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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER 000-21281
CN BIOSCIENCES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 33-0509785
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10394 PACIFIC CENTER COURT, SAN DIEGO, CA 92121
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 450-5500
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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 ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ( )
The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 12, 1997 was approximately $25.8 million.
As of March 12, 1997, the Registrant had 5,168,830 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders - Part II
Portions of the Proxy Statement for the 1997 Annual Meeting of Stockholders -
Part III
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TABLE OF CONTENTS
PART I
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Item 1. Business 3
Item 2. Properties 24
Item 3. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of Security Holders 24
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 25
Item 6. Selected Consolidated Financial Data 25
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 25
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 26
PART III
Item 10. Directors and Executive Officers of the Registrant 27
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners and Management 27
Item 13. Certain Relationships and Related Transactions 27
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 28
Signatures 31
Schedule II - Valuation and Qualifying Accounts 32
Exhibit Index 33
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PART I
ITEM 1. BUSINESS
As used in this Annual Report on Form 10-K, references to the "Company" or
"CN Biosciences" refer to CN Biosciences, Inc. and its direct and indirect
subsidiaries, unless otherwise indicated or the context otherwise requires.
This Annual Report on Form 10-K contains forward-looking statements which
involve risks and uncertainties. The Company's actual results in the future
could differ significantly from the results discussed in such forward-looking
statements. Factors that could cause or contribute to such a difference
include, but are not limited to, those set forth under the caption Risk Factors
and in Management's Discussion and Analysis of Financial Condition and Results
of Operations, incorporated by reference herein.
THE COMPANY
CN Biosciences, Inc. ("CN Biosciences" or the "Company") is engaged in the
development, production, marketing and distribution of a broad array of
products used worldwide in disease-related life sciences research at
pharmaceutical and biotechnology companies, academic institutions and
government laboratories. The Company's products include biochemical and
biological reagents, antibodies, assays and research kits which it sells
principally through its general and specialty catalogs under its
well-established brand names, including Calbiochem, Novabiochem and Oncogene
Research Products. With over 7,800 products, the Company offers scientists the
convenience of obtaining from a single source both innovative and fundamental
research products, many of which are instrumental to areas of research such as
cancer, cardiovascular disease, Alzheimer's and AIDS. The Company believes it
has established a long-standing reputation in the life sciences research
products market for product quality, product reliability, extensive technical
service and strong customer support.
The Company believes that it is strategically positioned with both the
breadth of research products and critical mass that are characteristic of the
industry's larger providers, as well as the innovative research and development
capabilities that are characteristic of the industry's smaller specialty
companies. Based upon this strategic positioning, the Company believes it can
establish itself as a leading supplier of higher margin research products to
selected emerging, high growth niche research markets by offering innovative
products through specialty catalogs. In recent years, the Company has
implemented its niche research market strategy in areas such as signal
transduction, apoptosis and combinatorial chemistry. The Company intends to
continue to penetrate emerging niche research markets through internal
development and the selective acquisitions of companies with products in areas
targeted for future growth. The Company's successful acquisition and
integration of the Oncogene Research Products business is an example of the
implementation of this strategy. As a result of this acquisition, the Company
significantly expanded its capabilities in molecular biology and immunology and
added over 700 new product offerings, many of which are included in the
Company's Apoptosis specialty catalog.
A key element of the Company's growth strategy is to leverage certain
existing assets of the Company including (i) its comprehensive general catalog
product offerings, customer base and reputation, (ii) its global manufacturing
and distribution infrastructure, including its highly automated order
fulfillment system and (iii) the scientific expertise of its staff in
immunochemistry, biochemistry, molecular biology and synthetic peptides. During
1996, the Company sold products to over 8,000 accounts, filled over 90,000
orders in 48 countries and generated sales of $33.7 million and net income of
$2.0 million. The Company's development, marketing and distribution activities
are supported by the Company's highly experienced scientific staff, which
includes 42 professionals holding Ph.D.s in a variety of life sciences
disciplines, as well as other personnel located at seven facilities in the
United States, Europe, Japan and Australia.
INDUSTRY OVERVIEW
The life sciences research industry has experienced dramatic advances in
biology and chemistry over the past three decades, particularly as they relate
to the understanding of the origin of diseases at the molecular and cellular
level. These advances have led to the rapid expansion of drug discovery
programs and the development of new methodologies of research. Industry sources
estimate that there are over 300,000 scientists worldwide currently engaged in
life sciences research. In 1996, U.S. pharmaceutical and biotechnology
companies spent over $20 billion on research and development. In addition,
academic institutions and government laboratories receive a portion of their
research funding from organizations such as the NIH, which had a budget for
1996 exceeding $11.9 billion. Over the past ten years, the NIH budget has grown
at a compounded annual rate of approximately 6.7%, although recent government
proposals aiming to reduce or eliminate budgetary deficits have included
reduced allocations to the NIH and the other government agencies that fund
research and development activities. In its most recent industry survey
published in 1994, Frost & Sullivan estimated that $1.6 billion was spent
worldwide in
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1992 on specialty biochemical products, such as those offered by the Company
for research in biochemistry, immunology, cellular biology and molecular
biology. According to Frost & Sullivan, the compound annual growth rate from
1992 through 1999 for the U.S. life sciences research products market (which
represents approximately one-third of the worldwide market) is estimated to be
approximately 13%. Furthermore, the Company believes that certain segments of
life sciences research, such as apoptosis, signal transduction and
combinatorial chemistry, are particularly strong areas of growth.
Life sciences researchers utilize specialty biochemical products to conduct
their research. These research products range broadly in complexity, purity,
scarcity, cost and function, and their availability and quality are often
critical to a project's success. Furthermore, recent advances in understanding
physiological processes at the molecular and cellular level, genomics and the
development of other basic life sciences technologies have increased the demand
for innovative product solutions designed to assist scientists in improving the
efficiency and quality of their research. Examples of such solutions include
specific protein or peptide fragments, monoclonal antibodies or DNA probes
tailored to a given research protocol that would be too time consuming or
complex for a researcher to prepare at his or her own lab bench. Other
examples include kits designed to reduce complex multi-step procedures, thereby
shortening the time required for experiments, improving the quality of
information provided in many cases and ensuring repeatability of the experiment
in subsequent research. The Company believes that researchers are typically
concerned primarily with product performance, quality, rapid availability, time
savings and the value added by innovative products such as specialized assays
and research kits, and are relatively less sensitive to price. Because life
sciences research can often involve experimentation carried out over months or
even years, and because researchers seek to minimize extraneous variables in
their research protocols, the consistency of research products is essential. As
a result, the Company believes that researchers tend to exhibit loyalty to the
supplier that first supplies them with a particular research product.
The life sciences research products industry is highly fragmented. The
industry is comprised of several very large public companies and a large number
of smaller companies which are typically privately held. The larger companies
typically generate revenues from the sale of a broad range of equipment,
laboratory supplies and other products, including research products which
compete with many of the Company's product offerings. These larger suppliers
generally place greater emphasis on high-revenue generating products and on the
breadth of their product offering than on providing innovative products early
to market. The smaller companies, the majority of which are substantially
smaller than the Company, typically supply a highly focused product offering to
very specific market niches. These smaller companies generally specialize in
addressing the emerging needs of life sciences researchers by emphasizing
innovative products. Such smaller companies often lack the distribution network
and capital resources required to grow beyond providing a limited and highly
specialized offering to a relatively narrow market. As the market expands and
the need to cost effectively distribute products to a larger, more
geographically diverse customer base increases, the Company believes that
customer access will be increasingly difficult for smaller companies lacking
significant marketing and distribution infrastructure. The Company believes
that the industry's fragmented structure and underlying dynamics may create
opportunities for consolidation.
STRATEGY
CN Biosciences' goal is to become a leading provider of innovative research
products to the life sciences research market. To achieve this goal, CN
Biosciences' strategy includes the following elements:
Target Emerging, High Growth Niche Research Markets. The Company seeks to
establish leading positions early in the evolution of the market's faster
growing, higher margin niche research markets. The Company identifies a
potentially attractive niche research market through a comprehensive review by
its scientific personnel and interaction with the Company's Technology Council
and network of other scientific advisers. In deciding which niche research
markets to pursue, the Company considers a number of factors, including
potential market size, synergies with existing areas of research, resources
required to develop both the product offering and related catalog and the
potential for establishing a leading position
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early in the market's development. Once the Company has identified a niche
research market, it assembles a targeted product offering from its existing
products, new products developed by its own scientific staff and products
sourced from third parties. These products are then distributed primarily
through specialty catalogs designed to provide scientists working in a specific
field with a single comprehensive source integrating both innovative products
often not found elsewhere and a broad range of related products. During 1996,
the Company introduced an Apoptosis specialty catalog and issued an updated
version of its Signal Transduction specialty catalog. In the first quarter of
1997, the Company issued an updated version of its Combinatorial Chemistry
specialty catalog. The Company also has introduced targeted product offerings
to researchers studying glycobiology and intends to issue a Neurosciences
specialty catalog during 1997. CN Biosciences seeks to be first to
comprehensively market products in each of its targeted niche research markets
and to be in a leading position early in such market's development.
Expand Product Offerings to Existing Customer Base. The Company intends to
expand sales through the introduction of new product offerings to its existing
customer base. The Company's new product development efforts, both for its
specialty and general catalogs, are supported by its significant commitment to
research and development. New product ideas are generated through active
dialogues among the Company, its customers and its extensive network of
scientific advisers, participation in national and international conferences,
and comprehensive reviews of selected scientific literature. The Company
believes that successfully penetrating further niche research markets will, in
addition to generating revenues from sales of products contained in its
specialty catalogs, also increase the number of research scientists and
institutions seeking to license their discoveries to the Company for production
and distribution, and generate increased sales of products in the Company's
comprehensive general catalogs.
Pursue Strategic Acquisitions. The Company intends to penetrate emerging
niche research markets and expand product offerings to existing customers
through the selective acquisition of companies with research and development
capabilities and product offerings in areas targeted for future growth. In
August 1995, the Company consummated the strategic acquisition of the Oncogene
Research Products business, which has enabled the Company to substantially
expand its offerings of assays, kits, monoclonal antibodies and polyclonal
antibodies. The Company believes that, due to the highly fragmented nature of
the life sciences research products industry, significant opportunities for
consolidation exist, although no assurances can be made that the Company will
be able to identify and successfully consummate additional acquisitions. The
Company believes that the industry's smaller companies are typically privately
held and individually generate less than $10 million in annual revenues, yet
conduct a significant portion of the industry's innovative research,
particularly in specific niche research markets. The Company has numerous
contacts with many of these smaller research products companies for which the
Company often acts as a distributor or licensee, and believes that these
relationships may facilitate both the identification and consummation of
acquisitions.
Maximize Operating Efficiencies. The Company's investment in and refinement
of its product sourcing, procurement, production, inventory management and
order fulfillment capabilities, as well as its worldwide distribution network
and computer systems will continue to enable the Company to operate more
cost-effectively and to achieve greater service efficiency at higher sales
volumes. Additionally, the Company believes that this infrastructure provides
opportunities for the Company to service and support increased net sales
without the need for commensurate increases in expenses. The Company utilizes a
"technology center" concept for each brand which allows for product
development, customer service, technical support and brand-specific marketing
capabilities at its manufacturing locations, while retaining centralization of
many administrative and routine operations at its San Diego headquarters.
CORE COMPETENCIES
The Company believes that its past success is attributable to a number of
factors, including:
Experienced Management Team, Scientific Staff and Network of Scientific
Advisers. The Company's executive officers have an average of over ten years of
experience in the research products industry. In
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addition, since 1993 the Company has expanded its scientific staff to include
42 professionals holding Ph.D.s in a variety of life sciences disciplines. With
its expanded scientific staff and its particular expertise in immunochemistry,
biochemistry, molecular biology and synthetic peptides, the Company is able to
offer a broad range of products and to support such product offerings with both
a high level of scientific content in its catalogs and knowledgeable technical
support personnel. The Company regularly interacts with a network of scientific
advisers within the life sciences research industry including its four member
Technology Council, members of academic institutions with which the Company
collaborates, as well as its customers. These interactions have enabled the
Company to identify the specialized needs of researchers in several emerging
fields of life sciences research and to provide innovative product solutions to
facilitate research in these targeted areas.
Merchandising and Marketing Expertise. The Company believes its skill in
positioning and merchandising its products has enabled it to expand its share
of the life sciences research products market. The Company employs a variety of
marketing techniques to enable it to produce catalogs that the Company believes
are more informative and more visually appealing than those of its competitors.
In structuring its catalog offerings, the Company effectively combines basic
product information with a significant amount of related scientific reference
data and technical advice. In addition, with each new edition of the Company's
catalogs, the Company has increased the level of indexes and cross references
- -- by application, product category and individual product -- and developed a
variety of color coded reference aids, all of which are designed to facilitate
the ease with which a scientist can find the product needed to conduct his or
her research. Capitalizing on these skills, its established catalog brand names
and its comprehensive list of product offerings, the Company has identified
opportunities to target high growth emerging niche research markets using
specialty catalogs to more effectively bring its products to the attention of
research scientists.
Total Quality Management, Technical Service and Customer Support. Research
scientists require that the products used in their research conform to exacting
quality standards. The Company utilizes its Total Quality Management program to
ensure that customers receive consistent, high quality products which meet or
exceed customer requirements and catalog specifications. Quality control
functions designed to provide controls over the products distributed, whether
internally manufactured or externally sourced, have been fully integrated into
the Company's development and manufacturing process. In addition, the Company
provides extensive technical service to customers, primarily over the
telephone, in situations where customers have questions regarding complex
product applications, research protocols and background regarding use of the
Company's products. The Company also provides strong customer support through
its customer service staff of trained professionals at various worldwide
locations, who are primarily responsible for answering customer telephone
inquiries, receiving orders and following up on general product matters.
Highly Automated Order Fulfillment. The nature of life sciences research and
the rapid pace with which it is conducted is such that results achieved one day
may subtly change the course of the scientist's experiments for the next day.
As a result, research scientists will often require specific research products
delivered on short notice, and the speed and accuracy with which such products
are delivered can affect the success or failure of the researcher's work. The
Company has a highly automated order fulfillment system capable of delivering
substantially all customer orders worldwide on a next-day basis. The Company
believes that this system enables the Company to compete with its larger
competitors and gives it a competitive advantage over its smaller competitors,
while at the same time making the Company an attractive distribution outlet for
these smaller companies.
PRODUCTS
The Company sells over 7,800 products represented by over 14,000 stock
keeping units (SKUs). Through the ongoing efforts of its scientific and
technical staff, its contacts with researchers in academic and commercial
research laboratories and its open dialogue with scientific advisers, the
Company continually adds new products to its product offerings.
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The broad categories of the Company's products include:
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PRODUCT CATEGORY DESCRIPTION OF PRODUCTS
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Biochemicals . . . . . . . . . . . . . . . . Includes 25 major categories of products
comprised of enzymes, proteins, detergents,
inhibitors, antibiotics and others.
Immunochemicals . . . . . . . . . . . . . . . Includes monoclonal and polyclonal
antibodies, antibodies to various receptor proteins,
signaling proteins, glycoproteins, proto-oncogenes,
enzymes, neurotoxins and others.
Amino Acids and Peptides . . . . . . . . . . Includes Fmoc and Boc amino acid derivatives
and hundreds of biologically active peptides.
Kits and Assays . . . . . . . . . . . . . . . Includes a family of free radical marker
ELISA kits for oxidative stress research as
well as a rapidly growing line of ELISA kits
for use in apoptosis research such
as NMP, Fas and cdk1.
Resins and Linkers . . . . . . . . . . . . . Includes tentagel and polystyrene resins,
together with a variety of trityl linkers.
</TABLE>
The Company's products are marketed through four brands, each targeting
different segments of life sciences research, although some overlap exists
between the markets and products of each brand.
o Calbiochem. Calbiochem brand products target the immunology, cell
biology and biochemistry segments of life sciences research.
Calbiochem has been providing research products for over 40 years and
is a well-recognized name in the life sciences research industry.
o Novabiochem. The Company's Novabiochem brand covers products for the
biochemistry and peptide chemistry segments of life sciences research.
Novabiochem brand products have been offered since 1986.
o Oncogene Research Products. The Company currently co-brands Oncogene
Research Products with the Calbiochem brand. These products target the
immunology and molecular biology segments of life sciences research.
o Clinalfa. The Company's Clinalfa brand offers biologically active
peptides and related biological products for use in limited human
trials for research purposes. Clinalfa products are distributed
principally in Europe.
In addition to sales of its core products in standard laboratory quantity sizes
(generally from 100 nanograms to as large as 100 grams), the Company offers
certain products in bulk quantities (generally up to ten kilograms) generally
at discounts from catalog prices. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
PRODUCT POSITIONING AND MARKETING
The Company's products are principally sold through its three general and
four specialty catalogs. The Company also periodically distributes a number of
other publications to supplement its catalogs. The following table identifies
each of the Company's catalogs and gives the most recent publication dates, the
approximate number of copies published, the approximate number of products
included, the principal product focus and the brand names featured:
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SUMMARY OF CATALOGS
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NUMBER OF APPROXIMATE
CATALOGS NUMBER OF PRINCIPAL PRODUCT
CATALOGS LAST PUBLISHED PUBLISHED PRODUCTS FOCUS BRAND NAMES
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<S> <C> <C> <C> <C> <C>
GENERAL
Calbiochem First Quarter 1996 158,000 3,070 Biochemicals and o Calbiochem
Immunochemicals o Novabiochem
o Oncogene
Research
Products
Novabiochem Third Quarter 1996 58,000 2,100 Peptides, Boc and o Novabiochem
Fmoc Amino Acids and
Peptide Synthesis
Reagents
Oncogene Research Fourth Quarter 1996 80,000 865 Antibodies, Markers, o Oncogene
Products Reagents and Kits Research
Products
SPECIALTY
Signal Transduction Second Quarter 1996 85,000 1,400 G Proteins, Kinases, o Calbiochem
Nitric Oxide, Calcium o Novabiochem
Metabolism and p53 o Oncogene
Research
Products
Apoptosis First Quarter 1996 60,000 330 Antibodies, Assays, o Calbiochem
ELISAs, Kits and o Oncogene
Reagents Research
Products
Combinatorial First Quarter 1997 20,000 170 Resins, Linkers, Fmoc o Novabiochem
Chemistry Amino Acids and
Peptide Synthesis
Reagents
Clinalfa First Quarter 1996 8,000 40 Biologically Active o Clinalfa
Peptides
</TABLE>
General Catalogs
The Company utilizes general catalogs summarizing the complete product
offerings under each of its principal brands to reach a broad audience of life
sciences research scientists. The following is a brief summary of each of the
Company's three general catalogs:
o Calbiochem General Catalog. The Calbiochem general catalog has been
published since 1954. The most recent catalog, published in the first
quarter of 1996, summarizes the Company's offering of approximately
3,070 biochemicals and immunochemicals, including more than 700
products new to the catalog. Approximately 158,000 copies of the most
recent edition of the catalog have been published. The Calbiochem
general catalog combines Calbiochem brand products, along with
selected Oncogene Research Products and Novabiochem brand products, to
provide a broad offering to research scientists. Important product
categories contained in this catalog include G- proteins, calcium
metabolism, protein kinases, nitric oxide and protein phosphates.
o Novabiochem General Catalog. The Novabiochem general catalog
summarizes the Company's 2,100 item product offering of resins, amino
acid derivatives and reagents for peptide synthesis, as well as
biologically active peptides and enzyme substrates and inhibitors.
Published since 1986, 58,000 copies of the newest edition of the
Novabiochem general catalog were published in the third quarter of
1996. The catalog includes unique "synthesis notes" prepared by the
Company which provide a comprehensive and current review of solid
phase peptide synthesis methodology.
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o Oncogene Research Products General Catalog. Approximately 865 products
are included in this catalog which focuses primarily on scientific
research in the areas of cancer, heart disease, signal transduction
and neurobiology. Approximately 80,000 copies of the most recent
version of this catalog were published in the fourth quarter of 1996.
Key products in the catalog include antibodies, assays, kits, peptides
and probes.
Specialty Catalogs
Commencing in 1994, with the publication of its first specialty catalog in
the area of signal transduction, the Company's strategy has included the
development of specialty catalogs focused on niche research markets to meet the
specific needs of researchers in newer, high growth areas of life sciences
research. One key element of this strategy has been to significantly increase
the scientific background data contained in its catalogs, so that researchers
view the Company's catalogs not only as compendiums of product listings, but
also as significant technical resources. A recent implementation of this
strategy is the Company's Apoptosis specialty catalog which contains text-book
quality descriptions, illustrations and schematics of central elements in the
current understanding of the phenomenon of apoptosis, as well as detailed
methods and protocols for some of the most commonly utilized procedures needed
to conduct research in this area.
o Signal Transduction Specialty Catalog. Approximately 1,400 products
from the Calbiochem, Novabiochem and Oncogene Research Products brands
have been integrated into this specialty catalog which addresses the
needs of researchers doing work in signal transduction. Approximately
85,000 copies of the Company's third edition of this catalog were
published in second quarter of 1996 and contained over 500 products
new to the catalog focusing on this growing area of scientific
research. Over the past several years, the level of signal
transduction research has grown as scientists in many disciplines have
increasingly focused on the impact on their research of both
intercellular and intracellular communication. In addition to detailed
product listings, the catalog provides literature reviews, product
structures, molecular weights, application comments, technical
protocols and comparative tables of use to many signal transduction
researchers.
o Apoptosis Specialty Catalog. The newest of the Company's specialty
catalogs focuses on research in the area of apoptosis. Apoptosis, or
"programmed cell death," is a process whereby various stimuli activate
a genetic program to implement a specific series of events that
culminate in the death and efficient disposal of a cell with minimal
damage to surrounding cells or tissue. Apoptosis is essential for
normal development of cells, and disruption to the apoptotic process
can lead to a spectrum of defects thought by some researchers to be
important to various diseases including cancer, AIDS and Alzheimer's.
The potential for drugs that modulate the regulation of apoptosis
provides a new and growing opportunity for the treatment of many
disease states, and the Company anticipates continued growth in this
area of research. The initial catalog, published in the second quarter
of 1996, combines existing Calbiochem and Oncogene Research Products
brand products with newly developed, innovative products focused on
addressing this new and growing area of scientific research.
Approximately 60,000 copies of the Apoptosis specialty catalog have
been published. The catalog includes extensive literature citations,
materials and methods, information and scientific diagrams to assist
the researcher working in this relatively new field of study. The
Company's Apoptosis specialty catalog is printed in two versions, one
marketed exclusively under the Calbiochem name and another marketed
jointly under the Calbiochem and Amersham International plc names.
o Combinatorial Chemistry Specialty Catalog. Combinatorial chemistry has
emerged as a powerful new tool used by pharmaceutical companies in the
drug discovery process. In the first quarter of 1997, the Company
published the most recent edition of its Combinatorial Chemistry
catalog. This catalog, 20,000 copies of which have been published,
provides approximately 170 products focused primarily on solid
supports, condensation reagents, resins and linkers of interest to
companies utilizing
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combinatorial chemistry techniques.
o Clinalfa Specialty Catalog. This catalog contains Clinalfa brand
products which capitalize upon existing strengths in the Company's
manufacturing capabilities to provide a selection of ultra-pure
peptides of interest to a specialized group of researchers focused on
human clinical research applications, principally in the European
market. Approximately 8,000 copies of the most recent Clinalfa
specialty catalog have been published. The Company's Clinalfa brand
product offering is produced under appropriate good manufacturing
practices ("GMP") which meet the requirements of government
regulations and its clinical research customers in this area.
Other Publications
In addition to its general and specialty catalogs, the Company utilizes its
internal staff in developing and distributing a variety of supporting
publications designed to highlight its new products and target specific market
segments with selected product offerings. These publications include:
o Biologics. The Calbiochem brand general biochemical and immunochemical
newsletter is published two to three times per year and is distributed
to the entire Calbiochem mailing list, including biochemists,
neurobiologists, biologists and immunologists. This broad- based
publication introduces new product offerings under the Calbiochem
brand (including inhibitors, enzymes and detergents) and also includes
updated scientific articles and references.
o Flagship Brochures. The Company's Flagship Brochures present the
complete product line of five areas within signal transduction that
the Company has singled out for special market emphasis, comprised of
protein kinases, calcium metabolism, G-proteins, nitric oxide and
protein phosphatases. The first of these brochures was introduced by
the Company in October 1995.
o Technical Bulletins. The Company maintains more than 50 Technical
Bulletins relating to Calbiochem brand products. These are two to six
page publications that focus on specific products and product lines,
including detergents, protease inhibitors, lipoproteins and
ionophores. These publications are used for targeted direct mailings
as well as for distribution at trade shows, scientific conferences and
exhibitions.
o Letters, Innovations and Technical Notes. These are an interrelated
trio of support publications for Novabiochem brand products and are
distributed to customers interested in peptide synthesis and
combinatorial chemistry. Letters is published two to three times per
year to inform customers of the Company's new and innovative products
being developed for use in their drug discovery programs. Each edition
features new linkers, resins and amino acid derivative products useful
for a variety of peptide and small molecule synthesis techniques.
Innovations is published four to six times per year and provides a
much more expansive description of the products introduced in Letters.
It includes procedures for new product use along with up-to-date
literature references. Novabiochem Technical Notes are released one or
two times per year and are based on the most recent techniques used in
solid phase peptide synthesis or solid phase organic synthesis.
