-----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, Hh8CvqmPcrG0OH6IR34LrQkMmf/KlPu7ZHAH7p0YULll0JXk38gh91ro/zruve2G wCpG2KZRzCRsUTwgvDM2Yg== 0000936392-96-001234.txt : 19961227 0000936392-96-001234.hdr.sgml : 19961227 ACCESSION NUMBER: 0000936392-96-001234 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19961226 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIOSITE DIAGNOSTICS INC CENTRAL INDEX KEY: 0000834306 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 330288606 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-17657 FILM NUMBER: 96686427 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/A 1 AMENDMENT #1 TO FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 26, 1996 REGISTRATION NO. 333-17657 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO 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. ------------------------ 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 26, 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.
- ------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------- PRICE TO PROCEEDS TO PUBLIC UNDERWRITING COMPANY(2) DISCOUNTS AND COMMISSIONS(1) - ------------------------------------------------------------------------------------------------- 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) PLUS TCA EMERGENCY ROOM SCREENING 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), ExpressTest(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. TRIAGE(R) PANEL FOR DRUGS OF ABUSE 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 and in Pakistan and India. 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 and in Pakistan and India 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 also 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. As part of its decision to refocus away from certain aspects of the human diagnostics 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, that the Company's patent applications will have priority over others' applications, or that, if issued, any of the Company's 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 8 12 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 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 aspects of the manufacturing 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 manufacturing 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 9 13 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. 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. 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. 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 10 14 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. 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." 11 15 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 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. 12 16 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 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 13 17 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 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 418,030 shares will be eligible for resale in the public market, in reliance upon Rule 144(k) under the Securities Act. In addition, 225,525 shares of Common Stock will be eligible for resale in the public market 90 days from the effective date of the Registration Statement of which this Prospectus is a part (the "Effective Date"), in reliance upon Rule 701 under the Securities Act. Additionally, 1,400,212 and 7,749,179 shares of Common Stock will be eligible for sale in the public market 120 days and 180 days, respectively, from the Effective Date, 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 14 18 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." 15 19 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. 16 20 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. 17 21 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. 18 22 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. 19 23 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 and in Pakistan and India 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 20 24 or remain profitable on a quarterly or annual basis or that its growth will be consistent with predictions made by securities analysts. 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. 21 25 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 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 fee 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, 22 26 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. 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. 23 27 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 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. 24 28 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 and in Pakistan and India. 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 25 29 performance of antibody-based tests. However, immunoassay analyzers are large and complex, have lengthy 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. 26 30 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 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 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. 27 31 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. 28 32 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/ CMS, Merck 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) As part of its decision to refocus away from certain aspects of the human diagnostics business, 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 33 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 30 34 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: LOGO 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 and in Pakistan and India. 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 ExpressTest 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 ExpressTest 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 ExpressTest program to potential industrial 31 35 clients in their regional area. Biosite currently has six sales professionals actively establishing select providers to be a part of the ExpressTest 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 useful adjuncts to CK-MB in the detection of heart attacks. The Company believes that the concentrations of these three markers typically 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. 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 and Latin America and in South Africa. However, as part of its decision to refocus away from certain aspects of the human diagnostics 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. 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 32 36 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 33 37 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 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 34 38 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 or 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 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 35 39 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 and in Pakistan and India. 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 and Latin America and in South Africa. Additionally, Biosite is obligated to fund 60% and Merck is obligated to fund the remaining 40% of the costs 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 36 40 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 and Latin America and in 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. As part of its decision to refocus away from certain aspects of the human diagnostics business, 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. 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. 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. 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 37 41 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, that the Company's patent applications will have priority over others' applications, or that, if issued, any of the Company's 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 aspects of the manufacturing 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 manufacturing 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 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. 38 42 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. 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 39 43 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 investigations, 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 complete, the FDA will accept the application for filing. Once the submission is accepted, 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 application is accepted, 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 investigations are necessary, in which case the PMA may be delayed for one or more years while additional clinical investigations 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 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 40 44 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 Triage DOA 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 Triage DOA 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 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 Transplant or other products now in development. There can be no assurance that the FDA will not determine that the Company must adhere to the more costly, lengthy and uncertain PMA approval process for any of the Company's products in development. 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. 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 41 45 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," "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 a material adverse effect on the Company's ability to market its products or on its business, financial condition or 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. 42 46 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 H. 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 previously 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 was employed by Ernst & Young LLP, where from October 1985 to March 1990, he served as Audit Manager. 43 47 Mr. Twomey holds a B.A. in Business Economics from the University of California at Santa Barbara. 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. From April 1988 to January 1994, 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 H. 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, 44 48 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. 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. 45 49 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 was 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. 46 50 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 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. 47 51 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 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 48 52 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 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. 49 53 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. 50 54 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 and in Pakistan and India. 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. 51 55 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 H. 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 52 56 (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. 53 57 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 54 58 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 . 55 59 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 418,030 shares will be eligible for immediate sale without restriction under Rule 144(k). In addition, approximately 225,525 shares will be eligible for resale under Rule 701, beginning 90 days from the Effective Date. Certain stockholders, who collectively hold an aggregate of 1,400,212 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. Following the expiration of such 120-day lockup period, all such shares will be available for resale without restriction under Rule 144(k). The Company's directors, executive officers and certain other stockholders, who collectively hold an aggregate of 7,749,179 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. 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 2,891,727 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 Effective Date (unless subject to the contractual restrictions described above), may be sold by persons other than affiliates subject only to the 56 60 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." 57 61 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 Effective Date, 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 7,749,179 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. Other stockholders of the Company holding in the aggregate approximately 1,400,212 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. 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. 58 62 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 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. 59 63 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 64 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 65 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 66 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 67 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 68 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 69 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 70 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 71 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 72 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 73 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 74 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 75 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 76 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 77 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 78 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 79 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 80 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 81 [PHOTOGRAPHS SHOWING TRIAGE DOA AND PERSONS PERFORMING TRIAGE DOA TESTING PROCEDURE] BIOSITE(R) DIAGNOSTICS DEVELOPS, MANUFACTURES AND MARKETS IMMEDIATE RESPONSE DIAGNOSTICS(TM) 82 ====================================================== 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 ====================================================== 83 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 84 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** Sublease Agreement between the Registrant and General Atomics, dated February 17, 1992, as amended on August 10, 1992, January 21, 1993, October 29, 1993, March 1, 1995 and October 1, 1996. 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. 10.21 Lease Agreement between the Registrant and TCEP II Properties Limited Partnership dated July 26, 1996. 11.1 Statement of computation of earnings per share.
II-2 85
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. 27.1* Financial Data Schedule.
- --------------- * Previously filed. ** 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 86 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment to 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 23rd day of December, 1996. BIOSITE DIAGNOSTICS INCORPORATED By /s/ KIM D. BLICKENSTAFF ------------------------------------ Kim D. Blickenstaff President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment to 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 23, 1996 BLICKENSTAFF Officer (Principal Executive - ------------------------------------------ Officer) and Director Kim D. Blickenstaff /s/ CHRISTOPHER J. TWOMEY Vice President and Chief December 23, 1996 - ------------------------------------------ Financial Officer (Principal Christopher J. Twomey Financial Officer and Accounting Officer) * Chairman of the Board December 23, 1996 - ------------------------------------------ Timothy J. Wollaeger * Director December 23, 1996 - ------------------------------------------ Gunars E. Valkirs, Ph.D. * Director December 23, 1996 - ------------------------------------------ Thomas H. Adams, Ph.D. * Director December 23, 1996 - ------------------------------------------ Howard E. Greene, Jr. * Director December 23, 1996 - ------------------------------------------ Frederick J. Dotzler * Director December 23, 1996 - ------------------------------------------ Stephen K. Reidy * Director December 23, 1996 - ------------------------------------------ Jesse I. Treu, Ph.D. *By /s/ KIM D. BLICKENSTAFF Kim D. Blickenstaff Attorney-in-Fact
II-4 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** Sublease Agreement between the Registrant and General Atomics, dated February 17, 1992 as amended on August 10, 1992, January 21, 1993, October 29, 1993, March 1, 1995 and October 1, 1996. 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 E. Merck KGaA, dated as of June 28, 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.
88
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION OF DOCUMENT PAGE - -------- -------------------------------------------------------------------------------------- 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. 10.21 Lease Agreement between the Registrant and TCEP II Properties Limited Partnership dated July 26, 1996. 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. 27.1* Financial Data Schedule.
- --------------- * Previously filed. ** To be filed by amendment. (+) Confidential treatment requested. EX-10.8 2 EXHIBIT 10.8 1 EXHIBIT 10.8 [CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION] ANTIBODY LICENSE AGREEMENT THIS AGREEMENT, dated September 22, 1995, is entered into by and between SANDOZ PHARMA LTD., a Swiss Corporation with offices at Lichtstrasse 35, CH4002 Basle/Switzerland ("Sandoz"), and BIOSITE DIAGNOSTICS INCORPORATED, a Delaware corporation with offices at 11030 Roselle Street, San Diego, CA 92121/USA ("Licensee"). W I T N E S S E T H: WHEREAS, Sandoz owns patents, patent applications, technical information, data and know-how relating to cyclosporine, an immnunosuppressive drug marketed under the trademarks Sandimmun(R) or Sandimmune(R) (or Neoral(R) or Optoral(R) for Sandoz's patented microemulsion preconcentrate formulation of cyclosporine), and to monoclonal antibodies capable of distinguishing between cyclosporine and metabolites thereof which are suitable for use in diagnostic assay kits and systems, and to assay kits or systems comprising such monoclonal antibodies; WHEREAS, Licensee has extensive know-how relating to the development and marketing of diagnostic assays for the monitoring of drugs and other small molecules; WHEREAS, Sandoz, in order to foster the safety of patients all over the world receiving cyclosporine, is interested that both in whole blood and plasma analogous therapeutic windows are determined whatever assay system is used, and is therefore interested to grant licenses on its patents, patent applications, technical information, data and know-how to develop and commercialize such assay systems and to supply companies manufacturing such assay kits with monoclonal antibodies, cyclosporine and certain cyclosporine metabolites for cyclosporine assays; NOW, THEREFORE, Sandoz and Licensee agree as follows: 1. DEFINITIONS. The following definitions shall control the construction of each of the following terms wherever they appear in this Agreement: 1.1 "Affiliate" of a part shall mean a corporation or other business entity controlled by, controlling or under common control with such party. For this purpose, control of a corporation or other business entity shall mean direct or indirect beneficial ownership of at least fifty percent (50%) of the voting interest in, or a greater than fifty percent (50%) -1- 2 interest in the equity of, such corporation or other business entity. 1.2 "CyA" shall mean the immunosuppressive drug cyclosporine. 1.3 "Monoclonal Antibody(ies)" shall mean antibody(ies) to CyA, its analogues, and/or to metabolites thereof whether or not derived from a Sandoz cell line, and useful in measuring amounts of CyA, its analogues and/or metabolites thereof. 1.4 "CyA Assay(s) (or Products or Kits)" shall mean those certain testing devices, which are used with a testing device reader, which utilize in vitro diagnostic assay(s) based on Monoclonal Antibodies and which are useful for therapeutic drug level monitoring in patients treated with CyA; provided, however, that the CyA Assay(s) (or Products or Kits) shall not include the testing device reader. 1.5 "Sandoz Know-How" shall mean all biological, chemical, and immunological materials, methods and other technical information, presently or hereafter during the term of this Agreement in the possession or control or Sandoz which relate to Monoclonal Antibodies or to CyA Assays conveyed to Licensee in writing, orally or through other tangible materials. 1.6 "Sandoz Patent Rights" shall mean all patent applications world-wide and patents granted thereon, and all extensions and supplemental protection certificates based on such patents, now or hereafter during the term of this Agreement owned or controlled by Sandoz, which incorporate a Valid Claim covering Monoclonal Antibodies or CyA Assays; a listing of such subsisting Sandoz Patent Rights being provided in the attached Schedule A, which will be updated from time to time as appropriate. 1.7 "Effective Date" shall mean the date first written hereinabove. 1.8 "Non-exclusive License" shall mean a license under which Sandoz is free to grant other licenses in the same field to other parties than Licensee. 1.9 "Net Sales" shall mean the gross sales of CyA Assays by Licensee, its Affiliates and its sublicensees (if any) billed to customers, less the amount actually allowed to customers for (1) adjustments granted to customers, including without limitation credits and allowances or on account of the rejection or return of CyA Assays previously sold, (2) trade and cash discounts, rebates and distributor fees, (3) transportation, insurance and handling charges and (4) sales, excise, turnover and similar taxes and any duties and other governmental charges imposed upon the production, importation, use or sale of CyA Assays. Where the price of a CyA Assay includes the price of -2- 3 the device reader or the price of an assay for a compound other than CyA, Net Sales shall be determined by a formula (to be agreed upon by the parties before sales at such price are made) calculated to exclude that portion of sales of CyA Assays reasonably attributable to such prices of the device reader and/or the assay for a compound other than CyA. 1.10 "Valid Claim" shall mean one or more claims within Sandoz Patent Rights which has not been declared to be invalid or unenforceable by the final judgment of a court of competent jurisdiction from which no appeal can be or has been taken. 1.11 "Patent Countries" shall mean countries in which Sandoz Patent Rights subsist. 1.12 "First Commercial Sale" shall mean the first sale of CyA Assay under this Agreement by Licensee or its Affiliates to a non-affiliated third party, following approval of its marketing by the appropriate governmental agency for the country in which the sale is to be made or, when governmental approval is not required, the first sale in a country. 1.13 "1992-SFr" shall indicate a quoted price which may, at the option of Sandoz, be adjusted yearly as of January 1 of each year to correspond to changes in the Swiss Consumer Price Index of the Swiss Bundesamt fur Statistik since December 31, 1992. 2. FEASIBILITY STUDY. 2.1(a) Within fifteen (15) working days after the Effective Date of this Agreement, Sandoz will supply to Licensee [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] as reference compound and starting material for [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], respectively. Import regulations will be handled by Sandoz upon receipt of the permit applied for by Licensee at the U.S. Department of Agriculture, Hyattsville, Maryland 20782. The permit forwarded by Licensee to Sandoz will accompany the shipment of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] to facilitate port of entry clearance by USDA inspectors. During the Feasibility Period as set forth in Sections 2.2 and 2.3, Sandoz warrants that it will satisfy all applicable U.S. governmental import regulations regarding all materials required by Licensee and supplied by Sandoz such evaluation. To demonstrate feasibility using quality control samples of Cyclosporin A in [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], Licensee's test will be required to have accuracy, precision and reproducibility at least equivalent to [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. -3- 4 (b) If Licensee demonstrates the above results to Sandoz, Licensee shall have the right to enter the next stage of cooperation. Sandoz shall then supply Licensee with [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. For testing cross reactivity with the preliminary assay system, Licensee will receive small quantities [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] and, in addition to that, Licensee shall analyze several [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] samples from various transplant patients from local hospitals with both the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] and the experimental test design of Licensee. The performance requirements as set forth in 2.1(a) will apply equally. (c) Licensee will not use any materials supplied by Sandoz for any other purpose than performing the feasibility phase investigations under this Agreement and will not divulge the nature of or provide any such materials to any third party. (d) Prior to or during the investigations of Section 2.1, Sandoz shall provide its Know-how to Licensee only as each portion is requested by Licensee. 2.2 Sandoz hereby grants Licensee the non-exclusive right to perform feasibility investigations during a Feasibility Period of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] starting with the Effective Date of this Agreement. Licensee shall inform Sandoz in quarterly reports on progress and status of these investigations. At the end of the Feasibility Period, if successful, Licensee shall provide a demonstration of meeting the performance criteria set out in Section 2.1 with [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. Each such report, and the information and data contained in each such report, shall constitute Confidential Information of Licensee under Section 8 below. 2.3 Licensee may elect to extend the duration of the Feasibility Period for an additional period of time mutually to be agreed upon, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 2.4 Upon receipt by Sandoz of written notification from Licensee prior to expiry of the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] period referred to in Section 2.2 above or any extended period agreed in accordance with Section 2.3 above, that Licensee has successfully performed the feasibility investigations in [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] and wishes to enter into a Nonexclusive License under Sandoz Patent Rights and Sandoz Know-How to make, have made, use and sell CyA Assays, -4- 5 Sandoz will in writing confirm the feasibility or object to it within thirty (30) days. Upon confirmation, Section 3 through 16 of this Agreement shall immediately become effective without further documentation between the parties. 2.5 In the absence of any notification by Licensee in accordance with Section 2.4 above or in the event that Licensee notifies Sandoz during the Feasibility Period pursuant to Sections 2.2 and 2.3 that it does not wish to enter into a Nonexclusive License according to Section 2.4, this Agreement shall terminate and the parties shall have no further liability or obligations to each other concerning CyA Assays or Monoclonal Antibodies under this Agreement, provided, however, that the materials and Sandoz Know-How provided to Licensee pursuant to Section 2.1 hereof shall continue to be governed by the Confidentiality Provision set out in Section 8. In such event, Licensee shall immediately return to Sandoz all unused portions of Monoclonal Antibodies and any other materials provided by Sandoz remaining in Licensee's possession and any copies of tangible materials embodying Sandoz Know-How, except for one copy which may be retained in Licensee's confidential legal files for use solely by Licensee's counsel. 3. LICENSE. Upon receipt of the notification referred to in Section 2.4, Sandoz undertakes to grant to Licensee a Non-exclusive License with the right to sublicense Affiliates under the Sandoz Patent Rights and Sandoz Know-How to make, have made, use and sell CyA Assays worldwide. 4. SUPPLIES. 4.1 Cell Line Transfer and License. (a) Sandoz grants Licensee a Non-exclusive License under Sandoz Patent Rights and Sandoz Know-How to manufacture Monoclonal Antibodies and shall--subject to the payment referred to in Section 5.2 below--make available the Sandoz cell-lines and the necessary Know-How to Licensee within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after the grant of the Non-exclusive License in accordance with Section 3 of this Agreement. (b) The cell-lines shall remain the property of Sandoz. No further transmission and no alternations or special manipulations by Licensee shall be permitted. Sandoz, at its discretion and its own costs, shall have the possibility to test the integrity of the cell lines in order to assure presence of the essential chromosomes to produce antibody of proper specificity. -5- 6 (c) Licensee agrees to supply Sandoz upon Sandoz Pharma's request, and solely for Sandoz internal use, with Monoclonal Antibodies in accordance with reasonable price, ordering and supply terms to be agreed upon. 4.2 CyA and CyA Metabolites. (a) Sandoz shall supply Licensee and Licensee shall purchase from Sandoz all requirements of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] reasonably and justifiably needed for the purpose of development after the work contemplated in Section 2 and production of CyA Assays and available to Sandoz, in accordance with the provisions of this Section 4. During the term of this Agreement, Sandoz shall continue to provide such materials to Licensee pursuant to Section 4.2, even if the license is paid up and royalties are no longer due under this Agreement. [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] (b) At the latest three months before the beginning of any calendar quarter Licensee shall place a firm order with Sandoz in writing for the first quarter and indicate to Sandoz its estimated requirement for each of the following three quarters and the subsequent 12 months. Sandoz has no commitment to supply any quantities of Licensee's requirements exceeding by [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] the last estimate given for such quarter. In the event that Sandoz is unwilling or unable to supply any quantities of Licensee's requirements exceeding by [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] the last estimate given for such quarter, then Licensee shall have the right to purchase the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] or CyA elsewhere or to prepare these compounds internally. (c) Freight, duty and associated taxes shall be paid by [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] with each element shown separately in invoices. Title shall pass to Licensee upon transfer to the carrier by Sandoz for final shipment to Licensee. Delivery shall be made to Licensee within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] working days of the date of Licensee's order therefor. 4.3 The supply price for [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], pursuant to Section 4.2, shall be [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] FCA Basel. The supply price for [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], pursuant to 4.2 shall be [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] per gram FCA Basel for [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY -6- 7 WITH THE COMMISSION] FCA Basle. Licensee may purchase less than one gram of such materials at pro rata cost. 5. FEES AND ROYALTIES. 5.1 Upon execution of this Agreement, Licensee shall pay a [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] lump sum payment of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] Sandoz. [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 5.2 Upon transfer of the Monoclonal Antibody-producing cell-line to Licensee pursuant to Section 4.1(a), Licensee shall pay a further, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] to Sandoz. 5.3 Licensee will pay a royalty of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] in Patent Countries and [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] in all other countries upon the Net Sales. In Patent Countries, the period for payment of royalties in a given country shall be extended so long as a Valid Claim of Sandoz Patent Rights covers the sale by Licensee of CyA Assays in said country. With respect to sale of CyA Assays in any Patent Country, the obligation of Licensee to pay royalties as provided above shall be reduced by [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] in the event and for the period that an unlicensed third party or parties sell any quantity of CyA Assays in excess of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the total CyA Assay market in such Patent Country, said market share percentage to be determined by an independent market survey organization mutually agreed to by Sandoz and Licensee. 5.4 To ensure Sandoz' royalty income from the sale of CyA Assays, absent prior written consent of Sandoz, Licensee shall not sell to any third party any CyA Assays for a consideration other than that upon which Net Sales can be determined for the purpose of payment of royalty to Sandoz. 5.5 There shall be no obligation to pay Sandoz under this Section 5 on sales of CyA Assays between Licensee and its sublicenses (if any), but in such instances the obligation to pay royalties shall arise upon the sale by Licensee or its sublicensees to unrelated third parties. It is understood and agreed that any payment under this Section 5 may be made on behalf of Licensee by any sublicensee of Licensee, provided, however, that Licensee shall remain primarily responsible therefor. Payments due under this Section 5 shall be deemed to accrue when CyA Assays are sold to such unrelated third party. -7- 8 5.6 For purposes of this Agreement, a sale of a CyA Assay to an unrelated third party shall be deemed to take place in the country of actual sale to the final user. 5.7 Payments of royalties by Licensee to Sandoz shall occur [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] to Sandoz' designated account within sixty (60) days after the end of the respective calendar half-year. 5.8 Each payment paid hereunder shall be accompanied by a statement which shall set forth, for sales subject to royalty under this Agreement, the Net Sales of CyA Assays, the quantity of units of CyA Assays sold and the royalty due thereon. 5.9 All amounts payable to Sandoz under this Agreement shall be made in Swiss Francs, and shall be calculated in the currency of the sale and then converted into Swiss Francs using the applicable exchange rate published in the United States in "The Wall Street Journal" under the caption "Money Rates" (or in the event "The Wall Street Journal" does not report the local currency, then another reliable source which is mutually agreeable to Licensee and Sandoz) using an average quarterly exchange rate determined as the average of the exchange rates set forth in the first and last issue of The Wall Street Journal published during (or average of the first and last business days of) the applicable reporting calendar [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 5.10 The obligation to pay royalties to Sandoz under this Agreement is imposed only once with respect to the same unit of CyA Assay regardless of the number of claims of Sandoz Patent Rights or the amount of Sandoz Know-How embodies in such CyA Assay. 5.11 [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 5.12 Licensee shall be entitled to deduct from royalty payments to Sandoz hereunder the amount of any [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] which Licensee, its Affiliates or sublicensees are required by applicable law to withhold from such royalty payments, to the extent that Licensee, its Affiliates or sublicensees pay to the appropriate governmental authority on behalf of Sandoz such [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. Licensee shall use reasonable efforts to minimize any [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] required to be withheld on behalf of Sandoz by Licensee, its Affiliates or sublicensees. Licensee shall promptly deliver to Sandoz proof of payment of all [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], together with copies of all communications from or with such governmental authority with respect thereto. -8- 9 6. VERIFICATION. 6.1 For a period of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] from the date when each royalty statement is due hereunder, Licensee agrees to keep records in sufficient detail and to allow an independent certified public accounting firm of internationally recognized standing appointed by Sandoz, and reasonably acceptable to Licensee, to examine its books and records, at Sandoz' sole expense, upon reasonable notice during business hours but not more than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], in order to verify the payments due under this Agreement; provided, however, that such certified public accounting firm shall not disclose any information to Sandoz except that information which should properly have been contained in such royalty statement. 7. GOVERNMENT APPROVALS. 7.1 Licensee shall be solely responsible, at its expense, for all required filings and all other proper action required to obtain all necessary approvals to develop, promote, market and sell CyA Assays. 8. CONFIDENTIAL INFORMATION. 8.1 Any information which shall have been communicated in confidence under this Agreement, whether in writing or orally and subsequently confirmed in writing or in other tangible form, designated by the disclosing party to be confidential (the "Confidential Information") shall be governed by the provisions of this Article: (a) Recipient shall not use the Confidential Information disclosed to it for its own benefit except for the purpose of performing its obligations under this Agreement. (b) Recipient shall not disclose the Confidential Information disclosed to it to any third party or to use such Confidential Information of the benefit of any third party without the express written permission of the disclosing party, except that the recipient shall not be prevented from using or disclosing information disclosed to it hereunder: (i) which recipient can demonstrate by written records was known to the recipient prior to the date of disclosure by the disclosing party, provided such information was not obtained by the recipient through disclosure by a third party receiving such information in confidence from the disclosing party; (ii) which is now public knowledge, or becomes public knowledge in the future other than by breach of this Agreement by the recipient; -9- 10 (iii) which is independently developed by or for the recipient without benefit of Confidential Information received from the disclosing party; (iv) which is disclosed to recipient, after the date of disclosure by the disclosing party, by a third party having a right to make such disclosure; or (v) which is included in any filing or action taken by Licensee to obtain governmental approval to develop, promote, market and sell CyA Assays, provided, however, that when permitted by the provisions of local law, Licensee will take reasonable steps to protect the confidentiality of Confidential Information submitted to governmental agencies or authorities pursuant to Section 7 hereof. Each party shall use the same degree of care it uses to protect its own confidential and proprietary technical information to prevent the unauthorized disclosure to any third party of the Confidential Information. (c) Each party agrees that the Confidential Information disclosed to it will only be disclosed to such employees, officers, directors or consultants of the recipient who reasonably require such disclosure for purposes of performing the recipient's obligations under this Agreement. Such party shall cause each such person to agree to keep confidential and not use the Confidential Information disclosed to it to the same extent as such party is so obligated under this Section 8. Each party may disclose Confidential Information of the other party to the extent that such disclosure is required by applicable law, regulation or court order, provided that such party shall provide written notice to the other party and sufficient opportunity to object to such disclosure or to request confidential treatment thereof. (d) Upon termination of this Agreement, each party shall return to the other or destroy any tangible physical copies of any Confidential Information provided to it hereunder and any notes taken or copies made by employees, officers, directors or consultants of such party regarding Confidential Information disclosed to it, provided, however, that each party may retain one (1) copy of Confidential Information disclosed to it in its confidential legal files for use solely by such party's counsel. (e) The confidentiality obligations under the terms of this Agreement shall remain in effect with respect to each portion of the Confidential Information for a period of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after expiry of this Agreement but at least [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] from the Effective Date of this Agreement. -10- 11 8.2 Materials provided to or produced by Licensee under this Agreement, including [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], shall be used only for the purposes contemplated by this Agreement and no other purposes. Upon termination of this Agreement, all such materials in Licensee's possession shall be returned to Sandoz. 9. PATENTS. 9.1 Sandoz warrants that at the time of execution of this Agreement it knows of no third party patent rights which would impinge upon Licensee's freedom to manufacture, use or sell CyA Assays in any country. Should the existence of such third party patent rights become known to either party subsequent to the execution of this Agreement, the parties shall work together to ensure the continued exercise of the provisions of this Agreement. Should Licensee be required or if it is determined by mutual agreement not to be withheld unreasonably that it needs to acquire a license under such third party patent rights, Licensee shall be permitted to offset the cost of such rights against royalties payable to Sandoz, such offset, however, shall not exceed [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the royalties due and payable to Sandoz in any calendar [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 10. TERM AND TERMINATION. 10.1 Unless earlier terminated in accordance with the terms hereof, this Agreement shall remain in force until the later of the following dates: (i) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]; or (ii) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. Upon termination of this Agreement pursuant to this Section 10.1, Licensee shall have a fully-paid, worldwide, Non-exclusive License under the Sandoz Know-how to make, have made, use and sell CyA Assays worldwide. The parties will meet approximately [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] before the latest such date to determine whether and how Sandoz' supply to Licensee of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] under Section 4.2 hereof may be continued. 10.2 Licensee may terminate this Agreement at any time upon one year's previous written notice. 10.3 If, at any time, Sandoz discovers that the performance of the CyA Assay (or Product or Kit) of Licensee is no longer within the performance criteria set out in Section 2.1 above, Sandoz shall notify Licensee accordingly. Licensee shall -11- 12 have [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] to rectify this deficiency, or if such deficiency is one which requires more than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] to remedy, Licensee shall commence promptly and thereafter diligently pursue to remedy such deficiency, failing which Sandoz shall have the right to terminate the Agreement at any time upon the end of any calendar-quarter by written notice. 10.4 Either party shall have the right to terminate this Agreement and the license hereunder forthwith by notice in writing to the other party if the other party fails to perform or observe any of the material terms hereof on its part to be performed and observed, and fails to remedy such breach within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of a notice to remedy the same (such notice giving adequate particulars of the alleged default and of the intention of the party serving the notice to terminate this Agreement under this Section), or, if the breach is one which requires more than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] to remedy, the remedying was not commenced promptly and thereafter diligently pursued. 10.5 Any termination of this Agreement prior to the expiration of term pursuant to Paragraph 10.1: (a) shall automatically cancel the license granted to Licensee hereunder; (b) shall be without prejudice to the rights of either party against the other party which may have accrued up to the date of such termination (including Sandoz' right to be paid any amounts due and payable hereunder); and (c) shall be without prejudice to the rights of Licensee to dispose of quantities of CyA Assays in its possession, subject to the payment of any amounts due thereon to Sandoz as provided herein. 11. GOVERNING LAW AND JURISDICTION. 11.1 This Agreement shall be governed by, interpreted and enforced in accordance with the substantive laws of Switzerland. 11.2 All disputes arising out of this Agreement shall be finally decided under the Rules of Conciliation and Arbitration of the International Chamber of Commerce in Paris. The arbitration shall take place in Basle, Switzerland if brought by Licensee or in San Diego, USA if brought by Sandoz. 12. NOTICES. 12.1 Any notice required or permitted to be given hereunder shall be in writing and shall be deemed sufficient if sent by registered or certified mail, telefax or air express or delivered by hand to the respective party at the address stated below: -12- 13 If to Sandoz: Sandoz Pharma Ltd. P.O. Box CH-4002 Basel, Switzerland Attention: Legal Department Fax: +41 61 324-7399 If to Licensee: Biosite Diagnostics, Incorporated 11030 Roselle Street San Diego, CA 92121 Attention: President Fax: +1 619 597-4090 Any such notice mailed by registered or certified mail, telefax or air express shall be deemed to have been given when mailed, as evidenced by the date on the receipt retained by the sender. Either party may change the address to which notice to it is to be given by notice as provided herein. 13. ASSIGNABILITY. 13.1 This Agreement shall not be assignable [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. All reference to a party in this Agreement shall, to the extent reasonably necessary to carry out the purpose of this Section 14 be considered references to each permitted transferee or assignee of such party. 13.2 This Agreement shall be binding upon and inure to the benefit of the successor or permitted assigns of Licensee and Sandoz, respectively. 14. EXCUSED NON-PERFORMANCE. 14.1 Each of the parties hereto shall be excused from the performance of its obligations hereunder in the event such performance is prevented by a cause beyond the reasonable control of such party, including, without limitation, any act, regulation or law of any government, war, civil commotion, destruction of production facilities or materials by fire, earthquake or storm and failure of public utilities. 15. SEVERABILITY. 15.1 Should any part of this Agreement be held unenforceable or in conflict with the applicable laws or regulations of any applicable jurisdiction, the invalid or unenforceable part or provision shall be replaced with a provision which accomplishes, to the extent possible, the original business purpose of the invalid or unenforceable part or provision in a valid and enforceable manner, and the remainder of this Agreement shall remain binding upon the parties hereto. -13- 14 16. PUBLICITY AND PROMOTIONAL ACTIVITIES. 16.1 Neither Sandoz nor Licensee will issue any news releases or make any public statements regarding this Agreement without the prior written consultation at least 14 days in advance of the other party, giving such other party reasonable opportunity of prior comment. 16.2 Licensee is entitled to use in its promotion a mention of "In cooperation with Sandoz Pharma LTD., the producer of Sandimmun(R) [or Sandimmune(R); or if referring to Sandoz's microemulsion preconcentrate formulation of cyclosporine, then Sandimmun(e) Neoral(R), Neoral(R), or Optoral(R)] (Cyclosporine)" after having submitted the relevant promotion material to Sandoz for approval and not having received Sandoz's objection within one month after such submission. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives as of the date first written above. SANDOZ PHARMA LTD. BIOSITE DIAGNOSTICS, INCORPORATED By /s/ D. Vasella By /s/ Kim D. Blickenstaff -------------------------------- ------------------------------ /s/ C.S. Morris Names: Kim D. Blickenstaff -------------------------------- --------------------------- Title: President & CEO Names: D. Vasella ----------------------------- C.S. Morris ----------------------------- Title: CEO V.P. ----------------------------- -14- 15 Schedule A Listing of SANDOZ Patent Rights As of 15 September 1995, SANDOZ has been granted the following patents covering monoclonal antibodies to Cyclosporin A. ========================================================================== Country Patent Numbers* Expiry date** - -------------------------------------------------------------------------- Australia 589917 27/09/01 - -------------------------------------------------------------------------- Austria 0198026, 0290762 27/09/05 - -------------------------------------------------------------------------- Belgium 0198026, 0290762 27/09/05 - -------------------------------------------------------------------------- Canada 1309671 03/11/09 - -------------------------------------------------------------------------- Denmark 2613/86*** 27/09/05 - -------------------------------------------------------------------------- England 0198026, 0290762 27/09/05 - -------------------------------------------------------------------------- Finland 93965 27/09/05 - -------------------------------------------------------------------------- France 0198026, 0290762 27/09/05 - -------------------------------------------------------------------------- Germany P3587505.4, 27/09/05 P3587342.6 - -------------------------------------------------------------------------- Holland 0198026, 0290762 27/09/05 - -------------------------------------------------------------------------- Italy 0198026, 0290762 27/09/05 - -------------------------------------------------------------------------- Luxembourg 0198026, 0290762 27/09/05 - -------------------------------------------------------------------------- New Zealand 213680 02/10/01 - -------------------------------------------------------------------------- Norway 173557 27/09/05 - -------------------------------------------------------------------------- Japan 504679/85**** 27/09/05 - -------------------------------------------------------------------------- South Africa 85/7684 04/10/05 - -------------------------------------------------------------------------- South Korea 045374 27/09/00 - -------------------------------------------------------------------------- Spain 547495-7 19/11/06 - -------------------------------------------------------------------------- Sweden 0198026, 0290762 27/09/05 - -------------------------------------------------------------------------- Switzerland 0198026, 0290762 27/09/05 - -------------------------------------------------------------------------- United States 5169773 08/12/09 ========================================================================== * Where more than one patent number appears for a country, this reflects divisional applications. ** The expiry date is calculated without considering the possibility of patent term extension, which may be available in some cases. *** Danish application pending; not yet granted. **** Japanese application granted, but grant number not yet available. -15- 16 [LETTERHEAD OF SANDOZ] CORPORATE DEVELOPMENT PROJECT MANAGEMENT A. ROBERTS TEL: 364-6872 TELEFAX: 324-9145 Dr. Ken Buechler BIOSITE DIAGNOSTICS 11030 Roselle Street SAN DIEGO, CA 92121 U.S.A. Basle, July 26, 1996 Dear Ken, Following discussion with yourself, I would like to acknowledge the need to extend the Feasibility Period (detailed in sect. 2.3. of the Sandoz/Biosite Antibody Agreement) due mainly to the additional requests made by Sandoz in late 1996, and confirm the new mutually agreeable expiry date of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] (extended from [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]). Best wishes /s/ Andrew Andrew Roberts, Ph.D. International Project Manager for Neoral cc: Messrs. B. Glass, T. Hoxie, S. Strub 17 [LETTERHEAD OF SANDOZ] CORPORATE DEVELOPMENT PROJECT MANAGEMENT A. ROBERTS TEL: +41 61 324-6872 TELEFAX: +41 61 324-9145 Dr. Ken Buechler BIOSITE DIAGNOSTICS 11030 Roselle Street SAN DIEGO, CA 92121 U.S.A. Basle, December 3, 1996 RE: BIOSITE PROJECT - EXTENSION TO FEASIBILITY PERIOD Dear Ken, Thank you for your fax messages of November 27 and December 2, 1996. Following discussion with yourself, I would like to acknowledge the need to further extend the Feasibility Period (detailed in sect. 2.3, of the Sandoz/Biosite Antibody Agreement) and confirm the new mutually agreeable expiry date of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] (extended from [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]). Best wishes /s/ Andrew Roberts Andrew Roberts, Ph.D. cc: Messrs. G. Feutren, F. Legay, S. Strub EX-10.9 3 EXHIBIT 10.9 1 EXHIBIT 10.9 [CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.] EASY ASSAY LICENSE AGREEMENT THIS AGREEMENT, dated September 22, 1995, is entered into by and between SANDOZ PHARMA LTD., a Swiss Corporation with offices at Lichtstrasse 35, CH-4002 Basle/Switzerland ("SANDOZ") and BIOSITE DIAGNOSTICS INCORPORATED, a Delaware corporation with offices at 11030 Roselle Street, San Diego, CA 921211/USA ("LICENSEE"). W I T N E S S E T H: WHEREAS, SANDOZ and LICENSEE have entered into an ANTIBODY LICENSE AGREEMENT of even date herewith, pertaining to diagnostic assays utilizing monoclonal antibodies for measuring levels of the immunosuppressant cyclosporine in blood and plasma; WHEREAS, SANDOZ has developed an improved monoclonal antibody based assay for measuring cyclosporine levels in blood and plasma, which improved assay further comprises compound capable of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], for which improved assay SANDOZ owns patents, patent applications, technical information, data, and know-how, and which improved assay, because it can be conducted in a short period of time without the need for laboratory equipment or special skills, is particularly well suited for use in connection with small portable fluorometers; WHEREAS, LICENSEE has particular expertise in the development and marketing of assays for use in connection with small portable fluorometers; WHEREAS, SANDOZ and LICENSEE desire that LICENSEE should develop and market a hand-held, rapid monoclonal antibody-based cyclosporine assay utilizing SANDOZ's improved assay technology and capable of being read by LICENSEE's portable fluorometer, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]; IT IS NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, agreed as follows: 1. PROVISIONS INCORPORATED FROM ANTIBODY LICENSE AGREEMENT. The provisions of Articles 1 (Definitions), 6 (Verification), 7 (Government Approvals), 8 (Confidential Information), 9 (Patents), 11 (Governing Law and Jurisdiction), 12 (Notices), 14 (Excused Non-Performance), 15 (Severability), and -1- 2 16 (Publicity and Promotional Activities) of the ANTIBODY LICENSE AGREEMENT between the parties of even date herewith, and such other provisions of the ANTIBODY LICENSE AGREEMENT as are specifically referenced below shall also be applicable to this Agreement, mutatis mutandis, and are incorporated herein by reference. A copy of the ANTIBODY LICENSE AGREEMENT is attached hereto and made a part of this Agreement. 2. ADDITIONAL DEFINITIONS. In addition to the definitions in the ANTIBODY LICENSE AGREEMENT, the following definitions will apply to this Agreement: 2.1 [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 2.2 "CyA EASY Assays" shall refer [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 2.3 "SANDOZ EASY Know-How" shall mean all biological, chemical, and immunological materials, methods and other technical information, presently or hereafter during the term of this Agreement in the possession or control of SANDOZ which relate to [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] or to CyA EASY Assays, and which is conveyed to LICENSEE in writing, orally or through other tangible materials. 2.4 "SANDOZ EASY Patent Rights" shall mean all patent applications worldwide and patents granted thereon, and all extensions and supplemental protection certificates based on such patents, now or hereafter during the term of this Agreement owned or controlled by SANDOZ, which incorporate one or more claims covering [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] or CyA EASY Assays which has not been declared to be invalid or unenforceable by the final judgment of a court of competent jurisdiction from which no appeal can be or has been taken; a listing of such subsisting SANDOZ EASY Patent Rights being provided in the attached SCHEDULE B, which will be updated from time to time as appropriate. 2.5 "EASY Patent Countries" shall mean countries in which SANDOZ EASY Patent Rights subsist. 2.6 "Net EASY Sales" shall mean the gross sales of CyA EASY Assays by LICENSEE, its Affiliates and its sublicensees (if any) billed to customers, less the amount actually allowed to customers for (1) adjustments granted to customers, including without limitation credits and allowances or on account of the rejection or return of CyA EASY Assays previously sold, (2) trade and cash discounts, rebates and distributor fees, (3) transportation, insurance and handling charges and (4) sales, excise, turnover and similar taxes and any duties and -2- 3 other governmental charges imposed upon the production, importation, use or sale of CyA EASY Assays. Where the price of a CyA EASY Assay includes the price of the device reader or the price of an assay for a compound other than CyA, Net EASY Sales shall be determined by a formula (to be agreed upon by the parties before sales at such price are made) calculated to exclude that portion of sales of CyA EASY Assays reasonably attributable to such prices of the device reader and/or the assay for a compound other than CyA. 2.7 "SANDOZ Trademarks" shall mean the trademarks listed on the attached SCHEDULE C. 3. FEASIBILITY. 3.1 To demonstrate feasibility, a CyA EASY Assay developed by LICENSEE (i) must meet the feasibility criteria for a CyA Assay as set forth in section 2 of the ANTIBODY LICENSE AGREEMENT, the provisions of which shall apply, mutatis mutandis, to this Agreement; [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 3.2 In addition to providing [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] as provided in section 2 of the ANTIBODY LICENSE AGREEMENT, SANDOZ will also provide [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 4. LICENSES. 4.1 Upon proof of feasibility of the CyA EASY Assay pursuant to Article 3.1 of this Agreement and receipt of the notification referred to in Article 2.4 of the Antibody Assay Agreement, SANDOZ undertakes to grant to LICENSEE a License under SANDOZ EASY Patent Rights and SANDOZ EASY Know-How to make, have made, use and sell CyA EASY Assays worldwide. For CyA EASY Assays intended to be read by [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] License shall be exclusive. For CyA EASY Assays intended to be read by [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] (in particular by [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], this License shall be non-exclusive. 4.2 Simultaneously with the grant of the License under Article 4.1 of this Agreement, SANDOZ further undertakes to grant LICENSEE a Non-exclusive License [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 4.3 All CyA EASY Assays sold by LICENSEE pursuant to this Agreement shall be marked [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], as provided in Article 11 of this Agreement. -3- 4 4.4 Sublicense of any License granted under this Agreement other than to Affiliates of LICENSEE shall require the express written consent of SANDOZ. In the event of any sublicense, LICENSEE shall undertake to ensure that the performance of such sublicensee complies with all terms and conditions of this Agreement to the same extent as if performed by LICENSEE directly. 5. SUPPLIES OF [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 5.1 In order to ensure the good and consistent quality of the CyA EASY Assays, SANDOZ shall supply LICENSEE and LICENSEE shall purchase from SANDOZ all requirements of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] reasonably and justifiably needed for the purpose of development and production of CyA EASY Assays following proof of feasibility, in accordance with the provisions of this Article 5. SANDOZ, however, may terminate [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 5.2 At the latest three months before the beginning of any calendar quarter LICENSEE shall place a firm order with SANDOZ in writing for the first quarter and indicate to SANDOZ its estimated requirement for each of the following three quarters and the subsequent 12 months. SANDOZ has no commitment to supply any quantities of LICENSEE's requirements exceeding by [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] the last estimate given for such quarter. In the event that SANDOZ is unwilling or unable to supply any quantities of LICENSEE's requirements exceeding by [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] the last estimate given for such quarter, then LICENSEE shall have the right to purchase the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] elsewhere or to prepare this compound internally. Freight, duty and associated taxes shall be paid by [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] with each element shown separately in invoices. Title shall pass to LICENSEE upon transfer to the carrier by SANDOZ for final shipment to LICENSEE. Delivery shall be made to LICENSEE within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] working days of the date of LICENSEE's order therefor. 5.3 The supply price for [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] shall be [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] per gram FCA Basel (1992-SFr). In the event that the contribution of the cost [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] at this supply price to the total production cost of the CyA EASY Assay exceeds [CONFIDENTIAL -4- 5 MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], this supply price may be renegotiated. LICENSEE may purchase less than one gram of such materials at pro rata cost. 6. FEES AND ROYALTIES. 6.1 In addition to the fees payable under the ANTIBODY LICENSE AGREEMENT, LICENSEE shall pay to SANDOZ a [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] payment of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] as follows: (a) upon execution of this Agreement, LICENSEE shall pay to SANDOZ the amount of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]; and (b) upon the date of first commercial sale of the CyA EASY Assays, LICENSEE shall pay SANDOZ the amount of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. Of this payment, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 6.2 In addition to the royalties payable under the ANTIBODY LICENSE AGREEMENT, LICENSEE shall pay to SANDOZ the following royalties: a. For sales in each EASY Patent Country, LICENSEE shall pay a royalty of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of Net EASY Sales in such county for such time as one or more of SANDOZ EASY Patent Rights covers the sale by LICENSEE of CyA EASY Assays in such country, following which the royalty shall be reduced to [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of Net EASY Sales. b. For sales in all other countries, LICENSEE shall pay a royalty of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] on all Net EASY Sales. c. With respect to sale of CyA EASY Assays in any EASY Patent Country, the obligation of LICENSEE to pay royalties as provided above shall be reduced by [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] in the event and for the period that an unlicensed third party or parties sell any quantity of CyA EASY Assays in excess of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the total market in such EASY Patent Country for CyA EASY Assays, said market share percentage to be determined by an independent market survey organization mutually agreed to by SANDOZ and LICENSEE. 6.3 Articles 5.4 through 5.12 of the ANTIBODY LICENSE AGREEMENT, concerning calculation and payment of royalties for CyA Assays shall apply, mutatis mutandis, to calculation and payment of royalties for CyA EASY Assays. -5- 6 6.4 [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 7. QUALITY CONTROL. 7.1 As soon as reasonably practicable after completion of the feasibility study under Article 3 of this Agreement, LICENSEE shall establish and submit to SANDOZ for approval, which shall not be unreasonably withheld or delayed, initial quality control standards, which shall include objective standards for assay sensitivity, specificity, range, stability and failure profile of readers. LICENSEE shall manufacture, or cause to be manufactured, the CyA EASY Assays according to such standards. LICENSEE shall comply with all applicable Good Manufacturing Practices and with all standards and requirements of regulatory authorities in the countries in which LICENSEE sells or supplies CyA EASY Assays. These quality control standards will apply regardless of whether failure to meet such standards is due to a defect in the CyA EASY Assay itself or a defect in the fluorometer supplied by the LICENSEE. LICENSEE shall monitor quality to ensure that these standards are maintained. LICENSEE shall provide SANDOZ with periodic certificates to ensure that these quality control standards are maintained, and upon [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] advance notice, SANDOZ (or such independent consultants as SANDOZ may designate) shall have the right at its sole expense to visit LICENSEE's facilities to inspect the manufacturing, packaging, and storage of the CyA EASY Assays by LICENSEE. 7.2 LICENSEE shall develop and submit to SANDOZ for approval, which approval shall not be unreasonably withheld or delayed, supply standards which shall set forth inventory control procedures, targets for delivery times and procedures for informing sales personnel of supply constraints, and LICENSEE shall use commercially reasonable efforts to ensure that CyA EASY Assays, or fluorometers for reading such CyA EASY Assays, sold or supplied by LICENSEE in any country shall be delivered to the customer within a reasonable time and not later than the time promised to the customer. LICENSEE shall monitor orders, supplies, and the time required to fill orders and shall ensure that sales representatives are aware of supply constraints. 7.3 LICENSEE shall promptly advise SANDOZ of serious problems or alleged problems with supply and/or quality of the CyA EASY Assays, e.g., as reflected by customer complaints, letters from regulatory authorities, lawsuits, regulatory actions, internal reports and data, and any other information alleging, suggesting, stating or evidencing serious problems exist with the quality or reliable supply of the CyA EASY -6- 7 Assays. LICENSEE shall take immediate steps to investigate and use commercially reasonable efforts to resolve such problems. 8. COMMERCIALLY REASONABLE EFFORTS. 8.1 LICENSEE shall use commercially reasonable efforts to develop and obtain FDA approval to manufacture and sell a CyA EASY Assay which meets the feasibility requirements of Article 3 of this Agreement, and shall thereafter diligently develop, manufacture, market and sell such CyA EASY Assays in accordance with this Agreement for the duration of this Agreement. 9. PRODUCTS LIABILITY. 9.1 LICENSEE shall indemnify and hold harmless SANDOZ and its Affiliates and their respective directors, officers, employees and consultants from all losses, liabilities, damages and expenses (including reasonable attorneys' fees and costs) that they may suffer as a result of any claims, demands, actions or other proceedings made or instituted by any third party against any of them and which arise or result from defects or alleged defects in any CyA EASY Assays or fluorometers manufactured, distributed or sold pursuant to this Agreement, except for claims made or suits brought which arise or result from defects in [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] supplied by SANDOZ or its Affiliates which materials have been handled, used and stored by LICENSEE (or those under LICENSEE's direction or control) in accordance with SANDOZ's instructions. 9.2 SANDOZ shall indemnify and hold harmless LICENSEE and its respective directors, officers, employees and consultants from all losses, liabilities, damages and expenses (including reasonable attorneys' fees and costs) that they may suffer as a result of any claims, demands, actions or other proceedings made or instituted by any third party against any of them and which arise or result from defects or alleged defects in [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] supplied by SANDOZ or its Affiliates, which materials have been handled, used and stored by LICENSEE (or those under LICENSEE's direction or control) in accordance with SANDOZ's instructions. 9.3 The indemnity obligations under this Article 9 shall not apply to amounts paid in settlement of any loss, claim, damage, liability or action if such settlement is effected without the consent of the indemnitor, which consent shall not be withheld unreasonably. The indemnitor may not settle the action or otherwise consent to an adverse judgment in such action that diminishes the rights or interests of the indemnitee without the express written consent of the indemnitee. The indemnitee, its employees and agents, shall cooperate fully with the indemnitor and its legal representatives in the investigation of any action, claim or liability covered by this indemnification. -7- 8 9.4 Both parties shall undertake to ensure that they maintain reasonably adequate insurance or liquid reserves to cover potential claims under this Article 9. 10. EASY ASSAY DEVELOPMENT AND MANUFACTURE. 10.1 LICENSEE shall conduct the research, development and commercialization of the CyA EASY Assays, of the fluorometers necessary to read such assays, and of such operating software (including EPROMs and the like) as may be required to operate the fluorometers. 10.2 LICENSEE, in consultation with SANDOZ, will endeavor to develop operating software that will calculate patient exposure to CyA following administration of a microemulsion preconcentrate formulation of CyA, based on the level of CyA in the test sample, the dosage of CyA received by the patient, and the time of administration. 11. MARKETING, SALES, DISTRIBUTION, AND USE OF TRADEMARKS. 11.1 The parties will each nominate three members to a Steering Committee, which will meet periodically to discuss any issues which might arise concerning the accuracy, ease of use, reliability, manufacturing and distribution capacity, and other issues relating to the performance and availability of the assays. Each party will appoint one Steering Committee member to be the primary contact person. 11.2 The exact manner and style of marking and labeling the CyA EASY Assays produced or sold by LICENSEE will be discussed and agreed between the parties; however: i. all CyA EASY Assays sold pursuant to this Agreement, and at the option of SANDOZ, such of LICENSEE's fluorometers as would only be suitable for use in connection with such CyA EASY Assays, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]; ii. no SANDOZ trademark shall be used in combination with another trademark in a manner which may suggest that it is owned by LICENSEE or another party, and with each public use of a SANDOZ Trademark, whether on a label, promotional item, package, or other presentation to the public, LICENSEE shall expressly acknowledge SANDOZ's ownership of the SANDOZ Trademark, e.g., with a legend stating "[SANDOZ Trademark] is a registered trademark of SANDOZ LTD" or words to that effect; iii. registration and maintenance of the SANDOZ Trademarks shall be the responsibility of SANDOZ; [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]; -8- 9 iv. each party shall have the right to require that its company name and trademarks appear on the labeling or packaging for the CyA EASY Assays; and v. each party shall use commercially reasonable efforts to ensure that the labeling and packaging of the CyA EASY Assays complies with all applicable laws and regulations. 11.3 Any and all labels, logos, promotional materials, packaging or other presentation to the public which contains or depicts a SANDOZ Trademark must be approved by SANDOZ before use or distribution. All public statements by LICENSEE concerning the properties, activities, bioavailability or other characteristics of any cyclosporine formulations, including statements in promotional materials, package inserts, articles, or other public disclosures, must be approved in advance by SANDOZ. 11.4 In all countries where the CyA EASY Assays are sold by LICENSEE, including the United States, SANDOZ shall have the option to co-promote LICENSEE's CyA EASY Assays. In the event of co-promotion, each party agrees to use its commercially reasonable efforts for the cooperative and coordinated marketing, sale, and distribution of CyA EASY Assays. Coordinated marketing efforts may include the following activities, which will be reviewed and agreed to by a joint marketing team: a. Co-promotion of test kits to the transplant community via trade shows, trade communications, advertising, etc.; b. Joint sales presentations by LICENSEE's sales representatives and SANDOZ sales representatives to transplant professionals in an effort to provide complete, accurate, and consistent information regarding CyA EASY Assays, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]; c. [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. In the event of co-promotion, both parties agree to use their commercially reasonable efforts to co-promote CyA EASY Assays of LICENSEE [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. Sales of LICENSEE's CyA EASY Assays as a result of co-promotion under this Article 11.4 shall be made by LICENSEE, and no compensation would be due to SANDOZ with respect to such sales other than as provided under Article 6 hereof. Should the parties decide that it would be appropriate for SANDOZ to sell directly in some cases, however, such sales would be governed by Article 11.6 hereof. 