<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended December 31, 1999, or
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ___________ to ___________
Commission file number 000-21615
------------
BOSTON BIOMEDICA, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Massachusetts
- ---------------------------------------- 04-2652826
(State or other Jurisdiction of -------------------------------
Incorporation or Organization) (I.R.S. Employer
375 West Street, Identification No.)
West Bridgewater, Massachusetts 02379-1040
- ---------------------------------------- -------------------------------
(Address of Principal Executive Offices) (zip code)
Registrant's telephone number, including area code (508) 580-1900
---------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the voting common stock held by
non-affiliates of the registrant at February 29, 2000 was $49,248,992, based on
the closing price of the common stock as quoted on the Nasdaq National Market on
that date.
As of March 24, 2000 there were 5,441,960 shares of the registrant's
common stock outstanding.
Documents Incorporated by Reference
-----------------------------------
Portions of the registrant's definitive proxy statement involving the
election of directors at its 2000 annual meeting, which is expected to be filed
within 120 days after the end of the registrant's fiscal year, are incorporated
by reference into Part III of this report.
================================================================================
<PAGE>
PART I
ITEM 1. BUSINESS
Boston Biomedica, Inc. and its wholly-owned subsidiaries (together,
"the Company"), provide products and services for the detection and treatment of
infectious diseases such as AIDS, Lyme Disease, and Viral Hepatitis. The Company
has four business units, which are comparable to operating segments (the terms
"business units" and "operating segments" are used herein interchangeably):
(1) BBI Diagnostics, an ISO 9001 certified manufacturer of quality
control and other diagnostic products used to increase the
accuracy of in vitro diagnostic tests;
(2) BBI Clinical Laboratories, a leading infectious disease testing
laboratory, specializing in nucleic acid based testing, tick borne
diseases, and blood bank confirmatory testing;
(3) BBI Biotech Research Laboratories, the research and development
arm of the Company which supplements its support for the other BBI
business units with research contracts and repository services
primarily for agencies of the United States government; and
(4) BBI Source Scientific, an ISO 9001 and EN 46001 certified
manufacturer of laboratory and medical instruments.
In addition, the Company is pursuing research and development programs in the
areas of Pressure Cycling Technology ("PCT") and drug discovery, with the goals
of introducing new solutions for improving blood plasma safety, specimen
preparation in nucleic acid testing, and treatment of infectious diseases.
The Company was organized in Massachusetts in 1978, and commenced
significant operations in 1986.
In July 1999, the Company announced a major reorganization and the
formation of a corporate function. Pursuant to this reorganization a Senior
Vice President and General Manager was appointed for each business unit,
reporting to the President & Chief Operating Officer. The responsibility of
the General Manager is to achieve the agreed upon goals and plan of the
business unit. The primary focus of corporate is to oversee the business
units and guide them according to the strategic direction of the Company.
In September 1999, the Company moved its research and development
activities in PCT from leased laboratory space in Woburn, Massachusetts to its
BBI Biotech facility in Gaithersburg, Maryland. This was done to allow the
scientific team working on PCT to have easy and open access to the molecular and
cellular biology capabilities at BBI Biotech, as well as to reduce operating
costs and promote efficiencies.
In October 1999, the Company formed a new, wholly-owned subsidiary,
Panacos Pharmaceuticals, Inc., ("Panacos"), a Delaware corporation. All of the
Company's technology related to its drug discovery and vaccine programs,
consisting primarily of patents and related sponsored research agreements, were
transferred to Panacos effective January 2000. Management intends to sell a
substantial portion of Panacos to third party investors in order to obtain the
substantial amount of capital required to progress to more advanced stages of
drug development including human clinical trials. If successful in raising
capital, the Company plans to become a less than 50% shareholder in Panacos,
give up operational control, and switch to the equity method of accounting for
its investment, as opposed to consolidation accounting.
The Company's strategy is to leverage its scientific capabilities in
microbiology, immunology, virology, and molecular biology to (1) capitalize on
both the emerging end-user market for quality control products, and the
molecular testing market, (2) develop new products and services, (3) enhance
technical leadership, (4) capitalize on complementary business operations, and
(5) pursue strategic acquisitions and alliances.
-2-
<PAGE>
Industry Overview
Infectious Disease Test Kits and Testing Methods. Test kits contain in
one compact package all of the materials necessary to run a test for an
infectious disease. These materials include disposable diagnostic components,
instructions, and reaction mixing vessels (generally 96-well plates or test
tubes) that are coated with the relevant infectious disease antigens, antibodies
or other materials. To perform the test typically, either a technician or a
specially designed instrument mixes the solutions from the test kit with human
blood specimens in a specific sequence according to the test kit instructions.
The mixture must then "incubate" for up to 18 hours, during which time a series
of biochemical reactions trigger signals (including color, light or radioactive
count), that indicate the presence or absence and amount of specific markers of
the particular disease in the specimen.
Test kits generally employ one of three methods for infectious disease
testing: microbiology, immunology or molecular biology. Traditional microbiology
tests use a growth medium that enables an organism, if present, to replicate and
be detected visually. Immunology tests detect the antigen or antibody, which is
an indicator (marker) of the pathogen (e.g., virus, bacterium, fungus or
parasite). Molecular diagnostic methods, such as the polymerase chain reaction
("PCR"), test for the presence of nucleic acids (DNA or RNA) that are specific
to a particular pathogen.
Most infectious disease tests currently use microbiological or
immunological methods. However, molecular diagnostic methods are increasingly
being used in research and clinical laboratories worldwide. The Company believes
that the advent of molecular diagnostic methods will complement rather than
diminish the need to test by microbiological and immunological procedures,
because different test methods reveal different information about a disease
state. The Company anticipates that as new test methods become more widespread,
they will account for a larger portion of the Company's business.
Quality Control for In Vitro Diagnostic Test Kits. Customers employ
quality control products in order to develop and use test kits (both infectious
and non-infectious). Quality control products help ensure that test kits detect
the correct analyte ("specificity"), detect it the same way every time
("reproducibility" or "precision"), and detect it at the appropriate levels
("sensitivity"). The major element of this quality control process is the
continuous evaluation of test kits by the testing of carefully characterized
samples that resemble the donor or patient samples routinely used with the test.
Quality control is used in both the infectious and non-infectious disease
markets, although currently it is not as prevalent among end-users of infectious
disease test kits.
The market for quality control products consists of three main customer
groups : (i) manufacturers of test kits, (ii) regulatory agencies that oversee
the manufacture and use of test kits, and (iii) end-users of test kits, such as
hospitals, clinical reference laboratories and blood banks.
Company Products and Services
Overview
Through its business unit BBI Diagnostics, the Company offers a broad
array of "Diagnostic Products," for in vitro diagnostic use, consisting of
Quality Control Panels, Accurun(R) Run Controls and Diagnostic Components, all
used in connection with infectious disease testing. Diagnostic Products are used
throughout the entire test kit life cycle, from initial research and
development, through the regulatory approval process and test kit production, to
training, troubleshooting and routine use by end-users. The Company's Quality
Control Panels, which combine human blood specimens with comprehensive
quantitative data useful for comparative analysis, help ensure that test kits
are as specific, reproducible, and sensitive as possible. The Company's
Accurun(R) Run Controls enable end-users of test kits to confirm the validity of
results by monitoring test performance, thereby minimizing false negative test
results and improving error detection. In addition, the Company provides
Diagnostic Components, which are custom processed human plasma and serum
products, to test kit manufacturers.
-3-
<PAGE>
Through its wholly-owned subsidiary, BBI Source Scientific, Inc., ("BBI
Source"), the Company designs, manufactures and markets "Laboratory
Instruments", consisting of readers and washers and other small medical devices.
These instruments are used in hospitals and clinics, and in research,
environmental and food testing laboratories. Utilizing a common hardware
technology platform, these instruments are used in connection with the
performance of an IN VITRO diagnostics test, including reading the test result.
Through another wholly-owned subsidiary, BBI Clinical Laboratories,
Inc. ("BBICL") the Company provides specialty clinical laboratory services that
include both routine and sophisticated infectious disease testing in
microbiology, immunology and molecular biology. BBICL seeks to focus its
laboratory services in those advanced areas of infectious disease testing
requiring special expertise.
BBI Biotech Research Laboratories, Inc., ("BBI Biotech"), another
wholly-owned subsidiary, is the R&D "arm" of the Company, helping to develop new
products and services for the other business units. BBI Biotech seeks to obtain
government grants and other research support wherever possible to help fund the
cost of this R&D. In addition, BBI Biotech provides repository services for the
United States government, and other commercial services for laboratories and
test kit manufacturers.
During each of the last three fiscal years, each of the Company's
operating segments contributed at least 15% of the Company's consolidated
revenue, with the exception of BBI Source in fiscal 1997 and 1999 and the
"Other" segment in fiscal 1999. The Company's Consolidated Financial Statements
set forth in Item 8 of this report provide financial information relating to
each of the Company's operating segments.
Diagnostic Products
The Company manufactures its Diagnostic Products from human plasma and
serum that are obtained from nonprofit and commercial blood centers, primarily
in the United States. The Company has acquired and developed an inventory of
approximately 30,000 individual blood units and specimens (with volumes ranging
from 1 ml to 800 ml) which provides most of the raw material for its products.
Within the Diagnostic Products class are two groups: Quality Control Products,
consisting of QC Panels and Accurun(R) Run Controls, and Diagnostic Components.
Quality Control Panels
Quality Control Panels consist of blood products characterized by the
presence or absence of specific disease markers and a data sheet containing
comprehensive quantitative data useful for comparative analysis. These Quality
Control Panels are designed for measuring overall test kit performance and
laboratory proficiency, as well as for training laboratory professionals. The
Company's data sheets, which contain comprehensive quantitative data useful for
comparative analysis, are an integral part of its Quality Control Panels. These
data sheets are created as the result of extensive testing of proposed panel
components in both the Company's laboratories and at major testing laboratories
on behalf of the Company in the United States and Europe, including national
public health laboratories, research and clinical laboratories and regulatory
agencies. These laboratories are selected based on their expertise in performing
the appropriate tests on a large scale in an actual clinical laboratory setting;
this testing process provides the Company's customers with the benefit that the
Quality Control Panels they purchase from the Company have undergone rigorous
testing in actual clinical laboratory settings. In addition, the Company
provides information on its data sheets on the reactivity of panel components in
all FDA licensed test kits and all leading European test kits for the target
pathogen, as well as for all other appropriate markers of this pathogen. For
example, the Company's HIV panel data sheets include anti-HIV by IFA, ELISA and
western blot; HIV antigen by ELISA; and HIV RNA by several molecular diagnostic
procedures. The Company's data sheets require significant time and scientific
expertise to prepare. The following table describes the types of Quality Control
Panel products currently offered by the Company:
-4-
<PAGE>
<TABLE>
<CAPTION>
Quality Control Panels
- ----------------------------------------------------------------------------------------------------------------------------------
Product Line Description Use Customers
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Seroconversion Panels Plasma samples collected from a Compare the clinical Test kit manufacturers and
single individual over a specific sensitivity of competing regulators.
time period showing conversion from manufacturers' test kits,
negative to positive for markers of enabling the user to assess
an infectious disease. the sensitivity of a test in
detecting a developing
antigen/antibody.
- ----------------------------------------------------------------------------------------------------------------------------------
Performance Panels A set of 10 to 50 serum and plasma Determine test kit performance Test kit manufacturers and
samples collected from many different against all expected levels of regulators.
individuals and characterized for the reactivities in the evaluation
presence or absence of a particular of new, modified and improved
disease marker. test methods.
- ----------------------------------------------------------------------------------------------------------------------------------
Sensitivity Panels Precise dilutions of human plasma or Evaluate the low-end Test kit manufacturers.
serum human plasma or serum analytical sensitivity of a
containing a known amount of an test kit.
infectious disease marker as
calibrated against international
standards.
- ----------------------------------------------------------------------------------------------------------------------------------
Qualification Panels Dilutions of human plasma or serum Demonstrate the consistent Clinical reference
manifesting a full range of lot-to-lot performance of test laboratories, blood banks,
reactivities in test kits for a kits, troubleshoot problems, and hospital laboratories.
specific marker. evaluate proficiency, and
train laboratory technicians.
- ----------------------------------------------------------------------------------------------------------------------------------
OEM Panels Custom-designed Qualification Panels Train laboratory personnel on Custom designed with test kit
for regulators and test kit new test kits or equipment. manufacturers and regulators
manufacturers for distribution to as an end-user product or for
customers or for internal use. internal use.
- ----------------------------------------------------------------------------------------------------------------------------------
Verification Panels Verification Panels contain naturally Verify accuracy and ensure Clinical reference
occurring undiluted samples at that reagents perform to laboratories, blood banks,
varying titers. expectation: also used to hospital laboratories.
troubleshoot system problems
and to document problem
resolution.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company first introduced Quality Control Panels in 1987. The
Company currently offers a broad range of Quality Control Panels that address a
variety of needs of manufacturers and regulators of test kits as well as blood
banks, hospitals, clinical laboratories and other end-users. Prices for the
Company's quality control seroconversion, performance and sensitivity panels
range from $450 to $2,000 each, and its qualification, OEM, and verification
panels generally range from $100 to $200 per panel.
-5-
<PAGE>
Seroconversion and performance panels are comprised of unique and rare
plasma specimens obtained from individuals during the short period of time when
the markers for a particular disease are converting from negative to positive.
As a result, the quantity of any such panel is limited, so that the Company must
replace these panels as they sell out with another panel comprised of different
specimens from a different individual, equally unique and rare. The Company
believes that its inventory and relationships with blood centers affords it a
competitive advantage in acquiring such plasma for replacement panels and
developing new products to meet market demand. However, the Company cannot be
certain that it will be able to continue to obtain such specimens.
Quality Control Panels currently span the immunologic markers for AIDS
(i.e., HIV), Hepatitis (A, B and C), Lyme Disease and ToRCH (Toxoplasma,
rubella, cytomegalovirus and herpes simplex virus).
Accurun(R) Run Controls
End-users of test kits utilize run controls to confirm the validity of
results by monitoring test performance, thereby minimizing false negative test
results and improving error detection. Run controls consist of one or more
specimens of known reactivity that are tested with donor or patient samples in
an assay to determine whether the assay is performing within the manufacturer's
specifications. Clinical laboratories generally process their patient specimens
in a batch processing mode, and typically include 25 to 100 specimens to be
tested in each batch (a "run"). Large laboratories may perform several runs per
day, while smaller laboratories may perform only a single run each day, or
sometimes only several runs per week. A clinical laboratory using a run control
will place the run control product in a testing well or testtube, normally used
for a specimen, and will test it in the same manner that it tests the donor or
patient specimens. It will then compare the results generated to an acceptable
range for the run control, determined by the user, to measure whether the other,
unknown specimens are being accurately tested. The run control result must be
within the acceptable range to be considered valid. This is often tracked
visually using what is known as a Levey-Jennings chart. Depending upon a
particular laboratory's quality control practices, it may use several Run
Controls on each run or it may simply use a run control in a single run at the
beginning and end of the day.
The Company's AccuChart(TM) tracking and charting software, used as
part of a laboratory's quality assurance program, runs on a personal computer
and is designed to provide the data tracking capability needed to document
laboratory performance.
The Company's Accurun(R) family of products is targeted at the emerging
market of end-users of infectious disease test kits. The Company believes that
it offers the most comprehensive line of run controls in the industry, and that
its Accurun(R) products, in combination with its Quality Control Panel products,
provide an extensive line of products for quality assurance in infectious
disease testing. The Company intends to continue to expand its line of
Accurun(R) products, thereby providing its customers with the convenience and
cost effectiveness of a single supplier for independent run controls.
The Company introduced its first four Accurun(R) Run Control products
in the fourth quarter of 1993 and has since developed and released for sale an
additional 46 Accurun(R) products. Two products have been discontinued, for a
total of 48 Run Controls available as of December 31, 1999. The majority of
these products are available for diagnostic purposes; the others currently are
limited to research use. Current Accurun(R) Run Control products generally range
in price from $5 to $60 per milliliter and are described in the following table.
-6-
<PAGE>
<TABLE>
<CAPTION>
ACCURUN(R) RUN CONTROLS
- ----------------------------------------------------------------------------------------------------------------------------------
Product Description Number of Products Primary Customers
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accurun 1(R) Multi Marker Multi-marker run controls for 12 Blood banks, plasma centers,
Positive Controls diagnostic immunological tests hospitals and clinical labs
- ----------------------------------------------------------------------------------------------------------------------------------
Accurun Immunological Positive Single marker run controls for 23 Hospitals and clinical labs
Controls diagnostic immunological tests
- ----------------------------------------------------------------------------------------------------------------------------------
Accurun Nucleic Acid Positive Single Marker run controls for 5 Research and specialty labs
Controls amplified nucleic acid tests
- ----------------------------------------------------------------------------------------------------------------------------------
Accurun Reference Nucleic Acid Run controls calibrated to the 2 International plasma manufacturers
Controls World Health Organization and blood centers
standard.
- ----------------------------------------------------------------------------------------------------------------------------------
Accurun Negative Controls Negative run controls for 6 All labs
immunological and nucleic acid
testing
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
All of the Company's Accurun(R) Run Controls for diagnostic use require
either FDA premarket clearance (a 510(k)) or validation studies (if the products
are exempt from FDA submission requirements under the FDA Modernization Act of
1997), prior to being marketed for diagnostic use. As of March 1, 2000, a total
of 12 products in the Accurun 1(R) line and 18 single analyte Accurun(R)
controls have either received 510(k) clearance or have been validated.
Diagnostic Components
Diagnostic Components are the individual materials supplied to
infectious disease test kit manufacturers and combined (often after further
processing by the manufacturer) with other materials to become the various fluid
components of the manufacturer's test kit. The Company supplies Diagnostic
Components in four product lines: Normal Human Plasma, Normal Human Serum,
Basematrix, and Characterized Disease State Serum and Plasma. Normal Human
Plasma and Serum are both the clear liquid portion of blood which contains
proteins, antibodies, hormones and other substances, except that the Serum
product has had the clotting factors removed. Basematrix, the Company's
proprietary processed serum product that has been chemically converted from
plasma, is designed to be a highly-stable, lower cost substitute for most normal
human serum and plasma applications. Characterized Disease State Serum and
Plasma are collected from specific blood donors pre-selected because of the
presence or absence of a particular disease marker. The Company often customizes
its Diagnostic Components by further processing the raw material to meet the
specifications of the test kit manufacturer. The Company's Diagnostic Components
range in price from $0.25 to $60 per milliliter, with the majority selling
between $0.50 and $5 per milliliter.
-7-
<PAGE>
Laboratory Instruments
BBI Source, the Laboratory Instrumentation operating segment,
designs, manufactures and markets laboratory instruments and other small
medical devices used in hospitals and clinics and in research, environmental
and food testing laboratories. These instruments are generally sold on a
private-label or OEM basis for other companies utilizing a common hardware
technology platform. The instruments manufactured by the Company use advanced
optical detection methods (luminescence, fluorescence, reflectance,
photometry), robotics, fluidics, and unique software, all of which are
desired by customers reselling or supplying state-of-the-art instrumentation
systems to laboratories worldwide in various applications.
Most of the Laboratory Instrumentation products currently being offered
have been commercialized since 1985 and were primarily developed in conjunction
with IN VITRO diagnostics test kit manufacturers. BBI Source hopes to attract
development partners for new prototype products. Management believes that these
products address important market segments in biomedical and clinical diagnostic
testing and in environmental monitoring and food testing research. The BBI
Source product line currently includes the following:
MicroChem(R) Photometer. A compact, low-cost, photometer designed for
immunoassay and general chemistry applications.
ChemStat(R) Automated Photometer. A high-speed, automated photometer
with a sample capacity of 95 tubes and a read rate of one sample per second.
This product is suited for high-volume processing.
E/LUMINA(R) II Luminescence Analyzer. A flexible luminometer for both
"flash" and "glow" luminescence methods, this automated system reads up to 114
samples and reports final results.
EXECWASH(R) Washing System. An automated immunoassay washing system
that can be quickly configured by the user to wash different solid-phase assay
formats by a propriety manifold design. The EXEC-WASH is fully compatible with a
variety of other Company products, such as the ChemStat and the E/LUMINA II
Luminescence Analyzer.
Protocol Design Software System. A development tool for researchers and
assay manufacturers, the program operates under Microsoft(R) Windows and serves
as the master programming center for EXEC-WASH systems to create fluid handling
protocols.
Verif-Eye(R) A reflectance reader for rapid, reliable results for use
in research and development or process inspection and verification.
Services
The Company seeks to focus its specialty laboratory services in both
the clinical reference laboratory testing and advanced biomedical research
areas. The Company concentrates its services in those areas of infectious
disease testing which are complementary to its quality control and diagnostic
products businesses.
Specialty Clinical Laboratory Testing
BBICL, the Clinical Laboratory Services operating segment, operates an
independent specialty clinical reference laboratory that performs both routine
and sophisticated infectious disease testing in microbiology, immunology and
molecular biology, with special emphasis in AIDS, Viral Hepatitis, Lyme and
other tick borne diseases, and comfirmatory testing for the blood bank industry.
The Company's specialty clinical laboratory combines traditional microbiology,
advanced immunology, and current molecular diagnostic techniques, such as PCR
and bDNA, to detect and identify microorganisms, their antigens and related
antibodies, and their nucleic acids (i.e., DNA and RNA).
-8-
<PAGE>
Specimens are picked up daily from customers, primarily by BBICL's
courier staff, and are brought to the laboratory in New Britain, Connecticut for
testing. There, they are received, accessioned, scheduled, and then tested.
Results are returned to customers by fax, remote printers, data transmission and
hard copy. BBICL emphasizes accuracy and turnaround time along with competitive
pricing as keys to customer satisfaction. Customers include blood banks,
physicians, clinics, hospitals and other clinical/research laboratories.
Contract Research and Services
The BBI Biotech operating segment offers a variety of research services
in molecular biology, cell biology and immunology to governmental agencies,
diagnostic test kit manufacturers and biomedical researchers. Molecular biology
services include DNA extractions and sequencing, recombinant DNA support, probe
labeling and custom nucleic acid amplification assays. Cell biology and
immunology services include sterility testing, virus infectivity assays,
cultivations of virus or bacteria from clinical specimens, preparation of viral
or bacterial antigens and custom western blot assays.
The Company currently provides contract research services under several
contracts and grants. These services are primarily related to infectious disease
diagnostics, in support of the products and services that the Company wishes to
develop. Current contracts include the following: clinical trials support for
candidate HIV vaccines; identification and DNA sequencing of human genes
involved in neurological disorders, development of PCR based assays for
Babesiosis and Transfusion Transmitted Virus, and microtiter plate assays for
HIV-1 genotyping.
Blood Processing and Repository Services
Since 1983, BBI Biotech has provided blood processing and repository
services for the National Cancer Institute ("NCI"), also a part of the National
Institutes of Health ("NIH"). The repository stores over 6,000,000 specimens and
processes or ships up to several thousand specimens per week in support of
various NIH cancer and virus research programs. In 1997, BBI Biotech was awarded
a five-year (including renewal options) NCI repository contract with aggregate
payments of up to $4.8 million. In 1998, BBI Biotech received a six-year $2.9
million repository contract (including five one-year extension options) with the
National Heart, Lung and Blood Institute of the NIH, and in 1999, it received a
seven-year, $9.6 million repository contract with the National Institute of
Allergy and Infectious Disease. To date all renewal options under these
contracts have been approved, although the Company cannot be certain that any
subsequent options will be exercised.
Other Services
Clinical Trials. All four business units conduct clinical trials for
domestic and foreign test kit and device manufacturers. Manufacturers must
collect data for submission to the United States FDA and other countries'
regulatory agencies, and these manufacturers contract with organizations such as
the Company to perform this work. By providing this service, the Company is able
to maintain close contact with test kit and device manufacturers and regulators,
and is able to evaluate new technologies in various stages of development. The
Company believes that the reputation of its laboratory and scientific staff, its
large number of Quality Control Panels, and its inventory of characterized serum
and plasma specimens assist the Company in marketing its clinical trial services
to its customers. The Company has performed clinical trials for a number of
United States and foreign test kit and device manufacturers seeking to obtain
FDA approval for their infectious disease test kits.
Laboratory Instrumentation Services. BBI Source offers services to
design, develop, manufacture and distribute laboratory instruments to companies
seeking to market biomedical products manufactured under government-approved
manufacturing practices. These services range in complexity from consulting to
full system development and distribution.
After-sales Service. BBI Source also provides after-sales service.
Management believes that after-sales service is a major marketing advantage in
many of the Company's markets, since many of the Company's customers do not
maintain their own full service departments. Servi-Trak(R), a proprietary
software program, is a key element of this after-sales service. The Company's
service department is located at BBI Source's facility in Garden Grove,
California. The
-9-
<PAGE>
Company utilizes an independent third party contractor located in Giessen,
Germany, to provide a fully functional European service and support center.
Drug Screening Program. As a subcontractor for an NIH AIDS grant held
by the University of North Carolina at Chapel Hill, the Company has established
an anti-HIV drug screening program to test a large number of natural products
(largely plant derivatives) to determine whether they inhibit HIV replication in
an in vitro assay system. These in vitro assays are also offered as a service to
researchers and pharmaceutical companies who wish to test various candidate
anti-viral agents for anti-HIV activity. The drug screening program and in vitro
assays are now offered through the Company's newly formed subsidiary, Panacos
Pharmaceuticals, Inc.
Research and Development
The Company's research and development effort is focused on (i) the
development of new and improved Quality Control Products (Panels and Accurun(R))
for the emerging end-user market and the in vitro diagnostics market, (ii) the
expansion of its infectious disease testing services using PCR and other
amplification assays, (iii) the design and development of new laboratory
instruments and mechanical and optical detection techniques, emphasizing its
Verif-Eye reflectance reader, (iv) the development of pressure cycling
technology ("PCT") for nucleic acid purification and pathogen inactivation, and
(v) the determination of the mechanism of action and performance of initial
toxicity studies on its lead compounds in the Company's drug discovery program
("Panacos"). The Company has 36 full or part-time employees involved in its
research and development effort. As announced in 1998, at the time of its
acquisition of BioSeq, Inc., the Company has significantly increased spending on
research and development both in whole dollars and as a percentage of revenue in
1999 as compared to 1998. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations." The Company's
research scientists work closely with sales, marketing, manufacturing,
regulatory and finance personnel to identify and prioritize the development of
new products and services. Whenever it can, the Company seeks to fund its
research and development activities from grants provided by various agencies and
departments of the United States government. See also "Contract Research and
Services."
Quality Control Products. In the area of Quality Control Products, the
Company's product development activities center on the identification and
characterization of materials for the manufacture of new products and the
replacement of sold-out products. During 1999, the Company introduced 14 new
Seroconversion, Performance, and Qualification Panel products, 43 OEM Panels, as
well as 13 new Accurun(R) Run Controls. The Company is developing new Quality
Control Products for use with both immunological and molecular diagnostic tests
for subtypes and variants of HIV, HCV and HBV, and a variety of controls
targeted for leading instrument platforms. The Company has increased the number
of Quality Control Products it offers from approximately 20 products in 1990 to
more than 200 in 1999.
Infectious Disease Tests. The Company also develops new and improved
infectious disease tests, which the Company believes offer potential for above
average profit, for sale by the Clinical Laboratory Services operating segment.
Current emphasis is on additional PCR and other amplification technology based
tests for infectious disease diagnostics, beyond the Company's current offerings
of assays for the pathogens of AIDS, Lyme Disease, Viral Hepatitis, and Herpes,
and for the direct detection of other infectious agents in blood, tissues and
other bodily fluids.
Laboratory Instruments. The Company's product development activities
related to laboratory instruments are centered on additional configurations of a
"reflectance" reader to produce objective results from rapid in vitro diagnostic
tests. In addition, the Company continues to work on applications for existing
products to broaden their utilization.
Pressure Cycling Technology. BBI BioSeq, a wholly-owned subsidiary of
the Company, owns patent pending technology based on PCT. PCT research is
primarily focused in two areas: (1) nucleic acid extraction and purification
from target pathogens in connection with sample preparation for PCR or other
molecular testing; and (2) pathogen inactivation of blood plasma intended for
transfusion or for further fractionation into transfusion products. See Note 2
to the Company's Notes to Consolidated Financial Statements in Item 8 hereunder
for further details related to the 1998 acquisition of BioSeq, Inc.
-10-
<PAGE>
Drug Discovery. In August 1998, the Company hired a Vice President,
Biotheraputics to direct its drug discovery and development efforts. In
collaboration with Dr. K.H. Lee of the School of Pharmacy, University of
North Carolina at Chapel Hill ("UNC"), the Company conducts research relating
to compounds, pharmaceutical compositions, therapeutic methods, and vaccine
preparations, primarily in the HIV field. The Company owns, jointly with UNC,
five United States patents related to this drug discovery program. Two
additional United States patent applications and foreign applications for all
five of the joint patents are pending.
In April 1999, the Company increased its commitment to directly support
the drug discovery program at UNC, in which a full-time, post-doctoral research
scientist and two of Dr. Lee's doctoral students are working to develop
synthetic derivatives of anti-HIV compounds that have been discovered pursuant
to the Company's joint collaboration with UNC. These research scientists are
also working to introduce modifications to these derivatives in an effort to
make them more soluble, less toxic, or otherwise enhance their anti-viral
properties. UNC has licensed to the Company exclusive worldwide rights to the
five patents awarded to the Company and UNC. Two compounds covered under these
patents have exhibited therapeutic indices in in vitro test model systems in
excess of those recorded for AZT under comparable test conditions. Under this
license, the Company will also have the rights to any new anti-HIV compounds or
derivatives developed in the course of this sponsored research, provided the
Company obtains certain regulatory approvals from the FDA.
In October 1999, the Company formed a new, wholly-owned subsidiary,
Panacos Pharmaceuticals, Inc., ("Panacos") a Delaware corporation. All of the
technology, intellectual property, sponsored research agreements, and related
rights from the drug discovery business unit were transferred to Panacos
effective January 2000. Management intends to sell a substantial portion of
Panacos to third party investors in 2000 in order to obtain the substantial
amount of capital required to progress to more advanced stages of drug
development including human clinical trials. If successful in raising capital,
the Company plans to become a less than 50% shareholder in Panacos, relinquish
operational control, and switch to the equity method of accounting for its
investment, as opposed to consolidation accounting.
Sales and Marketing
The Company's sales and marketing efforts are managed on a business
unit basis. Such activities are directed by a Director of Sales and Marketing
for each unit. Overall, the Company employees 35 people in the sales, marketing,
and customer service functions.
The Company's marketing strategy is to focus on the needs of its
customers in the infectious disease testing market throughout the entire test
kit life-cycle, from initial research and development, through the regulatory
approval process and test kit production, to training, troubleshooting and
routine use by end-users such as clinical laboratories, hospitals and blood
banks.
The Company also continues to focus its sales and marketing efforts on
the emerging end-user market for Quality Control Products for infectious disease
test kits. To promote this objective, the Company uses its marketing platform,
known as "Total Quality System" ("TQS"). TQS is a package of Quality Control
Products, including the Company's Accurun(R) Run Controls and AccuChart Quality
Control Software, that is designed to provide test kit end-users with the
products needed in an overall quality assurance program. These products enable
laboratories to evaluate each of the key elements involved in the testing
process: the test kit, laboratory equipment, and laboratory personnel. The
Company believes that TQS effectively addresses the need for end-users to ensure
the accuracy of their test results. The Company intends to continue to expand
its sales and marketing activities with respect to its Accurun(R) line of run
control products. In addition, the Company continues to expand the Accurun
product line to support the high growth nucleic acid testing market, and to
capitalize on the worldwide implementation of new technology to improve the
safety of blood products.
The Company's Diagnostic Products are currently sold through a
combination of telephone, mail, third party distributors and direct sales
efforts. Domestically, Diagnostic Products are sold through a direct sales force
led by a Sales and Marketing director. The sales force consists of two sales
group managers and 12 sales representatives. Internationally, the Company
distributes its Diagnostic Products both directly and through 22 independent
distributors located in Japan, Australia, South America, Southeast Asia, Israel
and Europe. The Company's international sales
-11-
<PAGE>
manager oversees the Company's foreign distributors. The Company's Laboratory
Instruments are sold through a direct domestic and international sales force
consisting of one director and one sales representative.
The Company's Specialty Clinical Laboratory Testing services are
marketed primarily through a direct domestic sales force, which consists of nine
sales representatives managed by one regional manager, and a sales and marketing
director. The sales representatives are located throughout the eastern,
mid-western and western United States and are supported internally by a client
services representative.
The Company emphasizes high quality products and services, technical
knowledge, and responsiveness to customer needs in its marketing activities for
both products and services. The Company educates its distributors, customers and
prospective customers about its products through a series of detailed marketing
brochures, technical bulletins and pamphlets, press releases and direct mail
pieces. These materials are supplemented by occasional advertising in industry
publications, technical presentations, and exhibitions at local, national and
international trade shows and expositions. During 1999, the Company introduced a
new product information library on the Company web site (www.bbii.com) allowing
customers, field sales personnel and international distributors immediate access
to detailed product information and marketing literature.
Seasonality
Historically, the Company's results of operations have been subject to
quarterly fluctuations due to a variety of factors, primarily customer
purchasing patterns, driven by end-of-year expenditures, and seasonal demand
during the summer months for certain laboratory testing services. In particular,
the Company's sales of its off-the-shelf Diagnostic Products typically have been
highest in the fourth quarter and lowest in the first quarter of each fiscal
year, whereas OEM product sales may peak in any quarter of the year, depending
on the customer's underlying production cycle for their product. Specialty
Clinical Laboratory Services have generally reached a seasonal peak during the
third quarter, coinciding with the peak incidence of Lyme Disease. Research
Contracts are generally for large dollar amounts spread over one to five-year
periods, and upon completion, frequently do not have renewal phases. As a
result, these contracts can cause large fluctuations in revenue and net income.
In addition to staff dedicated to internal research and development, certain of
the Company's technical staff work on both Contract Research for customers and
Company sponsored research and development. The allocation of certain technical
staff to such projects depends on the volume of Contract Research. As a result,
research and development expenditures fluctuate due to increases or decreases in
contract research performed.
Customers
The Company's customers for Diagnostic Products consist of four major
groups: (1) international diagnostics and pharmaceutical manufacturing
companies, such as Abbott Diagnostics, Behring, Biorad, Chiron, Dade-Behring,
DiaSorin, Fujirebio, Hoffman LaRoche, Ortho Diagnostics (Johnson & Johnson), and
Sanofi Diagnostics. (2) regulatory agencies such as the United States FDA, the
British Public Health Laboratory Service, the French Institut National de la
Transfusion Sanguine, and the German Paul Ehrlich Institute, (3) national and
international proficiency providers such as the College of American Pathologists
and the European Union Concerted Action for Quality Control and (4) end-users of
diagnostic test kits, such as hospital and independent clinical laboratories,
including LabCorp, Quest Diagnostics , public health laboratories and blood
banks, including the American Red Cross, Swiss Red Cross, and United Blood
Services.
The Company's customers for Laboratory Instruments consist of
international diagnostic and pharmaceutical manufacturing companies and are
generally sold on an OEM basis, for use by hospitals, and clinical and research
laboratories. In addition, Laboratory Instruments are sold directly to
environmental and food testing laboratories, and wineries. Customers include
Mast Immuno Systems, Beckman/Hybritech Inc., Vicam, and Toray Fuji Bionics Inc.
The Company's customers for specialty clinical testing services include hospital
and clinical laboratories, physicians, blood banks, researchers and other health
care providers.
-12-
<PAGE>
The Company performs specialty testing services for a major state
prison system in connection with a third party laboratory. The Company's
customers for contract research include various agencies of the National
Institutes of Health (NIH) such as the National Institute of Allergies and
Infectious Disease ("NIAIDS"), the National Cancer Institute ("NCI"), and the
National Heart Lung and Blood Institute ("NHLBI").
The Company does not have long-term contracts with its customers for
Diagnostic Products or its Specialty Clinical Testing Services, which are
generally sold pursuant to purchase orders for discrete purchases. Laboratory
Instruments are generally sold on an OEM basis under short-term contracts with
monthly delivery dates. The Company believes that its relationships with
customers are satisfactory.
The Company's Consolidated Financial Statements, including the Notes
thereto, set forth in Item 8 of this report provide information relating to the
Company's foreign and domestic sales.
During the fiscal years 1999, 1998 and 1997, sales to the Company's
three largest customers accounted for an aggregate of approximately 16%, 18% and
20%, respectively, of the Company's net sales, although the customers were not
identical in each period. During the fiscal years 1999, 1998 and 1997, the
combined revenues to all branches of the National Institutes of Health, a United
States Government agency, accounted for approximately 15%, 13% and 13%,
respectively, of total consolidated revenues of the Company. While the Company
believes that the loss of any one of these customers would have an adverse
effect on the Company's results, this risk is partially mitigated by the
diversity of its customer base within the in vitro diagnostics industry and the
different diseases and instrument platforms on which they focus.
Manufacturing and Operations
The Company manufactures and assembles Diagnostic Products at its
facility in West Bridgewater, Massachusetts. Raw materials (primarily plasma and
serum) are acquired from a variety of vendors and through a program of donor
recruitment, screening, management, and plasma/serum collection and
characterization. Laboratory instruments are manufactured and assembled at the
Company's facility in Garden Grove, California. All important raw materials and
sub-assemblies are acquired from a variety of vendors with multiple sources of
supply.
