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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER 000-21281
CN BIOSCIENCES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 33-0509785
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10394 PACIFIC CENTER COURT, SAN DIEGO, CA 92121
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 450-5500
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. (X)
The aggregate market value of the voting common equity held by non-affiliates
of the registrant on February 10, 1998 was approximately $81 million.
As of February 10, 1998 the Registrant had 5,652,911 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's 1997 Annual Report to Stockholders - Part II
Portions of the Registrant's Proxy Statement for the 1998 Annual Meeting of
Stockholders - Part III
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TABLE OF CONTENTS
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PART I
Item 1. Business 3
Item 2. Properties 24
Item 3. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of Security Holders 24
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 25
Item 6. Selected Consolidated Financial Data 25
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 25
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 25
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 25
PART III
Item 10. Directors and Executive Officers of the Registrant 26
Item 11. Executive Compensation 26
Item 12. Security Ownership of Certain Beneficial Owners and Management 26
Item 13. Certain Relationships and Related Transactions 26
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 27
Signatures 30
Schedule II - Valuation and Qualifying Accounts 31
Exhibit Index 32
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PART I
ITEM 1. BUSINESS
As used in this Annual Report on Form 10-K, references to the "Company" or
"CN Biosciences" refer to CN Biosciences, Inc. and its direct and indirect
subsidiaries, unless otherwise indicated or the context otherwise requires.
This Annual Report on Form 10-K contains forward-looking statements which
involve risks and uncertainties. The Company's actual results in the future
could differ significantly from the results discussed in such forward-looking
statements. Factors that could cause or contribute to such a difference
include, but are not limited to, those set forth under the caption Risk Factors
and in Management's Discussion and Analysis of Financial Condition and Results
of Operations, incorporated by reference herein.
THE COMPANY
CN Biosciences, Inc. ("CN Biosciences" or the "Company") is engaged in the
development, production, marketing and distribution of a broad array of
products used worldwide in disease-related life sciences research at
pharmaceutical and biotechnology companies, academic institutions and
government laboratories. The Company's products include biochemical and
biological reagents, antibodies, assays and research kits which it sells
principally through its general and specialty catalogs under its
well-established brand names, including Calbiochem, Novabiochem, Oncogene
Research Products and Novagen. In December 1997, the Company completed the
acquisition of all of the outstanding capital stock of Novagen, Inc. and its
parent holding company for $10.5 million in cash, which was paid in January
1998. The acquisition was accounted for as a purchase, and in connection
therewith in-process technology valued at $6.8 million was written off
effective as of the purchase date. Novagen's products are complementary to the
Company's other brands, and address researchers' needs in protein expression
systems, PCR cloning systems, protein detection and purification systems, and
other areas of molecular biology research. In addition, tools for protein
expression also serve as the platform for the emerging applications of
functional genomics and drug discovery.
With over 9,300 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
infectious and genetic disease, developmental and cell biology, 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. The Company has implemented its niche
research market strategy in areas such as signal transduction, apoptosis and
combinatorial chemistry, and has recently announced additional niche offerings
in glycobiology and neurosciences. The Company intends to continue to penetrate
emerging niche research markets through internal development and the selective
acquisition 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. The
acquisition of Novagen further expanded the Company's scientific expertise in
molecular biology and added over 600 new products.
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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 peptide chemistry. During
1997, the Company sold products to over 8,700 accounts, filled over 107,000
orders in 50 countries and generated sales of $39.4 million and net income of
$3.8 million before accounting for a one time write off of in-process
technology related to the acquisition of Novagen. The Company's development,
marketing and distribution activities are supported by the Company's highly
experienced scientific staff, which includes 48 professionals holding Ph.D.s in
a variety of life sciences disciplines, as well as other personnel located at
eight 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. Recently, the NIH budget has grown at a
compounded annual rate of approximately 6.7%, although during any individual
period, governmental budgetary pressures have resulted in lowered levels of
growth in funding to NIH and other government agencies that fund research and
development activities. Based upon published information the Company
anticipates continuing growth in the funding to NIH and other agencies during
the upcoming year. In a 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 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, combinatorial chemistry,
neurosciences and glycobiology 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 PCR cloning tools, protein detection and purification tools,
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.
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The larger companies typically generate revenues from the sale of a broad range
of equipment, laboratory supplies and other products, including research
products which compete with many of the Company's product offerings. These
larger suppliers generally place greater emphasis on high- revenue generating
products and on the breadth of their product offering than on providing
innovative products early to market. The smaller companies, the majority of
which are substantially smaller than the Company, typically supply a highly
focused product offering to very specific market niches. These smaller
companies generally specialize in addressing the emerging needs of life
sciences researchers by emphasizing innovative products. Such smaller companies
often lack the distribution network and capital resources required to grow
beyond providing a limited and highly specialized offering to a relatively
narrow market. As the market expands and the need to cost effectively
distribute products to a larger, more geographically diverse customer base
increases, the Company believes that customer access will be increasingly
difficult for smaller companies lacking significant marketing and distribution
infrastructure. The Company believes that the industry's fragmented structure
and underlying dynamics may create opportunities for consolidation.
STRATEGY
CN Biosciences' goal is to become a leading provider of innovative research
products to the life sciences research market. To achieve this goal, CN
Biosciences' strategy includes the following elements:
Target Emerging, High Growth Niche Research Markets. The Company seeks to
establish leading positions early in the evolution of the market's faster
growing, higher margin niche research markets. The Company identifies a
potentially attractive niche research market through a comprehensive review by
its scientific personnel and interaction with the Company's Technology Council
and network of other scientific advisers. In deciding which niche research
markets to pursue, the Company considers a number of factors, including
potential market size, synergies with existing areas of research, resources
required to develop both the product offering and related catalog and the
potential for establishing a leading position early in the market's
development. Once the Company has identified a niche research market, it
assembles a targeted product offering from its existing products, new products
developed by its own scientific staff and products sourced from third parties.
These products are then distributed primarily through specialty catalogs
designed to provide scientists working in a specific field with a single
comprehensive source integrating both innovative products often not found
elsewhere and a broad range of related products. During 1997, the Company
introduced updated versions of its Apoptosis and Signal Transduction specialty
catalogs. The Company also issued specialty catalogs in Neurosciences and
Glycobiology in early 1998. 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. In December 1997, the Company consummated the strategic acquisition
of Novagen which added further breadth to its product line in the molecular
biology discipline. 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
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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 believes its 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 48 professionals holding
Ph.D.s in a variety of life sciences disciplines. With its expanded scientific
staff and its particular expertise in immunochemistry, biochemistry, molecular
biology and synthetic peptides, the Company is able to offer a broad range of
products and to support such product offerings with both a high level of
scientific content in its catalogs and knowledgeable technical support
personnel. The Company regularly interacts with a network of scientific
advisers within the life sciences research industry including its four member
Technology Council, members of academic institutions with which the Company
collaborates, as well as its customers. These interactions have enabled the
Company to identify the specialized needs of researchers in several emerging
fields of life sciences research and to provide innovative product solutions to
facilitate research in these targeted areas.
Merchandising and Marketing Expertise. The Company believes its skill in
positioning and merchandising its products has enabled it to expand its share
of the life sciences research products market. The Company employs a variety of
marketing techniques to enable it to produce catalogs that the Company believes
are more informative and more visually appealing than those of its competitors.
In structuring its catalog offerings, the Company effectively combines basic
product information with a significant amount of related scientific reference
data and technical advice. In addition, with each new edition of the Company's
catalogs, the Company has increased the level of indexes and cross references
- -- by application, product category and individual product -- and developed a
variety of color coded reference aids, all of which are designed to facilitate
the ease with which a scientist can find the product needed to conduct his or
her research. Capitalizing on these skills, its established catalog brand names
and its comprehensive list of product offerings, the Company has identified
opportunities to target high growth emerging niche research markets using
specialty catalogs to more effectively bring its products to the attention of
research scientists.
Total Quality Management, Technical Service and Customer Support. Research
scientists require that the products used in their research conform to exacting
quality standards. The Company utilizes its Total Quality Management program to
ensure that customers receive consistent, high quality products which meet or
exceed customer requirements and catalog specifications. Quality control
functions designed to provide controls over the products distributed, whether
internally manufactured or externally sourced, have been fully integrated into
the Company's development and manufacturing process. In addition, the Company
provides extensive technical service to customers, primarily over the
telephone, in situations where customers have questions regarding complex
product applications, research protocols and
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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 9,300 products represented by over 17,000 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.
The broad categories of the Company's products include:
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PRODUCT CATEGORY DESCRIPTION OF PRODUCTS
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Biochemicals . . . . . . . . . . . . . . . . Includes 25 major categories of products comprised of enzymes, proteins,
detergents, inhibitors, antibiotics and others.
Immunochemicals . . . . . . . . . . . . . . . Includes monoclonal and polyclonal antibodies, antibodies to various receptor
proteins, signaling proteins, glycoproteins, proto-oncogenes, enzymes,
neurotoxins and others.
Amino Acids and Peptides . . . . . . . . . . Includes Fmoc and Boc amino acid derivatives and hundreds of biologically
active peptides.
Kits and Assays . . . . . . . . . . . . . . . Includes a family of free radical marker ELISA kits for oxidative stress
research as well as a rapidly growing line of ELISA kits for use in apoptosis
research such as NMP, Fas and cdk1.
Resins and Linkers . . . . . . . . . . . . . Includes tentagel and polystyrene resins, together with a variety of trityl
linkers.
Molecular biology reagents . . . . . . . . . Includes cloning systems, expression systems, protein detection and
purification reagents and transcription/translation reagents and PCR
sequencing products.
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The Company's products are marketed through five 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.
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- Oncogene Research Products. The Company identifies Oncogene Research
Products as a brand of CN Biosciences. 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.
- Novagen. The Company's recently acquired Novagen brand offers protein
expression systems, PCR cloning systems, protein detection and
purification systems, and other areas of molecular biology research.
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.
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PRODUCT POSITIONING AND MARKETING
The Company's products are principally sold through its four general and six
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
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NUMBER OF APPROXIMATE
CATALOGS NUMBER OF PRINCIPAL PRODUCT
CATALOGS LAST PUBLISHED PUBLISHED PRODUCTS FOCUS BRAND NAMES
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GENERAL
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Calbiochem First Quarter 1998 170,000 4,100 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
Novagen Second Quarter 1997 50,000 600 Protein expression - Novagen
systems
SPECIALTY
Signal Transduction Third Quarter 1997 100,000 2,100 G Proteins, Kinases, - Calbiochem
Nitric Oxide, Calcium - Novabiochem
Metabolism and p53 - Oncogene
Research
Products
Apoptosis Third Quarter 1997 60,000 600 Antibodies, Assays, - Calbiochem
ELISAs, Kits and - Oncogene
Reagents Research
Products
Combinatorial First Quarter 1998 20,000 250 Resins, Linkers, Fmoc - Novabiochem
Chemistry Amino Acids and
Peptide Synthesis
Reagents
Clinalfa First Quarter 1996 8,000 40 Biologically Active - Clinalfa
Peptides
Neurosciences First Quarter 1998 65,000 800 Neuroimmunology - Calbiochem
- Oncogene
Research
Products
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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 four general catalogs:
- Calbiochem General Catalog. The Calbiochem general catalog has been
published since 1954. The most recent catalog, published in the first
quarter of 1998, summarizes the Company's offering of approximately 4,100
biochemicals and immunochemicals, including more than 1,000 products new to
the catalog. Approximately 170,000 copies of the most recent edition of the
catalog have been published. The Calbiochem general catalog combines
Calbiochem brand products, along with selected
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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, 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.
- Novagen General Catalog. Approximately 600 products are included in this
catalog which focuses primarily on protein expression systems. Approximately
50,000 copies of the most recent version of this catalog were published in
the second quarter of 1997. Key products in the catalog include cloning
systems, expression systems, transcription/translation products, detection/
purification products, PCR/sequencing products and molecular size markers.
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 2,100 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 100,000 copies
of the Company's fourth edition of this catalog were published in the third
quarter of 1997 which contained over 700 products new to the catalog. 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. This 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 updated
catalog, published in the third quarter of 1997, combines existing
Calbiochem and Oncogene Research Products brand products with newly
developed, innovative products focused
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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.
- 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 1998, the Company published the
most recent edition of its Combinatorial Chemistry catalog. This catalog,
20,000 copies of which have been published, provides approximately 250
products focused primarily 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.
- Neurosciences. The Company's newest specialty catalog contains over 800
products from both the Calbiochem and Oncogene Research Products brands and
addresses the needs of neuroimmunologists and those studying neurological
disease disorders. Approximately 65,000 catalogs were printed with
distribution beginning in the first quarter of 1998.
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
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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.
DEVELOPMENT OF NEW PRODUCTS
The Company conducts its research and development at its technology centers
in San Diego, California, Cambridge, Massachusetts, Madison, Wisconsin, 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 700 new products
in 1996 and introduced over 2,300 new products, including over 600 products
introduced as a result of the acquisition of Novagen, in 1997. 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.
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 1997, the
Company sold
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products to more than 8,700 accounts, with more than 74% 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, Madison, Wisconsin, 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 7 individuals,
principally in the United States and Europe, and has a network of over 50
independent foreign distributors who resell the Company's products to their
customers in selected markets.
Technical Support. The Company employs a staff of 15 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 (11 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, Oncogene Research Products and Novagen brands with
information about the Company and its products and catalogs. The Company
believes that the Internet may become an increasingly important channel of
customer communication and intends to further develop its Internet presence to
keep pace with changes in technology and the market for its products.
CUSTOMERS
During 1997, the Company sold products to over 8,700 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, 1997. 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.
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The Scripps Research Institute. In September 1995, the Company entered into a
sublicense agreement with The Scripps Research Institute which will allow it to
produce various enzymes, substrates and other products of interest to research
scientists working in the field of glycobiology, through the use of recombinant
technology. The availability of such products, which will be manufactured and
distributed by the Company on an exclusive basis in the research products
market, will be combined with additional products to provide research
scientists with cost-effective tools needed to study complex carbohydrates.
Recent publications have focused on the potential of glycobiology in the area
of pharmaceutical drug discovery research. The Company believes that its
offering of these important products through its general and a new specialty
catalog may establish the Company as a leader in the growing niche research
market of glycobiology.
Other. In addition to featuring products developed internally by the
Company's research and development staff, the Company offers products developed
through a wide range of sources. Accordingly, the identification of new and
useful products developed by others is an important part of its business.
Drawing on its connections in the industry and its multi-disciplined expertise,
the Company is constantly evaluating and searching out these products. Once
these products are identified, the Company will either license the technology
and distribution rights and produce the products in its own manufacturing
facilities or purchase manufactured products wholesale and distribute such
products to the Company's customers. In 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.
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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
("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.
MANUFACTURING AND QUALITY ASSURANCE
The Company has manufacturing facilities in San Diego, California, Cambridge,
Massachusetts, Madison, Wisconsin 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, 1997, the Company's level of total
outstanding product backorders averaged approximately $386,000, 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 1997 sales data,
approximately 57% 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
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<PAGE> 16
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.
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 as well as the Company's European distribution
center in Nottingham, UK.
COMPETITION
The market for the Company's products is highly competitive, and the Company
expects competition to increase. Furthermore, although the life sciences
research products market continues to grow, its rate of growth in recent years
has been declining and may continue to decline. The Company competes with many
other life sciences research products suppliers, both larger and smaller than
the Company. Some of the Company's competitors, including two of its largest
competitors, Sigma-Aldrich Corporation ("Sigma-Aldrich") and Boehringer
Mannheim GmbH ("Boehringer") (which entered into an agreement to be acquired by
F. Hoffman-La Roche AG in May 1997), offer a broad range of equipment,
laboratory supplies and products, including many of the research products
offered by the Company. To the extent that researchers exhibit loyalty to the
supplier that first supplies them with a particular research product, the
Company's competitors may have an advantage over the Company with respect to
products first developed by such competitors. In addition, many of the
Company's competitors have significantly greater research and development,
marketing, financial and other resources than the Company, and therefore
represent and will continue to represent significant competition in the
Company's existing and future markets. Because of their size and the breadth of
their product offerings, certain of these companies have been able to establish
managed accounts by which, through a combination of direct computer links and
volume discounts, they seek to gain a disproportionate share of orders for
research products from a particular academic institution or pharmaceutical or
biotechnology company. Such managed accounts raise significant competitive
barriers for the Company. The Company currently benefits from its participation
in emerging niche research markets which, as they expand, may attract the
attention of the Company's competitors.
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GOVERNMENT REGULATION
The Company is subject to governmental regulation under the Occupational
Safety and Health Act, the Environmental Protection Act, the Toxic Substances
Control Act, and other similar laws of general application, as to all of which
the Company believes itself to be in material compliance. The Company has in
the past been notified of minor violations of government and environmental
regulations. The Company has promptly corrected such violations, without any
material impact on the Company's operations. Any future violation of, and the
cost of compliance with, these laws and regulations could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Because of the nature of its operations and the use of hazardous substances
in its ongoing manufacturing and research and development activities, the
Company is subject to stringent federal, state and local laws, rules,
regulations and policies governing the use, generation, manufacturing, storage,
air emission, effluent discharge, handling and disposal of certain materials
and wastes. Prior to the Company's inception, its U.S. subsidiary, at the time
it was owned by its former owners, was involved in two separate incidents
related to the release of hazardous materials into the environment at a leased
facility which is no longer occupied by the Company. The Company believes from
a review of correspondence from various regulatory agencies that these
incidents were investigated and remediated by the U.S. subsidiary's former
owners. Although the Company believes it is in material compliance with all
applicable government and environmental laws, rules, regulations and policies,
there can be no assurance that the Company's business, financial condition and
results of operations will not be materially adversely affected by current or
future environmental laws, rules, regulations and policies or by liability
arising out of any past or future releases or discharges of materials that
could be hazardous.
The Company's products are generally sold for non-human research purposes and
do not subject the Company to the regulatory requirements of the U.S. Food and
Drug Administration (the "FDA"). In certain limited situations, the Company's
Clinalfa products are sold to U.S. customers involved in limited human clinical
research which requires that the Company's customer obtain FDA approval of an
Investigational New Drug application (IND). Products sold to such customers are
produced by the Company at its Swiss manufacturing facilities in material
compliance with appropriate Good Manufacturing Practices ("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 represented 30 of the approximately 7,000
products offered by the Company at that time and accounted in each of the three
years ended December 31, 1996 for approximately $150,000 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
cooperated fully in the investigation regarding these exports and understands
that the DOC is now in the process of considering what action should be taken
with respect to the results of this investigation. 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
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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, 1997, the
Company had in excess of 700 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, 1996 and 1997, the Company expensed an
aggregate of $112,000, $323,000 and $384,000, respectively, in connection with
royalties owed pursuant to license agreements.
Because of the breadth of the Company's product offerings and ambiguities in
intellectual property law, the Company periodically receives in the ordinary
course of business notices of potential infringement of patents held by others.
Although the Company historically has been able to satisfactorily resolve such
claims and believes that any outstanding claims will be satisfactorily
resolved, there can be no assurance that the Company may not be forced to
discontinue the sale of one or more of its products, some or all of which could
be material. As the Company develops product offerings focused on certain niche
research markets, intellectual property rights of the Company or others related
to such markets may become increasingly important, and the Company's failure to
obtain and retain such rights may have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's significant registered trademarks are its Calbiochem,
Novabiochem, Clinalfa and Novagen 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 brand of CN Biosciences.
HUMAN RESOURCES
As of December 31, 1997, the Company employed 264 persons on a full-time and
part-time basis, including 48 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.
RISK FACTORS
Dependence on Research and Development Budgets and Government Research Funding.
The Company's customers include research scientists at pharmaceutical and
biotechnology companies, academic institutions and government and private
research laboratories. Fluctuations in the research and development budgets of
these companies and institutions can have a significant effect on the demand
for the Company's products. Such budgets are based on a wide variety of
factors including the resources available to make such expenditures, the
spending priorities among various types of research and the policies regarding
such expenditures during recessionary periods. Any decrease in life sciences
research and development expenditures by such companies and institutions could
have a material adverse effect on the Company's business, financial condition
and results of operations.
A significant portion of the Company's sales have been to research scientists,
universities, government research laboratories, private foundations and other
institutions whose funding is dependent on grants from government agencies such
as the U.S. National Institutes of Health ("NIH") and similar domestic and
international agencies. The funding associated with approved NIH grants
generally becomes available at particular times of the year, as determined by
the federal government, and may result in fluctuations in the Company's
operating results. Although research funding has increased during the past
several years, grants have, in the past, been frozen for extended periods or
have otherwise become unavailable to various institutions, sometimes without
advance notice. Furthermore, government proposals aiming to reduce or eliminate
budgetary deficits have in the past included reduced allocations to the NIH and
the other government agencies that fund research and development activities. If
government funding, especially NIH
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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 from its acquisition of the Oncogene
Research Products business from OSI Pharmaceuticals, Inc., (formerly Oncogene
Science, Inc.) a biopharmaceutical company. The ability of the Company to
achieve its expansion objectives and to manage its growth effectively depends
upon a variety of factors, including (i) the ability to internally develop
products, (ii) the ability to identify and license products sourced from third
parties, (iii) the ability to successfully position and market its products,
(iv) the ability to identify and consummate attractive acquisitions and (v) the
ability to integrate new businesses, facilities and personnel into existing
operations. If the Company is unable to manage growth effectively, there could
be a material adverse effect on the Company's business, financial condition and
results of operations.
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. The Company successfully completed the purchase of
Novagen, Inc. in December 1997. Although management expects to be able to
integrate the business activities of Novagen into its existing marketing and
distribution facilities and to gain synergies and growth, there can be no
assurance that such integration will be successful or that sales and profits
will increase. If the Company is unable to integrate Novagen, there could be a
material adverse effect on the Company's business financial condition and
results of operations.
Reliance on Niche Research Market Strategy. Key elements of the Company's
strategy include the targeting and penetration of emerging life sciences niche
research markets and the continued development of the niche research markets
currently served by the Company. If the Company is unable to successfully
target and penetrate these niche research markets or is unable to continue
developing the niche research markets currently served or if the Company's new
products are not accepted by research scientists, there could be a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, the Company currently benefits from its participation
in emerging niche research markets which, as they expand, may attract the
attention of the Company's competitors. Further, as these niche research
markets mature, products that were once innovative, thus commanding higher
margins, may become commodities.
Dependence on New Products; Rapid Technological Change. The life sciences
research products market is characterized by rapid technological change and
frequent product introductions. The Company's future success will depend, in
part, on its ability to develop and introduce, on a timely basis, products that
address the evolving needs of its customers. There can be no assurance that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of products. The Company has
experienced, and may in the future experience, delays in the development and
introduction of products, and there can be no assurance that the Company will
keep pace with the rapid rate of change in life sciences research, and will not
experience additional delays in the future. In addition, there can be no
assurance that new products will adequately meet the requirements of the
marketplace or achieve market acceptance. Factors affecting whether such
products will be accepted by the market include use of the product by research
scientists, citation of the product in published research, the timing of market
entry of the product relative to competitive products and general trends in
life sciences research. If the Company is unable, for technological or other
reasons, to develop and introduce products in a timely manner in response to
changing market environments or customer requirements, there could be a
material adverse effect on the Company's business, financial condition and
results of operations.
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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.
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 and
Boehringer Mannheim GmbH (which entered into an agreement to be acquired by F.
Hoffman-La Roche AG in May 1997), 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
Company has no control and who also represent products of other companies. 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.
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
17.5% of net sales during the year ended December 31, 1997, 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.
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
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<PAGE> 21
shortfall. Operating results may therefore vary significantly from quarter to
quarter and will not necessarily be indicative of results in subsequent
periods.
Uncertainty of Future Operating Results. Although the Company had net income
for 1995 and 1996, the Company incurred a net loss for the year ended December
31, 1997. 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.
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.
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.
Risk of Patent Infringement. Because of the breadth of the Company's product
offerings and ambiguities in intellectual property law, the Company
periodically receives in the ordinary course of business notices of potential
infringement of patents held by others. Although the Company historically has
been able to satisfactorily resolve such claims and believes that any
outstanding claims will be satisfactorily resolved, there can be no assurance
that the Company may not be forced to discontinue the sale of one or more of
its products, some or all of which could be material. Additionally, the
Company believes that the molecular biology area, in which Novagen, its newly
acquired brand, competes, has a higher incidence of involvement in patent
disputes. 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.
Dependence on Key Personnel. The Company's future success depends in
significant part on the continued service of, and on the Company's continuing
ability to attract and retain, highly qualified technical, managerial and sales
personnel. Competition for such personnel is intense in the Company's industry
and geographic locations, and there can be no assurance that the Company will
be able to retain or attract such employees in the future. The loss of key
personnel or the inability to hire or retain qualified personnel could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company has entered into employment agreements with
Stelios B. Papadopoulos, its Chairman, Chief Executive Officer and President,
and Ben Matzilevich, its Vice President, Market Development -- Niche
Applications.
Risk Relating to the Influence of the Internet on Marketing and Catalogs. The
Internet has begun to change marketing patterns in a wide variety of
industries. The high degree of personal computer usage within scientific
research organizations may lead to entirely new methods of marketing and sales
of research products. While the Company has established home pages on the
Internet for the Calbiochem, Novabiochem, Oncogene Research Products and
Novagen 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.
