<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 4, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CN BIOSCIENCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 2833 33-0509785
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION OR
ORGANIZATION)
</TABLE>
------------------------
10394 PACIFIC CENTER COURT
SAN DIEGO, CALIFORNIA 92121
(619) 450-5500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JAMES G. STEWART
VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND SECRETARY
CN BIOSCIENCES, INC.
10394 PACIFIC CENTER COURT
SAN DIEGO, CALIFORNIA 92121
(619) 450-5500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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<S> <C>
PETER H. JAKES, ESQ. FREDERICK T. MUTO, ESQ.
WILLKIE FARR & GALLAGHER COOLEY GODWARD LLP
ONE CITICORP CENTER 4365 EXECUTIVE DRIVE
153 EAST 53RD STREET SAN DIEGO, CALIFORNIA 92121
NEW YORK, NEW YORK 10022 (619) 550-6000
(212) 821-8000
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
============================================================================================================
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share... 1,150,000 shares $14.50 $16,675,000 $5,053.03
============================================================================================================
</TABLE>
(1) Includes 150,000 shares which may be sold pursuant to the Underwriters'
over-allotment option.
(2) Estimated solely for purpose of determining the registration fee based on
the average of the high and low prices on February 28, 1997 pursuant to Rule
457(c) under the Securities Act.
(3) This amount was wired to the account of the Securities and Exchange
Commission (the "Commission") at Mellon Bank in payment of the required
registration fee due in connection with this Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
Subject to Completion, Dated March 4, 1997
PROSPECTUS
1,000,000 SHARES
[CNB LOGO]
COMMON STOCK
------------------------
Of the 1,000,000 shares of Common Stock offered hereby, 89,810 shares are
being sold by CN Biosciences, Inc. ("CN Biosciences" or the "Company") and
910,190 shares are being sold by one of the Company's stockholders (the "Selling
Stockholder"). See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of the shares by the Selling
Stockholder.
The Common Stock is quoted on the Nasdaq National Market under the symbol
"CNBI." On February 28, 1997, the last reported sale price for the Common Stock
was $14.25 per share. See "Price Range of Common Stock."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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================================================================================================
PROCEEDS TO
PRICE TO DISCOUNTS PROCEEDS TO SELLING
PUBLIC AND COMMISSIONS(1) COMPANY(2) STOCKHOLDER
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share............... $ $ $ $
- ------------------------------------------------------------------------------------------------
Total(3)................ $ $ $ $
================================================================================================
</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses of the offering payable by the Company estimated
at $450,000.
(3) The Company has granted the Underwriters an option, exercisable within 30
days from the date hereof, to purchase up to 150,000 additional shares of
Common Stock on the same terms as set forth above, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public will be $ , the Underwriting Discounts and
Commissions will be $ and the Proceeds to Company will be
$ . See "Underwriting."
------------------------
The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and to certain other
conditions. It is expected that delivery of such shares will be made through the
offices of UBS Securities LLC, 299 Park Avenue, New York, New York on or about
____________________, 1997.
UBS SECURITIES DAIN BOSWORTH
Incorporated
, 1997
<PAGE> 3
[COLOR PICTURE OF COMPANY CATALOGS SURROUNDING A CIRCLE WHICH SAYS "SIX CATALOGS
THAT NO LIFE SCIENTIST SHOULD BE WITHOUT" AND CAPTION WHICH READS "THE COMPANY'S
GENERAL AND SPECIALTY CATALOGS FEATURE IN EXCESS OF 7,800 PRODUCTS USED
WORLDWIDE IN DISEASE-RELATED LIFE SCIENCES RESEARCH."]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING, SYNDICATE SHORT COVERING TRANSACTIONS OR PENALTY BIDS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS
MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE
NASDAQ NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE IN
ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus, including
the information under "Risk Factors." Except as otherwise specified, all
information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option. This Prospectus 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 discussed in "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business."
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.
Industry sources estimate that there are over 300,000 scientists worldwide
currently engaged in life sciences research who utilize specialty biochemical
products such as those offered by the Company. 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. Life sciences research can often
involve experimentation carried out over months or even years, and as a result
researchers seek quality products to minimize extraneous variables in their
research protocols. Research products range broadly in complexity, purity,
scarcity, cost and function, and their availability, consistency and quality are
often critical to a project's success. In its most recent industry survey
published in 1994, Frost & Sullivan estimated that $1.6 billion was spent
worldwide in 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 compounded 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%.
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. 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.
The smaller companies, the majority of which are substantially smaller than the
Company, typically supply a highly focused product offering to very specific
markets. Based upon the Company's strategic positioning, it believes it can
establish itself as a leading supplier of higher margin research products for
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 that the Company
believes to be particularly strong areas of growth. In 1994, the Company
published its first specialty catalog in the area of signal transduction, which
it followed with the introduction of its Apoptosis and Combinatorial Chemistry
specialty catalogs in February 1996.
3
<PAGE> 5
The life sciences research products industry is highly fragmented and may
offer opportunities for consolidation. One key element of the Company's strategy
is the selective acquisition of companies with research and development
capabilities and product offerings in areas targeted for future growth. In
August 1995, the Company significantly expanded its immunochemical and molecular
biology capabilities with the $6.2 million cash purchase of the Oncogene
Research Products business from Oncogene Science, Inc. ("OSI"), a
biopharmaceutical company. The acquisition of this business enhanced the depth
and breadth of the Company's scientific resources, while providing a
complementary base of products and customers which has been successfully
integrated into the Company's operations and infrastructure. As a result of this
acquisition, the Company added over 700 new product offerings, many of which are
included in the Company's Apoptosis specialty catalog.
During 1996, the Company sold products to over 8,000 accounts, including
individual research scientists, institutions, companies and distributors, 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 numerous products, represented by over
14,000 stock keeping units (SKUs), are principally sold through its three
general catalogs and four specialty catalogs. The Company also develops and
distributes a variety of supporting publications designed to highlight its new
products and target specific market segments with selected product offerings.
These catalogs and supporting publications are distributed utilizing the
Company's proprietary database of more than 100,000 research scientists and
institutions. The Company's customers include many leading pharmaceutical and
biotechnology companies, academic institutions and government laboratories. The
Company continually adds new products, introducing in excess of 700 products
during 1996. 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.
The Company was incorporated by Warburg, Pincus Investors, L.P.
("Warburg"), ABS MB (C-N) Limited Partnership ("ABS") and certain current and
former members of management to acquire the businesses conducted by the
Company's subsidiaries. See "Certain Transactions." The Company was incorporated
under the laws of the State of Delaware on March 11, 1992. The Company's
principal executive offices are located at 10394 Pacific Center Court, San
Diego, California 92121, and its telephone number is (619) 450-5500.
As used in this Prospectus, references to the "Company" and "CN
Biosciences" refer to CN Biosciences, Inc. and its direct and indirect
subsidiaries, unless otherwise indicated or the context otherwise requires. The
Company's subsidiaries, all of which are wholly owned, include a U.S. operating
subsidiary based in San Diego and international subsidiaries organized under the
local laws of their jurisdiction of operation. Calbiochem(R), Novabiochem(R) and
Clinalfa(R) are registered trademarks of the Company. References are made herein
to trademarks of companies other than the Company.
4
<PAGE> 6
THE OFFERING
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<S> <C>
Common Stock Offered by the Company......... 89,810 shares
Common Stock Offered by the Selling
Stockholder............................... 910,190 shares
Common Stock Outstanding after the
Offering.................................. 5,252,333 shares (1)
Use of Proceeds by the Company.............. Working capital, general corporate purposes and
possible acquisitions.
Nasdaq National Market Symbol............... CNBI
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION YEARS ENDED DECEMBER 31,
(MARCH 11, 1992) TO -------------------------------------
DECEMBER 31, 1992 1993 1994 1995 1996
------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS 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
(2).................................... 3,242 3,318 3,328 3,422 3,995
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.................... $14,704 $ 15,459
Working capital...................................................... 30,231 30,986
Total assets......................................................... 46,262 47,017
Long-term debt and other obligations, net of current portion......... 1,233 1,233
Stockholders' equity................................................. 38,900 39,655
</TABLE>
- ---------------
(1) Excludes (i) 650,389 shares of Common Stock, par value $.01 per share (the
"Common Stock"), issuable upon the exercise of outstanding stock options
issued under the Company's 1992 Stock Option Plan, as amended (the "Stock
Option Plan"), (ii) an additional 92,675 shares of Common Stock reserved for
future issuance under the Company's Stock Option Plan and (iii) 3,028 shares
issuable upon the exercise of an outstanding warrant (the "Warrant"). The
Company intends to seek approval from its stockholders at its 1997 annual
meeting to increase the number of shares of Common Stock reserved for future
issuance under the Stock Option Plan by an additional 250,000 shares.
(2) 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.
(3) Adjusted to give effect to the sale of 89,810 shares of Common Stock offered
by the Company hereby (at an assumed public offering price of $14.25 per
share), and the receipt and application of the net proceeds therefrom. See
"Use of Proceeds" and "Capitalization."
5
<PAGE> 7
RISK FACTORS
Prospective investors in the shares of Common Stock offered hereby should
carefully consider the following risk factors, in addition to the other
information appearing in this Prospectus. This Prospectus 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 discussed
in "Risk Factors" below, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
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. 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.
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
6
<PAGE> 8
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 Corporation
("Sigma-Aldrich") and Boehringer Mannheim GmbH ("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 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
7
<PAGE> 9
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 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
8
<PAGE> 10
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. See "Management."
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 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
9
<PAGE> 11
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."
Substantial Influence of Principal Stockholder. Upon consummation of the
offering, Warburg will beneficially own approximately 42.8% of the Common Stock.
Because of such ownership, Warburg will have the ability to exercise substantial
influence over the business and affairs of the Company by virtue of its voting
power with respect to election of directors and actions requiring stockholder
approval. Additionally, pursuant to an agreement with the Company, Warburg has
certain rights to nominate directors as long as it continues to own specified
percentages of the outstanding shares of Common Stock. See "Management" and
"Principal and Selling Stockholders."
Possible Volatility of Stock Price. The trading price of the Common Stock
could be subject to wide fluctuations in response to variations in quarterly
operating results, failure to meet expectations of, or a change in
recommendation by, securities analysts, announcements of technological
innovations or new products by the Company or its competitors, government policy
changes, general trends in life sciences research and other events or factors,
including factors outside the Company's control. In addition, as in the past,
stock market prices and volume may fluctuate significantly. These broad market
fluctuations may adversely affect the market price of the Common Stock. See
"Underwriting."
Shares Eligible for Future Sale; Potential for Adverse Effect on Stock
Price; Registration Rights. Sales of a substantial number of shares of Common
Stock in the public market or the prospect of such sales could adversely affect
the market price of the Common Stock. The number of shares of Common Stock
available for sale in the public market is limited by restrictions under the
Securities Act of 1933, as amended (the "Securities Act"), and lock-up
agreements under which Warburg and the Company's directors and executive
officers have agreed not to sell or otherwise dispose of any of their shares of
Common Stock for a period of 180 days from the date of this Prospectus (the
"Lock-Up Period") without the prior written consent of UBS Securities LLC. UBS
Securities LLC may, in its sole discretion and at any time without notice,
release all or any portion of the securities subject to lock-up agreements. The
Company has also agreed not to issue or sell any shares of Common Stock for a
period of 180 days from the date of this Prospectus, except for the grant of
additional options under the Stock Option Plan or the issuance of shares upon
the exercise of stock options or the Warrant. Upon completion of this offering,
in addition to the 1,000,000 shares offered by the Company and the Selling
Stockholder hereby and the 1,840,000 shares sold by the Company in its October
1996 initial public offering, approximately 10,643 shares of Common Stock held
by current stockholders will be eligible for immediate sale. Upon expiration of
the Lock-Up Period, and subject to the limitations imposed by Rule 144 under the
Securities Act ("Rule 144"), 2,387,003 shares of Common Stock held by Warburg
and the Company's directors and executive officers will be eligible for
immediate sale. In addition, the Company has registered under the Securities Act
753,473 shares of Common Stock issuable upon the exercise of options granted or
to be granted under the Stock Option Plan, of which options to purchase 233,747
shares are currently exercisable. Shares registered thereunder will, subject to
Rule 144 volume limitations applicable to affiliates, be available for sale in
the open market, except to the extent that such shares are subject to vesting
restrictions with the Company or certain contractual restrictions on sale or
transfer. The Company intends to seek approval from its stockholders at its 1997
annual meeting to increase the number of shares of Common Stock reserved for
future issuance under the Stock Option Plan by an additional 250,000 shares.
Promptly following such approval, the Company intends to file a registration
statement on Form S-8 under the Securities Act covering these additional 250,000
shares of Common Stock. Holders of options to purchase 393,005 shares of Common
Stock have agreed not to sell or otherwise transfer their shares obtained upon
exercise of
10
<PAGE> 12
such options during the Lock-Up Period, 138,640 of which will be exercisable
upon the expiration of such Lock-Up Period. The holders of 3,278,271 shares of
Common Stock and the holder of the 3,028 shares of Common Stock issuable upon
the exercise of the Warrant are entitled to certain registration rights with
respect to such shares. If such holders, by exercising their registration
rights, cause a large number of shares to be registered and sold in the public
market, such sales could have an adverse effect on the market price of the
Common Stock. If the Company were required to include in a Company-initiated
registration shares held by such holders pursuant to the exercise of their
registration rights, such sales could have a material adverse effect on the
Company's ability to raise needed capital. See "Management -- Stock Option Plan"
and "Description of Capital Stock -- Registration Rights."
No Intention to Pay Dividends. The Company has never paid a cash dividend
on the Common Stock and does not anticipate paying any cash dividends on the
Common Stock in the foreseeable future. The Company is a guarantor of its U.S.
subsidiary's bank credit agreement (the "Credit Facility"). The Credit Facility
restricts the payment of cash dividends by the Company. See "Dividend Policy."
Anti-Takeover Effects of Certificate of Incorporation and Delaware
Law. 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. In addition, the Company is subject to the
provisions of Section 203 of the Delaware General Corporation Law, an
antitakeover law. See "Description of Capital Stock."
11
<PAGE> 13
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the 89,810
shares of Common Stock offered by the Company hereby are estimated to be
$755,000 ($2.8 million if the Underwriters' over-allotment option is exercised
in full), assuming a public offering price of $14.25 per share and after
deducting the estimated underwriting discounts and commissions related thereto
and other expenses associated with the offering. The Company intends to use such
net proceeds for working capital, general corporate purposes and possible
acquisitions. Pending such uses, such net proceeds will be invested in
short-term, investment grade, interest-bearing securities. The Company has an
ongoing corporate development program which regularly evaluates acquisition
opportunities; however, it has no present understandings, commitments or
agreements, nor is it currently in formal negotiations with respect to any
acquisition.
The Company will not receive any proceeds from the sale of the 910,190
shares of Common Stock offered by the Selling Stockholder.
DIVIDEND POLICY
The Company has never paid a cash dividend on the Common Stock and does not
anticipate paying any cash dividends on the Common Stock in the foreseeable
future. Instead, it intends to retain any earnings to finance the expansion of
its business and for working capital and general corporate purposes. Any payment
of dividends will be at the discretion of the Company's Board of Directors and
will depend upon earnings, financial condition, capital requirements, level of
indebtedness, contractual restrictions with respect to payment of dividends and
other factors. The Company is a holding company which conducts substantially all
of its operations through its subsidiaries. The Company is also a guarantor
under the Credit Facility, which restricts the payment of cash dividends by the
Company.
12
<PAGE> 14
CAPITALIZATION
The following table sets forth at December 31, 1996, the (i) actual
capitalization of the Company, and (ii) capitalization as adjusted to give
effect to the sale of 89,810 shares of Common Stock offered by the Company
hereby and the application of the estimated net proceeds therefrom, at an
assumed public offering price of $14.25 per share and after deducting the
estimated underwriting discounts and commissions related thereto and other
estimated offering expenses. See "Use of Proceeds." This table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements of the
Company and related notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt.............................. $ -- $ --
======== ========
Long-term debt and other obligations, net of current portion... $ 1,233 $ 1,233
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized;
no shares issued and outstanding actual and as adjusted... -- --
Common stock, $.01 par value; 30,000,000 shares authorized;
5,152,587 shares issued and outstanding actual; 5,242,397
shares issued and outstanding as adjusted(1).............. 52 52
Additional paid-in capital................................... 38,736 39,491
Accumulated deficit.......................................... (63) (63)
Foreign currency translation adjustment...................... 271 271
Note receivable from stockholder............................. (96) (96)
-------- --------
Total stockholders' equity........................... 38,900 39,655
-------- --------
Total capitalization............................ $40,133 $40,888
======== ========
</TABLE>
- ---------------
(1) Excludes (i) 635,325 shares of Common Stock issuable upon the exercise of
outstanding stock options under the Stock Option Plan and (ii) 3,028 shares
issuable upon the exercise of the Warrant.
13
<PAGE> 15
DILUTION
The net tangible book value of the Company as of December 31, 1996 was
$34.1 million, or $6.61 per share. Net tangible book value per share represents
the tangible net worth (total tangible assets less total liabilities) of the
Company divided by the weighted average number of shares of Common Stock
outstanding prior to the offering of the shares offered by the Company hereby.
After giving effect to the offering by the Company of 89,810 shares of Common
Stock hereby (after deducting underwriting discounts and commissions and
estimated offering expenses), the net tangible book value of the Company as of
December 31, 1996 would have been $34.8 million, or $6.64 per share,
representing an immediate increase in net tangible book value of $.03 per share
to existing stockholders and an immediate dilution of $7.61 per share to the
investors purchasing the shares of Common Stock offered hereby.
The following table illustrates this dilution to new investors:
<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $14.25
Net tangible book value per share as of December 31,
1996................................................. $6.61
Increase per share attributable to the offering........ .03
--------
Net tangible book value per share after the offering........ 6.64
--------
Dilution per share to new investors......................... $ 7.61
========
</TABLE>
PRICE RANGE OF COMMON STOCK
The Company effected an initial public offering of 1,840,000 shares of
Common Stock on October 2, 1996 at a price of $12.50 per share. Since that date,
the Common Stock has traded on the Nasdaq National Market under the symbol
"CNBI." The following table sets forth, for the periods indicated, the high and
low sales prices for the Common Stock, as reported by the Nasdaq National
Market:
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
1997
First Quarter (through February 28)....................... $18.375 $14.25
1996
Fourth Quarter (beginning October 2)...................... $18.50 $12.75
</TABLE>
A recently reported sale price prior to the date hereof for the Common
Stock is reflected on the cover page of this Prospectus. At February 28, 1997,
there were 23 holders of record of the Common Stock.
14
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the consolidated financial statements and the
related notes thereto included elsewhere in this Prospectus. The consolidated
statement of operations data for each of the three years in the period ended
December 31, 1996 and the consolidated balance sheet data at December 31, 1996
and 1995 are derived from the Company's consolidated financial statements, which
have been audited by Ernst & Young LLP, independent auditors, included elsewhere
in this Prospectus. The consolidated statement of operations data for the year
ended December 31, 1993 and the period from inception (March 11, 1992) through
December 31, 1992 and the consolidated balance sheet data at December 31, 1992,
1993 and 1994 are derived from the Company's audited consolidated financial
statements not included in this Prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION YEARS ENDED DECEMBER 31,
(MARCH 11, 1992) TO -------------------------------------
DECEMBER 31, 1992 1993 1994 1995 1996
------------------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<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,
-----------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS)
<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.
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following analysis and discussion of the Company's financial condition
and results of operations should be read in conjunction with the Company's
consolidated financial statements and notes thereto included elsewhere in this
Prospectus. This analysis and discussion 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 discussed in "Risk Factors"
and "Business," as well as those discussed below.
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 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
16
<PAGE> 18
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.
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>
17
<PAGE> 19
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.
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
18
<PAGE> 20
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.
19
<PAGE> 21
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>
QUARTERS ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<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 (loss) from operations........ 746 347 455 287 868 845 935 845
Interest expense (income), net....... 74 85 157 211 206 188 219 (81)
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before income taxes.... 672 262 298 76 662 657 716 926
Provision (benefit) for income
taxes.............................. 150 58 66 17 198 264 250 248
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)................ $ 522 $ 204 $ 232 $ 59 $ 464 $ 393 $ 466 $ 678
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
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 (loss) 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 (loss) before income taxes.... 10.0 4.1 4.3 1.1 8.0 7.9 8.1 11.1
Provision (benefit) for income
taxes.............................. 2.2 0.9 0.9 0.3 2.4 3.2 2.8 3.0
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)................ 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.
20
<PAGE> 22
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 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.
21
<PAGE> 23
BUSINESS
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 1992 on
specialty biochemical products, such as those offered by the Company for
research in biochemistry, immunology, cellular biology and molecular biology.
According to
22
<PAGE> 24
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 costeffectively 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 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
23
<PAGE> 25
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 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
24
<PAGE> 26
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.
