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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-11303
SYNBIOTICS CORPORATION
(Exact name of small business issuer as specified in its charter)
California 95-3737816
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11011 Via Frontera
San Diego, California 92127
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (619) 451-3771
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [_]
As of April 30, 1997, 7,392,698 shares of Common Stock were outstanding.
Transitional Small Business Disclosure Format: Yes [_] No [X]
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SYNBIOTICS CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I. Condensed Statement of Operations -
Three months ended March 31, 1997 and 1996 3
Condensed Balance Sheet -
March 31, 1997 and December 31, 1996 4
Condensed Statement of Cash Flows -
Three months ended March 31, 1997 and 1996 5
Notes to Condensed Financial Statements 6
Management's Discussion and Analysis or Plan of Operation 8
Part II. Other Information 14
</TABLE>
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Item 1. Financial Statements
--------------------
Synbiotics Corporation
Condensed Statement of Operations (unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Revenues:
Product sales $6,940,000 $5,750,000
License fees and other 79,000 171,000
Interest 60,000 11,000
---------- ----------
7,079,000 5,932,000
---------- ----------
Cost and expenses:
Cost of sales 3,382,000 2,779,000
Research and development 307,000 216,000
Selling and marketing 1,300,000 1,229,000
General and administrative 664,000 385,000
---------- ----------
5,653,000 4,609,000
---------- ----------
Income before gain on sale of securities
available for sale 1,426,000 1,323,000
Gain on sale of securities available for sale 385,000
---------- ----------
Income before income taxes 1,426,000 1,708,000
Provision for income taxes 596,000 57,000
---------- ----------
Net income $ 830,000 $1,651,000
========== ==========
Net income per share $ .11 $ .28
========== ==========
Weighted average shares outstanding 7,485,000 5,911,000
========== ==========
Net income per share was computed based upon
the weighted average number of shares
outstanding, including common stock
equivalents.
</TABLE>
See accompanying notes to condensed financial statements.
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Item 1. Financial Statements (continued)
--------------------
Synbiotics Corporation
Condensed Balance Sheet
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<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ -------------
(unaudited) (audited)
<S> <C> <C>
Assets
Current assets:
Cash and equivalents $ 1,751,000 $ 3,050,000
Securities available for sale 2,214,000 2,872,000
Accounts receivable 4,929,000 1,363,000
Inventories 4,723,000 5,213,000
Deferred tax assets 460,000 1,045,000
Other current assets 818,000 1,353,000
----------- -----------
Total current assets 14,895,000 14,896,000
Property and equipment, net 668,000 656,000
Goodwill 5,257,000 5,347,000
Deferred tax assets 6,144,000 6,113,000
Other assets 1,699,000 1,555,000
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$28,663,000 $28,567,000
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 2,197,000 $ 2,241,000
Other current liabilities 650,000
----------- -----------
Total current liabilities 2,197,000 2,891,000
----------- -----------
Shareholders' equity:
Common stock, no par value, 24,800,000
shares authorized, 7,393,000 and
7,392,000 shares issued and outstanding
at March 31, 1997 and December 31, 1996 35,526,000 35,566,000
Accumulated deficit (9,060,000) (9,890,000)
----------- -----------
Total shareholders' equity 26,466,000 25,676,000
----------- -----------
$28,663,000 $28,567,000
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
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Item 1. Financial Statements (continued)
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Synbiotics Corporation
Condensed Statement of Cash Flows (unaudited)
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<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1997 1996
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 830,000 $ 1,651,000
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization 264,000 231,000
Gain on sale of securities available for sale (385,000)
Changes in assets and liabilities:
Accounts receivable (3,566,000) (2,142,000)
Inventories 490,000 (643,000)
Deferred taxes 554,000
Other assets 273,000 16,000
Accounts payable and accrued expenses (44,000) 450,000
Other liabilities (650,000) (11,000)
----------- -----------
Net cash (used for) operating activities (1,849,000) (833,000)
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (68,000) (16,000)
Investment in securities available for sale (715,000)
Proceeds from sale of securities available for sale 658,000 2,167,000
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Net cash provided by investing activities 590,000 1,436,000
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock, net (40,000)
----------- -----------
Net cash (used for) financing activities (40,000)
----------- -----------
Net (decrease) increase in cash and equivalents (1,299,000) 603,000
Cash and equivalents - beginning of year 3,050,000 1,017,000
----------- -----------
Cash and equivalents - end of period $ 1,751,000 $ 1,620,000
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
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Item 1. Financial Statements (continued)
--------------------
SYNBIOTICS CORPORATION
Notes to Condensed Financial Statements (unaudited)
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Note 1 - Interim Financial Statements:
The accompanying balance sheet as of March 31, 1997 and the statements of
operations and of cash flows for the three month periods ended March 31, 1997
and 1996 have been prepared by Synbiotics Corporation (the "Company") and have
not been audited. These financial statements, in the opinion of management,
include all adjustments (consisting only of normal recurring accruals) necessary
for a fair presentation of the financial position, results of operations and
cash flows for all periods presented. The financial statements should be read
in conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB filed for the year ended December 31,
1996. Interim operating results are not necessarily indicative of operating
results for the full year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2 - Securities Available for Sale:
Included in current assets are securities available for sale which consist
primarily of short-term commercial paper.
Note 3 - Inventories:
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- ------------
<S> <C> <C>
Raw materials $2,209,000 $1,970,000
Work in process 43,000 8,000
Finished goods 2,471,000 3,235,000
---------- ----------
$4,723,000 $5,213,000
========== ==========
</TABLE>
Note 4 - Earnings per Share:
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". SFAS
128, which applies to entities with publicly held common stock or potential
common stock, establishes standards for computing and presenting earnings per
share ("EPS"), simplifies the standards for computing EPS previously found in
Accounting Principles Board ("APB") Opinion No. 15 and
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Item 1. Financial Statements (continued)
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SYNBIOTICS CORPORATION
Notes to Condensed Financial Statements (unaudited)
- --------------------------------------------------------------------------------
makes EPS comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the statement of
operations for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income available to
common shareholders by the weighted-average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. Diluted EPS is computed similarly to fully
diluted EPS pursuant to APB 15.
The following are unaudited pro forma EPS for the three months ended March 31,
1997 and 1996 assuming that SFAS 128 were in effect as of January 1, 1996:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
------------- -----------
(unaudited) (unaudited)
<S> <C> <C>
As reported:
Primary EPS $ .11 $ .28
========= =========
Pro forma:
Basic and diluted EPS $ .11 $ .28
========= =========
</TABLE>
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Item 2. Management's Discussion and Analysis or Plan of Operation
---------------------------------------------------------
The information contained in this Management's Discussion and Analysis or Plan
of Operation contains both historical financial information and forward-looking
statements. Synbiotics does not provide forecasts of future financial
performance. While management is optimistic about the Company's long-term
prospects, the historical financial information may not be indicative of future
financial performance. In fact, future financial performance may be materially
different than the historical financial information presented herein. Moreover,
the forward-looking statements about future business or future results of
operations are subject to significant uncertainties an risks, which could cause
actual future results to differ materially from what is suggested by the
forward-looking information. The following risk factors should be considered in
evaluating the Company's future financial performance:
Competition
- -----------
Competition in the animal health care industry is intense. Many competitors,
such as Pfizer Animal Health, Mallinckrodt Veterinary and IDEXX Laboratories,
have substantially greater financial, manufacturing, marketing and product
research resources than the Company. Large companies in particular have
extensive expertise in conducting pre-clinical and clinical testing of new
products and in obtaining the necessary regulatory approvals to market products.
Competition is based on test sensitivity, accuracy and speed; product price; and
similar factors. IDEXX Laboratories requires its distributors not to carry the
products of competitors such as Synbiotics. There can be no assurance that such
competition will not adversely affect Synbiotics' results of operations or
ability to maintain or increase sales and market share.
History of Operating Losses; Accumulated Deficit
- ------------------------------------------------
Although the Company's operations were profitable in the first quarters of 1997
and 1996 and for the year ended December 31, 1996, the Company has had a history
of losses. Synbiotics has incurred an accumulated deficit of $9,060,000 at
March 31, 1997, even after the release in 1996 of a $7,158,000 valuation
allowance related to deferred tax assets. There can be no assurance that
Synbiotics can generate sufficient revenue to sustain profitability.
No Assurance that Acquired Businesses Can Be Successfully Combined
- ------------------------------------------------------------------
There can be no assurance that the anticipated benefits of the acquisition of
the business of International Canine Genetics, Inc. ("ICG") or any other future
acquisitions, including without limitation the proposed acquisition of the
veterinary diagnostics business of Rhone Merieux now being negotiated
(collectively, the "Acquired Business"') will be realized. Acquisitions of
businesses involve numerous risks, including difficulties in the assimilation of
the operations, technologies and products of the Acquired Business, introduction
of different distribution channels, potentially dilutive issuances of equity
and/or increases in leverage and risk resulting from issuances of debt
securities, accounting charges, operating companies in different geographic
locations with different cultures, the potential loss of key employees of the
Acquired Business, the diversion of management's attention from other business
concerns and the risks of entering markets in which Synbiotics has no or limited
direct prior experience. In addition, there can be no assurance that the
acquisitions will not have a material adverse effect upon Synbiotics' business,
results of operations or financial condition, particularly in the quarters
immediately following the consummation of the acquisition due to operational
disruptions, unexpected expenses and accounting charges which may be associated
with the integration of the Acquired Business and Synbiotics.
Reliance on Third Party Manufacturers
- -------------------------------------
Certain of Synbiotics' products (including its ICT Gold(TM) diagnostic kits and
all of its vaccines) are, and certain anticipated new products are expected to
be, manufactured by third parties under the terms of distribution and/or
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manufacturing agreements. The ICT Gold(TM) products and feline leukemia virus
vaccine are licensed to Synbiotics by their respective outside manufacturers.
In the event that these third parties are, unable (due to operational,
licensing, financial or other reasons) to supply Synbiotics with sufficient
finished products, Synbiotics would suffer significant disruption of its
business. Synbiotics has the right, under certain circumstances, pursuant to
the agreements to use alternate manufacturing sources. In some circumstances,
however, the Company would lack such a right.
If Synbiotics should encounter delays or difficulties in its relationships with
manufacturers, the resulting problems could have a material adverse effect on
Synbiotics.
Sales and Marketing
- -------------------
The Company's product distribution strategy results in a large percentage of
sales being to only a few customers. During the year ended December 31, 1996,
sales to two distributors totalled 37% of the Company's gross revenues. There
can be no assurance that Synbiotics will be able to establish an adequate sales
and marketing capability in any or all targeted markets or that it will be
successful in gaining market acceptance of its products. To the extent
Synbiotics enters into distributor arrangements, any revenues received by
Synbiotics will be dependent on the efforts of third parties and there can be no
assurance that such efforts will be successful. IDEXX Laboratories' requirement
that its distributors not carry the products of competitors such as Synbiotics
has induced certain distributors to stop doing business with Synbiotics in order
to carry IDEXX products instead. In addition, Synbiotics' sales of products, on
a private-label basis, toward the over-the-counter market may cause an adverse
reaction among Synbiotics' regular distributor and veterinarian customers.
Attraction of Key Employees
- ---------------------------
The success of Synbiotics is highly dependent, in part, on its ability to retain
highly qualified personnel, including senior management and scientific
personnel. Competition for such personnel is intense and the inability to
retain additional key employees or the loss of one or more current key employees
could adversely affect Synbiotics. Although Synbiotics has been successful in
retaining required personnel to date, there can be no assurance that Synbiotics
will be successful in the future.
Reliance on New and Recent Products
- -----------------------------------
Synbiotics relies on new and recently developed products. There can be no
assurance that Synbiotics will obtain and maintain market acceptance of its
products. With respect to future products, there can be no assurance that such
products will meet applicable regulatory standards, be capable of being produced
in commercial quantities at acceptable cost or be successfully commercialized.
There can be no assurance that new products can be manufactured at a cost or in
quantities necessary to make them commercially viable. If Synbiotics were
unable to produce internally, or to contract for, a sufficient supply of its new
products on acceptable terms, or if it should encounter delays or difficulties
in its relationships with manufacturers, the introduction of new products would
be delayed, which could have a material adverse effect on Synbiotics.
Future Capital Needs; Uncertainty of Additional Funding
- -------------------------------------------------------
The development and commercialization of Synbiotics' products requires
substantial funds. Synbiotics' future capital requirements will depend on many
factors, including cash flow from operations, the need to finance further
acquisitions, if any, continued scientific progress in its products and
development programs, the cost of manufacturing scale-up, the costs involved in
preparing, filing, prosecuting, maintaining and enforcing patent claims,
competing technological and market developments, and the cost of establishing
effective sales and marketing arrangements.
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Synbiotics anticipates that its existing, available cash, cash equivalents and
short-term investments will be adequate to satisfy its current capital
requirements and fund its current operations, although any large acquisition
(such as the contemplated Rhone Merieux diagnostics acquisition) would require
additional capital resources. There can be no assurance that additional
financing, if required, will be available on acceptable terms or at all. If
additional funds are raised by issuing equity securities, further dilution to
then existing shareholders may result. Debt financing would result in increased
leverage and risk. If adequate funds are not available, Synbiotics may be
required to delay, scale back or eliminate one or more of its research and
development programs or seek to obtain funds through arrangements with
collaborative partners or others even if the arrangements would require
Synbiotics to relinquish certain rights to certain of its technologies, product
candidates or products that Synbiotics would not otherwise relinquish.
Seasonality
- -----------
Synbiotics has experienced some seasonality in its business, with sales highest
in December to April, the time period in which distributors purchase canine
heartworm diagnostic products to sell to veterinarians for the heartworm season.
There can be no assurance that such seasonality will not have a material adverse
impact on Synbiotics' operations.
Patents and Proprietary Technology
- ----------------------------------
Synbiotics generally has sought and will continue to seek to protect its
interests by treating its particular variations in the production of monoclonal
antibodies as trade secrets. Synbiotics also has pursued and intends to
continue aggressively to pursue protection for new products, new methodological
concepts, and compositions of matter through the use of patents and trademarks
where obtainable. At present, Synbiotics has been granted eleven U.S. patents.
There can be no assurance that Synbiotics will be issued any additional patents
or that, if any patents are issued, they will provide Synbiotics with
significant protection or will not be challenged. Even if such patents are
enforceable, Synbiotics anticipates that any attempt to enforce its patents
would be time consuming and costly. Moreover, the laws of some foreign
countries do not protect Synbiotics' proprietary rights in its products to the
same extent as do the laws of the United States.
The patent positions of biotechnology companies, including Synbiotics, are
uncertain and involve complex legal and factual issues. Additionally, the
coverage claimed in a patent application can be significantly reduced before the
patent is issued. As a consequence, there can be no assurance that any of
Synbiotics' future patent applications will result in the issuance of patents
or, if any patents issue, that they will provide significant proprietary
protection or will not be circumvented or invalidated. Because patent
applications in the United States are maintained in secrecy until patents issue
and publication of discoveries in the scientific or patent literature often lag
behind actual discoveries, Synbiotics cannot be certain that it was the first
inventor of inventions covered by its pending patent applications or that it was
the first to file patent applications for such inventions. Moreover, Synbiotics
may have to participate in interference proceedings declared by the U.S. Patent
and Trademark Office to determine priority of invention that could result in
substantial cost to Synbiotics, even if the eventual outcome is favorable to
Synbiotics. There can be no assurance that Synbiotics' patents would be held
valid by a court of competent jurisdiction. An adverse outcome of any patent
litigation could subject Synbiotics to significant liabilities to third parties,
require disputed rights to be licensed from or to third parties or require
Synbiotics to cease using the technology in dispute. A patentholder has
asserted that the Company's key canine heartworm diagnostic tests infringe its
patent.
There can be no assurance that such patentholder or other third parties will not
assert infringement claims against Synbiotics in the future or that any such
assertions will not result in costly litigation or require Synbiotics to obtain
a license to intellectual property rights of such parties. There can be no
assurance that any such licenses would be available on terms acceptable to
Synbiotics, if at all. Furthermore, parties making such claims may be able to
obtain injunctive or other equitable relief that could effectively block
Synbiotics' ability to further develop, or commercialize, its products in the
United States and abroad and could result in the award of substantial damages.
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Defense of any lawsuit or failure to obtain any such license could have a
material adverse effect on Synbiotics. Finally, litigation, regardless of
outcome, could result in substantial cost to, and a diversion of efforts by,
Synbiotics.
Government Regulation
- ---------------------
Synbiotics' business is subject to substantial regulation by the United States
government. See "Business--Government Regulation" in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1996, which is hereby
incorporated by reference. In addition, Synbiotics' operations may be subject
to future legislation and/or rules issued by domestic or foreign governmental
agencies with regulatory authority relating to Synbiotics' business. There can
be no assurance that Synbiotics will be found in compliance with any of the
various regulations to which it is subject.
