-----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, JjRkoNq+py/2Y4f6CZwuyIA+mz8Gq45F4C3Hpw/Y5ETxQnx4T/nDhOPqoQVQ1M+/ TnHmc/Mdr3NwOKxKC+w7ug== 0001047469-98-019852.txt : 19980514 0001047469-98-019852.hdr.sgml : 19980514 ACCESSION NUMBER: 0001047469-98-019852 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980513 SROS: NONE 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: 10-Q SEC ACT: SEC FILE NUMBER: 000-21873 FILM NUMBER: 98618817 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 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 00021873 BIOSITE DIAGNOSTICS INCORPORATED (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 330288606 [State or other jurisdiction [I.R.S. Employer Identification No.] of incorporation or organization] 11030 Roselle Street San Diego, California 92121 [Address of principal executive offices] [Zip Code] Registrant's telephone number, including area code: (619) 4554808 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _________ _________ The number of shares of the Registrant's Common Stock, $0.01 par value, outstanding at April 30, 1998 was 12,962,972 BIOSITE DIAGNOSTICS INCORPORATED FORM 10-Q INDEX PAGE PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Balance Sheets as of March 31, 1998 (Unaudited) and December 31, 1997 ............................ 1 Condensed Statements of Operations (Unaudited) for the three months ended March 31, 1998 and 1997............ 2 Condensed Statements of Cash Flows (Unaudited) for the three months ended March 31, 1998 and 1997.................... 3 Notes to Condensed Financial Statements (Unaudited)............ 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .................................... 6 Item 3. Quantitative and Qualitative Disclosure about Market Risk .......................................... Not Applicable PART II. OTHER INFORMATION Item 1. Legal Proceedings ............................................. 17 Item 2. Changes in Securities and Use of Proceeds ..................... 17 Item 3. Defaults Upon Senior Securities ....................... Not Applicable Item 4. Submission of Matters to a Vote of Security Holders ... Not Applicable Item 5. Other Information ..................................... Not Applicable Item 6. Exhibits and Reports on Form 8-K .............................. 17 Signatures ............................................................. 18 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS BIOSITE DIAGNOSTICS INCORPORATED CONDENSED BALANCE SHEETS
MARCH 31, DECEMBER 31, 1998 1997 --------- ------------ (Unaudited) (Note) Assets Current assets: Cash and cash equivalents $ 2,309,304 $ 2,330,274 Marketable securities, available-for-sale 38,380,817 36,927,167 Accounts receivable 5,467,095 5,931,164 Inventory 3,085,213 2,169,896 Other current assets 3,914,959 3,677,348 ------------ ------------ Total current assets 53,157,388 51,035,849 Property, equipment and leasehold improvements, net 7,716,890 7,216,983 Patents and license rights, net 3,567,226 3,720,035 Other assets 852,587 1,338,341 ------------ ------------ $ 65,294,091 $ 63,311,208 ------------ ------------ ------------ ------------ Liabilities and stockholders' equity Current liabilities: Accounts payable $ 3,023,328 $ 1,420,969 Accrued salaries and other 1,083,695 1,107,476 Accrued contract payable 563,812 563,812 Current portion of long-term obligations 1,424,629 1,332,200 ------------ ------------ Total current liabilities 6,095,464 4,424,457 Long-term obligations 4,024,352 3,796,975 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value, 5,000,000 shares authorized, none issued and outstanding at March 31, 1998 and December 31, 1997 -- -- Common stock, $.01 par value, 25,000,000 shares authorized; 12,932,943 and 12,864,745 shares issued and outstanding at March 31, 1998 and December 31, 1997, respectively 129,329 128,647 Additional paid-in capital 54,261,713 53,684,302 Unrealized net gain (loss) on marketable securities, net of related tax effect (14,516) 5,658 Deferred compensation (290,534) (317,595) Retained earnings 1,088,283 1,588,764 ------------ ------------ Total stockholders' equity 55,174,275 55,089,776 ------------ ------------ $ 65,294,091 $ 63,311,208 ------------ ------------ ------------ ------------
Note: The balance sheet at December 31, 1997 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes. - 1 - BIOSITE DIAGNOSTICS INCORPORATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998 1997 ------------ ------------ Net sales $ 7,883,961 $ 7,533,068 Cost of sales 1,755,061 1,624,246 ------------ ------------ Gross profit 6,128,900 5,908,822 Operating Expenses: Research and development 2,964,702 2,737,946 Selling, general and administrative 3,951,424 2,283,220 Defense of patent matters 849,163 20,000 ------------ ------------ 7,765,289 5,041,166 ------------ ------------ Operating income (loss) (1,636,389) 867,656 Other income: Interest and other income 611,908 323,816 Contract revenue-related party -- 336,007 Contract revenue 300,000 -- ------------ ------------ Income (loss) before benefit (provision) for income taxes (724,481) 1,527,479 Benefit (provision) for income taxes 224,000 (535,000) ------------ ------------ Net income (loss) $ (500,481) $ 992,479 ------------ ------------ ------------ ------------ Net income (loss) per share - Basic $ (0.04) $ 0.09 ------------ ------------ ------------ ------------ - Diluted $ (0.04) $ 0.08 ------------ ------------ ------------ ------------ Shares used in calculating per share amounts - Basic 12,906,000 11,113,000 ------------ ------------ ------------ ------------ - Diluted 12,906,000 11,886,000 ------------ ------------ ------------ ------------
See accompanying notes. - 2 - BIOSITE DIAGNOSTICS INCORPORATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998 1997 ----------- ------------ OPERATING ACTIVITIES Net cash provided by operating activities $ 1,339,982 $ 232,548 INVESTING ACTIVITIES Proceeds from sales and maturities of marketable securities 12,364,404 3,593,626 Purchase of marketable securities (13,851,677) (27,038,767) Purchase of property, equipment and leasehold improvements (1,178,922) (1,119,797) Patents, license rights, deposits and other assets 407,344 136,424 ------------ ------------ Net cash used in investing activities (2,258,851) (24,428,514) FINANCING ACTIVITIES Proceeds from issuance of financing obligations 661,406 1,169,503 Principal payments under financing obligations (341,600) (365,288) Proceeds from issuance of convertible debenture 500,000 -- Proceeds from issuance of stock, net 78,093 30,021,316 ------------ ------------ Net cash provided by financing activities 897,899 30,825,531 ------------ ------------ Increase (decrease) in cash and cash equivalents (20,970) 6,629,565 Cash and cash equivalents at beginning of period 2,330,274 1,609,861 ------------ ------------ Cash and cash equivalents at end of period $ 2,309,304 $ 8,239,426 ------------ ------------ ------------ ------------ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid $ 103,721 $ 83,493 ------------ ------------ ------------ ------------ Income taxes paid $ 4,800 $ 278,250 ------------ ------------ ------------ ------------ SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Conversion of convertible debenture into common stock $ 499,992 $ 1,110,904 ------------ ------------ ------------ ------------
See accompanying notes. -3- BIOSITE DIAGNOSTICS INCORPORATED NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying financial statements reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, considered necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The Company has experienced significant quarterly fluctuations in operating results and it expects that these fluctuations in sales, expenses and net income or losses will continue. The financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to the audited financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited financial statements and the related notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. 2. EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings per Share ("Statement No. 128"). Statement No. 128 applies to entities with publicly held common stock or potential common stock and is effective for financial statements issued for periods ending after December 15, 1997. Statement No. 128 replaces APB Opinion 15, Earnings per Share ("EPS"). Statement No. 128 requires dual presentation of basic and diluted earnings per share by entities with complex capital structures. Basic EPS includes no dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of securities that could share in the earnings of the Company such as common stock which may be issuable upon exercise of outstanding common stock options. Pursuant to the requirements of the Securities and Exchange Commission, the calculation of the shares used in computing basic and diluted EPS include the convertible preferred stock which converted into 8,328,847 shares of common stock and an outstanding $1.0 million convertible debenture and related accrued interest which converted into 92,575 common shares (based on the initial public offering ("IPO") price of $12.00 per share) upon the completion of the initial public offering, as if they were converted into common stock as of the original dates of issuance. Shares used in calculating basic and diluted earnings per share were as follows:
Three months ended March 31, 1998 1997 ---------------------------- Weighted average common shares outstanding 12,906 6,621 Effect of the assumed conversion of preferred shares -- 4,442 Effect of the assumed conversion of convertible debenture -- 50 ---------------------------- Shares used in calculating per share amounts - Basic 12,906 11,113 Net effect of dilutive common share equivalents using the treasury stock method -- 773 ---------------------------- Shares used in calculating per share amounts - Diluted 12,906 11,886 ----------------------------
-4- 3. BALANCE SHEET INFORMATION Inventories consist of the following:
MARCH 31, DECEMBER 31, 1998 1997 -------- ------------ Raw materials $1,104,505 $ 779,965 Work in process 1,568,076 1,214,894 Finished goods 412,632 175,037 ---------- ---------- $3,085,213 $2,169,896 ---------- ---------- ---------- ----------
-5- PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The matters discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements that involve risks and uncertainties, including the timely development, introduction and acceptance of new products, dependence on others, the impact of competitive products, patent issues, changing market conditions and the other risks detailed under "Factors that May Affect Results," and throughout the Company's Annual Report on Form 10-K for the year ended December 31, 1997. Actual results may differ materially from those projected. These forward-looking statements represent the Company's judgment as of the date of the filing of this Form 10-Q and its Form 10-K, respectively. The Company disclaims any intent or obligation to update these forward-looking statements. OVERVIEW Since the Company's inception in 1988, the Company has been primarily involved in the research, development, manufacturing and marketing of rapid diagnostic tests. The Company began commercial sales of the Company's primary product, Triage Panel for Drugs of Abuse ("Triage DOA Panel"), in February 1992 and currently markets the product worldwide primarily through distributors supported by a direct sales force. The Company is engaged in research and development of additional rapid diagnostic products in the microbiology, cardiology and therapeutic drug monitoring fields. 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, defense and resolution of patent matters, 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 and changes in the mix of products sold. The Company has incurred and will continue to incur significant costs associated with its defense of patent matters. The magnitude and timing of such costs are primarily dependent on unpredictable activities associated with the lawsuits. If the Company's Triage DOA Panel or Triage Cardiac products were found to infringe patents, and if an acceptable license was not available, the Company would be materially and adversely affected. Operating results would also be adversely affected by a downturn in the market for the Company's current and future products, if any, order cancellations or order rescheduling. 