Novabiochem Technical Notes contain detailed descriptions,
explanations and suggestions for using certain Novabiochem brand
products.
o Oncogene Research Products Publications. Oncogene Research Product
brand's New Product Guide is published one to two times per year and
is widely distributed to researchers studying cell cycle, cell
proliferation, apoptosis and signal transduction as well as to
Oncogene Research Products customers studying heart disease and
metastasis, tumor suppressor genes and neurosciences. A variety of
applications brochures and mailers focusing on the Oncogene Research
Products brand are distributed six to eight times per year, focusing
on various new and existing product portfolios applicable to select
market segments, including proteases, apoptosis kits, cdk1 and ELISAs.
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DEVELOPMENT OF NEW PRODUCTS
The Company conducts its research and development at its technology centers
in San Diego, California, Cambridge, Massachusetts and Laufelfingen,
Switzerland. The Company's research scientists internally develop new products,
source new products from third parties and refine manufacturing techniques for
existing products. The Company introduced over 1,100 new products in 1995
including over 700 products introduced as a result of the acquisition of the
Oncogene Research Products business and introduced in excess of 700 new
products in 1996. The Company's historical experience indicates that a
significant number of its products have relatively long life cycles, often in
excess of five years. The Company identifies potential new products from many
sources, including through customer input, its Technology Council and extensive
network of scientific advisers, review of selected scientific literature,
established relationships with research institutes and universities and
participation in industry trade shows.
Product introductions are developed and monitored by the Company and offered
under one of the Company's brand names and through one or more of its catalogs
and supporting publications. The following table illustrates both the breadth
of the Company's product offerings from its 1996- 1997 Calbiochem general
catalog published in the first quarter of 1996 and the extent to which products
not previously offered through this catalog were added.
1996-1997 CALBIOCHEM GENERAL CATALOG PRODUCT OFFERINGS
<TABLE>
<CAPTION>
TOTAL NUMBER PRODUCTS
PRODUCT CLASS OF PRODUCTS NEW TO CATALOG
------------- ----------- --------------
<S> <C> <C>
Amino Acids . . . . . . . . . . . . . . 62 --
Antibiotics . . . . . . . . . . . . . . 46 1
Antibodies (monoclonal and polyclonal) 470 245
Buffers . . . . . . . . . . . . . . . . 30 --
Carbohydrates . . . . . . . . . . . . . 57 --
Chromatography Reagents . . . . . . . . 7 --
Detergents . . . . . . . . . . . . . . 92 4
Dyes, Stains and Probes . . . . . . . . 68 11
Enzyme Inhibitors . . . . . . . . . . . 369 106
Enzyme Substrates . . . . . . . . . . . 98 19
Enzymes . . . . . . . . . . . . . . . . 204 29
Growth Factors and Cytokines . . . . . 56 17
Hormones and Steroids . . . . . . . . . 18 --
Immunochemicals . . . . . . . . . . . . 533 117
Ionophores and Channel Formers . . . . 40 12
Lipids and Phospholipids . . . . . . . 43 --
Nucleotides and Bases . . . . . . . . . 94 --
Neurochemicals . . . . . . . . . . . . 110 70
Neurotoxins . . . . . . . . . . . . . . 100 13
Organics and Inorganics . . . . . . . . 42 --
Peptides . . . . . . . . . . . . . . . 171 31
Plant Biology Reagents . . . . . . . . 13 --
Protein and Nucleic Acid Modification 35 5
Reagents . . . . . . . . . . . . . . .
Proteins and Derivatives . . . . . . . 147 47
Signal Transduction Reagents . . . . . 124 8
Vitamins and Coenzymes . . . . . . . . 20 --
Miscellaneous . . . . . . . . . . . . . 21 6
----- ---
Total . . . . . . . . . . . . 3,070 741
===== ===
</TABLE>
SALES AND DISTRIBUTION
Catalogs and Supporting Publications. The Company markets its products
directly to its customers through its catalogs and supporting publications. The
Company believes that the quality and presentation of its catalogs represent a
competitive advantage. The Company devotes significant resources to creating
and designing catalogs that have a high degree of scientific and technical
content and are, the Company believes, considerably more visually appealing
than those of its competitors. The Company's catalogs generally are extensively
indexed and cross referenced -- by application, product category and individual
product -- and contain a variety of color coded reference aids which are
designed to facilitate the ease with
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which a scientist can find the product needed to conduct his or her research.
In addition, new product offerings are extensively highlighted. Catalogs
generally contain detailed technical information concerning the catalog's
products, including current citations to scientific research papers in which
the products have been used, as well as background information regarding
focused areas of research in which various subgroups of research products may
be utilized. Catalogs are published for distribution in the United States with
pricing in U.S. dollars. In addition, a number of the Company's catalogs and
brochures are printed for foreign distribution with pricing in local
currencies.
The Company's marketing communications group utilizes in-house desktop
publishing systems in coordination with the Company's management information
systems and databases to assist in the production of camera-ready masters of
certain catalogs and publications. This enables the Company to revise and
reprint certain catalogs in 12 to 18 month cycles and to distribute other
publications more frequently. To further differentiate its publications from
those of many of its competitors, the Company has increasingly shifted to high
quality four color printing for its catalogs and brochures, and utilizes its
internal staff to significantly increase their graphic content.
The Company directly distributes its catalogs and supporting publications
using its proprietary database containing profiles of more than 100,000
research scientists and institutions. The Company believes that a substantial
portion of its revenue represents sales to repeat customers. During 1996, the
Company sold products to more than 8,000 accounts, with more than 75% of these
customers making purchases multiple times during the year. The Company also
selectively mails catalogs and other publications to potential customers,
information about whom is obtained from trade shows, responses to Company
advertisements, foreign distributors and sales representatives, and the
Company's home pages on the Internet. The Company also advertises its catalogs
in scientific journals, publicizes them at industry trade shows and other
scientific functions and utilizes its network of sales representatives,
distributors and industry contacts to attract additional potential customers
whose profiles can then be added to the Company's database.
Sales Offices and Customer Service Representatives. In addition to its San
Diego headquarters, the Company maintains sales and customer support offices in
Cambridge, Massachusetts, Switzerland, the United Kingdom, Germany, Australia
and Japan. The Company's staff of 22 customer service representatives receive
telephone orders directly from customers. The customer service representatives
utilize a computerized data- entry system which enables them to immediately
access detailed customer and product information, quote prices and check
product availability. The Company has the ability to process standing orders
and to schedule periodic shipments according to the needs of its customers.
Orders are also submitted by mail and fax. Standard payment terms are net 30
days, but the Company also accepts Visa, MasterCard and American Express. The
Company employs a limited sales force of seven individuals, principally in the
United States and Europe, and has a network of 50 independent foreign
distributors who resell the Company's products to their customers in selected
markets.
Technical Support. The Company employs a staff of 12 technical service
specialists throughout its worldwide locations who are available during
business hours to consult with research scientists concerning the use of the
Company's products. These service specialists (nine of which hold Ph.D.s) are
actively involved in the development and are knowledgeable about the use of the
Company's products. Technical support is also available through the Company's
foreign sales offices and distributors.
Internet. The Company maintains home pages on the Internet for the
Calbiochem, Novabiochem and Oncogene Research Products brands with information
about the Company and its products and catalogs. The Company believes that the
Internet may become an increasingly important channel of customer communication
and intends to further develop its Internet presence to keep pace with changes
in technology and the market for its products.
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<PAGE> 13
CUSTOMERS
During 1996, the Company sold products to over 8,000 accounts including
individual research scientists, institutions, companies and distributors
worldwide. No single account exceeded 10% of the Company's total sales for the
year ended December 31, 1996. The Company maintains extensive local databases
of current and potential customers which are utilized for targeted mailings of
catalogs and other publications. Selected customers of the Company include
research scientists at:
<TABLE>
<CAPTION>
GOVERNMENT AND OTHER
PHARMACEUTICAL BIOTECHNOLOGY ACADEMIC RESEARCH INSTITUTIONS
- -------------------- ------------------- ---------------------- --------------------------
<S> <C> <C> <C>
Abbott Laboratories Amgen Columbia University Dana Farber Cancer Institute
Eli Lilly and Company Biogen Incorporated Harvard University Food and Drug Administration
GlaxoWellcome Chiron Corporation Johns Hopkins University Massachusetts General Hospital
Merck & Company Genentech Incorporated University of California Mayo Clinic
Pfizer, Inc. Genetics Institute University of Michigan National Institutes of Health
SmithKline Beecham Genzyme University of The Scripps Research
Pennsylvania Institute
</TABLE>
Details regarding the Company's operations by geographic area are included in
Note 9 of Notes to Consolidated Financial Statements.
COLLABORATIONS
An important part of the Company's business is its many collaborations with
institutions and life sciences researchers. These collaborations range from
licensing and producing products discovered by a single research scientist to
joint marketing and distribution arrangements.
Amersham International plc. In connection with the Company's targeting of the
apoptosis niche research market, the Company entered into a distribution
agreement in March 1996 with Amersham International plc ("Amersham"), a U.K.
based health science company (total 1995 company-wide sales of over L.350
million) which, among other things, supplies products to the life sciences
research market. In connection with this distribution agreement, the Company's
Apoptosis specialty catalog is printed in two versions, one marketed
exclusively by the Company under the Calbiochem name and the other marketed
jointly under the Calbiochem and Amersham names. The Company believes that
Amersham's worldwide network of sales representatives with specialized
knowledge of the assays and kits markets will contribute to the Company's
future success in the apoptosis niche research market. In addition, the
distribution agreement contemplates that the Company and Amersham will enter
into further collaborative agreements under which the Company would add
Amersham-developed products to the Apoptosis specialty catalog, and the Company
and Amersham would jointly develop new products.
The Scripps Research Institute. In September 1995, the Company entered into a
sublicense agreement with The Scripps Research Institute which will allow it to
produce various enzymes, substrates and other products of interest to research
scientists working in the field of glycobiology, through the use of recombinant
technology. The availability of such products, which will be manufactured and
distributed by the Company on an exclusive basis in the research products
market, will be combined with additional products to provide research
scientists with cost-effective tools needed to study complex carbohydrates.
Recent publications have focused on the potential of glycobiology in the area
of pharmaceutical drug discovery research. The Company believes that its
offering of these important products through its general and a new specialty
catalog may establish the Company as a leader in the growing niche research
market of glycobiology.
Other. In addition to featuring products developed internally by the
Company's research and development staff, the Company offers products developed
through a wide range of sources. Accordingly, the identification of new and
useful products developed by others is an important part of its business.
Drawing on its connections in the industry and its multi-disciplined expertise,
the Company is constantly evaluating and searching out these products. Once
these products are identified, the Company will either license the technology
and distribution rights and produce the products in its own manufacturing
facilities or purchase manufactured products wholesale and distribute such
products to the Company's customers. In
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<PAGE> 14
either case, the end products will ultimately be sold under one of the
Company's brand names. Providers of these products generally will be individual
research scientists or specialty companies which lack adequate manufacturing
and distribution facilities. Through a collaboration with the Company, these
individuals and smaller companies achieve wider distribution of their products
while continuing to focus on developing innovative products.
TECHNOLOGY COUNCIL AND CONSULTING ARRANGEMENT
The Company has a Technology Council composed of a number of leading research
scientists in the areas of molecular biology, immunology, cell biology and
biochemistry. The primary purpose of the Technology Council is to provide
independent, external, scientific guidance to the Company, and assist in the
decision making process related to niche research market definition, areas of
product focus and development, and general trends in many areas of scientific
research. The Company's scientific and management staff consult with members of
the Technology Council frequently on an informal basis in the normal course of
operations to address current market trends, current trends in science, broad
strategic areas of Company, including its product offerings, and industry focus
and to review the Company's current view of the life sciences research market.
Each member of the Technology Council receives $500 for each formal Technology
Council meeting attended.
The members of the Company's Technology Council are:
William H. Beers, Ph.D., the Chairman of the Company's Technology Council,
has served as Senior Vice President and Chief Operating Officer of The Scripps
Research Institute since 1991. Prior to joining The Scripps Research Institute
in 1987 as a Member of the Departments of Cell Biology and Molecular Biology,
Dr. Beers was a Professor of Biology and Cell Biology at the New York
University Medical School for nine years. Dr. Beers also presently serves as
Director of the Foundation for Medical Research, Washington, D.C., Treasurer
and Member of the Board of Trustees for the Skaggs Institute for Research,
member of the Board of Scientific Advisors of Allegheny-Singer Research
Institute, Pittsburgh, trustee of National University, San Diego and Chairman
of the Torrey Pines Institute for Molecular Studies. Dr. Beers earned his Ph.D.
in Biochemistry and Pharmacology from Rockefeller University and obtained an
A.B. in Biochemical Sciences from Harvard University.
Dennis R. Burton, Ph.D., has served as a Member of the Departments of
Immunology and Molecular Biology at The Scripps Research Institute since 1991
and was a lecturer at Oxford University and the University of Sheffield for ten
years before joining The Scripps Research Institute. Dr. Burton earned his
Ph.D. in Physical Chemistry from University of Lund (Lund, Sweden) and obtained
a B.S. in Chemistry from Oxford University. Dr. Burton is the author of 140
published scientific papers.
Norton B. Gilula, Ph.D., has served as the Dean of Graduate Studies and the
Chairman of the Department of Cell Biology at The Scripps Research Institute
since 1991. Prior to joining The Scripps Research Institute as a Member of the
Department of Molecular Biology, Dr. Gilula was a Professor of Cell Biology at
Baylor College of Medicine for six years. Dr. Gilula presently is the
Editor-in-Chief of the Journal of Cell Biology, an editor of Current Opinion in
Cell Biology and is on the Scientific Advisory Board of the Wills Foundation.
Dr. Gilula earned his Ph.D. in Physiology from the University of California,
Berkeley and earned a B.A. and M.A. in Physiology and Chemistry from Southern
Illinois University. Dr. Gilula is the author of over 100 published scientific
papers.
Chi-Huey Wong, Ph.D., has served as Chairman of the Department of Chemistry
at The Scripps Research Institute since 1989. Before joining The Scripps
Research Institute as a Member of the Department of Chemistry in 1989, Dr. Wong
served as an Assistant, Associate and then full Professor of Chemistry at Texas
A&M University for seven years. Dr. Wong presently is the Editor-in-Chief of
the Journal of Bioorganic and Medicinal Chemistry and is a founding scientist
of Combichem, a provider of combinatorial chemistry products. Dr. Wong earned
his Ph.D. in Organic Chemistry from the
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<PAGE> 15
Massachusetts Institute of Technology ("MIT") and obtained his B.A. in
Chemistry and Biochemical Science and M.S. in Biochemical Science at the
National Taiwan University. Dr. Wong is the author of 247 published scientific
papers and one book and holds 34 patents.
When the Technology Council was formed in October 1993, each member of the
Technology Council, other than the Chairman, received options to purchase
11,829 shares of Common Stock at an exercise price of $.42 per share. At such
time, the Chairman of the Technology Council, Dr. Beers, received options to
purchase 23,659 shares at an exercise price of $.42 per share.
In addition to formal and informal consultations with the members of the
Technology Council, the Company has extensive contacts throughout the life
sciences research industry who also provide guidance and feedback regarding
many aspects of the Company's business. These contacts include senior
researchers at a number of institutions including Cold Spring Harbor
Laboratories, Dana Farber Cancer Institute, Harvard University, MIT, University
of California and the Salk Institute. The Company also utilizes consultants
with specific scientific expertise, particularly in the area of new product
development and trends in specific areas of scientific research.
The Company currently has a consulting agreement with Robert A. Weinberg,
Ph.D. Dr. Weinberg is a Professor of Biology at MIT and a Member of the
Whitehead Institute for Biomedical Research in Cambridge, Massachusetts. Dr.
Weinberg is world renowned for his research in cancer biology and cell cycle.
He has received thirty-two individual awards and honors during his career. In
addition to his research and academic duties at MIT, Dr. Weinberg serves on the
Board of Scientific Advisors to Hoffman-LaRoche, Inc., as an honorary Director
of the American Cancer Society, on the Scientific and Academic Advisory
Committee at the Weitzmann Institute of Science, as an Awards Assembly Member
of the General Motors Cancer Research Foundation and on the Research Advisory
Board, Massachusetts General Hospital. Dr. Weinberg is the author of 250
published scientific papers. During 1996, Dr. Weinberg provided guidance and
assistance to the Company, principally relating to the Oncogene Research
Products business, under a consulting agreement and received compensation
aggregating approximately $10,000.
MANUFACTURING AND QUALITY ASSURANCE
The Company has manufacturing facilities in San Diego, California, Cambridge,
Massachusetts and Laufelfingen, Switzerland. All products are distributed from
either the Company's North American distribution center in San Diego or the
Company's European distribution center in Nottingham, U.K. For the twelve-month
period ended December 31, 1996, the Company's level of total outstanding
product backorders averaged approximately $316,000, calculated by averaging
backorder amounts at each month end during the period. The Company ships
products in accordance with customer requests, generally next-day or second-day
delivery, using principally United Parcel Service and Federal Express. Based on
the Company's monthly shipping statistics, over 99% of customer orders are
accurately fulfilled.
The Company produces products through its internal manufacturing process and
selective sourcing of additional products that can be more cost effectively
included in the product offering by purchasing from outside suppliers. Initial
batches of externally sourced products may be subject to inspection by the
Company's quality control personnel, and subsequent purchases are monitored to
ensure consistent quality of supply. In substantially all cases, members of the
Company's scientific staff have physically visited the manufacturing facility
of suppliers from whom the Company purchases sourced product. In addition,
periodic inspections of supplier facilities may be performed in connection with
the Company's supplier management process. Based upon 1996 sales data,
approximately 52.3% of the Company's sales were derived from internally
manufactured products. The level of manufacturing content in individual
products produced internally varies depending upon the state of raw materials
purchased. In some cases, such as the production of peptides, internally
synthesized biochemicals and antibodies, assays and kits produced at the
Company's Cambridge, Massachusetts facility, the entire manufacturing process
is controlled by the Company. In other cases, it is more cost effective for the
Company to purchase materials in various states
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<PAGE> 16
of completion and provide "value-added" manufacturing processes such as
purification, lyophilization and subdivision/packaging prior to delivery to
customers.
The Company's manufacturing activities consist primarily of antibody
production, synthesis of chemical compounds, synthesis of peptides and amino
acids and assembly of assays and kits. In the case of certain products provided
primarily to pharmaceutical and diagnostic customers from the Company's Swiss
manufacturing facility, appropriate GMP manufacturing guidelines are adhered
to. In addition, the Swiss facility has received ISO 9001 certification of
policies and procedures utilized in the procurement, manufacturing and
distribution of products. The Company also maintains a central quality
assurance department in its San Diego headquarters, with the principal focus of
ensuring that quality processes are maintained worldwide which ensure
consistent, high quality product is delivered in connection with all product
offerings.
FULFILLMENT AND INTEGRATED INFORMATION SYSTEMS
The Company has a highly automated order fulfillment system capable of
delivering substantially all customer orders worldwide on a next-day basis. The
Company believes that this system enables the Company to compete with its
larger competitors and gives it a competitive advantage over its smaller
competitors, while at the same time making the Company an attractive
distribution outlet for these smaller companies.
The Company utilizes an Oracle-based relational database system to manage
substantially all operations of the Company's U.S. and international locations.
The Company's U.S., U.K., German and Swiss operations are part of a network
that is linked together through the use of leased phone lines with back-up
capabilities. The Company's information systems provide integrated on-line
automation of major business operations including purchasing, receiving,
production planning, inventory management, manufacturing, quality control,
order entry, shipping, sales analysis and all financial systems. This system
allows the Company to enter orders for any product brand from any of its
networked locations, and provides for invoicing of customers in any of the
currencies quoted in the various product catalogs. In addition, the Company has
an integrated software interface between the primary information system and the
computer software which organizes products to be picked from the automated
fulfillment system maintained at the Company's North American distribution
center in San Diego, California.
COMPETITION
The market for the Company's products is highly competitive, and the Company
expects competition to increase. Furthermore, although the life sciences
research products market continues to grow, its rate of growth in recent years
has been declining and may continue to decline. The Company competes with many
other life sciences research products suppliers, both larger and smaller than
the Company. Some of the Company's competitors, including two of its largest
competitors, Sigma-Aldrich Corporation ("Sigma-Aldrich") and Boehringer Mannheim
GmbH ("Boehringer"), offer a broad range of equipment, laboratory supplies and
products, including many of the research products offered by the Company. To the
extent that researchers exhibit loyalty to the supplier that first supplies them
with a particular research product, the Company's competitors may have an
advantage over the Company with respect to products first developed by such
competitors. In addition, many of the Company's competitors have significantly
greater research and development, marketing, financial and other resources than
the Company, and therefore represent and will continue to represent significant
competition in the Company's existing and future markets. Because of their size
and the breadth of their product offerings, certain of these companies have been
able to establish managed accounts by which, through a combination of direct
computer links and volume discounts, they seek to gain a disproportionate share
of orders for research products from a particular academic institution or
pharmaceutical or biotechnology company. Such managed accounts raise significant
competitive barriers for the Company. The Company currently benefits from its
participation in emerging niche research markets which, as they expand, may
attract the attention of the Company's competitors.
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<PAGE> 17
GOVERNMENT REGULATION
The Company is subject to governmental regulation under the Occupational
Safety and Health Act, the Environmental Protection Act, the Toxic Substances
Control Act, and other similar laws of general application, as to all of which
the Company believes itself to be in material compliance. The Company has in
the past been notified of minor violations of government and environmental
regulations. The Company has promptly corrected such violations, without any
material impact on the Company's operations. Any future violation of, and the
cost of compliance with, these laws and regulations could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Because of the nature of its operations and the use of hazardous substances
in its ongoing manufacturing and research and development activities, the
Company is subject to stringent federal, state and local laws, rules,
regulations and policies governing the use, generation, manufacturing, storage,
air emission, effluent discharge, handling and disposal of certain materials
and wastes. Prior to the Company's inception, its U.S. subsidiary, at the time
it was owned by its former owners, was involved in two separate incidents
related to the release of hazardous materials into the environment at a leased
facility which is no longer occupied by the Company. The Company believes from
a review of correspondence from various regulatory agencies that these
incidents were investigated and remediated by the U.S. subsidiary's former
owners. Although the Company believes it is in material compliance with all
applicable government and environmental laws, rules, regulations and policies,
there can be no assurance that the Company's business, financial condition and
results of operations will not be materially adversely affected by current or
future environmental laws, rules, regulations and policies or by liability
arising out of any past or future releases or discharges of materials that
could be hazardous.
The Company's products are generally sold for non-human research purposes and
do not subject the Company to the regulatory requirements of the U.S. Food and
Drug Administration (the "FDA"). In certain limited situations, the Company's
Clinalfa products are sold to U.S. customers involved in limited human clinical
research which requires that the Company's customer obtain FDA approval of an
Investigational New Drug application (IND). Products sold to such customers are
produced by the Company at its Swiss manufacturing facilities in material
compliance with appropriate GMPs. Clinalfa products supplied to non-U.S.
customers for similar human clinical research are also subject to applicable
regulatory requirements and production is also done in material compliance with
appropriate GMPs.
In the fall of 1996, the Company became aware of regulations requiring the
issuance of export licenses for the exportation of certain neurotoxins in its
product line. The products involved represent 30 of the Company's 7,800
products and accounted in each of the last three years for approximately
$150,000 or less in sales. Upon becoming aware of these regulations, the
Company immediately ceased the exportation of these toxins, began the process
of applying for the appropriate export licenses and made a voluntary self
disclosure to the U.S. Department of Commerce ("DOC") regarding its prior
exports of these products. The Company has advised the DOC that it will
cooperate fully in the ongoing investigation regarding these exports. The
Company may be subject to the payment of penalties for its failure to have
obtained such licenses in the past, but, based upon discussions with the DOC
and published reports regarding similar violations by other companies, the
Company does not believe that such penalties, if levied, will have a material
adverse effect on the Company.
INTELLECTUAL PROPERTY
Although the Company owns certain patents and licenses patents from others,
none of these patents individually, nor in the aggregate, are material to the
Company's operations. Due to the rapid pace of technological change in the
field of biotechnology, the degree of protection that a patent provides is
uncertain, and requires the Company to continually develop and seek out new
technologies. The Company has obtained the rights to products and technologies
under a number of license agreements with academic institutions, private and
public foundations, biotechnology companies and others. The Company intends to
continue its current practice of licensing technologies and products as a
supplement to its own internally
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developed innovations.
A number of the Company's products, including Oncogene Research Products
antibodies, are manufactured under license agreements which provide for payment
of royalties based upon the product's sales. As of December 31, 1996, the
Company had in excess of 175 license agreements which provided for royalty
payments generally ranging from 5% to 7% of net sales of such products. During
the years ended December 31, 1995 and 1996, the Company expensed an aggregate
of $112,000 and $323,000, respectively, in connection with cash royalties owed
pursuant to license agreements.
Because of the breadth of the Company's product offerings and ambiguities in
intellectual property law, the Company periodically receives in the ordinary
course of business notices of potential infringement of patents held by others.
Although the Company historically has been able to satisfactorily resolve such
claims and believes that any outstanding claims will be satisfactorily
resolved, there can be no assurance that the Company may not be forced to
discontinue the sale of one or more of its products, some or all of which could
be material. As the Company develops product offerings focused on certain niche
research markets, intellectual property rights of the Company or others related
to such markets may become increasingly important, and the Company's failure to
obtain and retain such rights may have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's significant registered trademarks are its Calbiochem,
Novabiochem and Clinalfa brand names. In connection with the Oncogene Research
Products acquisition, OSI granted the Company the right to use the phrase
"Oncogene Research Products" for a three-year period expiring in August 1998.