For marketing outside the United States, Synbiotics will be subject to foreign
regulatory requirements in such foreign jurisdictions, which vary widely from
country to country and there can be no assurance that Synbiotics will meet and
sustain any such requirements.
Product Liability and Insurance
- -------------------------------
The design, development and manufacture of Synbiotics' products involve an
inherent risk of product liability claims and associated adverse publicity.
Synbiotics has obtained liability insurance for potential product liability
associated with the commercial sale of its products. There can be no assurance,
however, that Synbiotics will be able to obtain or maintain such insurance.
Although Synbiotics currently maintains general liability insurance, there can
be no assurance that the coverage limits of Synbiotics' insurance policies will
be adequate. Product liability insurance is expensive, difficult to obtain and
may not be available in the future on acceptable terms or at all. A successful
claim brought against Synbiotics in excess of Synbiotics' insurance coverage
would have a material adverse effect upon Synbiotics.
Hazardous Materials
- -------------------
Synbiotics' research and development involves the controlled use of hazardous
materials, chemicals and various radioactive compounds. Although Synbiotics
believes that its safety procedures for handling and disposing of such materials
comply with the standards prescribed by local state and federal regulations, the
risk of accidental contamination or injury from these materials cannot be
completely eliminated. In the event of such an accident, Synbiotics could be
held liable for any damages that result and any such liability could exceed the
resources of Synbiotics. Synbiotics may incur substantial costs to comply with
environmental regulations.
Results of Operations
Total revenue for the first quarter of 1997 increased by $1,147,000 or 19% over
the first quarter of 1996. Product sales during the first quarter of 1997
increased $1,190,000 or 21%. The increase is due to increase in diagnostic
sales of $1,384,000 or 37%, offset by a decrease of $193,000 or 10% in vaccine
sales. Diagnostic sales increased due to increased sales of canine heartworm
diagnostic products, resulting from a combination of price increases and
promotional programs, and canine breeding diagnostic products acquired from ICG
in October 1996, offset by a decrease in the sales of D-TEC/(R)/ CB (canine
brucellosis) which has been on back order since April 1996 as a result of third-
party manufacturer production problems (the Company is currently in the process
of transferring the manufacturing of this product in-house). The decreased
vaccine sales are due to decreased shipments of bulk feline leukemia vaccine
(related to the timing of shipments as requested by OEM customers) and a
decrease in average selling prices related to certain potentially short-dated
vaccines, offset by an increase in sales of vaccines to private label partners.
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Interest, license fees and other revenue during the first quarter of 1997
decreased $43,000 or 24% from the first quarter of 1996 due to the non-
recurrence of license fees received in conjunction with an exclusive
distribution agreement with Daiichi Pharmaceutical Co., Ltd. for the
distribution of the Company's vaccine and diagnostic products in Japan. The
Daiichi arrangement is not expected to generate significant revenues until 1998
at the earliest. The decrease in license fee revenue was offset by an increase
in interest revenue due to an increased level of invested cash resulting from
the sale of the Company's investment in Texas Biotechnology Corporation ("TBC")
in the first and second quarters of 1996. The total proceeds received from the
sale were $4,727,000 ($2,167,000 in the first quarter of 1996 and $2,560,000 in
the second quarter of 1996). Sales of TBC stock in the resulted in a $385,000
gain in the first quarter of 1996.
The cost of sales as a percentage of product revenue was 48% during the first
quarter of 1997 and 1996. Although product sales increased by 21% during the
first quarter, the cost of sales as a percentage of product revenue was
unchanged due to the fact that a larger percentage of product sales during 1997
being generated from products which are manufactured for the Company by third
parties. The Company's manufacturing costs are predominantly fixed costs.
Among the Company's major products, DiroCHEK/(R)/ canine heartworm diagnostic
products are manufactured at Company facilities, whereas ICT GOLD/(TM)/ HW and
all vaccines are manufactured by third parties. In addition to affecting gross
margins, this shift in product mix renders the Company relatively more dependent
on the third-party manufacturers. The margins during the first quarter 1997 were
also affected by the decrease in average selling prices related to certain
potentially short-dated vaccines discussed above.
Research and development expenses during the first quarter of 1997 increased
$91,000 or 42% over the first quarter of 1996. The increase is primarily due to
increased contracted research and development expenses and legal expenses
related to patent filings. Research and development expenses as a percentage of
revenue were 4% during the first quarters of 1997 and 1996.
Selling and marketing expenses during the first quarter of 1997 increased by
$71,000 or 6% over the first quarter of 1996. The increase is due primarily to
increased salaries and consulting expenses related to the acquisition of the
operations of ICG, offset by a reduction in advertising and promotional
expenses. Selling and marketing expenses as a percentage of revenue were 18%
during the first quarter of 1997 as compared to 21% during the first quarter of
1996.
General and administrative expenses during the first quarter of 1997 increased
by $279,000 or 72% over the first quarter of 1996. The increase is primarily
due to amortization of goodwill and additional payroll costs related to the
acquisition of the operations of ICG. General and administrative expenses as a
percentage of revenue were 9% during the first quarter of 1997 as compared to 6%
during the first quarter of 1996.
The provision for income taxes during the first quarter of 1997 increased
$539,000 or 946% over the first quarter of 1996. The combined Federal and state
effective tax rate was 42% during the first quarter of 1997 as compared to 3%
during the first quarter of 1996. The income tax provision during the first
quarter of 1997 comprises a current income tax provision of $44,000 and a
deferred income tax provision of $552,000. The income tax provision during the
first quarter of 1996 comprises only a current income tax provision of $57,000.
The current provision for income taxes during the first quarters of 1997 and
1996 represent alternative minimum taxes due to the utilization of net operating
loss carryforwards. The increase in the deferred provision for income taxes is
due to the fact that as of March 31, 1996 the Company provided a deferred tax
asset valuation allowance for deferred tax assets which management determined
were "more likely than not" to be unrealizable based on recent trends in
operating results. At the end of 1996, the Company released the valuation
allowance related to its deferred tax assets based on management's assessment
that it was "more likely than not" that the Company would realize those assets
in future periods due to improvements in the Company's operating results. As a
result, although a provision for deferred income taxes was recognized during the
first quarter of 1997 and 1996 relating to the utilization of net operating loss
carryforwards, a benefit from deferred income taxes was recognized during the
first quarter of 1996 as a portion of the valuation allowance, equal to the tax
effected net operating loss carryforwards utilized, was released. There was
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no such benefit during the first quarter of 1997 as the valuation allowance had
been fully released as of December 31, 1996. The deferred tax provision during
the first quarter of 1997 resulted in a reduction in deferred tax assets, rather
than a current tax liability.
Financial Condition
Management believes that the Company's present capital resources, which included
working capital of $12,698,000 at March 31, 1997, are sufficient to meet its
current working capital needs.
The Company's operations have become seasonal due to the success of its canine
heartworm diagnostic products. Sales and profits tend to be concentrated in the
December to April time period, as distributors prepare for the heartworm season
by purchasing diagnostic products for resale to veterinarians.
Other
On February 3, 1997, the Company announced that it had entered into a non-
binding letter of intent to acquire the world-wide veterinary diagnostics
business unit, including the research and development, production and marketing
personnel, of Rhone Merieux S.A. ("RM"), a wholly-owned subsidiary of the Rhone
Poulenc Group. In addition, Synbiotics and RM intend to enter at the time of
the closing, (which is scheduled for the second quarter of 1997), into
collaborative agreements whereby RM would provide technology and/or reagents
needed by Synbiotics to continue the RM veterinary diagnostics business without
interruption, and Synbiotics would have a right of first refusal to license RM
technology in the field of veterinary diagnostics.
RM, based in Lyon, France, is the fourth largest animal health group in the
world. RM develops, produces and markets vaccines and innovative medication for
the prevention and treatment of animal diseases. In 1996, RM's consolidated
revenue was approximately $900,000,000. RM's veterinary diagnostic business
unit approximated $12,000,000 in revenue during 1996.
Negotiations relating to the transaction are ongoing, and the Company is
currently engaged in negotiations to obtain the necessary financing. There can
be no assurance that the Company will enter into a definitive agreement or that
the Company will be able to obtain the necessary financing.
There can be no assurance that the anticipated benefits of the acquisition will
be realized. The acquisition would involve numerous risks, including
difficulties in the assimilation of the operations, technologies and products of
the RM veterinary diagnostic unit ("RMD"), potentially dilutive issuances of
equity and/or debt securities, accounting charges, operating companies in
different geographic locations with different cultures, the potential loss of
key employees of RMD, the diversion of management's attention from other
business concerns and the risks of entering markets in which Synbiotics has no
or limited direct prior experience (e.g., large-animal diagnostics and the
European market). In addition, there can be no assurance that the acquisition
would not have a material adverse effect upon Synbiotics' business, results of
operations or financial condition, particularly in the quarters immediately
following the consummation of the acquisition due to operational disruptions,
unexpected expenses and accounting charges which may be associated with the
integration of RMD and Synbiotics.
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings:
------------------
None.
-13-
<PAGE>
Item 2. Changes in Securities:
----------------------
None.
Item 3. Defaults Upon Senior Securities:
--------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders:
----------------------------------------------------
None.
Item 5. Other Information:
------------------
None.
Item 6. Exhibits and Reports on Form 8-K:
---------------------------------
(a) Exhibits
--------
10.7 Employment Agreement between the Registrant and Paul A. Rosinack,
dated October 25, 1996.
10.61 Patent and Know-How License Agreement Amdex A/S and the Registrant,
dated August 29, 1996./(1)/
10.62 License Agreement between American Home Products Corporation and the
Registrant, dated August 16, 1996./(1)/
10.63 Supply Agreement between the Registrant and American Home Products
Corporation, dated August 16, 1996./(1)/
11.1 Computation of Earnings Per Share.
27 Financial Data Schedule (for electronic filing purposes only).
----------------
(1) Certain confidential portions of this exhibit have been omitted
by means of blacking out the text (the "Mark"). This exhibit has
been filed separately with the Secretary of the Commission
without the Mark pursuant to the Company's Application Requesting
Confidential Treatment under Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.
(b) Reports on Form 8-K
-------------------
None.
-14-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereto duly
authorized.
SYNBIOTICS CORPORATION
Date: May 12, 1997 /s/ Michael K. Green
------------------------------
Michael K. Green
Vice President of Finance and
Chief Financial Officer
(signing both as a duly authorized officer
and as principal financial officer)
-15-
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
EXHIBITS
TO
FORM 10-QSB
UNDER
SECURITIES EXCHANGE ACT OF 1934
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- -------
10.7 Employment Agreement between the Registrant and Paul A. Rosinack,
dated October 25, 1996.
10.61 Patent and Know-How License Agreement Amdex A/S and the Registrant,
dated August 29, 1996./(1)/
10.62 License Agreement between American Home Products Corporation and the
Registrant, dated August 16, 1996./(1)/
10.63 Supply Agreement between the Registrant and American Home Products
Corporation, dated August 16, 1996./(1)/
11.1 Computation of Loss Per Share.
27 Financial Data Schedule (for electronic filing purposes only).
- --------------------
(1) Certain confidential portions of this exhibit have been omitted by means of
blacking out the text (the "Mark"). This exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934, as amended.
<PAGE>
EXHIBIT 10.7
------------
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made by and between Synbiotics Corporation, a California
corporation ("EMPLOYER"), and Paul A. Rosinack ("EMPLOYEE") as of October 25,
1996.
RECITALS:
---------
WHEREAS, EMPLOYER and EMPLOYEE wish to set forth in this Agreement the terms and
conditions under which EMPLOYEE is to be employed by EMPLOYER.
NOW, THEREFORE, EMPLOYER and EMPLOYEE, in consideration of the mutual promises
set forth herein, agree as follows:
ARTICLE I
---------
TERM OF AGREEMENT
-----------------
1.1 Term. The term of this Agreement shall commence on the date first written
----
above and shall continue until terminated pursuant to Article 6.
ARTICLE 2
---------
EMPLOYMENT DUTIES
-----------------
2.1 Title/Responsibilities. EMPLOYEE shall serve as an employee of EMPLOYER and
----------------------
hold the position of Vice President and General Manager, Animal Health of
EMPLOYER, having the powers and responsibilities consistent with such position
and reporting to EMPLOYER's Chief Executive Officer, all subject to ultimate
direction and management of EMPLOYER's Board of Directors. EMPLOYEE shall also
perform all duties which from time to time are assigned to him by EMPLOYER's
Chief Executive Officer and/or Board of Directors, and shall provide the Chief
Executive Officer and/or Board with periodic reports upon request. EMPLOYEE's
job location (subject to change in the discretion of the Board) shall be San
Diego, California.
2.2 Full Time Attention. EMPLOYEE shall perform his duties hereunder in a
-------------------
diligent and professional manner and devote substantially all of his business
time and attention, best efforts, energy and skills to EMPLOYER during the time
he is employed hereunder as Vice President and General Manager, Animal Health of
EMPLOYER. During the term of this Agreement EMPLOYEE shall not without the
express consent of EMPLOYER's Board of Directors serve or act as a shareholder
(except passive holdings of less than 1% of the stock), employee, agent,
consultant, officer, director, partner, representative or owner of any other
business entity, nor (if it would require more than an insubstantial amount of
business time or attention) of any non-profit entity.
2.3 Compliance with Rules. EMPLOYEE shall comply with all applicable
---------------------
governmental laws, rules and regulations and with all of EMPLOYER's policies,
rules and/or regulations applicable to all employees of EMPLOYER.
-1-
<PAGE>
ARTICLE 3
---------
COMPENSATION
-------------
3.1 Base Salary. EMPLOYER shall pay semi-monthly to EMPLOYEE a salary of
-----------
$160,000 per annum until such time or times as it may discretionarily be raised
(but not lowered) upon annual performance/salary review by EMPLOYER's Chief
Executive Officer (upon recommendation of its Compensation Committee).
3.2 Additional Compensation (Stock Option). In addition to the salary provided
--------------------------------------
in Section 3.1, EMPLOYER hereby grants to EMPLOYEE as additional compensation
for EMPLOYEE's Services (but not for any capital-raising purposes or in
connection with any capital-raising activities), a non-qualified stock option to
purchase 25,000 shares of EMPLOYER Common Stock under EMPLOYER's 1996 Stock
Option Plan, with an exercise price equal to the Fair Market Value per share of
EMPLOYER Common Stock on the date first written above, such option to vest in
sixteen equal quarterly installments.
3.3 Bonus. In addition to the salary provided in Section 3.1, EMPLOYEE shall
-----
participate in any executive incentive bonus plan which EMPLOYER may in its
discretion establish for 1997 and future years.
ARTICLE 4
---------
OTHER BENEFITS
--------------
4.1 Fringe Benefits. EMPLOYEE shall be entitled during the term of his
---------------
employment under this Agreement to all other fringe benefits made available from
time to time by EMPLOYER to its executives generally and/or its employees
generally, including without limitation participation in EMPLOYER's 401(k) plan
and group health insurance plan.
4.2 Expenses. EMPLOYER shall reimburse EMPLOYEE, not less often than monthly,
--------
for reasonable out-of-pocket business expenses incurred by EMPLOYEE in the
course of his duties hereunder, upon submission by EMPLOYEE of appropriate
expense account reports and substantiating receipts.
4.3 Vacation. EMPLOYEE shall be entitled to three weeks paid vacation per full
--------
year of service, in accordance with and subject to EMPLOYER's vacation accrual
plan and policies. EMPLOYEE acknowledges the "cap" on vacation accruals set
forth in such plan and policies.
4.4 Relocation. EMPLOYER shall provide EMPLOYEE a loan in the amount of the
----------
following actual and reasonable relocation expenses of EMPLOYEE (but in no event
to exceed $50,000): standard brokerage commission and closing costs for selling
EMPLOYEE's Pennsylvania home, EMPLOYEE's house hunting travel expenses, up to
six months of temporary housing in San Diego County, and the expenses of moving
EMPLOYEE's household goods from Pennsylvania to San Diego County, and other
reasonable relocation related expenses that EMPLOYEE may incur. Such loan shall
bear no interest until maturity, and principal shall (to the extent not
previously forgiven) be payable in one lump sum on the day after the earlier of
the cessation of EMPLOYEE's employment with EMPLOYER or the fourth anniversary
of this Agreement. One-quarter of the original amount of the loan shall be
forgiven on each anniversary of this Agreement, provided EMPLOYEE is then
employed by EMPLOYER, and the entire loan shall be forgiven if EMPLOYEE's
employment with EMPLOYER ceases other than for Cause.