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. Because the Company is continuing to increase its operating expenses primarily for personnel and activities supporting newly-introduced products and new product development, the Company's operating results would be adversely affected if its sales did not correspondingly increase or if its product development efforts are unsuccessful or are subject to delays. The Company's limited operating history makes accurate prediction of future operating results difficult or impossible. Although the Company has experienced growth in recent years, there can be no assurance that, in the future, the Company will sustain revenue growth or remain profitable on a quarterly or annual basis or that its operating results will be consistent with predictions made by securities analysts. RECENT DEVELOPMENTS NEW PRODUCTS In January 1998, the Company received final approval from the U.S. Food and Drug Administration ("FDA") to market the Triage Cardiac Panel and the Triage Meter in the United States (together called "Triage Cardiac System"). The Triage Cardiac System may aid in the diagnosis of Acute Myocardial Infarction ("AMI") and provide physicians with an enhanced ability to make treatment decisions in a timely manner. Used in conjunction with the Triage Meter, the Triage Cardiac Panel is a rapid diagnostic product that quantitatively measures, in a single test device, the level of CK-MB, troponin I and myoglobin from a whole-blood sample. In March 1998, the -6- Company received final clearance from the FDA to market the Triage C. DIFFICILE Panel, a new rapid test designed to identify CLOSTRIDIUM DIFFICILE, an opportunistic pathogen of the intestinal tract that may thrive as a result of broad spectrum antibiotic treatment. The Company began selling the Triage C. DIFFICILE Panel in March. RESEARCH AND DEVELOPMENT The Company successfully completed feasibility studies for the Triage Neoral System under its antibody license agreement with Novartis. As a result of this milestone achievement, Novartis invested, in January 1998, an additional $500,000 in Biosite in exchange for a convertible debenture. The convertible debenture was immediately converted into 41,666 shares of common stock of the Company based on the initial public offering price of $12.00 per share. Additionally, the Company and Novartis entered into an agreement to expand the scope of the collaborative development of the Triage Neoral System. The expansion of the collaboration may result in payments to Biosite upon attainment of certain milestones PRODUCT DISTRIBUTION AGREEMENTS With the potential launch of new products from the Company's development pipeline, the Company is evaluating distribution alternatives for its current products and potential new products. As a result, the Company has increased the size of its sales force in the U.S. and negotiated a new long-term distribution agreement with the Fisher HealthCare Division ("Fisher") of the Fisher Scientific Company, the Company's distributor of the Triage DOA Panel products in the U.S. hospital market segment. This long-term distribution agreement expanded Fisher's role to include the distribution of the Triage Cardiac System and Triage C. DIFFICILE Panel and certain of the potential new products in the U.S. medical market. As a result of a decision by Merck to refocus away from certain aspects of the human diagnostic business, the Company terminated the development and distribution agreement for the Triage Cardiac System with Merck in December 1997 and terminated the distribution agreement with Merck for the Triage DOA Panel product line, effective no earlier than December 1998. The Company is continuing to evaluate product distribution alternatives for the international markets, including, among other things, alliances with other distribution partners and the establishment of a direct sales force in certain European countries. The Company anticipates that it may, if appropriate, enter into additional distribution agreements with respect to its current products, products currently under development and products that it may develop 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 these or other distribution agreements on acceptable terms, if at all. If the Company elects to distribute products directly, there can be no assurance that the Company's direct sales, marketing and distribution efforts would be successful. A failure to enter into acceptable distribution agreements or a failure of the Company to successfully market its products would have a material and adverse effect on the Company. LITIGATION In September 1997, the Company was named in a lawsuit filed by Behring Diagnostics GmbH and Behring Diagnostics, Inc. ("Behring") alleging that the Company's Triage DOA Panel products infringe a patent held by the plaintiffs, which expires in August 2000. The plaintiffs seek to recover damages of an unspecified amount and to enjoin future sales of the Triage DOA Panel products by the Company. The Company has reviewed the cited patent and believes it has meritorious defenses. The Company intends to vigorously defend its position, and has incurred and will incur significant legal costs in executing its defense. In January 1998, the Company amended its answer to the claims of the Behring lawsuit to include antitrust counterclaims against Behring. The Company seeks an injunction requiring Dade International Inc. to divest itself of its recent acquisition of Behring Diagnostics, Inc. and Behring Diagnostics GmbH, treble monetary damages and attorney fees. If the Company's Triage DOA Panel products were found to infringe such patents, and if an acceptable license was not available, the Company would be materially and adversely affected. The Company's Triage Meter product platform, including the Triage Cardiac System is not the subject of the patent infringement claims as filed. Spectral Diagnostics, Inc. ("Spectral") filed suit -7- against the Company on April 28, 1998, alleging that the Company's Triage Cardiac Panel infringes U.S. patent 5,744,358 which was issued on the date the suit was filed. Spectral seeks a preliminary and permanent injunction and damages. The Company is currently reviewing this patent matter. At this preliminary stage, the Company believes it has meritorious defenses to the suit and intends to vigorously defend its position. RESULTS OF OPERATIONS The following table sets forth certain operating data as a percentage of net sales:
THREE MONTHS ENDED MARCH 31, 1998 1997 -------- -------- Net sales 100% 100% Cost of sales 22 22 ---- ---- Gross profit 78 78 Operating Expenses: Research and development 38 36 Selling, general and administrative 50 30 Defense of patent matters 11 -- ---- ---- Total operating expenses 99 66 Income (loss) from operations (21) 12 Interest and other income, net 12 8 ---- ---- Income (loss) before benefit (provision) for income taxes (9) 20 Benefit (provision) for income taxes 3 (7) ---- ---- Net income (loss) (6)% 13% ---- ---- ---- ----
NET SALES. Net sales increased 5% to $7.9 million for the three months ended March 31, 1998 from $7.5 million for the three months ended March 31, 1997. The increase in net sales, as compared to the first quarter of 1997, was primarily attributable to a greater proportion of products sold during the first quarter of 1998 consisting of higher-priced Triage DOA products than the mix of products being sold in the first quarter of 1997. During the first quarter of 1997, a greater proportion of the net sales represented lower-priced products sold internationally. The Company believes that the overall growth in sales of the Triage DOA Panel products is slowing as the available U.S. market becomes saturated and competitive pressures become more prominent in a maturing market. Sales of the Triage C. DIFFICILE Panel began in March 1998 and were a very small percentage of the total revenues for the quarter. GROSS PROFIT. Gross profit increased 4% to $6.1 million for the first quarter of 1998 from $5.9 million for the same period in 1997. Gross margins were comparable with those of the first quarter of 1997 at 78%. The Company expects that gross margins will decrease as a result of competitive pricing pressures and the introduction of new products, including the Triage C. DIFFICILE Panel and Triage Cardiac System. Such new products are expected to realize lower gross margins during the early stages of their commercialization as incremental manufacturing costs are spread over smaller sales volumes. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased 8% to $3.0 million for the three months ended March 31, 1998 from $2.7 million for the same period in 1997. This increase resulted primarily from the expansion of the Company's research and development and manufacturing scale-up efforts on its cardiac, microbiology, and therapeutic drug monitoring products under development. During the first quarter of 1998, the Company received FDA approval to market the Triage Cardiac System and the Triage C. DIFFICILE Panel. The Company continued to expend significant efforts on activities related to manufacturing scale-up and product optimization for these two products, while increasing research and development activities related to other products under development. The Company expects that its level of investment in research and development expenses will continue to increase in 1998, as compared to 1997. The increased expenditures are expected to primarily relate to preclinical and clinical studies, hiring additional personnel, product development efforts and manufacturing scale-up activities for other potential products. The timing of such expenditures and their magnitude are primarily dependent -8- on the progress and success of the research and development, clinical studies and the timing of potential product launches. With the FDA approval of the Triage Cardiac System, manufacturing scale-up activities related to this product continued into the second quarter of 1998. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased 73% to $4.0 million for the first quarter of 1998 from $2.3 million for the first quarter of 1997. The 1998 increases were primarily a result of the costs of expanding the Company's sales force, increased marketing activities in preparation of the introduction of new products and the expansion of the administrative functions to support the Company's expanded operations and public reporting responsibilities. During the first quarter of 1998, the Company expended significant efforts in preparation of the Triage Cardiac System and Triage C. DIFFICILE Panel product launches, including expansion of its sales force and marketing and new product awareness activities. The Company expects selling, general and administrative costs in 1998 to remain significantly higher than in 1997, as the Company continues to expand its operations and in anticipation of potential changes in its operations resulting from, among other things, the introduction of new products and the Company's obligations as a public reporting entity. The timing of such increased expenditures and their magnitude are primarily dependent on the commercial success and sales growth of the Triage C. DIFFICILE Panel and Triage Cardiac System products, the development of other potential new products and the timing of their commercialization, and international distribution strategies. DEFENSE OF PATENT MATTERS. Legal costs associated with the Behring litigation and other patent disputes increased to $849,000 for the first quarter of 1998 from $20,000 for the same period in 1997. The Company intends to vigorously defend itself in these matters and expects that total legal costs associated in executing its defenses for 1998 will be substantially higher than in 1997 and may continue to be significant in 1999. INTEREST AND OTHER INCOME. Interest income increased 83% to $595,000 for the three months ended March 31, 1998 from $324,000 for the same period in 1997. The increase resulted primarily from the higher average balance of cash and marketable securities during the first quarter of 1998 as compared to the same period in 1997. In February 1997, the Company received net proceeds from its initial public offering of approximately $29.8 million. Contract revenues decreased by $36,000 as contract revenues in the first quarter of 1997 consisted of $336,000 from Merck related to the development of the Triage Cardiac System while contract revenues recognized in the first quarter of 1998 consisted of $300,000 from Novartis related to the development of the Triage Neoral System. BENEFIT (PROVISION) FOR INCOME TAXES. As a result of the pre-tax loss recorded in the first quarter of 1998, the Company recorded a