The Company operates its specialty clinical laboratory in New Britain,
Connecticut, its research and development laboratory (including PCT and Panacos
activities) in Gaithersburg, Maryland and a repository facility in Frederick,
Maryland. See "Item 2 -- PROPERTIES."
Competition
The market for the Company's products and services is highly
competitive. Many of the Company's competitors are larger than the Company
and have greater financial, research, manufacturing, and marketing resources.
Important competitive factors for the Company's products include product
quality, price, ease of use, customer service and reputation. In a broader
sense, industry competition is based upon scientific and technical
capability, proprietary know-how, access to adequate capital, the ability to
develop and market products and processes, the ability to attract and retain
qualified personnel, and the availability of patent protection. To the extent
that the Company's products and services do not reflect technological
advances, the Company's ability to compete in its current and future markets
could be adversely affected.
In the area of Quality Control Products, the Company competes in the
United States with NABI (formerly North American Biologicals, Inc.) in run
controls and quality control panel products, with Dade International, Bio-Rad
Laboratories, Inc., and Blackhawk Biosystems Inc. in run controls, and with a
number of smaller, privately-held companies in quality control panels. In
Europe, in addition to the above, the Dutch Red Cross offers several run control
and panel products. The Company believes that all of these competitors currently
offer a less diverse line of panel and run control products than the Company,
although the Company cannot be certain that these companies will not expand
their product lines.
-13-
<PAGE>
In the Diagnostic Components area, the Company competes with integrated
plasma collection and processing companies such as Serologicals, Inc. and NABI,
as well as smaller, independent plasma collection centers and brokers of plasma
products. In the Diagnostic Components area, the Company competes on the basis
of quality, breadth of product line, technical expertise and reputation.
The laboratory instrument manufacturing industry is diverse and highly
competitive. The Company believes its technology base, reputation for
reliability, systems integration and service capabilities provide it with a
competitive advantage over its competitors which include: Dynatech Corp,
Kollsman Manufacturing Company, Inc., Bio-Tek Instruments Inc., Rela Inc. (part
of Colorado Medtech, Inc.) and SeaMed, as well as numerous, smaller companies,
such as Awareness Technology Inc.
The Clinical Laboratory Services segment competes with large national
reference laboratories, such as LabCorp of America and Quest Laboratories, as
well as several independent regional laboratories, hospital laboratories,
government contract laboratories and large research institutions. The Company
believes that by focusing on the specialty clinical laboratory testing market,
it is able to offer its customers a higher value-added service for the more
complex diagnostic tests than the larger national reference laboratories.
BBI Biotech competes primarily with BioReliance Corporation and several
universities for research and development contracts and with McKesson
Bioservices, Inc., for repository services.
Intellectual Property
The Company holds as trade secrets current technology used to prepare
Basematrix and other blood-based products. None of the Company's Diagnostic
Components has been patented. The Company relies primarily on a combination of
trade secrets and non-disclosure and confidentiality agreements to establish and
protect its proprietary rights in these products and related technology. The
Company cannot be certain that others will not independently develop or
otherwise acquire the same, similar or more advanced trade secrets and know-how.
BBI Source has also relied on trade secrets and proprietary know-how
for its Laboratory Instruments which it protects in part by entering into
confidentiality agreements with persons or parties deemed appropriate by
management. In addition, the Company currently has six issued United States
patents, covering significant aspects of the Company's core instrument
technology and techniques, as well as several electronic and mechanical designs
employed in the Company's products.
The Company has two United States patents related to its contracts and
services work. Jointly with the Uiversity of North Carolina, at Chapel Hill, the
Company has five additional United States patents relating to compounds,
pharmaceutical compositions, therapeutic methods, and vaccine preparation in
connection with the Company's drug discovery program. Two additional United
States patents and foreign applications for all five of the joint patents are
pending. The Company intends to continue to seek patent protection for
innovations and discoveries arising out of the drug discovery programs.
The Company has fifteen pending patent applications for its Pressure
Cycling Technology. Several of these have been followed up with foreign
applications, and the Company expects to file additional foreign applications in
2000 relating to Pressure Cycling Technology. On March 14, 2000 the Company
received notice from the United States Patent Office that one of its
applications had been approved and the patent related to pressure cycling
control of chemical reactions was issued to the Company.
The Company has no reason to believe that its products and proprietary
methods infringe the proprietary rights of any other party. However, the Company
cannot be certain that other parties will not assert infringement claims in the
future.
BBI(R), Accurun(R), Microchem(R), Chemstat(R), E/LUMINA(R), EXECWASH(R)
and Verif-Eye(R) are registered trademarks of the Company.
Government Regulation
-14-
<PAGE>
The manufacture and distribution of medical devices, including products
manufactured by the Company that are intended for in vitro diagnostic use, are
subject to extensive government regulation in the United States and in other
countries.
In the United States, the Food, Drug, and Cosmetic Act ("FDCA")
prohibits the marketing of most in vitro diagnostic products until they have
been cleared or approved by the FDA, a process that is time-consuming,
expensive, and uncertain. In vitro diagnostic products must be the subject of
either a premarket notification clearance (a "510(k)") or an approved premarket
approval application ("PMA"). With respect to devices reviewed through the
510(k) process, a company may not market a device for diagnostic use until an
order is issued by the FDA finding the product to be substantially equivalent to
an existing FDA cleared, and marketed device. A 510(k) submission may involve
the presentation of a substantial volume of data, including clinical data, and
may require a substantial period of review. With respect to devices reviewed
through the PMA process, a company may not market a device until the FDA has
approved a PMA application, which must be supported by extensive data, including
preclinical and clinical trial data, literature, and manufacturing information
to prove the safety and effectiveness of the device.
The Company's Accurun(R) Run Controls, when marketed for blood donor
screening or diagnostic use, have been classified by the FDA as medical devices
that until 1998 required clearance under the 510(k) process. In 1998, new rules
took effect that exempted unassayed controls intended for use in diagnostic
testing from the requirement for a 510(k) submission. BBI may now label these
products "For In Vitro Diagnostic Use" if they are validated according to the
Company's protocols and manufactured according to cGMP (current Good
Manufacturing Practices, which is FDA guidance for manufacturing processes for
medical devices). The FDA still requires 510(k) clearance for assayed controls,
and controls intended for use in blood screening. The FDA could, in addition,
require that some products be reviewed through the PMA process, which generally
involves a longer review period and the submission of more information to FDA.
The Company cannot be certain that it will obtain regulatory approvals on a
timely basis, if at all. Failure to obtain regulatory approvals in a timely
fashion or at all could have a material adverse effect on the Company.
As of March 1, 2000, a total of 13 products in the Accurun 1(R) line
and 18 single analyte Accurun(R) controls have either received 510(k)
clearance or have been validated according to the Company's protocols and are
manufactured according to cGMP. Certain of the Company's Accurun(R) Run
Controls are currently marketed "for research use only." The labeling of
these products limits their use to research. It is possible, however, that
some purchasers of these products may use them for diagnostic purposes
despite the Company's intended use. In these circumstances, the FDA could
allege that these products should have been cleared or approved by the FDA,
or validated prior to marketing, and initiate enforcement action against the
Company, which could have a material adverse effect on the Company. The FDA
has issued a Draft Policy Compliance Guideline, which, if it takes effect as
currently issued, will strictly limit the sale of products labeled "for
research use only." The Company is monitoring this situation, and will adapt
its policies as required.
BBI Source generally obtains 510(k) and CE approval for all laboratory
instrumentation designed and manufactured in its Garden Grove facility.
The Company is registered as a medical device manufacturer with the FDA
for its Diagnostic Products and Laboratory Instruments and files listings of its
products semi-annually. The Company's facilities in West Bridgewater,
Massachusetts for Diagnostic Products and Garden Grove, California for
Laboratory Instruments are FDA Good Manufacturing Practices (FDA/GMP)
facilities. The Company must maintain high standards of quality in
manufacturing, testing and documentation, and implement strict cGMP guidelines
governing reagent and instrument manufacturing.
Once cleared or approved, medical devices are subject to pervasive and
continuing regulation by the FDA, including, but not limited to cGMP regulations
governing testing, control, and documentation; and reporting of adverse
experiences with the use of the device. The FDA monitors ongoing compliance with
cGMP and other applicable regulatory requirements by conducting periodic
inspections. FDA regulations require FDA clearance or approval for certain
changes if they do or could affect the safety and effectiveness of the device,
including, for example, new indications for use, labeling changes or changes in
design or manufacturing methods. In addition, both before and after clearance or
approval, medical devices are subject to certain export and import requirements
under the FDCA. Product
-15-
<PAGE>
labeling and promotional activities are subject to scrutiny by the FDA and, in
certain instances, by the Federal Trade Commission. Products may be promoted by
the Company only for their approved use. Failure to comply with these and other
regulatory requirements can result, among other consequences, in failure to
obtain premarket approvals, withdrawal of approvals, total or partial suspension
of product distribution, injunctions, civil penalties, recall or seizures of
products and criminal prosecution.
The Company believes that its Quality Control Panels are not regulated
by the FDA because they are not intended for diagnostic purposes. The Company
believes that its Diagnostic Components, which are components of in vitro
diagnostic products, may be subject to certain regulatory requirements under the
FDCA and other laws administered by the FDA, but do not require that the Company
obtain a premarket approval or clearance. The Company cannot be certain,
however, that the FDA would agree or that the FDA will not adopt a different
interpretation of the FDCA or other laws it administers, which could have a
material adverse effect on the Company.
The Company's Diagnostic Products and Laboratory Instruments business
units are both ISO9001 certified, with registration by TUV Rheinland for the
Diagnostic Products unit and British Standard Institute for the Laboratory
Instruments unit. The Laboratory Instrument group is also certified to EN46001,
a set of supplementary requirements applicable to their products.
Laws and regulations affecting some of the Company's products are in
effect in many of the countries in which the Company markets or intends to
market its products. These requirements vary from country to country. Member
states of the European Economic Area (which is composed of members of the
European Union and the European Free Trade Association) are in the process of
adopting various product and service "Directives" to address essential health,
safety, and environmental requirements associated with the subject products and
services. These "Directives" cover both quality system requirements (ISO Series
9000 Standards and the EN46001 Requirements) and product and marketing related
requirements. In addition, some jurisdictions have requirements related to
marketing of the Company's products. The Company cannot be certain that it will
be able to obtain any regulatory approvals required to market its products on a
timely basis, or at all. Delays in receipt of, or failure to receive such
approvals, or the failure to comply with regulatory requirements in these
countries or states could lead to compliance action, which could have a material
adverse effect on the Company's business, financial condition, or results of
operations.
The Company's service-related business (clinical trials, infectious
disease testing, and contract research) is subject to other national and local
requirements. The Company's facilities are subject to review, inspection,
licensure or accreditation by some states, national professional organizations
(such as the College of American Pathologists), and other national regulatory
agencies (such as the Health Care Financing Administration). Studies to evaluate
the safety or effectiveness of FDA regulated products (primarily human and
animal drugs or biologics) must also be conducted in conformance with relevant
FDA requirements, including Good Laboratory Practice ("GLP") regulations,
investigational new drug or device regulations, Institutional Review Board
("IRB") regulations and informed consent regulations.
The Clinical Laboratory Improvement Amendments of 1988 ("CLIA")
prohibits laboratories from performing in vitro tests for the purpose of
providing information for the diagnosis, prevention or treatment of any disease,
or impairment of, or the assessment of, the health of human beings unless there
is in effect for such laboratories a certificate issued by the US Department of
Health and Human Services ("HHS") applicable to the category of examination or
procedure performed.
The Company currently holds permits issued by HHS (CLIA license),
Centers for Disease Control and Prevention (Importation of Etiological Agents or
Vectors of Human Diseases), the US Department of Agriculture (Importation and
Transportation of Controlled Materials and Organisms and Vectors) and the US
Nuclear Regulatory Commission (in vitro testing with by-product material under
general license, covering the use of certain radioimmunoassay test methods).
The Company is also subject to government regulation under the Clean
Water Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act, the Atomic Energy Act, and other national, state and local
restrictions relating to the use and disposal of biohazardous, radioactive and
other hazardous substances and wastes. The Company is
-16-
<PAGE>
an exempt small quantity generator of hazardous waste and has a US Environmental
Protection Agency identification number. The Company is also registered with the
US Nuclear Regulatory Commission for use of certain radioactive materials. The
Company is also subject to various state regulatory requirements governing the
handling of and disposal of biohazardous, radioactive and hazardous wastes. The
Company has never been a party to any environmental proceeding.
Internationally, some of the Company's products are subject to
additional regulatory requirements, which vary significantly from country to
country. Each country in which the Company's products and services are offered
must be evaluated independently to determine the country's particular
requirements. In foreign countries, the Company's distributors are generally
responsible for obtaining any required government consents.
Employees
As of December 31, 1999 the Company employed 288 persons, all of whom
were located in the United States. Of these, 107 persons were employed by the
West Bridgewater, Massachusetts company, 78 by the New Britain, Connecticut
company, 70 by the three Gaithersburg, Maryland companies, and 33 by the Garden
Grove, California company. None of the Company's employees is covered by a
collective bargaining agreement. The Company believes that it has a satisfactory
relationship with its employees.
-17-
<PAGE>
Executive Officers of the Registrant
The following table sets forth the names, ages and positions of the
current executive officers of the Registrant as of December 31, 1999:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Richard T. Schumacher 49 Chief Executive Officer and Chairman of the Board
Kevin W. Quinlan 49 President and Chief Operating Officer; and Director
William R. Prather, R.Ph, M.D. 52 Senior Vice President, Finance and Business Development, Treasurer and
Director
Graham P. Allaway, Ph.D. 44 Senior Vice President, Drug Discovery
Patricia E. Garrett, Ph.D. 56 Senior Vice President and General Manager of BBI Clinical Laboratories
Mark M. Manak, Ph.D. 48 Senior Vice President and General Manager of BBI Biotech
David F. Petersen 53 Senior Vice President and General Manager of BBI Source
Richard C. Tilton, Ph.D. 63 Senior Vice President, Science and Technology
Barry M. Warren 52 Senior Vice President and General Manager of BBI Diagnostics
Kathleen W. Benjamin 43 Vice President, Human Resources
Richard D'Allessandro 53 Vice President, Information Technology
Ronald V. DiPaolo, Ph.D. 55 Vice President, Manufacturing
</TABLE>
Mr. Schumacher, the Founder of the Company, has been the Chief
Executive Officer and Chairman since 1992 and served as President from 1986 to
August 1999. Mr. Schumacher served as the Director of Infectious Disease
Services for Clinical Science Laboratory, a New England-based medical reference
laboratory, from 1986 to 1988. From 1972 to 1985, Mr. Schumacher was employed by
the Center for Blood Research, a nonprofit medical research institute associated
with Harvard Medical School. Mr. Schumacher received a B.S. in zoology from the
University of New Hampshire.
Mr. Quinlan, a Director of the Company since 1986, has served as
President and Chief Operating Officer since August 1999. From January 1993 to
August 1999, he served as Senior Vice President, Finance, Chief Financial
Officer and Treasurer. From 1990 to December 1992, he was the Chief Financial
Officer of ParcTec, Inc. a New York-based leasing company. Mr. Quinlan served as
Vice President and Assistant Treasurer of American Finance Group, Inc. from 1981
to 1989 and was employed by Coopers & Lybrand from 1975 to 1980. Mr. Quinlan is
a certified public accountant and received a M.S. in accounting from
Northeastern University and a B.S. in economics from the University of New
Hampshire.
Dr. Prather, a Director of the Company since 1999, has been Senior Vice
President, Finance and Business Development since July 1999. From January 1999
to August 1999, Dr. Prather served as Senior Vice President, Business
Development. Prior to joining the Company, Dr. Prather was the Senior Health
Care Analyst for the investment banking firm, Cruttenden Roth, Inc., from 1995
to 1998. From 1992 to 1995 he was the Senior Analyst in Health Care for Manning
and Napier Advisors. Dr. Prather earned a B.S. in Pharmacy and an MD at the
University of Missouri - Kansas City and completed a Clinical Research Geriatric
Fellowship at Harvard Medical School. Dr. Prather is a Director of Primed
International, a medical device company and a member of the Advisory Board of
the Canadian Medical Discovery Fund, Inc., a fund of MDS Capital Corp.
Dr Allaway, has served as Vice President and Senior Vice President,
Drug Discovery since joining the Company in 1998. Prior to that, from 1997 to
1998, he was CEO of Manchester Biotech (UK). From 1990 to 1997, Dr. Allaway
served in various senior management positions including Associate Scientific
Director and Head, Therapeutic Development Group at Progenics Pharmaceuticals,
Inc., in Tarrytown, New York. From 1984 to 1990 Dr. Allaway was a Visiting
Fellow and Visiting Associate at the NIH. Dr. Allaway received an M.A. in
zoology from Oxford University and a Ph.D in virology from the University of
London.
-18-
<PAGE>
Dr. Garrett has served as Senior Vice President and General Manager of
BBI Clinical Laboratories since August 1999. From 1988 to August 1999, she
served as Senior Vice President, Regulatory Affairs & Strategic Programs. From
1980 to 1987, Dr. Garrett served as the Technical Director of the Chemistry
Laboratory, Department of Laboratory Medicine at the Lahey Clinic Medical
Center. Dr. Garrett earned her Ph.D. from the University of Colorado and was a
postdoctoral research associate at Harvard University, Oregon State University,
Massachusetts Institute of Technology and the University of British Columbia.
Dr. Manak has served as Senior Vice President and General Manager of
BBI Biotech since August 1999. From 1992 to 1999 he served as Senior Vice
President, Research and Development. From 1980 to 1992, he served as Director of
Molecular Biology and Director of Contracts and Services of Biotech Research
Laboratories. Dr. Manak received his Ph.D. in biochemistry from the University
of Connecticut and completed postdoctoral research work in biochemistry/virology
at Johns Hopkins University.
Mr. Petersen has served as Senior Vice President and General Manager of
BBI Source since August 1999. From May 1998 to August 1999, he was Vice
President, BBI Source Scientific. Mr. Peterson has 25 years of experience in
operations management and materials planning. Before joining the Company in
1988, he was the Manager of Manufacturing for Matrix Instruments from 1985 to
1988 and previously was Manager of Production and Inventory Control for Farr
Company, Inc. from 1977 to 1985. He is certified in production and inventory
management (CPIM) by the American Production and Inventory Control Society
(APICS). He is also an Assistant Professor at California State University
Dominguez Hills, where he instructs upper division courses in manufacturing
techniques and material resource planning. He holds a B.S. in business
management from the University of LaVerne in LaVerne, California.
Dr. Tilton has served as Senior Vice President, Science and Technology
since August 1999. Prior to this time he served as Senior Vice President,
Specialty Laboratory Services since the Company's acquisition of BBI Clinical
Laboratories, Inc. ("BBICL") in 1993 and was one of the founders of BBICL,
serving as its President from 1989 to 1993. Dr. Tilton has 25 years of
experience in university hospital clinical microbiology laboratories and is
board certified in medical and public health microbiology. Dr. Tilton received
his Ph.D. in microbiology from the University of Massachusetts.
Mr. Warren has served as Senior Vice President and General Manager of
BBI Diagnostics since August 1999. From 1993 to 1999, he served as Senior Vice
President, Sales & Marketing. From 1985 to 1993, Mr. Warren served as Group
Director of Marketing of Organon Teknika, a manufacturer of infectious disease
reagents. Mr. Warren received an M.A. in political science from Loyola
University of Chicago and a B.A. from Loyola University.
Ms. Benjamin has served as Vice President, Human Resources since
January 1999. Prior to her promotion to Vice President, Ms. Benjamin served as
Director of Human Resources and Investor Relations from 1997 to 1999. Prior to
joining the Company in 1997 she was employed by Shields Health Care Group, a
provider of Magnetic Resonance Imaging and radiation oncology, serving as their
Director of Operations from 1992 to 1997. Prior to this time she was an
educator. Ms. Benjamin received her B.S., from the College of Life Sciences and
Agriculture at the University of New Hampshire.
Mr. D'Allessandro has served as Vice President, Information Technology
since January 1999. Mr. D'Allessandro joined the Company in 1993 as Director,
Management Information Systems and served in that capacity until his promotion
to Vice President. Mr. D'Allessandro has 30 years of experience in data
processing/information systems technology, with a focus on manufacturing and
biotechnology organizations. Mr. D'Allessandro is APICS certified and received
his B.S. in Management Information Systems from Northeastern University.
Dr. DiPaolo has served as Vice President, Manufacturing since 1997.
From 1993 to 1997, he served as Vice President of Operations. Prior to joining
the Company, from 1986 to 1989, Dr. DiPaolo served as Vice President and General
Manager of the Biomedical Products Division of Collaborative Research, a medical
research products company. From 1975 to 1986, he was employed by DuPont New
England Nuclear, an in vitro test kit manufacturer. Dr. DiPaolo received his
Ph.D. in biochemistry from Massachusetts Institute of Technology and later
completed postdoctoral research at the Eunice Shriver Center in Waltham,
Massachusetts.
-19-
<PAGE>
Officers are nominated by the Chief Executive Officer and elected by
the Board of Directors.
ITEM 2. PROPERTIES.
The Company owns its corporate offices and diagnostic products
manufacturing facility for its BBI Diagnostics operating segment, which is
located in a two-story, 32,000 square foot building in West Bridgewater,
Massachusetts. The Company has been renovating and expanding this facility
during the past three years, and believes that upon completion of renovations,
its facility in West Bridgewater will be sufficient to meet its needs for
several years.
The Company leases 41,000 square feet of space in Garden Grove,
California where its BBI Source business unit manufactures laboratory
Instruments. The lease continues until February 1, 2002 and the Company has an
option to renew at market rates.
The Company leases its laboratory facilities in Gaithersburg and
Frederick, Maryland and New Britain, Connecticut. The BBI Biotech segment's
Gaithersburg facility contains 36,500 square feet of custom built laboratory
and office space, and is occupied under a ten-year lease that is due to
expire on October 31, 2007. The Frederick facility contains 36,000 square
feet of primarily repository space and is also occupied by the BBI Biotech
segment, under a seven-year lease that is due to expire on November 30, 2006.
The BBICL business unit occupies the New Britain facility which has 15,000
square feet of usable area, most of which is dedicated to laboratory space.
This lease is due to expire on July 30, 2000; the Company has exercised its
option to renew the lease for an additional five years.
The Company leased approximately 2,500 square feet of laboratory space
in Woburn, Massachusetts through August 1999.
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings pending against the Company or
its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of fiscal 1999 to a
vote of security holders of the Company.
-20-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company completed an initial public offering of its Common Stock,
$.01 par value, (the "Common Stock") on October 31, 1996. The Common Stock is
listed on the Nasdaq National Market under the symbol "BBII".
The following table sets forth the high and low closing price, by
quarter, during the two most recent fiscal years:
<TABLE>
<CAPTION>
Common Stock Price
------------------
<S> <C> <C>
Fiscal Year Ended December 31, 1999 High Low
----------------------------------- ---- ---
First Quarter $3.375 $2.625
------------- ------ ------
Second Quarter $5.313 $2.750
-------------- ------ ------
Third Quarter $4.562 $3.375
------------- ------ ------
Fourth Quarter $4.438 $2.750
-------------- ------ ------
Fiscal Year Ended December 31, 1998
-----------------------------------
First Quarter $8.063 $5.125
------------- ------ ------
Second Quarter $7.313 $4.500
-------------- ------ ------
Third Quarter $5.125 $2.500
------------- ------ ------
Fourth Quarter $4.375 $2.000
-------------- ------ ------
</TABLE>
As of March 24, 2000, there were 20,000,000 shares of Common Stock
authorized of which approximately 5,441,960 shares were outstanding, held of
record by approximately 1,500 stockholders.
The Company has not declared or paid any dividends on its Common Stock.
In accordance with the terms of the Company's loan agreement with its bank,
payment of dividends on Common Stock requires bank approval. The Company does
not expect to recommend the payment of a dividend as it plans to continue to
reinvest profits to expand its business.
In October 1999, MdBio, Inc., an accredited investor, received 29,153
stock units in connection with its award of $175,000 to the Company under a
manufacturing incentive program that MdBio instituted. Each stock unit consists
of one share of our common stock and a warrant to purchase on additional share
of our common stock at an exercise price of $10.00 per share. MdBio's warrants
expire on September 29, 2003.
MdBio's warrants were not registered under the Securities Act of 1933,
as amended, in reliance upon the exemptions from registration set forth in
Sections 3(b) and 4(2) of that act, relating to sales by an issuer not involving
any public offering. The MdBio transaction did not involve a public offering.
-21-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The statement of income data for each of the fiscal years in the five
year period ended December 31, 1999, and the balance sheet data as of December
31, 1999, 1998, 1997, 1996, and 1995, have been derived from the consolidated
financial statements of the Company. These data should be read in conjunction
with Item 8--Consolidated Financial Statements and Supplementary Data, and Item
7--Management's Discussion and Analysis of Financial Condition and Results of
Operations appearing elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1999 1998(1) 1997(2) 1996 1995
-------- -------- -------- -------- --------
Consolidated Statement of Income Data: (In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
REVENUE:
Products $ 14,057 $ 13,075 $ 11,711 $ 8,470 $ 6,622
Services 15,214 13,006 10,588 7,039 5,649
-------- -------- -------- -------- --------
Total revenue 29,271 26,081 22,299 15,509 12,271
-------- -------- -------- -------- --------
COSTS AND EXPENSES:
Cost of products 7,267 7,180 5,773 4,252 3,564
Cost of services 11,168 8,897 7,239 4,856 4,168
Research and development 3,259 2,461 1,311 797 375
Acquired research and development (3) -- 4,231 -- -- --
Selling and marketing 4,024 3,939 3,241 2,188 1,340
General and administrative 4,442 4,275 3,343 2,401 2,316
-------- -------- -------- -------- --------
Total operating costs and expenses 30,160 30,983 20,907 14,494 11,763
-------- -------- -------- -------- --------
(Loss) income from operations (889) (4,902) 1,392 1,015 508
Interest (expense) income, net (424) (51) 283 (213) (336)
-------- -------- -------- -------- --------
(Loss) income before income taxes and extraordinary item (1,313) (4,953) 1,675 802 172
Benefit from (provision for) income taxes 499 564 (670) (321) (69)
-------- -------- -------- -------- --------
Net (loss) income $ (814) $ (4,389) $ 1,005 $ 481 $ 103
-------- -------- -------- -------- --------
Net (loss) income per share, basic $ (0.17) $ (0.94) $ 0.23 $ 0.17 $ 0.04
Net (loss) income per share, diluted $ (0.17) $ (0.94) $ 0.21 $ 0.14 $ 0.03
Number of shares used to calculate net income per share
Basic 4,670 4,655 4,438 2,916 2,570
Diluted 4,670 4,655 4,780 3,340 3,040
<CAPTION>
December 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
Consolidated Balance Sheet Data: (In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Working capital $ 10,053 $ 9,095 $ 9,633 $ 12,836 $ 4,688
Total assets 26,162 24,082 23,650 19,798 9,928
Long term debt, less current maturities 7,146 3,989 26 41 4,216
Total stockholders' equity 13,646 14,069 18,067 16,290 3,187
Dividends -- -- -- -- --
</TABLE>
(1) Effective September 30, 1998, the Company acquired all classes of stock of
BioSeq, Inc., a development stage company with no revenue, for a total
purchase price of $4,226,000.
(2) Effective July 1, 1997, the Company acquired the business and net assets of
Source Scientific, Inc. for $1,994,000 which increased 1997 revenue by
$2,608,000.
(3) Consists of $3,381,000 of in-process research and development related to the
BioSeq acquisition, and a charge of $850,000 related to the purchase of
license technology in the first quarter of 1998.
-22-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Overview
The Company generates revenue from products and services provided
primarily to the in vitro diagnostic infectious disease industry. There are two
broad product classes: Diagnostic Products and Laboratory Instruments.
Diagnostic Products consist of three groups: Quality Control Panels, Accurun(R)
Run Controls, and Diagnostic Components. Services consist of Specialty Clinical
Laboratory Testing, Contract Research, Blood Processing and Repository Services,
Clinical Trials, Laboratory Instrumentation Services, After-Sales Service and
Drug Screening.
Historically, the Company's results of operations have been subject to
quarterly fluctuations due to a variety of factors, primarily customer
purchasing patterns, driven by end-of-year expenditures, and seasonal demand
during the summer months for certain laboratory testing services. In particular,
the Company's sales of its off-the-shelf Quality Control Products and Diagnostic
Components typically have been highest in the fourth quarter and lowest in the
first quarter of each fiscal year, whereas OEM product sales may peak in any
quarter of the year, depending on the production cycle of a given project.
Specialty Clinical Laboratory Testing services have generally reached a seasonal
peak during the third quarter, coinciding with the peak incidence of Lyme
Disease. Research Contracts are generally for large dollar amounts spread over
one to five year periods, and upon completion, frequently do not have renewal
phases. As a result these contracts can cause large fluctuations in revenue and
net income. In addition to staff dedicated to internal research and development,
certain of the Company's technical staff work on both contract research for
customers and Company sponsored research and development. The allocation of
certain technical staff to such projects depends on the volume of Contract
Research. As a result, research and development expenditures fluctuate due to
increases or decreases in contract research performed.
With the acquisition of BioSeq, Inc and its pressure cycling technology
in September 1998 as well as the hiring of a Vice President for the Drug
Discovery and Development program and its subsequent formation of a new
subsidiary ("Panacos Pharmaceuticals, Inc."), the Company has significantly
increased its rate of research and development spending on new technologies. In
addition, it has continued to focus on the development of new Quality Control
Products and new tests for its clinical laboratory. Additional sales and support
will be added as needed with the expectation of continued future revenue growth.
The Company does not have any foreign operations. However, the Company
does have significant export sales in Europe, the Pacific Rim countries and
Canada to agents under distribution agreements, as well as directly to test kit
manufacturers. All sales are denominated in US dollars. Export sales for the
years ended December 31, 1999, 1998, and 1997 were $4.0 million, $4.1 million,
and $4.6 million, respectively. The Company expects that export sales will
continue to be a significant source of revenue and gross profit.
-23-
<PAGE>
Results of Operations
The following table sets forth for the periods indicated the percentage
of total revenue represented by certain items reflected in the Company's
consolidated statements of operations:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Revenue:
Products 48.0% 50.1% 52.5%
Services 52.0 49.9 47.5
----- ----- -----
Total revenue 100.0 100.0 100.0
Gross profit 37.0 38.4 41.6
Operating expenses:
Research and development 11.1 9.4 5.9
Acquired research and development -- 16.2 --
Selling and marketing 13.7 15.1 14.5
General and administrative 15.2 16.4 15.0
----- ----- -----
Total operating expenses 40.0 57.1 35.4
----- ----- -----
(Loss) income from operations (3.0) (18.8) 6.2
Interest income (expense) (1.5) (0.2) 1.3
----- ----- -----
(Loss) income before income taxes (4.5) (19.0) 7.5
Net (loss) income (2.8) (16.8) 4.5
===== ===== =====
Product gross profit 48.3% 45.1% 50.7%
Services gross profit 26.6% 31.6% 31.6%
</TABLE>
Years Ended December 31, 1999 and 1998
Total revenue increased 12.2%, or $3,190,000, to $29,271,000 in 1999 from
$26,081,000 in 1998. The increase in revenue was the result of an increase in
product revenue of 7.5% or $982,000 to $14,057,000 from $13,075,000, and an
increase in service revenue of 17.0% or $2,208,000 to $15,214,000 from
$13,006,000 in 1998. Most of the product increase was attributable to the
following factors. The Diagnostics segment realized a 15.0% increase in
Accurun(R) sales as the Company continued to successfully penetrate the emerging
end-user market. In addition, the increased outsourcing occurring in the in
vitro diagnostics industry has resulted in a 57.8% increase in Basematrix sales.
The Laboratory Instrumentation segment achieved a 12.6% increase in instrument
sales as it refocused its efforts in OEM contract manufacturing. These increases
were partially offset by a 22.7% decrease in Seroconversion Panel sales,
realized by the Diagnostics segment, as the consolidation within the in vitro
diagnostic industry continues to negatively affect demand for these products.
The increase in service revenue was primarily attributable to a 39.2% revenue
increase at the Clinical Laboratory Services segment. The growth in this segment
was led by a 55.1% increase in molecular testing. Also contributing to the
growth in the service revenue was contract research within the BBI Biotech
operating segment. This growth was driven by a 43.9% increase in repository
services and the start of new contracts in the AIDS Vaccine Support arena. These
increases were partially offset by an 88.6% decrease in laboratory
instrumentation services as the Company completed its work on the ABX, Inc.,
contract in the first quarter of 1999. Management feels that the end-user market
will continue to be an area of growth for its Quality Control Products while the
outsourcing within the in vitro diagnostics market will continue to benefit
sales of Diagnostic Components and Laboratory Instrumentation. The Company also
anticipates that new contracts at the BBI Biotech segment and molecular testing
at the Clinical Laboratory segment will also contribute to revenue growth.
Overall gross profit increased 8.3%, or $831,000, to $10,835,000 in
1999 from $10,004,000 in 1998. Product gross profit increased 15.2%, or
$894,000, to $6,789,000 in 1999 from $5,895,000 in 1998 and product gross
margin increased to 48.3% in 1999, from 45.1% in 1998. Services gross profit
decreased $63,000 to $4,046,000 in 1999 from $4,109,000 in 1998 and gross
margin declined to 26.6% in 1999 from 31.6% in 1998. The increase in product
gross
-24-
<PAGE>
margin was due entirely to the gross margins realized in the Laboratory
Instrumentation operating segment, which increased from 17.8% in 1998 to 28.1%
in 1999 as the business unit operated at a higher volume, thus realizing better
economies of scale compared with 1998 as overhead costs were spread over a
greater number of units. Product gross margins at the other segments remained
relatively steady. Management anticipates that further utilization increases at
BBI Source will continue to benefit gross margins. The decrease in service gross
margins was realized at all operating segments. The BBI Biotech segment's
service gross margin decreased from 26.8% to 19.8%. BBI Biotech margins were
adversely affected by startup costs associated with new repository contracts in
1999, primarily the acquisition of freezers, which under the terms of the
contract become government property and thus are charged directly to cost of
sales. Also, the Clinical Laboratory Services segment realized service gross
margins of 30.3% in 1999 versus 32.4% in 1998. This decrease is due to increased
competition in the molecular testing arena, which created pricing pressure,
negatively affecting margins. Finally, in early 1999, the Laboratory Instruments
segment realized a decrease in service gross margins from 52.7% to 46.3%, as it
completed the high-margin ABX, Inc., contract in early 1999. The Company feels
that service margins will continue to feel pressure from increased competition
in the clinical testing market. Furthermore as BBI Biotech expands its
repository services, low-margin contracts will account for a greater portion of
its total revenue if the Company is not continually successful in obtaining
higher margin commercial services work.
Research and development costs, exclusive of acquired in-process
research and development, increased 32.4% or $797,000 to $3,259,000 in 1999 from
$2,461,000 in 1998. A significant portion of the increase is attributable to the
operating segment referred to as "Other", which consists of the pressure cycling
technology ("PCT") and Drug Discovery activities. The Company increased its PCT
expenditures by approximately $893,000 as it completed the design, development,
and manufacture of 8 prototype PCT instruments known as "barocylcers". The
Company also made significant progress during 1999 with its patents in the
nucleic acid extraction and pathogen inactivation areas. The Company's increased
expenditures in Drug Discovery by approximately $361,000 resulted in expanded
rights under its agreement with the University of North Carolina, at Chapel
Hill, and significant progress in the prosecution of patents for the compounds.
In addition, the BBI Biotech segment increased its spending to continue its
support of the Diagnostics and Clinical Laboratory Services segments.
There were two accounting charges in 1998, which were classified on the
income statement as acquired in-process research and development. In the first
quarter there was an accounting charge of $850,000 related to the acquisition of
the worldwide exclusive rights to BioSeq, Inc's, immunodiagnostic research and
development technology. In the third quarter, the Company recorded a charge of
$3,381,000 related to in-process technology as a result of the Company's
acquisition of BioSeq, Inc. This allocation of the purchase price was based on
an independent valuation and was expensed, as no alternative future uses exist.
There were no such charges during 1999.
Selling and marketing expenditures remained relatively flat during 1999
as compared to 1998, across all operating segments. Costs increased only 2.2% or
$85,000 to $4,024,000 in 1999 from $3,939,000 in 1998 as the Company effectively
managed costs in this area.
General and administrative costs increased 3.9% or $166,000 to
$4,442,000 in 1999 from $4,276,000 in 1998. This increase is attributable to the
corporate reorganization that was announced in July of 1999. The reorganization
created business units, which are directed by a senior vice president and
general manager. The reorganization resulted in the classification of the
salaries, and other related costs, of two executives in the general and
administrative line of the income statement from other income statement lines,
to more accurately reflect their new responsibilities. General and
administrative costs are expected to increase in 2000, as the reorganization
impact will be felt for the entire fiscal year 2000. In addition, 1999 benefited
as certain general and administrative personnel costs were capitalized as
property and equipment in connection with the implementation of enterprise
resource planning systems at the Diagnostics and Laboratory Instruments
segments. General and administrative costs at the other segments were flat.