-2-
<PAGE>
ARTICLE 5
---------
FORMER EMPLOYMENT
-----------------
5.1 No Conflict. EMPLOYEE represents and warrants that the execution and
-----------
delivery by him of this Agreement, his employment by EMPLOYER and his
performance of duties under this Agreement will not conflict with and will not
be constrained by any prior employment or consulting agreement or relationship,
or any other contractual obligation.
5.2 No Use of Prior Confidential Information. EMPLOYEE will not intentionally
----------------------------------------
disclose to EMPLOYER or use on its behalf any confidential information belonging
to any of his former employers, but during his employment by EMPLOYER he will
use in the performance of his duties all information (but only such information)
which is generally known and used by persons with training and experience
comparable to his own or is common knowledge in the industry or otherwise
legally in the public domain.
ARTICLE 6
---------
TERMINATION
-----------
6.1 Term. This Agreement (including EMPLOYEE'S employment) shall continue until
terminated by either EMPLOYER or EMPLOYEE. Such termination (including
termination of EMPLOYEE's employment) shall be effected by written notification
and may be effected at any time, with or without Cause, for any reason or no
reason.
6.2 Severance. If this Agreement and/or EMPLOYEE's employment is terminated as
---------
a result of Cause, EMPLOYEE shall be entitled to no severance pay. If this
Agreement and/or EMPLOYEE's employment is terminated other than for Cause,
EMPLOYEE shall be entitled to severance pay as follows: one month's salary at
EMPLOYEE's then base salary rate, for each full year of employment completed by
EMPLOYEE, up to a maximum of six months' severance pay. "Service" shall, for
this purpose only, include EMPLOYEE's service at International Canine Genetics,
Inc. since January 1992 as if it were service at EMPLOYER. Fractional severance
pay credit shall be given for a fractional year of service.
Furthermore, if EMPLOYEE is terminated (other than for Cause) in connection with
an acquisition of EMPLOYER, EMPLOYEE shall be entitled to additional severance
pay of six months' salary at EMPLOYEE's then base salary rate (as well as the
severance pay described in the previous paragraph) and all of EMPLOYEE's then
unvested EMPLOYER stock options shall immediately become fully vested.
"Cause" shall be defined to mean:
(a) Death;
(b) Voluntary resignation (other than because of a material breach by
EMPLOYER of its obligations under this Agreement or reassignment of
EMPLOYEE, to a location outside San Diego County);
(c) EMPLOYEE's repudiation of this Agreement;
(d) permanent disability (defined as EMPLOYEE's inability to perform, with
or without reasonable accommodation, the essential functions of his position
for any 50 business days -- exclusive of vacation days taken -- within any
continuous period of 200 days by reason of physical or mental illness or
incapacity);
(e) EMPLOYEE- being formally charged with the commission of a felony, or
being convicted of a misdemeanor involving moral turpitude;
-3-
<PAGE>
(f) EMPLOYEE's demonstrable fraud or dishonesty;
(g) EMPLOYEE's use of alcohol, drugs or any illegal substance in such a
manner as to interfere with the performance of his duties under this
Agreement;
(h) EMPLOYEE's intentional, reckless or grossly negligent action materially
detrimental to the best interest of the EMPLOYER, including any
misappropriation or unauthorized use of EMPLOYER's property or improper use
or disclosure of confidential information (but excluding any good faith
exercise of business judgment);
(i) EMPLOYEE's intentional failure to perform material duties under this
Agreement if such failure has continued for 15 days after EMPLOYEE has been
notified in writing by EMPLOYER of the nature of EMPLOYEE's failure to
perform;
(j) EMPLOYEE's chronic absence from work for reasons other than illness or
permitted vacation; or
(k) EMPLOYEE's violation of policies in EMPLOYER's official Employee
Handbook, as it may be amended from time to time.
Termination for Cause shall be without prejudice to any other right or remedy to
which EMPLOYER may be entitled at law, in equity, or under this Agreement.
ARTICLE 7
---------
ARBITRATION
-----------
7.1 Final and Binding Arbitration. Any controversy, claim or dispute between
-----------------------------
(a) a party to this Agreement on the one hand, and (b) the other party to this
Agreement and/or such second party's parents, subsidiaries or affiliates and/or
any of their directors, officers, employees, agents, successors, assigns, heirs,
executors, administrators, or legal representatives, on the other hand, arising
out of, in connection with, or in relation to (t) the interpretation, validity,
performance or breach of this Agreement, (u) EMPLOYEE's stock options and the
underlying shares, (v) EMPLOYEE's employment by EMPLOYER, (w) any termination of
such employment, (x) any actions during or with respect to EMPLOYEE's work for
EMPLOYER, (y) any claims for breach of contract, tort or breach of the covenant
of good faith and fair dealing, or (z) any claims of discrimination or other
claims under any federal, state or local law or regulation now in existence or
hereinafter enacted and as amended from time to time concerning in any way the
subject of EMPLOYEE's employment with EMPLOYER or its termination, shall, at the
request of either party, be resolved to the exclusion of a court of law by
binding arbitration in San Diego, California, in accordance with Exhibit A
hereto. Each of EMPLOYEE and EMPLOYER understands and agrees that the
arbitration shall be instead of any civil litigation and that the arbitrator's
decision shall be final and binding to the fullest extent permitted by law and
enforceable, by any court having jurisdiction thereof. The only claims not
---
covered by this Section 7.1 are claims for benefits under the workers'
compensation laws, claims for unemployment insurance benefits, and matters
within the jurisdiction of the California Labor Commissioner, which will be
resolved pursuant to those laws.
ARTICLE 8
---------
GENERAL PROVISIONS
------------------
8.1 Governing Law. This Agreement and the rights of the parties thereunder
-------------
shall be governed by and interpreted under California law.
-4-
<PAGE>
8.2 Assignment. EMPLOYEE may not delegate, assign pledge or encumber his rights
----------
or obligations under this Agreement or any part thereof.
8.3 Notice. Any notice required or permitted to be given under this Agreement
------
shall be sufficient if it is in writing and is sent by registered or certified
mail, postage prepaid, or personally delivered to the following addresses, or to
such other addresses as either party shall specify by giving notice under this
section:
TO EMPLOYER: Chief Executive Officer, Synbiotics Corporation
11011 Via Frontera
San Diego, CA 92127
Copy to: Hayden 1. Trubitt
Brobeck, Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, CA 92101
TO EMPLOYEE: Paul A. Rosinack
17 Fariston Road
Wayne, PA 19087
8.4 Amendment. This Agreement may be waived, amended or supplemented only by an
---------
express writing signed by both of the parties hereto. To be valid, EMPLOYER's
signature must be by a person specially authorized by EMPLOYER's Board of
Directors to sign such particular document.
8.5 Waiver. No waiver of any provision of this Agreement shall be binding
------
unless and until set forth expressly in writing and signed by the waiving party.
To be valid, EMPLOYER's signature must be by a person specially authorized by
EMPLOYER's Board of Directors to sign such particular document. The waiver by
either party of a breach of any provision of this Agreement shall not operate or
be construed as a waiver of any preceding or succeeding breach of the same or
any other term or provision or a waiver of any contemporaneous breach of any
other term or provision or a continuing waiver of the same or any other term or
provision. No failure or delay by a party in exercising any right, power, or
privilege hereunder or other conduct by a party shall operate as a waiver
thereof, in the particular case or in any past or future case, and no single or
partial exercise thereof shall preclude the full exercise or further exercise of
any right, power, or privilege. No action taken pursuant to this Agreement
shall be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants or agreements
contained herein.
8.6 Severability. All provisions contained herein are severable and in the
------------
event that any of them shall be held to be to any extent invalid or otherwise
unenforceable by any court of competent jurisdiction, such provision shall be
construed as if it were written so as to effectuate to the greatest possible
extent the parties' expressed intent; and in every case the remainder of this
Agreement shall not be affected thereby and shall remain valid and enforceable,
as if such affected provision were not contained herein.
8.7 Headings. Article and section headings are inserted herein for convenience
--------
of reference only and in no way are to be construed to define, limit or affect
the construction or interpretation of the terms of this Agreement.
8.8 Drafting Party. The provisions of this Agreement have been prepared,
--------------
examined, negotiated and revised by each party hereto, and no implication shall
be drawn and no provision shall be construed against either party by virtue of
the purported identity of the drafter of this Agreement, or any portion thereof.
-5-
<PAGE>
8.9 No Outside Representations. No representation, warranty, condition,
--------------------------
promise, understanding or agreement of any kind with respect to the subject
matter hereof has been made by either party, nor shall any such be relied upon
by either party, except those contained herein. There were no inducements to
enter into this Agreement, except for what is expressly set forth in this
Agreement.
8.10 Entire Agreement. This Agreement together with EMPLOYER's standard
----------------
Proprietary Information and Inventions Agreement, constitutes the entire
agreement between the parties pertaining to the subject matter hereof and
completely supersedes all prior or contemporaneous agreements, understandings,
arrangements, commitments, negotiations and discussions of the parties, whether
oral or written (all of which shall have no substantive significance or
evidentiary effect). Each party acknowledges, represents and warrants that he
or it has not relied on any representation, agreement, understanding,
arrangement or commitment which has not been expressly set forth in this
Agreement. Each party acknowledges, represents and warrants that this Agreement
is fully integrated and not in need of parol evidence in order to reflect the
intentions of the parties. The parties specifically intend that the literal
words of this Agreement shall, alone, conclusively determine all questions
concerning the parties' intent.
IN WITNESS WHEREOF, the parties have executed and delivered this Employment
Agreement in San Diego, California as of the date first written above.
SYNBIOTICS CORPORATION
By: /s/ Kenneth M. Cohen
------------------------------------
Kenneth M. Cohen, Chief Executive Officer
/s/ Paul A. Rosinack
- -----------------------------------------
PAUL A. ROSINACK
Attachment: Exhibit A (Arbitration Procedures)
-6-
<PAGE>
EXHIBIT A
---------
ARBITRATION PROCEDURES
----------------------
1. Agreement to Arbitrate
----------------------
In the event that there is any dispute relating to, regarding or arising in
connection with EMPLOYEE's employment with EMPLOYER which cannot be resolved
through direct discussion or mediation, regardless of the kind or type of
dispute (excluding claims for workers' compensation, unemployment insurance or
any matters within the jurisdiction of the California Labor Commissioner), all
such disputes shall be submitted exclusively to final and binding arbitration
pursuant to the provisions of the Federal Arbitration Act or, if inapplicable,
the Uniform Arbitration Act (California Code of Civil Procedure (S)1280 et
seq.), upon request submitted in writing to the President within one year from
the date the dispute first arose, or within one year of the date of termination
of employment, whichever occurs first. This procedure shall be the exclusive
method for resolving all claims relating to the termination of EMPLOYEE's
employment, including but not limited to any alleged violations of federal,
state and/or local statutes; all claims based upon any purported breach of duty
arising in contract or tort, including but not limited to breach of contract,
breach of the covenant of good faith and fair dealing, or violation of public
policy; and any other alleged violation of an employee's statutory, contractual
or common law rights.
Any failure to request arbitration in accordance with the foregoing provisions
shall constitute a waiver of all rights to raise or present any claims in any
form, in any forum, arising out of any dispute that was subject to arbitration.
2. Selection of Arbitrator
-----------------------
All disputes subject to arbitration will be resolved by a single arbitrator
selected from a list provided by the California Mediation and Conciliation
Service from its Employment Arbitration Panel. The parties shall select the
arbitrator by alternately striking names from the list, and the last name
remaining on the list shall be the arbitrator selected to resolve the dispute.
The arbitrator must be selected within thirty (30) days of receipt of the
written request for arbitration. The arbitration hearing shall be held in San
Diego, California, at a neutral location selected by the parties or, in the
event the parties are unable to agree, at a location designated by the
arbitrator.
3. Authority of Arbitrator
-----------------------
The arbitrator shall only be authorized to exercise the powers specifically
enumerated by this procedure and to decide the dispute in accordance with
governing principles of law and equity. The arbitrator shall have no authority
to modify the powers granted by the terms of this procedure or to modify the
terms of the employee handbook, except as required by law. The arbitrator shall
have the authority to rule on motions by the parties, to issue protective orders
upon motion of any party or third parties, and to determine only the disputes
submitted by the parties based upon the grounds presented. Any dispute or
argument not presented by the parties is outside the scope of the arbitrator's
jurisdiction and any award invoking such disputes or arguments is subject to a
motion to vacate; provided, however, the arbitrator shall have exclusive
authority to resolve any dispute relating to the validity, interpretation and
enforcement of these arbitration procedures.
4. Discovery
---------
The arbitrator shall have the power, in addition to determining the merits of
the dispute submitted, to permit discovery regarding the subject matter of
arbitration and to enforce the rights, remedies, procedures, duties, liabilities
and obligations of discovery by the imposition of the same terms, conditions,
consequences, liabilities, sanctions and penalties as may be imposed in the
circumstances by a Superior Court under the California Code of Civil Procedure.
All discovery must be completed thirty (30) days prior to the date set for the
arbitration hearing.
A-1
<PAGE>
5. Hearing
-------
The issue(s) submitted to the arbitrator must be set forth in the request for
arbitration. The arbitrator shall have no authority to frame the statement of
the issue(s). Unless otherwise agreed by the parties, the arbitration hearing,
shall be governed by the formal rules of evidence contained in the California
Evidence Code. The parties shall mutually agree on the number of days required
for hearing. The hearing shall be recorded and transcribed verbatim by a
certified shorthand reporter. Each party shall bear its own costs with respect
to a copy of the transcript of the hearing; however, the parties shall each be
responsible for one-half the cost of the court reporter's fee and the
arbitrator's copy of the hearing transcript.
6. Post Hearing Procedure
----------------------
Each party shall have the right to present closing argument at the conclusion of
all sworn testimony and, in addition to or in lieu of closing argument, either
party shall have the right to submit post-hearing briefs. The due date and
procedure for exchanging post-hearing briefs shall be mutually agreed upon by
the parties or as directed by the arbitrator.
7. Opinion and Award
-----------------
The arbitrator shall issue a written opinion and award within sixty (60) days of
closing arguments or the receipt of post-hearing briefs, whichever is later.
The arbitration award and opinion shall be signed and dated by the arbitrator
and shall decide all issues submitted and set forth the legal principles
supporting each aspect of the opinion and award. The arbitrator shall only be
permitted to award those remedies in law or equity which are requested by the
parties and which are supported by the credible, relevant evidence. The
arbitrator shall have no authority to award punitive or exemplary damages under
any circumstances or for any reason.
8. Fees and Costs
--------------
Each party shall be responsible for its own attorney's fees, except as provided
by law, and for all costs associated with discovery unless otherwise ordered by
the arbitrator. Each party shall also be responsible for one-half of the
arbitrator's fee and one-half of any costs associated with the facilities for
the arbitration hearing.
9. Severability
------------
In the event that any provision of this procedure is determined by the
arbitrator or by a court of competent jurisdiction to be illegal, invalid, or
unenforceable to any extent, such term or provision shall be enforced to the
extent permissible under law and all remaining terms and provisions hereof shall
continue in full force and effect.
A-2
<PAGE>
EXHIBIT 10.61
-------------
PATENT AND KNOW-HOW LICENSE AGREEMENT
This Agreement is entered into between
Amdex A/S
Lerso Parkalle 42
DK-2100 Copenhagen 0
Denmark
(in the following referred to as the "Licensor")
and
Synbiotics Corporation
11011 Via Frontera
San Diego
California 92127
USA
(in the following referred to as the "Licensee")
Whereas:
Licensor is entitled by virtue of the Transfer of Rights Agreement by and
between Licensor and [*] to exclusive rights under the Patent and the inventions
the subject of the Patent (the "Inventions") and is entitled to license other
companies under the Patent and in connection with the Inventions; and
Licensor is in possession Of valuable know-how and technical information
relating to the Inventions including but not limited to manufacture of water-
soluble polymeric conjugates of the type described in the Patent ("Know How");
and
Licensor has informed Licensee that the various applications and patents
identified in Appendix 8 hereto constitute all of the patent protection relating
to the Inventions and that the current status of the applications and patents is
as stated in Appendix 8;
- -----------------------
[*] Certain confidential portions of this exhibit have been omitted by means of
blacking out the text (the "Mark"). This exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934, as amended.
-1-
<PAGE>
Licensee has had the opportunity to review the patent application submitted and
has reviewed the status thereof with Licensor;
Licensor has agreed to supply to Licensee the Licensed Products and has agreed
that Licensee may use the Licensed Products and may use and sell Licensee
Products. Licensor shall use the Know How which it has developed and which it
will in future develop in the development and manufacture of the Licensed
Products.