benefit for income taxes of $224,000 while for the same period in 1997, the Company recorded a provision for income taxes of $535,000. LIQUIDITY AND CAPITAL RESOURCES The Company has financed its operations principally through a public offering, private placements of equity securities, revenues from operations, debt and capital lease financing and interest income earned on the net proceeds from the public offering and private placements. Since its inception, the Company has raised over $21.7 million in net proceeds from the private placement of equity securities and $1.0 million from the issuance of convertible debentures. In February 1997, the Company raised approximately $29.8 million in net proceeds from its initial public offering of 2,760,000 shares of common stock. At March 31, 1998, the Company had cash, cash equivalents, and marketable securities of approximately $40.7 million compared to $39.3 million at December 31, 1997. The increase in cash, cash equivalents, and marketable securities during the three months ended March 31, 1998 is largely attributable to cash generated from operating activities of $1.3 million for the quarter as compared to net cash generated from operating activities of $178,000 for the quarter ended March 31, 1997. Significant sources of cash for the quarter ended March 31, 1998 included proceeds from the issuance of a convertible debenture to Novartis for $500,000 (which was immediately converted into common stock) and the receipt of $661,000 in proceeds from equipment financing. Significant uses of cash for the quarter ended March 31, 1998 included expenditures of $1.2 million for capital equipment and leasehold improvements and principal payments under equipment financing obligations of $342,000. -9- The Company's primary short-term needs for capital, which are subject to change, are for expansion of its direct sales force and marketing programs related to new products, potential procurement and enforcement of patents, defense and resolution of patent matters, including potential licensing of certain technologies patented by others, expansion of its manufacturing capacity for potential new products, and the continued advancement of research and development efforts. The Company utilizes credit arrangements with financial institutions to finance the purchase of capital equipment. As of May 8, 1998, the Company had equipment financing lines of credit with financial institutions totaling $6.0 million, all of which was available for future borrowing. The $4.0 million and $2.0 million lines of credit expire on June 1, 1999 and March 31, 1999, respectively. Additionally, the Company utilizes cash generated from operating activities to meet its capital requirements. The Company is negotiating with various parties for the leasing of a new campus corporate facility to be constructed in San Diego, which would be adequate for its foreseeable future needs. The Company does not anticipate relocating its operations to the new facility prior to January 2000. This may result in an increase in rent upon occupancy. The Company believes that its available cash, cash from operations and funds from existing credit arrangements will be sufficient to satisfy its funding needs for at least the next 24 months. Thereafter, if cash generated from operations is insufficient to satisfy the Company's working capital and capital expenditure requirements, the Company may be required to sell additional equity or debt securities or obtain additional credit facilities. There can be no assurance that such additional capital, if needed, will be available on satisfactory terms, if at all. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may include restrictive covenants. The Company's future liquidity and capital funding requirements will depend on numerous factors, including the extent to which the Company's new products and products under development are successfully developed, gain market acceptance and become and remain competitive, the timing and results of clinical studies and regulatory actions regarding the Company's potential products, the costs and timing of expansion of sales, marketing and manufacturing activities, facilities expansion needs, and the costs and timing associated with the enforcement, defense and resolution of patent matters, including potential licensing of certain technologies patented by others. 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. IMPACT OF YEAR 2000 ISSUE The Company is currently developing a plan to ensure its system and software infrastructure will function properly with respect to the dates in the year 2000 and thereafter. Key financial, information and operational systems will be assessed and plans will be developed to address required systems modifications. The Company will coordinate these activities with suppliers, distributors, financial institutions and others with whom it does business. The Company believes that, with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems and will not have a material adverse effect on the Company's business. However, if such modifications and conversions are not made or are not completed in a timely fashion, the Year 2000 Issue could have a material impact on the operations of the Company. Additionally, there is no guarantee that the systems of other companies on which Biosite's systems rely will be timely converted and would not have an adverse effect on the Company's systems. For example, to the extent that customers would be unable to order products or pay invoices or suppliers would be unable to manufacture or deliver product, the Company's operations would be affected. -10- FACTORS THAT MAY AFFECT RESULTS This report includes certain forward-looking statements about the Company's business and results of operations which are subject to risks and uncertainties that could cause the Company's actual results to vary materially from that indicated from such forward-looking statements. Factors that could cause or contribute to such differences include those discussed below, as well as those discussed elsewhere herein and in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. The factors discussed below should be read in conjunction with the risk factors discussed in the Company's Annual Report on Form 10-K, which are incorporated by reference. - - DEPENDENCE ON DEVELOPMENT AND INTRODUCTION OF NEW PRODUCTS FOR REVENUE GROWTH AND PROFITABILITY Except for the Triage DOA Panel, Triage C. DIFFICILE Panel and Triage Cardiac System, 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. 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 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 potential 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 and a cost effective sales force and administrative infrastructure and an effective product distribution system for such products. If the Company is unable, for technological or other reasons, to complete the development, introduction or scale-up of manufacturing for 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. - - LIMITED HISTORY OF PROFITABILITY; POTENTIAL QUARTERLY FLUCTUATIONS IN FUTURE OPERATING RESULTS The Company first achieved profitability in fiscal 1994 and prior to that time incurred significant operating losses. The Company experienced operating profits on a quarterly basis in 1995. However, the Company incurred an operating loss for the first quarter of 1996 and then returned to operating profitability for the remaining quarters of 1996 and into 1997. The Company incurred an operating loss for the fourth quarter of 1997 and the first quarter of 1998. There can be no assurance that the Company will return to profitability 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 defense and resolution of patent matters. The Company has and will continue to incur significant costs associated with its defense of patent matters. The magnitude and timing of such costs are primarily dependent on unpredictable activities associated with the Behring and Spectral lawsuits. If the Company's Triage DOA Panel or Triage Cardiac products were found to infringe such patents, and if an acceptable license was not available, the Company would be materially and adversely affected. Operating results would also be adversely affected by a downturn in the market for the Company's current and future products, if there are any, order cancellations or order rescheduling. Because the Company is continuing to increase its operating expenses for personnel, including the expansion of its sales force, manufacturing scale-up costs 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. The Company's limited operating history makes accurate prediction of future operating results difficult -11- or impossible. Although the Company has experienced growth in recent years, there can be no assurance that, in the future, the Company will sustain revenue growth or remain profitable on a quarterly or annual basis or that its growth will be consistent with predictions made by securities analysts. - - NEAR-TERM DEPENDENCE OF THE COMPANY ON THE TRIAGE DOA PANEL PRODUCTS Sales of the Triage DOA Panel products have to date accounted for almost all of the Company's sales. The Company expects its revenue and profitability will substantially depend on the sale of the Triage DOA Panel products for the foreseeable future. A reduction in demand for the Triage DOA Panel products 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 the Triage DOA Panel products is slowing as the available U.S. market becomes saturated. Competitive pressures could also erode the Company's profit margins for the Triage DOA Panel products. The Company's continued growth will depend on its ability to successfully develop and commercialize other products, including the Triage C. DIFFICILE Panel, and Triage Cardiac System, and to gain additional acceptance of the Triage DOA Panel products in new market segments, such as occupational health. The Company has received FDA approval to market the Triage C. DIFFICILE Panel and the Triage Cardiac System. Sales of the Triage C. DIFFICILE Panel began in March 1998 and were a very small percentage of the total revenues for the quarter. There can be no assurance that the Company will be able to successfully develop and commercialize new products, including the Triage C. DIFFICILE Panel, and Triage Cardiac System, 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. - - DEPENDENCE ON KEY DISTRIBUTORS; LIMITED DIRECT SALES EXPERIENCE The Company relies upon key distributor alliances, such as with Fisher, to distribute the Triage DOA Panel products, Triage C. DIFFICILE Panel and Triage Cardiac System and may rely upon distributors to distribute products under development. The Triage DOA Panel products is currently marketed pursuant to exclusive distribution agreements in the U.S. hospital market segment by Fisher (which accounted for 80% of product sales in 1997) and in certain countries in Europe, Latin America, the Middle East, Asia and Africa by Merck. The loss or termination of either of these distributors could have a material adverse effect on the Company's sales unless suitable alternatives can be arranged. As a result of a decision by Merck to refocus away from certain aspects of the human diagnostic business, the Company terminated the development and distribution agreement for the Triage Cardiac Panel with Merck and effective no earlier than December 1998, the Company terminated its agreement with Merck regarding international distribution rights for the Triage DOA Panel product line. The Company is continuing to evaluate product distribution alternatives for the international markets, including, among other things, alliances with other distribution partners and the establishment of a direct sales force in certain European countries. With the potential launch of new products from the Company's development pipeline, the Company has increased the size of its sales force in the U.S. and negotiated a new long-term distribution agreement with Fisher. This long-term distribution agreement expands Fisher's role to include the distribution of the Triage Cardiac System, the Triage C. DIFFICILE Panel and certain of the potential new products in the U.S. medical market. There can be no assurance that the Company will be able to enter into these or other distribution agreements on acceptable terms, if at all. If the Company elects to distribute products directly, there can be no assurance that the Company's direct sales, marketing and distribution efforts would be successful. A failure to enter into acceptable distribution agreements or a failure of the Company to successfully market its products would have a material and adverse effect on the Company. 