As a result of all of the above, the Company experienced an operating
loss of $889,000 versus $4,902,000 in 1998. Excluding the $4,231,000 of acquired
in-process research and development charges realized in 1998, the Company's
operating loss increased by 32.3% or $217,000 to $889,000 in 1999 from $672,000
in 1998. The Diagnostics
-25-
<PAGE>
operating segment realized an increase in operating income of approximately
$225,000 or 40.3% and Clinical Laboratory Services operating segments
realized a significant increase in operating income of approximately $522,000
or 389.6%. The Laboratory Instrumentation segment realized a slight
reduction, 8.1%, in its operating loss. These operational improvements were
more than offset by the planned increases in research and development
expenditures, which resulted in significant operating losses in the "Other"
operating segment. Another result of the Company's increased research and
development investment is the $219,000 decrease in operating income realized
by the BBI Biotech operating segment as the business unit realized an
operating loss in 1999 of approximately $152,000 as compared to operating
income in 1998 of approximately $67,000. Management anticipates continued
strength from its Diagnostics and Clinical Laboratory Services segments.
Although the Laboratory Instrumentation segment has realized operating losses
since it was acquired in July 1997, the Company believes that the goodwill
created in connection with the acquisition is realizable as management
believes that the segment will begin to generate operating income by the end
of 2001. The Company will continue to increase its spending in the Other
segment, however, it expects that the impact from this increased spending on
the Company's bottom line will be mitigated by the planned sale of the common
stock of Panacos and the continued funding support in the area of PCT.
The Company had net interest expense of $424,000 in 1999 versus $51,000
in 1998. The Company had used its proceeds from its initial public offering and,
at the end of the second quarter of 1998, began to borrow funds from its
revolving line of credit to continue its infrastructure and research and
development investments. In addition to a higher average borrowing balance in
1999, the Company realized the effects of rising interest rates.
The Company recorded tax benefits at its combined federal and state
statutory rate of 38% for 1999. Although the Company realized consolidated
operating losses for 1999 and 1998 management believes that its valuation
allowance is adequate as the Company plans to return to profitability within six
to twelve months, at which point it will begin to realize benefit from its
federal and state tax assets. The tax benefit rate recognized in 1998 was
adversely affected by the in-process research and development charges discussed
above. The March 1998 technology license transaction resulted in a temporary
difference as the technology license is deductible for tax purposes over a
15-year period, while the September 1998 common stock acquisition resulted in a
permanent difference that is never deductible. See Note 10 to Consolidated
Financial Statements in Item 8 hereunder for further detail.
The Company had a net loss of $814,000 in 1999 versus $4,389,000 in
1998 as a result of the operating loss, the interest expense, and the effective
tax rate described above.
Years Ended December 31, 1998 and 1997
In July 1997 the Company acquired the business of Source Scientific,
Inc. The acquisition was completed by a wholly-owned subsidiary of the Company,
BBI Source Scientific, Inc., ("BBI Source") and was accounted for as an asset
purchase. The income statement for 1997 includes the results of BBI Source for
the last six months of the year, effecting comparability of results with 1998.
Total revenue increased 17.0%, or $3,782,000, to $26,081,000 in 1998
from $22,299,000 in 1997. The increase in revenue was the result of an 11.6%
increase in product revenue of $1,364,000 to $13,075,000 from $11,711,000, and a
22.8% increase in service revenue of $2,418,000 to $13,006,000 from $10,588,000
in 1997. Most of the product increase was attributable to increased sales of
Quality Control Products achieved by the Diagnostics segment. The increase in
such products was led by Accurun(R) which doubled in sales over the prior year.
Also contributing to the increase in product sales was the inclusion of BBI
Source (the Laboratory Instruments segment) for the full year in 1998 versus a
half-year in 1997. The decrease in Quality Control Panel sales at the
Diagnostics segment partially offset the product sales increases, as sales fell
short of expectations due to consolidation in the in vitro diagnostic test kit
industry. The BBI Biotech segment led the increase in service revenue with a
49.8% increase in contract research. Also contributing to the increase in
service revenue was the Clinical Laboratory Testing segment, realizing a 19.5%
increase in revenue.
Overall gross profit increased 7.7%, or $717,000, to $10,004,000 in
1998 from $9,287,000 in 1997. Product gross profit decreased 0.7%, or $43,000,
to $5,895,000 in 1998 from $5,938,000 in 1997 and product gross margin decreased
to 45.1% in 1998 from 50.7%. In 1997 the Diagnostics segment's product gross
margin benefited from significant one-time sale of two "World-Wide Panels,"
which have unusually high gross margins due to their unique characteristics.
These
-26-
<PAGE>
panels sold out in the first quarter of 1998, with minimal impact on 1998. The
remaining product gross margin decrease was the result of lower capacity
utilization at the Laboratory Instrumentation segment. Services gross profit
increased 22.7%, or $759,000, to $4,109,000 in 1998 from $3,350,000 in 1997 and
gross margin remained steady at 31.6% in 1998 and 1997. Higher margins generated
by the Contract Services and Laboratory Instrumentation segments offset the
decrease in margins realized by the increased pricing pressure facing the
Clinical Laboratory Testing segment
Research and development expenditures increased 87.7%, or
$1,150,000, to $2,461,000 in 1998 from $1,311,000 in 1997. The increase was
realized across all of the segments. The Laboratory Instrumentation segment
invested in new reflectance technology for its Verif-Eye product line. The
Diagnostics segments also increased its development expenditures,
specifically for development of Accurun(R) molecular and immunological Run
Controls. The Company invested in development of new specialized molecular
assays for use by the Clinical Laboratory Testing segment. Finally, the
Company began the development of PCT as it acquired BioSeq, Inc. (one
component of the Other segment) in September 1998.
There were two accounting charges during the twelve months ended
December 31, 1998, which were classified on the income statement as acquired
in-process research and development. In the first quarter there was an
accounting charge of $850,000 related to the acquisition of the worldwide
exclusive rights to BioSeq Inc's immunodiagnostic research and development
technology. In the third quarter, the Company recorded a charge of $3,381,000
related to in-process technology as a result of the Company's $4,226,000
acquisition of BioSeq, Inc.
Selling and marketing expenses increased 21.5%, or $698,000, to
$3,939,000 in 1998 from $3,241,000 in 1997. The increase was attributable
primarily to inclusion for a full year in 1998 of the expanded TQS sales,
marketing, and technical support staff added to the Diagnostics segment in the
spring of 1997. The Company also expanded its presence at tradeshows, resulting
in higher expenditures in this category.
General and administrative costs increased 27.9%, or $933,000, to
$4,276,000 in 1998 from $3,343,000 in 1997. This increase was attributable
primarily to additional support staff, and increased information systems
consulting and investor relations activities at the Diagnostics segment, which
includes the majority of the corporate functions and officers for both periods.
In addition, the inclusion of the Laboratory Instrumentation segment for a full
year added $412,000 of expense to this category.
As a result of all of the above, the Company experienced an
operating loss of $4,902,000 versus income of $1,392,000 in 1997. This
decrease was primarily a result of the acquired in-process research and
development expense, a higher operating loss at the Laboratory
Instrumentation segment, increased research and development expenditures at
all segments, and lower profitability at its Diagnostics and Clinical
Laboratory Testing operating segments.
The Company had net interest expense of $51,000 in 1998 versus
interest income of $283,000 in 1997. The Company had used the proceeds from
its initial public offering and, at the end of the second quarter of 1998,
began to borrow funds from its revolving line of credit to continue its
infrastructure and research and development investments.
The Company provided taxes at the combined federal and state rate of
38% for 1998 versus 40% in the prior year. The rate decrease was the result of
offsetting the Massachusetts taxable income of the Diagnostics operating segment
with the Massachusetts losses of BBI BioSeq, Inc., This benefit was adversely
impacted by the tax treatment of the acquired in-process technology from BioSeq,
Inc. as the acquisition was structured as a stock purchase. Therefore, the
effective benefit rate for 1998 was approximately 11%.
The Company had a net loss of $4,389,000 in 1998 versus net income
of $1,005,000 in 1997 as a result of the operating loss described above and a
shift to interest expense in 1998 versus interest income in 1997.
-27-
<PAGE>
Liquidity and Capital Resources
At December 31, 1999, the Company had cash and cash equivalents of
approximately $315,000 and working capital of $10,053,000. Gross trade
accounts receivable increased $483,000 or 7.2% as a result of a 7.8% increase
in revenues in the fourth quarter of 1999 versus the same period in 1998.
Inventory increased $228,000 or 3.4%, related primarily to work-in-process
for upcoming projects within the Diagnostics segment.
The Company has financed its operations to date through cash flow from
operations, borrowings from banks and the sale of its common stock. The Company
expects its cash flow, working capital, and available borrowings under its
revolving line of credit to meet existing operational needs in 2000. In mid 1999
the Company and its bank agreed to a modified borrowing agreement with revised
financial covenants, which the Company expects will meet existing operational
needs for the foreseeable future. At December 31, 1999 the Company was in
compliance with its financial covenants.
In addition, in March 2000 the Company received a signed term sheet
from a bank for a mortgage of the Company's West Bridgewater, MA facility. The
Company anticipates that it will complete the transaction in the beginning of
the second quarter of 2000. The Company intends to use the $2,500,000 of cash
generated to pay down its existing line of credit.
Net cash used in operations for 1999 was $657,000 as compared to
$1,215,000 in 1998. This decrease in operational use of cash is due to improved
management of working capital, including better utilization of inventory and
more effective management of payables and receivables. The $123,000 increase in
reserve for doubtful accounts partially offset this improvement of operational
cash flow. The Company increased its reserve because there has been a gradual
shift in the Company's customer mix from large, well known, in vitro diagnostics
manufacturers to a more diversified customer matrix, which includes smaller,
less established companies. While the Company has not yet experienced a
significant increase in write-off's as a result of this shift, management feels
that establishing the current level of reserve is prudent.
Cash used in investing activities for 1999, 1998 and 1997 amounted to
$2,731,000, $5,462,000, and $5,396,000, respectively. Substantially all of the
investing activities in 1999 related to additions of property and equipment.
These expenditures included approximately $1,138,000 of computer hardware and
software, including approximately $807,000 invested in new enterprise resource
planning systems for the Diagnostics and Laboratory Instrumentation segments.
The BBI Biotech segment spent approximately $522,000 on leasehold improvements
as it prepared a new facility in Frederick, Maryland for the repository contract
with the National Institute of Allergy and Infectious Disease, Division of AIDS.
In addition, the Company continued construction at its BBI Diagnostics facility
in West Bridgewater, Massachusetts as it spent approximately $352,000 improving
this manufacturing facility. In 1998, three major items accounted for most of
the Company's investing activities. First, effective September 30, 1998, the
Company completed the acquisition of the remaining common stock of BioSeq, Inc.,
for a cash expenditure of $2,557,000. Second, $1,460,000 was expended for
additional improvements at the Company's Massachusetts and Maryland facilities.
Finally, $437,000 was spent on software, hardware and implementation costs for
the enterprise resource planning system. In 1997, four items accounted for most
of the investing activities. First, the Company exercised its option to purchase
an additional 165,000 shares of BioSeq, Inc. stock at an aggregate cost of
$750,000, thereby increasing its ownership of BioSeq to 19.9%. Second, in May
1997, the Company's BBI Biotech subsidiary signed a ten year lease for new
laboratory space in Gaithersburg, Maryland and spent $566,000 on leasehold
improvements for new laboratory space for its contract research and product
development activities. Third, the expansion and renovation of its BBI
Diagnostics manufacturing facility in West Bridgewater, Massachusetts, commenced
construction and approximately $920,000 was expended. Finally, the Company
completed the acquisition of Source Scientific, Inc. at a purchase price of
$1,994,000 including acquisition costs.
During 1999, net cash provided by financing activities was
approximately $3,555,000 from a combination of net borrowings of $3,164,000
under the revolving line of credit, and proceeds of $206,000 from the sale of
stock and stock warrants to third party investors. In addition, the Company
realized proceeds of $148,000 and $37,000 from the sale of stock and the
exercise of stock options, respectively. During 1998, net cash provided by
financing activities was $4,052,000 from a combination of net borrowings of
$3,963,000 under the revolving line of credit, and proceeds of $89,000 from the
exercise of stock options. During 1997, net cash generated from financing
activities included $300,000
-28-
<PAGE>
from the exercise of warrants, and $182,000 from exercising stock options. Also
in 1997, $1,124,000 was used to pay down debt acquired in connection with the
Source acquisition.
The Company anticipates significant capital expenditures in 2000 to
continue as it plans to compete renovations to its manufacturing facility in
Massachusetts and its repository facility in Frederick, Maryland. In addition to
the renovations, the Company intends to continue its enterprise resource
planning system implementation, as it installs new systems at BBICL and BBI
Biotech. The Company believes that existing cash balances, the borrowing
capacity available under the revolving line of credit, cash generated from
operations and proceeds from the issuance of its common stock are sufficient to
fund operations and anticipated capital expenditures in 2000. Except for
purchase orders in connection with the manufacturing expansion, there were no
material financial commitments for capital expenditures as of December 31, 1999.
In February of 2000, the Company received notice that certain warrant
holders exercised 500,000 warrants. This exercise will result in proceeds to the
Company of approximately $2,100,000, net of transaction costs, when the
transaction closes, pursuant to completing the registration of the underlying
shares.
Year 2000 Readiness Disclosure
Our Year 2000 ("Y2K") program was designed to minimize the possibility
of serious Year 2000 interruption. In 1997 the Company decided to significantly
upgrade its "business system" (all computer hardware and software used to run
its business including its operations management, administration and financial
systems).
Specifications were developed for desired capabilities, including Year
2000 compliance and the Company began to assess various enterprise resource
planning systems ("ERP System") in 1998. Additionally, the Company organized a
task force at each operating segment to review other infrastructure areas
including communications systems, building security systems and embedded
technologies in areas such as laboratory instruments and manufacturing
equipment. The Company also began to survey mayor suppliers, distributors, and
customers to determine the status and schedule for their Year 2000 compliance.
During the fourth quarter of 1999 the Company completed the ERP
implementation at the two of the Company's subsidiaries. The other subsidiaries
received upgraded, Year 2000 compliant versions of existing software. The
Company spent less than $200,000 to prepare for Y2K. This amount includes the
cost to upgrade existing software packages to compliant versions, use of
existing resources to execute surveys and measure results, and incremental costs
associated with other infrastructure areas. This amount excludes all costs
associated with the implementation of the ERP Systems which was completed for
reasons beyond Y2K compliance.
Possible Year 2000 worst case scenarios include the interruption of
significant parts of our business as a result of internal business system
failure or the failure of the business systems of the Company's suppliers,
distributors or customers. Any such interruption may have a material adverse
impact on our future results. Although no significant problems have been noted
to date, the Company acknowledges that there is still risk that such problems
may occur. Any such interruption could have a material adverse impact on the
future results of the Company.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133) is effective, as
amended for quarters of fiscal years beginning after June 15, 2000. The new
standard requires companies to record derivatives on the balance sheet as assets
or liabilities, measured at fair value. Gains or losses resulting from changes
in the values of those derivatives would be accounted for depending on the use
of the derivatives and whether they qualify for hedge accounting. The key
criterion for hedge accounting is that the hedging relationship must be highly
effective in achieving offsetting changes in fair value or cash flows. The
Company does not currently engage in derivative trading or hedging activity.
-29-
<PAGE>
In December 1999, the Staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). This SAB summarizes certain of the Staff's views in
applying generally accepted accounting principles, in the United States, to
revenue recognition in financial statements. SAB 101 is effective for the
Company's quarter ended June 30, 2000. The Company does not expect the
provisions of SAB 101 to have a material impact on its financial statements.
Forward - Looking Information
The Annual Report on Form 10-K contains forward-looking statements
concerning the Company's financial performance and business operations. The
Company wishes to caution readers of this Annual Report on Form 10-K that actual
results might differ materially from those projected in the forward-looking
statements contained herein.
Factors which might cause actual results to differ materially from
those projected in the forward-looking statements contained herein include the
following: finalization of SEC guidelines for valuation of in-process research
and development as it relates to purchase accounting; inability of the Company
to develop the end-user market for quality control products; inability of the
Company to integrate the business of Source Scientific, Inc. into the Company's
business; inability of the Company to grow the sales of Source Scientific, Inc.
to the extent anticipated; the renewal and full funding of contracts with
National Institutes of Health (NIH), National Heart, Lung and Blood Institute
(NHLBI) and other government agencies; the inability of the Company to develop
the technology recently acquired as part of its purchase of BioSeq, Inc. to the
level of commercial utilization; the inability of Panacos to obtain sufficient
funding to progress to more advanced stages of development, the failure of
Panacos to identify and successfully commercialize any new drugs or vaccines,
the inability of the Company to obtain an adequate supply of the unique and rare
specimens of plasma and serum necessary for certain of its products; significant
reductions in purchases by any of the Company's major customers; the
interruption of significant parts of the Company's business as a result of
internal business system failure or the failure of the business systems of its
suppliers, distributors or customers due to the inability of such systems to
properly interpret dates subsequent to December 31, 1999; and the potential
insufficiency of Company resources, including human resources, plant and
equipment and management systems, to accommodate any future growth. Certain of
these and other factors which might cause actual results to differ materially
from those projected are more fully set forth under the caption "Risk Factors"
in the Company's Registration Statement on Form S-1 (SEC File No. 333-10759).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to interest rate risk in connection with its
long-term debt. The aggregate hypothetical loss in earnings for one year of
those financial instruments held by the Company at December 31, 1999 that are
subject to interest rate risk resulting from a hypothetical increase in interest
rates of 10 percent is less than $100,000, after-tax. The hypothetical loss was
determined by calculating the aggregate impact of a 10 percent increase in the
interest rate of each variable rate financial instrument held by the Company at
December 31, 1999, that is subject to interest rate risk. Fixed rate financial
instruments were not evaluated, as the Company believes the risk exposure is not
material.
The Company is exposed to concentrations of credit risk in cash and
cash equivalents and trade receivables. Cash and cash equivalents are placed
with major financial institutions with high quality credit ratings. Trade
receivables credit risk exposure is significant as the Company derives a
significant portion of its revenues from a small number of customers however
this risk is mitigated by the dispersion across different industries and
geographies in which the customers operate; in addition to this, the largest
customer (approximately 15% of 1999 consolidated revenue) was the NIH, a U.S.
Government agency. The Company is exposed to credit-related risks associated
with its trade accounts receivable denominated in U.S. Dollars but receivable
from foreign customers.
-30-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 314,923 $ 146,978
Accounts receivable, less allowances of $746,797 in 1999 and
$623,710 in 1998 6,446,318 6,086,693
Inventories 6,917,916 6,689,768
Prepaid expenses 344,353 479,983
Deferred income taxes 934,790 847,268
----------- -----------
Total current assets 14,958,300 14,250,690
----------- -----------
Property and equipment, net 8,295,024 6,925,423
OTHER ASSETS:
Goodwill and other intangibles, net 2,589,310 2,809,825
Deferred income taxes 220,535 --
Notes receivable and other 99,171 96,447
----------- -----------
2,909,016 2,906,272
----------- -----------
TOTAL ASSETS $26,162,340 $24,082,385
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,552,268 $ 2,369,495
Accrued compensation 1,189,140 1,284,162
Accrued income taxes 112,487 --
Other accrued expenses 1,028,667 795,642
Current maturities of long term debt 22,414 15,569
Deferred revenue -- 690,760
----------- -----------
Total current liabilities 4,904,976 5,155,628
----------- -----------
LONG-TERM LIABILITIES:
Long term debt, less current maturities 7,145,651 3,988,602
Other liabilities 465,590 730,138
Deferred income taxes -- 139,363
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; authorized 20,000,000 shares in
1999 and 1998; issued and outstanding 4,773,365 in 1999 and
4,667,816 in 1998 47,734 46,679
Additional paid-in capital 16,809,242 16,418,716
Accumulated deficit (3,210,853) (2,396,741)
----------- -----------
Total stockholders' equity 13,646,123 14,068,654
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 26,162,340 $ 24,082,385
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements
-31-
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE:
Products $ 14,056,657 $ 13,075,085 $ 11,711,026
Services 15,214,431 13,005,991 10,588,311
------------ ------------ ------------
Total revenue 29,271,088 26,081,076 22,299,337
COSTS AND EXPENSES:
Cost of products 7,267,273 7,179,920 5,773,417
Cost of services 11,168,595 8,897,046 7,238,527
Research and development 3,258,542 2,461,316 1,311,190
Acquired research and development -- 4,230,812 --
Selling and marketing 4,023,791 3,938,753 3,241,422
General and administrative 4,441,524 4,275,627 3,342,829
------------ ------------ ------------
Total operating costs and expenses 30,159,725 30,983,474 20,907,385
(Loss) income from operations (888,637) (4,902,398) 1,391,952
Interest income 6,146 27,901 295,998
Interest expense (430,593) (78,621) (13,227)
------------ ------------ ------------
(Loss) income before income taxes (1,313,084) (4,953,118) 1,674,723
Benefit from (provision for) income taxes 498,972 564,399 (669,889)
------------ ------------ ------------
Net (loss) income $ (814,112) $ (4,388,719) $ 1,004,834
============ ============ ============
Net (loss) income per share, basic $ (0.17) $ (0.94) $ 0.23
Net (loss) income per share, diluted $ (0.17) $ (0.94) $ 0.21
Number of shares used to calculate net (loss) income per share
Basic 4,669,717 4,654,609 4,437,801
Diluted 4,669,717 4,654,609 4,780,070
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements
-32-
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Common Stock
------------------------ Additional Retained Total
$.01 Par Paid-In Earnings Stockholders'
Shares Value Capital (Deficit) Equity
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 4,378,157 $ 43,782 $15,258,656 $ 987,144 $16,289,582
Stock options and warrants exercised 244,409 2,444 480,032 482,476
Tax benefit of stock options exercised 290,361 290,361
Net income 1,004,834 1,004,834
---------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1997 4,622,566 46,226 16,029,049 1,991,978 18,067,253
Stock options and warrants issued with acquisition 236,327 236,327
Stock options exercised 45,250 453 88,696 89,149
Tax benefit of stock options exercised 64,644 64,644
Net loss (4,388,719) (4,388,719)
---------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1998 4,667,816 46,679 16,418,716 (2,396,741) 14,068,654
Common stock issued 53,300 533 147,905 148,438
Stock warrants issued, net of issuance costs 206,011 206,011
Stock options and warrants exercised 52,249 522 36,610 37,132
Net loss (814,112) (814,112)
---------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1999 4,773,365 $ 47,734 $16,809,242 $(3,210,853) $13,646,123
========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements
-33-
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (814,112) $(4,388,719) $ 1,004,834
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization 1,578,731 1,280,049 858,434
Provision for doubtful accounts 96,661 154,335 174,925
Deferred rent and other (264,549) 117,911 (71,381)
Deferred income taxes (447,420) (528,676) 2,391
Tax benefit of stock options exercised -- 64,644 290,361
Acquired research and development -- 4,230,812 --
Changes in operating assets and liabilities:
Accounts receivable (456,286) (675,171) (1,907,413)
Other assets -- -- (13,930)
Inventories (228,148) (786,947) (640,301)
Prepaid expenses and other 135,630 (144,199) 2,546
Accounts payable 182,773 105,122 797,690
Accrued compensation and other expenses 250,490 (86,054) (102,199)
Deferred revenue (690,760) (558,264) 330,855
----------- ----------- -----------
Net cash (used in) provided by operating activities (656,990) (1,215,157) 726,812
----------- ----------- -----------
CASH FLOWS FOR INVESTING ACTIVITIES:
Acquired research and development -- (850,000) --
Payments for additions to property and equipment (2,727,816) (2,929,568) (2,612,697)
Purchase of intangible assets -- (3,470) (39,625)
Return of deposits and other (2,724) 27,731 --
Purchase of long term investment -- -- (750,000)
Acquisitions, net of cash aquired -- (1,706,540) (1,993,722)
----------- ----------- -----------
Net cash used in investing activities (2,730,540) (5,461,847) (5,396,044)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 3,175,427 3,977,351 --
Repayments of long-term debt (11,533) (14,878) (1,123,526)
Proceeds from issuance of common stock and stock warrants 391,581 89,149 482,476
----------- ----------- -----------
Net cash provided by (used in) financing activities 3,555,475 4,051,622 (641,050)
----------- ----------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS: 167,945 (2,625,382) (5,310,282)
Cash and cash equivalents, beginning of year 146,978 2,772,360 8,082,642
----------- ----------- -----------
Cash and cash equivalents, end of year $ 314,923 $ 146,978 $ 2,772,360
=========== =========== ===========
SUPPLEMENTAL INFORMATION:
Income taxes paid $ 33,391 $ 113,287 $ 662,304
Interest paid $ 414,297 $ 72,755 $ 5,731
Long-term investment included in acquisition $ 1,482,500
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements
-34-
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Business and Significant Accounting Policies
Boston Biomedica, Inc. ("BBI") and Subsidiaries (together, the
"Company") provide infectious disease diagnostic products, laboratory
instrumentation, contract research and specialty infectious disease testing
services to the in-vitro diagnostic industry, government agencies, blood banks,
hospitals and other health care providers worldwide. The Company also invests in
new technologies related to infectious diseases. The Company is subject to risks
common to companies in the biotechnology, medical device and diagnostic
industries, including but not limited to, development by the Company or its
competitors of new technological innovations, dependence on key personnel,
protection of proprietary technology, and compliance with governmental
regulations.
Significant accounting policies followed in the preparation of these
consolidated financial statements are as follows:
(i) Principles of Consolidation
The consolidated financial statements include the accounts of BBI and
its wholly-owned subsidiaries, BBI Biotech Research Laboratories, Inc. ("BBI
Biotech"), BBI Clinical Laboratories, Inc. ("BBICL"), BBI Source Scientific,
Inc. ("BBI Source"), and BBI BioSeq, Inc. ("BBI BioSeq"). BBI consists primarily
of the Diagnostic Products segment as well as executive corporate officers.
During the year, the Company incorporated Panacos Pharmaceuticals, Inc.,
("Panacos"). Effective January 2000, Panacos will be accounted for as an
additional consolidated subsidiary of the Company. All significant intercompany
accounts and transactions have been eliminated in the consolidation. Certain
amounts included in the prior year's financial statements may have been
reclassified to conform to the current presentation.
(ii) Use of Estimates
To prepare the financial statements in conformity with generally
accepted accounting principles, management is required to make significant
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. In particular, the Company records reserves for
estimates regarding the collectability of accounts receivable, the value and
realizability of intangible assets, as well as the net realizable value of its
inventory.
The valuation methodology applied to the acquisition of BioSeq, Inc.
(see Note 2) was based on estimated discounted future cash flows. The purchase
price accounting is based on this valuation. Significant assumptions include
gross and operating profit margins, and future tax, discount, and royalty rates.
Actual results could differ from the estimates and assumptions used by
management.
(iii) Revenue Recognition
Product revenue is recognized upon shipment of the products or, for
specific orders at the request of the customer, on a bill and hold basis after
completion of manufacture. All bill and hold transactions meet specified revenue
recognition criteria which include normal billing, credit and payment terms,
firm commitment and transfer to the customers of all risks and rewards of
ownership. Total revenue related to bill and hold transactions was approximately
$1,998,000, $1,388,000, and $459,000 for the years ended December 31, 1999,
1998, and 1997, respectively.
Services are recognized as revenue upon completion of tests for
specialty laboratory services. Revenue from service contracts and research and
development contracts for the Company's laboratory instrumentation business is
recognized as the service and research and development activities are performed
under the terms of the contracts.
Revenue under long-term contracts, generally lasting from one to five
years, including funded research and development contracts, is recorded when
costs to perform such research and development activities are incurred. Billing
under long-term contracts are generally at cost plus a predetermined profit.
Billing occurs as costs associated with time and materials are incurred.
Customers are obligated to pay for such services, when billed, and payments are
non-refundable. On occasion certain customers make advance payments that are
deferred until revenue recognition is appropriate. The Company does not believe
there are any material collectability issues associated with these receivables.
-35-
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Business and Significant Accounting Policies (Continued)
Total revenue related to long-term contracts was approximately
$4,457,000, $4,175,000, and $3,125,000 for the years ended December 31, 1999,
1998 and 1997, respectively. Total contract costs associated with these
agreements were approximately $4,323,000, $3,950,000, and $2,782,000 for the
years ended December 1999, 1998 and 1997, respectively. Included in the revenue
recognized under long-term contracts are certain unbilled receivables
representing additional indirect costs, which are allowed under the terms of the
respective contracts. Unbilled receivables were less than $40,000 for all years
presented.
(iv) Cash and cash equivalents
The Company's policy is to invest available cash in short-term,
investment grade, interest bearing obligations, including money market funds,
municipal notes, and bank and corporate debt instruments. Securities purchased
with initial maturities of three months or less are valued at cost plus accrued
interest, which approximates fair market value, and classified as cash
equivalents.
(v) Research and Development Costs
Research and development costs are expensed as incurred.
(vi) Inventories
Inventories are stated at the lower of cost or net realizable value and
include material, labor and manufacturing overhead.
(vii) Property and Equipment
Property and equipment are stated at cost. For financial reporting
purposes, depreciation is recognized using accelerated and straight-line
methods, allocating the cost of the assets over their estimated useful lives
ranging from five to ten years for certain manufacturing and laboratory
equipment, from three to five years for management information systems and
office equipment, three years for automobiles and thirty years for the building.
Leasehold improvements are amortized over the shorter of the life of the
improvement or the remaining life of the leases, which range from four to ten
years. Upon retirement or sale, the cost and related accumulated depreciation of
the asset are removed from the accounting records. Any resulting gain or loss is
credited or charged to income.
In March of 1998, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use". SOP 98-1 requires
computer software costs associated with internal use software to be charged to
operations as incurred until certain capitalization criteria are met. SOP 98-1
is effective beginning January 1, 1999. The Company adopted this policy during
1999 as it implemented enterprise resource planning systems at two of its
locations. See Footnote 4 for further information.
(viii) Goodwill and Intangibles
The Company has classified as goodwill, the cost in excess of fair
value of the assets of the business acquired. Goodwill is being amortized on a
straight-line basis over ten to fifteen years. Other intangibles primarily
consist of patents, licenses, and intellectual property rights and are amortized
over periods ranging from four to sixteen years.
(ix) Impairment of Long-Lived Assets
The Company evaluates the potential impairment of its long-lived assets
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. At the occurrence of a certain event or
change in circumstances, the Company evaluates the potential impairment of an
asset based on estimated future undiscounted cash flows. In the event
impairment exists, the Company will measure the amount of such impairment
based on the present value of estimated future cash flows using a discount
rate commensurate with the risks involved. Based on management's assessment as
of December 31, 1999, the Company has determined that no impairment of
long-lived assets exists. Upon the occurrence of a material circumstance, such
as the failure of certain technology to demonstrate promise that it may gain
commercial acceptance or the failure of a business segment to achieve certain
performance objectives, management will reassess the value of associated
assets and if appropriate at that time, will recognize an impairment charge.
The realizability of the goodwill related to the
-36-
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Business and Significant Accounting Policies (Continued)
acquisition of BBI Source Scientific has been a specific area of focus by the
Company. Management feels that although the business unit has realized
operating losses since the acquisition in July 1997, the goodwill is not
impaired as management believes the segment will be profitable by the end of
2001.
(x) Income Taxes
The Company utilizes the liability method of accounting for income
taxes. Under this method, deferred taxes arise from temporary differences
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the differences are expected
to reverse. A valuation allowance is provided for net deferred tax assets if,
based on the weighted available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized. Tax credits are
recognized when realized using the flow through method of accounting. At
December 31, 1999, the Company's entire valuation allowance related to the net
operating losses acquired in connection with the BioSeq acquisition.
Management feels that no additional valuation allowance is required as its tax
strategies and normal profitability levels will allow it to realize all of its
tax assets, including federal and state net operating losses and tax credits.
(xi) Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk are principally cash and cash equivalents, and
accounts receivable. The Company places its cash in federally chartered banks,
each of which is insured up to $100,000 by the Federal Deposit Insurance
Corporation. The Company limits credit risk in cash equivalents by investing
only in short-term, investment grade securities including money market funds
restricted to such securities. Concentration of credit risk with respect to
accounts receivable is limited to certain customers to whom the Company makes
substantial sales (see Note 6). The Company does not require collateral from its
customers. To reduce risk, the Company routinely assesses the financial strength
of its customers and, as a consequence, believes that its trade accounts
receivable credit risk exposure is limited.
(xii) Deferred Revenue
Deferred revenue consists of payments received from customers in
advance of services performed.
(xiii) Computation of Earnings per Share
Basic earnings per share is computed by dividing income available to
common shareholders by the weighted average number of common shares
outstanding. Diluted earnings per share is computed by dividing income
available to common shareholders by the weighted average common shares
outstanding plus additional common shares that would have been outstanding if
dilutive potential common shares had been issued. For purposes of this
calculation, stock options are considered common stock equivalents in periods
in which they have a dilutive effect. Options and warrants that were
antidilutive were excluded from the calculation.
(xiv) Segment Reporting
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," on December 31, 1998. SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
selected information about operating segments in interim financial reports. It
also establishes standards for related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 supersedes SFAS No. 14,
Financial Reporting for Segments of a Business Enterprise, but retains the
requirements to report information about major customers. Disclosures required
by this new standard are included in the notes to the consolidated financial
statements under the caption "Segment Reporting and Related Information."
(xv) Recent Accounting Standards
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133)is effective, as
amended for quarters of fiscal years beginning after June 15, 2000. The new
standard requires companies to record derivatives on the balance sheet as assets
or liabilities, measured at fair value. Gains or losses resulting from changes
in the values of those derivatives would be accounted for depending on the use
of the derivatives and whether they qualify for hedge accounting. The key
criterion for hedge
-37-
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Business and Significant Accounting Policies (Continued)
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows. The Company does not
currently engage in derivative trading or hedging activity.
In December 1999, the Staff of the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB 101"). This SAB summarizes certain of the Staff's
views in applying generally accepted accounting principles, in the United
States, to revenue recognition in financial statements. SAB 101 is effective
for the Company's quarter ended June 30, 2000. The Company does not expect
the provisions of SAB 101 to have a material impact on its financial
statements
(2) Acquisition of BioSeq, Inc.
On September 30, 1998 the Company acquired the remaining common stock
outstanding of BioSeq (approximately 81%) for $879,000 in cash (net of cash
acquired of $121,000), warrants to purchase 100,000 shares of the Company's
stock at an exercise price of $2.50 per share, minimum long-term royalty
payments of $424,000, debt and accrued interest owed by BioSeq at the time of
acquisition of approximately $736,000, and other acquisition costs. The Company
also exchanged BioSeq's stock options for 46,623 BBI stock options with an
average exercise price of $2.74. Accordingly, the Company's aggregate cost of
acquiring all of BioSeq's equity, including the original 19% investment under
the 1996 Purchase Agreement of $1,482,000 (classified as long-term investment at
December 31, 1997 was approximately $4,226,000. The cash portion of the
acquisition was financed from a combination of debt and cash. The acquisition
has been recorded using purchase accounting, and BioSeq's results are included
in the consolidated results of the Company commencing October 1, 1998.
BBI BioSeq is a development stage company with patent pending
technology based on pressure cycling technology. Approximately $3,381,000 of the
purchase price had been allocated to in-process research and development and
expensed in the third quarter based on an independent valuation of the assets
acquired. The acquired in-process research and development has been charged to
earnings as no alternative future use exists. The patents on the core technology
were valued and capitalized at $778,000, and are being amortized over their
remaining life, approximately sixteen years. Other assets acquired were
primarily laboratory equipment, which are being depreciated over their remaining
useful lives of three to ten years.
Allocated in-process research and development consists of two projects,
that were on-going at the time of the acquisition: nucleic acid extraction and
purification and pathogen inactivation. BioSeq had expended approximately $1.6
million prior to September 30, 1998 on these projects. Both of these projects
have encouraging preliminary data demonstrating potential feasibility, but
significant scientific, mechanical and design issues remain. The Company
estimates that it will spend in excess of $4.8 million through the year 2002 to
complete the development into commercially viable products and to begin
generating revenue. Remaining development efforts are focused on feasibility
studies to establish the key performance parameters and biological activities to
be retained; designing and building a prototype instrument; further development
of the prototype for the applications; scale-up of design; data generation and
clinical trials; applying and obtaining Food and Drug Administration approval,
where applicable, final design modifications; and transfer to manufacturing. In
addition to the risk of the technology ultimately not working, failure to
complete on a timely basis could allow new or existing competing technologies to
be developed and commercially accepted.
The valuation methodology was based on estimated discounted future cash
flows. Significant assumptions include gross and operating profit margins, and
future tax, discount, and royalty rates. Recent accounting guidelines on
valuation methodologies for in-process research and development are still
evolving and the amount written off maybe subject to adjustment.