In January 1997, this period was extended until August 2010. All new Oncogene
Research Products promotional materials, including the Apoptosis specialty
catalog, and all packaged products now identify Oncogene Research Products as a
product line of Calbiochem.
HUMAN RESOURCES
As of December 31, 1996, the Company employed 195 persons on a full-time and
part-time basis, including 42 employees who hold Ph.D.s. None of the Company's
employees are covered by a collective bargaining agreement, and the Company
considers relations with its employees to be good.
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RISK FACTORS
Dependence on Research and Development Budgets and Government Research
Funding. The Company's customers include research scientists at pharmaceutical
and biotechnology companies, academic institutions and government and private
research laboratories. Fluctuations in the research and development budgets of
these companies and institutions can have a significant effect on the demand
for the Company's products. Such budgets are based on a wide variety of
factors including the resources available to make such expenditures, the
spending priorities among various types of research and the policies regarding
such expenditures during recessionary periods. Any decrease in life sciences
research and development expenditures by such companies and institutions could
have a material adverse effect on the Company's business, financial condition
and results of operations.
A significant portion of the Company's sales have been to research
scientists, universities, government research laboratories, private foundations
and other institutions whose funding is dependent on grants from government
agencies such as the U.S. National Institutes of Health ("NIH") and similar
domestic and international agencies. The funding associated with approved NIH
grants generally becomes available at particular times of the year, as
determined by the federal government, and may result in fluctuations in the
Company's operating results. Although research funding has increased during
the past several years, grants have, in the past, been frozen for extended
periods or have otherwise become unavailable to various institutions, sometimes
without advance notice. Furthermore, recent government proposals aiming to
reduce or eliminate budgetary deficits have included reduced allocations to the
NIH and the other government agencies that fund research and development
activities. If government funding, especially NIH grants, were to become
unavailable to researchers for any extended period of time or if overall
research funding were to decrease, there could be a material adverse effect on
the Company's business, financial condition and results of operations.
Risks Inherent in Growth, Expansion and Acquisition Strategy. The Company has
sought and will continue to seek growth in sales and profitability primarily
through the internal development and acquisition of new product lines,
additional customers and new businesses. A significant portion of the Company's
historical revenue growth is attributable to internal product development,
sourcing of third-party products and, more recently, from its acquisition of
the Oncogene Research Products business from Oncogene Science, Inc., a
biopharmaceutical company. The ability of the Company to achieve its expansion
objectives and to manage its growth effectively depends upon a variety of
factors, including (i) the ability to internally develop products, (ii) the
ability to identify and license products sourced from third parties, (iii) the
ability to successfully position and market its products, (iv) the ability to
identify and consummate attractive acquisitions and (v) the ability to
integrate new businesses, facilities and personnel into existing operations. If
the Company is unable to manage growth effectively, there could be a material
adverse effect on the Company's business, financial condition and results of
operations.
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The Company competes for acquisition and expansion opportunities with other
companies that have significantly greater financial and other resources than
those of the Company. There can be no assurance that suitable acquisition or
investment opportunities will be identified, consummated, or, if consummated,
integrated successfully and profitably into the Company's operations. Moreover,
there can be no assurance that the Company's historic rate of growth or
expansion will continue, or that further growth or expansion will result in
continued profitability.
Reliance on Niche Research Market Strategy. Key elements of the Company's
strategy include the targeting and penetration of emerging life sciences niche
research markets and the continued development of the niche research markets
currently served by the Company. If the Company is unable to successfully
target and penetrate these niche research markets or is unable to continue
developing the niche research markets currently served or if the Company's new
products are not accepted by research scientists, there could be a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, the Company currently benefits from its participation
in emerging niche research markets which, as they expand, may attract the
attention of the Company's competitors. Further, as these niche research
markets mature, products that were once innovative, thus commanding higher
margins, may become commodities.
Dependence on New Products; Rapid Technological Change. The life sciences
research products market is characterized by rapid technological change and
frequent product introductions. The Company's future success will depend, in
part, on its ability to develop and introduce, on a timely basis, products that
address the evolving needs of its customers. There can be no assurance that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of products. The Company has
experienced, and may in the future experience, delays in the development and
introduction of products, and there can be no assurance that the Company will
keep pace with the rapid rate of change in life sciences research, and will not
experience additional delays in the future. In addition, there can be no
assurance that new products will adequately meet the requirements of the
marketplace or achieve market acceptance. Factors affecting whether such
products will be accepted by the market include use of the product by research
scientists, citation of the product in published research, the timing of market
entry of the product relative to competitive products and general trends in
life sciences research. If the Company is unable, for technological or other
reasons, to develop and introduce products in a timely manner in response to
changing market environments or customer requirements, there could be a
material adverse effect on the Company's business, financial condition and
results of operations.
Dependence on Licensing as a Source of Products. Many of the Company's
products are manufactured or sold pursuant to license agreements under which
the Company pays royalties to the patent holder based upon a percentage of the
product's sales. There can be no assurance that the Company will be able to
continue to successfully identify new products developed by others, and if
identified, to negotiate license agreements on favorable terms. Additionally,
there can be no assurance that the Company will be able to renew any existing
license agreements upon their expiration. See "Business -- Intellectual
Property."
Highly Competitive Market. The market for the Company's products is highly
competitive, and the Company expects competition to increase. Furthermore,
although the life sciences research products market continues to grow, its rate
of growth in recent years has been declining and may continue to decline. The
Company competes with many other life sciences research products suppliers, both
larger and smaller than the Company. Some of the Company's competitors,
including two of its largest competitors, Sigma-Aldrich and Boehringer, offer a
broad range of equipment, laboratory supplies and other products, including many
of the research products offered by the Company. To the extent that researchers
exhibit loyalty to the supplier that first supplies them with a particular
research product, the Company's competitors may have an advantage over the
Company with respect to products first developed by such competitors. In
addition, many of the Company's competitors have significantly greater research
and development, marketing, financial and other resources than the Company, and
therefore represent and will continue to represent significant competition in
the Company's existing and future markets. Because of their size and the breadth
of their
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<PAGE> 21
product offerings, certain of these companies have been able to establish
managed accounts by which, through a combination of direct computer links and
volume discounts, they seek to gain a disproportionate share of orders for
research products from particular academic institutions or pharmaceutical or
biotechnology companies. Such managed accounts raise significant competitive
barriers for the Company. The Company currently benefits from its participation
in emerging niche research markets which, as they expand, may attract the
attention of the Company's competitors.
Reliance on Catalogs, Distributors and Direct Marketing Efforts; Limited
Sales Force. The Company sells its products principally through catalogs
distributed to research scientists and laboratories, and uses only a very
limited number of salespeople in certain of its markets. There can be no
assurance that the Company would be able to successfully establish other
methods of marketing and sales of its products should it become necessary or
desirable in the future. Additionally, the Company's catalogs are generally
reissued every 12 to 24 months and price adjustments between catalog
publication dates have historically been infrequent. A significant portion of
the Company's international sales are made through independent distributors
over which the Company has no control and who also represent products of other
companies. Additionally, the Company recently entered into a joint distribution
agreement relating to its Apoptosis specialty catalog. The loss of any of these
distribution methods could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Business."
Volatility of Bulk Sales Business. In addition to sales of its core products
in standard laboratory quantity sizes (generally ranging from 100 nanograms to
100 grams), the Company offers certain products in bulk quantities (generally
up to ten kilograms) at discounts from catalog prices. Bulk sales, which
represented 18.1% of net sales in 1996, are generally characterized as
relatively high dollar sales made to a limited number of customers. Thus, the
absence or presence of a bulk sale could have a material impact on quarterly
results. Furthermore, the Company's bulk sales business fluctuates more and is
less predictable than its core business, and the uncertain timing and
volatility of bulk sales has in the past and may continue in the future to
materially affect the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Significant Fluctuations in Quarterly Earnings. The Company's quarterly
operating results may vary significantly from quarter to quarter as a result of
a number of factors including new editions of existing catalogs, introduction
of additional specialty catalogs and bulk sales of the Company's products.
Other factors which may affect quarterly operating results include the timing
of the U.S. Government approval of the NIH budget, lower European and academic
sales during the summer months and various holiday breaks and fluctuations in
weather. The Company's current and planned expense levels are based in part
upon its expectations as to future revenues. Consequently, if revenues in a
particular quarter do not meet expectations, the Company may not be able to
adequately adjust operating expenses to compensate for the shortfall.
Operating results may therefore vary significantly from quarter to quarter and
will not necessarily be indicative of results in subsequent periods. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results."
Uncertainty of Future Operating Results. Although the Company has had net
income for the past two years, the Company incurred net losses for the period
from its inception (March 11, 1992) through December 31, 1992 and the years
ended December 31, 1993 and 1994. Future operating results will depend on many
factors, including demand for the Company's products, the levels and timing of
government and private sector funding of life sciences research and development
activities, the timing of the introduction of products and catalogs by the
Company or its competitors, and the Company's ability to control costs.
Furthermore, the Company's gross margins can be significantly affected by the
presence or absence of bulk sales during any particular period and quarterly
fluctuations in sales relative to operating expenses. There can be no assurance
that the Company will be able to grow in future periods or remain profitable.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Risks Relating to International Sales and Operations. Historically, product
sales to customers outside the United States have accounted for approximately
50% of the Company's net sales, and the Company
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<PAGE> 22
expects that international sales will continue to account for a significant
percentage of revenues in the future. International sales and operations may be
materially adversely affected by trade restrictions, changes in tariffs and
taxes, export license requirements, difficulties in staffing and managing
international operations, problems in establishing or managing distributor
relationships and general economic conditions. See "Business Government
Regulation."
A majority of the Company's sales are denominated in U.S. dollars, with the
balance denominated in foreign currencies. Additionally, the Company publishes
a number of its catalogs priced in foreign currencies and price adjustments
between catalog publication dates to reflect fluctuations in the value of
foreign currencies relative to the U.S. dollar have historically been
infrequent. Consequently, fluctuations in the value of foreign currencies
relative to the U.S. dollar 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."
Risk of Patent Infringement. Because of the breadth of the Company's product
offerings and ambiguities in intellectual property law, the Company
periodically receives in the ordinary course of business notices of potential
infringement of patents held by others. Although the Company historically has
been able to satisfactorily resolve such claims and believes that any
outstanding claims will be satisfactorily resolved, there can be no assurance
that the Company may not be forced to discontinue the sale of one or more of
its products, some or all of which could be material. As the Company develops
product offerings focused on certain niche research markets, intellectual
property rights of the Company or others related to such markets may become
increasingly important, and the Company's failure to obtain and retain such
rights may have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Intellectual Property."
Dependence on Key Personnel. The Company's future success depends in
significant part on the continued service of, and on the Company's continuing
ability to attract and retain, highly qualified technical, managerial and sales
personnel. Competition for such personnel is intense in the Company's industry
and geographic locations, and there can be no assurance that the Company will
be able to retain or attract such employees in the future. The loss of key
personnel or the inability to hire or retain qualified personnel could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company has entered into employment agreements with
Stelios B. Papadopoulos, its Chairman, Chief Executive Officer and President,
and Ben Matzilevich, its Vice President, Market Development -- Niche
Applications.
Risk Relating to the Influence of the Internet on Marketing and Catalogs. The
Internet has begun to change marketing patterns in a wide variety of
industries. The high degree of personal computer usage within scientific
research organizations may lead to entirely new methods of marketing and sales
of research products. While the Company has established home pages on the
Internet for the Calbiochem, Novabiochem and Oncogene Research Products brands,
the Company may not be able to keep pace with the rate of change in its markets
brought about by the Internet and may invest in catalogs or Internet-based
projects which future changes may render obsolete.
Compliance with Government and Environmental Regulations. The Company is
subject to various forms of government regulations, including environmental and
safety laws and regulations and laws governing use and storage of hazardous
materials. The Company has in the past been notified of minor violations of
government and environmental regulations. The Company has promptly corrected
such violations without any material impact on the Company's operations. Any
future violation of, and the cost of compliance with, these laws and
regulations could have a material adverse effect on the Company's business,
financial condition and results of operations.
Because of the nature of its operations and the use of hazardous substances
in its ongoing manufacturing and research and development activities, the
Company is subject to stringent federal, state and local laws, rules,
regulations and policies governing the use, generation, manufacturing, storage,
air
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<PAGE> 23
emission, effluent discharge, handling and disposal of certain materials and
wastes. Prior to the Company's inception, its U.S. subsidiary, at the time it
was owned by its former owners, was involved in two separate incidents related
to the release of hazardous materials into the environment at a leased facility
which is no longer occupied by the Company. The Company believes from a review
of correspondence from various regulatory agencies that these incidents were
investigated and remediated by the U.S. subsidiary's former owners. Although
the Company believes it is in material compliance with all applicable
government and environmental laws, rules, regulations, and policies, there can
be no assurance that the Company's business, financial condition and results of
operations will not be materially adversely affected by current or future
environmental laws, rules, regulations and policies or by liability arising out
of any past or future releases or discharges of materials that could be
hazardous. See "Business -- Government Regulation."
Product Liability Risk; Limited Insurance Coverage. Although the Company does
not sell products intended for use in humans, or, with the exception of its
Clinalfa products, sell products intended for use in human clinical trials, the
Company's business could expose it to potential liability risks. The Company
currently has only limited product liability insurance, and there can be no
assurance that it will be able to maintain such insurance or obtain additional
insurance on acceptable terms or that insurance will provide adequate coverage
against potential liabilities. A successful product liability claim or a series
of claims brought against the Company in excess of its insurance coverage
limits could have a material adverse effect on the Company's business,
financial condition and results of operations.
Holding Company Structure. The Company is a holding company, the principal
assets of which are the capital stock of its subsidiaries, and has no
independent means of generating operating revenues. As a holding company, the
Company depends on dividends and other permitted payments from its
subsidiaries, including its international subsidiaries, to meet its cash needs.
The Company maintains cash balances at its various subsidiaries adequate to
support local operations. The amount of foreign-sourced earnings to be
repatriated to the United States is determined based upon foreign entity
capitalization, local cash needs, local and U.S. tax implications and
requirements for cash in the U.S. operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Control by Principal Stockholders. The Company's principal
stockholders, Warburg, Pincus Investors, L.P. ("Warburg") and ABS MB (C-N)
Limited Partnership ("ABS") beneficially owned approximately 61.2% of the
Company's Common Stock, par value $.01 per share (the "Common Stock"), as of
February 28, 1997. Because of such ownership, these stockholders effectively
control the election of all members of the Board of Directors and determine all
corporate actions. Additionally, pursuant to an agreement with the Company,
Warburg and ABS each have certain rights to nominate directors as long as they
continue to own specified percentages of the outstanding shares of Common
Stock.
Anti-Takeover Provisions. Under the Company's Amended and Restated Certificate
of Incorporation (the "Certificate of Incorporation"), the Company's Board of
Directors has the authority to issue up to 5,000,000 shares of Preferred Stock
and to determine the price, rights, preferences and privileges of those shares
without any further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue shares of Preferred Stock. The Company is also subject
to the provisions of Section 203 of the Delaware General Corporation Law, an
anti-takeover law. Additionally, the Company has entered into severance
arrangements with each of its executive officers which provide, among other
things, for severance payments if, within 90 days of a "change in control" of
the Company (as defined in the applicable agreements), the executive's
employment is terminated other than for cause or the executive resigns. Such
arrangements could have an anti-takeover effect.
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<PAGE> 24
ITEM 2. PROPERTIES
The Company leases approximately 60,000 square feet of space in San Diego,
California, for use as its corporate headquarters, North American distribution
center and technology center (including manufacturing facilities) for the
Calbiochem brand. This lease expires in June 2008 and may be renewed for two
five-year terms at the option of the Company.
The Company also leases approximately 10,000 square feet of space in
Cambridge, Massachusetts for use as a technology center (including
manufacturing facilities) for the Oncogene Research Products brand. Such space
is subleased from OSI pursuant to a sublease agreement expiring in August 1998.
The sublease may be renewed, at the Company's option, for additional one-year
terms through 2003. In connection with the OSI sublease, the Company entered
into a Shared Services Agreement which provides that OSI will share certain
building facilities with the Company, in exchange for the Company's
contributing to the costs of such shared facilities. The Company also leases
approximately 3,000 square feet of additional laboratory space in Cambridge
under a three-year lease.
The Company leases approximately 7,500 square feet of space in Nottingham,
U.K., for use as its European distribution center and a sales office under a
lease expiring in February 2009. The Company leases approximately 2,100 square
meters of space in Laufelfingen, Switzerland. The Novabiochem brand technology
center (including manufacturing facilities) occupies 1,500 square meters of this
space under a lease expiring in June 2004. The remaining approximately 600
square meters has been unoccupied since the restructuring of the Company's Swiss
operations in 1993, and is under lease until June 2000. The Company also rents
space for sales offices in Australia, Japan and Germany on a short-term basis.
The Company believes that its properties are generally in good condition, are
well maintained, and are suitable and adequate to carry on its business.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 1, 1996, the holders of a majority of the shares of the Company's
Common Stock, Series A Convertible Preferred Stock, par value $1.00 per share
(the "Series A Convertible Preferred Stock"), and Series B Preferred Stock, par
value $1.00 per share (the "Series B Preferred Stock"), acted by written
consent to:
(i) approve the amendment and restatement of the Company's certificate of
incorporation to remove all references to and provisions relating to the Series
A Convertible Preferred Stock and Series B Preferred Stock and to decrease the
Company's authorized capital stock to reflect the removal of the shares of
Series A Convertible Preferred Stock and Series B Preferred Stock from the
Company's capitalization; and the filing of such amended and restated
certificate of incorporation following the consummation of the Company's initial
public offering of Common Stock, the conversion of the Series A Convertible
Preferred Stock to Class A Common Stock and the exchange of the Series B
Preferred Stock for Common Stock; and
(ii) elect Frederick L. Bryant, Joseph P. Landy, S. Joshua Lewis, Robert E.
McGill, III and Stelios B. Papadopoulos to the Company's Board of Directors to
hold office until the next annual meeting of the Company's stockholders and
until their successors are duly elected and qualified.
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<PAGE> 25
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information with respect to market information, holders and dividends is
incorporated by reference from the information under the captions "Stock
Listing" and "Price Range of Common Stock" on the inside back cover page of the
Registrant's 1996 Annual Report to Stockholders (the "1996 Annual Report"). As
of March 25, 1997, there were approximately 600 beneficial owners of the
Company's Common Stock.
The following information is furnished with regard to all securities sold by
the Registrant during the fiscal year ended December 31, 1996 which were not
registered under the Securities Act. Amounts have been restated to reflect a
2.36585-for-one stock split effected by the Registrant in July 1996. These
transactions were private transactions not involving a public offering and were
exempt from the registration provisions of the Securities Act pursuant to
Section 4(2) thereof. All transactions did not involve an underwriter and
certificates for shares of Common Stock issued bear a restrictive legend
permitting the transfer thereof only upon registration or an exemption
therefrom under the Securities Act.
On January 31, 1996, the Registrant sold 28,390 shares of Common Stock for
$3.38 per share to an executive officer.
On October 2, 1996, the Registrant issued 1,435,424 shares of Common Stock to
the holders of its Series B Preferred Stock (including certain executive
officers) in exchange for all 179,428 outstanding shares of Series B Preferred
Stock.
On October 2, 1996, the Registrant issued 788,814 shares of its Class A
Common Stock pursuant to the conversion of all 4,001 outstanding shares of its
Series A Convertible Preferred Stock by the holder of the Series A Convertible
Preferred Stock in accordance with its terms. Each share of Class A Common
Stock is convertible into one share of Common Stock at the election of the
holder, subject to certain terms and conditions.
On December 11, 1996, the Registrant issued 788,814 shares of Common Stock
pursuant to the conversion of all 788,814 shares of its outstanding Class A
Common Stock by the holder of the Class A Common Stock in accordance with its
terms.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Incorporated by reference from page 13 of the 1996 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated by reference from pages 14 through 19, inclusive, of the 1996
Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements and Notes thereto as of
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996, appearing on pages 20 to 31, inclusive, of the 1996 Annual
Report together with the report thereon of Ernst & Young LLP, dated February
21, 1997, appearing on page 32 thereof are incorporated by reference in this
Annual Report on Form 10-K.
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<PAGE> 26
Selected quarterly financial data is incorporated by reference from the
information under the caption "Quarterly Results" on page 18 of the 1996 Annual
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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<PAGE> 27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the Company's directors and executive officers is
incorporated by reference from the information under the captions "Nominees for
Election as Directors," "Executive Officers" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Registrant's Proxy Statement for its
1997 Annual Meeting of Stockholders (the "1997 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to Executive Compensation is incorporated by
reference to the information under the caption "Executive Compensation,"
including "Summary Compensation Table," "Option Grants During Year Ended
December 31, 1996," "Aggregated 1996 Option Exercises and Fiscal Year-End
Option Values," "Employment Agreements," "Compensation of Directors" and
"Compensation Committee Interlocks and Insider Participation" but excluding
"Compensation Committee Report on Executive Compensation" and "Comparative
Stock Price Performance Graph" in the 1997 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to Security Ownership of Certain Beneficial Owners
and Management is incorporated by reference to the information under the
caption "Security Ownership of Certain Beneficial Owners and Management" in the
1997 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to Certain Relationships and Related Transactions is
incorporated by reference to the information under the caption "Certain
Transactions" in the 1997 Proxy Statement.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)
1. Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and 1996
Consolidated Statements of Operations for each of the three years in the
period ended December 31, 1996
Consolidated Statements of Stockholders' Equity (Deficit) for each of the
three years in the period ended December 31, 1996
Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 1996
Notes to Consolidated Financial Statements
Report of Independent Auditors
2. Schedules:
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are not required.
3. Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
2(a)* Asset Purchase Agreement, dated as of June 26, 1995, by and among
Oncogene Science, Inc., Calbiochem-Novabiochem Corporation and Calbiochem-
Novabiochem International Inc.
3(a)** Amended and Restated Certificate of Incorporation of the
Registrant.
3(b)** Amended and Restated By-Laws of the Registrant.
4* Specimen of Registrant's Common Stock certificate.
10(a)* Agreement, dated as of March 1996, by and between Calbiochem-
Novabiochem International, Inc. and Amersham International plc.
10(b)* Agreement, dated as of August 29, 1996, by and among CN
Biosciences, Inc., Warburg, Pincus Investors, L.P., ABS MB (C-N) Limited
Partnership, Stelios B. Papadopoulos, John T. Snow and Ben Matzilevich.
10(c)(i)* Commercial Lease, dated as of February 1, 1992, between LMP
Properties, Ltd. and Calbiochem Corporation.
10(c)(ii)* First Amendment, dated as of April 1, 1992, to Commercial Lease,
dated as of February 1, 1992, between LMP Properties, Ltd. and Calbiochem
Corporation.
10(c)(iii)* Second Amendment, dated as of September 14, 1992, to Commercial
Lease, dated as of February 1, 1992, between LMP Properties, Ltd.
and Calbiochem Corporation.
10(c)(iv)* Third Amendment, dated as of March 30, 1993, to Commercial Lease,
dated as of February 1, 1992, between LMP Properties, Ltd. and
Calbiochem Corporation.
10(d)* Sublease Agreement, dated as of August 2, 1995, by and between
Oncogene Science, Inc. and Calbiochem-Novabiochem Corporation.
10(e)* Sublease Agreement, dated as of July 1996, by and between
Calbiochem-Novabiochem Corporation and DataWorks Corporation.
10(f)(i)* Registration Rights Agreement, dated as of March 13, 1992, by and
among Calbiochem-Novabiochem International, Inc. and each of the
signatories thereto.
10(f)(ii)* Amendment Agreement, dated as of January 4, 1993, among Warburg,
Pincus Investors, L.P., ABS MB (C-N) Limited Partnership, Richard Slansky,
John T. Snow, Georges Chappuis, Calbiochem-Novabiochem International, Inc.
and Stelios B. Papadopoulos.
10(g)(i)* Shared Services Agreement, dated as of August 2, 1995, by and
between Oncogene Science, Inc. and Calbiochem-Novabiochem Corporation.
10(g)(ii)* Trademark License Agreement, dated as of August 2, 1995, by and
between Oncogene Science, Inc. and Calbiochem-Novabiochem Corporation.
10(g)(iii)* Sublicense Agreement, dated as of August 2, 1995, by and between
Oncogene Science, Inc. and Calbiochem-Novabiochem Corporation.
10(g)(iv)* Shared Intellectual Property License Agreement, dated as of August
2, 1995, by and between Oncogene Science, Inc. and Calbiochem-Novabiochem
Corporation.
10(g)(v) Letter Agreement, dated January 21, 1997, by and between Oncogene
Science, Inc. and Calbiochem-Novabiochem Corporation.
10(h)* Letter Agreement, dated June 9, 1995, by and between Calbiochem-
Novabiochem International, Inc. and Richard B. Slansky.
</TABLE>
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<PAGE> 29
<TABLE>
<S> <C>
10(i)* Form of Director Indemnification Agreement.
10(j)* Form of Officer Indemnification Agreement.
10(k)# CN Biosciences, Inc. Second Amended and Restated 1992 Stock
Option Plan, including Form of Incentive Stock Option Agreement
and Form of Non-Qualified Stock Option Agreement.