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 -12- 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, or if the Company elects to distribute potential new products directly that the Company's direct sales, marketing and distribution efforts would be successful. The Company anticipates that it may, if appropriate, 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. - - 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 reference laboratories. Currently, the majority of diagnostic tests used by physicians and other health care providers are performed by independent clinical reference laboratories 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 provide cost-effective and time saving alternatives to tests performed by clinical reference laboratories or traditional hospital-based laboratory procedures. 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 traditional laboratory services. In addition, companies with a significant presence in the diagnostic market, such as Abbott Laboratories, Roche Boehringer Mannheim Corporation, Chiron Diagnostics, Ortho Clinical Diagnostics, a division of Johnson & Johnson, and DADE Behring Marburg Gmbh, 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. - - UNCERTAINTY OF PATENT AND PROPRIETARY TECHNOLOGY PROTECTION; POTENTIAL INABILITY TO LICENSE TECHNOLOGY FROM 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 licenses 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 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. -13- The Triage DOA Panel, Triage C. DIFFICILE Panel, Triage Cardiac System 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 and is negotiating to obtain licenses for technologies patented by others. 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 it is 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. 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 claim 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. In September 1997, the Company was named in a lawsuit filed by Behring Diagnostics GmbH and Behring Diagnostics, Inc. ("Behring") alleging that the Company's Triage DOA Panel products infringe a patent held by the plaintiffs, which expires in August, 2000. The plaintiffs seek to recover damages of an unspecified amount and to enjoin future sales of the Triage DOA Panel products by the Company. The Company has reviewed the cited patent and believes it has meritorious defenses. The Company intends to vigorously defend its position, and has and will incur significant legal costs in executing its defense. In January 1998, the Company amended its answer to the claims of the Behring lawsuit to include antitrust counterclaims against Behring. The Company has sought an injunction requiring Dade International Inc. to divest itself of its recent acquisition of Behring Diagnostics, Inc. and Behring Diagnostics GmbH, treble monetary damages and attorney fees. If the Company's Triage DOA Panel products were found to infringe such patent, and if an acceptable license was not available, the Company would be materially and adversely affected. The Company's Triage Meter platform, including the Triage Cardiac System is not the subject of the patent infringement claims as filed. Spectral Diagnostics, Inc. ("Spectral") filed suit against the Company on April 28, 1998, alleging that the Company's Triage Cardiac Panel infringes U.S. patent 5,744,358 which was issued on the date the suit was filed. Spectral seeks a preliminary and permanent injunction and damages. The Company is currently reviewing this patent matter. At this preliminary stage, the Company believes it has meritorious defenses to the suit and intends to vigorously defend its position. The Company may become subject to additional 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 Company also has received correspondence from other parties calling to the Company's attention the existence of certain patents for which they believe Biosite's products and products under development may incorporate technologies that are the subject of such patents. Such correspondence has in certain instances included offers to negotiate the licensing of the patented technologies. There can be no assurance that such matters will not result in litigation to determine the enforceability, scope, and validity of the patents. Litigation, if initiated, could seek to recover damages as a result of any sales of the products and to enjoin further sales of such products. The Behring and Spectral litigation and any other litigation that could be brought forth by other parties may result in material expenses to the Company and significant diversion of effort by the Company's technical and management personnel, regardless of the outcome. The outcome of litigation is inherently uncertain and there can be no assurance that a court would not find the third-party claims valid and that the Company had no successful defense to such claims. An adverse outcome in litigation or the failure to obtain a necessary license could subject the Company to significant liability and could prevent the Company from selling the Triage DOA Panel, Triage C. DIFFICILE Panel or the Triage Cardiac System, which 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 -14- disclose such technology, or that the Company can meaningfully protect 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 may 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. Litigation concerning patent and other intellectual property rights could consume a substantial portion of the Company's managerial and financial resources, which would have a material adverse effect on the Company's business, financial condition and results of operations. - - LIMITED MANUFACTURING EXPERIENCE; POTENTIAL INABILITY TO SCALE-UP MANUFACTURING 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 the Triage DOA Panel products. 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 the Triage DOA Panel, Triage C. DIFFICILE Panel or Triage Cardiac System, 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. 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 QSR requirements of the FDA. There can be no assurance that the Company or its contractors will satisfy such -15- 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. - - POSSIBLE FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING While the Company believes that its available cash, cash from operations and funds from existing credit arrangements 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, facilities expansion needs, procurement and enforcement of patents important to the Company's business, defense and resolution of patent matters, 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." - - IMPACT OF YEAR 2000 ISSUE The Company is currently developing a plan to ensure its system and software infrastructure will function properly with respect to the dates in the year 2000 and thereafter. Key financial, information and operational systems will be assessed and plans will be developed to address required systems modifications. The Company will coordinate these activities with suppliers, distributors, financial institutions and others with whom it does business. The Company believes that, with modifications to existing software and conversions to new software, the Year 2000 Issue will not pose significant operational problems for its computer systems and will not have a material adverse effect on the Company's business. However, if such modifications and conversions are not made or are not completed timely, the Year 2000 Issue could have a material impact on the operations of the Company. Additionally, there is no guarantee that the systems of other companies on which Biosite's systems rely will be timely converted and would not have an adverse effect on the Company's systems. For example, to the extent that customers would be unable to order products or pay invoices or suppliers would be unable to manufacture or deliver product, the Company's operations would be affected. -16- PART II. OTHER INFORMATION. ITEM 1. LEGAL PROCEEDINGS In September 1997, the Company was named in a lawsuit filed by Behring Diagnostics GmbH and Behring Diagnostics, Inc. ("Behring") alleging that the Company's Triage DOA Panel products infringe a patent held by the plaintiffs, which expires in August, 2000. The plaintiffs seek to recover damages of an unspecified amount and to enjoin future sales of the Triage DOA Panel products by the Company. The Company has reviewed the cited patent and believes it has meritorious defenses. The Company intends to vigorously defend its position, and may incur significant legal costs in executing its defense. In January 1998, the Company amended its answer to the claims of the Behring lawsuit to include antitrust counterclaims against Behring. The Company seeks an injunction requiring Dade International Inc. to divest itself of its recent acquisition of Behring Diagnostics, Inc. and Behring Diagnostics GmbH, treble monetary damages and attorney fees. If the Company's Triage DOA Panel products were found to infringe such patents, and if an acceptable license was not available, the Company would be materially and adversely affected. The Company's Triage Meter platform, including the Triage Cardiac System is not the subject of the patent infringement claims as filed. Spectral Diagnostics, Inc. ("Spectral") filed suit against the Company on April 28, 1998, alleging that the Company's Triage Cardiac Panel infringes U.S. patent 5,744,358 which was issued on the date the suit was filed. Spectral seeks a preliminary and permanent injunction and damages. The Company is currently reviewing this patent matter. At this preliminary stage, the Company believes it has meritorious defenses to the suit and intends to vigorously defend its position. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS As a result of milestone achievements under its antibody license agreement with Novartis, the Company, in January 1998, sold a convertible debenture to Novartis in return for $500,000. The convertible debenture was immediately converted by Novartis into 41,666 shares of Common Stock of the Company. The Company relied upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, in making this sale because of the nature of the transaction and the purchaser. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 10.28(++) Distributorship Agreement between the Company and Fisher Scientific Company L.L.C. dated April 3, 1998 27.1 Financial Data Schedule (++) Confidential treatment has been requested for certain portions of this exhibit (b) Reports on Form 8-K. None -17- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: May 13, 1998 BIOSITE DIAGNOSTICS INCORPORATED By: /S/ CHRISTOPHER J. TWOMEY ------------------------- Christopher J. Twomey Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer) EXHIBIT INDEX Exhibit Number Description - --------- ----------- 10.28(++) Distributorship Agreement between the Company and Fisher Scientific Company L.L.C. dated April 3, 1998 27.1 Financial Data Schedule (++) Confidential treatment has been requested for certain portions of this exhibit. -18- EX-10.28 2 EXHIBIT 10-28 EXHIBIT 10.28 [CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION] DISTRIBUTION AGREEMENT THIS DISTRIBUTION AGREEMENT effective as of January 1, 1998 (this "Agreement"), is entered into between BIOSITE DIAGNOSTICS INCORPORATED, a corporation under the laws of the State of Delaware ("Biosite"), having a place of business at 11030 Roselle Street, Suite D, San Diego, California 92121, and FISHER SCIENTIFIC COMPANY L.L.C., a Delaware Limited Liability Company represented by its CURTIN MATHESON SCIENTIFIC division ("CMS"), having a place of business at 9999 Veterans Memorial Drive, Houston, Texas 77038. W I T N E S S E T H WHEREAS, Biosite and CMS entered into the Distribution Agreement dated as of November 11, 1991 (as amended to date, the "1991 Distribution Agreement"). WHEREAS, Biosite and CMS now desire to enter into a new agreement setting forth the terms of their business relationship and concurrently to terminate the 1991 Distribution Agreement. NOW, THEREFORE, in consideration of the foregoing premises and the respective covenants of the parties herein set forth, the parties hereby terminate the 1991 Distribution Agreement and agree as follows: 1. PRODUCTS. (a) For purposes of this Agreement, the "Products" shall mean the DOA Products, the Micro Products and the Cardiac Products. The "DOA Products" shall mean the products described in Schedule A. The "Micro Products" shall mean the products described in Schedule B. The "Cardiac Products" shall mean the products described in Schedule C, including the Cardiac Panels and the Triage Meters. The "Cardiac Panels" shall mean the Triage Cardiac Panels more fully described in Schedule C, and the "Triage Meters" shall mean the Triage Meters as more fully described in Schedule C. (b) During the term of this Agreement, Biosite shall make available to CMS any improved or updated versions of the Products under the same terms and conditions (other than price) as set forth herein. (c) Biosite shall provide all required Material Safety Data Sheets, if any, for any Product containing hazardous chemicals or otherwise as required by federal, state or local law. 2. GRANT OF DISTRIBUTORSHIP. (a) Upon the terms and subject to the conditions set forth in this Agreement, Biosite hereby appoints CMS, and CMS accepts appointment, as the exclusive distributor of the Products in the Territory (as defined below) during the term of this Agreement; provided, however, that Biosite reserves certain rights to promote, market, sell and distribute the Products in the Reserved Market Segments (as defined below). Additionally, CMS shall have nonexclusive distribution rights to ***. (b) The "Territory" shall mean the Medical Segment (as defined below) in the United States and its territories. The "Medical Segment" shall mean: hospitals (including nonprofit, religious, government, university, military and psychiatric hospitals); reference laboratories; occupational health centers or clinics that are part of a hospital facility; chest pain centers or clinics that are part of a hospital facility; drug rehabilitation centers and chest pain centers that are part of a hospital facility; planned parenthood centers; and physician group practices of forty (40) or more physicians. The Territory shall NOT include, and CMS shall not be permitted to sell the Products in, any areas or to any market segment not described in this Section 2(b) without the prior written consent of Biosite, which consent *** CONFIDENTIAL TREATMENT REQUESTED may be withheld at Biosite's sole discretion. CMS shall take reasonable steps to limit the likelihood that CMS's customers in the Territory purchase Products for resale in the Reserved Market Segments (as defined below). (c) All areas and market segments not included in the definition of the Territory shall be hereinafter referred to as the "Reserved Market Segments." Biosite shall retain all rights to promote, market, sell and distribute (either directly or through others) the Products in the Reserved Market Segments. Except as otherwise set forth in this Agreement, Biosite shall not be permitted to sell the Products in the Territory and shall take reasonable steps to limit the likelihood that Biosite's customers in the Reserved Market Segments purchase Products for resale into the Territory. Included in the Reserved Market Segments, without limitation, 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: free-standing drug rehabilitation centers and chest pain centers not part of a hospital facility; prisons and prison hospitals; physician practices of less than forty (40) physicians; probation and parole programs; public and private sector workplace testing; non-hospital based occupational health centers or clinics; industrial laboratories; non-hospital military on-site testing programs (i.e., ADCO, recruiting centers); high school, college, university and professional sports programs; government agencies; public carriers; and veterinary clinics and animal testing. (d) Nothing herein shall be deemed to prohibit Biosite (i) from distributing, selling, promoting and marketing the DOA Products to *** without restriction, or (ii) from distributing (but not selling) the Products within the Territory only for purposes of pre-market clinical testing or evaluation of the Products or testing of Product improvements or enhancements prior to market introduction. (e) Nothing herein shall prohibit Biosite from promoting, marketing, and soliciting and receiving orders for the sale (but not selling) of, the Cardiac Products to hospitals within the Territory ***. 3. CONDUCT OF CMS. (a) CMS shall use its good faith commercial efforts and facilities to promote, market, distribute and sell the Products and to take no action which would interfere with Biosite's efforts to develop and maintain the reputation of and goodwill with respect to the Products within the Territory during the term of this Agreement. CMS shall provide not less than an aggregate of two (2) full pages of advertising for available Products in its 1998-99 General Catalog. CMS shall permit Biosite access to its sales representatives for the purpose of providing training of CMS's sales representatives in the demonstration and use of the Products on such dates and in such locations as may be mutually acceptable to the parties. CMS shall provide Biosite with samples of any such Product advertising and sales literature prior to printing and distribution of same, and Biosite shall have the right to 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 Products and the referral of customers to Biosite for the solution of technical application problems. (b) Except as otherwise set forth in this Section 3(b), CMS shall not market, advertise, distribute or sell any products in the Territory that are directly competitive with the Products as to which CMS enjoys exclusive distribution rights. Notwithstanding the foregoing, CMS shall have the right to distribute and sell (i) products of a third party, competitive with the Products, which third party products CMS sells or distributes as of the date of this Agreement, (ii) any products of such third party which are subsequently added by such third party to its line of products, which are competitive with the Products, (iii) any products that may include competitive assays to the Products that are based on an automated random access instrument platform (with the exception of those instruments manufactured by or on behalf of *** with a broad based menu of analytes such as chemistries, fertility, thyroid function, oncology, infectious disease, TDM, DOA, allergy, etc. and (iv) competitive products in the event Biosite provides notice of nonrenewal as described in Section 6(a) of this Agreement. Additionally, nothing contained in this Agreement shall restrict the activities of CMS outside the Territory with respect to competing products. (c) CMS shall provide Biosite, on a monthly basis, with a written forecast of CMS's estimated purchase requirements for each month in the ensuing three-month period for DOA Products, Micro Products and Cardiac Products (other than Triage Meters), and in the ensuing six-month period for Triage Meters. Forecasted 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%) for the second month of each forecast and provided that in the first six (6) months following the date of first Product shipment for any new Product, the second month forecast shall be subject to a variance of plus or minus thirty percent (30%). Biosite shall use its good faith commercial efforts to sell such quantities to CMS. *** CONFIDENTIAL TREATMENT REQUESTED (d) 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 claimed defect or deficiency in the Product, provided that CMS first obtains from Biosite a returned goods authorization which shall not be unreasonably withheld or delayed by Biosite. (e) Biosite shall review and advise CMS on compliance with all FDA requirements regarding the Products contained in CMS's advertising and sales literature. (f) CMS hereby represents and warrants that neither CMS nor its agents or employees will make any representations or claims with respect to the Products which are not authorized in writing by Biosite. Subject to the provisions of Section 6(h) hereof, CMS agrees to and shall indemnify Biosite against, and hold Biosite 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 Products which are not authorized by Biosite; (ii) CMS's willful act or omission in connection with the sale, marketing, promotion or distribution of the Products; or (iii) any claim or failure by CMS to comply with governmental regulatory requirements relating to the Products which are applicable to distributors of products; provided, however, in each case Biosite 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. Biosite shall have 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 Biosite by counsel retained by CMS would be inappropriate due to actual differing interests between Biosite and CMS or any other party represented by such counsel in such proceeding. (g) Each shipment from Biosite 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 Biosite in the event of a Product recall or Product corrective action requested by Biosite or required by any governmental agency. CMS shall use reasonable effort to provide Biosite with information regarding the prior month's sales to include the account number, account name, city, state, zip code, catalog number, Product description, sales dollars, sales quantity, gross profit dollars and gross profit percent free of charge by the tenth (10th) of each month, and shall provide Biosite with such information in no event later than the last day of the month, during the term of this Agreement. Any and all such information referred to in this Section 3(g) may be used by Biosite 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. (h) CMS shall comply with Biosite's instructions regarding the storage and handling of the Products, and except as otherwise provided in this Agreement, CMS shall be solely responsible for the cost thereof. (i) At Biosite's request, CMS shall submit to Biosite such other reports, free of charge, as are customarily provided by CMS to suppliers similarly situated with Biosite. (j) Both parties shall keep accurate records sufficient to permit verification of sales data for the Products. Upon written request and upon reasonable notice during regularbusiness 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. All information received as a result of such inspections shall be subject to Paragraph 9 of this Agreement. (k) CMS shall promptly advise Biosite 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. (l) At all times during the term of this Agreement, CMS shall maintain a current inventory of each Product sufficient to satisfy not less than CMS's requirements for its reasonably forecasted sales of such Product for the immediately following thirty (30) days. (m) At all times during the term of this Agreement CMS shall treat the Products as "focus products" or comparable status as defined at the start of this Agreement for purposes of compensation of CMS sales *** CONFIDENTIAL TREATMENT REQUESTED representatives. 