Now, therefore, in consideration of the premises and the mutual promises and
covenants set forth below, Licensor and Licensee mutually agree as follows:
Clause 1
Definitions
"Affiliate" shall mean (a) any company owned or controlled to the extent of at
- -----------
least fifty percent (50%) of its issued and voting capital by a party to this
Agreement and any other company so owned or controlled (directly or indirectly)
by any such company or the owner of any such company, or (b) any partnership,
joint venture or other entity directly or indirectly controlled by, controlling,
or under common control of, to the extent of fifty percent (50%) or more of
voting power (or otherwise having power to control its general activities), a
party to this Agreement, but in each case only for so long as such ownership or
control shall continue.
"Agreement" shall mean this Patent and Know-How License Agreement, as amended
from time to time.
"Development Project" shall mean the development/research work to be performed
by Licensor under this Agreement for the creation of the Licensed Product.
"Development/Research Terms" shall mean those terms governing the development of
the Licensed Product(s) as set forth in Appendix 5 attached hereto.
"Escrow Agent" shall have the meaning set forth in Appendix 1 Section (B).
"License" shall mean the license granted under this Agreement for the use of the
Licensed Products, as defined below.
"License Fee" shall have the meaning set forth in Clause 16(i).
"Licensed Product" shall mean any and all [*] developed and generated by
Licensor (or Licensee solely under the terms of this Agreement and utilizing
Licensor Know How and the Manufacturing Details) for use in products for (i) the
diagnosis and detection of infectious and other diseases in animals, (ii) the
diagnosis and monitoring of allergy in animals and (iii) the measurement of
hormones and drugs in animals, and any and all improvements or modifications
made thereto.
"Licensee Product" shall mean those assay kits and/or other diagnostic products
manufactured and sold by Licensee which incorporate the Licensed Product.
"Manufacturing Details" shall mean all technical information for the routine
manufacture of the Licensed Products as set forth generally in Appendix 1
Section A and as to be deposited by Licensor with the Escrow Agent.
"Materials" shall mean all advertising and promotional materials referencing the
Licensee Products.
-2-
<PAGE>
"Minimum Payment" shall have the meaning set forth in Clause 17.
"Patent" shall mean applications for patents relating to the Inventions and
patents granted pursuant to those applications as set forth in Appendix 8 to
this Agreement and all applications and granted patents relating to improvements
relating to the Inventions and modifications thereof. (Each shall be "a Patent",
collectively "the Patents").
"Raw Material" shall mean the antibodies to be supplied by Licensee, or
suppliers controlled by Licensee, to Licensor for use in the development and
production of the Licensed Products.
"Territory" shall mean the geographic scope of the License as set forth in
Clause 8.
"Transfer of Rights Agreement" shall mean the agreement between [*].
Clause 2
Scope of the License
The License hereby granted to Licensee is for the supply of and use and sale of
the Licensed Product incorporated into assay kits and other diagnostic products
for (i) the diagnosis and detection of any and all infectious and other diseases
in animals, (ii) the diagnosis and monitoring of allergy in animals and (iii)
the measurement of hormones and drugs in animals (the "Licensee Products").
Excluded from the License is the use and sale of assay kits and other diagnostic
products incorporating the Licensed Products in the research and development of
medicines for human therapeutic use.
Also excluded from the License shall be conjugates developed for hormone
determination in animals for research and development purposes and drugs of
abuse in animals.
In the event of a default by Licensor under the provisions of Clause 25 and
Appendix 1 hereof, Licensee is hereby granted an exclusive license to produce,
use and sell the Licensed Products directly utilizing the Know-How and
Manufacturing Details held in escrow by the Escrow Agent on the same terms and
conditions as set forth herein (the "Default License").
Clause 3
Technical Field of Application
The License hereby granted is for Licensee's use of the Licensed Product only as
labelled with the two classes of labels, enzymes and dyes. The class of enzymes
includes, but is not limited to, [*] and [*] and the class of dyes includes, but
is not limited to, [*] and [*]. Excluded from the class of dyes are the [*]
dyes. The Licensed Product may be used as a primary or as a secondary reagent
incorporating [*]. The Licensed Product may be used in all assay formats for
example the standard microwell format (i.e. 96 well microtitre plates),
dipstics, lateral flow devices or flow-through membrane devices.
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Clause 4
Exclusivity of License
The License is exclusive for the scope defined in Clause 2 and the technical
field of application defined in Clause 3 above. The exclusive grant hereunder
shall remain in effect for the term of this License and any Default License,
except as set forth in Clause 27(i) hereof.
Clause 5
Authorization
Licensor has all necessary consents, permits or authorizations required under
current law from any relevant governmental body or from any other person, firm
or corporation under any Agreement to which Licensor may be a party to grant
this License to Licensee and to perform the obligations set forth herein.
Licensor agrees to keep in force all agreements which would affect the validity
of this License including, but not limited to, the Transfer of Rights Agreement.
Clause 6
Non Assignment and Non Disposal
Neither party shall assign, sub-contract or otherwise dispose of the whole or
any part of its rights and obligations under this Agreement without the prior
written consent of the other except that either party may assign the benefit of
this Agreement to any of its Affiliates. No such assignment shall relieve the
assigning party of its obligations hereunder at the time of its assignment.
This Agreement shall be assigned to any party that purchases all or
substantially all of the assets or the conjugate business of Licensor. Licensor
shall provide any purchaser of substantially all of its assets or its conjugate
business with a copy of this Agreement and shall obtain from such purchaser
written confirmation of their understanding and acceptance of the terms hereof
and the obligations contained herein.
Clause 7
Grant of Sub-Licenses
Licensee shall not grant a sub-license to any party, except an Affiliate of
Licensee, without consent from Licensor.
Clause 8
Territory of License
The License is granted on a worldwide basis.
Clause 9
Trademarks
Each and every Licensee Product shall be advertised and sold by Licensee under
both Licensee's and Licensor's trademark. Licensor's trademark shall be
displayed according to the guidelines set out in Appendix 4 attached hereto.
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Licensee's trademarks shall at all times remain the exclusive property of
Licensee and shall not be used by Licensor without the express written
permission of Licensee.
To the best of Licensor's knowledge, Licensee may lawfully import, distribute,
advertise, market, promote, offer for sale, and sell the Licensee Products under
Licensor's registered trademark in the Territory. Licensor shall take charge of
any negotiation or litigation arising out of any claim against Licensee for
infringement. The costs involved in undertaking any such negotiation and/or
litigation shall be borne by Licensor. Any damages or penalties assessed
against Licensee shall be borne by Licensor. In addition, if Licensor's
trademark is determined to infringe a third party trademark, Licensee shall be
compensated by Licensor for all costs related to the removal of the infringing
trademark from any Licensee Products in production and/or in Licensee's
inventory and any promotional or marketing materials incorporating the
infringing trademark. Licensee shall use commercially reasonable efforts to
mitigate any damages arising from the events set forth in this provision.
In the event that either party learns of any perceived infringement of the
registered trademark by a third party, the party learning of the alleged
infringement will promptly inform the other party hereto and Licensor agrees to
advise the third party of the registered trademark.
If Licensor notifies Licensee at any time of its decision not to bring any
enforcement action against any alleged infringer then Licensee will have the
right, but not the obligation, to prosecute any infringement of the trademark at
its own expense and in its own name or, if required by law, in the name of
Licensor.
In the event that this Agreement is terminated, notwithstanding the reason
therefore, Licensee shall automatically and immediately lose the right to use
Licensor's trademark. Notwithstanding the foregoing, Licensee shall be
permitted to sell any Licensee Products in its existing inventory or in
production as of the date of termination without being in breach of this Clause
9 in particular or this Agreement in general.
Licensee shall not register nor have registered Licensor's trademark set forth
in Appendix 4.
Clause 10
Technical Information
Licensor shall supply Licensee with all relevant technical information required
for the purposes only of this Agreement.
No information, however, shall be supplied by Licensor enabling Licensee to
manufacture the Licensed Products, except as required in Clause 16, cfr.
Appendix 1 and Clause 25.
Clause 11
Responsibility for Claims by Third Parties
Licensor undertakes that the use and/or sale of the Licensed Products by
Licensee does not and will not infringe any patent, registered design, trade
mark or other intellectual property right of any third party and agrees to
indemnify Licensee in respect of any claims, costs (including legal costs),
losses, expenses or damages it may incur as a direct result of the breach of
this undertaking. This does not extend to loss of profit. Licensor agrees to
use its best efforts to remedy any infringement or violation and to mitigate any
damages in connection therewith.
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In the event of an infringement occurring Licensor will, at Licensor's cost, use
commercially diligent efforts either to procure the right for Licensee to
continue to sell the infringing products, or to replace the infringing products
with suitable non-infringing products.
In the event of Licensor being unable to procure the right for Licensee to
continue to sell the infringing products or to replace the infringing products
with suitable non-infringing products within a reasonable time, Licensee will be
able to terminate this Agreement forthwith by written notice to the Licensor.
Licensor shall compensate Licensee for any Licensee Products in production or
inventory which cannot be sold by Licensee or its customers as a result of
Licensor's infringement and shall reimburse Licensee for the costs of
reproducing any and all promotional, marketing or other commercial materials
referencing the infringing products. Licensor's liability hereunder shall be
limited to the lesser of (i) actual costs. damages or expenses or (ii) [*] US
Dollars (US$[*]). Licensee shall use commercially reasonable efforts to mitigate
any damages arising from the events set forth in this provision.
Clause 12
Novelty
Licensor does not warrant that the Licensed Product is novel but undertakes that
it is not aware of any prior art or prior use which might result in the Licensed
Product and Inventions being held to be not novel and not inventive. In the
event that the Patent is rejected or held to be invalid by reason of prior
publication or prior use, Licensee shall as of that point cease paying to
Licensor royalties in respect of the Licensed Product (or that portion of the
royalties relating to the jurisdiction where the Patent has been rejected or
held to be invalid). Licensor shall, however, continue to provide Licensee with
the Licensed Product and Licensee shall pay Licensor in respect of the provision
of such product in accordance with Clauses 16 and 17 hereof.
If the Patent is void and if a reputable third party supplier is able to provide
Licensee with products that are equally effective as the Licensed Products at a
cost that is at least [*] per cent ([*]%) less than the cost of the Licensed
Products under this Agreement, including all applicable royalty or product
payments then Licensee shall have the right to terminate this Agreement, after
Licensor has had the opportunity to match such price and has refused, on [*]
days written notice.
Clause 13
Industrial Realization and Commercial Exploitation
Licensor does not warrant that the Licensed Product is capable of industrial
realization nor shall Licensor be responsible for the consequences of any
failure so to realize it. In addition, Licensor does not warrant that the
Licensed Product is capable of commercial exploitation, the risks of such
exploitation being assumed solely by Licensee.
Clause 14
Manufacture and Supply of Licensed Products by Licensor
Licensee acknowledges that, except as specifically provided for in this
Agreement, it shall not manufacture the Licensed Products directly and shall not
have access to Licensor's Know-How. Licensor, therefore, shall be responsible
for the manufacture and supply to Licensee of the Licensed Products for
incorporation into the Licensee Products. Licensor acknowledges that it is the
only source of the Licensed Products and, therefore, must use its best efforts
at all times to meet the requirements of Licensee, as set forth in accordance
with Appendix 3 attached hereto, for the Licensed Products.
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(i) Licensor Warranties
Licensor warrants as follows:
that all Licensed Products manufactured and supplied under this Agreement
shall be of good marketable quality and shall accord with the
technical specifications set forth in Appendix 2 or such other
specification as has been agreed between the parties in writing in
substitution thereof;
that prior to delivery all tests and quality control procedures set out in
Appendix 2 or otherwise agreed will have been carried out in relation
to each manufacturing lot of the Licensed Products with satisfactory
results which will be made available to Licensee on delivery of the
Licensed Products. A certificate of conformity will be supplied by
Licensor with each lot delivered to Licensee.
(ii) Quality Control
Without prejudice to Licensee's rights hereunder Licensor will immediately
notify Licensee's Quality -Controller by rapid means of communication (eg.
facsimile, telephone) in the event of any circumstance coming to their
attention which would be reasonably expected to lead to a claim being made
against Licensee, its subsidiaries, affiliates, distributors, agents and
their respective employees relating to the Licensed Products including but
not limited to any Licensed Products' failure or difficulties disclosed by
the quality control tests carried out on the Licensed Products by Licensor
or any continued stability testing or of non-Licensee customer complaints
to Licensor relating to the materials comprised in its Licensed Products
or any other aspect thereof, the details of such notification to be
confirmed in writing.
Licensor will disclose to Licensee particulars of the results of
Licensor's quality control tests carried out on the Licensed Products at
Licensee's request and will, at Licensee's request permit a duly
authorized representative of Licensee to visit and review the quality
control and quality assurance procedures of the Licensor of the Licensed
Products on thirty (30) days notice.
Alterations in quality control procedures and technical specifications
with respect to Licensed Products for Licensee may be introduced from time
to time by prior written agreement between Licensor and Licensee.
(iii) Claims
On receipt of any bona fide claim substantiated by data, Licensor will
within thirty (30) days provide Licensee or its subsidiary, affiliate,
distributor, agent or customer with replacement Licensed Products, or
parts thereof, to the extent necessary to meet Licensor's warranties
contained in this clause or to make good any shortages or non completed
deliveries.
(iv) Storage/Use
Licensee undertakes to store the Licensed Products and to make written or
verbal claims about the Licensed Products in accordance with the
specifications to be agreed between the parties. Licensor will have no
obligation to make replacements or otherwise (or have any liability
hereunder) as a result of fault or negligence or improper or unauthorized
use of the Licensed Products by Licensee or the ultimate user of the
Licensed Products.
Licensee acknowledges that Licensed Products supplied by Licensor are
based on front line research and technology and have yet to be fully
characterized in terms of their toxicity, allergenicity and the like. In
the light thereof all Licensed Products are sold and delivered under the
mutual understanding between the Licensor and the Licensee that the latter
or his staff, who shall deal with or use the Licensed Products at
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any time shall be in possession of adequate education and all other
relevant skills necessary for the proper and rightful handling and use
of such potentially hazardous Licensed Products.
(v) Quantity; Forecasts
Appendix 3 attached hereto sets forth in detail the requirements for
forecasting and submitting orders.
(vi) Delivery
Deliveries from the Licensor shall be FCA (Incotenns) Copenhagen.
Licensor shall upon Licensee's request arrange for shipping of the
Licensed Product to a location specified by Licensee. Shipping and
insurance charges and all other costs related to transportation of the
Licensed Product from Licensor's premises shall be borne by Licensee.
Licensee shall satisfy itself as to the requirements of law or other
regulations governing the import and entry of the Licensed Products into
its own country and to obtain all necessary licenses, consent or
approval required to import the goods, whereas Licensor shall arrange
for any approval from the Danish authorities for export of the Licensed
Products.
(vii) Licensed Product Price
The parties agree to negotiate in good faith the price per liter of
Licensed Product on the basis that current knowledge is insufficient to
arrive at a justifiable price ("Licensed Product Price"). In the event
that the parties are unable to reach an agreement as to the Licensed
Product Price within three (3) months of the date of this agreement
Licensor agrees to submit manufacturing details to an independent
contract producer, agreed to by Licensee, and Licensee will submit
volume requirements and QC specifications for the Licensee Products. The
parties hereby agree to be bound by the price per liter established by
the contract producer. The Raw Material shall at all times be supplied
by Licensee to Licensor free of charge. If production costs for Licensor
change significantly during the course of this Agreement Licensee and
Licensor agree to negotiate an adjustment in the Licensed Product Price,
to be held constant thereafter for a minimum of 12 months.
Proprietary rights and title to the Licensed Product shall remain with
Licensor until the Licensed Product Price has been received by Licensor,
whether or not Licensee has taken delivery of the Licensed Product.
(viii) Indemnification
Licensor shall indemnify Licensee against any and all liability,
damages, costs and expenses, including without limitation reasonable
attorneys' fees, made against or sustained by Licensee or any Affiliate
arising from the use of the Licensed Product and any reasonable out-of-
pocket costs to Licensee and/or its Affiliate for the recall of any
Licensee Products as a direct result of a manufacturing defect in the
Licensed Product. Any liability arising under this provision shall be
limited to the lesser of (i) actual damages, costs and expenses or (ii)
[*] US Dollars (US$[*]).
(ix) Authorization
Licensor has all necessary consents, permits or authorizations required
under current law from any governmental body where the Licensed Product
is manufactured and/or supplied from or from any other person, firm or
corporation under any Agreement to which Licensor may be a party to
manufacture and supply the Licensed Products to Licensee.
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Clause 15
Modifications and Improvements to Licensed Products
Licensor shall disclose and make available to Licensee, free of charge, any and
all material modifications and improvements to the Licensed Products devised by
Licensor during the course of this Agreement.