10(l)(i)*# Employment Agreement, dated as of January 1, 1996, between
Calbiochem-Novabiochem International, Inc. and Stelios B.
Papadopoulos.
10(l)(ii)# Amendment to Employment Agreement, dated as of February 27, 1997, by
and between CN Biosciences, Inc. and Stelios B. Papadopoulos.
10(m)(i)*# Employment Agreement, dated as of February 23, 1996, between
Calbiochem-Novabiochem International, Inc. and Ben Matzilevich.
10(m)(ii)*# Secured Recourse Promissory Note, dated January 31, 1996, issued to
Calbiochem-Novabiochem International, Inc. by Ben Matzilevich.
10(m)(iii)*# Restricted Stock Purchase Agreement, dated as of January 31, 1996,
between Calbiochem-Novabiochem International, Inc. and Ben Matzilevich.
10(m)(iv)*# Loan and Pledge Agreement, dated as of January 31, 1996, by and
between Calbiochem-Novabiochem International, Inc. and Ben Matzilevich.
10(m)(v)# Severance Agreement, dated as of February 27, 1997, by and between
CN Biosciences, Inc. and James G. Stewart.
10(m)(vi)# Severance Agreement, dated as of February 27, 1997, by and between
CN Biosciences, Inc. and Douglas J. Greenwold.
10(m)(vii)# Severance Agreement, dated as of Feburary 27, 1997, by and between
CN Biosciences, Inc. and John T. Snow.
10(m)(viii)# Amendment to Employment Agreement, dated as of February 27, 1997, by
and between CN Biosciences, Inc. and Ben Matzilevich.
10(n)(i)* Loan and Security Agreement, dated July 28, 1995 (including
schedule), by and between Calbiochem-Novabiochem Corporation and
Silicon Valley Bank.
10(n)(ii)* Pledge Agreement, dated July 28, 1995, by and between Calbiochem-
Novabiochem Corporation and Silicon Valley Bank.
10(n)(iii)* Collateral Assignment, Patent Mortgage and Security Agreement,
dated July 28, 1995, by and between Calbiochem-Novabiochem Corporation
and Silicon Valley Bank.
10(n)(iv)* Security Agreement, dated July 28, 1995, by and between Calbiochem-
Novabiochem International, Inc. and Silicon Valley Bank.
10(n)(v)* Pledge Agreement, dated July 28, 1995, by and between Calbiochem-
Novabiochem International, Inc. and Silicon Valley Bank.
10(n)(vi)* Cross-Corporate Continuing Guaranty, dated July 28, 1995, by and
between Calbiochem-Novabiochem International, Inc. and Silicon
Valley Bank.
10(n)(vii)* Pledge Agreement, dated July 27, 1995, by and between Calbiochem-
Novabiochem AG and Silicon Valley Bank.
10(n)(viii)* Cross-Corporate Continuing Guaranty, dated July 28, 1995, by and
between Calbiochem-Novabiochem AG and Silicon Valley Bank.
10(n)(ix)* Subordination Agreement, dated July 28, 1995, by and among
Calbiochem-Novabiochem Corporation, Calbiochem-Novabiochem
International, Inc. and Silicon Valley Bank.
10(n)(x)* Antidilution Agreement, dated July 28, 1995, by and between
Calbiochem-Novabiochem International, Inc. and Silicon Valley Bank.
10(n)(xi)* Warrant to Purchase Stock, dated July 28, 1995, by and between
Calbiochem-Novabiochem International, Inc. and Silicon Valley Bank.
10(n)(xii)* Amendment to Loan Agreement, dated November 22, 1995, by and
between Silicon Valley Bank and Calbiochem-Novabiochem Corporation.
10(n)(xiii)* Amendment to Loan Agreement, dated January 24, 1996, by and between
Silicon Valley Bank and Calbiochem-Novabiochem Corporation.
10(n)(xiv)* Amendment to Loan Agreement, dated June 27, 1996, by and between
Silicon Valley Bank and Calbiochem-Novabiochem Corporation.
10(n)(xv)* Schedule to Loan and Security Agreement, dated June 27, 1996, by
and between Silicon Valley Bank and Calbiochem-Novabiochem Corporation.
10(n)(xvi)** Letter Agreement, dated September 30, 1996, by and between
Calbiochem-Novabiochem Corporation, CN Biosciences, Inc.,
Calbiochem-Novabiochem AG and Silicon Valley Bank.
10(n)(xvii)** Amendment to Loan Agreement, dated September 30, 1996, between
Calbiochem-Novabiochem Corporation and Silicon Valley Bank.
10(n)(xviii)** Amendment to Loan Agreement, dated October 2, 1996, between
Calbiochem-Novabiochem Corporation and Silicon Valley Bank.
10(o)(i)* Real Property Leasing Contract, dated February 6, 1984, between
LISCA Leasing AG and Calbiochem-Novabiochem AG (formerly Novabiochem AG),
as amended on January 25, 1990, November 9, 1993 and July 5, 1994.
10(o)(ii)* Lease Contract, dated April 3, 1990, between Balit AG and
Calbiochem-Novabiochem AG (formerly Novabiochem AG, as successor by
merger to Protogen AG)(together with Addendum No. 1), as amended by Letter
Agreement, dated January 10, 1992.
</TABLE>
29
<PAGE> 30
<TABLE>
<S> <C>
10(p)* Lease, dated February 1994, between Wilson Bowden Properties
Limited and Calbiochem-Novabiochem (U.K.) Limited.
10(q)* Consulting Agreement, dated March 26, 1996, between Calbiochem-
Novabiochem Corporation and Robert A. Weinberg, Ph.D.
10(r)* Letter Agreement, dated November 11, 1993, between Calbiochem-
Novabiochem International, Inc. and Doug Greenwold.
10(s)* Letter Agreement, dated July 15, 1994, between Calbiochem-
Novabiochem International, Inc. and Dr. John T. Snow.
10(t)* Letter Agreement, dated May 26, 1995, between Calbiochem-
Novabiochem International, Inc. and James G. Stewart.
10(u)* Consulting Arrangement, dated October 3, 1995, between Calbiochem-
Novabiochem International, Inc. and Robert E. McGill, III.
11+ Computation of Earnings per Share.
13 Portions of 1996 Annual Report to Stockholders
21* Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP.
27+ Financial Data Schedule.
</TABLE>
----------
* Incorporated by reference from the Registrant's Registration
Statement on Form S-1 (Registration No. 333-8335).
** Incorporated by reference from the Registrant's Form 10-Q for the
quarterly period ended September 30, 1996 (File No. 000-21281).
+ Incorporated by reference from the Registrant's Registration
Statement on form S-1 (Registration No. 333-22711).
# Indicates management contract or compensatory plan or arrangement
required to be filed pursuant to item 14(c) of this report.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Registrant during the three months
ended December 31, 1996.
30
<PAGE> 31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CN BIOSCIENCES, INC.
By: /s/ JAMES G. STEWART
-------------------------------
James G. Stewart
Chief Financial Officer
Date: March 26, 1997
Pursuant to the requirement of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ STELIOS B. PAPADOPOULOS Chairman of the Board of Directors, March 26, 1997
----------------------------- Chief Executive Officer and
Stelios B. Papadopoulos President (Principal executive
officer)
/s/ JAMES G. STEWART Vice President, Chief Financial March 26, 1997
- ------------------------------ Officer and Secretary (Principal
James G. Stewart financial and accounting officer)
/s/ RICHARD A. LERNER Director March 26, 1997
- ------------------------------
Richard A. Lerner
/s/ JOSEPH P. LANDY Director March 26, 1997
- ------------------------------
Joseph P. Landy
/s/ S. JOSHUA LEWIS Director March 26, 1997
-----------------------------
S. Joshua Lewis
/s/ ROBERT E. MCGILL, III Director March 26, 1997
-------------------------
Robert E. McGill, III
</TABLE>
31
<PAGE> 32
CN BIOSCIENCES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
ADDITIONS
----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS PERIOD
----------- --------- ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Deducted from receivables:
Allowance for doubtful accounts
Year ended December 31, 1994 . $ 372 $ 217 $ 49 $ 49 $ 589
Year ended December 31, 1995 . 589 (129) 51 39 472
Year ended December 31, 1996 . 472 10 (41) 100 341
Deducted from inventories:
Reserve for excess and obsolete
inventory 3,865 192 379 613 3,823
Year ended December 31, 1994 .
Year ended December 31, 1995 . 3,823 317 332 555 3,917
Year ended December 31, 1996 . 3,917 330 (195) 352 3,700
</TABLE>
__________
(1) Represents amounts charged to foreign currency translation adjustment.
32
<PAGE> 33
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- --------
<S> <C>
2(a)* Asset Purchase Agreement, dated as of June 26, 1995, by and among
Oncogene Science, Inc., Calbiochem-Novabiochem Corporation and
Calbiochem-Novabiochem International Inc.
3(a)** Amended and Restated Certificate of Incorporation of the
Registrant.
3(b)** Amended and Restated By-Laws of the Registrant.
4* Specimen of Registrant's Common Stock certificate.
10(a)* Agreement, dated as of March 1996, by and between Calbiochem-
Novabiochem International, Inc. and Amersham International plc.
10(b)* Agreement, dated as of August 29, 1996, by and among CN
Biosciences, Inc., Warburg, Pincus Investors, L.P., ABS MB
(C-N) Limited Partnership, Stelios B. Papadopoulos, John T. Snow
and Ben Matzilevich.
10(c)(i)* Commercial Lease, dated as of February 1, 1992, between LMP
Properties, Ltd. and Calbiochem Corporation.
10(c)(ii)* First Amendment, dated as of April 1, 1992, to Commercial Lease,
dated as of February 1, 1992, between LMP Properties, Ltd. and
Calbiochem Corporation.
10(c)(iii)* Second Amendment, dated as of September 14, 1992, to Commercial
Lease, dated as of February 1, 1992, between LMP Properties, Ltd.
and Calbiochem Corporation.
10(c)(iv)* Third Amendment, dated as of March 30, 1993, to Commercial Lease,
dated as of February 1, 1992, between LMP Properties, Ltd. and Calbiochem
Corporation.
10(d)* Sublease Agreement, dated as of August 2, 1995, by and between
Oncogene Science, Inc. and Calbiochem-Novabiochem Corporation.
10(e)* Sublease Agreement, dated as of July 1996, by and between
Calbiochem-Novabiochem Corporation and DataWorks Corporation.
10(f)(i)* Registration Rights Agreement, dated as of March 13, 1992, by and
among Calbiochem-Novabiochem International, Inc. and each of the
signatories thereto.
10(f)(ii)* Amendment Agreement, dated as of January 4, 1993, among Warburg,
Pincus Investors, L.P., ABS MB (C-N) Limited Partnership, Richard
Slansky, John T. Snow, Georges Chappuis, Calbiochem-Novabiochem
International, Inc. and Stelios B. Papadopoulos.
10(g)(i)* Shared Services Agreement, dated as of August 2, 1995, by and
between Oncogene Science, Inc. and Calbiochem-Novabiochem Corporation.
10(g)(ii)* Trademark License Agreement, dated as of August 2, 1995, by and
between Oncogene Science, Inc. and Calbiochem-Novabiochem Corporation.
10(g)(iii)* Sublicense Agreement, dated as of August 2, 1995, by and between
Oncogene Science, Inc. and Calbiochem-Novabiochem Corporation.
10(g)(iv)* Shared Intellectual Property License Agreement, dated as of August
2, 1995, by and between Oncogene Science, Inc. and Calbiochem-Novabiochem
Corporation.
10(g)(v) Letter Agreement, dated January 21, 1997, by and between Oncogene
Science, Inc. and Calbiochem-Novabiochem Corporation.
10(h)* Letter Agreement, dated June 9, 1995, by and between Calbiochem-
Novabiochem International, Inc. and Richard B. Slansky.
10(i)* Form of Director Indemnification Agreement.
10(j)* Form of Officer Indemnification Agreement.
10(k)# CN Biosciences, Inc. Second Amended and Restated 1992 Stock
Option Plan, including Form of Incentive Stock Option
Agreement and Form of Non-Qualified Stock Option Agreement.
10(l)(i)*# Employment Agreement, dated as of January 1, 1996, between
Calbiochem-Novabiochem International, Inc. and Stelios B.
Papadopoulos.
10(l)(ii)# Amendment to Employment Agreement, dated as of Feburary 27, 1997, by
and between CN Biosciences, Inc. and Stelios B. Papadopoulos.
10(m)(i)*# Employment Agreement, dated as of February 23, 1996, between
Calbiochem-Novabiochem International, Inc. and Ben Matzilevich.
10(m)(ii)*# Secured Recourse Promissory Note, dated January 31, 1996, issued to
Calbiochem-Novabiochem International, Inc. by Ben Matzilevich.
10(m)(iii)*# Restricted Stock Purchase Agreement, dated as of January 31, 1996,
between Calbiochem-Novabiochem International, Inc. and Ben Matzilevich.
10(m)(iv)*# Loan and Pledge Agreement, dated as of January 31, 1996 by and
between Calbiochem-Novabiochem International, Inc. and Ben Matzilevich.
10(m)(v)# Severance Agreement, dated as of Feburary 27, 1997, by and between
CN Biosciences, Inc. and James G. Stewart.
10(m)(vi)# Severance Agreement, dated as of Feburary 27, 1997, by and between
CN Biosciences, Inc. and Douglas J. Greenwold.
10(m)(vii)# Severance Agreement, dated as of Feburary 27, 1997, by and between
CN Biosciences, Inc. and John T. Snow.
10(m)(viii)# Amendment to Employment Agreement, dated as of Feburary 27, 1997, by
and between CN Biosciences, Inc. and Ben Matzilevich.
</TABLE>
33
<PAGE> 34
<TABLE>
<S> <C>
10(n)(i)* Loan and Security Agreement, dated July 28, 1995 (including
schedule), by and between Calbiochem-Novabiochem Corporation and
Silicon Valley Bank.
10(n)(ii)* Pledge Agreement, dated July 28, 1995, by and between Calbiochem-
Novabiochem Corporation and Silicon Valley Bank.
10(n)(iii)* Collateral Assignment, Patent Mortgage and Security Agreement,
dated July 28, 1995, by and between Calbiochem-Novabiochem Corporation
and Silicon Valley Bank.
10(n)(iv)* Security Agreement, dated July 28, 1995, by and between Calbiochem-
Novabiochem International, Inc. and Silicon Valley Bank.
10(n)(v)* Pledge Agreement, dated July 28, 1995, by and between Calbiochem-
Novabiochem International, Inc. and Silicon Valley Bank.
10(n)(vi)* Cross-Corporate Continuing Guaranty, dated July 28, 1995, by and
between Calbiochem-Novabiochem International, Inc. and Silicon
Valley Bank.
10(n)(vii)* Pledge Agreement, dated July 27, 1995, by and between Calbiochem-
Novabiochem AG and Silicon Valley Bank.
10(n)(viii)* Cross-Corporate Continuing Guaranty, dated July 28, 1995, by and
between Calbiochem-Novabiochem AG and Silicon Valley Bank.
10(n)(ix)* Subordination Agreement, dated July 28, 1995, by and among
Calbiochem-Novabiochem Corporation, Calbiochem-Novabiochem
International, Inc. and Silicon Valley Bank.
10(n)(x)* Antidilution Agreement, dated July 28, 1995, by and between
Calbiochem-Novabiochem International, Inc. and Silicon Valley Bank.
10(n)(xi)* Warrant to Purchase Stock, dated July 28, 1995, by and between
Calbiochem-Novabiochem International, Inc. and Silicon Valley Bank.
10(n)(xii)* Amendment to Loan Agreement, dated November 22, 1995, by and
between Silicon Valley Bank and Calbiochem-Novabiochem Corporation.
10(n)(xiii)* Amendment to Loan Agreement, dated January 24, 1996, by and between
Silicon Valley Bank and Calbiochem-Novabiochem Corporation.
10(n)(xiv)* Amendment to Loan Agreement, dated June 27, 1996, by and between
Silicon Valley Bank and Calbiochem-Novabiochem Corporation.
10(n)(xv)* Schedule to Loan and Security Agreement, dated June 27, 1996, by
and between Silicon Valley Bank and Calbiochem-Novabiochem Corporation.
10(n)(xvi)** Letter Agreement, dated September 30, 1996, by and between
Calbiochem-Novabiochem Corporation, CN Biosciences, Inc.,
Calbiochem-Novabiochem AG and Silicon Valley Bank.
10(n)(xvii)** Amendment to Loan Agreement, dated September 30, 1996, between
Calbiochem-Novabiochem Corporation and Silicon Valley Bank.
10(n)(xviii)** Amendment to Loan Agreement, dated October 2, 1996, between
Calbiochem-Novabiochem Corporation and Silicon Valley Bank.
10(o)(i)* Real Property Leasing Contract, dated February 6, 1984, between
LISCA Leasing AG and Calbiochem-Novabiochem AG (formerly Novabiochem AG),
as amended on January 25, 1990, November 9, 1993 and July 5, 1994.
10(o)(ii)* Lease Contract, dated April 3, 1990, between Balit AG and
Calbiochem-Novabiochem AG (formerly Novabiochem AG, as successor by
merger to Protogen AG)(together with Addendum No. 1), as amended by Letter
Agreement, dated January 10, 1992.
10(p)* Lease, dated February 1994, between Wilson Bowden Properties
Limited and Calbiochem-Novabiochem (U.K.) Limited.
10(q)* Consulting Agreement, dated March 26, 1996, between Calbiochem-
Novabiochem Corporation and Robert A. Weinberg, Ph.D.
10(r)* Letter Agreement, dated November 11, 1993, between Calbiochem-
Novabiochem International, Inc. and Doug Greenwold.
10(s)* Letter Agreement, dated July 15, 1994, between Calbiochem-
Novabiochem International, Inc. and Dr. John T. Snow.
10(t)* Letter Agreement, dated May 26, 1995, between Calbiochem-
Novabiochem International, Inc. and James G. Stewart.
10(u)* Consulting Arrangement, dated October 3, 1995, between Calbiochem-
Novabiochem International, Inc. and Robert E. McGill, III.
11+ Computation of Earnings per Share.
13 Portions of 1996 Annual Report to Stockholders
21* Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP.
27+ Financial Data Schedule.
</TABLE>
----------
* Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (Registration No. 333-8335).
** Incorporated by reference from the Registrant's Form 10-Q for the
quarterly period ended September 30, 1996 (File No. 000- 21281).
+ Incorporated by reference from the Registrant's Registration Statement on
form S-1 (Registration No. 333-22711).
# Indicates management contract or compensatory plan or arrangement required
to be filed pursuant to item 14(c) of this report.
34
<PAGE> 1
[LETTERHEAD OF ONCOGENE SCIENCE]
EXHIBIT 10 (g)(v)
January 21, 1997
Dr. Fred Reynolds
Calbiochem-Novabiochem Corporation
84 Rogers Street
Cambridge, MA 02142
RE: TRADEMARK LICENSE AGREEMENT
Dear Dr. Reynolds:
Currently, your company has the right to use several trademarks owned
by Oncogene Science, Inc., including the mark "Oncogene Research Products" (the
"ORP Mark"), pursuant to the Trademark License Agreement between you and us
dated August 2, 1995 (the "Agreement"). The Agreement expires on August 2,
1998, and you have requested the right to continue using the ORP Mark beyond
the expiration date.
By this letter, we agree to extend your company's right to use the ORP
Mark, only, for an additional period of twelve (12) years, through August 1,
2010. You agree to comply with your obligations under the agreement, which will
remain in full force and effect for the ORP Mark until the end of this
extension period. This extension does not apply to any other trademark. If you
agree to these terms, please sign and date the enclosed copy of this letter in
the space provided below and return it to me. Thank you.
Sincerely,
/s/ WALTER P. CARNEY
-------------------------------------
ONCOGENE SCIENCE, INC.
Walter P. Carney, Ph.D.
Vice President & General Manager
Diagnostics
Acknowledged and agreed to:
CALBIOCHEM-NOVABIOCHEM CORPORATION
By: /s/ STELIOS B. PAPADOPOULOS
--------------------------------
Name: Stelios B. Papadopoulos
------------------------------
Date: January 27, 1997
------------------------------
<PAGE> 1
Exhibit 10(k)
CN BIOSCIENCES, INC.
SECOND AMENDED AND RESTATED 1992 STOCK OPTION PLAN
* * *
ARTICLE I
Purpose
The CN Biosciences, Inc. Second Amended and Restated 1992
Stock Option Plan (the "Plan") is intended as an incentive to improve the
performance, encourage the continued employment, and increase the proprietary
interest of certain directors, officers, key employees and consultants of CN
Biosciences, Inc. (the "Company") and its subsidiaries who shall participate in
the Plan. The Plan is designed to grant such directors, officers, key
employees and consultants the opportunity to share in the Company's long-term
success through stock ownership and to afford them the opportunity for
additional compensation related to the value of the Company's stock.
The word "Employer", when used in the Plan, shall include the
Company or one of its subsidiaries, whichever one employs the Participant. The
word "subsidiary", when used in the Plan, shall mean any subsidiary corporation
of the Company within the meaning of Section 424(f) of the Internal Revenue
Code of 1986, as amended (the "Code").
It is intended that certain options granted under the Plan and
designated as incentive stock options in the option agreements qualify as
"incentive stock options" under Section 422 of the Code.
For purposes of the Plan, as amended and restated, the term
"Effective Date" shall mean March 18, 1997.
ARTICLE II
Administration
The Plan shall be administered by a Stock Option Committee
(the "Committee") appointed by the Board of Directors of the Company (the
"Board") from among its members and shall consist of not less than two members
thereof. Unless otherwise determined by the Board, the membership of the
Committee shall be structured so as to qualify option grants for the exemption
from Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act")
provided by Rule 16b-3, promulgated by the Securities and Exchange Commission
under the Exchange Act, as in effect from time to time.
Subject to the provisions of the Plan, the Committee shall
have sole authority, in its absolute discretion: (a) to determine which of the
eligible Participants (as hereinafter
<PAGE> 2
defined) shall be granted options; (b) to authorize the granting of both
incentive stock options and non-qualified stock options; (c) to determine the
times when options shall be granted and the number of shares to be subject to
options; (d) to determine the option price of the shares subject to each
option, which price shall be not less than the minimum specified in ARTICLE V;
(e) to determine the time or times when each option becomes exercisable, the
duration of the exercise period and any other restrictions on the exercise of
options issued hereunder; (f) to accelerate the exercisability of any
outstanding option; (g) to prescribe the form or forms of the option agreements
under the Plan (which forms shall be consistent with the terms of the Plan but
need not be identical and may contain such terms as the Committee may deem
appropriate to carry out the purposes of the Plan); (h) to determine the nature
of any rights and restrictions to be imposed on shares subject to options
issued hereunder; (i) to adopt, amend and rescind such rules and regulations
as, in its opinion, may be advisable in the administration of the Plan; (j) to
construe and interpret the Plan, the option agreements under the Plan and the
rules and regulations adopted from time to time, if any; and (k) to make all
other determinations deemed necessary or advisable for the administration of
the Plan. All decisions, determinations and interpretations of the Committee
shall be final and binding on all optionees.
ARTICLE III
Stock
The stock to be subject to options granted under the Plan
shall be shares of authorized but unissued common stock, par value $0.01 (the
"Stock"), of the Company, or previously issued shares of such Stock reacquired
by the Company and held in its treasury, as determined by the Board. Under the
Plan, the total number of shares of Stock which may be purchased pursuant to
options granted hereunder shall not exceed, in the aggregate, 1,085,000 shares,
and the maximum number of shares for which options may be granted to any single
optionee during any calendar year shall not exceed 100,000, except as such
numbers of shares shall be adjusted in accordance with the provisions of
ARTICLE X hereof.
Each option granted under the Plan shall be evidenced by an
option agreement between the Company and the optionee containing such
provisions as may be determined by the Committee, but shall be subject to the
following terms and conditions:
(a) Each share of Stock purchased through the exercise of an
option shall be paid for in full at the time of the exercise; and
(b) Each option shall become exercisable by the optionee in
accordance with any vesting schedule established by the Committee pursuant to
ARTICLE VI of the Plan.
-2-
<PAGE> 3
The number of shares of Stock available for grant of options
under the Plan shall be decreased by the sum of the number of shares with
respect to which options have been issued and are then outstanding and the
number of shares issued upon exercise of options. In the event that any
outstanding option for any reason expires, lapses, or is canceled prior to the
end of the period during which options may be granted, the shares of Stock
called for by the unexercised portion of such option may again be subject to an
option under the Plan.
ARTICLE IV
Eligibility of Participants
Subject to ARTICLE VII, directors, officers, key employees and
consultants of the Company and its subsidiaries who have been selected by the
Committee as participants (collectively referred to as "Participants" and
individually as a "Participant") shall be eligible to receive grants of options
under the Plan; provided, however, that notwithstanding any other provision of
the Plan to the contrary, only employees of the Company or any of its
subsidiaries shall be eligible to receive incentive stock options.
Participation in the Plan shall be limited to eligible Participants who have
entered into option agreements with the Company. No Participant, however,
shall at any time have a right to be selected for participation in the Plan.
ARTICLE V
Option Price
The option price of each option granted under the Plan shall
be determined by the Committee; provided, however, that in the case of each
incentive stock option granted under the Plan, the option price shall not be
less than the fair market value at the time the option is granted. In no event
shall the option price of any option be less than the par value per share of
Stock on the date an option is granted.