11.5 [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. All sales and distribution shall be by LICENSEE or its Affiliate(s) unless otherwise agreed, except as provided in Article 11.4 hereof. SANDOZ reserves the right to approve all distribution via third parties in the [CONFIDENTIAL -9- 10 MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], provided that SANDOZ must raise any objections to any proposal by LICENSEE for distribution by third parties within sixty (60) days of receipt of such proposal in writing from LICENSEE. In the event of any distribution by third parties, LICENSEE shall undertake to ensure that such distribution complies with all terms and conditions of this Agreement to the same extent as if performed by LICENSEE directly. 11.6 In some countries, SANDOZ and LICENSEE may enter into arrangements wherein SANDOZ sales representatives in a particular country would undertake to sell CyA EASY Assays manufactured by LICENSEE. In such a case, it is foreseen that such sales by SANDOZ sales representatives would be booked by LICENSEE and SANDOZ would receive a commission in the amount of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] (or such other amount as may be agreed on by the parties) on Net EASY Sales of LICENSEE's CyA EASY Assays attributable to SANDOZ sales representatives in such countries. Any royalties due to SANDOZ on such sales pursuant to this Agreement and/or the ANTIBODY LICENSE AGREEMENT would be creditable against such commissions. 12. TERM AND TERMINATION. 12.1 [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 12.2 LICENSEE shall have the right to terminate this Agreement [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 12.3 If the ANTIBODY LICENSE AGREEMENT is terminated before the later of the following dates (i) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]; or (ii) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 12.4 Either party shall have the right to terminate this Agreement and the licenses granted hereunder forthwith by notice in writing to the other party if the other party fails to perform or observe any of the material terms hereof on its part to be performed and observed, and fails to remedy such breach within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of a notice to remedy the same (such notice giving adequate particulars of the alleged default and of the intention of the party serving the notice to terminate this Agreement under this Article) or, if the breach is one which requires more than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] to remedy, the remedying was not commenced promptly and thereafter diligently pursued. 12.5 SANDOZ shall have the right to terminate the Non-exclusive License to use the SANDOZ Trademarks granted under -10- 11 Article 4.2 of this Agreement forthwith in the event that another entity acquires direct or indirect beneficial ownership of at least [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the voting interest in, or a greater than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] interest in the equity of LICENSEE, or that LICENSEE is merged with another company, transfers substantially all of its assets to another company, declares bankruptcy, or is adjudged insolvent. In the event that SANDOZ exercises this right, the License granted under Article 4.1 of this Agreement will become non-exclusive, and the royalties falling due under this Agreement from and after such time as SANDOZ exercises this right will be reduced by [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] and will be payable in each country only until the later of the following dates: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 12.6 Upon the later of the following dates: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. In the event that LICENSEE exercises this right, the License granted under Article 4.1 of this Agreement will become non-exclusive, and LICENSEE shall have a paid up license to make, have made, use and sell CyA EASY assays, but shall have a right to use the SANDOZ Trademarks. 12.7 In the event that LICENSEE discovers that quality control or supply standards under Article 7 of this Agreement have not been met, LICENSEE (i) shall notify SANDOZ immediately and (ii) shall have [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] from such discovery to cure such deficiencies, or if any such deficiency is one which requires more than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] to cure, LICENSEE shall commence promptly and thereafter diligently pursue cure of such deficiency, failing which cure, SANDOZ shall have the right to terminate this Agreement forthwith. 12.8 Any termination of this Agreement (a) shall automatically cancel the licenses granted to LICENSEE hereunder; (b) shall be without prejudice to the rights of either party against the other party which may have accrued up to the date of such termination (including SANDOZ' right to be paid any amounts due and payable hereunder); and (c) shall be without prejudice to the rights of LICENSEE to dispose of quantities of CyA EASY Assays in its possession, subject to the payment of any amounts due thereon to SANDOZ as provided herein. 12.9 In the event of any termination of this Agreement other than as a result of mutual agreement of the parties or breach by SANDOZ of this Agreement, the ANTIBODY LICENSE AGREEMENT, or the Debenture Purchase Agreement, LICENSEE shall [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. -11- 12 13. ENTIRE AGREEMENT. 13.1 This Agreement, the ANTIBODY LICENSE AGREEMENT and the Debenture Purchase Agreement, all by and between SANDOZ and LICENSEE and all of even date, constitute the entire understanding and agreement of the parties with respect to the subject matter of such agreements and supersede all previous negotiations, representations, and writings. No variation or modification of any of these agreements or waiver of any terms or provisions thereof shall be valid unless in writing and signed by the appropriate parties thereto. Breach of any of these three agreements shall be considered a breach of all three agreements. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives as of the date first written above. SANDOZ PHARMA LTD. By /s/ D. Vasella -------------------------- Name: D. Vasella ----------------------- Title: CEO ----------------------- By /s/ C.S. Morris -------------------------- Name: C.S. Morris ----------------------- Title: V.P. ----------------------- BIOSITE DIAGNOSTICS, INCORPORATED By /s/ Kim D. Blickenstaff -------------------------- Name: Kim D. Blickenstaff ----------------------- Title: President & CEO ----------------------- -12- 13 Schedule B Listing of SANDOZ EASY Patent Rights As of 15 September 1995, SANDOZ has been granted the following patents covering [CONFIDENTIAL MATERIALS REDACTED AND FILED SEPARATELY WITH THE COMMISSION].[CONFIDENTIAL MATERIALS REDACTED AND FILED SEPARATELY WITH THE COMMISSION] (entire table). =============================================================================== Country Patent Numbers Expiry date* - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- =============================================================================== * The expiry date is calculated without considering the possibility of patent term extension, which may be available in some cases. ** Application allowed; patent number not yet known. -13- 14 *** Application pending; not yet granted. SANDOZ additionally owns PCT application [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] which claims the EASY assay and related assay systems for [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. Patents resulting from this application will expire in [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] most countries, not counting possible extensions. -14- 15 SCHEDULE C SANDOZ owns several trademarks relating to its [CONFIDENTIAL MATERIALS REDACTED AND FILED SEPARATELY WITH THE COMMISSION]: [CONFIDENTIAL MATERIALS REDACTED AND FILED SEPARATELY WITH THE COMMISSION] [CONFIDENTIAL MATERIALS REDACTED AND FILED SEPARATELY WITH THE COMMISSION] [CONFIDENTIAL MATERIALS REDACTED AND FILED SEPARATELY WITH THE COMMISSION] [CONFIDENTIAL MATERIALS REDACTED AND FILED SEPARATELY WITH THE COMMISSION] [CONFIDENTIAL MATERIALS REDACTED AND FILED SEPARATELY WITH THE COMMISSION] [CONFIDENTIAL MATERIALS REDACTED AND FILED SEPARATELY WITH THE COMMISSION] -15- EX-10.10 4 EXHIBIT 10.10 1 EXHIBIT 10.10 [CONFIDENTIAL INFORMATION REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION] DISTRIBUTION AGREEMENT THIS AGREEMENT, made and entered into on this 11th day of November 1991, by and between BIOSITE DIAGNOSTICS INCORPORATED, 11030 Roselle Street, Suite D, San Diego, CA 92121, a corporation organized under the laws of the State of Delaware (hereinafter referred to as "Supplier"), and CURTIN MATHESON SCIENTIFIC, INC., 9999 Veterans Memorial Drive, Houston, Texas 77038, a corporation organized under the laws of the State of Delaware (hereinafter referred to as "CMS"), W I T N E S S E T H: Whereas Supplier desires to sell and market its Product (as defined below), and CMS desires to purchase Supplier's Product for resale to customers; and Whereas the parties desire to enter into a distributorship agreement governing the terms of their relationship: N o w, T h e r e f o r e, in consideration of the respective covenants of the parties herein set forth, the parties hereto agree as follows: 1. Products. (a) The product covered by this Agreement is the TRIAGE(TM) 7 Panel for Abused Drugs manufactured by or for Supplier (the "Product"), which includes tests for the following drugs: PCP (Phencyclidine); THC (Marijuana); Cocaine; Amphetamines/methamphetamines; Opiates; Benzodiazepenes; and Barbiturates. -1- 2 (b) During the term of this Agreement, Supplier shall make available to CMS any improved or updated versions of the Product under the same terms and conditions (other than price) as set forth herein. (c) Supplier intends to bring to market during the term of this Agreement additional manual, visual, rapid diagnostic methods for drug of abuse testing which are similar or related to the Product, including, but not limited to, proposed tests for the following abused drugs: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] (hereinafter referred to as the "Related Products"). The Related Products may be separate tests or combinations thereof. Supplier shall offer to CMS in writing the right to distribute in the Territory (as hereinafter defined) for the remainder of the term of this Agreement any Related Products developed by Supplier during the term of this Agreement on terms and conditions (other than price, dollar figures and quantities) substantially similar to those set forth herein, provided that CMS has met the minimum sales requirements, if any, with respect to the Product set forth in Section 6(c) hereof for the six-month period prior to Supplier's announcement of any such Related Product (such minimums shall be calculated on a pro rata basis if the six-month period prior to the availability of such Related Product overlaps two six-month periods set forth in Section 6(c) hereof and shall be adjusted downward on a unit per unit basis if CMS's minimum sales requirements, if any, are reduced in accordance with Section 5(a) and/or 6(e) hereof). -2- 3 Supplier shall include the specific terms and conditions (including the proposed price, dollar figures and quantities) with respect to the Related Products in its written offer to CMS. CMS shall accept distribution rights with respect to Related Products, if at all, in writing, within sixty (60) days of receipt of Supplier's offer; during this sixty (60) day period, both parties shall act in good faith to attempt to reach an agreement. In the event CMS elects not to exercise such right within such period, Supplier may not grant exclusive distribution rights for such Related Products to third parties on terms more favorable, when considered in their entirety, than those made available by Supplier to CMS. Nothing contained herein shall be construed as obligating Supplier to bring to market any Related Products, during the term of this Agreement or otherwise. (d) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] (e) During the first twelve (12) months following the date of first Product shipment, Supplier shall promptly credit against the purchase price of future orders by CMS (or, in the event of termination of this Agreement during such period, refund to CMS within thirty (30) days of the termination date) the percentage of the purchase price set forth below of any Product Kit (as hereinafter defined) purchased by CMS whose shelf life expires prior to sale by CMS within the time period set forth below, calculated from the date of completion of the Kit, which is the date the Kit's expiration date is stamped on -3- 4 the outside of each completed Kit (the "Completion Date"), provided that CMS has promptly returned such Product Kits to Supplier, freight prepaid: Credit Due to CMS Product Shelf Life from Supplier ------------------ ----------------- [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] For purposes of the foregoing table, the product shelf life of a Kit shall be deemed to be reduced one day for each day beyond 5 days from the Completion Date that the Kit is first made ready for shipment by Supplier. Supplier shall give CMS written notification of when Kits are available for shipment. Beginning in month 13 following the date of first Product shipment Supplier shall promptly credit against the purchase price of future orders by CMS (or, in the event of termination of this Agreement during such period, refund to CMS within thirty (30) days of the termination date), the percentage of the purchase price set forth below of any Product Kits purchased by CMS whose shelf life expires prior to sale by CMS within the time period set forth below, calculated from the Completion Date of the Kit, provided that CMS has promptly returned such Product Kits to Supplier, freight prepaid: Credit Due to CMS Product Shelf Life from Supplier ------------------ ----------------- [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] For purposes of the foregoing table, the product shelf life of a Kit shall be deemed to be reduced one day for each day beyond 5 days from the Completion Date that the Kit is first made ready -4- 5 for shipment by Supplier. Supplier shall give CMS written notification of when Kits are available for shipment. Supplier shall keep accurate records of the Completion Dates of Kits by lot number and expiration date, and shall provide such information to CMS upon written request. (f) Supplier's obligation to provide credit for any Product Kits described in Section 1(e) shall be limited as follows: (i) during the first 12 months following the date of first Product shipment, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]; (ii) during the second year following the date of first product shipment, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]; and (iii) during the third year following the date of first Product shipment and each year thereafter, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. CMS agrees to use good faith commercial efforts appropriate for the handling of a perishable product on a first-in-first-out basis in its handling of Product inventories in each location where Product is inventoried. (g) Supplier agrees to and shall provide required Material Safety Data Sheets for any Product containing hazardous chemicals as required by federal, state or local law. 2. Grant of Distributorship. (a) Upon the terms and subject to the conditions hereinafter set forth, Supplier hereby appoints CMS, and CMS accepts appointment, as the exclusive distributor of the Product in the Territory during the term of this Agreement. Supplier -5- 6 reserves no right to sell and distribute the Product in the Territory; however, Supplier does reserve the right to sell and distribute the Product outside of the Territory, as set forth below. (b) The territory in which CMS has the rights described in Section 2(a) hereof to distribute the Product (the "Territory") shall be limited to the "Medical Segment" in the United States and its territories. The "Medical Segment" is defined as and limited to: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. Nothing herein shall be deemed to prohibit Supplier from distributing (but not selling) the Product within the Territory only for purposes of pre-market clinical testing or evaluation of the Product or testing of Product improvements or enhancements prior to market introduction. (c) The Territory shall not include, and CMS shall not be permitted to sell the Product in, any areas or to any market segment not described in Section 2(b) above without the prior written consent of Supplier, which consent may be withheld at Supplier's sole discretion. CMS shall take reasonable steps to limit the likelihood that CMS's customers in the Territory do not purchase Product for resale in the Reserved Market Segment (as hereinafter defined). All areas and market segments not included in the definition of the Territory shall be hereinafter referred to as the "Reserved Market Segments." Supplier shall retain all rights to sell (either directly or through others) the Product in the Reserved Market Segments. Supplier shall not -6- 7 be permitted to sell the Product in the Medical Segment and shall take reasonable steps to limit the likelihood that Supplier's customers in the Reserved Market Segments do not purchase Product for resale into the Territory. Specifically included in the Reserved Market Segments, and specifically excluded from the Territory, are all market segments in countries outside of the United States and its territories and the following customer groups in the United States and its territories: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. The customer groups listed for the Reserved Market Segments are for reference only and shall not be considered exhaustive. 3. Conduct of CMS. (a) CMS shall use its good faith commercial efforts and facilities to promote, market, distribute and sell the Product and to take no action which would interfere with Supplier's efforts to develop and maintain the reputation of and goodwill with respect to the Product within the Territory during the term of this Agreement. CMS shall provide full-page advertising in its primary product catalogue(s), excluding the 1992/1993 edition, and CMS shall permit Supplier access to its sales representatives for the purpose of providing training of CMS's sales representatives in the demonstration and use of the Product on such dates and in such locations as may be mutually acceptable to the parties. CMS shall provide Supplier with samples of any Product advertising and sales literature prior to printing and distribution, and Supplier shall have the right to -7- 8 approve the Product advertisement(s), which approval shall not be unreasonably withheld or delayed. CMS shall use its good faith commercial efforts to inform customers and potential customers of the availability and desirability of the Product; to handle promptly all inquiries, quotations, correspondence and orders; and to assist customers in the proper use of the Product and the referral of customers to Supplier for the solution of technical application problems. (b) CMS shall not market, advertise, distribute or sell any products that are directly competitive with any of Supplier's products as to which CMS enjoys exclusive distribution rights, except that CMS shall have the right to continue to deal in competitive products which CMS markets, advertises or sells as of the date any product of Supplier to which CMS will enjoy exclusive distribution rights shall become subject to the terms and conditions of this Agreement. For purposes of this Agreement, "directly competitive" products shall be defined as manual, visual, rapid methods for drugs of abuse testing. (c) CMS shall make purchases of the Product hereunder by submitting firm purchase orders to Supplier. Notwithstanding anything to the contrary contained herein, CMS's first order shall be made in the following manner: CMS's first order for the Product shall be submitted to Supplier [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] purchase order shall be for [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] Product units. This order -8- 9 shall be paid in full by CMS at the time Supplier ships and invoices the first mutually agreed allotment of Product ordered by CMS under such order which shipment shall not occur unless and until FDA marketing clearance has been obtained. If FDA marketing clearance for the Product is not obtained or Supplier's pre-market clinical testing of the Product, as described in Section 2(b), above, is not satisfactorily completed within one hundred twenty (120) days after the execution of this Agreement, the parties agree to renegotiate in good faith CMS's first order, pricing and minimums, if any. If the parties are unable to agree on such terms within thirty (30) days following the 120th day, this Agreement shall terminate without liability to either party. CMS's first purchase order shall be deemed null and void and of no force or effect if FDA marketing clearance or Supplier's pre-market clinical testing of the Product, as described in Section 2(b), above, is not satisfactorily completed within one hundred twenty (120) days after the execution of this Agreement. (d) CMS shall provide Supplier, on a monthly basis, with a written forecast of CMS's estimated purchase requirements for each month in the ensuing six-month period. In the first twelve (12) months following the date of first Product shipment, such forecasts shall be non-binding estimates. Thereafter, forecast quantities for the first and second month of each forecast period shall be binding, subject however to a variance of plus or minus ten percent (10%). Supplier shall use its good faith commercial efforts to sell such quantities to CMS. -9- 10 (e) CMS may return, for full credit or replacement, any Product for which CMS is required to give a customer credit or replacement Product due to a defect or deficiency in the Product, provided that CMS first obtains from Supplier a returned goods authorization which shall not be unreasonably withheld or delayed by Supplier. (f) Supplier shall review and advise CMS on compliance with all FDA requirements regarding the Product contained in CMS's advertising and sales literature. (g) CMS hereby represents and warrants that neither CMS nor its agents or employees will make any representations or claims with respect to the Product which are not authorized in writing by Supplier. Subject to the provisions of Section 6(h) hereof, CMS agrees to and shall indemnify Supplier against, and hold Supplier harmless from, all claims, actions, costs, expenses and damages (including without limitation reasonable attorneys' fees and expenses) arising out of: (i) representations or claims by CMS with respect to the Product which are not authorized by Supplier; (ii) CMS's negligent or wilful act or omission in connection with the sale, marketing, promotion or distribution of the Product; or (iii) any claim or failure by CMS to comply with governmental regulatory requirements relating to the Product which are applicable to distributors of products; provided, that in each case Supplier gives CMS prompt notice of any such claim, permits CMS to assume sole control of the defense thereof and provides all reasonable assistance in connection with the defense of such claim. Supplier shall have -10- 11 the right to retain its own counsel and to participate in such defense, with the fees and expenses to be paid by CMS, if representation of Supplier by counsel retained by CMS would be inappropriate due to actual differing interests between Supplier and CMS or any other party represented by such counsel in such proceeding. The provisions of this Section shall survive termination of this Agreement. (h) Each shipment from Supplier shall contain numbers identifying the manufacturing lot or lots for control purposes. CMS shall keep accurate records that will enable CMS to determine the Product lots received by specific customers of the Product. CMS shall make such information available to Supplier in the event of a Product recall or Product corrective action requested by Supplier or required by any governmental agency. CMS shall provide Supplier with sales information (including, but not limited to, customer reports [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH COMMISSION], or any equivalent reports) free of charge by the thirtieth (30th) of each month during the term of this Agreement for the prior month's sales. Any and all such information referred to in this Section 3(h) may be used by Supplier for market analysis and in the course of its performance under this Agreement and for no other purpose, subject to the provisions of Section 9 of this Agreement. (i) CMS shall comply with Supplier's instructions regarding the storage and handling of the Product, and except as -11- 12 otherwise provided in this Agreement, CMS shall be solely responsible for the cost thereof. (j) At Supplier's request, CMS shall submit to Supplier such other reports, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], as are customarily provided by CMS to suppliers similarly situated with Supplier. (k) Both parties shall keep accurate records sufficient to permit verification of sales data for the Product. Upon written request and upon reasonable notice during regular business hours, each party shall permit an independent certified public accountant or other acceptable representative of the requesting party to inspect such records in order to verify any sales or recall information reasonably required by the provisions of this Agreement, provided that only one such inspection annually shall be permitted and the parties shall not be required to keep such records for longer than five (5) years. (l) CMS shall obtain and maintain in effect during the term of this Agreement product liability insurance with policy limits of not less than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] covering the products sold by CMS, including, but not necessarily limited to, the Product. CMS shall provide Supplier with a Certificate of Insurance (and all renewals or replacements thereof) with respect to such insurance promptly following Supplier's written request therefor. (m) In entering into this Agreement, Supplier has relied upon CMS's representations as to its present organization -12- 13 and personnel. CMS shall promptly advise Supplier of any changes in CMS's organization or personnel which may materially, adversely affect CMS's ability to perform under this Agreement, as well as any material changes affecting ownership or control of CMS; provided, however, that nothing contained in this Section 3(m) shall obligate CMS to maintain its organization, personnel, ownership or control as presently constituted and that such disclosure shall not be required for a period not to exceed one month where to do so would violate any obligation of confidentiality to which CMS may be subject. 4. Conduct of Supplier. (a) Supplier shall ship promptly, but in any event not later than sixty (60) days from receipt of order, CMS's orders for the Product, f.o.b. Supplier's facility in San Diego, California (at which point title and risk of loss shall pass from Supplier to CMS), freight and insurance prepaid, to CMS's warehouse or to such other CMS location(s) as CMS may designate, subject to the provisions of Section 11 hereof. Supplier shall cooperate with CMS in arranging drop shipments of Product to customers on a case by case basis. Delivery dates for the first purchase order under this Agreement shall be staggered during a six-month period following such order as reasonably agreed upon in advance in writing by the parties. (b) Subject to the provisions of Section 5(a) hereof, Supplier shall give at least sixty (60) days' prior written notice of any increase in price of Products and will honor CMS's -13- 14 existing purchase orders at the prices in effect immediately prior to the effective date of each price increase. (c) Supplier shall notify CMS immediately in writing should Supplier become aware of any defect or condition which may render the Product in violation of any statute or regulation, or which in any way materially alters the specifications or quality of the Product. (d) Supplier shall provide to CMS's sales personnel, at CMS's premises or such other location as the parties may agree, such training in the demonstration and use of the Product as may be reasonably requested by CMS, and for such training purposes shall make available at Supplier's expense, all necessary instructors, training material and the Product for demonstration. CMS shall provide transportation and lodging expenses for CMS personnel for the training of CMS representatives by Supplier. (e) Supplier shall provide technical support to CMS's sales personnel and customers and promptly provide to CMS such additional technical information developed or acquired by Supplier from time to time as may reasonably be expected to be of assistance to CMS in fulfilling its obligations hereunder. Supplier will provide, at its own expense, a toll free long distance telephone service for technical support for CMS customers and sales representatives. (f) Supplier shall provide, at its expense, reasonable quantities of such instruction manuals and point of sale literature as may from time to time be requested by CMS for -14- 15 use in connection with the distribution of the Product. Subject to CMS's and Supplier's prior written approval, the CMS name will be incorporated in Supplier's advertising and literature intended for distribution in the Territory by CMS sales representatives. If requested to do so by CMS, Supplier shall furnish CMS with suitable copy and photographs for use by CMS in cataloging the Product. (g) During the period that CMS has the exclusive right to distribute the Product in the Territory under this Agreement, Supplier shall provide CMS upon request with a specified number of Product Kits (as hereinafter defined) to be used in connection with the promotion, marketing, distribution and sale of the Product. A "Kit" consists of twenty-five (25) Product units. For months 1 through 12 of this Agreement, CMS may purchase the number of evaluation Kits specified below for a charge of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] per Kit. Such amounts paid for evaluation Kits will be credited by Supplier for purchases by CMS in months 25 through 36 of this Agreement, pro rata on a monthly basis. Supplier will provide the specified number of evaluation Kits in months 13 through 36 of this Agreement and thereafter, at no charge to CMS. Maximum Aggregate Kits Month Kits Per Month ----- --------- --------- [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] Such evaluation Kits may not be sold by CMS and shall be marked by Supplier with the following legend: "FOR EVALUATION PURPOSES -15- 16 ONLY - NOT FOR RESALE." Upon termination or nonrenewal of this Agreement, CMS shall return all or any part of such unused demonstration Product to Supplier in substantially the same condition as received and Supplier shall, within thirty (30) days of termination or non-renewal, refund to CMS the cost of same and additionally pay CMS the return freight therefor. Supplier shall not be required to provide credit under Section 1(e) hereof for expired evaluation Kits. (h) Any Products owned by CMS and rendered unsalable, in CMS's reasonable commercial judgment, due to a change in any Product specification, discontinuation or elimination by Supplier of any Product from its product offering, release by Supplier of any materially improved or updated version of any Product, or any other material change in the Product outside of CMS's control shall be repurchased from CMS by Supplier within thirty (30) days following CMS's request therefor at the price paid for such Product(s) by CMS. Supplier shall additionally pay for return freight and related transportation and insurance charges for all such Products. Supplier's release of a Product which has a longer shelf life shall not be deemed a material improvement under this Section 4(h). (i) Supplier shall promptly provide CMS with leads concerning prospective purchasers of the Product within the Territory in a format to be mutually agreed upon between the parties. -16- 17 5. Price and Payment Terms. (a) Supplier shall charge CMS [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] for each Product unit ordered by CMS during the twelve (12) months from the date of first shipment of Product by Supplier to CMS pursuant to Section 3(c) hereof. After the first anniversary of Supplier's first shipment of the Product to CMS, such price(s) shall be subject to change on sixty (60) days' prior written notice; provided, however, that for each price increase, the minimum number of Product units CMS is required to purchase, if any, under Section 6(c) for the balance of the six-month period in which the price increase occurs and all remaining six-month periods shall be decreased by the same percentage as the percentage by which the increased price exceeds the prior price. Supplier shall establish a manufacturer's suggested list price for each Product in the Territory and CMS's discount off the manufacturer's suggested list price for the Products in the Territory shall in no event [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. (b) Other than with respect to CMS's first order, which is to be paid for in full upon initial shipment, payments by CMS to Supplier for the Product purchased shall be due as follows: months 1 through 9 - within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of invoice by Supplier; months 10 through 24 - within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of invoice by -17- 18 Supplier; after month 24 - within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of invoice. (c) Except as otherwise provided in this Agreement, CMS shall be entitled to resell the Product on such terms as it may, in its sole discretion, determine, including, without limitation, price, returns, credit and discounts. (d) Supplier represents and warrants that the price and terms pursuant to which the Products are and will be sold to CMS pursuant to this Agreement shall be no less favorable than those made available to the Supplier's most favored distributors in the United States for comparable product quantities. 6. Term and Termination. (a) The term of this Agreement shall be for a period of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] from the date of first shipment to CMS by Supplier of the Product, pursuant to Section 3(c) hereof, unless terminated sooner as provided herein or extended as provided below. Notwithstanding the foregoing, the term of this Agreement shall not [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] from the date of first shipment of Product to CMS by Supplier unless agreed to in writing by the parties, or as otherwise provided in Section 17(c) hereof. (b) The Agreement term may be extended at the option of CMS: (i) for [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] if at the end of the original three-year term CMS has purchased an aggregate of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]or -18- 19 more Product units, net of any credits for expired products under Section 1(e) (calculated on an equivalent-unit basis); and (ii) for [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] if CMS purchases [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] or more Product units, net of any credits under Section 1(e) (calculated on an equivalent units basis), during the first [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] extension of this Agreement; provided, however, that the number of Product units CMS must purchase to extend the term of this Agreement shall be reduced on a unit per unit basis if CMS's minimum purchase requirements, if any, are reduced in accordance with Section 6(e) hereof and/or in accordance with Section 5(a) hereof. (c) This Agreement shall terminate for cause, without liability to either party, immediately if either party (i) files a voluntary petition in bankruptcy or is adjudged a bankrupt in any involuntary proceeding, (ii) is generally unable to pay its debts as they become due, (iii) has a receiver or judicial trustee or custodian appointed for it, or (iv) fails to cure any material breach in the provisions of this Agreement within thirty (30) days after receipt of written notice of such breach. Supplier may also terminate this Agreement for cause if CMS has not paid any invoice of Supplier outstanding for more than sixty (60) days, other than an invoice which has been reasonably disputed in good faith and provided that the undisputed portion of such invoice has been paid. Furthermore, this Agreement may -19- 20 be terminated for cause by Supplier if CMS fails to purchase the following minimum Product units (excluding evaluation Kits) in each of the six-month periods indicated, net of any credits under Section 1(e) (calculated on an equivalent units basis) for such periods: Year of Six-Month Agreement* Period Units ---------- --------- ----- [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] In the event CMS fails to purchase the specified minimum Product units in any six-month period, Supplier may give CMS written notice of its intent to terminate this Agreement within sixty (60) days' after the end of such six-month period, and, thereafter, Supplier may terminate this Agreement on sixty (60) days' written notice. In lieu of termination for cause, Supplier may, at its option, do one or more of the following: (i) offer to make CMS a nonexclusive distributor of the Product; (ii) offer to modify the geographical description of the Territory; or (iii) offer to modify the definition of the Medical Segment. Supplier shall give CMS notice of Supplier's desire to exercise one or more of such options within sixty (60) days after the end of the relevant six-month period, with such proposed modification to become effective, if accepted by CMS, sixty (60) days after the notice is delivered or mailed in accordance with Section 12 of this Agreement. The remedies provided for in this section shall be Supplier's sole and - -------- * From date of first Product shipment, written notice of which shall promptly be provided to CMS by Supplier. -20- 21 exclusive remedies for CMS's failure to purchase the required minimum number of Product units. Notwithstanding the foregoing, if CMS is unable to purchase the required minimum number of Product units, if any, during any specific six-month period due solely to an act or omission of Supplier, such failure shall not constitute grounds for termination with cause pursuant to this Section with respect to such six-month period. For the purposes of this Section 6(c), Product shall be deemed purchased when a firm purchase order has been received by Supplier for delivery of Product within sixty (60) days (six (6) months in the case of CMS's first order). (d) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] (e) In the event that CMS is unable to meet its minimum purchase requirements for any six-month period due to the failure of Supplier to deliver the quantities of the Product required to meet such minimum levels, CMS's obligation to meet such minimum will be deemed to have been met. In the event that CMS is unable to meet its minimum purchase requirements for two consecutive six-month periods due to Supplier's failure to deliver the quantities of Product units required to meet such minimums, Supplier agrees to enter good faith negotiations to establish new minimum purchase requirements that Supplier has the ability to supply. In the event Supplier and CMS are unable to agree on new minimum purchase requirements, the new levels will be the lower of that stated in Section 6(c) above or the number of Product units Supplier is actually able to supply for -21- 22 each period. Supplier's inability to meet minimum sales requirements in the exercise of good faith commercial efforts or due to an event of force majeure shall not be deemed to be a breach of this Agreement. In the event that Supplier fails to deliver the quantities of Product units required by CMS to meet the minimum purchase requirements for three consecutive six month periods for whatever reason(s), then CMS may terminate this Agreement by giving Supplier written notice of such termination, effective 60 days after the date notice is delivered or mailed in accordance with Section 12. Such termination shall be without liability to either party, except as provided in Sections 1(e), 4(g) and 6(f) hereof. (f) Upon termination without cause by Supplier under Section 6(d) hereof or non-renewal by Supplier or upon termination by CMS with cause or pursuant to Section 6(e) hereof, Supplier shall repurchase, and CMS agrees to sell Supplier at CMS's cost, CMS's unsold inventory of Products and remaining samples of Products, the latter being repurchased pursuant to the provisions of Section 4(g), F.O.B. CMS's warehouse(s); provided, however, that Supplier shall not be obligated to repurchase expired Product, unless otherwise required pursuant to the provisions of Section 1(e) and 1(f) hereof. Upon termination by Supplier with cause, Supplier may, at its option, repurchase, and CMS agrees to sell at CMS's cost, CMS's salable inventory of the Product and any remaining Product samples. -22- 23 (g) The rights and duties of each party under Sections 1(e), 3(e), 3(g), 4(g), 6(f), 7, 8, 9, 10, 14, 15 and 19 of this Agreement and Supplier's obligations under the Continuing Guaranty as referred to in Section 10(a) hereof, shall survive and be enforceable in accordance with their terms. (h) IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY CONTINGENT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF THE OTHER PARTY, OR ANY LOSS OF PROFITS OR REVENUE OF THE OTHER PARTY, WHETHER ARISING IN CONTRACT, TORT (INCLUDING NEGLIGENCE), WARRANTY, STRICT LIABILITY OR OTHERWISE. 7. Trademarks. (a) All Product units sold by Supplier to CMS will bear one or more of the trademarks or trade names (including, but not limited to, the name Triage(TM)) relating to the Product (collectively, the "Supplier Marks"), and CMS shall not alter, remove or modify the Supplier Marks, nor affix any other trademark to the Product, without the prior written consent of Supplier. CMS shall not utilize any of the Supplier Marks in connection with any promotional brochures or advertising materials relating to the Product without the prior written consent of Supplier. Supplier's consent to the use of the Supplier Marks shall be conditioned upon such brochure or advertising materials clearly indicating Supplier's ownership of the Supplier Marks. (b) All Product units purchased by CMS hereunder shall be marketed by it in the original packages under the original labels provided by Supplier, and CMS shall make no -23- 24 modifications, or alterations to such Product units or labels; provided, however, that CMS may affix labels or other indices which serve to identify CMS as a distributor of the Product, so long as they do not cover and are not inconsistent with any of Supplier's Product labels or markings. (c) Nothing in this Agreement shall be construed as granting CMS any license or interest in the Supplier Marks, and CMS acknowledges that it has been advised by Supplier of Supplier's claim of ownership of the Supplier Marks. CMS agrees that it will do nothing inconsistent with such ownership and that all use of the Supplier Marks will inure to the benefit of and be on behalf of Supplier. Specifically, CMS agrees that: it will not challenge the validity of, or Supplier's ownership of, any of the Supplier Marks; it will not take any action that is inconsistent with, or may impair, Supplier's right, title and interest to the Supplier Marks; it will not represent to any third party that it has any ownership interest in the Supplier Marks; it will not adopt any trademarks that are confusingly or deceptively similar to the Supplier Marks; and it will, at Supplier's sole cost and expense, execute and deliver to Supplier any and all documents which Supplier may request to confirm in Supplier all right, title and interest in the Supplier Marks. (d) CMS shall make no statement to the press relating or referring to the Product without the prior written approval of Supplier. -24- 25 (e) CMS shall promptly notify Supplier in writing of any challenges to the validity, infringement on or unauthorized use of any of the Supplier Marks, actual or threatened, that may come to CMS's attention. CMS shall, at Supplier's request, provide Supplier with all reasonable assistance in initiating and prosecuting any legal action against any infringer of any of the Supplier Marks, it being understood that Supplier will assume all expenses in connection with such protection. (f) Supplier recognizes that CMS is the owner of the trademarks and trade names denoting CMS or CMS products, which it may elect to use in the promotion and sale of the Product, and that Supplier has no right or interest in such trademarks or trade names; provided, however, that except as otherwise set forth in Section 7(b) hereof, no CMS labels, package inserts or other material shall accompany the Product without the approval of Supplier. (g) Upon termination of this Agreement, CMS shall continue to be entitled to utilize the Supplier Marks on the terms agreed to previously by the parties in connection with CMS's promotion, marketing, distribution and sale of Product units remaining in CMS's inventory and not repurchased by Supplier. Thereafter, CMS shall terminate all use of Supplier Marks, and shall at Supplier's request and at Supplier's expense, destroy or return to Supplier all literature and other advertising and promotional materials bearing the Supplier Marks. In the event of termination or expiration of this Agreement, CMS agrees to cooperate with Supplier and to execute -25- 26 any and all documents requested by Supplier for the purpose of cancelling any registered user or other rights with respect to Supplier's name and the Supplier Marks that CMS may have acquired in operating hereunder, or, at Supplier's election, in transferring such rights to Supplier or its designee. CMS also agrees to cooperate with Supplier in transferring any appropriate rights in connection with the Supplier Marks to Supplier and/or Supplier's designee, at Supplier's sole cost and expense, if Supplier desires to sell or have sold products in the Territory (other than the Products), other than by CMS. 8. Copyrights. (a) CMS hereby acknowledges that Supplier may claim copyright protection with respect to its package inserts and other supporting materials which it includes with each of the Product units, and CMS further acknowledges the validity of Supplier's right to claim the copyright protection to such materials. CMS further acknowledges that Supplier has advised CMS that it has the sole and exclusive right to claim the copyright protection with respect to all of its package inserts and other supporting materials included with the Product, and CMS shall take no action which is in any way inconsistent with Supplier's claim of copyright protection that it expects to make with respect to such materials. (b) In order to protect against infringement of Supplier's copyright through unauthorized reproduction or duplication of its copyrighted materials, such materials included with the Product units sold by Supplier to CMS shall -26- 27 bear appropriate copyright markings. Nothing contained in this Section 8 shall prohibit CMS from copying and distributing to its sales representatives Product advertising, literature and other materials prepared by or on behalf of Supplier for the purpose of fulfilling CMS's obligations under this Agreement. (c) CMS shall immediately notify Supplier in writing of any infringements, whether within or without the Territory, of any of Supplier's copyrights which come to the attention of CMS. CMS shall, at Supplier's request, provide Supplier with all reasonable assistance in initiating and prosecuting any legal action against any infringer of Supplier's copyrights within the Territory; provided, however, that all costs incurred in connection with any such copyright infringement action shall be borne solely by Supplier. 9. Trade Secrets and Confidential Information. (a) CMS may receive various trade secrets of Supplier and information of a confidential nature, including but not limited to specific technical information concerning the Product. CMS agrees that it will not disclose to anyone, directly or indirectly, any of such trade secrets or other confidential information (including but not limited to marketing plans and programs, market research information and sales data) or use such information other than as reasonably required in the course of its performance under this Agreement, or as required by law, provided that CMS shall give Supplier reasonable notice of any such required disclosure and shall give Supplier an opportunity to object to any such disclosure. CMS shall, at -27- 28 Supplier's option, return such information to Supplier or destroy all such data having physical form and all copies thereof. The obligations set forth in this Section 9(a) shall survive any termination of this Agreement for a period of three (3) years. (b) Supplier may receive various trade secrets of CMS and information of a confidential nature, including, but not limited to the names of CMS's customers and sales data. Supplier agrees that it will not disclose to anyone, directly or indirectly, any of such trade secrets or other confidential information or use such information other than as reasonably required in the course of its performance under this Agreement, or as required by law, provided that Supplier shall give CMS reasonable notice of any such required disclosure and shall give CMS an opportunity to object to any such disclosure. Supplier shall, at CMS's option, return such information to CMS or destroy all such data having physical form and all copies thereof. The obligations set forth in this Section 9(b) shall survive any termination of this Agreement for a period of three (3) years. (c) Notwithstanding any provision set forth in this Section 9 to the contrary, the parties' obligations regarding confidential information as set forth herein shall not apply to the extent that: (i) the confidential information, or any relevant part of it, can be shown to be in the public domain prior to the date of this Agreement; (ii) the confidential information, or any relevant part of it, becomes part of the -28- 29 public domain, other than by some unauthorized act or omission, after the date hereof; (iii) the confidential information, or any relevant part of it, is disclosed to such party by a third party who has the right to make such disclosure; (iv) permission to disclose the confidential information, or any relevant part of it, or to make use of same, is obtained from the non- disclosing party by the disclosing party; or (v) the information is developed independently of the confidential information by the other party based on written records maintained in the ordinary course. 10. Supplier's Warranties; Disclaimer of Warranties. (a) Supplier agrees that it shall execute and warrants that it shall abide by the terms of CMS's Continuing Guaranty, a copy of which is attached hereto as Schedule A and which guaranty is incorporated herein by reference. The terms and provisions of the Continuing Guaranty shall survive the termination of this Agreement. Prior to the first shipment of Product to CMS Supplier shall provide CMS with certificates of insurance which meet the requirements of paragraph D of the Continuing Guaranty. Supplier's insurance carriers shall at all times during the term of this Agreement be rated by Best's as B+ or superior. Supplier is not aware after due inquiry of any circumstance which would prevent the issuance of such policy. (b) In addition to the warranties of Supplier set forth in this Agreement and in the Continuing Guaranty, Supplier warrants that each of the Products will conform to the specifications set forth in Product literature prepared by or on -29- 30 behalf of Supplier and that the Products will comply and be manufactured, packaged, sterilized (if applicable), labeled and shipped in compliance with all applicable federal, state and local laws, order, regulations and standards. (c) Supplier and CMS shall extend to customers only the Product Warranty embodied in Exhibit B hereto; provided that Supplier may modify such Product Warranty with CMS's consent, which consent shall not be unreasonably withheld. Supplier shall not modify or amend the warranty during the term of this Agreement without providing CMS with sixty (60) days' prior written notice. Supplier warrants and represents that the Products will perform in accordance with Supplier's warranty. (d) Except for the Product warranty which is described in Section 10(c) hereof, SUPPLIER MAKES NO WARRANTIES TO CUSTOMERS AND CMS SHALL NOT MAKE ANY OTHER WARRANTIES TO CUSTOMERS AS TO THE MERCHANTABILITY OR FITNESS OF THE PRODUCT FOR A PARTICULAR USE. 11. Force Majeure. The obligations of either party to perform under this Agreement shall be excused during each period of delay caused by such matters as strikes, shortages of power or raw material, government orders or acts of God, which are reasonably beyond the control of the party obligated to perform. The affected party shall make best efforts to remedy the effects of such force majeure. Any force majeure event shall not excuse performance by the party but shall delay performance, unless such force majeure continues for a period in excess of ninety -30- 31 (90) days. In such event, the party seeking performance may cancel its obligations hereunder. 12. Notices. Any notice required by this Agreement shall be deemed to have been duly given when delivered personally or by messenger, or when mailed by registered or certified mail, return receipt requested, postage prepaid, or when received via telecopy, telex or other electronic transmission, with confirmation of receipt, in all cases addressed to the party for whom intended at its address set forth below: If to Supplier: Biosite Diagnostics Incorporated 11030 Roselle Street, Suite D San Diego, California 92121 Telecopy: (619) 455-4815 Attn: Mr. Kim Blickenstaff with a copy to: Pillsbury Madison & Sutro 235 Montgomery Street 15th Floor San Francisco, CA 94104 Telecopy: (415) 983-7396 Attn: Thomas E. Sparks, Jr., Esq. If to CMS: Curtin Matheson Scientific, Inc. 9999 Veterans Memorial Drive Houston, Texas 77038 Telecopy: (713) 878-2211 Attn: Mr. Jack Daniels with a copy to: Linda R. Hansen, Esq.* 9999 Veterans Memorial Drive Houston, TX 77038 Telecopy: (713) 878-2211 or such other address as provided in writing in the manner provided by this Section. - -------- * Notification of Completion Dates under Section 1(e) shall not be required to be made to Linda R. Hansen. -31- 32 13. Entire Agreement. This Agreement, including Schedules, constitutes the entire Agreement between the parties relating to the subject matter hereof and supersedes all prior agreements and understandings, whether written or oral, between the parties with respect to such subject matter. In ordering and delivery of the Product, the parties may employ their standard forms, but nothing in those forms shall be construed to modify or amend the terms of this Agreement. 14. Attorneys' Fees. In the event any claim or counterclaim is asserted or any action is commenced to enforce any of the rights or obligations of the parties under this Agreement, the prevailing party shall be entitled to collect from the other party, as part of the judgment rendered with respect to such claim or action, reasonable attorneys' fees, expenses and court costs. 15. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO CALIFORNIA CHOICE OF LAW PROVISIONS. 16. Compliance With Applicable Laws. In connection with the sale of the Product hereunder, Supplier and CMS shall comply with all applicable laws, regulations and orders of governmental bodies having jurisdiction in respect of activities contemplated by or covered under this Agreement, including without limitation, obtaining all necessary permits, licenses and regulations. CMS shall cooperate fully with Supplier, at Supplier's sole cost and expense, in connection with securing -32- 33 and maintaining any governmental registration or other governmental permits required with respect to marketing the Product in the Territory and CMS will notify Supplier of any local laws affecting the Product which may come to its attention. 17. Assignments. (a) Subject to section 17(b) below, neither party shall assign or transfer this Agreement, by operation of law or otherwise, in whole or in part without the prior written consent of the other party in each and every instance, which consent may not be unreasonably withheld. If either party wishes to assign or otherwise transfer this Agreement, as aforesaid, in each instance the party seeking to assign or otherwise transfer this Agreement shall submit to the other party for such party's review and approval as soon as practicable such information as the other party may reasonably request concerning the assignee or transferee and the party from which consent is sought shall have thirty (30) days following receipt of the fully responsive materials in which to review the same and approve or reject the assignment or transfer. In any event in which the party from which consent is sought reasonably rejects the assignment or transfer, this Agreement shall terminate one hundred eighty (180) days following the date on which the rejection is received by the party seeking to assign or transfer. The parties shall make best efforts to promptly and amicably wind up all outstanding matters concerning the subject matter of this Agreement. -33- 34 (b) Notwithstanding (a) above, a merger, reorganization, or the sale or transfer of all or substantially all of the stock of Supplier or the assets of Supplier to which this Agreement relates (an "Acquisition") shall not be deemed an assignment or transfer of this Agreement to the successor to Biosite Diagnostics Incorporated under this Agreement by virtue of such Acquisition (the "Successor") requiring CMS's consent; provided that Supplier shall provide CMS with prompt notice of any such Acquisition and CMS may object to such Acquisition within 30 days of receipt of such notice on the basis that: (i) if the Acquisition is a sale of assets, the Successor does not expressly and unconditionally assume Supplier's obligations under this Agreement, or if the Acquisition is by sale of stock or by merger and Supplier or other Successor, as the case may be, expressly repudiates this Agreement or if CMS does not receive, within thirty days of CMS's prompt request under this Section 17(b), an express and unconditional continuance or assumption of this Agreement by Supplier or other Successor, as the case may be; (ii) the Successor shall have a consolidated net worth, determined in accordance with generally accepted accounting principles applied on a basis consistent with the most recent financial statements of the Successor of less than the consolidated net worth of the Supplier immediately prior to the effectiveness of such transaction, satisfaction of this requirement to be set forth in reasonable detail in an officers' certificate delivered to CMS at the time that Supplier gives notice of such assignment or transfer; (iii) immediately after -34- 35 giving effect to such transaction a condition or event shall exist which constitutes a breach of the Agreement, and such condition or event continues thirty days after the Successor has received notice of such breach from CMS; (iv) the Successor is [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], or any of their respective subsidiaries, divisions or affiliates; or (v) the Successor is [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] or any of its subsidiaries, divisions or affiliates. In the event CMS gives Supplier such notice of objection in writing, the provisions of subparagraphs (c)and (d) hereof shall apply, as applicable. (c) If CMS gives notice of its objection to an Acquisition on the basis of (b)(iv) above: (i) this Agreement shall automatically be extended for a term of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] from the date of first shipment of Product to CMS; and (ii) the provisions of paragraph 6(c) which cover and relate to CMS's obligation to purchase any minimum number of Product units during any year of this Agreement, or portion thereof, shall no longer apply. In the event of any such [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] extension, all other provisions of this Agreement will remain in full force and effect. (d) Notwithstanding the foregoing, in the event that CMS provides notice of its objection to an Acquisition on the basis of (b)(i), (ii), (iii) or (v) above, the Agreement will continue in full force and effect, provided that CMS shall have -35- 36 the right terminate this Agreement by giving notice of termination [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] Supplier (or Biosite Diagnostics Incorporated in any Aquisition in which Biosite is not the Successor) shall be obligated to pay CMS the applicable Buy-out Amount under Section 6(d) hereof; provided that if CMS provides notice of its objection to an Acquisition on the basis of (b)(v) hereof and the Acquisition occurs during the first three years following the first shipment of the Products to CMS under this Agreement, the Buy-out Amount shall be the lesser of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] (ii) the amount computed under Section 6(d) hereof. 18. Amendments. No amendment or modification of the terms of this Agreement shall be binding on either party unless reduced to writing and signed by an authorized officer of the party to be bound. 19. Existing Obligations. Supplier represents and warrants that the terms of this Agreement do not violate any existing obligations or contracts of Supplier. Supplier shall defend, indemnify and hold harmless CMS from and against any and all claims, demands, liabilities and causes of action that are hereafter made or brought against CMS that allege any such violation. 20. Relationship of the Parties. (a) For the purposes of this Agreement, CMS and Supplier are deemed to be independent contractors and not the agent or employee of the other. Neither CMS nor Supplier shall -36- 37 have the authority to make any statements, representations or commitments of any kind, or take any action, which shall be binding on the other, except as provided for herein or authorized in writing by the party to be bound. (b) This Agreement does not grant any license from Supplier to CMS or from CMS to Supplier except as expressly provided herein. 21. Successors and Permitted Assigns. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. 22. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original for all purposes. 23. Approvals and Consents. Each of the parties represents to the other that all necessary approvals of any third persons, the granting of which are necessary for the consummation of the transactions contemplated hereby, or for preventing the termination of any right, privilege, license or -37- 38 agreement or any right granted hereunder have been received by both parties to this Agreement. 24. Miscellaneous. Any payment obligation under this Agreement which shall be due from Supplier to CMS and for which no date of payment is specified in this Agreement shall be payable on the thirtieth (30th) day following the day on which the event occurs which triggers Supplier's obligation to make any such payment. IN WITNESS WHEREOF, the parties have, by their duly authorized officers, executed this Agreement on the date first set forth above. BIOSITE DIAGNOSTICS INCORPORATED By /s/ Kim D. Blickenstaff ---------------------------- Title President ------------------------- Date November 11, 1991 -------------------------- CURTIN MATHESON SCIENTIFIC, INC. By /s/ Cecil Kost ---------------------------- Title Senior Vice President, ------------------------- Sales and Marketing ------------------------- Date November 8, 1991 -------------------------- -38- 39 EXHIBIT A CONTINUING GUARANTEE -39- 40 EXHIBIT B Biosite's express and implied warranties (including implied warranties of merchantability and fitness) are conditioned upon observance of Biosite's published directions with respect to the use of Biosite's diagnostic products. Remedies against Biosite for breach of warranty or other duty are limited solely to replacement or return of the purchase price of the affected products. Any such claim against Biosite must be made in writing and promptly pursued within one year from the date of delivery of the goods. UNDER NO CIRCUMSTANCES WHATSOEVER SHALL BIOSITE BE LIABLE FOR ANY INDIRECT OR CONSEQUENTIAL DAMAGES. -40- 41 AMENDMENT TO DISTRIBUTION AGREEMENT Date: March 7, 1994 Parties: Biosite Diagnostics Incorporated a Delaware corporation 11030 Roselle Street, Suite D San Diego, California 92121 ("Biosite") Curtin Matheson Scientific, Inc. a Delaware corporation 9999 Veterans Memorial Drive Houston, TX 77038-2499 ("CMS") RECITALS: A. Biosite and CMS are parties to that certain Distribution Agreement, dated November 11, 1991 ("Distribution Agreement ). B. CMS and Biosite each desire to amend the Distribution Agreement, as provided in this Amendment. AGREEMENTS: IN CONSIDERATION of the premises and the covenants contained herein, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Amendment of Section 1.(a). Section 1.(a) shall be modified to add the Triage Plus TCA product manufactured by or for Supplier, which includes tests for PCP (Phencyclidine); THC (Marijuana); Cocaine; Amphetamines/methamphetamines; Opiates; Benzodiazepenes; Barbiturates; and Tricyclic Antidepressants, to the definition of "Product" set forth in the Distribution Agreement. 2. Amendment of Sections 1.(e) and 4.(g). Sections 1(e) and 4.(g) shall be modified to add the Triage Plus TCA Product to the definition of "Product Kits" and, further, to provide that CMS may purchase evaluation Kits of Triage Plus TCA Product for a charge of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] per evaluation Kit. There shall be no limitation on the number of Triage Plus TCA evaluation Kits that CMS may purchase. 3. Amendment of Section 5(a). Section 5.(a) shall be modified to reflect that Supplier shall charge [CONFIDENTIAL 42 MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] for each Triage Plus TCA Product unit ordered by CMS during the twelve (12) months from the date of first shipment of Triage Plus TCA Product to CMS. Section 5.(a) shall be further modified to reflect that CMS's discount off the manufacturer's suggested list price for the Triage Plus TCA Product in the Territory shall be [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 4. Amendment of Section 5.(b). Section 5.(b) shall be modified to reflect that CMS's payments to Supplier for the Triage Plus TCA Product shall be due within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of invoice by Supplier until the first to occur of January 1, 1995 or the date that Supplier shall effect a registration of any of its securities under the Securities Act of 1933, as amended, or shall otherwise have any securities registered under Section 12 of the Securities Exchange Act of 1934, as amended. Thereafter, CMS's payments to Supplier for the Triage Plus TCA Product shall be due within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of invoice by Supplier. 5. Amendment of Sections 6.(b), (c) and (d). Sections 6.(b), (c) and (d) shall be modified to reflect the Triage Plus TCA Product shall be included in the definition of "Product unit" as used in these Sections or otherwise in the Distribution Agreement. 6. No Other Modification. Except as expressly modified by this Amendment, all other terms of the Distribution Agreement shall remain unchanged and in full force and effect. THE PARTIES HAVE EXECUTED this Amendment in the manner appropriate to each as of the day and year first above written. BIOSITE DIAGNOSTICS INCORPORATED By: /s/ Kim D. Blickenstaff ------------------------------- Its: President ------------------------------- CURTIN MATHESON SCIENTIFIC, INC. By: /s/ Jack W. Daniels ------------------------------- Its: Vice President, Marketing, ------------------------------- Clinical ------------------------------- 43 AMENDMENT TO DISTRIBUTION AGREEMENT THE DISTRIBUTION AGREEMENT between BIOSITE DIAGNOSTICS INCORPORATED ("Supplier") and CURTIN MATHESON SCIENTIFIC, INC. ("CMS") dated as of November 11, 1991, as amended, (the "Agreement") is hereby amended as follows: 1. Section 1(d) of the Agreement is hereby deleted. 2. The definition of the term "Medical Segment" contained in section 2(b) of the Agreement is hereby amended by the addition of the following as a new second sentence: Notwithstanding the foregoing, hospital-based occupational health clinics are specifically excluded from the Medical Segment. 3. Sections 6(a) and (b) are hereby amended to read in their entirety as follows: (a) The initial term of this Agreement shall be through June 30, 1996 and will be automatically extended on a quarter- by-quarter basis through December 31, 1996, if CMS achieves the purchase and cumulative sale targets for the most recently concluded measurement period (each, a "Measurement Period") set forth below: Dollar Purchases Cumulative YTD Dollar Measurement Period From Supplier Sales At Cost ------------------ ---------------- --------------------- January 1 - June 30, 1996 [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] July 1 - September 30, 1996 [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] October 1 - December 31, 1996 [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] If CMS does not meet both the purchase and cumulative sales targets, described above, at the end of any Measurement Period, the Agreement will terminate automatically at the end of the following Measurement Period. Unless terminated earlier, as set forth in the preceding sentence, the Agreement will terminate in any event on December 31, 1996. (b) If CMS does not meet both the purchase and cumulative sales targets set forth in paragraph (a) above for calendar year 1996, CMS will pay Supplier [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of CMS' Purchases (at Cost of Goods) of Products in calendar year 1996. In the event that -1- 44 CMS's Sales at Cost of Products exceed the cumulative sales target of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] set forth in paragraph (a) above in calendar year 1996, Supplier will rebate to CMS [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the purchase price from Supplier of all Products sold by CMS in calendar year 1996 in excess of such sales target. Payment shall be made sixty (60) days following the termination of the Agreement. Supplier further authorizes CMS to use its standard form contract, in the form attached hereto as Exhibit A, for its Preferred Customer Program in connection with the sale by CMS of Products; provided, however, that (a) such contracts will relate only to Products covered by the Agreement, and (b) upon the termination of the Agreement, CMS shall assign to Supplier (i) such contracts and (ii) all right, title and interest to all equipment provided to CMS' customers pursuant to such contracts. Nothing in this Agreement shall prevent CMS from using its standard contracts for transactions with CMS customers unrelated to the Products; provided that Supplier shall have no obligation and shall derive no benefit with respect thereto. Supplier shall reimburse CMS for [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of CMS's cost of any such equipment provided to CMS' customers pursuant to such contracts, during calendar year 1996. CMS shall deduct from payments otherwise due to Supplier [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] the cost of any such equipment provided to CMS' customers pursuant to such contracts during the preceding month, together with fully-executed copies of each such contract entered into with any CMS customer. In the event that any CMS customer purchases from CMS the equipment provided by CMS under its Preferred Customer Program in connection with the sale by CMS of Products, CMS shall give prompt written notice to Supplier of such purchase, shall give written evidence to Supplier of the price paid by such customer therefor, and shall promptly remit to Supplier [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] the amount of the price paid by such customer therefor provided such amount shall in no event exceed Supplier's [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] share of the cost therefor. In the event that CMS terminates any such contract with a CMS customer under its Preferred Customer Program in connection with the sale by CMS of Products and retakes possession of the equipment provided to such customer, CMS shall give prompt written notice to Supplier of such termination and repossession, shall give written evidence to Supplier of the fair market value of the repossessed equipment, shall promptly remit to Supplier [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] the amount of the fair market value of the repossessed equipment. -2- 45 4. Section 6(c) of the Agreement is hereby deleted, except for the final sentence which is hereby modified to read as follows: "Products shall be deemed purchased when a firm purchase order has been received by Supplier for delivery of Products within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]." 5. Section 6(d) of the Agreement is hereby deleted in its entirety. 6. Section 6(e) of the Agreement is hereby deleted, except for the first sentence which is hereby modified to read as follows: "In the event that CMS is unable to meet the purchase target set forth in paragraph 3(a) of this Amendment for any Measurement Period due to the failure of Supplier to deliver the quantities of the Products required to meet such purchase target, CMS's obligation to meet such target will bc deemed to have been met." 7. Section 17(a) of the Agreement is hereby modified to the extent that Supplier agrees that its acknowledgement dated October 6, 1995 shall additionally cover and apply to any merger of CMS into Fisher Scientific Company which may occur during 1996. 8. A new Section 25 shall be added to the Agreement and shall read in its entirety: Further Assurances. Supplier and CMS agree to perform any further acts and execute and deliver any and all further documents and/or instruments that may be reasonably necessary to carry out the provisions of this Agreement. 9. Notwithstanding any provisions set forth in the Agreement to the contrary, Supplier shall not, during 1996, increase the price of any Product to CMS or, except as set forth in paragraph 3(b) of this Amendment, change any discount applicable thereto as of December 26, 1995. 