25
<PAGE> 27
The broad categories of the Company's products include:
<TABLE>
<CAPTION>
PRODUCT CATEGORY DESCRIPTION OF PRODUCTS
- ---------------------------- -------------------------------------------------------
<S> <C>
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.
- 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.
- 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.
- 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.
- 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."
26
<PAGE> 28
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:
SUMMARY OF CATALOGS
<TABLE>
<CAPTION>
NUMBER OF APPROXIMATE
CATALOGS NUMBER OF PRINCIPAL PRODUCT
CATALOGS LAST PUBLISHED PUBLISHED PRODUCTS FOCUS BRAND NAMES
- ----------------------- -------------------- --------- ----------- --------------------- -------------
<S> <C> <C> <C> <C> <C>
GENERAL
Calbiochem First Quarter 1996 158,000 3,070 Biochemicals and - Calbiochem
Immunochemicals - Novabiochem
- Oncogene
Research
Products
Novabiochem Third Quarter 1996 58,000 2,100 Peptides, Boc and - Novabiochem
Fmoc Amino Acids and
Peptide Synthesis
Reagents
Oncogene Research Fourth Quarter 1996 80,000 865 Antibodies, Markers, - Oncogene
Products Reagents and Kits Research
Products
SPECIALTY
Signal Transduction Second Quarter 1996 85,000 1,400 G Proteins, Kinases, - Calbiochem
Nitric Oxide, Calcium - Novabiochem
Metabolism and p53 - Oncogene
Research
Products
Apoptosis First Quarter 1996 60,000 330 Antibodies, Assays, - Calbiochem
ELISAs, Kits and - Oncogene
Reagents Research
Products
Combinatorial First Quarter 1997 20,000 170 Resins, Linkers, Fmoc - Novabiochem
Chemistry Amino Acids and
Peptide Synthesis
Reagents
Clinalfa First Quarter 1996 8,000 40 Biologically Active - 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:
- 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.
- 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,
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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.
- 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.
- 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.
- 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.
- 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
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on solid supports, condensation reagents, resins and linkers of interest to
companies utilizing combinatorial chemistry techniques.
- 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:
- 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.
- 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.
- 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.
- 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.
- 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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<PAGE> 31
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 Reagents..... 35 5
Proteins and Derivatives........................... 147 47
Signal Transduction Reagents....................... 124 8
Vitamins and Coenzymes............................. 20 --
Miscellaneous...................................... 21 6
----- ---
Total.................................... 3,070 741
===== ===
</TABLE>
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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 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
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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.
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 Pennsylvania The Scripps Research 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 L350
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
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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 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 Massachusetts Institute of Technology
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<PAGE> 35
("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 of completion and provide "value-added" manufacturing processes
such as purification, lyophilization and subdivision/packaging prior to delivery
to customers.
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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 and 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.
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,
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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 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.
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<PAGE> 38
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.
FACILITIES
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.
LEGAL PROCEEDINGS
The Company is not currently a party to any material legal proceedings.
37
<PAGE> 39
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the Company's
executive officers and directors as of February 28, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------- ----- -----------------------------------------
<S> <C> <C>
Stelios B. Papadopoulos........................ 56 Chairman of the Board; Chief Executive
Officer and President
James G. Stewart............................... 44 Vice President, Administration; Chief
Financial Officer and Secretary
John T. Snow................................... 53 Vice President, New Business Development
Ben Matzilevich................................ 48 Vice President, Market Development --
Niche Applications
Douglas J. Greenwold........................... 55 Vice President, Sales and Marketing
Joseph P. Landy(1)(3).......................... 35 Director
Richard A. Lerner.............................. 58 Director
S. Joshua Lewis(2)............................. 34 Director
Robert E. McGill, III(1)(2)(3)................. 65 Director
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Stock Option Committee.
Stelios B. Papadopoulos has served as Chairman of the Board and Chief
Executive Officer of the Company since January 1993 and President of the Company
since June 1995. From June 1992 to December 1992, Mr. Papadopoulos served as
President of Fisher Scientific Worldwide Inc. (now Fisher Scientific
International Inc.) ("Fisher") and was responsible for the day-to-day operations
of Fisher's worldwide organization which provides equipment, laboratory
supplies, and various other products to customers in the life sciences research
market. From May 1989 to June 1992, Mr. Papadopoulos served as President of
Fisher Scientific Company, the principal operating unit of Fisher. Prior to
joining Fisher Scientific Company, Mr. Papadopoulos served in a number of
companies involved in the life sciences industry including Instrumentation
Laboratory and Orion Research.
James G. Stewart has served as Vice President, Administration, Chief
Financial Officer and Secretary of the Company since June 1995. From April 1994
to April 1995, Mr. Stewart served as Vice President -- Finance and Chief
Financial Officer of Fightertown Entertainment, Inc., and from October 1988 to
April 1994, Mr. Stewart served as Vice President -- Finance and Chief Financial
Officer of VERTEQ, Inc. Mr. Stewart is a certified public accountant and a
former partner of Arthur Young & Company (now Ernst & Young LLP).
John T. Snow, Ph.D., has served as Vice President, New Business Development
of the Company since March 1992, and was Vice President, Marketing and Sales of
the Company from April 1989 until March 1992. Dr. Snow has been employed by the
Company and its predecessors in various other capacities since 1975 and is the
author and co-author of over 40 published scientific papers.
Ben Matzilevich has served as Vice President, Market Development -- Niche
Applications since joining the Company in April 1995, and has served as General
Manager of the Oncogene Research Products business since its acquisition in
August 1995. From August 1993 to March 1995, Mr. Matzilevich served as Vice
President -- Sales and Marketing with Endogen, Inc., a producer and seller of
research products for the study of cytokines. In November 1989, Mr. Matzilevich
co-founded Biosource International, Inc., a research products company, and
through August 1993, was primarily responsible for day-to-day operations,
product development and development of the sales and marketing organization.
Prior to founding Biosource, Mr. Matzilevich held various positions at NEN/E. I.
du Pont de Nemours and Company and acted as an industry consultant to a number
of research products companies serving the life sciences research industry.
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<PAGE> 40
Douglas J. Greenwold has served as Vice President, Sales and Marketing of
the Company since January 1994. From 1990 to 1993, Mr. Greenwold was employed in
various capacities, including Vice President -- Sales and Marketing, Research
Products Americas at Life Technologies, Inc., a supplier of research products to
the life sciences research market. Prior to joining Life Technologies, Mr.
Greenwold held a number of sales and marketing positions at Survival Technology,
Inc., a supplier of cardiac monitoring and drug delivery technologies and Xerox
Corporation.
Joseph P. Landy has served as a director of the Company since March 1992.
Since January 1994, Mr. Landy has been a Managing Director of E.M. Warburg,
Pincus & Co., LLC ("EMW LLC") and its predecessor, E.M. Warburg, Pincus & Co.,
Inc. ("EMW Inc."). Mr. Landy has been employed in various capacities by EMW LLC
and EMW Inc. since 1985. Mr. Landy serves on the Board of Directors as a nominee
of Warburg. Mr. Landy also serves as a director of Level One Communications,
Inc., Nova Corporation and several privately held companies.
Dr. Richard A. Lerner has served as a director of the Company since
February 1997. Since 1986, Dr. Lerner has been the President of The Scripps
Research Institute ("Scripps"). From 1982 to 1986, Dr. Lerner served as Chairman
of the Department of Molecular Biology of Scripps. Previously, he held staff
appointments at Scripps and the Wistar Institute in Philadelphia. Dr. Lerner is
a graduate of Northwestern University and Stanford Medical School and received
postdoctoral training at Scripps. Dr. Lerner is a member of the National Academy
of Science USA and numerous editorial and scientific advisory boards.
S. Joshua Lewis has served as a director of the Company since June 1995.
Mr. Lewis is a Vice President of EMW LLC and has been employed in various
capacities by EMW LLC and EMW Inc. since 1989. Mr. Lewis serves on the Board of
Directors as a nominee of Warburg. Mr. Lewis also serves as a director of
Cambridge Neuroscience, Inc.
Robert E. McGill, III has served as a director of the Company since
November 1995. For more than the past five years, Mr. McGill has served as a
member of the Board of Managers of seven variable annuity managed separate
accounts and a Trustee of five mutual funds sponsored by The Travelers Insurance
Company. From 1989 to December 1994, Mr. McGill served as Executive Vice
President -- Finance and Administration of The Dexter Corporation, where he also
served as a director from 1983 to April 1995. Mr. McGill also serves as a
director of Connecticut Surety Corporation and Chemfab Corporation.
The Company's Board of Directors is currently composed of five directors,
one of whom is an employee of the Company. Directors serve until the next annual
stockholders' meeting or until their successors have been duly elected and
qualified. During 1996, the Board of Directors had six meetings.
Frederick L. Bryant served as a director of the Company and as a member of
the Compensation and Stock Option Committees until his resignation from the
Board of Directors in February 1997. Mr. Bryant served on the Board of Directors
as a nominee of ABS.
Warburg currently has the following rights with respect to the nomination
and election of directors to the Company's Board of Directors: for so long as
Warburg owns beneficially at least 20% of the outstanding shares of Common
Stock, the Company will nominate and use reasonable efforts to have two
individuals designated by Warburg and reasonably acceptable to the Company
elected to the Company's Board of Directors, and from the date that Warburg owns
beneficially less than 20% of the outstanding shares of Common Stock but for so
long as it owns beneficially at least 10% of the outstanding shares of Common
Stock, the Company will nominate and use reasonable efforts to have one
individual designated by Warburg and reasonably acceptable to the Company
elected to the Company's Board of Directors. For so long as ABS owns
beneficially at least 10% of the outstanding shares of Common Stock, the Company
will nominate and use reasonable efforts to have one individual designated by
ABS and reasonably acceptable to the Company elected to the Company's Board of
Directors. Upon consummation of the offering, ABS will no longer have this
nomination and election right.
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<PAGE> 41
COMMITTEES OF THE BOARD OF DIRECTORS
Compensation Committee. The Company has a Compensation Committee consisting
of Messrs. Landy and McGill. The Compensation Committee provides recommendations
concerning salaries and incentive compensation for the Company's officers and
administers the Company's benefit plans, other than the Stock Option Plan.
Audit Committee. The Company has an Audit Committee consisting of Messrs.
Lewis and McGill. The Audit Committee recommends to the Board of Directors the
engagement of the Company's independent public accountants and reviews the scope
and results of their audits and other services. The Audit Committee meets with
management and with the independent public accountants to review matters
relating to the quality of the Company's financial reporting and internal
accounting controls, including the nature, extent and results of the audits,
proposed changes to the Company's accounting principles and otherwise maintains
communications between the independent public accountants and the Board of
Directors.
Stock Option Committee. The Company has a Stock Option Committee consisting
of Messrs. Landy and McGill. The Stock Option Committee determines grants under
and otherwise administers the Company's Stock Option Plan.
COMPENSATION OF DIRECTORS
Directors, other than Warburg's nominees (and prior to Mr. Bryant's
resignation, ABS' nominee), are reimbursed for expenses incurred in attending
meetings of the Board of Directors. In addition, directors who are not employees
and not otherwise affiliated with a principal stockholder of the Company, are
paid $1,500 for each Board of Directors meeting attended. Prior to February
1997, such directors were paid $500 for each Board of Directors meeting
attended. At the time that Mr. McGill joined the Board of Directors, he was
granted options to purchase 11,829 shares of Common Stock at an exercise price
of $3.38 per share. Additionally, under an agreement with the Company, Mr.
McGill from time to time provides certain consulting services for which he is
compensated at the rate of $1,000 per day. During 1996, no consulting fees were
paid by the Company to Mr. McGill. At the time that Dr. Lerner joined the Board
of Directors, he was granted options to purchase 25,000 shares of Common Stock
at an exercise price of $14.50 per share.
40
<PAGE> 42
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation of the
Company's Chief Executive Officer and the four other most highly compensated
executive officers (collectively, the "Named Executive Officers") for the
periods indicated.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
-------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) COMPENSATION($)
- ---------------------------------- ---- --------- -------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Stelios B. Papadopoulos (1) 1996 $ 228,846 45,000 $ -- 40,000 $ 2,970
Chief Executive Officer and 1995 204,327 162,640 -- 2,112
President
Douglas J. Greenwold (2) 1996 118,923 30,000 -- 20,000 3,603
Vice President, Sales and 1995 115,000 -- -- -- 3,352
Marketing
John T. Snow (3) 1996 112,019 30,000 -- 20,000 3,885
Vice President, New Business 1995 110,021 -- -- -- 3,804
Development
James G. Stewart (4) 1996 152,788 35,000 -- 25,000 7,462
Vice President, Administration, 1995 80,865 21,518 47,317 45,471
Chief Financial Officer and
Secretary
Ben Matzilevich (5)
Vice President, Market 1996 126,308 35,000 -- 25,000 345
Development -- Niche 1995 87,692 -- 23,659 --
Applications
</TABLE>
- ---------------
(1) Other annual compensation in 1995 represents forgiveness of principal and
interest related to a note receivable from Mr. Papadopoulos in connection
with his purchase of capital stock of the Company pursuant to his employment
agreement. Other compensation includes $1,098 and $1,098 in premiums for
personal beneficiary life insurance in excess of non-taxable group limits,
and $1,872 and $1,014 of Company matching 401(k) contributions in 1996 and
1995, respectively.
(2) Other compensation includes $753 and $580 in premiums for personal
beneficiary life insurance in excess of nontaxable group limits and $2,850
and $2,772 of Company matching 401(k) contributions in 1996 and 1995,
respectively.
(3) Other compensation includes $1,035 and $1,035 in premiums for personal
beneficiary life insurance in excess of non-taxable group limits and $2,850
and $2,769 of Company matching 401(k) contributions in 1996 and 1995,
respectively.
(4) Joined the Company in June 1995. Other annual compensation in 1995
represents tax reimbursement payments related to relocation. Other
compensation includes $39,231 relocation expense reimbursement in 1995,
$4,612 and $4,680 of premiums for personal beneficiary life insurance in
excess of non-taxable group limits and $2,850 and $1,560 of Company matching
401(k) contributions in 1996 and 1995, respectively.
(5) Joined the Company in April 1995. Other compensation represents premiums for
personal beneficiary life insurance in excess of non-taxable group limits.
41
<PAGE> 43
The following table summarizes the number of shares and the terms of stock
options granted to the Named Executive Officers in 1996:
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM($)(1)(2)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ----------------------
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE 5% 10%
- ----------------------------- ---------- ------------ -------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Stelios B. Papadopoulos...... 40,000 16.4% $16.50 11/13/06 $415,070 $1,051,870
Douglas J. Greenwold......... 20,000 8.2 16.50 11/13/06 207,535 525,935
John T. Snow................. 20,000 8.2 16.50 11/13/06 207,535 525,935
James G. Stewart............. 25,000 10.2 16.50 11/13/06 259,419 657,419
Ben Matzilevich.............. 25,000 10.2 16.50 11/13/06 259,419 657,419
</TABLE>
- ---------------
(1) The options have a ten-year term, subject to earlier termination under
certain circumstances.
(2) The potential realizable value is calculated based on the term of the option
at its time of grant and is calculated by assuming that the stock price on
the date of grant appreciates at the indicated annual rate compounded
annually for the entire term of the option and that the option is exercised
and sold on the last day of its term for the appreciated price. The 5% and
10% assumed rates of appreciation are derived from the rules of the
Securities and Exchange Commission (the "Commission") and do not represent
the Company's estimate or projection of the future market price of the
Common Stock.
AGGREGATED 1996 OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 1996(#) DECEMBER 31, 1996($)(1)
ACQUIRED ON --------------------------- ---------------------------
NAME EXERCISE (#) VALUE REALIZED($) EXERCISEABLE UNEXERCISABLE EXERCISEABLE UNEXERCISABLE
- ------------------------------------------- ----------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Stelios B. Papadopoulos....... -- -- 82,686 67,563 $ 1,484,626 $ 569,894
Douglas J. Greenwold.......... -- -- 28,392 38,925 509,778 377,298
John T. Snow.................. -- -- 6,624 20,000 118,934 37,500
James G. Stewart.............. -- -- 9,463 62,854 169,908 726,544
Ben Matzilevich............... -- -- 4,732 43,927 84,964 386,710
</TABLE>
- ---------------
(1) Based on value of $18.375 per share, the closing price for the Common Stock
on December 30, 1996.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Messrs. Papadopoulos and
Matzilevich currently providing for their employment at annual base salaries of
$240,000 and $131,000, respectively. Mr. Papadopoulos' employment agreement
provides that the Board of Directors will review his compensation at least once
each year and award such bonuses and effect such increases in base salary as the
Board of Directors, in its sole discretion, determines are merited, based upon
his performance and consistent with the Company's compensation policies. Mr.
Matzilevich's employment agreement provides that in addition to any annual
adjustment made to his salary, he is eligible for a bonus up to 35% of base
salary, based on the achievement of certain agreed-upon objectives. In addition,
both of these executives may participate in such fringe benefits as are
generally provided to the Company's executives.
Unless terminated earlier in accordance with their respective terms, Mr.
Papadopoulos' employment agreement terminates on January 4, 1998, and Mr.
Matzilevich's employment agreement terminates on April 3, 1998. In addition,
each of these agreements provides that the Company and the executive will, not
later than
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<PAGE> 44
90 days prior to the termination thereof, begin to negotiate in good faith the
terms of any extension of the employment agreement.
The Company has entered into agreements with each of the Named Executive
Officers providing for severance pay in the event of termination of the
executive's employment other than for "cause" or if, within 90 days of a "change
in control" of the Company (as such terms are defined in the agreement), the
executive's employment is terminated by the Company other than for cause or the
executive resigns. Upon termination of employment within 90 days of a change in
control, the executive will be eligible to receive severance payments equal to
his base salary payable over the 12-month period following such termination. If
the executive's employment is otherwise terminated by the Company other than for
cause, he will be eligible to receive severance payments equal to his base
salary payable over the six-month period following such termination.
The Company maintains $1.0 million of key man life insurance on the lives
of Messrs. Papadopoulos and Matzilevich and Dr. Snow, naming the Company as
beneficiary.
Messrs. Stewart and Greenwold and Dr. Snow are eligible for incentive
bonuses up to approximately 35% of their base salaries, based on the achievement
of certain agreed-upon objectives.
STOCK OPTION PLAN
The Stock Option Plan, including all amendments, has been adopted by the
Board of Directors and approved by the Company's stockholders. The Stock Option
Plan authorizes the grant of both incentive stock options ("ISOs") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and nonqualified stock options ("NQSOs") to key employees, officers,
directors and consultants of the Company and its subsidiaries. ISOs, however,
may only be granted to participants who are employees of the Company or its
subsidiaries. Options to purchase an aggregate of 835,000 shares of Common Stock
are authorized under the Stock Option Plan. As of February 28, 1997, 298,429
ISOs and 351,960 NQSOs were outstanding under the Stock Option Plan, and 92,675
shares were available for future awards. The Company intends to seek approval
from its stockholders at its 1997 annual meeting to increase the number of
shares of Common Stock reserved for future issuance under the Stock Option Plan
by an additional 250,000 shares.
The Stock Option Plan is presently administered by a committee (the "Stock
Option Committee") appointed by the Board of Directors. The Stock Option
Committee has the discretion to determine the key employees, officers, directors
and consultants to whom options are granted and the terms of such options,
including the exercise price, vesting provisions and expiration date. The
minimum exercise price for ISOs, however, must be the fair market value of the
Common Stock on the date of grant, as determined by the Company's Board of
Directors. Options granted under the Stock Option Plan may, at the Stock Option
Committee's discretion, provide for full vesting upon a "change in control" of
the Company, as defined in the Stock Option Plan. No options may be granted with
a term longer than ten years.
All options granted under the Stock Option Plan are evidenced by a written
option agreement between the option holder and the Company. Option holders have
no voting, dividend or other rights of stockholders with respect to shares of
Common Stock covered by their options prior to exercising such options and
becoming the holders of record of shares of Common Stock.
The Board of Directors may at any time terminate the Stock Option Plan or
from time to time make such modifications or amendments to the Stock Option Plan
as it may deem advisable; provided that the Board of Directors may not, without
the approval of the Company's stockholders, increase the maximum number of
shares of Common Stock for which options may be granted under the Stock Option
Plan.
Federal Tax Consequences. Set forth below is a brief description of the
federal income tax consequences applicable to ISOs and NQSOs granted under the
Stock Option Plan.
ISOs. No taxable income is realized by the option holder upon the grant or
exercise of an ISO. If Common Stock is issued to an option holder pursuant to
the exercise of an ISO, and if no disqualifying disposition of such shares is
made by such option holder within the earlier of two years after the date of
grant or within one year after the exercise of such options, then (i) upon the
sale of such shares of Common Stock,
43
<PAGE> 45
any amount realized in excess of the option price will be taxed to such option
holder as a long-term capital gain and any loss sustained will be taxed to such
option holder as a long-term capital loss, and (ii) no deduction will be allowed
to the Company for federal income tax purposes.