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<PAGE> 22
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.
Product Liability Risk; Limited Insurance Coverage. Although the Company does
not sell products intended for use in humans, or, with the exception of its
Clinalfa products, sell products intended for use in human clinical trials, the
Company's business could expose it to potential liability risks. The Company
currently has only limited product liability insurance, and there can be no
assurance that it will be able to maintain such insurance or obtain additional
insurance on acceptable terms or that insurance will provide adequate coverage
against potential liabilities. A successful product liability claim or a series
of claims brought against the Company in excess of its insurance coverage
limits could have a material adverse effect on the Company's business,
financial condition and results of operations.
Holding Company Structure. The Company is a holding company, the principal
assets of which are certain cash balances and the capital stock of its
subsidiaries, and has no independent means of generating operating revenues. As
a holding company, the Company depends primarily 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.
Substantial Influence of Principal Stockholder. The Company's principal
stockholder, Warburg, Pincus Investors, L.P. ("Warburg") beneficially owned
approximately 40% of the Company's Common Stock, par value $.01 per share (the
"Common Stock"), as of February 10, 1998. Because of such ownership, Warburg
has substantial influence over the election of all members of the Board of
Directors and corporate 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.
Anti-Takeover Provisions. Under the Company's Amended and Restated Certificate
of Incorporation (the "Certificate of Incorporation"), the Company's Board of
Directors has the authority to issue up to 5,000,000 shares of Preferred Stock
and to determine the price, rights, preferences and privileges of those shares
without any further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. The Company has
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<PAGE> 23
no present plans to issue shares of Preferred Stock. The Company is also
subject to the provisions of Section 203 of the Delaware General Corporation
Law, an anti-takeover law. Additionally, the Company has entered into
severance arrangements with each of its executive officers which provide, among
other things, for severance payments if, within 90 days of a "change in
control" of the Company (as defined in the applicable agreements), the
executive's employment is terminated other than for cause or the executive
resigns. Such arrangements could have an anti-takeover effect.
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<PAGE> 24
ITEM 2. PROPERTIES
The Company leases approximately 60,000 square feet of space in San Diego,
California, for use as its corporate headquarters, North American distribution
center and technology center (including manufacturing facilities) for the
Calbiochem brand. This lease expires in June 2008 and may be renewed for two
five-year terms at the option of the Company.
The Company 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
has been renewed for a one year term through August 1999, and may be further
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 which expires
in 1999. Currently, the Company is negotiating for new space in the
metropolitan Cambridge area, with anticipated occupancy in late 1999.
The Company leases approximately 18,000 square feet of space in Madison,
Wisconsin for use as a technology center (including manufacturing facilities)
for the Novagen brand. The lease expires in December 2001 and may be renewed
for one five-year term at the option of the Company.
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 2,400 square
meters of space in Laufelfingen, Switzerland. The Novabiochem brand technology
center (including manufacturing facilities) occupies 1,800 square meters of
this space under a lease expiring in June 2004. The remaining approximately
600 square meters, of which 200 square meters have been unoccupied since the
restructuring of the Company's Swiss operations in 1993, is under lease until
June 2000. The Company also rents space for sales offices in Australia, Japan
and Germany on a short-term basis.
The Company believes that its properties are generally in good condition, are
well maintained, and are suitable and adequate to carry on its business.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently a party to any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<PAGE> 25
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information with respect to market information, holders and dividends is
incorporated by reference from the information under the captions "Stock
Listing" and "Price Range of Common Stock" on the inside back cover page of the
Registrant's 1997 Annual Report to Stockholders (the "1997 Annual Report"). As
of February 10, 1998 there were approximately 600 beneficial owners of the
Company's Common Stock.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Incorporated by reference from page 13 of the 1997 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated by reference from pages 14 through 20, inclusive, of the 1997
Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements and Notes thereto as of
December 31, 1997 and 1996 and for each of the three years in the period ended
December 31, 1997, appearing on pages 20 to 31, inclusive, of the 1997 Annual
Report together with the report thereon of Ernst & Young LLP, dated February
27, 1998, appearing on page 32 thereof are incorporated by reference in this
Annual Report on Form 10-K.
Selected quarterly financial data is incorporated by reference from the
information under the caption "Quarterly Results" on page 18 of the 1997 Annual
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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<PAGE> 26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the Company's directors and executive officers is
incorporated by reference from the information under the captions "Nominees for
Election as Directors," "Executive Officers" and "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Registrant's Proxy Statement for its
1998 Annual Meeting of Stockholders (the "1998 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to Executive Compensation is incorporated by
reference to the information under the caption "Executive Compensation,"
including "Summary Compensation Table," "Aggregated 1997 Option Exercises and
Fiscal Year-End Option Values," "Employment Agreements," "Compensation of
Directors" and "Compensation Committee Interlocks and Insider Participation"
but excluding "Compensation Committee Report on Executive Compensation" and
"Comparative Stock Price Performance Graph" in the 1998 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to Security Ownership of Certain Beneficial Owners
and Management is incorporated by reference to the information under the
caption "Security Ownership of Certain Beneficial Owners and Management" in the
1998 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to Certain Relationships and Related Transactions is
incorporated by reference to the information under the caption "Certain
Transactions" in the 1998 Proxy Statement.
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<PAGE> 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)
1. Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 and 1997
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1997
Consolidated Statements of Stockholders' Equity (Deficit) for
each of the three years in the period ended December 31, 1997
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1997
Notes to Consolidated Financial Statements
Report of Independent Auditors
2. Schedules:
Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because they are not
required.
3. Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
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<S> <C>
2(a)* Asset Purchase Agreement, dated as of June 26, 1995, by and among Oncogene
Science, Inc., Calbiochem-Novabiochem Corporation and Calbiochem-Novabiochem
International Inc.
2(b)++ Stock Purchase Agreement, dated as of November 25, 1997, by and among CN Biosciences, Inc., as
Buyer, David W. Dubbell, Dennis Almond, Corrine Fetherston, Lisa Johnson, Robert Mierendorf,
Warren Kroeker, Barbara Morris, Robert Novy and Tom Van Oosbree, as Sellers, and Pel-Freez, Inc.
3(a)** Amended and Restated Certificate of Incorporation of the Registrant.
3(b)** Amended and Restated By-Laws of the Registrant.
4* Specimen of Registrant's Common Stock certificate.
10(a)* Agreement, dated as of March 1996, by and between Calbiochem-Novabiochem
International, Inc. and Amersham International plc.
10(b)* Agreement, dated as of August 29, 1996, by and among CN Biosciences, Inc.,
Warburg, Pincus Investors, L.P., ABS MB (C-N) Limited Partnership, Stelios B.
Papadopoulos, John T. Snow and Ben Matzilevich.
10(c)(i)* Commercial Lease, dated as of February 1, 1992, between LMP Properties, Ltd.
and Calbiochem Corporation.
10(c)(ii)* First Amendment, dated as of April 1, 1992, to Commercial Lease, dated as of
February 1, 1992, between LMP Properties, Ltd. and Calbiochem Corporation.
10(c)(iii)* Second Amendment, dated as of September 14, 1992, to Commercial Lease, dated as
of February 1, 1992, between LMP Properties, Ltd. and Calbiochem Corporation.
10(c)(iv)* Third Amendment, dated as of March 30, 1993, to Commercial Lease, dated as of
February 1, 1992, between LMP Properties, Ltd. and Calbiochem Corporation.
10(d)* Sublease Agreement, dated as of August 2, 1995, by and between Oncogene
Science, Inc. and Calbiochem-Novabiochem Corporation.
10(e)* Sublease Agreement, dated as of July 1996, by and between
Calbiochem-Novabiochem Corporation and DataWorks Corporation.
10(f)(i)* Registration Rights Agreement, dated as of March 13, 1992, by and among
Calbiochem-Novabiochem International, Inc. and each of the signatories thereto.
10(f)(ii)* Amendment Agreement, dated as of January 4, 1993, among Warburg, Pincus
Investors, L.P., ABS MB (C-N) Limited Partnership, Richard Slansky, John T.
Snow, Georges Chappuis, Calbiochem-Novabiochem International, Inc. and Stelios
B. Papadopoulos.
10(g)(i)* Shared Services Agreement, dated as of August 2, 1995, by and between Oncogene
Science, Inc. and Calbiochem-Novabiochem Corporation.
10(g)(ii)* Trademark License Agreement, dated as of August 2, 1995, by and between
Oncogene Science, Inc. and Calbiochem-Novabiochem Corporation.
10(g)(iii)* Sublicense Agreement, dated as of August 2, 1995, by and between Oncogene
Science, Inc. and Calbiochem-Novabiochem Corporation.
10(g)(iv)* Shared Intellectual Property License Agreement, dated as of August 2, 1995, by
and between Oncogene Science, Inc. and Calbiochem-Novabiochem Corporation.
10(g)(v)b Letter Agreement, dated January 21, 1997, by and between Oncogene Science, Inc. and Calbiochem-
Novabiochem Corporation.
</TABLE>
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<TABLE>
<S> <C>
10(h)* Letter Agreement, dated June 9, 1995, by and between Calbiochem-Novabiochem
International, Inc. and Richard B. Slansky.
10(i)* Form of Director Indemnification Agreement.
10(j)* Form of Officer Indemnification Agreement.
10(k)b# CN Biosciences, Inc. Second Amended and Restated 1992 Stock Option Plan, including
Form of Incentive Stock Option Agreement and Form of Non-Qualified Stock Option
Agreement.
10(l)(i)*# Employment Agreement, dated as of January 1, 1996, between
Calbiochem-Novabiochem International, Inc. and Stelios B. Papadopoulos.
10(l)(ii)b# Amendment to Employment Agreement, dated as of February 27, 1997, by and between CN Biosciences,
Inc. and Stelios B. Papadopoulos.
10(l)(iii)# Employment Agreement, dated as of January 4, 1998, by and between CN Biosciences, Inc. and Stelios
B. Papadopoulos.
10(m)(i)*# Employment Agreement, dated as of February 23, 1996, between
Calbiochem-Novabiochem International, Inc. and Ben Matzilevich.
10(m)(ii)*# Secured Recourse Promissory Note, dated January 31, 1996, issued to Calbiochem-
Novabiochem International, Inc. by Ben Matzilevich.
10(m)(iii)*# Restricted Stock Purchase Agreement, dated as of January 31, 1996, between
Calbiochem-Novabiochem International, Inc. and Ben Matzilevich.
10(m)(iv)*# Loan and Pledge Agreement, dated as of January 31, 1996 by and between
Calbiochem-Novabiochem International, Inc. and Ben Matzilevich.
10(m)(v)b# Severance Agreement, dated as of February 27, 1997, by and between CN Biosciences, Inc. and James
G. Stewart.
10(m)(vi)b# Severance Agreement, dated as of February 27, 1997, by and between CN Biosciences, Inc. and
Douglas J. Greenwold.
10(m)(vii)b# Severance Agreement, dated as of Feburary 27, 1997, by and between CN Biosciences, Inc. and John
T. Snow.
10(m)(viii)b# Amendment to Employment Agreement, dated as of February 27, 1997, by and between CN Biosciences,
Inc. and Ben Matzilevich.
10(m)(ix)# Employment Agreeement, dated as of March 10, 1998, by and between CN Biosciences, Inc. and Ben
Matzilevich.
10(n)(i)* Loan and Security Agreement, dated July 28, 1995 (including schedule), by and
between Calbiochem-Novabiochem Corporation and Silicon Valley Bank.
10(n)(ii)* Pledge Agreement, dated July 28, 1995, by and between Calbiochem-Novabiochem
Corporation and Silicon Valley Bank.
10(n)(iii)* Collateral Assignment, Patent Mortgage and Security Agreement, dated July 28,
1995, by and between Calbiochem-Novabiochem Corporation and Silicon Valley
Bank.
10(n)(iv)* Security Agreement, dated July 28, 1995, by and between Calbiochem-Novabiochem
International, Inc. and Silicon Valley Bank.
10(n)(v)* Pledge Agreement, dated July 28, 1995, by and between Calbiochem-Novabiochem
International, Inc. and Silicon Valley Bank.
10(n)(vi)* Cross-Corporate Continuing Guaranty, dated July 28, 1995, by and between
Calbiochem-Novabiochem International, Inc. and Silicon Valley Bank.
10(n)(vii)* Pledge Agreement, dated July 27, 1995, by and between Calbiochem-Novabiochem AG
and Silicon Valley Bank.
10(n)(viii)* Cross-Corporate Continuing Guaranty, dated July 28, 1995, by and between
Calbiochem-Novabiochem AG and Silicon Valley Bank.
10(n)(ix)* Subordination Agreement, dated July 28, 1995, by and among
Calbiochem-Novabiochem Corporation, Calbiochem-Novabiochem International, Inc. and Silicon Valley
Bank.
10(n)(x)* Antidilution Agreement, dated July 28, 1995, by and between
Calbiochem-Novabiochem International, Inc. and Silicon Valley Bank.
10(n)(xi)* Warrant to Purchase Stock, dated July 28, 1995, by and between
Calbiochem-Novabiochem International, Inc. and Silicon Valley Bank.
10(n)(xii)* Amendment to Loan Agreement, dated November 22, 1995, by and between Silicon
Valley Bank and Calbiochem-Novabiochem Corporation.
10(n)(xiii)* Amendment to Loan Agreement, dated January 24, 1996, by and between Silicon
Valley Bank and Calbiochem-Novabiochem Corporation.
10(n)(xiv)* Amendment to Loan Agreement, dated June 27, 1996, by and between Silicon Valley
Bank and Calbiochem-Novabiochem Corporation.
10(n)(xv)* Schedule to Loan and Security Agreement, dated June 27, 1996, by and between
Silicon Valley Bank and Calbiochem-Novabiochem Corporation.
10(n)(xvi)** Letter Agreement, dated September 30, 1996, by and between
Calbiochem-Novabiochem Corporation, CN Biosciences, Inc.,
Calbiochem-Novabiochem AG and Silicon Valley Bank.
10(n)(xvii)** Amendment to Loan Agreement, dated September 30, 1996, between Calbiochem-
Novabiochem Corporation and Silicon Valley Bank.
10(n)(xviii)** Amendment to Loan Agreement, dated October 2, 1996, between
Calbiochem-Novabiochem Corporation and Silicon Valley Bank.
10(n)(xix)a Amendment to Loan Agreement, dated April 4, 1997, by and between Silicon Valley Bank and
Calbiochem-Novabiochem Corporation.
10(n)(xx)aa Amendment to Loan Agreement, dated June 27, 1997, by and between Silicon Valley Bank and
Calbiochem-Novabiochem Corporation.
</TABLE>
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<TABLE>
<S> <C>
10(n)(xxi)aa Schedule to Loan and Security Agreement, dated June 27, 1997, by and between Silicon Valley Bank
and Calbiochem-Novabiochem Corporation.
10(n)(xxii) Amendment to Loan Agreement dated December 22, 1997, by and between Silicon Valley Bank and
Calbiochem-Novabiochem Corporation.
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.
10(v)(i) Lease agreement dated December 5, 1996 by and between University Science
Center Partnership and Novagen, Inc.
10(v)(ii) Amendment to Lease dated December 5, 1996 by and between University Science
Center Partnership and Novagen, Inc.
10(v)(iii) Amendment to Lease dated December 29, 1997 by and between University
Research Park Facilities Corp., and Novagen, Inc.
11 Computation of Earnings per Share.
13 Portions of 1997 Annual Report to Stockholders
21 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
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</TABLE>
* Incorporated by reference from the Registrant's
Registration Statement on Form S-1 (Registration No.
333-8335).
** Incorporated by reference from the Registrant's Form 10-Q
for the quarterly period ended September 30, 1996 (File No.
000-21281).
++ Incorporated by reference to Amendment No. 1 to
Registrant's Current Report on Form 8-K/A, filed by the
Registrant on February 3, 1998 (File No. 000-21281).
a Incorporated by reference from the Registrant's Form 10-Q
for the quarterly period ended March 31, 1997 (File No.
000-21281).
aa Incorporated by reference from the Registrant's Form 10-Q
for the quarterly period ended June 30, 1997 (File No.
000-21281).
b Incorporated by reference to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996
(File No. 000-21281).
# Indicates management contract or compensatory plan or
arrangement required to be filed pursuant to item 14(c) of
this report.
(b) Reports on Form 8-K.
None.
29
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CN BIOSCIENCES, INC.
By: /s/ JAMES G. STEWART
-----------------------------------
James G. Stewart
Chief Financial Officer
Date: March 12, 1998
Pursuant to the requirement of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ STELIOS B. PAPADOPOULOS Chairman of the Board of Directors, March 12, 1998
------------------------------------ Chief Executive Officer and
Stelios B. Papadopoulos President (Principal executive
officer)
/s/ JAMES G. STEWART Vice President, Chief Financial March 12, 1998
------------------------------------ Officer and Secretary (Principal
James G. Stewart financial and accounting officer)
/s/ RICHARD A. LERNER Director March 12, 1998
------------------------------------
Richard A. Lerner
/s/ JOSEPH P. LANDY Director March 12, 1998
------------------------------------
Joseph P. Landy
/s/ S. JOSHUA LEWIS Director March 12, 1998
------------------------------------
S. Joshua Lewis
/s/ ROBERT E. MCGILL, III Director March 12, 1998
------------------------------------
Robert E. McGill, III
</TABLE>
30
<PAGE> 31
CN BIOSCIENCES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
(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, 1995 ......... $ 589 $ (129) $ 51 $ 39 $ 472
Year ended December 31, 1996 ......... 472 10 (41) 100 341
Year ended December 31, 1997 ......... 341 125 (15) 78 373
Deducted from inventories:
Reserve for excess and obsolete inventory
Year ended December 31, 1995 ......... 3,823 317 332 555 3,917
Year ended December 31, 1996 ......... 3,917 330 (195) 352 3,700
Year ended December 31, 1997 ......... 3,700 390 (211) 73 3,806
</TABLE>
____________
(1) Represents amounts charged to foreign currency translation adjustment.
31
<PAGE> 32
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
----------- ----------- ----
<S> <C> <C>
2(a)* Asset Purchase Agreement, dated as of June 26, 1995, by and among Oncogene
Science, Inc., Calbiochem-Novabiochem Corporation and Calbiochem-Novabiochem
International Inc.
2(b)++ Stock Purchase Agreement, dated as of November 25, 1997, by and among CN
Biosciences, Inc., as Buyer, David W. Dubbell, Dennis Almond, Corrine
Fetherston, Lisa Johnson, Robert Mierendorf, Warren Kroeker, Barbara Morris,
Robert Novy and Tom Van Oosbree, as Sellers, and Pel-Freez, Inc.
3(a)** Amended and Restated Certificate of Incorporation of the Registrant.
3(b)** Amended and Restated By-Laws of the Registrant.
4* Specimen of Registrant's Common Stock certificate.
10(a)* Agreement, dated as of March 1996, by and between Calbiochem-Novabiochem
International, Inc. and Amersham International plc.
10(b)* Agreement, dated as of August 29, 1996, by and among CN Biosciences, Inc.,
Warburg, Pincus Investors, L.P., ABS MB (C-N) Limited Partnership, Stelios B.
Papadopoulos, John T. Snow and Ben Matzilevich.
10(c)(i)* Commercial Lease, dated as of February 1, 1992, between LMP Properties, Ltd.
and Calbiochem Corporation.
10(c)(ii)* First Amendment, dated as of April 1, 1992, to Commercial Lease, dated as of
February 1, 1992, between LMP Properties, Ltd. and Calbiochem Corporation.
10(c)(iii)* Second Amendment, dated as of September 14, 1992, to Commercial Lease, dated as
of February 1, 1992, between LMP Properties, Ltd. and Calbiochem Corporation.
10(c)(iv)* Third Amendment, dated as of March 30, 1993, to Commercial Lease, dated as of
February 1, 1992, between LMP Properties, Ltd. and Calbiochem Corporation.
10(d)* Sublease Agreement, dated as of August 2, 1995, by and between Oncogene
Science, Inc. and Calbiochem-Novabiochem Corporation.
10(e)* Sublease Agreement, dated as of July 1996, by and between
Calbiochem-Novabiochem Corporation and DataWorks Corporation.
10(f)(i)* Registration Rights Agreement, dated as of March 13, 1992, by and among
Calbiochem-Novabiochem International, Inc. and each of the signatories thereto.
10(f)(ii)* Amendment Agreement, dated as of January 4, 1993, among Warburg, Pincus
Investors, L.P., ABS MB (C-N) Limited Partnership, Richard Slansky, John T.
Snow, Georges Chappuis, Calbiochem-Novabiochem International, Inc. and Stelios
B. Papadopoulos.
10(g)(i)* Shared Services Agreement, dated as of August 2, 1995, by and between Oncogene
Science, Inc. and Calbiochem-Novabiochem Corporation.
10(g)(ii)* Trademark License Agreement, dated as of August 2, 1995, by and between
Oncogene Science, Inc. and Calbiochem-Novabiochem Corporation.
10(g)(iii)* Sublicense Agreement, dated as of August 2, 1995, by and between Oncogene
Science, Inc. and Calbiochem-Novabiochem Corporation.
10(g)(iv)* Shared Intellectual Property License Agreement, dated as of August 2, 1995, by
and between Oncogene Science, Inc. and Calbiochem-Novabiochem Corporation.
10(g)(v)b Letter Agreement, dated January 21, 1997, by and between Oncogene Science, Inc.
and Calbiochem-Novabiochem Corporation.
10(h)* Letter Agreement, dated June 9, 1995, by and between Calbiochem-Novabiochem
International, Inc. and Richard B. Slansky.
10(I)* Form of Director Indemnification Agreement.
10(j)* Form of Officer Indemnification Agreement.
10(k)b# CN Biosciences, Inc. Second Amended and Restated 1992 Stock Option Plan,
including
Form of Incentive Stock Option Agreement and Form of Non-Qualified Stock Option
Agreement.
10(l)(i)*# Employment Agreement, dated as of January 1, 1996, between
Calbiochem-Novabiochem International, Inc. and Stelios B. Papadopoulos.
10(l)(ii)b# Amendment to Employment Agreement, dated as of February 27, 1997, by and between
CN Biosciences, Inc. and Stelios B. Papadopoulos.
10(l)(iii)# Employment Agreement, dated as of January 4, 1998, by and between CN Biosciences,
Inc. and Stelios B. Papadopoulos.
10(m)(i)*# Employment Agreement, dated as of February 23, 1996, between
Calbiochem-Novabiochem International, Inc. and Ben Matzilevich.
10(m)(ii)*# Secured Recourse Promissory Note, dated January 31, 1996, issued to Calbiochem-
Novabiochem International, Inc. by Ben Matzilevich.
10(m)(iii)*# Restricted Stock Purchase Agreement, dated as of January 31, 1996, between
Calbiochem-Novabiochem International, Inc. and Ben Matzilevich.
10(m)(iv)*# Loan and Pledge Agreement, dated as of January 31, 1996 by and between
Calbiochem-Novabiochem International, Inc. and Ben Matzilevich.
10(m)(v)b# Severance Agreement, dated as of February 27, 1997, by and between CN
Biosciences, Inc. and James G. Stewart.
10(m)(vi)b# Severance Agreement, dated as of February 27, 1997, by and between CN
Biosciences, Inc. and Douglas J. Greenwold.
10(m)(vii)b# Severance Agreement, dated as of Feburary 27, 1997, by and between CN
Biosciences, Inc. and John T. Snow.
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C>
10(m)(viii)b# Amendment to Employment Agreement, dated as ofFebruary 27, 1997, by and between CN
Biosciences, Inc. and Ben Matzilevich.
10(m)(ix)# Employment Agreement dated as of March 10, 1998, by and between CN Biosciences, Inc. and
Ben Matzilevich
10(n)(i)* Loan and Security Agreement, dated July 28, 1995 (including schedule), by and
between Calbiochem-Novabiochem Corporation and Silicon Valley Bank.
10(n)(ii)* Pledge Agreement, dated July 28, 1995, by and between Calbiochem-Novabiochem
Corporation and Silicon Valley Bank.
10(n)(iii)* Collateral Assignment, Patent Mortgage and Security Agreement, dated July 28,
1995, by and between Calbiochem-Novabiochem Corporation and Silicon Valley
Bank.
10(n)(iv)* Security Agreement, dated July 28, 1995, by and between Calbiochem-Novabiochem
International, Inc. and Silicon Valley Bank.
10(n)(v)* Pledge Agreement, dated July 28, 1995, by and between Calbiochem-Novabiochem
International, Inc. and Silicon Valley Bank.
10(n)(vi)* Cross-Corporate Continuing Guaranty, dated July 28, 1995, by and between
Calbiochem-Novabiochem International, Inc. and Silicon Valley Bank.
10(n)(vii)* Pledge Agreement, dated July 27, 1995, by and between Calbiochem-Novabiochem AG
and Silicon Valley Bank.
10(n)(viii)* Cross-Corporate Continuing Guaranty, dated July 28, 1995, by and between
Calbiochem-Novabiochem AG and Silicon Valley Bank.
10(n)(ix)* Subordination Agreement, dated July 28, 1995, by and among
Calbiochem-Novabiochem Corporation, Calbiochem-Novabiochem International, Inc. and Silicon
Valley Bank.