Clause 16
Payment of License
(i) One-time License Fee
In consideration for the License granted under this Agreement and the
entering into by the parties of the Development/Research Terms attached
hereto as Appendix 5, Licensee shall pay to Licensor a one-time non-
refundable license fee in the amount of [*] US Dollars (US $[*]) (the
"License Fee"). The License Fee shall be paid in accordance with Appendix
9 attached hereto.
(ii) Royalty Payments
Licensee shall pay to Licensor a royalty on its sales of Licensee
Products in countries where Patent protection is subsisting based upon
the net sale price. The royalty shall be calculated as follows:
a) Existing products manufactured and sold by Licensee (including updated
or modified versions of such existing products) into which currently
used reagents are substituted with Licensed Products (an exhaustive
list of existing products is attached hereto as Appendix 6):
i) a [*] per cent royalty on any sale of Licensee Products by
Licensee; and
ii) an additional [*] per cent royalty on those sales of a particular
Licensee Product that exceed the 1996 sales of that same product.
For products introduced during 1996 the royalty shall be based on
annualized sales, not actual sales
b) Products not previously manufactured and sold by Licensee, i. e.
products not mentioned or specified in Appendix 6 and into which
Licensed Products are incorporated:
i) a [*] per cent royalty on any sale.
(iii) Product Fees
a) If a Patent is not granted in any one of the countries listed on
Appendix 7 attached hereto, with claims covering [*] as used in the
Licensed Product then the royalty payments described in (ii)(a)
through (ii)(c) above shall not apply as to sales made in that country
and Licensee shall pay to Licensor a product fee in the amount of [*]
per cent on sales of Licensee Products in that country for the
remaining period of this Agreement.
b) When a Patent and the protection connected thereto ceases in a
particular country, the royalty payments described in (ii)(a) through
(ii)(c) shall no longer be payable as from the date of cessation in
respect of sales in that country. Licensee shall be obligated to pay
to Licensor a product fee in the amount of [*] per cent of the sales
of Licensee Products in that country for the remaining period of this
Agreement.
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c) In those countries where Licensee is selling products but where
Licensor has no subsisting Patent protection the provisions of
sections (ii)(a) through (ii)(c) shall not apply and Licensee shall
pay to Licensor a product fee in the amount of [*] per cent of the
sales of Licensee Products in those countries for the term of this
Agreement.
(iv) In the event that Licensee is producing the Licensed Products itself for
any of the reasons set forth in Clause 25 and/or Appendix 1, Licensee
shall continue to pay a royalty or payment, as appropriate, on sales of
Licensee Products in accordance with Sections (ii) and (iii) above.
(v) Each party shall at all times be responsible for its own charges, taxes
and duties relating to the sale or purchase, as appropriate, of the
Licensed Product(s).
Clause 17
Minimum Payments
Licensee shall pay to Licensor a minimum payment of [*] US Dollars (US$[*]) per
year (the "Minimum Payment"). The Minimum Payment shall commence on January 1,
1997, however, payments shall not begin until the initial commercial sale of a
Licensee Product. If there are no sales of Licensee Products during 1997,
Licensor shall receive a one-time payment of [*] US Dollars (US$[*]) within 10
working days of December 31, 1997 (the "Sales Payment"). In the event of the
Patent not being granted, Patent protection ceasing or no Patent protection is
subsisting in a country listed on Appendix 7, the Minimum Payment shall be
reduced by the percentage applicable to that country, as set forth on Appendix
7. For example, if the Patent is not granted in the United States, the Minimum
Payment shall be reduced, pro rata, by [*]% from the date that the relevant
examination authority or court, as the case may be, issues its
rejection/decision of invalidity. In the event that an appeal of that decision
is successful and the patent is reinstated Licensee shall as from the date of
the Appeal decision pay the full minimum payment. The Minimum Payment shall
continue for the Term of this Agreement in accordance with the provisions of
Clause 27(i) hereof.
Clause 18
Time when Right to Payment Accrues
The right to payment accrues on the date of the Licensee's receipt of payment
from its customer. The provision of the payment shall be made in accordance
with Clause 20 below.
Clause 19
Reports and Inspection of Accounts
Licensee shall provide to Licensor on a semi-annual basis a report of the exact
number of Licensee Products sold and any other information relevant for
determining the payment due.
Licensor shall have the right by means of an independent accountant appointed by
Licensor and approved by Licensee (such approval not to be unreasonably
withheld) to examine semiannually whether the reports provided are consistent
with the general accounts of Licensee. The costs of such inspection and
examination shall be borne by Licensor. Licensor shall ensure that the
independent accountant shall limit its review to a reconciliation of the reports
and accounts and that he/she shall keep confidential any information regarding
Licensee's business or customers from Licensor and/or any third party.
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Clause 20
Settlement of Accounts and Payment
Accounts shall be rendered and settled quarterly in arrears. Until the parties
agree otherwise, the quarterly payment shall be the Minimum Payment stipulated
in Clause 17, i.e. a Minimum Payment paid quarterly of [*] US dollars (US$[*]),
or such greater amount as may be determined in accordance with Clause 17. For
example, if the initial commercial sale of a Licensee Product is made in March
1997, Licensor shall receive three (3) quarterly payments of [*] dollars and [*]
cents ($[*]) each. After the expiry of each calendar year Licensee shall,
within thirty (30) days, send to Licensor a complete and accurate account of the
sales of Licensee Products in the previous calendar year showing any sum in
excess of the Minimum Payment due to the Licensor thereunder.
Settlement of the excess payment due shall be made on or before the 15th
February, or the next business day if the 15th falls on a weekend or public
holiday, and shall be made in US dollars. The Licensor shall be entitled to
interest on any sum overdue, the interest being calculated at [*] per cent
([*]%) per month.
Clause 21
Manufacture or Sale of Competing Products
The Licensee shall not manufacture or sell products which would be in direct
competition with the Licensed Products or any improvement made available to
Licensee by Licensor during the period of this Agreement. Nothing in this
Clause shall prevent Licensee from manufacturing or selling products which
incorporate products which compete with the Licensed Products.
Clause 22
Maintenance in Force of the Patent
Once a Patent has been granted in a particular country, Licensor shall keep in
force that Patent. Licensor shall keep Licensee informed of the status of the
Patent applications and shall give Licensee notice of any grant or rejection and
any subsequent appeal, of a particular application, and any subsequent appeal,
within ten (10) business days of their receipt of notification from the relevant
patent authority.
Clause 23
Protection of the Patent
In those countries where a Patent has been granted and Licensee has been
informed that the Patent is in effect, Licensee shall notify Licensor of any
infringement of the Patent that Licensee becomes aware of.
Licensor may take proceedings against the infringer and Licensee shall provide
all necessary assistance at Licensor's expense. If Licensor determines not to
proceed against the infringer and, if the applicable taw permits, Licensee may
proceed with the prior written consent of Licensor, such consent not to be
unreasonably withheld. In the event of the foregoing, Licensor shall provide
all necessary assistance to Licensee, at Licensee's expense.
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Clause 24
Exploitation of the License
Licensee shall use its best efforts to exploit the License in a commercially
reasonable manner. Licensee shall use the Licensed Products wherever
commercially practicable in all products listed in Appendix 6.
Clause 25
Events of Default
In addition to any other remedies set forth in this Agreement or provided for at
law, either party shall have the right to terminate this Agreement if the other
party shall have materially defaulted in the performance of any material
agreement, condition or covenant contained in this Agreement which default has
not been remedied after notice and the opportunity to cure.
In addition to those Release Events set forth in Appendix I Section B, a
material default shall be deemed to have occurred in a case where any obligation
of payment is not settled within thirty (30) days of notice thereof.
In the event of any default hereunder, the non-defaulting party shall give the
defaulting party written notice of such default and the opportunity to cure such
default within thirty (30) days, unless otherwise limited herein.
Within thirty (30) days of the parties reaching an agreement as to the final
specifications of the Licensed Product, Licensor shall deposit the information
necessary to enable Licensee to start its own production of the Licensed Product
to be held in escrow by the Escrow Agent. Such information shall be released to
Licensee in the event of the conditions outlined in Appendix I having taken
place.
The Terms and Conditions for the Escrow Agent's obligations to deliver and
release information to Licensee are listed in Appendix 1. In the event of
Licensee taking over production of the Licensed Products, Licensee shall pay a
royalty to Licensor in accordance with the provisions contained in Clause 16
(iv) above.
Clause 26
Provisions to be Observed in Case of Licensee's Own Production
In the event of Licensee taking over production of the Licensed Products, no
authorization of Licensor shall be required for making modifications or
improvements to the Licensed Products, provided that any modifications or
improvements made shall be communicated to Licensor.
Licensor shall be entitled to make use, free of charge, of any modifications and
improvements suggested by the Licensee.
Clause 27
Term of the Agreement and Termination
(i) Term
The Agreement shall take effect on the date set forth on the signature page
hereof. The Agreement shall run for a period of ten (10) years. On the
fifth anniversary of this Agreement the parties shall meet to
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review the terms of the Agreement. Minimum Payments for the first five year
period shall be as set forth in Clause 17 hereof.
If at the end of the first five year period the royalty/payment stream set
forth in Clause 16 hereof does not exceed the Minimum Payment set forth in
clause 17 hereof then Licensor shall have the right to make this Agreement
non-exclusive. In the event of the foregoing, for the second five year
period there will be no Minimum Payment as set forth in Clause 17 and
percentage royalties, where applicable, shall be paid at a rate of [*]% of
sales of Licensee Product.
During the term of this Agreement the parties shall meet every three (3)
years to review those areas in the scope of this Agreement that Licensee is
not actively pursuing. Unless Licensee commits to a development program in
those areas, agreed to by Licensor Licensor shall be free to license to
third parties the Inventions and Know-How in those areas only from that
time. In the event of the foregoing, Licensee shall have non exclusive
rights to the non-exclusive areas of activity.
(ii) Termination
The Agreement may be terminated prior to the end of the Term only in the
event of any of the following':
(a) at any time, upon mutual written agreement of the parties; or
(b) by a non-defaulting party in accordance with the provisions of Clause
25; or
(c) by Licensee in the event that the Development Project is not completed
in accordance with Appendix 5 attached hereto.
Clause 28
Mutual Confidentiality
Neither party shall, during the period of this Agreement or after termination,
either by expiry or by breach, for a period of ten (10) years, communicate to
third parties, either parties' trade or manufacturing secrets or any other
confidential information disclosed by either party pursuant to this Agreement.
After termination of this Agreement, both parties shall cease using any
confidential information received in connection with this Agreement and shall
return to the other party immediately all documents relating to the manufacture
of either the Licensed Products or the Licensee Products, except for one copy
retained for legal/archival purposes.
Clause 29
Applicable Law
This Agreement shall be governed by the laws of the Kingdom of Denmark.
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Clause 30
Competent Jurisdiction/Arbitration
Should any dispute arise between the Parties concerning the execution and/or
interpretation of this Agreement, the Parties will endeavor to solve the dispute
in an amicable way.
If no amicable settlement can be reached between the parties concerning a
dispute, such dispute shall be settled finally by binding arbitration.
Arbitration shall be held in The Hague, the Netherlands and shall be conducted
in English in accordance with the Rules of Conciliation and Arbitration of the
International Chamber of Commerce, as in effect on the date of the commencement
of the arbitration.
Clause 31
Entire Agreement
This Agreement, including the Appendices hereto which are incorporated into this
Agreement, contains the entire agreement of the parties regarding the subject
matter hereof and supersedes all prior agreements, understandings and
negotiations regarding the same. This Agreement may not be changed, modified,
amended or supplemented except by a written instrument signed by both parties.
Furthermore, it is the intention of the parties that this Agreement be
controlling over additional or different terms of any order, confirmation,
invoice or similar document, even if accepted in writing by both parties, and
that waivers and amendments shall be effective only if made by non-pre-printed
agreements clearly understood by both parties to be an amendment or waiver.
Clause 32
Controlling Language
The official text of this Agreement shall be the English language, and such
English text shall be controlling in all respects, notwithstanding any
translation hereof required under the laws or regulations of any other country.
The par-ties undertake to use the English language in respect of all documents
and communications contemplated hereby, except where another language must be
used under the laws and regulations of another country. In any such a case, a
certified English translation shall be supplied to the other party by the party
using such document or making such communication.
Clause 33
Severability
If any provision of this Agreement shall be held illegal or unenforceable, that
provision shall be limited or eliminated to the minimum extent necessary so that
this Agreement shall otherwise remain in full force and effect and enforceable.
Clause 34
Further Assurances
Each party hereto agrees to execute, acknowledge and deliver such further
instruments, and to do all such other acts, as may be necessary or appropriate
in order to carry out the purposes and intent of this Agreement.
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Clause 35
Notice and Reports
All notices, consents or approvals required by this Agreement shall be in
writing sent by certified or registered air mail, postage prepaid or by
facsimile or cable (confirmed by such certified or registered mail) to the
parties at the addresses set forth on page 1 of this Agreement or such other
addresses as may be designated in writing by the respective parties. Notices
shall be deemed effective on the date of mailing.
Clause 36
Relationships of the Parties
Both parties are independent contractors under this Agreement. Nothing
contained in this Agreement is intended nor is to be construed so as to
constitute Licensor and Licensee as partners, agents or joint venturers with
respect to this Agreement. Neither party hereto shall have any express or
implied right or authority to assume or create any obligations on behalf of or
in the name of the other party or to bind the other party to any contract,
agreement or undertaking with any third party.
Clause 37
Waiver
The waiver by either party of a breach of any provisions contained herein shall
be in writing and shall in no way be construed as a waiver of any succeeding
breach of such provision or the waiver of the provision itself.
Clause 38
Captions
Paragraph captions are inserted for convenience only and in no way are to
construed to define, limit or affect the construction or interpretation hereof.
Clause 39
Force Majeure
A party shall not be liable for nonperformance or delay in performance (other
than of obligations regarding payment of money or confidentiality) caused by any
event reasonably beyond the control of such party including, but not limited to
wars, hostilities, revolutions, riots, civil commotion, national emergency,
strikes, lockouts, epidemics, fire, flood, earthquake, force of nature,
explosion, embargo, or any other Act of God, or any law, proclamation,
regulation, ordinance, or other act or order of any court, government or
governmental agency.
Clause 40
Export Control
The parties hereto agree to comply with all export laws, restrictions and
regulations of the United States as well as those of any relevant foreign agency
or authority.
-15-
<PAGE>
Clause 41
Counterparts
This Agreement may be executed in one or more counterparts, each of which shall
be deemed to be an original, but all of which shall be one and the same
document.
[The remainder of this page has been left intentionally blank]
-16-
<PAGE>
The parties hereto have executed this Agreement to be effective as of this 29th
day of August, 1996.
As Licensor: As Licensee:
/s/ Anders Weber /s/ Kenneth M. Cohen
- ------------------------- -------------------------------
By: Anders Weber By: Kenneth Cohen
Title: Managing Director Title: Chief Executive Officer
/s/ Gunnar Aass
- -------------------------
By: Gunnar Aass
Title: Chairman
The undersigned hereby agree to be made a party to this Agreement solely as to
Clauses 1, 2, 3, 4, 29 and 30 hereof and agree to be bound by the foregoing
provisions notwithstanding any rights or obligations set forth in the Transfer
of Rights Agreement.
[*] [*]
/s/ Anders Weber /s/ Gunnar Aass
- ------------------------- -------------------------------
By: By:
Title: Title:
-17-
<PAGE>
Appendices:
-----------
Appendix 1: Manufacture by Licensee of Licensed Product.
Appendix 2: Technical Specifications of Licensed Product.
Appendix 3: Forecasting/Scheduling/Delivery of Licensed Product.
Appendix 4: Trademark Guidelines.
Appendix 5: Development/Research Terms.
Appendix 6: Existing Products.
Appendix 7: Countries
Appendix 8: The Patent
Appendix 9: License Fee
-18-
<PAGE>
APPENDIX 1
Manufacture by Licensee of Licensed Product
A. Manufacture of Licensed Product by Licensee.
-------------------------------------------
What follows is a broad description of Production information which will be
placed in escrow when the specifications of particular Licensed Products are
established under the terms of Appendix 5. The list is not comprehensive as
the number of Licensed Products is anticipated to increase with time:
1. Specification.
2. Procedure for [*].
3. Procedure for [*].
4. Characterization of [*] through Characterization of the coupled label.
5. Characterization of [*] through coupling of standard antibody ligand to [*].
6. Characterization of [*] through Characterization of [*] and [*] conjugated
with standard antibody by [*].
7. Characterization of [*] Production through test of [*] standard [*].
8.1 Procedure for Production of [*] intended for [*] and characterization of
Conjugate in [*].