4. CONDUCT OF BIOSITE. (a) Biosite shall ship promptly CMS's orders for Products, but in any event not later than sixty (60) days from receipt of each order for DOA Products and Micro Products, and not later than ninety (90) days from receipt of each order for Cardiac Products (other than Triage Meters). Biosite shall use its reasonable efforts to ship CMS's orders for Triage Meters not later than one hundred twenty (120) days from receipt of each order for Triage Meters. Subject to the provisions of Section 11 hereof, Biosite shall ship CMS orders for Products f.o.b. Biosite's facility in San Diego, California (at which point title and risk of loss shall pass from Biosite to CMS), to CMS's warehouse or to such other CMS location(s) as CMS may designate, insurance prepaid. Biosite shall cooperate with CMS in arranging drop shipments of Products to customers on a case by case basis to include Products designated by Biosite as drop ship Products. CMS shall pay all freight costs for shipping Products by CMS customary means or by any other means specified by CMS in a purchase order. Biosite shall pay all freight costs for shipping Products by any means other than CMS customary means or the means specified by CMS in a purchase order. Biosite shall pay all insurance costs for shipping Products ordered by CMS hereunder. (b) Biosite shall notify CMS immediately in writing should Biosite become aware of any defect or condition which may render any Product in violation of any statute or regulation, or which in any way materially alters the specifications or quality of such Product. (c) Biosite 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 Products as may be reasonably requested by CMS. All training material, instructors, demonstration/training *** CONFIDENTIAL TREATMENT REQUESTED Products and other training costs and expenses therefor shall be borne by Biosite; provided however, CMS shall, at its expense, provide transportation and lodging for CMS personnel attending such training. (d) Biosite shall provide technical support to CMS's sales personnel and customers and promptly provide to CMS such additional technical information developed or acquired by Biosite from time to time as may reasonably be expected to be of assistance to CMS in fulfilling its obligations hereunder. Biosite will provide, at its own expense, a toll free long distance telephone service for technical support for CMS customers and sales representatives. (e) Biosite 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 use in connection with the distribution of the Products. Subject to CMS's and Biosite's prior written approval, the CMS name will be incorporated in Biosite's advertising and literature intended for distribution in the Territory by CMS sales representatives. If requested to do so by CMS, Biosite shall furnish CMS with suitable copy and photographs for use by CMS in cataloging the Product. (f) During the period that CMS has the exclusive right to distribute the Products in the Territory under this Agreement, Biosite shall provide CMS, upon request, with up to the number of Samples (as defined below) of each Product set forth on Schedule D, to be used by CMS solely in connection with the promotion and marketing of such Product. A "Sample" shall mean, with respect to a Product, a sample unit of such Product sold by Biosite to CMS solely for the purpose of marketing and promoting such Product, and not for the purpose of commercial resale. Such Samples may not be sold by CMS and shall be marked by Biosite with the following legend: "FOR EVALUATION PURPOSES ONLY - NOT FOR RESALE." (g) 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 Biosite of any Product from its product offering, release by Biosite 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 Biosite within thirty (30) days following CMS's request therefor at the price paid for such Product(s) by CMS. Biosite shall additionally pay for return freight and related transportation and insurance charges for all such Products. Biosite's release of a Product which has a longer shelf life shall not be deemed a material improvement under this Section 4(g). (h) Biosite shall promptly provide CMS with leads concerning prospective purchasers of the Products within the Territory in a format to be mutually agreed upon between the parties. (i) Biosite shall provide full and accurate written instructions on the Bill of Lading regarding the storage and handling of the Products. *** CONFIDENTIAL TREATMENT REQUESTED (j) Biosite shall ship Product so that 70% of current DOA Products shelf life and 60% of Micro Products shelf life will be remaining at the time of receipt at CMS's facility, or at CMS's customer's facility, if drop shipped. Biosite shall take back for full credit plus shipping charges any dated Products shipped contrary to this provision. 5. PRICE AND PAYMENT TERMS. (a) Biosite shall charge CMS a transfer price for each Sample equal to the Sample Price (as defined below) for such Sample in effect on the date of CMS's purchase order therefor. (b) Biosite shall charge CMS the following transfer price per unit for each Product (other than Samples): DOA PRODUCTS MICRO PRODUCTS CARDIAC PRODUCTS *** *** *** *** *** *** The parties shall meet yearly and attempt to reach mutually acceptable agreement on any necessary revisions to the applicable discounts from List Price set forth in the table above per Product category to reflect an attempt to minimize additional payments from CMS to Biosite and/or rebates from Biosite to CMS. If the transfer price is adjusted on this basis, the Target Purchase Obligations for subsequent calendar quarters under Schedule E shall be adjusted proportionately. (c) Biosite shall have the right to amend the Sample Prices and the List Prices set forth on Schedules A, B, C, and D from time to time in its sole discretion; provided, however, that Biosite shall give at least ninety (90) days' prior written notice of any such amendment. Biosite shall honor CMS's existing purchase orders at the transfer prices in effect immediately prior to the effective date of each amendment. (d) CMS's payment terms for Samples and Products purchased pursuant to this Agreement shall be *** from receipt of an accurate invoice from Biosite. (e) CMS shall be entitled to resell the Products on such terms as it may, in its sole discretion, determine, including, without limitation, price, returns, credit and discounts. (f) For purposes of this Section 5, the following definitions shall apply: "Actual Selling Margin" shall mean Actual Selling Price - Transfer Price. "Actual Selling Margin Rate" or "ASMR" shall mean: [Actual Selling Price - Transfer Price] ------------------------------------------- Actual Selling Price *** CONFIDENTIAL TREATMENT REQUESTED "Actual Selling Price" shall mean, with respect to any Product (other than Samples), the invoiced sales price, net of any discounts actually taken, which CMS or its affiliate charges to an unaffiliated customer for purchase of such Product. "Guaranteed Selling Margin Rate" or "GSMR" shall mean, with respect to any Product (other than Samples), the margin rate that is set forth in Section 5(h) below for such Product. "List Price" shall mean, with respect to any Product (other than Samples), the price therefor set forth on Schedule A, B or C (as applicable), as amended from time to time pursuant to Section 5(c) or 5(j). "Sample Price" shall mean, with respect to any Sample, the price therefor set forth on Schedule D, as amended from time to time pursuant to Section 5(c). "Target Dollar Sales" shall mean, with respect to any Product category, the target dollar sales obligation for such Product category set forth on Schedule E, as amended from time to time pursuant thereto. "Transfer Price" shall mean, with respect to any Product (other than Samples), the price calculated pursuant to Section 5(b) above which CMS is obligated to pay to Biosite for purchase of such Product. (g) Subject to the provisions of Section 5(j) below, CMS shall receive the Guaranteed Selling Margin Rate on Products per the matrix set forth in Section 5(h) below for the term of this Agreement. In accordance with the payment terms set forth in Section 5(d) above, Biosite shall receive payment of the Transfer Price for Products shipped to CMS. Subject to the provisions of Section 5(j) below, should the Actual Selling Margin Rate be less than the GSMR for a Product unit, CMS is entitled to a rebate from Biosite for such Product unit. The rebate is calculated as follows: Rebate = [GSMR - ASMR] X Actual Selling Price Subject to the provisions of Section 5(j) below, should the ASMR exceed the GSMR for a Product unit, CMS will make an additional payment to Biosite for such Product unit. The additional payment is calculated as follows: Additional Payment = [ASMR - GSMR] X Actual Selling Price The following is a numerical example to illustrate the calculations above: A. No rebate or additional payment *** (h) The GSMR for each Product category shall be as set forth below: *** (i) Within ten (10) days after the end of each calendar month, CMS shall prepare and provide Biosite with a reasonably detailed written sales report which shall (i) set forth on a Product-by-Product basis the sales of Products by CMS and its affiliates to unaffiliated customers, and (ii) calculate on a Product-by-Product basis the Actual Selling Price, the ASMR and the GSMR therefor, and the net amount (if any) of the additional payments from CMS to Biosite and/or the rebates from Biosite to CMS owing under Section 5(g) for such calendar month. Such report shall be based on sales by CMS and its affiliates, as reflected on CMS's Key Supplier Report, on each Product during each calendar month. CMS shall pay to Biosite any such additional payment, and Biosite shall pay to CMS any such rebate, owing under Section 5(g) for each calendar month on or before the later of the fifteenth (15th) day of the following calendar month or ten (10) days after Biosite's receipt of the applicable sales report for such calendar month. Biosite and its agents shall have the right, on reasonable notice and not more than twice in each calendar year, to inspect and audit the books and records of CMS and any of its relevant affiliates to verify the accuracy of such sales reports. *** CONFIDENTIAL TREATMENT REQUESTED Biosite shall pay the fees and expenses of such audit; provided, however, if such audit reveals that the aggregate amount (net of any rebates from Biosite) payable by CMS to Biosite for the audited period is more than one hundred five percent (105%) of the aggregate amount (net of any rebates from Biosite) actually paid by CMS to Biosite for the audited period, CMS shall pay the reasonable fees and expenses of such audit. (j) Except as set forth below in this Section 5(j) or as the parties otherwise mutually agree, if the Actual Selling Price of any Product unit is less than the applicable amount set forth below, then for purposes of calculating ASMR and GSMR, and the amount of any rebate or additional payments under Section 5(g), the Actual Selling Price of such Product unit shall be deemed to be the applicable amount set forth below: DOA PRODUCTS MICRO PRODUCTS CARDIAC PRODUCTS *** *** *** The foregoing limitation on the calculation of Actual Sales Price shall not apply to (a) any sales made by CMS or its affiliates prior to March 1, 1998, (b) to continuation of the discount rate or net price to existing customers during the term of this Agreement, (c) any sales made pursuant quarters to binding agreements between CMS and unaffiliated customers entered into prior to March 1, 1998, or (d) to discounts beyond such levels approved by Biosite. Further, in the event CMS gives Biosite not less than three (3) working days prior written notice of its good faith request for a discount rate from the List Price in excess of the amount set forth above and Biosite fails to approve the requested discount rate and, as a result, one or more existing customers of CMS thereafter fails to purchase further Products from CMS, CMS shall receive a credit(s) against its quarterly Minimum Purchase Obligations equivalent at cost to the volume of Product sale lost for each calendar quarter during the remaining term of this Agreement equal to the quarterly average (based on the immediately preceding four (4) calendar quarters or, if less than four (4) quarters, the actual sales annualized and divided by 4) of the dollar volume of DOA Products and Micro Products purchased by such customer or customers. 