10. For purposes of this Amendment: (a) "Cost" shall mean the price paid by CMS to Biosite for any Product (as defined in this Amendment), exclusive of freight, handling, taxes and other invoice charges. (b) "Sales" to CMS customers shall be deemed to have occurred as of the dates of CMS's respective invoices therefor. -3- 46 (c) "Sales at Cost" shall mean the Cost of any Product sold by CMS, net of returns. For purposes of paragraph 3(a) hereof, Sales at Cost shall be calculated by multiplying the quantity of Products sold during the relevant Measurement Period (as reflected on CMS's SAO50AD report or any successor or replacement therefor) by the applicable Cost. (d) "Products" shall mean such products as were available for purchase by CMS from Biosite as of December 26, 1995. (e) CMS's purchases from Supplier of Evaluation Kits, shall be taken into account for purposes of the calculation of "Dollar Purchases From Supplier" and shall not be taken into account for purposes of calculation of the "Cumulative YTD Dollar Sales at Cost," as set forth in paragraph 3(a) of this Amendment. 11. Except as set forth herein, the Agreement as originally executed by the parties hereto shall remain in full force and effect. In the event of a conflict, the terms of this Amendment shall control. 12. As a condition precedent to the effectiveness of this amendment, simultaneous with the execution of this Amendment to Distribution Agreement, Supplier and CMS agree, and CMS agrees to cause Fisher, to execute a Mutual Release of Claims, in the form attached hereto as Exhibit B, relating to any dispute arising out of the December 26, 1995 letter from Supplier purporting to terminate the Agreement, and CMS' response thereto. The execution of this Amendment and the Mutual Release of Claims shall supersede such purported termination and render it null and void, and shall supersede to the extent of any conflict any other agreement or understanding between the parties in connection with the subject matter hereof including the January 23, 1996 CMS/Biosite contract amendment proposal. The parties hereto have executed this Amendment to Distribution Agreement as of March 12, 1996. BIOSITE DIAGNOSTICS INCORPORATED By: /s/ Kim D. Blickenstaff ----------------------------- Title: President -------------------------- -4- 47 CURTIN MATHESON SCIENTIFIC, INC. By: /s/ Jack W. Daniels -------------------------- Title: Vice President ----------------------- -5- 48 [LETTERHEAD OF BIOSITE DIAGNOSTICS INCORPORATED] August 9, 1996 Mr. Jack Daniels Vice President, Clinical Marketing Curtin Matheson Scientific 9999 Veterans Memorial Drive Houston, TX 77038-2499 Dear Jack: As a result of our discussions last week in Chicago, I would like to outline our latest amendment of CMS's Exclusive Distribution Agreement for the Biosite Triage(R) products, dated November 11, 1991. As you are aware, CMS was unable to achieve the sales targets outlined in the March 12, 1996 Amendment to the Distribution Agreement. As outlined in paragraph 6(b), CMS is required to pay Biosite [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of CMS' purchases for 1996 as a rebate penalty (estimated to be [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]). In order to invest in the future of our relationship, we have agreed to forgive the rebate penalty over a four year period, subject to the following terms and conditions. 1996 REVISED TARGETS - - If CMS achieves a running rate of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] kits or greater per month for Q4 1996, then Biosite will renew the contract for 1997, 1998 and 1999. Biosite will also forgive [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] rebate penalty associated with not making the original Triage milestone by June, 1996. - - If CMS achieves a running rate of between [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] and [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] kits per month for Q4 1996, then Biosite will renew the contract through 1997 only and CMS 49 Mr. Jack Daniels August 9, 1996 Page 2 will pay Biosite [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] rebate penalty associated with the original June, 1996 Triage goal. - - The above rebate penalties to Biosite will be considered due in January of 1997. Additionally, a "running rate" target will be considered met based on the following definition: The average end user shipments in the three months of a quarter must equal or exceed the target set forth. - i.e. the Q4 1996 target of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] kits per month will be considered made, if the monthly end user shipments for October, November and December average [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] kits or more. - - 1996 Non-Performance: If CMS achieves a running rate of less than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] kits per month for Q4 1996, then CMS will pay Biosite [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] rebate penalty associated with the original June, 1996 Triage goal and Biosite shall have the option to exercise the termination clause as of December 31, 1996 with the effective date of June 30, 1997 without paying a buyout. CMS shall pay Biosite the remaining balance on the rebate associated with the original June, 1996 Triage milestone in January of 1997. 1997, 1998 AND 1999 TARGETS - - If CMS achieves the following minimum sales targets, then Biosite will forgive [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] rebate penalty associated with not making the original Triage milestone by June, 1996 in each year the target is met. 50 Mr. Jack Daniels August 9, 1996 Page 3 Aggregate Q3 and Q4 Avg. Monthly Year Kit Sales ---- --------- [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] If CMS does not achieve the above aggregate Q3 and Q4 average monthly kit sales, then CMS will pay Biosite [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] rebate penalty associated with the original June, 1996 Triage goal in each year the minimum sales levels are not met. Any penalty payments will be due in January of the subsequent year in which minimum sales are not achieved. MINIMUM SALES TARGETS - - Assuming that CMS achieves the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] kits per month run rate for Q4 1996, Biosite will expect that CMS meet the following minimums in 1997 in order to maintain the Triage exclusive distribution rights in 1998 and 1999. - Q1 minimum: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] per month run rate average for the quarter - Q2 minimum: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] per month run rate average for the quarter - Q3 minimum: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] per month run rate average for the quarter - Q4 minimum: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] per month run rate average for the quarter - - In the event CMS does not achieve these minimums, then CMS will lose the 1998 Triage distribution rights, with an effective date six months after missing any two quarter minimums in the calendar year and without Biosite's payment of a buyout. - - Assuming that CMS achieves the 1997 minimum sales target levels, Biosite will expect that CMS meet the following 51 Mr. Jack Daniels August 9, 1996 Page 4 minimums in 1998 in order to maintain the Triage business in 1999. - Q1 minimum: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] per month run rate average for the quarter - Q2 minimum: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] per month run rate average for the quarter - Q3 minimum: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]per month run rate average for the quarter - Q4 minimum: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] per month run rate average for the quarter - - In the event CMS does not achieve these minimums, then CMS will lose the 1999 Triage distribution rights, with an effective date six months after missing any two quarter minimums in the calendar year and without payment of a buyout. - - Assuming that CMS achieves the 1998 minimum sales target levels, Biosite will expect that CMS meet the following minimums in 1999. - Q1 minimum: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] per month run rate average for the quarter - Q2 minimum: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] per month run rate average for the quarter - Q3 minimum: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] per month run rate average for the quarter - Q4 minimum: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] per month run rate average for the quarter - - 1997, 1998 and 1999 Non-Performance: In the event CMS does not achieve these minimum sales targets, CMS shall pay Biosite any remaining balance on the rebate associated with the original June, 1996 Triage milestone. Any remaining 52 Mr. Jack Daniels August 9, 1996 Page 5 balance(s) shall be due and payable in January of the subsequent year following non-performance. ADDITIONAL TERMS - - Assuming that CMS achieves the 1997 and 1998 minimum sales target levels outlined above, Biosite agrees to negotiate in good faith an extension of the exclusive Distribution Agreement, with similar terms and conditions, for [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] beyond 1999 ([CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]). - - The termination and buy out provisions from the original Distribution Agreement shall remain in place and be calculated as applicable for all future years as outlined in the original Distribution Agreement for years 4 and 5. - - Minimum inventory levels for Triage products will be maintained at no less than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. - - During 1996 (only if CMS achieves its sales targets) and thereafter, CMS agrees to maintain the Triage products in the most favorable commission rate for sales reps and to treat them as "focus products" during the period of CMS's exclusivity. - - Pricing to CMS for the Triage products shall remain firm [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] or termination of the Distribution agreement, whichever is last to occur. Please evidence your agreement by signing below. Except as modified in this letter agreement and the Amendment to Distribution Agreement dated March 12, 1996, the Distribution Agreement dated November 11, 1991, shall remain in full force and effect. In the event of any conflict among the terms and 53 Mr. Jack Daniels August 9, 1996 Page 6 provisions of the agreements, the applicable term or provision of the document later in time shall control. Sincerely, /s/ Chuck Patrick Chuck Patrick Vice President, Sales and Marketing Acknowledged and agreed by: Fisher Scientific Company as successor by merger to Curtin Matheson Scientific, Inc. By: /s/ JW Daniels ------------------------------ Title: V.P. Marketing --------------------------- Date: 8/9/96 ---------------------------- EX-10.11 5 EXHIBIT 10.11 1 EXHIBIT 10.11 [CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION] DEVELOPMENT, SUPPLY AND DISTRIBUTION AGREEMENT THIS DEVELOPMENT, SUPPLY AND DISTRIBUTION AGREEMENT dated as of February 14, 1995 (the "Agreement"), is entered into between BIOSITE DIAGNOSTICS INCORPORATED, a Delaware corporation ("Biosite"), having a place of business located at 11030 Roselle Street, Suite D, San Diego, California 92121, United States of America, and KYOTO DAI-ICHI KAGAKU CO., LTD., a Japanese corporation ("KDK"), having a place of business located at 57 Nishi Aketa-Cho, Higashi-Kujo, Minami-ku, Kyoto 601, Japan. W I T N E S S E T H: WHEREAS, Biosite owns or has rights to certain significant technology which may be used in the development of reagents and a test device for use with a test device reader to form a system to quantitatively measure analytes in the immunoassay field; and WHEREAS, Biosite and KDK desire to collaborate in the development of a hand held rapid in vitro immunoassay system, consisting of reagents, a testing device and a reader, designed to quantitatively measure multiple cardiac analytes released from damaged cardiac tissue for use in the diagnosis and monitoring of myocardial infarction, on the terms and subject to the conditions set forth below; and WHEREAS, in consideration of KDK's paying the development fund referred to in Article 3.2 of the Agreement, KDK wishes to obtain from Biosite the exclusive rights to market, and distribute such a hand held rapid in vitro immunoassay system in Japan, Asia, the Middle East and the Pacific Island Countries, for use in the diagnosis and monitoring of myocardial infarction, on the terms and subject to the conditions set forth below: NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the parties hereby agree as follows: ARTICLE 1 DEFINITIONS For purposes of the Agreement, the terms defined in this Article 1 shall have the respective meaning set forth below: 1.1 "Affiliate" shall mean, with respect to any Person, any other Person which directly or indirectly controls, is -1- 2 controlled by, or is under common control with, such Person. A Person shall be regarded as in control of another Person if it owns, or directly or indirectly controls, at least fifty percent (50%) of the voting stock or other ownership interest of the other Person, or if it directly or indirectly possesses the power to direct or cause the direction of the management and policies of the other Person by any means whatsoever. 1.2 "Agencies" shall mean, collectively, all sole agents, subsidiaries, partnerships and other entities directly or indirectly controlled by KDK, and all independent distributors of KDK diagnostic products, located in the Territory. 1.3 "Asia" shall mean, collectively, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 1.4 "Biosite Marks" shall mean those certain trademarks, trade names, designs and marking owned by or licensed to Biosite and designated from time to time in writing by Biosite for use by KDK under the Agreement in connection with the promotion, marketing, sale and distribution of the Testing Device and the Reader in the Territory for use in the Field. 1.5 "Development Program" shall mean the program to develop, conduct clinical testing and apply for regulatory approval to market the Product in the United States of America and the Territory for use in the Field, conducted by or on behalf of Biosite and KDK pursuant to the Agreement. 1.6 "Field" shall mean the simultaneous and quantitative measurement of multiple cardiac analytes released from damaged cardiac tissue, including CKMB, Troponin I and Myoglobin, for use in the diagnosis and monitoring of myocardial infarction. 1.7 "First Commercial Sale" shall mean the date of the first sale of the Testing Device or the Reader in the Territory for use by the general public in the field. 1.8 "Know-How" shall mean all information and data, which is not generally known, including formulae, procedures, protocols, techniques and results of experimentation and testing, which are necessary or useful to make, use, develop, sell or seek regulatory approval in any country to market the Product for use in the Field, in which Biosite or KDK has an ownership interest and which is in the possession of Biosite or KDK on the date of the Agreement or thereafter during the term of the Agreement. 1.9 "Middle East" shall mean, collectively, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 1.10 "Pacific Island Countries" shall mean, collectively, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. -2- 3 1.11 "Patent Rights" shall mean (a) all patent applications heretofore or hereafter filed or having legal force in any country owned by or licensed to Biosite or to which Biosite otherwise acquires rights, which claim the Product, any Product Component, or the process of manufacture or use of the Product or any Product Component for use in the Field, together with any and all patents that have issued or in the future issue therefrom, including utility model and design patents and certificates of invention; and (b) all divisionals, continuations, continuations-in-part, reissues, renewals, extensions or additions, to any such patents and patent applications; all to the extent and only to the extent that Biosite now has or hereafter will have the right to grant licenses, immunities or other rights thereunder. 1.12 "Person" shall mean an individual, corporation, partnership, trust, business trust, association, joint stock company, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, governmental authority or any other form of entity specifically listed herein. 1.13 "Product" shall mean the hand held rapid in vitro immunoassay system, consisting of reagents, a testing device and a reader, developed by or on behalf of Biosite for use in the Territory for use in the Field, together with all improvements thereto (including future generations thereof) developed by or on behalf of Biosite for use in the Territory for use in the Field, and all modifications thereto developed by or on behalf of Biosite for use or sale in the Territory for use in the Field. 1.14 "Product Components" shall mean, collectively, the Reader, the Reagents and the Testing Device as defined below: 1.14.1 "Reader" shall mean that certain testing device reader which Biosite shall develop or cause to be developed or cause its subcontractor(s) to develop under the Development Program, constituting a component of the Product. 1.14.2 "Reagents" shall mean those certain reagents which Biosite shall develop or cause to be developed under the Development Program, constituting a component of the Product. 1.14.3 "Testing Device" shall mean that certain testing device which Biosite shall develop or cause to be developed under the Development Program, containing the Reagents and constituting a component of the Product. 1.15 "Specifications" shall mean the specifications for the Product Components established by Biosite and agreed to by KDK for use in the Field in the Territory which are attached hereto as Exhibit A as such may be revised from time to time pursuant to the provisions of Section 3.3 below. -3- 4 1.16 "Quality Inspection Criteria" shall mean quality inspection criteria for the Product Components established by mutual agreement of Biosite and KDK which will be attached hereto as Exhibit __ within eighteen (18) months from the effective date of the Agreement. 1.17 "Territory" shall mean, collectively, Japan, Asia, the Middle East and the Pacific Island Countries. 1.18 "Third Party" shall mean any Person other than Biosite, KDK and their respective Affiliates. ARTICLE 2 REPRESENTATIONS AND WARRANTIES Each party hereby represents and warrants to the other party as follows: 2.1 Corporate Existence and Power. Such party (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated; (b) has the corporate power and authority and the legal right to own and operate its property and assets, to lease the property and assets it operates under lease, and to carry on its business as it is now being conducted and (c) is in compliance with all requirements of applicable law, except to the extent that any noncompliance would not have a material adverse effect on the properties, business, financial or other condition of such party and would not materially adversely affect such party's ability to perform its obligations under the Agreement. 2.2 Authorization and Enforcement Obligations. Such party (a) has the corporate power and authority and the legal right to enter into the Agreement and to perform its obligations hereunder and (b) has taken all necessary corporate action on its part to authorize the execution and delivery of the Agreement and the performance of its obligations hereunder. The Agreement has been duly executed and delivered on behalf of such party, and constitutes a legal, valid, binding obligation, enforceable against such party in accordance with its terms. 2.3 Consents. All necessary consents, approvals and authorizations of all governmental authorities and other Persons required to be obtained by such party in connection with execution of the Agreement have been obtained. -4- 5 ARTICLE 3 DEVELOPMENT PROGRAM 3.1 Development Activities. Biosite and KDK shall conduct, or cause to be conducted, the Development Program to develop, conduct all clinical testing and apply for regulatory approval to market the Product in the Territory. 3.1.1 Development Responsibilities. Biosite shall be responsible to conduct or cause the design, development and manufacturing scale-up of the Product. Biosite shall be responsible for the clinical trials and regulatory approval of the Product in the United States of America. KDK shall be responsible for the clinical trials and regulatory approval of the Product in the Territory for use in the Field. 3.2 Development Program Funding. 3.2.1 Development Costs. To support Biosite's Development Program, KDK shall pay Biosite the following nonrefundable amounts upon achievement of the applicable milestones set forth below. Biosite shall apply the funding received from KDK under the Agreement only for the specific purpose of carrying out its obligations under the Development Program and accomplishing the objectives thereof. a. Milestone 1. Prior to the date of the Agreement, KDK has paid Biosite the sum of US$500,000 the receipt of which is hereby acknowledged. b. Milestone 2. KDK shall pay Biosite the sum of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] upon [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. c. Milestone 3. KDK shall pay Biosite the sum of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] upon [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. d. Milestone 4. KDK shall pay Biosite the sum of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] upon [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. e. Milestone 5. KDK shall pay Biosite the sum of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 3.2.2 Milestone Timetable. Biosite shall be responsible for developing the Product according to the Milestone Timetable set forth below. -5- 6 Milestone 2 [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] Milestone 3 [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] Milestone 4 [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 3.2.3 Clinical and Regulatory Costs. Biosite shall be solely responsible for funding the costs of clinical trials and regulatory approval of the Product in the United States of America. KDK shall be solely responsible for funding the costs of clinical trials and regulatory approval of the Product in the Territory. 3.3 Specifications and Quality Inspection Criteria. Biosite and KDK shall agree upon specifications for the Product Components which are to be set forth in writing and to be attached as final specifications to the Agreement. The parties shall also agree upon the Quality Inspection Criteria within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] from the effective date of the Agreement which will be attached hereto as Exhibit. Any modifications to the Specifications and the Quality Inspection Criteria for the Testing Device and the Reader in the Territory shall require the prior mutual agreement of Biosite and KDK. ARTICLE 4 DISTRIBUTION RIGHT 4.1 Distribution Right. In consideration of KDK's paying the development funding referred to in Article 3.2 of the Agreement, Biosite hereby grants KDK the exclusive right to promote, market, service, sell and distribute the Product in the Territory and hereby acknowledges that KDK has such exclusive distribution right. KDK shall use its best efforts to promote, market, distribute and sell the Product in the Territory and to meet the reasonably foreseeable market demand therefor. KDK shall not sell or export the Product, directly or indirectly, nor cause any Third Party to promote, market, sell, export, distribute or otherwise deal in the Product, directly or indirectly, outside the Territory. KDK shall have the right to appoint one or more Third Parties as subdistributors in the Territory. Biosite shall not sell the Product, directly or indirectly, nor cause any Third Party (including without limitation LRE Reais+Elektronik GmbH) to promote, market, sell, export, distribute or otherwise deal in the Product, directly or indirectly, in the Territory. 4.2 Noncompetition. Except as otherwise provided in the Agreement, during the term of the Agreement, neither Biosite nor KDK shall, for itself or with any Affiliate or Third Party, market, promote, sell or distribute [CONFIDENTIAL MATERIAL -6- 7 REDACTED AND FILED SEPARATELY WITH THE COMMISSION] in the Territory for use in the Field without the prior express written consent of the other party. Notwithstanding the foregoing, KDK shall have the right, without any prior written consent of Biosite, to market, promote, sell or distribute the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] including future modifications and improvements (currently marketed under the name [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 4.3 Independent Purchaser Status. KDK shall be an independent purchaser and seller of the Testing Device and the Reader. KDK shall not act as an agent or legal representative of Biosite, nor shall KDK have any right or power to act for or bind Biosite in any respect or to pledge its credit. 4.4 New Reader Applications. Biosite shall inform KDK first of Biosite's intention to market new reader application products in the Territory. Biosite shall initiate, upon request by KDK, a meeting with KDK to discuss the right to distribute, sell or market such new reader application products in the Territory. In the event that Biosite elects to appoint new distributor(s) for such new application products in the Territory, Biosite shall modify or change the color, product name and software of the Reader in the new application so that the Readers under this Agreement may be sufficiently differentiated from the Readers under new reader applications, and [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. ARTICLE 5 TERMS AND CONDITIONS OF SUPPLY Biosite shall sell and deliver, and KDK shall purchase from Biosite, such Testing Devices and Readers as KDK requires for sale in the Territory or use in the Field on the terms and subject to the conditions set forth below: 5.1 Price. 5.1.1 Testing Device. The sales price for each Testing Device (which shall contain the Reagents and shall be in finished product packages including package insert, retail cartons, and language on such package and insert should be English and/or Japanese) purchased by KDK for commercial sale hereunder shall be equal to [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] (FCA San Diego Facilities Incoterms 1990) per Testing Device for orders received by Biosite prior to the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the First Commercial Sale of the Testing Device. The sales price for each Testing Device for -7- 8 orders received on or after such [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] shall be determined from time to time by the mutual agreement of the parties. 5.1.2 Reader. The sales price for each Reader (which shall be contained in finished product packages which include operator's manual, retail cartons, carton packing material, languages on packages should be English and/or Japanese) purchased by KDK for commercial sale hereunder shall be equal to (a) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] (FOB Munich Airport, Frankfurt Airport or Hamburg Seaport Incoterms 1990) per Reader for orders received by Biosite prior to the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the First Commercial Sale of the Reader, and (b) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] (FOB Munich Airport, Frankfurt Airport or Hamburg Seaport Incoterms 1990) per Reader for orders received by Biosite on or after the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] and prior to the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the First Commercial Sale of the Reader. The sales price for each Reader for orders received on or after such [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] shall be determined from time to time by the mutual agreement of the parties. 5.1.3 Revised Prices. Notwithstanding the foregoing, if either party in good faith determines that, due to material changes in manufacturing or marketing circumstances, it is not commercially feasible to purchase or sell the Testing Device or the Readers hereunder for commercial sale in any country in the Territory for use in the Field, the parties shall meet and negotiate in good faith, and if the parties mutually agree, revise the sales price for the Testing Device or the Reader under this Section 5.1. 5.2 Demonstration Products. 5.2.1 Testing Device. Prior to, and during the period of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] following, the date of the First Commercial Sale of the Testing Device in the Territory, Biosite shall sell and deliver to KDK such quantity of Testing Devices, not to exceed [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], as KDK requests solely for demonstration purposes in connection with the promotion, marketing, distribution and sale of the Testing Device, but not for commercial sale hereunder, at a price equal to [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] (FCA San Diego Facilities Incoterms 1990) per Testing Device. During the term of the Agreement, KDK may request from time to time any additional Testing Devices for demonstration purposes and upon such request the parties shall negotiate in good faith terms and conditions (including quantity and price terms). -8- 9 5.2.2 Reader. Prior to, and during the period [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] following, the date the First Commercial Sale of the Reader in the Territory, Biosite shall sell and deliver to KDK such quantity of Readers, not to exceed [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], as KDK requests solely for demonstration purposes in connection with the promotion, marketing, distribution and sale of the Reader, but not for commercial sale hereunder, at a price equal to [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] (FOB Munich Airport, Frankfurt Airport or Hamburg Seaport Incoterms 1990) per Reader. During the term of the Agreement, KDK may request from time to time any additional Readers for demonstration purposes and upon such request, the parties shall negotiate in good faith terms and conditions (including quantity and price terms). 5.3 Order and Shipment. KDK shall make all purchases of Product by placing firm orders with Biosite. Such purchase orders shall be in writing and in a form reasonably acceptable to Biosite. Purchase orders shall not be binding upon Biosite unless and until accepted by Biosite. Biosite shall notify KDK in writing of its acceptance of purchase orders and of the scheduled deliver therefor within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after receipt of firm orders. Biosite shall use commercially reasonable efforts to deliver the Product within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after receipt of firm orders. The Product shall be packed in such manner as to ensure safe and undamaged delivery. The Testing Device shall be delivered FCA San Diego Facilities Incoterms 1990. The Reader shall be delivered FOB Munich Airport, Frankfurt Airport or Hamburg Seaport Incoterms 1990. The Product shall be shipped to KDK's facility located at Kyoto, Japan or such other location as designated in advance in writing by KDK. Biosite shall make its best effort to accept any reasonable orders for the Product placed by KDK. [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 5.4 Payments. KDK shall pay Biosite within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] days from date of the applicable bill of lading or airway bill for all Product purchased hereunder. KDK shall make all payments under the Agreement to Biosite in United States dollars to Biosite's account in a financial institution located in the United States. 5.5 Forecasts. Not less than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] prior to the -9- 10 reasonably anticipated date of the First Commercial Sale, KDK shall provide an initial non-binding forecast to be updated quarterly. 5.6 Warranties. 5.6.1 Testing Devices and Readers. Biosite warrants that it will manufacture all Testing Devices and shall cause the Readers to be manufactured in conformity with the final and latest Specifications and that every Testing Device and Reader shipped by or on behalf of Biosite will be free from defects in material and workmanship. With respect to the Readers, KDK will provide to its end users a [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] warranty commencing on the date of delivery to end users. In order to support such warranty, Biosite agrees that the warranty period for each Reader shall be [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] from the date of shipment to KDK. If during the above warranty period any Readers are found to be defective or not in conformity with the Specifications, KDK shall so notify Biosite and Biosite shall repair or replace such defective Readers promptly at its full expense (including expense for return by KDK of the defective Readers or parts to Biosite and shipment by Biosite of the correct and new Readers or parts to KDK). With respect to the Testing Devices, any Testing Devices which are found to be defective or not in conformity with the Specifications during their dated shelf life shall promptly be replaced by Biosite at its full and sole expense including shipping expense. If any Testing Device or Reader does not conform to the Specifications, and fails to pass KDK's quality control conducted following the agreed Quality Inspection Criteria in Kyoto or such other locations as designated by KDK, KDK shall be entitled to reject such products, or in its sole discretion, reject the entire lot from which such nonconforming products were manufactured. KDK shall exercise its rejection by promptly shipping back to Biosite all such rejected products or lots at no cost to KDK. In the event of any rejection, Biosite shall promptly replace the nonconforming or rejected products or lots as soon as possible but no later than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. Biosite shall not alter or depart from these procedures in the manufacture or testing of the Product so as to affect its performance without KDK's prior written consent, which consent shall not be unreasonably withheld. Any other changes made by Biosite in manufacture or testing that affect production or testing documentation, or service or operating manuals, or Exhibits to the Agreement, shall require written notice to KDK. Biosite, upon prior written reasonable notice, shall grant KDK periodic inspection and visitation rights and access to Biosite's and its designee's manufacturing facilities and data. -10- 11 5.6.2 Patents. Biosite warrants that the patents listed on Exhibit B hereto have issued, that it is the owner of such patents and that it has received no notice from any Third Party of any lawsuits alleging the invalidity of such patents. Biosite warrants, to its current actual knowledge, that the form of the Testing Device contemplated by Biosite as of the date of the Agreement does not infringe the issued patents of any Third Party in the Territory. If the Testing Device is determined to infringe any issued patent in the Territory, Biosite shall use its best efforts to obtain all appropriate licenses and other rights so that KDK is able to continue its distribution of the Product in the Territory lawfully. 5.6.3 Labels, Warnings and Instructions. KDK shall distribute the Testing Devices and Readers as labeled by or on behalf of Biosite in the Territory so as to include all warnings and instructions necessary for the proper use of the Testing Devices and Readers; provided, however, Biosite and KDK shall agree about the position and form of such labels, lest such labels should violate any local laws or regulations in the Territory. ARTICLE 6 OBLIGATIONS OF KDK REGARDING DISTRIBUTION 6.1 Sales Promotion. KDK shall use its best efforts to promote the sale and use of the Testing Devices and the Reader in the Territory for use in the Field. KDK shall provide necessary training of KDK's or subdistributors sales representatives in the use of the Testing Device and the Reader. 6.2 Promotional Materials; Package Inserts. KDK shall use reasonable efforts to ensure that all advertising, promotional literature, packaging and package inserts comply with applicable laws and regulations in the Territory. KDK shall prepare necessary translations of Biosite's sales literature, package inserts and labeling. 6.3 Import Licenses and Other Governmental Approvals, Compliance. 6.3.1 KDK shall, at its own expense, obtain any registration, license, permit or governmental approval (collectively, any "Registration") that may be necessary to permit the purchase, distribution and resale by KDK of the Testing Device and the Reader in each country in the Territory. 6.3.2 All registrations in the Territory of the Testing Device and the Reader shall be made in the name of KDK and shall [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. -11- 12 6.4 Quarterly Reports. KDK shall prepare and provide Biosite with [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] written sales reports within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the end of each calendar [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], commencing with the first calendar [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after the First Commercial Sale. The [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] reports shall summarize sales (sales figures only) of the Testing Device and the Reader by KDK and its subdistributors during the preceding [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] for Japan. ARTICLE 7 OBLIGATIONS OF BIOSITE REGARDING DISTRIBUTION 7.1 Support. Biosite regularly shall provide KDK with literature on the Testing Device and technical information relating to the Testing Device, the Reader and their proper use. Biosite shall further furnish free of charge to KDK reasonable quantities of sales manuals, brochures, and other sales promotional documents in English. Upon KDK's request, Biosite shall furnish free of charge to KDK reasonable quantities of available photographs, negative/positive films, camera ready artwork, posters and panels relating to the Product, such items shall be for use by KDK in its marketing and public relations activities. 7.2 Assistance. Biosite shall provide KDK with all data and other information available to Biosite, and shall execute or cause to be executed such certificates and other documents, as reasonably necessary to assist KDK in obtaining all necessary product registration in the Territory for the Testing Devices and the Reader. Biosite shall provide KDK with reasonable access to and assistance of its technical, sales, and service personnel in San Diego, California as Biosite deems appropriate. Such assistance under this section shall be without charge to KDK except as may be otherwise mutually agreed. 7.3 Support for Product Registration. Biosite shall provide KDK with any necessary, sufficient and reasonable backup in support of KDK's obtaining necessary product registration. Upon KDK's request, the parties shall negotiate the supply of the Product for clinical trials at [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] prices. 7.4 Certain Training. Where training (i.e., technical training, application training etc.) is required Biosite shall provide the necessary training to KDK. Biosite shall provide to KDK the particular custom tools and other materials at cost which are prepared for proper maintenance or repair of the Product for out of warranty service. During the term of the Agreement, Biosite shall send its personnel (scientific, -12- 13 technical or marketing staffers), as agreed upon on a case by case basis, to work with KDK in the Territory. 7.5 Reports. Biosite shall make periodic reports to KDK on development and modifications of the Product, United States and European market trends regarding the Product and important industrial news every [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], commencing with the first [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]after the effective date of the Agreement. Biosite shall send KDK, on a [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], reports on the status and progress of the Development Program for which Biosite is responsible, commencing with the first [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after the effective date of the Agreement. ARTICLE 8 CONFIDENTIALITY AND PUBLICATION 8.1 Confidential Information. During the term of the Agreement, and for a period of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] following the expiration or earlier termination hereof, each party shall maintain in confidence all information (including samples) disclosed by the other party and identified as, or acknowledged to be, confidential (the "Confidential Information" to be stamped as confidential), and shall not use, disclose or grant the use of the Confidential Information except on a need-to know basis to those directors, officers, employees, consultants, clinical investigators, contractors, permitted sublicensees or permitted assignees, customers, end users, dealers, researchers, collaborators, subdistributors, clinicians, medical technologists, laboratory technicians, medical doctors, nurses, to the extent such disclosure is reasonably necessary in connection with such party's activities as expressly authorized by the Agreement. To the extent that disclosure is authorized by the Agreement, prior to disclosure, each party hereto shall obtain agreement of any such person or entity to hold in confidence and not make use of the Confidential Information for any purpose other than those permitted by the Agreement. Each party shall notify the other promptly upon discovery of any unauthorized use or disclosure of the other party's Confidential Information. 8.2 Permitted Disclosures. The confidentiality obligations contained in Section 8.1 above shall not apply to the extent that (a) any receiving party (the "Recipient") is required (i) to disclose information by law, order or regulation of a governmental agency or a court of competent jurisdiction, or (ii) to disclose information to any governmental agency for purposes of obtaining approval to test or market a product or (b) the Recipient can demonstrate that (i) the disclosed -13- 14 information was public knowledge at the time of such disclosure by the other party hereunder, or thereafter became public knowledge, other than as a result of actions of the Recipient, its directors, officers, employees, consultants, clinical investigators, contractors, permitted sublicensees and permitted assignees, customers, end users, dealers, researchers, collaborators, subdistributors, clinicians, medical technologists, laboratory technicians, medical doctors, nurses in violation hereof; (ii) the disclosed information was rightfully known by the Recipient or its affiliates (as shown by its written records) prior to the date of disclosure to the Recipient by the other party hereunder; or (iii) the disclosed information was disclosed to the Recipient or its affiliates on an unrestricted basis from a source unrelated to any party to the Agreement and not under a duty of confidentiality to the other party. Notwithstanding any other provision of the Agreement, each party may disclose Confidential Information of KDK or Biosite relating to information developed pursuant to the Agreement to any person or entity with whom Biosite has, or is proposing to enter into, a business relationship, as long as such person or entity has entered into a confidentiality agreement with Biosite. Subject to the confidentiality provisions contained in this Article 8, KDK shall have the right, at its discretion, to issue press releases or public announcements concerning KDK's distribution, sale/marketing of the Products, or any other activities hereunder in the Territory. KDK shall give Biosite written notice of any such press releases or public announcements. 8.3 Terms of the Agreement. Neither Biosite nor KDK shall disclose any terms or conditions of the Agreement to any Third Party without the prior consent of the other party, except as required by applicable law or to Persons with whom KDK or Biosite has entered into or proposes to enter into a business relationship provided that such Persons shall enter into the required confidentiality agreement. Notwithstanding the foregoing, within sixty (60) days of execution of the Agreement, KDK and Biosite shall agree upon the substance of information that can be used to describe the terms of this transaction in publicity with respect to the Agreement or otherwise, and KDK and Biosite may disclose such information, as modified by mutual agreement from time to time. 8.4 Use of Name. Except as required by applicable law, neither party shall use the name of the other party or the other party's employees in any advertisement or press release, without prior written approval of the other party, which approval shall not be unreasonably withheld. If, however, a party has approved an advertisement or press release that contains the same or substantially the same text, shall not be required to be submitted for approval to the other party. -14- 15 ARTICLE 9 PATENT RIGHTS 9.1 Ownership. Biosite shall be the exclusive owner of any Patent Rights, Know-How or other intellectual rights of the Product, the Product Components and the process of the manufacture or use thereof, whether or not patentable. 9.2 Prosecution, Maintenance and Enforcement. Biosite, at its sole expense, shall be responsible for and shall control the preparation, filing, prosecution, maintenance and enforcement of the Patent Rights. 9.3 Third Party Infringement Actions. If KDK, its subdistributors or their respective customers is sued by a Third Party for infringement of a patent because of the sale of a Testing Device or Reader in the Territory, KDK promptly shall notify Biosite in writing of the institution of such suit. Biosite and KDK agree to use their best efforts to mutually settle any litigation relating to the infringement of any issued patents. Biosite shall have the right, in its sole discretion, to control the defense of such suit at its own expense, in which event KDK shall have the right to be represented by advisory counsel of its own selection, at its own expense, and shall, at Biosite's expense, cooperate fully in the defense of such suit and furnish to Biosite all evidence and assistance in its control. 9.4 No Other Technology Rights. Except as otherwise provided in the Agreement, under no circumstances shall a party, as a result of the Agreement, obtain any ownership interest or other right in any technology, Know-How, patents, pending patent applications, products, vaccines, antibodies, cell lines or cultures, or animals of the other party, including items owned, controlled or developed by the other, or transferred by the other to such party at any time pursuant to the Agreement. It is understood and agreed by the parties that the Agreement does not grant to either party any license or other right in basic technology of the other party except to the extent necessary to enable the parties to carry out their part of the Development program or the development and marketing of the Product. ARTICLE 10 BIOSITE MARKS The trade marks or trade names of the Testing Device and the Reader for sale in the Territory shall be chosen by KDK and registered in the name of KDK in the Territory at its expense, provided, however, that KDK shall consult with Biosite in sincere manner in the choice of such trademarks or trade names and respect Biosite's recommendation. KDK shall not use any -15- 16 Biosite Marks, or any word, title, expression, trademark, design or marking that is confusingly similar thereto, as part of its corporate or business name, its products or in any other manner. Notwithstanding the foregoing, (a) KDK may identify itself as an authorized distributor of Biosite, and (b) KDK may use the Biosite Marks for display purposes in connection with solicitation of orders for the Testing Device and the Reader. KDK shall not alter, remove or modify any Biosite Marks, nor affix any other trademarks, labels or markings to the Testing Device and the Reader without Biosite's consent; provided, however, that KDK may affix labels or other indices on the Testing Devices and the Readers it distributes to identify it as the distributor of the Testing Device and the Reader so long as such labels do not cover and are not inconsistent with the Biosite Marks, labels or markings. All registrations of the Biosite Marks shall be paid by Biosite. Biosite hereby grants to KDK the royalty-free exclusive right to use Biosite Marks on the Product during the term of this Agreement and the period of the Product being distributed by KDK. No other KDK labels, package inserts or other material shall accompany the Testing Device and the Reader without the prior written approval of Biosite; provided, however, that once Biosite has so approved the use of any such KDK labels, package inserts or other material, then any other KDK labels, package inserts or materials that contain the same or substantially the same text shall not be required to be submitted to Biosite for approval. ARTICLE 11 COPYRIGHTS KDK hereby acknowledges that Biosite may claim copyright protection with respect to certain parts of the Testing Device and the Reader and the labels, inserts and other materials regarding the Testing Device and the Reader. KDK further acknowledges that Biosite has advised KDK that it has the sole and exclusive right to claim the copyright protection with respect to all such items. Nothing contained in this Article 11 shall prohibit KDK from copying and distributing to its sales representatives Testing Device and Reader advertising, literature and other materials prepared by or on behalf of Biosite for the purpose of fulfilling KDK's obligations and rights under the Agreement. KDK shall cooperate with Biosite, take such actions and execute such documents, as reasonably requested by Biosite and at Biosite's expense, to assist Biosite in the protection of copyrights owned by or licensed to Biosite. KDK shall inform Biosite immediately of any infringements or other improper action with respect to any such copyrights that come to the actual attention of KDK. -16- 17 ARTICLE 12 TERM AND TERMINATION 12.1 Term. Unless terminated earlier pursuant to Section 12.2 below, the Agreement shall continue in full force and effect for an initial term expiring [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after the date of receipt of the required marketing approval, and pricing approval (if any), from the governing health authority in any country in the Territory to market the Product in such country for use in the Field; provided, however, that [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 12.2 Termination. Either party may terminate the Agreement (a) except as otherwise provided in Section 14.2 below, upon or after the breach of any material provision of the Agreement by the other party if the other party has not cured such breach within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after notice thereof from they non-breaching party, or (b) at any time after the expiration of the initial [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] year term and the first [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] year extension (total [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] years) if extended of the Agreement, upon not less than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] prior written notice to the other party for any reason whatsoever. KDK shall have the right to terminate the Agreement if Biosite elects to cancel, stop or suspend the development program or any each of the Milestone Timetable is delayed by [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] or more. 12.3 Effect of Expiration and Termination. Upon termination or expiration of the Agreement, KDK shall have the right either to ship back the KDK's inventory of the Product at KDK's acquisition cost which includes air/ocean freight, insurance and duties or to continue to sell the remaining stock of the Product. After termination or expiration of the Agreement for whatever reasons Biosite shall continue to supply KDK for a period of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] from the date of termination of the Agreement with Testing Devices, reagents and spare-parts necessary for the customers of KDK which have acquired the Readers, and KDK shall have the right to distribute such products during the same period. Expiration or termination of the Agreement shall not relieve the parties of any obligation accruing prior to such expiration or termination. The provisions of Articles 8, 9 and 13 shall survive the expiration or termination of the Agreement. ARTICLE 13 -17- 18 INDEMNITY 13.1 Indemnity. Biosite shall defend, indemnify and hold KDK, its Affiliates and/or its Agencies harmless from all costs, damages and expenses (including reasonable attorneys' fees) that KDK may suffer as a result of any claims or judgments in favor of any Third Party for bodily injury, property damage, or any other damage or injury caused or alleged to have been caused by the defective Product (including without limitation design defects, manufacturing defects and warning defects) except to the extent that any such damage is attributable to the gross negligence or willful misconduct of KDK. Each party shall indemnify, defend and hold harmless the other party, its directors, officers, employees and agents from all losses, liabilities, damages and expenses (including reasonable attorney's fees and cost) that they may suffer as a result of any claims, demands, actions or other proceedings made or instituted by any Third Party against any of them and arising out of or relating to (a) any breach of the Agreement by the indemnifying party, (b) any negligence or intentional act or omission by or on behalf of the indemnifying party in the performance of its activities contemplated by the Agreement, (c) any misrepresentation or misstatements by KDK or Biosite, in each case other than those certain losses, liabilities, damages and expenses arising out of the gross negligence or willful misconduct of the indemnified party. 13.2 Procedure. A party (the "Indemnitee") that intends to claim indemnification under this Article 13 shall promptly notify the other party (the "Indemnitor") of any claim, demand, action or other proceeding with respect to which the Indemnitee intends to claim such indemnification. The Indemnitor shall have the right to participate in, and, to the extent the Indemnitor so desires, jointly with any other Indemnitor similarly notices, to assume the defense thereof with counsel selected by the Indemnitor; provided, however, that an Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitor, if representation of the Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential differing interests between such Indemnitee and any other party represented by such counsel in such proceedings. The indemnity obligations under this Article 13 shall not apply to amounts paid in settlement of any loss, liability, damage or other expense if such settlement is effected without the consent of the Indemnitor, which consent shall not be withheld unreasonably. The failure to deliver notice to the Indemnitor within a reasonable time at the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such Indemnitor of any liability to the Indemnitee under this Article 13, but the omission so to deliver notice to the Indemnitor will not relieve it of any liability that it may have to any Indemnitee otherwise than under this Article 13. The Indemnitor may not settle the action or otherwise consent to an -18- 19 adverse judgment in such action that diminishes the rights or interests of the Indemnitee without the express written consent of the Indemnitee. The Indemnitee, its employees and agents, shall cooperate fully with the Indemnitor and its legal representatives in the investigation of any action, claim or liability covered by this indemnification. 13.3 Insurance. Biosite shall maintain, through self-insurance or otherwise, such insurance and products liability insurance against claims regarding the development and manufacture of the Testing Device by Biosite under the Agreement, in such amounts as it customarily maintains for similar activities. Biosite shall maintain such insurance during the term of the Agreement and thereafter for so long as it maintains insurance for itself covering similar activities. ARTICLE 14 MISCELLANEOUS 14.1 Notices. Any consent, notice or report required or permitted to be given or made under the Agreement by one of the parties to the other shall be in writing, delivered personally or by facsimile (and promptly confirmed by personal delivery, air mail, internationally-recognized delivery service or courier), air mail, internally-recognized delivery service or courier, postage prepaid (where applicable), addressed to such other party at its address indicated below, or to such other address as the addressee shall have last furnished in writing to the addressor and (except as otherwise provided in the Agreement) shall be effective upon receipt by the addressee. If to Biosite: Biosite Diagnostics Incorporated 11030 Roselle Street, Suite D San Diego, California 92121, U.S.A. Attention: Kim D. Blickenstaff President If to KDK: Kyoto Dai-Ichi Kagaku Co., Ltd. 57 Nishi Aketa-Cho, Higashi-Kujo, Minami-Ku, Kyoto 601, Japan Attention: Shigeru Doi President 14.2 Force Majeure. Neither party shall be held liable or responsible to the other party nor be deemed to have defaulted under or breached the Agreement for failure or delay in -19- 20 fulfilling or performing any term of the Agreement to the extent, and for so long as, such failure or delay is caused by or results from causes beyond the reasonable control of the affected party including fire, floods, embargoes, war, acts of war (whether war be declared or not), insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any governmental authority. 14.3 Assignment. Except as expressly provided hereunder, the Agreement may not be assigned or otherwise transferred, nor may any right or obligations hereunder be assigned or transferred by either party [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. Any permitted assignee shall assume all obligations of its assignor under the Agreement. 14.4 Severability. Each party hereby acknowledges that it does not intend to violate any public policy, statutory or common laws, rules, regulations, treaty or decision of any government agency or executive body thereof of any country or community or association of countries. Should one or more provisions of the Agreement be or become invalid, the parties shall substitute, by mutual consent, valid provisions for such invalid provisions which valid provisions in their economic effect are sufficiently similar to the invalid provisions that it can be reasonably assumed that the parties would have entered into the Agreement with such provisions. In case such provisions cannot be agreed upon, the invalidity of one or several provisions of the Agreement shall not affect the validity of the Agreement as a whole, unless the invalid provisions are of such essential importance to the Agreement that it is to be reasonably assumed that the parties would not have entered into the Agreement without the invalid provisions. 14.5 Governing Law. The Agreement shall be governed by and construed in accordance with the laws of the State of California, U.S.A., without regard to the conflicts of law principles thereof, and shall not be governed by the United Nations Convention on Contracts for the International Sale of Goods. 14.6 Arbitration. Any dispute, controversy or claim originally initiated by either party relating to, arising out of or resulting from the Agreement, or the performance by either party of its obligations hereunder, whether before or after termination of the Agreement, shall be finally resolved by binding arbitration pursuant to the Japan-American Trade Arbitration Agreement of September 16, 1952. Whenever a party shall decide to institute arbitration proceedings, it shall give written notice to that effect to the other party. If initiated by Biosite, such arbitration hereunder shall be conducted under the Commercial Arbitration Rules of the Japan Commercial Arbitration Association, and any applicable procedural laws of Japan, and shall be held in Osaka, Japan. If initiated by KDK, -20- 21 such arbitration shall be conducted under the Commercial Arbitration Rules of the American Arbitration Association and any applicable procedural laws of the State of California, and shall be held in Los Angeles, California. The award shall be final and binding upon the parties. 14.7 U.S. Export Laws and Regulations. Each party hereby acknowledges that the marketing rights and information disclosure requirements of the Agreement are subject to the laws and regulations of the United States relating to the export of products and technical information. Without limitation, each party shall comply with all such laws and regulations. 14.8 Entire Agreement. The Agreement contains the entire understanding of the parties with respect to the subject matter hereof. All express or implied agreements and understandings, either oral or written, heretofore made are expressly superseded by the Agreement. The Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by both parties. 14.9 Headings. The captions to the several Articles and Sections hereof are not a part of the Agreement, but are merely guides or labels to assist in locating and reading the several Articles and Sections hereof. 14.10 Independent Contractors. It is expressly agreed that Biosite and KDK shall be independent contractors and that the relationship between the two parties shall not constitute a partnership, joint venture or agency. Neither Biosite nor KDK shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other, without the prior consent of the party to do so. 14.11 Language. The English language version of the Agreement shall govern and control any translations of the Agreement into any other language. 14.12 Waiver. The waiver by either party of any right hereunder or the failure to perform or of a breach by the other party shall not be deemed a waiver of any other right hereunder or of any other breach or failure by said other party whether of a similar nature or otherwise. 14.13 Counterparts. The 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. IN WITNESS WHEREOF, the parties have executed the Agreement as of the date first set forth above. -21- 22 BIOSITE DIAGNOSTICS KYOTO DAI-ICHI KAGAKU CO. LTD. INCORPORATED By: /s/ Shigeru Doi By: /s/ Kim D. Blickenstaff --------------------------- --------------------------- Title: President Title: President ------------------------ ------------------------ Date: 2/14/95 Date: 2/14/95 ------------------------ ------------------------ -22- 23 Exhibit A: Product Specification System Design Specifications [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] -1- 24 Exhibit B Patents Patent Number 07/887,526 - Diagnostic device and apparatus for the controlled movement of reagents without membranes. -2- EX-10.12 6 EXHIBIT 10.12 1 EXHIBIT 10.12 [CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION] DEVELOPMENT AND SUPPLY AGREEMENT F1-METER Between: LRE Relais + Elektronik GmbH - Medial Technology - Linprunstra(beta)e 16 80335 Munchen Germany (hereinafter referred to as LRE) and BIOSITE Diagnostics Incorporated 11030 Roselle Street San Diego, CA 92121 U.S.A. (hereinafter referred to as BIOSITE) 2 ARTICLE I Purpose of this Agreement Subject matter of this agreement is the development, subsequent serial production and supply of a portable, fluorescence remission photometer which is defined in the specifications attached to this agreement as Attachment A (hereinafter referred to as Fl-Meter). The development and subsequent serial production of the Fl-Meter will be done by LRE exclusively for BIOSITE in accordance with the objectives and performance requirements as set out in the specifications and in conformity with the Project Plan attached to this agreement (Attachment B). Specifications (Attachment A) and Project Plan (Attachment B) can be changed and/or extended only by written approval of both parties. ARTICLE II Development LRE shall develop for BIOSITE a Fl-Meter in accordance with the below paragraphs 2.1 to 2.4. For this development, BIOSITE shall bear all internal and external cost which arise at LRE, shall reimburse these costs to LRE pursuant to paragraphs 2.1 to 2.4. 2.1 Feasibility Study. The feasibility study has been started November 1993. With the completion of the feasibility study LRE will deliver the draft specifications including the draft industrial design, the -1- 3 Project Plan and a breadboard reader to evaluate fluorescence remission signals by a PC. [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 2.2 Functional Fluorescence Reader. [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 2.3 Prototype Meter. [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 2.4 Preproduction Meter. [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 2.5 Termination of Development. (a) By BIOSITE. During the development phase BIOSITE may terminate the agreement [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. If BIOSITE terminates the agreement during the development phase under paragraph 10.3, then BIOSITE shall have the exclusive right to use and disclose all inventions, discoveries, improvements, information, data and other technology, whether patentable or not, (i) conceived solely by employees or others on behalf of LRE during the term of the feasibility study or the balance of the development program directly or indirectly with the use of funding, materials or information provided by BIOSITE, or (ii) conceived jointly by employees or others on -2- 4 behalf of LRE and by employees or others on behalf of BIOSITE under the feasibility study or the balance of the development program, together with all patent and other intellectual property rights thereto (collectively, the "Joint Technology"). [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] (b) By LRE. During the development phase LRE may terminate the agreement [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. If LRE terminates the agreement in the development phase, under paragraph 10.3, BIOSITE shall have no rights or license to use or disclose the Joint Technology. If LRE terminates the agreement during the development phase under paragraph 2.5(b)(ii), then BIOSITE shall have the exclusive right to use and disclose the Joint Technology. (c) Costs of Development. In case of termination by either party during the development phase, LRE shall use Is best efforts to limit or cancel any outstanding commitments in connection with the development. Subject to paragraphs 2.1 to 2.5(b), BIOSITE shall bear all costs incurred by LRE for all development work performed through the effective termination date, and for all outstanding obligations which were incurred by LRE in good faith in advance and which cannot be canceled. -3- 5 2.6 Cooperation. LRE and BIOSITE will designate project leaders who shall be the main contact persons during the development phase. LRE shall keep BIOSITE reasonably informed throughout each stage of the development phase of the status of Ks research and development efforts, of its actual expenses incurred in relation to the budgeted expenses. BIOSITE shall have the right to visit LRE's facilities on reasonable request to inspect the research, development and manufacturing conducted by LRE, to make copies of all applicable records and to discuss the same with employees of LRE. At least once every six (6) months during the development phase, LRE and BIOSITE shall meet, alternating between Munchen and San Diego, to discuss the status of the development phase and the plans therefor. Such meeting shall include the project leaders and such others as the parties determine reasonably necessary or appropriate. ARTICLE III Tooling 3.1 Type of Tooling The majority of tools will be molds for plastic housing parts. 3.2 Prototype Meter Tooling. The total cost of the additional tooling necessary to efficiently produce the estimated quantity of Prototype Meters -4- 6 is estimated to be [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. The tooling has to be ordered two-three (2-3) months prior to the build of Prototype Meters. LRE will inform BIOSITE appropriately about delivery times, conditions and actual costs. The tooling will be ordered by LRE after the receipt of a written approval from BIOSITE to order the tooling. Payment of tooling cost by BIOSITE are due - [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] - [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] - [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 3.3 Preproduction Meter Tooling. The total cost of tooling for the Preproduction Meters is estimated to be [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. The tooling has to be ordered [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] prior to the build of Preproduction Meters. LRE will inform BIOSITE appropriately about delivery times, conditions and actual costs. The tooling will be ordered by LRE after the receipt of a written approval from BIOSITE to order the tooling. Payment of tooling cost by BIOSITE are due - [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] -5- 7 - [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] - [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] production of the FI- Meters by LRE. 3.4 Minimize Cost. Both parties will properly cooperate to minimize risk and cost of tooling. ARTICLE IV Development Results/Industrial Proprietary Rights 4.1 Tooling. BIOSITE shall be the sole owner of all tooling including molds. Upon expiration or termination of this agreement, LRE shall transfer to BIOSITE all applicable tooling, including molds. LRE shall provide such technical assistance to BIOSITE 4.2 Development Rights. (a) LRE shall be the sole owner of all inventions, discoveries, improvements, information, data and other technology, whether patentable or not, (i) owned by LRE prior to beginning the feasibility study, (ii) licensed to LRE prior to or during the term of this agreement, or (iii) conceived solely by employees or others on behalf of LRE during the term of the feasibility study or the balance of the development program without the use directly or indirectly of funding, materials or information provided by BIOSITE, together with all patent and other intellectual property rights thereto (collectively, the -6- 8 "LRE-Technology"). BIOSITE shall have the right to use, and subject to the provisions of Article 9 Confidentiality to disclose, the LRE Technology disclosed by LRE under this agreement solely for the purpose of performing its obligations under this agreement. (b) LRE and BIOSITE jointly shall own all Joint Technology. LRE shall have the right to use, and subject to the provisions of Article 9 Confidentiality, to disclose, the Joint Technology (i) during the term of this agreement and for a period of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after the expiration or termination of this agreement, only for purposes to which BiOSITE gives its prior express written consent, which shall not be unreasonably withheld, and (ii) thereafter, for any purpose whatsoever without the prior written consent of BIOSITE; provided, however, if this agreement is terminated (A) by BIOSITE under paragraph 10.3 or (B) by LRE under paragraph 2.5(b)(ii). BIOSITE shall have the exclusive right to use, and subject to the provisions of Article 9 Confidentiality, to disclose, the Joint Technology for any purpose subject to the provisions of paragraph 4.3.(a). BIOSITE's right to use and disclose the Joint Technology after termination or expiration of this agreement for whatever purpose shall survive the termination or expiration of this agreement, except if LRE has terminated the agreement pursuant to paragraph 10.3 or BIOSITE has terminated the agreement during the development phase pursuant to paragraph 2.5(a). -7- 9 (c) BIOSITE shall be the sole owner of all inventions, discoveries, improvements, information, data and other technology, whether patentable or nor, (i) owned by BIOSITE prior to beginning the feasibility study, (ii) licensed to BIOSITE prior to or during the term of this agreement, or (iii) conceived solely by employees or others on behalf of BIOSITE during the term of the feasibility study or the balance of the development program, together with all patent and other intellectual property rights thereto (collectively, the "BIOSITE Technology"). LRE shall have the right to use, and subject to the provisions of Article 9 Confidentiality to disclose, the BIOSITE Technology disclosed by BIOSITE under this agreement solely for the purpose of performing its obligations under this agreement. (d) LRE at its sole expense shall have the right to control the preparation, filing, prosecution, maintenance and enforcement of all patent applications and patents regarding the LRE Technology. BIOSITE at its sole expense shall have the right to control the preparation, filing, prosecution, maintenance and enforcement of all patent applications and patents regarding BIOSITE Technology. Each party shall have the right to control the preparation, filing, prosecution, maintenance and enforcement of all patent applications and patents regarding Joint Technology, provided, however, if both parties wish to control the patent rights with respect to any of the Joint Technology, then LRE and BIOSITE shall meet and determine by mutual agreement which party shall have the right -8- 10 to control the patent right with respect to such Joint Technology. The party that controls the patent rights with respect to any Joint Technology shall bear the costs therefor, including the accruing costs for the remuneration of employees' inventions according to the Law on Employees' inventions (Gesetz uber Arbeitnehmererfindungen), unless the parties otherwise agree in writing. (e) If LRE directly or indirectly uses any Joint Technology for the benefit of any third party or transfers any Joint Technology to any third party, LRE shall pay to BIOSITE an amount equal to the cost paid to LRE by BIOSITE to develop such technology. 4.3 Exclusivity. (a) During the term of this agreement, BIOSITE shall be obligated to purchase the Fl-Meter exclusively from LRE and not to commission any third party to produce the Fl-Meters, except (i) if LRE is not capable to produce sufficient quantity of Fl-Meters to satisfy BIOSITE's needs, or (ii) with respect to any specific immunoassay application which BIOSITE requests, if LRE is prohibited from producing Fl-Meters for BIOSITE for such immunoassay application. In particular, BIOSITE shall not change the Fl-Meter on its own authority, and shall not pass on to third parties any know-how relating to the individual development phases and to the finished product Fl-Meter except to the extent reasonably necessary to sell or use the Fl-Meter in the immunoassay field. -9- 11 (b) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] Upon full payment of all development cost pursuant to Article 2 hereof, BIOSITE shall be entitled to purchase and sell the F1-Meter exclusively. Notwithstanding the foregoing, the exclusivity rights and obligations under this paragraph 4.3(b), [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] shall survive such expiration or termination for a period of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after such expiration or termination, except (1) if this agreement is terminated by LRE under paragraph 10.2(b) or 10.3, or (2) if this agreement is terminated by BIOSITE under paragraph 2.5(a), other than for grounds specified under paragraph 10.3. 