At any time when the Stock is quoted on the Nasdaq National
Market ("Nasdaq"), the fair market value shall be deemed to be the closing
price on the trading day immediately preceding the date on which the option is
granted. If the Stock is listed on one or more national securities exchanges,
the fair market value shall be deemed to be the closing price on the principal
national securities exchange on which such stock is listed and traded on the
trading day immediately preceding the date on which the option is granted. If
the Stock is not quoted on Nasdaq or listed on an exchange, or representative
quotes are not otherwise available, the fair market value of the Stock shall
mean the amount determined by the Committee to be the fair market value based
upon a good faith attempt to value the Stock accurately and
-3-
<PAGE> 4
computed in accordance with applicable regulations of the Internal Revenue
Service.
ARTICLE VI
Terms and Conditions of Options
Options granted under the Plan shall vest and become
exercisable in such installments as the Committee shall determine at the time
of grant. Options may be exercisable in whole or in part and if an option is
exercisable in part, the portion thereof which is exercisable and not exercised
shall remain exercisable.
Any other provision of the Plan notwithstanding and subject to
ARTICLE VII, (i) no option shall be granted after the date which is ten years
from the Effective Date, (ii) no option may be exercised after the date which
is ten years after the date that the option was granted (the "Termination
Date"), and (iii) in the event the Company files a registration statement under
the Securities Act of 1933 (the "Securities Act") for the initial public
offering of its equity securities (an "IPO"), the Company may restrict the
exercisability of options granted under the Plan during the 180-day period (or
such longer period required by the underwriter of such initial public offering)
immediately following the effective date of such registration statement.
Options granted hereunder may provide that if prior to the
Termination Date an optionee shall cease to be employed by the Employer for any
reason other than death, disability or for cause, the option will remain
exercisable by the optionee for a period not extending beyond three months
after the date of cessation of employment, but in no event later than the
Termination Date, to the extent it was exercisable at the time of cessation of
employment. Options granted hereunder may provide that if prior to the
Termination Date an optionee shall cease to be employed by the Employer for
reasons of death or disability, the option will remain exercisable by the
optionee or, in the event of his death, by the person or persons to whom the
optionee's rights under the option would pass by will or the applicable laws of
descent and distribution for a period not extending beyond one year after the
date of death or disability, but in no event later than the Termination Date,
to the extent it was exercisable at the time of death or disability. Options
granted hereunder may provide that if prior to the Termination Date an optionee
shall cease to be employed by the Employer by reason of termination of
employment by the Employer for cause, or by voluntary termination at a time
when the Employer is entitled to terminate such optionee's employment for
cause, the option shall terminate immediately. For purposes of the Plan, the
Employer shall have "cause" to terminate an optionee's employment hereunder
upon (i) the commission by the optionee of a proven act of fraud or
embezzlement against the Employer, (ii) the engaging by the optionee in willful
misconduct or gross negligence which is demonstrably and materially injurious
to the Employer,
-4-
<PAGE> 5
monetarily or otherwise, (iii) failure of the optionee to render services to
the Employer in accordance with such optionee's duties as an employee of the
Employer or (iv) the optionee being convicted of a misdemeanor involving an act
of moral turpitude or a felony. Alternatively, options granted hereunder may
provide that "cause" has the meaning set forth in an employment agreement
between the optionee and the Employer.
For purposes of the Plan, in the case of a Participant who is
a director, references to employment herein shall be deemed to refer to such
director's service to the Employer in such capacity.
Notwithstanding the foregoing, stock options granted hereunder
shall provide that no option shall be exercisable after the optionee's
cessation of employment with the Employer if at the time of exercise the
By-Laws of the Company limit the ownership of common stock of the Company to
selected persons, including employees of the Company and its wholly-owned
subsidiaries.
ARTICLE VII
Special Provisions Applicable
Only to Incentive Stock Options
To the extent the aggregate fair market value (determined at
the time the option is granted) of the Stock with respect to which incentive
stock options may be exercisable for the first time by an optionee during any
calendar year (under this Plan and any other stock option plan of the Company
and any parent or subsidiary thereof) exceeds $100,000, such incentive stock
options shall be treated as options which are non-qualified stock options.
No incentive stock option may be granted to an individual who,
at the time the option is granted, owns directly, or indirectly within the
meaning of Section 424(d) of the Code, stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or of any
parent or subsidiary thereof, unless such option (i) has an option price of at
least 110% of the fair market value of the Stock on the date of the grant of
such option; and (ii) such option by its terms cannot be exercised more than
five years after the date it is granted.
Each optionee who receives an incentive stock option must
agree to notify the Company in writing immediately after the optionee makes a
disqualifying disposition of any Stock acquired pursuant to the exercise of an
incentive stock option. A disqualifying disposition is any disposition
(including any sale) of such Stock before the later of (a) two years after the
date the optionee was granted the incentive stock option or (b) one
-5-
<PAGE> 6
year after the date the optionee acquired Stock by exercising the incentive
stock option.
ARTICLE VIII
Payment for Shares
Payment for shares of Stock acquired pursuant to an option
granted hereunder shall be made in full, upon exercise of the option, in
immediately available funds in United States dollars, by certified or bank
cashier's check. Payment may also be made by any other method established by
the Committee including, without limitation, the tendering of previously owned
shares of Stock which have been held for at least six months, or pursuant to
procedures for cashless "broker-assisted" exercises approved by the Committee.
Payment in full shall include payment of any amounts required under paragraph
(b) of ARTICLE XIX.
ARTICLE IX
Non-Transferability of Option Rights and Stock
During the lifetime of the optionee, the option shall be
exercisable only by the optionee. No option shall be transferable, except by
will or the laws of descent and distribution.
ARTICLE X
Adjustment for Recapitalization, Merger, Etc.
The aggregate number of shares of Stock which may be purchased
or acquired pursuant to options granted hereunder, the maximum number of shares
for which options may be granted to any single optionee during any calendar
year, the number of shares of Stock covered by each outstanding option and the
price per share thereof in each such option shall be appropriately adjusted for
any increase or decrease in the number of outstanding shares of Stock resulting
from a stock split or other subdivision or consolidation of shares of Stock or
for other capital adjustments or payments of stock dividends or distributions
or other increases or decreases in the outstanding shares of Stock effected
without receipt of consideration by the Company. Any adjustment shall be
conclusively determined by the Committee.
If the Company shall be the surviving corporation in any
merger or reorganization or other business combination, any option granted
hereunder shall cover the securities or other property to which a holder of the
number of shares of Stock covered by the unexercised portion of the option
would have been entitled pursuant to the terms of the merger. Upon any merger
or reorganization or other business combination in which the Company shall not
be the surviving corporation, or a dissolution or liquidation of the Company,
or a sale of all or substantially all
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<PAGE> 7
of the Company's assets, all outstanding options shall terminate; provided,
however, that the Company shall cause either (i) the optionees to be paid an
amount equal to the difference between (A) the aggregate fair market value
(determined in accordance with ARTICLE V of the Plan) of the Stock subject to
options held by the optionees at the time of such transaction and (B) the
aggregate exercise price of such options, or (ii) the surviving or resulting
corporation to grant the optionees substitute options to purchase its shares on
such terms and conditions, both as to the number of shares and otherwise, which
the Committee shall deem appropriate.
Stock option agreements under the Plan may, at the discretion
of the Committee, provide that upon stockholder approval of a merger,
reorganization or other business combination, whether or not the Company is the
surviving corporation, or a sale of all or substantially all of the Company's
assets, all unmatured installments of the options shall vest and become
immediately exercisable in full.
The foregoing adjustments and the manner of application of the
foregoing provisions, including the issuance of any substitute options, shall
be determined by the Committee in its sole discretion. Any such adjustment may
provide for the elimination of any fractional share which might otherwise
become subject to an option.
ARTICLE XI
No Obligation to Exercise Option
Granting of an option shall impose no obligation on the
recipient to exercise such option.
ARTICLE XII
Use of Proceeds
The proceeds received from the sale of Stock pursuant to the
Plan shall be used for general corporate purposes.
ARTICLE XIII
Rights as a Stockholder
An optionee shall have no rights as a stockholder with respect
to any share covered by his option until such person shall have become the
holder of record of such share, and such person shall not be entitled to any
dividends or distributions or other rights in respect of such share for which
the record date is prior to the date on which such person shall have become the
holder of record thereof, except as otherwise provided in ARTICLE X.
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<PAGE> 8
ARTICLE XIV
Employment Rights
No provision in the Plan or in any option granted hereunder
shall confer on any optionee any right to continue in the employ of the
Company, or to interfere in any way with the right of the Company to terminate
the optionee's employment at any time.
ARTICLE XV
Compliance with Law
The Company is relieved from any liability for the
non-issuance or non-transfer or any delay in the issuance or transfer of any
shares of Stock subject to options under the Plan which results from the
inability of the Company to obtain, or from any delay in obtaining, from any
regulatory body having jurisdiction or authority, any requisite approval to
issue or transfer any such shares if counsel for the Company deems such
approval necessary for lawful issuance or transfer thereof.
Each option granted under the Plan is subject to the
requirement that if at any time the Board determines, in its discretion, that
the listing, registration or qualification of shares of Stock issuable upon
exercise of options is required by any securities exchange or under any state
or Federal law, or that the consent or approval of any governmental regulatory
body is necessary or desirable as a condition of, or in connection with, the
grant of options or the issuance of shares of Stock, no shares of Stock shall
be issued, in whole or in part, unless such listing, registration,
qualification, consent or approval has been effected or obtained free of any
conditions or with such conditions as are acceptable to the Board.
ARTICLE XVI
Cancellation of Options
The Committee, in its discretion, may, with the consent of any
optionee, cancel any outstanding option hereunder.
ARTICLE XVII
Effective Date; Expiration Date of Plan
The Plan, as amended and restated, shall become effective upon
adoption by the Company's Board of Directors and approval by the stockholders
of the Company in a manner which complies with both Section 162(m)(4)(C)(ii)
and Section 422(b)(1) of the Code and the Treasury Regulations thereunder. The
expiration date of the Plan, after which no option may be granted hereunder,
shall be the tenth anniversary of the earlier of (i)
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<PAGE> 9
adoption of the Plan by the Board of Directors or (ii) the approval of the Plan
by the stockholders of the Company pursuant to the previous sentence.
ARTICLE XVIII
Amendment or Discontinuance of Plan
The Board may terminate, amend or modify the Plan in its sole
discretion at any time or from time to time after the Effective Date.
Notwithstanding the preceding provisions of this ARTICLE XVIII, no such action
shall, without shareholder approval, increase the number of shares as to which
options may be granted under the Plan.
ARTICLE XIX
Miscellaneous
(a) Options shall be evidenced by option agreements (which need
not be identical) in such forms as the Committee may from time to time approve.
Such agreements shall conform to the terms and conditions of the Plan and may
provide that the grant of any option under the Plan and Stock acquired pursuant
to the Plan shall also be subject to such other conditions (whether or not
applicable to the option or Stock received by any other optionee) as the
Committee determines appropriate, including without limitation, provisions to
assist the optionee in financing the purchase of Stock through the exercise of
options, provisions for the forfeiture of, or restrictions on, resale or other
disposition of shares under the Plan, provisions giving the Company the right
to repurchase shares acquired under the Plan in the event the participant
elects to dispose of such shares, and provisions to comply with Federal and
state securities laws and Federal and state income tax withholding
requirements.
(b) The Company may, in its discretion,
require that an optionee pay to the Company, at the time of exercise, such
amount as the Company deems necessary to satisfy its obligations to withhold
Federal, state, or local income or other taxes incurred by reason of the
exercise or the transfer of shares thereupon.
(c) Each optionee shall file with the Committee a written
designation of one or more persons as beneficiary, who shall be entitled to
exercise options which are exercisable, if any, or to receive shares of Stock
distributable, if any, under the Plan upon the optionee's death. An optionee
may, from time to time, revoke or change his beneficiary designation without the
consent of any prior beneficiary by filing a new designation with the Committee.
The last such designation received by the Committee shall be controlling;
provided, however, that no designation, or change or revocation thereof, shall
be effective unless received by the Committee prior to the optionee's death,
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<PAGE> 10
and in no event shall it be effective as of a date prior to such receipt.
(d) If the Committee shall find that any person to whom any
amount is payable under the Plan is unable to care for his affairs because of
illness or accident, or is a minor, or has died, then any payment due to such
person or his estate (unless a prior claim therefor has been made by a duly
appointed legal representative), may, if the Committee so directs the Company,
be paid to his spouse, child, relative, an institution maintaining or having
custody of such person, or any other person deemed by the Committee to be a
proper recipient on behalf of such person otherwise entitled to payment. Any
such payment shall be a complete discharge of the liability of the Committee
and the Company therefor.
(e) No member of the Committee shall be personally liable by
reason of any contract or other instrument executed by such member or on his
behalf in his capacity as a member of the Committee nor for any mistake of
judgment made in good faith, and the Company shall indemnify and hold harmless
each member of the Committee and each other employee, officer or director of
the Company to whom any duty or power relating to the administration or
interpretation of the Plan may be allocated or delegated, against any cost or
expense (including counsel fees) or liability (including any sum paid in
settlement of a claim) arising out of any act or omission to act in connection
with the Plan unless arising out of such person's own fraud or bad faith;
provided, however, that approval of the Board shall be required for the payment
of any amount in settlement of a claim against any such person. The foregoing
right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company's
Certificate of Incorporation or By-Laws, as a matter of law, or otherwise, or
any power that the Company may have to indemnify them or hold them harmless.
(f) The Plan shall be governed by and construed in accordance
with the internal laws of the State of Delaware without reference to the
principles of conflicts of law thereof.
(g) No provision of the Plan shall require the Company, for the
purpose of satisfying any obligations under the Plan, to purchase assets or
place any assets in a trust or other entity to which contributions are made or
otherwise to segregate any assets, nor shall the Company maintain separate bank
accounts, books, records or other evidence of the existence of a segregated or
separately maintained or administered fund for such purposes. Optionees shall
have no rights under the Plan other than as unsecured general creditors of the
Company, except that insofar as they may have become entitled to payment of
additional compensation by performance of services, they shall have the same
rights as other employees under general law.
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<PAGE> 11
(h) Each member of the Committee and each member of the Board
shall be fully justified in relying, acting or failing to act, and shall not be
liable for having so relied, acted or failed to act in good faith, upon any
report made by the independent public accountant of the Company and upon any
other information furnished in connection with the Plan by any person or
persons other than such member.
(i) Except as otherwise specifically provided in the relevant
plan document, no payment under the Plan shall be taken into account in
determining any benefits under any pension, retirement, profit-sharing, group
insurance or other benefit plan of the Company.
(j) The expenses of administering the Plan shall be borne by
the Company.
(k) Masculine pronouns and other words of masculine gender
shall refer to both men and women.
* * *
-11-
<PAGE> 12
FORM OF INCENTIVE STOCK OPTION AGREEMENT
This Option Agreement (the "Agreement), is made as of this _____ day
of __________, _____ (the "Date of Grant") between CN Biosciences, Inc., a
Delaware corporation (the "Company"), and the person signing this Agreement
adjacent to the caption "Participant" on the signature page hereof, which
person is an employee (the "Participant") of the Company and/or one or more of
its subsidiaries (the "Employer"). Capitalized terms used and not otherwise
defined herein shall have the meanings attributed thereto in the CN
Biosciences, Inc. Amended and Restated 1992 Stock Option Plan (the "Plan").
WHEREAS, pursuant to the Plan, the Company desires to afford the
Participant the opportunity to purchase shares of the Company's Common Stock,
par value $.01 per share (the "Stock");
NOW, THEREFORE, in connection with the mutual covenants hereinafter
set forth and for other good and valuable consideration, the parties hereto
agree as follows:
1. Grant of Options. The Company hereby grants to the
Participant the right and option (the right to purchase any one share of Stock
pursuant to the Plan being an "Option") to purchase an aggregate _____ shares
of Stock, such shares being subject to adjustment as provided in ARTICLE X of
the Plan, and on the terms and conditions herein set forth.
2. Purchase Price. The purchase price of each share of Stock
covered by the Options shall be equal to $_____ per share.
3. Terms of Options. The term of the Options shall be for a
period of _____ (_) years from the Date of Grant.
4. Vesting of Options. Subject to the terms, conditions and
limitations contained herein, ________ percent (__%) of the Options granted
hereunder shall vest and become exercisable on the first anniversary of the
Date of Grant, and an additional _________ percent (__%) of the Options granted
hereunder shall vest on each of the next ____ anniversaries of such Date of
Grant. Notwithstanding the above, one hundred percent (100%) of the Options
granted hereunder shall vest and become exercisable upon a Change of Control of
the Company. For this purpose, a "Change of Control" shall mean (a) an
acquisition (other than directly from the Company) by an individual, entity or
a group (excluding the Company, an employee benefit plan of the Company or E.M.
Warburg, Pincus & Co., LLC or its affiliates) of 50% or more of the Company's
Common Stock or voting securities; (b) a change in a majority of the Company's
current Board of Directors (the "Incumbent Board") (excluding any persons
approved by a vote of a least a majority of the Incumbent Board or persons
elected with the concurrence of a majority of the Incumbent Board); or
<PAGE> 13
(c) the consummation of a complete liquidation or dissolution of the
Company or a merger, consolidation or sale off all or substantially all of the
Company's assets (collectively, a "Business Combination") other than a Business
Combination in which all or substantially all of the Company's stockholders
receive 50% or more of the stock of the company resulting from the Business
Combination, at least a majority of the board of directors of the resulting
corporation were members of the Incumbent Board, and after which no Person owns
50% or more of the stock of the resulting corporation, who did not own such
stock immediately before the Business Combination.
5. Termination of Employment. (a) In the event the Participant's
employment with the Employer is terminated for reasons other than due to death,
disability or cause (as defined in the Plan), the Options shall remain
exercisable for a period of up to three months after cessation of employment,
to the extent they were exercisable at the time of cessation of employment. In
the event the Participant's employment with the Employer terminates by death or
disability, the Options shall remain exercisable for a period of up to twelve
months after cessation of employment, to the extent they were exercisable at
the time of cessation of employment.
(b) If the Participant's employment with the Employer is
terminated for cause, or, at the time of the Participant's voluntary
termination, the Employer is entitled to terminate the Participant for cause
(as defined in the Plan), all unexercised Options granted to the Participant
shall lapse and be canceled.
6. Transferability of Option and Stock. The Participant is not
allowed to transfer the Options other than by will or the laws of descent and
distribution, and the Options shall be exercisable during the Participant's
lifetime, only by him.
7. No Rights as a Shareholder. The Participant shall have no
rights as a shareholder with respect to any shares of Stock covered by the
Options until the date of issuance of a certificate for such Stock. No
adjustment, other than as provided in ARTICLE X of the Plan, shall be made for
dividend (ordinary or extraordinary, whether in cash, securities or other
property) or distribution for which the record date is prior to the date such
stock certificate is issued.
8. Securities Law Compliance. No Stock will be issued hereunder
unless counsel for the Company shall be satisfied that such issuance will be in
compliance with applicable federal and state securities law.
9. Method of Exercising Option. Subject to the terms and
conditions of this Agreement and the Plan, the Options may be exercised by
written notice to the Company at its offices located in San Diego, California.
Such notice shall state the election to exercise Options and the number of
shares of Stock in respect
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<PAGE> 14
of which they are being exercised, and shall be signed by the person or persons
so exercising the Option. Such notice shall either:
(a) be accompanied by payment of the full purchase price
of such share of Stock, in which event the Company shall cause to be delivered
a certificate or certificates representing such shares of Stock as soon as
practicable after the notice shall be received;
(b) fix a date, not less than five (5) nor more than ten
(10) business days from the date such notice shall be received by the Company,
for the payment of the full purchase price of such shares of Stock against
delivery of a certificate or certificates representing such shares of Stock.
Payment of such purchase price shall be made in United States
dollars by either: (a) certified check or bank cashier's check payable to the
order of the Company, or (b) upon the Committee's approval, any other method
including, without limitation, the tendering of previously owned shares of
Stock which have been held by the Participant for at least six months, or
pursuant to procedures for cashless "broker-assisted" exercises established by
the Committee. The certificate or certificates for the shares of Stock as to
which the Options shall have been so exercised shall be registered in the name
of the person or persons so exercising the Options; or if the Options shall be
exercised by the Participant, and if the Participant shall so request in the
notice exercising the Options, such shares shall be registered in the name of
the Participant and other person, as joint tenant with right of survivorship,
and shall be delivered as provided above to or upon the written order of the
person or persons exercising the Options. All shares of Stock that shall be
purchased upon the exercise of Options as provided herein shall be fully paid
and non-assessable.
10. Income Tax Withholding. The Company may make such provisions
and take such steps as it may deem necessary or appropriate for the withholding
of all Federal, State, local or other taxes required by law to be withheld with
respect to an Option, including, but not limited to, deducting the amount of
any such withholding taxes from the amount to be paid hereunder, whether in
Stock or in cash, or from any other amount then or thereafter payable to the
optionee, or requiring the Participant, his beneficiary or legal
representative, to pay to the Company the amount required to be withheld or to
execute such documents as the Company deems necessary or desirable to enable it
to satisfy its withholding obligations.
11. Incentive Stock Options. The Options granted hereunder are
intended to be incentive stock options within the meaning of Section 422 of the
Code.
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<PAGE> 15
12. Binding Effect. This Agreement shall be binding upon the
heirs, executors, administrators and successors of the parties hereto.
13. Governing Law. This Agreement shall be construed and
interpreted in accordance with the law of the State of Delaware.
14. Headings. Headings are for the convenience of the parties and
are not deemed to be part of this Agreement.
15. Plan. The terms and provisions of the Plan are incorporated
herein by reference. In the event of a conflict or inconstancy between
discretionary terms and provisions of the Plan and the express provision of
this Agreement, this Agreement shall govern and control. In all other
instances of conflicts or inconsistencies or omissions, the terms and
provisions of the Plan shall govern and control.
EXECUTED the day and year first written above.
COMPANY: CN BIOSCIENCES, INC.
By: ______________________________
Name:
Title:
PARTICIPANT:
By: ______________________________
Name:
Title:
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<PAGE> 16
FORM OF NONQUALIFIED STOCK OPTION AGREEMENT
This Option Agreement (the "Agreement), is made as of this _____ day
of __________, _____ (the "Date of Grant") between CN Biosciences, Inc., a
Delaware corporation (the "Company"), and the person signing this Agreement
adjacent to the caption "Participant" on the signature page hereof, which
person is a director, officer, key employee or consultant (the "Participant")
of the Company and/or one or more of its subsidiaries (the "Employer").
Capitalized terms used and not otherwise defined herein shall have the meanings
attributed thereto in the CN Biosciences, Inc. Amended and Restated 1992 Stock
Option Plan (the "Plan").
WHEREAS, pursuant to the Plan, the Company desires to afford the
Participant the opportunity to purchase shares of the Company's Common Stock,
par value $.01 per share (the "Stock");
NOW, THEREFORE, in connection with the mutual covenants hereinafter
set forth and for other good and valuable consideration, the parties hereto
agree as follows:
1. Grant of Options. The Company hereby grants to the
Participant the right and option (the right to purchase any one share of Stock
pursuant to the Plan being an "Option") to purchase an aggregate _____ shares
of Stock, such shares being subject to adjustment as provided in ARTICLE X of
the Plan, and on the terms and conditions herein set forth.
2. Purchase Price. The purchase price of each share of Stock
covered by the Options shall be equal to $_____ per share.
3. Terms of Options. The term of the Options shall be for a
period of _____ (_) years from the Date of Grant.
4. Vesting of Options. Subject to the terms, conditions and
limitations contained herein, ________ percent (__%) of the Options granted
hereunder shall vest and become exercisable on the first anniversary of the
Date of Grant, and an additional _________ percent (__%) of the Options granted
hereunder shall vest on each of the next ____ anniversaries of such Date of
Grant. Notwithstanding the above, one hundred percent (100%) of the Options
granted hereunder shall vest and become exercisable upon a Change of Control of
the Company. For this purpose, a "Change of Control" shall mean (a) an
acquisition (other than directly from the Company) by an individual, entity or
a group (excluding the Company, an employee benefit plan of the Company or E.M.
Warburg, Pincus & Co., LLC or its affiliates) of 50% or more of the Company's
Common Stock or voting securities; (b) a change in a majority of the Company's
current Board of Directors (the "Incumbent Board") (excluding any persons
approved by a vote of a least a majority of the Incumbent Board or persons
elected
<PAGE> 17
with the concurrence of a majority of the Incumbent Board); or (c)
the consummation of a complete liquidation or dissolution of the Company or a
merger, consolidation or sale off all or substantially all of the Company's
assets (collectively, a "Business Combination") other than a Business
Combination in which all or substantially all of the Company's stockholders
receive 50% or more of the stock of the company resulting from the Business
Combination, at least a majority of the board of directors of the resulting
corporation were members of the Incumbent Board, and after which no Person owns
50% or more of the stock of the resulting corporation, who did not own such
stock immediately before the Business Combination.
5. Termination of Employment or Service. (a) In the event the
Participant's employment or service with the Employer is terminated for reasons
other than due to death, disability or cause (as defined in the Plan), the
Options shall remain exercisable for a period of up to three months after
cessation of employment or service, to the extent they were exercisable at the
time of cessation of employment or service. In the event the Participant's
employment or service with the Employer terminates by death or disability, the
Options shall remain exercisable for a period of up to twelve months after
cessation of employment or service, to the extent they were exercisable at the
time of cessation of employment or service.