-38-
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) Acquisition of BioSeq, Inc. (Continued)
The following unaudited pro forma information combines the consolidated
results of operations of the Company and BioSeq as if the acquisition had
occurred at the beginning of 1997, after giving effect to certain adjustments,
including amortization of the intangible assets, increased interest expense on
the acquisition debt, and related income tax effects. The unaudited pro forma
information is shown for comparative purposes only and is based on management's
estimates of research and development expenditures.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1998 1997
Pro Forma Pro Forma
---------- ----------
<S> <C> <C>
Revenues 26,081,077 22,299,337
Operating income (loss) (1,474,694) 191,952
Net income (loss) (989,327) 242,834
EPS (0.21) 0.05
</TABLE>
The pro forma information excludes acquired research and development of
$4,231,000
(3) Inventories
The Company purchases human plasma and serum from various private and
commercial blood banks. Upon receipt, such purchases generally undergo
comprehensive testing, and associated costs are included in the value of raw
materials. Most plasma is manufactured into Basematrix and other diagnostic
components to customer specifications. Plasma and serum with the desired
antibodies or antigens are sold or manufactured into QC Panels, Accurun(R) Run
Controls, and reagents ("Finished Goods"). Panels and reagents are unique to
specific donors and/or collection periods, and require substantial time to
characterize and manufacture due to stringent technical specifications. Panels
play an important role in diagnostic test kit development, licensure and quality
control. Panels are manufactured in quantities sufficient to meet expected user
demand, which may exceed one year. Inventory also includes component parts used
in the manufacture of laboratory instrumentation. Inventory balances at December
31, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Raw materials ........ $2,675,735 $2,407,154
Work-in-process ...... 1,845,778 1,788,399
Finished goods ....... 2,396,403 2,494,215
---------- ----------
$6,917,916 $6,689,768
========== ==========
</TABLE>
(4) Property and Equipment
Property and equipment at December 31, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Laboratory and manufacturing equipment .. $ 3,456,410 $ 3,082,834
Management information systems .......... 3,691,338 2,556,193
Office equipment ........................ 1,051,673 821,538
Automobiles ............................. 318,242 206,693
Leasehold improvements .................. 2,177,236 1,610,260
Land, building and improvements 2,611,733 2,307,039
----------- -----------
13,306,632 10,584,557
Less accumulated depreciation ........... 5,011,608 3,659,134
----------- -----------
Net book value .......................... $ 8,295,024 $ 6,925,423
=========== ===========
</TABLE>
-39-
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) Property and Equipment (Continued)
Depreciation expense for the years ended December 31, 1999, 1998 and
1997 was approximately $1,359,000, $1,096,000, and $731,000 respectively.
Included in 1999, 1998 and 1997 land, building and improvements is approximately
$203,000, $1,345,000 and $920,000, respectively, of construction in progress.
In accordance with SOP 98-1, the Company capitalized approximately
$448,000 of internal labor and related costs, in 1999, in connection with its
ERP System Implementation. These costs are included in the Management
Information Systems line item and are being depreciated over the same life as
the system, 5 years. Depreciation expense, related to these capitalized costs
was approximately $7,000 for the year ended December 31, 1999.
(5) Intangible Assets
Intangible assets at December 31, 1999 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Goodwill ............................. $2,293,045 $2,293,045
Patents .............................. 795,880 796,380
Licenses ............................. 37,752 37,752
---------- ----------
3,126,677 3,127,177
Less accumulated amortization ........ 537,367 317,352
---------- ----------
Net book value ....................... $2,589,310 $2,809,825
========== ==========
</TABLE>
Amortization expense for the years ended December 31, 1999, 1998 and
1997 was approximately $220,000, $184,000, and $125,000 respectively.
(6) Segment Reporting and Related Information (all dollar amounts in thousands)
Operating segments are components of an enterprise for which separate
financial information is available that is evaluated regularly by senior
management in deciding how to allocate resources and in assessing performance of
each segment. The Company is organized along legal entity lines and senior
management regularly reviews financial results for all entities, focusing
primarily on revenue and operating income.
The Company has five operating segments. The Diagnostics segment
serves the worldwide in vitro diagnostics industry, including users and
regulators of their test kits, with quality control products, and test kit
components. The BBI Biotech segment pursues third party contracts to help
fund the development of products and services for the other segments,
primarily with agencies of the United States Government. The Clinical
Laboratory Services segment performs specialty infectious disease testing for
hospitals, blood banks, doctors and other clinical laboratories, primarily in
North America. The Laboratory Instrumentation segment sells diagnostic
instruments primarily to the worldwide in vitro diagnostic industry on an OEM
basis, and also performs in-house instrument servicing. Finally, "Other"
consists of research and development in two areas: pressure cycling
technology ("PCT") and drug discovery. The Company performs research in the
development of PCT, with particular focus in the areas of nucleic acid
purification and pathogen inactivation. The Company also conducts active
research, together with Dr. K. H. Lee and collaborators at the School of
Pharmacy, University of North Carolina at Chapel Hill ("UNC"), in the area of
anti-HIV drug discovery, with exclusive focus on natural products and their
synthetic derivatives.
The Company's underlying accounting records are maintained on a legal
entity basis for government and public reporting requirements, as well as for
segment performance and internal management reporting. Inter-segment sales are
recorded on a "third party best price" basis and are significant in measuring
segment operating results. Throughout 1999, the cost of most corporate functions
are included in the Diagnostic Products segment as the senior management group
has dual responsibility to this segment as well as the Company. Pursuant to the
August 1999 reorganization, many of the senior managers and a few other
employees were segregated from the Diagnostics segment to form a Corporate
operating unit, effective January 2000. The following segment
-40-
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Segment Reporting and Related Information (Continued)
information has been prepared in accordance with the internal accounting
policies of the Company, as described above.
Operating segment revenue for the years ended December 31, 1999, 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------
<S> <C> <C> <C>
Diagnostics $ 11,837 $ 11,277 $ 10,655
BBI Biotech 6,297 5,355 4,188
Clinical Laboratory Services 9,842 7,187 6,024
Laboratory Instrumentation 2,923 3,929 2,608
Other 434 -- --
Eliminations (2,062) (1,667) (1,176)
----------------------------------------
Total Revenue $ 29,271 $ 26,081 $ 22,299
========================================
</TABLE>
Operating segment (loss) income for the years ended December 31, 1999,
1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------
<S> <C> <C> <C>
Diagnostics $ 784 $ 559 $ 1,357
BBI Biotech (152) 67 (95)
Clinical Laboratory Services 656 134 403
Laboratory Instrumentation (832) (906) (189)
Other (1,345) (525) (84)
Acquired research & development -- (4,231) --
----------------------------------------
Total (Loss) Income from Operations $ (889) $ (4,902) $ 1,392
========================================
</TABLE>
Operating segment depreciation and amortization expense for the years
ended December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------
<S> <C> <C> <C>
Diagnostics $ 537 $ 408 $ 338
BBI Biotech 419 346 182
Clinical Laboratory Services 240 217 175
Laboratory Instrumentation 299 292 163
Other 84 17 --
----------------------------------------
Total Depreciation and Amortization $ 1,579 $ 1,280 $ 858
========================================
</TABLE>
Identifiable operating segment assets are all located in the United
States, and as of December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------
<S> <C> <C> <C>
Diagnostics $ 13,375 $ 12,122 $ 14,152
BBI Biotech 4,643 4,242 2,806
Clinical Laboratory Services 3,188 2,348 1,948
Laboratory Instrumentation 3,789 4,427 4,744
Other 1,167 943 --
----------------------------------------
Total Assets $ 26,162 $ 24,082 $ 23,650
========================================
</TABLE>
-41-
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) Segment Reporting and Related Information (Continued)
Operating segment capital expenditures for the years ended December 31,
1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------
<S> <C> <C> <C>
Diagnostics $ 1,315 $ 1,468 $ 1,271
BBI Biotech 944 1,234 877
Clinical Laboratory Services 307 202 196
Laboratory Instrumentation 128 22 269
Other 34 4 --
----------------------------------------
Total Capital Expenditures $ 2,728 $ 2,930 $ 2,613
========================================
</TABLE>
Revenue by geographic area for the years ended December 31, 1999, 1998
and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------
<S> <C> <C> <C>
United States $ 25,231 $ 21,978 $ 17,706
Europe 2,509 2,453 2,614
Pacific Rim 818 1,063 1,285
Total all others 713 587 694
----------------------------------------
Total $ 29,271 $ 26,081 $ 22,299
========================================
</TABLE>
Revenue of Product and Service classes in excess of 10% of consolidated
revenue (excludes inter-segment sales) for the years ended December 31, 1999,
1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------
<S> <C> <C> <C>
Quality Control Products $ 9,445 $ 9,369 $ 8,220
Clinical Laboratory Testing 9,472 6,806 5,695
Government Contracts 4,530 3,535 2,638
</TABLE>
The government contract revenues are from United States government
agencies, primarily the National Institutes of Health (NIH) and represent the
only customer with revenue in excess of 10% of consolidated revenue.
(7) Debt
Effective June 30, 1999, the Company entered into an amended revolving
line of credit agreement (the "Amended Line") with its bank, increasing the
facility to $10 million from $7.5 million. The Amended Line matures June 30,
2001; bears interest at the Company's option based on either the base rate plus
1/4% or LIBOR plus 2.75%; carries a facility fee of 1/4% per annum, payable
quarterly; and is collateralized by substantially all of the assets of the
Company, excluding real property. Borrowings under the Amended Line are limited
to commercially standard percentages of accounts receivable, inventory and
equipment. The Company had approximately $456,000 available under the Amended
Line as of December 31, 1999.
The Amended Line contains covenants regarding the Company's total
liabilities to tangible net worth ratio, minimum debt service coverage ratio,
and maximum net loss. The Amended Line further provides for restrictions on the
payment of dividends, incurring additional debt, and the amount of capital
expenditures.
As of December 31, 1999 the Company's debt payment requirements under
its revolving line of credit were $0, $7,145,651, $0, $0 and $0 for the years
ended December 31, 2000, 2001, 2002, 2003, and 2004, respectively.
-42-
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(7) Debt (Continued)
The Company's outstanding debt includes an installment note payable
with an interest rate of 9.75%, due August 2001. The note is collateralized by
office furniture and laboratory equipment. The Company also acquired two
additional notes for automobile loans, which are both being carried at 0%
financing and come due October 2002. The amounts outstanding, including the
current portion, at December 31, 1999 and 1998 were $22,414 and $26,820,
respectively.
(8) Other Liabilities
The Company's California and Maryland facility's leases include
scheduled base rent increases over the term of the lease. The amount of base
rent payments is charged to expense using the straight-line method over the term
of the lease. As of December 31, 1999 and 1998, the Company has recorded a
long-term liability of $326,184 and $273,290, respectively ($361,413 and
$308,519 including the current portion) to reflect the excess of rent expense
over cash payments since inception of the lease. In addition to base rent, the
Company pays a monthly allocation of the operating expenses and real estate
taxes for the California and Maryland facilities.
Included in long-term liabilities at December 31, 1999 and 1998 are the
present value of future minimum royalty payments of approximately $139,000 and
$424,000 payable to the former owners of BioSeq, Inc. (See Note 2).
(9) Accrued Compensation
Accrued compensation consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998
---------- ----------
<S> <C> <C>
Accrued payroll $ 253,594 $ 598,937
Accrued vacation 447,534 360,509
Accrued commissions 305,423 177,691
Other accrued compensation 182,589 147,025
---------- ----------
1,189,140 1,284,162
---------- ----------
</TABLE>
(10) Income Taxes
The components of the (benefit) provision for income taxes are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Current (benefit) provision: federal $(226,368) $ (63,868) $ 567,373
Current provision: state $ 85,575 $ 28,145 $ 100,125
--------- --------- ---------
Total current (benefit) provision (140,793) (35,723) 667,498
Deferred (benefit) provision: federal (236,040) (417,315) (5,078)
Deferred (benefit) provision: state (122,139) (111,361) 7,469
--------- --------- ---------
Total deferred (benefit) provision (358,179) (528,676) 2,391
--------- --------- ---------
Total (benefit) provision for income taxes $(498,972) $(564,399) $ 669,889
========= ========= =========
</TABLE>
-43-
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) Income Taxes (Continued)
Significant items making up deferred tax liabilities and deferred tax
assets were as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Current deferred taxes:
Inventory $ 174,338 $ 169,796
Accounts receivable allowance 298,271 224,240
Technology licensed 299,883 322,516
Other accruals 162,298 130,716
----------- -----------
Total current deferred tax assets 934,790 847,268
Long term deferred taxes:
Accelerated tax depreciation (335,880) (279,358)
Goodwill and intangibles 19,961 17,729
Tax credits 252,589 60,000
Operating loss carryforwards 1,082,665 861,066
Less: valuation allowance (798,800) (798,800)
----------- -----------
Total long term deferred tax assets (liabilities), net 220,535 (139,363)
----------- -----------
Total net deferred tax assets $ 1,155,325 $ 707,905
=========== ===========
</TABLE>
On December 31, 1999 and 1998, operating loss carryforwards were
partially offset by a valuation allowance of $798,800. This allowance is to
reserve for the entire loss carryforward obtained through the acquisition of
BioSeq, Inc. The Company establishes valuation allowances in accordance with the
provisions of SFAS 109 "Accounting for Income Taxes". The Company continually
reviews the adequacy of the valuation allowance. The state net operating loss
carryforwards expire at various dates beginning in 2002 through 2019. As of
December 31, 1999, the Company had approximately $47,000 of alternative minimum
tax credits, which do not expire and approximately $205,000 of federal research
credits, which expire from 2012 through 2020. The Company has determined that no
additional valuation allowance is required. This conclusion is based on its
ability and intent to discontinue its operating loss position, not only for the
consolidated entity, but also for each of its operating segments. If
circumstances occur that change managements view about its ability to return to
profitability, and utilize the net operating losses and deferred tax assets, it
will re-evaluate its position with respect to valuation allowances.
The Company's effective income tax rate differs from the statutory
federal income tax rate as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal tax (benefit) provision rate (34%) (34%) 34%
State tax (benefit) provision, net of federal benefit (6%) (1%) 6%
Nondeductable writeoff of acquired research and development 23% --
Other items, net 2% 1% --
---- ---- ----
Effective income tax (benefit) provision rate (38%) (11%) 40%
==== ==== ====
</TABLE>
-44-
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) Commitments and Contingencies
The Company leases certain office space, laboratory, research and
manufacturing facilities under operating leases with various terms through
October 2007. All of the real estate leases include renewal options at either
market or increasing levels of rent.
Rent expense for the years ended December 31, 1999, 1998 and 1997 was
approximately $1,218,000, $914,000, and $506,000, respectively. At December 31,
1999, the remaining fixed lease commitment was as follows:
<TABLE>
<CAPTION>
Year Ended Amount
------------------- -------------
<S> <C>
2000 1,168,617
2001 1,106,646
2002 846,256
2003 864,470
2004 889,687
2005 and thereafter 2,372,466
-------------
$7,248,142
-------------
</TABLE>
In April 1999, the Company increased it's commitment to directly
support a drug discovery program at UNC, in which a full-time post-doctoral
research scientist and two doctoral students are working to develop synthetic
derivatives of anti-HIV compounds that have been discovered pursuant to the
Company's joint collaboration with UNC. The Company is committed to pay
approximately $44,000 per quarter for three years. These costs are being charged
to research and development expense. Under this agreement , the Company will
also have the rights to any new anti-HIV compounds and derivatives developed in
the course of this sponsored research, provided the Company obtains certain
regulatory approvals from the FDA. Effective January 2000, all rights and
obligations under this agreement were transferred to Panacos Pharmaceuticals,
Inc.
(12) Retirement Plan
In January 1993, the Company adopted a retirement savings plan for its
employees, which has been qualified under Section 401(k) of the Internal Revenue
Code. Eligible employees are permitted to contribute to the plan through payroll
deductions within statutory limitations and subject to any limitations included
in the plan. Company contributions are made at the discretion of management. To
date, no such contributions have been made. During 1999, 1998 and 1997 the
Company recognized administrative expense of approximately $30,000, $32,000, and
$23,000, respectively in connection with the plan.
(13) Stockholders' Equity
Common Stock
In July 1999, the Company's Board of Directors approved the 1999
Employee Stock Purchase Plan. The Company adopted this plan, which allows
eligible employees to purchase shares of the Company's stock at 85% of market
value as determined at the beginning and the end of the offering period. A
total of 250,000 shares have been reserved for this plan. As of December 31,
1999 no shares were issued under this plan.
Options and Warrants
The Company has a nonqualified stock option plan and an incentive stock
option plan (1996 Employee Stock Option Plan) both of which are administered by
a committee of the Board of Directors. In July 1999 the Company's Board of
Directors approved the designation of an additional 1,250,000 shares to become
available for distribution under the 1996 Employee Stock Option Plan. The Board
of Directors also approved the 1999 Non-
-45-
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) Stockholders' Equity-(Continued)
Qualified Stock Option Plan, and designated 500,000 shares for distribution
under this plan. The exercise price of an option generally equals the fair
market value of the stock at grant date. Generally, options become exercisable
at the rate of 25% at the end of each of the four years following the
anniversary of the grant. Options expire ten years from the date of grant, or 30
days from the date the grantee's affiliation with the Company terminates.
At December 31, 1999, 1,999,500 shares were reserved for incentive
stock options, of which 1,328,624 are available for future grants. At December
31, 1998, 749,500 shares have been reserved for incentive stock options, of
which 179,887 are available for future grants. At December 31, 1999, 1,098,680
shares were reserved under the nonqualified stock option plan of which 489,951
were available for future grants. As of December 31, 1998, 605,929 shares were
reserved for the non-qualified stock option plan of which no shares were
available for future grants.
In August 1999, the Company sold 500,000 warrants to purchase the
Company's stock to Paradigm Group, a private investment company. The private
placement consisted of 400,000 common stock purchase warrants with a exercise
price of $4.25 and 100,000 common stock purchase warrants with an exercise price
of $5.25. Paradigm Group paid the Company $50,000 for the warrants. In addition,
National Securities received 40,000 common stock purchase warrants with an
exercise price of $4.25, 10,000 common stock purchase warrants with an exercise
price of $5.25, and 25,000 common stock purchase warrants with an exercise price
of $8.00, as transaction fee.
In November 1999, the Company sold 29,153 equity units to MDBio, Inc.,
a Maryland not-for-profit corporation. Each equity unit consists of one share of
common stock and one common stock purchase warrant with an exercise price of
$10.00. MDBio paid the Company $175,000 for the equity units and has until
September 2003 to exercise the warrants.
On December 11, 1998, the Company's Board of Directors authorized the
Company to offer a reduction of the stock option exercise price to $3.25 per
share, which represented a premium over the market price of $2.56 on that day.
Any option holder with outstanding stock options with an exercise price higher
than $3.25 was eligible to participate in the repricing. A total of 411,417
options were repriced, which represents substantially all eligible options. The
original vesting schedule, generally four years from date of grant, remained
unchanged. However, all optionees accepting the offer agreed not to exercise
vested, repriced options for a period of one year from the date of amendment.
The previous weighted average exercise price of the options repriced was $6.72.
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of employee stock options equals the market price of
the underlying stock on the date of grant, no compensation expense is recorded.
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123). Pro forma information regarding net income and earnings per share is
required by SFAS 123 and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that statement. The
fair value of these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1999, 1998 and 1997. The minimum value option pricing model was
used for all grants during, and prior to, 1996 as they were granted prior to the
Company's IPO.
<TABLE>
<CAPTION>
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Risk-free interest rate 5.26% 4.69% 5.72%
Volatility factor 76.68% 75.57% 55.00%
Weighted average expected life 5.1 years 5.0 years 5.0 years
Expected dividend yield 0 0 0
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion,
-46-
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) Stockholders' Equity-(Continued)
the existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma net income and pro forma net income per share is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Net (loss) income-as reported $(814,112) $(4,388,719) $1,004,834
Net (loss) income-pro forma $(1,394,564) $(4,776,812) 851,408
Net (loss) income per share-as reported, basic (.17) (.94) .23
Net (loss) income per share-as reported, diluted (.17) (.94) .21
Net (loss) income per share-pro forma, basic (.30) (1.03) .19
Net (loss) income per share-pro forma, diluted (.30) (1.03) .18
</TABLE>
Because SFAS 123 provides for pro forma expense for options granted
beginning in 1995, the pro forma expense will likely increase in future years as
new option grants become subject to the pricing model. The average fair value of
options granted during 1999, 1998 and 1997 is estimated as $2.63, $1.77 and
$4.44, respectively.
-47-
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(13) Stockholders' Equity-(Continued)
The Company has reserved shares of its authorized but unissued common
stock for the following:
<TABLE>
<CAPTION>
Stock Options Warrants
-------------------------- ---------------------------
Weighted Weighted Total
Average price Average price --------------------------
Shares per share Shares per share Shares Exercisable
--------- ------------- -------- --------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance outstanding, December 31, 1996 917,887 3.10 280,000 7.63 1,197,887 839,272
Granted 263,050 7.42 -- -- 263,050
Exercised (124,409) 1.44 (120,000) 2.50 (244,409)
Expired (30,435) 7.36 -- -- (30,435)
--------- -------- ---------
Balance outstanding, December 31, 1997 1,026,093 4.28 160,000 11.48 1,186,093 832,231
Granted 358,836 3.80 * 100,000 2.50 458,836
Exercised (45,250) 1.97 -- -- (45,250)
Expired (165,013) 6.05 -- -- (165,013)
--------- -------- ---------
Balance outstanding, December 31, 1998 1,174,666 2.75 ** 260,000 8.34 1,434,666 829,434
Granted 260,500 3.91 579,153 4.73 839,653
Exercised (47,249) 0.52 (5,000) 2.50 (52,249)
Expired (107,688) 3.56 -- -- (107,688)
--------- -------- ---------
Balance outstanding, December 31, 1999 1,280,229 3.00 834,153 5.80 2,114,382 1,591,795
========= ======== =========
</TABLE>
* Includes 46,623 shares at $2.74 granted in connection with the BioSeq, Inc.
acquisition.
* Includes the effect of 411,417 options repriced in December 1998 from a
weighted average price of $6.72 to $3.25 per share.
The following table summarizes information concerning options outstanding and
exercisable as of December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted -------------------------------- -------------------------------
Average Weighted Weighted
Remaining Number of Average Number of Average
Range of Exercise Prices Life Options Exercise Price Options Exercise Price
- ------------------------ --------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
0.00-1.70 1.20 184,334 $ 1.5062 184,334 $ 1.5062
1.71-2.55 2.80 189,767 $ 2.5000 189,767 $ 2.5000
2.56-3.25 6.80 746,378 $ 3.2054 380,541 $ 3.1925
3.26-4.25 9.60 131,750 $ 4.2500 -- $ 0.0000
4.26-5.10 9.00 28,000 $ 4.6563 3,000 $ 4.5000
----------- ---------
1,280,229 757,642
=========== =========
</TABLE>
-48-
<PAGE>
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(14) Computation of Net Income per Share
The following illustrates the computation of basic and diluted net
income per share.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Shares, basic 4,669,717 4,654,609 4,437,801
Net effect of dilutive common stock
equivalents-based on treasury stock
method using average market price * 342,269
----------- ----------- -----------
Shares, diluted 4,669,717 4,654,609 4,780,070
=========== =========== ===========
Net (loss) income, basic and diluted $ (814,112) $(4,388,719) $ 1,004,834
=========== =========== ===========
Net (loss) income per share-basic (0.17) (0.94) 0.23
Net (loss) income per share-diluted (0.17) (0.94) 0.21
</TABLE>
* Potentially dilutive securities of 68,023 and 192,826 were not
included in the computation of diluted earnings per share because to do
so would have been antidilutive for twelve months ended December 31,
1999 and 1998.
(15) Selected Quarterly Financial Data (Unaudited)
Unaudited (Amounts in thousands, except for per share data)
<TABLE>
<CAPTION>
1999 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenue $ 6,845 $ 7,139 $ 7,480 $ 7,807
Gross profit 2,566 2,675 2,905 2,689
Net (loss) (237) (225) (257) (96)
Net (loss) per share, basic (0.05) (0.05) (0.05) (0.02)
Net (loss) per share, diluted (0.05) (0.05) (0.05) (0.02)
<CAPTION>
1998 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenue $ 6,273 $ 6,383 $ 6,181 $ 7,244
Gross profit 2,178 2,709 2,448 2,669
Net (loss) income (645) 134 (3,377) (502)
Net (loss) income per share, basic (0.14) 0.03 (0.72) (0.11)
Net (loss) income per share, diluted (0.14) 0.03 (0.72) (0.11)
</TABLE>
-49-
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
of Boston Biomedica, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Boston
Biomedica, Inc. and its subsidiaries (the "Company") at December 31, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 29, 2000
-50-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by Item 10 is hereby incorporated by
reference to the information under Part I, Item 1 - Business under the heading
"Executive Officers of the Registrant" at page [18] of this report, and to the
information in the registrant's definitive proxy statement, which is expected to
be filed by the registrant within 120 days after the close of its fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The following summary compensation table sets forth the compensation of
the Company's Chief Executive Officer and each of the Company's four most highly
compensated other executive officers who were serving as executive officers of
the Company at the end of fiscal year 1999 (collectively, the "Named Executive
Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation ---------
------------------- Compensation
------------
Fiscal Other Annual All Other
Name and Year Salary Bonus Compensation Stock Options Compensation
Principal Position Ended ($) ($) $ (#) ($)
------------------ ------ ------- ------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Richard T. Schumacher, 12/31/99 $229,010 -- $1,520(1) 25,000 $184,450(2)(4)
Chief Executive Officer 12/31/98 200,002 $5,000 370(1) 15,000 420(2)
and Chairman of the Board 12/31/97 194,616 -- 1,588(1) -- 420(2)
Kevin W. Quinlan, 12/31/99 $168,075 -- -- 17,500 --
President , Chief 12/31/98 143,347 $4,000 -- 10,000 --
Operating Officer and 12/31/97 139,927 -- -- -- --
Director
Barry M. Warren 12/31/99 $147,547 -- -- 10,000 --
Senior Vice President and 12/31/98 137,601 $3,000 -- 6,000 --
General Manager 12/31/97 129,367 -- -- -- --
Richard C. Tilton, Ph.D. 12/31/99 $135,203 -- $6,000(3) -- --
Senior Vice President, 12/31/98 127,019 $3,000 6,000(3) 6,000 --
Science and Technology 12/31/97 121,164 -- 6,000(3) -- --
Mark M. Manak, Ph.D. 12/31/99 $129,894 -- -- -- --
Senior Vice President and 12/31/98 118,510 $3,000 -- 6,000 --
General Manager 12/31/97 116,388 -- -- -- --
</TABLE>
- --------------------
(1) Consists of personal usage of Company vehicle
(2) Includes the value of premiums paid for a term life insurance policy.
(3) Consists of automobile allowance
(4) Consists of exercise of options
-51-
<PAGE>
The following table shows stock options granted to the Named Executive
Officers in fiscal 1999:
Options Granted in Fiscal Year 1999
<TABLE>
<CAPTION>
Individual Grants Potential Realizable Value at
------------------------------------------------------------- Assumed Annual Rates of Stock
Number of % of Total Price Appreciation
Securities Options Exercise for Option Term at Year End
Underlying Granted to ---------- ------------ --------------------------------
Options Employees in Price Expiration
Name Granted 1999 ($/Sh.) Date 5% 10%
---- ------------- -------------- ---------- -- ------------ ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Richard T. Schumacher 25,000 9.60% 4.675 07/27/09 56,195 158,710
Kevin W. Quinlan 17,500 6.72% 4.25 07/27/09 46,774 118,535
Barry M. Warren 10,000 3.84% 4.25 07/27/09 26,728 67,734
Richard C. Tilton, Ph.D. -- -- -- -- -- --
Mark M. Manak, Ph.D. -- -- -- -- -- --
</TABLE>
The following table shows stock options exercised by the Named
Executive Officers during fiscal 1999, including the aggregate value realized
upon exercise. This represents the excess of the fair market value over the
purchase price at the time of purchase. In addition, this table includes the
number of shares underlying both "exerciseable" (i.e. vested) and
"unexerciseable" (i.e. unvested) stock options as of December 31, 1999. Also
reported are the values of "in-the-money" options, which reflect the positive
spread between the exercise price of any such existing stock options and the
closing year end per share price of the Common Stock of $2.875.
Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired Options at Year End at Year End
on Value (1) ---------------------------- ----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard T. Schumacher 40,000 $180,000 98,690 38,690 $103,827 $164
Kevin W. Quinlan, -- -- 71,250 26,250 $44,375 --
Barry M. Warren -- -- 33,375 20,125 -- --
Richard C. Tilton, Ph.D. -- -- 38,375 5,125 -- --
Mark M. Manak, Ph.D. -- -- 38,375 10,125 -- --
</TABLE>
- -------------------
(1) Based upon the closing price of the Common Stock on the Nasdaq National
Market on the date of exercise, minus the respective option exercise price.
Compensation of Directors
Directors of the Company do not receive cash compensation for their
services. Each Director has been eligible to receive options to purchase Common
Stock under the Company's 1987 Non-Qualified Stock Option Plan, which expired in
December 1997, and the Company's 1999 Nonqualified Stock Option Plan.
Compensation Committee Interlocks and Insider Participation
Decisions regarding executive compensation are made by the Board of
Directors based on the recommendations of the Compensation Committee. The
Compensation Committee of the Board of Directors is comprised of Richard T.
Schumacher and Calvin A. Saravis, each of whom has received
-52-
<PAGE>
options to purchase Common Stock. Mr. Schumacher serves as the Chief Executive
Officer of the Company. Mr. Saravis is neither a former nor current officer or
employee of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by Item 12 is hereby incorporated by
reference to the information in the registrant's definitive proxy statement
under the heading "Security Ownership of Directors, Officers and Certain
Beneficial Owners," which is expected to be filed by the registrant within 120
days after the close of its fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for by Item 13 is hereby incorporated by
reference to the information in the registrant's definitive proxy statement
under the heading "Certain Relationships and Related Transactions," which is
expected to be filed by the registrant within 120 days after the close of its
fiscal year.
-53-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
<TABLE>
<S> <C>
(a) 1. Index to Financial Statements:
Consolidated Balance Sheets as of December 31, 1999 and 1998.......................................31
Consolidated Statements of Income for the three years ended December 31, 1999......................32
Consolidated Statements of Changes in Stockholders' Equity for the three years ended
December 31, 1999.....................................................................33
Consolidated Statements of Cash Flows for the three years ended December 31, 1999..................34
Notes to Consolidated Financial Statements.........................................................35
Report of Independent Accountants..................................................................50
(a) 2. Financial Statement Schedule:
Schedule II-Valuation and Qualifying Accounts......................................................60
</TABLE>
All supplemental schedules other than as set forth above are omitted as
inapplicable or because the required information is included in the Consolidated
Financial Statements or the Notes to Consolidated Financial Statements.
(a) 3. Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Reference
----------- ---------
<S> <C> <C>
3.1 Amended and Restated Articles of Organization of the Company A**
3.2 Amended and Restated Bylaws of the Company A**
4.1 Specimen Certificate for Shares of the Company's Common Stock A**
4.2 Description of Capital Stock (contained in the Restated Articles of A**
Organization of the Company filed as Exhibit 3.1)
4.3 Form of warrants issued in connection with Paradigm Group H**
10.1 Agreement, dated January 17, 1994, between Roche Molecular Systems, Inc. and A**
the Company
10.2 Exclusive License Agreement, dated April 28, 1999, between the University of Filed herewith
North Carolina at Chapel Hill and the Company
10.3 Agreement, dated October 1, 1995, between Ajinomoto Co., Inc. and the Company A**
10.4 Lease Agreement, dated July 28, 1995, for New Britain, Connecticut Facility A**
between MB Associates and the Company
10.5 1987 Non-Qualified Stock Option Plan* A**
10.6 Employee Stock Option Plan* A**
10.7 1999 Non-Qualified Stock Option Plan* I**
10.8 1999 Employee Stock Purchase Plan* I**
10.9 Underwriters Warrants, each dated November 4, 1996, between the Company and B**
each of Oscar Gruss & Son Incorporated and Kaufman Bros., L.P.
</TABLE>
-54-
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Reference
----------- ---------
<S> <C> <C>
10.10 Commercial Loan Agreement, as of dated March 28, 1997, between The First C**
National Bank of Boston and the Company
10.11 Contract, dated March 1, 1997, between National Cancer Institute and the Company D**
10.12 Lease Agreement, dated May 16, 1997, for Gaithersburg, Maryland facility E**
between B.F. Saul Real Estate Investment Trust and the Company
10.13 Lease Agreement dated January 30, 1995 for Garden Grove, California facility F**
between TR Brell, Cal Corp. and Source Scientific, Inc., and Assignment of
Lease, dated July 2, 1997, for Garden Grove, California facility between Source
Scientific, Inc. and BBI Source Scientific
10.14 Contract, dated July 1, 1998, between the National Institutes of Health and G**
the Company (NO1-A1-85341)
10.15 Contract, dated July 1, 1998, between the National Heart Lung and Blood G**
Institute and the Company (NO1-HB-87144)
10.16 Line of Credit Agreement with BankBoston dated June 30, 1999 H**
10.17 Agreement with Paradigm Group for the purchase of warrants dated August 18, 1999 H**
10.18 Agreement with MDBio for the purchase of common stock and common stock Filed herewith
warrants, dated September 30, 1999
10.19 Lease Agreement dated September 30, 1999, for Frederick, Maryland facility, Filed herewith
between MIE Properties, Inc., and the Company.
10.20 Sponsored Research Agreement with the University of North Filed herewith
Carolina, Chapel Hill and the Company, dated, April 28, 1999 and the Company.
10.21 Repository Contract with National Institute of Allergy and Filed herewith
Infectious Disease, Division of AIDS (NO1-A1-95381), dated August 16, 1999.
21.1 Subsidiaries of the registrant Filed herewith
23 Consent of PricewaterhouseCoopers LLP Filed herewith
27 Financial Data Schedule Filed herewith
99 Audited Financial Statements of BioSeq, Inc., for the years ended December 31, Filed herewith
1997, 1996 and for the period October 17, 1994 (Date of Inception) to
December 31, 1997.
</TABLE>
A Incorporated by reference to the registrant's Registration Statement on
Form S-1 (Registration No. 333-10759) (the "Registration Statement"). The
number set forth herein is the number of the Exhibit in said Registration
Statement.
B Incorporated by reference to Exhibit No. 10.17 of the Registration
Statement.
C Incorporated by reference to the registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.
D Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1997.
E Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1997.
-55-
<PAGE>
F Incorporated by reference to the registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997.
G Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1998.
H Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1999.
I Incorporated by reference to the registrant's proxy statement, filed with
the Securities and Exchange Commission on June 14, 1999.
* Management contract or compensatory plan or arrangement.
** In accordance with Rule 12b-32 under the Securities Exchange Act of 1934,
as amended, reference is made to the documents previously filed with the
Securities and Exchange Commission, which documents are hereby
incorporated by reference.
(b) REPORTS ON FORM 8-K.
The Registrant did not file any Current Reports on Form 8-K
during the quarter ended December 31, 1999.
-56-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 15, 2000 Boston Biomedica, Inc.
By: _______________________
Richard T. Schumacher
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLES DATE
---------- ------ ----
<S> <C> <C>
Director and Principal March 28, 2000
----------------------------------- Executive Officer
Richard T. Schumacher
Director and Principal March 28, 2000
----------------------------------- Accounting and Financial Officer
Kevin W. Quinlan
Director March 28, 2000
-----------------------------------
Francis E. Capitanio
Director and Treasurer March 28, 2000
-----------------------------------
Dr. William R. Prather, MD.
Director March 28, 2000
-----------------------------------
Calvin A. Saravis, Ph.D.
</TABLE>
-57-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Reference
----------- ---------
<S> <C> <C>
3.1 Amended and Restated Articles of Organization of the Company A**
3.2 Amended and Restated Bylaws of the Company A**
4.1 Specimen Certificate for Shares of the Company's Common Stock A**
4.2 Description of Capital Stock (contained in the Restated Articles of A**
Organization of the Company filed as Exhibit 3.1)
4.3 Form of warrants issued in connection with Paradigm Group H**
10.1 Agreement, dated January 17, 1994, between Roche Molecular Systems, Inc. and A**
the Company
10.2 Exclusive License Agreement, dated April 28, 1999, between the University of Filed herewith
North Carolina at Chapel Hill and the Company
10.3 Agreement, dated October 1, 1995, between Ajinomoto Co., Inc. and the Company A**
10.4 Lease Agreement, dated July 28, 1995, for New Britain, Connecticut Facility A**
between MB Associates and the Company
10.5 1987 Non-Qualified Stock Option Plan* A**
10.6 Employee Stock Option Plan* A**
10.7 1999 Non-Qualified Stock Option Plan* I**
10.8 1999 Employee Stock Purchase Plan* I**
10.9 Underwriters Warrants, each dated November 4, 1996, between the Company and B**
each of Oscar Gruss & Son Incorporated and Kaufman Bros., L.P.
10.10 Commercial Loan Agreement, as of dated March 28, 1997, between The First C**
National Bank of Boston and the Company
10.11 Contract, dated March 1, 1997, between National Cancer Institute and the Company D**
10.12 Lease Agreement, dated May 16, 1997, for Gaithersburg, Maryland facility E**
between B.F. Saul Real Estate Investment Trust and the Company
10.13 Lease Agreement dated January 30, 1995 for Garden Grove, California facility F**
between TR Brell, Cal Corp. and Source Scientific, Inc., and Assignment of
Lease, dated July 2, 1997, for Garden Grove, California facility between Source
Scientific, Inc. and BBI Source Scientific
10.14 Contract, dated July 1, 1998, between the National Institutes of Health and G**
the Company (NO1-A1-85341)
10.15 Contract, dated July 1, 1998, between the National Heart Lung and Blood G**
Institute and the Company (NO1-HB-87144)
</TABLE>
-58-
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Reference
----------- ---------
<S> <C> <C>
10.16 Line of Credit Agreement with BankBoston dated June 30, 1999 H**
10.17 Agreement with Paradigm Group for the purchase of warrants dated August 18, 1999 H**
10.18 Agreement with MDBio for the purchase of common stock and common stock Filed herewith
warrants, dated September 30, 1999
10.19 Lease Agreement dated September 30, 1999, for Frederick, Maryland facility, Filed herewith
between MIE Properties, Inc., and the Company.