10(n)(x)* Antidilution Agreement, dated July 28, 1995, by and between
Calbiochem-Novabiochem International, Inc. and Silicon Valley Bank.
10(n)(xi)* Warrant to Purchase Stock, dated July 28, 1995, by and between
Calbiochem-Novabiochem International, Inc. and Silicon Valley Bank.
10(n)(xii)* Amendment to Loan Agreement, dated November 22, 1995, by and between Silicon
Valley Bank and Calbiochem-Novabiochem Corporation.
10(n)(xiii)* Amendment to Loan Agreement, dated January 24, 1996, by and between Silicon
Valley Bank and Calbiochem-Novabiochem Corporation.
10(n)(xiv)* Amendment to Loan Agreement, dated June 27, 1996, by and between Silicon Valley
Bank and Calbiochem-Novabiochem Corporation.
10(n)(xv)* Schedule to Loan and Security Agreement, dated June 27, 1996, by and between
Silicon Valley Bank and Calbiochem-Novabiochem Corporation.
10(n)(xvi)** Letter Agreement, dated September 30, 1996, by and between
Calbiochem-Novabiochem Corporation, CN Biosciences, Inc.,
Calbiochem-Novabiochem AG and Silicon Valley Bank.
10(n)(xvii)** Amendment to Loan Agreement, dated September 30, 1996, between Calbiochem-
Novabiochem Corporation and Silicon Valley Bank.
10(n)(xviii)** Amendment to Loan Agreement, dated October 2, 1996, between
Calbiochem-Novabiochem Corporation and Silicon Valley Bank.
10(n)(xix)a Amendment to Loan Agreement,dated April 4, 1997, by andbetween Silicon Valley Bank and
Calbiochem-Novabiochem
Corporation.
10(n)(xx)aa Amendment to Loan Agreement, datedJune 27, 1997, by andbetween Silicon Valley Bankand
Calbiochem-Novabiochem Corporation.
10(n)(xxi)aa Schedule toLoan and Security Agreement,dated June 27, 1997,by and between Silicon ValleyBank
and Calbiochem-Novabiochem Corporation.
10(n)(xxii) Amendmentto LoanAgreement datedDecember 22, 1997,by and betweenSilicon ValleyBank and
Calbiochem-Novabiochem Corporation.
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.
10(v)(i) Lease agreement dated December 5, 1996 by and between University Science
Center Partnership and Novagen, Inc.
10(v)(ii) Amendment to Lease dated December 5, 1996 by and between University Science
Center Partnership and Novagen, Inc.
10(v)(iii) Amendment to Lease dated December 29, 1997 by and between University
Research Park Facilities Corp., and Novagen, Inc.
11 Computation of Earnings per Share.
13 Portions of 1997 Annual Report to Stockholders
21 Subsidiaries of the Registrant.
</TABLE>
33
<PAGE> 34
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
_________________
* Incorporated by reference from the Registrant's
Registration Statement on Form S-1 (Registration No.
333-8335).
** Incorporated by reference from the Registrant's Form 10-Q
for the quarterly period ended September 30, 1996 (File
No. 000-21281).
++ Incorporated by reference to Amendment No. 1 to
Registrant's Current Report on Form 8-K/A, filed by the
Registrant on February 3, 1998 (File No. 000-21281).
a Incorporated by reference from the Registrant's Form 10-Q
for the quarterly period ended March 31, 1997 (File No.
000- 21281).
aa Incorporated by reference from the Registrant's Form 10-Q
for the quarterly period ended June 30, 1997 (File No.
000- 21281).
b Incorporated by reference to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996
(File No. 000-21281).
# Indicates management contract or compensatory plan or
arrangement required to be filed pursuant to item 14(c)
of this report.
34
<PAGE> 1
EXHIBIT 10(l)(iii)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of the 4th of January 1998, between CN
Biosciences, Inc., a Delaware corporation (the "Company") and Stelios B.
Papadopoulos (the "Employee").
1. Effective Date. This Employment Agreement shall become
effective on the 4th day of January 1998 (the "Effective Date").
2. Employment. The Company hereby employs the Employee and the
Employee hereby accepts employment all upon the terms and conditions herein set
forth.
3. Duties. The Employee is engaged as the Chairman of the Board
and Chief Executive Officer of the Company and promises to perform and
discharge well and faithfully the duties, which may be assigned to him from
time to time by the Company in connection with the conduct of its business. If
the Employee is elected as a director or officer of any subsidiary of the
Company, the Employee shall serve in such capacity or capacities without
further compensation.
4. Extent of Services. The Employee shall devote his entire
time, attention and energies to the business of the Company and shall not
during the term of this Agreement be engaged in any other business activity
whether or not such business activity is pursued for gain, profit or other
pecuniary advantage; but this shall not be construed as preventing the Employee
from investing his personal assets in businesses which do not compete with the
Company in such form or manner as will not require any services on the part of
the Employee in the operation of the affairs of the companies in which such
investments are made and in which his participation is solely that of an
investor, nor shall this be construed as preventing the Employee from
purchasing securities in any corporation whose securities are regularly traded
provided that such purchases shall not result in his collectively owning
beneficially at any time one percent (1%) or more of the equity securities of
any corporation engaged in a business competitive to that of the Company,
without the express prior written consent of the Company.
5. Compensation.
(a) For services rendered under this Employment
Agreement, the Company shall pay the Employee a salary at the rate determined
annually by
Initials:_________ _________
<PAGE> 2
the Compensation Committee of the Board of Directors (the "Base Salary"),
payable (after deduction of applicable payroll taxes as an employee in the
State of California) in equal bi-weekly installments. The Employee shall also
be eligible for and participate in such fringe benefits as shall be generally
provided to executives of the Company, including medical insurance and
retirement programs which may be adopted from time to time during the term
hereof by the Company.
(b) The Compensation Committee shall review the
Employee's compensation at least once a year and award such bonuses and effect
such increases in the Base Salary as the Board of Directors, in its sole
discretion, determines are merited, based upon the Employee's performance and
consistent with the Company's compensation policies.
(c) In addition to his participation in any group life
insurance programs that the Company may provide to its employees, the Company
shall, at its sole expense, provide for the Employee term life insurance in the
amount of $150,000.
6. Paid Time Off. During the term of this Employment Agreement,
the Employee shall be entitled to twenty-nine (29) paid days off pursuant to
the Company's customary paid time off policy ("CalTime").
7. Expenses. During the term of this Employment Agreement, the
Company shall reimburse the Employee for all reasonable out-of- pocket expenses
incurred by the Employee in connection with the business of the Company and in
performance of his duties under this Employment Agreement upon the Employee's
presentation to the Company of an itemized accounting of such expenses with
reasonable supporting data. The Employee shall be entitled to utilize business
(or club) class service for all international flights, and first-class service
for all transcontinental flights within the United States, in each case, in
connection with business-related travel.
8. Term.
(a) The Employee's employment under this Employment
Agreement shall commence on the Effective Date and shall expire on the second
year anniversary date thereof. Notwithstanding the foregoing, the Company may
at its election, subject to paragraph 8(b) below, terminate the Employee's
employment hereunder as follows:
2
Initials:_________ _________
<PAGE> 3
(i) Upon thirty (30) days' notice if the Employee
becomes physically or mentally incapacitated or is injured so
that he is unable to perform the services required of him
hereunder and such inability to perform continues for a period in
excess of six months and is continuing at the time of such
notice; or
(ii) For "Cause" upon notice of such termination to the
Employee. For purposes of this Employment Agreement, the Company
shall have "Cause" to terminate its obligations hereunder upon
(A) the reasonable determination by the Board of Directors of the
Company (the "Board") that the Employee has ceased to perform his
duties hereunder (other than as a result of his incapacity due to
physical or mental illness or injury), which failure amounts to
an intentional and extended neglect of his duties hereunder, (B)
the Board's determination that the Employee has engaged or is
about to engage in conduct materially injurious to the Company,
(C) the Employee's having been convicted of a felony, or (D) the
Employee's participation in activities prescribed by the
provisions of paragraphs 11 or 13 hereof or a material breach by
the Employee of any of the other covenants or representations
herein; or
(iii) Without Cause upon 30 day's notice of such
termination to the Employee; or
(iv) Upon the death of the Employee.
In addition, the Employee shall have the right to terminate this Employment
Agreement upon notice to the Company if he shall have been assigned to duties
which are materially inconsistent with those specified in paragraph 3 hereof (a
"Material Demotion").
(b) In the event that the Employee resigns during the 90-day
period following the effective date of a "Change of Control" (as defined below)
of the Company, the Employee shall receive salary continuation pay for 12
months from the date of such termination equal to the Employee's base salary in
effect at the time of the Change of Control. For purposes of this Employment
Agreement, "Change of Control" shall mean (a) an acquisition (other than
directly from the Company) by an individual, entity or a group (excluding the
Company, an employee benefit plan of the Company or E.M. Warburg, Pincus & Co.,
LLC
3
Initials:_________ _________
<PAGE> 4
or its affiliates) of 50% or more of the Company's Common Stock, par value $.01
per share, or voting securities; (b) a change in a majority of the Company's
current Board of Directors (the "Incumbent Board") (excluding any persons
approved by a vote of at least a majority of the Incumbent Board or persons
elected with the concurrence of a majority of the Incumbent Board); or (c) the
consummation of a complete liquidation or dissolution of the Company or a
merger, consolidation or sale of all or substantially all of the Company's
assets (collectively, a "Business Combination") other than a Business
Combination in which all or substantially all of the Company's stockholders
receive 50% or more of the stock of the Company resulting from the Business
Combination, at least a majority of the board of directors of the resulting
corporation were members of the Incumbent Board, and after which no Person owns
50% or more of the stock of the resulting corporation, who did not own such
stock immediately before the Business Combination.
(c) (i) if this Employment Agreement is terminated pursuant to
paragraph 8(a)(i) above, the Employee shall receive disability
pay from the date of such termination until the second
anniversary of the Effective Date at the rate of 50% of the Base
Salary, reduced by applicable payroll taxes and further reduced
by the amount received by the Employee during such period under
any Company-maintained disability insurance policy or plan or
under Social Security or similar laws. Such disability payments
shall be paid periodically to the Employee as provided in
paragraph 5(a) for the payment of salary.
(ii) If the Employment Agreement is terminated pursuant to
paragraph 8(a) (ii) or 8(a)(iv) above, the Employee shall
receive no salary continuation pay or severance pay.
(iii) If this Employment Agreement is terminated pursuant
to paragraph 8(a)(iii) above or as a result of the Employee
having terminated this Employment Agreement following a Material
Demotion, or if the Company does not offer to continue the
Employee's employment with the Company at the expiration of the
stated term of this Employment Agreement at a Base Salary at
least equal to his then most recent Base Salary, the Employee
shall receive salary continuation pay for Twelve (12) months from
the date of such termination (the "Salary Continuation Period")
equal to the Base Salary. Such salary continuation payments (less
applicable payroll taxes) shall be paid periodically to the
Employee as provided in paragraph 5(a) for the payment of the
Base Salary.
4
Initials:_________ _________
<PAGE> 5
(d) During the Salary Continuation Period, the Employee
shall be under no obligation to mitigate the costs to the Company of the salary
continuation payments, and, provided that the Employee is not in breach of his
obligations under paragraph 13 hereof, no compensation that the Employee may
receive from another employer during the Salary Continuation Period shall be
offset against amounts owed to Employee hereunder.
(e) Not later than ninety (90) days prior to the
expiration of the stated term of this Employment Agreement, the parties shall
begin to negotiate in good faith the terms of any extension of this Employment
Agreement, provided that neither party shall be under any obligation to enter
into such an extension.
9. Stock Options. If this Employment Agreement is terminated
pursuant to either paragraph 8(a) (iii) or paragraph 8(b) above, any stock
options relating to Company Common Stock , par value $.01 per share, then held
by the Employee shall become exercisable to the full extent that they would
otherwise have become exercisable on January 4, 2000, without regard to any
restrictions or deferrals of the right to exercise such options upon such
termination, and the Employee shall have the right to exercise such options
during the thirty (30) day period following such termination.
10. Representations. The Employee hereby represents to the
Company that (a) he is legally entitled to enter into this Employment Agreement
and to perform the services contemplated herein and is not bound under any
employment or consulting agreement to render services to any third party, (b)
he has the full right, power and authority, subject to no rights of third
parties, to grant to the Company the rights contemplated by paragraph 12
hereof, and (c) he does not now have, nor within the last three years has he
had, any ownership interest in any business enterprise (other than interests in
publicly traded corporations where his ownership does not exceed one percent
(1%) or more of the equity capital) which is a customer of the Company, any of
its subsidiaries, or from which the Company or any of its subsidiaries
purchases any goods or services or to whom such corporations owe any financial
obligations or are required or directed to make any payments.
11. Disclosure of Information. The Employee recognizes and
acknowledges that the trade secrets, know-how and proprietary processes of the
Company and its subsidiaries ("the CNBI Group") as they may exist from time to
time are valuable, special and unique assets of the business of the CNBI Group,
access to and knowledge of which are essential to the performance of the
Employee's duties hereunder. The Employee will not, during or after the term
of
5
Initials:_________ _________
<PAGE> 6
his employment by the Company, in whole or in part, disclose such secrets,
know-how or processes to any perform, firm, corporation, association or other
entity for any reason or purpose whatsoever, nor shall the Employee make use of
any such property for his own purposes or for the benefit of any person, firm,
corporation or other entity (except the Company or a member of the CNBI Group)
under any circumstances during or after the term of his employment, provided
that after the term of his employment these restrictions shall not apply to
such secrets, know-how and processes which are then in the public domain
(provided that the Employee was not responsible, directly or indirectly, for
such secrets, know-how or processes entering the public domain without the
Company's consent).
12. Inventions.
(a) The Employee hereby sells, transfers and assigns to
the Company or to any person, or entity designated by the Company all of the
entire right, title and interest of the Employee in and to all inventions,
ideas, disclosures and improvements, whether patented or unpatented, and
copyrightable material, made or conceived by the Employee, solely or jointly,
during the term hereof which relate to methods, apparatus, designs, products,
processes or devices, sold, leased, used or under consideration or development
by the Company or any of its subsidiaries, or which otherwise relate to or
pertain to the business, functions or operations of the Company or any of its
subsidiaries or which arise from the efforts of the Employee during the course
of his employment for the Company or any of its subsidiaries. The Employee
shall communicate promptly and disclose to the Company, in such form as the
Company requests, all information, details and data pertaining to the
aforementioned inventions, ideas, disclosures and improvements; and the
Employee shall execute and deliver to the Company such formal transfers and
assignments and such other papers and documents as may be necessary or required
of the Employee to permit the Company or any person or entity designated by the
Company to file and prosecute the patent applications and, as to copyrightable
material, to obtain copyright thereof. Any invention relating to the business
of the CNBI Group and disclosed by the Employee within one year following the
termination of this Employment Agreement shall be deemed to fall within the
provisions of this paragraph unless proved to have been first conceived and
made following such termination.
(b) The Employee has been notified and understands that
the provisions of this paragraph 12 do not apply to any of the aforementioned
inventions, ideas, disclosures and improvements that qualify fully under the
provisions of Section 2870 of the California Labor Code, which states as
follows:
6
Initials:_________ _________
<PAGE> 7
(i) Any provision in an employment agreement
which provides that an employee shall assign, or offer to
assign, any of his or her rights in an invention to his or her
employer shall not apply to an invention that the employee
developed entirely on his or her own time without using the
employer's equipment, supplies, facilities, or trade secret
information except for those inventions that either:
(1) Relate at the time of conception or
reduction to practice of the invention to the
employer's business, or actual or demonstrably
anticipated research or development of the employer.
(2) Result from any work performed by the
employee for the employer.
(ii) To the extent a provision in an employment
agreement purports to require an employee to assign an
invention otherwise excluded from being required to be
assigned under subsection (i), the provision is against the
public policy of this state and is unenforceable.
13. Covenants Not to Compete or Interfere. For a period ending
twelve (12) months from and after the date of termination of the Employee's
employment hereunder, except for a termination of employment pursuant to
paragraph 8(a) (i) or 8(a) (iii) or a voluntary termination by the Employee
following a Material Demotion or following any change in control of the Company
or the sale or transfer of the Company to, or the merger of the Company with or
into, a party not controlled by, or under common control of, Warburg, Pincus
Investors, L.P., the Employee shall not engage in any business (whether as an
officer, director, owner, employee, partner or other direct or indirect
participant) which is engaged in the manufacturing, distribution or research and
development of any products being sold by, or under development by, the Company
or its subsidiaries as of the date of such termination of employment, in any
geographic area where the Company or such subsidiaries are then so manufacturing
or distributing such products, nor shall the Employee interfere with, disrupt or
attempt to disrupt the relationship, contractual or otherwise, between the
Company and any customer, supplier, lessor, lessee or employee of the Company.
It is the desire and intent of the parties that the provisions
of this paragraph 13 shall be enforced to the fullest extent permissible under
the laws and public policies applied in each jurisdiction in which enforcement
is sought.
7
Initials:_________ _________
<PAGE> 8
Accordingly, if any particular portion of this paragraph 13 shall be
adjudicated to be invalid or unenforceable, this paragraph 13 shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation of
this paragraph in the particular jurisdiction in which such adjudication is
made.
14. Injunctive Relief. If there is a breach or threatened
breach of the provisions of paragraph 11, 12 or 13 of this Employment
Agreement, the Company shall be entitled to an injunction restraining the
Employee from such breach. Nothing herein shall be construed as prohibiting
the Company from pursuing any other remedies for such breach or threatened
breach.
15. Insurance. The Company may, at its election and for its
benefit, insure the Employee against accidental loss or death, and the Employee
shall submit to such physical examination and supply such information as may be
required in connection therewith.
16. Notices. Any notice required or permitted to be given under
this Employment Agreement shall be sufficient if in writing and if sent by
registered mail to Stelios B. Papadopoulos at his home address as reflected on
the records of the Company, in the case of the Employee, or, in the case of the
Company, to CN Biosciences, Inc., 10394 Pacific Center Court, San Diego, CA
92121, Attention: Chief Financial Officer, or to such other officer or address
as the Company shall notify Employee.
17. Waiver of Breach. A waiver by the Company or the Employee of
a breach of any provision of this Employment Agreement by the other party shall
not operate or be construed as a waiver of any subsequent breach by the other
party.
18. Governing Law. This Employment 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 law
provisions thereof.
19. Assignment. This Employment Agreement may be assigned,
without the consent of the Employee, by the Company to any person, partnership,
corporation, or other entity which has purchased substantially all the assets
of the Company, provided such assignee assumes all the liabilities of the
Company hereunder.
8
Initials:_________ _________
<PAGE> 9
20. Entire Agreement. This Employment Agreement contains the
entire agreement of the parties and supersedes any and all agreements, letter
of intent or understandings between the Employee and (a) the Company, (b) any
member of the CNBI Group or (c) any of the Company's principal shareholders,
affiliates or subsidiaries. This Employment Agreement may be changed only by
an agreement in writing signed by a party against whom enforcement of any
waiver, change, modification, extension or discharge is sought.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the day first herein above written.
CN BIOSCIENCES, INC.
By: /S/ JAMES G. STEWART
------------------------------------
James G. Stewart
Chief Financial Officer
EMPLOYEE
By: /S/ STELIOS B. PAPADOPOULOS
------------------------------------
Stelios B. Papadopoulos
9
Initials:_________ _________
<PAGE> 1
EXHIBIT 10(m)(ix)
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of the 10th day of March 1998, between
CN Biosciences, Inc., a Delaware corporation (the "Company") and Ben
Matzilevich (the "Employee").
1. Effective Date. This Employment Agreement shall become
effective on the 3rd day of April, 1998 (the "Effective Date").
2. Employment. The Company hereby employs the Employee and the
Employee hereby accepts employment all upon the terms and conditions herein set
forth.
3. Duties. The Employee is engaged as Vice President, Market
Development/Niche Applications and will report to the Chairman and Chief
Executive Officer of the Company and hereby promises to perform and discharge
well and faithfully all duties of this position. The important elements of
this position entail the identification of product opportunities associated
with high growth life science niche applications, the sourcing, licensing
and/or internal development of such products and the assembling of these
products into a niche catalogue that is then distributed and represented in the
market place. The responsibilities of this position include being the
architect as well as the executor with the end result being to develop the
Company into a premier, innovative life science entity within the industry.
4. Extent of Services. The Employee shall devote his entire
time, attention and energies to the business of the Company and shall not
during the term of this Employment Agreement be engaged in any other business
activity whether or not such business activity is pursued for gain, profit or
other pecuniary advantage; but this shall not be construed as preventing the
Employee from investing his personal assets in businesses which do not compete
with the Company in such form or manner as will not require any services on the
part of the Employee in the operation of the affairs of the companies in which
such investments are made and in which his participation is solely that of an
investor, nor shall this be construed as preventing the Employee from
purchasing securities in any corporation whose securities are regularly traded
provided that such purchases shall not result in his collectively owning
beneficially at any time one percent (1%) or more of the equity securities of
any corporation engaged in a business competitive to that of the Company,
without the express prior written consent of the Company.
Initials:_________ _________
<PAGE> 2
5. Compensation.
(a) For services rendered under this Employment Agreement,
the Company shall pay the Employee a salary determined annually by the
Compensation Committee of the Board of Directors (the "Base Salary"), payable
(after deduction of applicable payroll taxes as an employee in the State of
Massachusetts) in equal bi-weekly installments. The Employee shall also be
eligible for and participate in such fringe benefits as shall be generally
provided to executives of the Company, including medical insurance and
retirement programs which may be adopted from time to time during the term
hereof by the Company. On an annual basis, the Compensation Committee shall
review Employee's salary and make such adjustment as may be warranted based upon
Employee performance, Company financial performance, economic conditions, etc.
(b) At the conclusion of each Fiscal Year, the Employee
shall be eligible for, and the Compensation Committee in its sole discretion,
may award an executive bonus up to a maximum of 35% of Base Salary, based on
the achievement of mutually acceptable objectives.
(c) The Company shall provide the Employee with the full
use of the Company van while the Employee is in San Diego. In the event that
the Company requires the use of the Company van, the Company shall provide
Employee with a medium size rental vehicle.
6. Paid Time Off. During the term of this Employment Agreement,
the Employee shall be entitled to twenty-nine (29) paid days off pursuant to
the Company's customary paid time off policy ("CalTime").
7. Expenses. During the term of this Employment Agreement, the
Company shall reimburse the Employee for all reasonable out-of- pocket expenses
incurred by the Employee in connection with the business of the Company and in
performance of his duties under this Employment Agreement upon the Employee's
presentation to the Company of an itemized accounting of such expenses with
reasonable supporting data.
8. Term.
(a) The Employee's employment under this Employment
Agreement shall commence on the Effective Date and shall expire on the two year
anniversary date thereof. Notwithstanding the foregoing, the Company may at
its election, terminate the Employee's employment hereunder as follows:
2
Initials:_________ _________
<PAGE> 3
(i) Upon thirty (30) days notice if the Employee becomes
physically or mentally incapacitated or is injured so that he is unable
to perform the services required of him hereunder and such inability to
perform continues for a period in excess of ninety (90) days and is
continuing at the time of such notice; or
(ii) For "Cause" upon notice of such termination to the
Employee. For purposes of this Employment Agreement, the Company shall
have "Cause" to terminate its obligations hereunder upon (A) the
reasonable determination by the Chief Executive Officer that the
Employee has ceased to perform his duties hereunder (other than as a
result of his incapacity due to physical or mental illness or injury),
which failure amounts to an intentional and extended neglect of his
duties hereunder, (B) the Chief Executive Officer's reasonable
determination that the Employee has engaged or is about to engage in
conduct materially injurious to the Company, (C) the Employee's having
been convicted of a felony, or (D) A material breach by the Employee of
any of the other covenants or representations herein; or
(iii) (a) Without Cause (A) if within the 90-day period
following the effective date of a "Change in Control" (as defined
below) of the Company, by paying to the Employee salary continuation
pay equal to the Employee's base salary in effect at the time of
termination for a period equal to the greater of (i) 12 months from the
date of such termination or (ii) the remaining term of this Employment
Agreement or (B) if at any time, by paying to the Employee salary
continuation pay equal to the Employee's base salary in effect at the
time of termination for the remaining term of this Employment
Agreement. If the Company shall decide not to renew this Employment
Agreement, the ninety (90) day notification of the Company's intention
not to renew prior to expiration of the initial or any subsequent
annual term shall serve as adequate termination notice and the Employee
hereby agrees to make a smooth transition of responsibilities during
that ninety (90) day period and the Employee further agrees not to take
any legal action against the Company related to said non-renewal and
termination of employment.;
(b) In the event that the Employee resigns during
the 90-day period following the effective date of a Change of Control
of the Company, the Employee shall receive salary continuation pay
equal to the Employee's base salary in effect at the time of the Change
in Control for the period of 12 months from the date of such
termination.;
3
Initials:_________ _________
<PAGE> 4
(c) For purposes of this Employment Agreement,
"Change of Control" shall mean (a) an acquisition (other than directly
from the Company) by an individual, entity or a group (excluding the
Company, an employee benefit plan of the Company or E.M. Warburg,
Pincus & Co., LLC or its affiliates) of 50% or more of the Company's
Common Stock, par value $.01 per share, or voting securities; (b) a
change in a majority of the Company's current Board of Directors (the
"Incumbent Board") (excluding any persons approved by a vote of at
least a majority of the Incumbent Board or persons elected with the
concurrence of a majority of the Incumbent Board); or (c) the
consummation of a complete liquidation or dissolution of the Company or
a merger, consolidation or sale of all or substantially all of the
Company's assets (collectively, a "Business Combination") other than a
Business Combination in which all or substantially all of the Company's
stockholders receive 50% of more of the stock of the Company resulting
from the Business Combination, at least a majority of the board of
directors of the resulting corporation were members of the Incumbent
Board, and after which no Person owns 50% or more of the stock of the
resulting corporation, who did not own such stock immediately before
the Business Combination.; and
(d) Not later than ninety (90) days prior to the
expiration of the stated term of this Employment Agreement, the parties
shall begin to negotiate in good faith the terms of any extension of
this Employment Agreement, provided that neither party shall be under
any obligation to enter into such an extension. In the case of a
renewal and unless otherwise agreed to in writing by both parties, the
terms and conditions of this Employment Agreement shall apply to any
renewals or extensions thereto.