4.4 Technical Information. BIOSITE will have access to all technical documentation such as drawings, circuit diagrams, software listings, etc. produced under this agreement exclusively for the Fl-Meter. The corresponding documents shall be provided by LRE on the demand -10- 12 by BIOSITE after the receipt of payment for the actual development phase. 4.5 [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] ARTICLE V Serial Production 5.1 For the term hereof, BIOSITE shall purchase all Fl-Meters it requires exclusively from LRE, and LRE shall have the exclusive right and obligation to produce all Fl-Meters required by BIOSITE, except (i) if LRE is not capable to produce sufficient quantity of Fl-Meters to satisfy BIOSITE's needs, or (ii) with respect to any specific immunoassay application which BIOSITE requests, if LRE is prohibited from producing Fl-Meters for BIOSITE for such immunoassay application. 5.2 Each Fl-Meter shall be manufactured in accordance with the Specifications. The Specifications may be modified from time to time only by written approval of both parties. 5.3 In order to appropriately prepare for the necessary production volumes LRE needs firm orders for the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] prior to the beginning of the first [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of production and an update each subsequent quarter (revolving forecast) for the following [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. -11- 13 The shipments will commence about [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after receipt of the corresponding orders. BIOSITE shall place its orders and forecasts, and shall purchase Fl-Meters, as follows: BIOSITE shall purchase a specified quantity of Fl-Meters specified in each order and forecast as follows: BIOSITE shall purchase in the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] all Fl-Meters firmly ordered for the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] according to BIOSITE's binding order. BIOSITE shall purchase in the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] at least [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the quantity ordered for the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. The remaining [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the quantity firmly ordered for the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] may be accepted by BIOSITE alteratively in the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] following the order and forecast. The forecast for the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] following the order and forecast shall not be binding on BIOSITE. BIOSITE shall be obligated to reimburse LRE for the costs of materials purchased for that quantity of Fl-Meters forecast for the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] and not purchased in the -12- 14 [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] following the order and forecast, which costs were incurred by LRE in good faith in advance and which cannot be canceled; provided, however, that BIOSITE shall be entitled to credit such reimbursed costs ratably against the purchase price of a like quantity of Fl-Meters purchased thereafter. BIOSITE shall have this right to credit for a period of at least one (1) year after BIOSITE has reimbursed LRE for such cost of materials. The forecast for the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] following the order and forecast shall not be binding on BIOSITE and shall be used for orientation. Each firm purchase order shall provide delivery dates and delivery information requirements. 5.4 If serial production is not possible for whatever reason--unless BIOSITE terminated this agreement under paragraph 10.2 (c) or 10.3--or if BIOSITE fails to order and purchase [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] F1-Meters during the first twelve (12) months of production, BIOSITE shall reimburse LRE for that portion of the cost for the specific tooling purchased by LRE for the Fl-Meter specific production equipment that was not reimbursed through the pricing structure for the first twelve (12) months of production. 5.5 Delivery by LRE shall be made at least quarterly. LRE shall deliver a minimum quantity of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] F1-Meters in -13- 15 each delivery. LRE shall deliver a quantity in excess of the minimum quantity as soon as it is able to do so. After BIOSITE has informed LRE of the needed quantity and has placed the respective orders, LRE shall use its commercially reasonable efforts to meet BIOSITE's requested delivery dates, although the quantities to be delivered and the dates of delivery may vary in accordance with LRE's capacity. BIOSITE's order shall be delivered in the quarter following the order. Within a quarter LRE may deliver the whole quantity at once or may, alteratively, make up to six (6) partial deliveries the quantities of which to be determined by LRE, unless still provided otherwise by the contract parties. 5.6 If BIOSITE discontinues its orders for a period of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], (a) in the event that the material necessary for BIOSITE's next order is already available at LRE or will be promptly available somewhere else, delivery by LRE shall commence not later than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after receipt of BIOSITE's next order, or (b) otherwise, delivery by LRE shall commence not later than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after receipt of BIOSITE's next order. 5.7 If a shipment of Fl-Meter or any portion thereof is damaged or defective, then BIOSITE shall have the right to reject such shipment or the portion thereof that fails to conform. BIOSITE in good faith shall consult with LRE, and if applicable the carrier, in making any determination that any -14- 16 shipment or portion is defective. BIOSITE shall give written notice to LRE of its rejection hereunder, specifying the grounds for such rejection. BIOSITE shall hold the defective shipment or portion for up to [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], for return to LRE or disposition at LRE's option and at LRE's expense, if found to be not in conformance with the Specifications. LRE shall use its commercially reasonable efforts to cure such rejection or replace such spoiled, damaged or defective shipment of Fl-Meter within ninety (90) days after receipt of notice of rejection thereof. If no notice of rejection is given by BIOSITE within thirty (30) days after receipt of any shipment of Fl-Meters, the shipment of the Fl-Meters shall be deemed to have been accepted. 5.8 BIOSITE shall have the right to designate one or more third parties, including E. Merck, to purchase Fl-Meters under this agreement for sale and use on such terms and conditions as agreed by BIOSITE and E. Merck or such other third party. Each such third party shall have the right to purchase Fl-Meters directly from LRE, and shall be obligated to make forecasts, place orders and pay the transfer price therefor directly to LRE, on the terms and conditions of this agreement. BIOSITE shall give written notice to LRE of any third party so designated. -15- 17 ARTICLE VI Supply Price and Volume 6.1 Prices are fixed for the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of production and depend on the total quantity of Fl-Meters ordered during such period. The transfer prices are: - [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] - [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] - [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] After the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of production, the transfer prices will be reduced as follows: - [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] - [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] - [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] The transfer price for the Fl-Meters for each order shall be calculated based on the forecasted orders for Fl-Meters for such year. After the actual quantity of Fl-Meters ordered in any year are calculated after the end of such year, the transfer price for all Fl-Meters ordered during such year shall be adjusted, and the parties shall promptly settle any amounts underpaid or overpaid during such year in a manner mutually acceptable to both parties. -16- 18 6.2 Prices are free on board Munich airport or Frankfurt airport for Fl-Meters in adequate bulk packing for overseas shipments. If BIOSITE desires single packing which is fit for final sale, LRE will offer packing as specified by BIOSITE at additional cost. Prices do not include the German value added tax or any US taxes. 6.3 For each delivery accepted pursuant to paragraph 5.7, BIOSITE shall make payment within 30 days from receipt of such delivery and the corresponding invoice. ARTICLE VII Quality Control LRE will perform regular in-process controls and a final test for each Fl-Meter shipped in accordance with the specifications, keeping complete records of the results of each test.The testing procedures and the permissible variations and tolerances will be agreed upon between LRE and BIOSITE and laid down in the final specifications. The test reports of each Fl-Meter delivered can be provided to BIOSITE if desired. LRE shall not make any changes to the final specification without BIOSITE's prior written approval. -17- 19 ARTICLE VIII Warranty The warranty period for each Fl-Meter produced under this agreement will be twenty-four (24) months from the date of shipment. It will cover defects in material, workmanship, design and performance as per specifications and intended use of the Fl-Meter. Warranty does not cover any battery-related defects. LRE will repair or replace any defective Fl-Meter during the warranty-period at its own expense. Upon request, BIOSITE shall return all defective Fl-Meters to LRE at LRE's expense. ARTICLE IX Confidentiality 9.1 During the term of this agreement and for a period of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after, each party will hold in strict confidence and not disclose to third parties, not use except for the purposes of this agreement, and restrict access to those persons (including consultants) carrying out activities under this agreement, any and all information disclosed by the other party under this agreement and treated as confidential by such party. Notwithstanding the foregoing, LRE and BIOSITE each shall have the right to disclose Joint Technology to any third party with whom it has or proposes to enter into a business relationship, provided that such third party has executed a written agreement -18- 20 with it to maintain in confidence and not use such confidential information except as otherwise authorized by this agreement. Excepted from this only shall be the information which (a) is in public domain at the time of disclosure, (b) becomes otherwise part of public domain through no fault of the receiving party, (c) was in the possession of the receiving party at the time of disclosure by the other party as shown by the receiving party's written records, or thereafter becomes available from a third party who has the right to disclose it. Companies which LRE or BIOSITE control or are under common control with LRE or BIOSITE are not regarded as third parties. These companies and persons (including consultants) carrying out activities under this agreement may be given such information only if they have accepted the confidentiality terms of this agreement as binding them. 9.2 For purposes of the Article 9, Joint Technology shall constitute confidential information with respect to both parties. 9.3 The obligations of confidentiality and non-use contained in Article 9 shall not apply to the extent that the receiving party is required to disclose information by applicable law, regulation or court order. 9.4 Neither party shall disclose any terms or conditions of this agreement to any third party without the prior consent of the other party. Notwithstanding the foregoing, the parties shall agree upon the substance of information that can be used -19- 21 to describe the terms of this transaction without the other party's prior consent. ARTICLE X Term 10.1 During the Development Phase. This agreement may be terminated by either party during the development phase only as provided in paragraph 2.5. 10.2 During Serial Production. (a) This agreement can be terminated by either party by giving [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] prior written notice, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. (b) LRE can terminate the agreement earlier [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. (c) BIOSITE can terminate this agreement earlier ff LRE fails to supply BIOSITE with its firmly ordered quantities of Fl-Meters for [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 10.3 At Any Time. Either party has the right to terminate this agreement at any time, without previous notice for cause, if (a) the other party commits a material breach of any of the covenants and terms herein contained and has not, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after having been required in writing to do so, remedied such breach; provided, however, that there shall not -20- 22 exist a material breach within the meaning of this paragraph 10.3(a) ff the parties mutually determine under paragraph 2.5(b)(ii) that the intended result of the development cannot be achieved or, for reasons beyond the reasonable control of LRE, can only be achieved at expenditure by LRE, significantly in excess of the costs described in paragraphs 2.1 to 2.4, for which BIOSITE is unwilling to reimburse LRE after notice thereof; or (b) a petition is filed by or against the other party under any bankruptcy or insolvency laws; provided that if the other party gives adequate assurance of contesting any such petitions and such petitions are dismissed within one hundred eighty (180) days of filing, such filing shall not constitute a cause of termination. 10.4 Notice. Notice of termination shall be effective upon receipt. 10.5 Effect. Expiration or termination of this agreement shall not relieve the parties of any obligation accruing prior to such expiration or termination. The provisions of Articles 4.9 and 11 shall survive the expiration or earlier termination of this agreement. 10.6 Force Majeure. Neither party shall be held liable or responsible to the other party nor be deemed to have defaulted under or breached this agreement for failure or delay in fulfilling or performing any term of this agreement to the extent, and for so long as, -21- 23 such failure or delay is caused by or results from causes beyond the reasonable control of the affected party including fire, floods, embargoes, war, acts of war (whether war be declared or not), insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, act of God or acts, omissions or delays in acting by any governmental authority or the other party. ARTICLE XI Indemnification and Insurance 11.1 Regarding LRE's liability, the provisions of German law relating to damages and product liability shall apply. 11.2 LRE shall maintain products liability insurance against claims regarding the manufacture of the Fl-meters by LRE in such amounts as it customarily maintains for its manufacture of similar products in Germany. LRE shall maintain such insurance during the term of this agreement and thereafter for so long as it maintains insurance for such covering such activities. ARTICLE XII Conciliation BIOSITE and LRE shall exercise their commercially reasonable efforts to settle between themselves in an amicable way any dispute, controversy or claim which may arise out of or relating to this agreement within thirty (30) days after one -22- 24 party receives notice from the other party of such dispute, controversy or claim. ARTICLE XIII Final Provisions 13.1 This agreement and the transactions contemplated thereby are governed exclusively by the substantive laws of the Federal Republic of Germany exclusive of the German international law and any supranational or international bodies of law. This shall not apply to the provisions regarding the confidential information of BIOSITE, pursuant to Article 9 Confidentiality, which shall be construed and interpreted in all respects in accordance with the laws of the State of California. 13.2 Any dispute arising out of or in relation to this agreement including disputes regarding its validity shall be resolved by binding arbitration conducted under the International Chamber of Commerce Arbitration Rules. The procedural rules shall follow the German rules of Civil Procedure, unless the rules of the International Chamber of Commerce provide for different rules. Any such arbitrations shall be conducted in English language with such rules, and shall be held in Munchen, Germany. One judge shall be named by the party bringing the action, one judge shall be named by the party defending such action and the presiding judge shall be named by the two judges appointed. At least one of the judges shall have command of the German language. The arbitrators shall have the authority to grant specific performance, and to -23- 25 allocate between the parties the costs of arbitration in such equitable manner as they determine. Judgment upon the award so rendered may be entered in any court having jurisdiction or application may be made to such court for judicial acceptance of any award and an order of enforcement, as the case may be. 13.3 This agreement and its Attachments embody the entire and standing agreement among the parties and supersede all previous written or oral agreements with respect to the development and sale of the Fl-Meter. 13.4 Modifications of and amendments to this agreement as well as the suspension of its provisions shall become effective only when approved by both parties in writing. 13.5 Subject to the choice of law provisions of paragraph 13.1, LRE and BIOSITE shall comply in all material respects with all applicable laws and regulations in the performance of their respective obligations under this agreement. 13.6 Any consent, notice or report required or permitted to be given or made under this agreement by one of the parties to the other shall be in writing, delivered personally or by facsimile (and promptly confirmed by personal delivery, air mail, internationally-recognized delivery service or courier), air mail, internationally-recognized delivery service or courier, postage prepaid (where applicable), addressed to such other party at its address indicated below, or to such other address as the addresses shall have last furnished in writing to the addressor and (except as otherwise provided in this agreement) shall be effective upon receipt by the addresses. -24- 26 If to BIOSITE: BIOSITE Diagnostics Incorporated 11030 Roselle Street San Diego, California 92121, U.S.A. Attention: Kim D. Blickenstaff President with a copy to: Pillsbury Madison & Sutro 235 Montgomery Street, 15th Floor San Francisco, California 94104, U.S.A. Attention: Thomas E. Sparks, Jr. If to LRE: LRE Relais + Elektronik GmbH Linprunstra(beta)e 16 80335 Munchen Federal Republic of Germany Attention: Reinhold Hartwich President 13.7 BIOSITE and LRE each acknowledge that the development and commercialization rights and information disclosure requirements of this agreement are subject to certain laws and regulations of the Federal Republic of Germany and the United States of America relating to the export of products and technical information. without limiting the application of paragraph 13.1, BIOSITE and LRE each shall comply with all applicable laws and regulations. 13.8 It is expressly agreed that BIOSITE and LRE shall be independent contractors and that the relationship between the two parties shall not constitute a partnership, joint venture or agency. Neither BIOSITE nor LRE shall have the authority to make any statements, representation or commitments of any kind, or to take any action, which shall be binding on the other, without the prior consent of the party to do so. 13.9 The English language version of this agreement shall govern and control any translations of this agreement into any other language. -25- 27 13.10 In the event of one or more provisions of this agreement becoming void, the remaining provisions contained herein shall remain in full force and effect. The parties agree to have provisions having become void shall be deemed as severable and be replaced by valid provisions which maintain the intentions of the invalid provisions as far as possible. Munchen/Nordlingen, San Diego, September 23, 1994 September 23, 1994 LRE Relais + Elektronik GmbH BIOSITE Diagnostics Incorporated /s/ Reinhold Hartwich /s/ Kim D. Blickenstaff - ---------------------------- ------------------------- Reinhold Hartwich Kim D. Blickenstaff President President -26- 28 EXHIBIT A [34 PAGES OF ENGINEERING SPECIFICATIONS AND OTHER CONFIDENTIAL MATERIALS REDACTED AND FILED SEPARATELY WITH THE COMMISSION] EX-10.13 7 EXHIBIT 10.13 1 EXHIBIT 10.13 [CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION] DISTRIBUTORSHIP AGREEMENT BETWEEN E. Merck Frankfurter Strasse 250 D-6100 Darmstadt 1 Federal Republic of Germany AND BIOSITE DIAGNOSTICS INCORPORATED 11030 Roselle Street, Suite D San Diego, CA 92121 July 27, 1992 2 Table of Contents Page 1. DEFINITIONS.......................................................................................... 1 1.1 Agreement................................................................................... 1 1.2 Confidential Information.................................................................... 1 1.3 Customer.................................................................................... 1 1.4 Market Segmentation......................................................................... 2 1.5 Product..................................................................................... 2 1.6 Territory................................................................................... 2 1.7 Agencies.................................................................................... 2 2. APPOINTMENT AND SCOPE................................................................................ 2 2.1 Appointment................................................................................. 2 2.2 Exclusivity................................................................................. 2 2.3 Noncompetition.............................................................................. 2 2.4 Independent Purchaser Status................................................................ 3 2.5 Perishable Products......................................................................... 3 3. TERMS AND CONDITIONS OF SALE......................................................................... 3 3.1 Price....................................................................................... 3 3.2 Terms of Sales.............................................................................. 3 3.3 Payments.................................................................................... 4 3.4 Orders...................................................................................... 4 3.5 Returned Goods.............................................................................. 4 3.6 Warranty.................................................................................... 4 4. COVENANTS OF MERCK................................................................................... 5 4.1 Sales Promotion............................................................................. 5 4.2 Expenses.................................................................................... 5 4.3 Promotional Materials; Package Inserts...................................................... 5
-i- 3 4.4 Import Licenses, Exchange Controls, and Other Governmental Approvals, Compliance.................................................................................. 6 4.5 Local Laws and Regulations.................................................................. 7 4.6 Product Control............................................................................. 7 4.7 [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] Reports................................................................ 7 4.8 Indemnification............................................................................. 7 4.9 Products Liability Insurance................................................................ 8 5. OBLIGATIONS OF BIOSITE............................................................................... 8 5.1 Sales Support............................................................................... 8 5.2 Notification of Changes..................................................................... 8 5.3 Assistance.................................................................................. 8 6. CONFIDENTIALITY AND PROPRIETARY RIGHTS............................................................... 8 6.1 Confidentiality of Sales and Product Data................................................... 8 6.2 Use of Patents.............................................................................. 9 6.3 Trademarks and Trade Names.................................................................. 9 6.4 Protection of Proprietary Rights............................................................ 10 7. TERM AND TERMINATION................................................................................. 10 7.1 Term........................................................................................ 10 7.2 Termination................................................................................. 10 7.3 Rights of Parties on Termination............................................................ 11 8. CONCILIATION AND ARBITRATION......................................................................... 12 8.1 Conciliation................................................................................ 12 8.2 Arbitration................................................................................. 13 9. GENERAL PROVISIONS................................................................................... 14 9.1 Entire Agreement............................................................................ 14 9.2 Authorization............................................................................... 14
-ii- 4 9.3 Compliance of AGENCIES and Subsidiaries..................................................... 15 9.4 Notices..................................................................................... 15 9.5 Expenses of Arbitration and/or Litigation................................................... 16 9.6 Force Majeure............................................................................... 16 9.7 Titles and Headings......................................................................... 16 9.8 Assignments................................................................................. 16 9.9 Successors and Assigns...................................................................... 17 9.10 Severability................................................................................ 17 9.11 Language.................................................................................... 17 9.12 Applicable Law.............................................................................. 17 9.13 Waiver...................................................................................... 17 10. EXHIBITS
-iii- 5 DISTRIBUTORSHIP AGREEMENT THIS DISTRIBUTION AGREEMENT is made as of this 27th day of July 1992, by and between BIOSITE DIAGNOSTICS INCORPORATED, a corporation organized and existing under the laws of the State of Delaware and with its principal offices at 11030 Roselle Street, Suite D, San Diego, California 92121, U.S.A. (BIOSITE) and E. Merck, a general partnership organized and existing under the laws of The Federal Republic of Germany and with its principal offices at Frankfurter Strasse 250, D-6100 Darmstadt 1, Federal Republic of Germany (MERCK). RECITALS BIOSITE owns or controls the right to manufacture, sell and distribute its products described in Section 1.5 and desires assistance from MERCK in the promotion, sale and distribution of such products, and the parties desire to enter into this Agreement for the promotion, sale and distribution of such products upon the following terms and conditions. TERMS AND CONDITIONS NOW, THEREFORE, in consideration of their mutual covenants and agreements contained herein, and the mutual benefits to be derived therefrom, it is agreed by the parties as follows. 1. DEFINITIONS 1.1 AGREEMENT. The term "AGREEMENT" when used herein means this document and any exhibit or amendment thereto. 1.2 CONFIDENTIAL INFORMATION. The term "CONFIDENTIAL INFORMATION" when used herein shall mean technical and business information relating to the PRODUCTS and BIOSITE's business, including, where appropriate and without limitation, any information, patent disclosures, patent applications, structures, models, techniques, processes, compositions, compounds and apparatus relating to the same disclosed by BIOSITE to -1- 6 MERCK or obtained by MERCK through observation or examination of BIOSITE's information or developments, but only to the extent that such information is maintained as confidential by BIOSITE. 1.3 CUSTOMER. The term "CUSTOMER(S)" when used herein means any purchaser of PRODUCTS. 1.4 MARKET SEGMENTATION. The definitions of the MEDICAL SEGMENT and the INTERVENTION SEGMENT are included in EXHIBIT I. 1.5 PRODUCT. The term "PRODUCT(S)" when used herein means the products as described in EXHIBIT II. 1.6 TERRITORY. Subject to the provisions of EXHIBIT I, the term "TERRITORY" when used herein means the countries listed in EXHIBIT III. 1.7 AGENCIES. For the purpose of this AGREEMENT the term "AGENCIES" means all sole agents, either subsidiaries, partnerships and other entities directly or indirectly controlled by MERCK or independent distributors of Merck diagnostic products, located in the TERRITORY. 2. APPOINTMENT AND SCOPE 2.1 APPOINTMENT. Subject to the terms and conditions and for the term of this AGREEMENT, BIOSITE hereby appoints MERCK as an independent distributor of BIOSITE's PRODUCT(S) in the TERRITORY. MERCK shall be the exclusive distributor of BIOSITE's PRODUCT(S) in the TERRITORY. MERCK hereby accepts such appointment and agrees to use its best efforts to promote, market, distribute and sell BIOSITE's PRODUCTS in the TERRITORY. MERCK and its subsidiaries will refrain from seeking customers, from establishing any branch and from maintaining any distribution depot or network for the sale of the -2- 7 PRODUCTS outside of the TERRITORY. MERCK will make reasonable efforts to see that its AGENCIES do not actively sell PRODUCT(S) outside of the TERRITORY. 2.2 EXCLUSIVITY. For purposes of Section 2.1 above, the term "exclusive" means that, subject to the terms and conditions of this AGREEMENT and as long as MERCK is in full compliance with its obligations hereunder, BIOSITE shall not appoint any other agents, representatives or distributors in the TERRITORY to promote or sell PRODUCTS to CUSTOMERS in the TERRITORY. 2.3 NONCOMPETITION. Unless specifically authorized in writing by BIOSITE, MERCK shall not start selling or offering for sale, or act as sales agent for the solicitation of orders for any products that are directly competitive with any of the PRODUCTS except for instrument-based reagents sold by MERCK in the TERRITORY, as of the date hereof. MERCK will make reasonable efforts to see that its AGENCIES and subsidiaries will comply with the provisions of this Section 2.3. 2.4 INDEPENDENT PURCHASER STATUS. MERCK is an independent purchaser and seller of the PRODUCTS. MERCK shall not act as an agent or legal representative of BIOSITE, nor shall MERCK have any right or power to act for or bind BIOSITE in any respect or to pledge its credit. MERCK shall be free to resell PRODUCTS in the TERRITORY on such terms as it may, in its sole discretion, determine, including, without limitation, price, returns, credits and discounts. The detailed operations of MERCK under this AGREEMENT are subject to the sole control and management of MERCK. 2.5 PERISHABLE PRODUCTS. MERCK acknowledges that the PRODUCTS are perishable, and will manage its inventory such that products are shipped throughout the TERRITORY to the extent reasonably practicable, on a first-in-first-out basis. -3- 8 3. TERMS AND CONDITIONS OF SALE 3.1 PRICE BIOSITE will initially charge MERCK a price as specified in EXHIBIT IV for each TRIAGE 7 Panel or TRIAGE 8 Panel kit, which shall consist of 25 PRODUCT units. Prices shall be subject to change by BIOSITE on 1-year's notice to MERCK. MERCK will pay BIOSITE for purchases within 30 days from date of invoice by BIOSITE to MERCK. All payments will be in US $. The exchange rate for Deutsche Marks is 1.65 Deutsche Marks for one US $. Currency fluctuations of greater than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] % from this exchange rate will be evaluated for stabilization within 90 days of the event. If stabilization does not occur, both parties agree to discuss an adjustment of price of PRODUCTS under this Section 3.1. 3.2 TERMS OF SALES. PRODUCTS will be shipped fca airport San Diego (Incoterms 1990) (=free carrier arrival) freight and insurance paid by MERCK. BIOSITE will notify MERCK of scheduled delivery dates by written acknowledgment of MERCK's order. BIOSITE will use its reasonable commercial efforts to meet quoted delivery dates. The lead time for shipping of PRODUCTS shall be [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after receipt of MERCK's order by BIOSITE. In the event BIOSITE is able to fill orders by MERCK in less than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], BIOSITE and MERCK shall agree upon a delivery of PRODUCTS in advance. MERCK will arrange for shipping and procure insurance at MERCK's expense and will ship all PRODUCTS from BIOSITE's facility in San Diego, California to MERCK's warehouse in Darmstadt, Federal Republic of Germany, or any other location determined by MERCK. [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] will pay all taxes and charges, -4- 9 including without limitation all inspection fees and duties, applicable to the sale and transport of the PRODUCTS by MERCK in the TERRITORY. 3.3 PAYMENTS. All payments under this Agreement are to be made by MERCK to BIOSITE in US $ to BIOSITE's account in a financial institution located in the United States. 3.4 ORDERS. Prior to the AGREEMENT term and on the first day of each quarter during the AGREEMENT term MERCK will provide BIOSITE with a written forecast of MERCK's estimated purchase requirements for each quarter in the ensuing [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] month period. MERCK will be bound to purchase the forecast quantities for the first quarter of each such forecast to the end of the AGREEMENT term. In the event MERCK's orders exceed the previous forecast quantities by more than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], BIOSITE may reject to deliver those quantities in excess. 3.5 RETURNED GOODS. If PRODUCTS are not in accordance with the specifications stated in EXHIBIT II and fail to pass MERCK's quality control following the procedures as provided by BIOSITE upon arrival in Darmstadt, MERCK may either return complained PRODUCT(S) to BIOSITE or on BIOSITE's request dispose locally. In both cases all costs are to be borne by [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. Notwithstanding the foregoing, BIOSITE shall not be responsible for any PRODUCTS which fail to pass MERCK's quality control as a result of improper storage and handling during or after shipment to MERCK. 3.6 WARRANTY. a) Subject to Section 3.6 (b) below, BIOSITE warrants that the PRODUCTS will perform as stated in BIOSITE's PRODUCT(S) specifications and current PRODUCT insert (Revised January 3, 1992), included in EXHIBIT II hereof. BIOSITE's PRODUCT specifications are subject to change upon 30 days' notice to -5- 10 MERCK, during which period BIOSITE shall consult with MERCK on such changes and will consider any comments MERCK has with regard to such changes, provided, however, that BIOSITE's PRODUCT will perform substantially as described in the specifications and PRODUCT insert included in EXHIBIT II. b) Other than as set forth in Section 3.6 (a) above, BIOSITE makes no express or implied warranty of merchantability, fitness for a particular purpose, against infringement of any trademarks, copyrights or other proprietary rights now or hereafter existing. c) BIOSITE warrants that to the best of its knowledge that there is no third party's patent right which could hinder MERCK exercising its rights under this agreement, in particular by distributing and selling the PRODUCTS in the Territory. BIOSITE warrants to defend and save harmless MERCK against any suit, damage claim or demand based on actual or alleged infringement of any patent of any third party in any country resulting from the breach of the warranty set forth in the preceding sentence and relating to the purchase of PRODUCT(S) from BIOSITE and/or from the sale of PRODUCT(S) by MERCK. d) MERCK will distribute PRODUCT(S) labeled by BIOSITE in the TERRITORY so as to include all warnings and instructions necessary for the proper use of the PRODUCT(S) and will not extend any other product warranty, express or implied, other than the warranty included in Sections 3.6 (a) to (c) above. 4. COVENANTS OF MERCK 4.1 SALES PROMOTION. MERCK shall use its best efforts to promote the sale and use of the PRODUCTS by all existing and potential CUSTOMERS in the TERRITORY. MERCK will agree to provide complete training of MERCK's or AGENCIES' sales representatives in the use of the PRODUCTS. -6- 11 4.2 EXPENSES. MERCK shall be responsible for all of its own expenses and employees. MERCK agrees that it shall incur no expense chargeable to BIOSITE, except as may be specifically authorized in advance in writing in each case by BIOSITE. 4.3 PROMOTIONAL MATERIALS; PACKAGE INSERTS. MERCK shall ensure that all advertising, promotional literature, packaging and package inserts comply with applicable laws and regulations. MERCK shall not use any advertising or promotional materials to promote the PRODUCTS or any packaging or package inserts that have not been approved by BIOSITE, which approval shall not be unreasonably withheld. MERCK shall prepare necessary translations of BIOSITE's sales literature, package inserts and labeling. 4.4 IMPORT LICENSES, EXCHANGE CONTROLS, AND OTHER GOVERNMENTAL APPROVALS, COMPLIANCE. a) MERCK shall, at its own expense: (i) obtain any registration, license, permit, governmental approval (collectively, "registration") that may be necessary to permit the purchase, distribution and resale by MERCK of PRODUCTS in each country in the TERRITORY; (ii) comply with all registration requirements for each country in the TERRITORY; (iii) comply with any and all governmental laws, regulations, and orders that may be applicable to MERCK by reason of its execution of this AGREEMENT including without limitation any requirement to be registered as BIOSITE's independent distributor with any governmental authority, and including any and all laws, regulations, or orders that govern or affect the ordering, export, shipment, import, sale (including government procurement), delivery, or redelivery of PRODUCTS in the TERRITORY. MERCK agrees that it shall not engage in any course of conduct that, in BIOSITE's reasonable belief, would cause BIOSITE to be in violation of the laws of any jurisdiction. b) BIOSITE shall perform all necessary measurements and provide every delivered pipette with a certificate of conformity in accordance with German governmental regulations (MEASURING LAW = EICHGESETZ). Subject to latter regulations, BIOSITE shall furnish the pipette with a stylized "H". (conformatory mark) -7- 12 c) All registrations will be made in the name of MERCK and shall remain the property of MERCK during the term of this AGREEMENT. BIOSITE shall be provided with a copy of all registrations and applications. d) In case of termination of this AGREEMENT BIOSITE may, at its option, take over the above mentioned registrations or, where necessary, obtain registration under BIOSITE's name at its own cost. In the event of any such termination of this AGREEMENT, MERCK agrees to continue distribution of PRODUCT(S) on the same terms and conditions in effect on the date of termination until BIOSITE (or BIOSITE's agent) is able to obtain any required registration for distribution of the PRODUCT(S) in the TERRITORY; provided, however, that the indemnification provisions set forth in Section 4.8 below will continue during such period. Upon any such termination, MERCK shall assign to BIOSITE and will use its best efforts to assist BIOSITE in the transfer to or obtaining of any such registration documents in the name of BIOSITE (or BIOSITE's agent) in a quick and efficient manner. 4.5 LOCAL LAWS AND REGULATIONS. MERCK shall notify BIOSITE of the existence and content of any mandatory provision of law in each country in the TERRITORY or any other applicable law that conflicts with any provision of this AGREEMENT at the time of its execution or thereafter. MERCK agrees to advise BIOSITE fully with respect to all regulations, labeling laws, standards, specifications and other requirements imposed by law, regulation or order in any country in the TERRITORY and applicable to the PRODUCTS. MERCK agrees to promptly inform BIOSITE should, in its opinion, any amendment or additional agreement be required or be advisable in order to comply with the laws of any country in the TERRITORY, or any subdivision thereof. 4.6 PRODUCT CONTROL. Each PRODUCT shipped by BIOSITE will contain numbers identifying manufacturing lot, expiry date for control purposes, and lot-specific quality control report. -8- 13 4.7 [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] REPORTS. MERCK WILL PROVIDE BIOSITE WITH [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] REPORTS WITHIN [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] OF THE END OF EACH [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. THE [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] REPORTS SHALL SUMMARIZE PRODUCT SALES DURING THE PRECEDING [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] FOR THE COUNTRIES IN THE TERRITORY. 4.8 INDEMNIFICATION. BIOSITE and MERCK mutually agree to indemnify each other and mutually hold the other party and its officers, directors and agents harmless against all losses, damages, or expenses of any form or nature, including attorneys' fees and other costs of legal defense that they, or any of them, may incur as a result of any acts or omissions of the other party or any of its employees or agents, including but not limited to: a) breach of any of the provisions of this AGREEMENT b) negligence or other tortious conduct; c) representations or statements not specifically authorized by BIOSITE or MERCK herein or otherwise in writing; or d) violation by BIOSITE or MERCK (or any of their employees or agents) of, or failure to adhere to, any applicable law, regulation or order in any country in the TERRITORY or of the United States. The provisions of this Section 4.8 shall survive the termination of this AGREEMENT. -9- 14 4.9 PRODUCTS LIABILITY INSURANCE BIOSITE and MERCK shall maintain products liability insurance for the PRODUCTS covering products liability which might arise from the development and manufacture of the PRODUCTS and the distribution, sale or use of the PRODUCTS in the TERRITORY. 5. OBLIGATIONS OF BIOSITE 5.1 SALES SUPPORT. BIOSITE shall provide MERCK regularly with literature on PRODUCTS and technical information relating to the PRODUCTS and their proper use. Unless otherwise expressly agreed by BIOSITE, all such information and materials will be furnished in the English language and [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] for MERCK. 5.2 NOTIFICATION OF CHANGES. BIOSITE shall notify MERCK of any changes in or affecting the PRODUCTS or prices, terms and conditions of sale, sales policies, projected delivery dates, and other matters that BIOSITE determines may affect the business of MERCK. 5.3 ASSISTANCE. BIOSITE shall provide MERCK with reasonable access to and assistance of its technical, sales, and service personnel in San Diego, California as BIOSITE deems appropriate. Such assistance shall be [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] to MERCK except as may be otherwise mutually agreed. 6. CONFIDENTIALITY AND PROPRIETARY RIGHTS 6.1 CONFIDENTIALITY OF SALES AND PRODUCT DATA. MERCK shall hold in strict confidence all CONFIDENTIAL INFORMATION relating to the PRODUCTS received from BIOSITE or its agents and shall not divulge the same to any other person, firm, or corporation or use such CONFIDENTIAL INFORMATION for any purpose without the prior written permission of BIOSITE, except as reasonably required to perform its -10- 15 obligations under this AGREEMENT; provided, however, MERCK shall have no liability to BIOSITE with respect to use, or disclosure to others not parties to this AGREEMENT, of such information as MERCK can establish by written documentation to: a) Have been publicly known prior to the disclosure of such information to MERCK; b) Have become publicly known, without fault on the part of MERCK, subsequent to disclosure by BIOSITE of such information to MERCK; c) Have been otherwise known by MERCK prior to communication by BIOSITE to MERCK of such information; or d) Have been received by MERCK at any time from a source other than BIOSITE lawfully having the right to disclose such information. MERCK agrees that any disclosure of the CONFIDENTIAL INFORMATION within MERCK will only be such as is reasonably necessary and will only be to employees of MERCK who are bound by written agreements with MERCK to maintain the CONFIDENTIAL INFORMATION in confidence. The obligation of MERCK under this Section 6.1 shall survive termination of this AGREEMENT for any reason for a period of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] years. 6.2 USE OF PATENTS. BIOSITE does not, either expressly or impliedly, grant any licenses to MERCK under any patents owned or controlled by BIOSITE or under which BIOSITE has any rights, except the right to sell and use the PRODUCTS. BIOSITE does not grant any rights to manufacture under this AGREEMENT. 6.3 TRADEMARKS AND TRADE NAMES. MERCK shall not use any of BIOSITE's trademarks, or any mark or name confusingly similar thereto, as part of its corporate or business name or in any manner, except that -11- 16 a) MERCK may identify itself as an authorized distributor of BIOSITE and b) MERCK may use BIOSITE's trademarks relating to the PRODUCTS for display purpose in connection with solicitation of orders for PRODUCTS. MERCK will not alter, remove or modify any BIOSITE trademarks, labels or markings, nor affix any other trademarks, labels or markings to the PRODUCTS without BIOSITE's consent; provided that MERCK may affix labels or other indices on PRODUCTS it distributes to identify it as the distributor of PRODUCTS so long as such labels do not cover and are not inconsistent with BIOSITE's trademarks, labels or markings. BIOSITE shall register its trademark "TRIAGE" in major countries of the TERRITORY as determined by BIOSITE. All trademark registrations will be paid by BIOSITE. No other MERCK labels, package inserts or other material shall accompany the PRODUCTS without the approval of BIOSITE. 6.4 PROTECTION OF PROPRIETARY RIGHTS. MERCK agrees to cooperate with and assist BIOSITE, at BIOSITE's expense, in the protection of trademarks, patents, or copyrights owned by or licensed to BIOSITE and shall inform BIOSITE immediately of any infringements or other improper action with respect to such trademarks, patents, or copyrights that come to the attention of MERCK. 7. TERM AND TERMINATION 7.1 TERM. Unless terminated as provided in Section 7.2 below or by mutual written consent, this AGREEMENT shall continue in full force and effect for an initial term expiring [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after the date hereof and thereafter shall be automatically renewed for successive [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] terms, unless terminated by either party by written notice to the other at least [CONFIDENTIAL MATERIAL REDACTED AND FILED -12- 17 SEPARATELY WITH THE COMMISSION] prior to the expiration of the initial or any renewal term thereof. It is understood and agreed that after the expiration of the initial or any renewal term, both BIOSITE and MERCK shall have no obligation, express or implied, to renew this AGREEMENT. 7.2 TERMINATION. This AGREEMENT may be terminated prior to expiration of the initial or any renewal term, as provided in Section 7.1 above as follows: a) By either party, in the event the other party should fail to perform any of its obligations hereunder and should fail to remedy such non-performance within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after receiving written demand therefor; b) By either party, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], if the other party should become the subject of any voluntary or involuntary bankruptcy, receivership, or other insolvency proceedings or make an assignment of all or substantially all of its assets for the benefit of its creditors, or if such other party should be nationalized or have any of its material assets expropriated; c) By BIOSITE, effective immediately, with respect to any country if any law or regulation should be adopted or in effect that would restrict BIOSITE's termination rights, prohibit performance of any obligations of BIOSITE hereunder or otherwise invalidate any provisions hereof. d) By BIOSITE, if MERCK fails to meet the minimum annual purchase quantities as specified in EXHIBIT V during each of the calendar years indicated. -13- 18 7.3 RIGHTS OF PARTIES ON TERMINATION. The following provisions shall apply on the termination or expiration of this AGREEMENT. a) MERCK shall cease all sales and other activities on behalf of BIOSITE and shall return to BIOSITE and immediately cease all use of any CONFIDENTIAL INFORMATION of BIOSITE then in MERCK's possession; provided however, that MERCK may continue to use any CONFIDENTIAL INFORMATION that falls within the proviso of Section 6.1 (a) - (c). b) Upon termination by BIOSITE after the initial term pursuant to Section 7.1 above, BIOSITE will repurchase and MERCK agrees to sell BIOSITE MERCK's inventory of BIOSITE's PRODUCTS at MERCK's purchase price as defined in Section 3.1 plus reasonable freight, insurance and duties. Upon termination by BIOSITE or MERCK pursuant to Section 7.2 above, BIOSITE may, at its option, repurchase and MERCK agrees to sell MERCK's inventory of BIOSITE's PRODUCTS at MERCK's purchase price as defined in Section 3.1 plus reasonable freight, insurance and duties. In case BIOSITE is not willing to repurchase MERCK's inventory, MERCK is allowed to sell off the remaining stock of PRODUCTS. c) MERCK shall remove from its property and immediately discontinue all use, directly or indirectly, of trademarks, designs, and markings owned or licensed exclusively by BIOSITE, or any word, title, expression, trademark, design, or marking that is confusingly similar thereto. d) Notwithstanding Section 7.3 (c), in case of termination of this AGREEMENT, MERCK and BIOSITE will negotiate in good faith the continuation of the delivery of PRODUCTS due to still effective long-term contracts with CUSTOMERS in the TERRITORY. In case of termination of this AGREEMENT, BIOSITE warrants either to -14- 19 - continue to sell PRODUCT(S) to such CUSTOMERS directly, or to - enable MERCK to continue the purchase of PRODUCTS for CUSTOMERS holding such long term contracts, on the terms and conditions provided for under this AGREEMENT. e) In accordance with Section 4.4 (d), MERCK will assist BIOSITE in obtaining any registrations necessary for BIOSITE (or BIOSITE's agent) to continue selling PRODUCTS in the TERRITORY. 7.4 SOLE REMEDY. BIOSITE's repurchase of MERCK's inventory of PRODUCTS pursuant to Section 7.3 (b), or MERCK's right to sell such inventory if not so repurchased by BIOSITE, shall constitute MERCK's sole remedy for the termination or nonrenewal of this AGREEMENT. Under no circumstances shall BIOSITE be liable to MERCK by reason of termination or nonrenewal of this AGREEMENT for compensation, reimbursement, or damages for: a) loss of prospective compensation; b) goodwill or loss thereof; or c) expenditures, investments, leases, or any type of commitment made in connection with the business of such party or in reliance on the existence of this AGREEMENT. 8. CONCILIATION AND ARBITRATION 8.1 CONCILIATION. The parties shall exercise their best efforts to settle between themselves in an amicable way any dispute, controversy or claim which may arise out of or in connection with this AGREEMENT within thirty days of notice of a dispute from the other party. -15- 20 8.2 ARBITRATION. Any dispute, controversy or claim arising out of or relating to this AGREEMENT, its negotiations, execution, interpretation, performance or termination, shall if not settled by the parties in accordance with Section 8.1 be referred to and resolved by arbitration. The arbitration shall be conducted in accordance with the American Arbitration Association Commercial Arbitration Rules in New York, NY, according to the laws of the State of New York, and as follows: a) The arbitral tribunal shall be composed of three persons each of whom shall be neutral, independent and impartial. Each party shall nominate an arbitrator, and the two arbitrators so appointed shall appoint a third, who shall act as president of the arbitral tribunal. If either party fails to nominate an arbitrator within 30 days of receiving notice of the nomination of an arbitrator by the other party, such (second) arbitrator shall be appointed at the request of the first party by the American Arbitration Association. If the two arbitrators selected by the parties fail to select a third, presiding arbitrator within 20 days of the appointment of the second arbitrator, the third arbitrator shall be appointed at the request of the first party by the American Arbitration Association. b) The arbitrators shall hold a preliminary meeting with the parties within 30 days of the appointment of the third or presiding arbitrator for the purpose of determining the issues to be decided in the arbitration, the specific procedures to be followed and the schedule for briefing and/or hearings. The arbitrators shall hold a hearing which, unless the parties otherwise agree, should be recorded by stenographic or other means. Within 120 days of the preliminary meeting (except in extraordinary cases), the arbitrators shall issue an award in writing which shall state the reasons for the award and which, except as set forth in the following sentence, shall be final and binding between the parties. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction. -16- 21 c) The parties agree that the award of the arbitrators shall be the sole and exclusive remedy between them regarding any claims, counterclaims, issues or accountings presented or pled to the arbitrators; that it shall be made and shall promptly by payable in U.S. dollars free of any tax, deduction or offset; and that any costs, fees or taxes incident to enforcing the award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement. d) The arbitrators shall render their decision in accordance with, the substantive laws of the State of New York, without regard to its choice of law rules. Notwithstanding the foregoing sentence, questions concerning arbitrability under this dispute resolution clause shall be governed exclusively by the United States Arbitration Act. The arbitrators shall be empowered to consider and decide claims or issues arising under or relating to state and Federal statutes governing business practices, but shall not be empowered to nor shall they award punitive damages. e) As part of any arbitral award rendered pursuant to this paragraph, the arbitrators shall make an award of arbitral costs and reasonable attorneys' fees to the prevailing party. 9. GENERAL PROVISIONS. 9.1 ENTIRE AGREEMENT. This AGREEMENT represents the entire AGREEMENT between the parties on the subject matter hereof and supersedes all prior discussions, agreements, and understandings of every kind and nature between them. No modification of this AGREEMENT will be effective unless in writing and signed by both parties. -17- 22 9.2 AUTHORIZATION. BIOSITE and MERCK each represent and warrant to the other that: a) all corporate action on the part of BIOSITE or MERCK, as the case may be, and their officers and directors, necessary for the authorization, execution and delivery of this AGREEMENT and the performance of all of their obligations hereunder, has been taken prior to the date hereof; b) that the officer signing this AGREEMENT below is the duly authorized representative of BIOSITE and MERCK, as the case may be; and c) that this AGREEMENT constitutes a valid and legally binding obligation of BIOSITE or MERCK, as the case may be, enforceable in accordance with its terms, except as affected by (i) bankruptcy or insolvency laws, or (ii) equitable principles. 9.3 COMPLIANCE OF AGENCIES AND SUBSIDIARIES MERCK will make reasonable effort to have its AGENCIES comply with the provisions of this AGREEMENT. 9.4 NOTICES. All notices under this AGREEMENT shall be in English and shall be in writing and given by air mail or facsimile addressed to the parties at the following addresses: -18- 23 If to BIOSITE BIOSITE Diagnostics Incorporated 11030 Roselle Street, Suite D San Diego, California 92121 United States of America Attn: Kim D. Blickenstaff, President With copy to: Thomas E. Sparks, Jr. Pillsbury Madison & Sutro 235 Montgomery St--P. O. Box 78 80 San Francisco, California 94120 United States of America -19- 24 If to MERCK: E. Merck Frankfurter Strasse 250 D - 6100 Darmstadt 1 Federal Republic of Germany Attn: Dr. Walter Bardorff, General Manager Marketing and Sales Diagnostics Division. or to such other address of which either party may advise the other in writing. Notices will be deemed given when sent. 9.5 EXPENSES OF ARBITRATION AND/OR LITIGATION. Should any party institute any action or proceeding to enforce this AGREEMENT or any provision hereof, or for damages by reason of any alleged breach of this AGREEMENT or of any provision hereof, or for a declaration of rights hereunder, the prevailing party in any such action or proceeding shall be entitled to receive from the other party all costs and expenses, including reasonable attorneys' fees, incurred by the prevailing party in connection with such action or proceeding. 9.6 FORCE MAJEURE. Each party shall be excused from any delay or failure in performance caused by reason of any occurrence or contingency beyond its reasonable control, including, but not limited to an act of God, earthquake, labor disputes, riots, government requirements, regulatory and environmental requirements, inability to secure materials and transportation difficulties. The obligations and rights of the party so excused shall be extended on a day-to-day basis for the time period equal to the period of such excusable delay. -20- 25 9.7 TITLES AND HEADINGS. Titles and headings of sections of this AGREEMENT are for convenience of reference only and shall not affect the construction of any provision of this AGREEMENT. 9.8 ASSIGNMENTS. This AGREEMENT and the rights, duties and obligations hereunder may not be assigned by any party [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 9.9 SUCCESSORS AND ASSIGNS. This AGREEMENT and the provisions hereof shall be binding upon and inure to the benefit of each of the parties and their respective heirs, executors, administrators, successors, and permitted assigns. 9.10 SEVERABILITY. The illegality or unenforceability of any provision of this AGREEMENT shall not effect the validity and enforceability of any legal and enforceable provisions hereof. 9.11 LANGUAGE. The English language version of this AGREEMENT shall govern and control any translations of this AGREEMENT into any other language. 9.12 APPLICABLE LAW. This AGREEMENT shall be construed and enforced in accordance with the laws of the State of New York without regard to New York choice of law rules. 9.13 WAIVER. MERCK agrees that the failure of BIOSITE at any time to require performance by MERCK of any of the provisions herein shall not operate as a waiver of the right of BIOSITE to request strict performance of the same or like provisions or any other provisions hereof, at a later time. IN WITNESS WHEREOF, BIOSITE and MERCK have caused this AGREEMENT to be executed by their duly authorized employees, as of the day and year first above written. BIOSITE DIAGNOSTICS E. MERCK INCORPORATED -21- 26
by ppa i.V. /s/ Kim D. Blickenstaff /s/ Dr. Walter Bardorff /s/ Dr. Roland Zeiger ----------------------- ----------------------- --------------------- Kim D. Blickenstaff Dr. Walter Bardorff Dr. Roland Zeiger President General Manager Head of Department Marketing and Sales Marketing and Sales Diagnostics Division Clinical Chemistry and Systems Diagnostics Division (Title) (Title) (Title)
-22- 27 EXHIBIT I Notwithstanding the other provisions of this AGREEMENT, MERCK and BIOSITE agree that BIOSITE may, in consultation with MERCK, promote, market and sell PRODUCT(S) in the INTERVENTION SEGMENT in Germany directly using sales personnel of BIOSITE or any subsidiary of BIOSITE. BIOSITE shall take orders from such CUSTOMERS in the INTERVENTION SEGMENT in Germany, and shall negotiate the terms of sale for such CUSTOMERS including, without limitation, the quantity of PRODUCT(S) sold. BIOSITE will inform MERCK by fax of every order received, including: (i) customer; (ii) quantity of kits; and (iii) selling price. MERCK agrees to fill BIOSITE's orders for PRODUCT(S) in the INTERVENTION SEGMENT in Germany. MERCK will invoice the CUSTOMER and transfer the gross proceeds from such sales in the INTERVENTION SEGMENT less [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] per kit ( 25 devices) to BIOSITE on a monthly basis in U.S. dollars in accordance with the rate of exchange set forth in Section 3.1, as adjusted by agreement of MERCK and BIOSITE. MERCK and BIOSITE agree that BIOSITE shall not sell in the MEDICAL SEGMENT and that MERCK shall not sell in the INTERVENTION SEGMENT in Germany. MERCK and BIOSITE mutually agree, that Igoda S.A. (Spain) and Merck Clevenot S.A. (France) will use their best efforts to build the market and to meet the success criteria as follows: Igoda S.A. (Spain) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] (25 test devices each) minimum within the first 12 months Merck Clevenot (France) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATLEY WITH THE COMMISSION] (25 test devices each) minimum within the first 12 months In case these criteria are not met, the parties will negotiate an approach along the lines of the German model. The INTERVENTION SEGMENT comprises: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 28 EXHIBIT I continued The MEDICAL SEGMENT comprises: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 29 EXHIBIT II [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 30 EXHIBIT III (Territory) COUNTRIES: Europe: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] East Europe: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] Middle East: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] North Africa: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] Republic of South Africa Pakistan, India 31 EXHIBIT IV (Price) BIOSITE and MERCK agree to following transfer prices for the PRODUCTS as defined in EXHIBIT II fca airport San Diego, CA. These prices are valid from the date of signature of this AGREEMENT, subject to Section 3.1. TRIAGE(R) 7: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]per test kit (25 test devices) including packaging and labeling. TRIAGE(R) 8: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] per test kit (25 test devices) including packaging and labeling. 32 EXHIBIT V BIOSITE and MERCK mutually agree on the following minimum quantities of test devices to be purchased by MERCK from BIOSITE in the calendar year indicated including those being sold directly by BIOSITE to CUSTOMERS in the TERRITORY, as defined in EXHIBIT I. 1. Calendar year 1993: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 2. Calendar year 1994: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 3. Calendar year 1995: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 4. Calendar year 1996: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 5. Calendar year 1997: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] Calendar year 1996 and 1997 quantities are non-binding forecasts and will be renegotiated at the end of calendar year 1995 but in any case the quantities for 1996 and 1997 should be no less than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the actual purchases of the previous calendar year. 33 FIRST AMENDMENT TO THE DISTRIBUTORSHIP AGREEMENT between E. Merck, Frankfurter Strasse 250, 6100 Darmstadt, Federal Republic of Germany - hereinafter called MERCK - and BIOSITE DIAGNOSTICS INCORPORATED, 11030 Roselle Street, Suite D, San Diego, CA 92121, United States of America - hereinafter called BIOSITE - PREAMBLE WHEREAS, both parties have concluded a Distributorship Agreement on July 27, 1992; WHEREAS, due to a change in the distribution policy of BIOSITE, MERCK shall also be the exclusive distributor of BIOSITE in the Federal Republic of Germany and Latin America; NOW, THEREFORE, in consideration of the premises and of the mutual promises of the parties hereinafter set forth, the parties agree to the following changes of the Distributorship Agreement: Section 1 Section 1.4 will be deleted. Section 2 Section 1.6 will read: The term "TERRITORY" when used herein means the countries listed in Exhibit III. Section 3 EXHIBIT I will be deleted. Section 4 The following additional countries will be added to Exhibit III Latin America: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] -1- 34 Section 5 Exhibit IV (Price) will be amended the following way: BIOSITE and MERCK agree to the following transfer prices for the PRODUCTS purchased and distributed in Latin America by Latin American affiliates of MERCK: Triage(R) 7: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] for each 25 cassette kit and [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] for each 10 cassette kit Triage(R) 8: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] for each 25 cassette kit and [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] for each 10 cassette kit BIOSITE will be responsible for remitting a commission to MERCK (Darmstadt) of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] per 25 cassette kit and [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] per 10 cassette kit purchased by Latin American affiliates of MERCK by August 15 for purchases during the period January 1 through June 30 and by February 15 for purchases during the period July 1 through December 31 during the term of this agreement. Payment of the commission may be in the form of cash, credit note, or no-charge kits shipped to MERCK (Darmstadt), at the discretion of BIOSITE. Section 6 EXHIBIT V will be changed and amended the following way: 1. BIOSITE and MERCK mutually agree on the following minimum quantities of test devices to be purchased by MERCK from BIOSITE in the calendar year indicated: 1. Calendar year 1993: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 2. Calendar year 1994: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 3. Calendar year 1995: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 4. Calendar year 1996: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 5. Calendar year 1997: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] Calendar year 1996 and 1997 quantities are non-binding forecasts and will be renegotiated at the end of calendar year 1995 but in any case the quantities for 1996 and 1997 -2- 35 should be no less than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the actual purchases of the previous calendar year. 2. MERCK and BIOSITE mutually agree that Igoda S.A. (Spain) and Merck Clevenot S.A. (France) will use their best efforts to build the market and to meet the success criteria as follows: Igoda S.A. (Spain) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] test kits (25 test devices each) minimum within the first 12 months Merck Clevenot (France) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] test kits (25 test devices each) minimum within the first 12 months If MERCK fails to meet said success criteria for Igoda S.A. (Spain) and Merck Clevenot S.A. (France) the parties will negotiate an amendment to the Distributorship Agreement. Darmstadt, 10 November San Diego, /s/ Kim Blickenstaff --------------------- MERCK Biosite Diagnostics Incorporated ppa i.V. /s/ Dr. Bardorff /s/ Dr. Reckman ---------------- --------------- Dr. Bardorff Dr. Reckmann Mr. Blickenstaff -3- 36 SECOND AMENDMENT TO THE DISTRIBUTORSHIP AGREEMENT between E. Merck, Frankfurter Strasse 250, 64271 Darmstadt, Federal Republic of Germany - - hereinafter called MERCK - and BIOSITE DIAGNOSTICS INCORPORATED, 11030 Roselle Street, Suite D, San Diego, CA 92121, United States of America - hereinafter called BIOSITE PREAMBLE WHEREAS, both parties have concluded a Distributorship Agreement on July 27, 1992; WHEREAS, BIOSITE and MERCK have agreed to a reduction of the transfer prices for the PRODUCTS as defined in EXHIBIT II; NOW, THEREFORE, in consideration of the premises and of the mutual promises of the parties hereinafter set forth, the parties agree to the following changes of the Distributorship Agreement: Section 1 EXHIBIT IV (Price) will be amended the following way: BIOSITE and MERCK agree to the following transfer prices for the PRODUCTS as defined in EXHIBIT II fca airport San Diego, CA. These prices are valid from January 1, 1994 for [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. Triage(R) 6: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] US$ per 25-test kit and [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] US$ per 10-test kit including packaging and labeling. Triage(R) 7: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] US$ per 25-test kit and [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] US$ per 10-test kit including packaging and labeling. Section 2 EXHIBIT V will be amended the following way: -1- 37 The 1994 minimum quantity of test cassettes to be purchased by MERCK and its affiliates will be [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] cassettes. The transfer price and the minimum purchase quantities for 1995 through 1997 [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. Darmstadt, 12 January 1994 MERCK Biosite Diagnostics ppa i.V. Incorporated /s/ Dr. Bardorff /s/ Dr. Reckman /s/ Kim D. Blickenstaff ---------------- --------------- ----------------------- Dr. Bardorff Dr. Reckmann Mr. Blickenstaff -2- EX-10.14 8 EXHIBIT 10.14 1 EXHIBIT 10.14 [CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION] COLLABORATIVE DEVELOPMENT AGREEMENT THIS COLLABORATIVE DEVELOPMENT AGREEMENT dated as of June 28, 1994 (the "Agreement"), is entered into between BIOSITE DIAGNOSTICS INCORPORATED, a Delaware corporation ("Biosite"), having a place of business located at 11030 Roselle Street, Suite D, San Diego, California 92121, U.S.A., and E. MERCK, a German general partnership ("Merck"), having a place of business located at Frankfurter Strasse 250, D-64293 Darmstadt, Germany. W I T N E S S E T H : WHEREAS, Biosite owns or has rights to certain significant technology which may be used in the development of reagents and a test device for use with a test device reader to form a system to quantitatively measure analytes in the immunoassay field. WHEREAS, Merck owns or has valuable knowledge relating to certain significant technology which may be used in the development of reagents and a test device for use with a test device reader to form a system to quantitatively measure analytes in the immunoassay field. WHEREAS, Biosite and Merck desire to collaborate in the development of a hand held rapid in vitro immunoassay system, consisting of reagents, a testing device and a reader, designed to quantitatively measure multiple cardiac analytes released from damaged cardiac tissue for use in the diagnosis and monitoring of myocardial infarction in humans, and if the parties mutually agree, to quantitatively measure certain other analytes for use in certain other fields. WHEREAS, Biosite desires to manufacture the reagents and test devices, and to engage a third party to develop and supply the test device reader, for use in connection with such immunoassay system. WHEREAS, Biosite desires to market and distribute such immunoassay system in the United States of America and Canada, to appoint Merck as its exclusive distributor in Europe, Latin America and South Africa, and to retain the exclusive distribution rights in Japan and the rest of the world. 2 NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the parties hereby agree as follows: ARTICLE 1 DEFINITIONS For purposes of the Agreement, the terms defined in this Article 1 shall have the respective meanings set forth below: 1.1 "Affiliate" shall mean, with respect to any Person, any other Person which directly or indirectly controls, is controlled by, or is under common control with, such Person. A Person shall be regarded as in control of another Person if it owns, or directly or indirectly controls, at least forty percent (40%) of the voting stock or other ownership interest of the other Person, or if it directly or indirectly possesses the power to direct or cause the direction of the management and policies of the other Person by any means whatsoever. 1.2 "Commencement Date" shall mean July 1, 1994. 1.3 "Development Program" shall mean the development program, described generally in the summary work plan set forth in Exhibit A, as revised from time to time as provided in the Agreement. 1.4 "Europe" shall mean, collectively, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 1.5 "Field" shall mean the quantitative measurement of multiple cardiac analytes released from damaged cardiac tissue, including CKMB, Troponin I and Myoglobin, for use in the diagnosis and monitoring of myocardial infarction in humans. 1.6 "Know-How" shall mean all information and data, which is not generally known, including formulae, procedures, protocols, techniques and results of experimentation and testing, which are necessary or useful to make, use, develop, sell or seek regulatory approval in any country to market the Product for use in the Field, in which Biosite or Merck has an ownership interest and which is in the possession of Biosite or Merck on the date of the Agreement or thereafter during the term of the Agreement. 