10.20 Sponsored Research Agreement with the University of North Filed herewith
Carolina, Chapel Hill and the Company, dated, April 28, 1999 and the Company.
10.21 Repository Contract with National Institute of Allergy and Filed herewith
Infectious Disease, Division of AIDS (NO1-A1-95381), dated August 16, 1999.
21.1 Subsidiaries of the registrant Filed herewith
23 Consent of PricewaterhouseCoopers LLP Filed herewith
27 Financial Data Schedule Filed herewith
99 Audited Financial Statements of BioSeq, Inc., for the years ended December 31, Filed herewith
1997, 1996 and for the period October 17, 1994 (Date of Inception) to
December 31, 1997.
</TABLE>
A Incorporated by reference to the registrant's Registration Statement on
Form S-1 (Registration No. 333-10759) (the "Registration Statement"). The
number set forth herein is the number of the Exhibit in said Registration
Statement.
B Incorporated by reference to Exhibit No. 10.17 of the Registration
Statement.
C Incorporated by reference to the registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996.
D Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1997.
E Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1997.
F Incorporated by reference to the registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997.
G Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1998.
H Incorporated by reference to the registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1999.
I Incorporated by reference to the registrant's proxy statement, filed with
the Securities and Exchange Commission on June 14, 1999.
* Management contract or compensatory plan or arrangement.
** In accordance with Rule 12b-32 under the Securities Exchange Act of 1934,
as amended, reference is made to the documents previously filed with the
Securities and Exchange Commission, which documents are hereby
incorporated by reference.
-59-
<PAGE>
SCHEDULE II
BOSTON BIOMEDICA, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Allowance for Doubtful Balance at
- ---------------------- Beginning of Balance at
Accounts Period Additions Recoveries Deductions End of Period
-------- ---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
1999 ................. $ 623,710 $ 419,524 $ 203,448 $ (499,885) $ 746,797
1998 ................. 446,517 429,036 126,658 (378,501) 623,710
1997 ................. 352,058 395,272 194,154 (494,967) 446,517
Inventory Reserve
1999 ................. $1,279,570 $ 644,174 $ -- $ (524,938) $1,398,806
1998 ................. 1,357,971 515,251 -- (593,652) 1,279,570
1997 ................. 513,524 953,740 -- (109,293) 1,357,971
</TABLE>
-60-
<PAGE>
Exhibit 10.2
LICENSE AGREEMENT
THIS LICENSE AGREEMENT, effective on the date of last signature below is between
THE UNIVERSITY OF NORTH CAROLINA AT CHAPEL HILL having an address at CB #4105,
308 Bynum Hall, Chapel Hill, NC (hereinafter referred to as "University") and
Boston Biomedica, Inc., a corporation organized and existing under the laws of
Massachusetts and having an address at 375 West Street, West Bridgewater, MA
02379, (hereinafter referred to as "Licensee").
WITNESSETH
WHEREAS, University owns and controls its share of the ownership
interest in the inventions listed in Appendix A (hereinafter "Inventions",
developed by the persons also listed in Appendix A [hereinafter "Inventors"] of
the University; and
WHEREAS, Licensee is desirous of producing, using and selling products
which include the use of Inventions and is willing to expend its best efforts
and resources to do so if it can obtain a license to use the Invention under the
terms and conditions set forth herein; and
WHEREAS, University and Licensee have already entered into a previous
license agreement, effective 14 December 1994, and wish for the present
Agreement to supersede the prior agreement in its entirety; and
WHEREAS, University desires to facilitate a timely transfer of its
information and technology concerning the Invention for the ultimate benefit of
the public and this transfer is best accomplished by the grant of this license;
and
WHEREAS, in the opinion of the University, this transfer can best be
accomplished consistent with its mission by affiliation with Licensee;
NOW, THEREFORE, for and in consideration of the covenants, conditions,
and undertakings hereinafter set forth, it is agreed by and between the parties
as follows:
I. DEFINITIONS
a. "University Technology" means any unpublished research and
development information, unpatented inventions, and technical data
in the possession of the University prior to the effective date of
the attached Sponsored Research Agreement or which comes into the
possession of University during the term of this Agreement, is not
covered under the Sponsored Research Agreement, and which relates
to and is necessary for the practice of the Invention and which
University has the right to provide to Licensee.
b. "Inventions" mean any process, machine, manufacture, composition
of matter or improvement thereof, which comes within the scope of
any unexpired claim of any of the Patents.
c. "Licensed Products" means any method, procedure, or component part
thereof whose manufacture, use, or sale includes any University
Technology, Patents, or Licensed Compounds in an individual
Licensed Field.
d. "Licensed Compounds" means any individual compounds included in
Inventions, University Technology, or Patents, or whose method,
procedure, or uses included in Licensed Products.
<PAGE>
e. "Patents" means any US patents and/or patent applications covering
Inventions owned or controlled in whole or in part by University
prior to or during the term of this Agreement and which University
has the right to provide its share to Licensee, as well as ay
continuations, continuations in part, divisionals, provisionals,
continued prosecution applications, extensions, or reissues
thereof, and any foreign counterpart of any of the foregoing. A
summary of current Patents is included as Appendix A herein.
f. "New Sales Price" means the invoiced sales price, less any charges
for (a) sales taxes or other taxes separately stated on the
invoice and (b) shipping and insurance charges.
g. "Net Sales" means the total New Sales Price of Licensed Products,
after deduction actual allowances for returned or defective goods,
less trade discounts, but before cash discounts. Licensed Products
will be considered sold when billed out, or when delivered or paid
for before delivery, whichever first occurs.
h. "Licensed Territory" means any countries which Licensee,
Affiliate, or Sublicensee practice or otherwise utilize the
Invention(s), University Technology, Licensed Products, or Patents
in a Licensed Field.
i. "Licensed Field" means, and is limited to, the practice of the
Inventions, University Technology, and Patents for the inhibition
of Human Immunodeficiency Virus (HIV) or other human exogenous
retroviruses, and one (1) additional virus or disease to be
selected by Licensee within two years after the effective date of
the Agreement. Additional Licensed Fields may be acquired by
Licensee pursuant to Article 3.3.
j. "Sublicensee" means an organization, which is not an Affiliate of
Licensee, to which Licensee has granted a sublicense to the
Inventions(s), University Technology, Licensed Products, or
Patents for the purpose of commercialization in an individual
Licensed Field.
k. "Affiliate" means any corporation or other business entity which
directly or indirectly controls, or is under common control of
Licensee. Control shall mean ownership or other beneficial
interest in 40% or more of the voting stock or other voting
interest of a corporation or other business entity.
l. "Patent Counsel" shall mean the patent law firm of Sterne,
Kessler, Goldstein, and Fox, LLC.
m. "Confidential Information" shall mean information considered
proprietary to the Party disclosing the information, and may
include information relating to: research, development, patent
prosecution and maintenance, manufacturing, purchasing,
accounting, engineering, marketing, merchandising or selling.
n. "Sublicense Income" shall mean all royalties, other payments, and
equity Licensee receives from Sublicensees, of which University is
owed a percentage. Sublicense Income shall specifically exclude
research funding.
o. "IND" shall mean in Investigational New Drug Application when in
the United States, or any foreign equivalent document that allows
the initiation of human clinical trials.
II. GRANT OF LICENSE AND TERM
a. University grants to Licensee, to the extent of the Licensed
Territory, a non-exclusive right and license to use University
Technology in each individual Licensed Field, subject to all the
terms and conditions of this Agreement.
<PAGE>
b. University grants to Licensee, to the extent of the Licensed
Territory, an exclusive license under the Patents to make, have
made, use and sell Licensed Products and Licensed Compounds
embodying the Inventions thereof in the Licensed Field, upon the
terms and conditions set forth herein.
c. University grants to Licensee, to the extent of the Licensed
Territory, the right to sublicense. Sublicensees shall be subject
to all the terms and conditions of this Agreement.
d. Any license granted herein excluding the grant in Article 2/1
above, is exclusive for a term beginning on the date of execution
of this Agreement and, unless terminated sooner as herein
provided, for the lives of such Patents.
e. Licensee shall not disclose any unpublished University Technology
furnished by University pursuant to Article 2.1 above to third
parties during the term of this agreement or any time thereafter;
provided, however, that disclosure may be made of any such
University Technology at any time; (1) with the prior written
consent of University, or (2) pursuant to Article 6.3 herein.
f. Licensee is further granted the right to disclose and use any
information pertaining to Inventions, University Technology,
Patents, Licensed Products, or Licensed Compounds in any
submission to local, state, federal or foreign governmental
agency, including, but not limited to, the US Food and Drug
Administration and the US Patent and Trademark Office.
g. Affiliate(s) shall, for the purposes of this Agreement, have the
same rights and responsibility to University Technology, Patents,
Licensed Compounds and Licensed Products as the Licensee. Use of
Licensed Products or sales of Licensed Compounds by Affiliates and
subsequent payments due University pursuant to Article III herein
shall be treated as if they were made by Licensee.
h. Notwithstanding the foregoing, any and all licenses granted
hereunder are subject to the rights of the United States
Government which arise out of its sponsorship of the research
which led to the Invention.
III. LICENSE FEE AND ROYALTIES
a. Licensee will pay a license fee in the form of payment of the
costs (including attorney's fees) arising out of the patenting of
the Inventions pursuant to Article XI of this Agreement. Payment
of Patenting costs shall be non-refundable and shall not be a
credit against any other amounts due hereunder.
b. Beginning on the effective date of this Agreement and continuing
for the life of this Agreement, Licensee will pay University a
running royalty on all of Licensee's Net Sales of the Licensed
Compound(s) or use of Licensed Products in each Licensed Field in
accordance with the chart below:
--------------------------------------------------------------
NET SALES OF LICENSED ROYALTY RATE
COMPOUND(S)
--------------------------------------------------------------
Less Than $50 million 4.0%
--------------------------------------------------------------
$50 million - $100 million 4.5%
--------------------------------------------------------------
Greater Than $100 million 5.0%
--------------------------------------------------------------
<PAGE>
a. Licensee may also select additional Licensed Fields in which to
practice University Technology, Licensed Products, Licensed
Compounds, or Patents. Selection of such Licensed Field must be
requested in writing and agreed upon by University. Licensee will
pay University a one-time fee of $20,000 for each additional
Licensed Field. For each new Licensed Field that Licensee funds
under Article 4.1 of the Sponsored Research Agreement, Licensee
shall instead pay University a one-time fee of $3,000. Such
payments shall be non-refundable and shall not be a credit against
any other amounts due hereunder.
b. (i) In the event any Licensed Compound in an individual Licensed
Field is sold as a component of a combination of two or more
active ingredients, where a license hereunder was not required for
all said active ingredients, Net Sales Price for purposes of
determining royalty payments on such combination shall be
calculated by multiplying the net sales price of the combination
by the fraction A/(A+B) in which "A" is the total of the gross
selling prices of the licensed active ingredients when sold
separately and "B" is the total of the gross selling prices of the
unlicensed active ingredients.
(ii) In the event that it is not possible to determine the gross
selling price for each ingredient, Net Sales Price shall be
calculated by multiplying the net sales price of the combination
by the fraction C/(C+D), in which "C" is the total of the direct
costs plus the direct overhead of the licensed active ingredients
and "D" that of the unlicensed active ingredients. The direct
costs plus the direct overhead of a component shall be determined
in accordance with generally acceptable cost accounting
principles.
(iii) Notwithstanding the above, in no event shall the New Sales
Price be adjusted to be less than forty percent (40%) of the net
sales price of any combination product prior to adjustment
pursuant to (i) and (ii) above, unless mutually agreed upon in
writing.
c. Beginning with the date of first commercial use of Licensed
Products or sales of Licensed Compounds in a Licensed Field,
Licensee agrees to make quarterly written reports to University
within 30 days after the first days of each January, April, July,
and October during the life of this Agreement and as of such
dates, stating in each such report the number, description, and
aggregate net Selling Prices of Licensed Compounds or use of
Licensed Products sold, used, or otherwise disposed of during the
preceding three calendar months and upon which royalty is payable
as provided in Article 3.2 or 4.2 hereof, as appropriate. The
first such report shall include all such use of Licensed Products
or sales of Licensed Compounds so sold, used, or otherwise
disposed of prior to the date of such report. Until Licensee has
achieved a first commercial use of Licensed Products or sales of
Licensed Compounds a report shall be submitted by Licensee at the
end of each January after the effective date of this Agreement and
will include a full written report describing Licensee's technical
and other efforts made towards such first commercial use of
Licensed Products or sales of Licensed Compounds under
development.
d. Concurrently with the making of each such report, Licensee shall
pay to the University royalties at the rate specified in Article
3.2 or 4.2, as appropriate, and any milestone payments as
specified in Article 3.7 or 4.2, as appropriate, of this Agreement
on each use of Licensed Products or sales of Licensed Compounds in
each individual Licensed Field included therein.
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
STAGE OF DEVELOPMENT MINIMUM PAYMENT DUE
-------------------------------------------------------------------------
<S> <C>
Upon filing the first IND for each Licensed $15,000
Product in an individual Licensed Field
-------------------------------------------------------------------------
Completion of a Phase II clinical trial for $15,000
each Licensed Product in an individual
Licensed Field
-------------------------------------------------------------------------
Upon filing an NDA (but not an ANDA) for each $50,000
Licensed Product in an individual Licensed
Field
-------------------------------------------------------------------------
Upon the first commercial sale for each $50,000
Licensed Product based on an approved NDA
(but not an ANDA) in an individual Licensed
Field
-------------------------------------------------------------------------
</TABLE>
a. Licensee will make milestone payments upon reaching the designated
sages of development listed in the table below. Payment shall be
the greater of the compensation due University pursuant to Article
4.2, or the amount listed in the table below.
b. In the event of default in payment of any payment owing to
University under the terms of this Agreement, and if it becomes
necessary for University to undertake legal action to collect said
payment, Licensee shall pay all legal fees and costs incurred by
University in connection therewith.
c. University may, by written notice to Licensee, terminate this
agreement during any April subsequent to the year 2002, if
Licensee has not performed good-faith development efforts towards
commercializing the Invention, and met the first Performance
Milestone as listed in Appendix B.
d. The Parties recognize that different Licensed Compounds may
contain the same active ingredients. A milestone payment is due
for a Licensed Compounds or Licensed Products in an individual
Licensed Field only if it contains an active ingredient which is
the subject of a separate independent claim in any patent
application in the Patents. For example, substitution of halogens,
chalcogens, or differing lengths of a hydrocarbon backbone shall
not be considered differentiated products.
e. Nothing in this Agreement shall be construed to require the
payment of more than one royalty with regard to the manufacture,
use, or sale of an individual Licensed Compounds or Licensed
Products in an individual Licensed Field.
IV. SUBLICENSES
a. Sublicensee may not further sublicense any rights it obtains
herein.
b. In the case of income derived by licensee from Sublinensee,
Licensee shall pay University a share of such sublicensing income,
whose share shall be in accordance with the following table:
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
STAGE OF DEVELOPMENT AT THE TIME % OF SUBLICENSING INCOME TO
OF SUBLICENSING UNIVERSITY
-------------------------------------------------------------------------------
<S> <C>
IND not filed on Licensed Product in an 50%
individual Licensed Field
-------------------------------------------------------------------------------
IND filed on Licensed Product in an 40%
individual Licensed Field, but Phase II
clinical trials are incomplete
-------------------------------------------------------------------------------
Phase II clinical trials completed, but 30%
before filing an NDA in an individual
Licensed Field
-------------------------------------------------------------------------------
NDA filed in an individual Licensed Field 25%
-------------------------------------------------------------------------------
</TABLE>
V. BEST EFFORTS
a. Licensee shall use its best efforts to proceed diligently with the
development, manufacture and sale of Licensed Compounds and use of
Licensed Products either directly or through a Sublicensee and
shall earnestly and diligently offer and continue to offer for
sale such use of Licensed Products or sales of Licensed Compounds,
both under reasonable conditions, during the period of this
Agreement.
b. In particular, Licensee will use its best efforts to meet the
performance milestones set forth in Appendix B, which is attached
hereto. In the event that Licensee fails to meet these Performance
Milestones for a Licensed Product or Licensed Compound, Licensee
shall, following written notice from the University, have six
months to designate a related Licensed Product or Licensed
Compound for development. Development of this related Licensed
Product or Licensed Compound will be subject to the original time
constraints and performance Milestones of the original Licensed
Product or Licensed Compound.
Example: A Licensed Product or Licensed Compound is
being developed by Licensee who, according
to Appendix B, is required to file an IND by
January 1, 2002. IF the original Licensed
Product or Licensed Compound is replaced
during the development cycle by a related
Licensed Product or Licensed Compound, that
related compound must be the subject of an
IND filed by January 1, 2002 to meet the
Performance Milestone.
If Licensee does not so designate, this Agreement shall terminate
in accordance with Article VII herein only for that Licensed
Compound or Licensed Product which is no longer being developed by
Licensee.
c. After two years have elapsed from the effective date of this
Agreement, University may notify Licensee, in writing, that it
desires an IND to be filed for a Licensed Product or Licensed
Compound which University has provided to Licensee for testing.
Licensee will have six months from such notice to file an IND or
have its license terminated as to the designated Licensed Product
or Licensed Compound. University cannot designate more than three
Licensed Products or Licensed Compounds for IND filing within a
six month period. When the Licensed Products or Licensed Compounds
are in the Licensed Field of "an additional virus or disease" or a
new Licensed Field as defined under Article 1.9 herein, such
notification may be no earlier than two years after the date of
written selection of the new Licensed Field(s) by Licensee.
<PAGE>
d. In the event that the Performance Milestones in Appendix B are not
met in one or more countries or if Licensee does not proceed
diligently with the development, manufacture, and sale of Licensed
Compounds and Licensed Products, Licensee may extend any
individual deadline for a period of six months upon payment of
$20,000 to University. Up to two (2) extensions, each requiring
payment, may be obtained for any individual milestone, however,
only three (3) total extensions may be obtained under Appendix B
in its entirety.
e. If Licensee exhausts all extensions as set forth in Article 5.4
above, and still cannot meet the obligations outlined in Appendix
B, University may terminate this agreement pursuant to Article VII
of this Agreement.
VI. DISCLOSURE AND CONFIDENTIALITY
a. Information disclosed by one Party ("Disclosing Party") to the
other Party ("Receiving Party") to be considered Confidential
Information shall be clearly marked "CONFIDENTIAL" on the first
page of such written disclosure.
b. Receiving Party agrees that all Confidential Information received
under this Agreement shall be maintained in confidence for a
period of five (5) years from the termination date of this
Agreement, and further agrees not to use such Confidential
Information for any purpose other than upholding the obligations
of this Agreement without the prior written consent of Disclosing
Party. Receiving Party shall use the same standard of care to
protect the confidentiality of information received under this
Agreement as it uses to protect its own Confidential Information,
and shall limit disclosure of such information to those of its
employees who have an actual need to know and who have a written
obligation, or are subject to applicable University policies, to
protect the confidentiality of such information which is
substantially the same as the agreement contained herein.
c. Notwithstanding Article 6.2, the obligations of the Receiving
Party regarding confidentiality and use of Confidential
Information disclosed hereunder shall not include:
XXVIII. information which, at the time of disclosure, was
published, known publicly, or otherwise in the
public domain;
XXIX. information which, after disclosure, is
published, becomes known publicly, or otherwise
becomes part of the public domain through no
fault of the Receiving Party of Affiliates;
XXX. information which the Receiving Party can
establish was in its possession prior to the time
of disclosure;
XXXI. information which, after disclosure, is made
available to Receiving Party in good faith by a
third party under no obligation in
confidentiality to university; or;
XXXII. information which either party is required by law
to disclose.
VII. CANCELLATION OR TERMINATION BY UNIVERSITY
a. It is expressly agreed that, notwithstanding the provisions of any
other Article of this contract, if Licensee should fail to deliver
to University ay payment, royalty, or equity at the time or times
that the same should be due to University or if Licensee should in
any material respect violate of fail to keep or perform any
covenant, condition, or undertaking of this Agreement on its part
to be kept or performed hereunder, then the University, by written
notice to Licensee, shall have the right to cancel and terminate
the license granted to Licensee under Article II herein. Licensee
shall have the opportunity to cure any such breach described in
University's written notice with 30 days of receipt. Licensee's
right to cure a breach will apply only to the first two breaches
properly noticed under terms of this Agreement,
<PAGE>
regardless of the nature of those breaches. Any subsequent breach
by Licensee will entitle University to terminate this Agreement
upon proper notice at University's sole discretion.
b. Alternatively, should Licensee be in breach or default as set
forth above, and should University be in a position where it could
rightfully terminate this Agreement, then in its sole discretion,
University may convert this exclusive license to a non-exclusive
license upon giving notice of such decision to Licensee.
c. If Licensee should be adjudged bankrupt or enter into a
composition with or assignment to its creditors, then in such
event University shall have the right to cancel and terminate this
Agreement, and the license herein provided for, by written notice
to Licensee.
d. Any termination or cancellation under any provision of this
Agreement shall not relieve Licensee of its obligation to pay any
royalty or other fees (including attorney's fees pursuant to
Article 3.1 hereof) due or owing at the time of such cancellation
or termination.
VIII. DISPOSITION OF LICENSED PRODUCTS ON HAND UPON CANCELLATION OR
TERMINATION
Upon cancellation of this Agreement or upon termination in whole
or in part, Licensee shall provide University with a written
inventory of all University Technology and Licensed Products in
process of manufacture, in use or in stock. Except with respect to
termination pursuant to Article 5.1, Licensee shall have the
privilege of disposing of the inventory of such Licensed Products
within a period of one hundred and eighty (180) days of such
termination upon conditions most favorable to University that
Licensee can reasonable obtain. Licensee will also have the right
to complete performance of all contracts requiring use of the
University Technology, Patents (except in the case of termination
pursuant to Article 5.1) or Licensed Products within and beyond
said 180-day period provided that the remaining term of any such
contract does not exceed one year. All Licensed Products which are
not disposed of as provided above shall be delivered to University
or otherwise disposed of, in University's sole discretion, and at
Licensee's sole expense.
VIII. USE OF UNIVERSITY'S NAME
The use of the name of University, or any contraction thereof, in
any manner in connection with the exercise of this license is
expressly prohibited except with prior written consent of
University.
IX. UNIVERSITY USE
It is expressly agreed that, notwithstanding any provisions
herein, University is free to use University Technology, Patents,
Licensed Compounds and Licensed Products for its own research,
public service, clinical, teaching and educational purposes
without payment of royalties. Furthermore, University shall be
free to publish University Technology, as it sees fit.
X. PATENTS AND INFRINGEMENTS
a. Patent Counsel may be changed by University or Licensee at any
time at the sole discretion of either Party. If a party suggests
changing Patent Counsel, the other Party shall have thirty (30)
days to accept or reject this change. In the event that a party
disagrees with a decision by the other party to change Patent
Counsel, the Parties agree to search for new, mutually acceptable
counsel.
<PAGE>
b. Licensee shall bear the cost of filing, prosecuting, and
maintaining all United States and foreign patent applications and
issued patents included within the Patents, and any interferences
related to the Patents. Such filings and prosecution shall be by
mutually agreed upon counsel. Where they are based on joint
inventions, the filings shall be in the name of the University and
Licensee. In the case of joint ownership, Licensee shall obtain a
letter from Patent Counsel stating the University is the assignee
of its share in such Patents, and such letter will state that both
University and Licensee have equal ownership rights in the
Patents. Patent Counsel will keep University and Licensee advised
of the prosecution of such applications by forwarding copies of
all official correspondence, (including, but not limited to,
Applications, Office Actions, responses, etc.) relating thereto.
University shall have the right to have all draft applications and
responses to Office Actions reviewed by patent counsel of the
University's choosing any may make reasonable requests and
suggestions as to the conduct of such prosecution.
c. As regards filing of foreign patent applications corresponding to
the US applications described in Article 11.2 above, Licensee
shall designate that country or those countries, if any, in which
Licensee shall pay all costs and legal fees associated with the
preparation, filing, and maintenance of such designated foreign
patent applications and, where they are based on joint inventions,
such applications shall be in the name of both the University and
Licensee. University may elect to file corresponding patent
applications in countries other than those designated by Licensee,
but in that event University shall be responsible for all costs
associated with such non-designated filings. In such event,
Licensee shall forfeit its rights under this license, and assign
all rights in joint inventions to the University, in the
country(ies) (hereinafter "Alternate Country") where University
exercises its option to file such corresponding patent
applications.
Royalty income University receives from use of Licensed Products
or sales of Licensed Compounds in Alternate Countries shall be
shared with Licensee in accordance with the table in Article 4.2
herein. Licensee may regain its rights in Alternate Countries by
reimbursing University for all costs and legal fees associated
with patent prosecution in said countries. In addition, Licensee
must pay University compensation as described below, to regain its
rights in any Alternate Country provided University has not
exclusively licensed its rights in these countries to a third
party.
--------------------------------------------------------------------
COUNTRY COMPENSATION
--------------------------------------------------------------------
United States $50,000
--------------------------------------------------------------------
EPO member countries, Canada, Japan $20,000
--------------------------------------------------------------------
Any other country $10,000
--------------------------------------------------------------------
a. University will provide Licensee, in a timely manner, all
information in its possession or control which might effect the
Inventions, University Technology, or Patents. University will
promptly provide Patent Counsel with a copy of any legal opinion
it receives or has received regarding the patentability of any
Invention, University Technology, or Patents, and agrees to
cooperate with Licensee and patent Counsel to whatever extent is
reasonable and necessary to obtain patent protection of any
rights, including agreeing to execute any and all documents to
provide licensee the benefits of the licenses granted herein.
<PAGE>
b. If the production, sale or use of Licensed Products under this
Agreement by Licensee results in any claim for patent infringement
against Licensee, Licensee shall promptly notify the University
thereof in writing, setting forth the facts of such claim in
reasonable detail. As between the parties to this Agreement,
Licensee shall have the first and primary right and responsibility
at its own expense to defend and control the defense of any such
claim against Licensee, by counsel of its own choice. It is
understood that any settlement of such actions must be approved by
University. Such approval shall not be unreasonably withheld.
University agrees to cooperate with Licensee in any reasonable
manner deemed by Licensee to be necessary in defending any such
action. Licensee shall reimburse University for any out of pocket
expenses incurred in providing such assistance.
c. In the event that any Patents licensed to Licensee are infringed
by a third party, Licensee shall have the primary right, but not
the obligation, to institute, prosecute and control any action or
proceeding with respect to such infringement, by counsel of its
choice, including any declaratory judgment action arising from
such infringement. Proceeds from any settlement, after deduction
for Licensee's or University's legal fees actually incurred, shall
be treated as sales of Licensed Compounds.
d. Notwithstanding the foregoing, and in University's sold
discretion, University shall be entitled to participate through
counsel of its own choosing in any legal action involving the
Invention. Nothing in the foregoing sections shall be construed in
any way which would limit the authority of the Attorney General of
North Carolina.
XII. WAIVER
e. The University represents, and covenants, as follows:
i. It has the full right, power, and authority to
enter into this Agreement and to perform all of
its obligations hereunder.
ii. The execution and delivery of this Agreement and
the consummation of the transaction contemplated
by this Agreement do not violate, conflict with,
or constitute a default under the University's
Charter or the terms and provisions of any
material or other instrument to which the
University is a party or by which it is bound, or
any material order, award, judgment or decree to
which the University is a party or by which it is
bound, or any state or federal law governing
University activities.
iii. Upon execution and delivery, this Agreement will
constitute the legal, valid and binding
obligation of the University enforceable against
the University in accordance with its terms.
iv. To the best of the knowledge and belief of the
University and Dr. Kuo-Hsiung Lee, no employee o
the University who has performed any work in
connection with the University Technology,
Patents, Licensed Compounds, and Licensed
Products is in violation of any term of any
employment or consulting contract or agreement,
non-disclosure or confidentiality agreement,
non-competitive agreement, or any other common
law obligation to a former or preformed
hereunder.
v. Subject to the rights held by the U.S. Government
under Public Law 96-517, as amended, and the
implementing regulations, and to such rights as
may be held by Licensee, the University is the
owner of all rights to the University Technology,
and its share of the title and interest in
Patents, Licensed Compounds, and Licensed
Products. Also subject to the aforementioned
rights of the U.S. Government, the University has
the sole and complete authority to issue and
grant to Licensee the exclusive license granted
<PAGE>
hereunder, free and clear of any claims, liens,
encumbrances or charges of any third party.
vi. The University has no knowledge of any potential
infringement action or claim relating to the
University Technology, Patents, Licensed
Compounds and Licensed Products and has no
knowledge of any infringement, or breach of any
agreement or of any facts that might reasonably
lead to any claim of infringement or breach of
any agreement relating to any patent, patent
right, patentable invention, patent application,
trade secret or other proprietary right of any
third party relating to the University's use or
ownership of the University Technology, Patents,
Licensed Compounds, and Licensed Products or
Licensee's license to the University Technology,
Patents, Licensed Compounds, and Licensed
Products. However, University has done no
searching regarding possible pr potential
infringement actions or claims.
vii. The University has taken all steps within its
power which under Public Law96-517, as amended,
were necessary as of the date of execution of
this Agreement, for the University to retain
title to the fullest extent permitted by law in
any of University Technology, Patents, Licensed
Compounds and Licensed Products.
f. To the extent that rights granted by the University to Licensee
under this Agreement, are subject to the requirements of Public
Law 96-517, as amended, and its implementing regulations, the
University agrees that it will take all steps within its power to
retain title, to the fullest extent permitted by law, to the
University Technology, Patents, Licensed Compounds, and Licensed
Products in the United States and in any foreign country
designated by licensee for the duration of this license.
g. The University and its Inventor(s) will promptly disclose to the
designated Patent Counsel of Licensee all information which is or
could be material to the patentability, enforceability or validity
of any application of patent included in University Technology,
Patents, Licensed Compounds, and Licensed Products.
h. In the event that the University discovers that an interesting an
Invention is not held by either the University or by Licensee (or
its employees), it shall promptly notify the Licensee. The
University may, at its option, acquire such interest at its own
expense, or invite the Licensee to acquire said interest. In the
latter case, the cost to the Licensee of acquiring said interest
may be applied as a credit.
i. It is agreed that no waiver by either Party hereto of any breach
or default of any of the covenants or agreements herein set forth
shall be deemed a waiver as to any subsequent and/or similar
breach or default.
XIII. LICENSE RESTRICTIONS
It is agreed that the rights and privileges granted to Licensee
are each and all expressly conditioned upon the faithful
performance on the part of the Licensee of every requirement
herein contained, and that each of such conditions and
requirements may be and the same are specific license
restrictions.
XIV. ASSIGNMENTS
This Agreement is binding upon and shall inure to the benefit of
the University, its successors and assigns. This Agreement may be
assigned by the Licensee to a company formed by the Licensee in
part for the purpose of developing products within the Licensed
Field(s) of this Agreement (hereinafter, "New Company" and in
which the licensee has at least 40%
<PAGE>
ownership at the time of assignment or another percent ownership
interest agreed upon in writing by the Parties. However, this
Agreement shall not be assignable by Licensee to any entity other
than the new Company without the written consent of University,
which consent shall not be withheld unreasonably.
XV. INDEMNITY
Licensee agrees to indemnify, hold harmless and defend University,
its officers, employees, and agents, against any and all claims,
suits, losses, damage, costs, fees, and expenses asserted by third
parties, both government and private, resulting from or arising
out of the exercise of this license.
XVI. INSURANCE
Licensee is required to maintain in force at its sole cost and
expense, with reputable insurance companies, general liability
insurance and products liability insurance coverage in an amount
reasonably sufficient to protect against liability under Article
XV, above. The University shall have the right to ascertain from
time to time that such coverage exists, such right to be exercised
in a reasonable manner.
XVII. INDEPENDENT CONTRACTOR STATUS
Neither Party hereto is an agent of the other for any purpose.
XVIII. LATE PAYMENTS
In the event that any payment due hereunder is not made when due,
the payment shall accrue interest beginning on the tenth day
following the due date thereof, calculated at the annual rate of
the sum of (a) five percent (5%) plus (b) the prime interest rate
quoted by The Wall Street Journal [Midwest Edition] on the date
said payment was due. The interest shall be compounded on the last
day of each calendar quarter provided, however, that in no event
shall said annual interest rate exceed the maximum legal interest
rate for corporations. Each such royalty payment, when paid, shall
be accompanied by all accrued interest.
XIX. WARRANTIES
University makes no warranties that any patent will issue on
University Technology or Inventions. University Further makes no
warranties, express or implied as to any matter whatsoever,
including, without limitation, the condition of any Inventions,
Patents, Licensed Compounds or Licensed Products that are the
subject of this Agreement; or the merchantability or fitness for a
particular purpose of any such Inventions, Licensed Compounds or
Licensed Products. University shall not be liable for any direct,
consequential, or other damages suffered by Licensee or any others
resulting from the use of the Inventions, Licensed Compounds,
Licensed Products, or Patents.
XX. ACCOUNTING AND RECORDS
j. Licensee will keep complete, true and accurate books of account
and records for the purpose of showing the derivation of amounts
payable to University under this Agreement. Such books and records
will be kept at Licensee's principal place of business for at
least three (3) years following the end of the calendar quarter to
which they pertain, and will be open at all reasonable times for
inspection by a representative of University for the purpose of
verifying Licensee's royalty statements, or Licensee's compliance
in other respects with this Agreement. The representative will be
obliged to treat as confidential all relevant matters.
<PAGE>
k. Such inspections shall be at the expense of University, unless a
variation or error resulting from an underpayment to University
and exceeding US $1,000, or the equivalent, is discovered in the
course of any such inspection, whereupon all costs relating
thereto would be paid by Licensee.
l. Licensee will promptly pay to University the full amount of any
underpayment, along with interest calculated at the annual rate of
the sum of (a) five percent (5%) plus (b) the prime interest rate
quoted by The Wall State Journal [Midwest Edition] on the date
said payment was due. The interest shall be compounded on the last
day of each calendar quarter provided, however, that in no event
shall said annual interest rate exceed the maximum legal interest
rate for corporations.
XXI. COMPLIANCE WITH LAWS
In exercising its rights under this license, Licensee shall fully
comply with the requirements of any and all applicable laws,
regulations, rules and orders of any governmental body having
jurisdiction over the exercise of rights under this license.
Licensee further agrees to indemnify and hold University harmless
from and against any costs, expenses, attorney's fees, citation,
fine, penalty and liability of every kind and nature which might
be imposed by reason of any asserted or established violation of
any such laws, order, rules and/or regulations.
XXII. US MANUFACTURE
It is agreed that any Licensed Products sold in the United Sates
shall be substantially manufactured in the United States.
XXIII. NOTICES
Any notice required or permitted to be given to the parties hereto
shall be deemed to have been properly given if delivered in person
or mailed by first class certified mail to the other Party at the
appropriate address as set forth below or to such other addresses
as may be designated in writing by the parties from time to time
during the term of this Agreement.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
UNIVERSITY LICENSEE
-----------------------------------------------------------------------------------
<S> <C>
Francis J. Meyer, Ph.D Richard T. Schumacher
-----------------------------------------------------------------------------------
Associate Vice Provost President and CEO
-----------------------------------------------------------------------------------
Office of Technology Development Boston Biomedica, Inc.
-----------------------------------------------------------------------------------
The University of North Carolina at Chapel Hill 375 West Street
-----------------------------------------------------------------------------------
CB #4105, 308 Bynum Hall West Bridgewater, MA 02379
-----------------------------------------------------------------------------------
Chapel Hill, NC 27599-4105
-----------------------------------------------------------------------------------
</TABLE>
XXIV. SEVERABILITY
In the event that a court of competent jurisdiction holds any
provision of this Agreement to be invalid, such holding shall have
o effect on the remaining provisions of this Agreement, and they
shall continue in full force and effect.
XXVII. SURVIVAL OF TERMS
The provisions of Articles 6,7,8,9,13,14,17,18,19,21,22, and 23
shall survive the expiration or termination of this Agreement.
<PAGE>
IN WITNESS WHEREOF, both University and Licensee have executed this
Agreement, in duplicate originals, by their respective officers hereunto
duly authorized, the day and year of last signature below. Inventor has
likewise indicated his acceptance of the terms hereof by signing below.
THE UNIVERSITY OF NORTH CAROLINA BOSTON BIOMEDICA, INC.
AT CHAPEL HILL
-------------------------------- --------------------------------
Francis J. Meyer, Ph.D. Richard T. Schumacher
Associate Vice Provost President and CEO
Technology Development
Date: _________________________ Date: _________________________
INVENTOR
--------------------------------
Dr. Kuo-Hsiung Lee
Date: _________________________
<PAGE>
Appendix A
Inventions, Inventors, and Patent Rights
----------------------------------------
Status of Patent Portfolio for BBI/K.H. Lee Collaboration
April 1999
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
SKG7F Ref. Serial No./ Filing Continuation Named Inventors Subject Matter / Status
UNC Ref. Patent No. Date/ Date [affiliation]
Issue Date
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1589.0030000 Appl. No. 10/29/93 Lee, Kuo-Hsiung [UNC] SUKSDORFIN ANALOGS,
ORS 93-16 08-142,992 Cosentino, Mark [BBI] COMPOSITIONS THEREOF AND METHODS FOR
Manak, Mark [BBI MAKING AND USING THEREOF INCLUDING
Snider, Jim [BBI] TREATMENT OF RETRO VIRAL RELATED
Li, Huang [UNC] PATHOLOGIES
Thomas, Lee [UNC]
Kashiwada, Yoshiki * Abandoned in favor of 1589.0030001
[UNC]
------------------------------------------------------------------------------------------------------------------------------
1589.0030001 Appl. No. 4/24/94 CIP of Same as the .0030000 SUKSDORGIN ANALOGS, COMPOSITIONS
ORS 93-16 08/235,852 08/142,992 THEREOF AND METHODS FOR MAKING AND
USING THEREOF INCLUDING TREATMENT OF
RETRO VIRAL RELATED PATHOLOGIES
* Abandoned (claims prosecuted in
1589.0030003)
* Stat. Bar 11/21/95 missed.