6. TERM, TERMINATION AND LOSS OF EXCLUSIVITY. (a) The initial term of this Agreement shall be for a period of *** years ("Initial Term") from the date first set forth above, unless terminated sooner as provided herein. Thereafter, this Agreement shall *** ("Extended Term") unless notice of nonrenewal is given by one party to the other at least ninety (90) days prior to the expiration of the Initial Term. (b) 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 from the other party. (c) Furthermore, this Agreement may be terminated for cause by Biosite if CMS fails to purchase at least the aggregate dollar amount of DOA Products and Micro Products (collectively, the "Minimum Purchase Obligation") equal to *** of the aggregate of the applicable Target Purchase Obligations set forth on Schedule E for DOA Products and Micro Products (excluding Samples) ***. In the event CMS fails to purchase the applicable Minimum Purchase Obligation for any such period, Biosite may give CMS written notice termination of this Agreement within sixty (60) days' after the end of the applicable period, which termination shall be effective one hundred eighty (180) days' after CMS's receipt of such written notice of termination. Immediately upon receipt of such termination notice, the distribution rights of CMS shall become nonexclusive with the effective date of such. The remedies provided for in this section shall be Biosite's sole and exclusive remedies for CMS's failure to purchase the applicable Minimum Purchase Obligation for such period. Notwithstanding the foregoing, if CMS is unable to purchase the applicable Minimum Purchase Obligation for any such period due solely to an act or omission of Biosite, such failure shall not constitute grounds for termination with cause pursuant to this Section 6(c) with respect to such period. For the purposes of this Section 6(c), Product shall be deemed purchased when a firm purchase order has been received by Biosite for delivery of Products within sixty (60) days. (d) Biosite's inability to provide Product necessary for CMS to meet the Minimum Purchase Obligation for any Product due to an event of force majeure shall not be deemed to be a breach of this Agreement. The occurrence of any event of force majeure shall extend the time for performance and term of this Agreement for a period *** CONFIDENTIAL TREATMENT REQUESTED of time equal to the length of the force majeure delay. (e) In the event that Biosite fails for whatever reason(s) to deliver the quantities of Product units ordered by CMS to meet the Minimum Purchase Obligation for such Product for any two (2) consecutive calendar quarters in any calendar year, then CMS may, within thirty (30) days before or after the end of such period, give Biosite written notice of Fisher's intent to sell competitive products. Biosite must, within ten (10) days after receipt of such notice of intent, either (a) provide information to the reasonable satisfaction of CMS that it will be back in production at a run rate sufficient to satisfy the Minimum Purchase Obligation within ninety (90) days thereafter, (b) make CMS nonexclusive as to that Product, or (c) remove the Product from this Agreement. Notwithstanding anything in this Agreement to the contrary, in the event Biosite fails to timely make its election, CMS shall have the right to terminate this Agreement as to any such Product by providing written notice thereof to Biosite, with such termination being effective sixty (60) days after such notice to Biosite from CMS. (f) Biosite may also terminate this Agreement at any time without cause if, upon termination, Biosite pays CMS a one-time payment (the "Buy-out Amount") equal to the following: (i) if Biosite gives not less than one hundred eighty (180) days prior written notice of such termination, the Buy-out Amount shall equal *** (ii) if Biosite gives at least sixty (60) days but less than one hundred eighty (180) days prior written notice of such termination, the Buy-out Amount shall equal ***. In no event may Biosite terminate this Agreement with less than sixty (60) days notice. Except as provided in Section 6(g), payment of any sums calculated under this Section 6(f) shall constitute CMS's sole and exclusive remedy in the event Biosite terminates this Agreement without cause. (g) Upon termination of this Agreement, CMS shall return to Biosite all CMS's unused Samples, in substantially the same condition as received, and unsold inventory of Products, f.o.b. CMS's warehouse(s); provided, however, that Biosite shall not be obligated to repurchase expired Samples and Product. Biosite shall refund to CMS the cost of such Samples and Product. If this Agreement is terminated by Biosite under Section 6(e) or 6(f), Biosite shall pay the return freight and insurance therefor. Otherwise, CMS shall pay the return freight and insurance therefor. (h) The rights and duties of each party under Sections 3(d), 3(f), 6(g), 7, 8, 9, 10, 14, 15, 19 and 25 of this Agreement and Biosite's obligations under the Continuing Guaranty as referred to in Section 10(a) hereof, shall survive and be enforceable in accordance with their terms. (i) 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 Biosite to CMS will bear one or more of the trademarks or trade names (including, but not limited to, the name Triage-TM-) relating to such Product owned by or licensed to Biosite (collectively, the "Biosite Marks"), and CMS shall not alter, remove or modify the Biosite Marks, nor affix any other trademark to the Product, without the prior express written consent of Biosite. CMS shall not utilize any of the Biosite Marks in connection with any promotional brochures or advertising materials relating to the Products without the prior express written consent of Biosite, which consent shall not be unreasonably withheld, delayed or conditioned. Biosite's consent to the use of the Biosite Marks shall be conditioned upon such brochure or advertising materials clearly indicating Biosite's ownership of the Biosite Marks. (b) All Product units purchased by CMS hereunder shall be marketed by it in the original packages under the original labels provided by Biosite, and CMS shall make no 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 Biosite's Product labels or markings. *** CONFIDENTIAL TREATMENT REQUESTED (c) Nothing in this Agreement shall be construed as granting CMS any license or interest in the Biosite Marks, and CMS acknowledges that it has been advised by Biosite of Biosite's claim of ownership of the Biosite Marks. CMS agrees that it will do nothing inconsistent with such ownership and that all use of the Biosite Marks will inure to the benefit of and be on behalf of Biosite. Specifically, CMS agrees that: it will not challenge the validity of, or Biosite's ownership of, any of the Biosite Marks; it will not take any action that is inconsistent with, or may impair, Biosite's right, title and interest to the Biosite Marks; it will not represent to any third party that it has any ownership interest in the Biosite Marks; it will not adopt any trademarks that are confusingly or deceptively similar to the Biosite Marks; and it will, at Biosite's sole cost and expense, execute and deliver to Biosite any and all documents which Biosite may request to confirm in Biosite all right, title and interest in the Biosite Marks. (d) CMS shall make no statement to the press relating or referring to the Products without the prior express written approval of Biosite. (e) CMS shall promptly notify Biosite in writing of any challenges to the validity, infringement on or unauthorized use of any of the Biosite Marks, actual or threatened, that may come to CMS's attention. Biosite shall be responsible for and shall assume all expenses of the enforcement of the Biosite Marks. (f) Biosite 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 Products, and that Biosite 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 Products without the prior express written approval of Biosite. (g) Upon termination of this Agreement, CMS shall continue to be entitled to utilize the Biosite Marks on the terms agreed to previously by the parties in connection with CMS's promotion, marketing, distribution and sale of units of Products remaining in CMS's inventory and not repurchased by Biosite. Thereafter, CMS shall terminate all use of Biosite Marks, and shall at Biosite's request and at Biosite's expense, destroy or return to Biosite all literature and other advertising and promotional materials bearing the Biosite Marks. In the event of termination or expiration of this Agreement, CMS agrees to cooperate with Biosite and to execute any and all documents requested by Biosite for the purpose of canceling any registered user or other rights with respect to Biosite's name and the Biosite Marks that CMS may have acquired in operating hereunder, or, at Biosite's election, in transferring such rights to Biosite or its designee. CMS also agrees to cooperate with Biosite in transferring any appropriate rights in connection with the Biosite Marks to Biosite and/or Biosite's designee, at Biosite's sole cost and expense, if Biosite 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 Biosite 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 Biosite's right to claim the copyright protection to such materials. CMS further acknowledges that Biosite 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 Products, and CMS shall take no action which is in any way inconsistent with Biosite's claim of copyright protection that it expects to make with respect to such materials. (b) In order to protect against infringement of Biosite's copyright through unauthorized reproduction or duplication of its copyrighted materials, such materials included with the units of Products sold by Biosite to CMS shall 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 Biosite for the purpose of fulfilling CMS's obligations under this Agreement. (c) CMS shall promptly notify Biosite in writing of any infringements, whether within or without the Territory, of any of Biosite's copyrights which come to the attention of CMS. CMS shall, at Biosite's request, provide Biosite with all reasonable assistance in initiating and prosecuting any legal action against any infringer of Biosite's copyrights within the Territory; provided, however, that all costs incurred in connection with any such copyright infringement action shall be borne solely by Biosite. *** CONFIDENTIAL TREATMENT REQUESTED 9. TRADE SECRETS AND CONFIDENTIAL INFORMATION. (a) CMS may receive various trade secrets of Biosite and other information of Biosite of a confidential nature (including but not limited to specific technical information concerning the Products). CMS agrees that it will not disclose to anyone, directly or indirectly, any of such trade secrets or other confidential information, or use such trade secrets or other confidential information other than as reasonably required in the course of its performance under this Agreement. Notwithstanding the foregoing, CMS may disclose such trade secrets or other confidential information to the extent required by applicable law, regulation or court order, provided that CMS shall give Biosite reasonable notice of any such required disclosure and shall give Biosite an opportunity to object to any such disclosure or to request confidential treatment thereof. CMS shall, at Biosite's option, return such information to Biosite 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) Biosite may receive various trade secrets of CMS and other information of CMS of a confidential nature (including, but not limited to the names of CMS's customers and sales data). Biosite agrees that it will not disclose to anyone, directly or indirectly, any of such trade secrets or other confidential information, or use such trade secrets or other confidential information other than as reasonably required in the course of its performance under this Agreement. Notwithstanding the foregoing, Biosite may disclose such trade secrets or other confidential information to the extent required by applicable law, regulation or court order, provided that Biosite shall give CMS reasonable notice of any such required disclosure and shall give CMS an opportunity to object to any such disclosure or to request confidential treatment thereof. Biosite 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 under this Section 9 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 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) express written 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. BIOSITE'S WARRANTIES; DISCLAIMER OF WARRANTIES. (a) Biosite 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 Exhibit 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, Biosite shall provide CMS with certificates of insurance which meet the requirements of paragraph D of the Continuing Guaranty. Biosite's insurance carriers shall at all times during the term of this Agreement be rated by Best's as B+ or superior. Biosite is not aware after due inquiry of any circumstance which would prevent the issuance of such policy. (b) In addition to the warranties of Biosite set forth in this Agreement and in the Continuing Guaranty, Biosite warrants that each of the Products will conform to the specifications set forth in Product literature prepared by or on behalf of Biosite 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, orders, regulations and standards. (c) Biosite and CMS shall extend to customers only the Product Warranty embodied in Exhibit B hereto; provided that Biosite may modify such Product Warranty with CMS's consent, which consent shall not be unreasonably withheld. Biosite shall not modify or amend the warranty during the term of this Agreement without providing CMS with sixty (60) days' prior written notice. Biosite warrants and represents that the Products will perform in accordance with Biosite's warranty. (d) Except for the Product warranty which is described in Section 10(c) hereof, Biosite MAKES NO WARRANTIES TO CUSTOMERS AND CMS SHALL NOT MAKE ANY OTHER WARRANTIES *** CONFIDENTIAL TREATMENT REQUESTED 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 to the extent caused by such matters as strikes, shortages of power or raw materials, government orders or acts of God, which are reasonably beyond the control of the party obligated to perform. The affected party shall make all commercially reasonable 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 (90) days. In such event, the party seeking performance may cancel its obligations hereunder. 