If the Common Stock acquired upon the exercise of an ISO is disposed of
prior to the expiration of either holding period described above, then generally
(i) the option holder will realize ordinary income in the year of disposition in
an amount equal to the excess, if any, of the fair market value of such shares
at the time of exercise (or, if less, the amount realized on the disposition of
such shares) over the option price paid for such shares, and (ii) the Company
will be entitled to deduct the same amount as compensation expense for federal
income tax purposes. Any further gain (or loss) realized by the option holder
will be taxed as short-term or long-term capital gain (or loss), as the case may
be, and will not result in any deduction by the Company.
NQSOs. With respect to NQSOs, (i) no income is realized by the option
holder at the time the option is granted, (ii) generally, upon exercise,
ordinary income is realized by the option holder in an amount equal to the
difference between the option price paid for the shares and the fair market
value of the shares, if unrestricted, on the date of exercise, and the Company
is generally entitled to a federal income tax deduction in the same amount as
compensation expense, subject to applicable withholding requirements and (iii)
at sale, appreciation (or depreciation) after the date of exercise is treated as
either short-term or long-term capital gain (or loss), depending on how long the
shares have been held.
The foregoing summary with respect to federal income taxation does not
purport to be complete and reference is made to the applicable provisions of the
Code.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No officer or employee of the Company currently serves as a member of the
Compensation Committee. Mr. Landy, a current member of the Compensation
Committee, has in the past served as an officer of the Company. Mr. Landy may be
deemed to have an indirect pecuniary interest (within the meaning of Rule 16a-1
under the Securities and Exchange Act of 1934, as amended (the "Exchange Act")),
in an indeterminate portion of the securities of the Company beneficially owned
by Warburg. See "Principal Stockholders and Selling Stockholders" and "Certain
Transactions -- Acquisition of the Company."
LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY
The Certificate of Incorporation provides that, to the fullest extent
permitted by Delaware law, the Company's directors shall not be personally
liable to the Company and its stockholders for monetary damages for breach of
their fiduciary duties as directors, except for liability for (i) breach of the
directors' and officers' duty of loyalty, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the law,
(iii) the unlawful payment of a dividend or unlawful stock purchase or
redemption and (iv) any transaction from which the director derives an improper
personal benefit. Delaware law does not permit a corporation to eliminate a
director's duty of care, and this provision of the Company's Certificate of
Incorporation has no effect on the availability of equitable remedies, such as
injunction or rescission, based upon a director's breach of the duty of care.
In addition, the Company's Certificate of Incorporation and By-Laws provide
that the Company shall indemnify its directors and officers to the fullest
extent permitted by Delaware law. The Company has entered into indemnification
agreements with certain of its directors and officers pursuant to which the
Company provides indemnification and contribution against expenses and losses
incurred for claims brought against them by reason of their being a director or
officer of the Company. Members of the Stock Option Committee are also
indemnified by the Company in connection with their administration of the Stock
Option Plan.
The Company believes that these provisions will assist the Company in
attracting and retaining qualified individuals to serve as directors and
officers.
44
<PAGE> 46
CERTAIN TRANSACTIONS
The following is a summary of certain transactions among the Company and
its directors, executive officers and principal stockholders:
CONVERSION OF SERIES A CONVERTIBLE PREFERRED STOCK AND EXCHANGE OF SERIES B
PREFERRED STOCK
Upon consummation of the initial public offering of Common Stock, Warburg
converted its 4,001 shares of Series A Convertible Preferred Stock into 788,814
shares of Class A Common Stock. Thereafter, Warburg made the requisite
certification required under the Certificate of Incorporation regarding its
share ownership to the Company and converted such shares of Class A Common Stock
into 788,814 shares of Common Stock. See "Description of Capital Stock."
Pursuant to an agreement among the Company, Warburg, ABS, Mr. Papadopoulos
and Dr. Snow (the "Conversion and Exchange Agreement"), upon consummation of the
initial public offering of Common Stock, each share of Series B Preferred Stock
was exchanged for the number of shares of Common Stock that equalled the
liquidation preference of a share of Series B Preferred Stock ($100) divided by
the initial public offering price of the Common Stock ($12.50). As a result, all
of the shares of Series B Preferred Stock converted into an aggregate of
1,435,424 shares. Warburg, ABS, Mr. Papadopoulos and Dr. Snow were the holders
of the Series B Preferred Stock, holding 124,023 shares, 50,356 shares, 4,377
shares and 672 shares, respectively and, accordingly, were issued 992,184,
402,848, 35,016 and 5,376 shares of Common Stock, respectively, upon such
exchange.
The Company granted certain registration rights to the holders of the
Series A Convertible Preferred Stock and Series B Preferred Stock with respect
to the shares of Common Stock issuable upon conversion or exchange, as
applicable. See "Description of Capital Stock -- Registration Rights."
Additionally, the Company granted Warburg and ABS certain rights to nominate
directors as long as they continue to own specified percentages of the
outstanding shares of Common Stock. See "Management."
ACQUISITION OF THE COMPANY; RIGHTS OF WARBURG AND ABS
In March 1992, the Company acquired all of the issued and outstanding
capital stock, together with certain bank and intercompany indebtedness, of the
Company's subsidiaries from Biodor Holding AG, Ixora Holding AG and Biodor US
Holding Corporation. Warburg, ABS and certain current and former employees of
the Company provided the principal equity financing for these acquisitions by
purchasing from the Company 1,012,984 shares of Common Stock at $.42 per share,
4,001 shares of Series A Convertible Preferred Stock at $100 per share and
178,166 shares of Series B Preferred Stock at $100 per share, representing a
total investment of approximately $18.6 million. In addition, these investors
received certain registration rights. See "Description of Capital
Stock -- Registration Rights."
In connection with their initial investment in the Company, Warburg and ABS
received certain rights pursuant to a subscription and shareholder agreement,
including rights with respect to the nomination and election of directors to the
Company's Board of Directors. These rights were subsequently modified at the
time of the initial public offering. Pursuant to such rights, Warburg has
maintained two nominees to the Company's Board of Directors and ABS maintained
two nominees to the Company's Board of Directors until July 1996 and one nominee
from July 1996 until February 1997. In addition to their rights to nominate and
elect directors, until terminated at the time of the initial public offering,
Warburg and ABS were also beneficiaries of certain drag along, tag along,
subscription and informational rights.
45
<PAGE> 47
TRANSACTIONS WITH OFFICERS
On January 4, 1993, Mr. Papadopoulos, the Company's Chairman of the Board,
Chief Executive Officer and President, purchased 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 and a $452,000 promissory note. The Company has
granted Mr. Papadopoulos certain registration rights for such shares of Common
Stock. See "Description of Capital Stock -- Registration Rights." This unsecured
note bore interest at the rate of 8% per annum and matured on January 4, 1996.
In accordance with the terms of the note, as a result of Mr. Papadopoulos'
continued employment with the Company, one-third of the principal amount,
together with accrued interest, was forgiven on each of the first three
anniversaries of the note.
Effective June 9, 1995, Richard B. Slansky, the former President and Chief
Operating Officer of the Company, resigned to pursue other business
opportunities. In connection therewith, the Company and Mr. Slansky entered into
an agreement which provided for the payment to Mr. Slansky of six months
severance pay and also provided for the sale by Mr. Slansky to the Company of
59,726 shares of Common Stock at a price of approximately $3.45 per share and
1,199 shares of Series B Preferred Stock at a price of $100 per share.
On January 31, 1996, Mr. Matzilevich, the Company's Vice President, Market
Development-Niche Applications, purchased 28,390 shares of Common Stock at $3.38
per share from the Company in exchange for a $96,000 promissory note. The note
bears interest at the rate of 5.65% per annum, matures on January 31, 1998, and
is secured by such shares of Common Stock. The Company has granted Mr.
Matzilevich certain registration rights for such shares of Common Stock. See
"Description of Capital Stock -- Registration Rights."
46
<PAGE> 48
PRINCIPAL AND SELLING STOCKHOLDERS
The following table presents certain information regarding beneficial
ownership of the Common Stock as of February 28, 1997, by (i) each person known
by the Company to be the beneficial owner of more than 5% of the outstanding
shares of Common Stock (including ABS as "Selling Stockholder"), (ii) each
director of the Company, (iii) each Named Executive Officer and (iv) all
directors and executive officers as a group. Unless otherwise indicated, each
person in the table has sole voting and investment power as to the shares shown.
<TABLE>
<CAPTION>
SHARES OF SHARES OF SHARES OF
COMMON STOCK COMMON COMMON STOCK
BENEFICIALLY OWNED STOCK BENEFICIALLY OWNED
PRIOR TO OFFERING OFFERED HEREBY AFTER OFFERING
------------------- --------------- -------------------
NAME NUMBER PERCENT NUMBER PERCENT
- -------------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
Warburg, Pincus Investors, L.P. (1)......... 2,248,485 43.6% -- 2,248,485 42.8%
466 Lexington Avenue
New York, New York 10017
ABS MB (C-N) Limited Partnership............ 910,190 17.6 910,190 -- --
One South Street
Baltimore, Maryland 21202
Stelios B. Papadopoulos (2)................. 191,365 3.6 -- 191,365 3.6
James G. Stewart (3)........................ 15,102 * -- 15,102 *
John T. Snow................................ 43,597 * -- 43,597 *
Ben Matzilevich (4)......................... 39,854 * -- 39,854 *
Douglas J. Greenwold (5).................... 30,190 * -- 30,190 *
Joseph P. Landy (6)......................... 2,248,485 43.6 -- 2,248,485 42.8
Richard A. Lerner........................... -- -- -- -- --
S. Joshua Lewis............................. -- -- -- -- --
Robert E. McGill, III....................... 4,366 * -- 4,366 *
Directors and Executive Officers as a group
(9 persons) (7)........................... 2,572,959 48.4% -- 2,572,959 47.6%
</TABLE>
- ---------------
* Less than 1%.
(1) The sole general partner of Warburg, Pincus Investors, L.P. ("Warburg") is
Warburg Pincus & Co., a New York general partnership ("WP"). E.M. Warburg
Pincus & Co., LLC, a New York limited liability company ("EMW LLC") manages
Warburg. The members of EMW LLC are substantially the same as the partners
of WP. Lionel I. Pincus is the managing partner of WP and the managing
member of EMW LLC and may be deemed to control both WP and EMW LLC. WP, as
the sole general partner of Warburg, has a 20% interest in the profits of
Warburg. Mr. Landy, a director of the Company, is a Managing Director and
member of EMW LLC and a general partner of WP. As such, Mr. Landy may be
deemed to have an indirect pecuniary interest (within the meaning of Rule
16a-1 under the Securities Exchange Act of 1934) in an indeterminate portion
of the shares beneficially owned by Warburg and WP. See Note (6) below.
(2) Includes 110,249 shares of Common Stock which may be acquired pursuant to
stock options exercisable within 60 days of February 28, 1997.
(3) Includes 9,463 shares of Common Stock which may be acquired pursuant to
stock options exercisable within 60 days of February 28, 1997.
(4) Includes 9,464 shares of Common Stock which may be acquired pursuant to
stock options exercisable within 60 days of February 28, 1997.
(5) Includes 28,390 shares of Common Stock which may be acquired pursuant to
stock options exercisable within 60 days of February 28, 1997.
(6) All of the shares of Common Stock indicated as owned by Mr. Landy are owned
directly by Warburg and are included because of Mr. Landy's affiliation with
Warburg. Mr. Landy disclaims "beneficial ownership" of these shares within
the meaning of Rule 13d-3 under the Exchange Act, except to the extent of
his indirect pecuniary interest. See Note (1).
(7) Includes shares of Common Stock which may be acquired within 60 days of
February 28, 1997. See Notes (2), (3), (4) and (5).
47
<PAGE> 49
DESCRIPTION OF CAPITAL STOCK
The following summary does not purport to be complete and is subject to,
and qualified in its entirety by, the Certificate of Incorporation and the
By-Laws, which are included as exhibits to the registration statement of which
this Prospectus forms a part, and by the provisions of applicable law. The
authorized capital stock of the Company consists of 30,000,000 shares of Common
Stock, par value $.01 per share, 800,000 shares of Class A Common Stock, par
value $.01 per share ("Class A Common Stock"), of which 11,186 shares may be
issued, and 5,000,000 shares of Preferred Stock, par value $.01 per share (the
"Preferred Stock").
COMMON STOCK
As of February 28, 1997, there were 5,162,523 shares of Common Stock
outstanding held of record by 23 persons. Upon the consummation of the offering
of shares of Common Stock offered by the Company hereby, there will be 5,252,333
shares of Common Stock outstanding (5,402,333 shares if the Underwriters'
over-allotment option is exercised in full). An aggregate of 650,389 shares of
Common Stock are issuable upon the exercise of outstanding stock options and
92,675 shares of Common Stock are reserved for future issuance under the
Company's Stock Option Plan.
Holders of Common Stock are entitled to one vote per share in all matters
to be voted on by the stockholders of the Company and do not have cumulative
voting rights. Subject to preferences that may be applicable to any Preferred
Stock outstanding at the time, holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of the Company's liabilities and the liquidation
preference, if any, of any outstanding Preferred Stock. Holders of shares of
Common Stock have no preemptive, subscription, redemption or conversion rights.
There are no redemption or sinking fund provisions applicable to the Common
Stock. All of the outstanding shares of Common Stock are, and the shares offered
by the Company in this offering will be, when issued and paid for, fully paid
and non-assessable. The rights, preferences and privileges of holders of Common
Stock are, subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.
CLASS A COMMON STOCK
There are no shares of Class A Common Stock outstanding. Except as
otherwise provided by law, the holders of the Class A Common Stock are not
entitled to notice of, or to vote at, any meeting of the stockholders of the
Company nor to vote upon any matter relating to the business or affairs of the
Company. The dividend, liquidation and other rights of the Class A Common Stock
are identical to those of the Common Stock. If issued and outstanding, each
share of Class A Common Stock is convertible into one share of Common Stock at
any time provided that either (i) the holder thereof is not Warburg or any
affiliate, or (ii) upon such conversion and after giving effect thereto, such
holder and all affiliates will collectively own beneficially and of record no
more than 50% of the then outstanding shares of Common Stock. The Company does
not presently intend to issue any shares of its Class A Common Stock.
PREFERRED STOCK
As of the date of this Prospectus, there were no outstanding shares of
Preferred Stock.
The Board of Directors will have the authority, without any further vote or
action by the stockholders, to provide for the issuance of up to 5,000,000
shares of Preferred Stock from time to time in one or more series with such
designations, rights, preferences and limitations as the Board of Directors may
determine, including the consideration received therefor. The Board also will
have the authority to determine the number of shares comprising each series,
dividend rates, redemption provisions, liquidation preferences, sinking fund
provisions, conversion rights and voting rights without approval by the holders
of the Common Stock. Although it is not possible to state the effect that any
issuance of Preferred Stock might have on the rights of holders of Common Stock,
the issuance of Preferred Stock may have one or more of the following effects:
(i) restriction
48
<PAGE> 50
of Common Stock dividends if Preferred Stock dividends have not been paid, (ii)
dilution of the voting power and equity interest of holders of Common Stock to
the extent that any series of Preferred Stock has voting rights or is
convertible into Common Stock or (iii) prevention of current holders of Common
Stock from participating in the Company's assets upon liquidation until any
liquidation preferences granted to holders of Preferred Stock are satisfied. In
addition, the issuance of Preferred Stock may, under certain circumstances, have
the effect of discouraging a change in control of the Company by, for example,
granting voting rights to holders of Preferred Stock that require approval by
the separate vote of the holders of Preferred Stock for any amendment to the
Certificate of Incorporation or for any reorganization, consolidation, merger or
other similar transaction involving the Company. As a result, the issuance of
such Preferred Stock may discourage bids for the Common Stock at a premium over
the market price therefor, and could have a materially adverse effect on the
market value of the Common Stock. See "Risk Factors -- Anti-Takeover Effects of
Certificate of Incorporation and Delaware Law."
WARRANT
As of the date of this Prospectus, there was an outstanding warrant to
purchase 3,028 shares of Common Stock (subject to adjustment upon certain
dilutive events) at an exercise price of $1.06 per share (the "Warrant"). The
Warrant is currently exercisable in whole or in part, and expires on July 28,
2000. The holder or holders of the shares of Common Stock issuable upon exercise
of the Warrant are entitled to certain registration rights. See "-- Registration
Rights."
REGISTRATION RIGHTS
Holders of 3,278,271 shares of Common Stock (the "Registrable Securities"),
including the shares of Common Stock being sold by the Selling Stockholder
hereby, are entitled to certain rights with respect to the registration of such
shares under the Securities Act. In the event that the Company proposes to
register any of its securities under the Securities Act for its own account or
otherwise on a form which permits the registration of such Registrable
Securities (other than Form S-4 or Form S-8 or their successor forms), such
holders are entitled to include their Registrable Securities in such
registrations, subject to certain conditions and limitations. These limitations
include the right of the managing underwriter of any such offering to exclude
some of the Registrable Securities from such registration if it determines that
marketing forces require a limitation on the number of shares to be
underwritten. All of such holders, other than the Selling Stockholder, have
agreed to not exercise any registration rights in connection with this offering
and until the expiration of the Lock-Up Period without the prior written consent
of UBS Securities LLC.
The holder or holders of in excess of 50% of the Registrable Securities
then outstanding are also entitled to request that the Company register at least
20% (or a lesser percent under certain circumstances) of the Registrable
Securities then outstanding ("Demand Registrations"), subject to certain
limitations. The Company is not obligated to effect more than three Demand
Registrations, and generally will bear all expenses incurred in connection with
the registration of Registrable Securities, other than underwriting discounts
and commissions. In addition, the holder or holders of shares of the 3,028
shares of Common Stock issuable upon exercise of the Warrant may include their
shares in Company-initiated registrations or Demand Registrations by other
holders of Registrable Securities.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Under Section 203, certain "business
combinations" between a Delaware corporation whose stock is publicly traded or
held of record by more than 2,000 stockholders and an "interested stockholder"
are prohibited for a three-year period following the date that such stockholder
became an interested stockholder, unless (i) the corporation has elected in its
original certificate of incorporation not to be governed by Section 203 (the
Company did not make such an election), (ii) the transaction in which the
stockholder became an interested stockholder or the business combination was
approved by the Board of Directors of the corporation before the other party to
the business combination became an interested stockholder, (iii) upon
consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at
49
<PAGE> 51
least 85% of the voting stock of the corporation outstanding at the commencement
of the transaction (excluding voting stock owned by directors who are also
officers or held in employee benefit plans in which the employees do not have a
confidential right to tender or vote stock held by the plan) or (iv) the
business combination was approved by the Board of Directors of the corporation
and ratified by two-thirds of the voting stock which the interested stockholder
did not own. The term "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an "interested
stockholder," transactions with an "interested stockholder" involving the assets
or stock of the corporation or its majority-owned subsidiaries and transactions
which increase an "interested stockholder's" percentage ownership of stock. The
term "interested stockholder" is defined generally as a stockholder who,
together with its affiliates and associates, owns (or, within three years prior,
did own) 15% or more of a Delaware corporation's voting stock. Section 203 could
prohibit or delay a merger, takeover or other change in control of the Company
and therefore could discourage attempts to acquire the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
50
<PAGE> 52
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom UBS Securities LLC and
Dain Bosworth Incorporated are acting as representatives (the
"Representatives"), have agreed to purchase from the Company and the Selling
Stockholder the following respective number of shares of Common Stock:
<TABLE>
<CAPTION>
UNDERWRITERS SHARES
------------------------------------------------------------------ ---------
<S> <C>
UBS Securities LLC................................................
Dain Bosworth Incorporated........................................
---------
Total................................................... 1,000,000
========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel. The
nature of the Underwriters' obligation is such that they are committed to
purchase all shares of Common Stock offered hereby if any such shares are
purchased. The Underwriting Agreement contains certain provisions whereby if any
underwriter defaults in its obligation to purchase shares, and the aggregate
obligations of the Underwriters so defaulting do not exceed 10% of the shares
offered hereby, the remaining Underwriters, or some of them, must assume such
obligations.
The Representatives have advised the Company and the Selling Stockholder
that the Underwriters propose to offer the shares of Common Stock directly to
the public at the offering price set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not in excess of
$ per share. The Underwriters may allow and such dealers may reallow a
concession not in excess of $ per share to certain other dealers. After
the public offering of the shares of Common Stock, the offering price and other
selling terms may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 150,000
additional shares of Common Stock to cover over-allotments, if any, at the
public offering price set forth on the cover page of this Prospectus, less the
underwriting discounts and commissions. To the extent that the Underwriters
exercise this option, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof which the number of shares of
Common Stock to be purchased by it shown in the table above bears to the total
number of shares of Common Stock offered hereby. The Company will be obligated,
pursuant to the option, to sell such shares to the Underwriters.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act.