(Response to Restriction Requirement)
------------------------------------------------------------------------------------------------------------------------------
1589-003PC01 Appl. No. 11/1/94 Related to Same as the .0030000 KHELLACTONE DERIVATIVES AND RELATED
ORS 93-16 PCT/US94/12630 08/235,852 COMPOUNDS, PROCESS FOR THEIR
WO 95/29920 PREPARATION AND THEIR USE AS
ANTIVIRAL AND IMMUNOSTIMULATING AGENTS
* Abandoned, did enter national Phase
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Appendix A
Inventions, Inventors, and Patent Rights
----------------------------------------
Status of Patent Portfolio for BBI/K.H. Lee Collaboration
April 1999
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
SKG7F Ref. Serial No./ Filing Date/ Continuation Named Inventors Subject Matter / Status
UNC Ref. Patent No. Issue Date Date [affiliation]
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1589.0030002 Appl. No. 02/21/95 CIP of Lee, Kuo-Hsiung SUKSDORFIN ANALOGS,
ORS 93-16 08/392,558 08/235,852; Cosentino, Mark COMPOSITIONS THEREOF AND METHODS FOR
Patent No. 06/10/97 which is a CIP Snider, Jim MAKING AND USING THEREOF
5,637,589 of 08/142,992 Li, Huang
Thomas, Lee * Claims to lactam derivatives,
Kashiwada, Yoshiki Formula III,
where X is NH.
* Maintenance Fees Due:
1st - 12/10/00
2nd - 12/10/04
3rd - 12/10/08
------------------------------------------------------------------------------------------------------------------------------
1589-0030003 Appl. No. 06/05/95 CON of Xie, Lan [UNC] SUKSDORGIN ANALOGS, COMPOSITIONS
ORS 93-16 08/462,280 03/10/98 08/392,558; Snider, Jim THEREOF AND METHODS FOR MAKING AND
Patent No. which is a Li, Huang USING THEREOF
5,726,204. CIP of Thomas, Lee
08/235,852; Kashiwada, Yoshiki * Claims to lactone derivatives,
which is a Lee, Kuo-Hsiung Formula I and Formula III, where X is
CIP of Cosentino, Mark NH.
08/142,992 * Maintenance Fees Due:
1st - 09/10/01
2nd - 09/10/05
3rd - 09/10/09
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Appendix A
Inventions, Inventors, and Patent Rights
----------------------------------------
Status of Patent Portfolio for BBI/K.H. Lee Collaboration
April 1999
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
SKG7F Ref. Serial No./ Filing Date/ Continuation Named Inventors Subject Matter / Status
UNC Ref. Patent No. Issue Date Date [affiliation]
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1589.0030004 Appl. No. 02/21/96 CON of Lee, Kuo-Hsiung SUKSDORFIN ANALOGS,
ORS 93-16 08/604,305 08/462,280 Cosentino, Mark COMPOSITIONS THEREOF AND METHODS FOR
12/08/98 which is CON Xie, Lan MAKING AND USING THEREOF
of 08/392,558 Manak, Mark
* Claims to asymmetric synthesis of
suksdorfin analogs.
* Maintenance Fees Due:
1st - 12/10/01
2nd - 12/08/05
3rd - 12/08/09
------------------------------------------------------------------------------------------------------------------------------
1589.0030005 Appl. No. 12/08/98 CON of Lee, Kuo-Hsiung SUKSDORGIN ANALOGS, COMPOSITIONS
ORS 93-16 09/207,500 08/604,305, Cosentino, Mark THEREOF AND METHODS FOR MAKING AND
which is CON Xie, Lan USING THEREOF
of 08/462,280, Manak, Mark
which is CON Snider, Jim * Declaration Filed 02/28/99
of 08/392,558 Li, Huang * Notice to File Missing Parts filed
Thomas, Lee 02/28/99
Kashiwada, Yoshiki * Information Disclosure Statement
03/08/99
* Stat bar 7/30/99
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Appendix A
Inventions, Inventors, and Patent Rights
Status of Patent Portfolio for BBI/K.H. Lee Collaboration
April 1999
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
SKG7F Ref. Serial No./ Filing Date/ Continuation Named Inventors Subject Matter / Status
UNC Ref. Patent No. Issue Date Date [affiliation]
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1589.003PC04 Appl. No. 02/21/96 Claims benefit Same as the .0030005 SUKSDORFIN ANALOGS, COMPOSITIONS
OTD 93-16 PCT/US96/02441 of Appl. No. THEREOF, AND METHODS FOR MAKING AND
08/392,558 USING THEREOF
* National Phase entered in Canada
and Europe
* Petition for examination due
02/21/03
------------------------------------------------------------------------------------------------------------------------------
1589-003CA04 Appl. No. 02/21/96 National Phase SUKSDORFIN ANALOGS, COMPOSITIONS
ORS 93-16 2,213,519 of THEREOF, AND METHODS FOR MAKING AND
PCT/US96/2441 USING THEROF
* national application filed 08/21/97
* petition for examination due 2/21/03
------------------------------------------------------------------------------------------------------------------------------
1589.003EP04 Appl. No. 02/21/96 National Phase SUKSDORFIN ANALOGS, COMPOSITIONS
ORS 93-16 96906599.4 of THEREOF, AND METHODS FOR MAKING AND
PCT/US96/02441 USING THEREOF
* National application filed and
examination requested 09/19/97
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Appendix A
Inventions, Inventors, and Patent Rights
----------------------------------------
Status of Patent Portfolio for BBI/K.H. Lee Collaboration
April 1999
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
SKG7F Ref. Serial No./ Filing Date/ Continuation Named Inventors Subject Matter / Status
UNC Ref. Patent No. Issue Date Date [affiliation]
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1589.0040000 Appl. No. 06/05/95 Cosentino, Louis BETULINIC ACID AND DIHYDROBETULINIC
ORS 95-25 08/463,071 10/21/97 Lee,Kuo-Hsiung ACID DERIVATIVES AND USES THEREFOR
Patent No. Manak, Mark
5,679,828 Kashiwada, Yoshiki * Maintenance Fees Due:
Fumio, Hashimoto 1st - 04/21/01
[UNC] 2nd - 04/21/05
3rd - 04/21/09
------------------------------------------------------------------------------------------------------------------------------
1589.004PC00 Appl. No. 06/05/96 Priority to Same as the .0040000 BETULINIC ACID AND DIHYDROBETULINIC
ORS 95-25 PCT/US96/09485 U.S. ACID DERIVATIVES AND USES THEREFOR
08/463,071
* national Phase entered in Canada
and EPO
------------------------------------------------------------------------------------------------------------------------------
1589.004CA00 Appl. No. 06/05/96 National Phase Same as the .0040000 BETULINIC ACID AND DIHYDROBETULINIC
ORS 95-25 2,223,513 of ACID DERIVATIVES AND USES THEREFOR
PCT/US96/09485
* National application filed 11/20/97
* Petition for examination due 06/05/03
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Appendix A
Inventions, Inventors, and Patent Rights
----------------------------------------
Status of Patent Portfolio for BBI/K.H. Lee Collaboration
April 1999
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
SKG7F Ref. Serial No./ Filing Date/ Continuation Named Inventors Subject Matter / Status
UNC Ref. Patent No. Issue Date Date [affiliation]
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1589-004EP00 Appl. No. 06/05/96 National Phase Same as the .0040000 BETULINIC ACID AND DIHYDROBETULINIC
OTD 95-25 96922408.8 of ACID DERIVATIVES AND USES THEREFOR
PCT/US96/09485
* national application filed and
examination requested - 12/08/97
* Not filing in Hong Kong - 02/12/99
------------------------------------------------------------------------------------------------------------------------------
1589-0050000 Appl. No. 06/0795 Claims Manak, Mark BROMINATED HEXAHYDROXYBIPHENYL
ORS 92-34 08/477,939 03/18/97 Priority to Kashiwada, Yoshiki DERIVATIVES
Patent No. U.S. 08/477,939 Cosentino. Louis
5,612,341 Lee, Kuo-Hsiung * Maintenance Fees Due:
Xie, Lan 1st - 09/18/00
Yung-Chi, Cheng [UNC] 2nd - 09/18/04
Xie, Jing-Xi [UNC] 3rd - 09/18/08
Kilkulskie, Robert
[UNC]
------------------------------------------------------------------------------------------------------------------------------
1589-005PC01 Appl. No. 06/07/96 National Phase Same as the .0050000 BROMINATED DEXAHYDROXYBIPHENYL
PCT/US96/10080 of DERIVATIVES
PCT/US96/10080
* National Phase entered in Canada
and Europe
------------------------------------------------------------------------------------------------------------------------------
1589.05CA01 Appl. No. 06/07/96 National Phase Same as the .0050000 BROMINATED HEXAHYDROXYBIPHENYL
2,223,898 of DERIVATIVES
PCT/US96/10080
* National application filed 11/21/97
* petition for examination due 6/7/03
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Appendix A
Inventions, Inventors, and Patent Rights
----------------------------------------
Status of Patent Portfolio for BBI/K.H. Lee Collaboration
April 1999
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
SKG7F Ref. Serial No./ Filing Date/ Continuation Named Inventors Subject Matter / Status
UNC Ref. Patent No. Issue Date Date [affiliation]
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1589.005EP00 Appl. No. 06/07/96 Same as the .0050000 BROMINATED HEXAHYDROXYBIPHENYL
96921528.4 DERIVATIVES
* national application filed and
examination requested - 12/05/97
------------------------------------------------------------------------------------------------------------------------------
1589.0110000 Appl. No. 03/02/98 Provisional Cosentino, Louis ACYLATED BETULIN AND DIHYDROBETULIN
OTD 99-95 60/076,449 Application Lee, Kuo-Hsiung DERIVATIVES, PREPARATION THEREOF AND
Sun, I-Chen [UNC] USE THEREOF
Wang, Hui-Kang [UNC]
* filed non-provisional and foreign
(PCT) on 03/02/99
------------------------------------------------------------------------------------------------------------------------------
1589.0110001 TBA 03/02/99 Claims Same as the .0110000 ACYLATED BETULIN AND DIHYDROBETULIN
Priority to DERIVATIVES, PREPARATION THEREOF AND
Appl. No. USE THEREOF
60/076,449
------------------------------------------------------------------------------------------------------------------------------
1589.011PC01 TBA 03/02/99 Claims Same as the .0110000 ACYLATED BETULIN AND DIHYDROBETULIN
Priority to DERIVATIVES, PREPARATION THEREOF AND
Appl. No. USE THEREOF
60/076,449
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Appendix B
PERFORMANCE MILESTONES FOR EACH LICENSED COMOUNDS
-------------------------------------------------
BEING DEVELOPED IN AN INDIVIDUAL LICENSED FIELD
-----------------------------------------------
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
MILESTONE TIMEFRAME
-----------------------------------------------------------------------
<S> <C>
IND Filed Two years
after the
Effective Date of
this Agreement, or
designation by
Licensee in
accordance with
Article 1.9 herein
-----------------------------------------------------------------------
NDA filed Seven years after filing an IND
-----------------------------------------------------------------------
NDA approval Two years after filing an NDA
-----------------------------------------------------------------------
First sale of Licensed Product One year after NDA approval
-----------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 10.18
MdBio
GMP Manufacturing Incentive Program
AWARD, STOCK PURCHASE AND WARRANT AGREEMENT
This GMP MANUFACTURING AWARD, STOCK PURCHASE AND WARRANT AGREEMENT is made
as of this 30th day of September, 1999, by and between MdBio, Inc., a Maryland
non-stock, not-for-profit corporation ("MdBio") and Boston Biomedica, Inc., a
Massachusetts corporation with its headquarters located in West Bridgewater,
Massachusetts ("BBI").
BACKGROUND OF AGREEMENT
MdBio is a not-for-profit corporation qualified under the Internal
Revenue Code Section 501(c)(3). One of its missions is to encourage
the expansion of bioscience manufacturing in the State of Maryland.
Consistent with this mission, MdBio has instituted its GMP
Manufacturing Incentive Program (the "Program"), whereby MdBio
invests in bioscience enterprises for the specific purpose of having
the proceeds of such investment used for the manufacture, under
GMP-compliant conditions, of bioscience products within the state of
Maryland.
BBI would like to participate in the Program by having the proceeds
derived from an investment by MdBio in BBI used for supporting the
improvement of the GMP manufacturing capabilities at BBI Biotech
Research Laboratories located in Gaithersburg, Maryland. These
improvements will allow BBI to serve a greater variety of commercial
clients, and will include the purchase of equipment to automate
sample processing and quality control, as well as instrumentation
for the measurement of buffer preparations and nucleic acid samples.
In consideration of the covenants contained herein, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Purchase and Sale of Shares.
1.1 Closing. The Closing on the transactions contemplated by this
Agreement shall take place simultaneous with the execution and delivery of this
Agreement (the "Closing").
1.2 Payment. At Closing, MdBio shall agree to pay to BBI the sum of One
Hundred Seventy-five Thousand Dollars ($175,000) (the "Award").
1
<PAGE>
1.3 Share Price. For the purposes of this Agreement, the "Share Price" of
BBI common stock shall be defined as the average of the stock's closing price on
the five trading days immediately preceding the Closing.
1.4 Stock Units/Unit Price. A "Stock Unit" shall be defined as consisting
of one share of BBI common stock plus a warrant to purchase an additional share
of BBI common stock under the conditions described in Section 1.5 below. The
"Unit Price" shall be defined as the "Share Price" defined in Section 1.3 above
plus One Dollar and Eighty-four Cents ($1.84).
1.5 Warrant. The warrant described in Section 1.4 shall be exercisable, in
whole or in part, and from time to time over a four year period, commencing on
the Closing date and bear customary terms and conditions concerning stock
splits, dividends, etc. The exercise price of this warrant will be Ten Dollars
($10.00) per share.
1.6 Issuance of Units. In consideration for the Award, BBI shall deliver
to MdBio at Closing the number of Stock Units equal to the quotient resulting
from the division of One Hundred Seventy-five Thousand Dollars ($175,000) by the
Unit Price, with the quotient rounded to the nearest whole number.
3. Representations and Warranties of BBI. BBI hereby represents and warrants
as follows:
3.1 Organization. BBI is a corporation duly organized, validly existing
and in good standing under the laws of the State of Massachusetts.
3.2 Authority Relative to this Agreement. BBI has the corporate power and
authority to execute and deliver this Agreement. The execution and delivery by
BBI of the Agreement, and the consummation of the transactions contemplated
thereby, have been duly authorized by the Board of Directors of BBI. This
Agreement, when executed and delivered by BBI, will constitute a valid and
binding obligation of BBI, enforceable against BBI in accordance with its terms
except as may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally or general principles of equity.
3.3 No Violation. The execution and delivery of this Agreement will not
(a) violate any provisions of BBI's Amended and Restated Articles of
Organization or Amended and Restated Bylaws, (b) result in a default or give
rise to any right of termination, modification or acceleration under the
provisions of any agreement or other instrument or obligation to which BBI is a
party or by which BBI or its assets are bound, or (c) violate any law or
regulation, or any judgment, order or decree of any court, governmental body,
commission or agency applicable to BBI.
3.4 Informational Schedules. BBI agrees to provide MdBio with the
following documents, either at the Closing or at its earliest convenience
thereafter: 1) BBI's Amended and Restated Articles of Organization; 2) BBI's
Amended and Restated Bylaws; 3) a list of all current BBI officers and members
of its Board of Directors; and 4) BBI's most current Balance Sheet and Statement
of Income at the time of Closing.
2
<PAGE>
3.5 Litigation. There are no actions, suits, claims, investigations or
proceedings pending or, to the knowledge of BBI, threatened against BBI which
have or can reasonably be expected to have adverse effect on BBI or its assets.
3.6 Project Costs. The projected total cost of the improvements to BBI
Biotech Research Lab's manufacturing capabilities contemplated under this
agreement is $350,000. The Award therefore represents fifty percent (50%) of
this cost.
4. Representations and Warranties of MdBio. MdBio hereby represents and
warrants as follows:
4.1 Organization. MdBio is a corporation duly organized, validly existing
and in good standing under the laws of the State of Maryland.
4.2 Authority Relative to this Agreement. MdBio has the corporate power
and authority to execute and deliver this Agreement. The execution and delivery
by MdBio of the Agreement, and the consummation of the transactions contemplated
thereby, have been duly authorized by the Board of Directors of MdBio. This
Agreement, when executed and delivered by MdBio, will constitute a valid and
binding obligation of MdBio, enforceable against MdBio in accordance with its
terms except as may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally or general principles of equity.
4.3 No Violation. The execution and delivery of this Agreement will not
(a) violate any provisions of MdBio's Certificate of Incorporation or Bylaws,
(b) result in a default or give rise to any right of termination, modification
or acceleration under the provisions of any agreement or other instrument or
obligation to which MdBio is a party or by which MdBio or its assets are bound,
or (c) violate any law or regulation, or any judgment, order or decree of any
court, governmental body, commission or agency applicable to MdBio.
4.4 Investment Intent; Accredited Investor; Legends. MdBio is purchasing
or acquiring the Stock Units, and the shares of common stock and Warrants
constituting the Stock Units, for its own account for investment and not with a
present view to, or for sale in connection with, any distribution thereof in
violation of the Securities Act of 1933, as amended (the "Act"), MdBio
represents and warrants that MdBio: (a) is experienced in the evaluation of
businesses similar to BBI, (b) has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of an
investment in BBI, (c) has the ability to bear the economic risks of an
investment in BBI, (d) has been furnished with or has had access to such
information as is specified in subparagraph (b)(2) of Rule 502 promulgated under
the Act and has carefully reviewed and understood such information, (c) has been
afforded the opportunity to ask questions of and to receive answers from BBI and
to obtain any additional information necessary to make an informed investment
decision with respect to an investment in BBI, and (f) is an "Accredited
lnvestor~', as such term is defined in subparagraph (a) of Rule 501 promulgated
under the Act. MdBio hereby consents to the imposition of a legend substantially
similar to the following on each certificate representing the shares of common
stock and Warrants constituting Stock Units and , unless registered under the
Act pursuant to Section 5.2, below, each certificate for shares of common stock
issued upon exercise of the Warrants, and MdBio agrees to abide by the
restrictions contained therein:
3
<PAGE>
"[This Warrant has] (The shares represented by this certificate have) not
been registered under the Securities Act of 1933, as amended (the "Act")
and may not be sold, transferred, pledged, hypothecated or assigned unless
registered under the Act or an opinion of counsel, satisfactory to the
corporation, is obtained to the effect that such sale, transfer or
assignment is exempt from the registration requirements of the Act."
MdBio acknowledges that unless the shares of common stock issuable upon
exercise of the Warrants have been registered under the Act pursuant to Section
5.2, below, each representation and warranty made by MdBio in this Section 4.4
must be made by MdBio again at the time of each exercise of the Warrants, and
the exercise of the Warrants shall be conditioned and subject to such
representation and warranty.
4.5 Restricted Securities. MdBio understands that the Stock Units, and the
shares of common stock and Warrants constituting the Stock Units, have not been
registered under the Act by reason of a specific exemption from the registration
provisions of the Act which depends upon, among other things, the bona fide
nature of MdBio's investment intent as expressed herein. MdBio acknowledges that
the Stock Units, and the shares of common stock and Warrants constituting the
Stock Units and, unless registered under the Act pursuant to Section 5.2.1
below, the shares of common stock issuable upon exercise of the Warrants, when
received, must be held indefinitely unless they are subsequently registered
under the Act or an exemption from such registration is available. MdBio has
been advised of or is aware of the provisions of Rule 144 promulgated under the
Act, which rule permits limited resale of securities purchased in a private
placement subject to the satisfaction of certain conditions contained therein.
5. Additional Covenants.
5.1 Maryland Manufacturing. For a period commencing from the date hereof
until the fifth (5th) anniversary of the Closing (the "Commitment Period"), BBI
(or its successors) shall cause the manufacturing activities of BBI Biotech
Research Labs to take place in the State of Maryland (for the purposes of this
agreement, "manufacturing activities" shall mean production of virus and
bacteria for use in BBI's controls and panels, as well as quality control
testing for human pathogens using nucleic acid methodology).
BBI shall promptly notify MdBio in writing of its election to perform any of
these manufacturing activities outside Maryland during the Commitment Period
(the "Election Notice"). The Election Notice shall be provided to MdBio from
time to time and shall provide BBI's good faith estimate of the cost of
out-of-state manufacturing as compared to manufacturing conducted in Maryland
during the same period. Should BBI elect to incur more than 50% of its costs for
these activities outside the State of Maryland during the Commitment Period,
then MdBio shall have an option to sell the Stock Units defined in Section 1.4
back to BBI for a purchase price equal to $175,000 plus compound interest at the
rate of 15% per annum from the Closing.
5.2 "Piggy-Back" Rights. In the event of a public offering or other
registration of BBI's stock, MdBio shall enjoy and be entitled to standard
piggyback registration rights granted by BBI to any other shareholder holding
shares as of the date of this agreement and on terms no less favorable than
granted to any such shareholder.
4
<PAGE>
6. Miscellaneous.
6.1 Integration. This Agreement constitutes the entire understanding of
the parties as to the subject matter and supersedes all prior understandings and
agreements between the parties and their representatives.
6.2 Amendment and Waiver. This Agreement may be amended, modified,
supplemented or changed in whole or in part only by a written agreement making
express reference to this Agreement that is executed by all parties hereto. Any
of the terms and conditions of this Agreement may be waived in whole or in part,
but only by a written agreement making express reference to this Agreement and
executed by the party against whom the waiver is asserted.
6.3 Binding Agreement and Successors. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and upon each of their
respective successors and permitted assigns.
6.4 No Assignment. This Agreement may not be assigned, nor any obligations
delegated, in whole or in part, without the express prior written consent of the
parties hereto, with such consent in all cases to be conditioned upon assignee's
agreement to be bound by the terms and conditions of this Agreement.
6.5 Notices. Any notice, request, instruction or other document or
communication required or permitted to be given under this Agreement shall be in
writing and shall be deemed to be given upon (I) delivery in person, (ii) three
(3) business days after being deposited in the mail, first class postage
prepaid, for mailing by certified or registered mail, (iii) one day after being
deposited within an overnight courier, charges prepaid for next day delivery, or
(iv) when transmitted by facsimile, upon receipt of a facsimile confirmation by
the intended recipient, with a copy simultaneously sent as provided in clauses
(ii) or (iii), in every case addressed as follows (or at such other persons or
addresses as may be specified from time to time pursuant to a notice sent in
accordance with this section):
Notice to MdBio should be delivered or mailed to:
MdBio, Inc.
Attention: Executive Director
1003 W. 7th Street, Suite 202
Frederick, Maryland 21701
Facsimile: 800-863-5994
Notices to BBI should be delivered or mailed to:
BBI, Inc.
Attention: President
375 West Street
West Bridgewater, MA 02379-1040
Facsimile: 508-580-1110
7
<PAGE>
6.6 Section Headings. The section headings contained in this Agreement and
the exhibits are for convenience of reference only and shall not limit or
otherwise affect the meaning or interpretation of this Agreement or exhibits or
any of their terms or conditions.
6.7 Governing Law. This Agreement shall be governed by and construed under
the laws of the State of Maryland, excluding its choice of law provisions.
6.8 Courts. Any dispute arising from the interpretation or operation of
this Agreement shall be resolved in the courts of the State of Maryland, and the
parties hereby consent to and elect, and waive any objection to, the
jurisdiction of courts within the State of Maryland, waiving all objections as
to venue or forum non conveniens or similar objections in the event of
litigation.
6.9 Counterparts. This Agreement may be signed in any number of duplicate
originals with the same effect as if the signature to each original were on the
same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement, effective as of
the year and day first above written.
MdBio, Inc. BBI, Inc.
By: _______________________ By: _______________________
C. Robert Eaton Richard T. Schumacher
Executive Director Chairman & CEO
6
<PAGE>
TNL6-99
THIS LEASE, Made this 30th day of September, 1999, by and between
MIE Properties, Inc., as agent for owner, herein called "Landlord", and BBI
BIOTECH RESEARCH LABORATORIES, INC., herein called "Tenant".
WITNESSETH, that in consideration of the rental hereinafter agreed
upon and the performance of all the conditions and covenants hereinafter set
forth on the part of the Tenant to be performed, the Landlord does hereby
lease unto the said Tenant, and the latter does lease from the former
approximately 35,560 square feet at the following premises: 5107 PEGASUS
COURT, SUITE A - M , FREDERICK, MD 21704 or the term of SEVEN (7) years
beginning on the 1ST day of DECEMBER, 1999, and ending on the 30TH day
NOVEMBER, 2006 at and for the annual rental of $257,810.00, payable in
advance on the FIRST day of each and every month during the term of this
lease in equal monthly installments of $21,484.17. Said rental shall be paid
to MIE PROPERTIES, INC., 5104 PEGASUS COURT, FREDERICK, MARYLAND 21704 or at
such other place or to such appointee of the Landlord, as the Landlord may
from time to time designate in writing.
THE TENANT COVENANTS AND AGREES WITH THE LANDLORD AS FOLLOWS:
1. To pay said rent and each installment thereof as and when due
without setoff or deduction.
RENTAL ESCALATION
2. Beginning with the first anniversary of the commencement date
of the lease term and each annual anniversary hereafter
throughout the remainder of the lease and renewal term if any,
the annual rent shall be increased by an amount equal to three
percent (3%) of the previous year's rent, which sum shall be
payable in equal monthly installments in advance as
hereinafter set forth.
USE
3. To use and occupy the leased premises solely for the following
purposes: A BIOLOGICAL SPECIMEN REPOSITORY, REAGENT
REPOSITORY, BIOTECHNOLOGY REPOSITORY, AND BIOTECHNOLOGY
LABORATORY MANUFACTURING FACILITY WITH ANCILLARY OFFICES.
ADDITIONAL RENT
4. A. UTILITIES
Tenant shall apply for and pay all costs of electricity, gas,
telephone and other utilities used or consumed on the premises, together with
all taxes, levies or other charges on such utilities. Tenant agrees to pay as
additional rent, Tenant's prorata share of the water and sewer service charges,
chargeable to the total building in which the premises are located. However, if
in Landlord's sole judgement, the water and sewer charges for the premises are
substantially higher than normal due to Tenant's water usage, then Tenant agrees
that it will,
<PAGE>
upon written notice from Landlord, install a water meter at Tenant's expense
and thereafter pay all water charges for the premises based on such meter
readings.
B. TAXES
The premises covered by this lease form approximately 100%
of the total premises owned by the Landlord at this location. The Tenant
shall pay to the Landlord, as additional rent, 100% of the Real Estate taxes
that may be levied or assessed by lawful taxing authorities against the land,
buildings and improvements on the property. If this lease shall be in effect
for less than a full fiscal year, the Tenant shall pay a pro rata share of
the increased taxes based upon the number of months that this lease is in
effect. If any refund attributable to the Lease term is received after Lease
termination, Landlord will forward the refund to Tenant. This obligation
shall survive termination of the lease. Said taxes shall include, but not by
way of limitation, all paving taxes, and any and all benefits or assessments
which may be levied on the premises hereby leased but shall not include the
United States Income Tax, or any State or other income tax upon the income or
rent payable hereunder. Landlord agrees to appeal the taxes upon Tenant's
written request and Landlord's reasonable tax appeal costs would be paid by
Tenant.
C. COMMON AREA
For each full or partial calendar year during the lease
Term, Tenant shall pay to Landlord as Additional Rent "Tenant's Proportionate
Share" of the Common Area Expenses (Tenant's proportionate share will be
100%. For the purposes of this section, Common Area Expenses shall be defined
as one hundred percent (100%) of the total cost and expense incurred by or on
behalf of Landlord in each calendar year in operating, maintaining, and
repairing (which includes replacements, additions, and alterations) of Common
Areas of the building. These include, without limitation, a) the cost of
maintaining and repairing, all service pipes, electric, gas and water lines
and sewer mains leading to and from the premises, b) all costs incurred in
painting, resurfacing, and landscaping; c) all costs for repairs and
improvements, line painting and striping, lighting, removal of snow, grass
cutting, cleaning of parking areas; d) all costs incurred in maintaining,
repairing and replacing the paving, parking areas, curbs, gutters, sidewalks,
and steps; e) all costs for repairs and improvements to roof and exterior
walls; and f) management fees (management fees shall not exceed those
customarily charged by building managers of similarly sized and located
industrial parks), overhead (directly attributable to management to this
particular building) and reasonable expenses. Landlord shall cap increases on
all controllable expenses with the exception of snow removal at five percent
(5%) per year cumulative.
Exclusions to the above: a) commissions or advertising
costs; b) costs of sale, financing, and refinancing; c) legal expenses not
specifically for Tenant; d) costs of enforcement of Leases; e) ground rents;
f) fines or penalties of
<PAGE>
any kind or nature, unless directly resulting from a default by Lease; g)
costs of any services provided to any Tenant in the project, and not made
available to you on the same basis; h) damage and repairs necessitated by the
negligence or willful misconduct of the Landlord; i)any amount paid to the
Landlord, the management agent or any affiliate of either of them, to the
extent in excess of that negotiable on an arm's length basis; j) any expense
which under generally accepted accounting principals, should be capitalized,
except as specifically permitted.)
Not later than March of each year, Landlord shall provide a
line-item statement (the "Expense Statement") of the costs and expenses
actually paid by Landlord to operate and maintain the Property during the
immediately preceding calendar year and Tenant's pro rata share thereof .
Within 60 days after Tenant's receipt of any Expense Statement, Tenant may
notify Landlord that it desires to audit such Expense Statement (the "Audit
Notice"). Such audit shall be conducted at Tenant's sole cost and expense
within a reasonable time after delivery to Landlord of the Audit Notice. If
such audit discloses an error, Landlord shall credit against the next
installment(s) of Basic Monthly Rent due and payable, any overpayment by
Tenant, or Tenant shall pay to Landlord, with the next installment of Basic
Monthly Rent due and payable, any deficiency, as the case may be; provided,
however, that if an overpayment by Tenant occurs with respect to the last
Lease Year, the overpayment (and hereinafter described audit reimbursement,
if applicable) shall be refunded to tenant within 30 days after same is
determined (and this obligation shall survive termination of the Lease) and ,
provided further, that if such audit discloses an error which varies by more
than ten percent from Landlord's calculation, Landlord shall reimburse Tenant
for its reasonable costs incurred in conducting the audit.
MUNICIPAL REGULATING
5. To observe, comply with and execute at its expense, all laws,
orders, rules, requirements, and regulations of the United States, State,
City or County of the said State, in which the lease premises are located,
and of any and all governmental authorities or agencies and of any board of
fire underwriters or other similar organization, respecting the premises
hereby leased and the manner in which said premises are or should be used by
the Tenant.
Tenant shall have the right to, in good faith, contest its
obligation to comply with any law, rule, order, ordinance or regulation of
any municipality, county, state or federal government, or of any department
or bureau of any of them, or of any other governmental authority having
jurisdiction over the Premises and /or the Property, by appropriate legal
proceedings, and Tenant may postpone compliance with such law, rule, order,
ordinance or regulation so long as such postponement does not subject
Landlord, Tenant, the Property or the Premises to the imposition of any
penalty, fine, charge, interest, cost or the like, or to civil or criminal
prosecution, or expose Landlord or Tenant to a claim of negligence or willful
misconduct because of such non-compliance, or cause the Premises or any other
portion of the Property to be condemned or vacated, and if such
<PAGE>
legal proceedings do not operate to postpone enforcement of the law, rule,
order, ordinance or regulation in question, Tenant shall take whatever steps
are necessary to comply with such law, rule, order, ordinance or regulation
during the pendency of the contest and to prevent the imposition of any
penalty, fine, charge, interest, cost or the like against Landlord, Tenant,
the property and /or the Premises because of Tenant's failure to comply with
the law, rule, order, ordinance or regulation in question during the pendency
of such contest; in addition, if required by Landlord, Tenant shall furnish
to Landlord a surety company bond, cash deposit or other security reasonably
satisfactory to Landlord as security for cost of complying with the law,
rule, order, ordinance or regulation in question and /or the payment of any
post-contest penalties, fines, charges, interest, costs and the like which
may arise or be imposed or assessed against Landlord, Tenant, the Property
and /or the Premises because of Tenant's commencement of the contest and /or
failure to comply with the requirement in question promptly after the
conclusion of such contest; and provided, further, that upon the termination
of any such legal proceedings, Tenant shall comply with the determination
arising therefrom within the period of time necessary to prevent the
imposition of any penalty, fine, charge, interest, cost or the like against
Landlord, Tenant, the Property and/or the Premises because of any
post-contest non-compliance.
ASSIGNMENT AND SUBLET
6. Not to assign this lease, in whole or in part, or sublet the
leased premises, or any part or portion thereof, or grant any license or
concession for any part of the premises, without the prior written consent of
the Landlord which consent shall not be unreasonably withheld, delayed or
conditioned. If such assignment or subletting is permitted, Tenant shall not
be relieved from any liability whatsoever under this lease. The Landlord
shall be entitled to fifty percent (50%) of any additional considerations
over and above those stated in this lease, which are obtained in or for the
sublease and/or assignment. No option rights can be assigned or transferred
by the Tenant to an assignee or subtenant without the prior written consent
of the Landlord. Landlord's permission shall not be required for any
assignment or sublet to any of Tenant's successors, partners, affiliates or
subsidiaries resulting from a merger, acquisition or consolidation. Tenant
shall have the right to retain one hundred percent (100%) of all profits from
any sublease or assignment to a related successor, partner, affiliate or
subsidiary.
INSURANCE
7. That the Tenant will not do anything in or about said premises
that will contravene or affect any policy of insurance against loss by fire
or other hazards, including, but not limited to, public liability now
existing or which the Landlord may hereafter place thereon, or that will
prevent Landlord from procuring such policies in companies acceptable to
Landlord. Tenant will do everything reasonably possible, and consistent
<PAGE>
with the conduct of Tenant's business to obtain the greatest possible
reduction in the insurance rates on the premises hereby leased, or for the
building of which the premises hereby leased are a part. The Tenant further
agrees to pay, as part of and in addition to the next due monthly rental:
a) its prorata share ( 100%) of the premium of any
insurance on the premises hereby leased or for the building of which the
premises hereby leased are apart;
b) any increase in premium on the amount of such insurance
that may be carried by Landlord on all or any part of the premises or the
property resulting from the activities carried on by Tenant in or at the
Premises or property resulting from the activities carried on by Tenant in or
at the Premise, regardless of whether Landlord has consented to the same.
c) all insurance policies obtained by either Landlord or
Tenant pursuant to the terms of this Lease shall provide that the insurer(s)
issuing such insurance policy(s) waive(s) all right of recovery by way of
subrogation against Landlord or Tenant, as the case may be, in connection
with any loss or damage covered by such policy; provided, however, that said
waiver shall not be required if it has the effect of invalidating any
insurance coverage of Landlord or Tenant, as the case may be, in which event,
the party whose insurance policy would otherwise be invalidated by reason of
such waiver shall name the other as an additional insured, as its interest
may appear, under the policy in question (and the cost of any additional
premium arising as a result thereof shall be paid to the policyholder by the
party named as the additional insured.)
ALTERATIONS
8. (a) That the Tenant will not make any alterations in
addition to original improvements to the premises without the prior written
consent of the Landlord, which consent will not be unreasonably withheld.
Landlord's consent shall not be required for any interior non-structural
cosmetic alterations. If the Tenant shall desire to make any such
alterations, plans for the same shall first be submitted to the Landlord for
approval, and the same shall be performed by the Tenant at its own expense,
Tenant agrees that all such work shall be done in a good and workmanlike
manner, that the structural integrity of the building shall not be impaired,
that no liens shall attach to the building by reason thereof, and that all
alterations shall be in accordance with all applicable codes.
(b) The Tenant agrees to obtain at the Tenant's expense all
permits pertaining to the alterations. The Tenant also agrees to obtain,
prior to commencing to make such alterations, and to keep in full force and
effect at all time while such alterations are being made, all at the Tenant's
sole cost and expense, such policies of insurance pertaining to such
alterations and/or to the making thereof as the Landlord reasonably may
<PAGE>
request or require the Tenant to obtain, including, but not limited to,
public liability and property damage insurance, and to furnish the Landlord
evidence satisfactory to the Landlord of the existence of such insurance
prior to the Tenant's beginning to make such alterations.
(c) Any such alterations shall become the property of the
Landlord as soon as they are affixed to the premises and all rights, title and
interest therein of the Tenant shall immediately cease, unless otherwise agreed
to by Landlord in writing. The Landlord shall have the sole right to collect any
insurance for any damage of any kind caused by any alterations or improvements
placed upon the said premises by the Tenant. If the making of any such
alterations, or the obtaining of any permits therefore shall directly or
indirectly result in a franchise, minor privilege or any other tax or increase
in tax, assessment or increase in assessment, such tax or assessment shall be
paid, immediately upon its levy and subsequent levy, by the Tenant.