1.7 "Latin America" shall mean, collectively, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 1.8 "LRE" shall mean LRE Relais+Elektronik GmbH, a German limited liability company. 1.9 "Patent Rights" shall mean (a) all patent applications heretofore or hereafter filed or having legal force in any country -2- 3 owned by or licensed to Biosite or Merck or to which Biosite or Merck otherwise acquires rights, which claim the Product, any Product Component, or the process of manufacture or use of the Product or any Product Component for use in the Field, together with any and all patents that have issued or in the future issue therefrom, including utility model and design patents and certificates of invention; and (b) all divisionals, continuations, continuations-in-part, reissues, renewals, extensions or additions to any such patents and patent applications; all to the extent and only to the extent that Biosite or Merck now has or hereafter will have the right to grant licenses, immunities or other rights thereunder. 1.10 "Person" shall mean an individual, corporation, partnership, trust, business trust, association, joint stock company, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein. 1.11 "Product" shall mean the hand held rapid in vitro immunoassay system, consisting of reagents, a testing device and a reader, developed under the Development Program. 1.12 "Product Components" shall mean, collectively, the Reader, the Reagents and the Testing Device as defined below: 1.12.1 "Reader" shall mean that certain testing device reader, developed under the Reader Development and Supply Agreement, constituting a component of the Product. 1.12.2 "Reagents" shall mean those certain reagents, developed under the Development Program, constituting a component of the Product. 1.12.3 "Testing Device" shall mean that certain testing device, developed under the Development Program, containing the Reagents and constituting a component of the Product. 1.13 "Reader Development and Supply Agreement" shall mean that certain Development and Supply Agreement regarding the development of the Reader to be entered into between Biosite and LRE, as amended, supplemented or restated from time to time. 1.14 "South Africa" shall mean the Republic of South Africa. 1.15 "Steering Committee" shall mean the joint development committee composed of representatives of Biosite and Merck described in Section 4.1 below. 1.16 "Supply and Distribution Agreement" shall mean that certain Supply and Distribution Agreement dated as of even date, between Biosite and Merck, in the form attached hereto as Exhibit B, as amended, supplemented or restated from time to time. -3- 4 1.17 "Third Party" shall mean any Person other than Biosite, Merck and their respective Affiliates. ARTICLE 2 REPRESENTATIONS AND WARRANTIES Each party hereby represents and warrants to the other party as follows: 2.1 Existence and Power. Such party (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized; (b) has the requisite power and authority and the legal right to own and operate its property and assets, to lease the property and assets it operates under lease, and to carry on its business as it is now being conducted and (c) is in compliance with all requirements of applicable law, except to the extent that any noncompliance would not have a material adverse effect on the properties, business, financial or other condition of such party and would not materially adversely affect such party's ability to perform its obligations under the Agreement. 2.2 Authorization and Enforcement of Obligations. Such party (a) has the requisite power and authority and the legal right to enter into the Agreement and to perform its obligations hereunder and (b) has taken all necessary corporate action on its part to authorize the execution and delivery of the Agreement and the performance of its obligations hereunder. The Agreement has been duly executed and delivered on behalf of such party, and constitutes a legal, valid, binding obligation, enforceable against such party in accordance with its terms. 2.3 Consents. All necessary consents, approvals and authorizations of all governmental authorities and other Persons required to be obtained by such party in connection with the Agreement have been obtained. 2.4 No Conflict. The execution and delivery of the Agreement and the performance of such party's obligations hereunder do not conflict with or violate any requirement of applicable laws or regulations. 2.5 DISCLAIMER OF WARRANTIES. NOTHING IN THE AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION MADE, OR WARRANTY GIVEN, BY EITHER PARTY THAT ANY PATENT WILL ISSUE BASED UPON ANY PENDING PATENT APPLICATION WITHIN THE PATENT RIGHTS, THAT ANY PATENT WITHIN THE PATENT RIGHTS WHICH ISSUES WILL BE VALID, OR THAT THE USE OF ANY LICENSE GRANTED HEREUNDER OR THAT THE USE OF ANY PATENT RIGHTS WILL NOT INFRINGE THE PATENT OR PROPRIETARY RIGHTS OF ANY OTHER PERSON. FURTHERMORE, NEITHER PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE PATENT RIGHTS, THE PRODUCT OR THE PRODUCT COMPONENTS, -4- 5 INCLUDING ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. ARTICLE 3 DEVELOPMENT PROGRAM 3.1 Development Activities. 3.1.1 Scope of Development Program. Biosite and Merck shall conduct the Development Program to develop, conduct all clinical testing and apply for regulatory approval to market the Product for use in the Field in the United States of America, Canada, Europe, Latin America and South Africa. Biosite shall have the exclusive right to develop and commercialize the Product for use in the Field in Japan and the rest of the world and to develop and commercialize the Product for use outside the Field. Notwithstanding the foregoing, if the parties mutually agree during the term of the Development Program, they shall negotiate in good faith mutually acceptable agreements, on terms and conditions substantially similar to those of the Agreement and the Supply and Distribution Agreement, to develop and commercialize a disposable in vitro immunoassay test device in combination with a hand held reader, for use in either or both of the following fields: [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 3.1.2 Development Responsibilities. Biosite and Merck shall conduct the Development Program under the direction of the Steering Committee. Biosite shall be responsible for the design, development and manufacturing scale-up of the Reagents and the Testing Device, the clinical trials and regulatory approval of the Product for use in the Field in the United States of America and Canada. Merck shall be responsible for the clinical trials and regulatory approval of the Product for use in the Field in the countries of Europe and Latin America and in South Africa. Biosite shall be responsible for the clinical trials and regulatory approval of the Product for use in the Field in Japan and the rest of the world. Pursuant to the Reader Development and Supply Agreement, LRE shall be responsible for the design and development of the Reader. Biosite and Merck shall cooperate with LRE in the design and development of the Reader. 3.1.3 Conduct of Development. Biosite and Merck each shall conduct the Development Program in good scientific manner, and in compliance in all material respects with all requirements of applicable laws and regulations and all applicable good laboratory, clinical and manufacturing practices to attempt to achieve its objectives efficiently and expeditiously. Biosite and Merck each shall proceed diligently with the work set out in the Development Program by using their respective good faith efforts to provide, among others, the following resources: -5- 6 (a) allocation of sufficient time, effort, equipment and facilities to the Development Program to carry out its obligations under the Development Program and to accomplish the objectives thereof; and (b) use of personnel with sufficient skills and experience as are required to carry out its obligations under the Development Program and to accomplish the objectives thereof. 3.1.4 Subcontracts. Biosite and Merck each may subcontract portions of the Development Program to be performed by it in the normal course of its business without the prior consent of the other; provided, however, that (a) such subcontracting shall not involve the transfer of Know-How of the other party to Third Parties; (b) the subcontracted party shall enter into a confidentiality agreement with the subcontracting party in accordance with Article 7 below; (c) the subcontracting party shall supervise such subcontract work; and (d) the subcontracted party shall be in compliance in all material respects with all requirements of applicable laws and regulations, together with all applicable good laboratory, clinical and manufacturing practices. 3.2 Development Funding. 3.2.1 Jointly Funded Development Costs. (a) The Jointly Funded Development Costs, as defined below, shall be shared sixty percent (60%) by Biosite and forty percent (40%) by Merck. The "Jointly Funded Development Costs" shall mean (i) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of those costs incurred by Biosite or Merck under the Development Program for the design, development and manufacturing scale-up of the Reagents, the design, development and manufacturing scale-up of the Testing Device; (ii) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the costs, not to exceed [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], incurred by Biosite for the clinical trials and regulatory approval of the Product for use in the Field in the United States of America; (iii) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the costs, not to exceed [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] in the aggregate, incurred by Merck for the clinical trials and regulatory approval of the Product for use in the Field in Europe, Latin America and South Africa; and (iv) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of those costs paid by Biosite to LRE to fund the development of the Reader under the Reader Development and Supply Agreement. The parties currently estimate that the Jointly Funded Development Costs shall be approximately [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. (b) Merck shall fund its share of the Jointly Funded Development Costs (i) by paying Biosite the sum of US$660,000 on -6- 7 or before June 30, 1994, and the additional sum of US$660,000 on or before June 30, 1995, and (ii) by directly funding those certain costs of the clinical trials and regulatory approval of the Product for use in the Field in Europe, Latin America and South Africa as set forth in Section 3.2.1(a)(iii) above. (c) Biosite shall fund its share of the Jointly Funded Development Costs, and shall apply the funding received from Merck under the Agreement, for the principal purpose of carrying out its obligations under the Development Program and accomplishing the objectives thereof. (d) If, during the term of the Development Program, Biosite enters into an agreement with one or more Third Parties to develop and commercialize the Product for use in the Field in Japan, Merck's obligation to fund its share of the Jointly Funded Development Costs shall be reduced by an amount equal to the following percentage of the following payments, if any, received by Biosite from such one or more Third Parties in consideration for the rights to develop and commercialize the Product for use in the Field in Japan: (i) forty percent (40%) of any up-front licensing or marketing rights fees, (ii) forty percent (40%) of any funding for the development of the Reagents and the Test Device, and (iii) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of any funding for the development of the Reader. (e) Each party shall maintain complete and accurate records of the Jointly Funded Development Costs which it incurs. Within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] and [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] during the term of the Development Program, and within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after the termination or expiration of the Development Program, Biosite and Merck each shall prepare and provide the other party with a written report, in reasonably specific detail, showing the Jointly Funded Development Costs which it incurred during the applicable reporting period and during the Development Program through the end of such period. Upon the written request of a party (the "Requesting Party"), and not more than once in each calendar year, the other party shall permit an independent certified public accounting firm of internationally recognized standing, selected by the Requesting Party and reasonably acceptable to the other party, at the Requesting Party's expense, to have access during normal business hours to such of the records of the other party as may be reasonably necessary to verify the accuracy of such reports hereunder for any year ending not more than twenty four (24) months prior to the date of such request. The accounting firm shall disclose to the Requesting Party only whether the records are correct or not and the specific details concerning any discrepancies. No other information shall be shared. The Requesting Party shall treat all financial information subject to review -7- 8 under this Section 3.2.1(e) as confidential, and shall cause its accounting firm to retain all such financial information in confidence. (f) From time to time during the Development Program, if necessary, Biosite and Merck each shall prepare and provide the Steering Committee and the other party with a revised budget of the Jointly Funded Development Costs incurred or to be incurred by such party. The Steering Committee shall consider in good faith, and shall approve, such revised budget and schedule of funding by Biosite and Merck consistent with the provisions of this Section 3.2.1 and as reasonably necessary to fund the anticipated Jointly Funded Development Costs as they are incurred. (g) Within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after the expiration or termination of the Development Program, Biosite and Merck shall meet and make a final adjustment of the Jointly Funded Development Costs paid by each party consistent with the provisions of this Section 3.2.1. 3.2.2 Independently Funded Development Costs. Merck shall be solely responsible for funding [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the costs, in excess of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] in the aggregate, of clinical trials and regulatory approval of the Product for use in the Field in Europe, Latin America and South Africa. Biosite shall be solely responsible for funding (a) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of those costs paid by Biosite to LRE to fund the development of the Reader under the Reader Development and Supply Agreement, (b) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the costs, in excess of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] in the aggregate, of the clinical trials and regulatory approval of the Product for use in the Field in the United States, and (c) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the costs of the clinical trials and regulatory approval of the Product for use in the Field in the rest of the world other than the United States, Europe, Latin America and South Africa. 3.2.3 Third Party License Fees. If Biosite or Merck is obligated to pay any amounts to one or more Third Parties in consideration for the license or other rights to any Third Party Patent Rights or Know-How, other than amounts calculated on the basis of sales of Products, such amounts shall be shared [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] by Biosite and [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] by Merck. 3.3 Development Records and Reports. -8- 9 3.3.1 Records. Biosite and Merck each shall maintain records, in sufficient detail and in good scientific manner appropriate for patent purposes, which shall be complete and accurate and shall fully and properly reflect all work done and results achieved in the performance of the Development Program (including all data in the form required under all applicable laws and regulations). 3.3.2 Inspection of Records. Biosite and Merck each shall have the right, during normal business hours and upon reasonable notice, to inspect and copy all such records of the other party to the extent reasonably required for the performance of its obligations under the Agreement (with the party owning the records determining what is reasonably required). Each party shall maintain such records and the information of the other party contained therein in confidence in accordance with Section 7.1 below and shall not use such records or information except to the extent otherwise permitted by the Agreement. 3.3.3 Development Reports. Biosite and Merck each shall keep the other informed of the progress of such party under the Development Program. Within thirty (30) days following the end of each calendar quarter during the term of the Development Program and within thirty (30) days following the expiration or termination of the Development Program, Biosite and Merck each shall prepare, and provide to each member of the Steering Committee and the other party, a reasonably detailed written summary report which shall describe the work performed by such party to date under the Development Program. 3.4 Term of Development Program. Except as provided herein, the term of the Development Program shall commence on the Commencement Date and continue for a period of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] thereafter. 3.5 Project Leaders. Biosite and Merck each shall appoint a person (a "Project Leader") to coordinate its part of the Development Program. The Project Leaders shall be the primary contacts between the parties with respect to the Development Program. Each party shall notify the other within thirty (30) days after the date of the Agreement of the appointment of its Project Leader and shall notify the other party as soon practicable upon changing this appointment. 3.6 Availability of Employees. Each party shall make its employees and relevant reports of non-employee consultants available, upon reasonable notice during normal business hours, at their respective places of employment to consult with the other party on issues arising during the Development Program and in connection with any request from any regulatory agency, including regulatory, scientific, technical and clinical testing issues. -9- 10 3.7 Visit of Facilities. Representatives of Biosite and Merck may, upon reasonable notice during normal business hours, (a) visit the facilities where the Development Program is being conducted and the facilities where the other party manufactures the Product or Product Components, and (b) consult informally, during such visits and by telephone, with personnel of the other party performing work on the Development Program. On such visits an employee of the party conducting the development shall accompany the employee(s) of the visiting party. If requested by the other party, Biosite and Merck shall cause appropriate individuals working on the Development Program to be available for meetings at the location of the facilities where such individuals are employed at times reasonably convenient to the party responding to such request. 3.8 Exclusivity. During the term of the Development Program, neither Biosite nor Merck shall perform, for itself or with any Affiliate or Third Party, any research, development or commercialization activities regarding a disposable in vitro immunoassay test device and a hand held reader for use in the Field without the prior written consent of the other party, unless specifically permitted under the Agreement. ARTICLE 4 MANAGEMENT OF THE DEVELOPMENT PROGRAM 4.1 Steering Committee. 4.1.1 Composition. The Development Program shall be conducted under the direction of the Steering Committee comprised of two (2) named representatives of Biosite and two (2) named representatives of Merck. Each party shall appoint its respective representatives to the Steering Committee from time to time, and may substitute one or more of its representatives, in its sole discretion, effective upon notice to the other party of such change. 4.1.2 Responsibilities. The Steering Committee shall be responsible for directing the conduct of the Development Program, including the design, development, clinical testing and application for regulatory approval in the United States of America, Canada, Europe, Latin America and South Africa. The Steering Committee (a) shall review the respective activities of the parties under the Development Program in relation to the objectives thereof, set priorities therefor and allocate responsibilities thereunder, (b) shall oversee any anticipated and actual regulatory filings regarding the Product for use in the Field, (c) shall consider and approve modifications to the Development Program and the budget therefor, and (d) consider whether to terminate the Development Program and, if necessary, make recommendations to the parties regarding termination. -10- 11 4.1.3 Meetings. The Steering Committee shall meet not less than once every six (6) months during the term of the Development Program, on such dates and at such times and places as agreed to by Biosite and Merck, alternating between San Diego and Darmstadt, or such other locations as the parties shall agree. Each party shall be responsible for its own costs of attending such meetings. 4.1.4 Committee Actions. Any approval, determination or other action agreed to by all of the members of the Steering Committee or their deputies present at the relevant Steering Committee meeting shall be the approval, determination or other action of the Steering Committee; provided, however, that both representatives of each party are present at such meeting. 4.2 Disagreements. All disagreements within the Steering Committee shall be resolved in the following manner: 4.2.1 The representatives of the Steering Committee promptly shall present the disagreement to the executive of each of Biosite and Merck who has the principal responsibility for such party's work under the Agreement. 4.2.2 Such executives shall meet to discuss each party's view and to explain the basis for their respective positions of such disagreement, and in good faith shall attempt to resolve such disagreement among themselves. 4.2.3 If such executives cannot promptly resolve such disagreement, then such executives shall establish a mechanism to resolve such agreement promptly; provided, however, that the parties do not waive any rights which they may have under the Agreement or otherwise as a result of one party's settlement of a disagreement under this Section 4.2.3. 4.3 Steering Committee Reports. Within thirty (30) days following each Steering Committee meeting during the term of the Agreement, the Steering Committee shall prepare and provide to each party a reasonably detailed written summary report which shall (a) describe the work performed to date under the Development Program, (b) evaluate the work performed in relation to the objectives of the Development Program, and (c) state any recommendations or determinations of the Steering Committee regarding the Development Program. ARTICLE 5 SUPPLY AND DISTRIBUTION Biosite shall have the exclusive right to distribute the Product for use in the Field in the United States of America and Canada. On the terms and subject to the conditions of the Supply and Distribution Agreement and the Reader Development and Supply -11- 12 Agreement, Biosite shall appoint Merck as its exclusive distributor of the Product for use in the Field in Europe, Latin America and South Africa. Biosite shall have the exclusive right to distribute the Product for use in the Field in Japan and the rest of the world. ARTICLE 6 LICENSES 6.1 Biosite Technology. On the terms and subject to the conditions of the Agreement, Biosite hereby grants to Merck an exclusive license (or in the case of licensed Third Party Patent Rights and Know-How, when permissible, an exclusive sublicense) under Biosite's Patent Rights and Biosite's Know-How, to perform its obligations under the Development Program. Merck may not grant sublicenses under such license to any Affiliate or Third Party without the prior written consent of Biosite. 6.2 Merck Technology. On the terms and subject to the conditions of the Agreement, Merck hereby grants to Biosite an exclusive license (or in the case of licensed Third Party Patent Rights and Know-How, when permissible, an exclusive sublicense) under Merck's Patent Rights and Merck's Know-How, to perform its obligations under the Development Program, and to make, have made, use and sell the Product. Biosite may not grant sublicenses under such license to any Affiliate or Third Party without the prior written consent of Merck. ARTICLE 7 CONFIDENTIALITY AND PUBLICATION 7.1 Confidential Information. During the term of the Agreement, and for a period of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] following the expiration or earlier termination hereof, each party shall maintain in confidence all information (including samples) disclosed by the other party and identified as, or acknowledged to be, confidential (the "Confidential Information"), and shall not use, disclose or grant the use of the Confidential Information except on a need-to- know basis to those directors, officers, employees, consultants, clinical investigators, contractors, permitted sublicensees or permitted assignees, to the extent such disclosure is reasonably necessary in connection with such party's activities as expressly authorized by the Agreement. To the extent that disclosure is authorized by the Agreement, prior to disclosure, each party hereto shall obtain agreement of any such person or entity to hold in confidence and not make use of the Confidential Information for any purpose other than those permitted by the Agreement. Each party shall notify the other promptly upon discovery of any -12- 13 unauthorized use or disclosure of the other party's Confidential Information. 7.2 Permitted Disclosures. The confidentiality obligations contained in Section 7.1 above shall not apply to the extent that (a) any receiving party (the "Recipient") is required (i) to disclose information by law, order or regulation of a governmental agency or a court of competent jurisdiction, or (ii) to disclose information to any governmental agency for purposes of obtaining approval to test or market a product, provided in either case that the Recipient shall provide written notice thereof to the other party and sufficient opportunity to object to any such disclosure or to request confidential treatment thereof; or (b) the Recipient can demonstrate that (i) the disclosed information was public knowledge at the time of such disclosure by the other party hereunder, or thereafter became public knowledge, other than as a result of actions of the Recipient, its directors, officers, employees, consultants, clinical investigators, contractors, permitted sublicensees and permitted assignees in violation hereof; (ii) the disclosed information was rightfully known by the Recipient or its affiliates (as shown by its written records) prior to the date of disclosure to the Recipient by the other party hereunder; or (iii) the disclosed information was disclosed to the Recipient or its affiliates on an unrestricted basis from a source unrelated to any party to the Agreement and not under a duty of confidentiality to the other party. Notwithstanding any other provision of the Agreement, Biosite may disclose Confidential Information of Merck relating to information developed pursuant to the Agreement to any person or entity with whom Biosite has, or is proposing to enter into, a business relationship, as long as such person or entity has entered into a confidentiality agreement with Biosite. 7.3 Publication. Subject to the provisions of Sections 7.1 and 7.2 above, Biosite and Merck each shall have the right to publish the results of its work performed under the Agreement; provided, however, that such party shall provide the other party the opportunity to review any proposed manuscripts or any other proposed disclosure describing said work sixty (60) days prior to their submission for publication or other proposed disclosure. If the other party believes patentable subject matter is disclosed in the manuscript or other disclosure and so notifies the first party, or if such submission for publication or other disclosure would cause the loss of significant foreign patent rights, said publication will be withheld for a reasonable period of time until United States patent filings are completed in accordance with Article 8 below. 7.4 Terms of the Agreement. Biosite and Merck shall not disclose any terms or conditions of the Agreement to any Third Party without the prior consent of the other party, except as required by applicable law or to Persons with whom Merck or Biosite has entered into or proposes to enter into a business relationship, provided that such Persons shall enter into the -13- 14 required confidentiality agreement. Notwithstanding the foregoing, prior to execution of the Agreement, Merck and Biosite shall agree upon the substance of information that can be used to describe the terms of this transaction, and Merck and Biosite may disclose such information, as modified by mutual agreement from time to time, without the other party's consent. 7.5 Use of Name. Except as required by applicable law, neither party shall use the name of the other party or the other party's employees in any advertisement, press release or publicity with reference to the Agreement, without prior written approval of the other party, which approval shall not be unreasonably withheld. ARTICLE 8 INVENTIONS AND PATENT RIGHTS 8.1 Ownership. The entire right and title in all inventions, discoveries, improvements or other technology directed to the Product, the Product Components or the process of the manufacture or use thereto, whether or not patentable, and any patent applications or patents based thereon, conceived during and as a result of the Development Program (collectively, the "Inventions") (a) by employees or others acting solely on behalf of Biosite, or its affiliates shall be owned solely by Biosite (the "Biosite Inventions"), (b) by employees or others acting solely on behalf of Merck or its Affiliates shall be owned solely by Merck (the "Merck Inventions"), and (c) by employees or others acting jointly on behalf of Biosite and Merck, or their respective Affiliates, shall be owned jointly by Biosite and Merck (the "Joint Inventions"). Each party promptly shall disclose to the other party the making, conception or reduction to practice of Inventions by employees or others acting on behalf of such party. Biosite and Merck each hereby represents that all employees and other Persons acting on its behalf in performing its obligations under the Agreement shall be obligated under a binding written agreement to assign to it, or as it shall direct, all Inventions made or developed by such employees or other Persons. 8.2 Patent Prosecution and Maintenance. The party owing an Invention, and Biosite in the case of a Joint Invention, shall be responsible for and shall control the preparation, filing, prosecution and maintenance of all patents and patent applications related to such Invention. However, the list of countries in which patent applications shall be filed in the case of a Joint Invention must be approved by Merck beforehand, which approval may not be unreasonably withheld or delayed. The party controlling the patents and patent applications with respect to an Invention shall pay all costs incurred in connection therewith; provided, however, Biosite and Merck shall equally share all such costs with respect to Joint Inventions. Biosite shall use its good faith efforts to provide Merck with an opportunity to review and comment -14- 15 on the text of each patent application with respect to a Joint Invention before filing, and shall supply Merck with a copy of such patent application as filed, together with notice of its filing date and serial number. Biosite and Merck each shall cooperate with the other party, execute all lawful papers and instruments and make all rightful oaths and declarations as may be necessary in the preparation, prosecution and maintenance of all patents and other filings referred to in this Section 8.2. 8.3 Notification of Infringement. Each party shall notify the other party of any infringement known to such party of any Patent Rights of the other party and shall provide the other party with the available evidence, if any, of such infringement. 8.4 Enforcement of Patent Rights. The party owning any Patent Rights, and Biosite in the case of Patent Rights claiming a Joint Invention, at its sole expense, shall have the right to determine the appropriate course of action to enforce such Patent Rights or otherwise abate the infringement thereof, to take (or refrain from taking) appropriate action to enforce such Patent Rights, to control any litigation or other enforcement action and to enter into, or permit, the settlement of any such litigation or other enforcement action with respect to such Patent Rights, and shall consider, in good faith, the interests of the other party in so doing. If Biosite does not, within one hundred twenty (120) days of receipt of notice from Merck, abate the infringement or file suit to enforce Patent Rights claiming a Joint Invention against at least one infringing party, Merck shall have the right to take whatever action it deems appropriate to enforce such Patent Rights; provided, however, that, within thirty (30) days after receipt of notice of Merck's intent to file such suit, Biosite shall have the right to jointly prosecute such suit and to fund up to [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] the costs of such suit. The party controlling any such enforcement action shall not settle the action or otherwise consent to an adverse judgment in such action that diminishes the rights or interests of the non-controlling party without the prior written consent of the other party. All monies recovered upon the final judgment or settlement of any such suit to enforce the Patent Rights shall be shared, after reimbursement of expenses, by Biosite and Merck as follows: (a) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] shall be retained by the party that has the right under the Supply and Distribution Agreement to distribute the Product in the country of such infringement, and (b) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] shall be shared by the parties pro rata according to the respective percentages of costs borne by each in such suit. Notwithstanding the foregoing, Biosite and Merck each shall fully cooperate with the other party in the planning and execution of any action to enforce the Patent Rights. 8.5 No Other Technology Rights. Except as otherwise provided in the Agreement, under no circumstances shall a party, -15- 16 as a result of the Agreement, obtain any ownership interest or other right in any technology, know-how, patents, pending patent applications, products, vaccines, antibodies, cell lines or cultures, or animals of the other party, including items owned, controlled or developed by the other, or transferred by the other to such party at any time pursuant to the Agreement. It is understood and agreed by the parties that the Agreement does not grant to either party any license or other right in basic technology of the other party except to the extent necessary to enable the parties to carry out their part of the Development Program or the development and marketing of the Product. ARTICLE 9 TERM AND TERMINATION 9.1 Expiration. Unless terminated earlier pursuant to Sections 9.2 or 9.3 below, the Agreement shall expire on the date [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after expiration or termination of the Development Program. 9.2 Termination by Mutual Agreement. The parties may terminate the Development Program at any time upon the express written agreement of both parties, in which case the Agreement shall terminate on the date [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after termination of the Development Program. 9.3 Termination for Cause. Except as otherwise provided in Section 12.2 below, either party may terminate the Agreement upon or after the breach of any material provision of the Agreement by the other party if the other party has not cured such breach within ninety (90) days after notice thereof from the non- breaching party. 9.4 Effect of Expiration and Termination. Expiration or termination of the Agreement shall not relieve the parties of any obligation accruing prior to such expiration or termination. The provisions of Articles 5 and 6 shall survive expiration of the Agreement, and the provisions of Articles 7 and 10 shall survive the expiration or termination of the Agreement. ARTICLE 10 INDEMNITY 10.1 Indemnity. Each party shall indemnify, defend and hold harmless the other party, its directors, officers, employees and agents from all losses, liabilities, damages and expenses (including reasonable attorneys' fees and costs) that they may suffer as a result of any claims, demands, actions or other -16- 17 proceedings made or instituted by any third party against any of them and arising out of or relating to any breach of the Agreement by the indemnifying party, or any recklessness or intentional act or omission by or on behalf of the indemnifying party in the performance of its activities contemplated by the Agreement, other than those certain losses, liabilities, damages and expenses arising out of the gross negligence or willful misconduct of the indemnified party. 10.2 Procedure. A party (the "Indemnitee") that intends to claim indemnification under this Article 10 shall promptly notify the other party (the "Indemnitor") of any such loss, liability, damage or expense, or any claim, demand, action or other proceeding with respect to which the Indemnitee intends to claim such indemnification. The Indemnitor shall have the right to participate in, and, to the extent the Indemnitor so desires, jointly with any other indemnitor similarly noticed, to assume the defense thereof with counsel selected by the Indemnitor; provided, however, that an Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitor, if representation of the Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential differing interests between such Indemnitee and any other party represented by such counsel in such proceedings. The indemnity obligations under this Article 10 shall not apply to amounts paid in settlement of any loss, liability, damage or other expense if such settlement is effected without the consent of the Indemnitor, which consent shall not be withheld unreasonably. The failure to deliver notice to the Indemnitor within a reasonable time after the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such Indemnitor of any liability to the Indemnitee under this Article 10, but the omission so to deliver notice to the Indemnitor will not relieve it of any liability that it may have to any Indemnitee otherwise than under this Article 10. The Indemnitor may not settle the action or otherwise consent to an adverse judgment in such action that diminishes the rights or interests of the Indemnitee without the express written consent of the Indemnitee. The Indemnitee, its employees and agents, shall cooperate fully with the Indemnitor and its legal representatives in the investigation of any action, claim or liability covered by this indemnification. 10.3 Insurance. Merck and Biosite each shall maintain, through self insurance or otherwise, comprehensive general liability insurance, including contractual liability insurance, against claims for bodily injury or property damage arising from its activities contemplated by the Agreement, in such amounts as it customarily maintains for similar activities. Biosite and Merck each shall maintain such insurance during the term of the Agreement and thereafter for so long as it maintains insurance for itself covering such activities. ARTICLE 11 -17- 18 CONCILIATION AND ARBITRATION 11.1 Conciliation. Biosite and Merck shall exercise their commercially reasonable efforts to settle between themselves in an amicable way any dispute, controversy or claim which may arise out of or relating to the Agreement within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after one party receives notice from the other party of such dispute, controversy or claim. 11.2 Arbitration. If not settled by the parties in accordance with Section 11.1 above, any dispute, controversy or claim originally initiated by either party and arising out of or relating to the Agreement shall be referred to and resolved by binding arbitration, held in New York, New York, United States of America, and conducted in accordance with the American Arbitration Association ("AAA") Commercial Arbitration Rules, and the following provisions: 11.2.1 The arbitral tribunal shall be composed of three (3) persons each of whom shall be neutral, independent and impartial. Each party shall nominate an arbitrator, and the two (2) arbitrators so appointed shall appoint a third, who shall act as president of the arbitral tribunal. If either party fails to nominate an arbitrator within thirty (30) days of receiving notice of the nomination of an arbitrator by the other party, such (second) arbitrator shall be appointed at the request of the first party by the AAA. If the two arbitrators selected by the parties fail to select a third, presiding arbitrator within twenty (20) days of the appointment of the second arbitrator, the third arbitrator shall be appointed at the request of the first party by the AAA. 11.2.2 The arbitrators shall hold a preliminary meeting with the parties within thirty (30) days of the appointment of the third or presiding arbitrator for the purpose of determining the issues to be decided in the arbitration, the specific procedures to be followed and the schedule for briefing and/or hearings. The arbitrators shall hold a hearing which, unless the parties otherwise agree, should be recorded by stenographic or other means. Within one hundred twenty (120) days of the preliminary meeting (except in extraordinary cases), the arbitrators shall issue an award in writing which shall state the reasons for the award and which, except as set forth in the following sentence, shall be final and binding between the parties. Judgment upon the award rendered by the arbitrators may be entered in any court of competent jurisdiction. 11.2.3 The parties agree that the award of the arbitrators shall be the sole and exclusive remedy between them regarding any claims, counterclaims, issues or accountings presented or pled to the arbitrators; that it shall be made and shall promptly by payable in United States dollars free of any tax, deduction or offset; and that any costs, fees or taxes -18- 19 incident to enforcing the award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement. 11.2.4 Questions concerning arbitrability under this dispute resolution clause shall be governed exclusively by the United States Arbitration Act. The arbitrators shall be empowered to consider and decide claims or issues arising under or relating to state and federal statutes governing business practices, but shall not be empowered to nor shall they award punitive damages. 11.2.5 As part of any arbitral award rendered pursuant to this Section 11.2, the arbitrators shall make an award of arbitral costs and reasonable attorneys' fees to the prevailing party. 11.2.6 The Agreement shall be governed by and construed in accordance with the laws of the State of New York and shall not be governed by the United Nations Convention on Contracts for the Internationsl Sale of Goods. ARTICLE 12 MISCELLANEOUS 12.1 Notices. Any consent, notice or report required or permitted to be given or made under the Agreement by one of the parties to the other shall be in writing, delivered personally or by facsimile (and promptly confirmed by personal delivery, air mail, internationally-recognized delivery service or courier), air mail, internationally-recognized delivery service or courier, postage prepaid (where applicable), addressed to such other party at its address indicated below, or to such other address as the addressee shall have last furnished in writing to the addressor and (except as otherwise provided in the Agreement) shall be effective upon receipt by the addressee. If to Biosite: Biosite Diagnostics Incorporated 11030 Roselle Street, Suite D San Diego, California 92121, U.S.A. Attention: Kim D. Blickenstaff President with a copy to: Pillsbury Madison & Sutro 235 Montgomery Street, 15th Floor San Francisco, California 94104, U.S.A. Attention: Thomas E. Sparks, Jr. -19- 20 If to Merck: E. Merck Frankfurter Strasse 250 D-64293 Darmstadt Germany Attention: Dr. Bernd Reckmann with a copy to: E. Merck Frankfurter Strasse 250 D-64293 Darmstadt Germany Attention: LEW/Licensing 12.2 Force Majeure. Neither party shall be held liable or responsible to the other party nor be deemed to have defaulted under or breached the Agreement for failure or delay in fulfilling or performing any term of the Agreement to the extent, and for so long as, such failure or delay is caused by or results from causes beyond the reasonable control of the affected party including fire, floods, embargoes, war, acts of war (whether war be declared or not), insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any governmental authority or the other party. 12.3 Assignment. The Agreement may not be assigned or otherwise transferred, nor, except as expressly provided hereunder, may any right or obligations hereunder be assigned or transferred by either party [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. Any permitted assignee shall assume all obligations of its assignor under the Agreement. 12.4 Severability. Each party hereby acknowledges that it does not intend to violate any public policy, statutory or common laws, rules, regulations, treaty or decision of any government agency or executive body thereof of any country or community or association of countries. Should one or more provisions of the Agreement be or become invalid, the parties shall substitute, by mutual consent, valid provisions for such invalid provisions which valid provisions in their economic effect are sufficiently similar to the invalid provisions that it can be reasonably assumed that the parties would have entered into the Agreement with such provisions. In case such provisions cannot be agreed upon, the invalidity of one or several provisions of the Agreement shall not affect the validity of the Agreement as a whole, unless the invalid provisions are of such essential importance to the Agreement that it is to be reasonably assumed that the parties would not have entered into the Agreement without the invalid provisions. 12.5 U.S. Export Laws and Regulations. Biosite and Merck each acknowledge that the development and commercialization rights and information disclosure requirements of the Agreement are subject to the laws and regulations of the United States of America relating to the export of products and technical -20- 21 information. Without limitation, Biosite and Merck each shall comply with all such laws and regulations. 12.6 Entire Agreement. The Agreement contains the entire understanding of the parties with respect to the subject matter hereof. All express or implied agreements and understandings, either oral or written, heretofore made are expressly superseded by the Agreement. The Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by both parties. 12.7 Headings. The captions to the several Articles and Sections hereof are not a part of the Agreement, but are merely guides or labels to assist in locating and reading the several Articles and Sections hereof. 12.8 Independent Contractors. It is expressly agreed that Biosite and Merck shall be independent contractors and that the relationship between the two parties shall not constitute a partnership, joint venture or agency. Neither Biosite nor Merck shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other, without the prior consent of the party to do so. 12.9 Language. The English language version of the Agreement shall govern and control any translations of the Agreement into any other language. 12.10 Waiver. The waiver by either party of any right hereunder or the failure to perform or of a breach by the other party shall not be deemed a waiver of any other right hereunder or of any other breach or failure by said other party whether of a similar nature or otherwise. -21- 22 12.11 Counterparts. The 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. IN WITNESS WHEREOF, the parties have executed the Agreement as of the date first set forth above. BIOSITE DIAGNOSTICS INCORPORATED By /s/ Kim D. Blickenstaff --------------------------------- Title: President E. MERCK By /s/ Dr. Walter Bardorff --------------------------------- Title: General Manager Diagnostics Division By /s/ Dr. Bernd Reckman --------------------------------- Title: Head of Department Marketing and Sales Diagnostics Division -22- 23 EXHIBIT A WORK PLAN [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 24 EXHIBIT B SUPPLY AND DISTRIBUTION AGREEMENT [SEE EXHIBIT 10.15] EX-10.15 9 EXHIBIT 10.15 1 EXHIBIT 10.15 [CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.] SUPPLY AND DISTRIBUTION AGREEMENT THIS SUPPLY AND DISTRIBUTION AGREEMENT dated as of June 28, 1994 (the "Agreement"), is entered into between BIOSITE DIAGNOSTICS INCORPORATED, a Delaware corporation ("Biosite"), having a place of business located at 11030 Roselle Street, Suite D, San Diego, California 92121, United States of America, and E. MERCK, a German general partnership ("Merck"), having a place of business located at Frankfurter Strasse 250, D-64293 Darmstadt, Germany. W I T N E S S E T H : WHEREAS, Biosite owns or has rights to certain significant technology which may be used in the development of reagents and a test device for use with a test device reader to form a system to quantitatively measure analytes in the immunoassay field. WHEREAS, Biosite and Merck have entered into a Collaborative Development Agreement pursuant to which the parties agreed to collaborate in the development of a hand held rapid in vitro immunoassay system, consisting of reagents, a testing device and a reader, designed to quantitatively measure multiple cardiac analytes released from damaged cardiac tissue for use in the diagnosis and monitoring of myocardial infarction in humans, and if the parties mutually agree, to quantitatively measure certain other analytes for use in certain other fields. WHEREAS, Biosite desires to distribute such immunoassay system under such Collaborative Development Agreement in the United States of America and Canada, to appoint Merck as its exclusive distributor in Europe, Latin America and South Africa, and to retain the exclusive distribution rights in Japan and the rest of the world. WHEREAS, Biosite and Merck desire to enter into the Agreement whereby Biosite appoints Merck as the exclusive distributor of such immunoassay system in Europe, Latin America and South Africa, on the terms and subject to the conditions set forth below. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants herein contained, the parties hereby agree as follows: 2 ARTICLE 1 DEFINITIONS For purposes of the Agreement, the terms defined in this Article 1 shall have the respective meanings set forth below: 1.1 "Affiliate" shall mean, with respect to any Person, any other Person which directly or indirectly controls, is controlled by, or is under common control with, such Person. A Person shall be regarded as in control of another Person if it owns, or directly or indirectly controls, at least forty percent (40%) of the voting stock or other ownership interest of the other Person, or if it directly or indirectly possesses the power to direct or cause the direction of the management and policies of the other Person by any means whatsoever. 1.2 "Agencies" shall mean, collectively, all sole agents, subsidiaries, partnerships and other entities directly or indirectly controlled by Merck, and all independent distributors of Merck diagnostic products, located in the Territory. 1.3 "Biosite Marks" shall mean those certain trademarks, tradenames, designs and markings owned or licensed by Biosite and designated from time to time in writing by Biosite for use by Merck under the Agreement in connection with the promotion, marketing, sale and distribution of the Testing Device and the Reader in the Territory for use in the Field. 1.4 "Collaborative Development Agreement" shall mean that certain Collaborative Development Agreement dated as of even date, between Biosite and Merck, as amended, supplemented or restated from time to time. 1.5 "Development Program" shall mean the development program, described generally in the work plan set forth in Exhibit A to the Collaborative Development Agreement, as revised from time to time as provided in the Collaborative Development Agreement. 1.6 "Europe" shall mean, collectively, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 1.7 "Field" shall mean the simultaneous and quantitative measurement of multiple cardiac analytes released from damaged cardiac tissue, including CKMB, Troponin I and Myoglobin, for use in the diagnosis and monitoring of myocardial infarction in humans. 1.8 "First Commercial Sale" shall mean the date of the first sale of the Testing Device or the Reader in the Territory for use by the general public in the Field. -2- 3 1.9 "Latin America" shall mean, collectively, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 1.10 "LRE" shall mean LRE Relais+Elektronik GmbH, a German limited liability company. 1.11 "Person" shall mean an individual, corporation, partnership, trust, business trust, association, joint stock company, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein. 1.12 "Product" shall mean the hand held rapid in vitro immunoassay system, consisting of reagents, a testing device and a reader, developed under the Development Program. 1.13 "Product Components" shall mean, collectively, the Reader, the Reagents and the Testing Device as defined below: 1.13.1 "Reader" shall mean that certain testing device reader, developed under the Reader Development and Supply Agreement, constituting a component of the Product. 1.13.2 "Reagents" shall mean those certain reagents, developed under the Development Program, constituting a component of the Product. 1.13.3 "Testing Device" shall mean that certain testing device, developed under the Development Program, containing the Reagents and constituting a component of the Product. 1.14 "Reader Development and Supply Agreement" shall mean that certain Reader Development and Supply Agreement dated as of even date, between Biosite and LRE, as amended, supplemented or restated from time to time. 1.15 "South Africa" shall mean the Republic of South Africa. 1.16 "Specifications" shall mean the product specifications for the Testing Device established by Biosite, as revised from time to time pursuant to the provisions of Section 4.9.1 below. 1.17 "Steering Committee" shall mean the joint development committee composed of representatives of Biosite and Merck as described in Section 4.1 of the Collaborative Development Agreement. 1.18 "Territory" shall mean, collectively, Europe, Latin America and South Africa. 1.19 "Third Party" shall mean any Person other than Biosite, Merck and their respective Affiliates. -3- 4 ARTICLE 2 REPRESENTATIONS AND WARRANTIES Each party hereby represents and warrants to the other party as follows: 2.1 Existence and Power. Such party (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is organized; (b) has the requisite power and authority and the legal right to own and operate its property and assets, to lease the property and assets it operates under lease, and to carry on its business as it is now being conducted and (c) is in compliance with all requirements of applicable law, except to the extent that any noncompliance would not have a material adverse effect on the properties, business, financial or other condition of such party and would not materially adversely affect such party's ability to perform its obligations under the Agreement. 2.2 Authorization and Enforcement of Obligations. Such party (a) has the requisite power and authority and the legal right to enter into the Agreement and to perform its obligations hereunder and (b) has taken all necessary corporate action on its part to authorize the execution and delivery of the Agreement and the performance of its obligations hereunder. The Agreement has been duly executed and delivered on behalf of such party, and constitutes a legal, valid, binding obligation, enforceable against such party in accordance with its terms. 2.3 Consents. All necessary consents, approvals and authorizations of all governmental authorities and other Persons required to be obtained by such party in connection with the Agreement have been obtained. 2.4 No Conflict. The execution and delivery of the Agreement and the performance of such party's obligations hereunder do not conflict with or violate any requirement of applicable laws or regulations. ARTICLE 3 APPOINTMENT AND SCOPE 3.1 Appointment. Subject to the terms and conditions and for the term of the Agreement, Biosite hereby appoints Merck as an independent distributor of the Testing Device and the Reader in the Territory for use in the Field. Merck shall be the exclusive distributor of the Testing Device and the Reader in the Territory for use in the Field. Merck hereby accepts such appointment and shall use its best efforts to promote, market, distribute and sell the Testing Device and the Reader in the Territory for use in the Field and to meet the reasonably foreseeable market demand -4- 5 therefor. Merck shall refrain from actively promoting, marketing, selling, distributing, seeking customers, establishing any branch and maintaining any distribution depot or network for the sale of the Testing Device or the Reader outside the Territory and outside the Field. 3.2 Subdistributorships. Merck shall have the right to appoint one or more Agencies as subdistributors under the Agreement. Such subdistributorships shall be subject to the terms and conditions of the Agreement. Merck shall make reasonable efforts to cause its subdistributors to comply with the provisions of the Agreement. 3.3 Exclusivity. For purposes of Section 3.1 above, the term "exclusive" shall mean that, subject to the terms and conditions of the Agreement and as long as Merck is in full compliance with its obligations hereunder, Biosite shall not appoint any other agents, representatives or distributors to promote, market, sell or distribute the Testing Device or the Reader in the Territory for use in the Field. 3.4 [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 3.5 Independent Purchaser Status. Merck shall be an independent purchaser and seller of the Testing Device and the Reader. Merck shall not act as an agent or legal representative of Biosite, nor shall Merck have any right or power to act for or bind Biosite in any respect or to pledge its credit. Merck shall be free to resell the Testing Device and the Reader in the Territory for use in the Field on such terms as it may, in its sole discretion, determine, including price, returns, credits and discounts. The detailed operations of Merck under the Agreement are subject to the sole control and management of Merck. 3.6 Perishable Products. Merck acknowledges that the Testing Devices are perishable. ARTICLE 4 TERMS AND CONDITIONS OF SUPPLY OF TESTING DEVICES Biosite shall manufacture, sell and deliver, and Merck shall purchase from Biosite, such Testing Devices as Merck and its subdistributors require for sale to customers in the Territory for use in the Field on the terms and subject to the conditions set forth below: 4.1 Price. 4.1.1 For the period through the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the First -5- 6 Commercial Sale, the sales price for each Testing Device purchased by Merck hereunder (the "Sales Price") shall equal [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], both as defined below, calculated as of a mutually acceptable date not more than sixty (60) days before the reasonably anticipated date of the First Commercial Sale. a. The "Manufacturing Cost" shall equal [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. b. The "Average Market Price" shall equal [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 4.1.2 The Sales Price shall be revised by the mutual agreement of the parties from time to time on or after the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the First Commercial Sale. At such times after such [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] as the parties mutually agree, the parties shall meet and in good faith discuss any necessary or appropriate adjustments to the Sales Price. The parties shall consider such factors as the Manufacturing Cost, Biosite's actual gross margins, the Average Market Price and Merck's actual distribution margins during the period since the Sales Price was last set and any reasonably foreseeable future changes in such factors. 4.2 Orders. Merck shall make all purchases of Testing Devices hereunder by submitting firm purchase orders to Biosite. Such purchase orders shall be in writing and in a form reasonably acceptable to Biosite. In the event of an inconsistency between the terms and conditions of any purchase order and the Agreement, the terms and conditions of the Agreement shall prevail. Purchase orders shall not be binding upon Biosite unless and until accepted by Biosite. Biosite shall notify Merck in writing of its acceptance of purchase orders and of the scheduled delivery dates therefor. 4.3 Terms of Sales. Biosite shall ship all Testing Devices fca airport San Diego (Incoterms 1990) (=free carrier arrival) freight and insurance paid by [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. Biosite shall use its commercially reasonable efforts to meet scheduled delivery dates. The lead time for shipping of ordered Testing Devices shall be [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after receipt by Biosite of each order from Merck. In the event Biosite is able to fill orders by Merck in less than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], Biosite and Merck shall agree upon a delivery in advance. Merck shall arrange for shipping and procurement insurance at Merck's expense and shall ship all Testing Devices from Biosite's facility in San Diego, California to Merck's warehouse in Darmstadt, Federal Republic of Germany, or any other location determined by Merck. [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] shall pay all taxes and -6- 7 charges, including all inspection fees and duties, applicable to the sale and transport of the Testing Devices by Merck in the Territory. 4.4 Deferral of Shipment. Notwithstanding the foregoing, Biosite may defer shipment of Test Devices if and while Merck is in default of any of its obligations under the Collaborative Development Agreement, including its obligations to pay any amounts when due. 4.5 Payments. Merck shall pay Biosite within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] from date of the applicable invoice by Biosite to Merck for all Test Devices purchased hereunder for sale in Europe. Merck shall pay or shall cause its Affiliates, Agencies and other subdistributors to pay Biosite within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] from date of the applicable invoice by Biosite for all Test Devices purchased hereunder for sale in Latin America and South Africa. Merck shall make all payments under the Agreement to Biosite in United States dollars to Biosite's account in a financial institution located in the United States. 4.6 Currency Exchange. The exchange rate for Deutsche Marks is 1.65 Deutsche Marks for one United States dollar. Currency fluctuations of greater than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] from this exchange rate will be evaluated for stabilization within ninety (90) days of the event. If stabilization does not occur, both parties agree to discuss an adjustment of Sales Price. 4.7 Forecasts. Not less than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] prior to the reasonably anticipated date of the First Commercial Sale, and prior to the first day of each quarter thereafter, Merck shall prepare and provide Biosite with a written forecast of the estimated requirements of Merck and its subdistributors for each quarter in the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. Merck shall be required to purchase [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the quantity forecasted for the first quarterly period of each forecast. Merck shall not increase or decrease the quantity estimated for the first quarterly period of each forecast by more than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the quantity estimated for the first quarterly period of the previous forecast, without the prior express written consent of Biosite. In the event Merck's orders for any quarter exceed [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the quantities forecasted in the most recent forecast for such quarter, Biosite in its sole discretion shall have the right to reject any orders for quantities in excess of such amounts. -7- 8 4.8 Returned Goods. If any Testing Device does not conform to the Specifications, and fails to pass Merck's quality control [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], Merck shall return the nonconforming Testing Device to Biosite in accordance with the reasonable instructions of Biosite or, on Biosite's request, dispose locally of such nonconforming Testing Device. In both cases all costs shall be borne by Biosite. Should any Test Devices be returned as provided above, Biosite shall replace the returned Test Devices as soon as reasonably practicable. Such replacement Test Devices shall be at no additional cost to Merck if Merck had previously paid Biosite for the returned Test Devices. Notwithstanding the foregoing, Biosite shall not be responsible for any Testing Device which fails to pass Merck's quality control as a result of improper storage and handling during or after shipment to Merck. 4.9 Warranty. 4.9.1 The Specifications shall be attached as an exhibit to the Agreement once initially established by Biosite and, with respect to the Specifications for the Testing Device in the Territory, shall be mutually agreed by Biosite ad Merck. Subject to the provisions of Section 4.9.2 below, Biosite warrants that each Testing Device shall perform as stated in the Specifications and shall be manufactured in accordance with applicable good manufacturing practices ("GMP") as prescribed by the United States Food and Drug Administration. The Specifications are subject to change by Biosite upon thirty (30) days' prior written notice to Merck, during which period Biosite shall consult with Merck on such changes and consider any comments Merck has with regard to such changes. Notwithstanding any such changes, each Testing Device shall perform substantially as described in the Specifications originally established by Biosite. 4.9.2 Other than as set forth in Section 4.9.1 above or in this Section 4.9.2, Biosite makes no representations or warranties, express or implied, regarding the Testing Device, including any warranty of merchantability, of fitness for a particular purpose, or against infringement of any trademarks, copyrights or other proprietary rights now or hereafter existing. [Except as Biosite has otherwise advised Merck prior to the date of the Agreement, Biosite warrants, to its current actual knowledge, that the form of the Testing Device contemplated by Biosite as of the date of the Agreement does not infringe the issued patents of any third party. If the Testing Device is determined to infringe any issued patent, Biosite will make its commercially reasonable efforts to obtain all appropriate licenses and other rights. 4.9.3 Merck shall distribute the Testing Devices labeled by Biosite in the Territory for use in the Field so as to include all warnings and instructions necessary for the proper use of the Testing Devices and shall not extend any other product -8- 9 warranty, express or implied, other than the warranty included in Section 4.9.1 above. 4.10 Product Control. Each Testing Device shipped by Biosite shall contain numbers identifying manufacturing lot, expiry date for control purposes, and lot-specific quality control report. 4.11 Merck's Contingent Manufacturing Rights. If Biosite fails to supply, or to cause an Affiliate or Third Party to supply, Merck and its subdistributors with the reasonably forecasted quantities of Testing Devices for [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] in accordance with the provisions of this Article 4, if Merck requests in writing within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after the end of such [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], Biosite shall grant Merck a license [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] to manufacture supply and distribute the requirements of Merck and its subdistributors for the Testing Device in the Territory for use in the Field. As soon as reasonably practicable after such request, the parties shall negotiate in good faith the terms and conditions of a mutually acceptable license agreement, which would include the following terms and conditions: 4.11.1 Biosite would transfer to Merck all applicable technology, including all applicable patent rights, know-how, data, information and organisms (all to the extent Biosite has the right to grant licenses or other rights thereunder), to enable Merck to manufacture and supply the Testing Device. Except as Biosite has otherwise advised Merck prior to the date of the Agreement, Biosite has no current actual knowledge of any prohibition on Biosite's right to transfer to Merck for such purpose any such technology licensed to Biosite as of the date of the Agreement. 4.11.2 Biosite would provide such technical assistance to Merck as reasonably requested by Merck, and Merck would reimburse Biosite for the reasonable cost of such services. 4.11.3 In consideration for the grant of such license rights, Merck would pay Biosite a royalty, without deduction, equal to [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the net sales of all Testing Devices manufactured by Merck, and Merck would pay all royalties owing to any Third Parties on such sales of Testing Devices. ARTICLE 5 TERMS AND CONDITIONS OF SUPPLY OF READERS -9- 10 The Readers to be sold and distributed by Merck in the Territory for use in the Field under the Agreement shall be manufactured and supplied by LRE on the terms and subject to the conditions of the Reader Development and Supply Agreement. During the term and subject to the provisions of the Agreement, Biosite shall appoint Merck under the Reader Development and Supply Agreement as Biosite's exclusive distributor of the Reader in the Territory for use in the Field. Subject to the provisions of the Agreement and the Reader Development and Supply Agreement, Merck shall enter into a separate agreement with LRE pursuant to which LRE shall manufacture and supply Readers for sale and distribution by Merck in the Territory for use in the Field. Biosite makes no representations or warranties, express or implied, regarding the Reader, including any warranty of merchantability, of fitness for a particular purpose, or against infringement of any trademarks, copyrights or other proprietary rights now or hereafter existing. Biosite shall have no liability to Merck, its subdistributors or their respective customers arising out of or relating to (a) any negligence, recklessness or intentional act or omission by or on behalf of LRE, (b) any breach by LRE of its obligations under the Reader Development and Supply Agreement, (c) any misrepresentation or breach of warranty by LRE, or (d) any damage to personal property, personal injury or death resulting from the manufacture or use of the Reader. ARTICLE 6 COVENANTS OF MERCK 6.1 Sales Promotion. Merck shall use its best efforts to promote the sale and use of the Testing Device and the Reader in the Territory for use in the Field. Merck shall provide complete training of Merck's or subdistributors' sales representatives in the use of the Testing Device and the Reader. 6.2 Expenses. Merck shall be responsible for all of its own expenses and employees in connection with its activities contemplated by the Agreement. Merck shall incur no expense chargeable to Biosite, except as may be specifically authorized in advance in writing in each case by Biosite. 6.3 Promotional Materials; Package Inserts. Merck shall ensure that all advertising, promotional literature, packaging and package inserts comply with applicable laws and regulations. Merck shall not use any advertising or promotional materials to promote the Testing Device or the Reader or any packaging or package inserts that have not been mutually agreed by Biosite and Merck. Merck shall prepare necessary translations of Biosite's sales literature, package inserts and labeling. 6.4 Import Licenses, Exchange Controls, and Other Governmental Approvals, Compliance. -10- 11 6.4.1 Merck shall, at its own expense: (a) obtain any registration, license, permit, governmental approval (collectively, any "registration") that may be necessary to permit the purchase, distribution and resale by Merck of the Testing Device and the Reader in each country in the Territory; (b) comply with all registration requirements for each country in the Territory; and (c) comply with any and all laws, regulations and orders that may be applicable to Merck by reason of its execution of the Agreement, including any requirement to be registered as Biosite's independent distributor with any governmental authority, and including any and all laws, regulations or orders that govern or affect the ordering, export, shipment, import, sale (including government procurement), delivery, or redelivery of the Testing Device and the Reader in the Territory. Merck shall not engage in any course of conduct that, in Biosite's reasonable belief, would cause Biosite to be in violation of the laws of any jurisdiction. 6.4.2 All registrations in the Territory of the Testing Device and the Reader shall be made in the name of Merck and shall remain the property of Merck during the term of the Agreement. Merck shall provide Biosite a copy of each such registrations and application therefor. 6.4.3 Upon the expiration or earlier termination of the Agreement, Biosite shall have the right, at its option, to take over the above-described registrations or, where necessary, to obtain registration under Biosite's name at its own cost. Merck shall use its best efforts to assist Biosite in the transfer to, or obtaining of any such registrations in the name of, Biosite (or Biosite's agent) in a quick and efficient manner. 