(iv) Upon the death of the Employee.
9. Representations. The Employee hereby represents to the
Company that (a) he is legally entitled to enter into this Employment Agreement
and to perform the services contemplated herein and is not bound under any
employment or consulting agreement to render services to any third party, (b)
he has the full right, power and authority, subject to no rights of third
parties, to grant to the Company the rights contemplated by paragraph 10
hereof, and (c) he does not now have, nor within the last three years has he
had, any ownership interest in any business enterprise (other than interest in
publicly traded corporations where his ownership does not exceed one percent
(1%) or more of
4
Initials:_________ _________
<PAGE> 5
the equity capital) which is a customer of the Company, any of its
subsidiaries, or from which the Company or any of its subsidiaries purchases
any goods or services or to whom such corporations owe any financial
obligations or are required or directed to make any payments.
10. Inventions.
(a) The Employee hereby sells, transfers and assigns to
the Company or to any person, or entity designated by the Company all of the
entire right, title and interest of the Employee in and to all inventions,
ideas, disclosures and improvements, whether patented or unpatented, and
copyrightable material, made or conceived by the Employee, solely or jointly,
during the term hereof which relate to methods, apparatus, designs, products,
processes or devices, sold, leased, used or under consideration or development
by the Company or any of its subsidiaries, or which otherwise relate to or
pertain to the business, functions or operations of the Company or any of its
subsidiaries or which arise from the efforts of the Employee during the course
of his employment for the Company or any of its subsidiaries. The Employee
shall communicate promptly and disclose to the Company, in such form as the
Company requests, all information, details and data pertaining to the
aforementioned inventions, ideas, disclosures and improvements; and the
Employee shall execute and deliver to the Company such formal transfers and
assignments and such other papers and documents as may be necessary or required
of the Employee to permit the Company or any person or entity designated by the
Company to file and prosecute the patent applications and, as to copyrightable
material, to obtain copyright thereof. Any invention relating to the business
of the Company and its subsidiaries and disclosed by the Employee within one
year following the termination of this Agreement shall be deemed to fall within
the provisions of this paragraph unless proved to have been first conceived and
made following such termination.
(b) The Employee has been notified and understands that
the provisions of this Section 11 do not apply to any of the aforementioned
inventions, ideas, disclosures and improvements that qualify fully under the
provisions of Section 2870 of the California Labor Code, which states as
follows:
(i) Any provision in an employment agreement
which provides that an employee shall assign, or offer to assign, any of his or
her rights in an invention to his or her employer shall not apply to an
invention that the employee developed entirely on his or her own time without
using the employer's equipment, supplies, facilities, or trade secret
information except for those inventions that either:
5
Initials:_________ _________
<PAGE> 6
(a) Relate at the time of conception or
reduction to practice of the invention to the employer's business, or actual or
demonstrably anticipated research or development of the employer.
(b) Result from any work performed by
the employee for the employer.
(ii) To the extent a provision in an employment
agreement purports to require an employee to assign an invention otherwise
excluded from being required to be assigned under subsection (i), the provision
is against the public policy of this state and is unenforceable.
11. Insurance. The Company may, at its election and for its
benefit, insure the Employee against accidental loss or death, and the Employee
shall submit to such physical examination and supply such information as may be
required in connection therewith.
12. Notices. Any notice required or permitted to be given under
this Employment Agreement shall be sufficient if in writing and if sent by
registered mail to Mr. Ben Matzilevich at his home address as reflected on the
records of the Company, in the case of the Employee, or Mr. Stelios B.
Papadopoulos, Chief Executive Officer, CN Biosciences, Inc., 10394 Pacific
Center Court, San Diego, CA 92121, in the case of the Company.
13. Waiver of Breach. A waiver by the Company or the Employee of
a breach of any provision of this Employment Agreement by the other party shall
not operate or be construed as a waiver of any subsequent breach by the other
party.
14. Governing Law. This Employment Agreement shall be governed by
and construed and enforce in accordance with the laws of the State of
California without giving effect to the choice of law or conflict of laws
provisions thereof.
16. Assignment. This Employment Agreement may be assigned,
without the consent of the Employee, by the Company to any person, partnership,
corporation, or other entity which has purchased substantially all the assets
of the Company, provided such assignee assumes all the liabilities of the
Company hereunder.
6
Initials:_________ _________
<PAGE> 7
17. Entire Agreement. This Employment Agreement contains the
entire agreement of the parties and supersedes any and all agreements, letter
of intent or understandings between the Employee and (a) the Company, (b) any
member of the Calbiochem Novabiochem Group or (c) any of the Company's
principal shareholders, affiliates or subsidiaries regarding employment. This
Employment Agreement may be changed only by an agreement in writing signed by a
party against whom enforcement of any waiver, change, modification, extension
or discharge is sought.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement as of the day first herein above written.
CN BIOSCIENCES, INC.
By: /S/ STELIOS B. PAPADOPOULOS
-----------------------------------
Stelios B. Papadopoulos
Chief Executive Officer
EMPLOYEE
By: /S/ BEN MATZILEVICH
-----------------------------------
Ben Matzilevich
7
Initials:_________ _________
<PAGE> 1
EXHIBIT 10(n)(xxii)
[LOGO]
SILICON VALLEY BANK
AMENDMENT TO LOAN AGREEMENT
BORROWER: CALBIOCHEM-NOVABIOCHEM CORPORATION
ADDRESS: 10394 PACIFIC CENTER COURT
SAN DIEGO, CALIFORNIA 92121
DATE: DECEMBER 22, 1997
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON
VALLEY BANK ("Silicon") and the borrower named above (the "Borrower").
The Parties agree to amend, effective as of the date hereof, the Loan
and Security Agreement between them dated July 28, 1995, as amended by that
Amendment to Loan Agreement dated November 22, 1995, effective as of September
30, 1995, as amended by that Amendment to Loan Agreement dated January 24,
1996, as amended by that Amendment to Loan Agreement dated May 27, 1997 and as
amended by that Amendment to Loan Agreement dated June 27, 1997 (as so amended
and as otherwise amended from time to time, the "Loan Agreement") as follows:
(Capitalized terms used but not defined in this Amendment, shall have the
meanings set forth in the Loan Agreement.)
1. CONTINGENT MODIFICATION TO FINANCIAL COVENANT. The Tangible
Net Worth financial covenant set forth in the section of the Schedule to the
Loan Agreement entitled "Financial Covenants (Section 4.1)" is hereby amended
to read as follows, provided that if the acquisition of Novegen, Inc. does not
occur then such amendment shall be deemed not to have been made to such
financial covenant and the Tangible Net Worth financial covenant in effect
prior to the date hereof shall remain in effect:
"TANGIBLE NET WORTH: Parent shall maintain a tangible net
worth of not less than $29,000,000,
excluding the amount of the foreign
currency translation account."
2. REPRESENTATIONS TRUE. Borrower represents and warrants to
Silicon that all representations and warranties set forth in the Loan
Agreement, as amended hereby, are true and correct.
3. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any
prior written amendments to the Loan Agreement signed by Silicon and the
Borrower, and the other written documents and agreements between Silicon and
the Borrower set forth in full all of the representations and agreements of the
parties with respect to the subject matter hereof and supersede all prior
discussions, representations, agreements and understandings between the parties
with respect
-1-
<PAGE> 2
SILICON VALLEY BANK AMENDMENT TO LOAN AGREEMENT
- -------------------------------------------------------------------------------
to the subject hereof. Except as herein expressly amended, all of the terms
and provisions of the Loan Agreement, and all other documents and agreements
between Silicon and the Borrower shall continue in full force and effect and
the same are hereby ratified and confirmed.
CALBIOCHEM-NOVABIOCHEM CORPORATION SILICON VALLEY BANK
BY /S/ JAMES G. STEWART BY /S/ LINDA LE BEAU
------------------------------- -------------------------------
PRESIDENT OR VICE PRESIDENT Title SVP
---------------------------
BY /S/ ARTHUR E. ROKE
-------------------------------
SECRETARY OR ASS'T SECRETARY
CONSENT
The undersigned guarantors acknowledge that their consent to the
foregoing Amendment is not required, but the undersigned nevertheless do hereby
consent to the foregoing Amendment and to the documents and agreements referred
to therein and to all future modifications and amendments thereto, and to any
and all other present and future documents and agreements between or among the
foregoing parties. Nothing herein shall in any way limit any of the terms or
provisions of the Guaranties executed by the undersigned in favor of Silicon,
all of which are hereby ratified and affirmed and shall continue in full force
and effect.
CN BIOSCIENCES, INC. CALBIOCHEM-NOVABIOCHEM AG
BY: /S/ JAMES G. STEWART BY: /S/ STELIOS B. PAPADOPOULOS
------------------------------- -------------------------------
Title: VICE PRESIDENT Title: DIRECTOR
---------------------------- ---------------------------
-2-
<PAGE> 1
EXHIBIT 10(v)(i)
LEASE AGREEMENT
LANDLORD: UNIVERSITY SCIENCE CENTER PARTNERSHIP
TENANT: NOVAGEN, INC.
PROPERTY: 601 SCIENCE DRIVE AND, SUITE D, 597 SCIENCE DRIVE
MADISON, WISCONSIN
DATE: DECEMBER 5, 1996
<PAGE> 2
LEASE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1
PREMISES AND TERM
Section 1.1. Leased Premises. ..................................... 1
Section 1.2. Term of Lease. ....................................... 2
Section 1.3. Option to Extend Term.................................. 2
Section 1.4. Security Deposit. .................................... 2
Section 1.5. Condition of Improvements.............................. 2
Section 1.6. Right of First Refusal................................. 3
Section 1.7. Prior Leases........................................... 3
ARTICLE 2
RENT
Section 2.1. Base Rent. ........................................... 4
Section 2.2. Additional Rent. ..................................... 5
Section 2.3. Past Due Rent. ....................................... 5
Section 2.4. Real Estate Taxes. ................................... 5
ARTICLE 3
INSTALLATIONS, REPAIRS AND MAINTENANCE OF LEASED PREMISES
Section 3.1. Maintenance by Tenant. ............................... 7
Section 3.2. Maintenance by Landlord. ............................. 8
Section 3.3. Exterior Signs. ...................................... 9
Section 3.4. Alterations, Changes and Installations by Tenant. .... 9
Section 3.5. Fixtures and Equipment. .............................. 9
Section 3.6. Liens and Obligations. ............................... 10
ARTICLE 4
CONDUCT OF BUSINESS
Section 4.1. Business Use. ........................................ 10
Section 4.2. Utility Charges. ..................................... 11
Section 4.3. Taxes on Leasehold. .................................. 11
Section 4.4. Assignment or Subletting. ............................ 11
Section 4.5. Rules and Regulations. ............................... 12
Section 4.6. Surrender. ........................................... 12
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE 5
COMMON USE AREAS AND FACILITIES
Section 5.1. Common Area. ......................................... 14
Section 5.2. Use of Common Area. .................................. 14
Section 5.3. Operation and Maintenance. ........................... 14
Section 5.4. Preventing Public Rights. ............................ 15
Section 5.5. Charge for Common Area and Facilities. ............... 15
Section 5.6. Formula For Pro Rata Share. .......................... 15
Section 5.7. Basis For Changes. ................................... 16
ARTICLE 6
INSURANCE
Section 6.1. Casualty Insurance. .................................. 16
Section 6.2. Public Liability Insurance. .......................... 17
Section 6.3. Tenant's Contents. ................................... 18
Section 6.4. Increase in Fire Insurance. .......................... 18
Section 6.5. Hold Harmless. ....................................... 18
Section 6.6. Waiver of Subrogation. ............................... 19
ARTICLE 7
DESTRUCTION OF LEASED PREMISES
Section 7.1. Destruction of Leased Premises. ...................... 20
Section 7.2. Rebuilding by Landlord. .............................. 20
Section 7.3. Abatement of Rent Upon Destruction of Premises. ...... 20
ARTICLE 8
EFFECT OF CONDEMNATION
Section 8.1. Total Condemnation. .................................. 21
Section 8.2. Partial Condemnation. ................................ 21
Section 8.3. Landlord's Damages. .................................. 21
Section 8.4. Tenant's Damages. .................................... 21
ARTICLE 9
REMEDIES
Section 9.1. Events of Default by Tenant. ......................... 22
Section 9.2. Re-Entry by Landlord. ................................ 22
Section 9.3. Right to Relet. ...................................... 23
Section 9.4. Parties May Remedy Defaults. ......................... 24
Section 9.5. Landlord's Remedies: Liquidated Damages. ............. 24
Section 9.6. Expenses of Landlord. ................................ 26
Section 9.7. Waiver of Redemption. ................................ 26
Section 9.8. Defaults of Landlord. ................................ 26
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
Section 9.9. Rights Cumulative. ................................... 26
ARTICLE 10
MISCELLANEOUS
Section 10.1. Subordination. ..................................... 27
Section 10.2. Sale of Property. .................................. 27
Section 10.3. Offset Statement. .................................. 27
Section 10.4. Attornment. ........................................ 28
Section 10.5. Recording. ......................................... 28
Section 10.6. Excavations. ....................................... 28
Section 10.7. Access to Premises. ................................ 29
Section 10.8. Quiet Enjoyment. ................................... 29
Section 10.9. Notices. ........................................... 29
Section 10.10. Holding Over. ...................................... 29
Section 10.11. Consents by Landlord. ............................... 30
Section 10.12. Successors and Assigns. ............................. 30
Section 10.13. Governmental Regulations. ........................... 30
Section 10.14. Certain Expenses of Landlord. ....................... 30
Section 10.15. Force Majeure. ...................................... 30
Section 10.16. General. ............................................ 31
Section 10.17. Effect of Ground Lease .............................. 32
ARTICLE 11
ATTACHMENTS
Section 11.1. Attachments. ....................................... 32
</TABLE>
iii
<PAGE> 5
UNIVERSITY SCIENCE CENTER
LEASE AGREEMENT
This Lease is made this 5th day of December, 1996, by and between
University Science Center Partnership, a Wisconsin general partnership
(hereinafter referred to as "Landlord") and Novagen, Inc., an Arkansas
corporation (hereinafter referred to as "Tenant").
W I T N E S S E T H :
IT IS HEREBY AGREED, by and between the parties hereto, in consideration
of the covenants and agreements set forth in this Lease, as follows:
ARTICLE 1
PREMISES AND TERM
SECTION 1.1. LEASED PREMISES. Landlord hereby leases to Tenant and
Tenant hereby leases from Landlord on the terms and provisions and subject to
the conditions hereinafter set forth in this Lease, the following described
premises:
601 Science Drive and Suite D, 597 Science Drive, Madison, Dane County,
Wisconsin, (herein referred to as the "Leased Premises") consisting of
approximately 17,750 square feet of space at 601 Science Drive and 282
square feet of space at Suite D, 597 Science Drive and all necessary
common areas situated upon the property described in Exhibit A attached
hereto. (The Property described in Exhibit A is referred to herein as
the "Landlord's Property"). The location of the Leased Premises on the
Landlord's Property is indicated on the map attached hereto as Exhibit
B-1, and the floor plan attached hereto as Exhibit B-2.
It is understood and acknowledged by both parties that Landlord, at the
time of execution of this Lease, holds all or a portion of the Leased Premises
as a tenant under a ground lease
iv
<PAGE> 6
described in Section 0. Landlord may increase the amount of property located
within the Landlord's Property which it owns or leases.
SECTION 1.2. TERM OF LEASE. The term of this Lease ("the term") shall
begin on December 5, 1996, ("the commencement date"). The term shall end at
midnight on November 30, 2001.
SECTION 1.3. OPTION TO EXTEND TERM. Provided Tenant is not then in
default and has not previously sublet or assigned this Lease, Tenant is hereby
granted one (1) option to extend the term of this Lease for five (5) years, such
extended term to begin upon the expiration of the original term of this Lease;
and all terms, covenants and provisions of this Lease shall apply to the
extended term, including the rent increase provision of Section 0, except that
Tenant shall not have any further option to extend following the exercise of
such option to extend. If Tenant elects to exercise its option to extend, Tenant
shall do so only by giving Landlord notice in writing of its intention to do so
not later than six (6) months prior to the expiration of the original term.
SECTION 1.4. SECURITY DEPOSIT. Tenant shall pay to Landlord upon
execution of this Lease the sum of Eight Thousand Six Hundred and no/100 Dollars
($8,600.00) as security for the performance of the obligations hereof by Tenant.
This sum shall be returned to Tenant within ten (10) days following the
termination of this Lease, provided Tenant has fulfilled all of its obligations
herein.
SECTION 1.5. CONDITION OF IMPROVEMENTS. On the commencement date,
Landlord shall deliver the Leased Premises in "as is" condition.
SECTION 1.6. RIGHT OF FIRST REFUSAL. If, during the term of this Lease,
any of the other
2
<PAGE> 7
leasable space located in the building which includes the Leased Premises (i.e.
597-605 Science Drive) becomes available for rental, Tenant, provided it is not
in default with respect to the performance of any of its obligations under the
terms and provisions of this Lease, shall have a right of first refusal for the
leasing of such space. This right of first refusal shall be exercised as
follows:
Landlord, upon determining that such other leasable space has or will
become available for rental during the term of this Lease, shall provide
to Tenant written notice specifying the date on which such space will be
available, the number of square feet of floor space comprising such
space, and Landlord's rental rate therefor. Tenant may elect to rent
such space by written notice delivered to Landlord within fourteen (14)
days following the date of Landlord's notice. Tenant's written notice
shall obligate Tenant to lease such space on the terms proposed in
Landlord's notice. Except as otherwise specifically provided in
Landlord's notice, all terms of such lease shall be identical to those
then in effect under this Lease, including the term and options to
extend the term of this Lease. If Landlord has not received Tenant's
notice within such fourteen (14) day period, Tenant's right to lease
such additional space under this Lease shall end unless such space shall
again become available for lease, in which case such space shall again
be subject to Tenant's right of first refusal as described herein.
SECTION 1.7. PRIOR LEASES. As of the commencement date, this Lease shall
supersede, terminate and replace any prior leases between Landlord and Tenant.
The foregoing notwithstanding, Tenant shall pay to Landlord the sum of Two
Thousand Nine Hundred Fifty-
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three and 13/100 Dollars ($2,953.13) on the commencement date. This amount
relates to deferred rent under a prior lease between Tenant and Landlord.
Landlord also hereby acknowledges Tenant's right to remove a 5-ton HVAC unit
from the building known as 595 Science Drive which unit was paid for and
installed by Tenant.
ARTICLE 2
RENT
SECTION 2.1. BASE RENT. Tenant shall pay to Landlord at its office in
Madison, Wisconsin, or such other place as Landlord may designate in writing,
and without any deduction or offset whatsoever, as base rent the following
amounts on or before the first day of each calendar month.
(a) For 601 Science Drive, the sum of Eleven Dollars and 50/100
($11.50) per square foot per year (i.e. the sum of Two Hundred
Four Thousand One Hundred Twenty-five and 00/100 Dollars
($204,125.00)) in 12 equal monthly installments of Seventeen
Thousand Ten and 42/100 Dollars ($17,010.42) in advance on or
before the first day of each calendar month during the first year
of this Lease.
(b) For 597 Science Drive, the sum of Six Dollars and 00/100 ($6.00)
per square foot per year (i.e. the sum of One Thousand One Six
Hundred Ninety-two and 00/100 Dollars ($1,692.00)) in 12 equal
monthly installments of One Hundred Forty-one and 00/100 Dollars
($141.00) in advance on or before the first day of each calendar
month during the first year of this Lease.
(c) The base rent for each subsequent lease year shall be the base
rent for the prior year increased by four percent (4%). The first
such increase or decrease shall
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take place on January 1, 1998.
If the term of this Lease does not commence on the first day of a
calendar month, the base rent for such fractional month shall be computed pro
rata on the basis of thirty (30) days per month and paid to Landlord on the
first day of the next succeeding calendar month along with the rent for such
succeeding month.
SECTION 2.2. ADDITIONAL RENT. In addition to base rent, Tenant shall pay
as part of the consideration for this Lease and as additional rent, hereinafter
designated "additional rent," all additional amounts hereinafter provided for
and the same shall be payable upon Landlord's demand except as otherwise
expressly provided.
SECTION 2.3. PAST DUE RENT. If Tenant shall fail to pay when due any
base rent or additional rent, and such amount shall not be paid within ten (10)
days after the date when due, such unpaid amounts shall bear interest from the
due date thereof to the date of payment at the rate of percent per annum or the
prime interest rate then charged by the Firstar Bank Wisconsin or its successors
or assigns, whichever is greater.
SECTION 2.4. REAL ESTATE TAXES. Landlord shall pay all real estate taxes
on Landlord's Property, including all general real estate taxes, personal
property taxes on Landlord's property and installments for special assessments
arising during the term of the Lease. Tenant agrees to reimburse Landlord for
Tenant's pro rata share of such taxes. Tenant's pro rata share of such taxes
shall be calculated as follows:
(a) General Real Estate Taxes. For purposes of calculating Tenant's
pro rata share of general real estate taxes, such taxes shall be
divided into two separate categories. The first category shall be
real estate taxes allocable to land values. The second
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category shall be real estate taxes attributable to improvements.
(1) Taxes Attributable to Land Value. Landlord shall determine
by inspection of tax records the total real estate taxes
attributable to land value assessed against the Landlord's
Property. Tenant's pro rata share of such tax shall be
based upon its portion of the net leasable area within all
buildings located on Landlord's Property.
(2) Taxes Attributable to Improvements. Landlord shall
determine by inspection of tax records the total real
estate taxes attributable to improvements on Landlord's
Property. Landlord shall also determine in its reasonable
discretion the cost of the Leased Premises, and the cost
of all improvements situated on the Landlord's Property
which are available for leasing to and occupancy by
tenants. Tenant's pro rata share of the taxes described in
this subparagraph shall be determined, as a percentage, by
dividing the cost of the Leased Premises by the cost of
all improvements situated on the Landlord's Property which
are available for leasing to and occupancy by tenants.
(b) Installments for Special Assessments. Tenant's pro rata share of
installments for special assessments levied on Landlord's
Property shall be based upon its portion of the net leasable area
within all buildings located on Landlord's Property.
(c) Personal Property Taxes on Landlord's Property. Tenant's pro rata
share of personal property taxes on Landlord's property shall be
based upon its portion of the net leasable area within all
buildings located on Landlord's Property.
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Tenant's obligation for each tax described in this section shall be
further prorated for the first year of this Lease between Landlord and Tenant as
of the commencement date of this Lease.
Tenant shall pay to Landlord along with Tenant's monthly base rent, an
amount equal to one-twelfth (1/12) of its pro rata share of the estimated annual
real estate taxes, personal property taxes and installments for special
assessments for Landlord's Property. Such payment shall be applied by Landlord
to the payment of the taxes on the Landlord's Property. Tenant shall be
responsible for the prompt payment of its pro rata share of any deficiency so
that all such taxes shall be paid before the same become delinquent. At the
termination of this Lease, Tenant shall promptly pay Landlord for Tenant's pro
rata share of the estimated taxes for that portion of the termination year
during which the Lease is in effect. Such estimate shall be based upon the taxes
for the preceding year.
Tenant's pro rata share of taxes shall be adjusted from time to time as
Tenant leases additional space in the building either by exercise of any option,
right of first refusal, or otherwise or as additional rental space is added to
Landlord's Property.
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ARTICLE 3
INSTALLATIONS, REPAIRS AND MAINTENANCE OF LEASED PREMISES
SECTION 3.1. MAINTENANCE BY TENANT. Tenant shall at all times keep the
Leased Premises and all partitions, doors, fixtures, electrical and lighting
fixtures, plumbing and electrical lines and equipment located within the Leased
Premises and including heating, ventilating and air conditioning lines and
equipment located outside the Leased Premises but servicing only the Leased
Premises in good order, condition and repair, including periodic painting as
determined by Landlord, reasonable wear and tear excepted. If Tenant refuses or
neglects to repair property as required hereunder and to the reasonable
satisfaction of Landlord as soon as reasonably possible after written demand,
Landlord may make such repairs without liability to Tenant for any loss or
damage that may accrue to Tenant's property or to Tenant's business by reason
thereof, and upon completion thereof, Tenant shall pay Landlord's costs for
making such repairs plus twenty (20%) percent for overhead, upon presentation of
bill therefor, as additional rent. When used in this paragraph, the term
"repairs" shall include replacements and renewals when necessary and all such
repairs shall be equal in quality and class of original work.