8.2 Procedure for Production of [*] intended for use in the [*] and
characterization of Conjugates in [*].
8.3 Procedure for Production of [*] intended for [*] and characterization of
Conjugate in [*].
B. Escrow Instructions
-------------------
In accordance with the provisions of Clause 25 of the Agreement certain
circumstances set forth therein and in items 1-4 below shall trigger the release
by the Escrow Agent of the Manufacturing Details as described generally in
Section A of this Appendix and as deposited with the Escrow Agent by Licensor.
By their signature to the Agreement and this present Appendix, the parties
jointly appoint the lawyer Christian Schow Madsen of the law firm Hjejle,
Gersted & Mogensen, to act as escrow agent ("Escrow Agent") and in that capacity
to act on behalf of both parties to keep in escrow the Manufacturing Details, as
amended from time to time.
The Escrow Agent shall within thirty (30) days of completion of the Development
Project, receive from the Licensor the Manufacturing Details and shall by way of
a signed copy of this Appendix, to be delivered to the Licensee, confirm safe
receipt thereof. The Escrow Agent's confirmation shall entail no guarantee that
the Manufacturing Details fulfil the Licensor's obligations under the Agreement.
Information on manufacture of a particular Licensed Product not mentioned in
Appendix 5 which in the future may fall under the present Agreement shall
similarly be transferred to the Escrow Agent upon final specifications of the
product.
-19-
<PAGE>
The parties hereby agree that the Escrow Agent shall have the authority to
deliver to Licensee the Manufacturing Details without any delay and without
Licensor or his successors having any right or means to prevent such delivery,
in the event of any of the following (each a "Release Event"):
1. Any material breach of the Agreement on the part of Licensor, which has not
been cured in accordance with the provisions of the Agreement, it being
understood that acts or omissions assessed by the Escrow Agent to constitute
a material breach of the Agreement in relation to the release of the
Manufacturing Details be deemed such a breach; or
2. Licensor shall fail to deliver to Licensee the entire quantity of the
Licensed Product set forth in the orders submitted in accordance with
Appendix 3 provided, however, that the non-delivery by Licensor is not a
result of Licensee's failure to supply Raw Material and that the non-
delivery shall not have been remedied within fourteen (14) days' of written
notice from Licensee, which notice must have been sent within ten (10)
working days following the failure to deliver, and provided that the non-
delivery by Licensor shall not be due to a force majeure as defined in
Clause 40, for which the Licensor cannot reasonably be held responsible; or
3. Licensor shall not deliver the Licensed Product at any time to Licensee in
accordance with the specifications listed in Appendix 2, as amended from
time to time by the mutual written agreement of the parties. It is a
requirement that it be certified in writing that the Licensed Product does
not meet the specifications and the documentation thereon be sent to the
Escrow Agent by an independent reference laboratory, to be selected in
accordance with the provisions of Appendix 3, within 7 days of the receipt
of the noncomplying Licensed Product; or
4. Licensor shall be declared bankrupt or enter into a composition for the
benefit of its creditors.
Requests by Licensee for delivery of the Manufacturing Details shall be made in
writing to the Escrow Agent with a copy to Licensor and it is the obligation of
the Escrow Agent, provided that he has been supplied with the necessary
documentation and evidence by Licensee, to hand out to Licensee the
Manufacturing Details, following which the Escrow Agent shall be fully released
and discharged from any and all duties and obligations hereunder.
Licensor and Licensee expressly declare that the following provisions shall
apply in favor of the Escrow Agent:
1. Provided that the Escrow Agent has not acted negligently or fraudulently
when exercising his discretionary powers under the Agreement, the Escrow
Agent shall not be liable for any loss, cost, damages or expenses which may
result from anything done or omitted to be done by him;
2. The Escrow Agent shall be at liberty to place the Manufacturing Details in
any safe deposit, safe or other receptacle selected by the Escrow Agent, in
any part of the world, or with any bank or banking company believed to be of
good repute, and the Escrow Agent shall not be responsible for or be
required to insure against any loss incurred in connection with any such
deposit and Licensor and Licensee shall pay all sums required to be paid on
account of or in respect of any such deposit;
3. Whenever the Escrow Agent is under the provisions of this Agreement bound to
act he shall nevertheless not be so bound unless first indemnified to his
satisfaction against all actions, proceedings, claims and demands from third
parties, to which he may render himself liable and all costs, charges,
damages, expenses and liabilities, which he may incur by so doing;
-20-
<PAGE>
4. Any documentation and/or evidence assessed by the Escrow Agent to be
sufficient to prove that a Release Event has occurred is deemed to be so;
5. Without prejudice to the above mentioned provisions it is agreed that the
liability of the Escrow Agent cannot exceed the fees received by the Escrow
Agent in his capacity as such under this Agreement.
The Escrow Agent acknowledges that time is of the essence in the performance of
its obligations and that a delay in production of the Licensed Product could
have a serious adverse impact on Licensee's business. The Escrow Agent,
therefore, shall ensure delivery of the Manufacturing Details to Licensee within
ten (10) working days of receipt of notice and evidence from Licensee of a
Release Event.
The Licensor and Licensee are jointly and severally liable for the payment of
all fees payable to and costs, charges, damages, expenses and liabilities which
are incurred by the Escrow Agent in performance of the duties hereunder.
Invoices for services should be sent to each party at the address listed on page
1 of the Agreement.
As Licensor: As Licensee:
/s/Anders Weber /s/ Kenneth M. Cohen
- ------------------------- -------------------------------
By: Anders Weber By: Kenneth Cohen
Title: Managing Director Title: President and Chief Executive
Officer
/s/ Gunnar Aass
- -------------------------
By: Gunnar Aass
Title: Chairman
Accepted as Escrow Agent:
/s/ Christian Schow Madsen
- --------------------------
Christian Schow Madsen
-21-
<PAGE>
APPENDIX 2
The Licensed Product manufactured by the Licensor is defined as any reagent
supplied to the Licensee that incorporates a specific binding agent, a [*] and
an enzyme or dye label.
The Licensed products will vary in technical specification depending upon the
exact nature of the specific binding agent and label. Antibodies supplied by
the Licensee may behave differently to those sourced by the Licensor.
As a general guideline the following provisional technical specifications have
been determined for other products manufactured by the Licensor and it is
expected that the Licensed Product supplied to the Licensee will fall within
these guidelines.
[*] conjugates
1. [*]
2. [*]
3. [*]
[*] conjugates
1. [*]
2. [*]
3. [*]
It is anticipated that more detailed specifications will be prepared at a later
date for each specific product to be supplied by the Licensor to the Licensee on
completion of the development program in the Licensor's laboratory.
-22-
<PAGE>
APPENDIX 3
Forecasting/Scheduling/Delivery of Licensed Product
In accordance with Clause 14 of the Agreement, this Appendix shall set forth the
procedures to be followed in connection with (i) the ordering by Licensee and
delivery by Licensor of the Licensed Product to the Licensee and (ii) the
provision of Raw Material.
Planning/forecast:
At the latest by December 15 in any year, beginning on December 15, 1996,
Licensee shall submit to Licensor its forecast for required deliveries of the
Licensed Product during the following year. In addition, Licensee shall provide
to Licensor a schedule for its requirements as to when on a quarterly basis
deliveries of the Licensed Product must be made by Licensor. Licensor shall
within fourteen (14) working days from receipt of said forecast submit to
Licensee a schedule for its requirement for Raw Material corresponding to the
forecast.
Placing of Firm Order for Licensed Product:
Neither Licensee nor Licensor shall be bound by the figures and indications
given in the annual forecasts as described above. Licensee shall within (seven)
7 days of the beginning of each quarter give a precise and firm commitment of
its requirements for manufacture and delivery in the following calendar quarter
(the "Licensee Order").
Placing of Order for Raw Materials:
Licensor shall within seven (7) working days from the receipt of the Licensee
Order and on the basis of the Licensee Order place its order for Raw Material to
be provided by Licensee (the "Licensor Order"). Licensee shall deliver to
Licensor the Raw Material within fourteen (14) working days of receipt of the
Licensor Order.
Acceptance of Raw Material
Within fourteen (14) working days from the receipt of a particular shipment of
Raw Material, Licensor may reject the shipment if the Raw Material fails to meet
mutually accepted quality specifications to be agreed between the parties.
Licensor shall provide documentation to Licensee regarding the manner in which
the Raw Material fails to meet the specifications and Licensee shall, upon
agreement, provide to Licensor replacement Raw Material within seven (7) working
days.
Pre-delivery Sample:
Licensor shall within thirty (30) days following the receipt of a Licensee Order
forward to Licensee a pre-delivery sample. Such pre-delivery samples shall be
forwarded to Licensee's premises at 11011 Via Frontera, San Diego, CA 92127,
USA, attn: Clifford Frank, or his designee.
If Licensee's evaluation of the pre-delivery sample concludes that it is not
acceptable and does not meet the technical specifications as described in
Appendix 2, Licensee shall within ten working days after having received the
pre-delivery sample give notification in writing to this effect to Licensor who.
If Licensor has not received such notification, Licensor shall regard the pre-
delivery sample as accepted by the Licensee and shall be under the obligation to
ship the Licensed Product described in the relevant order and based on the pre-
delivery sample Licensee or Licensee's appointee.
-23-
<PAGE>
Replacement Batch:
If Licensor is notified within ten (10) working days that the sample is not
acceptable, Licensor shall, save for the situation described below, be obligated
to provide and send to Licensee a replacement batch within twenty (20) days of
receipt of Raw Material sufficient to produce a replacement batch.
Dispute:
If Licensor does not agree with Licensee's claim on batch failure, Licensor may
within said time limit of thirty (30) days ask an independent testing laboratory
to give an opinion and statement as to whether the pre-delivery sample sent to
the Licensee meets the technical specification of the Licensed Product as
defined in Appendix 2.
If Licensee does not agree with Licensor's claim of batch failure and subsequent
rejection of a particular shipment of Raw Material, the Licensor shall within
fourteen (14) working days submit samples and other evidence substantiating his
claims to an independent testing laboratory to obtain an opinion and statement
as to whether the disputed batch of Raw Material meets the mutually accepted
quality specification.
The parties agree to accept an independent testing laboratory selected by the
Clinical Laboratory Research Association of Germany which shall be approached by
the parties at the time of any dispute hereunder.
Stock held by Licensee:
Licensee intends at any time during the duration of this Agreement to order
quantities of the Licensed Product which will result in a sufficient stock to
support his requirements under this Agreement and will endeavor to hold a stock
of a minimum two batches of the Licensed Product at all times.
As Licensor: As Licensee:
/s/Anders Weber /s/Kenneth M. Cohen
- ------------------------- -------------------------------
By: Anders Weber By: Kenneth Cohen
Title: Managing Director Title: Chief Executive Officer
/s/ Gunnar Aass
- --------------------------
By: Gunnar Aass
Title: Chairman
-24-
<PAGE>
APPENDIX 4
Description and Use of Licensor's Trademarks
Licensor is the proprietor of the trademark registrations; AMDEX 'word', VA
01.615 1996, registered in Denmark on March 15, 1996 (priority date January 9,
1995) and AMDEX 'figure' (an "X") VR 01.977 1995, shown on Schedule 1 attached
hereto, registered in Denmark on March 24, 1995, priority date January 9, 1995.
The attached Schedule 2 indicates the territories in the world where these
trademarks have been filed and their status in each territory.
The trademark registration generally covers all goods in the international
classes 1 and 5, although the specification of goods eventually might vary
according to the result of the prosecution of the applications.
Licensor intends, but is not obliged under the present Agreement, to extend the
protection of the mark to other countries as commercial conditions dictate
and/or by requests from the Licensee.
Licensor intends to discuss with Licensee the filing of new trade marks covering
the Licensed Product with the aim of jointly promoting the Licensee Products and
Licensor reagents in general.
Licensee must display the above trademarks in the Materials in accordance with
the following:
(i) The trademarks must generally be placed prominently on the Materials.
(ii) The trademarks must be at least twenty five per cent (25%) of the size of
the largest name or trademarks of the Licensee displayed on the
Materials.
(iii) Licensee shall supply Licensor with a copy of the Materials within sixty
(60) days of its publication and shall, where reasonably practicable,
accommodate any comments made by Licensor regarding the use of the
trademarks in future Materials produced.
Licensee may request written permission to display the trademarks in a
manner outside the guidelines set forth above. Such permission cannot
be assumed to be given until it has been received in writing by the
Licensee.
(iv) Licensee must indicate the status as a registered trademark by the use of
the international signs " or 3, as appropriate, placed close to the
trademarks. The Materials must indicate that the word and the figure are
trademarks of Licensor.
-25-
<PAGE>
SCHEDULE 1
This schedule is a graphical image representing the trademark of Amdex. The
graphical image is a blackened circle with a white "X" in the middle.
-26-
<PAGE>
SCHEDULE 2
<TABLE>
<CAPTION>
Proprietor Country Trademark Classes App. No. App. Date Reg. No. Reg. Date Status Goods
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
[*] [*] [*] [*] [*] [*] [*] [*] [*] [*]
============================================================================================================
</TABLE>
-27-
<PAGE>
APPENDIX 5
DEVELOPMENT/RESEARCH TERMS
These Development/Research terms set forth the understanding between Licensor
and Licensee regarding the Development Project. The development/research work
shall be carried out by Licensor in its laboratories in Copenhagen.
The Development Project shall run for twelve consecutive months starting on the
1st August 1996.
The work outlined below shall be the minimum acceptable by Licensee. Licensee
shall be permitted to review the progress of the Development Project on a
monthly basis. If the work as listed below is substantially completed within
the twelve month period, the Licensee shall add other products to be included in
the contract period. If Licensor has not completed the Development Project
outlined below by July 31, 1997 Licensee shall have the right to terminate the
Agreement and shall be released from all obligations set forth therein.
Licensee agrees to make any parties under Licensee's control having access to
Licensor's technical information under this Agreement bound to the
confidentiality provisions of the Agreement.
PROJECTS FOR DEVELOPMENT BY LICENSOR
1. [*]
The number one priority is the upgrading of the [*] test. This product,
although having adequate sensitivity, is perceived as having a [*]. It depends
on a [*] for signal development. The signal must be improved by the
substitution of an [*].
The need for urgency arises from the seasonality of [*] sales in the United
States. In order to meet the 1997 [*] season with an improved product, the
product must be ready for sale by early January of 1997.
The product and its current components are indicated on the attached diagram 1.
Licensee desires to replace the [*] pad, with a [*]. Licensee intends
ultimately to have the [*] for all procedural control lines in all [*]
diagnostics. Since the Licensee's logo is a [*], this would be the [*] for the
universal procedural line. Thus, the [*] chosen for the sample signal generator
must not be [*]. It is because of the constraints of time that in this first
improvement Licensee has decided not to opt for the development of the [*].
In order to accomplish the change to the diagnostic, Licensee will provide
Licensor with the following, in mutually agreeable quantities. Some of the
items are proposed (and are so indicated), since they are the property of [*]
and are not within Licensee' control. However, Licensee will make every effort
to see that they are made available to Licensor.
a) [*]
b) [*]
c) [*]
d) [*]
e) [*]
f) [*]
g) [*]
-28-
<PAGE>
[*].
2. [*]
The second product is a combination product for the detection of [*], in [*]
serum or plasma. The product will be developed in conjunction with a party to
be named by Licensee, and will have a format and housing similar to that in the
attached diagram 2. This diagram also indicates the proposed principles for the
test. The tests are run on [*]. It is proposed that Licensee employ three
different colors. One color will be for the [*] and will be the same for both
tests. The other two colors will be separately employed for signal generation
with [*]. Since Licensee envisions other products with these attributes
Licensee would like to standardize the procedural control for all such products.
Since Licensee's logo is a [*]. we would propose that a [*] be developed for the
[*]. Choice of the other two colors should depend only on development of
adequate [*] when the device is run with [*] samples.
For the purpose of developing these reagents, Licensee will provide Licensor
with the following materials in amounts that are mutually agreeable.
a) [*]
b) [*]
c) [*]
d) [*]
e) [*]
f) [*]
g) [*]
h) [*]
i) [*]
j) [*]
It is anticipated that as soon as the agreement between Licensor and Licensee is
finalized, that Licensee will initiate the development of the diagnostic at the
party to be named by Licensee. As the product is developed, Licensee will
ensure, to the best of its ability, that there is adequate communication between
the party to be named by Licensee and Licensor. To facilitate this and the
initiation of the project, a scientist from Licensee will spend time at the
party to be named by Licensee at an early stage in the project program. In
addition, if it is necessary to facilitate and expedite the program, the same
scientist can visit Licensor, during the same time frame or at a later stage.
3. [*]
This is an existing product developed and marketed by Licensee. It is for use
in detecting [*]. It uses a [*] format, with [*] as the signal generator.