(b) If the Participant's employment or service with the
Employer is terminated for cause, or, at the time of the Participant's
voluntary termination, the Employer is entitled to terminate the Participant
for cause (as defined in the Plan), all unexercised Options granted to the
Participant shall lapse and be canceled.
6. Transferability of Option and Stock. The Participant is not
allowed to transfer the Options other than by will or the laws of descent and
distribution, and the Options shall be exercisable during the Participant's
lifetime, only by him.
7. No Rights as a Shareholder. The Participant shall have no
rights as a shareholder with respect to any shares of Stock covered by the
Options until the date of issuance of a certificate for such Stock. No
adjustment, other than as provided in ARTICLE X of the Plan, shall be made for
dividend (ordinary or extraordinary, whether in cash, securities or other
property) or distribution for which the record date is prior to the date such
stock certificate is issued.
8. Securities Law Compliance. No Stock will be issued hereunder
unless counsel for the Company shall be satisfied that such issuance will be in
compliance with applicable federal and state securities law.
9. Method of Exercising Option. Subject to the terms and
conditions of this Agreement and the Plan, the Options may be
-2-
<PAGE> 18
exercised by written notice to the Company at its offices located in San Diego,
California. Such notice shall state the election to exercise Options and the
number of shares of Stock in respect of which they are being exercised, and
shall be signed by the person or persons so exercising the Option. Such notice
shall either:
(a) be accompanied by payment of the full purchase price
of such share of Stock, in which event the Company shall cause to be delivered
a certificate or certificates representing such shares of Stock as soon as
practicable after the notice shall be received;
(b) fix a date, not less than five (5) nor more than ten
(10) business days from the date such notice shall be received by the Company,
for the payment of the full purchase price of such shares of Stock against
delivery of a certificate or certificates representing such shares of Stock.
Payment of such purchase price shall be made in United States
dollars by either: (a) certified check or bank cashier's check payable to the
order of the Company, or (b) upon the Committee's approval, any other method
including, without limitation, the tendering of previously owned shares of
Stock which have been held by the Participant for at least six months, or
pursuant to procedures for cashless "broker-assisted" exercises established by
the Committee. The certificate or certificates for the shares of Stock as to
which the Options shall have been so exercised shall be registered in the name
of the person or persons so exercising the Options; or if the Options shall be
exercised by the Participant, and if the Participant shall so request in the
notice exercising the Options, such shares shall be registered in the name of
the Participant and other person, as joint tenant with right of survivorship,
and shall be delivered as provided above to or upon the written order of the
person or persons exercising the Options. All shares of Stock that shall be
purchased upon the exercise of Options as provided herein shall be fully paid
and non-assessable.
10. Income Tax Withholding. The Company may make such provisions
and take such steps as it may deem necessary or appropriate for the withholding
of all Federal, State, local or other taxes required by law to be withheld with
respect to an Option, including, but not limited to, deducting the amount of
any such withholding taxes from the amount to be paid hereunder, whether in
Stock or in cash, or from any other amount then or thereafter payable to the
optionee, or requiring the Participant, his beneficiary or legal
representative, to pay to the Company the amount required to be withheld or to
execute such documents as the Company deems necessary or desirable to enable it
to satisfy its withholding obligations.
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<PAGE> 19
11. Nonqualified Stock Options. The Options granted hereunder are
not intended to be incentive stock options within the meaning of Section 422 of
the Code.
12. Binding Effect. This Agreement shall be binding upon the
heirs, executors, administrators and successors of the parties hereto.
13. Governing Law. This Agreement shall be construed and
interpreted in accordance with the law of the State of Delaware.
14. Headings. Headings are for the convenience of the parties and
are not deemed to be part of this Agreement.
15. Plan. The terms and provisions of the Plan are incorporated
herein by reference. In the event of a conflict or inconstancy between
discretionary terms and provisions of the Plan and the express provision of
this Agreement, this Agreement shall govern and control. In all other
instances of conflicts or inconsistencies or omissions, the terms and
provisions of the Plan shall govern and control.
EXECUTED the day and year first written above.
COMPANY: CN BIOSCIENCES, INC.
By: ______________________________
Name:
Title:
PARTICIPANT:
By: ______________________________
Name:
Title:
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<PAGE> 1
Exhibit 10(l)(ii)
AMENDMENT TO EMPLOYMENT AGREEMENT
AMENDMENT TO EMPLOYMENT AGREEMENT, by and between CN
Biosciences, Inc., a Delaware corporation (formerly Calbiochem- Novabiochem
International, Inc., the "Company"), and Stelios B. Papadopoulos (the
"Employee"), dated as of February 27, 1997.
WHEREAS, the Company and the Employee are parties to an
Employment Agreement, dated as of January 1, 1996 (the "Employment Agreement");
and
WHEREAS, the Company and the Employee wish to amend the
Employment Agreement with respect to payment to the Employee in connection with
the termination of the Employee's employment under certain circumstances.
NOW, THEREFORE, in connection with the mutual covenants
hereinafter set forth and for other good and valuable consideration, the
parties hereto agree as follows:
Section 1. Amendments to Employment Agreement.
Paragraph 8 of the Employment Agreement is amended by (A)
adding a new subparagraph (b) to such paragraph to read as follows:
"(b) In the event that the Employee resigns during
the 90-day period following the effective date of a "Change of
Control" (as defined below) of the Company, the Employee shall receive
salary continuation pay for 12 months from the date of such
termination equal to the Employee's base salary in effect at the time
of the Change of Control. For purposes of this Agreement, "Change of
Control" shall mean (a) an acquisition (other than directly from the
Company) by an individual, entity or a group (excluding the Company,
an employee benefit plan of the Company or E.M. Warburg, Pincus & Co.,
LLC or its affiliates) of 50% or more of the Company's Common Stock,
par value $.01 per share, or voting securities; (b) a change in a
majority of the Company's current Board of Directors (the "Incumbent
Board") (excluding any persons approved by a vote of at least a
majority of the Incumbent Board or persons elected with the
concurrence of a majority of the Incumbent Board); or (c) the
consummation of a complete liquidation or dissolution of the Company
or a merger, consolidation or sale of all or substantially all of the
Company's assets (collectively, a "Business Combination") other than a
Business Combination in which all or substantially all of the
Company's stockholders receive 50% or more of the stock of the Company
resulting from the Business Combination, at least a majority of the
board of directors of the resulting
<PAGE> 2
corporation were members of the Incumbent Board, and after which no
Person owns 50% or more of the stock of the resulting corporation, who
did not own such stock immediately before the Business Combination.";
(B) renumbering existing subparagraphs (b), (c) and (d) of such paragraph to
become subparagraphs (c), (d) and (e), respectively.
Paragraph 9 of the Employment Agreement is amended in its
entirety to read as follows:
"9. Stock Options. If this Agreement is terminated
pursuant to either paragraph 8(a)(iii) or paragraph 8(b) above, any
stock options relating to the Company's Common Stock, par value $.01
per share, then held by the Employee shall become exercisable to the
full extent that they would otherwise have become exercisable on
January 4, 1998, without regard to any restrictions or deferrals of
the right to exercise such options upon such termination, and the
Employee shall have the right to exercise such options during the
30-day period following such termination."
Section 2. Governing Law. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of
California without giving effect to the choice of law or conflict of laws
provisions thereof.
Section 3. Entire Agreement. This Agreement contains the
entire agreement of the parties with respect to the subject matter herein and
supersedes any and all agreements or understandings, written or oral, between
the Employee and the Company or any of the Company's principal stockholders,
affiliates or subsidiaries. This Agreement may be changed only by an agreement
in writing signed by each of the parties hereto.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day first hereinabove written.
CN BIOSCIENCES, INC.
By: /s/ James G. Stewart
-------------------------------------
Name: James G. Stewart
Title: Vice President,
Administration, Chief
Financial Officer and
Secretary
EMPLOYEE
/s/ Stelios B. Papadopoulos
----------------------------------------
Stelios B. Papadopoulos
-3-
<PAGE> 1
EXHIBIT 10(m)(v)
SEVERANCE AGREEMENT
AGREEMENT, by and between CN Biosciences, Inc., a Delaware
corporation (the "Company"), and James G. Stewart (the "Executive"), dated as
of February 27, 1997.
WHEREAS, the Company wishes to provide for payment to the
Executive in connection with the termination of the Executive's employment by
the Company under certain circumstances.
NOW, THEREFORE, in connection with the mutual covenants
hereinafter set forth and for other good and valuable consideration, the
parties hereto agree as follows:
Section 1. Definitions.
1.1. "Change of Control" shall mean (a) an acquisition
(other than directly from the Company) by an individual, entity or a group
(excluding the Company, an employee benefit plan of the Company or E.M.
Warburg, Pincus & Co., LLC or its affiliates) of 50% or more of the Company's
Common Stock, par value $.01 per share, or voting securities; (b) a change in a
majority of the Company's current Board of Directors (the "Incumbent Board")
(excluding any persons approved by a vote of at least a majority of the
Incumbent Board or persons elected with the concurrence of a majority of the
Incumbent Board); or (c) the consummation of a complete liquidation or
dissolution of the Company or a merger, consolidation or sale of all or
substantially all of the Company's assets (collectively, a "Business
Combination") other than a Business Combination in which all or substantially
all of the Company's stockholders receive 50% or more of the stock of the
Company resulting from the Business Combination, at least a majority of the
board of directors of the resulting corporation were members of the Incumbent
Board, and after which no Person owns 50% or more of the stock of the resulting
corporation, who did not own such stock immediately before the Business
Combination.
1.2. "Cause" shall mean (a) the determination by the Board
of Directors of the Company (the "Board") that the Executive has ceased to
perform his duties as an executive officer of the Company (other than as a
result of his incapacity due to physical or mental illness or injury), which
failure amounts to an intentional and extended neglect of such duties, (b) the
Board's determination that the Executive has engaged or is about to engage in
conduct materially injurious to the Company, (c) the Executive's having been
convicted of a felony, or (d) the Executive's participation in activities
prohibited by the terms of any employment agreement, non-competitive agreement,
non-disclosure agreement or other agreement between the Company and the
Executive relating to the Company's employment of the Executive.
<PAGE> 2
Section 2. Severance Payments to the Executive upon Certain
Events.
2.1. In the event that the Company terminates the
Executive's employment for reasons other than for Cause, the Executive shall
receive salary continuation pay for six months from the date of such
termination equal to the Executive's base salary in effect at such time.
2.2. In the event that during the 90-day period following
the effective date of a Change of Control of the Company, either the Executive
resigns or the Company terminates the Executive's employment for any reason
other than for Cause, the Executive shall receive salary continuation pay for
12 months from the date of such termination equal to the Executive's base
salary in effect at the time of the Change of Control. Any payments due under
this Section 2.2 shall be in lieu of, and not in addition to, any payments
required by Section 2.1 hereof.
2.3. All salary continuation payments (less applicable
payroll taxes) payable hereunder shall be paid periodically to the Executive in
accordance with the Company's policies then in effect.
2.4. During the period in which the Company is obligated to
continue the Executive's salary hereunder (the "Salary Continuation Period"),
the Executive shall be under no obligation to mitigate the costs to the Company
of the salary continuation payments, and, provided that the Executive is not in
breach of his obligations under any agreement not to compete with the Company,
no compensation that the Executive may receive from another employer during the
Salary Continuation Period shall be offset against amounts owed to Executive
hereunder.
Section 3. Governing Law. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of
California without giving effect to the choice of law or conflict of laws
provisions thereof.
Section 4. Entire Agreement. This Agreement contains the
entire agreement of the parties with respect to the subject matter herein and
supersedes any and all agreements or understandings, written or oral, between
the Executive and the Company or any of the Company's principal stockholders,
affiliates or subsidiaries. This Agreement may be changed only by an agreement
in writing signed by each of the parties hereto.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day first hereinabove written.
CN BIOSCIENCES, INC.
By: /s/ Stelios B. Papadopoulos
--------------------------------
Name: Stelios B. Papadopoulos
Title: Chief Executive Officer
and President
EXECUTIVE
/s/ James G. Stewart
-------------------------------------
James G. Stewart
-3-
<PAGE> 1
Exhibit 10(m)(vi)
SEVERANCE AGREEMENT
AGREEMENT, by and between CN Biosciences, Inc., a Delaware
corporation (the "Company"), and Douglas J. Greenwold (the "Executive"), dated
as of February 27, 1997.
WHEREAS, the Company wishes to provide for payment to the
Executive in connection with the termination of the Executive's employment by
the Company under certain circumstances.
NOW, THEREFORE, in connection with the mutual covenants
hereinafter set forth and for other good and valuable consideration, the
parties hereto agree as follows:
Section 1. Definitions.
1.1. "Change of Control" shall mean (a) an acquisition
(other than directly from the Company) by an individual, entity or a group
(excluding the Company, an employee benefit plan of the Company or E.M.
Warburg, Pincus & Co., LLC or its affiliates) of 50% or more of the Company's
Common Stock, par value $.01 per share, or voting securities; (b) a change in a
majority of the Company's current Board of Directors (the "Incumbent Board")
(excluding any persons approved by a vote of at least a majority of the
Incumbent Board or persons elected with the concurrence of a majority of the
Incumbent Board); or (c) the consummation of a complete liquidation or
dissolution of the Company or a merger, consolidation or sale of all or
substantially all of the Company's assets (collectively, a "Business
Combination") other than a Business Combination in which all or substantially
all of the Company's stockholders receive 50% or more of the stock of the
Company resulting from the Business Combination, at least a majority of the
board of directors of the resulting corporation were members of the Incumbent
Board, and after which no Person owns 50% or more of the stock of the resulting
corporation, who did not own such stock immediately before the Business
Combination.
1.2. "Cause" shall mean (a) the determination by the Board
of Directors of the Company (the "Board") that the Executive has ceased to
perform his duties as an executive officer of the Company (other than as a
result of his incapacity due to physical or mental illness or injury), which
failure amounts to an intentional and extended neglect of such duties, (b) the
Board's determination that the Executive has engaged or is about to engage in
conduct materially injurious to the Company, (c) the Executive's having been
convicted of a felony, or (d) the Executive's participation in activities
prohibited by the terms of any employment agreement, non-competitive agreement,
non-disclosure agreement or other agreement between the Company and the
Executive relating to the Company's employment of the Executive.
<PAGE> 2
Section 2. Severance Payments to the Executive upon Certain Events.
2.1. In the event that the Company terminates the
Executive's employment for reasons other than for Cause, the Executive shall
receive salary continuation pay for six months from the date of such
termination equal to the Executive's base salary in effect at such time.
2.2. In the event that during the 90-day period following
the effective date of a Change of Control of the Company, either the Executive
resigns or the Company terminates the Executive's employment for any reason
other than for Cause, the Executive shall receive salary continuation pay for
12 months from the date of such termination equal to the Executive's base
salary in effect at the time of the Change of Control. Any payments due under
this Section 2.2 shall be in lieu of, and not in addition to, any payments
required by Section 2.1 hereof.
2.3. All salary continuation payments (less applicable
payroll taxes) payable hereunder shall be paid periodically to the Executive in
accordance with the Company's policies then in effect.
2.4. During the period in which the Company is obligated to
continue the Executive's salary hereunder (the "Salary Continuation Period"),
the Executive shall be under no obligation to mitigate the costs to the Company
of the salary continuation payments, and, provided that the Executive is not in
breach of his obligations under any agreement not to compete with the Company,
no compensation that the Executive may receive from another employer during the
Salary Continuation Period shall be offset against amounts owed to Executive
hereunder.
Section 3. Governing Law. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of
California without giving effect to the choice of law or conflict of laws
provisions thereof.
Section 4. Entire Agreement. This Agreement contains the
entire agreement of the parties with respect to the subject matter herein and
supersedes any and all agreements or understandings, written or oral, between
the Executive and the Company or any of the Company's principal stockholders,
affiliates or subsidiaries. This Agreement may be changed only by an agreement
in writing signed by each of the parties hereto.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day first hereinabove written.
CN BIOSCIENCES, INC.
By: /s/ Stelios B. Papadopoulos
-------------------------------
Name: Stelios B. Papadopoulos
Title: Chief Executive Officer
and President
EXECUTIVE
/s/ Douglas J. Greenwold
------------------------------------
Douglas J. Greenwold
-3-
<PAGE> 1
Exhibit 10(m) (vii)
SEVERANCE AGREEMENT
AGREEMENT, by and between CN Biosciences, Inc., a Delaware
corporation (the "Company"), and John T. Snow (the "Executive"), dated as of
February 27, 1997.
WHEREAS, the Company wishes to provide for payment to the
Executive in connection with the termination of the Executive's employment by
the Company under certain circumstances.
NOW, THEREFORE, in connection with the mutual covenants
hereinafter set forth and for other good and valuable consideration, the
parties hereto agree as follows:
Section 1. Definitions.
1.1. "Change of Control" shall mean (a) an acquisition
(other than directly from the Company) by an individual, entity or a group
(excluding the Company, an employee benefit plan of the Company or E.M.
Warburg, Pincus & Co., LLC or its affiliates) of 50% or more of the Company's
Common Stock, par value $.01 per share, or voting securities; (b) a change in a
majority of the Company's current Board of Directors (the "Incumbent Board")
(excluding any persons approved by a vote of at least a majority of the
Incumbent Board or persons elected with the concurrence of a majority of the
Incumbent Board); or (c) the consummation of a complete liquidation or
dissolution of the Company or a merger, consolidation or sale of all or
substantially all of the Company's assets (collectively, a "Business
Combination") other than a Business Combination in which all or substantially
all of the Company's stockholders receive 50% or more of the stock of the
Company resulting from the Business Combination, at least a majority of the
board of directors of the resulting corporation were members of the Incumbent
Board, and after which no Person owns 50% or more of the stock of the resulting
corporation, who did not own such stock immediately before the Business
Combination.
1.2. "Cause" shall mean (a) the determination by the Board
of Directors of the Company (the "Board") that the Executive has ceased to
perform his duties as an executive officer of the Company (other than as a
result of his incapacity due to physical or mental illness or injury), which
failure amounts to an intentional and extended neglect of such duties, (b) the
Board's determination that the Executive has engaged or is about to engage in
conduct materially injurious to the Company, (c) the Executive's having been
convicted of a felony, or (d) the Executive's participation in activities
prohibited by the terms of any employment agreement, non-competitive agreement,
non-disclosure agreement or other agreement between the Company and the
Executive relating to the Company's employment of the Executive.
<PAGE> 2
Section 2. Severance Payments to the Executive upon Certain
Events.
2.1. In the event that the Company terminates the
Executive's employment for reasons other than for Cause, the Executive shall
receive salary continuation pay for six months from the date of such
termination equal to the Executive's base salary in effect at such time.
2.2. In the event that during the 90-day period following
the effective date of a Change of Control of the Company, either the Executive
resigns or the Company terminates the Executive's employment for any reason
other than for Cause, the Executive shall receive salary continuation pay for
12 months from the date of such termination equal to the Executive's base
salary in effect at the time of the Change of Control. Any payments due under
this Section 2.2 shall be in lieu of, and not in addition to, any payments
required by Section 2.1 hereof.
2.3. All salary continuation payments (less applicable
payroll taxes) payable hereunder shall be paid periodically to the Executive in
accordance with the Company's policies then in effect.
2.4. During the period in which the Company is obligated to
continue the Executive's salary hereunder (the "Salary Continuation Period"),
the Executive shall be under no obligation to mitigate the costs to the Company
of the salary continuation payments, and, provided that the Executive is not in
breach of his obligations under any agreement not to compete with the Company,
no compensation that the Executive may receive from another employer during the
Salary Continuation Period shall be offset against amounts owed to Executive
hereunder.
Section 3. Governing Law. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of
California without giving effect to the choice of law or conflict of laws
provisions thereof.
Section 4. Entire Agreement. This Agreement contains the
entire agreement of the parties with respect to the subject matter herein and
supersedes any and all agreements or understandings, written or oral, between
the Executive and the Company or any of the Company's principal stockholders,
affiliates or subsidiaries. This Agreement may be changed only by an agreement
in writing signed by each of the parties hereto.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day first hereinabove written.
CN BIOSCIENCES, INC.
By: /s/ Stelios B. Papadopoulos
--------------------------------
Name: Stelios B. Papadopoulos
Title: Chief Executive Officer
and President
EXECUTIVE
/s/ John T. Snow
-------------------------------------
John T. Snow
-3-
<PAGE> 1
Exhibit 10(m)(viii)
AMENDMENT TO EMPLOYMENT AGREEMENT
AMENDMENT TO EMPLOYMENT AGREEMENT, by and between CN
Biosciences, Inc., a Delaware corporation (formerly Calbiochem- Novabiochem
International, Inc., the "Company"), and Ben Matzilevich (the "Employee"),
dated as of February 27, 1997.
WHEREAS, the Company and the Employee are parties to an
Employment Agreement, dated as of February 23, 1996 (the "Employment
Agreement"); and
WHEREAS, the Company and the Employee wish to amend the
Employment Agreement with respect to payment to the Employee in connection with
the termination of the Employee's employment under certain circumstances.
NOW, THEREFORE, in connection with the mutual covenants
hereinafter set forth and for other good and valuable consideration, the
parties hereto agree as follows:
Section 1. Amendments to Employment Agreement.
Paragraph 8 of the Employment Agreement is amended by (A)
amending existing subparagraph (a)(iii) of such paragraph to read in its
entirety as follows:
"(iii) Without Cause (A) if within the 90-day period
following the effective date of a "Change in Control" (as defined
below) of the Company, by paying to the Employee salary continuation
pay equal to the Employee's base salary in effect at the time of
termination for a period equal to the greater of (i) 12 months from
the date of such termination or (ii) the remaining term of this
Employment Agreement or (B) if at any other time, by paying to the
Employee salary continuation pay equal to the Employee's base salary
in effect at the time of termination for the remaining term of this
Employment Agreement. If the Company shall decide not to renew this
Employment Agreement, the ninety (90) day notification of the
Company's intention not to renew prior to expiration of the initial or
any subsequent annual term, shall serve as adequate termination notice
and the Employee hereby agrees to make a smooth transition of
responsibilities during that ninety (90) day period and the Employee
further agrees not to take any legal action against the Company
related to said non-renewal and termination of employment.";
(B) adding a new subparagraph (b) to such paragraph to read as follows:
<PAGE> 2
"(b) In the event that the Employee resigns during
the 90-day period following the effective date of a Change of Control
of the Company, the Employee shall receive salary continuation pay
equal to the Employee's base salary in effect at the time of the
Change in Control for the period of 12 months from the date of such
termination.";
(C) adding a new subparagraph (c) to such paragraph to read as follows:
"(c) For purposes of this Employment Agreement,
"Change of Control" shall mean (a) an acquisition (other than directly
from the Company) by an individual, entity or a group (excluding the
Company, an employee benefit plan of the Company or E.M. Warburg,
Pincus & Co., LLC or its affiliates) of 50% or more of the Company's
Common Stock, par value $.01 per share, or voting securities; (b) a
change in a majority of the Company's current Board of Directors (the
"Incumbent Board") (excluding any persons approved by a vote of at
least a majority of the Incumbent Board or persons elected with the
concurrence of a majority of the Incumbent Board); or (c) the
consummation of a complete liquidation or dissolution of the Company
or a merger, consolidation or sale of all or substantially all of the
Company's assets (collectively, a "Business Combination") other than a
Business Combination in which all or substantially all of the
Company's stockholders receive 50% or more of the stock of the Company
resulting from the Business Combination, at least a majority of the
board of directors of the resulting corporation were members of the
Incumbent Board, and after which no Person owns 50% or more of the
stock of the resulting corporation, who did not own such stock
immediately before the Business Combination."; and
(C) renumbering existing subparagraph (b) of such paragraph to become
subparagraph (d).
Section 2. Governing Law. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of
California without giving effect to the choice of law or conflict of laws
provisions thereof.
Section 3. Entire Agreement. This Agreement contains the
entire agreement of the parties with respect to the subject matter herein and
supersedes any and all agreements or understandings, written or oral, between
the Employee and the Company or any of the Company's principal stockholders,
affiliates or subsidiaries. This Agreement may be changed only by an agreement
in writing signed by each of the parties hereto.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day first hereinabove written.
CN BIOSCIENCES, INC.
By: /s/ Stelios B. Papadopoulos
-------------------------------------
Name: Stelios B. Papadopoulos
Title: Chief Executive Officer
and President
EMPLOYEE
/s/ Ben Matzilevich
----------------------------------------
Ben Matzilevich
-3-
<PAGE> 1
EXHIBIT 13
PORTIONS OF 1996 ANNUAL REPORT TO STOCKHOLDERS
CONSOLIDATED FINANCIAL INFORMATION
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Period from Inception Years Ended December 31,
(March 11, 1992) ----------------------------------------------------------
(in thousands, except per share data) to December 31, 1992 1993 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Sales $17,719 $22,771 $24,188 $26,966 $33,725
Cost of sales 9,691 14,195 13,183 13,185 15,388
----------------------------------------------------------------------------
Gross profit 8,028 8,576 11,005 13,781 18,337
----------------------------------------------------------------------------
Operating expenses:
Selling, general and administrative 7,742 10,292 10,343 10,608 12,700
Research and development 290 462 736 1,338 2,144
----------------------------------------------------------------------------
Total operating expenses 8,032 10,754 11,079 11,946 14,844
----------------------------------------------------------------------------
Income (loss) from operations (4) (2,178) (74) 1,835 3,493
Interest expense, net 61 170 326 527 532
----------------------------------------------------------------------------
Income (loss) before income taxes (65) (2,348) (400) 1,308 2,961
Provision (benefit) for income taxes 401 (195) 62 291 960
----------------------------------------------------------------------------
Net income (loss) $ (466) $(2,153) $ (462) $ 1,017 $ 2,001
============================================================================
Net income (loss) per share $ (.14) $ (.65) $ (.14) $ .30 $ .50
============================================================================
Shares used in per share computations (1) 3,242 3,318 3,328 3,422 3,995
===========================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31, (in thousands) 1992 1993 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments $ 1,238 $ 1,839 $ 935 $ 1,203 $14,704
Working capital 13,000 12,946 13,017 15,424 30,231
Total assets 23,980 24,046 23,495 31,197 46,262
Long-term debt and other obligations,
net of current portion 850 2,834 3,266 8,601 1,233
Redeemable preferred stock 18,025 18,175 18,319 18,343 --
Stockholders' equity (deficit) (24) (2,291) (2,053) (544) 38,900
===========================================================================================================================
</TABLE>
(1) See Note 1 of notes to consolidated financial statements for an
explanation of the method used to determine the number of shares used to
compute per share amounts.