Service contracts by the Tenant are required on all heating and air
conditioning units, including but not limited to changing filters, checking
belts and oiling of units. The Tenant shall provide the Landlord with evidence
of a service contract. If Tenant refuses or neglects to maintain a service
contract, Landlord may contract for the maintenance and Tenant shall pay
Landlord the costs plus twenty (20%) percent for overhead as additional rent.
Tenant shall cause the service contractor to provide Landlord with a statement
of HVAC condition prior to
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surrender of the premises.
SECTION 3.2. MAINTENANCE BY LANDLORD. Landlord shall keep foundations,
exterior walls, roof and all other structural members, both interior and
exterior, of the Leased Premises and all common areas in good repair and shall
have access to the Leased Premises for such purpose, but Landlord shall not be
required to make any such repairs which become necessary or desirable by reason
of the negligence of Tenant, its agents, servants, employees or customers.
SECTION 3.3. EXTERIOR SIGNS. All signs to be installed by Tenant shall
be approved in advance in writing by the Design Review Board appointed by the
Board of Regents of the University of Wisconsin System. All signs to be
installed by Landlord shall be approved in advance in writing by the Design
Review Board.
Tenant shall remove all signs installed by Tenant at the termination of
this Lease. Such installations and removals shall be made in such a manner as to
avoid injury, defacement or any other damages to the buildings and improvements.
The cost of repairing any damage to the building caused by the installation,
removal, or maintenance of the sign shall be borne by the Tenant.
The cost of all signs, other than those furnished by Landlord, including
the installation, maintenance, and removal thereof, shall be the responsibility
of the Tenant.
SECTION 3.4. ALTERATIONS, CHANGES AND INSTALLATIONS BY TENANT. Tenant
shall not make or cause to be made any alterations, additions or improvements to
the Leased Premises, or cause to be installed any fixtures, interior or exterior
lighting, plumbing equipment or mechanical equipment, without the prior written
consent of Landlord.
SECTION 3.5. FIXTURES AND EQUIPMENT. Subject to Section 3.4,
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Tenant may, at its own expense, furnish and install such equipment in and on the
Premises as may be necessary or desirable for Tenant's business. All such
equipment shall remain the property of Tenant. Tenant may also, at its own
expense, furnish and install such business and trade fixtures in and on the
Premises as may be necessary or desirable for Tenant's business. Any such
fixtures shall immediately become and remain the personal property of Landlord
and shall not be removed by Tenant during or at the expiration of the term of
this Lease.
SECTION 3.6. LIENS AND OBLIGATIONS. Tenant agrees not to create or to
permit others to create any lien or obligations against Landlord or the Leased
Premises in making alterations, repairs or in installing materials, fixtures or
equipment, agrees to cause any claim for such lien to be released, and further
agrees to hold Landlord harmless from all claims and demands by any third party
in any manner connected with such alterations, repairs or installations or with
Tenant's occupancy for such purpose. Tenant shall comply with all laws and all
directions, rules and regulations of all governmental regulatory bodies or
officials having jurisdiction over such alterations, repairs or installations,
except that Tenant shall not be required to comply with any laws, regulations or
orders by governmental authority necessitating structural alterations, changes,
repairs or additions, unless made necessary by the act or work performed by
Tenant, in which case Tenant shall so comply, at its own expense, after first
procuring the written consent of Landlord.
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ARTICLE 4
CONDUCT OF BUSINESS
SECTION 4.1. BUSINESS USE. It is understood and agreed that the Leased
Premises shall be used and occupied by Tenant as an office and laboratory.
Tenant shall not use the Leased Premises for any use not identified as a
permitted use by any zoning ordinance or other governmental regulation relating
to the Leased Premises or approved as a conditional use by the governmental
bodies having zoning authority. No use shall be permitted, or acts done, which
will cause a cancellation of any insurance policy covering the Leased Premises.
Tenant shall not sell, permit to be kept, used or sold in or about the Leased
Premises any article which may be prohibited by the standard form of fire
insurance policy. In the event Tenant's use of the Leased Premises results in an
increase in the cost of any insurance relating to the Landlord's Property,
Tenant shall pay such additional cost to Landlord upon demand. Tenant shall
comply with all applicable laws, ordinances, regulations and/or deed and plat
restrictions affecting the use and occupancy of the Leased Premises. Tenant
shall not commit, or permit to be committed, any waste or nuisance on the Leased
Premises.
SECTION 4.2. UTILITY CHARGES. Tenant shall be solely responsible for and
promptly pay all charges for heat, water, gas, sewer, electricity or any other
utility used or consumed in the Leased Premises including supplemental heating.
In no event shall Landlord be liable for an interruption or failure in the
supply of any such utilities to the Leased Premises.
SECTION 4.3. TAXES ON LEASEHOLD. Tenant shall be responsible for and
shall pay before delinquency all municipal, county, state, or other taxes
assessed during the term of this Lease against any leasehold interest or
personal property of any kind, owned by or placed in, upon or
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about Leased Premises by Tenant.
SECTION 4.4. ASSIGNMENT OR SUBLETTING. Tenant agrees not to sell,
assign, mortgage, pledge or in any manner transfer this Lease or any estate or
interest thereunder and not to sublet the Leased Premises or any part or parts
thereof without the prior written consent of Landlord in each instance which
consent shall not be unreasonably withheld. Consent by Landlord to one
assignment of this Lease or to one licensing or subletting of the Leased
Premises shall not be a waiver of Landlord's rights hereunder as to subsequent
assignment or subletting. Landlord's rights to assign this Lease are and shall
remain unqualified.
SECTION 4.5. RULES AND REGULATIONS. The rules and regulations appended
to this Lease as Exhibit C are hereby made a part of this Lease, and Tenant
agrees to comply with and observe the same. Tenant's failure to keep and observe
said rules and regulations shall constitute a breach of the terms of this Lease
in the manner as if the same were contained herein as covenants. Landlord
reserves the right from time to time to amend or supplement said rules and
regulations and to adopt and promulgate additional rules and regulations
applicable to Leased Premises, and the property described in Exhibit A, provided
that such additional rules and regulations do not unreasonably interfere with
Tenant's use and enjoyment of the Leased Premises. Notice of such additional
rules and regulations, and amendments and supplements, if any, shall be given to
Tenant, and Tenant agrees thereupon to comply with and observe all such rules
and regulations and amendments thereto and supplements thereof.
SECTION 4.6. SURRENDER. On the last day of the term of this Lease,
including any option term, or upon the sooner termination thereof, Tenant shall
peaceably and quietly
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surrender the Leased Premises and all improvements thereon in the same condition
as at the commencement of this Lease, in good order, condition and repair, fire
and other unavoidable casualty, and reasonable wear and tear excepted. All
alterations, additions, improvements and fixtures which may be made or installed
by either Landlord or Tenant upon the Leased Premises pursuant to Section 3.5,
shall, except as provided in Section 3.5, remain the property of Landlord and
shall remain upon and be surrendered with the Leased Premises as a part thereof,
without disturbance, molestation or injury at the termination of the term of
this Lease, whether by the elapse of time or otherwise, all without compensation
or credit to Tenant. Any personal property and equipment not removed shall be
deemed abandoned and shall become the property of Landlord; provided, that the
Landlord shall have the option to effect said removals and Tenant shall pay
Landlord, on demand, the cost of removal thereof, with interest at the rate of
ten (10%) percent per annum from the date of such removal by Landlord, or the
prime interest rate established by the Firstar Bank Wisconsin or its successors
or assigns, whichever is higher.
If, prior to surrender of the premises or within twenty (20) days
thereafter, Landlord so directs by written notice to Tenant, Tenant shall repair
any damage occasioned by such removals and Tenant will pay to Landlord, on
demand, the cost thereof with interest from the date of completion of such
repairs by Landlord, at the rate specified in the immediately preceding
paragraph of this Lease.
The delivery to Landlord at the place then fixed for the payment of rent
of the keys to the Leased Premises shall constitute surrender of the premises by
Tenant and acceptance of the keys by Landlord shall constitute acceptance by
Landlord of such surrender. Such acceptance by
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Landlord shall not constitute a waiver of any rights to recover damages under
terms of this Lease. This method of surrender shall not be exclusive and shall
be in addition to all other methods of surrender.
Anything in this section to the contrary notwithstanding, at any
termination of this Lease, Landlord shall have a lien upon all of the property
of Tenant then located in or upon the Leased Premises to secure the payment of
any amounts due from Tenant to Landlord by reason of this Lease or to secure the
payment of damages, and Landlord may retain possession of such property until
payment in full of said amounts. Said lien shall not be defeated by placing such
property in storage. If Tenant has not redeemed said property within ninety (90)
days after the termination of said Lease, Landlord may sell such property at
public or private sale without further notice to Tenant, and shall apply in a
reasonable manner determined by Landlord the proceeds of sale to reduce the
amounts then owed from Tenant to Landlord.
ARTICLE 5
COMMON USE AREAS AND FACILITIES
SECTION 5.1. COMMON AREA. As used herein, "common area" shall include
all of that portion of the improvements on and all areas within the Landlord's
Property which are designed for common use and benefit, exclusive of space in
buildings (or any further buildings) designed for rental to Tenants for
commercial purposes as the same may exist from time to time. Landlord reserves
the right to change building perimeters, add additional buildings, drives, or
other structures and to make other changes desired, provided only that
reasonable access to the Leased Premises is provided.
SECTION 5.2. USE OF COMMON AREA. Landlord hereby grants to Tenant, its
employees,
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agents, customers and invitees, the nonexclusive right during the term of this
Lease to use the common areas from time to time constituted, such use to be in
common with Landlord and all tenants of Landlord from time to time, its and
their employees, agents, customers and invitees, except when the same are being
repaired.
SECTION 5.3. OPERATION AND MAINTENANCE. The common area shall at all
times be subject to the exclusive control and management of Landlord and
Landlord shall manage, operate, repair and maintain the common area and its
facilities in a clean and sightly condition. The manner in which such area and
facilities shall be maintained and the expenditures therefor shall be at the
Landlord's sole discretion.
SECTION 5.4. PREVENTING PUBLIC RIGHTS. If Landlord deems it necessary in
order to prevent the acquisition of special rights, Landlord may from time to
time close all or any portion of the common area or take such action as shall be
reasonably appropriate for that purpose.
SECTION 5.5. CHARGE FOR COMMON AREA AND FACILITIES. During the term of
this Lease Tenant shall pay to Landlord an annual charge which shall be Tenant's
pro rata share of the Landlord's actual cost of operating, repairing, and
maintaining the common area and other facilities which shall include, but shall
not be limited to driveway, parking areas, landscaped and vacant areas,
area-ways, walks, curbs, corridors, gardens, sanitary and storm sewers, signs,
public facilities such as washrooms, drinking fountains, toilets, the cost of
operating, repairing, lighting, heating, air conditioning, cleaning, painting,
removing of snow, ice and debris, policing and inspecting, insurance for hazards
and other risks, maintenance including but not limited to such repair of paving,
curbs, walkways, driveways, landscaping and drainage and lighting facilities as
may be necessary from time to time to keep the same in good condition and
repair, a
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reasonable allowance for the depreciation of maintenance equipment, a reasonable
allowance for Landlord's overhead costs in conjunction with the foregoing, and
all costs and expenses other than those of a capital nature, but excluding legal
fees recovered by Tenant from Landlord in any litigation relating to this Lease.
Landlord shall provide Tenant with an itemized statement of such costs.
SECTION 5.6. FORMULA FOR PRO RATA SHARE. The annual charge for common
area maintenance and facilities shall be computed on the basis of twelve (12)
consecutive calendar months commencing and ending on dates designated by the
Landlord and shall be paid in advance in monthly installments on the first day
of each calendar month in an amount estimated by Landlord. Within sixty (60)
days after the end of each such twelve (12) month period, Landlord shall
determine and furnish to Tenant a computation of the actual amount charged for
such period; and the amounts so estimated and paid during such period shall be
adjusted promptly (including adjustments on a pro rata basis for any partial
such period at either end of the Lease term) by one party's paying to the other
whatever amount is necessary to effectuate such adjustment.
The Tenant's pro rata share of the Landlord's actual costs defined in
this Article shall be that portion which the net leasable area in the Leased
Premises bears to the total net leasable area in the buildings located from time
to time on the Landlord's Property.
SECTION 5.7. BASIS FOR CHANGES. Changes in any particular floor area
occurring during any calendar month shall be effective on the first day of the
next succeeding calendar month and the amounts of any floor area in effect for
the whole of any year shall be the average of the total amounts in effect on the
first day of each calendar month in such year.
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ARTICLE 6
INSURANCE
SECTION 6.1. CASUALTY INSURANCE. Landlord shall at all times during the
term of this Lease keep all improvements which are now or hereafter located on
the Landlord's Property insured against loss or damage by fire and the extended
coverage hazards at full insurance value with loss payable to Landlord,
Landlord's mortgagee and such other parties as Landlord may designate, as their
interests may appear.
Tenant agrees to reimburse Landlord for its pro rata share of the cost
of such insurance. Tenant's pro rata share shall be based upon its portion of
the cost of improvements on the Landlord's Property, as determined under Section
0, and upon that portion of the policy year during which this Lease is in
effect. Tenant's portion of the cost of the improvements on the Landlord's
Property shall be determined, as a percentage, by dividing the cost of the
Leased Premises, including all equipment, and business and trade fixtures which
are or become the property of Landlord under other provisions of this Lease, by
the cost of all improvements on the Landlord's Property. Each month Tenant shall
pay to Landlord an amount equal to one-twelfth (1/12) of its pro rata share of
the estimated annual casualty insurance premium. Upon Landlord's receipt of any
premium notice, Tenant shall upon demand make up any deficiency to the extent of
its pro rata share.
SECTION 6.2. PUBLIC LIABILITY INSURANCE. Landlord shall at all times
during the term of this Lease keep in full force and effect a policy of public
liability and property damage insurance with respect to the Landlord's Property
and all business operated thereon, with limits of public liability not less than
One Million and No/100 ($1,000,000.00) Dollars for injury or death in any
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one occurrence, and property damage liability insurance in the amount of One
Hundred Thousand and No/100 ($100,000.00) Dollars. The policies shall name
Landlord, Tenant and Landlord's mortgagees and the lessor on the underlying
ground lease as co-insureds as their interests may appear. Upon written request
by Tenant, Landlord shall provide the Tenant with evidence of such insurance,
including identification of the Tenant as a co-insured. Landlord may from time
to time during the term of this Lease increase the above stated coverage in its
discretion. Tenant shall reimburse Landlord for its pro rata share of the cost
of such insurance in the same manner as provided in Section 6.1 regarding
casualty insurance.
SECTION 6.3. TENANT'S CONTENTS. Tenant shall be responsible for
obtaining such insurance as it may deem advisable for all property located in
the Leased Premises. It is understood that the insurance carried by Landlord
does not cover the risk of loss or damage to Tenant's property. Tenant waives
any claim against Landlord and shall save Landlord harmless from any claim for
loss or damage to contents, merchandise, fixtures, equipment or work done by
Tenant regardless of the cause of any such damage or loss.
SECTION 6.4. INCREASE IN FIRE INSURANCE. Tenant agrees that it will not
keep or use, in or upon the Leased Premises any article which may be prohibited
by the standard form fire insurance policy. If Tenant's use or occupancy causes
any increase in premiums for fire or casualty insurance on the Landlord's
Property, or the Leased Premises, or any part thereof, above the rate of the
least hazardous type of occupancy legally permitted in the Leased Premises,
Tenant shall pay the additional premium on such insurance. No part of such
additional premium resulting from the use or occupancy of another tenant shall
be charged to Tenant under Sections
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6.1 and/or 6.2 of this Lease. The Tenant shall also pay in such event any
additional premium on any rent insurance policy that may be carried by the
Landlord for its protection against rent loss through fire or other casualty.
Bills for such additional premiums shall be rendered by Landlord to Tenant at
such times as Landlord may elect, and shall be due and payable by Tenant when
rendered, and the amount thereof shall be deemed to be, and be paid as,
additional rent.
SECTION 6.5. HOLD HARMLESS. Landlord shall not be liable for any loss,
injury, death, or damage to persons or property which at any time may be
suffered or sustained by Tenant or by any person whosoever may at any time be
using or occupying or visiting the Landlord's Property or be in, on, or about
the same, whether such loss, injury, death, or damage shall be caused by or in
any way result from or arise out of any act, omission, or negligence of Tenant
or of any occupant, subtenant, visitor, or user of any portion of the Landlord's
Property, or shall result from or be caused by any other matter or thing whether
of the same kind as or of a different kind than the matters or things above set
forth, and Tenant shall indemnify Landlord against all claims, liability, loss
or damage whatsoever on account of any such loss, injury, death, or damage.
Tenant shall indemnify Landlord against all claims, liability, loss or damage
arising by reason of the negligence or misconduct of Tenant, its agents or
employees. Tenant hereby waives all claims against Landlord for damages to the
building and improvements that are now on or hereafter placed or built on the
Landlord's Property and to the property of Tenant in, on, or about the
Landlord's Property, and for injuries to persons or property in or about the
Landlord's Property, from any cause arising at any time. The preceding sentences
shall not apply to loss, injury, death, or damage arising by reason of the
negligence or misconduct of
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Landlord, its agents, or employees.
SECTION 6.6. WAIVER OF SUBROGATION. Landlord and Tenant hereby release
each other from any and all liability or responsibility to the other (or to
anyone claiming through or under them by way of subrogation or otherwise) for
any loss or damage to property caused by fire or any of the extended coverage or
supplementary insurance contract casualties, even if such fire or other casualty
shall have been caused by the fault or negligence of the party or anyone for
whom such party may be responsible, provided, however, that this release shall
be applicable and in force and effect only in respect to loss or damage
occurring during such time as the releaser's policies shall contain a clause or
endorsement to the effect that any such release shall not adversely effect or
impair or prejudice the right of the releaser to recover thereunder. Landlord
and Tenant each agree that their policies will include such a clause or
endorsement so long as the same is obtainable and if not obtainable, shall so
advise the other in writing and such notice shall release both parties from the
obligation to obtain such a clause or endorsement.
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ARTICLE 7
DESTRUCTION OF LEASED PREMISES
SECTION 7.1. DESTRUCTION OF LEASED PREMISES. If the building which
includes the Leased Premises is damaged or partially destroyed by fire or other
casualty to the extent of less than one-quarter (1/4) of the then cost of
replacement thereof above foundation, the same shall be repaired as quickly as
is practicable, by Landlord, except that the obligation of Landlord to rebuild
shall be limited to repairing or rebuilding of Landlord's improvements. If the
building which includes the Leased Premises is so destroyed or damaged to the
extent of one-quarter (1/4) or more of the then replacement cost thereof, then
Landlord may elect not to repair or rebuild by giving notice in writing
terminating this Lease, in which event this Lease shall be terminated as of the
date of such notice.
SECTION 7.2. REBUILDING BY LANDLORD. If Landlord shall undertake to
restore or repair the building which includes the Leased Premises, it shall
initiate and pursue the necessary work with all reasonable dispatch, in a manner
consistent with sound construction methods.
SECTION 7.3. ABATEMENT OF RENT UPON DESTRUCTION OF PREMISES. If such
damage or partial destruction renders the Leased Premises wholly untenantable,
the base rent shall abate until the Leased Premises have been restored and
rendered tenantable. If such damage or partial destruction renders the premises
untenantable only in part, the base rent shall abate proportionately as to the
portion of the Leased Premises rendered untenantable. Rent shall not abate under
this section if the damage or destruction is caused by the negligence or
misconduct of Tenant, its agents, employees, customers or invitees.
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ARTICLE 8
EFFECT OF CONDEMNATION
SECTION 8.1. TOTAL CONDEMNATION. In the event that the Leased Premises
or such part of the Leased Premises as will render the remainder untenantable,
shall be appropriated or taken under the power of eminent domain by any public
or quasi-public authority, this Lease shall terminate and expire as of the date
of taking.
SECTION 8.2. PARTIAL CONDEMNATION. In the event of any other partial
condemnation, Tenant shall have the option of terminating this Lease on the
effective date of such condemnation by written notice to Landlord prior to such
effective date, unless Landlord shall provide to Tenant within a reasonable time
after such effective date reasonably comparable space to that taken.
SECTION 8.3. LANDLORD'S DAMAGES. In the event of any condemnation or
taking, whether whole or partial, the Tenant shall not be entitled to any part
of the award paid for such condemnation and Landlord is to receive the full
amount of such award. The Tenant hereby expressly waives any rights or claim to
any part thereof.
SECTION 8.4. TENANT'S DAMAGES. Although all damages in the event of any
condemnation are to belong to the Landlord whether such damages are awarded as
compensation for diminution in value of the leasehold or to the fee of the
Leased Premises, Tenant shall have the right to claim and recover from the
condemning authority, but not from Landlord, such compensation as may be
separately awarded or recoverable by Tenant in Tenant's own right on account of
any and all damage to Tenant's business by reason of the condemnation, and for
or on account of any cost or loss to which Tenant might be put in removing
Tenant's property.
22
<PAGE> 27
ARTICLE 9
REMEDIES
SECTION 9.1. EVENTS OF DEFAULT BY TENANT. Upon the failure by Tenant to
pay rent when due, Landlord may terminate this Lease or Tenant's right to use
and occupy the Leased Premises by ten (10) days' written notice to Tenant unless
Tenant within such ten (10) days pays all rent due. Upon the happening of any
one or more of the following events: (a) the levying of a writ of execution or
attachment on or against the property of Tenant; (b) the taking of any action
for the voluntary dissolution of Tenant; (c) the commencement of a mechanic's
lien foreclosure action against Tenant as a result of a mechanic's lien or claim
therefor against the land or Building of which the Leased Premises are a part;
(d) the failure of Tenant to perform any other of the terms, provisions, and
covenants of this Lease, Landlord may terminate this Lease or Tenant's right to
use and occupy the Leased Premises by thirty (30) days' written notice to Tenant
unless Tenant, within such thirty (30) day period, cures the specified default
or, if the default is of a character which cannot be cured within thirty (30)
days, the Tenant commences and diligently pursues the cure of such default
within thirty (30) days.
SECTION 9.2. RE-ENTRY BY LANDLORD. Upon such termination of the Lease or
termination of Tenant's right to use and occupy the Leased Premises as
aforesaid, or if Tenant at any time during the term of this Lease vacates the
premises or ceases operating said business in the entire or any appreciable part
of the Leased Premises, except for causes beyond its control, Landlord may
reenter the Leased Premises.
SECTION 9.3. RIGHT TO RELET. Should Landlord elect to reenter, as herein
provided, or should it take possession pursuant to legal proceedings or pursuant
to any notice provided for by
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<PAGE> 28
law, it may either terminate this Lease or it may from time to time without
terminating this Lease, make such alterations and repairs as may be necessary in
order to relet the Leased Premises, and relet the Leased Premises or any part
thereof for such term or terms (which may be for a term extending beyond the
term of this Lease) and at such rental or rentals upon such other terms and
conditions as Landlord in its sole discretion may deem advisable upon each such
reletting. All rentals received by the Landlord from such reletting shall be
applied, first, to the payment of any indebtedness other than rent due hereunder
from Tenant to Landlord; second, to the payment of any costs of such alterations
and repairs; third, to the payment of rent due and unpaid future rent as the
same may become due and payable hereunder. If such rentals received from such
reletting during the month be less than that to be paid during that month by
Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Such
deficiency shall be calculated and paid monthly. No such re-entry or taking
possession of said premises by Landlord shall be construed as an election in its
part to terminate this Lease unless a written notice of such intention be given
to Tenant or unless the termination thereof be decreed by a court of competent
jurisdiction. Notwithstanding any such reletting without termination, Landlord
may at any time thereafter elect to terminate this Lease for such previous
breach. Should Landlord at any time reenter or terminate this Lease for any
breach, in addition to any other remedies it may have, it may recover from
Tenant all damages it may incur by reason of such breach, including the cost of
recovering the Leased Premises and reasonable attorney's fees. All which amounts
shall be immediately due and payable from Tenant to Landlord.
SECTION 9.4. PARTIES MAY REMEDY DEFAULTS. In the event of any breach
hereunder by either party, and in lieu of Landlord's terminating this Lease as
herein provided, Landlord or
24
<PAGE> 29
Tenant respectively may immediately or at any time thereafter, after having
given the other party the requisite notice to correct the same and that time for
such correction having elapsed, cure such breach for the account and at the
expense of the other party. If Landlord or Tenant at any time, by reason of such
breach, is compelled to pay, or elects to pay, any sum of money or do any act
which will require the payment of any sum of money, or incurs any expense,
including reasonable attorney's fees, in instituting or prosecuting any action
or proceeding to enforce such party's rights hereunder, the sum or sums so paid
or incurred by such party, if paid or incurred by Landlord, shall be deemed to
be additional rent hereunder and shall be due from Tenant to Landlord on the
first day of the month following the payment of such respective sums, and if
paid or incurred by Tenant, shall be due and payable by Landlord on demand with
interest at the rate provided in Section 4.6 hereof. This option is given to the
parties is intended for their protection and its existence shall not release the
parties from the obligation to perform the terms and covenants herein provided
to be performed by the respective parties or deprive Landlord of any legal
rights which it may have by reason of any default of Tenant.