Warburg and the Company's executive officers and directors, who
beneficially own an aggregate of 2,572,959 shares of Common Stock, have agreed
that they will not, without the prior written consent of UBS Securities LLC,
offer, sell or otherwise dispose of any shares of Common Stock, options or
warrants to acquire shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock owned by them for a period of 180 days
after the date of this Prospectus. The Company has agreed that it will not,
51
<PAGE> 53
without the prior written consent of UBS Securities LLC, offer, sell or
otherwise dispose of any shares of Common Stock, options or warrants to acquire
shares of Common Stock for a period of 180 days after the date of this
Prospectus, except that the Company may grant additional options under the Stock
Option Plan or issue shares upon the exercise of stock options or the Warrant.
The offering is being conducted in accordance with Rule 2720 ("Rule 2720")
of the National Association of Securities Dealers, Inc. (the "NASD") which
provides that, among other things, when an NASD member firm participates in the
offering of equity securities of a company with whom such member has a "conflict
of interest" (as defined in Rule 2720), the initial public offering price can be
no higher than that recommended by a "qualified independent underwriter" (as
defined in Rule 2720) (a "QIU"). Dain Bosworth Incorporated is serving as the
QIU in the offering and has recommended a price in compliance with the
requirements of Rule 2720. Dain Bosworth Incorporated has performed due
diligence investigations and reviewed and participated in the preparation of
this Prospectus and the Registration Statement of which this Prospectus forms a
part. Dain Bosworth Incorporated, in its capacity as QIU, will receive no
additional compensation as such in connection with the offering.
The Representatives were the co-managing underwriters of the Company's
initial public offering of Common Stock in October 1996.
During the offering, the Underwriters or their affiliates may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Such transactions may include stabilizing bids, syndicate short
covering transactions or penalty bids.
In general, the rules of the Commission will prohibit the Underwriters from
making a market in the Common Stock during a "restricted period" commencing up
to five days prior to the pricing of the offering of Common Stock offered hereby
and extending until completion of the offering. The Commission has, however,
adopted exceptions from these rules that permit passive market making under
certain conditions. These rules permit an underwriter to continue to make a
market subject to the conditions, among others, that its bid not exceed the
highest bid by a market maker not connected with the offering and that its net
purchases on any one trading day not exceed prescribed limits. Pursuant to these
exemptions, the Underwriters, selling group members (if any) or their respective
affiliates may engage in passive market making in the Company's Common Stock
during the restricted period.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Stockholder by Willkie Farr & Gallagher, New York, New
York. Certain legal matters relating to this offering will be passed upon for
the Underwriters by Cooley Godward LLP, San Diego, California.
EXPERTS
The consolidated financial statements of CN Biosciences, Inc. at December
31, 1995 and 1996, and for each of the three years in the period ended December
31, 1996 appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission under the Securities Act a
Registration Statement on Form S-1 with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement in accordance with the rules and regulations of the
Commission. For further information pertaining to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement, including
the exhibits thereto and the financial statements, notes and schedules filed as
a part thereof. Statements contained in this Prospectus as to the contents of
any
52
<PAGE> 54
contract or other document are not necessarily complete and, in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. In addition, the Company is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and in accordance therewith files reports, proxy statements, and other
information with the Commission. The Registration Statement, as well as the
reports, proxy statements and other information filed by the Company with the
Commission, may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the Commission's Regional Offices located in New York at Seven World
Trade Center, New York, New York 10007 and in Chicago at Citicorp Center, Suite
1400, 500 West Madison Street, Chicago, Illinois 60611. Copies of such material
can be obtained from the public reference section of the Commission at
prescribed rates by writing to the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549. The Registration Statement, as
well as the reports, proxy statements and other information filed by the Company
with the Commission, may also be accessed electronically on the Commission's
World Wide Web site (http://www.sec.gov). The Common Stock is listed on the
Nasdaq National Market and reports and other information concerning the Company
may be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W.,
Washington, D.C. 20006.
53
<PAGE> 55
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors......................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996........................... F-3
Consolidated Statements of Operations for each of the three years in the period ended
December 31, 1996.................................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for each of the three years
in the period ended December 31, 1996................................................ F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended
December 31, 1996.................................................................... F-6
Notes to Consolidated Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE> 56
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
F-2
<PAGE> 57
CN BIOSCIENCES, INC.
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
Notes 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.
F-3
<PAGE> 58
CN BIOSCIENCES, INC.
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.
F-4
<PAGE> 59
CN BIOSCIENCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
NOTE
FOREIGN RECEIVABLE
COMMON STOCK ADDITIONAL CURRENCY FROM
-------------------- 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.
F-5
<PAGE> 60
CN BIOSCIENCES, INC.
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.
F-6
<PAGE> 61
CN BIOSCIENCES, INC.
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.
F-7
<PAGE> 62
CN BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-8
<PAGE> 63
CN BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-9
<PAGE> 64
CN BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
Other current assets
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
Deferred income taxes..................................... $ 82,000 $ 1,211,000
Other..................................................... 394,000 1,225,000
-------- ----------
$ 476,000 $ 2,436,000
======== ==========
</TABLE>
Property and equipment
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
Intangible assets
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
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.
F-10
<PAGE> 65
CN BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-11
<PAGE> 66
CN BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
OPTION PRICE OPTION 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 has
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 38.53%; and a
weighted-average life of the option of 4.5 years.
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>
F-12
<PAGE> 67
CN BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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%.
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,
has been recognized as an offset to the deferred tax assets related to the
jurisdictions in which realization of such assets is uncertain.
F-13
<PAGE> 68
CN BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
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>
Income tax expense (benefit) 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 (benefit).............. $ 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
F-14
<PAGE> 69
CN BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$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>
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>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
------------------------------------------------------------------
CONSOLIDATED
UNITED STATES EUROPE OTHER ELIMINATIONS TOTAL
------------- ------- ------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
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
======= ======= ====== ======= =======
</TABLE>
F-15
<PAGE> 70
CN BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------
CONSOLIDATED
UNITED STATES EUROPE OTHER ELIMINATIONS TOTAL
------------- ------- ------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
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
======= ======= ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------------
CONSOLIDATED
UNITED STATES EUROPE OTHER ELIMINATIONS TOTAL
------------- ------- ------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
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 totaled for the years ended December 31,
1994, 1995 and 1996 $31,000, $67,000 and $87,000, respectively.
F-16
<PAGE> 71
INSIDE BACK COVER PAGE
[COLOR PICTURE OF TWO SCIENTISTS WORKING IN LABORATORY WITH CAPTION WHICH
READS "THE COMPANY'S SCIENTIFIC STAFF, INCLUDING 42 PH.D.S, DEVELOPS AND
MANUFACTURES A LARGE ARRAY OF BIOCHEMICAL AND BIOLOGICAL REAGENTS, ANTIBODIES,
PEPTIDES, ASSAYS AND RESEARCH KITS."]
[COLOR PHOTO OF EMPLOYEE HOLDING BOTTLE OF BIOCHEMICAL PRODUCT WITH CAPTION
WHICH READS "CUSTOMER ORDERS ARE FULFILLED, GENERALLY WITH NEXT-DAY OR
SECOND-DAY SHIPMENTS, FROM THE SAN DIEGO, CA AND NOTTINGHAM, U.K. DISTRIBUTION
CENTERS."]
[COLOR PHOTO OF WORLD MAP WITH DOTS INDICATING LOCATIONS OF COMPANY
FACILITIES IN COUNTRIES WHERE THE COMPANY'S PRODUCTS ARE SOLD WITH CAPTION WHICH
READS "CUSTOMERS IN 48 COUNTRIES ARE SERVED BY THE COMPANY FROM ITS SEVEN
LOCATIONS."]
[COLOR PHOTO SHOWING AN ARRAY OF COMPANY PUBLICATIONS WITH CAPTION WHICH
READS "THE COMPANY INTRODUCES NEW PRODUCTS, PROVIDES TECHNICAL INFORMATION AND
REGULARLY COMMUNICATES WITH ITS CUSTOMERS THROUGH A BROAD ARRAY OF SUPPLEMENTAL
PUBLICATIONS."]
<PAGE> 72
No dealer, salesperson or any other person has been authorized to give any
information or make any representation not contained in this Prospectus in
connection with the offer made by this Prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or the Underwriters. This Prospectus does not constitute an offer
to sell or a solicitation of an offer to buy any of the securities offered
hereby to anyone in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication that the
information herein is correct as of any time subsequent to the date of this
Prospectus.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 12
Dividend Policy....................... 12
Capitalization........................ 13
Dilution.............................. 14
Price Range of Common Stock........... 14
Selected Consolidated Financial
Data................................ 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 22
Management............................ 38
Certain Transactions.................. 45
Principal and Selling Stockholders.... 47
Description of Capital Stock.......... 48
Underwriting.......................... 51
Legal Matters......................... 52
Experts............................... 52
Available Information................. 52
Index to Financial Statements......... F-1
</TABLE>
1,000,000 SHARES
CN BIOSCIENCES LOGO
COMMON STOCK
---------------------------------
PROSPECTUS
, 1997
---------------------------------
UBS SECURITIES
DAIN BOSWORTH
Incorporated
<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, all of which will be
paid solely by the Company. All the amounts shown are estimates, except the SEC
registration fee, the NASD filing fee and the Nasdaq National Market listing
fee:
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
SEC registration fee.............................................. $ 5,053
NASD filing fee................................................... 2,168
Nasdaq National Market listing fee................................ 4,796
Transfer agent and registrar fees and expenses.................... 2,000
Printing and engraving expenses................................... 150,000
Legal fees and expenses........................................... 200,000
Accounting fees and expenses...................................... 50,000
Miscellaneous expenses............................................ 35,983
--------
Total................................................... $450,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation and By-Laws provide that the
Company shall indemnify each person who is or was a director or officer of the
Company to the fullest extent permitted under Section 145 of the Delaware
General Corporation Law. Section 145 of the Delaware General Corporation Law
empowers a Delaware corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of such corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of such
corporation, or is or was serving at the request of such corporation as a
director, officer, employee or agent of another corporation or enterprise. A
corporation may indemnify such person against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. A corporation may, in advance of the final disposition of any
civil, criminal, administrative or investigative action, suit or proceeding, pay
the expenses (including attorneys' fees) incurred by any officer or director in
defending such action, provided that the director or officer undertakes to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation.
A Delaware corporation may also indemnify officers and directors in an
action by or in the right of the corporation to procure a judgment in its favor
under the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses (including attorneys' fees) which he actually
and reasonably incurred in connection therewith. The indemnification provided is
not deemed to be exclusive of any other rights to which an officer or director
may be entitled under any corporation's by-laws, agreements, vote or otherwise.
The Certificate of Incorporation provides that a director of the Company
will not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, which concerns unlawful payments of dividends,
stock
II-1
<PAGE> 74
purchases or redemptions or (iv) for any transaction from which the director
derived an improper personal benefit.
While the Certificate of Incorporation provides directors with protection
from awards for monetary damages for breaches of their duty of care, it does not
eliminate such duty. Accordingly, the Certificate of Incorporation will have no
effect on the availability of equitable remedies such as an injunction or
rescission based on a director's breach of his or her duty of care. The
provisions of the Certificate of Incorporation described in the preceding
paragraph apply to an officer of the Company only if he or she is a director of
the Company and is acting in his or her capacity as director, and do not apply
to officers of the Company who are not directors.
Reference is made to the Underwriting Agreement (Exhibit 1) which provides
for indemnification of the Company, its directors, officers and controlling
persons.
The Company has entered into indemnification agreements with certain of its
directors and officers pursuant to which the Company provides indemnification
and contribution against expenses and losses incurred for claims brought against
them by reason of their being a director or officer of the Company. Members of
the Stock Option Committee are also indemnified by the Company in connection
with their administration of the Stock Option Plan. Additionally, the Company
maintains a directors' and officers' liability insurance policy.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information is furnished with regard to all securities sold
by the Company within the past three years 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. All
issuances of stock options were pursuant to the Registrant's 1992 Stock Option
Plan.
From January 1, 1994 to December 31, 1994, the Registrant issued stock
options to purchase 23,658 shares of Common Stock at $0.42 per share to
employees.
From January 1, 1995 to December 31, 1995, the Registrant issued stock
options to purchase 70,976 shares of Common Stock at $0.42 per share to
executive officers.
On July 28, 1995, the Registrant issued a warrant to purchase 3,028 shares
of Common Stock at $1.06 per share to Silicon Valley Bank in connection with the
Registrant's bank credit facility.
On August 15, 1995, the Registrant issued stock options to purchase 18,928
shares of Common Stock at $1.06 per share to employees.
On November 10, 1995, the Registrant issued stock options to purchase
11,828 shares of Common Stock at $3.38 per share to a director.
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.
II-2
<PAGE> 75
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 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ -------------------------------------------------------------------------------
<S> <C>
1 Form of Underwriting Agreement
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.
5+ Opinion of Willkie Farr & Gallagher as to the legality of Common Stock.
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(h)* Letter Agreement, dated June 9, 1995, by and between Calbiochem-Novabiochem
International, Inc. and Richard B. Slansky.
</TABLE>
II-3
<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ -------------------------------------------------------------------------------
<S> <C>
10(i)* Form of Director Indemnification Agreement.
10(j)* Form of Officer Indemnification Agreement.
10(k) CN Biosciences, Inc. Amended and Restated 1992 Stock Option Plan, including
Form of Incentive Stock Option Agreement and Form of Non-Qualified Stock Option
Agreement.
10(l)* Employment Agreement, dated as of January 1, 1996, between
Calbiochem-Novabiochem International, 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) Form of Executive Severance Agreement.
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.
</TABLE>
II-4
<PAGE> 77
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ -------------------------------------------------------------------------------
<S> <C>
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.
21* Subsidiaries of the Registrant.
23(a)+ Consent of Willkie Farr & Gallagher (included as part of Exhibit 5).
23(b) Consent of Ernst & Young LLP.
24 Power of Attorney (included on the signature page to this registration
statement).
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).
+ To be filed by amendment.
(b) Financial Statement Schedules.
Schedule II -- Valuation and Qualifying Accounts.
II-5
<PAGE> 78
ITEM 17. UNDERTAKINGS.
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(2) The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 79
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of San Diego, State of
California, on the 4th day of March, 1997.
CN BIOSCIENCES, INC.
By: /s/ JAMES G. STEWART
------------------------------------
James G. Stewart
Vice President, Chief
Financial Officer and Secretary
POWER OF ATTORNEY
Each of the undersigned officers and directors of CN Biosciences, Inc.
hereby severally constitutes and appoints Stelios B. Papadopoulos and James G.
Stewart, and each of them as the attorneys-in-fact for the undersigned, in any
and all capacities, with full power of substitution, to sign any and all pre- or
post-effective amendments to this Registration Statement, any subsequent
Registration Statement for the same offering which may be filed pursuant to Rule
462(b) under the Securities Act of 1933 and any and all pre- or post-effective
amendments thereto, and to file the same with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact, and each of them, full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that each said
attorney-in-fact, or either of them, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------- --------------
<C> <S> <C>
/s/ STELIOS B. PAPADOPOULOS Chairman of the Board of Directors, March 4, 1997
- ------------------------------------------ Chief Executive Officer and
Stelios B. Papadopoulos President (Principal executive
officer)
/s/ JAMES G. STEWART Vice President, Chief Financial March 4, 1997
- ------------------------------------------ Officer and Secretary (Principal
James G. Stewart financial and accounting officer)
/s/ RICHARD A. LERNER Director March 4, 1997
- ------------------------------------------
Richard A. Lerner
/s/ JOSEPH P. LANDY Director March 4, 1997
- ------------------------------------------
Joseph P. Landy
/s/ S. JOSHUA LEWIS Director March 4, 1997
- ------------------------------------------
S. Joshua Lewis
/s/ ROBERT E. MCGILL, III Director March 4, 1997
- ------------------------------------------
Robert E. McGill, III
</TABLE>
II-7
<PAGE> 80
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
Year ended December 31, 1994............... 3,865 192 379 613 3,823
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.
<PAGE> 81
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- --------------- ------------------------------------------------------------------------- -----
<S> <C> <C>
1 Form of Underwriting Agreement...........................................
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........................
5+ Opinion of Willkie Farr & Gallagher as to the legality of Common Stock...
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 between 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, George 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(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................................
</TABLE>
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- --------------- ------------------------------------------------------------------------- -----
<S> <C> <C>
10(k) CN Biosciences, Inc. Amended and Restated 1992 Stock Option Plan,
including Form of Incentive Stock Option Agreement and Form of
Non-Qualified Stock Option Agreement.....................................
10(l)* Employment Agreement, dated as of January 1, 1996, between Calbiochem-
Novabiochem International, 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) Form of Executive Severance Agreement....................................
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 and Silicon Valley Bank.............
10(n)(v)* Pledge Agreement, dated July 28, 1995, by and between
Calbiochem-Novabiochem International 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 ERG 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.......
</TABLE>
<PAGE> 83
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- --------------- ------------------------------------------------------------------------- -----
<S> <C> <C>
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 Calibochem-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........................................
21* Subsidiaries of the Registrant...........................................
23(a)+ Consent of Willkie Farr & Gallagher (included as part of Exhibit 5)......
23(b) Consent of Ernst & Young LLP.............................................
24 Power of Attorney (included on the signature page to this registration
statement)...............................................................
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).
+ To be filed by amendment.
<PAGE> 1
EXHIBIT 1
1,000,000 Shares
CN BIOSCIENCES, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
March , 1997
UBS Securities LLC
Dain Bosworth Incorporated
As Representatives of the Several Underwriters
c/o UBS Securities LLC
299 Park Avenue
New York, NY 10171
Ladies and Gentlemen:
CN Biosciences, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell 89,810 shares (the "Company Shares") of its authorized but
unissued Common Stock, $.01 par value per share (the "Common Stock"), to the
several Underwriters listed on SCHEDULE A to this Agreement (collectively, the
"Underwriters"). ABS MB (C-N) Limited Partnership (the "Selling Stockholder")
proposes to sell an aggregate of 910,190 shares of Common Stock (the "Seller
Shares") to the Underwriters. The Company Shares and the Seller Shares are
hereinafter collectively referred to as the "Firm Shares." The Company also
proposes to grant to the Underwriters an option to purchase up to 150,000
additional shares (the "Option Shares") of Common Stock on the terms and for the
purposes set forth in Section 4(c). The Firm Shares and the Option Shares are
hereinafter collectively referred to as the "Shares."
The Company and the Selling Stockholder wish to confirm as follows their
agreements with you (the "Representatives") and the other Underwriters on whose
behalf you are acting in connection with the several purchases by the
Underwriters of the Shares.
1. REGISTRATION STATEMENT. A registration statement on Form S-1 (File No.
333-________ ) including a prospectus relating to the Shares and each amendment
thereto has been prepared by the Company in conformity with the requirements of
the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder, and has been filed with the
Commission. There have been delivered to you three signed copies of such
registration statement and amendments, together with three copies of each
exhibit filed therewith. Conformed copies of such registration statement and
amendments (but without exhibits) and of the related preliminary prospectus have
been delivered to you in such reasonable quantities as you have requested for
each of the Underwriters. If such registration statement has not become
effective, a further amendment to such registration statement, including a form
of final prospectus, necessary to permit such registration statement to become
effective will be filed promptly by the Company with the Commission. If such
registration statement has become effective, a final prospectus containing all
Rule 430A Information (as hereinafter defined) will be filed by the Company with
the Commission in accordance with Rule 424(b) of the Rules and Regulations on or
before the second business day after the date hereof (or such earlier time as
may be required by the Rules and Regulations).
The term "Registration Statement" as used in this Agreement shall mean
such registration statement at the time such registration statement becomes or
became effective and, in the event any post-effective amendment
1.
