,028 $2,613 ====== ====== ====== ====== ====== Weighted average common shares outstanding.... 1,144 1,153 1,225 1,184 1,420 Net effect of dilutive common share equivalents (stock options) using the treasury stock method....................... -- 446 564 583 366 Effect of assumed conversion of preferred shares...................................... 8,329 8,329 8,329 8,329 8,329 Effective of assumed conversion of convertible debenture................................... -- -- 23 -- 92 Adjustments to reflect requirements of the Securities and Exchange Commission (Effect of SAB 83).................................. 625 625 625 625 625 ------ ------ ------ ------ ------ Adjusted shares outstanding................. 10,098 10,553 10,766 10,721 10,832 ====== ====== ====== ====== ====== Pro forma net income (loss) per share......... $(0.04) $ 0.22 $ 0.74 $ 0.47 $ 0.24 ====== ====== ====== ====== ======
EX-23.1 18 EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Experts" and "Selected Financial Data" and to the use of our report dated November 12, 1996, except for Note 7, as to which the date is December 5, 1996, in the Registration Statement on Form S-1 and related Prospectus of Biosite Diagnostics Incorporated for the registration of 2,300,000 shares of its common stock. ERNST & YOUNG LLP San Diego, California December 11, 1996 EX-27 19 EXHIBIT 27
5 This schedule contains summary financial information extracted from The Registrant's Financial Statements as of and for the year ended December 31, 1995 and as of and for the nine months ended September 30, 1996. And is qualified in its entirety by reference to such Financial Statements 1,000 U.S. DOLLARS YEAR 9-MOS DEC-31-1995 SEP-30-1996 JAN-01-1995 JAN-01-1996 DEC-31-1995 SEP-30-1996 1 1 2,276 1,410 11,703 8,759 3,943 4,531 0 0 1,689 1,709 21,098 18,520 6,868 8,247 3,268 4,306 27,935 28,968 6,670 4,553 2,739 3,234 0 0 83 83 14 15 18,429 21,083 27,935 28,968 25,147 20,225 26,794 21,667 5,649 4,318 13,687 12,632 1,217 2,368 0 0 0 0 6,241 2,349 (1,667) (264) 7,908 2,613 0 0 0 0 0 0 7,908 2,613 0.74 0.24 0.74 0.24 Earnings per share is calculated based upon pro forma shares outstanding. See Note 1 of Notes to Financial Statements.
-----END PRIVACY-ENHANCED MESSAGE-----