SECTION 9.5. LANDLORD'S REMEDIES: LIQUIDATED DAMAGES. In the event that
at any time, whether before or after the commencement of the term hereof, a
bankruptcy petition shall be filed by Tenant or against Tenant and Tenant shall
thereafter be adjudicated a bankrupt, or such petition shall be approved by the
court, in any court or pursuant to any statute either of the United States or of
any State, whether in bankruptcy, insolvency, for reorganization under Chapter
XI or XIII of the Bankruptcy Act or under any other provisions of the Bankruptcy
Act, or under the provisions of any law of like impact, for the appointment of a
receiver or trustee of
25
<PAGE> 30
Tenant or for the property of Tenant, or if Tenant shall make an assignment of
Tenant's property for the benefit of its creditors, or if proceedings are
instituted in a court of competent jurisdiction for the reorganization,
liquidation or involuntary dissolution of Tenant, then immediately upon the
happening of any such event, and without any entry or other act by Landlord,
this Lease and the term and estate hereby granted (whether or not the term shall
therefore have commenced) shall expire, terminate and come to an end in the same
manner and with the same force and effect as if the date of such occurrence were
the date hereinbefore fixed for the expiration of the term hereof. In the event
of the termination of the term hereof by the happening of any such event,
Landlord shall forthwith upon such termination, and any other provisions of this
Lease to the contrary notwithstanding, become entitled to recover as and for
liquidated damages caused by such breach of the provisions of this Lease an
amount equal to the difference between the then cash value of the rent reserved
hereunder for the unexpired portion of the demised term and the then cash rental
value of the Leased Premises for such unexpired portion of the term hereby
demised unless the statute which governs or shall govern the proceeding in which
such damages are to be provided limits or shall be entitled to prove as and for
liquidated damages an amount equal to that allowed by or under such statute. The
provision of this paragraph shall be without prejudice to Landlord's right to
prove in full damages for rent accrued prior to the termination of this Lease
but not paid. This provision of this Lease shall be without prejudice of any
rights given Landlord by any pertinent statute to prove any amounts allowed
thereby. In making such computation, the then cash rental value of the Leased
Premises shall be deemed prima facie to be the rent realized upon any reletting,
if such reletting can be accomplished by Landlord within a reasonable time after
such a termination of this Lease.
26
<PAGE> 31
SECTION 9.6. EXPENSES OF LANDLORD. Upon the occurrence of an event of
default, notwithstanding anything herein to the contrary and whether or not
Landlord terminates this Lease, Tenant shall promptly, upon request, reimburse
Landlord for all costs and expenses reasonably incurred in enforcing this Lease,
including reasonable attorneys' fees.
SECTION 9.7. WAIVER OF REDEMPTION. Tenant hereby expressly waives any
and all rights of redemption granted by or under any present or future laws in
the event of Tenant's being evicted or dispossessed for any cause, or in the
event of Landlord's obtaining possession of the Leased Premises, by reason for
the violation by Tenant of any of the covenants or conditions of this Lease, or
otherwise.
SECTION 9.8. DEFAULTS OF LANDLORD. Should Landlord be in default under
the terms of this Lease, Landlord shall cure such default within thirty (30)
days after written notice of such default from Tenant, or in the event such
default is of such a character as to require more than thirty (30) days to cure,
Landlord shall use due diligence to cure such default.
SECTION 9.9. RIGHTS CUMULATIVE. All rights and remedies of Landlord and
Tenant herein enumerated shall be cumulative and none shall exclude any other
right or remedy allowed by Law, and said rights and remedies may be exercised
and enforced concurrently and whenever and as often as occasion therefor arises.
27
<PAGE> 32
ARTICLE 10
MISCELLANEOUS
SECTION 10.1. SUBORDINATION. At Landlord's option, this Lease shall be
subordinated to any existing mortgages covering the Leased Premises, any
extension or renewal thereof, or to any new mortgages which may be placed
thereon from time to time, provided, however, anything to the contrary contained
herein notwithstanding, every such mortgage shall contain a provision that the
mortgagee shall recognize the validity of this Lease in the event of foreclosure
of the Landlord's interest so long as Tenant shall not be in default under the
terms of this Lease. Tenant shall execute whatever instruments may be required
to effect such subordination.
SECTION 10.2. SALE OF PROPERTY. Landlord shall have the right at any
time to sell, transfer or convey its interest in all or any portion(s) of
Landlord's Property, improvements and buildings of which the Leased Premises are
a part to any person, firm or corporation whatsoever, and upon any such sale,
transfer or conveyances, Landlord shall cease to be liable under any covenant,
condition or obligation imposed upon it by this Lease, or any of the terms and
provisions thereof; provided, however, that any such sale, transfer or
conveyance shall be subject to this Lease and that all of the Landlord's
covenants and obligations contained herein shall be binding upon the subsequent
owner or owners thereof; and provided further that such transferee from Landlord
shall in writing assume the obligations of Landlord hereunder.
SECTION 10.3. OFFSET STATEMENT. Within ten (10) days after request
therefor by Landlord, or in the event that upon any sale, assignment or
hypothecation of the Leased Premises and/or all or any portion(s) of the
Landlord's Property by Landlord an offset statement shall be required by Tenant;
Tenant agrees to deliver in recordable form a certificate to any proposed
28
<PAGE> 33
mortgagee or purchaser, or to Landlord, certifying (if such be the case) that
this Lease is in full force and effect and that there are no defenses or offsets
thereto, or stating those claimed by Tenant.
SECTION 10.4. ATTORNMENT. Tenant shall, in the event any proceedings are
brought for the foreclosure of, or in the event of exercise of the power or sale
under any mortgage made by the Landlord covering the Leased Premises, attorn to
the purchaser upon any such foreclosure or sale and recognize such purchaser as
the Landlord under this Lease.
SECTION 10.5. RECORDING. Tenant shall not record this Lease without the
written consent of Landlord; however, upon the request of either party hereto
the other party shall join in the execution of memorandum or so called "short
form" of this Lease for the purpose of recordation. Said memorandum or short
form of this Lease shall describe the parties, the Leased Premises and the term
of this Lease and shall incorporate this Lease by reference.
SECTION 10.6. EXCAVATIONS. In case any excavation shall be made for
buildings or improvements or for any other purpose upon the land adjacent to or
near the Leased Premises, Tenant will afford to Landlord, or the person or
persons, firms or corporations causing or making such excavation, license to
enter upon the Leased Premises for the purpose of doing such work as Landlord or
such person or persons, firms or corporations shall deem to be necessary to
preserve the walls or structures of the building from injury, and to protect the
building by proper securing of foundations. Insofar as Landlord may have control
over the same, all such work shall be done in a manner as will not materially
interfere with the operation of Tenant's business in the Leased Premises.
SECTION 10.7. ACCESS TO PREMISES. Landlord reserves for itself and the
landlord under
29
<PAGE> 34
the underlying ground lease, the right to enter upon the Leased Premises at all
reasonable hours, upon reasonable advance notice, for the purpose of inspecting
the same, or of making repairs, additions or alterations to the building in
which the Leased Premises are located, to exhibit the Leased Premises to
prospective tenants, purchasers or others, to display during the last ninety
(90) days of the term, without hindrance or molestation by Tenant, "For Rent" or
similar signs on the exterior of the Leased Premises. The exercise by Landlord
of any of its rights under this provision shall not be deemed an eviction or
disturbance of Tenant's use and possession of the Leased Premises.
SECTION 10.8. QUIET ENJOYMENT. If and so long as Tenant pays the rent
reserved by this Lease and performs and observes all of the covenants and
provisions hereof, Tenant shall quietly enjoy the Leased Premises, subject,
however, to the terms of this Lease.
SECTION 10.9. NOTICES. Any notice required or permitted under this Lease
shall be deemed sufficiently given or served if sent by certified mail to Tenant
at the address of the Leased Premises, and to Landlord at its office or such
other place as it may designate in writing, and either party may by like written
notice at any time and from time to time designate a different address to which
notices shall subsequently be sent. Notices given in accordance with these
provisions shall be deemed received when mailed.
SECTION 10.10. HOLDING OVER. In the event Tenant remains in possession
of the Leased Premises after the expiration of this Lease and without the
execution of a new Lease, it shall be deemed to be occupying said premises as a
Tenant from month-to-month, subject to all conditions, provisions and
obligations of this Lease insofar as the same are applicable to a month-to-month
tenancy. Nothing in this section shall operate to preclude Landlord from
30
<PAGE> 35
removing Tenant from the Leased Premises upon the expiration of this Lease.
SECTION 10.11. CONSENTS BY LANDLORD. Whenever under this Lease provision
is made for Tenant securing the written consent or approval of Landlord, such
consent or approval will not be unreasonably withheld.
SECTION 10.12. SUCCESSORS AND ASSIGNS. The terms, covenants and
conditions hereof shall be binding upon and inure to the successors in interest
and assigns of the parties hereto.
SECTION 10.13. GOVERNMENTAL REGULATIONS. Tenant shall, at Tenant's sole
cost and expense, comply with all of the requirements of all city, county,
municipal, state, federal and other applicable governmental authorities, now in
force, or which may hereafter be in force, pertaining to signs, installations,
repairs and business operations in the Leased Premises and shall faithfully
observe all statutes now in force or which may hereafter be in force.
SECTION 10.14. CERTAIN EXPENSES OF LANDLORD. Any out-of-pocket expenses
reasonably incurred by Landlord for purposes of considering or acting upon any
request for consent or waiver under, or modification of, any of the provisions
of this Lease, including reasonable attorney's fees, shall be promptly
reimbursed by Tenant upon Landlord's request.
SECTION 10.15. FORCE MAJEURE. In the event that either Landlord or
Tenant shall be delayed or hindered in or prevented from the performance of any
act required hereunder by reason of strikes, lock outs, labor disputes,
inability to procure materials, failure of power, restrictive governmental laws
or regulations, riots, insurrection, war or other reason of a like nature not
attributable to the negligence or fault of the party delayed in performing work
or doing acts required under the terms of this Lease, then performance of such
act shall be excused for the period of the unavoidable delay and the period for
the performance of any such act shall
31
<PAGE> 36
be extended for an equivalent period. Provided, however, that this provision
shall not operate to excuse Tenant from the timely payment of rent and other
payments required by the terms of this Lease.
SECTION 10.16. GENERAL. Nothing contained in this Lease shall be deemed
or construed by the parties hereto or by any third party to create the
relationship of principal and agent or of partnership or of joint venture or of
any association between Landlord and Tenant, it being expressly understood and
agreed that neither the method of computation of rent nor any other provisions
contained in this Lease nor any acts of the parties hereto shall be deemed to
create any relationship between Landlord and Tenant other than the relationship
of landlord and tenant. No waiver of any default of Tenant or Landlord hereunder
shall be implied from any omission by Landlord or Tenant any action on account
of such default if such default persists or is repeated, and no express waiver
shall affect any default other than the default specified in the express waiver
and that only for the time and to the extent therein stated. One or more waivers
of any covenant, term or condition of this Lease by Landlord or Tenant shall not
be construed as a waiver of a subsequent breach of the same covenant, term or
conditions. The consent or approval by Landlord to or of any act by Tenant
requiring the Landlord's consent or approval shall not be deemed to waive or
render unnecessary Landlord's consent or approval to or of any subsequent
similar act by Tenant. The invalidity or unenforceability of any provision
hereof shall not affect or impair any provision. The plural sense where there is
more than one tenant and to either corporations, associations, partnership or
individuals, male or females, shall in all instances be assumed as though in
each case fully expressed. The laws of the State of Wisconsin shall govern the
validity, performance and enforcement of this Lease. The submission of this
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<PAGE> 37
Lease for examination does not constitute a reservation of or option for the
Leased Premises and this Lease becomes effective as a Lease only upon execution
and delivery thereof by Landlord and by Tenant. The headings contained herein
are for convenience only and do not define, limit or construe the contents of
the provisions hereof. All negotiations, representations and understandings
between the parties are incorporated herein and may be modified or altered only
by agreement in writing between the parties.
SECTION 10.17. EFFECT OF GROUND LEASE. Tenant acknowledges that Landlord
is presently leasing Landlord's Property under a ground lease having a term
equal to or greater than the term of this Lease. Tenant further acknowledges
that all of its rights under this Lease are specifically subordinate to the
rights of the landlord named in said ground lease and its successors and
assigns.
ARTICLE 11
ATTACHMENTS
SECTION 11.1. ATTACHMENTS. The following are attached hereto and made a
part hereof with the same force and effect as if set forth in full herein:
Exhibit A: Legal Description of Landlord's Property.
Exhibit B-1: Location of Leased Premises.
Exhibit B-2: Floor Plan.
Exhibit C: Rules and Regulations.
33
<PAGE> 38
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease and
affixed their respective seals as of the day, month and year first above
written.
LANDLORD: TENANT:
UNIVERSITY SCIENCE CENTER NOVAGEN, INC.
PARTNERSHIP
By: University Research Park Facilities
Corp., Managing Partner
BY: /s/ WAYNE F. MCGOWN BY: /s/ DAVID DUBBELL
----------------------------- --------------------------------
Wayne F. McGown, Assistant David Dubbell
Secretary/Treasurer Title: President
-----------------------
34
<PAGE> 39
EXHIBIT A
LEGAL DESCRIPTION OF LANDLORD'S PROPERTY
PARCEL A: Lot One (1) of Certified Survey Map No. 5417 recorded in the Dane
County Register of Deeds office in Volume 24 of Certified Survey Maps, pages
348 through 350, as Document No. 2057120, in the City of Madison, Dane County,
Wisconsin.
PARCEL B: A parcel of land located in the Southeast 1/4 of the Northeast 1/4 of
Section 30, Township 7 North, Range 9 East, in the City of Madison, Dane
County, Wisconsin, to-wit: Commencing at the Northeast corner of said Section
30; thence South 89 degrees 14'52" West, 661.98 feet; thence South 00 degrees
23'00" East, 1,814.00 feet to the Southeast corner of Lot 1 of Certified Survey
Map No. 5417, recorded in the Dane County Register of Deeds office in Volume 24
of Certified Survey Maps, pages 348 through 350, as Document No. 2057120;
thence South 89 degrees 14'52" West, along the Southerly edge of said Lot 1,
313.50 feet to the point of beginning; thence South 44 degrees 16'04" West,
46.66 feet; thence North 45 degrees 43'56" West, 46.63 feet; thence North 89
degrees 14'52" East, 65.97 feet to the point of beginning.
PARCEL C: Lot 30, University Research Park University of Wisconsin-Madison
First Addition, in the City of Madison, Dane County, Wisconsin
PARCEL D: (Lot 1 of) Certified Survey Map No. 6569 recorded in the Dane County
Register of Deeds office in Volume 32 of Certified Survey Maps, pages 147, 148,
and 149, as Document No. 2207630, in the City of Madison, Dane County, Wisconsin
<PAGE> 40
EXHIBIT B-1
LOCATION OF LEASED PREMISES
[Site map omitted]
<PAGE> 41
EXHIBIT B-2
FLOOR PLAN
[Floor plan omitted]
<PAGE> 42
EXHIBIT C
RULES AND REGULATIONS
None Adopted
<PAGE> 1
EXHIBIT 10(v)(ii)
AMENDMENT TO LEASE
THIS AMENDMENT TO LEASE ("Amendment") is made this 5th of December,
1996, by and between University Science Center Partnership, a Wisconsin general
partnership, having its principal office located at 1265 WARF Building, 610
Walnut Street, Madison, Wisconsin 53705 (hereinafter referred to as "Landlord")
and Novagen, Inc., an Arkansas corporation, having an office located at 597
Science Drive, Madison, Wisconsin 53711 (hereinafter referred to as "Tenant").
RECITALS
A. On December 5th, 1996, Landlord entered into a Lease Agreement
(the "Lease Agreement") with Tenant for approximately 17,750 square feet of
space in Landlord's building located at 601 Science Drive, Madison, Wisconsin
53711 and 282 square feet of space in Landlord's building located at 597 Science
Drive, Suite D, Madison, Wisconsin 53711.
B. Landlord and Tenant wish to amend the terms of the Lease
Agreement with regard to provisions regarding the heating, ventilating and air
conditioning of the Leased Premises and termination of the Lease Agreement.
NOW, THEREFORE, in consideration of the foregoing, and other good
and valuable consideration, the receipt and sufficiency of which are
acknowledged by each party, the following amendment to the Lease Agreement is
hereby agreed to, effective December 5th, 1996 (the "Effective Date").
1. Section 1.2 of the Lease Agreement is hereby amended to add
the following provision at the end of such Section:
Landlord acknowledges Tenant may have the need to lease
additional space to accommodate expansion of its business. Landlord and
Tenant agree to negotiate in good faith to satisfy Tenant's expansion
needs. If Landlord cannot provide reasonably acceptable expansion space
for Tenant, Tenant shall have the right to terminate this lease. Notice
of termination shall be provided by Tenant to Landlord one (1) year
prior to the effective date of termination. Tenant can first provide
such written notice of termination after the third year of this Lease.
2. Section 3.1 of the Lease Agreement is hereby amended to add
the following provision at the end of such Section:
The foregoing notwithstanding, Tenant's responsibility for the
cost of
<PAGE> 2
replacement of heating and air conditioning equipment shall be limited
to a fraction of the replacement cost thereof, the numerator of which
shall be the number of years remaining in the term of this Lease (not
including unexercised options to extend), and the denominator of which
shall be twenty (20). The balance of such cost shall be paid by
Landlord.
3. All other terms and conditions of the Lease Agreement shall
remain unchanged, and are hereby ratified and confirmed.
LANDLORD: UNIVERSITY SCIENCE CENTER PARTNERSHIP
By: University Research Park Facilities
Corp., Managing Partner
By: /s/ WAYNE F. MCGOWN
------------------------------------------
Wayne F. McGown, Assistant
Secretary/Treasurer
TENANT: NOVAGEN, INC.
By: /s/ DAVID DUBBELL
--------------------------------------------------
David Dubbell, President
Attest: /s/ DENNIS ALMOND
----------------------------------------------
Dennis Almond, Secretary
2
<PAGE> 1
EXHIBIT 10(v)(iii)
AMENDMENT TO LEASE
THIS AMENDMENT TO LEASE ("Amendment") is made this 29th day of December,
1997, by and between University Research Park Facilities Corp., a Wisconsin
non-stock corporation, having its principal office located at 1265 WARF
Building, 610 Walnut Street, Madison, Wisconsin 53705 (hereinafter referred to
as "Landlord") and Novagen, Inc., a Wisconsin corporation, having an office
located at 597 Science Drive, Madison, Wisconsin 53711 (hereinafter referred to
as "Tenant").
RECITALS
A. On December 5, 1996, University Science Center Partnership, a
Wisconsin general partnership as landlord, entered into a Lease Agreement (the
"Lease Agreement") with Tenant for approximately 18,032 square feet of space in
buildings located at 601 and 597 Science Drive, Wisconsin 53711.
B. Effective June 30, 1997, University Science Center Partnership
assigned all of its right, title and interest in the Lease Agreement to
University Research Park Facilities Corp.
C. Landlord and Tenant wish to modify certain provisions of the Lease
Agreement.
NOW, THEREFORE, in consideration of the foregoing, and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged by
each party, the following amendments to the Lease Agreement are hereby agreed
to, effective January 15, 1998 (the "Effective Date").
1. Section 1.1 of the Lease Agreement is hereby amended to provide that
effective January 15, 1998, the Leased Premises shall include the 1982 square
feet of space located at 597 Science Drive, Suite B, Madison, Wisconsin. The
location of such additional space is depicted on the floor plan attached as
Exhibit B-2, page 2.
2. The additional space (597 Science Drive, Suite B) is being leased to
Tenant in "as-is" condition.
3. Annual base rent for such space shall be $13.80 per square foot and
shall increase in accordance with the terms of the Lease Agreement.
4. Tenant acknowledges that another tenant, PanVera Corporation, has a
current need for the 1,982 square feet of space known as 597 Science Drive,
Suite B and Tenant does not have an immediate need for such space but desires to
protect its right to expand into contiguous space. Therefore, Tenant agrees that
Landlord shall have the right to lease such space to PanVera until such time as
Tenant has a need for such space. It is anticipated that Tenant may have a need
for this space on or about July 1, 1998. Therefore, Tenant shall have
<PAGE> 2
the right to elect to occupy such space as of July 1, 1998, and if it does not
so elect, shall have the right to elect to occupy such space at six-month
intervals thereafter. Tenant must provide Landlord and PanVera with written
notice of its election to occupy such space 90 days prior to such dates in order
to take occupancy on such dates. In the event Tenant elects to occupy such
space, Landlord shall so notify PanVera and PanVera shall, upon receipt of
written notice, vacate such space as of the date indicated in such notice.
Tenant shall not be responsible for payment of rent or any other amounts
relating to such space and shall have no obligations or liabilities as to such
space until such time as Tenant takes occupancy thereof. In addition, in the
event Tenant has not notified Landlord of its election to occupy such space and
PanVera vacates such space, Tenant shall be responsible for payment of all
amounts with respect to such space, including rent as above set forth, as of the
date PanVera vacates, and Tenant shall have the right to occupy such space as of
the date PanVera vacates.
5. Landlord represents that it has included terms and conditions in a
lease with PanVera which require PanVera to vacate the space which is the
subject of this Amendment, upon receipt of the notice described in the preceding
paragraph.
6. Exhibit B-2 attached to the Lease Agreement is hereby supplemented
with the Exhibit B-2, page 2 attached hereto.
7. All other terms and conditions of the Lease Agreement shall remain
unchanged, and are hereby ratified and confirmed.
LANDLORD: UNIVERSITY RESEARCH PARK FACILITIES CORP.
By: /s/ WAYNE F. MCGOWN
-----------------------------------------------
Wayne F. McGown, Assistant Secretary/Treasurer
TENANT: NOVAGEN, INC.
By: /s/ ROBERT MIERENDORF
-----------------------------------------------
Robert Mierendorf, President
2
<PAGE> 1
Exhibit 11
CN BIOSCIENCES, INC.
COMPUTATION OF EARNINGS PER SHARE
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31
--------------------
1997 1996
--------------------
<S> <C> <C>
Net income (loss) (2,980) 2,001
Average common shares outstanding 5,436 2,068
Net effect of dilutive common share equivalents
based on the treasury stock method -- 249
Adjustments to reflect requirements of the
Securities and Exchange Commission (Effect
of SAB 83) -- 12
--------------------
Adjusted shares outstanding 5,436 2,329
--------------------
Historical net income (loss) per share reflecting
requirements of the SEC ($0.55) $ 0.86
--------------------
Effect of assumed conversion of preferred
shares from date of issuance
-- 1,640.00
--------------------
Adjusted shares outstanding 5,436 3,969
--------------------
Pro Forma net income (loss) per share ($0.55) $ 0.50
--------------------
</TABLE>
<PAGE> 1
EXHIBIT 13
CONSOLIDATED
FINANCIAL
INFORMATION
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------
(in thousands, except per share data) 1993 1994 1995 1996 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Sales $ 22,771 $ 24,188 $ 26,966 $ 33,725 $ 39,445
Cost of sales 14,195 13,183 13,185 15,388 17,883
----------------------------------------------------------------
Gross profit 8,576 11,005 13,781 18,337 21,562
Operating expenses:
Selling, general and administrative 10,292 10,343 10,608 12,700 13,871
Research and development 462 736 1,338 2,144 2,567
Write off of in-process technology -- -- -- -- 6,800
----------------------------------------------------------------
Total operating expenses 10,754 11,079 11,946 14,844 23,238
----------------------------------------------------------------
Income (loss) from operations (2,178) (74) 1,835 3,493 (1,676)
Interest income (expense), net (170) (326) (527) (532) 594
----------------------------------------------------------------
Income (loss) before income taxes (2,348) (400) 1,308 2,961 (1,082)
Provision for income taxes (195) 62 291 960 1,898
----------------------------------------------------------------
Net income (loss) $ (2,153) $ (462) $ 1,017 $ 2,001 $ (2,980)
================================================================
Net income (loss) per share:
Basic $ (.66) $ (.14) $ .31 $ .54 $ (.55)
Diluted $ (.66) $ (.14) $ .30 $ .50 $ (.55)
Shares used in per share computations
Basic 3,278 3,288 3,301 3,709 5,436
Diluted 3,278 3,288 3,385 3,969 5,436
Net income excluding write off of in
process technology $ 3,820
Net income (loss) excluding write off of in ========
process technology per share:
Basic $ .70
Diluted $ .67
Shares used in per share computations
Basic 5,436
Diluted 5,737
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
December 31, (in thousands) 1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and
short-term investments $ 1,839 $ 935 $ 1,203 $ 14,704 $ 17,692
Working capital 12,946 13,017 15,424 30,231 26,975
Total assets 24,046 23,495 31,197 46,262 60,411
Long-term debt and other obligations,
net of current portion 2,834 3,266 8,601 1,233 3,565
Redeemable preferred stock 18,175 18,319 18,343 -- --
Stockholders' equity (deficit) (2,291) (2,053) (544) 38,900 39,106
====================================================================================================================================
</TABLE>
13
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
CN Biosciences was formed in 1992 with the purchase of the Company's
subsidiaries, including the Calbiochem biochemical and immunochemical operations
headquartered in San Diego, California, and the Novabiochem peptide operations
headquartered in Laufelfingen, Switzerland, from Biodor Holding AG, Ixora
Holding AG and Biodor US Holding Corporation. During 1993, the Company hired its
current Chief Executive Officer and reorganized its worldwide operations to
better focus its business and corporate strategy on core products. In 1993, the
Company recorded a one-time charge of approximately $2.0 million principally
related to its European operations to reserve for costs of facilities no longer
required, impaired inventory and costs of terminating employees. From 1993 to
1995, the Company invested in excess of $3.2 million for capital expenditures,
principally for infrastructure upgrades to its facilities, automated fulfillment
systems and computer information systems. The Company also hired additional
scientific personnel, particularly employees holding Ph.D.s, to enable it to
expand its internal development and manufacturing capabilities. These
initiatives contributed to improved operating results, and in 1994 the Company
commenced its niche research market strategy with the introduction of the Signal
Transduction specialty catalog.