<PAGE> 2
thereto becomes effective prior to the Closing Date (as hereinafter defined),
shall also mean such registration statement as so amended; provided, however,
that such term shall also include all Rule 430A Information deemed to be
included in such registration statement at the time such registration statement
becomes effective as provided by Rule 430A of the Rules and Regulations. The
term "Preliminary Prospectus" shall mean any preliminary prospectus referred to
in the preceding paragraph and any preliminary prospectus included in the
Registration Statement at the time it becomes effective that omits Rule 430A
Information. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Shares in the form in which it is first filed with
the Commission pursuant to Rule 424(b) of the Rules and Regulations or, if no
filing pursuant to Rule 424(b) of the Rules and Regulations is required, shall
mean the form of final prospectus included in the Registration Statement at the
time such registration statement becomes effective. The term "Rule 430A
Information" means information with respect to the Shares and the offering
thereof permitted to be omitted from the Registration Statement when it becomes
effective pursuant to Rule 430A of the Rules and Regulations.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants as follows:
(a) The Company has not received, and has no notice of, any order of the
Commission preventing or suspending the use of any Preliminary Prospectus, or
instituted proceedings for that purpose, and each Preliminary Prospectus, at the
time of filing thereof, conformed in all material respects to the requirements
of the Act and the Rules and Regulations. When the Registration Statement became
or becomes, as the case may be, effective (the "Effective Date") and at all
times subsequent thereto up to and at the Closing Date (as hereinafter defined),
any later date on which Option Shares are to be purchased (the "Option Closing
Date") and when any post-effective amendment to the Registration Statement
becomes effective or any amendment or supplement to the Prospectus is filed with
the Commission, (i) the Registration Statement and Prospectus, and any
amendments or supplements thereto, will contain all material statements which
are required to be stated therein by, and will comply in all material respects
with the requirements of, the Act and the Rules and Regulations, and (ii)
neither the Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, will include any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading. The foregoing representations and
warranties in this section 2(a) do not apply to any statements or omissions made
in reliance on and in conformity with the information in the last paragraph on
the front cover page of the Prospectus, the stabilization and passive market
making language on the inside front cover page of the Prospectus and the
information contained in the first (including the table), third, seventh and
ninth paragraphs of the section of the Prospectus entitled "Underwriting." The
Company has not distributed any offering material in connection with the
offering or sale of the Shares other than the Registration Statement, the
Preliminary Prospectus, the Prospectus or any other materials, if any, permitted
by the Act.
(b) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with full
corporate power and authority to own, lease and operate its properties and
conduct its business as described in the Registration Statement. The Company is
duly qualified to do business as a foreign corporation in good standing in each
jurisdiction where the ownership or leasing of its properties or the conduct of
its business requires such qualification, except where the failure to so qualify
would not have a material adverse effect on the Company and its Subsidiaries (as
hereinafter defined), taken as a whole (a "Material Adverse Effect"). The
Company has no "significant subsidiaries" (as defined in the Rules and
Regulations) other than Calbiochem-Novabiochem Corporation,
Calbiochem-Novabiochem GmbH, Calbiochem-Novabiochem (UK) Limited,
Calbiochem-Novabiochem AG and Clinalfa AG (collectively, the "Subsidiaries").
The Company beneficially owns all of the outstanding common stock (or foreign
equivalents) of the Subsidiaries, except for nominal shareholdings by directors
to meet director qualifying share ownership requirements of foreign
jurisdictions. Other than the Subsidiaries, the Company does not own, directly
or indirectly, any shares of stock or any other equity or long-term debt
securities of any corporation or have any equity interest in any firm,
partnership, joint venture, association or other entity other than its ownership
of subsidiaries which are not "significant subsidiaries" (as defined above).
Complete and correct copies of the certificates of incorporation and of the
bylaws or equivalent documents of the Company and the Subsidiaries and all
amendments thereto have been delivered to the Representatives, and except as
described in the Prospectus or set forth in the exhibits to the Registration
Statement no material changes therein will be made subsequent to the date hereof
and prior to the Closing Date or, if later, the Option Closing Date. Each
Subsidiary has been duly incorporated or organized, as applicable, and is
2.
<PAGE> 3
validly existing as a corporation or limited liability corporation or
partnership (or foreign equivalent) in good standing under the laws of the
jurisdiction of its incorporation or organization, with full corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Registration Statement. Each Subsidiary is duly qualified to
do business as a foreign corporation in good standing in each jurisdiction where
the ownership or leasing of the properties or the conduct of its business
requires such qualification, except where the failure to so qualify would not
have a Material Adverse Effect. All of the outstanding shares of capital stock
(or foreign equivalents) of each of the Subsidiaries have been duly authorized
and validly issued, are fully paid and nonassessable and are owned beneficially
by the Company subject to no security interest, other encumbrance or adverse
claims except for nominal shareholdings by directors to meet director qualifying
share ownership requirements of foreign jurisdictions.
(c) The Company has full power and authority (corporate and otherwise) to
enter into this Agreement and to perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the Company
and is a valid and binding agreement on the part of the Company, enforceable
against the Company in accordance with its terms, except as rights to indemnity
and contribution hereunder may be limited by applicable laws or equitable
principles and except as enforcement hereof may be limited by applicable
bankruptcy, insolvency, reorganization or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles. The
performance of this Agreement by the Company and the consummation by the Company
of the transactions herein contemplated will not result in a breach or violation
of any of the terms and provisions of, or constitute a default under, (i) any
indenture, mortgage, deed of trust, loan agreement, bond, debenture, note
agreement or other evidence of indebtedness, or any material lease, contract or
other agreement or instrument to which the Company or any Subsidiary is a party
or by which its properties are bound, or (ii) the certificate of incorporation
or bylaws or equivalent documents of the Company or any Subsidiary, or (iii) any
law, order, rule, regulation, writ, injunction or decree of any court or
governmental agency or body to which the Company or any Subsidiary is subject.
The Company is not required to obtain or make (as the case may be) any consent,
approval, authorization, order, designation or filing by or with any court or
regulatory, administrative or other governmental agency or body as a requirement
for the consummation by the Company of the transactions herein contemplated,
except such as may be required under the Act, the Securities Exchange Act of
1934, as amended (the "Exchange Act") or under state securities or blue sky
("Blue Sky") laws or under the rules and regulations of the National Association
of Securities Dealers, Inc. ("NASD").
(d) There is not pending or, to the Company's knowledge, threatened, any
action, suit, claim, proceeding or investigation against the Company or its
Subsidiaries or any of their respective officers (in their capacity as officers
of the Company or its Subsidiaries) or any of the properties, assets or rights
of the Company or the Subsidiaries before any court or governmental agency or
body or otherwise which could reasonably be expected to have a Material Adverse
Effect, or prevent consummation of the transactions contemplated hereby. There
is not pending, or to the Company's knowledge threatened, any action, suit,
claim, proceeding or investigation against the officers of the Company or the
Subsidiaries that would be required to be disclosed by the Act or the Rules and
Regulations. There are no statutes, rules, regulations, agreements, contracts,
leases or documents that are required to be described in the Prospectus, or to
be filed as exhibits to the Registration Statement, by the Act or by the Rules
and Regulations that have not been accurately described in all material respects
in the Prospectus or filed as exhibits to the Registration Statement.
(e) All outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable, have been
issued in compliance with all federal and state securities laws and were not
issued in violation of any preemptive right, resale right, right of first
refusal or similar right. The authorized and outstanding capital stock of the
Company at the consummation of the offering conforms in all material respects to
the description thereof contained in the Registration Statement and the
Prospectus (and such description correctly states the substance of the
provisions of the instruments defining the capital stock of the Company). The
Shares to be sold by the Company hereunder have been duly authorized for
issuance and sale to the Underwriters pursuant to this Agreement and, when
issued and delivered by the Company against payment therefor in accordance with
the terms of this Agreement, will be duly and validly issued and fully paid and
nonassessable. No preemptive right, co-sale right, registration right, right of
first refusal or other similar rights of securityholders exists with respect to
any of such Shares or the issue and sale thereof other than those that have been
expressly waived prior to the date hereof. No further approval or authorization
of any security holder, the Board of Directors
3.
<PAGE> 4
or any duly appointed committee thereof or others is required for the issuance
and sale or transfer of such Shares, except as may be required under the Act,
the Exchange Act or under state securities or Blue Sky laws. Except as disclosed
in or contemplated by the Prospectus and the financial statements of the
Company, and the related notes thereto, included in the Prospectus, the Company
does not have outstanding any options or warrants to purchase, or any preemptive
rights or other rights to subscribe for or to purchase, any securities or
obligations convertible into, or any contracts or commitments to issue or sell,
shares of its capital stock or any such options, rights, convertible securities
or obligations. The description of the Company's stock option and other plans or
arrangements, and the options or other rights granted and exercised thereunder,
set forth in the Prospectus accurately and fairly presents, in all material
respects, the information required to be shown with respect to such plans,
arrangements, options and rights.
(f) Ernst & Young LLP, who have examined the financial statements,
together with the related schedules and notes, of the Company filed with the
Commission as a part of the Registration Statement, which are included in the
Prospectus, are independent public accountants within the meaning of the Act and
the Rules and Regulations. The financial statements of the Company, together
with the related schedules and notes, forming part of the Registration Statement
and Prospectus, fairly present the financial position and the results of
operations of the Company at the respective dates and for the respective periods
to which they apply. All financial statements, together with the related
schedules and notes, filed with the Commission as part of the Registration
Statement have been prepared in accordance with generally accepted accounting
principles as in effect in the United States consistently applied throughout the
periods involved except as may be otherwise stated in the Registration
Statement. The selected and summary consolidated financial and the statistical
data included in the Registration Statement present fairly the information shown
therein and have been compiled on a basis consistent with the financial
statements presented therein. No other financial statements or schedules are
required by the Act or the Rules and Regulations to be included in the
Registration Statement.
(g) Subsequent to the respective dates as of which information is given in
the Registration Statement and Prospectus, there has not been (i) any material
adverse change, or any development which in the Company's reasonable judgment is
likely to cause a material adverse change, in the business, properties or assets
described or referred to in the Registration Statement, or the results of
operations, condition (financial or otherwise), business or operations of the
Company and its Subsidiaries, taken as a whole, (ii) any transaction which is
material to the Company and its Subsidiaries, taken as a whole, except
transactions in the ordinary course of business, (iii) any obligation, direct or
contingent, which is material to the Company and its Subsidiaries, taken as a
whole, incurred by the Company or its Subsidiaries, except obligations incurred
in the ordinary course of business, (iv) any change in the capital stock or
outstanding indebtedness of the Company or its Subsidiaries, other than shares
of Common Stock that may be issued upon the exercise of outstanding stock
options and warrants, or (v) any dividend or distribution of any kind declared,
paid or made on the capital stock of the Company. Neither the Company nor its
Subsidiaries have any material contingent obligation which is not disclosed in
the Registration Statement.
(h) The Company and each Subsidiary have good and marketable title to all
material properties and assets described in the Prospectus as owned by them,
free and clear of any pledge, lien, security interest, charge, encumbrance,
claim, equitable interest, or restriction, (ii) the agreements to which the
Company or any Subsidiary is a party described in the Prospectus are valid
agreements, enforceable against the Company or such Subsidiary in accordance
with their terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles, and,
to the Company's knowledge, the other contracting party or parties thereto are
not in material breach or default under any of such agreements and (iii) the
Company and each Subsidiary have valid and enforceable leases for the properties
described in the Prospectus as leased by it, and such leases conform in all
material respects to the description thereof, if any, set forth in the
Registration Statement.
(i) The Company and each Subsidiary now hold and at the Closing Date and
any later Option Closing Date, as the case may be, will hold, all licenses,
certificates, approvals and permits from all state, United States, foreign and
other regulatory authorities necessary to the conduct of their businesses (as
such businesses are currently conducted), except for such licenses,
certificates, approvals and permits the failure of which to hold would not have
a Material Adverse Effect, all of which are valid and in full force and effect,
and there is no proceeding pending or, to the knowledge of the Company,
threatened which may cause any such license, certificate, approval or
4.
<PAGE> 5
permit to be withdrawn, canceled, suspended or not renewed. Neither the Company
nor any Subsidiary is in violation of its certificate of incorporation or other
comparable charter documents, as applicable, and neither the Company nor any
Subsidiary is in violation of its bylaws, except for any violation which would
not have a Material Adverse Effect. Except for defaults or violations which
would not have a Material Adverse Effect, neither the Company nor any Subsidiary
is in default in the performance or observance of any obligation, agreement,
covenant or condition contained in any bond, debenture, note or other evidence
of indebtedness or in any contract, indenture, mortgage, loan agreement, joint
venture or other agreement or instrument to which it is a party or by which it
or any of its properties are bound, or in violation of any law, order, rule,
regulation, writ, injunction or decree of any court or governmental agency or
body.
(j) The Company and each Subsidiary have filed on a timely basis all
necessary federal, state and foreign income, franchise and other tax returns and
have paid all taxes shown thereon as due, and the Company has no knowledge of
any tax deficiency which has been or might be asserted against the Company or
any Subsidiary which might have a Material Adverse Effect. All material tax
liabilities are adequately provided for within the financial statements of the
Company.
(k) The Company and its Subsidiaries maintain insurance of the types and
in the amounts adequate for their business and consistent with insurance
coverage maintained by similar companies in similar businesses, including, but
not limited to, insurance covering product liability and real and personal
property owned or leased against theft, damage, destruction, acts of vandalism
and all other risks customarily insured against, all of which insurance is in
full force and effect.
(l) Neither the Company nor any of its Subsidiaries is involved in any
labor dispute or disturbance nor, to the knowledge of the Company, is any such
dispute or disturbance threatened.
(m) Except as described in the Prospectus, the Company and each Subsidiary
own or possess adequate licenses or other rights to use all patents, patent
applications, trademarks, trademark applications, service marks, service mark
applications, tradenames, copyrights, manufacturing processes, formulae, trade
secrets, know-how, franchises, and other material intellectual property rights
and assets (collectively, "Intellectual Property") necessary to the conduct of
their businesses substantially as now conducted and as proposed to be conducted
as described in the Prospectus. The Company has no knowledge that it or any
Subsidiary lacks or will be unable to obtain any rights or licenses to use any
of the Intellectual Property necessary to conduct the business substantially as
now conducted or proposed to be conducted by it as described in the Prospectus.
The Prospectus fairly and accurately describes the Company's rights with respect
to the Intellectual Property. Except as would not, individually or in the
aggregate, have a Material Adverse Effect, the Company has not received any
notice of infringement or of conflict with rights or claims of others with
respect to any Intellectual Property. The Company is not aware of any
Intellectual Property of others which are infringed upon by potential products
or processes referred to in the Prospectus in such a manner as to result in a
Material Adverse Effect.
(n) The Company and each Subsidiary are conducting their businesses in
compliance with all of the laws, rules and regulations of the jurisdictions in
which it is conducting business, except where any such failure to be in
compliance would not have a Material Adverse Effect.
(o) The Company is not an "investment company," or a "promoter" or
"principal underwriter" for a registered investment company, as such terms are
defined in the Investment Company Act of 1940, as amended.
(p) Neither the Company nor any of its Subsidiaries has incurred any
liability for a fee, commission, or other compensation on account of the
employment of a broker or finder in connection with the transactions
contemplated by this Agreement other than the underwriting discounts and
commissions contemplated hereby.
(q) The Company and each of its Subsidiaries is (i) in compliance with any
and all applicable federal, foreign, state and local environmental laws, rules,
regulations, treaties, statutes and codes promulgated by any and all
governmental authorities relating to the protection of human health and safety,
the environment or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) has received all permits, licenses or other
approvals required of it under applicable Environmental Laws to conduct its
business as currently conducted,
5.
<PAGE> 6
and (iii) is in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance with Environmental Laws, or
failure to receive required permits, licenses or other approvals would not,
individually or in the aggregate, have a Material Adverse Effect. No action,
proceeding, revocation proceeding, writ, injunction or claim is pending or
threatened relating to the Environmental Laws or to the Company's or its
Subsidiaries' activities involving Hazardous Materials. "Hazardous Materials"
means any material or substance (i) that is prohibited or regulated by any
environmental law, rule, regulation, order, treaty, statute or code promulgated
by any governmental authority, or any amendment or modification thereto, or (ii)
that has been designated or regulated by any governmental authority as
radioactive, toxic, hazardous or otherwise a danger to health, reproduction or
the environment.
(r) Except as disclosed in the Registration Statement, or except as would
not result in a Material Adverse Effect or would not otherwise be required to be
disclosed in the Registration Statement under the Act or the Rules and
Regulations, (i) neither the Company nor any of its Subsidiaries has engaged in
the generation, use, manufacture, transportation or storage of any Hazardous
Materials on any of the Company's or its Subsidiaries' properties or former
properties, except where such use, manufacture, transportation or storage is in
compliance with Environmental Laws; (ii) no Hazardous Materials have been
treated or disposed of on any of the Company's or its Subsidiaries' properties
or on properties formerly owned or leased by the Company or any Subsidiary
during the time of such ownership or lease, except in compliance with
Environmental Laws; and (iii) no spills, discharges, releases, deposits,
emplacements, leaks or disposal of any Hazardous Materials have occurred on or
under or have emanated from any of the Company's or its Subsidiaries' properties
or former properties.
(s) Neither the Company nor any of its Subsidiaries has at any time during
the last five years (i) made any unlawful contribution to any candidate for
foreign office, or failed to disclose fully any contribution in violation of
law, or (ii) made any payment to any foreign, United States or state
governmental officer or official, or other person charged with similar public of
quasi-public duties, other than payments required or permitted by the laws of
the United States.
(t) The Common Stock is registered pursuant to Section 12(g) of the
Exchange Act. The Shares have been duly authorized for quotation on the National
Association of Securities Dealers, Inc. National Market System ("Nasdaq National
Market"). The Company has taken no action designed to, or likely to have the
effect of, terminating the registration of the Common Stock under the Exchange
Act or delisting the Common Stock from the Nasdaq National Market, nor has the
Company received any notification that the Commission or the Nasdaq National
Market is contemplating terminating such registration or listing.
(u) Neither the Company nor, to its knowledge, any of its officers,
directors or affiliates has taken, and at the Closing Date and at any later
Option Closing Date, neither the Company nor, to its knowledge, any of its
officers, directors or affiliates will have taken, directly or indirectly, any
action which has constituted, or might reasonably be expected to constitute, the
stabilization or manipulation of the price of sale or resale of the Shares.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDER. The Selling
Stockholder, represents and warrants with respect to the Seller Shares that:
(a) This Agreement, the Custody Agreement signed by the Selling
Stockholder and the Company as Custodian, relating to the deposit of the Seller
Shares (the "Custody Agreement"), and the Power of Attorney appointing certain
individuals as the Selling Stockholder's attorneys-in-fact to the extent set
forth therein, relating to the transactions contemplated hereby and by the
Registration Statement (the "Power of Attorney") have been duly authorized,
executed and delivered by or on behalf of the Selling Stockholder and are valid
and binding agreements of the Selling Stockholder enforceable in accordance with
their terms, except as rights to indemnity and contribution hereunder may be
limited by applicable law and except as enforcement hereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditor's rights generally, or by general equitable principles.
(b) The execution and delivery by the Selling Stockholder of, and the
performance by the Selling Stockholder of its obligations under, this Agreement,
the Custody Agreement and the Power of Attorney do not contravene any provision
of applicable law, and will not result in (i) any violation of the Selling
Stockholder's
6.
<PAGE> 7
limited partnership agreement, (ii) the breach or violation of any of the terms
and provisions, or constitute a material default under, any indenture, mortgage,
deed of trust, loan agreement, bond, debenture, note agreement or other evidence
of indebtedness, or any lease, contract or other agreement or instrument to
which the Selling Stockholder is a party or by which its properties are bound,
(iii) the breach or violation of any statute, rule or regulation, of any
regulatory body or administrative agency or other governmental agency or body
having jurisdiction over the Selling Stockholder or any of its properties or
operations, or (iv) the breach or violation of any judgment, order, writ or
decree of any government, arbitrator, court, regulatory body or administrative
agency, or other governmental agency or body having jurisdiction over the
Selling Stockholder or any of its properties or operations.
(c) No authorization, approval or consent of any regulatory body or
administrative agency or other governmental agency or body is necessary in
connection with the performance of this Agreement and consummation of the
transactions herein contemplated by the Selling Stockholder except such as have
been obtained under the Act or such as may be required under state or other
securities or Blue Sky laws or the by-laws and rules of the NASD in connection
with the purchase and the distribution of the Shares by the Underwriters.
(d) The Selling Stockholder has, and on the Closing Date will have, valid
marketable title to the Seller Shares and the legal right and power, and all
authorization and approval required by law, to enter into this Agreement, the
Custody Agreement and the Power-of-Attorney, and to sell, transfer and deliver
the Seller Shares, except that no representation is made with respect to federal
and state securities laws.
(e) Delivery of the Seller Shares against payment therefor will transfer
to the Underwriters marketable title to such Seller Shares, free and clear of
any security interests, claims, liens, equities and other encumbrances.
(f) All information furnished by or on behalf of the Selling Stockholder
for use in the Registration Statement and Prospectus is, and on the Closing Date
will be, true, correct, and complete, and does not, and on the Closing Date will
not, contain any untrue statement of a material fact or omit to state any
material fact necessary to make such information not misleading.
(g) Neither the Selling Stockholder nor any of its respective partners or
controlling persons has taken, directly or indirectly, any action designed, or
which might reasonably be expected, to cause or result, under the Act or
otherwise, in, or which has constituted, stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of the
Shares.
(h) Without taking any action to verify independently the Company's
representations or warranties made in this Agreement, and without assuming
responsibility for the accuracy, completeness or fairness of such
representations and warranties, nothing has come to the attention of such
Selling Stockholder to cause the Selling Stockholder to believe the Company's
representations and warranties contained in this Agreement are not accurate.