Licensee desires that Licensor improve the product by increasing the [*]. This
will permit [*].
For the purposes of improving the diagnostic, Licensee will provide Licensor
with the following materials in quantities mutually agreeable.
a) [*]
b) [*]
c) [*]
d) [*]
e) [*]
f) [*]
-29-
<PAGE>
As Licensor: As Licensee:
/s/ Anders Weber /s/ Kenneth M. Cohen
- ------------------------- -------------------------------
By: Anders Weber By: Kenneth Cohen
Title: Managing Director Title: Chief Executive Officer
/s/ Gunnar Aass
- -------------------------
By: Gunnar Aass
Title: Chairman
-30-
<PAGE>
DIAGRAM 1
[*]
DIAGRAM 2
[*]
-31-
<PAGE>
APPENDIX 6
EXISTING PRODUCTS
<TABLE>
<CAPTION>
Product Name Description Species Test Method
=====================================================
<S> <C> <C> <C>
[*] [*] [*] [*]
- -----------------------------------------------------
</TABLE>
-32-
<PAGE>
APPENDIX 7
COUNTRIES
<TABLE>
<CAPTION>
PERCENTAGE OF
COUNTRY TOTAL LICENSEE SALES
<S> <C>
Australia [*]%
Austria [*]%
Belgium [*]%
Canada [*]%
France [*]%
Germany [*]%
Greece [*]%
Holland [*]%
[*] India [*]%
[*] Israel [*]%
Italy [*]%
Japan [*]%
Korea [*]%
[*] Malaysia [*]%
[*] New Zealand [*]%
Nordic [*]%
[*] Portugal [*]%
[*] South Africa [*]%
Spain [*]%
Switzerland [*]%
[*] Taiwan [*]%
[*] Thailand [*]%
[*] Turkey [*]%
U.K [*]%
U.S.A [*]%
</TABLE>
* [*]
** This Appendix 7 may be amended from time to time by Licensee to accurately
reflect its market positions. Licensee shall provide any amended version of
this Appendix to Licensor and such amended version shall not be binding
until receipt has been acknowledged by Licensor.
-33-
<PAGE>
APPENDIX 8
The Patent
<TABLE>
<CAPTION>
- -----------------------------------------------------
COUNTRY NUMBER STATUS
- -----------------------------------------------------
<S> <C> <C>
[*] [*] [*]
- -----------------------------------------------------
</TABLE>
-34-
<PAGE>
APPENDIX 9
License Fee
<TABLE>
<CAPTION>
Payment Amount
- ------- ------
<S> <C>
August 29, 1996 US$[*]
October 28, 1996 US$[*]
</TABLE>
-35-
<PAGE>
EXHIBIT 10.62
LICENSE AGREEMENT
-----------------
THIS LICENSE AGREEMENT (the "Agreement") made as of the 16th day of August,
1996, by and between AMERICAN HOME PRODUCTS CORPORATION ("Licensor"), a Delaware
corporation, having an office at Five Giralda Farms, Madison, NJ 07940, and
SYNBIOTICS CORPORATION ("Licensee"), a California corporation having an office
at 11011 Via Frontera, San Diego, CA 92127-1702.
BACKGROUND
A. Licensor owns certain patents relating to [*] vaccines.
B. Licensee intends to sell modified live [*] vaccines.
THE PARTIES AGREE AS FOLLOWS:
DEFINITIONS
"[*] Products" means any vaccine containing, as its only antigen, a [*] antigen.
- --------------
"Combination Products" means any vaccine containing a [*] antigen and one or
- ----------------------
more other antigens that, if used as the only antigen in a vaccine, would not
constitute a [*] Product.
"Earned Royalty" means (a) for Net Sales of Licensed Products other than
- ----------------
Combination Products, [*]% of Net Sales; and (b) for Net Sales of Combination
Products, [*]% of Net Sales.
"Licensed Patents" means United States Patents Numbers [*] and any extensions,
- ------------------
reissues and renewals thereof and any patents issued on any divisions,
continuations, or continuations in part thereof and any of Licensor's non-United
States counterparts to any of the above.
"Licensed Products" means Products covered by one or more claims of a Licensed
- -------------------
Patent in the country of manufacture, use or sale.
"Minimum Royalty" means, for each calendar quarter or portion thereof in 1996 or
- -----------------
1997 after USDA approval of a [*] Product, $[*]; for each calendar quarter of
1998, $[*]; for each calendar quarter of 1999, $[*]; for each calendar quarter
of 2000, $[*]; for each calendar quarter of 2001 and each year thereafter until
the expiration of the Term, $[*].
- ---------------------
[*] Certain confidential portions of this exhibit have been omitted by means of
blacking out the text (the "Mark"). This exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934, as amended.
-1-
<PAGE>
"Net Sales" means the gross receipts of Licensee and its affiliates from sales
- -----------
of Licensed Products made or sold in the United States of America less the
following deductions where applicable: (A) customary cash, trade or quantity
discounts actually allowed; (B) sales, use, tariff, import/export duties or
other excise taxes imposed upon particular sales; and (C) transportation charges
and allowances or credits to customers because of rejections or returns.
Licensed Products are considered sold at the earlier of their delivery or
invoicing by Licensee to a non-affiliate.
"Products" means any [*] Product(s) and/or combination Product(s).
- ----------
GRANTS
Licensed Patents. Subject to payment by Licensee of its initial payment and its
- ----------------
subsequent royalty obligations, Licensor hereby grants to Licensee a [*]
license, without the right to sublicense others, under the Licensed Patents to
make, have made, use, offer for sale, import, and sell the Licensed Products.
Nothing in this Agreement confers rights to use inactivated [*] vaccines, United
States Letters Patent No. [*], or any name, trade name or other designation.
Initial Payment. Licensee shall pay Licensor on the date hereof the non-
- ---------------
refundable Initial Payment of [*] U.S. dollars ($[*]).
Royalty Accruals. Royalties accrue each calendar quarter. Royalties accrue at
- ----------------
the greater of the Earned Royalty or the Minimum Royalty. Licensee has an
Earned Royalty Allowance of $[*]. Licensee may offset [*] of Earned Royalty
payments against the Earned Royalty Allowance. The cumulative total of all such
offsets cannot exceed $[*].
Remittance of Royalties. Royalties are payable quarterly, for the calendar
- -----------------------
quarters ending March 31, June 30, September 30 and December 31. All taxes of
any nature incurred on any payments under this Agreement will be assumed and
paid by Licensee, except for income taxes levied on Licensor. If such income
taxes must be withheld by Licensee, Licensee will get a receipt therefor and
send it to Licensor.
Quarterly Sales Reports. Licensee shall provide at the end of each calendar
- -----------------------
quarter a full and accurate accounting of all Net Sales by product category by
Licensee and its affiliates for that quarter. Each report shall include:
(a) The number of dosage units of each Licensed Product sold by Licensee
and its Affiliates;
(b) Gross receipts and Net Sales for each Licensed Product;
(c) The credits against royalties payable for such period that Licensee
claims under Section 3.1; and
(d) Licensee's computation of the aggregate earned royalties payable to
Licensor.
Records. Licensee shall keep full and accurate books of account containing all
- -------
particulars that may be necessary for calculating royalties. These books of
account shall be kept at the principal place of business of Licensee within the
United States, together with all necessary supporting data. All such reports
and data shall be open for inspection on a confidential basis. Licensor may
conduct an audit of these accounts at its own expense. If an audit shows that
Licensee underpaid the royalties due to Licensor by more than [*]%, then
Licensee shall immediately reimburse Licensor for the cost of such audit and
immediately pay to Licensor any such deficiency with interest thereon. Books
and records required to be maintained by Licensee hereunder shall be preserved
for at least five (5) years from the date of the royalty payment to which they
pertain.
-2-
<PAGE>
Interest. All payments that are not paid to Licensor when due shall bear
- --------
interest at the reference rate ("prime rate") charged from time-to-time by the
Citibank N.A. from the date due until paid.
Term. This Agreement shall remain in effect from the date hereof until
- ----
expiration of the last to expire Licensed Patent, unless otherwise terminated by
operation of law or in accordance with the terms of this Agreement.
Material Breach. If either party breaches any material obligation of this
- ---------------
Agreement, including failure by Licensee to make payments when due, the other
party may terminate this Agreement in its entirety by giving thirty (30) days
advance written notice of such termination and of the reasons therefor, unless
the breach is cured within such thirty (30) day period.
Termination on Insolvency. In the event that Licensee ceases conducting
- -------------------------
business in the normal course, becomes insolvent, makes a general assignment for
the benefit of creditors, suffers or permits the appointment of a receiver for
its business or assets or becomes subject to any proceeding relating to
insolvency or the protection of rights of creditors, then this Agreement may be
terminated effective on the date of such event or at anytime thereafter by
Licensor, by notice electing to terminate this Agreement.
Effect of Termination. Termination of this Agreement does not release either
- ---------------------
party from their continuing obligations hereunder nor create a right to rescind
any payment or other consideration given under this Agreement prior to the time
such termination becomes effective.
Patent Infringement Suits. In the event of the institution of any suit by a
- -------------------------
third party against Licensee for patent infringement by a Licensed Product, the
Licensee shall promptly notify Licensor in writing. Licensee may defend such
suits at its own expense. Licensor may participate in the defense at its own
expense. Licensor need not enforce any Licensed Patent against third parties.
Licensee and its affiliates shall mark all Licensed Products with the words
"Patent" or "Patents" and the number(s) of the Licensed Patents applicable
thereto.
Warranties. Licensee is responsible for the performance hereunder by its
- ----------
affiliates, including the payment of royalties, the provision of reports, and
the collection and transmittal of royalties accruing on Net Sales by any
affiliates. The parties expressly disclaim all warranties, express or implied,
including without limitation warranties of merchantability, fitness for a
particular purpose, or non-infringement of third party patents.
Indemnity. Licensee hereby agrees indemnify, hold harmless and defend Licensor,
- ---------
its officers, directors, employees and agents, against any and all claims,
suits, losses, damages, costs, fees and expenses resulting from or arising out
of the exercise of the license by Licensee and its affiliates. This indemnity
includes without limitation; (a) the packaging, making, importing, use, offering
for sale, or sale of Products by Licensee or any affiliate of Licensee; and (b)
any representation made or warranty given by Licensee or any affiliate of
Licensee with respect to any Product.
Waiver. No waiver by either party hereto of any breach or default of any of the
- ------
covenants or agreements herein waivers any subsequent or similar breach or
default.
Non-Assignment. Neither party can transfer this Agreement without prior written
- --------------
consent of the other party.
Notice. Any notice to be given to either party hereto shall be in writing.
- ------
Notices are effective on the date of delivery. Notices may be delivered in
person, by telecopier, or by registered or certified mail, postage paid, to the
other party at the following address:
-3-
<PAGE>
In the case of Licensor: Fort Dodge Laboratories
Suite 1500
9401 Indian Creek Parkway
Overland Park, Kansas 66225-5945
Telecopier: (913) 664-7120
Attn: President
With a copy to: American Home Products Corporation
5 Giralda Farms
Madison, New Jersey 07940
Telecopier (201) 660-6281
Attn: Senior Vice President & General Counsel
In the case of Licensee: Synbiotics Corporation
11011 Via Frontera
San Diego, CA 92127-1702
Telecopier (619) 451-5719
Attn: President
Agreement not to Bring Declaratory Judgment Action. Licensee will not file any
- --------------------------------------------------
declaratory judgment action regarding validity or infringement of any Licensed
Patent during this Agreement so long as Licensor takes no legal action against
Licensee in relation to this Agreement.
Headings. The headings of the several sections are inserted for convenience of
- --------
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
Amendment. All amendments hereto must be in writing and signed by both parties.
- ---------
Independent Contractors. This Agreement does not create an agency, partnership
- -----------------------
or employment relationship between Licensor and Licensee. At no time shall any
party make commitments in the name of the other party.
Entire Agreement. This Agreement embodies the entire understanding of the
- ----------------
parties and supersedes all previous understandings between the parties relating
to the Licensed Patents. If any provision of this Agreement is held to be
unenforceable, the provision shall be interpreted to be enforceable to the
extent possible. All other provisions of this Agreement shall remain valid and
enforceable to their full extent.
Construction. This Agreement is governed by and construed in accordance with
- ------------
the laws of the State of New York without regard to its conflict of laws rules.
-4-
<PAGE>
IN WITNESS WHEREOF, both Licensor and Licensee have executed this Agreement by
their respective duly authorized officers.
Licensor: AMERICAN HOME PRODUCTS CORPORATION
By: /s/ E. Thomas Corcoran
----------------------------------------
Title: President - Fort Dodge Animal Health
Licensee: SYNBIOTICS CORPORATION
By: /s/ Kenneth M. Cohen
----------------------------------------
Title: President and Chief Executive Officer
-5-
<PAGE>
EXHIBIT 10.63
-------------
SUPPLY AGREEMENT
AGREEMENT, by and between SYNBIOTICS CORPORATION, a corporation organized and
existing under the laws of California, having a place of business at 11011 Via
Frontera, San Diego, California 92127-1702 ("SC") and American Home Products
Corporation, a corporation of Delaware, acting through its Fort Dodge Animal
Health division, having a place of business at 9401 Indian Creek Parkway, Suite
1500, Overland Park, Kansas 66225-5945 ("FDL").
A. FDL and SC have concurrently herewith entered into a license agreement
("License Agreement") wherein FDL granted SC [*] rights under certain U. S.
patents relating to modified live canine corona vaccines and their production.
B. FDL has experience and expertise in the manufacture and supply of commercial
vaccines.
C. FDL desires to manufacture and supply to SC [*] vaccine components as
hereinafter defined and SC desires to have FDL manufacture and supply it with
such components.
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
respective meanings:
1.1 "[*] Vaccines" shall mean a vaccine containing, as its only antigen, a [*].
1.2 "Products" shall mean any of the [*] vaccine components listed on Exhibit A
hereto and as may be amended in writing by the parties.
1.3 "Specifications" shall mean all specifications for or concerning the
testing, manufacturing, storage, handling, packaging and quality assurance of
Products in bulk form as set forth in Exhibit B hereto, or as may be agreed upon
by the parties in writing from time to time.
1.4 "USDA" means the United States Department of Agriculture, or any of its
successor agencies or departments.
1.5 "Territory" shall mean the United States of America and its territories and
possessions.
1.6 "Affiliate(s)" shall mean any company(ies) directly or indirectly
controlling, controlled by, or under common control with a respective party.
For purposes of this definition, "control" shall mean possession of the power to
direct or cause the direction of the management and policies of the company,
whether pursuant to the ownership of voting securities, by contract, or
otherwise.
1.7 "Effective Date" shall mean the effective date of the License Agreement.
- -------------
[*] Certain confidential portions of this exhibit have been omitted by means of
blacking out the text (the "Mark"). This exhibit has been filed separately
with the Secretary of the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment under Rule 24b-2
under the Securities Exchange Act of 1934, as amended.
-1-
<PAGE>
1.8 "$" shall mean United States dollars.
ARTICLE II
SUPPLY OF PRODUCTS
2.1 Except as provided below, during the term of this Agreement, FDL shall
manufacture for and supply to SC all quantities of the Products as may be
required of FDL by SC in the Territory, and SC shall purchase all of its
requirements for the Products in the Territory from FDL.
2.2 Within thirty (30) days after the Effective Date and thereafter within three
(3) months of the first day of each calendar quarter, SC shall provide FDL with
a non-binding estimate of its expected purchases of each of the Products in each
of the following four (4) calendar quarters. SC may amend its quarterly
forecast up to sixty (60) days prior to the applicable calendar quarter after
which time such forecast shall become binding (except as provided under Section
2.4 hereof).
2.3 SC shall place purchase orders for each of the Products with FDL from time
to time specifying the quantities of the Products desired, and the place(s) to
which and the manner and dates by which delivery is to be made; said delivery
dates to be no earlier than thirty (30) days from the purchase order date. All
orders on a per vial or per dose basis shall be in [*] dose lots or as otherwise
agreed to by the parties. To the extent the terms of any purchase order or
acknowledgement thereof are inconsistent with the terms of this Agreement, this
Agreement shall control.
2.4 (a) SC shall order at least [*]% and not more than [*]% of its binding
quarterly forecast of Products within the applicable calendar quarter.
(b) FDL shall have no obligation to supply more than [*]% of SC's quarterly
forecast of Products in that calendar quarter. However, in instances wherein SC
orders more than [*]% of its quarterly forecast of Products, FDL agrees to use
commercially reasonable efforts to supply up to [*]% of SC's quarterly forecast
of Products during that calendar quarter.