In August 1995, the Company expanded its immunochemical and molecular biology
capabilities with the purchase of the Oncogene Research Products business from
Oncogene Science, Inc. (now known as OSI Pharmaceuticals, Inc., "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.
In December 1997, the Company expanded its molecular biology capabilities with
the purchase of all of the outstanding capital stock of Novagen, Inc.
("Novagen"), a privately owned company, together with all of the outstanding
capital stock of its parent holding company, for a purchase price of $10.5
million cash. Assets acquired included receivables and inventory, and intangible
assets including in-process technology valued at $6.8 million, which was written
off effective as of the purchase date. The acquisition of this business further
broadens the Company's product line and adds an important brand identity in
molecular biology.
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.
Since 1993, the Company has increasingly focused its strategy on its higher
margin core business of providing standard laboratory quantity sizes of products
(generally ranging from 100 nanograms to 100 grams), and has reduced the focus
on its bulk business. Bulk quantities (generally up to ten kilograms) are
generally offered at discounts to catalog prices, and bulk sales are
characterized as relatively high dollar sales made to a limited number of
customers. Thus, the absence or presence of bulk sales has had and could have a
material impact on results of operations in any individual period.
The Company maintains significant levels of inventory relative to its net sales
in order to meet short delivery times required by researchers. In addition,
products manufactured internally are made in economic batch sizes, which often
represent quantities sufficient to supply more than one year of sales. The
Company's products generally have a relatively long shelf life, often in excess
of five years, and quality and storage conditions are continually monitored to
ensure that quality products are delivered to customers. The Company regularly
evaluates the level and composition of inventory through the analysis of recent
sales history and forecasted product demand to ensure that inventory reserve
levels are adequate to properly reflect their net realizable value. Fluctuations
in inventory reserve levels, other than those related to reserves recorded in
1993 for impaired inventory described above, have not been material to the
Company's financial position or results of operations.
14
<PAGE> 3
CN BIOSCIENCES
MANAGEMENT'S DISCUSSION CONTINUED
The Company's reporting currency is the U.S. dollar. Historically, a majority of
the Company's sales have been denominated in U.S. dollars, with the balance
denominated in foreign currencies. These foreign currency sales have been
effected principally by the Company's international subsidiaries. In accordance
with U.S. accounting requirements, sales denominated in foreign currencies are
translated into the local functional currency and then into U.S. dollars, at an
average exchange rate in effect during the period. In addition, the Company
incurs manufacturing costs in Swiss Francs in connection with its Swiss
operations and also incurs operating expenses in local currencies at each of its
other international locations. Thus, changes from reporting period to reporting
period in the exchange rates between various foreign currencies and the U.S.
dollar have had, and will in the future continue to have, an impact on revenues
and expenses reported by the Company, and such effect may be material in any
individual reporting period. To the extent that the Company incurs operating
expenses in local currencies at its foreign subsidiaries, the Company has a
natural hedge against a portion of the possible fluctuation in foreign currency
exchange rates of revenues 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. Additionally, the balance sheets of the
Company's international subsidiaries are translated into U.S. dollars and
consolidated with the balance sheets of the Company's domestic entities in
accordance with U.S. accounting requirements. Changes in the U.S. dollar value
of the foreign currency denominated assets are accounted for as an adjustment to
stockholders' equity. Therefore, changes from reporting period to reporting
period in the exchange rates between various foreign currencies and the U.S.
dollar have had, and will continue to have an impact on the foreign currency
translation component of stockholders' equity reported by the Company, and such
effect may be material in any individual reporting period.
In October 1996, the Company completed the initial public offering of 1,840,000
shares of Common Stock at a 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. In April 1997, the Company completed a follow-on public
offering of 239,810 shares of Common Stock at a price of $13.50 per share. The
follow-on offering also included 910,190 shares sold by a founding stockholder
of the Company. The net proceeds to the Company from these offerings were
$20,077,000 and $2,556,000, respectively.
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>
Years Ended December 31,
----------------------------
percentage of sales 1995 1996 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales:
Core 76.5% 81.9% 82.5%
Bulk 23.5 18.1 17.5
-----------------------------
Total sales 100.0 100.0 100.0
Cost of sales 48.9 45.6 45.3
-----------------------------
Gross profit 51.1 54.4 54.7
Selling, general and administrative 39.3 37.7 35.2
Research and development 5.0 6.4 6.5
Write off of in-process technology -- -- 17.2
-----------------------------
Income (loss) from operations 6.8 10.3 (4.2)
Interest income (expense), net (2.0) (1.6) 1.5
-----------------------------
Income (loss) before income taxes 4.8 8.7 (2.7)
Provision for income taxes 1.0 2.8 4.8
-----------------------------
Net income (loss) 3.8% 5.9% (7.5)%
-----------------------------
Net income excluding write off of in-process technology 9.7%
=============================
</TABLE>
15
<PAGE> 4
MANAGEMENT'S DISCUSSION CONTINUED
Years Ended December 31, 1997 and 1996
SALES. Sales increased 17.0% to $39.4 million for 1997 from $33.7 million for
1996. This increase resulted primarily from a 17.8% increase in core product
sales and an increase of 13.1% in bulk sales. Significant factors which
management believes contributed to the increase in sales of core products during
1997 include the issuance of an updated Oncogene Research Products general
catalog, the issuance of updated specialty catalogs in the Signal Transduction,
Apoptosis and Combinatorial Chemistry niches, and the results of various other
marketing programs. While bulk sales were not a particular focus of the Company,
increases in 1997 were achieved primarily as a result of increases in certain
customer orders of Combinatorial Chemistry compounds and large orders for other
products from certain industrial customers. Gains in sales in 1997 were achieved
despite a general strengthening of the U. S. dollar, which had the effect of
decreasing the dollar value of sales denominated in foreign currencies recorded
in 1997 by 2.7%
GROSS PROFIT. The Company's gross profit percentage increased to 54.7% for 1997
from 54.4% for 1996. This increase resulted primarily from improved margins from
increased sales volume on the Company's core products offset by an increase in
lower margin bulk sales. Management believes that additional factors which
contributed to improvements in gross margins of the Company's core products
include improved operational efficiencies due to increased volumes, and selected
price increases.
SELLING, GENERAL AND ADMINISTRATIVE.Selling, general and administrative
expenditures increased 9.2% to $13.9 million for 1997 from $12.7 million for
1996, and decreased to 35.2% of sales for 1997 from 37.7% in 1996. This increase
resulted primarily from increased selling costs related to distribution and
promotion of additional general and specialty catalogs issued in 1997,
administrative salaries and costs associated with public reporting obligations
and investor relations activities. The decrease in expenses as a percentage of
sales was attributable to continuing improved operating efficiencies and
increased sales.
RESEARCH AND DEVELOPMENT. Research and development expenditures increased 19.7%
to $2.6 million for 1997 from $2.1 million for 1996, and increased to 6.5% of
sales for 1997 from 6.4% in 1996. This increase resulted primarily from
additional development activity related to the products for new niche offerings
in Neurosciences and Glycobiology.
IN-PROCESS TECHNOLOGY In accordance with generally accepted accounting
principles, the Company wrote off in process technology of $6.8 million in 1997
in connection with its acquisition of Novagen. This one-time write off
represents the value of products in various stages of development as of the
acquisition date, the amount of which was determined with the assistance of
valuation experts.
INTEREST INCOME (EXPENSE), NET. Interest income (expense), net increased to
interest income of $594,000 for 1997 from interest expense of $532,000 for 1996.
The increase resulted from increased cash balances and reduced debt levels as a
result of the completion of the Company's initial public and follow-on offerings
of Common Stock in October 1996 and April 1997, respectively.
INCOME TAXES. Income tax expense increased to $1.9 million for 1997 from $1.0
million for 1996. The increase resulted primarily from increased profitability
and increased tax rates in 1997 due to a decrease in available operating loss
carryforwards, certain of which were used in prior years. The write off of in
process technology in 1997 did not give rise to a tax benefit since the acquired
intangible asset had no basis for tax purposes.
NET INCOME (LOSS). As a result of the above factors, the net loss for 1997 was
$3.0 million compared to net income of $2.0 million for 1996. The decrease was
primarily attributable to the write off of $6.8 million of in process technology
related to the acquisition of Novagen in 1997 offset by positive operating
results. Excluding the effect of the write off of in process technology, net
income increased 90.9% to $3.8 million in 1997 from $2.0 million in 1996.
16
<PAGE> 5
CN BIOSCIENCES
MANAGEMENT'S DISCUSSION CONTINUED
Years Ended December 31, 1996 and 1995
SALES. Sales increased 25.1% to $33.7 million 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 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% in 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.
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.
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.
17
<PAGE> 6
MANAGEMENT'S DISCUSSION CONTINUED
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, 1997. 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>
(in thousands,except March 31, June 30, Sept. 30, Dec 31, March 31, June 30, Sept. 30, Dec 31,
Quarters Ended per share amounts ) 1996 1996 1996 1996 1997 1997 1997 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales
Core $ 6,597 $ 6,949 $ 7,122 $ 6,961 $ 8,004 $ 8,414 $ 8,006 $ 8,125
Bulk 1,621 1,398 1,713 1,364 1,581 1,792 1,624 1,899
----------------------------------------------------------------------------------------
Total sales 8,218 8,347 8,835 8,325 9,585 10,206 9,630 10,024
Cost of sales 3,794 3,808 4,065 3,721 4,360 4,530 4,319 4,674
----------------------------------------------------------------------------------------
Gross profit 4,424 4,539 4,770 4,604 5,225 5,676 5,311 5,350
Selling, general and administrative 3,015 3,170 3,245 3,270 3,471 3,578 3,399 3,423
Research and development 541 524 590 489 622 614 650 681
Write off of in-process technology -- -- -- -- -- -- -- 6,800
----------------------------------------------------------------------------------------
Income (loss) from operations 868 845 935 845 1,132 1,484 1,262 (5,554)
Interest income (expense), net (206) (188) (219) 81 116 128 176 174
----------------------------------------------------------------------------------------
Income (loss) before income taxes 662 657 716 926 1,248 1,612 1,438 (5,380)
Provision for income taxes 198 264 250 248 438 550 474 436
----------------------------------------------------------------------------------------
Net income (loss) $ 464 $ 393 $ 466 $ 678 $ 810 $ 1,062 $ 964 $ (5,816)
========================================================================================
Net income (loss) per share:
Basic $ 0.14 $ 0.12 $ 0.14 $ 0.13 $ 0.16 $ 0.20 $ 0.17 $ (1.04)
Diluted $ 0.13 $ 0.11 $ 0.13 $ 0.12 $ 0.15 $ 0.19 $ 0.17 $ (1.04)
Shares used in per share computations:
Basic 3,228 3,228 3,284 5,096 5,161 5,426 5,562 5,595
Diluted 3,443 3,443 3,498 5,492 5,525 5,726 5,828 5,595
Net income excluding write off of
in-process technology $ 984
========
Net income (loss) per share:
Basic $ 0.18
Diluted $ 0.17
Shares used in per share computations:
Basic 5,595
Diluted 5,869
</TABLE>
<TABLE>
<CAPTION>
===================================================================================================================================
March 31, June 30, Sept. 30, Dec 31, March 31, June 30, Sept. 30, Dec 31,
Quarters Ended (percentage of sales) 1996 1996 1996 1996 1997 1997 1997 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales:
Core 80.3% 83.3% 80.6% 83.6% 83.5% 82.4% 83.1% 81.1%
Bulk 19.7 16.7 19.4 16.4 16.5 17.6 16.9 18.9
---------------------------------------------------------------------------------------
Total sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales 46.2 45.6 46.0 44.7 45.5 44.4 44.9 46.6
---------------------------------------------------------------------------------------
Gross profit 53.8 54.4 54.0 55.3 54.5 55.6 55.1 53.4
Selling, general and administrative 36.7 38.0 36.7 39.3 36.2 35.1 35.3 34.1
Research and development 6.6 6.3 6.7 5.9 6.5 6.0 6.7 6.8
In-process technology -- -- -- -- -- -- -- 67.8
---------------------------------------------------------------------------------------
Income (loss) from operations 10.5 10.1 10.6 10.1 11.8 14.5 13.1 (55.4)
Interest income (expense), net (2.5) (2.2) (2.5) 1.0 1.2 1.3 1.8 1.7
---------------------------------------------------------------------------------------
Income (loss) before income taxes 8.0 7.9 8.1 11.1 13.0 15.8 14.9 (53.7)
Provision for income taxes 2.4 3.2 2.8 3.0 4.6 5.4 4.9 4.3
---------------------------------------------------------------------------------------
Net income (loss) 5.6% 4.7% 5.3% 8.1% 8.4% 10.4% 10.0% (58.0%)
---------------------------------------------------------------------------------------
Net income excluding write off of
in-process technology 9.8%
===================================================================================================================================
</TABLE>
18
<PAGE> 7
CN BIOSCIENCES
MANAGEMENT'S DISCUSSION CONTINUED
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $863,000 cash in 1997, and $2.0 million cash in each of
1996 and 1995 from operating activities. Cash provided by operating activities
in 1997 was more than the net loss due to the non-cash charge for in-process
technology, offset by increases in inventory and accounts receivable. In
addition, cash provided from operating activities in 1996 and 1995 resulted from
positive operating results, adjusted for non-cash charges including depreciation
and amortization offset by increases in inventory and accounts receivable.
Net cash provided by investing activities was $495,000 in 1997, and net cash
used in investing activities was $4.5 million in 1996 and $6.8 million in 1995.
Cash provided by investing activities during 1997 consisted of the use of cash
for capital expenditures for property and equipment offset by net sales of
short-term investments. Capital expenditures in 1997 related primarily to
improvements to manufacturing and distribution capabilities in various
locations, and the net sales of short-term investments were effected in
anticipation of funding the purchase price for the Novagen acquisition to be
paid in January 1998. In 1996, cash used in investing activities consisted
primarily of purchases and sales of short-term investments, and in 1995 the
Company acquired the Oncogene Research Products business in a purchase
transaction requiring an investment of approximately $6.2 million.
Net cash provided by financing activities was $3.8 million in 1997, $11.9
million in 1996 and $5.1 million in 1995. In 1997, net cash provided by
financing activities consisted of cash received from the issuance of shares of
Common Stock in the Company's follow-on public offering completed in April and
the tax benefit related to the exercise of non-qualified stock options. 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
completed in October, 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.
During 1997, the Company's foreign currency translation account reduced
stockholders' equity by $659,000 as a result of the translation of the Company's
international subsidiaries' balance sheets into U.S. dollars. Such changes would
not be realized through the Company's income statement unless the underlying
foreign-currency denominated net assets were liquidated.
The Company is a holding company, the principal assets of which are certain cash
balances and the capital stock of its subsidiaries, and has no independent means
of generating 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 based upon local results of 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, 1997, the Company had cash, cash-equivalents, and short-term
investments of $17.7 million and working capital of $27.0 million. At December
31, 1997, $5.0 million was available under a Credit Facility with a commercial
bank which will expire in June 1999.
The Company believes that its existing capital resources will be adequate to
fund its operations. 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 sales of equity, debt or convertible securities or increased credit
facilities. There can be no assurance that additional financing will be
available or that, if available, will be on terms favorable to the Company and
its stockholders.
19
<PAGE> 8
MANAGEMENT'S DISCUSSION CONTINUED
IMPACT OF YEAR 2000
During 1997, the Company developed a plan, and installed new operating systems
software and computer hardware, to address anticipated Year 2000 issues in
connection with its information systems and business relationships. It is
currently estimated that the net cost for review, analysis, modification and
testing of existing computer programs for both internal and external software
will be between $300,000 and $500,000. The Company has incurred a portion of
such expenses in the current fiscal year and it is anticipated that a
substantial portion of the remaining estimated cost will be incurred over the
next two years. In accordance with generally accepted accounting principles,
these costs are expensed as incurred.
FORWARD-LOOKING STATEMENTS
This Annual Report contains certain forward-looking statements, which express
the beliefs and expectations of management. Such statements are based on current
expectations and involve a number of known and unknown risks and uncertainties
that could cause the Company's future results, performance or achievements to
differ significantly from the results, performance or achievements expressed or
implied by such forward-looking statements. Important factors that could cause
or contribute to such a difference include, but are not limited to, those set
forth in the Company's Annual Report on Form 10-K and the Company's periodic and
other filings made with the Securities and Exchange Commission.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1996 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,591,000 $ 15,646,000
Short-term investments 4,113,000 2,046,000
Accounts receivable, net of allowance for doubtful
accounts of $341,000 in 1996 and $373,000 in 1997 4,487,000 5,914,000
Inventories 14,733,000 18,309,000
Other current assets 2,436,000 2,800,000
------------------------------
Total current assets 36,360,000 44,715,000
Property and equipment, net 3,688,000 4,528,000
Intangible assets, net 4,836,000 10,330,000
Other assets 1,378,000 838,000
------------------------------
Total assets $ 46,262,000 $ 60,411,000
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 2,303,000 $ 2,505,000
Liability for purchase of business -- 10,500,000
Accrued expenses 1,906,000 3,898,000
Other current liabilities 1,920,000 837,000
------------------------------
Total current liabilities 6,129,000 17,740,000
Other liabilities 1,203,000 857,000
Deferred tax liabilities 30,000 2,708,000
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 authorized,
no shares issued and outstanding -- --
Common stock, $.01 par value; 30,000,000 shares authorized,
5,152,587 shares in 1996 and 5,607,507 shares in 1997
issued and outstanding 52,000 56,000
Additional paid-in capital 38,736,000 42,481,000
Accumulated deficit (63,000) (3,043,000)
Foreign currency translation adjustment 271,000 (388,000)
Note receivable from stockholder (96,000) --
------------------------------
Total stockholders' equity 38,900,000 39,106,000
------------------------------
Total liabilities and stockholders' equity $ 46,262,000 $ 60,411,000
================================================================================================
</TABLE>
See accompanying notes
20
<PAGE> 9
CN BIOSCIENCES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31, 1995 1996 1997
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 26,966,000 $ 33,725,000 $ 39,445,000
Cost of sales 13,185,000 15,388,000 17,883,000
------------------------------------------------
Gross profit 13,781,000 18,337,000 21,562,000
Operating expenses:
Selling, general and administrative 10,608,000 12,700,000 13,871,000
Research and development 1,338,000 2,144,000 2,567,000
Write off of in-process technology -- -- 6,800,000
------------------------------------------------
Total operating expenses 11,946,000 14,844,000 23,238,000
------------------------------------------------
Income (loss) from operations 1,835,000 3,493,000 (1,676,000)
Interest income (expense), net (527,000) (532,000) 594,000
------------------------------------------------
Income (loss) before income taxes 1,308,000 2,961,000 (1,082,000)
Provision for income taxes 291,000 960,000 1,898,000
------------------------------------------------
Net income (loss) $ 1,017,000 $ 2,001,000 $ (2,980,000)
Net income (loss) per share:
Basic $ .31 $ .54 $ (.55)
Diluted $ .30 $ .50 $ (.55)
Shares used in per share computations:
Basic 3,301,000 3,709,000 5,436,000
Diluted 3,385,000 3,969,000 5,436,000
===========================================================================================
</TABLE>
See accompanying notes.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Foreign currency Note receivable
Common stock Additional Accumulated translation from common
Shares Amount paid-in capital deficit adjustment stockholder Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Sale of common stock, net of
issuance costs of $681,000 239,810 2,000 2,554,000 -- -- -- 2,556,000
Exercise of stock options and
warrants, including tax benefit 215,110 2,000 1,191,000 -- -- -- 1,193,000
Repayment of note receivable
for common stock -- -- -- -- -- 96,000 96,000
Net loss -- -- -- (2,980,000) -- -- (2,980,000)
Translation adjustment -- -- -- -- (659,000) -- (659,000)
-----------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31,1997 5,607,507 $ 56,000 $ 42,481,000 $ (3,043,000) $ (388,000) -- $ 39,106,000
===================================================================================================================================
</TABLE>
See accompanying notes
21
<PAGE> 10
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31, 1995 1996 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,017,000 $ 2,001,000 $ (2,980,000)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operations:
Write off in-process technology -- -- 6,800,000
Depreciation and amortization 1,856,000 1,877,000 2,476,000
Additions to inventory reserve 317,000 310,000 390,000
Additions (reductions) to allowance for doubtful accounts (129,000) 10,000 125,000
Loss on disposal of property and equipment 10,000 5,000 9,000
Forgiveness of note receivable from stockholder 150,000 -- --
Changes in assets and liabilities, net of assets acquired:
Accounts receivable, trade (409,000) (599,000) (1,229,000)
Inventories (370,000) (1,325,000) (3,851,000)
Other current assets 329,000 (842,000) 50,000
Deferred income taxes 26,000 (242,000) 326,000
Other assets (1,153,000) (1,102,000) (1,067,000)
Accounts payable, trade 148,000 910,000 112,000
Accrued expenses 781,000 365,000 1,055,000
Other current liabilities (590,000) 1,300,000 (1,042,000)
Other liabilities 9,000 (643,000) (311,000)
----------------------------------------------
Net cash provided by operating activities 1,992,000 2,025,000 863,000
INVESTING ACTIVITIES
Purchases of property and equipment (805,000) (369,000) (1,671,000)
Proceeds from sale of property and equipment 22,000 5,000 35,000
Purchase of business, net of cash received (6,213,000) -- 64,000
Purchase of short-term investments -- (4,829,000) (9,172,000)
Sale of short-term investments -- 716,000 11,239,000
Other 150,000 -- --
----------------------------------------------
Net cash provided by (used in) investing activities (6,846,000) (4,477,000) 495,000
FINANCING ACTIVITIES
Proceeds from lines of credit 809,000 1,025,000 --
Payments on lines of credit (1,404,000) (1,025,000) --
Proceeds from long-term debt 8,500,000 -- --
Payments on long-term debt (2,500,000) (8,167,000) --
Net proceeds from the sale of common stock 24,000 20,077,000 3,845,000
Payments for repurchase of stock (326,000) -- --
----------------------------------------------
Net cash provided by financing activities 5,103,000 11,910,000 3,845,000
Effect of exchange rate changes on cash 19,000 (70,000) (148,000)
----------------------------------------------
Net increase in cash and cash equivalents 268,000 9,388,000 5,055,000
Balance at beginning of period 935,000 1,203,000 10,591,000
==============================================
Balance at end of period $ 1,203,000 $ 10,591,000 $ 15,646,000
==============================================
Supplemental cash flow information:
Interest paid during the period $ 548,000 $ 747,000 $ 93,000
==============================================
Income taxes paid during the period $ 313,000 $ 67,000 $ 1,108,000
==============================================
Accrued write off of in-process technology -- -- $ 6,800,000
=======================================================================================================================
</TABLE>
See accompanying notes
22
<PAGE> 11
CN BIOSCIENCES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS DECEMBER 31,1997
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, Calbiochem, Novabiochem, Oncogene Research Products and
Novagen. With over 9,300 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 infectious
and genetic disease, developmental and cell biology, cancer, cardiovascular
disease, Alzheimer's and AIDS.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CASH EQUIVALENTS
For purposes of financial statement preparation, the Company considers all
demand deposits with banks or other financial institutions and investments with
initial maturities of three months or less at the date of purchase as cash
equivalents.
CONCENTRATION OF CREDIT RISK AND REVENUE RECOGNITION
The Company deposits its cash in financial institutions. At times, such deposits
may be in excess of insured limits. To date, the Company has not experienced any
losses on its cash investments.
The Company records revenue upon shipment. Accounts receivable are derived from
sales which are generally for small amounts and denominated in various
currencies. The Company grants credit to its customers based on an evaluation of
the customer's financial condition and collateral is generally not required.
Management believes the allowance for doubtful accounts is sufficient to provide
for any future losses. Credit losses have traditionally been minimal and within
management's expectations.
SHORT-TERM INVESTMENTS
The Company has classified its investments as available for sale and accordingly
carries them at fair value. Unrealized holding gains or losses, if any, net of
tax, on these securities are carried as a separate component of stockholders'
equity. The amortized cost of debt securities in this category is adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization is included in interest income. Realized gains and losses and
declines in value judged to be other than temporary on available-for-sale
securities are also included in interest income. The cost of securities sold is
based on the specific identification method.