(i) The Selling Stockholder is not aware that any Preliminary Prospectus,
the Registration Statement or the Prospectus includes any untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
4. PURCHASE OF THE SHARES BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and subject to the
terms and conditions herein set forth, (i) the Company agrees to issue and sell
the Company Shares to the several Underwriters, (ii) the Selling Stockholder
agrees to sell to the Underwriters the Seller Shares, and (iii) each of the
Underwriters agrees to purchase from the Company and the Selling Stockholder the
respective aggregate number of Firm Shares set forth opposite its name on
Schedule A, plus such additional number of Firm Shares which such Underwriter
may become obligated to purchase pursuant to Section 4(b) hereof. The price at
which such Firm Shares shall be sold by the Company and the Selling Stockholder
and purchased by the several Underwriters shall be $_____ per share. In making
this Agreement, each Underwriter is contracting severally and not jointly;
except as provided in paragraphs
7.
<PAGE> 8
(b) and (c) of this Section 4, the agreement of each Underwriter is to purchase
only the respective number of Firm Shares specified on Schedule A.
(b) If for any reason one or more of the Underwriters shall fail or refuse
(otherwise than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 12 hereof) to purchase and pay for the
number of Shares agreed to be purchased by such Underwriter or Underwriters, the
non-defaulting Underwriters shall have the right within twenty-four (24) hours
after such default to purchase, or procure one or more other Underwriters to
purchase, in such proportions as may be agreed upon between you and such
purchasing Underwriter or Underwriters and upon the terms herein set forth, all
or any part of the Shares which such defaulting Underwriter or Underwriters
agreed to purchase. If the non-defaulting Underwriters fail so to make such
arrangements with respect to all such Shares and portion, the number of Shares
which each non-defaulting Underwriter is otherwise obligated to purchase under
this Agreement shall be automatically increased on a pro rata basis (as adjusted
by you in such manner as you deem advisable to avoid fractional shares) to
absorb the remaining shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase; provided, however, that the non-defaulting
Underwriters shall not be obligated to purchase the Shares and portion which the
defaulting Underwriter or Underwriters agreed to purchase if the aggregate
number of such Shares exceeds 10% of the total number of Shares which all
Underwriters agreed to purchase hereunder. If the total number of Shares which
the defaulting Underwriter or Underwriters agreed to purchase shall not be
purchased or absorbed in accordance with the two preceding sentences, the
Company shall have the right, within twenty-four (24) hours next succeeding the
24-hour period referred to above, to make arrangements with other underwriters
or purchasers reasonably satisfactory to you for purchase of such Shares and
portion on the terms herein set forth. In any such case, either you or the
Company shall have the right to postpone the Closing Date determined as provided
in Section 6 hereof for not more than seven business days after the date
originally fixed as the Closing Date pursuant to said Section 6 in order that
any necessary changes in the Registration Statement, the Prospectus or any other
documents or arrangements may be made. If the aggregate number of Shares which
the defaulting Underwriter or Underwriters agreed to purchase exceeds 10% of the
total number of Shares which all Underwriters agreed to purchase hereunder, and
if neither the non-defaulting Underwriters nor the Company shall make
arrangements within the 24-hour periods stated above for the purchase of all the
Shares which the defaulting Underwriter or Underwriters agreed to purchase
hereunder, this Agreement shall be terminated without further act or deed and
without any liability on the part of the Company to any non-defaulting
Underwriter and without any liability on the part of any non-defaulting
Underwriter to the Company. Nothing in this paragraph (b), and no action taken
hereunder, shall relieve any defaulting Underwriter from liability in respect of
any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants herein
contained, and subject to the terms and conditions herein set forth, the Company
grants an option to the several Underwriters to purchase all or any portion of
the Option Shares from the Company at the same price per share as the
Underwriters shall pay for the Firm Shares. Said option may be exercised only to
cover over-allotments in the sale of the Firm Shares by the Underwriters and may
be exercised in whole or in part at any time (but not more than once) on or
before the 30th day after the date of this Agreement upon written or facsimile
notice by you to the Company setting forth the aggregate number of shares of the
Option Shares as to which the several Underwriters are exercising the option.
Delivery of certificates for the shares of Option Shares, and payment therefor,
shall be made as provided in Section 6 hereof. Each Underwriter will purchase
such percentage of the Option Shares as is equal to the percentage of Firm
Shares that such Underwriter is purchasing, the exact number of shares to be
adjusted by you in such manner as you deem advisable to avoid fractional shares.
5. OFFERING BY UNDERWRITERS.
(a) The terms of the public offering by the Underwriters of the Shares to
be purchased by them shall be as set forth in the Prospectus. The Underwriters
may from time to time change the public offering price after the closing of the
public offering and increase or decrease the concessions and discounts to
dealers as they may determine.
(b) You, on behalf of the Underwriters, represent and warrant that (i) the
information set forth in the last paragraph on the front cover page of the
Prospectus, the stabilization and passive market making language on the inside
front cover page of the Prospectus and the information contained in the first
(including the table), third,
8.
<PAGE> 9
seventh and ninth paragraphs of the section of the Prospectus entitled
"Underwriting" in the Registration Statement, any Preliminary Prospectus and the
Prospectus relating to the Shares (insofar as such information relates to the
Underwriters) constitutes the only information furnished by the Underwriters to
the Company for inclusion in the Registration Statement, any Preliminary
Prospectus, and the Prospectus, and that the statements made therein are correct
and do not omit to state any material fact required to be stated therein or
necessary to make the statements made therein in light of the circumstances
under which they were made not misleading, and (ii) the Underwriters have not
distributed and will not distribute prior to the Closing Date or on any Option
Closing Date, as the case may be, any offering material in connection with the
offering and sale of the shares other than the Preliminary Prospectus, the
Prospectus, the Registration Statement and other materials permitted by the Act.
6. DELIVERY OF AND PAYMENT FOR THE SHARES.
(a) Delivery of certificates for the Firm Shares and the Option Shares (if
the option granted pursuant to Section 4(c) hereof shall have been exercised not
later than 11:00 a.m., California time, on the date at least two business days
preceding the Closing Date), and payment therefor, shall be made at the offices
of Cooley Godward LLP, 4365 Executive Drive, Suite 1100, San Diego, CA
92121-2128 at 6:00 a.m., California time, on the fourth business day after the
date of this Agreement (the "Closing Date").
(b) If the option granted pursuant to Section 4(c) hereof shall be
exercised after 11:00 a.m., California time, on the date two business days
preceding the Closing Date, and on or before the 30th day after the date of this
Agreement, delivery of certificates for the Option Shares, and payment therefor,
shall be made at the offices of Cooley Godward LLP, 4365 Executive Drive, Suite
1100, San Diego, CA 92121-2128 at 6:00 a.m., California time, on the third
business day after the exercise of such option.
(c) Payment for the Shares purchased from the Company shall be made to the
Company or its order, and payment for the Shares purchased from the Selling
Stockholder shall be made to the custodian, for the account of the Selling
Stockholder, in each case by wire transfer of funds or by one or more certified
or official bank check or checks in immediately available (same day) funds. Such
payment shall be made upon delivery of certificates for the Shares to you for
the respective accounts of the several Underwriters against receipt therefor
signed by you. Certificates for the Shares to be delivered to you shall be
registered in such name or names and shall be in such denominations as you may
request at least three business days before the Closing Date, in the case of
Firm Shares, and at least two business days prior to the Option Closing Date, in
the case of the Option Shares. Such certificates will be made available to the
Underwriters for inspection, checking and packaging at a location in New York,
New York, designated by the Underwriters not less than one full business day
prior to the Closing Date or, in the case of the Option Shares, by 3:00 p.m.,
New York time, on the business day preceding the Option Closing Date.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Stockholder for shares to be purchased by any Underwriter whose
check shall not have been received by you on the Closing Date or any later
Option Closing Date. Any such payment by you shall not relieve such Underwriter
from any of its obligations hereunder.
7. FURTHER AGREEMENTS OF THE COMPANY. The Company covenants and agrees as
follows:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; it will notify you, promptly after it shall
receive notice thereof, of the time when the Registration Statement or any
subsequent amendment to the Registration Statement has become effective or any
supplement to the Prospectus has been filed. If the Company omitted information
from the Registration Statement at the time it was originally declared effective
in reliance upon Rule 430A(a), the Company will provide evidence satisfactory to
you that the Prospectus contains such information and has been filed, within the
time period prescribed, with the Commission pursuant to subparagraph (1) or (4)
of Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to such Registration Statement as originally declared effective which
is declared effective by the Commission. If for any reason the filing of the
final form of Prospectus is required under Rule 424(b)(3) of the Rules and
Regulations, it will provide evidence satisfactory to you that the Prospectus
contains such information and has been filed with the Commission within the time
period prescribed. The Company
9.
<PAGE> 10
will notify you promptly of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for additional
information. Promptly upon your request, it will prepare and file with the
Commission any amendments or supplements to the Registration Statement or
Prospectus which, in the reasonable opinion of counsel to the several
Underwriters ("Underwriters' Counsel"), may be necessary or advisable in
connection with the distribution of the Shares by the Underwriters. The Company
will promptly prepare and file with the Commission, and promptly notify you of
the filing of, any amendments or supplements to the Registration Statement or
Prospectus which may be necessary to correct any statements or omissions, if, at
any time when a prospectus relating to the Shares is required to be delivered
under the Act, any event shall have occurred as a result of which the Prospectus
or any other prospectus relating to the Shares as then in effect would include
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. In case any Underwriter is required to
deliver a prospectus after the nine-month period referred to in Section 10(a)(3)
of the Act in connection with the sale of the Shares, the Company will prepare
promptly upon request, but at the expense of such Underwriter, such amendment or
amendments to the Registration Statement and such prospectus or prospectuses as
may be necessary to permit compliance with the requirements of Section 10(a)(3)
of the Act. The Company will file no amendment or supplement to the Registration
Statement or Prospectus that shall not previously have been submitted to you a
reasonable time prior to the proposed filing thereof or to which you shall
reasonably object in writing or which is not in compliance with the Act and
Rules and Regulations or the provisions of this Agreement.
(b) The Company will advise you, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or the use of the
Prospectus or of the initiation or threat of any proceeding for that purpose;
and it will promptly use its best efforts to prevent the issuance of any such
stop order or to obtain its withdrawal at the earliest possible moment if such
stop order should be issued.
(c) The Company will cooperate with you in endeavoring to qualify the
Shares for offering and sale under the securities laws of such jurisdictions as
you may designate and to continue such qualifications in effect for so long as
may be required for purposes of the distribution of the Shares, except that the
Company shall not be required in connection therewith or as a condition thereof
to qualify as a foreign corporation, or to execute a general consent to service
of process in any jurisdiction, or to make any undertaking with respect to the
conduct of its business. In each jurisdiction in which the Shares shall have
been qualified, the Company will make and file such statements, reports and
other documents in each year as are or may be reasonably required by the laws of
such jurisdictions so as to continue such qualifications in effect for so long a
period as you may reasonably request for distribution of the Shares, or as
otherwise may be required by law.
(d) The Company will furnish to you, as soon as available, copies of the
Registration Statement (three of which will be signed and which will include all
exhibits), each Preliminary Prospectus, the Prospectus and any amendments or
supplements to such documents, including any prospectus prepared to permit
compliance with Section 10(a)(3) of the Act, all in such quantities as you may
from time to time reasonably request.
(e) The Company will make generally available to its stockholders as soon
as practicable, but in any event not later than the 45th day following the end
of the fiscal quarter first occurring after the first anniversary of the
effective date of the Registration Statement, an earnings statement (which will
be in reasonable detail but need not be audited) complying with the provisions
of Section 11(a) of the Act and Rule 158 of the Rules and Regulations and
covering a twelve-month period beginning after the effective date of the
Registration Statement, and will advise you in writing when such statement has
been made available.
(f) During a period of five years after the date hereof, the Company, as
soon as practicable after the end of each respective period, will furnish to its
stockholders annual reports (including financial statements audited by
independent certified public accountants) and will furnish to its stockholders
unaudited quarterly reports of operations for each of the first three quarters
of the fiscal year, and will, upon request, furnish to you and the other several
Underwriters hereunder (i) concurrently with making such reports available to
its stockholders, statements of operations of the Company for each of the first
three quarters in the form made available to the Company's stockholders; (ii)
concurrently with the furnishing thereof to its stockholders, a balance sheet of
the Company as of the end of such fiscal year, together with statements of
operations, of stockholders' equity and of cash flows of the
10.
<PAGE> 11
Company for such fiscal year, accompanied by a copy of the report thereon of
nationally recognized independent certified public accountants; (iii)
concurrently with the furnishing of such reports to its stockholders, copies of
all reports (financial or other) mailed to stockholders; (iv) as soon as they
are available, copies of all reports and financial statements furnished to or
filed with the Commission, any securities exchange or the Nasdaq National Market
by the Company (except for documents for which confidential treatment is
requested); and (v) every material press release and every material news item or
article in respect of the Company or its affairs which was generally released to
stockholders or prepared for general release by the Company. During such
five-year period, if the Company shall have any active subsidiaries, the
foregoing financial statements shall be on a consolidated basis to the extent
that the accounts of the Company are consolidated with any subsidiaries, and
shall be accompanied by similar financial statements for any significant
subsidiary that is not so consolidated.
(g) Prior to or simultaneously with the execution and delivery of this
Agreement, the Company will obtain an agreement from each beneficial owner of
the Company's Common Stock listed on SCHEDULE B to this Agreement providing that
such person will not, commencing on the effective date of the Registration
Statement and continuing until the expiration of 180 days following the
effective date of the Registration Statement, without the prior written consent
of UBS Securities LLC: (i) offer, sell, contract to sell, pledge, grant any
option to sell or otherwise dispose of, directly or indirectly, any shares of
Common Stock or securities convertible into, or exchangeable for shares of
Common Stock, or warrants or other rights to purchase shares of Common Stock of
which such person is, or may in the future become, the beneficial owner (within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as
amended); or (ii) exercise any registration rights, whether held by such person
as of the date hereof or hereafter acquired, with respect to any shares of
Common Stock.
(h) The Company shall not, during the 180 days following the effective
date of the Registration Statement, except with the prior written consent of UBS
Securities LLC, file a registration statement covering any of its shares of
capital stock, except that one or more registration statements on Form S-8 may
be filed at any time following the effective date of the Registration Statement.
(i) The Company shall not, during the 180 days following the effective
date of the Registration Statement, except with the prior written consent of UBS
Securities LLC, issue, sell, offer or agree to sell, grant, distribute or
otherwise dispose of, directly or indirectly, any shares of Common Stock, or any
options, rights or warrants with respect to shares of Common Stock, or any
securities convertible into or exchangeable for Common Stock, other than (i) the
sale of Shares hereunder, (ii) the grant of options or the issuance of shares of
Common Stock under the Company's stock option plans or stock purchase plan, as
the case may be, existing on the date hereof, (iii) the issuance of shares of
Common Stock upon exercise of the currently outstanding options or warrants
described in the Registration Statement.
(j) The Company will apply the net proceeds from the sale of the Shares
being sold by it in the manner set forth under the caption "Use of Proceeds" in
the Prospectus.
(k) The Company will maintain a Transfer Agent and, if necessary under the
jurisdiction of incorporation of the Company, a Registrar (which may be the same
entity as the Transfer Agent) for its Common Stock.
(l) The Company will use its best efforts to maintain listing of its
shares of Common Stock on the Nasdaq National Market until such time as the
Company's Board of Directors authorizes (i) the listing of the Common Stock on
the New York Stock Exchange or another national securities exchange or (ii) the
delisting of the Common Stock in connection with an acquisition of the Company.
(m) The Company will in the future conduct its affairs in such a manner so
as to ensure that the Company will not be an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, and the rules and
regulations thereunder.
(n) If at any time during the 180-day period after the Registration
Statement becomes effective, any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your reasonable
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether
11.
<PAGE> 12
such rumor, publication or event necessitates a supplement to or amendment of
the Prospectus), the Company will, after written notice from you advising the
Company to the effect set forth above, consult with you in good faith regarding
the necessity of disseminating a press release or other public statement
responding to or commenting on such rumor, publication or event and, if the
Company in its reasonable judgment determines that such a press release or other
public statement is appropriate, the substance of any press release or other
public statement.
8. AGREEMENTS OF THE SELLING STOCKHOLDER AND THE COMPANY. The Selling
Stockholder agrees to pay or cause to be paid all taxes, including the cost of
tax stamps, if any, on the transfer and sale of the Seller Shares and the fees
and expenses of counsel and accountants, if any, retained by the Selling
Stockholder, except such fees and expenses that are paid by the Company, if any.
The Selling Stockholder will pay and hold each Underwriter and any subsequent
holder of the Seller Shares harmless from any and all liabilities with respect
to or resulting from any failure or delay in paying Federal and state stamp and
other transfer taxes, if any, which may be payable or determined to be payable
in connection with the sale to such Underwriter of the Seller Shares. The
Selling Stockholder will take all reasonable actions in cooperation with the
Company and the Underwriters to cause the Registration Statement to become
effective at the earliest possible time, to do and perform all things to be done
and performed under this Agreement prior to the Closing Date and to satisfy all
conditions precedent to the delivery of the Shares pursuant to this Agreement.
The Company agrees to pay all costs and expenses incident to the performance of
the obligations of the Selling Stockholder under this Agreement (except as set
forth above), including, but not limited to, all expenses incident to the
delivery of the certificates for the Seller Shares, the costs and expenses
incident to the preparation, printing and filing of the Registration Statement
(including all exhibits thereto) and the Prospectus and any amendments or
supplements thereto, the expenses of qualifying the Seller Shares under the
securities or blue sky laws of various jurisdictions, all filing fees payable in
connection with the review of the offering of the Shares by the NASD, and the
cost of furnishing to the Underwriters the required copies of the Registration
Statement and Prospectus and any amendments or supplements thereto; provided
that the Selling Stockholder agrees to pay or cause to be paid its pro rata
share (based on the percentage which the number of Seller Shares sold bears to
the total number of Shares sold) of all underwriting discounts and commissions.
9. EXPENSES.
The Company agrees with each Underwriter that:
(a) The Company will pay and bear all costs, fees and expenses in
connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits), Preliminary
Prospectuses and the Prospectus and any amendments or supplements thereto; the
reproduction of this Agreement, the Agreement Among Underwriters, the Selected
Dealer Agreement, the Custody Agreement, the Power-of-Attorney, the Preliminary
Blue Sky Memorandum and any Supplemental Blue Sky Memoranda and any instruments
related to any of the foregoing; the issuance and delivery of the Shares
hereunder to the several Underwriters, including transfer taxes, if any; the
cost of all stock certificates representing the Shares and Transfer Agents' and
Registrars' fees; the fees and disbursements of corporate and regulatory counsel
for the Company; all fees and other charges of the Company's independent public
accountants; the cost of furnishing to the several Underwriters copies of the
Registration Statement (including appropriate exhibits), Preliminary
Prospectuses and the Prospectus, and any amendments or supplements to any of the
foregoing; NASD filing fees and expenses incident to securing any required
review; the cost of qualifying the Shares under the laws of such jurisdictions
within the United States as you may designate (including filing fees and fees
and disbursements of Underwriters' Counsel in connection with such filings and
Blue Sky qualifications) which shall not exceed $5,000; listing application fees
of the Nasdaq National Market; and all other expenses directly incurred by the
Company in connection with the performance of its obligations hereunder.
(b) If the transactions contemplated hereby are not consummated by reason
of any failure, refusal or inability on the part of the Company to perform any
agreement on its part to be performed hereunder or to fulfill any condition of
the Underwriters' obligations hereunder, the Company will, in addition to paying
the expenses described in clause (a) above, reimburse the several Underwriters
for all out-of-pocket expenses (including reasonable fees and disbursements of
Underwriters' counsel) incurred by the Underwriters in reviewing the
Registration Statement and the Prospectus and in otherwise investigating,
preparing to market or marketing the
12.
<PAGE> 13
Shares. The Company will in no event be liable to any of the several
Underwriters for any loss of anticipated profits from the sale by them of the
Shares.
10. CONDITIONS OF UNDERWRITERS' OBLIGATIONS.
The obligations of the several Underwriters to purchase and pay for
the Shares, as provided herein, shall be subject to the accuracy, as of the date
hereof and the Closing Date and any later Option Closing Date, as the case may
be, of the representations and warranties of the Company and the Selling
Stockholder herein, to the performance by the Company and the Selling
Stockholder of their respective obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become effective not later than
7:00 a.m., California time, on the date following the date of this Agreement, or
such later time or date as shall be consented to in writing by you. If the
filing of the Prospectus, or any supplement thereto, is required pursuant to
Rule 424(b) and Rule 430A of the Rules and Regulations, the Prospectus shall
have been filed in the manner and within the time period required by Rule 424(b)
and Rule 430A of the Rules and Regulations. No stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been initiated or, to the knowledge of
the Company, the Selling Stockholder or any Underwriter, threatened by the
Commission, and any request of the Commission for additional information (to be
included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the reasonable satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in connection with
this Agreement, the form of Registration Statement and the Prospectus, and the
registration, authorization, issue, sale and delivery of the Shares shall have
been reasonably satisfactory to Underwriters' Counsel, and such counsel shall
have been furnished with such papers and information as they may reasonably have
requested to enable them to pass upon the matters referred to in this
subsection.