12. NOTICES. Any notice required by this Agreement shall be in writing, and may be delivered in person, by nationally recognized overnight delivery service or by any lawful means to the party for whom intended at its address set forth below, and shall be effective on receipt. If to Biosite: Biosite Diagnostics Incorporated 11030 Roselle Street, Suite D San Diego, California 92121 Telecopy: (619) 445-4815 Attn: Kim Blickenstaff with a copy to: Pillsbury Madison & Sutro LLP 235 Montgomery Street, 15th Floor San Francisco, California 94104 Telecopy: (415) 983-7396 Attn: Thomas E. Sparks, Jr., Esq. If to CMS: Fisher Scientific Company 9999 Veterans Memorial Drive Houston, Texas 77038 Telecopy: (281) 878-2293 Attn: Legal Department with a copy to: Fisher Scientific Company 2000 Park Lane Pittsburgh, Pennsylvania 15275 Telecopy: (412) 490-8885 Attn: General Counsel or such other address as provided in writing in the manner provided by this Section. 13. ENTIRE AGREEMENT. This Agreement, including Schedules and Exhibits, constitutes the entire agreement between the parties relating to the subject matter hereof and supersedes all prior agreements, understandings and representations, whether written or oral, between the parties with respect to such subject matter. Without limiting the generality of the foregoing, Biosite and CMS each releases the other from its obligation to pay any unpaid amounts owing pursuant to Section 6(b) of the Amendment executed as of March 12, 1996, to the 1991 Distribution Agreement. In ordering and delivery of the Products, 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 action is commenced to enforce any of the rights *** CONFIDENTIAL TREATMENT REQUESTED 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 Products hereunder, Biosite 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 Biosite, at Biosite's sole cost and expense, in connection with securing and maintaining any governmental registration or other governmental permits required with respect to marketing the Products in the Territory and CMS will notify Biosite of any local laws affecting the Products 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. (b) Notwithstanding Section 17(a) above, a merger, reorganization, recapitalization, sale or transfer of all or substantially all of the assets, change of control, or similar transaction of a party shall not be deemed an assignment or transfer of this Agreement subject to the provisions of Section 17(a) above. 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. Each party represents and warrants that the terms of this Agreement do not violate any existing obligations or contracts of it. Each party shall defend, indemnify and hold harmless the other party from and against any and all claims, demands, liabilities and causes of action that are hereafter made or brought against the other party that allege any such violation. 20. RELATIONSHIP OF THE PARTIES. (a) For the purposes of this Agreement, CMS and Biosite are deemed to be independent contractors and not the agent or employee of the other. Neither CMS nor Biosite shall 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 Biosite to CMS or from CMS to Biosite *** CONFIDENTIAL TREATMENT REQUESTED except as expressly provided herein. 21. SUCCESSORS AND 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 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 Biosite 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 Biosite's obligation to make any such payment. 25. FURTHER ASSURANCES. Biosite and CMS each shall perform any and all further acts and execute and deliver any and all further documents and instruments that may be reasonably necessary to carry out the provisions of this Agreement. 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 ----------------------- FISHER SCIENTIFIC COMPANY L.L.C. By: /S/ CHARLES V. WOZNIAK ---------------------- Title: PRESIDENT ---------------------- *** CONFIDENTIAL TREATMENT REQUESTED SCHEDULE A DOA PRODUCTS * * * *** CONFIDENTIAL TREATMENT REQUESTED SCHEDULE B MICRO PRODUCTS * * * *** CONFIDENTIAL TREATMENT REQUESTED SCHEDULE C CARDIAC PRODUCTS * * * *** CONFIDENTIAL TREATMENT REQUESTED SCHEDULE D SAMPLE QUANTITIES AND PRICES * * * *** CONFIDENTIAL TREATMENT REQUESTED SCHEDULE E TARGET OBLIGATIONS * * * *** CONFIDENTIAL TREATMENT REQUESTED EXHIBIT A CONTINUING GUARANTY A. __________________________________________________________________ (hereinafter referred to as "Seller"), having its principal office and place of business at _________________________________________________ ______________________________________________________________________ ____________________, hereby guarantees that all Products (including their packaging, labeling and shipping) comprising each shipment or other delivery hereinafter made by Seller (hereinafter referred to as "Products") to or on the order of Fisher Scientific Company L.L.C., a Delaware limited liability company, having its principal place of business at 2000 Park Lane, Pittsburgh, Pennsylvania 15275, or to any of its branches, divisions, subsidiaries, affiliates, or any of their customers (hereinafter collectively referred to as "Fisher"), pursuant to that certain Distribution Agreement effective as of January 1, 1998 (the "Distribution Agreement"), between Seller and Fisher Scientific Company L.L.C., a Delaware limited liability company represented by its Curtin Matheson Scientific division, are, as of the date of such shipment or delivery, in compliance with applicable federal, state and local laws, and any regulations, rules, declarations, interpretations and orders issued thereunder, including, without limitation, the Federal Food, Drug and Cosmetic Act, as amended, and conform to representations and warranties made by Seller in its advertising, product labeling and literature. B. Further, with respect to any Product that is privately labeled for Fisher, Seller agrees to make no change in such Products or the Fisher artwork on the labeling or packaging relating thereto without first obtaining the written consent of Fisher. Seller recognizes that Fisher is the owner of the trademarks and trade names connoting Fisher which it may elect to use in the promotion and sale of such private label Products and that Seller has no right or interest in such trademarks or trade names. Seller shall periodically analyze and review packaging and labeling for any Products which are private labeled for Fisher to ensure conformity with the provisions of paragraph A hereof and the adequacy of Product warnings and instructions. C. Seller hereby agrees that it will reimburse Fisher Scientific Company L.L.C., a Delaware limited liability company, for all reasonable out-of-pocket costs and expenses incurred in connection with any product corrective action or recall relating to the Products which is requested by Seller or required by any governmental entity. D. Seller agrees to procure and maintain product liability insurance with respect to the Products and contractual liability coverage relating to this Guaranty, with insurer(s) having Best's rating(s) of A- or better, naming Fisher as an additional insured (Broad Form Vendors Endorsement), with minimum limits in each case of $3,000,000. Seller shall promptly furnish to Fisher Scientific Company L.L.C., a Delaware limited liability company, a certificate of insurance and renewal certificates of insurance evidencing the foregoing coverages and limits. The insurance shall not be canceled, reduced or otherwise changed without providing Fisher with at least ten (10) days prior written notice. E. Subject to the provisions of Section 6 (i) of the Distribution Agreement, Seller agrees to and shall protect, defend, indemnify and hold harmless Fisher Scientific Company L.L.C., a Delaware limited liability company, (and with respect to Subparagraph E. (i) below, the customers of Fisher Scientific Company L.L.C., a Delaware limited liability company) from any and all claims, actions, costs, expenses and damages, including reasonable attorney's fees and expenses arising out of: (i) any actual or alleged patent, trademark or copyright infringement in the design, composition, use, sale, advertising or packaging of the Products; (ii) any breach of the representations or warranties set forth in this Guaranty; (iii) the sale or use of the Products where such liability results from the act or omission of Seller (whether for breach of warranty, strict liability in tort, negligence or otherwise). In each such case, Fisher shall give Seller prompt written notice of any such claim, shall permit Seller to assume sole control of the defense thereof and shall provide all reasonable assistance in connection with the defense of such claim. Fisher shall have the right to retain its own counsel and to participate in such defense, with the fees and expenses of such counsel to be paid by Seller, if representation of Fisher by counsel retained by Seller would be inappropriate due to actual differing interests between Fisher and any other party represented by such counsel in such proceeding. F. Seller agrees to and shall provide to Fisher Material Safety Data Sheets and other information concerning any Product as required by then applicable federal, state or local law. *** CONFIDENTIAL TREATMENT REQUESTED G. Seller agrees to and shall accept, at its facility, all of Fisher's unsold or expired Products containing hazardous chemicals, materials or substances for disposal, recycling or use. Fisher shall be responsible for packing and transportation costs to Seller. Seller shall be responsible for all other costs, including, without limitation, any costs associated with Seller's disposal, recycling or use. H. If the Products to be furnished by Seller are to be used in the performance of a U.S. government contract or subcontract, those clauses of the applicable U.S. Government procurement regulation which are mandatorily required by Federal Statute to be included in U.S. Government subcontracts shall be incorporated herein by reference including, without limitation, the Fair Labor Standards Act of 1938, as amended. I. The representations and obligations set forth herein shall be continuing and shall be binding upon the Seller and his or its heirs, executors, administrators, successors and/or assigns, whichever the case may be, and shall inure to the benefit of Fisher Scientific Company L.L.C., a Delaware limited liability company, its successors and assigns and to the benefit of its officers, directors, agents and employees and their heirs, executors, administrators, and assigns. J. The agreements and obligations of Seller set forth in this Guaranty are in consideration of purchases made by Fisher from Seller and said obligations are in addition to (and supersede to the extent of any conflict) any obligations of Seller to Fisher or Fisher to Seller. This Guaranty shall be effective upon the first sale to Fisher of any Product by Seller, and the obligations of Seller under this Guaranty shall survive and be enforceable in accordance with its terms. SELLER BIOSITE DIAGNOSTICS INCORPORATED - ----------------------------------------------- - ----------------------------------------------- Name Under Which Seller's Business is Conducted /s/ KIM D. BLICKENSTAFF - ----------------------------------------------- Signature of Authorized Representative PRESIDENT 4/3/98 - ----------------------------------------------- Title Date FISHER SCIENTIFIC COMPANY L.L.C., A DELAWARE LIMITED LIABILITY COMPANY /s/ CHARLES V. WOZNIAK - ----------------------------------------------- Signature of Authorized Representative PRESIDENT - ----------------------------------------------- Title *** CONFIDENTIAL TREATMENT REQUESTED EXHIBIT B PRODUCT WARRANTY 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. EX-27.1 3 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S FINANCIAL STATEMENTS AS OF AND FOR THE QUARTER ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S 1997 ANNUAL REPORT ON FORM 10-K. 1,000 2-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 2,309 38,381 5,467 0 3,085 65,294 15,236 7,519 65,294 6,095 4,024 0 0 129 55,045 65,294 7,884 8,796 1,755 7,765 0 0 0 (724) 224 (500) 0 0 0 (500) 0.04 0.04 EARNINGS PER SHARE IS CALCULATED BASED UPON PRO FORMA SHARES OUTSTANDING. SEE NOTE 1 OF NOTES TO FINANCIAL STATEMENTS.
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