INVENTORIES
Inventories are maintained to support customer deliveries worldwide, often on a
next-day or second-day basis, of many sizes and quantities of each brand of
catalog items. 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.
LONG-LIVED ASSETS
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of ("SFAS 121"). The adoption of SFAS No. 121
did not impact the financial position or results of operations of the Company.
23
<PAGE> 12
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
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.
Realized foreign currency exchange gains and losses were not material during any
of the three years in the period ended December 31, 1997.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
Reporting Comprehensive Income ("SFAS 130"), and Statement No. 131, Segment
Information ("SFAS 131"). Both of these standards are effective for fiscal years
beginning after December 15, 1997. The Company intends to adopt SFAS 130 in 1998
and operating results of prior periods will be reclassified. The Company's only
component of other comprehensive income has been the foreign currency
translation adjustment which is currently reported as part of stockholders'
equity. Historically, the Company has operated in one business segment; however,
SFAS 131 redefines segments and the Company has not determined how segments will
be defined for disclosure purposes or which segments will meet the quantitative
requirements for disclosure. The adoption of SFAS 131 will have no impact on the
Company's future results of operations or financial position.
NET INCOME (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share ("SFAS 128"). SFAS 128 replaced the calculation of
primary and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of stock options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported primary earnings
per share. On February 3, 1998, the SEC issued Staff Accounting Bulletin No. 98
("SAB 98") which revised the previous instructions for determining the dilutive
effects in earnings per share computations of common stock and common stock
equivalents issued at prices below the initial public offering price prior to
the effectiveness of the initial public offering. The basic earnings per share
as presented includes the assumed conversion of the preferred stock which
converted upon completion of the Company's initial public offering. All earnings
per share amounts for all periods presented have been, where appropriate,
restated to conform to the SFAS 128 and SAB 98 requirements.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Years Ended December 31, 1995 1996 1997
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Net income (loss) $ 1,017,000 $ 2,001,000 $(2,980,000)
Denominator:
Weighted-average shares outstanding 3,301,000 3,709,000 5,436,000
Effect of dilutive options and warrants 84,000 260,000 --
-----------------------------------------
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversions 3,385,000 3,969,000 5,436,000
=========================================
Basic earnings (loss) per share $ .31 $ .54 $ (.55)
=========================================
Diluted earnings (loss) per share $ .30 $ .50 $ (.55)
=====================================================================================================
</TABLE>
24
<PAGE> 13
CN BIOSCIENCES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
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., now known as OSI Pharmaceuticals, Inc., a biopharmaceutical
company, in exchange for $5,932,000 in cash plus acquisition costs of $281,000.
On December 27, 1997, the Company acquired all of the outstanding capital stock
of Novagen Inc., as well as the stock of its parent holding company in exchange
for $10,500,000, paid in January 1998. Additionally, the Company may pay
additional consideration to the sellers based upon a specified percentage of
Novagen brand product sales in 1998, 1999, and 2000 over threshold levels. Such
additional payments, if any, will be recorded as goodwill when earned and will
be amortized over the remaining life of the original goodwill. In connection
with this acquisition, the Company acquired and wrote off $6,800,000 related to
in-process technology.
These acquisitions have been accounted for as purchases 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. With regard to
the acquisition of ORP, this allocation resulted in $4,335,000 of goodwill which
is being amortized over 15 years. ORP's results of operations have been included
in the consolidated results of the Company since August 1, 1995. With regard to
the acquisition of Novagen, the allocation of purchase price resulted in
$1,048,000 of goodwill which is being amortized over 20 years. Novagen's results
of operations will be included in the consolidated results of the Company
beginning in January 1998.
The purchase price allocations are summarized as follows:
<TABLE>
<CAPTION>
ORP Novagen
------------------------------
<S> <C> <C>
Cash $ -- $ 64,000
Accounts Receivable -- 621,000
Inventories 1,507,000 598,000
Property and equipment 350,000 470,000
Other current assets 121,000 77,000
Identified Intangible assets -- 4,870,000
Goodwill 4,335,000 1,048,000
------------------------------
Total assets 6,313,000 7,748,000
Liabilities assumed (100,000) (2,878,000)
------------------------------
Net assets acquired $ 6,213,000 $ 4,870,000
=================================================================
</TABLE>
The following unaudited pro forma information presents the combined results of
operations of the Company and Novagen for the years ended December 31, 1996 and
1997 as though the acquisition had occurred January 1, 1996. 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, 1996 1997
-------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 37,474,000 $ 43,659,000
Net income (loss) $ 2,369,000 $ (3,245,000)
Diluted net income (loss) per share $ .60 $ (.60)
=========================================================================
</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, 1997. 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.
25
<PAGE> 14
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
<TABLE>
<CAPTION>
Inventories consist of the following:
December 31, 1996 1997
---------------------------------------------------------------------------------------
<S> <C> <C>
Finished products $ 13,777,000 $ 15,542,000
Semi-finished products, raw materials and
supplies 4,131,000 6,056,000
Work-in-progress 525,000 517,000
--------------------------------
18,433,000 22,115,000
Reserves for excess materials (3,700,000) (3,806,000)
--------------------------------
$ 14,733,000 $ 18,309,000
=======================================================================================
Other current assets consist of the following:
December 31, 1996 1997
---------------------------------------------------------------------------------------
Other $ 1,225,000 $ 1,187,000
Deferred income taxes 1,211,000 1,613,000
---------------------------------------------------------------------------------------
$ 2,436,000 $ 2,800,000
=======================================================================================
Property and equipment consist of the following:
December 31, 1996 1997
---------------------------------------------------------------------------------------
Equipment and office fixtures $ 6,581,000 $ 7,705,000
Leasehold improvements 1,165,000 1,171,000
---------------------------------------------------------------------------------------
7,746,000 8,876,000
Accumulated depreciation (4,058,000) (4,348,000)
---------------------------------------------------------------------------------------
$ 3,688,000 $ 4,528,000
=======================================================================================
Intangible assets consist of the following:
December 31, 1996 1997
---------------------------------------------------------------------------------------
Goodwill $ 5,707,000 $ 6,709,000
Developed Technology -- 3,000,000
Customer List -- 930,000
Trade Marks and Trade Names -- 700,000
Assembled Workforce -- 240,000
Accumulated amortization (871,000) (1,249,000)
---------------------------------------------------------------------------------------
$ 4,836,000 $ 10,330,000
=======================================================================================
</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 1996 and
1997, the Company reduced the value of goodwill by $855,000 and $46,000
respectively, based on the realization of certain deferred tax assets which had
previously been considered unrealizable. Amortization of goodwill for the years
ended December 31, 1995, 1996 and 1997 was $215,000, $377,000, and $378,000,
respectively.
<TABLE>
<CAPTION>
Other assets consist of the following:
December 31, 1996 1997
-------------------------------------------------------------------------
<S> <C> <C>
Capitalized direct-response advertising $ 842,000 $ 487,000
Other 536,000 351,000
$1,378,000 $ 838,000
=========================================================================
</TABLE>
Amortization of capitalized direct-response advertising for the years ended
December 31, 1995, 1996 and 1997 was $714,000, $551,000, and $1,088,000,
respectively.
26
<PAGE> 15
CN BIOSCIENCES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
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. (Note 6.) The facility provides that the Company can elect that
borrowings bear interest at the bank's prime rate or LIBOR plus 2.35% (8.3% at
December 31, 1997). The Company has issued a pound sterling 200,000 ($334,700)
letter of credit guaranteed by the revolving line of credit to support
commitments at its UK subsidiary. There were no borrowings outstanding under
this facility at December 31, 1997.
Interest expense charged against operations for the years ended December 31,
1995, 1996 and 1997 was $574,000, $717,000 and $117,000, respectively.
5. REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
REDEEMABLE PREFERRED STOCK
Upon consummation of the Company's initial public offering of common stock in
October 1996, holders of the Company's Series A preferred stock converted 4,001
shares into 788,814 shares of Class A common stock which were converted to
common stock in December 1996, Additionally, holders of the Company's Series B
preferred stock exchanged 179,428 shares Series B preferred stock for 1,435,424
shares of common stock.
COMMON STOCK
The Company authorized 800,000 shares, $.01 par value, of nonvoting Class A
common stock. 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, 1997, 11,186 shares
of Class A common stock were available to be issued.
STOCK OPTION PLANS
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 because, as discussed below, the
alternative fair value accounting provided for under Financial Accounting
Standards Board Statement No. 123, Accounting for Stock-Based Compensation,
("SFAS 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 Second Amended and Restated 1992 Stock Option Plan has authorized
the grant of options to employees, directors and consultants of the Company for
up to 1,085,000 shares of the Company's common stock. Options outstanding under
the plan have 5 to 10 year terms and vest and become fully exercisable 4 to 5
years from the date of grant.
Pro forma information regarding net income and earnings per share is required by
SFAS 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, 1996 and 1997, respectively: risk-free interest rates of
5.8% to 6.8%, 5.4% - 6.0% and 5.5% - 6.9%; dividend yields of 0% for all periods
presented; volatility factors of the expected market price of the Company's
common stock of 0, .3853 and .4282; and a weighted-average life of the option of
4.5 years for all periods presented.
27
<PAGE> 16
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input 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 options' vesting period. The effects of
applying SFAS 123 for pro forma disclosure purposes are not likely to be
representative of the effects on pro forma net income in future years because it
does not take into consideration pro forma compensation expense related to
grants made prior to 1995.
<TABLE>
<CAPTION>
The Company's pro forma information follows:
Years Ended December 31, 1995 1996 1997
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net income (loss) $ 1,014,000 $ 1,915,000 $ (3,603,000)
--------------------------------------------------
Pro forma net income (loss) per share - basic $ .31 $ .52 $ (.66)
--------------------------------------------------
Pro forma net income (loss) per share - diluted $ .30 $ .48 $ (.66)
======================================================================================================
</TABLE>
A summary of the Company's stock option activity, and related
information for the years ended December 31 follows:
<TABLE>
<CAPTION>
1995 1996 1997
---------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year 379,672 $ .42 395,334 $ .45 635,325 $. 43
Granted 101,732 .54 244,600 16.50 29,250 14.78
Exercised (56,922) .42 (1,893) .42 (212,207) .50
Forfeited (29,148) .42 (2,716) 3.05 (10,390) 16.50
----------------------------------------------------------------------------
Outstanding- end of year 395,334 $ .45 635,325 $ 6.62 441,978 $ 9.95
----------------------------------------------------------------------------
Exercisable at end of year 125,153 $ .42 214,211 $ .43 143,078 $ 5.75
Weighted-average fair value of
options granted during the year $ .15 $ 8.74 $ 8.58
=================================================================================================================
</TABLE>
A summary of exercise prices for options outstanding as of December 31,
1997 follows:
<TABLE>
<CAPTION>
Weighted
Weighted Average
Average Weighted Exercise Price
Remaining Average Options of Option
Price Ranges Outstanding Useful Life Exercise Price Exercisable Exercisable
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$.42 - $3.38 179,418 1.58 $ .63 96,368 $ .53
$14.37 - $18.25 262,560 8.91 16.30 46,710 $16.50
-------------------------------------------------------------------------------
Total 441,978 5.93 $9.95 143,078 $5.75
================================================================================================
</TABLE>
At December 31, 1997, options for 348,812 shares were available for future
grant, under option plans and 441,978 shares were reserved for future issuance
related to outstanding stock options.
WARRANTS
During 1995, the Company issued a warrant to purchase 3,028 shares of the
Company's common stock at $1.06 per share. The value of the warrant on the date
of issuance was not considered significant. The warrant was exercised in
December 1997.
28
<PAGE> 17
CN BIOSCIENCES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
INCREASE IN SHARES AUTHORIZED
On July 16, 1996, the Board of Directors modified the Company's capital
structure to authorize: 30,000,000 shares of common stock ($.01 par value),
800,000 shares of Class A common stock ($1.00 par value), 5,000 shares of Series
A preferred stock ($1.00 par value), 200,000 shares of Series B preferred stock
($1.00 par value) and 5,000,000 shares of preferred stock ($.01 par value).
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 vested over four years and were exercised in May 1997. 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 Series B preferred stock was converted to
common stock upon completion of the Company's initial public offering of common
stock in October 1996 (Note 5). The note bore interest at 8% per annum. 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%. The note was paid in full in December 1997.
In May 1997, the Company's U.S. subsidiary's credit agreement was modified to
reserve at the bank's option up to $200,000 of the amount otherwise available
under the revolving line of credit to provide a partial guarantee for a loan
made to an officer of the Company. At December 31, 1997, the bank had not
reserved any amount of revolving credit.
7. INCOME TAXES
The significant components of the provision (benefit) for income taxes
are as follows:
<TABLE>
<CAPTION>
Years Ended December 31, 1995 1996 1997
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 52,000 $ 714,000 $ 1,044,000
Foreign 47,000 436,000 118,000
State 17,000 52,000 366,000
---------------------------------------------------
116,000 1,202,000 1,528,000
Deferred
Federal 139,000 (277,000) 322,000
Foreign -- 145,000 48,000
State 36,000 (110,000) --
---------------------------------------------------
175,000 (242,000) 370,000
---------------------------------------------------
$ 291,000 $ 960,000 $ 1,898,000
===================================================
</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, 1996 and 1997 are shown below. As of December 31, 1996
and 1997, a valuation allowance of $2,389,000 and $348,000, respectively, has
been recognized as an offset to the deferred tax assets related to the
jurisdictions in which realization of such assets is uncertain.
29
<PAGE> 18
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
<TABLE>
<CAPTION>
December 31, 1996 1997
-----------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Inventory reserve $ 472,000 $ 594,000
Accounts receivable reserves 62,000 107,000
Net operating losses 2,336,000 508,000
Deferred rent 148,000 166,000
Other 801,000 752,000
-------------------------------
3,819,000 2,127,000
Valuation allowances (2,389,000) (348,000)
-------------------------------
1,430,000 1,779,000
-------------------------------
Deferred tax liabilities:
Purchased intangibles -- (1,948,000)
Depreciation (157,000) (260,000)
Non-permanently reinvested foreign earnings -- (667,000)
Other (92,000) --
-------------------------------
(249,000) (2,875,000)
Net deferred tax assets (liabilities) $ 1,181,000 $(1,096,000)
===================================================================================
</TABLE>
As of December 31, 1997, approximately $348,000 of the valuation allowance for
deferred tax assets relates to pre-acquisition tax net operating losses which,
when recognized, will be allocated directly to goodwill.
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, 1995 1996 1997
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision (benefit) at federal statutory rate $ 445,000 $ 1,007,000 $ (368,000)
Write off of in-process technology -- -- 2,340,000
State income taxes, net of federal benefit 56,000 91,000 232,000
Nondeductible expenses, including amortization of
costs in excess of net assets acquired 71,000 42,000 47,000
Change in valuation allowance, net of write-offs
and adjustments (298,000) (113,000) (725,000)
Other, net 17,000 (67,000) 372,000
----------------------------------------------------
Total income tax expense (benefit) $ 291,000 $ 960,000 $ 1,898,000
=============================================================================================================
</TABLE>
At December 31, 1997, the Company has approximately $838,000 and $254,000 of
foreign net operating losses in Germany and the United Kingdom, respectively,
which are available indefinitely. Additionally, the Company has approximately
$686,000 of net operating losses for Swiss Federal purposes, which will expire
in 2000 if not 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, 1995, 1996 and 1997 was $1,126,000, $1,640,000 and $1,723,000,
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 December 31, 1996
were $1,491,000 and $359,000, respectively, and at December 31, 1997 were
$1,036,000 and $305,000, respectively. Amortization of assets held under capital
leases is included in depreciation expense.
30
<PAGE> 19
CN BIOSCIENCES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS CONTINUED
Future annual minimum payments under the operating and capital leases as
of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Operating Leases Capital Leases
----------------------------------
<S> <C> <C>
1998 $ 1,757,000 $ 249,000
1999 1,568,000 194,000
2000 1,385,000 97,000
2001 1,322,000 41,000
2002 1,124,000 --
----------------------------------
Thereafter 5,157,000 --
----------------------------------
$ 12,313,000 581,000
==================================
Less amounts representing interest (94,000)
----------------------------------
Present value of future minimum lease payments 487,000
Less current portion (included in other current liabilities) (208,000)
----------------------------------
Capital lease obligation, net of current portion
(included in other liabilities) $ 279,000
=======================================================================================================
</TABLE>
9. CUSTOMER AND GEOGRAPHIC INFORMATION
The Company operates in one business segment, the development, production,
marketing and distribution of products used in disease-related life sciences
research. No single customer accounted for more than 10% of total revenue during
any of the three years in the period ended December 31, 1997. United States
export sales, principally to Europe and Asia, aggregated $4,429,000, $6,812,000
and $7,583,000, for the years ended December 31, 1995, 1996 and 1997,
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>
Consolidated
Years Ended December 31, 1995(in thousands) United States Europe Other Eliminations Total
--------------------------------------------------------------------------------------------------------------------------
<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
===================================================================================
<CAPTION>
Consolidated
Years Ended December 31, 1996(in thousands) United States Europe Other Eliminations Total
--------------------------------------------------------------------------------------------------------------------------
<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
===================================================================================
<CAPTION>
Consolidated
Years Ended December 31, 1997(in thousands) United States Europe Other Eliminations Total
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers $ 21,212 $ 13,034 $ 5,199 $ -- $ 39,445
Transfers between geographic areas 6,513 5,877 344 (12,734) --
-----------------------------------------------------------------------------------
Total revenue $ 27,725 $ 18,911 $ 5,543 $ (12,734) $ 39,445
-----------------------------------------------------------------------------------
Income before income taxes $ (4,198) $ 3,164 $ (48) $ -- $ (1,082)
-----------------------------------------------------------------------------------
Identifiable assets $ 51,360 $ 9,928 $ 295 $ (1,172) $ 60,411
===================================================================================
</TABLE>
10. EMPLOYEE BENEFIT PLAN
The Company sponsors a Defined Contribution Plan which covers substantially all
domestic employees. 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 $67,000,
$87,000 and $116,000 for the year ended December 31, 1995, 1996 and 1997,
respectively.
31
<PAGE> 20
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND STOCKHOLDERS
CN BIOSCIENCES, INC.
We have audited the accompanying consolidated balance sheets of CN Biosciences,
Inc. as of December 31, 1996 and 1997 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, 1997. 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, 1996 and 1997 and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
San Diego, California
February 27, 1998
32
<PAGE> 21
CORPORATE INFORMATION
BOARD OF DIRECTORS
STELIOS B. PAPADOPOULOS
Chairman, CEO and President
DR. RICHARD A. LERNER
President
The Scripps Research Institute
JOSEPH P. LANDY (1)
Managing Director
E.M. Warburg, Pincus & Co., LLC
S. JOSHUA LEWIS (2)
Managing Director
E.M. Warburg, Pincus & Co., LLC
ROBERT E. MCGILL, III (1, 2)
(1) member of compensation
and stock option committees
(2) member of audit committee
MANAGEMENT TEAM
STELIOS B. PAPADOPOULOS
CEO and President
JAMES G. STEWART
CFO and V.P. Administration
DR. JOHN T. SNOW
V.P. New Business Development
BEN MATZILEVICH
V.P. Market Development -
Niche Applications
DOUGLAS J. GREENWOLD
V.P. Sales and Marketing
DR. ROBERT C. MIERENDORF
President - Novagen, Inc.
SCIENTIFIC TECHNOLOGY COUNCIL
DR. WILLIAM H. BEERS
Senior V.P. and Chief Operating Officer
The Scripps Research Institute
DR. DENNIS R. BURTON
The Scripps Research Institute
DR. NORTON B. GILULA
The Scripps Research Institute
DR. CHI-HUEY WONG
The Scripps Research Institute
CORPORATE INFORMATION
CORPORATE HEADQUARTERS
CN BIOSCIENCES, INC.
10394 Pacific Center Court
San Diego, California 92121
619-450-5500
DOMESTIC SUBSIDIARIES
CALBIOCHEM-NOVABIOCHEM CORPORATION
10394 Pacific Center Court
San Diego, California 92121
619-450-9600
NOVAGEN, INC.
601 Science Drive
Madison, Wisconsin 53711
608-238-6110
INTERNATIONAL SUBSIDIARIES
CALBIOCHEM-NOVABIOCHEM AG
Weidenmattweg 4
CH-4448 Laufelfingen
Switzerland
011 41 62 299 19 22
CALBIOCHEM-NOVABIOCHEM GMBH
Lisztweg 1, D-65812 Bad Soden
Germany
011 49 6196 63955
CALBIOCHEM-NOVABIOCHEM (UK) LTD.
Boulevard Industrial Park
Padge Road, Beeston
Nottingham NG9 2JR
England
011 44 1159 430 840
CALBIOCHEM-NOVABIOCHEM JAPAN LTD.
MG Tamachi Building 3F
4-3-7, Shiba, Minato-ku
Tokyo 108
Japan
011 813 5443 0281
CALBIOCHEM-NOVABIOCHEM PTY
12/17-21 Bowden Street
Alexandria, NSW 2015
Australia
011 612 318 0322
INDEPENDENT AUDITORS
ERNST & YOUNG LLP
501 West Broadway
Suite 1100
San Diego, California 92101
LEGAL COUNSEL
WILLKIE FARR & GALLAGHER
One Citicorp Center
153 East 53rd Street
New York, New York 10022-4677
TRANSFER AGENT AND REGISTRAR
HARRIS TRUST COMPANY OF CALIFORNIA
601 S. Figueroa Street, 49th Floor
Los Angeles, California 90017
STOCK LISTING
CN Biosciences, Inc. common stock trades on the Nasdaq National Market tier of
The Nasdaq Stock Market under the symbol CNBI.
PRICE RANGE OF COMMON STOCK
As of February 10, 1998 there were approximately 23 holders of record of the
Company's common stock and 5,652,911 shares of common stock outstanding. No cash
dividends have been paid on the common stock since the Company's inception, and
the Company does not anticipate paying any cash dividends in the foreseeable
future.
The following table presents the high and low sales prices as quoted by NASDAQ:
<TABLE>
<CAPTION>
1996 HIGH LOW
---------------------------------------
<S> <C> <C>
10/2/96 - 12/31/96 $18.50 $12.75
<CAPTION>
1997 HIGH LOW
---------------------------------------
<S> <C> <C>
1/1/97 - 3/31/97 $18.50 $13.75
4/1/97 - 6/30/97 $19.00 $13.50
7/1/97 - 9/30/97 $24.50 $18.00
10/1/97 - 12/31/97 $26.00 $22.25
</TABLE>
FORM 10-K
A copy of the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission can be obtained free of charge, by writing the Company at
its corporate headquarters. Additional inquiries from our stockholders, and
potential investors, are welcome and should be directed to Investor Relations at
our corporate headquarters.
ANNUAL MEETING
April 21, 1998 10:00 a.m. (EST)
Offices of:
E.M. Warburg, Pincus & Co. LLC
466 Lexington Avenue
10th Floor
New York, New York 10017-3147
<PAGE> 1
Exhibit 21
List of Subsidiaries of CN Biosciences, Inc.
--------------------------------------------
<TABLE>
<CAPTION>
Subsidiary Jurisdiction of Incorporation or Organization
- ---------- ---------------------------------------------
<S> <C>
Calbiochem-Novabiochem Corporation California
Calbiochem-Novabiochem PTY Limited Australia
Calbiochem-Novabiochem Japan Limited Japan
Novagen Holdings, Inc. Arkansas
Novagen, Inc. Arkansas
Calbiochem-Novabiochem GmbH Germany
Calbiochem-Novabiochem (UK) Limited United Kingdom
Calbiochem Limited United Kingdom
Calbiochem-Novabiochem AG Switzerland
Clinalfa AG Switzerland
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report on Form 10-K
of CN Biosciences, Inc., and in the Registration Statements (Form S-8 File Nos.
333-16527 and 333-32891) pertaining to the Company's Amended and Restated 1992
Stock Option Plan of our report dated February 27, 1998, included in the 1997
Annual Report to Stockholders of CN Biosciences, Inc.
Our audits also included the financial statement schedule of CN Biosciences,
Inc. listed in Item 14(a). This schedule is the responsibility of CN
Biosciences, Inc.'s management. Our responsibility is to express an opinion
based on our audits. In our opinion, the financial statement schedule referred
to above, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
San Diego, California
March 10, 1998
<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, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 15,646
<SECURITIES> 2,046
<RECEIVABLES> 5,914
<ALLOWANCES> 0
<INVENTORY> 18,309
<CURRENT-ASSETS> 44,715
<PP&E> 4,528
<DEPRECIATION> 0
<TOTAL-ASSETS> 60,411
<CURRENT-LIABILITIES> 17,740
<BONDS> 0
0
0
<COMMON> 56
<OTHER-SE> 39,050
<TOTAL-LIABILITY-AND-EQUITY> 60,411
<SALES> 39,445
<TOTAL-REVENUES> 39,445
<CGS> 17,883
<TOTAL-COSTS> 23,238
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,082)
<INCOME-TAX> 1,898
<INCOME-CONTINUING> (2,980)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,980)
<EPS-PRIMARY> (0.55)
<EPS-DILUTED> (0.55)
</TABLE>