(c) You shall have received, at no cost to you, on the Closing Date and on
any later Option Closing Date, as the case may be, the opinions of (i) Willkie
Farr & Gallagher, corporate counsel to the Company (ii) Brobeck Phleger &
Harrison, LLP, California counsel to the Company, (iii) Pestalozzi Gmuer &
Patry, Swiss counsel to the Company, (iv) Dr. Peter Toelle, German counsel to
the Company, (v) Freeth Cartwright Hunt Dickens, United Kingdom counsel to the
Company, and (vi) Keller and Heckman LLP, regulatory counsel to the Company,
dated the Closing Date or such later Option Closing Date, in the forms attached
hereto on APPENDIX A, addressed to the Underwriters and with original signed
copies thereof for each of the Representatives. You shall have received, at no
cost to you, on the Closing Date, the opinion of ___________________________, as
counsel to the Selling Stockholder, dated the Closing Date, in the form attached
hereto as Appendix B, addressed to the Underwriters and with original signed
copies thereof for each of the Representatives.
(d) You shall have received from Cooley Godward LLP, Underwriters'
Counsel, an opinion or opinions, dated the Closing Date or on any later Option
Closing Date, as the case may be, in form and substance reasonably satisfactory
to you, with respect to the sufficiency of all corporate proceedings undertaken
by the Company and other legal matters relating to this Agreement and the
transactions contemplated hereby as you may reasonably require, and the Company
shall have furnished to such counsel such documents as it may have reasonably
requested for the purpose of enabling it to pass upon such matters.
(e) You shall have received on the Closing Date and on any later Option
Closing Date, as the case may be, a letter from Ernst & Young LLP addressed to
the Company and the Underwriters, dated the Closing Date or such later Option
Closing Date, as the case may be, confirming that it is an independent certified
public accountant with respect to the Company within the meaning of the Act and
the Rules and Regulations thereunder and based upon the procedures described in
its letter delivered to you concurrently with the execution of this Agreement
(herein called the "Original Letter"), but carried out to a date not more than
five days prior to the Closing Date or any such later Option Closing Date, as
the case may be, (i) confirming that the statements and conclusions set forth in
the Original Letter are accurate as of the Closing Date or such later Option
Closing Date, as the case may be; and (ii) setting forth any revisions and
additions to the statements and conclusions set forth in the Original Letter
that are necessary to reflect any changes in the facts described in the Original
Letter since the date of
13.
<PAGE> 14
such letter, or to reflect the availability of more recent financial statements,
data or information. The letter shall not disclose any change, or any
development involving a prospective change, in or affecting the business or
properties of the Company which, in your reasonable judgment, makes it
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus. In addition, you shall have received from
Ernst & Young LLP a letter addressed to the Company and made available to you
for the use of the Underwriters stating that its review of the Company's system
of internal accounting controls, to the extent it deemed necessary in
establishing the scope of its latest examination of the Company's financial
statements, did not disclose any weaknesses in internal controls that it
considered to be material weaknesses. All such letters shall be in a form
reasonably satisfactory to the Representatives and their counsel.
(f) You shall have received on the Closing Date and on any later Option
Closing Date, as the case may be, a certificate of the President and the Chief
Financial Officer of the Company, dated the Closing Date or such later date, to
the effect that as of such date (and you shall be satisfied that as of such
date):
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date or any
later Option Closing Date, as the case may be; and the Company has complied with
all of the agreements and satisfied all of the conditions on its part to be
performed or satisfied at or prior to the Closing Date or any later Option
Closing Date, as the case may be;
(ii) The Registration Statement has become effective under the Act
and no stop order suspending the effectiveness of the Registration Statement or
preventing or suspending the use of the Prospectus has been issued, and no
proceedings for that purpose have been instituted or are pending or, to the best
of their knowledge, threatened under the Act;
(iii) They have carefully reviewed the Registration Statement and
the Prospectus and, when the Registration Statement became effective and at all
times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus and any amendments or supplements
thereto contained all statements and information required to be included therein
or necessary to make the statements therein not misleading and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto included any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading and, since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an amended or
supplemented Prospectus that has not been so set forth; and
(iv) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not been (A)
any material adverse change in the properties or assets described or referred to
in the Registration Statement and the Prospectus or in the condition (financial
or otherwise), operations, business or prospects of the Company and its
Subsidiaries, (B) any transaction which is material to the Company and its
Subsidiaries, except transactions entered into in the ordinary course of
business, (C) any obligation, direct or contingent, incurred by the Company or
its Subsidiaries, which is material to the Company and its Subsidiaries taken as
a whole, (D) any change in the capital stock or outstanding indebtedness of the
Company or its Subsidiaries which is material to the Company and its
Subsidiaries taken as a whole, other than as contemplated by the Prospectus, or
(E) any dividend or distribution of any kind declared, paid or made on the
capital stock of the Company.
(g) You shall have received on the Closing Date a certificate signed by
the Selling Stockholder (or its attorney-in-fact on its behalf), dated the
Closing Date, to the effect that, as of such date, the representations and
warranties of the Selling Stockholder contained in this Agreement are true and
correct as if made on and as of the Closing Date.
(h) The Company shall have furnished to you such further certificates and
documents as you shall reasonably request as to the accuracy of the
representations and warranties of the Company herein, as to the performance by
the Company of its obligations hereunder and as to the other conditions
concurrent and precedent to the obligations of the Underwriters hereunder.
14.
<PAGE> 15
(i) The Firm Shares and the Option Shares, if any, shall have been
approved for designation upon notice of issuance on the Nasdaq National Market.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
11. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company and the Selling Stockholder, jointly and severally, agree
to indemnify and hold harmless each Underwriter and each person (including each
partner or officer thereof) who controls any Underwriter within the meaning of
Section 15 of the Act from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of them
may become subject under the Act, the Exchange Act, or the common law or
otherwise, and the Company and the Selling Stockholder, jointly and severally,
agree to reimburse each such Underwriter and controlling person for any legal or
other out-of-pocket expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof) or any
post-effective amendment thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, or (ii) any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus or
the Prospectus (as amended or as supplemented if the Company shall have filed
with the Commission any amendment thereof or supplement thereto) or the omission
or alleged omission to state therein a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that (1) the indemnity agreements of
the Company and the Selling Stockholder contained in this paragraph (a) shall
not apply to any such losses, claims, damages, liabilities or expenses if such
statement or omission is contained in the last paragraph on the front cover page
of the Prospectus, the stabilization and passive market making language on the
inside front cover page of the Prospectus or the information contained in the
first (including the table), third, seventh and ninth paragraphs of the section
of the Prospectus entitled "Underwriting", (2) the indemnity agreement contained
in this paragraph (a) with respect to any Preliminary Prospectus shall not inure
to the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages, liabilities or expenses purchased the Shares which is
the subject thereof (or to the benefit of any person controlling such
Underwriter) if at or prior to the written confirmation of the sale of such
Shares a copy of the Prospectus (or the Prospectus as amended or supplemented)
was not sent or delivered to such person and the untrue statement or omission of
a material fact contained in such Preliminary Prospectus was corrected in the
Prospectus (or the Prospectus as amended or supplemented) unless the failure to
deliver such Prospectus is the result of noncompliance by the Company with
paragraph (a) of Section 7 hereof, and (3) the Selling Stockholder shall only be
liable under this paragraph with respect to (A) information pertaining to the
Selling Stockholder furnished by or on behalf of the Selling Stockholder
expressly for use in any Preliminary Prospectus or the Registration Statement or
the Prospectus or any such amendment thereof or supplement thereto or (B) facts
that would constitute a breach of any representation or warranty of the Selling
Stockholder set forth in Section 3 hereof. The indemnity agreement of the
Company contained in this paragraph (a) and the representations and warranties
of the Company and the Selling Stockholder contained in Section 2 and Section 3,
respectively, hereof shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any indemnified party
and shall survive the delivery of any payment for the Shares.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company and the Selling Stockholder, each of their respective executive
officers, each of their respective directors, each other Underwriter and each
person (including each partner or officer thereof) who controls the Company or
the Selling Stockholder or any such other Underwriter within the meaning of
Section 15 of the Act, from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of them
may become subject under the Act, the Exchange Act, or the common law or
otherwise and to reimburse each of them for any legal or other expenses
including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel)
15.
<PAGE> 16
incurred by the respective indemnified parties in connection with defending
against any such losses, claims, damages or liabilities or in connection with
any investigation or inquiry of, or other proceeding which may be brought
against, the respective indemnified parties, in each case arising out of or
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (including the Prospectus as part
thereof) or any post-effective amendment thereto or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus or the Prospectus (as amended or as supplemented if the
Company shall have filed with the Commission any amendment thereof or supplement
thereto) or the omission or alleged omission to state therein a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, if such statement or
omission is contained in the last paragraph on the front cover page of the
Prospectus, the stabilization and passive market making language on the inside
front cover page of the Prospectus or the information contained in the first
(including the table), third, seventh and ninth paragraphs of the section of the
Prospectus entitled "Underwriting." The indemnity agreement of each Underwriter
contained in this paragraph (b) shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any indemnified
party and shall survive the delivery of and payment for the Shares.
(c) Each party indemnified under the provision of paragraphs (a) and (b)
of this Section 11 agrees that, upon the service of a summons or other initial
legal process upon it in any action or suit instituted against it or upon its
receipt of written notification of the commencement of any investigation or
inquiry of, or proceeding against it, in respect of which indemnity may be
sought on account of any indemnity agreement contained in such paragraphs, it
will promptly give written notice (a "Notice") of such service or notification
to the party or parties from whom indemnification may be sought hereunder. No
indemnification provided for in such paragraphs shall be available to any party
who shall fail so to give the Notice if the party to whom such Notice was not
given was unaware of the action, suit, investigation, inquiry or proceeding to
which the Notice would have related and was prejudiced by the failure to give
the Notice, but the omission so to notify such indemnifying party or parties of
any such service or notification shall not relieve such indemnifying party or
parties from any liability which it or they may have to the indemnified party
for contribution or otherwise than on account of such indemnity agreement. Any
indemnifying party shall be entitled at its own expense to participate in the
defense of any action, suit or proceeding against, or investigation or inquiry
of, an indemnified party. Any indemnifying party shall be entitled, if it so
elects within a reasonable time after receipt of the Notice by giving written
notice (the "Notice of Defense") to the indemnified party, to assume (alone or
in conjunction with any other indemnifying party or parties) the entire defense
of such action, suit, investigation, inquiry or proceeding, in which event such
defense shall be conducted, at the expense of the indemnifying party or parties,
by counsel chosen by such indemnifying party or parties and reasonably
satisfactory to the indemnified party or parties; provided, however, that (i) if
the indemnified party or parties reasonably determine that there may be a
conflict between the positions of the indemnifying party or parties and of the
indemnified party or parties in conducting the defense of such action, suit,
investigation, inquiry or proceeding or that there may be legal defenses
available to such indemnified party or parties different from or in addition to
those available to the indemnifying party or parties, then counsel for the
indemnified party or parties shall be entitled to conduct the defense to the
extent reasonably determined by such counsel to be necessary to protect the
interests of the indemnified party or parties and (ii) in any event, the
indemnified party or parties shall be entitled, at its or their own expense, to
have counsel chosen by such indemnified party or parties participate in, but not
conduct, the defense. It is understood that the indemnifying parties shall not,
in respect of the legal defenses of any indemnified party in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for (a)
the fees and expenses of more than one separate firm (in addition to any local
counsel) for all of the Underwriters and each person, if any, who controls any
Underwriter within the meaning of Section 15 of the Act, and (b) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
the Company, its directors, its officers who sign the Registration Statement and
each person, if any, who controls the Company within the meaning of Section 15
of the Act. If, within a reasonable time after receipt of the Notice, an
indemnifying party gives a Notice of Defense and the counsel chosen by the
indemnifying party or parties is reasonably satisfactory to the indemnified
party or parties, the indemnifying party or parties will not be liable under
paragraphs (a) through (c) of this Section 11 for any legal or other expenses
subsequently incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding, except that
(A) the indemnifying party or parties shall bear the legal and other expenses
incurred in connection with the conduct of the defense as referred to in clause
(i) of the proviso to the preceding sentence and (B) the indemnifying party or
parties
16.
<PAGE> 17
shall bear such other expenses as it or they have authorized to be incurred by
the indemnified party or parties. If, within a reasonable time after receipt of
the Notice, no Notice of Defense has been given, the indemnifying party or
parties shall be responsible for any legal or other expenses incurred by the
indemnified party or parties in connection with the defense of the action, suit,
investigation, inquiry or proceeding. The indemnifying party or parties shall
not be liable for any settlement, compromise or consent to the entry of any
judgment in any proceeding effected without its or their written consent,
provided such consent has not been unreasonably withheld, unless such
settlement, compromise or consent includes an unconditional release of such
indemnifying party or parties from all liability arising out of such claim,
action, suit or proceeding.
(d) If the indemnification provided for in this Section 11 is unavailable
or insufficient to hold harmless an indemnified party under paragraph (a) or (b)
of this Section 11, then each indemnifying party shall, in lieu of indemnifying
such indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages or liabilities
referred to in paragraph (a) or (b) of this Section 11 (i) in such proportion as
is appropriate to reflect the relative benefits received by each indemnifying
party from the offering of the Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each indemnifying party in connection with
the statements or omissions that resulted in such losses, claims, damages or
liabilities, or actions in respect thereof, as well as any other relevant
equitable considerations. The relative benefits received by the Company and/or
the Selling Stockholder, on the one hand, and the Underwriters, on the other,
shall be deemed to be in the same respective proportions as the total net
proceeds from the offering of the Shares received by the Company or the Selling
Stockholder, as the case may be, and the total underwriting discount received by
the Underwriters, as set forth in the table on the cover page of the Prospectus,
bear to the aggregate public offering price of the Shares. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by each indemnifying party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this paragraph
(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof, referred to in the first
sentence of this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation, preparation to defend or defense against any action or claim
which is the subject of this paragraph (d). Notwithstanding the provisions of
this paragraph (d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the Shares purchased by such
Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this paragraph (d) to contribute are several in
proportion to their respective underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of
a summons or other initial legal process upon it in any action instituted
against it in respect of which contribution may be sought, it will promptly give
written notice of such service to the party or parties from whom contribution
may be sought, but the omission so to notify such party or parties of any such
service shall not relieve the party from whom contribution may be sought from
any obligation it may have hereunder or otherwise (except as specifically
provided in paragraph (c) of this Section 11).
(e) The Company will not, without the prior written consent of each
Underwriter, which consent shall not be unreasonably withheld, settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action, suit or proceeding in respect of which indemnification may be
sought hereunder (whether or not such Underwriter or any person who controls
such Underwriter within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act is a party to such claim, action, suit or proceeding) unless
such settlement, compromise or consent includes an unconditional release of such
Underwriter and each such controlling person from all liability arising out of
such claim, action, suit or proceeding.
17.
<PAGE> 18
(f) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof, including without limitation the
provisions of this Section 11, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 11 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
12. TERMINATION. This Agreement may be terminated by you at any time on or
prior to the Closing Date or on or prior to any later Option Closing Date, as
the case may be, without any liability on the part of the Underwriters to the
Company or the Selling Stockholder (i) if the Company or the Selling Stockholder
shall have failed, refused or been unable, at or prior to the Closing Date, or
on or prior to any later Option Closing Date, as the case may be, to perform any
agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled by the Company or
the Selling Stockholder is not fulfilled, or (ii) if trading on the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National Market shall
have been suspended, or minimum or maximum prices for trading shall have been
fixed, or maximum ranges for prices for securities shall have been required on
the New York Stock Exchange, the American Stock Exchange or the Nasdaq National
Market, by such trading exchanges or by order of the Commission or any other
governmental authority having jurisdiction, or if a banking moratorium shall
have been declared by federal or New York authorities, or (iii) if the Company
shall have sustained a loss by strike, fire, flood, accident or other calamity
of such character as to have a Material Adverse Effect regardless of whether or
not such loss shall have been insured, or (iv) if there shall have been a
material adverse change in the general political or economic conditions or
financial markets in the United States as in the reasonable judgment of the
Representatives makes it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Shares, or (v) if there shall have occurred
an outbreak or escalation of hostilities between the United States and any
foreign power or of any other insurrection or armed conflict involving the
United States or other national or international calamity, hostilities or crisis
or the declaration by the United States of a national emergency which, in the
reasonable judgment of the Representatives, adversely affects the marketability
of the Shares, or (vi) if since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there shall have
occurred any material adverse change or any development involving a prospective
material adverse change in or affecting the condition, financial or otherwise,
of the Company or the business affairs, management, or business prospects of the
Company, whether or not arising in the ordinary course of business, or (vii) if
any foreign, federal or state statute, regulation, rule or order of any court or
other governmental authority shall have been enacted, published, decreed or
otherwise promulgated which in the reasonable judgment of the Representatives
materially and adversely affects or will materially and adversely affect the
business or operations of the Company, or trading in the Common Stock shall have
been suspended, or (viii) there shall have occurred a material adverse decline
in the value of securities generally on the New York Stock Exchange, the
American Stock Exchange or the Nasdaq National Market or (ix) action shall be
taken by any foreign, federal, state or local government or agency in respect of
its monetary or fiscal affairs which, in the reasonable judgment of the
Representatives, has a material adverse effect on the securities markets in the
United States. If this Agreement shall be terminated in accordance with this
Section 12, there shall be no liability of the Company or the Selling
Stockholder to the Underwriters and no liability of the Underwriters to the
Company or the Selling Stockholder; provided, however, that in the event of any
such termination the Company agrees to indemnify and hold harmless the
Underwriters from all costs or expenses incident to the performance of the
obligations of the Company under this Agreement, including all costs and
expenses referred to in Section 9.
If you elect to terminate this Agreement as provided in this Section 12,
the Company shall be notified promptly by you by telephone, facsimile or
telegram, confirmed by letter.
13. REIMBURSEMENT OF CERTAIN EXPENSES.
(a) In addition to their other respective obligations under Section 11 of
this Agreement, the Company and the Selling Stockholder jointly and severally,
hereby agree to reimburse on a quarterly basis the Underwriters for all
reasonable legal and other expenses incurred in connection with investigating or
defending any claim, action, investigation, inquiry or other proceeding arising
out of or based upon any statement or omission, or any alleged statement or
omission, described in paragraph (a) of Section 11 of this Agreement,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the obligations under this Section 13 and the
18.
<PAGE> 19
possibility that such payments might later be held to be improper; provided,
however, that (i) to the extent any such payment is ultimately held to be
improper, the persons receiving such payments shall promptly refund them and
(ii) such persons shall provide to the Company and the Selling Stockholder, as
the case may be, upon request, reasonable assurances of their ability to effect
any refund, when and if due.
(b) In addition to their other obligations under Section 11 of this
Agreement, the Underwriters hereby agree to reimburse on a quarterly basis the
Company (and each of its executive officers and directors, as applicable) and
the Selling Stockholder for all reasonable legal and other expenses incurred in
connection with investigating or defending any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in paragraph (b) of
Section 11 of this Agreement, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligations under
this Section 13 and the possibility that such payments might later be held to be
improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the Company or the Selling Stockholder, as the
case may be, shall promptly refund it and (ii) the Company, its officers and
directors and the Selling Stockholder shall provide to the Underwriters, upon
request, reasonable assurances of its ability to effect any refund, when and if
due.
14. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure to
the benefit of the Company, the Selling Stockholder and the several Underwriters
and, with respect to the provisions of Section 11 hereof, the several parties
(in addition to the Company, the Selling Stockholder and the several
Underwriters) indemnified under the provisions of said Section 11, and their
respective personal representatives, successors and assigns. Nothing in this
Agreement is intended or shall be construed to give to any other person, firm or
corporation any legal or equitable remedy or claim under or in respect of this
Agreement or any provision herein contained. The term "successors and assigns"
as herein used shall not include any purchaser, as such purchaser, of any of the
Shares from any of the several Underwriters.
15. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters,
shall be mailed, telegraphed or delivered to UBS Securities LLC, 299 Park
Avenue, New York, NY 10171, Attention: Mr. Robert C. Daum; if to the Company,
shall be mailed, telegraphed or delivered to it at its office, 10394 Pacific
Center Court, San Diego, CA 92121, Attention: Stelios B. Papadopoulos; and
if to the Selling Stockholder, shall be mailed, telegraphed or delivered to
it at its office, One South Street, Baltimore, MD 21202, Attention: Mr.
Frederick L. Bryant. All notices given by telegraph shall be promptly
confirmed by letter.
16. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(i) any investigation made by or on behalf of any Underwriter or controlling
person thereof, or by or on behalf of the Company or its respective directors of
officers, and (ii) delivery of and payment for the Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
You will act as Representatives of the several Underwriters in all
dealings with the Company under this Agreement, and any action under or in
respect of this Agreement taken by you jointly or by UBS Securities LLC, as
Representatives, will be binding upon all of the Underwriters.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of New York.
19.
<PAGE> 20
Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement among the Company
and the several Underwriters in accordance with its terms.
Very truly yours,
CN BIOSCIENCES, INC.
By:______________________________
Name:______________________________
Title:______________________________
ABS MB (C-N) LIMITED PARTNERSHIP
By: ABS MB Ltd., its General Partner
By:______________________________
Name:______________________________
Title:______________________________
The foregoing Agreement
is hereby confirmed and
accepted as of the date
first above written.
UBS SECURITIES LLC
DAIN BOSWORTH INCORPORATED
By: UBS SECURITIES LLC
By: ______________________________
Title: ______________________________
Acting on behalf of the several
Underwriters, including themselves,
named on SCHEDULE A hereto.
20.
<PAGE> 21
SCHEDULE A
UNDERWRITERS
NUMBER OF SHARES
UNDERWRITERS TO BE PURCHASED
UBS Securities LLC
Dain Bosworth Incorporated
------------------
1,000,000
<PAGE> 22
SCHEDULE B
LOCK-UP AGREEMENTS
Warburg, Pincus Investors, L.P.
Stelios B. Papadopoulos
James G. Stewart
John T. Snow
Ben Matzilevich
Douglas J. Greenwold
Joseph P. Landy
Richard A. Lerner
S. Joshua Lewis
Robert F. McGill, III
<PAGE> 23
APPENDIX A
1. OPINION OF WILLKIE FARR & GALLAGHER
(As to questions of law not involving the laws of the United States or the
General Corporation Law of the State of Delaware, conforming opinions may, in
lieu of the opinion of Willkie Farr & Gallagher, be provided by Brobeck, Phleger
& Harrison, LLP, California counsel to the Company, Pestalozzi Gmuer & Patry,
Swiss counsel to the Company, Dr. Peter Toelle, German counsel to the Company,
and Freeth Cartwright Hunt Dickens, United Kingdom counsel to the Company.)
Willkie Farr & Gallagher shall opine to the effect that :
(a) The Company has been duly organized and is validly existing as a
corporation, and is in good standing under, the laws of the State of Delaware,
and each of the Company's Subsidiaries has been duly organized, is validly
existing and is in good standing under the laws of the jurisdiction in which it
operates;
(b) The Company and each of its Subsidiaries has the corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Prospectus; the Company and each of its Subsidiaries is duly
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions in which the ownership or leasing of its properties or the conduct
of its business requires such qualification, except where the failure to so
qualify would not have a Material Adverse Effect;
(c) To such counsel's knowledge, except for Calbiochem-Novabiochem
Corporation, Calbiochem-Novabiochem AG, Clinalfa AG, Calbiochem-Novabiochem GmbH
and Calbiochem-Novabiochem (UK) Limited, the Company does not own or control,
directly or indirectly, any "significant subsidiary" (as defined in the Rules
and Regulations). All of the outstanding shares of capital stock (or foreign
equivalents) of each of the Company's Subsidiaries have been duly authorized and
validly issued, are fully paid and nonassessable and, except for nominal
shareholdings by directors to meet director qualifying share ownership
requirements of foreign jurisdictions, are owned directly or indirectly by the
Company, in each case, to such counsel's knowledge, subject to no security
interest, other encumbrance or adverse claim;
(d) As of the date hereof, after giving effect to the issuance of the Firm
Shares, the Company's authorized, issued and outstanding capital stock consists
of the following: 5,000,000 shares of Preferred Stock, par value $.01 per share,
authorized, no shares of which are issued and outstanding; 800,000 shares of
Class A Common Stock, no shares of which are issued and outstanding; and
30,000,000 shares of Common Stock, par value $.01 per share, authorized,
[5,242,397] shares of which are issued and outstanding. The authorized shares of
the Company's Common Stock have been duly authorized; the issued and outstanding
shares of the Company's capital stock have been duly authorized and validly
issued and are fully paid and nonassessable, and to our knowledge have not been
issued in violation of any preemptive right, co-sale right, registration right,
right of first refusal or other similar right;
(e) The Shares to be issued by the Company pursuant to this Agreement have
been duly authorized and will be, upon issuance and delivery against payment
therefor in accordance with the terms hereof, validly issued, fully paid and
nonassessable, and, to our knowledge, the stockholders of the Company do not
have any preemptive right, co-sale right, registration right, right of first
refusal or other similar right, which rights have not previously been waived, in
connection with the purchase or sale of any of the Shares;
(f) The Company has full corporate power and authority to enter into this
Agreement and to issue, sell and deliver to the Underwriters the Company Shares
or the Option Shares, as the case may be, to be issued and sold by it hereunder;
(g) This Agreement has been duly authorized by all necessary corporate
action on the part of the Company and has been duly executed and delivered by
the Company;
A-1
<PAGE> 24
(h) The Registration Statement has become effective under the Act and, to
such counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement or suspending or preventing the use of the Prospectus has
been issued and no proceedings for that purpose have been instituted or are
pending or threatened under the Act; any required filing of the Prospectus and
any supplement thereto pursuant to Rule 424(b) of the Rules and Regulations has
been made in the manner and within the time period required by such Rule 424(b);
(i) The Registration Statement, all Preliminary Prospectuses, the
Prospectus, and each amendment or supplement thereto (other than the financial
statements, and other financial and statistical data derived therefrom, as to
which such counsel need express no opinion), comply as to form in all material
respects with the requirements of the Act and the applicable Rules and
Regulations, and, to our knowledge, there are no agreements, contracts, leases
or documents of a character required to be described in, or filed as an exhibit
to, the Registration Statement which are not described or filed as required by
the Act and the applicable Rules and Regulations;
(j) The terms and provisions of the authorized and outstanding capital
stock of the Company as of the date hereof conform to the description thereof
contained in the Registration Statement and the Prospectus, and the information
in the Prospectus under the caption "Description of Capital Stock," to the
extent that it constitutes matters of law or legal conclusions, has been
reviewed by such counsel and is correct in all material respects, and the form
of certificate evidencing the Common Stock complies with the applicable
provisions of Delaware law;
(k) The statements in the Registration Statement and the Prospectus
summarizing statutes, rules and regulations relating to federal securities laws
and the Delaware General Corporation Law and the description of the certificate
of incorporation and bylaws, are accurate and fairly and correctly present the
information required to be presented by the Act or the Rules and Regulations in
all material respects; and such counsel does not know of any statutes, rules or
regulations required to be described in the Registration Statement or the
Prospectus that are not described or referred to therein as required;
(l) The statements under the captions "Risk Factors - Shares Eligible for
Future Sale", "Management - Employment Agreements," "Management - Stock Option
Plans," "Management - Compensation Committee Interlocks and Insider
Participation" and "Certain Transactions" in the Prospectus, to the extent such
statements constitute a summary of documents referred to therein or matters of
law, are accurate summaries and fairly and correctly present, in all material
respects, the information called for with respect to such documents and matters;
provided that such counsel shall be entitled to rely on representations of the
Company with respect to certain factual matters contained in such statements,
and provided further that such counsel shall state that nothing has come to the
attention of such counsel which leads them to believe that such representations
are not true and correct in all material respects;
(m) The execution, delivery and performance of this Agreement and the
consummation of the transactions therein contemplated do not and will not (a)
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the certificate of incorporation or bylaws of the
Company or any of its Subsidiaries, any agreement or document filed as an
exhibit to the Registration Statement, or, to such counsel's knowledge, any
statute, rule or regulation applicable to the Company or any of its Subsidiaries
(except that no opinion need to be expressed with respect to compliance with
state securities or Blue Sky laws) or (b) to the knowledge of such counsel,
result in the creation or imposition of any lien or encumbrance upon any of the
assets of the Company or any of its Subsidiaries pursuant to the terms or
provisions of, or result in a breach or violation of any of the terms or
provisions of, or constitute a default or result in the acceleration of any
obligation under, any indenture, mortgage, deed of trust, loan agreement, bond,
debenture, note agreement, other evidence of indebtedness, lease, contract or
other agreement or instrument to which the Company or any of its Subsidiaries is
a party or by which its property or any of its Subsidiaries' property is bound
or (c) to the knowledge of such counsel, conflict with or result in a violation
or breach of, or constitute a default under, any applicable license,
authorization, approval, permit, judgment, franchise, order, writ or decree of
any court or governmental agency or body;
(n) The Company and each of its Subsidiaries has the corporate or other
power and authority to own or lease all of the assets owned or leased by it and
to conduct its business, in each case as described in the
A-2
<PAGE> 25
Registration Statement and the Prospectus, except where failure to have such
power and authority would not have a Material Adverse Effect;
(o) No authorization, approval, consent, order, designation or declaration
of or filing by or with any governmental authority or agency is necessary in
connection with the execution and delivery of this Agreement by the Company and
the consummation of the transactions therein contemplated, except such as may
have been obtained under the Act and the Rules and Regulations or such as may be
required under state securities or Blue Sky laws or the securities laws of any
foreign jurisdiction, or by the bylaws and rules of the NASD in connection with
the purchase and distribution of the Shares by the Underwriters;
(p) Neither the Company nor any of its Subsidiaries is in violation of its
certificate of incorporation, bylaws or other charter documents, as applicable,
and to such counsel's knowledge, neither the Company nor any of its Subsidiaries
is in breach of or default with respect to any provision of any agreement, that
was filed as an exhibit to the Registration Statement and, to such counsel's
knowledge, the Company and each of its Subsidiaries is in compliance with all
laws, rules, regulations, judgments, decrees, orders and statutes of any court
or jurisdiction to which it is subject, except where breach, default or
noncompliance would not have a Material Adverse Effect;
(q) To such counsel's knowledge, there are no pending or threatened
actions, suits, claims, proceedings or investigations that, if successful, would
have a Material Adverse Effect or would limit, revoke, cancel, suspend, or cause
not to be renewed any existing license, certificate, registration, approval or
permit from any state, federal or regulatory authority that is material to the
conduct of the business of the Company and its Subsidiaries as presently
conducted, or that is of a character otherwise required to be disclosed in the
Registration Statement or the Prospectus under the Act or the applicable Rules
and Regulations;
(r) To such counsel's knowledge, except for Warburg, Pincus Investors,
L.P., ABS MB (C-N) Limited Partnership, Stelios B. Papadopoulos, John T. Snow,
Ben Matzilevich and Silicon Valley Bank, no holders of shares of Common Stock or
other securities of the Company have registration rights with respect to
securities of the Company and, except as set forth in the Registration Statement
and Prospectus, all holders of securities of the Company having registration
rights with respect to shares of Common Stock or other securities have, with
respect to the offering contemplated hereby, waived such rights or such rights
have otherwise been waived.
(s) No transfer taxes are required to be paid in connection with the sale
or delivery to the Underwriters of the Firm Shares or the Option Shares;
(t) The Company will not, upon consummation of the transactions
contemplated by this Agreement, be an "investment company," or a "promoter" or
"principal underwriter" for, a "registered investment company," as such terms
are defined in the Investment Company Act of 1940, as amended;
In addition, such counsel shall include a statement to the effect that
such counsel has participated in conferences with officials and other
representatives of the Company, the Representatives, Underwriters' Counsel and
the independent public accountants of the Company, at which conferences the
contents of the Registration Statement and the Prospectus and related matters
were discussed, and although they have not verified the accuracy or completeness
of the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which caused them to believe
that, at the time the Registration Statement became effective, the Registration
Statement (other than the financial statements, and other financial and
statistical data derived therefrom, as to which such counsel need express no
belief) contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or at the Closing Date or any later Option Closing Date,
as the case may be, the Prospectus (except as aforesaid) contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
A-3
<PAGE> 26
Such counsel need express no opinion relating to the statements in the
Registration Statement and Prospectus as to the regulatory requirements of the
United States Food and Drug Administration and any similar foreign regulatory
agencies.
Counsel rendering the foregoing may rely (i) as to questions of law not
involving the laws of the United States or the General Corporation Law of the
State of Delaware upon opinions of local counsel, (ii) as to the regulatory
requirements of the United States Food and Drug Administration and any similar
foreign regulatory agencies, upon the opinion of Keller and Heckman, LLP, and
(iii) as to questions of fact upon representations or certificates of officers
of the Company and of governmental officials, as the case may be, in which case
its opinion is to state that it is so doing and that it has no actual knowledge
of any material misstatement or inaccuracy in such opinions, representations or
certificates, and that they believe that they and the Underwriters are justified
in relying on such opinions or certificates. Copies of any opinion,
representation or certificate so relied upon shall be delivered to you, as
Representatives of the Underwriters, and to Underwriters' Counsel.
2. OPINION OF KELLER AND HECKMAN, LLP, FDA COUNSEL.
(a) Such counsel has read the description of the Company's business in the
Prospectus and the statements in the Prospectus under the caption "Business -
Government Regulation" (the "FDA Portion") and (i) the statements included in
the FDA Portion, insofar as such statements summarize the effect on the Company
of provisions of applicable FDA statutes and regulations, are accurate in all
material respects and (ii) neither the Company nor any of its Subsidiaries is
subject to regulation by or approval of the United States Food and Drug
Administration or any similar foreign governmental agency.
In addition, such counsel shall include a statement to the effect that
such counsel has participated in conferences with officials and other
representatives of the Company, the Representatives, Underwriters' Counsel and
the independent public accountants of the Company, at which conferences the
contents of the Registration Statement and the Prospectus and related matters
were discussed, and although they have not verified the accuracy or completeness
of the statements contained in the Registration Statement or the Prospectus,
nothing has come to the attention of such counsel which caused them to believe
that, at the time the Registration Statement became effective, the Registration
Statement (except as to financial statements, financial and statistical data and
supporting schedules contained therein, as to which such counsel need express no
opinion) contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or at the Closing Date or any later Option Closing Date,
as the case may be, the Registration Statement or the Prospectus (except as
aforesaid) contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
A-4
<PAGE> 27
APPENDIX B
1. Opinion of ____________________
____________________ shall opine to the effect that:
(a) This Agreement has been duly authorized, executed and delivered
by or on behalf of the Selling Stockholder;
(b) The execution and delivery by the Selling Stockholder of, and the
performance by the Selling Stockholder of its obligations under, this Agreement,
the Custody Agreement and the Power of Attorney will not result in (i) any
violation of the Company's charter or bylaws, (ii) the breach or violation of
any of the terms and provisions, or constitute a default under, any material
indenture, mortgage, deed of trust, loan agreement, bond, debenture, note
agreement or other evidence of indebtedness, or any material lease, contract or
other agreement or instrument to which the Selling Stockholder is a party or by
which its properties are bound, (iii) the breach or violation of any federal,
California or, to the best of our knowledge, local statute, rule or regulation;
provided however, that no opinion need be rendered concerning state securities
or Blue Sky laws, or (d) to the best of our knowledge, the breach or violation
of any judgment, order, writ or decree of any government, arbitrator, court,
regulatory body or administrative agency, or other governmental agency or body
having jurisdiction over the Selling Stockholder or any of its properties or
operations;
(c) No authorization, approval or consent, order, designation or
declaration of or filing by or with any governmental authority or agency is
necessary in connection with the performance of this Agreement and consummation
of the transactions herein contemplated by the Selling Stockholders, except such
as have been obtained under the Act and the Rules and Regulations or such as may
be required under state securities or Blue Sky laws or the securities laws of
any foreign jurisdiction, or by the bylaws and rules of the NASD in connection
with the purchase and distribution of the Shares by the Underwriters;
(d) Each of the Underwriters who has purchased Seller Shares in good faith
and without notice of any adverse claim within the meaning of the applicable
Uniform Commercial Code, upon payment for such Seller Shares, has received good
and valid title to such Seller Shares, free and clear of any security interests,
claims, liens, and encumbrances, except for security interests, claims, liens,
and encumbrances created or imposed by, or in favor of, the Underwriters; and
(e) Each of the Custody Agreement and the Power of Attorney has been duly
authorized, executed and delivered by or on behalf of the Selling Stockholder
and is a valid and binding agreement of the Selling Stockholder, enforceable in
accordance with its terms except as to (i) rights to indemnity and contribution
hereunder which may be limited by applicable law, (ii) bankruptcy and laws
relating to the rights and remedies of creditors generally, and (iii) the
availability of equitable remedies.
B-1
<PAGE> 1
Exhibit 10(k)
CN BIOSCIENCES, INC.
AMENDED AND RESTATED 1992 STOCK OPTION PLAN
* * *
ARTICLE I
Purpose
The CN Biosciences, Inc. 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, the term "Effective Date" shall mean
April 1, 1992.
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
<PAGE> 2
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 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
-2-
<PAGE> 3
options granted hereunder shall not exceed, in the aggregate, 835,000 shares,
except as such number 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.
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.
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<PAGE> 4
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 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
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<PAGE> 5
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, 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.
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<PAGE> 6
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 year after
the date the optionee acquired Stock by exercising the incentive stock option.
ARTICLE VIII
Payment for Shares
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<PAGE> 7
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 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> 8
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
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<PAGE> 9
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.
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
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<PAGE> 10
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 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 Rule 16b-3 under the Exchange Act 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 later of (i) 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
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<PAGE> 11
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, 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
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<PAGE> 12
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.
(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.
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<PAGE> 13
(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.
* * *
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<PAGE> 14
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
<PAGE> 15
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 (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
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<PAGE> 16
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 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
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<PAGE> 17
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.
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.
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<PAGE> 18
COMPANY: CN BIOSCIENCES, INC.
By: ______________________________
Name:
Title:
PARTICIPANT:
By: ______________________________
Name:
Title:
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<PAGE> 19
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
<PAGE> 20
"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 (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.
-2-
<PAGE> 21
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 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
-3-
<PAGE> 22
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. 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.
-4-
<PAGE> 23
EXECUTED the day and year first written above.
COMPANY: CN BIOSCIENCES, INC.
By: ______________________________
Name:
Title:
PARTICIPANT:
By: ______________________________
Name:
Title:
-5-
<PAGE> 1
Exhibit 10(m)(v)
Severance Agreement
AGREEMENT, by and between CN Biosciences, Inc., a Delaware corporation
(the "Company"), and ________ (the "Executive"), dated as of February 27, 1997.
WHEREAS, the Company wishes to provide for the 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 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 (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
<PAGE> 2
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-competition agreement, non-disclosure agreement or
other agreement between the Company and the Executive relating to the Company's
employment of the Executive.
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
<PAGE> 3
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.
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day first hereinabove written.
CN BIOSCIENCES, INC.
By:_____________________________________
Name:
Title:
EXECUTIVE
_____________________________________
<PAGE> 1
Exhibit 11
CN Biosciences, Inc.
Computation of Earnings per Share
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
--------------------------------
1994 1995 1996
--------------------------------
<S> <C> <C> <C>
Net income (loss) ($462) $1,017 $2,001
Average common shares outstanding 1,054 1,067 2,072
Effect of conversion of preferred shares on
the as-if converted basis 2,224 2,224 1,668
Net effect of dilutive common share equivalents
based on the treasury stock method -- 81 217
Adjustments to reflect requirements of the
Securities and Exchange Commission ("SEC")
(Effect of SAB 83) 50 50 38
------------------------------
Shares used in per share computations 3,328 3,422 3,995
==============================
Net income (loss) per share reflecting
requirements of the SEC ($0.14) $0.30 $0.50
==============================
</TABLE>
<PAGE> 1
EXHIBIT 23(b)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
February 21, 1997 in this Registration Statement on Form S-1 and related
Prospectus of CN Biosciences, Inc. for the registration of 1,150,000 shares of
its common stock.
Our audits also included Schedule II -- Valuation and Qualifying Accounts
of CN Biosciences, Inc. for each of the three years in the period ended December
31, 1996 listed in Item 16(b). 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 3, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH INTERIM
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 10,591
<SECURITIES> 4,113
<RECEIVABLES> 4,487
<ALLOWANCES> 0
<INVENTORY> 14,733
<CURRENT-ASSETS> 36,572
<PP&E> 3,688
<DEPRECIATION> 0
<TOTAL-ASSETS> 46,262
<CURRENT-LIABILITIES> 6,129
<BONDS> 0
0
0
<COMMON> 52
<OTHER-SE> 38,848
<TOTAL-LIABILITY-AND-EQUITY> 38,900
<SALES> 33,725
<TOTAL-REVENUES> 33,725
<CGS> 15,388
<TOTAL-COSTS> 14,844
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 532
<INCOME-PRETAX> 2,961
<INCOME-TAX> 960
<INCOME-CONTINUING> 2,001
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,001
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
<FN>
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.
</FN>
</TABLE>