Notwithstanding the foregoing, the following are excluded: Tenant's freezers,
generators, flammable storage tanks, bulk tanks and fuel tanks.
(d) Landlord shall elect in writing, at the time of
consent, that all or part of any alterations installed by Tenant shall
remain, or be removed by the Tenant, at its own expense, before the
expiration of its tenancy.
MAINTENANCE
9. The Tenant will, during the term of this lease, keep said demised
premises and appurtenances (including interior and exterior windows, interior
and exterior doors, interior plumbing, heating, ventilating and air
conditioning (HVAC), interior electrical or replacement works thereof) in
good order and condition and will make all necessary repairs or replacement
thereof. The Landlord does, however, give a 90 day warranty on all of the
above mentioned items. Tenant will be responsible for all exterminating
services, except termites, required in the premises. If the Tenant does not
make necessary repairs 15 days after receiving written notice from the
Landlord of the need to make a repair, the Landlord may proceed to make said
repair and the reasonable cost of said repair will become part of and in
addition to the next due monthly rental. The Tenant agrees to furnish to the
Landlord, at the expense of the Tenant, within 30 days of occupancy, a copy
of an executed and paid for annual maintenance contract on all heating and
air conditioning equipment with a reputable company acceptable to the
Landlord, which acceptance shall not be unreasonable withheld or delayed, and
said contract will be kept in effect during the term of the lease at the
expense of the Tenant. The Landlord will make all necessary structural
repairs to the exterior masonry walls and roof of the demised premises, after
being notified in writing of the need for such repairs, provided the
necessity for such repairs was not caused by the negligence or misuse
<PAGE>
of Tenant, its employees, agents or customers. The Tenant will, at the
expiration of the term or at the sooner termination thereof by forfeiture or
otherwise, deliver up the demised premises in the same good order and
condition as they were at the beginning of the tenancy, reasonable wear and
tear excepted.
DEFAULT
10. If the Tenant shall fail to pay said rental or any other sum
required by this lease to be paid by Tenant and such failure shall continue
for 5 days after written notice thereof to Tenant, the Landlord shall have
along with any and all other legal remedies the immediate right to make
distress therefore, and upon such distress, in the Landlord's discretion,
this tenancy shall terminate. In case the Tenant shall fail to comply with
any of the other provisions, covenants, or conditions of this lease, on its
part to be kept and performed, and such default shall continue for a period
of twenty (20) days after written notice, (which period shall be extended if
Tenant is diligently pursuing cure but the same is impractical in sixty (60)
days) thereof shall have been given to the Tenant by the Landlord, and/or if
the Tenant shall fail to pay said rental or any other sum required by the
terms of this lease to be paid by the Tenant, then, upon the happening of any
such event, and in addition to any and all other remedies that may thereby
accrue to the Landlord, the Landlord may do the following:
1. LANDLORD'S ELECTION TO RETAKE POSSESSION WITHOUT
TERMINATION OF LEASE. Landlord may retake possession of the leased premises
without being deemed to have accepted a surrender thereof, and without
terminating this Lease.
If Landlord retakes possession of the Leased Premises or if
this Lease is terminated as a result of Tenant's default and vacated by
Tenant, Landlord shall take commercially reasonable action to relet the
Premises in order to mitigate its damages provided, however, that in
attempting to mitigate its damages, as aforesaid, (I) Landlord may, in its
sole, absolute and subjective discretion, relet the Premises for a shorter or
longer period of time than the Term of this Lease and may subdivide same into
smaller leasable space units, make any necessary repairs or alterations, (ii)
the terms of any reletting may include a reasonable amount of free rent, and
(iii) if other space in buildings owned by Landlord in the Complex in which
the Building is located is vacant at the time of the termination of the Lease
as a result of Tenant's default, or subsequently becomes vacant before
Landlord has relet the Premises, Landlord shall not be obligated to relet the
Premises before letting such other vacant space. If the rent received from
such reletting does not at least equal the rent and other sums payable by
Tenant hereunder, Tenant shall pay and satisfy the deficiency between the
amount of rent and other sums so provided in this Lease and the rent received
through reletting the leased premises; and, in addition, Tenant shall pay
reasonable expenses in connection with any such reletting, including, but not
limited to, the cost of renovating, altering, and
<PAGE>
decorating for any occupant, leasing commissions paid to any real estate
broker or agent, and reasonable attorney's fees incurred.
2. LANDLORD'S ELECTION TO TERMINATE LEASE. Landlord may
terminate the Lease and forthwith repossess the leased premises and be
entitled to recover as damages a sum of money equal to the total of the
following amounts:
a. any unpaid rent or any other outstanding
monetary obligation of Tenant to Landlord under the Lease;
b. the balance of the rent and other sums payable
by Tenant for the remainder of the lease term to be determined as of the date
of Landlord's re-entry;
c. damages for the wrongful withholding of the
leased premises by Tenant;
d. all reasonable legal expenses, including
attorney's fees, expert and witness fees, court costs and other costs
incurred in exercising its rights under the Lease;
e. all reasonable costs incurred in recovering
the leased premises, restoring the leased premises to good order and
condition, and all commissions incurred by Landlord in reletting the leased
premises; and
f. any other reasonable amount necessary to
compensate Landlord for all detriment caused by Tenant's default.
DAMAGE
11. a) If the Premises are damaged, in part or whole, from any cause
and can be substantially repaired and restored within 60 days from the date
of the damage using standard working methods and procedures, Landlord shall,
at its expense, promptly and diligently repair and restore the premises to
substantially the same condition as existed before the damage. Such repair
and restoration shall be made within 60 days from the date of the damage
unless a delay is due to causes beyond Landlord's control, due allowance
being made for the time for settlement of fire insurance claims.
If the Premises cannot be repaired and restored within the 60-day
period, then either party may, within 10 days after determining that the
repairs and restoration cannot be made within 60 days (as prescribed in
paragraph (b) below, terminate this Lease by giving notice to the other
party. In any event, if the Premises are not repaired and restored within 60
days from the date of the damage, then Tenant may terminate the Lease at any
time after the sixtieth day until the Premises are, in fact, repaired and
restored.
<PAGE>
b) If the parties cannot agree in writing whether the
repairs and restoration described in paragraph (a) above will take more than
60 days to accomplish, then the determination will be submitted to binding
arbitration in the State of Maryland under the construction rules of the
American Arbitration Association.
BANKRUPTCY
12. In the event of the appointment of a receiver or trustee for the
Tenant by any court, Federal and State, in any legal proceedings under any
provisions of the Bankruptcy Act, if the appointment of such receiver or such
trustee is not vacated within 60 days, or if said Tenant be adjudicated
bankrupt or insolvent, or shall make an assignment for the benefit of its
creditors, then and in any of said events, the Landlord may, at its option,
terminate this tenancy by ten days written notice, and re-enter upon said
premises.
POSSESSION/BENEFICIAL OCCUPANCY
13. The Landlord covenants and agrees that possession of said
premises shall be given to the Tenant as soon as said premises are ready for
occupancy. In case possession, in whole or in part, cannot be given to the
Tenant on or before the commencement date of this lease, the Landlord agrees
to abate the rent proportionately until possession is given to said Tenant
and Tenant agrees to accept such pro rata abatement as liquidated damages for
the failure to obtain possession.
If Tenant occupies any portion of the premises prior to
tender of possession thereof by Landlord, such partial occupancy shall be
deemed to be beneficial occupancy and a pro rata rent shall be due and
payable as to that portion of the premises so occupied, immediately upon
Tenant's occupancy. Such occupancy by Tenant and rent thereby due shall not
depend on official governmental approval of such occupancy, state of
completion of building, availability or connection of utilities and services
as but not limited to sewer, water, gas, oil, or electric. No rent credit
shall be given because of lack of utilities or services unless caused by the
gross negligence of the Landlord.
SIGNS, ETC.
14. The Tenant covenants and agrees that:
a. Subject to paragraph 14 (d) below, it will not place or
permit any signs, lights, awnings or poles on or about the exterior of said
premises without the prior permission, in writing, of the Landlord and in the
event such consent is given, the Tenant agrees to pay any minor privileges or
other tax therefore;
b. The Landlord, at Landlord's option, may immediately
remove and dispose of any of the unauthorized aforementioned items at the
expense of the Tenant and said cost shall become part of and in addition to
the next due monthly rental. Tenant further covenants and agrees that it will
not paint or make any changes in or on the outside of said premises without
permission of the Landlord in writing. The Tenant agrees
<PAGE>
that it will not do anything on the outside of said premises to change the
uniform architecture, paint or appearance of said building, without the
consent of the Landlord in writing.
c. The Landlord shall have the right to place a "For Rent"
sign on any portion of said premises for ninety (90) days prior to
termination of this lease and to place a "For Sale" sign thereon at any time.
d. Landlord shall allow Tenant to install an exterior
monument sign in front of the building. Tenant shall use Landlord standards
and specifications for construction of sign and location to be approved by
Landlord.
EXTERIOR OF PREMISES
15. The Tenant further covenants and agrees not to put any items on
the sidewalk or parking lot in the front, rear, or sides of said building or
block said sidewalk, and not to do anything that directly or indirectly will
take away any of the rights of ingress or egress or of light from any other
tenant of the Landlord or do anything which will, in any way, change the
uniform and general design of any property of the Landlord of which the
premises hereby leased shall constitute a part of unit. Tenant will also keep
steps free and clear of ice, snow and debris. Notwithstanding the foregoing,
Tenant shall be allowed to place outdoor generators and the like on the
concrete pad behind Tenant's space and this pad must be fenced and screened.
WATER DAMAGE
16. The Tenant covenants and agrees that the Landlord, except during
the 90 day warranty period, shall not be held responsible for and the
Landlord is hereby released and relieved from any liability by reason of or
resulting from damage or injury to person or property of the Tenant or of
anyone else, directly or indirectly caused by (a) dampness or water in any
part of said premises or in any part of any other property of the Landlord or
of others and/or (b) any leak or break in any part of said premises or in any
part of any other property of the Landlord or of others or in the pipes of
the plumbing or heating works thereof, unless the damage is due to Landlord's
negligence.
LIABILITY
17. Landlord shall not be liable to the Tenant for any loss or damage
to the Tenant or to any other person or to the property of the Tenant or of any
other person unless such loss or damage shall be caused by or result from
negligent act of omission or commission on the part of the Landlord or any of
its agents, servants, or employees. The said Tenant shall indemnify and save
harmless the Landlord, its successors or assigns, from all claims and demands of
every kind, that may be brought against it, them or any of them for or on
account of any damage, loss or injury to persons or property in or about the
leased premises during the continuance of this tenancy, or during the time of
any alterations, repairs, improvements or restorations to said property by the
<PAGE>
Tenant and arising in connection therewith, and from any and all costs,
expenses and other charges, including reasonable attorney's fees, which may
be imposed upon the Landlord, its successors or assigns, or which it or they
may be obligated to incur in consequence thereof. Tenant shall also carry and
pay for a general liability policy naming Landlord as an additional insured,
with combined single limits of not less than $2,000,000, and will furnish
Landlord with certificate of same showing a 10 day notice of cancellation
clause.
RIGHT OF ENTRY
18. It is understood and agreed that the Landlord, and its agents,
servants, and employees, including any builder or contractor employed by the
Landlord, shall have, and the Tenant hereby gives them and each of them, the
absolute, and unconditional right, license and permission, at any and all
reasonable times, and for any reasonable purpose whatsoever, to enter
through, across or upon the premises hereby leased or any part thereof, and,
at the option of the Landlord, to make such reasonable repairs to or changes
(said changes shall not materially, adversely affect Tenant's use, occupancy
or employment of the premises) in said premises as the Landlord may deem
necessary or proper. Landlord shall notify Tenant 24 hours before entering
premises except in the case of an emergency.
EXPIRATION
19. It is agreed that the term of this lease expires on NOVEMBER 30,
2006 without the necessity of any notice by or to any of the parties hereto.
If the Tenant shall occupy said premises after such expiration, it is
understood that, in the absence of any written agreement to the contrary,
said Tenant shall hold premises as a Tenant from month to month, subject to
all the other terms and conditions of this lease, at 150% the highest monthly
rental installments reserved in this lease; provided that the Landlord shall,
upon such expiration, be entitled to the benefit of all public general or
public local laws relating to the speedy recovery of the possession of lands
and tenements held over by Tenant that may be now in force or may hereafter
be enacted.
Prior to lease expiration, Tenant agrees to schedule an
inspection with Landlord to confirm that the leased premises will be in
proper order at expiration, including but not limited to lighting,
mechanical, electrical and plumbing systems.
CONDEMNATION
20. If the entire Premises, or any portion of the Building required
for reasonable access to, or the reasonable use of, the Premises, are taken
by eminent domain, this Lease shall automatically end on the earlier of:
(i) The date title vests; or
(ii) The date Tenant is dispossessed by the condemning authority.
<PAGE>
If the taking of a part of the Premises materially interferes
with Tenant's ability to continue its business operations in substantially the
same manner and space, then Tenant may end this Lease on the earlier of:
(i) The date when title vests;
(ii) the date Tenant is dispossessed by the condemning authority; or
(iii) 30 days following notice to Tenant of the date when vesting or
dispossesion is to occur.
If there is a partial taking and this Lease continues, then
the Lease shall end as to the part taken and Basic Annual Rent and Additional
Rent shall abate in proportion to the part of the Premises taken and Tenant's
pro rata share shall be equitably reduced.
If this Lease is not terminated, then Landlord, at its
expense, shall promptly repair and restore the Premises to the condition that
existed immediately before the taking, except for the part taken, in order to
render the Premises a complete architectural unit, but only to the extent of
the:
(i) Condemnation award received for the damage; and
(ii) the Initial Leasehold Improvements.
If part or all of the Premises are condemned for 60 days or
less (a "Temporary Condemnation"), this Lease shall remain in effect. If part
or all of the Premises are condemned for a period of time exceeding 60 days
Tenant shall have the right, at its sole election, to terminate this Lease.
If Tenant elects to terminate this Lease, notice of its election shall be
given to Landlord within 15 days following the sixtieth day after such
condemnation and this Lease shall end on the date specified in the
termination notice, which date shall be at least 30, but not more than 45,
days after the date notice is given. In the event of a Temporary
Condemnation, or in the event Tenant does not elect to terminate this Lease
following a condemnation for a period of time exceeding 60 days, Rent and
Tenant's obligations for the part of the Premises taken shall abate in
proportion to the part of the Premises that Tenant is unable to use in the
conduct of its business, such abatement to begin on the date the Tenant
determines it is unable to use the portion of the Premises so taken in the
conduct of its business until the date Tenant determines it is again able to
use the portion of the Premises so taken in the conduct of its business, and
Landlord shall receive the entire award attributable to such condemnation.
SUBORDINATION
21. It is agreed that Landlord shall have the right to place a mortgage
or deed of trust on the premises and this lease shall be subordinate to any such
mortgage or deed of trust whether presently existing or hereafter placed on the
premises, and Tenant agrees to execute any and all documents assisting the
effectuating of said subordination. Furthermore, if any person or entity shall
succeed to all or part of Landlord's interest in the leased
<PAGE>
premises, whether by purchase, foreclosure, deed in lieu of foreclosure,
power of sale, termination of lease, or otherwise, Tenant shall automatically
attorn to such successor in interest, which attornment shall be self
operative and effective upon the signing of this lease, and Tenant shall
execute such other agreement in confirmation of such attornment as such
successor in interest shall reasonably request. Landlord will use best
efforts to obtain a non-disturbance agreement from its Construction Loan
Lender. Upon the replacement of the construction loan with a permanent
mortgage lender, Landlord shall provide Tenant with a non-disturbance
agreement.
NOTICE
22. Any written notices required by this lease shall be deemed
sufficiently given, if hand delivered, or sent via first class U.S. mail or
by nationally recognized overnight courier service.
Any notice required by this lease is to be sent to the
Landlord at:
5104 PEGASUS COURT, SUITE A
FREDERICK, MARYLAND 21704
Any notice required by this is to be sent to the Tenant at:
ATTN: PAUL DERITO
217 PERRY PARKWAY
GAITHERSBURG, MD 20877
REMEDIES NOT EXCLUSIVE
23. No remedy conferred upon Landlord shall be considered exclusive
of any other remedy, but shall be in addition to every other remedy available
to Landlord under this Lease or as a matter of law. Every remedy available to
Landlord may be exercised concurrently or from time to time, as often as the
occasion may arise. Tenant hereby waives any and all rights which it may have
to request a jury trial in any proceeding at law or in equity in any court of
competent jurisdiction.
SECURITY DEPOSIT AND FINANCIAL STATEMENTS
24. A security deposit of $21,484.17 is required to accompany this
lease, when submitted for approval by Landlord, subject to all the conditions
of the security deposit agreement attached. If this lease is not approved by
the Landlord within 30 days of its submission to the Landlord, the security
deposit will be refunded in full. The security deposit shall be held in an
interest bearing account at 3% per annum. If requested by Landlord's
mortgagee, Landlord shall have the right to require annual financial
statements for the Tenant and/or any Guarantor of this Lease. Tenant or
Guarantor shall provide written answers to any questions from Landlord which
are related to Tenant's financial statements or provide written projections
on Tenant's business, if the
<PAGE>
financials are unacceptable to Landlord. Landlord agrees not to disclose
Tenant's financial statement to any other party except mortgagee without
first obtaining written consent.
FINAL AGREEMENT
25. This lease contains the final and entire agreement between the
parties hereto, and neither they nor their agents shall be bound by any
terms, conditions or representations not herein written.
LEGAL EXPENSE
26. In the event, to enforce the terms of this lease, either party
files legal action against the other, and is successful in said action, the
losing party agrees to pay all reasonable expenses to the prevailing party,
including the reasonable attorney's fee incident to said legal action. In the
event that the Landlord is successful in any legal action filed against the
Tenant, the Landlord's reasonable attorney fees incident to said legal action
shall become part of and in addition to the then due monthly rent.
LAND
27. It is agreed that the demised premises is the building area
occupied by the Tenant and only the land under that area.
RELOCATION
28. (Intentionally deleted)
ENVIRONMENTAL REQUIREMENTS
29. Tenant hereby represents and warrants to Landlord that no
materials will be located on the premises which, under federal, state, or
local law, statute, ordinance or regulations; or court or administrative
order or decree; or private agreement (hereinafter collectively known as,
"Environmental Requirements"), require special handling in collection,
storage, treatment, or disposal.
Notwithstanding the foregoing, or anything else to the
contrary elsewhere contained in this Lease, Landlord acknowledges and agrees
that the use of the Premises will entail a biological specimen repository,
reagent repository, biotechnology repository and laboratory, and reagent
manufacturing and that the repository will, from time to time, contain
material that is biohazardous and infectious to humans. Tenant covenants to
comply with all applicable Environmental Requirements.
In addition, Landlord acknowledges and agrees that Tenant
may store and use hazardous materials used in the ordinary course of business
(e.g., cleaning fluids, photocopier toner and the like), provided same are
stored, used and disposed of in accordance with all applicable Environmental
Requirements.
<PAGE>
Tenant hereby covenants and agrees that if at any time it
is determined that there are materials located on the premises which, under
any Environmental Requirements, require special handling in collection,
storage, treatment, or disposal, Tenant shall, within thirty (30) days after
written notice thereof, take or cause to be taken, at its sole expense, such
actions as may be necessary to comply with all Environmental Requirements. If
Tenant shall fail to take such action, Landlord may make advances or payments
towards performance or satisfaction of the same but shall be under no
obligation to do so; and all sums so advanced or paid, including all sums
advanced or paid in connection with any judicial or administrative
investigation or proceeding relating thereto, including, without limitation,
reasonable attorney's fees, fines, or other penalty payments, shall be at
once repayable by Tenant and shall bear interest at the rate of four percent
(4%) per annum above the Prime rate from time to time as published by the
Wall Street Journal, from the date the same shall become due and payable
until the date paid. Failure of Tenant to comply with all Environmental
Requirements shall constitute and be a default under this Lease Agreement.
Tenant will remain totally liable hereunder regardless of
any other provisions which may limit recourse.
SEVERABILITY
30. In case any one or more the provisions contained in this Lease
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions of this Lease, but this Lease shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
LATE CHARGE
31. If the Tenant shall fail to pay when due, the said rental or any
other sum required by the terms of this lease to be paid by the Tenant, then,
upon the happening of any such event, and in addition to any and all other
remedies that may thereby accrue to the Landlord, the Tenant agrees to pay to
the Landlord a late charge of 5% of the monthly account balance. The late
charge on the base rent accrues after 10 days of the due date and said late
charges shall be collectible as additional rent.
In the event Tenant's rent is received fifteen days after due date,
Landlord shall have option to require the rental payment be made with a
certified or cashier's check.
QUIET ENJOYMENT
32. Tenant, upon paying the minimum rent, additional rent and other
charges herein provided and observing and keeping all of its covenants,
agreements and conditions in this Lease, shall quietly have and enjoy
<PAGE>
the Premises during the Term of this Lease without hindrance or molestation
by anyone claiming by or through Landlord; subject, however, to all
exceptions, reservations and conditions of this Lease.
LANDLORD'S WORK
33. The leased premises shall contain only the following items at
the expense of the Landlord:
a. Landlord shall deliver the Leased premises as two demised
areas, phase I and phase II. Phase I shall be 16,560 square
feet and delivered in a "warm, lit conditioned shell" as more
fully outlined on Exhibit "B" attached hereto. Landlord shall
contribute $210,000.00 toward the phase I improvement, and
Tenant shall pay all cost above the initial $210,000.00.
Landlord shall be required to cap its general contractor's fees
for general conditions at nine percent (9%), overhead fee to
five percent (5%) and a supervisory fee of five percent (5%).
b. Phase II shall be 19,000 square feet of cold dark shell
with temporary heat.
WINDOW COVERINGS
34. The Tenant covenants and agrees not to install any window
covering other than a one-inch horizontal mini-blind of an off-white color
unless approved in writing by the Landlord.
OPTIONS
35. Provided Tenant is not then in default hereunder, Tenant may
extend the term of this lease and as it may be amended from time to time, for
ONE (1) further successive period of FIVE (5) years each, by notifying Lessor
in writing of its intention to do so at least six (6) months prior to the
expiration of the then current term. The annual rental for each succeeding
extension shall be at a Lease rate equal to the then prevailing fair market
rental rate for Tenants in comparable industrial buildings in the Frederick
sub-market using the "three-broker" method.
a. If the option to extend the term of this Lease is not timely
exercised, the unexercised option to extend shall automatically become null
and void.
b. The right to extend the term of this Lease may be exercised
only by the undersigned Tenant for its continued use and occupancy of the Leased
Premises and only if it is in possession of the Leased Premises and operating a
permitted use when it exercises the right. No such right shall be assignible
even though Landlord may have approved an assignment of this Lease. However, if
Tenant assigns this Lease, with Landlord's consent, to any corporation into
which or with which Tenant merges or consolidates and/or to any parent,
subsidiary, or affiliated corporation, the assignee may exercise such right to
renew.
<PAGE>
c. If Tenant shall default under the Lease, all unexercised
rights to extend the term of the Lease shall automatically be extinguished
and become null and void.
RULES AND REGULATIONS
36. The Tenant shall at all times comply with the Rules and
Regulations attached hereto. The Landlord shall make a reasonable effort to
enforce the Rules and Regulations equitably against all tenants of the
Property. Landlord shall not discriminate against Tenant in the enforcement
of rules and regulations.
ESTOPPEL CERTIFICATE
37. Tenant and Landlord shall, at any time during the term of this
Lease or any renewal thereof, upon request of either party, execute,
acknowledge, and deliver to the other party or its designee, a statement in
writing, certifying that this lease is unmodified and in full force and
effect if such is the fact that the same is in full force.
ADDITIONAL RENT
38. All sums of money required to be paid by Tenant to Landlord
pursuant to the terms of this Lease, unless otherwise specified herein, shall
be considered additional rent and shall be collectible by Landlord as
additional rent, in accordance with the terms of this Lease.
EXCULPATION CLAUSE
39. Neither Landlord nor any principal, partner, member, officer,
director, trustee or affiliate of Landlord (collectively, "Landlord
Affiliates") shall have any personal liability under any provision of this
Lease. If Landlord defaults in performing any of its obligations hereunder,
Tenant shall look solely to Landlord's equity in the Property to satisfy
Tenant's remedies on account therefore. If Tenant obtains a money judgment
against Landlord, Tenant shall be entitled to have execution upon such
judgment only upon Landlord's equity in the Property, and not on Landlord or
Landlord Affiliates.
INDUSTRIAL USER SURVEY
40. Tenant agrees to complete the attached Exhibit "A" known as the
Frederick County Bureau of Water and Sewer Industrial User Waste and Slug
Potential Survey.
RIGHT OF FIRST OFFERING
41. Tenant shall have an on going right of first offer throughout
the primary Lease term for any relet space that comes available in 5108, 5103
and/or 5111 Pegasus Court. Landlord shall notify Tenant in writing when space
becomes available and Tenant will have seven (7) business days to accept or
decline the space. If Landlord does not receive written notice from Tenant of
acceptance or declining then Landlord will
<PAGE>
assume Tenant has declined the offer. The rate for the expansion space shall
be at fair market value for comparable industrial buildings in the Frederick
sub-market by using the "three broker" method.
PARKING
42. The parking for the building is common parking with a 4.00 per
1000 sq.ft. ratio. If Tenant requires additional parking then Tenant may pay
the Landlord to stripe an area behind the lease premise and designate it for
the Tenant.
AS WITNESS THE HANDS AND SEALS OF THE PARTIES HERETO THE DAY AND YEAR FIRST
ABOVE WRITTEN:
WITNESS: TENANT:
By: (Seal)
- ------------------------------- -------------------------------
Printed Name:
---------------------
Title:
----------------------------
Date:
-----------------------------
WITNESS: LANDLORD: MIE Properties, Inc.
By: (Seal)
- ------------------------------- -------------------------------
Printed Name:
---------------------
Title:
----------------------------
Date:
-----------------------------
<PAGE>
SECURITY DEPOSIT AGREEMENT
This is NOT a rent receipt.
Date:________________________________
Received from BBI BIOTECH RESEARCH LABORATORIES, INC., the amount of
$21,484.17, as security deposit for premises 5107 PEGASUS COURT, SUITES A -
M, FREDERICK, MD 21704.
Landlord agrees that, subject to the conditions listed below, this
security deposit (with interest @ 3% per annum) will be returned in full
within thirty (30) days of vacancy.
Tenant agrees that this security deposit may not be applied by
Tenant as rent and that the full monthly rent will be paid on or before the
first day of every month, including the last month of occupancy. Tenant
further agrees that a mortgagee of the property demised by the lease to which
this Security Deposit Agreement is appended and/or a mortgagee thereof in
possession of said property and/or a purchaser of said property at a
foreclosure sale shall not have any liability to the Tenant for this security
deposit.
SECURITY DEPOSIT RELEASE PREREQUISITES:
1. Full term of lease has expired.
2. No damage to property beyond fair wear and tear.
3. Entire leased premises clean and in order.
4. No unpaid late charges or delinquent rents, or other delinquent
sums payable by Tenant.
5. All keys returned.
6. All debris and rubbish and discards placed in proper rubbish
containers.
7. Forwarding address left with Landlord.
AS WITNESS THE HANDS AND SEALS OF THE PARTIES HERETO THE DAY AND YEAR
FIRST ABOVE WRITTEN:
WITNESS: TENANT:
By: (Seal)
- ------------------------------- -------------------------------
WITNESS: LANDLORD: MIE Properties, Inc.
By: (Seal)
- ------------------------------- -------------------------------
<PAGE>
RULES AND REGULATIONS
1. The Common Facilities, and the sidewalks, driveways, and other
public portion of the Property (herein "Public Areas") shall
not be obstructed or encumbered by Tenant or used for any
purpose other than ingress or egress to and from its premises,
and Tenant shall not permit any of its employees, agents,
licensees or invitees to congregate or loiter in any of the
Public Area. Tenant shall not invite to, or permit to visit
its premises, persons in such numbers or under such conditions
as may interfere with the use and enjoyment by others of the
Public Areas. Landlord reserves the right to control and
operate, and to restrict and regulate the use of, the Public
Areas and the public facilities, as well as facilities
furnished for the common use of the tenants, in such manner as
it deems best for the benefit of the tenants generally.
2. No bicycles, animals (except seeing eye dogs) fish or birds of
any kind shall be brought into, or kept in or about any
premises within the Building.
3. No noise, including, but not limited to, music, the playing of
musical instruments, recordings, radio or television, which,
in the judgment of Landlord, might disturb other tenants in
the Building, shall be made or permitted by any tenant.
4. Tenant's premises shall not be used for lodging or sleeping or
for any immoral or illegal purpose.
5. Tenant shall not cause or permit any odors of cooking or other
processes, or any unusual or objectionable odors, to emanate
from its premises which would annoy other tenants or create a
public or private nuisance.
6. Plumbing facilities shall not be used for any purpose other
than those for which they were constructed; and no sweepings,
rubbish, ashes, newspapers or other substances of any kind
shall be thrown into them.
7. Tenant agrees to keep the Leased Premises in a neat, good and
sanitary condition and to place garbage, trash, rubbish and
all other disposables only where Landlord directs.
8. Landlord reserves the right to rescind, alter, waive or add,
any Rule or Regulation at any time prescribed for the Building
when, in the reasonable judgement of Landlord, Landlord deems
it necessary or desirable for the reputation, safety,
character, security, care, appearance or interests of the
Building, or the preservation of good order therein, or the
operation or maintenance of the Building, or the equipment
thereof, or the comfort of tenants or others in the Building.
No recission, alteration, waiver or addition of any Rule or
Regulation in respect of one tenant shall operate as a
recission, alteration or waiver in respect of any other
tenant.
9. Non-compliance with any of the above rules and regulations
may, in Landlord's sole judgement, result in a monetary fine
not to exceed $25 per day. Landlord will notify Tenant of such
violations and Tenant will have five (5) days to rectify,
after which, daily fine will be applied.
10. Tenant shall not place storage trailers or other storage
containers of any type outside Tenant's premises.
11. Tenant shall not park on a permanent or semi-permanent basis,
any trailer behind dock doors or in any other location outside
Tenant's premises for the purpose of storage.
<PAGE>
Exhibit 10.20
SPONSORED RESEARCH AGREEMENT
RESEARCH AGREEMENT, effective on the date of last signature below, by
and between The University of North Carolina at Chapel Hill, having an address
at 308 Bynum Hall, Chapel Hill, North Carolina (the "University"), and Boston
Biomedica, Inc., a corporation existing under the laws of the State of
Massachusetts, and having its principal place of business at 375 West Street,
West Bridgewater, MA 02379 (the "Sponsor"),
WITNESSETH:
WHEREAS, in pursuit of its educational purposes, which include research
and training, the University undertakes scholarly research and experimental
activities in a variety of academic disciplines; and
WHEREAS, the Sponsor has funded, wishes to continue to fund, and
desires that the University undertake, a research program in accordance with
said research and training mission, which research program is described more
fully in Exhibit A, attached hereto and made a part hereof (hereinafter, the
"Research"); and
WHEREAS, in furtherance of its scholarly research and instructional
interests, the University is willing to undertake the Research upon the terms
and conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
1. Scope of Research
During the term of this Agreement, the University shall use its best
efforts to perform the Research, as described in Exhibit A, attached
hereto and made a part hereof. Notwithstanding the foregoing, the
University makes no warranties or representations regarding its ability
to achieve, nor shall it be bound hereby to accomplish, any particular
research objective or results.
2. Personnel
The Research shall be performed by, and under the supervision and
direction of, Dr. Kuo-Hsiung Lee, who shall be designated the Principal
Investigator, together with such additional personnel as may be
assigned by the University. Sponsor shall be notified as to the
identity of the additional personnel and any personnel changes during
the course of the contract. If for any reason the Principal
Investigator is unable to continue to serve as the Principal
Investigator, and a successor acceptable to both the University and the
Sponsor is not available, this agreement may be terminated as provided
in Article 10.2.
<PAGE>
2
3. University policies and Procedures
All Research conducted hereunder shall be performed in accordance with
established University policies and procedures, including, but not
limited to, policies and procedures applicable to research involving
human subjects, laboratory animals, and hazardous agents and materials.
4. Budget and Payment Schedules
4.1 The Sponsor agrees to pay University, direct and indirect costs, in
connection with the Research in accordance with the Budget attached
hereto as Exhibit B. This budget covers all work described in Exhibit
A, including the discovery and development of novel compounds against
HIV and one additional virus or disease selected by Sponsor. In
addition to the Research described in Exhibit A, these funds will allow
the Principal Investigator to generate approximately 10 grams of each
of four separate compounds, per year. If Sponsor wishes to generate
additional quantities or additional compounds, other resources must be
committed towards this effort. Sponsor, at its sole discretion, may
choose to expand the research scope as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
TYPE OF EXTENSION Additional Direct Costs
OF RESEARCH SCOPE -----------------------
Per Year
--------
<S> <C>
additional disease state (max. of two) $50,000
additional bulk synthesis of compounds $5,000-$7,500 (approximate)
-----------------------------------------------------------------------
</TABLE>
4.2 For the purposes of this Agreement, "disease state" shall mean an
individual virus or disease (e.g. HIV, HCV, breast cancer, lymphoma,
etc.) for which compounds are being designed, under the Research, to
serve as therapeutic agents.
4.3 The University and Sponsor have agreed that the indirect cost rates for
the Research shall be added to the direct costs listed above and shall
be charged incrementally per year according to the following schedule
Year1: 10% Total Direct Costs
Year 2: 17.5% Total Direct Costs
Year 3: 25% Total Direct Costs
Option Year 1: 35% Total Direct Costs
Option Year 2: Full UNC Negotiated Rate
<PAGE>
3
Any modifications to the above shall be made only upon completion of a
written amendment to this Agreement executed by the University, the
Sponsor, and the Principal Investigator.
4.4 The University may submit to the Sponsor at any time, and the Sponsor
may at its discretion approve in writing, requests for additional
funds. However, the Sponsor is not liable for any cost in excess of the
amount specified herein, unless this Agreement is modified to indicate
such in writing by both parties. All checks shall be made payable to
The University of North Carolina at Chapel Hill, shall include
reference to the University, Principal Investigator and his department,
and shall be sent to: S. Kent Walker, 440 W. Franklin St., CB#1350,
UNC-CH, Chapel Hill, NC 27599-1350. Payments shall be made in
accordance with the following schedule: one-quarter (1/4) of the annual
budget on the date of signing of the agreement, and equal quarterly
payments thereafter for each funding year of the agreement.
5. Research Reports
The Principal Investigator shall furnish to the Sponsor during the term
of his Agreement informal written reports at least twice per year
regarding the progress of the Research. A final report setting forth
the significant research findings shall be prepared by the Principal
Investigator and submitted to the Sponsor within ninety (90) days
following the expiration of the term of this Agreement or the effective
date of early termination, as set forth in Article 10.
6. Publication
The University reserves, on behalf of the Principal Investigator and
other University employees and / or students, the right to disseminate
information, or to publish any material resulting from the Research
without need for approval by the Sponsor. However, the University shall
provide the Sponsor with a copy of any proposed publication forty-five
(45) days in advance of the proposed publication date. The Sponsor may
request, and the University shall agree to, a delay of such proposed
publication for an additional period, not to exceed forty-five (45)
days, in order to protect the potential patentability of any invention
described therein. The Sponsor, at its election, shall be entitled to
receive in any such publication an acknowledgment of its sponsorship of
the Research. It is specifically agreed that nothing contained in this
agreement will interfere with the publication or oral defense of
research theses and dissertations of graduate students.
<PAGE>
4
7. Proprietary Information
7.1 University shall disclose any new invention under this Agreement to
Licensee:
(a) within two months after the inventor discloses it to the
University's Office of Technology Development.
(b) at least two months prior to any intended public disclosure of all
or part of the invention; and
(c) at least two weeks prior to submission for publication of any
manuscript or abstract which discloses all or part of the invention
7.2 The disclosure under Article 7.1 shall be in writing and shall be
sufficiently complete in technical detail to convey a clear
understanding, to the extent known at the time of the disclosure, of
all attributes associated with the invention, such that a patent
application with meaningful claims can be drafted. It should also
indicate the earliest expected date of public disclosure of the
invention.
7.3 The University will promptly inform Company of the submission of any
abstract or manuscript for publication and its acceptance thereof.
7.4 The invention will not be publicly disclosed for 60 days after Company
has received a description of the invention. Company shall remove any
of its Confidential Information from the proposed public disclosure or
file a patent application sufficiently covering the invention within
this two month review period. If Company wishes to further delay
publication in order to draft a thorough patent application describing
the invention it must request such a delay to University in writing,
and University's approval shall not be unreasonably withheld. In no way
shall the total delay be more than ninety (90) days from the initial
disclosure of invention to company except with the written mutual
consent of both parties.
7.5 All confidential information of either party disclosed to the other
party in connection with the Research hereunder will be treated by the
receiving party as confidential and restricted in its use to only those
uses contemplated by the terms of this Agreement. Any information which
is to be treated as confidential must be clearly marked as confidential
prior to transmittal to the other party. If such confidential
information is disclosed orally, it shall be identified as being
confidential at the time of disclosure, and shall thereafter be reduced
to writing within 30 days, marked as confidential, and transmitted to
the receiving party. The Sponsor may submit confidential information
only to the Principal Investigator, who shall be free to refuse to
accept such confidential information. The obligations of this paragraph
shall survive and continue for three (3) years after termination of
this Agreement. Specifically excluded from such confidential treatment
shall be information which:
(a) as of the date of disclosure and / or delivery, is already known to
the party receiving such information;
<PAGE>
5
(b) is or becomes part of the public domain, through no fault of the
receiving party;
(c) is lawfully disclosed to the receiving party by a third party who
is not obligated to retain such information in confidence;
(d) is independently developed at the receiving party by someone not
privy to the confidential information, or
(e) either party is required by law to provide.