2.5 FDL shall execute all purchase orders by delivery of all ordered quantities
of the Products no later than the delivery dates provided in SC's purchase
orders to the destinations directed by SC. Title and risk of loss will pass to
SC when each order of Products is delivered to SC's designated carrier.
2.6 As of the time of delivery by FDL, each lot of the Products will conform to
the Specifications. FDL shall provide to SC a certificate of analysis with each
shipment of the Products to SC stating that the Products conform to the
Specifications.
ARTICLE III
MANUFACTURE OF PRODUCTS
3.1 FDL agrees to keep complete records of all direct and ancillary operations
in the manufacture and supply of the Products to SC which shall upon reasonable
advance notice be available to examination, audit and copying by SC and its
representatives. FDL further agrees to promptly advise SC of its receipt from
the USDA of any correspondence relating to the Products and/or their
manufacture, and to supply SC with copies of said correspondence upon the
request of SC.
-2-
<PAGE>
3.2 SC shall have the right to inspect at all reasonable times during normal
business hours, and on reasonable prior notice, the operations and facilities of
FDL wherein the Products are manufactured, packaged, inspected, tested,
labelled, stored or shipped.
ARTICLE IV
PURCHASE PRICE
4.1 SC shall purchase and FDL shall sell to SC all quantities of the Products as
may be ordered by SC at prices per dose as set forth in Exhibit A.
4.2 SC shall pay all actual freight, insurance and government sales tax imposed
on purchasers for resale, and import and export duties and other fees (except
tax on income to FDL) incurred in connection with the sale and shipment of the
Products to SC.
4.3 On January 1, 1998, and on each twelve-month anniversary of that date, the
prices set forth in Section 4.1 may be adjusted by FDL to reflect (1) any
increase or decrease in FDL's cost of raw materials required for the manufacture
of the Products and (2) any increase or decrease in FDL's cost of manufacturing
such Products (so long as FDL complies with the following sentence). FDL shall
notify SC of any such increases or decreases at least ninety (90) days prior to
such anniversary dates and provide SC with documentation for cost adjustments
relating to changes in FDL's costs of raw materials under Section 4.3(1) above.
Price adjustments shall become effective on all quantities of Products ordered
by SC for delivery after such adjustment date.
4.4 FDL shall keep complete records of FDL's costs of manufacturing the
Products, and shall permit SC's independent auditors at SC's expense to inspect
and review such records during normal business hours and upon reasonable prior
notice in order to verify or determine such costs and whether an increase or
decrease in such costs has occurred. The auditors may not disclose to SC
specific manufacturing cost breakdowns, but only whether or not the increase or
decrease in FDL's costs of manufacturing reported by FDL are correct. SC shall
bear the costs and fees associated with such inspections and reviews unless it
is determined that such price adjustment was unjustified, in which case FDL
shall bear the costs and fees of such audit.
4.5 Payments to FDL for the purchase price of delivered Products shall be made
by SC within thirty (30) days after the date of actual delivery thereof to the
destination specified by SC, except as to Product orders which are not accepted
by SC or which the parties dispute are nonconforming to Specifications.
ARTICLE V
INSPECTION OF PRODUCT
5.1 Acceptance of Products delivered to SC shall be subject to inspection and
approval by SC,s quality assurance personnel or such other technical
representatives as SC may select, with respect to whether each lot of the
Products conforms to the Specifications.
5.2 SC shall as promptly as practical, but not more than thirty (30) working
days after actual receipt of a Product order, notify FDL of any disapproval of
samples of such Product inspected and its nonacceptance of the Product order, or
portion thereof.
5.3 If FDL disputes any finding by SC that a Product sample fails to conform to
the Specifications, such dispute shall be resolved by an independent, USDA
approved laboratory selected by FDL, acceptable to SC. All fees and
-3-
<PAGE>
disbursements incurred in connection with the independent determination shall be
borne by the party which determined incorrectly that the Product sample does or
does not conform to the Specifications.
5.4 FDL shall replace any Product order, or portion thereof, not conforming to
the Specifications, (unless such non-conformance is due to any negligent or
wrongful act or omission by SC or its agents or subcontractors), at its cost and
expense, including shipping costs, forthwith.
5.5 SC may return, at FDL's expense including shipping costs, any Product order,
or portion thereof, which does not conform to the Specifications and FDL agrees
to accept such returned Product.
ARTICLE VI
WARRANTIES AND INDEMNITIES
6.1 (a) Except as may be modified by Section 6.1(b) hereof, FDL warrants that
the Products conform to the Specifications. THE FOREGOING WARRANTY IS
EXCLUSIVE, AND IS IN LIEU OF ALL OTHER WARRANTIES (WHETHER WRITTEN, ORAL OR
IMPLIED) INCLUDING A WARRANTY OF MERCHANTABILITY IN OTHER RESPECTS THAN
EXPRESSLY SET FORTH ABOVE AND A WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE.
(b) The warranty set forth in Section 6.1(a) relating to any desiccated
component shall be valid only if the desiccated component of the Products are
prepared and dried by FDL.
6.2 FDL shall indemnify, defend and hold SC, its officers, directors,
shareholders, Affiliates, subsidiaries, employees, agents and representatives
harmless from any claims, losses, liabilities, costs, expenses (including
reasonable attorney's fees) and damages, including any related to property or
personal injury, arising out of or in any way related to (a) FDL's
representations, warranties or covenants contained herein or breach thereof; or
(b) any violation by FDL of any applicable Federal, State or local regulation,
statute or order in the manufacture of Products. However, FDL shall have no
obligations to SC under this Section unless SC (i) gives FDL prompt notice of
any claim or lawsuit or other action for which it seeks to be indemnified under
this Agreement and (ii) cooperates fully with FDL and its agents in defense of
the claims or lawsuit or other action. SC shall have the right to participate
in the defense of any such claim, complaint, suit, proceeding or cause of action
referred to in this section utilizing attorneys of its choice. SC shall bear
the costs associated with its participation.
6.3 SC shall indemnify, defend and hold FDL, its officers, directors,
shareholders, Affiliates, subsidiaries, employees, agents and representatives
harmless from any claims, losses, liabilities, costs, expenses (including
reasonable attorney's fees) , costs, liabilities or any other loss as the result
of claims for personal injury or property damage to third parties arising out of
or in connection with SC's activities occurring in the course of its sales
efforts related to sale of Products, provided that, SC shall not be liable
hereunder for any matter that may be covered by FDL's indemnity above. SC shall
have no obligations under this Section unless FDL (i) gives SC prompt notice of
any claim or lawsuit or other action for which it seeks to be indemnified under
this Agreement, and (ii) cooperates fully with SC and its agents in defense of
the claims or lawsuit or other action. FDL shall have the right to participate
in the defense of any such claim, complaint, suit, proceeding or cause of action
referred to in this Section utilizing attorneys of its choice. FDL shall bear
the costs associated with its participation.
-4-
<PAGE>
ARTICLE VII
INSURANCE
SC shall obtain and maintain at all times during the term of this Agreement
Comprehensive General Liability Insurance, including Products Liability, naming
FDL as an additional insured, with limits of liability of not less than [*]
Dollars ($[*]) per occurrence. SC shall provide FDL with a Certificate of
Insurance evidencing this coverage within thirty (30) days of the Effective
Date.
ARTICLE VIII
VACCINE RECALLS
8.1 In the event of a recall of any Product required by a governmental agency or
authority of competent jurisdiction or if recall of any Product is jointly
deemed advisable by FDL and SC, such recall shall be promptly implemented and
administered by SC in a manner which is appropriate and reasonable under the
circumstances and in conformity with accepted trade practices. The costs of any
such recall shall be borne by the party or parties whose actions caused the
recall to be necessary. FDL will have no obligation to pay costs of recalls of
Products caused by actions of third parties occurring after such Product is sold
by SC.
8.2 The provisions and obligations of this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX
CONTRACTUAL RELATIONSHIP
The relationship of the parties under this Agreement is that of independent
contractors and not as agents of each other or partners or joint venturers, and
neither party shall have the power to bind the other in any way with respect to
any obligation to any third party unless a specific power of attorney is
provided for such purpose. Each party shall be solely and exclusively
responsible for its own employees and operations.
ARTICLE X
TERM AND TERMINATION
10.1 This Agreement shall become effective upon the Effective Date and, unless
earlier terminated as provided below, shall remain in full force and effect for
a period of five (5) years ("Initial Term"). This Agreement will automatically
renew and continue in force for successive one (1) year renewal(s) term(s) until
terminated at the expiration of the Initial Term or thereafter upon at least one
(1) year's written notice by either party.
10.2 FDL may terminate this Agreement, except as limited hereinafter,
immediately upon written notice, in the event (a) SC fails to make any payment
due and owing within sixty (60) days after notice thereof; or (b) SC commits
breach of any material provision of this Agreement which is not cured within
sixty (60) days after notice thereof. This right of termination, however,
cannot be exercised by FDL if at any time during said sixty (60) days period, SC
advises FDL in writing that it challenges the alleged payment owed or breach.
In such event the parties will negotiate in good faith to resolve the dispute
concerning the alleged payment owed or breach.
10.3 SC may terminate this Agreement immediately upon written notice in the
event FDL commits breach of any material provision of this Agreement which is
not cured within sixty (60) days after notice thereof.
-5-
<PAGE>
10.4 Either party may terminate this Agreement if the other party is declared
insolvent or bankrupt by a court of competent jurisdiction, or files a voluntary
petition of bankruptcy in any court of competent jurisdiction, or shall make or
execute an assignment of substantially all its assets for the benefit of
creditors.
10.5 This Agreement will automatically terminate upon termination of the
License Agreement.
10.6 Termination of this Agreement for any cause shall not release either party
from any obligation theretofore accrued.
10.7 The failure on the part of either party to exercise or enforce any right
conferred upon it hereunder shall not be deemed to be a waiver of any such right
nor operate to bar the exercise or enforcement thereof at any time thereafter.
10.8 Upon termination of this Agreement for any reason, FDL shall fill all
outstanding orders of SC for the Products, unless otherwise instructed by SC.
ARTICLE XI
ASSIGNABILITY
SC shall not at any time assign or transfer this Agreement to any person, firm,
organization or company whomsoever without the prior written consent of FDL
(such consent not to be unreasonably withheld or delayed) except that SC may
assign this Agreement to any Affiliate without any such consent.
ARTICLE XII
SEVERABILITY
The illegality or invalidity of any provisions of this Agreement shall not
impair, affect or invalidate the other provisions of this Agreement.
ARTICLE XIII
GOVERNING LAW
This Agreement shall be governed by and interpreted according to the laws of the
State of New Jersey without regard to principles of conflict of laws. The
appropriate state and federal courts of the State of New Jersey shall have
exclusive jurisdiction over any dispute between the parties, and each party
unconditionally submits to the jurisdiction of such courts.
ARTICLE XIV
NOTICES
Any notice required or permitted under this Agreement shall be deemed to have
been sufficiently provided and effectively made as of the delivery date if hand-
delivered, or as of the mailing date if mailed by registered mail, postage-
prepaid, and addressed to the receiving party at the following respective
address:
-6-
<PAGE>
FORT DODGE ANIMAL HEALTH
9401 Indian Creek Parkway, Suite 1500
Overland Park, KS 66225-5945
Attention: President
With a copy to:
AMERICAN HOME PRODUCTS CORPORATION
Five Giralda Farms
Madison, New Jersey 07940
Attention: Senior Vice President and General Counsel
SYNBIOTICS CORPORATION
11011 Via Frontera
San Diego, CA 92127-1702
Attention: President
or such other address which the receiving party has given notice pursuant to the
terms of this Article XIV.
ARTICLE XV
ANNOUNCEMENTS
Unless required by law, neither party shall, without the other party's prior
written consent, make any announcement or other disclosure regarding the
existence or terms of this Agreement.
ARTICLE XVI
CONFIDENTIALITY
16.1 During the term hereof, SC agrees not to disclose to any third party or
use for any purpose not required of SC under either this Agreement or the
License Agreement any and all proprietary information of FDL (hereinafter
"INFORMATION"). INFORMATION shall not include information which:
a. Is in or comes into the public domain, provided that such information
does not come into the public domain through any act, negligence or
fault of SC; or
b. Can be shown by competent proof to have been in the possession of SC
at or prior to the date of disclosure by FDL; or
c. Is properly provided to SC without restriction by an independent third
party under no obligation of confidentiality to FDL; or
d. Is disclosed by FDL on a non-confidential basis to third parties.
16.2 That all rights, title and interest in or to INFORMATION is at the date
hereof, and shall at all times remain exclusively in FDL, and that SC shall not
at any time claim any right, title, license under or interest in or to the
INFORMATION for itself or on behalf of any other entity or person.
-7-
<PAGE>
16.3 SC shall keep the INFORMATION strictly secret and confidential, shall not
make any use thereof except for purposes permitted under this Agreement and/or
the License Agreement, and shall maintain this confidentiality for a period of
five (5) years from the termination date of this Agreement.
16.4 The obligations of confidentiality and non-use set forth in this Article
16 shall supersede all other such obligations between the parties.
ARTICLE XVII
FORCE MAJEURE
17.1 Neither party shall be liable for delay in performance or non-performance
caused by circumstances beyond the reasonable control of the party affected,
including, but not limited to, acts of God, fires, floods, acts of war or
violence, labor disputes or shortages, plant shutdown, governmental actions, or
inability to obtain material, equipment or transportation.
17.2 SC acknowledges that FD's ability to supply Product and meet its
obligations hereunder is contingent upon FDL's possession of all required USDA
approvals.
ARTICLE XVIII
ENTIRE UNDERSTANDING
Except as set forth in the License Agreement, this Agreement represents the
entire understanding between FDL and SC, and supersedes all other understandings
and agreements, express or implied, concerning the supply of the Products. Any
modification or waiver of this Agreement to be effective must be in writing,
specifically refer to this Agreement, and be signed by both parties.
AMERICAN HOME PRODUCTS CORPORATION, ACTING THROUGH ITS FORT DODGE
ANIMAL HEALTH DIVISION
By: /s/ E. Thomas Corcoran
----------------------------------------
Title: President - Fort Dodge Animal Health
SYNBIOTICS CORPORATION
By: /s/ Kenneth M. Cohen
----------------------------------------
Title: President and Chief Executive Officer
-8-
<PAGE>
EXHIBIT A
PRODUCTS and PURCHASE PRICE
---------------------------
Product: per dose equivalent 1x virus fluid $[*]
<PAGE>
EXHIBIT B
SPECIFICATIONS
--------------
<TABLE>
<CAPTION>
1x Fluid
- --------
<S> <C>
Sterility - Passes 9 C.F.R. 113.27
Mycoplasma - Passes 9 C.F.R. 113.28
Minimum Titer - 5.3 (log 10)
Identity - Passes 9 C.F.R. 113.300(c)
Conforms to 9 C.F.R. 113.300
</TABLE>
<PAGE>
EXHIBIT 11.1
------------
Synbiotics Corporation
Computation of Earnings Per Share
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Primary Earnings Per Share:
Net income per statement of operations $ 830,000 $1,651,000
========== ==========
Weighted average number of shares outstanding 7,485,000 5,911,000
========== ==========
Primary earnings per share $ .11 $ .28
========== ==========
Fully Diluted Earnings Per Share:
Net income per statement of operations $ 830,000 $1,651,000
========== ==========
Reconciliation of weighted average number
of shares per primary computation above,
to amount used for fully diluted
computation:
Weighted average number of shares
outstanding, per primary computation 7,485,000 5,911,000
Add-effect of outstanding options (as
determined by the application of the
treasury method) 7,000 13,000
---------- ----------
Weighted average number of shares, as
adjusted 7,492,000 5,924,000
========== ==========
Fully diluted earnings per share $ .11 $ .28
========== ==========
</TABLE>
-1-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED BALANCE SHEET AS OF MARCH 31, 1997 AND THE RELATED CONDENSED
STATEMENTS OF OPERATIONS AND OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31,
1997 CONTAINED ELSEWHERE IN THIS FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,751
<SECURITIES> 2,214
<RECEIVABLES> 4,985
<ALLOWANCES> 56
<INVENTORY> 4,723
<CURRENT-ASSETS> 14,895
<PP&E> 4,409
<DEPRECIATION> 3,741
<TOTAL-ASSETS> 28,663
<CURRENT-LIABILITIES> 2,197
<BONDS> 0
0
0
<COMMON> 35,526
<OTHER-SE> (9,060)
<TOTAL-LIABILITY-AND-EQUITY> 28,663
<SALES> 6,940
<TOTAL-REVENUES> 7,079
<CGS> 3,382
<TOTAL-COSTS> 3,382
<OTHER-EXPENSES> 2,271
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,426
<INCOME-TAX> 596
<INCOME-CONTINUING> 830
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 830
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