6.4.4 Upon the expiration or earlier termination of the Agreement, if the parties mutually agree, Merck shall continue distribution of the Testing Device and the Reader in each country in the Territory on the same terms and conditions in effect as of the date of expiration or termination until Biosite (or Biosite's agent) is able to obtain any required registration for distribution of the Testing Devices and the Readers in such country; provided, however, that the indemnification provisions set forth in Article 8 below shall continue during such period. 6.5 Local Laws and Regulations. Merck shall notify Biosite of the existence and content of any mandatory provision of law in each country in the Territory or any other applicable law that conflicts with any provision of the Agreement at the time of its execution or thereafter. Merck shall advise Biosite fully with respect to all regulations, labeling laws, standards, specifications and other requirements imposed by law, regulation or order in any country in the Territory and applicable to the Testing Device and the Reader. Merck promptly shall inform Biosite should, in its opinion, any amendment to the Agreement or any additional agreement be required or be advisable in order to comply with the laws of any country in the Territory, or any subdivision thereof. -11- 12 6.6 [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] Reports. Merck shall prepare and provide Biosite with [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] written sales reports within 30 days of the end of each [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], commencing with the first [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after the First Commercial Sale. The [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] reports shall summarize sales of the Testing Device and the Reader by Merck and its subdistributors during the preceding [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] for each country in the Territory. ARTICLE 7 OBLIGATIONS OF BIOSITE 7.1 Sales Support. Biosite regularly shall provide Merck with literature on the Testing Device and technical information relating to the Testing Device and its proper use. Unless otherwise expressly agreed by Biosite, all such information and materials will be furnished in the English language and at no extra costs for Merck. 7.2 Assistance. Biosite shall provide Merck with all data and other information available to Biosite, and shall execute such certificates and other instruments, as reasonably necessary to assist Merck in obtaining all necessary product registrations in the Territory for the Testing Device. Biosite shall cause LRE to provide Merck with all data and other information available to LRE, and shall execute such certificates and other instruments, as reasonably necessary to assist Merck in obtaining all necessary product registrations in the Territory for the Reader. Biosite shall provide Merck with reasonable access to and assistance of its technical, sales, and service personnel in San Diego, California as Biosite deems appropriate. Such assistance under this Section 7.2 shall be without charge to Merck except as may be otherwise mutually agreed. ARTICLE 8 INDEMNITY 8.1 Indemnity. Each party shall indemnify, defend and hold harmless the other party, its directors, officers, employees and agents from all losses, liabilities, damages and expenses (including reasonable attorneys' fees and costs) that they may suffer as a result of any claims, demands, actions or other proceedings made or instituted by any third party against any of them and arising out of or relating to (a) any breach of the Agreement by the indemnifying party, (b) any recklessness or intentional act or omission by or on behalf of the indemnifying -12- 13 party in the performance of its activities contemplated by the Agreement, (c) any representations or statements not specifically authorized by the indemnified party herein or otherwise in writing, or (d) any violation by the indemnifying party (or any of their employees or agents) of, or failure to adhere to, any applicable law, regulation or order in any country in the Territory or of the United States, in each case other than those certain losses, liabilities, damages and expenses arising out of the gross negligence or willful misconduct of the indemnified party. 8.2 Procedure. A party (the "Indemnitee") that intends to claim indemnification under this Article 8 shall promptly notify the other party (the "Indemnitor") of any such loss, liability, damage or expense, or any claim, demand, action or other proceeding with respect to which the Indemnitee intends to claim such indemnification. The Indemnitor shall have the right to participate in, and, to the extent the Indemnitor so desires, jointly with any other indemnitor similarly noticed, to assume the defense thereof with counsel selected by the Indemnitor; provided, however, that an Indemnitee shall have the right to retain its own counsel, with the fees and expenses to be paid by the Indemnitor, if representation of the Indemnitee by the counsel retained by the Indemnitor would be inappropriate due to actual or potential differing interests between such Indemnitee and any other party represented by such counsel in such proceedings. The indemnity obligations under this Article 8 shall not apply to amounts paid in settlement of any loss, liability, damage or other expense if such settlement is effected without the consent of the Indemnitor, which consent shall not be withheld unreasonably. The failure to deliver notice to the Indemnitor within a reasonable time after the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such Indemnitor of any liability to the Indemnitee under this Article 8, but the omission so to deliver notice to the Indemnitor will not relieve it of any liability that it may have to any Indemnitee otherwise than under this Article 8. The Indemnitor may not settle the action or otherwise consent to an adverse judgment in such action that diminishes the rights or interests of the Indemnitee without the express written consent of the Indemnitee. The Indemnitee, its employees and agents, shall cooperate fully with the Indemnitor and its legal representatives in the investigation of any action, claim or liability covered by this indemnification. 8.3 Insurance. Merck and Biosite each shall maintain, through self-insurance or otherwise, products liability insurance against claims regarding the manufacture, sale, distribution or use of the Testing Device and the Reader in the Territory under the Agreement, in such amounts as it customarily maintains for similar activities. Biosite and Merck each shall maintain such insurance during the term of the Agreement and thereafter for so long as it maintains insurance for itself covering such activities. -13- 14 ARTICLE 9 CONFIDENTIALITY AND PROPRIETARY RIGHTS 9.1 Confidentiality. 9.1.1 During the term of the Agreement, and for a period of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] years following the expiration or earlier termination hereof, each party shall maintain in confidence all information (including samples) disclosed by the other party and identified as, or acknowledged to be, confidential (the "Confidential Information"), and shall not use, disclose or grant the use of the Confidential Information except on a need-to-know basis to those directors, officers, employees, consultants, clinical investigators, contractors, permitted sublicensees or permitted assignees, to the extent such disclosure is reasonably necessary in connection with such party's activities as expressly authorized by the Agreement. To the extent that disclosure is authorized by the Agreement, prior to disclosure, each party hereto shall obtain agreement of any such person or entity to hold in confidence and not make use of the Confidential Information for any purpose other than those permitted by the Agreement. Each party shall notify the other promptly upon discovery of any unauthorized use or disclosure of the other party's Confidential Information. 9.1.2 The confidentiality obligations contained in Section 9.1.1 above shall not apply to the extent that (a) any receiving party (the "Recipient") is required (i) to disclose information by law, order or regulation of a governmental agency or a court of competent jurisdiction, or (ii) to disclose information to any governmental agency for purposes of obtaining approval to test or market a product, provided in either case that the Recipient shall provide written notice thereof to the other party and sufficient opportunity to object to any such disclosure or to request confidential treatment thereof; or (b) the Recipient can demonstrate that (i) the disclosed information was public knowledge at the time of such disclosure by the other party hereunder, or thereafter became public knowledge, other than as a result of actions of the Recipient, its directors, officers, employees, consultants, clinical investigators, contractors, permitted sublicensees and permitted assignees in violation hereof; (ii) the disclosed information was rightfully known by the Recipient or its affiliates (as shown by its written records) prior to the date of disclosure to the Recipient by the other party hereunder; or (iii) the disclosed information was disclosed to the Recipient or its affiliates on an unrestricted basis from a source unrelated to any party to the Agreement and not under a duty of confidentiality to the other party. Notwithstanding any other provision of the Agreement, Biosite may disclose Confidential Information of Merck relating to information developed pursuant to the Agreement to any person or entity with whom Biosite has, or is proposing to enter into, a business -14- 15 relationship, as long as such person or entity has entered into a confidentiality agreement with Biosite. 9.1.3 Biosite and Merck shall not disclose any terms or conditions of the Agreement to any Third Party without the prior consent of the other party, except as required by applicable law or to Persons with whom Merck or Biosite has entered into or proposes to enter into a business relationship, provided that such Persons shall enter into the required confidentiality agreement. Notwithstanding the foregoing, prior to execution of the Agreement, Merck and Biosite shall agree upon the substance of information that can be used to describe the terms of this transaction, and Merck and Biosite may disclose such information, as modified by mutual agreement from time to time, without the other party's consent. 9.2 Patent Rights. Biosite does not, either expressly or impliedly, grant any licenses to Merck under any patents owned or controlled by Biosite or under which Biosite has any rights, except the right to sell and use the Testing Device and the Reader on the terms and subject to the conditions of the Agreement. Subject to the provisions of Section 4.11 above, Biosite does not grant any rights to manufacture under the Agreement. 9.3 Biosite Marks. The trademarks or tradenames in the Territory for the Testing Device and the Reader shall be mutually acceptable to Biosite and Merck. Merck shall not use any Biosite Marks, or any word, title, expression, trademark, design or marking that is confusingly similar thereto, as part of its corporate or business name or in any other manner. Notwithstanding the foregoing, (a) Merck may identify itself as an authorized distributor of Biosite, and (b) Merck may use the Biosite Marks for display purposes in connection with solicitation of orders for the Testing Device and the Reader. Merck shall not alter, remove or modify any Biosite Marks, nor affix any other trademarks, labels or markings to the Testing Device and the Reader without Biosite's consent; provided, however, that Merck may affix labels or other indices on the Testing Devices and the Readers it distributes to identify it as the distributor of the Testing Device and the Reader so long as such labels do not cover and are not inconsistent with the Biosite Marks, labels or markings. All registrations of the Biosite Marks shall be paid by Biosite. No other Merck labels, package inserts or other material shall accompany the Testing Device and the Reader without the prior written consent of Biosite. 9.4 Copyrights. 9.4.1 Merck hereby acknowledges that Biosite has claimed, or may claim, copyright protection with respect to certain parts of the Testing Device and the Reader and the labels, inserts and other materials regarding the Testing Device and the Reader. Merck further acknowledges the validity of Biosite's right to claim copyright protection with respect to such items. -15- 16 Merck further acknowledges that Biosite has advised Merck that it has the sole and exclusive right to claim the copyright protection with respect to all such items. Merck shall take no action or make no omission which is in any way inconsistent with Biosite's claim of copyright protection with respect to such items. 9.4.2 Nothing contained in this Section 9.4 shall prohibit Merck from copying and distributing to its sales representatives Testing Device and Reader advertising, literature and other materials prepared by or on behalf of Biosite for the purpose of fulfilling Merck's obligations under the Agreement. In order to protect against infringement of Biosite's copyrights through unauthorized reproduction or duplication of its copyrighted materials, all such materials included with or relating to the Testing Device and the Reader, and used by Merck in conducting its activities contemplated by the Agreement, shall bear appropriate copyright markings. 9.5 Protection of Proprietary Rights. Merck shall cooperate with Biosite, take such actions and execute such documents, as reasonably requested by Biosite and at Biosite's expense, to assist Biosite in the protection of confidential information, patents, trademarks or copyrights owned by or licensed to Biosite. Merck shall inform Biosite immediately of any infringements or other improper action with respect to any such confidential information, patents, trademarks or copyrights that come to the attention of Merck. ARTICLE 10 TERM AND TERMINATION 10.1 Term. Unless terminated earlier pursuant to Section 10.2 or 10.3 below, the Agreement shall continue in full force and effect for a term expiring [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after the date of the First Commercial Sale. Thereafter, the Agreement automatically shall be renewed for successive periods of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] each, unless terminated by either party upon [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] prior written notice to the other party. 10.2 Termination by Mutual Agreement. The parties may terminate the Agreement at any time upon the express written agreement of both parties. 10.3 Termination for Cause. Except as otherwise provided in Section 12.2 below, either party may terminate the Agreement upon or after the breach of any material provision of the Agreement by the other party if the other party has not cured such breach within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after notice thereof from the non-breaching party. -16- 17 10.4 Effect of Expiration and Termination. Expiration or termination of the Agreement shall not relieve the parties of any obligation accruing prior to such expiration or termination. The provisions of Articles 8 and 9 shall survive the expiration or termination of the Agreement. Additionally, the following provisions shall apply on the termination or expiration of the Agreement: 10.4.1 Merck shall cease all sales of the Testing Device and the Reader and all other activities on behalf of Biosite and shall return to Biosite and immediately cease all use of any Confidential Information then in Merck's possession; provided, however, that Merck may continue to use any information that falls within the descriptions of clause (b) of Section 9.1.2 above. 10.4.2 Merck shall remove from its property and immediately discontinue all use, directly or indirectly, of the Biosite Marks and any word, title, expression, trademark, design, or marking that is confusingly similar thereto. 10.4.3 Upon termination by Biosite, Biosite shall have the right, at its option, to repurchase Merck's inventory of Testing Devices and Readers at Merck's purchase price plus reasonable freight, insurance and duties. In all other cases, Merck shall have the right to sell the remaining stock of Testing Devices and Readers. Notwithstanding the foregoing, in case of termination of the Agreement, Merck and Biosite shall negotiate in good faith the continuation of the delivery of Testing Devices due to still effective long-term contracts with customers in the Territory. In case of termination of the Agreement, Biosite either (a) shall continue to sell Testing Devices directly to such customers, or at Biosite's option, (b) enable Merck to continue to purchase Testing Devices and to resell the same only to customers holding such long term contracts, on the terms and conditions provided for under the Agreement. 10.4.4 In accordance with the provisions of Section 6.4.4 above, Merck shall take all such actions and execute such documents as Biosite reasonably requests to assist Biosite in obtaining any registrations necessary for Biosite (or Biosite's agent) to continue selling the Testing Device and the Reader in the Territory. 10.5 Sole Remedy. Biosite's repurchase of Merck's inventory of the Testing Device and the Reader or Merck's right to sell such inventory if not so repurchased by Biosite, pursuant to Section 10.4.3 above, shall constitute Merck's sole remedy upon the termination or expiration of the Agreement. Under no circumstances shall Biosite be liable to Merck by reason of termination or expiration of the Agreement for compensation, reimbursement, or damages for (a) loss of prospective compensation, (b) goodwill or loss thereof, or (c) expenditures, investments, leases or any type of commitment made in connection -17- 18 with the Merck's business or in reliance on the existence of the Agreement. ARTICLE 11 CONCILIATION AND ARBITRATION 11.1 Conciliation. Biosite and Merck shall exercise their commercially reasonable efforts to settle between themselves in an amicable way any dispute, controversy or claim which may arise out of or relating to the Agreement within thirty (30) days after one party receives notice from the other party of such dispute, controversy or claim. 11.2 Arbitration. If not settled by the parties in accordance with Section 11.1 above, any dispute, controversy or claim originally initiated by either party and arising out of or relating to the Agreement shall be referred to and resolved by binding arbitration, held in New York, New York, United States of America, and conducted in accordance with the American Arbitration Association ("AAA") Commercial Arbitration Rules, and the following provisions: 11.2.1 The arbitral tribunal shall be composed of three (3) persons each of whom shall be neutral, independent and impartial. Each party shall nominate an arbitrator, and the two (2) arbitrators so appointed shall appoint a third, who shall act as president of the arbitral tribunal. If either party fails to nominate an arbitrator within thirty (30) days of receiving notice of the nomination of an arbitrator by the other party, such (second) arbitrator shall be appointed at the request of the first party by the AAA. If the two arbitrators selected by the parties fail to select a third, presiding arbitrator within twenty (20) days of the appointment of the second arbitrator, the third arbitrator shall be appointed at the request of the first party by the AAA. 11.2.2 The arbitrators shall hold a preliminary meeting with the parties within thirty (30) days of the appointment of the third or presiding arbitrator for the purpose of determining the issues to be decided in the arbitration, the specific procedures to be followed and the schedule for briefing and/or hearings. The arbitrators shall hold a hearing which, unless the parties otherwise agree, should be recorded by stenographic or other means. Within one hundred twenty (120) days of the preliminary meeting (except in extraordinary cases), the arbitrators shall issue an award in writing which shall state the reasons for the award and which, except as set forth in the following sentence, shall be final and binding between the parties. Judgment upon the award rendered by the arbitrators may be entered in any court of competent jurisdiction. -18- 19 11.2.3 The parties agree that the award of the arbitrators shall be the sole and exclusive remedy between them regarding any claims, counterclaims, issues or accountings presented or pled to the arbitrators; that it shall be made and shall promptly by payable in United States dollars free of any tax, deduction or offset; and that any costs, fees or taxes incident to enforcing the award shall, to the maximum extent permitted by law, be charged against the party resisting such enforcement. 11.2.4 Questions concerning arbitrability under this dispute resolution clause shall be governed exclusively by the United States Arbitration Act. The arbitrators shall be empowered to consider and decide claims or issues arising under or relating to state and federal statutes governing business practices, but shall not be empowered to nor shall they award punitive damages. 11.2.5 As part of any arbitral award rendered pursuant to this Section 11.2, the arbitrators shall make an award of arbitral costs and reasonable attorneys' fees to the prevailing party. 11.2.6 The Agreement shall be governed by and construed in accordance with the laws of the State of New York and shall not be governed by the United Nations Convention on Contracts for the International Sale of Goods. ARTICLE 12 MISCELLANEOUS 12.1 Notices. Any consent, notice or report required or permitted to be given or made under the Agreement by one of the parties to the other shall be in writing, delivered personally or by facsimile (and promptly confirmed by personal delivery, air mail, internationally-recognized delivery service or courier), air mail, internationally-recognized delivery service or courier, postage prepaid (where applicable), addressed to such other party at its address indicated below, or to such other address as the addressee shall have last furnished in writing to the addressor and (except as otherwise provided in the Agreement) shall be effective upon receipt by the addressee. If to Biosite: Biosite Diagnostics Incorporated 11030 Roselle Street, Suite D San Diego, California 92121, U.S.A. Attention: Kim D. Blickenstaff President -19- 20 with a copy to: Pillsbury Madison & Sutro 235 Montgomery Street, 15th Floor San Francisco, California 94104, U.S.A. Attention: Thomas E. Sparks, Jr. If to Merck: E. Merck Frankfurter Strasse 250 D-64293 Darmstadt Germany Attention: Dr. Bernd Reckmann with a copy to: E. Merck Frankfurter Strasse 250 D-64293 Darmstadt Germany Attention: LEW/Licensing 12.2 Force Majeure. Neither party shall be held liable or responsible to the other party nor be deemed to have defaulted under or breached the Agreement for failure or delay in fulfilling or performing any term of the Agreement to the extent, and for so long as, such failure or delay is caused by or results from causes beyond the reasonable control of the affected party including fire, floods, embargoes, war, acts of war (whether war be declared or not), insurrections, riots, civil commotions, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any governmental authority or the other party. 12.3 Assignment. The Agreement may not be assigned or otherwise transferred, nor, except as expressly provided hereunder, may any right or obligations hereunder be assigned or transferred by either party [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. Any permitted assignee shall assume all obligations of its assignor under the Agreement. 12.4 Severability. Each party hereby acknowledges that it does not intend to violate any public policy, statutory or common laws, rules, regulations, treaty or decision of any government agency or executive body thereof of any country or community or association of countries. Should one or more provisions of the Agreement be or become invalid, the parties shall substitute, by mutual consent, valid provisions for such invalid provisions which valid provisions in their economic effect are sufficiently similar to the invalid provisions that it can be reasonably assumed that the parties would have entered into the Agreement with such provisions. In case such provisions cannot be agreed upon, the invalidity of one or several provisions of the Agreement shall not affect the validity of the Agreement as a whole, unless the invalid provisions are of such essential importance to the Agreement that it is to be reasonably assumed that the parties would not have entered into the Agreement without the invalid provisions. -20- 21 12.5 U.S. Export Laws and Regulations. Biosite and Merck each acknowledge that the development and commercialization rights and information disclosure requirements of the Agreement are subject to the laws and regulations of the United States of America relating to the export of products and technical information. Without limitation, Biosite and Merck each shall comply with all such laws and regulations. 12.6 Entire Agreement. The Agreement contains the entire understanding of the parties with respect to the subject matter hereof. All express or implied agreements and understandings, either oral or written, heretofore made are expressly superseded by the Agreement. The Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by both parties. 12.7 Headings. The captions to the several Articles and Sections hereof are not a part of the Agreement, but are merely guides or labels to assist in locating and reading the several Articles and Sections hereof. 12.8 Independent Contractors. It is expressly agreed that Biosite and Merck shall be independent contractors and that the relationship between the two parties shall not constitute a partnership, joint venture or agency. Neither Biosite nor Merck shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other, without the prior consent of the party to do so. 12.9 Language. The English language version of the Agreement shall govern and control any translations of the Agreement into any other language. 12.10 Waiver. The waiver by either party of any right hereunder or the failure to perform or of a breach by the other party shall not be deemed a waiver of any other right hereunder or of any other breach or failure by said other party whether of a similar nature or otherwise. 12.11 Counterparts. The 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. IN WITNESS WHEREOF, the parties have executed the Agreement as of the date first set forth above. BIOSITE DIAGNOSTICS INCORPORATED By /s/ Kim D. Blickenstaff ----------------------------------- -21- 22 Title President E. MERCK By /s/ Dr. Walter Bardorff ----------------------------------- Dr. Walter Bardorff Title General Manager, Diagnostics Division By /s/ Dr. Bernd Reckmann ----------------------------------- Dr. Bernd Reckmann Title Head of Marketing and Sales Diagnostic Division -22- EX-10.16 10 EXHIBIT 10.16 1 EXHIBIT 10.16 [CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION] RESEARCH AND DEVELOPMENT AGREEMENT THIS RESEARCH AND DEVELOPMENT AGREEMENT dated July 1, 1992 (the "Agreement"), is made by and between BIOSITE DIAGNOSTICS INCORPORATED, a Delaware corporation, with principal offices at 11030 Roselle Street, Suite D, San Diego, California 92121 ("Biosite"), and IXSYS, INC., a Delaware corporation, with principal offices at 3550 General Atomics Court, Suite L-103, San Diego, California 92121 ("Ixsys"). BACKGROUND Biosite has expertise and proprietary rights in technology relating to immunochemistry and, more particularly, to biochemical techniques for antibody screening and immunoassay procedures. Biosite also has expertise relating to chemical techniques for the development of immunogens and conjugates useful as antibody targets for the production of, e.g., monoclonal antibodies. Ixsys has complementary technology and expertise for the production of antibodies. Both parties wish to share their respective antibody technologies for their mutual benefit. TERMS AND CONDITIONS NOW, THEREFORE, in consideration of the foregoing premises, and the mutual covenants set forth below, the parties hereby agree as follows: 1. Definitions 1.1 "Biosite Antibodies" means collectively those immunoglobulin-based molecules developed and produced by or on behalf of Biosite, without the use of Ixsys Technology or Ixsys Improvements other than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], such immunoglobulin-based molecules including, but not limited to, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 1.2 "Biosite Improvement(s)" is any technology developed by either or both parties on or before the fifth anniversary of the Effective Date and that represents an improvement of Biosite Technology. -1- 2 1.3 The "Biosite Project Manager" is Dr. Gunars Valkirs, the Biosite scientist assigned to the Collaborative Project. The Biosite Project Manager may be changed from time to time by designation of the President of Biosite, which change shall be communicated in writing to Ixsys. 1.4 "Biosite Technology" means all technology, and patent rights thereto, reduced to practice and owned by Biosite or to which Biosite has rights, now or in the future before the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the Effective Date, relating [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 1.5 "Collaborative Biosite Antibodies" means, collectively, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 1.6 "Collaborative Project" means the project to clone and express Collaborative Biosite Antibodies as described generally on Schedule 1.6. 1.7 "Collaborative Project Period" means the period commencing on the Effective Date and continuing until the second anniversary thereof, unless earlier terminated as provided in the Agreement. 1.8 "Effective Date" means July 1, 1992. 1.9 "Immunoassay Field" means the manufacture or use of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 1.10 "Ixsys Improvements(s)" is any technology and patents thereto for use in the Immunoassay Field, developed by either or both parties on or before the fifth anniversary of the Effective Date and that represents an improvement of Ixsys Technology. 1.11 The "Ixsys Project Manager" is William D. Huse, the Ixsys scientist assigned to the Collaborative Project. The Ixsys Project manager may be changed from time to time by designation of the President of Ixsys, which change shall be communicated in writing to Biosite. 1.12 "Ixsys Technology" means all technology, and patent rights thereto, reduced to practice and owned by Ixsys or to which Ixsys has rights, now or in the future before the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the Effective Date, that relates to methods, techniques, materials or compositions [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. -2- 3 1.13 "Libraries" means [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] libraries, including DNA constructs, created (a) solely by Ixsys under the Collaborative Project, (b) jointly by Ixsys and Biosite under the Collaborative Project or (c) solely by Biosite after the term of the Collaborative Project. 1.14 "Net Sales" means, with respect to any Product, the invoiced sales price of such Product billed to independent third party customers, less (a) to the extent such amounts are included in the invoiced sales price, actual credit allowance to such customers for spoiled, damaged, out-dated and returned Product; (b) actual freight and insurance costs incurred in transporting such Product to such customers; (c) quantity and other trade discounts actually allowed and taken; (d) sales, value-added and other direct taxes incurred; (e) customs duties and surcharges and other governmental charges incurred in connection with the exportation or importation of such product in final form and (f) legally mandated rebates. 1.15 "Novel Product" means those Products which are within the scope of one or more claims under Patent Rights, which claims cover (a) a diagnostic assay having a format that would not be feasible at the time the format was identified or reduced to practice with then-existing technology - other than Ixsys Technology or Ixsys Improvements ("Novel Assay Products"), or (b) a Collaborative Biosite Antibody actually identified using Ixsys Technology or Ixsys Improvements for a target [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] which is not being assayed at the time such Collaborative Biosite Antibody is first identified ("Novel Target Products"). Any disagreements concerning whether a Product constitutes a Novel Product shall be subject to the arbitration provisions of Section 15.7 below. 1.16 "Patent Rights" shall mean (a) all patents and patent applications heretofore or hereafter filed or having legal force in any country, owned by or licensed to a party or to which such party otherwise acquires rights, having one or more claims covering Ixsys Technology or Ixsys Improvements, on the one hand, or Biosite Technology or Biosite Improvements, on the other hand as the case may be, and (b) all divisionals, continuations, continuations-in-part, reissues, renewals, extensions or additions to any such patents and patent applications. 1.17 "Future Ixsys Patent Rights" shall mean (a) all patents and patent applications hereafter filed or having legal force in any country, owned by or licensed to Ixsys or to which Ixsys otherwise acquires rights, having one or more claims covering technology for use in the Immunoassay Field, developed from the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the Effective Date to the -3- 4 expiration or earlier termination of the Agreement that represents an improvement of either Ixsys Technology or Ixsys Improvements, and (b) all divisionals, continuations, continuations-in-part, reissues, renewals, extensions or additions to any such patents and patent applications. 1.18 "Product" means (a) all Collaborative Biosite Antibodies and all Assignee Antibodies, (b) all assays, assay kits, other diagnostic kits or test configurations, the manufacture, sale or use of which utilizes or contains one or more Collaborative Biosite Antibodies and/or Assignee Antibodies and (c) all Novel Products. 1.19 "Royalty Period" means the period commencing on the Effective Date and continuing until the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] anniversary of the Effective Date; provided, however, that in the event of a Biosite Assignment, the period shall continue until [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 1.20 "Assignee Antibodies" means those Collaborative Biosite Antibodies and those Biosite Antibodies developed or made by Biosite or Biosite's assignee using Ixsys [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], wherein at the date of a Biosite Assignment, such antibodies have not been sold previously by Biosite hereunder and/or have not been disclosed in a Biosite FDA submission in the Immunoassay Field. 1.21 "Biosite Assignment" means the consummated assignment of this Agreement by Biosite to a third party assignee, directly or indirectly, and in accordance with Section 15.3 below. 2. Collaborative Project 2.1 Research and Development. Ixsys and Biosite each shall conduct their respective duties under the Collaborative Project in good scientific manner, and in compliance in all material respects with all requirements of applicable laws and regulations and all applicable good laboratory practices to attempt to achieve the objectives of the Collaborative Project efficiently and expeditiously. Ixsys and Biosite each shall proceed diligently with their respective duties under the Collaborative Project by using their respective good faith efforts to provide sufficient time, effort, equipment and facilities to carry out the Collaborative Project, and use of personnel with sufficient skills and experience as are required to accomplish the objectives of the Collaborative Project. -4- 5 2.2 Collaborative Objectives. 2.2.1 Collaborative Biosite Antibodies. Biosite shall use its commercially reasonable efforts to develop and commercialize Collaborative Biosite Antibodies. 2.2.2 Biosite Research and Development Duties. Biosite shall be primarily responsible for performing the work associated with achieving Objectives 1-3 on Schedule 1.6, together with the assistance of such Ixsys personnel as designated by the Ixsys Project Manager and reasonably requested by Biosite. 2.2.3 Ixsys Research and Development Duties. Ixsys shall be primarily responsible for performing the work associated with achieving Objectives 4-6 on Schedule 1.6 together with the assistance of such Biosite personnel as designated by the Biosite Project Manager and reasonably requested by Ixsys. 2.2.4 Reimbursement for Certain Biosite Expenses. Biosite shall reimburse Ixsys for the cost of all disposable and reagent materials used by Biosite personnel while working at Ixsys. Such reimbursement shall be quarterly and based on reasonable acceptable business records made available to Biosite upon request, which records shall include, among other things, invoices for the disposable and reagent materials. All reimbursements shall be paid by Biosite within thirty (30) days of receipt of a quarterly invoice from Ixsys, which invoice must be mailed to Biosite within sixty (60) days of the end of each calendar quarter to avoid forfeiture of the reimbursements for that quarter. 2.2.5 Reimbursement for Certain Ixsys Expenses. Ixsys shall reimburse Biosite for the cost of all disposable and reagent materials used by Ixsys personnel while working at Biosite. Such reimbursement shall be quarterly and based on reasonable acceptable business records made available to Ixsys upon request, which records shall include, among other things, invoices for the disposable and reagent materials. All reimbursements shall be paid by Ixsys within thirty (30) days of receipt of a quarterly invoice from Biosite, which invoice must be mailed to Ixsys within sixty (60) days of the end of each calendar quarter to avoid forfeiture of the reimbursement for that quarter. 2.2.6 Compensation of Personnel. Each of Ixsys and Biosite shall be solely responsible for the payment of all salary and other compensation of their respective personnel. 2.3 Insurance. Biosite shall maintain product liability insurance with respect to the development, manufacture -5- 6 and sales of Products by Biosite in such amount as is customary in the industry for other companies engaged in similar activities. Ixsys shall be named as an additional insured on any such insurance policies. Biosite shall maintain such insurance for so long as it continues to develop, manufacture or sell any Products, and thereafter for so long as Biosite maintains insurance for itself covering such development, manufacture or sales. 2.4 Records and Reports 2.4.1 Records. Each party shall maintain complete records, in sufficient detail and manner as the Ixsys Project Manager and the Biosite Project Manager mutually shall determine, and in good scientific manner for patent purposes, which shall be complete and accurate and shall fully and properly reflect all work done by such party and results achieved in the performance of the Collaborative Project (including all data in the form required under all applicable laws and regulations). 2.4.2 Inspection of Records. Each party shall have the right, during normal business hours and upon reasonable notice, to inspect and copy all such records of the other party regarding work performed under the Collaborative Project. Each party shall maintain such records and the information of the other party contained therein in confidence in accordance with Section 9 below, and shall not use such records or information except to the extent otherwise permitted by the Agreement. 2.4.3 Quarterly Development Reports. Within thirty (30) days following the end of each calendar quarter during the Collaborative Project Period, Biosite shall prepare and deliver to Ixsys a reasonably detailed written summary report which shall (a) describe the work performed to date under the Collaborative Project, (b) evaluate the work performed in relation to the objectives of the Collaborative Project and (c) state any determinations of Biosite regarding the nature and extent of future research and development activities under the Collaborative Project. 2.5 Term of Collaborative Project. The Collaborative Project shall continue for the duration of the Collaborative Project Period unless terminated earlier as provided below. 3. Exchange of Information 3.1 Ixsys Technology. During the Collaborative Project Period, Ixsys shall provide to Biosite, on a continuing basis as it becomes available, such information, training and technical assistance regarding Ixsys Technology and Ixsys -6- 7 Improvements as reasonably necessary to enable Biosite to perform its duties under the Collaborative Project, to achieve the objectives of the Collaborative Project and to manufacture, use and sell Products and Biosite Antibodies. 3.2 Biosite Technology. During the Collaborative Project Period, Biosite shall provide to Ixsys, on a continuing basis as it becomes available, hybridomas producing Biosite Antibodies, and such information, training and technical assistance regarding Biosite Technology and Biosite Improvements as reasonably necessary to enable Ixsys to perform its duties under the Collaborative Project, to achieve the objectives of the Collaborative Project, as reasonably necessary for the use of such Biosite Antibodies or as useful for the practice of Ixsys Technology. 3.3 Improvements. From the Effective Date to the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] thereof, Ixsys and Biosite, as applicable, shall provide to the other party all information regarding Biosite Improvements developed by Ixsys and Ixsys Improvements developed by Biosite. 3.4 Availability of Employees. During the Collaborative Project Period, each party shall make its employees (designated by the Ixsys Project Manager or the Biosite Project Manager, as the case may be) and relevant reports of nonemployee consultants available, at no cost to the other party, upon reasonable notice during normal business hours, at their respective places of employment to consult with the other party, regarding use of the Ixsys Technology or Ixsys Improvements, or the Biosite Technology or Biosite Improvements, as the case may be, on issues arising during the Collaborative Project, and in connection with any request from any regulatory agency (including regulatory, scientific, technical and clinical testing issues). 4. Ownership of Technology and Improvements 4.1 Ixsys Technology. Ixsys is, and at all times hereafter shall be, the sole and exclusive owner or licensee of all Ixsys Technology and all Ixsys Improvements, whether conceived or developed solely by Ixsys personnel, solely by Biosite personnel or jointly by Ixsys and Biosite personnel. Biosite shall assign to Ixsys any rights which it has or obtains in all Ixsys Technology and Ixsys Improvements. 4.2 Biosite Technology. Biosite is, and at all times hereafter shall be, the sole and exclusive owner or licensee of all Biosite Technology and all Biosite Improvements, whether conceived or developed solely by Biosite personnel, solely by Ixsys personnel or jointly by Biosite and Ixsys -7- 8 personnel. Ixsys shall assign to Biosite any rights which it has or obtains in all Biosite Technology and Biosite Improvements. 4.3 Biosite Antibodies and Libraries. Subject to the ownership rights set forth in Sections 4.1 and 4.2 above, Biosite is, and at all times hereafter shall be, the sole and exclusive owner of all Biosite Antibodies, Collaborative Biosite Antibodies and all Libraries. Ixsys is not granted any right to use or sell Biosite Antibodies, Collaborative Biosite Antibodies or Libraries, unless expressly provided under the Agreement. 5. Patents 5.1 Patents. The decision as to whether to seek patent protection, including the decision as to whether to file applications for patent term extension, and the decision as to where to seek and maintain such protection shall be in the sole discretion of (a) Ixsys with respect to Ixsys Technology, Ixsys Improvements and Future Ixsys Patent Rights, and (b) Biosite with respect to Biosite Technology, Biosite Improvements, Biosite Antibodies, Collaborative Biosite Antibodies and Libraries. Except as expressly set forth in this Section 5.1, each party shall manage the filing, prosecution and maintenance of, and shall bear all costs incurred in connection with, the filing, prosecution and maintenance of its own patent applications and patents. Each party shall cause its employees and agents to take all actions and to execute, acknowledge and deliver all instruments or agreements reasonably requested by the other party, and necessary for the perfection, maintenance or enforcement of the other party's rights as set forth above. 5.2 Notification of Infringement. Each party shall notify the other party of any infringement known to such party of any Patent Rights of the other party and shall provide the other party with the available evidence, if any, of such infringement. 5.3 Enforcement of Patent Rights. If Ixsys or Biosite has actual notice of infringement of Patent Rights in the Immunoassay Field, the respective officers of Ixsys and Biosite shall confer to determine in good faith an appropriate course of action to enforce such Patent Rights or otherwise abate the infringement thereof. Ixsys, at its sole expense, shall have the right to determine the appropriate course of action to enforce Ixsys Patent Rights or otherwise abate the infringement thereof, to take (or refrain from taking) appropriate action to enforce Ixsys Patent Right, to control any litigation or other enforcement action and to enter into, or permit, the settlement of any such litigation or other enforcement action with respect to Ixsys Patent Rights, and shall consider, in good faith, the interests of Biosite in so -8- 9 doing. All monies recovered upon the final judgment or settlement of any action undertaken by Ixsys to enforce Ixsys Patent Rights shall be retained by Ixsys. Biosite, at its sole expense, shall have the right to determine the appropriate course of action to enforce Biosite Patent Rights or otherwise abate the infringement thereof, to take (or refrain from taking) appropriate action to enforce Biosite Patent Rights, to control any litigation or other enforcement action and to enter into, or permit, the settlement of any such litigation or other enforcement action with respect to Biosite Patent Rights, and shall consider, in good faith, the interests of Ixsys is doing so. All monies recovered upon the final judgment or settlement of any action undertaken by Biosite to enforce Biosite Patent Rights shall be retained by Biosite; provided, however, that in the event of a Biosite Assignment, after reimbursement of costs from the litigation Biosite's assignee shall pay to Ixsys royalties under Sections 7.1 and 7.2 below on all monies representing royalty-bearing sales of Products or Biosite Antibodies recorded after the assignment, or royalties or other fees from third parties on sales of Biosite Antibodies developed or made using Ixsys cloning or expression vectors and Collaborative Biosite Antibodies in accordance with Section 6.3 below. Notwithstanding the foregoing, Ixsys and Biosite shall fully cooperate with each other in the planning and execution of any action to enforce the other party's Patent Rights. 6. Licenses 6.1 License Grant to Ixsys. Biosite grants a worldwide nonexclusive license to Ixsys (a) to make, have made, use and sell those Biosite Antibodies and Collaborative Biosite Antibodies identified prior to the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the Effective Date and which may be useful in the practice of Ixsys Technology and Ixsys Improvements, but specifically excluding antibodies directed to the targets identified in Schedule 1.4B, and (b) to use Biosite Technology and Biosite Improvements, including the right to grant sublicenses (on the terms and subject to the conditions of the Agreement) to the extent it may be useful in the practice of Ixsys Technology and Ixsys Improvements. This license to Ixsys shall not permit the use of Biosite Antibodies, Collaborative Antibodies, Biosite Technology or Biosite Improvements by Ixsys or its sublicensees in commercial in vitro diagnostic products or their manufacture. 6.2 License Grant to Biosite. Ixsys grants to Biosite a worldwide nonexclusive license under the Ixsys Technology and the Ixsys Improvements, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], (a) to make, use or sell Products in the Immunoassay Field and (b) to make Biosite Antibodies solely for use in the Immunoassay Field. -9- 10 6.3 [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 6.4 Third Party Licenses. If, on or before the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the Effective Date, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] any rights in the Immunoassay Field which constitute Ixsys Technology or Ixsys Improvements, or grants or assigns to Biosite [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], then Ixsys or Biosite, as the case may be, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] at the option of the other party, to the extent that Ixsys or Biosite, as the case may be, has a right under, and on such terms and conditions as provided by, such third party agreement to grant such sublicense. For example, Ixsys hereby sublicenses Biosite under the agreement between Ixsys and Stratacyte Corporation effective November 7, 1991, a copy of which is attached hereto as Appendix A. 6.5 Biosite License Options. 6.5.1 If Ixsys elects in its sole discretion to broadly license (in terms of number of intended licensees) a Future Ixsys Patent Right, Biosite shall have the option to obtain a [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] license from Ixsys under such Future Patent Rights, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], (a) to make, use, or sell Products in the Immunoassay Field and (b) to make Biosite Antibodies for use solely in the Immunoassay Field, on such terms and conditions as the parties mutually shall agree. [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 6.5.2 If the parties mutually agree, Ixsys shall produce, for use by Biosite solely in the Immunoassay Field, such [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] libraries on such terms and conditions as the parties mutually shall agree. 6.6 Ixsys License Options. The parties hereby agree -10- 11 to negotiate in good faith a separate license agreement covering the making, using or selling by Ixsys of Collaborative Biosite Antibodies for therapeutic indications on reasonable royalty rates and other terms and conditions. 7. Royalties 7.1 Royalty Rate. In consideration for the license granted to Biosite herein, during the Royalty Period, Biosite shall pay to Ixsys a single royalty on any Product equal to (a) with respect to all Products, the lesser of (i) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] per each different Collaborative Biosite Antibody in a Product sold by Biosite to third parties, or (ii) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] per each different target to which more than one Collaborative Biosite Antibody is directed in each assay in a Product sold by Biosite to third parties; or (b) if greater in any calendar year with respect to Novel Products only, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]of Net Sales of Novel Target Products or with respect to Novel Assay Products: (i) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of Net Sales of Novel Assay Products up to [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] in any calendar year, (ii) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of Net Sales of Novel Assay Products in excess of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] and up to [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] in any calendar year, (iii) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of Net Sales of Novel Assay Products in excess of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] and up to [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] in any calendar year, and (iv) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of Net Sales of Novel Assay Products in excess of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] in any calendar year. Notwithstanding anything to the contrary in this Section 7.1, Biosite shall pay to Ixsys [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of that portion of royalties and other fees actually received by Biosite and specifically attributable to the use or sale by a third party, in accordance with Section 6.3, of Collaborative Biosite Antibodies or those Biosite Antibodies developed or made by Biosite using Ixsys [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. The determination of the attributable portion of royalties and fees in a third party agreement shall be made in accordance with generally accepted accounting principles. No royalty shall accrue to Ixsys hereunder with respect to Biosite's or a third party's manufacture, use or sale of Biosite Antibodies produced from -11- 12 hybridomas or otherwise without use of Ixsys Technology and Ixsys Improvements. 7.2 Assignee Royalty Rate. In the event of a Biosite Assignment, Biosite's assignee shall pay to Ixsys on Assignee Antibodies during the Royalty Period and instead of the royalty specified in Section 7.1(a) above, but subject to the provisions of Section 7.1(b) above, a single royalty equal to: the greater of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of Net Sales of Products containing Assignee Antibodies or (ii) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the Net Sales, wherein Net Sales for combination Products containing more than one different antibody shall be calculated by applying to the Net Sales (as defined in Section 1.14) of the combination Products a fractional multiplier having as its numerator [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] and as its denominator [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. All other provisions of Section 7.1 [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] and effect. 7.3 Royalty Reports. For each [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] during the Royalty Period, Biosite shall furnish to Ixsys a [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] showing in reasonably specific detail (a) the gross sales of all Products sold by Biosite and its sublicensees during the reporting period, (b) the number and composition of Collaborative Biosite Antibodies in the Products, (c) the calculation of Net Sales from gross sales (if applicable), and (d) the calculation of royalties payable to Ixsys which shall have accrued hereunder based upon sales of Products, (e) the gross sales of Biosite Antibodies developed or made using Ixsys [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] and Collaborative Biosite Antibodies by third parties in accordance with Section 6.3, (f) the calculation of royalties and other fees actually received by Biosite in connection with the use or sale thereof by third parties, and (g) the calculation of royalties to Ixsys which shall have accrued hereunder based upon the use or sale thereof by third parties. Such royalty reports shall be due on the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] following the close of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. Biosite shall keep complete and accurate records in sufficient detail to properly reflect all gross sales and Net Sales and to enable the royalties payable hereunder to be determined. 7.4 Payment Terms. All royalties shown to have accrued by each royalty report provided for under Section 7.3 above shall be due and payable on the date such royalty report -12- 13 is due. Payment of royalties in whole or in part may be made in advance of such due date. 7.5 Minimum Royalties. 7.5.1 On the Effective Date and on the first day of each January thereafter, Biosite shall pay to Ixsys minimum annual royalties for each calendar year equal to [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] in connection with the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] constituting part of the Ixsys Technology, and [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] in connection with the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] constituting part of the Ixsys Technology; provided, however, that (i) the initial minimum annual royalty payments under this section will be prorated from the Effective Date until December 31, 1992; and (ii) the minimum annual royalty payments due after the initial payment on the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] or the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] shall accrue but shall not be due, with respect to each part of the technology, until the date such part of the technology has been actually reduced to practice. For purposes of this Section 7.5.1. "reduced to practice" shall mean the achievement of (a) objective 1 or 2 on Schedule 1.6 with respect to the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], and (b) objective 3 on Schedule 1.6 with respect to the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. If at the end of the Collaborative Project Period either the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] or the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] has not been actually reduced to practice by Biosite, Ixsys shall reimburse Biosite for that portion of the initial minimum annual royalty payments made under this section which relates to any such technology not actually reduced to practice. 7.5.2 Minimum royalties paid under Section 7.5.1. shall be creditable against all royalties shown to have accrued by each royalty report provided for under Section 7.3 above during such calendar year. 7.6 Duration of Royalty Obligations. Royalty obligations shall continue during the Royalty Period, after which each party's license granted hereunder shall become a fully paid-up, irrevocable license. 7.7 Audits. Upon the written request of Ixsys, Biosite shall permit an accounting firm selected by Ixsys and reasonably acceptable to Biosite to have access, up to twice per year, during normal business hours to such of the records of -13- 14 Biosite as may be reasonably necessary to verify the accuracy of the royalty reports hereunder. If such audit concludes that additional royalties were owed during such period, Biosite shall pay the additional royalties within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the date Ixsys delivers to Biosite such accounting firm's written report. The fees charged by such accounting firm shall be paid by Ixsys; provided, however, if the audit discloses that the royalties payable by Biosite for the audited period are more than [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of the royalties actually paid for such period, then Biosite shall pay the reasonable fees and expenses of such audit. Biosite shall include in each sublicense granted pursuant to the Agreement a provision requiring the sublicensee to make reports to Biosite, to keep and maintain records of sales and to grant access to such records by Ixsys' accounting firm to the same extent required of Biosite under the Agreement. 8. License Issue Fee Payments. In consideration for the licenses granted to Biosite under the Agreement, Biosite shall pay to Ixsys, on or before the Effective Date, license issue fees in the amount of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] in connection with the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] constituting part of the Ixsys Technology, and [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] in connection with the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] constituting part of the Ixsys Technology. 9. Confidentiality. 9.1 Confidential Information. During the term of the Agreement, and for a period of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] following the expiration or earlier termination hereof, each party shall maintain in confidence all information (including samples) disclosed by the other party hereto, and shall not use, disclose or grant the use of such information except on a need-to-know basis to those affiliates, employees, permitted licensees, permitted assignees and agents, consultants, clinical investigators or contractors, to the extent such disclosure is reasonably necessary in connection with such party's activities as expressly authorized by the Agreement. To the extent that disclosure is authorized by the Agreement, prior to disclosure, each party hereto shall obtain agreement of any such person or entity to hold in confidence and not make use of such information for any purpose other than those permitted by the Agreement. Each party shall use at least the same standard of care customarily used by companies engaged in the research, development and manufacture of biopharmaceutical products to protect its own trade secrets or proprietary information to ensure that its affiliates, employees, permitted licensees, -14- 15 permitted assignees and agents, consultants, clinical investigators and contractors do not disclose or make any unauthorized use of information of the other party hereto except as permitted by the Agreement. Each party shall notify the other promptly upon discovery of any unauthorized use or disclosure of the other party's information. 9.2 Permitted Disclosures. The confidentiality obligations contained in Section 9.1 above shall not apply to the extent that (a) any receiving party (the "Recipient") is required to disclose information by law, order or regulation of a governmental agency or a court of competent jurisdiction, (b) the Recipient is required to disclose information to any governmental agency for purposes of obtaining approval to test or market a Product, or (c) the Recipient can demonstrate that (i) the disclosed information was public knowledge at the time of such disclosure by the Recipient, or thereafter became public knowledge, other than as a result of actions of the Recipient, its affiliates, employees, permitted licensees, permitted assignees and agents, consultants, clinical investigators or contractors in violation hereof; (ii) the disclosed information was rightfully known by the Recipient, its affiliates or permitted licensees (as shown by its written records) prior to the date of disclosure to the Recipient by the other party hereunder; or (iii) the disclosed information was received by the Recipient or its affiliates or permitted licensees on an unrestricted basis from a source unrelated to any party to the Agreement and not under a duty of confidentiality to the other party. 10. Warranties and Representations. 10.1 By Ixsys. Ixsys warrants and represents to Biosite as follows: 10.1.1 It is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation, has full corporate power and authority to own its assets and carry on its business as presently conducted and to enter into and perform its obligations under the Agreement, including the Schedules hereto. 10.1.2 The execution, delivery and performance by it of the Agreement, including the Schedules attached hereto, have been duly authorized by all necessary corporate action on its part, do not require further approvals or consents of its stockholders or governing body, and will not contravene any applicable law, government rule, regulation or order binding on it, or contravene its charter, certificate of incorporation, bylaws, or other constituent documents or contravene the provisions of, or constitute a default under, violation of, or conflict with, or result in the creation of any lien upon any of -15- 16 its property under, any agreement or other instrument to which it is a party or by which it or any of its properties is or may be bound or affected. 10.1.3 The Agreement, including the Schedules attached hereto, constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency or similar laws in effect from time to time that affect creditors' rights generally and by principles of equity. 10.1.4 As of the date of the Agreement, Schedule 1.12 is a complete list of all United States and foreign patent applications and issued patents relating to Ixsys Technology. This schedule will be updated as necessary to reflect additional filings and issuances. 10.2 By Biosite. Biosite warrants and represents to Ixsys as follows: 10.2.1 It is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation, has full corporate power and authority to own its assets and carry on its business as presently conducted and to enter into and perform its obligations under the Agreement, including the Schedules hereto. 10.2.2 The execution, delivery and performance by it of the Agreement, including the Schedules attached hereto, have been duly authorized by all necessary corporate action on its part, do not require further approvals or consents of its stockholders or governing body, and will not contravene any applicable law, government rule, regulation or order binding on it, or contravene its charter, certificate of incorporation, bylaws, or other constituent documents or contravene the provisions of, or constitute a default under, violation of, or conflict with, or result in the creation of any lien upon any of its property under, any agreement or other instrument to which it is a party or by which it or any of its properties is or may be bound or affected. 10.2.3 The Agreement, including the Schedules attached hereto, constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency or similar laws in effect from time to time that affect creditors' rights generally and by principles of equity. 10.3 DISCLAIMER OF WARRANTIES. NOTHING IN THE AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION MADE, OR -16- 17 WARRANTY GIVEN, BY EITHER IXSYS OR BIOSITE THAT ANY PATENT WILL ISSUE BASED UPON ANY PENDING PATENT APPLICATION WITHIN THE PATENT RIGHTS, THAT ANY PATENT WITHIN THE PATENT RIGHTS WHICH ISSUES WILL BE VALID, OR THAT THE USE OF ANY LICENSE GRANTED HEREUNDER OR THAT THE USE OF ANY PATENT RIGHTS WILL NOT INFRINGE THE PATENT OR PROPRIETARY RIGHTS OF ANY OTHER PERSON OR ENTITY. EACH OF IXSYS AND BIOSITE DISCLAIMS ALL WARRANTIES WHATSOEVER WITH RESPECT TO THE OWNERSHIP OF THE PROCESSES, TECHNIQUES, METHODS, MATERIALS OR TECHNOLOGY USED TO MAKE AND USE THE BIOSITE ANTIBODIES OR COLLABORATIVE BIOSITE ANTIBODIES, EITHER EXPRESS OR IMPLIED, AND ALL WARRANTIES, EITHER EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY OR FITNESS OF THE ANTIBODIES FOR A PARTICULAR PURPOSE. 11. Term and Termination. 11.1 Expiration. Unless terminated earlier pursuant to Section 11.2 below, the Agreement shall expire on [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. 11.2 Termination. The Agreement may be terminated by either party upon or after the breach of any material provision of the Agreement by the other party, if the breaching party has not cured such breach within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] after notice thereof by the other party. 11.3 Effect of Termination. Expiration or termination of the Agreement shall not relieve the parties of any obligation accruing prior to such expiration or termination. The provisions of Section 6 shall survive the expiration of the Agreement. The provisions of Sections 4, 9, 12 and 15.7, as well as any rights of Ixsys or Biosite arising out of a breach by the other of any obligations hereunder, shall survive the expiration or earlier termination of the Agreement. 12. Indemnification. Each party shall indemnify, defend and hold the other party, its affiliates and sublicensees harmless, and hereby forever releases and discharges the other party, its affiliates and sublicensees, from and against all claims, demands, liabilities, damages and expenses, including attorneys' fees and costs arising out of the negligence, recklessness or intentional acts or omissions of the indemnifying party, its affiliates or sublicensees in connection with the work performed by such party during the Collaborative Project or the development, manufacture, sale or use of Biosite Antibodies or Products by such party. 13. Notices. Any consent, notice or report required or permitted to be given or made under the Agreement by one of the parties hereto to the other shall be in writing, delivered -17- 18 personally or by facsimile (and promptly confirmed by personal delivery, U.S. first class mail or courier), U.S. first class mail or courier, postage prepaid (where applicable), addressed to such other party at its address indicated below, or to such other address as the addressee shall have last furnished in writing to the addressor and (except as otherwise provided in the Agreement) shall be effective upon receipt by the addressee. Biosite: Biosite Diagnostics Incorporated 11030 Roselle Street, Suite D San Diego, CA 92121 Attention: Kim D. Blickenstaff Ixsys: Ixsys, Inc. 3550 General Atomics Court, Suite L-103 San Diego, CA 92121 Attention: Michael J. Hanifin With a copy to: Pillsbury Madison & Sutro 235 Montgomery Street, 15th Floor San Francisco, CA 94104 Attention: Thomas E. Sparks, Jr. 14. Bankruptcy. All rights and licenses granted under or pursuant to the Agreement are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the Bankruptcy Code, licenses of rights to "intellectual property" as defined under Section 101(52) of the Bankruptcy Code. Each of the parties, as a licensee of certain rights under the Agreement, shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code. 15. Miscellaneous. 15.1 Limited License. Nothing herein shall be construed as a license to a party of any patents or patent applications held by the other party unless otherwise specifically set forth herein. 15.2 Governing Law. The Agreement shall be governed by and construed in accordance with the laws of the State of California. 15.3 Assignment. Neither Biosite nor Ixsys shall assign its rights or obligations under the Agreement [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]. Any permitted assignee shall assume all obligations of its assignor under the Agreement. 15.4 Waivers and Amendments. No change, -18- 19 modification, extension, termination or waiver of the Agreement, or any of the provisions herein contained, shall be valid unless made in writing and signed by duly authorized representatives of the parties hereto. 15.5 Entire Agreement. The Agreement embodies the entire understanding between the parties and supersedes any prior understanding and agreements between and among them respecting the subject matter hereof. There are no representations, agreements, arrangements or understandings, oral or written, between the parties hereto relating to the subject matter of the Agreement which are not fully expressed herein. 15.6 Force Majeure. In the event of a delay caused by inclement weather, fire, flood, strike or other labor dispute, act of God, act of governmental officials or agencies, or any other cause beyond the control of Ixsys or Biosite, Ixsys or Biosite, as the case may be, shall be excused from performance hereunder for the period of time attributable to such delay, which may extend beyond the time lost due to one or more of the causes mentioned above. 15.7 Arbitration. Any disputes arising between the parties relating to, arising out of or in any way connected with the Agreement or any term or condition hereof, or the performance by either party of its obligations hereunder, whether before or after termination of the Agreement, shall be finally resolved by binding arbitration. Whenever a party shall decide to institute arbitration proceedings, it shall give written notice to that effect to the other party. The party giving such notice shall refrain from instituting the arbitration proceedings for a period of sixty (60) days following such notice. Any arbitration hereunder shall be conducted under the rules of the American Arbitration Association. Each such arbitration shall be conducted by a panel of three arbitrators appointed in accordance with such rules. Any such arbitration shall be held in San Diego, California. The arbitrators shall have the authority to grant specific performance, and to allocate between the parties the costs of arbitration in such equitable manner as they determine. Judgment upon the award so rendered may be entered in any court having jurisdiction or application may be made to such court for judicial acceptance of any award and an order of enforcement, as the case may be. In no event shall a demand for arbitration be made after the date when institution of a legal or equitable proceeding based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. 15.8 Counterparts. The Agreement may be executed in two or more counterparts, each of which shall be deemed an -19- 20 original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have caused the Agreement to be duly executed as of the day and year written below. BIOSITE DIAGNOSTICS IXSYS, INC. INCORPORATED By /s/ Gunars E. Valkirs By /s/ Michael J. Hanifen ----------------------------- ------------------------ Title V.P. Research and Title V.P. Business ----------------- -------------- Development 7/1/92 Development 7/1/92 ------------------ ------------------ -20- 21 Schedule 1.4A Biosite Technology 1. Threshold immunoassay methods described in U.S. Patent No. 5,028,535 and related Continuations in Part. 2. [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] 3. [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] -21- 22 Schedule 1.4B Specific Chemical Modifications Excluded [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] Specific derivatives and conjugates as disclosed in the following patent applications: -22- 23 Schedule 1.4B (cont.) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] -23- 24 Schedule 1.6 [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] -24- 25 Schedule 1.12 DOCKET SERIAL NO. DATE FILED NUMBER TITLE INVENTOR (PATENT NO.) (ISSUED) -------- ------- ---------- -------------- ------------ [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] P31 8699 METHODS OF HUSE 573,648 8/24/90 SYNTHESIZING OLIGONUCLEOTIDES WITH RANDOM CONDONS _______ [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] -25- EX-10.19 11 EXHIBIT 10.19 1 EXHIBIT 10.19 [CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION] DEBENTURE PURCHASE AGREEMENT THIS DEBENTURE PURCHASE AGREEMENT (the "Agreement") is made as of the 22nd day of September, 1995 by and between BIOSITE DIAGNOSTICS INCORPORATED, a Delaware corporation (the "Company"), on the one hand, and SANDOZ PHARMA LTD. ("Sandoz"), on the other hand. Sandoz is sometimes herein referred to as an "Investor." THE PARTIES HEREBY AGREE AS FOLLOWS: 1. Purchase and Sale of Debentures. 1.1 Sale and Issuance of Debentures. (a) Subject to the terms and conditions of this Agreement, Investor agrees to purchase at each of the Initial Closing, the Second Closing and the Third Closing (each of which Closings is defined in Section 1.2 below) and the Company agrees to sell and issue to Investor at the Initial Closing, the Second Closing and the Third Closing the Company's Convertible Debentures in the form attached hereto as Exhibit A (the "Debentures") in the face amount set forth opposite Investor's name on Schedule A hereto for a purchase price equal to the face amount thereof. The Debentures to be purchased at the Initial Closing are referred to as the "Initial Closing Debentures"; the Debentures to be purchased at the Second Closing are referred to as the "Second Closing Debentures"; and the Debentures to be purchased at the Third Closing are referred to as the "Third Closing Debentures". 