-13-
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
CN Biosciences was formed in 1992 with the purchase of the Company's
subsidiaries, including the Calbiochem biochemical and immunochemical operations
headquartered in San Diego, California, and the Novabiochem peptide operations
headquartered in Laufelfingen, Switzerland, from Biodor Holding AG, Ixora
Holding AG and Biodor US Holding Corporation. During 1993, the Company hired its
current Chief Executive Officer and reorganized its worldwide operations to
better focus its business and corporate strategy on core products. In 1993, the
Company recorded a one-time charge of approximately $2.0 million principally
related to its European operations to reserve for costs of facilities no longer
required, impaired inventory and costs of terminating employees. From 1993 to
1995, the Company invested in excess of $3.2 million for capital expenditures,
principally for infrastructure upgrades to its facilities, automated fulfillment
systems and computer information systems. The Company also hired additional
scientific personnel, particularly employees holding Ph.D.s, to enable it to
expand its internal development and manufacturing capabilities. These
initiatives contributed to improved operating results, and in 1994 the Company
commenced its niche research market strategy with the introduction of the Signal
Transduction specialty catalog.
In August 1995, the Company expanded its immunochemical and molecular biology
capabilities with the purchase of the Oncogene Research Products business from
Oncogene Science, Inc., a biopharmaceutical company ("OSI"), for $6.2 million
cash, which was funded by bank debt. Assets acquired included primarily
inventory and property and equipment. Approximately 30 employees, including four
holding Ph.D.s, all of whom were previously employed by OSI in the Oncogene
Research Products business, joined the Company upon the consummation of the
acquisition. The acquisition and successful integration of this business
enhanced the depth and breadth of the Company's scientific resources, while
providing a complementary base of products and customers. The Company believes
that, due to the highly fragmented nature of the life sciences research products
industry, significant opportunities for consolidation exist. Based on its
experience with the acquisition of the Oncogene Research Products business, the
Company believes it can capitalize on these opportunities, although no
assurances can be given that the Company will be able to identify and
successfully consummate additional acquisitions.
The Company uses general and specialty catalogs to market a broad range of
brand-name research products to life sciences researchers worldwide at
pharmaceutical and biotechnology companies, academic institutions and government
laboratories. The Company invests significantly in producing each of its
catalogs, and associated costs are capitalized and amortized over the estimated
useful life of the catalog, generally 12 to 24 months. The Company believes that
researchers tend to purchase the Company's products as a result of exposure to
multiple catalogs, as well as the Company's numerous other periodic publications
and advertisements.
Since 1993, the Company has increasingly focused its strategy on its higher
margin core business of providing standard laboratory quantity sizes of products
(generally ranging from 100 nanograms to 100 grams), and has reduced the focus
on its bulk business. Bulk quantities (generally up to ten kilograms) are
generally offered at discounts to catalog prices, and bulk sales are
characterized as relatively high dollar sales made to a limited number of
customers. Thus, the absence or presence of bulk sales has had and could have a
material impact on results of operations in any individual period.
The Company maintains significant levels of inventory relative to its net sales
in order to meet short delivery times required by researchers. In addition,
products manufactured internally are made in economic batch sizes which often
represent quantities sufficient to supply more than one year of sales. The
Company's products generally have a relatively long shelf life, often in excess
of five years, and quality and storage conditions are continually monitored to
ensure that quality products are delivered to customers. The Company regularly
evaluates the level and composition of inventory through the analysis of recent
sales history and forecasted product demand to ensure that inventory reserve
levels are adequate to properly reflect their net realizable value. Fluctuations
in inventory reserve levels, other than those related to reserves recorded in
1993 for impaired inventory described above, have not been material to the
Company's financial position or results of operations.
-14-
<PAGE> 3
MANAGEMENT'S DISCUSSION CONTINUED
The Company's reporting currency is the U.S. dollar. Historically, a majority of
the Company's sales have been denominated in U.S. dollars, with the balance
denominated in foreign currencies. These foreign currency sales have been
effected principally by the Company's international subsidiaries. In accordance
with U.S. accounting requirements, sales denominated in foreign currencies are
translated into the local functional currency and then into U.S. dollars, at an
average exchange rate in effect during the period. In addition, the Company
incurs manufacturing costs in Swiss Francs in connection with its Swiss
operations and also incurs operating expenses in local currencies at each of its
other international locations. Thus, changes from reporting period to reporting
period in the exchange rates between various foreign currencies and the U.S.
dollar have had, and will in the future continue to have, an impact on revenues
and expenses reported by the Company, and such effect may be material in any
individual reporting period.
To the extent that the Company incurs operating expenses in local currencies at
its foreign subsidiaries, the Company has a natural hedge against a portion of
the possible fluctuation in foreign currency exchange rates of billings in such
currencies. Although the Company does not engage in significant amounts of
foreign currency hedging transactions, the Company has, from time to time,
entered into forward contracts to hedge certain of its foreign currency
exposures, principally related to fixed expense commitments of its Japanese
subsidiary.
In October 1996, the Company completed the initial public offering of 1,840,000
shares of Common Stock at an initial public offering price of $12.50 per share.
Upon the consummation of the initial public offering, (i) the outstanding shares
of the Company's Series A Convertible Preferred Stock were converted into an
aggregate of 788,814 shares of Class A Common Stock, which shares were
subsequently converted into an equal number of shares of Common Stock, and (ii)
the outstanding shares of the Company's Series B Preferred Stock were exchanged
for an aggregate of 1,435,424 shares of Common Stock.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, items from the
Company's Consolidated Statements of Operations expressed as a percentage of
sales.
<TABLE>
<CAPTION>
Percentage of Sales
---------------------------------------------------
Years Ended December 31, 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales:
Core 68.3% 76.5% 81.9%
Bulk 31.7 23.5 18.1
----------------------------------------------------
Total sales 100.0 100.0 100.0
Cost of sales 54.5 48.9 45.6
----------------------------------------------------
Gross profit 45.5 51.1 54.4
Selling, general and administrative 42.8 39.3 37.7
Research and development 3.0 5.0 6.4
----------------------------------------------------
Income (loss) from operations (0.3) 6.8 10.3
Interest expense, net 1.4 2.0 1.6
----------------------------------------------------
Income (loss) before income taxes (1.7) 4.8 8.7
Provision (benefit) for income taxes 0.2 1.0 2.8
----------------------------------------------------
Net income (loss) (1.9)% 3.8% 5.9%
===========================================================================================================================
</TABLE>
-15-
<PAGE> 4
MANAGEMENT'S DISCUSSION CONTINUED
YEARS ENDED DECEMBER 31, 1996 AND 1995
SALES. Sales increased 25.1% to $33.7 million for 1996 from $27.0 million for
1995. This increase resulted primarily from a 34.0% increase in core product
sales, offset by a decrease in bulk sales of 3.8%. Significant factors which
management believes contributed to the increase in sales of core products during
1996 included the additional sales from a full year of the Oncogene Research
Products business which was acquired in August 1995, issuance of updated
Calbiochem and Novabiochem general catalogs, issuance of an updated Signal
Transduction specialty catalog and introduction of new specialty catalogs
addressing apoptosis and combinatorial chemistry. Excluding the sales of
Oncogene Research Products, sales of core products during 1996 increased by
14.8% as compared to sales in 1995. Gains in 1996 sales were achieved despite a
general strengthening of the U.S. dollar which had the effect of modestly
decreasing the dollar value of sales denominated in foreign currencies recorded
in 1996. The decrease in bulk sales related primarily to the Company's decision
to discontinue sales of a product which had been provided in bulk form to the
veterinary industry in order to avoid subjecting the Company to increased costs
associated with a variety of regulatory requirements.
GROSS PROFIT. The Company's gross profit percentage increased to 54.4% for 1996
from 51.1% for 1995. This increase was primarily the result of increased sales
of the higher gross margin Oncogene Research Products brand products, improved
margins on the Company's Calbiochem and Novabiochem brand products and a
decrease in lower margin bulk sales. Management believes that additional factors
which contributed to improvements in gross margins of Calbiochem and Novabiochem
brand products include improved operating efficiencies from increased volume and
minor price increases.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenditures increased 19.7% to $12.7 million for 1996 from $10.6 million for
1995, and decreased to 37.7% of sales for 1996 from 39.3% for 1995. The dollar
increase in expenses was primarily the result of incremental operational costs
relating to the Oncogene Research Products business, increased administrative
salaries and increased selling costs related to expanded advertising programs
and additional specialty catalogs launched during 1996. The decrease in expenses
as a percentage of sales was attributable to improved operating efficiencies and
increased sales. The Company anticipates a modest growth in administrative
expenses resulting from the Company's reporting obligations and investor
relations activities as a new public company.
RESEARCH AND DEVELOPMENT. Research and development expenditures increased 60.2%
to $2.1 million for 1996 from $1.3 million for 1995. This increase resulted from
additional development activity related to Oncogene Research Products brand
products, research and development costs in connection with products included in
the Company's new Apoptosis specialty catalog launched during the period, and
increased research in the areas of glycobiology and neurosciences. The Company
anticipates maintaining at least the current levels of spending for research and
development in 1997.
INTEREST EXPENSE, NET. Interest expense, net increased to $532,000 for 1996 from
$527,000 for 1995 as a result of interest expense on bank debt related to the
acquisition of the Oncogene Research Products business in 1995, offset partially
by interest income on proceeds from the Company's initial public offering of
common stock completed in October 1996.
INCOME TAXES. Income tax expense increased to $960,000 for 1996 from $291,000
for 1995. This increase was primarily the result of increased profitability and
increased tax rates due to the utilization of certain operating loss
carryforwards generated in prior years.
NET INCOME. As a result of the above factors, net income increased 96.8% to $2.0
million for 1996 from $1.0 million for 1995.
-16-
<PAGE> 5
CN BIOSCIENCES, INC.
YEARS ENDED DECEMBER 31, 1995 AND 1994
SALES. Sales increased 11.5% to $27.0 million for 1995 from $24.2 million for
1994. This increase resulted primarily from a 24.9% increase in core product
sales, including sales of Oncogene Research Products brand products, offset by a
decrease in bulk sales of 17.5%. Sales of core products during 1995, excluding
Oncogene Research Products brand products, increased by 13.5%, primarily as a
result of the continuing success of the Company's niche research market strategy
and growth in sales of amino acids, peptides, linkers and resins featured in the
Company's Novabiochem general catalog. The decrease in bulk sales was related
primarily to the Company's decision to discontinue sales of a product which had
been provided in bulk form to the veterinary industry in order to avoid
subjecting the Company to increased costs associated with a variety of
regulatory requirements. Gains in sales included the results of a general
weakening of the U.S. dollar which had the effect of increasing the dollar value
of sales denominated in foreign currencies recorded in 1995.
GROSS PROFIT. The Company's gross profit percentage increased to 51.1% for 1995
from 45.5% for 1994. This increase was primarily the result of sales of the
higher gross margin Oncogene Research Products brand products for a portion of
the year and increased gross margins in the Company's core and bulk operations
as a result of continued improvement in operating efficiencies subsequent to the
Company's restructuring in 1993. In particular, the Company experienced
improvement in margins of certain products featured in the Company's Novabiochem
general catalog, many of which were manufactured by the Company's Swiss
subsidiary, which was substantially restructured in 1993.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenditures increased 2.6% to $10.6 million for 1995 from $10.3 million for
1994, and decreased to 39.3% of sales for 1995 from 42.8% for 1994. The dollar
increase in selling, general and administrative was the result of adding the
Oncogene Research Products business' operations for a portion of the year,
offset by reductions in operating costs of the Company's Swiss subsidiary in
1995 compared to 1994. The decrease as a percentage of sales reflects the
continued results of the Company's 1993 restructuring and incremental sales
which did not result in comparable growth in expenses.
RESEARCH AND DEVELOPMENT. Research and development expenditures increased 81.8%
to $1.3 million for 1995 from $736,000 for 1994. This increase resulted from
increased research and development related to Oncogene Research Products brand
products for a portion of the year, and research and development costs of
products developed for inclusion in the Apoptosis specialty catalog being
prepared for launch in 1996. This increase included salaries of additional
scientific personnel, as well as increased costs of materials and expenses.
INTEREST EXPENSE, NET. Interest expense, net increased to $527,000 for 1995 from
$326,000 for 1994 primarily as a result of additional borrowings in connection
with the acquisition of the Oncogene Research Products business.
INCOME TAXES. Income tax expense increased to $291,000 for 1995 from $62,000 for
1994 as a result of increased profitability in 1995.
NET INCOME (LOSS). As a result of the above factors, net income increased to
$1.0 million for 1995 from a net loss of $462,000 for 1994.
-17-
<PAGE> 6
CN BIOSCIENCES, INC.
QUARTERLY RESULTS
The following tables present the Company's unaudited quarterly consolidated
results of operations, in dollars and as a percentage of sales, for the eight
quarters ended December 31, 1996. This information has been prepared by the
Company on a basis consistent with the Company's audited consolidated financial
statements and, in the opinion of management, includes all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the results for such periods.
<TABLE>
<CAPTION>
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
Quarters Ended (in thousands) 1995 1995 1995 1995 1996 1996 1996 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales:
Core $4,813 $4,827 $5,293 $5,693 $6,597 $6,949 $7,122 $6,961
Bulk 1,923 1,512 1,572 1,333 1,621 1,398 1,713 1,364
-----------------------------------------------------------------------------------
Total sales 6,736 6,339 6,865 7,026 8,218 8,347 8,835 8,325
Cost of sales 3,508 3,183 3,224 3,270 3,794 3,808 4,065 3,721
-----------------------------------------------------------------------------------
Gross profit 3,228 3,156 3,641 3,756 4,424 4,539 4,770 4,604
Selling, general
and administrative 2,264 2,539 2,785 3,020 3,015 3,170 3,245 3,270
Research and development 218 270 401 449 541 524 590 489
-----------------------------------------------------------------------------------
Income from operations 746 347 455 287 868 845 935 845
Interest expense (income), net 74 85 157 211 206 188 219 (81)
-----------------------------------------------------------------------------------
Income before income taxes 672 262 298 76 662 657 716 926
Provision for income taxes 150 58 66 17 198 264 250 248
-----------------------------------------------------------------------------------
Net income $ 522 $ 204 $ 232 $ 59 $ 464 $ 393 $ 466 $ 678
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
Quarters Ended 1995 1995 1995 1995 1996 1996 1996 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales:
Core 71.5% 76.1% 77.1% 81.0% 80.3% 83.3% 80.6% 83.6%
Bulk 28.5 23.9 22.9 19.0 19.7 16.7 19.4 16.4
----------------------------------------------------------------------------------
Total sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 52.1 50.3 47.0 46.5 46.2 45.6 46.0 44.7
----------------------------------------------------------------------------------
Gross profit 47.9 49.7 53.0 53.5 53.8 54.4 54.0 55.3
Selling, general
and administrative 33.6 40.1 40.6 43.0 36.7 38.0 36.7 39.3
Research and development 3.2 4.2 5.8 6.4 6.6 6.3 6.7 5.9
----------------------------------------------------------------------------------
Income from operations 11.1 5.4 6.6 4.1 10.5 10.1 10.6 10.1
Interest expense (income), net 1.1 1.3 2.3 3.0 2.5 2.2 2.5 (1.0)
----------------------------------------------------------------------------------
Income before income taxes 10.0 4.1 4.3 1.1 8.0 7.9 8.1 11.1
Provision for income taxes 2.2 0.9 0.9 0.3 2.4 3.2 2.8 3.0
----------------------------------------------------------------------------------
Net income 7.8% 3.2% 3.4% 0.8% 5.6% 4.7% 5.3% 8.1%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's quarterly operating results may vary significantly from quarter to
quarter as a result of a number of factors including new product offerings, new
editions of existing catalogs, introduction of additional specialty catalogs and
bulk sales. The Company's bulk sales business fluctuates more and is less
predictable than its core business, and the uncertain timing and volatility of
bulk sales has in the past and may continue in the future to materially affect
the Company's business, financial condition and results of operations. Other
factors which may affect quarterly operating results include the timing of the
U.S. Government approval of the NIH budget, lower European and academic sales
during the summer months and various holiday breaks and fluctuations in weather.
The Company's current and planned expense levels are based in part upon its
expectations as to future revenues. Consequently, if revenues in a particular
quarter do not meet expectations, the Company may not be able to adequately
adjust operating expenses to compensate for the shortfall. Operating results may
therefore vary significantly from quarter to quarter and will not necessarily be
indicative of results in subsequent periods.
-18-
<PAGE> 7
MANAGEMENT'S DISCUSSION CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $2.0 million of cash from operating activities in each of
1996 and 1995 and used $29,000 of cash in 1994. Cash provided from operating
activities in 1996 resulted from positive operating results, adjusted for
non-cash charges including depreciation and amortization, offset primarily by
catalog costs capitalized in other assets and increases in inventory and
accounts receivable. Cash provided by operating activities in 1995 resulted from
positive operating results, which were principally offset by catalog costs
capitalized in other assets. Cash used in operating activities in 1994 was less
than the net loss primarily due to the liquidation of inventories offset by
increases in accounts receivable due to increased sales.
Net cash used in investing activities was $4.5 million in 1996, $6.8 million in
1995 and $1.2 million in 1994. During 1995, the Company acquired the Oncogene
Research Products business in a purchase transaction requiring an investment of
approximately $6.2 million. In 1996, investing activities consisted primarily of
purchases and sales of short-term investments, and in 1994 investing activities
consisted primarily of capital expenditures for property and equipment.
Net cash provided by financing activities was $11.9 million in 1996, $5.1
million in 1995 and $232,000 in 1994. In 1996, net cash provided by financing
activities consisted of cash received from the issuance of shares of Common
Stock in the Company's initial public offering, offset by payments to fully
retire bank term debt. During 1995, the Company incurred $6.0 million of
indebtedness, consisting primarily of borrowings from financial institutions, in
connection with the purchase of the Oncogene Research Products business. In
1994, net cash provided by financing activities consisted primarily of
borrowings from financial institutions offset by repayments.
The Company is a holding company, the principal assets of which are the capital
stock of its subsidiaries, and has no independent means of generating operating
revenues. As a holding company, the Company depends on dividends and other
permitted payments from its subsidiaries, including its international
subsidiaries, to meet its cash needs. The Company maintains cash balances at its
various subsidiaries adequate to support local operations. The amount of
foreign-sourced earnings to be repatriated to the United States is determined
based upon foreign entity capitalization, local cash needs, local and U.S. tax
implications and requirements for cash in the U.S. operations.
At December 31, 1996, the Company had cash, cash equivalents and short-term
investments of $14.7 million and working capital of $30.2 million. The Company's
U.S. subsidiary's bank credit agreement (the "Credit Facility") provides for
unsecured borrowings up to a maximum of $5.0 million. At December 31, 1996, $5.0
million was available under the Credit Facility, which expires in June 1998.
The Company believes that its existing capital resources will be sufficient to
fund its operations for at least the next two years. If, however, the Company
were to undertake a significant acquisition or if working capital or other
capital requirements are greater than currently anticipated, the Company could
be required to seek additional funds through increased credit facilities or
sales of equity, debt or convertible securities. There can be no assurance that
additional financing will be available or that, if available, the financing will
be on terms favorable to the Company and its stockholders.
FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements which express the beliefs
and expectations of management. Such statements are based on current
expectations and involve a number of known and unknown risks and uncertainties
that could cause the Company's future results, performance or achievements to
differ significantly from the results, performance or achievements expressed or
implied by such forward-looking statements. Important factors that could cause
or contribute to such differences are and will be discussed in the Company's
Annual Report on Form 10-K and the Company's periodic and other filings made
with the Securities and Exchange Commission.
-19-
<PAGE> 8
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,203,000 $10,591,000
Short-term investments -- 4,113,000
Accounts receivable, trade, net of allowance for doubtful
accounts of $472,000 in 1995 and $341,000 in 1996 4,099,000 4,487,000
Inventories 14,443,000 14,733,000
Other current assets 476,000 2,436,000
------------------------------------------
Total current assets 20,221,000 36,360,000
Property and equipment, net 4,030,000 3,688,000
Intangible assets, net 6,067,000 4,836,000
Other assets 879,000 1,378,000
------------------------------------------
Total assets $31,197,000 $46,262,000
------------------------------------------
Liabilities and stockholders' equity (deficit)
Current liabilities:
Accounts payable, trade $ 1,491,000 $ 2,303,000
Accrued expenses 1,556,000 1,906,000
Other current liabilities 583,000 1,920,000
Current portion of long-term debt 1,167,000 --
------------------------------------------
Total current liabilities 4,797,000 6,129,000
Long-term debt, net of current portion 7,000,000 --
Other liabilities 1,601,000 1,233,000
Commitments
Redeemable preferred stock 18,343,000 --
Stockholders' equity (deficit):
Preferred stock, $.01 par value; 5,000,000 shares authorized,
none issued and outstanding -- --
Common stock, $.01 par value; 30,000,000 shares authorized, 1,058,065
shares in 1995 and 5,152,587 shares in 1996 issued and outstanding 11,000 52,000
Additional paid-in capital 255,000 38,736,000
Accumulated deficit (2,064,000) (63,000)
Foreign currency translation adjustment 1,254,000 271,000
Note receivable from common stockholder -- (96,000)
-----------------------------------------
Total stockholders' equity (deficit) (544,000) 38,900,000
-----------------------------------------
Total liabilities and stockholders' equity $31,197,000 $46,262,000
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
-20-
<PAGE> 9
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31, 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $24,188,000 $26,966,000 $33,725,000
Cost of sales 13,183,000 13,185,000 15,388,000
--------------------------------------------------------------
Gross profit 11,005,000 13,781,000 18,337,000
Operating expenses:
Selling, general and administrative 10,343,000 10,608,000 12,700,000
Research and development 736,000 1,338,000 2,144,000
--------------------------------------------------------------
Total operating expenses 11,079,000 11,946,000 14,844,000
Income (loss) from operations (74,000) 1,835,000 3,493,000
Interest expense, net 326,000 527,000 532,000
--------------------------------------------------------------
Income (loss) before income taxes (400,000) 1,308,000 2,961,000
Provision for income taxes 62,000 291,000 960,000
--------------------------------------------------------------
Net income (loss) $ (462,000) $ 1,017,000 $ 2,001,000
--------------------------------------------------------------
Net income (loss) per share $ (.14) $ .30 $ .50
--------------------------------------------------------------
Shares used in per share computations 3,328,000 3,422,000 3,995,000
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
Consolidated Statements of Stockholder's Equity (Deficit)
<TABLE>
<CAPTION>
Note
Foreign receivable
Additional currency from
Common stock paid-in Accumulated translation common
Shares Amount capital deficit adjustment stockholder Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 1,044,309 $11,000 $ 430,000 $(2,619,000) $(101,000) $(12,000) $(2,291,000)
Forgiveness of stockholder
note receivable -- -- -- -- -- 6,000 6,000
Exercise of stock options 16,561 -- 7,000 -- -- -- 7,000
Net loss -- -- -- (462,000) -- -- (462,000)
Translation adjustment -- -- -- -- 687,000 -- 687,000
-----------------------------------------------------------------------------------------
Balance at December 31, 1994 1,060,870 11,000 437,000 (3,081,000) 586,000 (6,000) (2,053,000)
Forgiveness of stockholder
note receivable -- -- -- -- -- 6,000 6,000
Repurchase of stock (59,726) -- (206,000) -- -- -- (206,000)
Exercise of stock options 56,922 -- 24,000 -- -- -- 24,000
Net income -- -- -- 1,017,000 -- -- 1,017,000
Translation adjustment -- -- -- -- 668,000 -- 668,000
-----------------------------------------------------------------------------------------
Balance at December 31, 1995 1,058,066 11,000 255,000 (2,064,000) 1,254,000 -- (544,000)
Exercise of stock options,
including tax benefit 1,893 1,000 5,000 -- -- -- 6,000
Issuance of note receivable
for common stock 28,390 -- 96,000 -- -- (96,000) --
Sale of common stock net of
issuance costs of $2,923,000 1,840,000 18,000 20,059,000 -- -- -- 20,077,000
Conversion of preferred stock 2,224,238 22,000 18,321,000 -- -- -- 18,343,000
Net income -- -- -- 2,001,000 -- -- 2,001,000
Translation adjustment -- -- -- -- (983,000) -- (983,000)
-----------------------------------------------------------------------------------------
Balance at December 31, 1996 5,152,587 $52,000 $38,736,000 $ (63,000) $ 271,000 $(96,000) $38,900,000
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
-21-
<PAGE> 10
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended December 31, 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (462,000) $ 1,017,000 $ 2,001,000
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operations:
Depreciation and amortization 1,448,000 1,856,000 1,877,000
Additions to inventory reserve 192,000 317,000 310,000
Additions (reductions) to allowance for doubtful accounts 217,000 (129,000) 10,000
Loss on disposal of property and equipment 2,000 10,000 5,000
Forgiveness of note receivable from stockholder 150,000 150,000 --
Changes in assets and liabilities:
Accounts receivable, trade (327,000) (409,000) (599,000)
Inventories 709,000 (370,000) (1,325,000)
Other current assets (12,000) 329,000 (842,000)
Deferred income taxes 42,000 26,000 (242,000)
Other assets (475,000) (1,153,000) (1,102,000)
Accounts payable, trade (784,000) 148,000 910,000
Accrued expenses (436,000) 781,000 365,000
Other current liabilities (655,000) (590,000) 1,300,000
Other liabilities 362,000 9,000 (643,000)
-------------------------------------------------------------
Net cash provided by (used in) operating activities (29,000) 1,992,000 2,025,000
INVESTING ACTIVITIES
Purchases of property and equipment (1,436,000) (805,000) (369,000)
Proceeds from sale of property and equipment 51,000 22,000 5,000
Purchase of business -- (6,213,000) --
Purchase of short-term investments -- -- (4,829,000)
Sale of short-term investments -- -- 716,000
Other 154,000 150,000 --
-------------------------------------------------------------
Net cash used in investing activities (1,231,000) (6,846,000) (4,477,000)
-------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from lines of credit 258,000 809,000 1,025,000
Payments on lines of credit (33,000) (1,404,000) (1,025,000)
Proceeds from long-term debt 2,500,000 8,500,000 --
Payments on long-term debt (2,500,000) (2,500,000) (8,167,000)
Proceeds from sale of common stock 7,000 24,000 20,083,000
Payments for repurchase of stock -- (326,000) --
-------------------------------------------------------------
Net cash provided by financing activities 232,000 5,103,000 11,916,000
-------------------------------------------------------------
Effect of exchange rate changes on cash 124,000 19,000 (76,000)
-------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (904,000) 268,000 9,388,000
Balance at beginning of year 1,839,000 935,000 1,203,000
-------------------------------------------------------------
Balance at end of year $ 935,000 $ 1,203,000 $ 10,591,000
-------------------------------------------------------------
Supplemental cash flow information:
Interest paid during the year $ 316,000 $ 548,000 $ 747,000
-------------------------------------------------------------
Income taxes paid during the year $ 86,000 $ 313,000 $ 67,000
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
-22-
<PAGE> 11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996
1. Organization and Summary of Significant Accounting Policies
ORGANIZATION
CN Biosciences, Inc. is engaged in the development, production, marketing and
distribution of a broad array of products used worldwide in disease-related life
sciences research at pharmaceutical and biotechnology companies, academic
institutions and government laboratories. The Company's products include
biochemical and biological reagents, antibodies, assays and research kits which
it sells principally through its general and specialty catalogs under its well
established brand names, including Calbiochem, Novabiochem and Oncogene Research
Products. With over 7,800 products, the Company offers scientists the
convenience of obtaining from a single source both innovative and fundamental
research products, many of which are instrumental to research in areas such as
cancer, cardiovascular disease, Alzheimer's and AIDS.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CASH EQUIVALENTS
For purposes of financial statement preparation, the Company considers all
demand deposits with banks or other financial institutions and investments with
initial maturities of three months or less at the date of purchase as cash
equivalents.