1.2 Closings. The purchase and sale of the Debentures shall take place at the offices of Pillsbury Madison & Sutro, 101 W. Broadway, Suite 1800, San Diego, California, or at such other place as the Company and Investor acquiring the Debentures sold at such time and place pursuant hereto mutually agree upon (verbally or in writing). The purchase and sale of the Initial Closing Debentures shall take place on September 29, 1995 (the "Initial Closing"). The purchase and sale of the Second Closing Debentures shall take place within [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] (the "Second Closing"). The purchase and sale of the Third Closing Debentures shall take place within [CONFIDENTIAL MATERIAL REDACTED and FILED SEPARATELY WITH THE COMMISSION] (the "Third Closing"). At each of the Initial Closing, the Second Closing and the Third Closing, the Company shall deliver to Investor the Debentures which Investor is purchasing against delivery to the Company of a bank check, bank wire or personal check in the amount of the purchase price therefor payable to the Company's order. The Initial Closing, the 2 Second Closing and the Third Closing are referred to collectively as the "Closings." 2. Representations and Warranties of the Company. The Company hereby represents and warrants to Investor that, except as set forth on the Schedule of Exceptions furnished to 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, 1,900,010 shares of Series D Preferred Stock and 1,458,334 shares of Series E 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, Series D Preferred Stock and Series E Preferred Stock are owned by the persons and in the numbers specified in the stockholder list made available supplementally to Investor upon request. The rights, preferences and privileges of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock are as stated in the Company's Restated Certificate of Incorporation ("Restated Certificate"). -2- 3 (ii) Common Stock. 12,000,000 shares of common stock (the "Common Stock"), of which 1,316,599 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 Investor. (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 Investor 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"), (g) the right of first offer provided for in Section 8.4 of the Series E Preferred Stock Purchase Agreement, dated as of November 25, 1992 between the Company and the investors listed therein (and the supplemental signature pages thereto) (the "Series E Agreement") and (h) options to purchase an aggregate of 795,924 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 issuance) and delivery of the Debentures being sold hereunder and the Common -3- 4 Stock issuable upon conversion of the Debentures, to the extent that the foregoing requires performance on or prior to each of the Closings, has been taken or will be taken on or prior to each of the Closings, 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 Common Stock issuable upon conversion of the Debentures purchased under this Agreement has been or will be on or prior to the Initial 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, Series D Preferred Stock and Series E 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. -4- 5 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 Investor 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 Investor 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 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 -5- 6 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 contem- plated 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. (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 -6- 7 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 Investor with all the information which Investor has requested for deciding whether to purchase the Debentures, and all information reasonably necessary to enable 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, Section 7 of the Series D Agreement and Section 7 of the Series E 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 Investor 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. 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. -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 Investor 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 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 Investor its audited financial statements (balance sheet and -8- 9 profit and loss statement) at and for the period from inception through December 31, 1994, and its unaudited interim financial statements at and for the period from January 1, 1995 through March 31, 1995 (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 March 31, 1995, 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 Investor. 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 Investor in reliance upon Investor's representation to the Company, which by Investor's execution of this Agreement Investor hereby confirms, that the Debentures to be received by Investor and the Common Stock issuable upon conversion thereof (the Debentures and the Common Stock issued upon conversion thereof are referred to, collectively, as the "Securities") will be acquired for investment for 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 Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, Investor further represents that 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. Investor represents that it has full power and authority to enter into this Agreement. -9- 10 3.3 Disclosure of Information. Investor believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Securities. 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 Securities. 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. 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 Securities. If other than an individual, Investor also represents it has not been organized solely for the purpose of acquiring the Securities. 3.5 Restricted Securities. Investor understands that the Securities it is or will be 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 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, Investor further agrees not to make any disposition of all or any portion of the Securities 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) 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, 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 -10- 11 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 Securities may bear one or all of the following legends: (a) "The securities 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. 3.8 Accredited or Foreign Investor. Except as disclosed to the Company in writing, 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 Investor has complied with any restrictions on transfer contained in this Agreement. 3.9 Confidentiality. 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 -11- 12 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 Investor 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 Investor, (b) lawfully disclosed to Investor by a third party who possessed such information without any obligation of confidentiality or (c) lawfully developed by Investor independent of any disclosure by the Company. Investor further covenants that it shall return to the Company all tangible materials containing such information upon reasonable request by the Company if 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 the Securities pursuant to Section 3.7(a) hereof shall be removed (i) if the Securities 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 Securities may be transferred in compliance with Rule 144(k) promulgated under the Securities Act, or (iii) if the holder of such Securities 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 Securities may be made without registration. (b) Any legend endorsed on the Securities 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 Securities 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) Investor further covenants that Investor will not transfer the Securities 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, Investor agrees that, prior to the closing of the corporation's Initial Public Offering (defined in Section 7.13 hereof), 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. -12- 13 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 Investor's Obligations at Initial Closing and Subsequent Closings. The obligations of Investor under Section 1.1 of this Agreement are subject to the fulfillment on or before each of the Closings of each of the following conditions, the waiver of which shall not be effective against Investor if it does not consent in writing thereto. Notwithstanding anything in the foregoing to the contrary, in the event the Second Closing or Third Closing occurs subsequent to the Company's Initial Public Offering, then the obligations of Investor under Section 1.1 of this Agreement are subject to the fulfillment on or before the Second Closing or Third Closing, as the case may be, of the conditions set forth in Sections 5.1, 5.2, 5.3, 5.4, 5.5 and 5.10, the waiver of which shall not be effective against 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 each of the Closings with the same effect as though such representations and warranties had been made on and as of the date of each of the Closings. 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 each of the Closings; provided that the obligations of Investor shall not be conditional upon the issuance by the Company of the Debentures 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 each of the Closings except as provided in Section 5.7 hereof. 5.3 Compliance Certificate. The President of the Company shall deliver to Investor at each of the Closings 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, with respect to the Initial Closing the date of the Agreement, and with respect to the Second Closing and Third Closing, since the date of the immediately preceding closing. -13- 14 5.4 Qualifications. The Commissioner of Corporations of the State of California shall have issued a permit qualifying the offer and sale of the Debentures and the underlying Common Stock to Investor 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 each of the Closings and all documents incident thereto shall be reasonably satisfactory in form and substance to 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 Initial 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. Investor shall have purchased the Initial Closing Debentures at the Initial Closing. 5.8 Opinion of Company Counsel. Investor shall have received from Pillsbury Madison & Sutro, counsel for the Company, an opinion, dated as of the Initial Closing, in form and substance satisfactory to Investor, 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, 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 -14- 15 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, 1,900,010 shares of Series D Preferred Stock and 1,458,334 shares of Series E 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 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, the 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 the 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 1,316,599 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 Stock and Series E Preferred Stock, (B) the right of first offer of Investor 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, (G) the right of first offer provided for in Section 8.4 of the Series E Agreement and (H) 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. -15- 16 (e) The execution, delivery, performance and com- pliance 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. (f) All consents, approvals, orders or authoriza- tions 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 Initial Closing in connection with the consummation of the transactions contemplated by this Agreement have been obtained, and are effective, as of the Initial Closing and such counsel is not aware of any proceedings, or threat thereof, which question the validity thereof. (g) Based in part upon the representations of Investor, the offer and sale of the Debentures 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. (h) Such counsel is not aware, after making in- quiry 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 Lawful Issuance. At each of the Closings, the purchase of the Debentures by Investor shall be legally permitted by all laws and regulations to which Investor and the Company are subject. 6. Conditions of the Company's Obligations at the Closing. The obligations of the Company to Investor under this Agreement -16- 17 are subject to the fulfillment on or before each of the Closings of each of the following conditions by Investor: 6.1 Representations and Warranties. The representations and warranties of Investor contained in Section 3 hereof shall be true on and as of each of the Closings with the same effect as though such representations and warranties had been made on and as of each of the Closings. 6.2 Payment of Purchase Price. Investor shall have delivered the purchase price specified in Section 1.3 at each of the Closings and Investor shall collectively have acquired and paid for the Debentures at the Initial Closing. 6.3 California Qualification. The Commissioner of Corporations of the State of California shall have issued a permit qualifying the offer and sale to Investor of the Debentures 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 "regis- tration" 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 Debentures 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 Debentures, 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. -17- 18 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 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 the Debentures. 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 -18- 19 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 offer- ing, 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 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 request- ing 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 -19- 20 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 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 -20- 21 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 7.8(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 -21- 22 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. (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 -22- 23 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), (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. 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 -23- 24 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 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 (the "Initial Public Offering") 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) an Investor who acquires at least $1,000,000 of the Debentures ("Major Investor") and (ii) each assignee of any Major Investor who acquires 50% of such Major Investor's Debentures 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 -24- 25 (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 Investor or any such assignee of 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 Investor. 8.2 Inspection. The Company shall permit Investor, at 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 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 -25- 26 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 Investor a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined). 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 Investor in accordance with the following provisions: (a) The Company shall deliver a notice by certified mail ("Notice") to Investor 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, 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 Debentures, then held, by Investor bears to the total number of shares of outstanding Common Stock and Common Stock issuable upon conversion of the Preferred Stock and the Debentures then outstanding. (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 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 Investor 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 -26- 27 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, Series D Preferred Stock and Series E 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, the Series D Agreement and the Series E 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 Closings and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of Investor. 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 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, -27- 28 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. 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 Investor or any of its officers, partners, employees or representatives is responsible. The Company agrees to indemnify and hold harmless 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 Initial 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 the written consent of the Company and the holders of a majority of the Common Stock issued or issuable upon conversion of the Debentures purchased by Investor pursuant to this Agreement, except as specified in Section 7.12 and Section 8.4(d), 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 -28- 29 this Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. BIOSITE DIAGNOSTICS INCORPORATED By /s/ Kim D. Blickenstaff ------------------------------------ Title ------------------------------------ Address: 11030 Roselle Street, Suite D San Diego, CA 92121 INVESTOR: SANDOZ PHARMA LTD. By /s/ D. Vasella /s/ C.S. Morris ------------------------------------ Title D. Vasella CEO ------------------------------------ C.S. Morris V.P. ------------------------------------ Address: Patents and Trademark Division CH-4002 Basel, Switzerland Attn: Thomas Hoxie -29- 30 SCHEDULE A BIOSITE DIAGNOSTICS INCORPORATED CONVERTIBLE DEBENTURES
Principal Amount of Convertible Investors Debentures First Closing: Sandoz Pharma Ltd. $1,000,000 Second Closing: Sandoz Pharma Ltd. [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] Third Closing: Sandoz Pharma Ltd. [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] TOTAL $2,000,000
A-1 31 Exhibit A THIS DEBENTURE AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THIS DEBENTURE AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE DEBENTURE OR THE SECURITIES UNDER THE SECURITIES ACT, OR AN OPINION OF COUNSEL, WHICH OPINION IS SATISFACTORY IN FORM AND SUBSTANCE TO THE CORPORATION, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OR SUCH TRANSACTION COMPLIES WITH RULES PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT. BIOSITE DIAGNOSTICS INCORPORATED CONVERTIBLE DEBENTURE $1,000,000 San Diego, California September 29, 1995 BIOSITE DIAGNOSTICS INCORPORATED, a Delaware corporation (the "Company"), the principal office of which is located at 11030 Roselle Street, San Diego, California, for value received hereby promises to pay to SANDOZ PHARMA LTD., or its registered assigns, the sum of One Million Dollars ($1,000,000), or such lesser amount as shall then equal the outstanding principal amount hereof on the terms and conditions set forth hereinafter. The principal hereof and any unpaid accrued interest hereon, as set forth below, shall be due and payable on the fifth anniversary of the date hereof (the "Maturity Date") unless the Debenture shall be earlier redeemed or converted in accordance with its terms. The following is a statement of the rights of the Holder of this Debenture and the conditions to which this Debenture is subject, and to which the Holder hereof, by the acceptance of this Debenture, agrees: 1. Debenture Purchase Agreement. This Debenture is issued pursuant to the terms and conditions of the Debenture Purchase Agreement dated as of September 22, 1995 between the Company and the investors listed in Schedule A thereto (the "Agreement"). The Holder of this Debenture is subject to certain restrictions set forth in the Agreement and shall be entitled to certain rights and privileges set forth in the Agreement. This Debenture is the Debenture referred to in the Agreement. 32 2. Definitions. As used in this Debenture, the following terms, unless the context otherwise requires, have the following meanings: 2.1 "Company" includes any corporation which shall succeed to or assume the obligations of the Company under this Debenture, 2.2 "Holder, n when the context refers to a holder of this Debenture shall mean any person who shall at the time be the registered holder of this Debenture, 2.3 "Issue Date," shall mean the date hereof. Terms not otherwise defined herein shall have the meanings given to them in the Agreement. 3. Interest. Commencing on the Issue Date until all outstanding principal and interest on this Debenture shall have been paid in full, redeemed or converted in accordance with its terms, interest shall accrue at a rate equal to the lesser of (i) 8% per annum or (ii) the highest rate permitted by law, compounded annually, on the outstanding principal amount of this Debenture. 4. Prepayment. Upon 30 days' prior written notice to the Holder, the Company may at any time prepay in whole or in part the principal amount, plus accrued interest to date of payment, of this Debenture. Payments shall be credited first to interest due, then to principal. 5. Payment. Subject to Sections 6 and 7 hereof, the entire amount of principal and interest due hereunder shall be due and payable on the Maturity Date. Payments of both principal and interest shall be made in readily available U.S. funds and shall be made by first class mail, postage prepaid, to the registered address of the Holder. 6. Conversion. 6.1 Automatic Conversion. The entire outstanding principal amount of this Debenture and all accrued interest thereon to the date of conversion shall be automatically converted (i) at the sole option of the Company, into shares of Common Stock of the Company, at the public offering price for such shares of Common Stock, upon the consummation of a firmly underwritten public offering (the "Public Offering") pursuant to a registration statement filed by the Company under the Securities Act of 1933, as amended (the "Act"), with aggregate gross proceeds in excess of $7,500,000 and at a price of not less than $9.00 per share of Common Stock (as adjusted to reflect subsequent stock splits, stock dividends, combinations or similar events), or (ii) in the event the Public Offering is not consummated on or before -2- 33 December 31, 1996, at the sole option of the Company, into shares of a series of the Company's Preferred Stock, at the initial issue price for such series, upon the closing of the sale by the Company of shares of a series of Preferred Stock to at least one institutional investor, venture capital fund or other professional investor in a bona fide equity financing with no firm commercial, marketing or research and development rights granted in connection with such financing (the "Equity Financing"). 6.2 Conversion Procedure. a. Notice of Conversion Pursuant to Section 6.1. If this Debenture is automatically converted, written notice shall be delivered to the Holder of this Debenture at the address last shown on the records of the Company for the Holder or given by the Holder to the Company for the purpose of notice, or, if no such address as appears or is given, at the place where the principal office of the Company is located, notifying the Holder of the conversion to be effected, specifying that the conversion is pursuant to clause (i) or clause (ii), as the case may be, of Section 6 and the applicable conversion price, the principal amount of the Debenture to be converted, the amount of accrued interest to be converted, the date on which such conversion will occur and calling upon such Holder to surrender to the Company, in the manner and at the place designated, the Debenture. b. Mechanics and Effect of Conversion. No fractional shares of Common Stock or Preferred Stock, as the case may be, shall be issued upon conversion of this Debenture. In lieu of the Company issuing any fractional shares to the Holder upon the conversion of this Debenture, the Company shall pay to the Holder the amount of outstanding principal and any accrued interest that is not so converted, such payment to be in the form as provided below. In the event of any conversion of the Debenture pursuant to clause (i) of Section 6.1 above, such conversion shall be deemed to have been made immediately prior to the consummation of such Public Offering and on and after such date the Holder of this Debenture entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares. In the event of any conversion of this Debenture pursuant to clause (ii) of Section 6.1 above, such conversion shall be deemed to have been made immediately prior to the closing of the Equity Financing and on and after such date the Holder of this Debenture entitled to receive the shares of such series of Preferred Stock issuable upon such conversion shall be treated for all purposes as the record Holder of such shares and a purchaser of such shares under the stock purchase agreement between the Company and the investors in such series of Preferred Stock and shall be bound by the terms of such stock purchase agreement. Upon conversion of this Debenture, the Company shall be forever released from all its obligations and liabilities under this Debenture, except that the Company shall be obligated to pay the Holder, within 10 days after the date of such conversion, any interest accrued and unpaid or -3- 34 unconverted to and including the date of such conversion, and no more. c. Delivery of Stock Certificates. As promptly as practicable after the conversion of this Debenture, the Company st its expense will issue and deliver to the Holder of this Debenture a certificate or certificates for the number of full shares of Common Stock or Preferred Stock, as the case may be, issuable upon such conversion (bearing such legends as are required by the Agreement and applicable state and federal securities laws in the opinion of counsel to the Company), together with any other securities and property to which the Holder is entitled upon such conversion under the terms of this Debenture, including a check payable to the Holder for any cash amounts payable for any fractional shares as described above. 7. Redemption. 7.1 Merger or Liquidation of the Company. In the event of any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization in which the Company shall not be the continuing or surviving entity of such consolidation, merger or reorganization or any transaction or series of related transactions by the Company in which in excess of 50% of the Company's voting power is transferred, or a sale of all or substantially all of the assets of the Company, or any liquidation, dissolution or winding up of the Company, the Company shall, at the option of the Holder, redeem the Debenture held by such Holder by paying in cash therefor to such Holder a sum equal to the outstanding principal amount (excluding any accrued interest added to such principal amount) of such Debenture, together with any accrued and unpaid interest on such Debenture (the "Redemption Price"). 7.2 Notice of Merger. The Company shall give each Holder of record of this Debenture written notice of any impending transaction described in Section 7.1 above not later than 20 days prior to the closing of such transaction. The notice shall describe the material terms and conditions of the impending transaction and the provisions of this Section 7, and the Company shall thereafter give such Holders prompt notice of any material changes. The transaction shall in no event take place earlier than 20 days after the Company has given the notice provided for herein or earlier than 10 days after the Company has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the Holders of at least one-half of the then outstanding principal amount of the Debenture issued under the Agreement. 7.3 Redemption Procedures. Each Holder electing to redeem such Holder's Debenture pursuant to this Section 7 shall surrender such Debenture to the Company, at its principal office, and on the consummation of the transaction described in Section -4- 35 7.1 the Redemption Price of such Debentures shall be payable in readily available funds to the order of the Holder of record of such Debenture and each surrendered Debenture shall be canceled. 8. Acceleration. If the Company (i) becomes insolvent, commences an act of bankruptcy, commences or becomes subject to any proceeding under the Federal Bankruptcy Act or any other insolvency or debtor's relief law, or (ii) initiates any liquidation, dissolution or winding up proceedings or (iii) shall be in default, for a period of st least 30 days, with respect to one or more obligations of the Company, which obligations provide for aggregate payments in excess of $1,000,000, then the entire indebtedness evidenced hereby shall, at the option of the Holders of at least one-half of the outstanding principal amount of the Debenture issued under the Agreement, become due and payable immediately. 9. Miscellaneous. 9.1 Assignment. Subject to the restrictions on transfer set forth in the Agreement, the rights and obligations of the Company and the Holder of this Debenture shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. 9.2 Waiver and Amendment. Any provision of this Debenture may be amended, waived or modified upon the written consent of the Company and Holders of at least one-half the outstanding face amount of the Debenture issued under the Agreement. 9.3 Transfer of this Debenture or Securities Issuable on Conversion Hereof. This Debenture and the securities issued on conversion hereof are subject to restrictions on transfer set forth in the Agreement. Transfer of this Debenture may be effected only by its surrender to the Company and either its reissuance, or the issuance of a new Debenture, by the Company to the transferee. 9.4 Treatment of Debenture. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Debenture as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 9.5 Notices. Unless otherwise provided, any notice required or permitted under this Debenture shall be given ln 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, or with an air courier, 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. -5- 36 9.6 No Stockholder Rights. Nothing contained in this Debenture shall be construed as conferring upon the Holder or any other person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 9.7 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of California, irrespective of its choice of law principles. 9.8 Headings. All headings used herein are used for convenience only and shall not be used to construe or interpret this Debenture. 9.9 Register. The Company shall cause to be kept st its principal business office as maintained from time to time at San Diego (or at the location within the United States of America at which Company shall from time to time maintain a business office) a register. The register so maintained by Company is referred to herein as the "Register" in which, pursuant to such reasonable regulations as Company may from time to time prescribe, Company shall provide for the registration of Debentures and for the transfer of registered Debentures. Upon surrender for registration of transfer of the Debenture at the principal office of the Company, the Company shall execute and deliver, in the name of the designated transferee or transferees, one or more registered Debentures of any authorized denomination and of like aggregate principal amount. Authorized denominations shall comprise U.S.$1,000 or any multiple thereof. At the option of the Holder, registered Debentures may be exchanged for other registered Debentures of any authorized denominations and of a like aggregate principal amount, upon surrender of the Debentures to be exchanged at the principal business office of the Company. All Debentures issued upon any registration of transfer or exchange of Debentures shall be valid obligations of the Company, evidencing the same debt, and entitled to the same benefits, as the Debentures surrendered upon such registration of transfer or exchange. Every Debenture presented or surrendered for registration of transfer or for exchange shall be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of the Debentures, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of the Debenture. The Company shall not be required (i) to register the transfer of or exchange Debentures for a period of 15 days immediately preceding the date notice is given identifying the Debentures called for redemption, or (ii) to register the transfer of or exchange of any registered Debenture, or portion -6- 37 thereof, called for redemption. The registered Holder of a Debenture shall be treated as its owner for all purposes. IN WITNESS WHEREOF, Biosite Diagnostics Incorporated, has caused this Debenture to be issued this _____ day of September, 1995. BIOSITE DIAGNOSTICS INCORPORATED By /s/ Kim D. Blickenstaff ---------------------------------- Name of Holder: SANDOZ PHARMA LTD. ------------------------ Address: Patents and Trademark Division CH-4002 Basel, Switzerland Attn: Thomas Hoxie -7- 38 NOTICE OF CONVERSION (To Be Signed Only Upon Conversion of Debenture) TO ___________________________: The undersigned, the holder of the foregoing Debenture, hereby surrenders such Debenture for conversion into shares of ________ [Preferred Stock] or [Common Stock] of Biosite Diagnostics Incorporated to the extent of $__________ unpaid principal amount of, and $__________ of accrued but unpaid interest on, such Debenture, and requests that the certificates for such shares be issued in the name of, and delivered to,___________________________________ , whose address is ___________________________________________ . Dated:_______________ _______________________________ (Signature must conform in all respects to name of holder as specified on the face of the Debenture) ________________________________ (Address) -8- 39 Exhibit A THIS DEBENTURE AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THIS DEBENTURE AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE DEBENTURE OR THE SECURITIES UNDER THE SECURITIES ACT, OR AN OPINION OF COUNSEL, WHICH OPINION IS SATISFACTORY IN FORM AND SUBSTANCE TO THE CORPORATION, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OR SUCH TRANSACTION COMPLIES WITH RULES PROMULGATED BY THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT. BIOSITE DIAGNOSTICS INCORPORATED CONVERTIBLE DEBENTURE [CONFIDENTIAL MATERIAL REDACTED AND San Diego, California FILED SEPARATELY WITH THE COMMISSION] _________, 199_ BIOSITE DIAGNOSTICS INCORPORATED, a Delaware corporation (the "Company"), the principal office of which is located at 11030 Roselle Street, San Diego, California, for value received hereby promises to pay to SANDOZ PHARMA LTD., or its registered assigns, the sum of [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION], or such lesser amount as shall then equal the outstanding principal amount hereof on the terms and conditions set forth hereinafter. The principal hereof and any unpaid accrued interest hereon, as set forth below, shall be due and payable on the fifth anniversary of the date hereof (the "Maturity Date") unless the Debenture shall be earlier redeemed or converted in accordance with its terms. The following is a statement of the rights of the Holder of this Debenture and the conditions to which this Debenture is subject, and to which the Holder hereof, by the acceptance of this Debenture, agrees: 1. Debenture Purchase Agreement. This Debenture is issued pursuant to the terms and conditions of the Debenture Purchase Agreement dated as of September 22, 1995 between the Company and the investors listed in Schedule A thereto (the "Agreement"). The Holder of this Debenture is subject to certain restrictions set forth in the Agreement and shall be entitled to certain rights and privileges set forth in the Agreement. This Debenture is the Debenture referred to in the Agreement. 40 2. Definitions. As used in this Debenture, the following terms, unless the context otherwise requires, have the following meanings: 2.1 "Company" includes any corporation which shall succeed to or assume the obligations of the Company under this Debenture, 2.2 "Holder, n when the context refers to a holder of this Debenture shall mean any person who shall at the time be the registered holder of this Debenture, 2.3 "Issue Date," shall mean the date hereof. Terms not otherwise defined herein shall have the meanings given to them in the Agreement. 3. Interest. Commencing on the Issue Date until all outstanding principal and interest on this Debenture shall have been paid in full, redeemed or converted in accordance with its terms, interest shall accrue at a rate equal to the lesser of (i) 8% per annum or (ii) the highest rate permitted by law, compounded annually, on the outstanding principal amount of this Debenture. 4. Prepayment. Upon 30 days' prior written notice to the Holder, the Company may at any time prepay in whole or in part the principal amount, plus accrued interest to date of payment, of this Debenture. Payments shall be credited first to interest due, then to principal. 5. Payment. Subject to Sections 6 and 7 hereof, the entire amount of principal and interest due hereunder shall be due and payable on the Maturity Date. Payments of both principal and interest shall be made in readily available U.S. funds and shall be made by first class mail, postage prepaid, to the registered address of the Holder. 6. Conversion. 6.1 Automatic Conversion. The entire outstanding principal amount of this Debenture and all accrued interest thereon to the date of conversion shall be automatically converted (i) at the sole option of the Company, into shares of Common Stock of the Company, at the public offering price for such shares of Common Stock, or (ii) in the event the shares of Common Stock of the Company are not publicly traded on or before December 31, 1996, at the sole option of the Company, into shares of a series of the Company's Preferred Stock, at the initial issue price for such series, upon the closing of the sale by the Company of shares of a series of Preferred Stock to at least one institutional investor, venture capital fund or other professional investor in a bona fide equity financing with no firm commercial, marketing or -2- 41 research and development rights granted in connection with such financing (the "Equity Financing"). 6.2 Conversion Procedure. a. Notice of Conversion Pursuant to Section 6.1. If this Debenture is automatically converted, written notice shall be delivered to the Holder of this Debenture at the address last shown on the records of the Company for the Holder or given by the Holder to the Company for the purpose of notice, or, if no such address as appears or is given, at the place where the principal office of the Company is located, notifying the Holder of the conversion to be effected, specifying that the conversion is pursuant to clause (i) or clause (ii), as the case may be, of Section 6 and the applicable conversion price, the principal amount of the Debenture to be converted, the amount of accrued interest to be converted, the date on which such conversion will occur and calling upon such Holder to surrender to the Company, in the manner and at the place designated, the Debenture. b. Mechanics and Effect of Conversion. No fractional shares of Common Stock or Preferred Stock, as the case may be, shall be issued upon conversion of this Debenture. In lieu of the Company issuing any fractional shares to the Holder upon the conversion of this Debenture, the Company shall pay to the Holder the amount of outstanding principal and any accrued interest that is not so converted, such payment to be in the form as provided below. In the event of any conversion of this Debenture pursuant to clause (ii) of Section 6.1 above, such conversion shall be deemed to have been made immediately prior to the closing of the Equity Financing and on and after such date the Holder of this Debenture entitled to receive the shares of such series of Preferred Stock issuable upon such conversion shall be treated for all purposes as the record Holder of such shares and a purchaser of such shares under the stock purchase agreement between the Company and the investors in such series of Preferred Stock and shall be bound by the terms of such stock purchase agreement. Upon conversion of this Debenture, the Company shall be forever released from all its obligations and liabilities under this Debenture, except that the Company shall be obligated to pay the Holder, within 10 days after the date of such conversion, any interest accrued and unpaid or unconverted to and including the date of such conversion, and no more. c. Delivery of Stock Certificates. As promptly as practicable after the conversion of this Debenture, the Company st its expense will issue and deliver to the Holder of this Debenture a certificate or certificates for the number of full shares of Common Stock or Preferred Stock, as the case may be, issuable upon such conversion (bearing such legends as are required by the Agreement and applicable state and federal securities laws in the opinion of counsel to the Company), together with any other securities and property to which the Holder is entitled upon such conversion under the terms of this Debenture, including a check -3- 42 payable to the Holder for any cash amounts payable for any fractional shares as described above. 7. Redemption. 7.1 Merger or Liquidation of the Company. In the event of any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization in which the Company shall not be the continuing or surviving entity of such consolidation, merger or reorganization or any transaction or series of related transactions by the Company in which in excess of 50% of the Company's voting power is transferred, or a sale of all or substantially all of the assets of the Company, or any liquidation, dissolution or winding up of the Company, the Company shall, at the option of the Holder, redeem the Debenture held by such Holder by paying in cash therefor to such Holder a sum equal to the outstanding principal amount (excluding any accrued interest added to such principal amount) of such Debenture, together with any accrued and unpaid interest on such Debenture (the "Redemption Price"). 7.2 Notice of Merger. The Company shall give each Holder of record of this Debenture written notice of any impending transaction described in Section 7.1 above not later than 20 days prior to the closing of such transaction. The notice shall describe the material terms and conditions of the impending transaction and the provisions of this Section 7, and the Company shall thereafter give such Holders prompt notice of any material changes. The transaction shall in no event take place earlier than 20 days after the Company has given the notice provided for herein or earlier than 10 days after the Company has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the Holders of at least one-half of the then outstanding principal amount of the Debenture issued under the Agreement. 7.3 Redemption Procedures. Each Holder electing to redeem such Holder's Debenture pursuant to this Section 7 shall surrender such Debenture to the Company, at its principal office, and on the consummation of the transaction described in Section 7.1 the Redemption Price of such Debentures shall be payable in readily available funds to the order of the Holder of record of such Debenture and each surrendered Debenture shall be canceled. 8. Acceleration. If the Company (i) becomes insolvent, commences an act of bankruptcy, commences or becomes subject to any proceeding under the Federal Bankruptcy Act or any other insolvency or debtor's relief law, or (ii) initiates any liquidation, dissolution or winding up proceedings or (iii) shall be in default, for a period of st least 30 days, with respect to one or more obligations of the Company, which obligations provide for aggregate payments in excess of $1,000,000, then the entire indebtedness evidenced hereby shall, at the option of the Holders -4- 43 of at least one-half of the outstanding principal amount of the Debenture issued under the Agreement, become due and payable immediately. 9. Miscellaneous. 9.1 Assignment. Subject to the restrictions on transfer set forth in the Agreement, the rights and obligations of the Company and the Holder of this Debenture shall be binding upon and benefit the successors, assigns, heirs, administrators and transferees of the parties. 9.2 Waiver and Amendment. Any provision of this Debenture may be amended, waived or modified upon the written consent of the Company and Holders of at least one-half the outstanding face amount of the Debenture issued under the Agreement. 9.3 Transfer of this Debenture or Securities Issuable on Conversion Hereof. This Debenture and the securities issued on conversion hereof are subject to restrictions on transfer set forth in the Agreement. Transfer of this Debenture may be effected only by its surrender to the Company and either its reissuance, or the issuance of a new Debenture, by the Company to the transferee. 9.4 Treatment of Debenture. To the extent permitted by generally accepted accounting principles, the Company will treat, account and report the Debenture as debt and not equity for accounting purposes and with respect to any returns filed with federal, state or local tax authorities. 9.5 Notices. Unless otherwise provided, any notice required or permitted under this Debenture shall be given ln 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, or with an air courier, 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. 9.6 No Stockholder Rights. Nothing contained in this Debenture shall be construed as conferring upon the Holder or any other person the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. 9.7 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of California, irrespective of its choice of law principles. -5- 44 9.8 Headings. All headings used herein are used for convenience only and shall not be used to construe or interpret this Debenture. 9.9 Register. The Company shall cause to be kept st its principal business office as maintained from time to time at San Diego (or at the location within the United States of America at which Company shall from time to time maintain a business office) a register. The register so maintained by Company is referred to herein as the "Register" in which, pursuant to such reasonable regulations as Company may from time to time prescribe, Company shall provide for the registration of Debentures and for the transfer of registered Debentures. Upon surrender for registration of transfer of the Debenture at the principal office of the Company, the Company shall execute and deliver, in the name of the designated transferee or transferees, one or more registered Debentures of any authorized denomination and of like aggregate principal amount. Authorized denominations shall comprise U.S.$1,000 or any multiple thereof. At the option of the Holder, registered Debentures may be exchanged for other registered Debentures of any authorized denominations and of a like aggregate principal amount, upon surrender of the Debentures to be exchanged at the principal business office of the Company. All Debentures issued upon any registration of transfer or exchange of Debentures shall be valid obligations of the Company, evidencing the same debt, and entitled to the same benefits, as the Debentures surrendered upon such registration of transfer or exchange. Every Debenture presented or surrendered for registration of transfer or for exchange shall be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange of the Debentures, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of the Debenture. The Company shall not be required (i) to register the transfer of or exchange Debentures for a period of 15 days immediately preceding the date notice is given identifying the Debentures called for redemption, or (ii) to register the transfer of or exchange of any registered Debenture, or portion -6- 45 thereof, called for redemption. The registered Holder of a Debenture shall be treated as its owner for all purposes. IN WITNESS WHEREOF, Biosite Diagnostics Incorporated, has caused this Debenture to be issued this day of , 19 . ----- -------- -- BIOSITE DIAGNOSTICS INCORPORATED By -------------------------------- Name of Holder: SANDOZ PHARMA LTD. ------------------------------------------ Address: Patents and Trademark Division CH-4002 Basel, Switzerland Attn: Thomas Hoxie -7- 46 NOTICE OF CONVERSION (To Be Signed Only Upon Conversion of Debenture) TO ___________________________: The undersigned, the holder of the foregoing Debenture, hereby surrenders such Debenture for conversion into shares of ________ [Preferred Stock] or [Common Stock] of Biosite Diagnostics Incorporated to the extent of $__________ unpaid principal amount of, and $__________ of accrued but unpaid interest on, such Debenture, and requests that the certificates for such shares be issued in the name of, and delivered to, __________________________________, whose address is ___________________________________________. Dated:_______________ __________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Debenture) __________________________________ (Address) -8- EX-10.21 12 EXHIBIT 10.21 1 EXHIBIT 10.21 INDUSTRIAL REAL ESTATE LEASE (Multi-Tenant Facility) ARTICLE ONE: BASIC TERM This Article One contains the Basic Terms of this Lease between the Landlord and Tenant named below. Other Articles, Sections and Paragraphs of the Lease referred to in this Article One explain and define the Basic Terms and are to be read in conjunction with the Basic Terms. Section 1.01. DATE OF LEASE: July 26, 1996 --------------------------------- Section 1.02. LANDLORD (INCLUDE LEGAL ENTITY): TCEP II Properties Limited Partnership, a Texas limited partnership ---------------------- - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ ADDRESS OF LANDLORD: c/o Trammell Crow Company, 3570 Camino del Rio North, Suite 100, San Diego, California 92108 Section 1.03. TENANT (INCLUDE LEGAL ENTITY): Biosite Diagnostics, Inc., a California Corporation - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ ADDRESS OF TENANT: 11030 Roselle Street, San Diego, California 92121 Section 1.04. PROPERTY: The Property is part of Landlord's multi-tenant real property development known as Sorrento West Industrial Park and described or depicted in Exhibit "A" (the "Project"). The Project includes the land, the buildings and all other improvements located on the land, and the common areas described in Paragraph 4.05(a). The Property is (include street address, approximate square footage and description): Suites A-E at that certain building located at 11080 Roselle Street, San Diego, California, containing approximately 17,471 square feet. Section 1.05. LEASE TERM: Two (2) years 0 months beginning on October 1, 1996 or such other date as is specified in this Lease, and ending on September 30, 1998. 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -1- 2 Section 1.06. PERMITTED USES: (See Article Five) General administrative offices, warehousing and ancillary functions. Section 1.07. TENANT'S GUARANTOR: (If none, so state) None. Section 1.08. BLANK Section 1.09. BASE YEAR: The calendar year of 1997 Section 1.10. INITIAL SECURITY DEPOSIT: (See Section 3.03) $11,356.15 Section 1.11. VEHICLE PARKING SPACES ALLOCATED TO TENANT: (See Section 4.05) Thirty-two (32) Section 1.12. RENT AND OTHER CHARGES PAYABLE BY TENANT: (a) BASE RENT: Eleven Thousand Three Hundred Fifty-six and 15/100******************* Dollars ($11,356.15) per month for the first Twelve (12) months, as provided in Section 3.01. and shall be increased on the first day of the thirteenth (13th) month(s) after the Commencement Date, to Eleven Thousand Seven Hundred Five and 57/100 ($11,705.57) per month for the next twelve (12) months. (b) OTHER PERIODIC PAYMENTS (i) Real Property Taxes above the "Base Real Property Taxes" (See Section 4.02); (ii) Utilities (See Section 4.03); (iii) increased Insurance Premiums above "Base Premiums" (See Section 4.04); (iv) Tenant's Initial Pro Rata Share of Common Area Expenses 10.75 % (See Section 4.05); (v) Impounds for Tenant's Share of Insurance Premiums and Property Taxes (See Section 4.08); (vi) Maintenance Repairs and Alterations (See Article Six). Section 1.13. COSTS AND CHARGES PAYABLE BY LANDLORD: (a) Base Real Property Taxes (See Section 4.02); (b) Base Insurance Premiums (See Section 4.04(c)); (c) Common Area costs during the Base Year (Section 4.05); (d) Maintenance and Repair (See Article Six). Section 1.14. LANDLORD'S SHARE OF PROFIT ON ASSIGNMENT OR SUBLEASE: (See Section 9.05) One Hundred percent ( 100 %) of the Profit (the "Landlord's Share"). Section 1.15. RIDERS: The following Riders are attached to and made a part of this Lease: (If none, so state)_______________________________________ ______________________________________________________________________________ ______________________________________________________________________________ 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -2- 3 ARTICLE TWO. LEASE TERM Section 2.01. LEASE OF PROPERTY FOR LEASE TERM. Landlord leases the Property to Tenant and Tenant leases the Property from Landlord for the Lease Term. The Lease Term is for the period stated in Section 1.05 above and shall begin and end the date specified in Section 1.05 above, unless the beginning or end of the Lease Term is changed under any provisions of this Lease. The "Commencement Date" shall be the date specified in Section 1.05 above for the beginning of the Lease Term unless advanced or delayed under any provision of this Lease. Section 2.02. DELAY IN COMMENCEMENT. Landlord shall not be liable to Tenant if Landlord does not deliver possession of the Property to Tenant on the Commencement Date. Landlord's non-delivery of the Property to Tenant on that date shall not affect this Lease or the obligations of Tenant under this Lease except that the Commencement Date shall be delayed unless Landlord delivers possession of the Property to Tenant and the Lease Term shall be extended for a period equal to the delay in delivery of possession of the Property to Tenant, plus the number of days necessary to end the Lease Term on the last day of a month. If Landlord does not deliver possession of the Property to Tenant within sixty (60) days after the Commencement Date, Tenant may elect to cancel this Lease by giving written notice to Landlord within ten (10) days after the sixty (60) day period ends. If Tenant gives such notice, the Lease shall be cancelled and neither Landlord nor Tenant shall have any further obligations to the other. If Tenant does not give such notice, Tenant's right to cancel the Lease shall expire and the Lease Term shall commence upon the delivery of possession of the Property to Tenant. If delivery of possession of the Property to Tenant is delayed, Landlord and Tenant shall, upon such delivery, execute an amendment to this Lease setting forth the actual Commencement Date and expiration date of the Lease. Failure to execute such amendment shall not affect the actual Commencement Date and expiration date of the Lease. Section 2.03. EARLY OCCUPANCY. If Tenant occupies the Property prior to the Commencement Date, Tenant's occupancy of the Property shall be subject to all of the provisions of this Lease. Early occupancy of the Property shall not advance the expiration date of this Lease. Tenant shall pay Base Rent and all other charges specified in this Lease for the early occupancy period. Section 2.04. HOLDING OVER. Tenant shall vacate the Property upon the expiration or earlier termination of this Lease. Tenant shall reimburse Landlord for and indemnify 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -3- 4 Landlord against all damages which Landlord incurs from Tenant's delay in vacating the Property. If Tenant does not vacate the Property upon the expiration or earlier termination of the Lease and Landlord thereafter accepts rent from Tenant, Tenant's occupancy of the Property shall be a "month-to-month" tenancy, subject to all of the terms of this Lease applicable to a month-to-month tenancy, except that the Base Rent then in effect shall be increased by twenty-five percent (25%). ARTICLE THREE: BASE RENT Section 3.01. TIME AND MANNER OF PAYMENT. Upon execution of this Lease, Tenant shall pay Landlord the Base Rent in the amount stated in Paragraph 1.12(a) above for the first month of the Lease Term. On the first day of the second month of the Lease Term and each month thereafter, Tenant shall pay Landlord the Base Rent, in advance, without offset, deduction or prior demand. The Base Rent shall the Payable at Landlord's address or at such other place as Landlord may designate in writing. Section 3.02 Section 3.03. SECURITY DEPOSIT: (a) Upon the execution of this Lease, Tenant shall deposit with Landlord a cash Security Deposit in the amount set forth in Section 1.10 above. Landlord may apply all or part of the Security Deposit to any unpaid rent or other charges dues from Tenant or to cure any other defaults of Tenant. If Landlord uses any part of the Security Deposit, Tenant shall restore the Security Deposit to its full amount within ten (10) days after Landlord's written request. Tenant's failure to do so shall be a material default under this Lease. No interest shall be paid on the Security Deposit. Landlord shall not be required to keep the Security Deposit separate from its other accounts and no trust relationship is created with respect to the Security Deposit. Section 3.04. TERMINATION: ADVANCE PAYMENTS. Upon termination of this Lease under Article Seven (Damages or Destruction), Article Eight (Condemnation) or any other termination not resulting from Tenant's default, and after Tenant has vacated the Property in the manner required by this Lease, Landlord shall refund or credit to Tenant (or Tenant's successor) the unused portion of the Security Deposit, any advance rent or other advance payments made by Tenant to Landlord, and any amounts paid for real property taxes and other reserves which apply to any time periods after termination of the Lease. 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -4- 5 ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT Section 4.01. ADDITIONAL RENT. All charges payable by Tenant other than Base Rent are called "Additional Rent." Unless this Lease provides otherwise, Tenant shall pay all Additional Rent then due with the next monthly installment of Base Rent. The term Rent shall mean Base Rent and Additional Rent. Section 4.02. PROPERTY TAXES. (a) REAL PROPERTY TAXES. Landlord shall pay the "Base Real Property Taxes" on the Property during the Lease Term. Base Real Property Taxes are real property taxes applicable to the Property as shown on the tax bill for the Base Year. Tenant shall pay Landlord the amount, if any, by which the real property taxes during the Lease Term exceed the Base Real Property Taxes. Subject to Paragraph 4.02(c), Tenant shall make such payments within fifteen (15) days after receipt of Landlord's statement showing the amount and computation of such increase. Landlord shall reimburse Tenant for any real property taxes paid by Tenant covering any period of time prior to or after the Lease Term. (b) DEFINITION OF "REAL PROPERTY TAX." "Real property tax" means: (i) any fee, license fee, license tax, business license fee, commercial rental tax, levy, charge, assessment, penalty or tax imposed by any taxing authority against the Property; (ii) any tax on the Landlord's right to receive, or the receipt of, rent or income from the Property or against Landlord's business of leasing the Property; (iii) any tax or charge for fire protection, streets, sidewalks, road maintenance, refuse or other services provided to the Property by any governmental agency; (iv) any tax imposed upon this transaction or based upon a re-assessment of the Property due to a change of ownership, as defined by applicable law, or other transfer of all or part of Landlord's interest in the Property; and (v) any charge or fee replacing any tax previously included within the definition of real property tax. "Real property tax" does not, however, include Landlord's federal or state income, franchise, inheritance or estate taxes. (c) JOINT ASSESSMENT. If the Property is not separately assessed, Landlord shall reasonably determine Tenant's share of the real property tax payable by Tenant under Paragraph 4.02(a) from the assessor's worksheets or other reasonably available information. Tenant shall pay such share to Landlord within fifteen (15) days after receipt of Landlord's written statement. 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -5- 6 (d) PERSONAL PROPERTY TAXES. (i) Tenant shall pay all taxes charged against trade fixtures, furnishings, equipment or any other personal property belonging to Tenant. Tenant shall try to have personal property taxed separately from the Property. (ii) If any of Tenant's personal property is taxed with the Property, Tenant shall pay Landlord the taxes for the personal property within fifteen (15) days after Tenant receives a written statement from Landlord for such personal property taxes. Section 4.03. UTILITIES. Tenant shall pay, directly to the appropriate supplier, the cost of all natural gas, heat, light, power, telephone and other utilities and services supplied to the Property. However, if any services or utilities are jointly metered with other property, Landlord shall make a reasonable determination of Tenant's proportionate share of the cost of such utilities and services and Tenant shall pay such share to Landlord within fifteen (15) days after receipt of Landlord's written statement. Section 4.04. INSURANCE POLICIES. (a) LIABILITY INSURANCE. During the Lease Term Tenant shall maintain a policy of commercial general liability insurance sometimes known as broad form comprehensive general liability insurance insuring Tenant against liability for bodily injury, property damage (including loss of use of property) and personal injury arising out of the operation, use or occupancy of the Property. Tenant shall name Landlord as an additional insured under such policy. The initial amount of such insurance shall be One Million Dollars ($1,000,000) per occurrence and shall be subject to periodic increase based upon inflation, increased liability awards, recommendation of Landlord's professional insurance advisers and other relevant factors. The liability insurance obtained by Tenant under this Paragraph 4.04(a) shall (i) be primary and noncontributing; (ii) contain cross-liability endorsements; and (iii) insure Landlord against Tenant's performance under Section 5.05, if the matters giving rise to the indemnity under Section 5.05 result from the negligence of Tenant. The amount and coverage of such insurance shall not limit Tenant's liability nor relieve Tenant of any other obligation under this Lease. Landlord may also obtain comprehensive public liability insurance in an amount and with coverage determined by Landlord insuring Landlord against liability arising out of ownership, operation, use or occupancy of the Property. The policy obtained by Landlord shall not be contributory and shall not provide primary insurance. Owner and Trammell Crow Company and related interests shall be named as additional insureds. 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -6- 7 (b) PROPERTY AND RENTAL INCOME INSURANCE. During the Lease Term, Landlord shall maintain policies of insurance covering loss of or damage to the Property in the full amount of its replacement value. Such policy shall contain an Inflation Guard Endorsement and shall provide protection against all perils included within the classification of fire, extended coverage, vandalism, malicious mischief, special extended perils (all risk), sprinkler leakage and any other perils which Landlord deems reasonably necessary. Landlord shall have the right to obtain flood and earthquake insurance if required by any lender holding a security interest in the Property. Landlord shall not obtain insurance for Tenant's fixtures or equipment or building improvements installed by Tenant on the Property. During the Lease Term, Landlord shall also maintain a rental income insurance policy, with loss payable to Landlord, in an amount equal to one year's Base Rent, plus estimated real property taxes and insurance premiums. Tenant shall be liable for the payment of any deductible amount under Landlord's or Tenant's insurance policies maintained pursuant to this Section 4.04, in an amount not to exceed Ten Thousand Dollars ($10,000). Tenant shall not do or permit anything to be done which invalidates any such insurance policies. Owner and Trammell Crow Company and related interests shall be named as additional insureds. (c) PAYMENT OF PREMIUMS. (i) Landlord shall pay the "Base Premiums" for the insurance policies maintained by Landlord under Paragraph 4.04(b). If the Property has been previously fully occupied, the "Base Premiums" are the insurance premiums paid during or applicable to the Base Year. If the Property has not been previously fully occupied or has been occupied for less than twelve (12) months, the Base Premiums are the lowest annual premiums reasonably obtainable for the required insurance for the Property during the Base Year. (ii) Tenant shall pay Landlord the amount, if any, by which the insurance premiums for all policies maintained by Landlord under Paragraph 4.04(b) have increased over the Base Premiums, whether such increases result from the nature of Tenant's occupancy, any act or omission of Tenant, the requirement of any lender referred to in Article Eleven (Protection of Lenders), the increased value of the Property or general rate increases. However, if Landlord substantially increases the amount of insurance carried or the percentage of insured value after the period during which the Base Premiums were calculated, Tenant shall pay Landlord the amount of increased premiums which would have been charged by the insurance carrier if the amount of insurance or percentage of insured value had not been substantially increased by Landlord. This adjustment in the amount due from Tenant shall be made only once during the Lease Term. 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -7- 8 Thereafter, Tenant shall be obligated to pay the full amount of any additional increases in the insurance premiums, including increases resulting from any further increases in the amount of insurance or percentage of insured value. Subject to Section 4.05, Tenant shall pay Landlord the increases over the Base Premiums within fifteen (15) days after receipt by Tenant of a copy of the premium statement or other evidence of the amount due. If the insurance policies maintained by Landlord cover improvements or real property other than the Property, Landlord shall also deliver to Tenant a statement of the amount of the premiums applicable to the Property showing, in reasonable detail, how such amount was computed. If the Lease Term expires before the expiration of the insurance period, Tenant's liability shall be pro rated on an annual basis. (d) GENERAL INSURANCE PROVISIONS. (i) Any insurance which Tenant is required to maintain under this Lease shall include a provision which requires the insurance carrier to give Landlord not less than thirty (30) days' written notice prior to any cancellation or modification of such coverage. (ii) If Tenant fails to deliver any policy, certificate or renewal to Landlord required under this Lease within the prescribed time period or if any such policy is cancelled or modified during the Lease Term without Landlord's consent, Landlord may obtain such insurance, in which case Tenant shall reimburse Landlord for the cost of such insurance within fifteen (15) days after receipt of a statement that indicates the cost of such insurance. (iii) Tenant shall maintain all insurance required under this Lease with companies holding a "General Policy Rating" of A-12 or better, as set forth in the most current issue of "Best Key Rating Guide." Landlord and Tenant acknowledge the insurance markets are rapidly changing and that insurance in the form and amounts described in this Section 4.04 may not be available in the future. Tenant acknowledges that the insurance described in this Section 4.04 is for the primary benefit of Landlord. If at any time during the Lease Term, Tenant is unable to maintain the insurance required under the Lease, Tenant shall nevertheless maintain insurance coverage which is customary and commercially reasonable in the insurance industry for Tenant's type of business, as that coverage may change from time to time. Landlord makes no representation as to the adequacy of such insurance to protect Landlord's or Tenant's interests. Therefore, Tenant shall obtain any such additional property or liability insurance which Tenant deems necessary to protect Landlord and Tenant. 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -8- 9 (iv) Unless prohibited under any applicable insurance policies maintained, Landlord and Tenant each hereby waive any and all rights of recovery against the other, or against the officers, employees, agents or representatives of the other, for loss or damage to its property or the property of others under its control, if such loss or damage is covered by any insurance policy in force (whether or not described in this Lease) at the time of such loss or damage. Upon obtaining the required policies of insurance, Landlord and Tenant shall give notice to the insurance carriers of this mutual waiver of subrogation. Section 4.05. COMMON AREAS: USE, MAINTENANCE AND COSTS. (a) COMMON AREAS. As used in this Lease, "Common Areas" shall mean all areas within the Project which are available for the common use of tenants of the Project and which are not leased or held for the exclusive use of Tenant or other tenants, including, but not limited to, parking areas, driveways, sidewalks, loading areas, access roads, corridors, landscaping and tenanted areas. Landlord, from time to time, may change the size, location, nature and use of any of the Common Areas, convert Common Areas into leasable areas, construct additional parking facilities (including parking structures) in the Common Areas, to increase or decrease Common Area land and/or facilities. Tenant acknowledges that such activities may result in convenience to Tenant. Such activities and changes are permitted if they do not materially affect Tenant's use of the Property. (b) USE OF COMMON AREAS. Tenant shall have the nonexclusive right (in common with other tenants and all others to whom Landlord has granted or may grant such rights) to use the Common Areas for the purposes intended, subject to such reasonable rules and regulations as Landlord may establish from time to time. Tenant shall abide by such rules and regulations and shall use its best effort to cause others who use the Common Areas with Tenant's express or implied permission to abide by Landlord's rules and regulations. At any time, Landlord may close any Common Areas to perform any acts in the Common Areas as, in Landlord's judgment, are desirable to improve the Project. Tenant shall not interfere with the rights of Landlord, Tenants or any other person entitled to use the Common Areas. (c) SPECIFIC PROVISION RE: VEHICLE PARKING. Tenant shall be entitled to use the number of vehicle parking spaces in the Project allocated to Tenant in Section 1.11 of the Lease without paying any additional rent. Tenant's parking shall not be reserved and shall be limited to vehicles no larger than standard size automobiles or pickup utility vehicles. Tenant shall not cause large trucks or other large vehicles to be 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -9- 10 parked within the Project or on the adjacent public streets.(1) Temporary parking of large delivery vehicles in the Project may be permitted by the rules and regulations established by Landlord. Vehicles shall be parked only in striped parking spaces and not in driveways, loading areas or other locations not specifically designated parking. Handicapped spaces shall only be used by those legally permitted to use them. If Tenant parks more vehicles in ______________________________________ the number set forth in Section 1.11 of this Lease, such conduct shall be a material breach of this Lease in addition to Landlord's other remedies under the Lease. Tenant shall pay a daily charge determined by Landlord for each such additional vehicle. (d) MAINTENANCE OF COMMON AREAS. Landlord shall maintain the Common Areas in good order, condition and repair and shall operate the Project, in Landlord's sole discretion, as a first-class industrial/commercial real property development. Common Area costs include, but are not limited to, costs and expenses for the following: gardening and landscaping; utilities; water and sewage charges; maintenance of signs (other than tenants' signs); premiums for liability, property damage, fire and other types of casualty insurance on the Common Areas and worker's compensation insurance, all property taxes and assessments levied on or attributable to the Common Areas and all Common Area improvements; all personal property taxes levied on or attributable to personal property used in connection with the Common Areas; straight-line depreciation or personal property owned by Landlord which is consumed in the operation or maintenance of the Common Areas; rental or lease payments paid by Landlord for rented or leased personal property used in the operation or maintenance of the Common Areas; fees for required licenses and permits; repairing, resurfacing, repaving, maintaining, painting, lighting, cleaning, refuse removal, security and similar terms; reserves for roof replacement and exterior painting and other appropriate reserves; and a reasonable allowance to Landlord for Landlord's supervision of the Common Areas (not to exceed five percent (5%) of the gross rents of the Project for the calendar year). Landlord may cause any or all of such services to be provided to third parties and the cost of such services shall be included in Common Area costs. Common Area costs shall not include depreciation of real property which forms part of the Common Areas. (e) TENANT'S SHARE AND PAYMENT. See Addendum "A." (1) Tenant shall be permitted to park a Biosite delivery truck in the parking area behind the building. 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -10- 11 Section 4.06. LATE CHARGES. Tenant's failure to pay rent promptly may cause Landlord to incur unanticipated costs. The exact amount of such costs are impractical or extremely difficult to ascertain. Such costs may include, but are not limited to, processing and accounting charges and late charges which may be imposed on Landlord by any ground lease, mortgage or trust deed encumbering the Property. Therefore, if Landlord does not receive any rent payment within ten (10) days after it becomes due, Tenant shall pay Landlord a late charge equal to ten percent (10%) of the overdue amount. The parties agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reach of such late payment. Section 4.07. INTEREST ON PAST DUE OBLIGATIONS. Any amount owed by Tenant to Landlord which is not paid when due shall bear interest at the rate of fifteen percent (15%) per annum from the due date of such amount. However, interest shall not be payable on late charges to be paid by Tenant under this Lease. The payment of interest on such amounts shall not excuse or cure any default by Tenant under this Lease. If the interest rate specified in this Lease is higher than the rate permitted by law, the interest rate is hereby decreased to the maximum legal interest rate permitted by law. Section 4.08. ARTICLE FIVE: USE OF PROPERTY Section 5.01. PERMITTED USES. Tenant may use the Property only for the Permitted Uses set forth in Section 1.06 above. Section 5.02. MANNER OF USE. Tenant shall not cause or permit the Property to be used in any way which constitutes a violation of any law, ordinance, or governmental regulation or order, which annoys or interferes with the rights of tenants of the Project, or which constitutes a nuisance or waste. Tenant shall obtain and pay for all permits, including a Certificate of Occupancy, required for Tenant's occupancy of the Property and shall promptly take all actions necessary to comply with all applicable statutes, ordinances, rules, regulations, orders and requirements regulating the use by Tenant of the Property including the Occupational Safety and Health Act. Section 5.03. HAZARDOUS MATERIALS. See Addendum "A" Section 5.04. SIGNS. Tenant shall not place any signs on the Property without Landlord's prior written consent, subject to Exhibit "B" Sign Criteria. 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -11- 12 Section 5.05. INDEMNITY. Tenant shall indemnify Landlord against and hold Landlord harmless from any and all costs, claims or liability arising from: (a) Tenant's use of the Property; (b) the conduct of Tenant's business or anything else done or permitted by Tenant to be done in or about the Property, including any contamination of the Property or any other property resulting from the presence or use of Hazardous Material caused or permitted by Tenant; (c) any breach or default in the performance of Tenant's obligations under this Lease; (d) any misrepresentation or breach of warranty by Tenant under this Lease; or (e) other acts or omissions of Tenant. Tenant shall defend Landlord against any such cost, claim or liability at Tenant's expense with counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any legal fees or costs incurred by Landlord in connection with any such claim. As a material part of the consideration to Landlord, Tenant assumes all risk of damage to property or injury to persons in or about the Property arising from any cause, and Tenant hereby waives all claims in respect thereof against Landlord, except for any claim arising out of Landlord's gross negligence or willful misconduct. As used in this Section , the term "Tenant" shall include Tenant's employees, agents, contractors and invitees, if applicable. Section 5.06. LANDLORD'S ACCESS. Landlord or its agent may enter the Property at all reasonable times to show the Property to potential buyers, investors or tenants or other parties; to do any other act or to inspect and conduct tests in order to monitor Tenant's compliance with all applicable environmental laws and all laws governing the presence and use of Hazardous Material; or for any other purpose Landlord deems necessary. Landlord shall give Tenant prior notice of such entry, except in the case of an emergency. Landlord may place customer "For Sale" or "For Lease" signs on the Property. Section 5.07. QUIET POSSESSION. If Tenant pays the rent and complies with all other terms of this Lease, Tenant may occupy and enjoy the Property for the full Lease Term, subject to the provisions of this Lease. ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS Section 6.01. EXISTING CONDITIONS. Tenant accepts the Property in its condition as of the execution of the Lease, subject to all recorded matters, laws, ordinances, and governmental regulations and orders. Except as provided herein, Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation as to the condition of the Property or the suitability of the Property for Tenant's intended use. Tenant represents and warrants that Tenant has 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -12- 13 made its own inspection of and inquiry regarding the condition of the Property and is not relying on any representations of Landlord or any Broker with respect thereto. If Landlord or Landlord's Broker has provided a Property Information Sheet or other Disclosure Statement regarding the Property, a copy is attached as an exhibit to the Lease. Section 6.02. EXEMPTION OF LANDLORD FROM LIABILITY. Landlord shall not be liable for any damage or injury to the person, business (or any loss of income therefrom), goods, wares, merchandise or other property of Tenant, Tenant's employees, invitees, customers or any other person in or about the property, whether such damage or injury is caused by or results from: (a) fire, steam, electricity, water, gas or rain; (b) the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures or any other cause; (c) conditions arising in or about the Property or upon other portions of the Project, or from other sources of places; or (d) any act or omission of any other tenant of the Project. Landlord shall not be liable for any such damage or injury even though the cause of or the means of repairing such damage or injury are not accessible to Tenant. The provisions of this Section 6.02 shall not, however, exempt Landlord from liability for Landlord's gross negligence or willful misconduct. Section 6.03. LANDLORD'S OBLIGATIONS. Subject to the provisions of Article Seven (Damage or Destruction) and Article Eight (Condemnation),and except for damage caused by any act or omission of Tenant, or Tenant's employees, agents, contractors or invitees, Landlord shall keep the foundation, roof and structural portions of exterior walls of the improvements on the Property in good order, condition and repair. However, Landlord shall not be obligated to maintain or repair windows, doors, plate glass or the surfaces of walls. Landlord shall not be obligated to make any repairs under this Section 6.03 until a reasonable time after receipt of a written notice from Tenant of the need for such repairs.(2) Tenant waives the benefit of any present or future law which might give Tenant the right to repair the Property at Landlord's expense or to terminate the lease because of the condition of the Property. Section 6.04. TENANT'S OBLIGATIONS. (a) Except as provided in Section 6.03, Article Seven (Damage or Destruction) and Article Eight (Condemnation), Tenant shall keep all portions of the Property (including structural, nonstructural, interior, systems and equipment) in good order, condition and repair (including interior repainting and - -------- (2) Including flood prevention measures. 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -13- 14 refinishing, as needed). If any portion of the Property or any system or equipment in the Property which Tenant is obligated to repair cannot be fully repaired or restored, Tenant shall promptly replace such portion of the Property or system or equipment in the Property, regardless of whether the benefit of such replacement extends beyond the Lease Term; but if the benefit or useful life of such replacement extends beyond the Lease Term (as such term may be extended by exercise of any options), the useful life of such replacement shall be prorated over the remaining portion of the Lease Term (as extended), and Tenant shall be liable only for that portion of the cost which is applicable to the Lease Term (as extended). Tenant shall maintain a preventive maintenance contract providing for the regular inspection and maintenance of the heating and air conditioning system by a licensed heating and air conditioning contractor. Landlord shall have the right, upon written notice to Tenant, to undertake the responsibility for preventive maintenance of the heating and air conditioning system at Tenant's expense. In addition, Tenant shall, at Tenant's expense, repair any damage to the roof, foundation or structural portions of walls caused by Tenant's acts or omissions. It is the intention of Landlord and Tenant that, at all times during the Lease Term, Tenant shall maintain the Property in an attractive, first-class and fully operative condition. (b) Tenant shall fulfill all of Tenant's obligations under this Section 6.04 at Tenant's sole expense. If Tenant fails to maintain, repair or replace the Property as required by this Section 6.04, Landlord may, upon ten (10) days' prior notice to Tenant (except that no notice shall be required in the case of an emergency), enter the Property and perform such maintenance or repair (including replacement, as needed) on behalf of Tenant. In such case, Tenant shall reimburse Landlord for all costs incurred in performing such maintenance or repair immediately upon demand. Section 6.05. ALTERATIONS, ADDITIONS AND IMPROVEMENTS. (a) Tenant shall not make any alterations, additions, or improvements to the Property without Landlord's prior written consent,(3) except for nonstructural alterations which do not exceed Ten Thousand Dollars ($10,000) in cost cumulatively over the Lease Term and which are not visible from the outside of any building of which the Property is part. Landlord may require Tenant to provide demolition and/or lien and completion bonds in form and amount satisfactory to Landlord. Tenant shall promptly remove any alterations, additions, or improvements constructed in violation of this Paragraph 6.05(a) upon Landlord's written - -------- (3) Which consent shall not be unreasonably withheld or delayed. 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -14- 15 request. All alterations, additions, and improvements shall be done in a good and workmanlike manner, in conformity with all applicable laws and regulations, and by a contractor approved by Landlord. Upon completion of any such work, Tenant shall provide Landlord with "as built" plans, copies of all construction contracts, and proof of payment for all labor and materials. (b) Tenant shall pay when due all claims for labor and material furnished to the Property. Tenant shall give Landlord at least twenty (20) days' prior written notice of the commencement of any work on the Property, regardless of whether Landlord's consent to such work is required. Landlord may elect to record and post notices of nonresponsibility on the Property. Section 6.06. CONDITION UPON TERMINATION. Upon the termination of the Lease, Tenant shall surrender the Property to Landlord, broom clean and in the same condition as received except for ordinary wear and tear which Tenant was not otherwise obligated to remedy under any provision of this Lease. However, Tenant shall not be obligated to repair any damage which Landlord is required to repair under Article Seven (Damage or Destruction). In addition, Landlord may require Tenant to remove any alterations, additions or improvements (whether or not made with Landlord's consent) prior to the expiration of the Lease and to restore the Property to its prior condition, all at Tenant's expense. All alterations, additions and improvements which Landlord has not required Tenant to remove shall become Landlord's property and shall be surrendered to Landlord upon the expiration or earlier termination of the Lease, except that Tenant may remove any of Tenant's machinery or equipment which can be removed without material damage to the Property. Tenant shall repair, at Tenant's expense, any damage to the property caused by the removal of any such machinery or equipment. In no event, however, shall Tenant remove any of the following materials or equipment (which shall be deemed Landlord's property) without Landlord's prior written consent; any power wiring or power panels; lighting or lighting fixtures; wall coverings; drapes, blinds or other window coverings; carpets or other floor coverings; heaters; air conditioners or any other heating or air conditioning equipment; fencing or security gates; or other similar building operating equipment and decorations. Notwithstanding the provisions outlined in Section (s) 6.05 and 6.06, Landlord shall notice Tenant at the time they provide consent which alterations and improvements Tenant must remove from the Premises at Lease Termination. 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -15- 16 ARTICLE SEVEN: DAMAGE OR DESTRUCTION If the Premises are destroyed in whole or in part from any cause, Landlord may elect either to restore the Premise or to terminate this Lease. Landlord shall notify Tenant of its election within sixty (60) days after the casualty. (a) RESTORATION. If Landlord elects to restore, Landlord shall promptly restore the Premises to their prior condition provided that such restoration can be completed within one hundred eighty (180) days (which period shall be extended one day for each day of delay resulting from causes beyond Landlord's control) after Landlord's notice of election of tenant. Tenant hereby expressly waives the provisions of Subdivision 2 of Section 1932 and Subdivision 4 of Section 1933 of the California Civil Code. Rent shall abate from the date of casualty in the proportion that Tenant is actually deprived of use of the Premises. (b) TERMINATION. If Landlord elects to terminate, rent shall terminate as of the date of the casualty, and from the date of the notice of election the parties shall have no further obligation under this Lease except for obligation which arose prior to the casualty. ARTICLE EIGHT: CONDEMNATION If all or any portion of the Property is taken under the power of eminent domain or sold under the threat of that power [all of which are called "Condemnation"), this Lease shall terminate as to the part taken or sold on the date the condemning authority takes title or possession, whichever comes first. If more than twenty percent (20%) of the floor area of the building in which the Property is located, or which is located on the Property, is taken, either Landlord or Tenant may terminate this Lease as of the date the condemning authority takes title or possession, by delivering written notice to the other within ten (10) days after receipt of written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority takes title or possession). If neither Landlord nor Tenant terminates this Lease, this Lease shall remain in effect as to the portion of the Property not taken, except that the Base Rent and Additional Rent shall be reduced in proportion to the reduction in the floor area of the Property. Any Condemnation award or payment shall be distributed in the following order: (a) first, to any ground lessor, mortgagee or beneficiary under a deed of trust encumbering the Property, the amount of its interest in the Property; (b) second, to Tenant, only the amount of any award specifically designated of such award, whether as compensation for reduction in the value of the leasehold, the taking of the fee, or otherwise. If this Lease is not terminated, Landlord 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -16- 17 shall repair any damage to the Property caused by the Condemnation, except that Landlord shall not be obligated to repair any damage for which Tenant has been reimbursed by the condemning authority. If the severance damages received by Landlord are not sufficient to pay for such repair, Landlord shall have the right to either terminate this Lease or make such repair at Landlord's expense. ARTICLE NINE: ASSIGNMENT AND SUBLETTING Section 9.01. LANDLORD'S CONSENT REQUIRED. No portion of the Property or of Tenant's interest in this Lease may be acquired by any other person or entity, whether by sale, assignment, mortgage, sublease, transfer, operation of law, or act of Tenant, without Landlord's prior written consent, except as provided in Section 9.02 below. Landlord has the right to grant or withhold its consent as provided in Section 9.05 below. Any attempted transfer without consent shall be void and shall constitute a non-curable breach of this Lease. If Tenant is a partnership, any cumulative transfer of more than twenty percent (20%) of the partnership interests shall require Landlord's consent. Section 9.02. TENANT AFFILIATE. Tenant may assign this Lease or sublease the Property, without Landlord's consent, to any corporation which controls, is controlled by or is under common control with Tenant, or to any corporation resulting from the merger of or consolidation with Tenant ("Tenant's Affiliate"). In such case, any Tenant's Affiliate shall assume in writing all of Tenant's obligations under this Lease. Section 9.03. NO RELEASE OF TENANT. No transfer permitted by this Article Nine, whether with or without Landlord's consent, shall release Tenant or change Tenant's primary liability to pay the rent and to perform all other obligations of Tenant under this Lease. Landlord's acceptance of rent from any other person is not a waiver of any provision of this Article Nine. Consent to one transfer is not a consent to any subsequent transfer. If Tenant's transferee defaults under this Lease, Landlord may proceed directly against Tenant without pursuing remedies against the transferee. Landlord may consent to subsequent assignments or modifications of this Lease by Tenant's transferee, without notifying Tenant or obtaining its consent. Such action shall not relieve Tenant's liability under this Lease. Section 9.04. OFFER TO TERMINATE. If Tenant desires to assign the Lease or sublease the Property, Tenant shall have the right to offer, in writing, to terminate the Lease as of a date specified in the offer. If Landlord does not so elect, the Lease shall continue in effect until otherwise terminated and 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -17- 18 the provisions of Section 9.05 with respect to any proposed transfer shall continue to apply. Section 9.05. LANDLORD'S CONSENT. (a) Tenant's request for consent to any transfer described in Section 9.01 shall set forth in writing the details of the proposed transfer, including the name, business and financial condition of the prospective transferee, financial details of the proposed transfer (e.g., the term of and the rent and security and deposit payable under any proposed assignment or sublease), and any other information Landlord deems relevant. Landlord shall have the right to withhold consent, if reasonable, or to grant consent, based on the following factors: (i) the business of the proposed assignee or subtenant and the proposed use of the Property; (ii) the net worth and financial reputation of the proposed assignee or subtenant; (iii) Tenant's compliance with all of its obligations under the Lease; and (iv) such other factors as Landlord may reasonably deem relevant. If Landlord objects to a proposed assignment solely because of the net worth and/or financial reputation of the proposed assignee, Tenant may nonetheless sublease (but not assign), all or a portion of the Property to the proposed transferee, but only on the other terms of the proposed transfer. (b) If Tenant assigns or subleases, the following shall apply: (i) Tenant shall pay to Landlord as Additional Rent under the Lease the Landlord's Share (stated in Section 1.14) of the Profit (defined below) on such transaction as and when received by Tenant, unless Landlord gives written notice to Tenant and the assignee or subtenant that Landlord's Share shall be paid by the assignee or subtenant to Landlord directly. The "Profit" means (A) all amounts paid to Tenant for such assignment or sublease, including "key" money, monthly rent in excess of the monthly rent payable under the Lease, and all fees and other consideration paid for the assignment sublease, including fees under any collateral agreements, less (B) costs and expenses directly incurred by Tenant in connection with the execution and performance of such assignment or sublease for real estate broker's commissions and costs of renovation or construction of tenant improvements required under such assignment or sublease. Tenant is entitled to recover such costs and expenses before Tenant is obligated to pay the Landlord's Share to Landlord. The Profit in the case of a sublease of less than all the Property is the rent allocable to the subleased space as a percentage on a square footage basis. 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -18- 19 (ii) Tenant shall provide Landlord a written statement certifying all amounts to be paid from any assignment of sublease of the Property within thirty (30) days after the transaction documentation is signed, and Landlord may inspect Tenant's books and records to verify the accuracy of such statement. On written request, Tenant shall promptly furnish to Landlord copies of all the transaction documentation, all of which shall be certified by Tenant to be complete, true and correct. Landlord's receipt of Landlord's Share shall not be a consent to any further assignment or subletting. The breach of Tenant's obligation under this Paragraph 9.05(b) shall be a material default to the Lease. Section 9.06. NO MERGER. No merger shall result from Tenant's sublease of the Property under this Article Nine, Tenant's surrender of this Lease or the termination of this Lease in any other manner. In any such event, Landlord may terminate any or all subtenancies or succeed to the interest of Tenant as sublandlord under any or all subtenancies. ARTICLE TEN: DEFAULTS; REMEDIES Section 10.01. COVENANTS AND CONDITIONS. Tenant's performance of each of Tenant's obligations under this Lease is a condition as well as a covenant. Tenant's right to continue in possession of the Property is conditioned upon such performance. Time is of the essence in the performance of all covenants and conditions. Section 10.02. DEFAULTS. Tenant shall be in material default under this Lease: (a) If Tenant abandons the Property and if Tenant's vacation of the Property results in the cancellation of any insurance described in Section 4.04; (b) If Tenant fails to pay rent or any other charge when due; (c) If Tenant fails to perform any of Tenant's non-monetary obligations under this Lease for a period of thirty (30) days after written notice from Landlord; provided that if more than thirty (30) days are required to complete such performance, Tenant shall not be in default if Tenant commences such performance within the thirty (30) day period and thereafter diligently pursues its completion. However, Landlord shall not be required to give such notice if Tenant's failure to perform constitutes a non-curable breach of this Lease. The notice required by this Paragraph is intended to satisfy any and all notice requirements imposed by law on Landlord and is not in addition to any such requirement. 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -19- 20 (d) (i) If Tenant makes a general assignment or general arrangement for the benefit of creditors; (ii) if a petition for adjudication of bankruptcy or for reorganization or rearrangement is filed by or against Tenant and is not dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed to take possession of substantially all of Tenant's assets located at the Property or of Tenant's interest in this Lease and possession is not restored to Tenant within thirty (30) days; or (iv) if substantially all of Tenant's assets located at the Property or of Tenant's interest in this Lease is subjected to attachment, execution or other judicial seizure which is not discharged within thirty (30) days. If a court of competent jurisdiction determines that any of the acts described in this subparagraph (d) is not a default under this Lease, and a trustee is appointed to take possession (or if Tenant remains a debtor in possession) and such trustee or Tenant transfers Tenant's interest hereunder, then Landlord shall receive, as Additional Rent, the excess, if any, of the rent (or any other consideration) paid in connection with such assignment or sublease over the rent payable by Tenant under this Lease. (e) If any guarantor of the Lease revokes or otherwise terminates, or purports to revoke or otherwise terminate, any guaranty of all or any portion of Tenant's obligations under the Lease. Unless otherwise expressly provided, no guaranty of the Lease is revocable. Section 10.03. REMEDIES. On the occurrence of any material default by Tenant, Landlord may, at any time thereafter with or without notice or demand and without limiting Landlord in the exercise of any right or remedy which Landlord may have: (a) Terminate Tenant's right to possession of the Property by any lawful means, in which case this Lease shall terminate and Tenant shall immediately surrender possession of the Property to Landlord. In such event, Landlord shall be entitled to recover from Tenant all damages incurred by Landlord by reason of Tenant's default, including (i) the worth at the time of the award of the unpaid Base Rent, Additional Rent and other charges which Landlord has earned at the time of the termination; (ii) the worth at the time of the award of the amount by which the unpaid Base Rent, Additional Rent and other charges which Landlord would have earned after termination until the time of the award exceeds the amount of such rental loss that Tenant proves Landlord could have reasonably avoided; (iii) the worth at the time of the award of the amount by which the unpaid Base Rent, Additional Rent and other charges which Tenant would have paid for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves Landlord could have reasonably avoided; and (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -20- 21 obligations under the Lease or which in the ordinary course of things would be likely to result therefrom, including, but not limited to, any cost or expenses Landlord incurs in maintaining or preserving the Property after such default, the cost of recovering possession of the Property, expenses of reletting, including necessary renovation or alteration of the Property, Landlord's reasonable attorneys' fees incurred in connection therewith, and any real estate commission paid or payable. As used in subparts (i) and (ii) above, the "worth at the time of the award" is computed by allowing interest on unpaid amounts at the rate of fifteen percent (15%) per annum, or such lesser amount as may then be the maximum lawful rate. As used in subpart (iii) above, the worth at the time of the award is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus one percent (1%). If Tenant has abandoned the Property, Landlord shall have the option of (i) retaking possession of the Property and recovering from Tenant the amount specified in this Paragraph 10.03(a), or (ii) proceeding under Paragraph 10.03(b); (b) Maintain Tenant's right to possession, in which case this Lease shall continue in effect whether or not Tenant has abandoned the Property. In such event, Landlord shall be entitled to enforce all of Landlord's rights and remedies under this Lease, including the right to recover the rent as it becomes due. (c) Pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the state in which the Property is located. Section 10.04. REPAYMENT OF "FREE" RENT. If this Lease provides for a postponement of any monthly rental payments, a period of "free" rent or other rent concession, such postponed rent or "free" rent is called the "Abated Rent." Tenant shall be credited with having paid all of the Abated Rent on the expiration of the Lease Term only if Tenant has fully, faithfully and punctually performed all of Tenant's obligations hereunder, including the payment of all rent (other than the Abated Rent) and all other monetary obligations and the surrender of the Property in the physical condition required by this Lease. Tenant acknowledges that its right to receive credit for the Abated Rent is absolutely conditioned upon Tenant's full, faithful and punctual performance of its obligations under this Lease. If Tenant defaults and does not cure within any applicable grace period, the Abated Rent shall immediately become due and payable in full and this Lease shall be enforced as if there were no such rent abatement or other rent concession. In such case Abated Rent shall be calculated based on the full initial rent payable under this Lease. 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -21- 22 Section 10.05. AUTOMATIC TERMINATION. Notwithstanding any other term or provision hereof to the contrary, the Lease shall terminate on the occurrence of any act which affirms the Landlord's intention to terminate the Lease as provided in Section 10.03 hereof, including the filing of an unlawful detainer action against Tenant. On such termination, Landlord's damages for default shall include all cost and fees, including reasonable attorneys' fees that Landlord incurs in connection with the filing, commencement, pursuing and/or defending of any action in any bankruptcy court or other court with respect to the Lease; the obtaining of relief from any stay in bankruptcy restraining any action to evict Tenant; or the pursuing of any action with respect to Landlord's right to possession of the Property. All such damages suffered (apart from Base Rent and other rent payable hereunder) shall constitute pecuniary damages which must be reimbursed to Landlord prior to assumption of the Lease by Tenant or any successor to Tenant in any bankruptcy or other proceeding. Section 10.06. CUMULATIVE REMEDIES. Landlord's exercise of any right or remedy shall not prevent it from exercising any other right or remedy. ARTICLE ELEVEN: PROTECTION OF LENDERS Section 11.01. SUBORDINATION. Landlord shall have the right to subordinate this Lease to any ground lease, deed of trust or mortgage encumbering the Property, any advances made on the security thereof and any renewals, modifications, consolidations, replacements or extensions thereof, whenever made or recorded. Tenant shall cooperate with Landlord and any lender which is acquiring a security interest in the Property or the Lease. Tenant shall execute such further documents and assurances as such lender may require, provided that Tenant's obligations under this Lease shall not be increased in any material way (the performance of ministerial acts shall not be deemed material), and Tenant shall not be deprived of its rights under this Lease. Tenant's right to quiet possession of the Property during the Lease Term shall not be disturbed if Tenant pays the rent and performs all of Tenant's obligations under this Lease and is not otherwise in default. If any ground lessor, beneficiary or mortgagee elects to have this Lease prior to the lien of its ground lease, deed of trust or mortgage and gives written notice thereof to Tenant, this Lease shall be deemed prior to such ground lease, deed of trust or mortgage whether this Lease is dated prior or subsequent to the date of said ground lease, deed of trust or mortgage or the date of recording thereof. Section 11.02. ATTORNMENT. If Landlord's interest in the Property is acquired by any ground lessor, beneficiary under a deed of trust, mortgagee or purchase at a foreclosure sale, 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -22- 23 Tenant shall attorn to the transferee of or successor to Landlord's interest in the Property and recognize such transferee or successor as Landlord under this Lease. Tenant waives the protection of any statute or rule of law which gives or purports to give Tenant any right to terminate this Lease or surrender possession of the Property upon the transfer of Landlord's interest. Section 11.03. SIGNING OF DOCUMENTS. Tenant shall sign and deliver any instrument or documents necessary or appropriate to evidence any such attornment or subordination or agreement to do so. If Tenant fails to do so within ten (10) days after written request, Tenant hereby makes, constitutes and irrevocably appoints Landlord, or any transferee or successor of Landlord, the attorney-in-fact of Tenant to execute and deliver any such instrument or document. Section 11.04. ESTOPPEL CERTIFICATES. (a) Upon Landlord's written request, Tenant shall execute, acknowledge and deliver to Landlord a written statement certifying: (i) that none of the terms or provisions of this Lease has been changed (or if they have been changed, stating how they have been changed); (ii) that this Lease has not been cancelled or terminated, (iii) the last date of payment of the Base Rent and other charges and the time period covered by such payment; (iv) that Landlord is not in default under this Lease (or if Landlord is claimed to be in default, stating why); and (v) such other representations or information with respect to Tenant or the Lease as Landlord may reasonably request or which any prospective purchaser or encumbrancer of the Property may require. Tenant shall deliver such statement to Landlord within ten (10) days after Landlord's request. Landlord may give any such statement by Tenant to any prospective purchaser or encumbrancer of the Property. Such purchaser or encumbrancer may rely conclusively upon such statement as true and correct. (b) If Tenant does not deliver such statement to Landlord within such ten (10) day period, Landlord, and any prospective purchaser or encumbrancer, may conclusively presume and rely upon the following facts: (i) that the terms and provisions of this Lease have not been changed except as otherwise represented by Landlord; (ii) that this Lease has not been cancelled or terminated except as otherwise represented by Landlord; (iii) that not more than one month's Base Rent or other charges have been paid in advance; and (iv) that Landlord is not in default under the Lease. In such event Tenant shall be estopped from denying the truth of such facts. Section 11.05. TENANT'S FINANCIAL CONDITION. Within ten (10) says after written request from Landlord, Tenant shall deliver to Landlord such financial statements as Landlord 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -23- 24 reasonably requires to verify the net worth of Tenant or any assignee subtenant, or guarantor of Tenant. In addition, Tenant shall deliver to any lender designated by Landlord any financial statements required by such lender to facilitate the financing or refinancing of the Property. Tenant represents and warrants to Landlord that each such financial statement is a true and accurate statement as of the date of such statement. All financial statements shall be confidential and shall be used only for the purposes set forth in this Lease. ARTICLE TWELVE. LEGAL COSTS Section 12.01. LEGAL PROCEEDINGS. If Tenant or Landlord shall be in breach or default under this Lease, such party (the "Defaulting Party") shall reimburse the other party (the "Nondefaulting Party") upon demand for any costs or expenses that the Nondefaulting Party incurs in connection with any breach or default of the Defaulting Party under this Lease, whether or not suit is commenced or judgment entered. Such costs shall include legal fees and costs incurred for the negotiation of a settlement, enforcement of rights or otherwise. Furthermore, if any action for breach of or to enforce the provisions of this Lease is commenced, the court in such action shall award to the party in whose favor a judgment is entered, a reasonable sum as attorneys' fees and costs. The losing party in such action shall pay such attorneys' fees and costs. Tenant shall also indemnify Landlord against and hold Landlord harmless from all costs, expenses, demands and liability Landlord may incur if Landlord becomes or is made a party to any claim or action (a) instituted by Tenant against any third party, or by any third party against Tenant, or by or against any person holding any interest under or using the Property by license of or agreement with Tenant; (b) for foreclosure of any lien for labor or material furnished to or for Tenant or such other person; (c) otherwise arising out of or resulting from any act or transaction of Tenant or such other person; or (d) necessary to protect Landlord's interest under this Lease in a bankruptcy proceeding, or other proceeding under Title 11 of the United States Code, as amended. Tenant shall defend Landlord against any such claim or action at Tenant's expense with counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any legal fees or costs Landlord incurs in any such claim or action. Section 12.02. LANDLORD'S CONSENT. Tenant shall pay Landlord's reasonable attorneys' fees incurred in connection with Tenant's request for Landlord's consent under Article Nine (Assignment and Subletting), or in connection with any other act which Tenant proposes to do and which required Landlord's consent. 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -24- 25 ARTICLE THIRTEEN. MISCELLANEOUS PROVISIONS. Section 13.01. NON-DISCRIMINATION. Tenant promises, and it is a condition to the continuance of this Lease, that there will be no discrimination against, or segregation of, any person or group of persons on the basis of race, color, sex, creed, national origin or ancestry in the leasing, transferring, occupancy, tenure or use of the Property or any portion thereof. Section 13.02. LANDLORD'S LIABILITY; CERTAIN DUTIES. (a) As used in this Lease, the term "Landlord" means only the current owner or owners of the fee title to the Property or Project or the leasehold estate under a ground lease of the Property or Project at the time in question. Each Landlord is obligated to perform the obligations of Landlord under this Lease only during the time such Landlord owns such interest or title. Any Landlord who transfers its title or interest is relieved of all liability with respect to the obligations of Landlord under this Lease to be performed on or after the date of transfer. However, each Landlord shall deliver to its transferee all funds that Tenant previously paid if such funds have not yet been applied under the terms of this Lease. (b) Tenant shall give written notice of any failure by Landlord to perform any of its obligations under this Lease to Landlord and to any ground lessor, mortgagee or beneficiary under any deed of trust encumbering the property whose name and address have been furnished to Tenant in writing. Landlord shall not be in default under this Lease unless Landlord (or such ground lessor, mortgagee or beneficiary) fails to cure such nonperformance within thirty (30) days after receipt of Tenant's notice. However, if such nonperformance reasonably requires more than thirty (30) days to cure, Landlord shall not be in default if such cure is commenced within such thirty (30) day period and thereafter diligently pursued to completion. (c) Notwithstanding any term or provision herein to the contrary, the liability of Landlord for the performance of its duties and obligations under this Lease is limited to Landlord's interest in the Property and the Project, and neither the Landlord nor its partners, shareholders, officers or other principals shall have any personal liability under this Lease. Section 13.03. SEVERABILITY. A determination by a court of competent jurisdiction that any provision of this Lease or any part thereof is illegal or unenforceable shall not cancel or invalidate the remainder of such provision of this Lease, which shall remain in full force and effect. Section 13.04. INTERPRETATION. The captions of the Articles or Sections of this Lease are to assist the parties in 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -25- 26 reading this Lease and are not a part of the terms or provisions of this Lease. Whenever required by the context of this Lease, the singular shall include the plural and the plural shall include the singular. The masculine, feminine and neuter genders shall each include the other. In any provisions relating to the conduct, acts or omissions of Tenant, the term "Tenant" shall include Tenant's agents, employees, contractors, invitees, successors or others using the Property with Tenant's expressed or implied permission. Section 13.05. INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. This Lease is the only agreement between the parties pertaining to the lease of the Property and no other agreements are effective. All amendments to this Lease shall be in writing and signed by all parties. Any other attempted amendment shall be void. Section 13.06. NOTICES. All notices required or permitted under this Lease shall be in writing and shall be personally delivered or sent by certified mail, return receipt requested, postage prepaid. Notices to Tenant shall be delivered to the address specified in Section 1.03 above, except that upon Tenant's taking possession of the property, the Property shall be Tenant's address for notice purposes. Notices to Landlord shall be delivered to the address specified in Section 1.02 above. All notices shall be effective upon delivery. Either party may change its notice address upon written notice to the other party. Section 13.07. WAIVERS. All waivers must be in writing and signed by the waiving party. Landlord's failure to enforce any provision of this Lease or its acceptance of rent shall not be a waiver and shall not prevent Landlord from enforcing that provision or any other provision of this Lease in the future. No statement on a payment check from Tenant or in a letter accompanying a payment check shall be binding on Landlord. Landlord may, with or without notice to Tenant, negotiate such check without being bound to the conditions of such statement. Section 13.08. NO RECORDATION. Tenant shall not record this Lease without prior written consent from Landlord. However, either Landlord or Tenant may require that a "Short Form" memorandum of this Lease executed by both parties be recorded. The party requiring such recording shall pay all transfer taxes and recording fees. Section 13.09. BINDING EFFECT: CHOICE OF LAW. This Lease binds any party who legally acquires any rights or interest in this Lease from Landlord or Tenant. However, Landlord shall have no obligation to Tenant's successor unless the rights or interest of Tenant's successor are acquired in accordance with 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -26- 27 the terms of this Lease. The laws of the state in which the Property is located shall govern this Lease. Section 13.10. CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY. If Tenant is a corporation, each person signing this Lease on behalf of Tenant represents and warrants that he has full authority to do so and that this Lease binds the corporation. Within thirty (30) days after this Lease is signed, Tenant shall deliver to Landlord a certified copy of a resolution of Tenant's Board of Directors authorizing the execution of this Lease or other evidence of such authority reasonably acceptable to Landlord. If Tenant is a partnership, each person or entity signing this Lease for Tenant represents and warrants that he or it is a general partner of the partnership, that he or it has full authority to sign for the partnership and that this Lease binds the partnership and all general partners of the partnership. Tenant shall give written notice to Landlord of any general partner's withdrawal or addition. Within thirty (30) days after this Lease is signed, Tenant shall deliver to Landlord a copy of Tenant's recorded statement of partnership or certificate of limited partnership. Section 13.11. JOINT AND SEVERAL LIABILITY. All parties signing this Lease as Tenant shall be jointly and severally liable for all obligations of Tenant. Section 13.12. FORCE MAJEURE. If Landlord cannot perform any of its obligations due to events beyond Landlord's control, the time provided for performing such obligations shall be extended by a period of time equal to the duration of such events. Events beyond Landlord's control include, but are not limited to, acts of God, war, civil commotion, labor disputes, strikes, fire, floor or other casualty, shortages of labor or material, government regulation or restriction and weather conditions. Section 13.13. EXECUTION OF LEASE. This Lease may be executed in counterparts and, when all counterpart documents are executed, the counterparts shall constitute a single binding instrument. Landlord's delivery of this Lease to Tenant shall not be deemed to be an offer to lease and shall not be binding upon either party until executed and delivered by both parties. Section 13.14. SURVIVAL. All representations and warranties of Landlord and Tenant shall survive the termination of this Lease. Landlord and Tenant have signed this Lease at the place and on the dates specified adjacent to their signatures below and have initialled all Riders which are attached to or incorporated by reference in this Lease. 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -27- 28 "TENANT" BIOSITE DIAGNOSTICS, INC. a California corporation By: /s/ Kim Blickenstaf ___________________ Kim Blickenstaf Title: President ------------------------- Date: _________________________ "LANDLORD" TCEP II PROPERTIES LIMITED PARTNERSHIP, a Texas limited partnership By: TCEP II Holdings, L.L.C., a Texas liability company, its General Partner By: Trammell Crow Equity Partners II, Ltd., a Texas limited partnership, a Member By: Trammell Crow Ventures #2, Ltd., a Texas limited partnership, its General Partner By: Trammell Crow Ventures #3, Ltd., a Texas limited partnership, its General Partner By: Trammell Crow Ventures Management Company, I Inc., a Texas corporation, its General Partner By: /s/ Jeffrey C. ? _______________________________ Title: Vice President _______________________________ Date: 8/12/96 _______________________________ 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -28- 29 Biosite Diagnostics Addendum A Page 1 ADDENDUM "A" This Addendum is to that certain Lease dated July 26, 1996, by and between Biosite Diagnostics, Inc., a California Corporation ("Tenant") and TCEP II Properties Limited Partnership, A Texas Limited Partnership ("Landlord"). The printed portion of the Lease is hereby modified and supplemented as follows. Wherever there is any conflict between this Addendum and the printed portion of the Lease, the provisions of the Addendum are paramount and the Lease shall be construed accordingly. 1. Insert the following as Section 4.05 (e) of the Lease: Section 4.05(e) "TENANT'S SHARE AND PAYMENT. In order that the Rent payable during the Term reflect any increase in Common Area Costs, Tenant agrees to pay to Landlord as Rent, Tenant's Proportionate Share of all increases in costs, expenses and obligations attributable to the Project and its operation, all as provided below. If, during any calendar year during the Term, Common Area Costs exceed the Common Area Costs for the Base Year, Tenant shall pay to Landlord, in addition to the Base Rent and all other payments due under this Lease, an amount equal to Tenant's Proportionate Share of such excess Common Area Costs in accordance with the provisions of this Section 4.05(e). Tenant's Proportionate Share of Common Area Costs shall be payable by Tenant to Landlord as follows: (a) Beginning with the calendar year following the Base Year and for each calendar year thereafter ("Comparison Year"), Tenant shall pay Landlord an amount equal to Tenant's Proportionate Share of the Common Area Costs incurred by Landlord in the Comparison Year which exceeds the total amount of Common Area Costs payable by Landlord for the Base Year. This excess is referred to as the "Excess Expense." (b) To provide for current payments of Excess Expenses, Tenant shall, at Landlord's request, pay as additional rent during each Comparison Year, an amount equal to Tenant's Proportionate Share of the Excess Expense payable during such Comparison Year, as estimated by Landlord from time to time. Tenant's pro rata share shall be calculated by dividing the square foot area of the Property, as set forth in Section 1.04 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -1- 30 Biosite Diagnostics Addendum A Page 2 of the Lease, by the aggregated square foot area of the Project which is leased or held for lease by tenants, as of the date on which the computation is made. Tenant's initial pro rata share is set out in Paragraph 1.12(b). Any changes in the Common Area costs and/or the aggregate area of the Project leased or held for lease during the Lease Term shall be effective on the first day of the month after such charge occurs. Landlord may, at Landlord's election, estimate in advance and charge to Tenant as Common Area costs, all real property taxes for which Tenant is liable under Section 4.02 of the Lease, all insurance premiums for which Tenant is liable under Section 4.04 of the Lease, all maintenance and repair costs for which Tenant is liable under Section 6.04 of the Lease, and all other Common Area costs payable by Tenant hereunder. Such payments shall be made in monthly installments, commencing on the first day of the month following the month in which Landlord notifies Tenant of the amount it is to pay hereunder and continuing until the first day of the month following the month in which Landlord gives Tenant a new notice of estimated Excess Expenses. It is the intention hereunder to estimate from time to time the amount of the Excess Expenses for each Comparison Year and Tenant's Proportionate Share thereof, and then to make an adjustment in the following year based on the actual Excess Expenses incurred for that Comparison Year. (c) On or before April 1 of each Comparison Year after the first Comparison Year (or as soon thereafter as is practical), Landlord shall deliver to Tenant a statement setting forth Tenant's Proportionate Share of the Excess Expenses for the preceding Comparison Year. If Tenant's Proportionate Share of the actual Excess Expenses for the previous Comparison Year exceeds the total of the estimated monthly payments made by Tenant for such year, Tenant shall pay Landlord the amount of the deficiency within ten (10) days of the receipt of the statement. If such total exceeds Tenant's Proportionate Share of the actual Excess Expenses for such Comparison Year, then Landlord shall credit against Tenant's next ensuing monthly installment(s) of additional rent an amount equal to the difference until the credit is exhausted. If a credit is due from Landlord on the Expiration Date, Landlord shall pay Tenant the amount of the credit. The obligations of Tenant and Landlord to make payments required under this Section 4.05(e) shall survive the Expiration Date. (d) Tenant's Proportionate Share of Excess Expenses in any Comparison Year having less than 365 days shall be appropriately prorated. 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -2- 31 Biosite Diagnostics Addendum A Page 3 (e) If any dispute arises as to the amount of any additional rent due hereunder, Tenant shall have the right after reasonable notice and at reasonable times to inspect Landlord's accounting records at Landlord's accounting office and, if after such inspection Tenant still disputes the amount of additional rent owed, a certification as to the proper amount shall be made by Landlord's certified public accountant, which certification shall be final and conclusive. Tenant agrees to pay the cost of such certification unless it is determined that Landlord's original statement overstated Common Area Costs by more than five percent (5%). 2. Insert the following language as Section S.03 (a) of the Lease: Section 5.03(a) "HAZARDOUS MATERIALS With respect to any release of toxic or hazardous substances or wastes of the premises occurring on or after the date of this Lease and caused by or resulting from the negligent acts or omissions or willful misconduct of Tenant, its employees, authorized agents, or contractors, and which release or other condition violates the provisions of, or necessitates any removal, treatment, or other remedial action under, any past, present, or future federal, state or local statute or ordinance or any regulation, directive, or requirement of any governmental authority with jurisdiction relating to protection of the environment, Tenant agrees to defend, indemnify, and hold harmless Landlord, its partners. employees, from and against any and all losses, claims, liabilities, damages, demands, fines, costs and expenses (including reasonable attorney's fees and legal expenses) arising out of or resulting therefrom. The provisions of this Paragraph shall survive the termination or expiration of this Lease and the surrender of the premises by Tenant, with respect to releases, events, or conditions occurring prior to such termination, expiration, or surrender. With respect to any release of toxic or hazardous substances or wastes or other condition of the premises occurring prior to or after the date of this Lease and caused by or resulting from the negligent acts or omissions or willful misconduct of Landlord, its employees, authorized agents, or contractors, and which release or other condition violates the provisions of, or necessitates any removal, treatment, or other remedial action under, any past present, or future federal, state or local statute or ordinance or any regulation, directive, or requirement of any governmental authority with jurisdiction relating to protection of the environment, Landlord agrees to defend, indemnify, and hold harmless Tenant and its employees from and 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -3- 32 Biosite Diagnostics Addendum A Page 4 against any and all losses, claims, liabilities, damages, demands, fines, costs and expenses (including reasonable attorneys' fees and legal expenses) arising out of or resulting therefrom. 3. Insert the following language as Section 5.03 (b) of the Lease: Section 5.03 (b) "RELEASE REPORTING REQUIREMENTS This is to inform you of your obligations to properly report unauthorized releases of hazardous substances to appropriate authorities. If you do not report such releases, a recently enacted law imposes an independent obligation on property owner's to report these releases to the proper authorities. Because of this new law, the owners of the property from whom you lease space have asked that all tenants be notified of this reporting obligation. This is not intended to, nor does it imply, that a release of hazardous substances has recently occurred in, on, under or about your leased premises. Federal and California law require that an unauthorized release of hazardous substances be reported to federal and state agencies within twenty four (24) hours of the occurrence. Historically, this reporting obligation has been limited to the party responsible for causing the release. Recently, California enacted legislation which strengthens this reporting obligation (California Health & Safety Code Section 25359.4). Under Section 25359.4, among other things, new reporting requirements are imposed upon the owners of property on which the release occurred. Thus the owners of the property can be held responsible for not reporting a release, even though the owners did not cause the release. Penalties for not reporting a release can be as high as $25,000 per day per violation {Health & Safety Code Section 2539.4(d).} These penalties can be assessed against the party responsible for the release or the property owner. Your lease requires that you operate your business in accordance with applicable laws. Accordingly, you are responsible for determining your reporting obligations if an unauthorized release of hazardous substances occurs in, on, under or about your leaved premises. Should you be required to report such a release to a government agency, you should also immediately notify your Property Manager. If Trammell Crow, as manager of the property, becomes aware of an unauthorized release and, in its sole judgment, determines that a reporting obligation has been triggered, and if after consultation with you, or efforts 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -4- 33 Biosite Diagnostics Addendum A Page 5 to consult with you, it is determined that no report has been made by you, Trammell Crow will report the release on behalf of the property owners warning you as the sole responsible party. In addition to the foregoing, and as required by your lease, any unauthorized release of a hazardous substance in, on, under or about the property must be disclosed to Trammell Crow, whether or not this release must be reported to an outside government agency. In any situation where a hazardous substance release may have impacted the soil beneath or around your leased space, or may have impacted the interior of your leased space, the following additional steps should be undertaken. These steps are: Contact one or more qualified environmental consultants and request a COST PROPOSAL to assess the extent of the impact. A copy of this proposal should be forwarded to Trammell Crow for our review and comments. New work will be authorized without our prior review and approval. Once a consultant has been retained, a WORKPLAN should be prepared detailing the actions to be taken to assess the extent of the impact or the remediation method, as appropriate. A copy of this WORKPLAN should be forwarded to Trammell Crow for our review and comments. No work, in particular no soil testing or other intrusive work, will be authorized without our prior review and approval. Notify Trammell Crow when the work is scheduled to begin. A consultant may be retained by the owners to oversee the work being conducted by your consultant. Conduct the work and provide to Trammell Crow a copy of a DRAFT report documenting the problem, the extent of the impact, the procedures used to address the release, and a conclusion by the consultant on the adequacy of the remediable action taken. Since the report will become a component of the permanent records of the property, Trammell Crow's comments and approval are an integral part of this process. Provide to Trammell Crow a copy of the FINAL report We appreciate your attention to the contents in this Section 5.3. Trammell Crow, as Property Manager, will be pleased to answer any questions you may have, or to assist you in any way we can in your efforts to comply with these requirements. The obligation to comply, however, is yours. If you have any questions, please contact J. Kenneth Doole at (213) 724-2246. 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -5- 34 Biosite Diagnostics Addendum A Page 6 Mr. Doole will be glad to discuss the contents of this Section with you. 4. Insert the following language as Section 6.01(a) of the Lease: Section 6.01(a). "EXISTING CONDITIONS. Landlord shall warrant that the HVAC is in good working condition for the first twelve (12) months of the Lease Term. 5. Insert the following language as Section 14 of the Lease: Section 14. "OPTION TO RENEW. Subject to Tenant's compliance and performance of its Lease obligations, Tenant shall be granted two (2) one (1) year Option(s) to Renew. Tenant shall notify Landlord in writing of its intent to exercise said Option(s) at least one hundred twenty (120) days prior to the expiration of the initial Lease Term or the first Option to Renew. All Terms and Conditions shall remain the same with the exception of Base Rent which shall be as follows: October 1, 1998 - September 30, 1999 (First one-year option) - $12,229.70 per month. October 1, 1999 - September 30, 2000 (Second one-year option) - $12,753.83 per month 6. Insert the following language as Section 15 of the Lease: Section 15. "CONSTRUCTION OF LEASED PREMISES A. Tenant Improvement Allowance. Landlord shall provide Tenant an allowance (The 'Tenant Improvement Allowance') which shall be applied to the cost of the construction of Tenant Improvements (the 'Tenant Improvements') in the Premises (excluding Tenant's trade fixtures) and which shall be in an amount of Thirty-Four Thousand Nine Hundred Forty-Two Dollars ($34,942) which is based on 17,471 rentable square feet multiplied by $2.00 per rentable square foot. Tenant shall be responsible for the cost of all Tenant Improvements in excess of the Tenant Improvement Allowance. As used herein, the phrase 'cost of the construction of Tenant Improvements' shall mean and refer to all costs expended by Tenant relative to the construction of Tenant Improvements, which shall include, but shall not be limited to, costs of equipment, material and labor; contractor's field overhead and fees; cost of preparation of 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -6- 35 Biosite Diagnostics Addendum A Page 7 preliminary space plans and specifications and working drawings; governmental agency fees relating to said construction; costs of any requirements regarding construction which are imposed by any federal, state or local governmental entity or agency which are not reflected in the approved Plans and Specifications for the Tenant Improvements; sales and use taxes (but not real property taxes); permits; plan check fees; bonds; demolition; and other costs directly related to the construction of the Tenant Improvements. Upon completion of the Tenant Improvements, Tenant shall provide for Landlord a certification by Tenant of the cost of such construction and a copy of the final unconditional certificate of occupancy for the Premises issued by the city of San Diego and a certification by Tenant's general contractor that the Tenant Improvements have been constructed in a good and workmanlike manner in accordance with the Plans and Specifications as defined in subparagraph B, below, and that all sums owing to subcontractors, materialmen, laborers and other persons having mechanics' lien rights have been paid (or, if any payment is in good faith disputed, have been adequately bonded). Landlord shall reimburse Tenant the amount of the construction costs, up to $34,942, within twenty (20) days of receipt and approval of the items listed above. Landlord may withhold up to fifteen percent (15%) of the Tenant Improvement Allowance until thirty-five (35) days after the recordation of a notice of completion to help ensure that all mechanic's lien claims have been paid or provided for. No part of the Tenant Improvement Allowance may be expended for costs other than the costs of the construction of Tenant Improvements which shall be deemed Leasehold Improvements. Tenant shall be permitted to remove all trade fixtures that they install into the Premises. B. Construction of Tenant Improvements. Subject to Section 6.01(a), Tenant accepts the Premises in their present condition and shall be solely responsible for the construction of the Tenant Improvements. Tenant shall improve the Premises in accordance with the Plans and Specifications and such requirements and upon such conditions as Landlord may impose in accordance with normal standards currently in use by Landlord (the 'Work'). Tenant shall prepare a preliminary layout with Landlord's cooperation and for Landlord's approval, which approval shall not be unreasonably withheld or delayed. Landlord shall use its best efforts to notify Tenant of Landlord's approval or disapproval of the layout within five (5) days of Landlord's receipt. Upon approval of the layout, Tenant shall prepare working drawings adequate in detail to perform the Work and shall have necessary mechanical (sprinkler, air conditioning, heating, electrical and plumbing) drawings prepared in consultation with a mechanical engineer covering mechanical 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -7- 36 Biosite Diagnostics Addendum A Page 8 elements of the Work. The drawings, together with the preliminary layout, are referred to as the 'Plans and Specifications.' All costs of preparing the Plans and Specifications and performing the Work in excess of the Tenant Improvement Allowance shall be at Tenant's sole cost and expense. Any review or approval by Landlord of the Plans and Specifications shall be done without any representation or warranty whatsoever to Tenant with respect to the adequacy, correctness or efficiency thereof or otherwise. The Work shall be performed pursuant to a general contract with a reputable licensed contractor with experience in constructing tenant improvements in similar buildings in San Diego County. Tenant shall select the contractor subject to Landlord's approval, which shall not be unreasonably withheld or delayed. Landlord shall have no liability for any defects or deficiencies in the Work. C. Entry To Perform Work. Landlord shall permit Tenant and Tenant's agents to enter the Premises prior to the Commencement Date in order that Tenant may do the Work. Tenant agrees that any such entry into and occupation of the Premises shall be deemed to be under all of the terms, covenants, conditions and provisions of this Lease except as to the covenant to pay the Rent, and further agrees that Landlord shall not be liable in any way for any injury, loss or damage which may occur to any of the Work and installations made in the Premises or to any property placed therein prior to the Commencement of the Term, the same being at Tenant's sole risk. During construction of Tenant's Work, Tenant shall obtain and maintain standard 'course of construction' insurance in form and content reasonably acceptable to Landlord naming Landlord (and, at Landlord's request, any mortgagee of the Land and/or Building) as additional insured. D. Representatives. Landlord appoints Landlord's Representative to act for Landlord and Tenant appoints Tenant's Representative to act for Tenant in all matters covered by this Section 15. All inquiries, requests, instructions, authorizations and other communications with respect to the matters covered by this Section will be made to Landlord's Representative or Tenant's Representative, as the case may be. Either party may change its Representative at any time with three (3) days' prior written notice to the other party. Tenant's Representative: Michael Dunbar Landlord's Representative: Shelly Bruce 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -8- 37 Biosite Diagnostics Addendum A Page 9 E. Landlord's Approval. The Plans and Specifications (including any revisions requested by Tenant) shall be subject to Landlord's approval, which shall not be unreasonably withheld and shall be given (or denied, with the reasons therefor specified) within five (5) days after receipt of Tenant's request therefor. Without limiting the foregoing, it shall not be unreasonable for Landlord to disapprove the Plans and Specifications if they require work which: (a) exceeds or affects the structural integrity of the Building, or any part of the heating, ventilating, air conditioning, plumbing, mechanical, electrical, communication or other systems of the Building; (b) is not approved by the holder of any mort&age or deed of trust encumbering the Building at the time the work is proposed; (c) would not be approved by a prudent owner of property similar to the Building; (d) violates any agreement which affects the Building or binds Landlord; (e) Landlord reasonably believes will increase the cost of operation or maintenance of any of the systems of the Building; (f) Landlord reasonably believes will reduce the market value of the Premises or the Building at the end of the Term; (g) does not conform to applicable building code or is not approved by any governmental authority with jurisdiction over the Premises; or (h) does not conform to a quality consistent with other tenant improvements constructed using Building Standard materials within the Building. G. Completion Of Improvements; Commencement Date. The Term shall commence on the specified Commencement Date or such earlier date as the work has been substantially completed and Tenant has occupied the Premises. (If the Term commences before the specified Commencement Date, the Termination Date shall be twenty-four (24) months following the actual Commencement Date and the parties shall prepare and sign a memorandum setting forth such dates.) 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -9- 38 Biosite Diagnostics Addendum A Page 10 F. Compliance with ADA. Landlord and Tenant are aware that a new federal law, commonly known as the Americans With Disabilities Act ("ADA"), has recently become effective. The parties agree that Landlord shall be responsible for making any modifications to the Land and/or Building which are necessary to comply with the ADA, and Tenant shall be responsible for ensuring that Tenant's Work (and any alterations thereto made by Tenant) complies with the ADA. Each party agrees to cooperate with the other in a reasonable manner to comply with the ADA. BIOSITE Diagnostics, Inc. a California corporation By: /s/ Kim D. Blickenstaff __________________________ Kim D. Blickenstaff Title: President Date: ___________________________ TCEP II PROPERTIES LIMITED PARTNERSHIP, a Texas limited partnership By: TCEP II Holdings, L.L.C., a Texas liability company, its General Partner By: Trammell Crow Equity Partners II, Ltd., a Texas limited partnership, a Member By: Trammell Crow Ventures #2, Ltd., a Texas limited partnership, its General Partner By: Trammell Crow Ventures #3, Ltd., a Texas limited partnership, its General Partner By: Trammell Crow Ventures Management Company, Inc., a Texas corporation, its General Partner By: /s/ Jeffrey Chavez ____________________________ Title: Vice President ____________________________ Date: 8/12/96 ____________________________ 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -10- 39 Biosite Diagnostics Addendum A Page 11 EXHIBIT "A" GRAPHICS OMITTED 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -11- 40 Biosite Diagnostics Addendum A Page 12 EXHIBIT "B" SIGN CRITERIA Sign Criteria establishes the uniform policies for all lessee sign identification. These criteria have been established for the purpose of maintaining the overall appearance of the project. Conformance will be strictly enforced. Any sign installed that does not conform to the sign criteria will be brought into conformity at the expense of the Lessee. A. GENERAL REQUIREMENTS 1. A drawing of all proposed Lessee's signs indicating copy, sizes, color, and locations shall be submitted to the Trammell Crow Company, prior to fabrication of any sign. 2. Trammell Crow Company shall approve all copy and/or logo design and color prior to the fabrication of the sign, which approval shall occur in a timely manner and shall not be unreasonably withheld. 3. Trammell Crow Company shall direct the placement of all Lessee's signs and the method of attachment to the building. 4. Lessee shall be responsible for the fulfillment of requirements for this criteria. 5. Sign fabrication and installation shall be paid for by the Lessee. B. GENERAL SPECIFICATIONS 1. Lessee shall be allowed one (1) corporate name and logo sign per building regardless of size of occupancy. 2. Lessee shall be allowed to install signs identifying non-reserved parking, shipping, receiving, and other areas of the Premises which require proper identification for third parties conducting business with Lessee, as well as other signs that are required pursuant to Federal, State or Local Municipal Laws and Regulations. 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -12- 41 Biosite Diagnostics Addendum A Page 13 3. All signs to be of individual letters and logos consistent with the style, color and size of all others in the Industrial Park. No cans, frames or panels are permitted. 4. No electrical or audible signs will be allowed. 5. Upon the removal of any sign, any damage to the building will be prepared by the Lessee, except for any damage resulting from negligent or otherwise improper removal of a sign by a party acting under the direction of Lessor. 6. Except as provided herein, no advertising placards, banners, pennants, names, insignia, trademarks, or other descriptive material shall be affixed or maintained upon any external automated machine, glass panes of the building, landscaped areas, streets or parking areas, except for signs indicating the Premises are protected by security services. Please contact Trammell Crow Company for approvals of your signs. 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -13- 42 Biosite Diagnostics Addendum A Page 14 EXHIBIT "C" ASBESTOS NOTIFICATION FOR SORRENTO WEST INDUSTRIAL PARK California law requires landlords to notify tenants regarding the presence of construction materials containing asbestos in their workplace. This letter is to inform you about asbestos-containing construction materials ("ACCM"), at Sorrento West Industrial Park, located at 11180 Roselle Street in the City of San Diego, California 92121. A survey of the building was conducted by an environmental consultant, H+GCL, during August and September 1993 in order to determine whether asbestos-containing construction materials were present. H+GCL took bulk samples of all suspected ACCM in the building, which then were analyzed by the polarized light microscopy method recommended by the U.S. Environmental Protection Agency. The survey report indicated that in various areas throughout Sorrento West Industrial Park, the following building materials were identified to contain five to thirty percent chyrsotile asbestos: drywall mud/tape compound, floor tile and mastic, linoleum sheeting, and mastic on the underside of sinks. H+GCL's final assessment of the building indicated that the ACCM is non-friable and in good condition. The portions of the survey report that deal with ACCM in Sorrento West Industrial Park, including laboratory results with respect to bulk samples of suspected ACCM, are available for your review from Dr. Ken Doole, Environmental Project Manager at Environmental Asset Services, Inc, 5801 S. Eastern Avenue, Suite 100, Commerce, California 90040 from 8:00 to 5:00 p.m. each business day. EPA has found that as long as asbestos-containing construction materials remain undisturbed, exposure is unlikely and building occupants are unlikely to be subject to health hazards from these materials. Your assistance in avoiding any disturbance of the ACCM in the building is requested. Ken Doole must authorize any repair or renovation work in areas containing ACCM. Additionally, Ken Doole has to authorize all work that may disturb or damage floor tile, sheeting, drywall or sinks in the building. During any period when work is being done in areas containing ACCM, the areas will be closed to all but those workers involved in the project. Warning signs will be posted, and building occupants and other users must comply with instructions regarding access to the area. 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -14- 43 Biosite Diagnostics Addendum A Page 15 EXHIBIT "D" DISCLOSURE NOTICE TO TENANTS REGARDING SORRENTO WEST INDUSTRIAL PARK In January of 1995, portions of the Sorrento West Industrial Park were flooded as a result of inordinately heavy rains during that month. Any damage which may have occurred to the property has since been repaired or is under repair. The owner is currently working in conjunction with other property owners in the area to finance and obtain approval for flood control improvements which will prevent future flooding in the event of another series of heavy rains. 1988 Southern California Chapter Initials ________ of the Society of Industrial and Office Realtors, Inc. (Multi-Tenant Gross Form) -15- EX-11.1 13 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 1995 1996 ------ ------ ------ ------ ------ (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 Effect 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 14 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 Amendment No.1 to the Registration Statement (Form S-1 No. 333-17657) and related Prospectus of Biosite Diagnostics Incorporated for the registration of 2,300,000 shares of its common stock. /s/ ERNST & YOUNG LLP San Diego, California December 19, 1996 -----END PRIVACY-ENHANCED MESSAGE-----