CONCENTRATION OF CREDIT RISK AND REVENUE RECOGNITION
The Company deposits its cash in financial institutions. At times, such deposits
may be in excess of insured limits. To date, the Company has not experienced any
losses on its cash investments.
The Company records revenue upon shipment. Accounts receivable are derived from
sales which are generally for small amounts and denominated in various
currencies. The Company grants credit to its customers based on an evaluation of
the customer's financial condition and collateral is generally not required.
Management believes the allowance for doubtful accounts is sufficient to provide
for any future losses. Credit losses have traditionally been minimal and within
management's expectations.
SHORT-TERM INVESTMENTS
The Company has classified its investments as available-for-sale and accordingly
carries them at fair value. Unrealized holding gains or losses, if any, net of
tax, on these securities are carried as a separate component of stockholders'
equity. The amortized cost of debt securities in this category is adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization is included in interest income. Realized gains and losses and
declines in value judged to be other than temporary on available-for-sale
securities are also included in interest income. The cost of securities sold is
based on the specific identification method.
INVENTORIES
Inventories are maintained to support customer deliveries worldwide, often on a
next-day or second-day basis, of many sizes and quantities of each brand of
catalog item. Based upon economic production runs for certain products, the
Company from time to time manufactures quantities of product in excess of a
one-year supply. Inventories are valued at the lower of cost (first-in,
first-out basis) or market, with costs including material, labor and
manufacturing overhead.
-23-
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided under the
straight-line method over 3 to 5 years for equipment and office fixtures and
over the shorter of the remaining lease life or 15 years for leasehold
improvements.
IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121") regarding the
impairment of long-lived assets, identifiable intangibles and goodwill related
to those assets. SFAS 121 is effective for financial statements for fiscal years
beginning after December 15, 1995. The Company adopted this standard effective
January 1, 1996 and such adoption did not have a material effect on the
Company's financial position or results of operations.
DEFERRED CHARGES
In accordance with Statement of Position No. 93-7, the Company expenses the
production costs of advertising the first time the advertising takes place,
except for direct-response advertising, the costs of which are capitalized and
amortized into advertising expense over the expected period of future benefits
which varies from one to two years.
Direct-response advertising consists of costs relating to the preparation,
printing and distribution of the Company's product catalogs. The capitalized
costs of direct-response advertising are included in other assets.
STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
FOREIGN CURRENCY TRANSLATION
The financial statements of foreign subsidiaries are translated to U.S. dollars.
All assets and liabilities are translated at year end exchange rates, and
stockholders' equity is translated at historical exchange rates. The resulting
translation adjustment is recorded as a separate component of stockholders'
equity. Sales and expense transactions are translated at average exchange rates.
Foreign currency transaction gains and losses were not material during any of
the three years in the period ended December 31, 1996.
NET INCOME (LOSS) PER SHARE
For periods subsequent to the completion of the Company's initial public
offering of common stock ("IPO") in October 1996, net income (loss) per share is
computed using the weighted average number of shares of common stock and common
stock equivalents outstanding during the periods presented. Common share
equivalents result from outstanding options and warrants to purchase common
stock. For loss periods, common share equivalents were not included in computing
net loss per share since the effect would have been antidilutive. For periods
prior to the IPO, net income (loss) per share is computed pursuant to the
requirements of the Securities and Exchange Commission which require that common
stock issued during the twelve months immediately preceding the IPO, plus the
number of equivalent shares of common stock granted or issued during the same
period, be included in the calculation of shares used in computing net income
(loss) per share as if these shares were outstanding for all periods presented
(using the treasury stock method and the assumed initial public offering price).
In addition, the calculation of the shares used in computing net income (loss)
per share also gives effect to the conversion and exchange of the shares of
preferred stock upon completion of the IPO using the if-converted method from
the original date of issuance.
-24-
<PAGE> 13
CN BIOSCIENCES, INC.
2. ACQUISITION
On August 1, 1995, the Company acquired certain assets and assumed certain
liabilities of the Oncogene Research Products Business ("ORP") of Oncogene
Science, Inc., a biopharmaceutical company, in exchange for $5,932,000 in cash
plus acquisition costs of $281,000. The acquisition has been accounted for as a
purchase and, accordingly, the purchase price has been allocated to the assets
acquired and liabilities assumed based on the estimated fair values at the date
of acquisition. This allocation resulted in $4,335,000 of costs in excess of net
assets acquired which is being amortized over 15 years. ORP's results of
operations have been included in the consolidated results of the Company from
August 1, 1995.
The ORP purchase price allocation is summarized as follows:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------------------------------------------
Inventories $1,507,000
Property and equipment 350,000
Other current assets 121,000
Costs in excess of net assets acquired 4,335,000
----------------
Total assets 6,313,000
Liabilities assumed (100,000)
----------------
Net assets acquired $6,213,000
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The following unaudited pro forma information presents the combined results of
operations of the Company and ORP for the years ended December 31, 1994 and 1995
as though the acquisition had occurred January 1, 1994. The unaudited pro forma
information is included for comparative purposes only and is not necessarily
indicative of the results of operations that would have occurred had the
acquisition been made on the date indicated or of future results of the combined
companies.
<TABLE>
<CAPTION>
Years Ended December 31, 1994 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $28,908,000 $29,937,000
Net income (loss) (332,000) 979,000
Net income (loss) per share $ (.10) $ .29
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
3. FINANCIAL STATEMENT DETAILS
Short-term investments of the Company are classified as available-for-sale and
are stated at amortized cost which approximates market value. There were no
significant unrealized or realized gains or losses related to such securities as
of December 31, 1996. The Company's available-for-sale securities and cash
equivalents consist entirely of state and municipal debt securities and mature
at various dates through 1998.
INVENTORIES
<TABLE>
<CAPTION>
December 31, 1995 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Finished products $13,987,000 $13,777,000
Semi-finished products, raw materials and supplies 3,958,000 4,131,000
Work-in-progress 415,000 525,000
--------------------------------------
18,360,000 18,433,000
Reserves for excess materials (3,917,000) (3,700,000)
--------------------------------------
$14,443,000 $14,733,000
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
-25-
<PAGE> 14
CN BIOSCIENCES, INC.
<TABLE>
<S> <C> <C>
OTHER CURRENT ASSETS
December 31, 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
Deferred income taxes $ 82,000 $1,211,000
Other 394,000 1,225,000
---------------------------------------------
$476,000 $2,436,000
- ---------------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
December 31, 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
Equipment and office fixtures $6,365,000 $6,581,000
Leasehold improvements 1,131,000 1,165,000
----------------------------------------------
7,496,000 7,746,000
Accumulated depreciation (3,466,000) (4,058,000)
----------------------------------------------
$4,030,000 $3,688,000
- ---------------------------------------------------------------------------------------------------------------------------
INTANGIBLE ASSETS
December 31, 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
Goodwill $6,561,000 $5,707,000
Accumulated amortization (494,000) (871,000)
----------------------------------------------
$6,067,000 $4,836,000
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Goodwill represents the excess of the purchase price over the fair market value
of assets acquired, and is being amortized over 15 to 25 years. In 1995 and
1996, the Company reduced the value of goodwill by $150,000 and $854,000
respectively, based on the recognition of certain deferred tax assets which had
previously been considered unrealizable. Amortization of goodwill for the years
ended December 31, 1994, 1995 and 1996 was $100,000, $215,000, and $377,000,
respectively.
OTHER ASSETS
<TABLE>
<CAPTION>
December 31, 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Capitalized direct-response advertising $171,000 $ 842,000
Other 708,000 536,000
--------------------------------------------
$879,000 $1,378,000
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Amortization of capitalized direct-response advertising for the years ended
December 31, 1994, 1995 and 1996 was $400,000, $714,000 and $551,000,
respectively.
4. BANK DEBT
The Company's U.S. subsidiary's credit agreement with a commercial bank provides
for unsecured borrowings under a revolving line of credit up to a maximum of
$5,000,000 which expires in June 1998. The facility provides that the Company
can elect that borrowings bear interest at the bank's prime rate or LIBOR plus
2.35% (8.25% at December 31, 1996). There were no borrowings outstanding under
this facility at December 31, 1996.
Interest expense charged against operations for the years ended December 31,
1994, 1995 and 1996 was $349,000, $574,000 and $717,000, respectively.
-26-
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
REDEEMABLE PREFERRED STOCK
Upon consummation of the Company's IPO, the holder of the 4,001 outstanding
shares of Series A preferred stock converted such shares into 788,814 shares of
Class A common stock which was subsequently converted into 788,814 shares of
common stock, and the holders of the 179,428 outstanding shares of Series B
preferred stock exchanged such shares of Series B preferred stock for 1,435,424
shares of common stock.
CLASS A COMMON STOCK
In January 1995, the Company authorized 500,000 shares, $.01 par value, of
nonvoting Class A common stock and in July 1996, increased the number of such
authorized shares to 800,000. Each share of Class A common stock is convertible
into one fully paid and nonassessable share of voting common stock at any time
at the election of the holder subject to certain terms and conditions. In
December 1996, the holder of the 788,814 outstanding shares of Class A common
stock converted such shares into 788,814 shares of common stock. At December 31,
1996, 11,186 shares of Class A common stock were available to be issued.
STOCK OPTION PLANS
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation" ("Statement 123") requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
The Company's Amended and Restated 1992 Stock Option Plan has authorized the
grant of options to employees, directors and consultants of the Company for up
to 835,000 shares of the Company's common stock. Options granted have 5 to 10
year terms and vest and become fully exercisable 4 to 5 years from the date of
grant.
A summary of the Company's stock option activity and related information is as
follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-- beginning of year 382,984 $.42 379,672 $.42 395,334 $ .45
Granted 23,659 .42 101,732 .54 244,600 16.50
Exercised (16,561) .42 (56,922) .42 (1,893) .42
Forfeited (10,410) .42 (29,148) .42 (2,716) 3.05
-----------------------------------------------------------------------------
Outstanding-- end of year 379,672 $.42 395,334 $.45 635,325 $ 6.62
-----------------------------------------------------------------------------
Exercisable-- end of year 94,137 $.42 125,153 $.42 214,211 $ .43
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Exercise prices for options outstanding as of December 31, 1996 ranged from $.42
to $16.50. The weighted-average remaining contractual life of those options is
approximately 5 years.
At December 31, 1996, options for 117,675 shares were available for future
grant. At December 31, 1996, 756,028 shares of common stock were reserved for
future issuance related to stock options and warrants.
Pro forma information regarding net income and net income per share is required
by Statement 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that statement. The
fair value of these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions for 1995 and 1996, respectively: risk-free interest rates of 5.8% to
6.8% and 5.4% to 6.0%; dividend yields of 0%; volatility factors of the expected
market price of the Company's common stock of 0 and .3853; and a
weighted-average life of the option of 4.5 years.
-27-
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period of such options. The effects of
applying Statement 123 for pro forma disclosure purposes are not likely to be
representative of the effects on pro forma net income in future years because
they do not take into consideration pro forma compensation expense related to
grants made prior to 1995. The Company's pro forma information follows:
<TABLE>
<CAPTION>
1995 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pro forma net income $1,014,000 $1,915,000
----------------------------------
Pro forma net income per share $ .30 $ .48
----------------------------------
Weighted-average fair value of options granted during the year $ .15 $ 8.74
- --------------------------------------------------------------------------------------------------------
</TABLE>
WARRANTS
During 1995, the Company issued a warrant to purchase 3,028 shares of the
Company's common stock at $1.06 per share. The value of the warrant on the date
of issuance was not considered significant. The warrant is currently exercisable
and expires in July 2000.
6. TRANSACTIONS WITH EMPLOYEE/STOCKHOLDERS
In 1993, the Company entered into an employment agreement with the Chairman and
Chief Executive Officer of the Company. As part of this agreement, the Company
granted an option to purchase 110,249 shares of common stock at $.42 per share.
The options vest over four years and expire in January 1998. In addition, the
Company issued 44,100 shares of common stock at $.42 per share and 4,377 shares
of Series B preferred stock at $100 per share in exchange for $4,000 in cash and
a note for $452,000. The note bears interest at 8% per annum, payable annually.
Amounts forgiven in 1993, 1994 and 1995 related to this note, charged to current
operations, were $152,000, $150,000 and $150,000, respectively.
Effective June 9, 1995, an officer/stockholder of the Company resigned and, in
connection therewith in October 1995, the Company entered into an agreement to
reacquire 59,726 shares of common stock at a price of $3.4515 per share and
1,199 shares of Series B preferred stock at a price of $100 per share, resulting
in a total cost of $326,000. The cost of the reacquired shares was applied
against preferred stock ($120,000) and paid-in-capital ($206,000).
In January 1996, the Company sold 28,390 shares of common stock to an officer of
the Company in exchange for a note receivable of $96,000 bearing interest at
5.65%.
-28-
<PAGE> 17
CN BIOSCIENCES, INC.
7. INCOME TAXES
The significant components of the provision (benefit) for income taxes are as
follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1994 1995 1996
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $17,000 $ 52,000 $714,000
State 2,000 17,000 52,000
--------------------------------------------------------
19,000 69,000 766,000
Deferred:
Federal 43,000 139,000 (277,000)
State -- 36,000 (110,000)
--------------------------------------------------------
43,000 175,000 (387,000)
--------------------------------------------------------
Total Federal and State 62,000 244,000 379,000
Foreign -- 47,000 581,000
--------------------------------------------------------
$62,000 $291,000 $960,000
--------------------------------------------------------------------------------------------------------
</TABLE>
Temporary differences and carryforwards which give rise to a significant portion
of the net deferred tax asset included in the accompanying consolidated balance
sheets at December 31, 1995 and 1996 are shown below. As of December 31, 1995
and 1996, a valuation allowance of $3,296,000 and $2,389,000, respectively, had
been recognized as an offset to the deferred tax assets related to the
jurisdictions in which realization of such assets is uncertain.
<TABLE>
<CAPTION>
Years Ended December 31, 1995 1996
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Inventory reserves $ 548,000 $ 472,000
Accounts receivable reserves 65,000 62,000
Net operating losses 2,397,000 2,336,000
Deferred rent 102,000 148,000
Other 283,000 801,000
-----------------------------------
3,395,000 3,819,000
Valuation allowances (3,296,000) (2,389,000)
-----------------------------------
99,000 1,430,000
Deferred tax liabilities:
Depreciation (15,000) (157,000)
Other -- (92,000)
-----------------------------------
(15,000) (249,000)
-----------------------------------
Net deferred tax assets $84,000 $1,181,000
-------------------------------------------------------------------------------------------------------
</TABLE>
-29-
<PAGE> 18
CN BIOSCIENCES, INC.
Income tax expense differs from the amount obtained by applying the statutory
federal income tax rate to earnings before tax as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1994 1995 1996
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision at federal statutory rate $(136,000) $445,000 $1,007,000
State income taxes, net of federal benefit 1,000 56,000 91,000
Nondeductible expenses, including amortization
of costs in excess of net assets acquired 63,000 71,000 42,000
Change in valuation allowance, net of write-offs
and adjustments 134,000 (298,000) (113,000)
Other, net -- 17,000 (67,000)
-----------------------------------------------
Total income tax expense $ 62,000 $291,000 $960,000
--------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, the Company had state net operating loss carryforwards of
approximately $211,000 which begin to expire in 1998 unless previously utilized.
The Company also had approximately $1,641,000 and $258,000 of foreign net
operating losses in Germany and the United Kingdom, respectively, which are
available indefinitely. Additionally, the Company has approximately $6,492,000
and $5,727,000 of net operating losses for Swiss Federal and Cantonal purposes,
respectively, which will begin to expire in 2000 and 1997, respectively, unless
previously utilized.
8. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and equipment under various operating
leases. Lease expense on the facilities and equipment for the years ended
December 31, 1994, 1995 and 1996 was $1,157,000, $1,126,000 and $1,640,000,
respectively.
The Company is party to a fifteen year lease agreement for premises which were
first occupied during 1993. The Company has two options to extend the term of
the lease for five years each.
In addition, the Company leases certain equipment under capital leases. Cost and
accumulated amortization of equipment under capital leases at December 31, 1995
were approximately $1,514,000 and $587,000, respectively, and at December 31,
1996 were $1,491,000 and $359,000, respectively. Amortization of assets held
under capital leases is included with depreciation expenses.
Future annual minimum payments under the operating and capital leases as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Operating Capital
Leases Leases
-------------------------------------------------------------------------------
<S> <C> <C>
1997 $ 1,486,000 $425,000
1998 1,350,000 232,000
1999 1,144,000 181,000
2000 1,125,000 80,000
2001 1,112,000 24,000
Thereafter 6,465,000 --
-----------------------------------
$12,682,000 942,000
Less amounts representing interest ----------- (137,000)
--------
Present value of future minimum lease payments 805,000
Less current portion (included in other current liabilities) (369,000)
--------
Capital lease obligation, net of current portion
(included in other liabilities) $436,000
-------------------------------------------------------------------------------
</TABLE>
-30-
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. CUSTOMER AND GEOGRAPHIC INFORMATION
The Company operates in one business segment, the development, production,
marketing and distribution of a broad array of products used in disease-related
life sciences research at pharmaceutical and biotechnology companies, academic
institutions and government laboratories. No single customer accounted for more
than 10% of total revenue during any of the three years in the period ended
December 31, 1996. United States export sales, principally to Europe and Asia,
aggregated $2,524,000, $4,429,000 and $6,812,000, for the years ended December
31, 1994, 1995 and 1996, respectively.
Information with respect to the Company's operations by significant geographic
area is set forth below. Transfers between geographic areas have been shown at
the agreed upon transfer price, computed by applying discount percentages to
local currency list prices. All transactions denominated in foreign currency
have been translated at the average exchange rate during the period.
<TABLE>
<S> <C> <C> <C> <C> <C>
Consolidated
Year Ended December 31, 1994 (in thousands) United States Europe Other Eliminations Total
- ---------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $12,554 $ 9,329 $2,305 $ -- $24,188
Transfers between geographic areas 2,996 3,581 701 (7,278) --
----------------------------------------------------------------------
Total revenue $15,550 $12,910 $3,006 $(7,278) $24,188
----------------------------------------------------------------------
Income (loss) before income taxes $ (251) $ (126) $ 67 $ (90) $ (400)
----------------------------------------------------------------------
Identifiable assets $15,624 $ 8,315 $ 395 $ (839) $23,495
- ---------------------------------------------------------------------------------------------------------------------------
Consolidated
Year Ended December 31, 1995 (in thousands) United States Europe Other Eliminations Total
- ---------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $13,202 $11,353 $2,411 $ -- $26,966
Transfers between geographic areas 3,735 4,435 339 (8,509) --
----------------------------------------------------------------------
Total revenue $16,937 $15,788 $2,750 $(8,509) $26,966
----------------------------------------------------------------------
Income before income taxes $ 211 $ 1,058 $ 36 $ 3 $ 1,308
----------------------------------------------------------------------
Identifiable assets $22,557 $ 8,978 $ 482 $ (820) $31,197
- ---------------------------------------------------------------------------------------------------------------------------
Consolidated
Year Ended December 31, 1996 (in thousands) United States Europe Other Eliminations Total
- ---------------------------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers $17,298 $12,946 $3,481 $ -- $33,725
Transfers between geographic areas 5,139 4,999 450 (10,588) --
----------------------------------------------------------------------
Total revenue $22,437 $17,945 $3,931 $(10,588) $33,725
----------------------------------------------------------------------
Income before income taxes $ 1,373 $ 1,555 $ 33 $ -- $ 2,961
----------------------------------------------------------------------
Identifiable assets $37,914 $ 8,926 $ 453 $ (1,031) $46,262
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
10. EMPLOYEE BENEFIT PLAN
The Company sponsors a Defined Contribution Plan which covers substantially all
domestic employees who meet certain age requirements. Employees may contribute
up to 15% of their compensation per year (subject to a maximum limit imposed by
federal tax law). The Company may make matching contributions equal to a maximum
of 30% of each participant's contribution per year. The contributions charged to
operations for the years ended December 31, 1994, 1995 and 1996 were $31,000,
$67,000 and $87,000, respectively.
-31-
<PAGE> 20
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
CN Biosciences, Inc.
We have audited the accompanying consolidated balance sheets of CN Biosciences,
Inc. as of December 31, 1995 and 1996 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of CN
Biosciences, Inc. at December 31, 1995 and 1996 and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
San Diego, California
February 21, 1997
-32-
<PAGE> 21
STOCK LISTING
CN Biosciences, Inc. common stock trades on the Nasdaq National Market tier of
The Nasdaq Stock Market under the symbol CNBI.
PRICE RANGE OF COMMON STOCK
As of March 3, 1997 there were approximately 22 holders of record of the
Company's common stock and 5,154,953 shares of common stock outstanding. No cash
dividends have been paid on the common stock since the Company's inception, and
the Company does not anticipate paying any cash dividends in the foreseeable
future. The Company is a guarantor of its U.S. subsidiary's bank credit
agreement, which restricts the payment of cash dividends by the Company.
The following table presents the high and low sales prices as quoted by NASDAQ:
1996 High Low
- ---------------- ------ -------
10/2/96-12/31/96 $18.50 $12.75
[Inside Back Cover Page]
<PAGE> 1
Exhibit 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report on Form 10-K
of CN Biosciences, Inc., and in the Registration Statement (Form S-8 File No.
333-16527) pertaining to the Company's Amended and Restated 1992 Stock Option
Plan of our report dated February 21, 1997, included in the 1996 Annual Report
to Stockholders of CN Biosciences, Inc.
Our audits also included the financial statement schedule of CN Biosciences,
Inc. listed in Item 14(a). This schedule is the responsibility of CN
Biosciences, Inc.'s management. Our responsibility is to express an opinion
based on our audits. In our opinion, the financial statement schedule referred
to above, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
San Diego, California
March 25, 1997