8. Results of the Research
8.1 "New Invention or Discovery" shall mean any invention or discovery
conceived or reduced to practice during and as a part of the Research
performed pursuant to this Agreement by Institution's Principal
Investigator, faculty, staff, employees, or students or jointly by such
an individual or individuals with one or more employees of the Sponsor.
New Inventions or Discoveries made solely by Institution's Principal
Investigator, faculty, staff, employees, or students shall be the sole
property of the Institution. New Inventions or Discoveries made jointly
by Institution's Principal Investigator, faculty, staff, employees, or
students with one or more employees of the Sponsor shall be owned
jointly by the Institution and the Sponsor. New Inventions or
Discoveries made solely by employees of Sponsor shall be the sole
property of Sponsor.
8.2 The University shall promptly disclose to the Sponsor in writing any
New Invention or Discovery which is subject to this Agreement. To the
extent that it has the legal right to do so, the University shall, upon
request of the Sponsor, grant the Sponsor the first Option for an
exclusive license to the University's right, title, and interest in any
such New Invention or Discovery under an Exclusive License Agreement to
be negotiated in accordance with the attached License Agreement and
under terms no less favorable to the Sponsor than those in the attached
License Agreement. Sponsor shall have six months to determine whether
to exercise this Option. If Sponsor declines to exercise its option to
any New Invention or Discovery University shall, at its own discretion,
be free to license the University's right, title, and interest in such
New Invention or Discovery to a third party, exclusively or
non-exclusively.
9. Ownership of Property
Title to any equipment purchased or manufactured in the performance of
the work funded under this agreement shall vest in the University.
<PAGE>
6
10. Term and Termination
10.1 This Agreement shall be effective for three (3) years from the date of
last signature below, with two additional one-year option periods that
may be exercised by Sponsor by providing written notice to University
within sixty (60) days of the termination date above. Notwithstanding
the foregoing, this Agreement may be extended thereafter by mutual
agreement of the parties in writing.
10.2 Notwithstanding the foregoing, this Agreement may be terminated by
either party at any time upon sixty (60) days advance written notice to
the other party, however, the provisions of paragraphs 7, 8, 9, 12, 14,
15, and 20 shall survive such termination. Upon receipt of notice of
early termination from Sponsor, the University shall use its best
efforts promptly to limit or terminate any outstanding commitments and
to conclude the work. All costs associated with such termination shall
be reimbursable, including, without limitation, all non-reimbursed
costs and non-cancelable commitments incurred prior to the receipt of
the notice of termination, such reimbursement together with other
payments not to exceed the total estimated project cost specified in
Article 4.
11. Notices
Any notices given under this Agreement shall be in writing and shall be
deemed delivered when sent by first-class mail, postage paid, addressed
to the parties as follows (or at such other addresses as the parties
may notify each other of in writing):
The University of North Carolina at Chapel Hill:
Dr. Robert P. Lowman
Associate Vice Provost for Research
Office of Research Services
The University of North Carolina at Chapel Hill
CB#4100, 300 Bynum Hall
Chapel Hill, NC 27599-4100
Sponsor:
Richard T. Schumacher
President and CEO
Boston Biomedica, Inc.
375 West Street
West Bridgewater, MA 02379
<PAGE>
7
12. Use of University Name
Sponsor shall not employ or use the name of the University in any
promotional materials, advertising, or in any other manner without the
prior express written permission of the University, except that Sponsor
may, during the term of this Agreement, state that it is sponsoring the
Research at the University. In no event shall the sponsoring of the
Research be considered to be an endorsement by the University of any
commercial product which may result, indirectly or directly, from the
Research.
13. Relationship of the Parties
The University, for all purposes related to this Agreement, shall be
deemed an independent contractor of the Sponsor, and nothing in this
Agreement shall be deemed to create a relationship of employment or
agency or to constitute the parties as partners or joint ventures.
14. Indemnification
14.1 The Sponsor agrees to defend, indemnify and hold harmless the
University, its employees, students and agents from and against any and
all liablility claims, lawsuits, losses, demands, damages, costs and
expenses, arising directly or indirectly out of the Research as
described in Exhibit A, or the design, manufacture, sale or use of any
embodiment or manifestation of said Research regardless of whether any
and all such liability, claims, lawsuits, losses, demands, damages,
costs and expenses arise in whole or in part from the negligence of any
of the indemnified parties. Notwithstanding the foregoing, the Sponsor
will not be responsible for any liablility, claims, lawsuits, losses,
demands, damages, costs, and expenses which arise solely from (a) the
gross negligence or intentional misconduct of University or the
Principal Investigator; and (b) actions by University or the Principal
Investigator in violation of applicable laws or regulations.
Notwithstanding any provisions herein to the contrary, and subject to
the provisions of the N.C. Tort Claims Act, G.S. 143-291 et seq., the
University shall indemnify the Sponsor for any claims for injuries to
persons or property damage which occur on the University premises or
premises under the exclusive control of the University.
14.2 The Sponsor agrees to provide a diligent defense against any and all
liability, claims, lawsuits, losses, demands, damages, costs, and
expenses, brought against the indemnified parties with respect to the
subject of the indemnity contained in Section 14.1, whether such claims
of actions are rightfully or wrongfully brought or filed.
<PAGE>
8
14.3 The University, on behalf of its employees, students and agents wishing
collectively to be indemnified as provided in Sections 14.1 and 14.2
shall:
(a) promptly after receipt of notice of any all liability claims,
lawsuits, losses, demands, damages, costs and expenses, or after
the commencement of any action, suit or proceeding giving rise to
the right of idemnification, notify the Sponsor, in writing, of
said liability, claims, lawsuits, losses, demands, damages, costs,
and expense and send to the Sponsor a copy of all papers served on
the indemnified party; the University's failure to notify the
Sponsor will not relieve the Sponsor from any liability to the
indemnified party; and
(b) permit the Sponsor to retain counsel of its choosing to represent
the indemnified party (but in the event that the Sponsor does not
select counsel to represent the indemnified party within ten (10)
days, the indemnified party may select its own counsel, the fees
and all costs of which counsel will be borne by the Sponsor); and
(c) subject to the statutory authority of the Attorney General of the
State of North Carolina, allow the Sponsor to retain exclusive
control of any such liability, claims, lawsuits, losses, demands,
damages, costs, and expenses, including the right to make any
settlement, except that the Sponsor will not have the right to make
any settlement or take any other action which would be deemed to
confess wrongdoing by any of the indemnified parties or could
reasonably be expected to have a negative effect on the reputation
of one of the indemnified parties, without the prior written
consent of University and the indemnified party involved.
15. No Warranties
The University makes no warranties, either express or implied, as to
any matter, including, without limitation, the results of the research
or any inventions or product, tangible or intangible, conceived,
discovered or developed under this Agreement; or the merchantability or
fitness for a particular purpose of the research results of any such
invention or product. The University shall not be liable for any
direct, consequential or other damages suffered by the Sponsor or by
any Licensee or any others resulting from the use of the research
results or any such invention or product.
<PAGE>
9
16. Force Major
The University shall not be liable for any failure to perform as
required by this Agreement, to the extent such failure to perform is
caused by any reason beyond the University's control, or by reason of
any of the following: labor disturbances or disputes of any kind,
accidents, failure of any required governmental approval, civil
disorders, acts of aggression, acts of God, energy or other
conservation measures, failure of utilities, mechanical breakdowns,
material shortage, disease, or similar occurrences.
17. Severability
In the event that a court of competent jurisdiction holds any provision
of this Agreement to be invalid, such holding shall have no effect on
the remaining provisions of this Agreement, and they shall continue in
full force and effect.
18 Entire Agreement; Amendments
This Agreement and the Exhibits hereto contain the entire agreement
between the parties. No amendments or modifications to this Agreement
shall be effective unless made in writing and signed by authorized
representatives of both parties.
19 Similar Research
Nothing in this Agreement shall be construed to limit the freedom of
the University of one of its researchers who are participants under
this Agreement, from engaging in similar research made under other
grants, contracts or agreements with parties other than the Sponsor.
20. Transfer of Sponsorship
During the course of this agreement, the Sponsor may transfer its
rights and obligations as Sponsor to a company formed by the Sponsor
and in which the Sponsor has at least 40% ownership at the time of
transfer, or another percent ownership interest agreed upon in writing
by the Parties. Sponsor will notify the University and Principal
Investigator in writing prior to any such transfer.
21. Governing Law
This Agreement shall be governed by and construed in accordance with
the law of North Carolina.
<PAGE>
10
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers or representatives.
THE UNIVERSITY OF NORTH CAROLINA SPONSOR
AT CHAPEL HILL
By: _____________________ By:_____________________
Robert P. Lowman, Ph.D. Richard T. Schumacher
Associate Vice Provost President and CEO
Office of Research Services
Date: _____________________ Date: ___________________
Consented to by Principal Investigator:
Signature: __________________________________________
Dr. Kuo-Hsiung Lee
Kenan Professor of Medicinal Chemistry
Date: ________________________________________
<PAGE>
11
Exhibit A
---------
The objectives of this Research shall be to (1) discover and develop novel
compounds that have improved anti-HIV activity and activity against one
additional virus or disease selected by Sponsor within the first two years of
the Agreement; (2) design and synthesize analogs of compounds already discovered
as a result of previous research paid for by Sponsor [e.g. compounds disclosed
in the US Patent Nos. 5,612,341; 5,637,589; 5,679,828; 5,726,204, and 5,847,165;
and in the US Patent Application entitled "Acylated Betulin and Dihydrobetulin
Derivatives, Preparation Thereof and Use Thereof", Inventors: K-H Lee, I-C Sun,
H-K Wang, and L.M. Cosentino]; and (3) synthesize gram-scale quantities of four
compounds per year to undergo extensive testing. During the course of this
research, the University will transfer to the Sponsor compounds synthesized
under this Research Plan for testing by Sponsor. Sponsor may, at his own cost,
have these compounds tested by contract testing organizations or collaborators.
These tests may include screening the compounds against a variety of viruses in
order to select the additional anti-viral target referred to above.
Sponsor may choose to direct research towards additional viruses and / or
disease states (maximum of two) at any point during the Research. However, such
research must be agreed upon by Sponsor and University prior to initiation of a
new research plan, and the minimum cost for such research will be in accordance
with Article 4 above. Sponsor may, at its own discretion, request additional
compounds as discussed in research objective #3 (in this Exhibit A) above,
provided that Sponsor pays all costs of the synthesis above and beyond the
agreed-upon costs herein.
<PAGE>
12
EXHIBIT B
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3 Combined
<S> <C> <C> <C> <C>
Salary + fringes for 2 post-docs @ 30,000 60,000 60,000 60,000 180,000
Salary + fringes for 2 graduate students @ 14,834 29,668 29,668 29,668 89,004
Tuition for two graduate students 18,332 18,332 18,332 54,996
Supplies, starting materials for four target
compounds / year, miscellaneous expenses 42,000 42,000 42,000 126,000
TOTAL DIRECT COSTS 150,000 150,000 150,000 450,000
Indirect Costs (10% Yr 1, 17.5% Yr 2, 25% Yr 3 15,000 26,250 37,500 78,750
TOTAL COSTS 165,000 176,250 187,500 528,750
</TABLE>
<PAGE>
CONTRACT NO. N01-AI-95381
BBI - BIOTECH RESEARCH LABORATORIES, INC.
DETAILED TABLE OF CONTRACT CONTENTS
<TABLE>
<S> <C>
PART I - THE SCHEDULE
SECTION A - SOLICITATION/CONTRACT FORM
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS.................................. 4
ARTICLE B.1. BRIEF DESCRIPTION OF SUPPLIES OR SERVICES...................... 4
ARTICLE B.2. ESTIMATED COST AND FIXED FEE................................... 4
ARTICLE B.3. PROVISIONS APPLICABLE TO DIRECT COSTS.......................... 4
ARTICLE B.4. ADVANCE UNDERSTANDINGS......................................... 6
SECTION C - STATEMENT OF WORK...................................................... 7
ARTICLE C.1. STATEMENT OF WORK.............................................. 7
ARTICLE C.2. REPORTING REQUIREMENTS......................................... 7
SECTION D - PACKAGING, MARKING AND SHIPPING........................................ 9
SECTION E - INSPECTION AND ACCEPTANCE.............................................. 9
SECTION F - DELIVERIES OR PERFORMANCE.............................................. 10
ARTICLE F.1. DELIVERIES..................................................... 10
ARTICLE F.2. CLAUSES INCORPORATED BY REFERENCE.............................. 10
SECTION G - CONTRACT ADMINISTRATION DATA........................................... 11
ARTICLE G.1. PROJECT OFFICER................................................ 11
ARTICLE G.2. KEY PERSONNEL.................................................. 11
ARTICLE G.3. INVOICE SUBMISSION/CONTRACT FINANCING REQUEST AND CONTRACT
FINANCIAL REPORT........................................... 12
ARTICLE G.4. INDIRECT COST RATES............................................ 13
ARTICLE G.5. GOVERNMENT PROPERTY............................................ 13
ARTICLE G.6. POST AWARD EVALUATION OF PAST PERFORMANCE...................... 14
SECTION H - SPECIAL CONTRACT REQUIREMENTS.......................................... 15
ARTICLE H.1. REIMBURSEMENT OF COSTS FOR INDEPENDENT RESEARCH AND
DEVELOPMENT PROJECTS....................................... 15
ARTICLE H.2. HUMAN SUBJECTS................................................. 15
ARTICLE H.3. CONTINUED BAN ON FUNDING OF HUMAN EMBRYO RESEARCH.............. 15
ARTICLE H.4. NEEDLE EXCHANGE................................................ 16
ARTICLE H.5. SALARY RATE LIMITATION LEGISLATION PROVISIONS.................. 16
ARTICLE H.6. EPA ENERGY STAR REQUIREMENTS................................... 16
ARTICLE H.7. PUBLICATION AND PUBLICITY...................................... 16
ARTICLE H.8. PRESS RELEASES................................................. 17
ARTICLE H.9. REPORTING MATTERS INVOLVING FRAUD, WASTE AND ABUSE............. 17
ARTICLE H.10. YEAR 2000 COMPLIANCE........................................... 17
PART II - CONTRACT CLAUSES............................................................... 19
SECTION I - CONTRACT CLAUSES....................................................... 19
ARTICLE I.1. GENERAL CLAUSES FOR A COST-REIMBURSEMENT SERVICE CONTRACT ..... 19
ARTICLE I.2 AUTHORIZED SUBSTITUTION OF CLAUSES.............................. 22
ARTICLE I.3. ADDITIONAL CONTRACT CLAUSES.................................... 22
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
ARTICLE I.4. ADDITIONAL FAR CONTRACT CLAUSES INCLUDED IN FULL TEXT.......... 23
PART III................................................................................. 25
SECTION J - LIST OF ATTACHMENTS.................................................... 25
PART IV.................................................................................. 25
SECTION K - REPRESENTATIONS AND CERTIFICATIONS..................................... 25
</TABLE>
2
<PAGE>
CONTRACT NO1-A1-95381
BBI - BIOTECH RESEARCH LABORATORIES, INC.
SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS
ARTICLE B.1. BRIEF DESCRIPTION OF SUPPLIES OR SERVICES
The purpose of this contract is to provide a specimen repository for domestic
and international HIV epidemiology studies, HIV vaccine trials, and other
clinical and prevention research studies supported by the DAIDS in the NIAID.
ARTICLE B.2. ESTIMATED COST AND FIXED FEE
a. The estimated cost of this contract is $9,154,511.
b. The fixed fee for this contract is $452,450. The fixed fee shall be paid
in installments based on the percentage of completion of work, as
determined by the Contracting Officer, and subject to the withholding
provisions of the clauses ALLOWABLE COST AND PAYMENT and FIXED FEE
referenced in the General Clause Listing in Part II, ARTICLE I.1. of this
contract. Payment of fixed fee shall not be made in less than monthly
increments.
c. The Government's obligation, represented by the sum of the estimated cost
plus fixed fee, is $9,606,961.
d. Total funds currently available for payment and allotted to this contract
are $1,295,817, of which $1,241,460 represents the estimated costs, and
of which $54,357 represents the fixed fee. For further provisions on
funding, see the LIMITATION OF FUNDS clause referenced in Part II, ARTICLE
I.2. Authorized Substitutions of Clauses.
e. It is estimated that the amount currently allotted will cover performance
of the contract through August 15, 2000.
f. Increments to be allotted to this contract are estimated as follows:
<TABLE>
<CAPTION>
Total Estimated
FY Period Estimated Cost Fixed Fee Cost Plus Fee
-- ------ -------------- --------- ----------------
<S> <C> <C> <C> <C>
1999 8/16/99-8/15/00 $1,241,460 $ 54,357 $1,295,817
2000 8/16/00-8/15/01 $1,027,597 $ 52,767 $1,080,364
2001 8/16/01-8/15/02 $1,242,260 $ 60,496 $1,302,756
2002 8/16/02-8/15/03 $1,280,768 $ 64,427 $1,345,195
2003 8/16/03-8/15/04 $1,340,291 $ 67,626 $1,407,917
2004 8/16/04-8/15/05 $1,399,171 $ 70,776 $1,469,947
2005 8/16/05-8/15/06 $1,622,964 $ 82,001 $1,704,965
---------- -------- ----------
TOTAL $9,154,511 $452,450 $9,606,961
</TABLE>
g. The Contracting Officer may allot additional funds to the contract without
the concurrence of the Contractor.
ARTICLE B.3. PROVISIONS APPLICABLE TO DIRECT COSTS
a. ITEMS UNALLOWABLE UNLESS OTHERWISE PROVIDED
Notwithstanding the clauses, ALLOWABLE COST AND PAYMENT and FIXED FEE,
incorporated in this contract, unless authorized in writing by the
Contracting Officer, the costs of the following items or activities shall
be unallowable as direct costs:
3
<PAGE>
CONTRACT NO1-A1-95381
BBI - BIOTECH RESEARCH LABORATORIES, INC.
(1) Acquisition, by purchase or lease, of any interest in real property;
(2) Special rearrangement or alteration of facilities;
(3) Purchase or lease of ANY item of general purpose office furniture or
office equipment regardless of dollar value. (General purpose
equipment is defined as any items of personal property which are
usable for purposes other than research, such as office equipment
and furnishings, pocket calculators, etc.);
(4) Travel to attend general scientific meetings;
(5) Foreign travel - See b(2) below ;
(6) Patient care costs;
(7) Accountable Government property (defined as both real and personal
property with an acquisition cost of $1,000 or more and a life
expectancy of more than two years) and "sensitive items" (defined
and listed in the Contractor's Guide for Control of Government
Property), 1990, regardless of acquisition value;
(8) Consultants; and
(9) Subcontract(s).
b. TRAVEL COSTS
(1) Domestic Travel
(a) Total expenditures for domestic travel (transportation,
lodging, subsistence, and incidental expenses) incurred in
direct performance of this contract shall not exceed $22,470
without the prior written approval of the Contracting Officer.
(b) The Contractor shall invoice and be reimbursed for all travel
costs in accordance with Federal Acquisition Regulation (FAR)
31.205-46.
(2) Foreign Travel
Requests for foreign travel must be submitted at least six weeks
in advance and shall contain the following: (a) meeting(s) and
place(s) to be visited, with costs and dates; (b) name(s) and
title(s) of Contractor personnel to travel and their functions in
the contract project; (C) contract purposes to be served by the
travel; (d) how travel of contractor personnel will benefit and
contribute to accomplishing the contract project, or will otherwise
justify the expenditure of NIH contract funds; (e) how such
advantages justify the costs for travel and absence from the
project of more than one person if such are suggested; and (f)
what additional functions may be performed by the travelers to
accomplish other purposes of the contract and thus further benefit
the project.
(3) Government Discount Air Travel Rates
(a) To the maximum extent practicable consistent with travel
requirements, the Contractor agrees to use the reduced air
transportation rates and services provided through available
Government discount air fares. These fares are available only
for bona-fide employees' travel that is otherwise reimbursable
as a direct cost pursuant to this contract. The objective is
to achieve the lowest overall cost to the Contractor and,
thus, to the Government. The Contractor shall submit written
requests to the Contracting Officer for authorization to use
these rates. The request shall provide the full name of the
traveler(s), the number of the contract for which the travel
is being performed, the contract objective that is to be
fulfilled, and the dates during which the travel is to occur.
Contracting Officer approval, if given, will be on official
agency letterhead so that
4
<PAGE>
CONTRACT NO1-A1-95381
BBI - BIOTECH RESEARCH LABORATORIES, INC.
the letter can be presented to the airline as confirmation
of the authorization.
(b) Nothing in this clause shall authorize transportation or
services which are not otherwise reimbursable under this
contract. Nothing in this clause requires air carriers to make
available to the Contractor any government discount airfares.
ARTICLE B.4. ADVANCE UNDERSTANDINGS
Other provisions of this contract notwithstanding, approval of the following
items within the limits set forth is hereby granted without further
authorization from the Contracting Officer.
a. PRE-CONTRACT COSTS
Within the dollar limitation set forth under SECTION B, ARTICLE B.2., the
Contractor shall be entitled to reimbursement for costs incurred during
the period August 16, 1999 through August 31, 1999, in an amount not to
exceed $50,000, which if incurred after this contract had been entered
into would have been reimbursable under the provisions of this contract.
b. INDIRECT COSTS
Pending the establishment of final indirect cost rates for any period,
billing and reimbursement shall be made on the basis of provisional
billing rates set forth in the Negotiated Indirect Cost Rate Agreement of
April 1, 1998.
c. SUBCONTRACT
To negotiate a cost type subcontract with Information Management Services,
Inc. (IMS) for Computerized biological specimen inventory and tracking for
an amount not to exceed $275,628. Award of the subcontract shall not
proceed without the prior written approval of the Contracting Officer upon
review of the supporting documentation as required by the Subcontracts
clause of the General Clauses incorporated in this contract. (After
written approval of the subcontract by the Contracting Officer, a copy of
the signed, approved subcontract shall be provided to the Contracting
Officer.)
d. USE OF SAMPLES/PRODUCTS RECEIVED UNDER THIS CONTRACT
The contractor agrees that samples/products received from/through the
Government for utilization under this contract shall be used only for
purposes required to fulfill the Statement of Work and for no other
purpose, specifically not for manufacturing or selling in conjunction with
its parent company.
e. CORRESPONDENCE PROCEDURES
To promote timely and effective administration, correspondence (except
for invoices, technical progress reports/other deliverables) submitted
under this contract shall be subject to the following procedures:
(1) Technical correspondence shall be addressed to the Project Officer
with an information copy of the basic correspondence to the
Contracting Officer. (As used herein, technical correspondence
EXCLUDES correspondence which proposes deviations from or
modifications of contract requirements, terms or conditions)
(2) Other correspondence shall be addressed to the Contracting Officer,
with an information copy of the basic correspondence to the Project
Officer.
(3) Subject Line(s). All correspondence shall contain a subject line
commencing with the contract number as illustrated below:
SUBJECT: Contract No. NO1-AI-95381
Request for Approval of
5
<PAGE>
CONTRACT NO1-A1-95381
BBI - BIOTECH RESEARCH LABORATORIES, INC.
g. CONFIDENTIAL TREATMENT OF SENSITIVE INFORMATION
The Contractor shall guarantee strict confidentiality of the
information/data that is provided by the Government during the performance
of the contract. The Government has determined that the information/data
that the Contractor will be provided during the performance of the
contract is of a sensitive nature and can not be disclosed in any matter.
Disclosure of the information/data, in whole or in part, by the Contractor
can only be made after the Contractor receives prior written approval from
the Contracting Officer. Whenever the Contractor is uncertain with regard
to the proper handling of information/data under the contract, the
Contractor shall obtain a written determination from the Contracting
Officer.
SECTION C - STATEMENT OF WORK
ARTICLE C.1. STATEMENT OF WORK
a. Independently and not as an agent of the Government, the Contractor shall
furnish all the necessary services, qualified personnel, material,
equipment, and facilities, not otherwise provided by the Government as
needed to perform the Statement of Work SECTION J, ATTACHMENT 1 , dated
August 16, 1999, attached hereto and made a part of this contract.
ARTICLE C.2. REPORTING REQUIREMENTS
a. TECHNICAL REPORTS
In addition to those reports required by the other terms of this contract,
the Contractor shall prepare and submit the following reports in the
manner stated below and in accordance with ARTICLE F.1. DELIVERIES of this
contract:
1) Quarterly Progress Reports
By the fifteenth day of the month following the end of each quarter,
the Contractor shall submit two (2) copies of a quarterly progress
report as described below. The first reporting period shall consist
of the first full three months of performance including any
fractional part of the initial month (August 16, 1999 through
November 30, 1999). One (1) copy shall be submitted to the Project
Officer and one (1) copy to the Contracting Officer. A quarterly
report is not due when an annual report is due. The quarterly report
should be factual, concise, and consist of the following:
a) Title page containing:
(1) Contract number and title
(2) Sequence of report; (e.g., "Year 1, 2nd Quarterly Report")
(3) Period of performance being reported
(4) Contractor's name and address
(5) Date of submission
b) Reports shall include, but are not limited to the following
information:
(1) A brief introduction covering the objective and scope of
the contract effort.
(2) A description of the overall work accomplished during
the quarter plus brief descriptions of shipping activity
both into and out of the Repository, including specimen
disbursement requests.
(3) A description of any technical or performance problems
encountered and corrective actions planned or taken.
6
<PAGE>
CONTRACT NO1-A1-95381
BBI - BIOTECH RESEARCH LABORATORIES, INC.
(4) An explanation of any differences between planned and
actual progress.
(5) Selected other information as may be required by the
Project Officer.
2) Annual Progress Report
Thirty (30) days after each anniversary date of the contract, the
Contractor shall submit two (2) copies of an annual report. One (1)
copy shall be submitted to the Project Officer and one (1) copy to
the Contracting Officer. The annual report shall be factual and
concise and summarize progress for the entire contract year,
following the same format as for the Quarterly Progress Reports and
shall take the place of the fourth Quarterly Progress Report each
year. An annual report is not required when the final report is due.
3) Interim Reports
Upon request by the Project Officer, and within five working days of
such a request, the Contractor shall provide an interim report to
cover the period of the current week or latest 1 - 4 weeks, and
describing:
a) the specific work accomplished and in progress
b) a summary of all shipping activity into and out of the
Repository
c) a description of any technical or performance problems
encountered and corrective actions
planned or taken
d) estimated time taken to complete the work described
e) selected other items as required by the Project Officer
4) Final Report
The contractor shall submit two (2) copies of the final report,
which will summarize the results of the entire contract work for the
complete performance period. One (1) copy shall be submitted to the
Project Officer and one (1) copy to the Contracting Officer. This
report will follow the same format as for the Annual Progress Report
and shall take the place of the last Annual Progress Report. It
shall be in sufficient detail to explain comprehensively the results
achieved and shall be submitted no later than the completion date of
the contract.
5) Other Deliverables
a) The Contractor shall prepare a transition plan within 30
calendar days of award date.
b) The Contractor shall prepare a User Manual of SOPs, subject
to Project Officer approval, for all aspects of specimen
handling within 45 calendar days of award date.
c) By February 1, 2000, the Contractor shall prepare (in
coordination with the Project Officer and other DAIDS cohorts)
a Repository Management Plan, subject to Project Officer
approval, which addresses issues of a proposed maximum
capacity that the DAIDS Specimen Repository should maintain;
criteria for determining which specimens are collected,
stored, or discarded for each research study;
availability/accessibility of specimens to the scientific
community; quality control; and specific steps to institute
the plan's targeted goals.
d) The Contractor, subject to Project Officer approval, shall
deliver to the Government or its designee the following items
by the completion date of the Contract:
(1) Stored specimens including those received by the
Contractor from the Project Officer or designated
investigators.
(2) A computer-generated listing of accurate and updated
information on specimen inventory, including activities
of the contractor, computerized data files, original
data, and any necessary information related thereto;
(3) Labeled and inventoried paper files; and
(4) Government-owned equipment and specimen property.
7
<PAGE>
CONTRACT NO1-A1-95381
BBI - BIOTECH RESEARCH LABORATORIES, INC.
b. Delivery of Reports
If the Contractor becomes unable to deliver the reports or other
deliverables specified hereunder within the period of performance because
of unforeseen difficulties, notwithstanding the exercise of good faith and
diligent efforts in performance of the work, the Contractor shall give the
Contracting Officer immediate written notice of anticipated delays with
reasons therefore at the address given below.
1) Project Officer
ETB, VPRP, DAIDS, NIAID, NIH
6700-B Rockledge Drive, Room 4232, MSC 7628
Bethesda, Maryland 20892-7628
2) Contracting Officer
CMB, DEA, NIAID, NIH
6700-B Rockledge Drive, Room 2230, MSC 7612
Bethesda, Maryland 20892-7612
SECTION D - PACKAGING, MARKING AND SHIPPING
All Specimens under this contract shall be packaged, marked and shipped in
accordance with Government specifications. Specifically, shipping containers
must be used which comply with U.S. DOT or IATA regulations for infectious
substances, styrofoam boxes, liquid nitrogen shipping containers, labeling
material, shipping forms, and any other IATA requirements.
The contractor shall operate in accordance with the basic references and
other modifications by the Public Health Service which include but are not
limited to:
(1) Title 49 CFR Part 100-199 Transportation
(2) Title 42 CFR Part 71.54 and 72.3 Etiologic Agents, Hosts and
Vectors; Interstate Shipment of Etiologic Agents
(3) Title 39 CFR Part 124 Postal Services
(4) International Air Transport Association (IATA), Dangerous Goods
Regulations 36th Edition 1995, and 1997 changes to the IATA
Dangerous Good Regulations
(5) International Civil Aviation Organization (ICAO) Technical
Instructions for the Safe Transportation of Dangerous Good by Air
1995-1996
(6) United Nations Recommendations on the Transport of Dangerous Good
8th Edition
All other deliverables required under this contract shall be packaged, marked
and shipped in accordance with Government specifications. At a minimum, all
deliverables shall be marked with the contract number and name. The
Contractor shall guarantee that all required materials shall be delivered in
immediate usable and acceptable condition.
SECTION E - INSPECTION AND ACCEPTANCE
a The Contracting Officer or the duly authorized representative will perform
inspection and acceptance of materials and services to be provided.
b. For the purpose of this ARTICLE the Project Officer is the authorized
representative of the Contracting Officer.
c. Inspection and acceptance will be performed at:
ETB, VPRP, DAIDS, NIAID, NIH
8
<PAGE>
CONTRACT NO1-A1-95381
BBI - BIOTECH RESEARCH LABORATORIES, INC.
6700-B Rockledge Drive, Room 4232, MSC 7628
Bethesda, Maryland 20892-7628
Acceptance may be presumed unless otherwise indicated in writing by the
Contracting Officer or the duly authorized representative within 30 days
of receipt.
d. This contract incorporates the following clause by reference, with the
same force and effect as if it were given in full text. Upon request, the
Contracting Officer will make its full text available.
FAR Clause No. 52.246-5, INSPECTION OF SERVICES-COST REIMBURSEMENT
(APRIL 1984).
SECTION F - DELIVERIES OR PERFORMANCE
ARTICLE F.1. DELIVERIES
a. Satisfactory performance of this contract shall be deemed to occur upon
delivery and acceptance by the Contracting Officer, or the duly authorized
representative, of the items specified in the Delivery Schedule which are
described in SECTION C of this contract.
b. Deliveries required by the contractor shall be made f.o.b. destination as
set forth in FAR 52.247-35, F.O.B. DESTINATION, WITHIN CONSIGNEES PREMISES
(APRIL 1984), and in accordance with and by the dates specified below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
TYPE OF REPORT NO OF COPIES ADDRESS DUE DATES
- -------------- ------------ ------------------------------- ----------------------------
<S> <C> <C> <C>
Quarterly 1 Project Officer Beginning on December 15,
VPRP, ETB, DAIDS 1999, and quarterly
NIAID, NIH thereafter. A quarterly
6700-B Rockledge Dr. will not be due when
Rm. 4232 submitting an annual or
Bethesda, MD 20892 final report.
- -------------- ------------ ------------------------------- ----------------------------
Quarterly 1 Contracting Officer Same as above
(Original) NIH, NIAID, CMB
6700-B Rockledge Dr.
Rm. 2230, MSC 7612
Bethesda, MD 20892-7612
- -------------- ------------ ------------------------------- ----------------------------
Annual 1 P.O.'s Address above Beginning September 15,
2000, and 30 days following
each anniversary date of
the contract thereafter.
- -------------- ------------ ------------------------------- ----------------------------
Annual 1 C.O.'s Address above Same as above
(Original)
- -------------- ------------ ------------------------------- ----------------------------
Final 1 P.O.'s Address above On/before August 15, 2006
- -------------- ------------ ------------------------------- ----------------------------
Final 1 C.O.'s Address above Same as above
(Original)
- ------------------------------------ ----------------------------------- -----------------------------
</TABLE>
9
<PAGE>
CONTRACT NO1-A1-95381
BBI - BIOTECH RESEARCH LABORATORIES, INC.
ARTICLE F.2. CLAUSES INCORPORATED BY REFERENCE, FAR 52.252-2 (FEBRUARY 1998)
This contract incorporates the following clause by reference, with the same
force and effect as if it were given in full text. Upon request, the
Contracting Officer will make its full text available. Also, the full text of
a clause may be accessed electronically at this address:
http://www.arnet.gov/far/.
FEDERAL ACQUISITION REGULATION (48 CFR CHAPTER 1) CLAUSE:
52.242-15, Stop Work Order (AUGUST 1989) with ALTERNATE I (APRIL 1984).
SECTION G - CONTRACT ADMINISTRATION DATA
ARTICLE G.1. PROJECT OFFICER
The following Project Officer(s) will represent the Government for the
purpose of this contract:
Elaine Matzen, R.N., Health Specialist
The Project Officer is responsible for: (1) monitoring the Contractor's
technical progress, including the surveillance and assessment of performance
and recommending to the Contracting Officer changes in requirements; (2)
interpreting the Statement of Work and any other technical performance
requirements; (3) performing technical evaluation as required; (4) performing
technical inspections and acceptances required by this contract; and (5)
assisting in the resolution of technical problems encountered during
performance.
The Contracting Officer is the only person with authority to act as agent of
the Government under this contract. Only the Contracting Officer has
authority to: (1) direct or negotiate any changes in the Statement of Work;
(2) modify or extend the period of performance; (3) change the delivery
schedule; (4) authorize reimbursement to the Contractor any costs incurred
during the performance of this contract; or (5) otherwise change any terms
and conditions of this contract.
The Contracting Officer hereby delegates the Project Officer as the
Contracting Officer's authorized representative responsible for signing
software license agreements issued as a result of this contract.
The Government may unilaterally change its Project Officer designation.
ARTICLE G.2. KEY PERSONNEL
The personnel specified in this contract are considered to be essential to
the work to be performed hereunder. Prior to diverting any of the specified
individuals to other programs, the Contractor shall notify the Contracting
Officer reasonably in advance and shall submit justification (including
proposed substitutions) in sufficient detail to permit evaluation of the
impact on the program. No diversion shall be made by the Contractor without
the written consent of the Contracting Officer; provided, that the
Contracting Officer may ratify in writing such diversion and such
ratification shall constitute the consent of the Contracting Officer required
by this article. The contract may be amended from time to time during the
course of the contract to either add or delete personnel, as appropriate.
The following individuals are considered to be essential to the work being
performed hereunder:
<TABLE>
<CAPTION>
NAME TITLE
<S> <C>
Mark Cosentino, Ph.D., D.P.M. Principal Investigator
Carla Hanson Co-Project Manager
Kathi Shea Co-Project Manager
</TABLE>
10
<PAGE>
CONTRACT NO1-A1-95381
BBI - BIOTECH RESEARCH LABORATORIES, INC.
<TABLE>
<S> <C>
Jiuping (Jay) Ji, Ph.D. Co-Investigator
Hanna Weissberger, Ph.D. Co-Investigator
</TABLE>
ARTICLE G.3. INVOICE SUBMISSION/CONTRACT FINANCING REQUEST AND CONTRACT
FINANCIAL REPORT
a. Invoice/Financing Request Instructions and Contract Financial Reporting
for NIH Cost-Reimbursement Type Contracts NIH(RC)-4 are attached and made
part of this contract. The instructions and the following directions for
the submission of invoices/financing request must be followed to meet the
requirements of a "proper" payment request pursuant to FAR 32.9.
b. These instructions also provide for the submission of financial and
personnel reporting required by HHSAR 342.7002. Unless otherwise stated in
that part of the Instructions for Completing Form NIH(RC)-4 (see
ATTACHMENT 1), all columns A through H shall be completed for each invoice
submitted.
c. The Contracting Officer may require the Contractor to submit detailed
support for costs contained in one or more interim financial invoices.
This clause does not supersede the record retention requirements of FAR
Part 4.7.
d. The contractor agrees to provide a detailed breakdown on invoices of cost
and personnel reporting and variances from the negotiated budget in the
following cost categories:
1) Direct Labor - List individuals by name, title/position,
hourly/annual rate, level of effort, and amount claimed.
2) Fringe Benefits - Cite rate and amount
3) Overhead - Cite rate and amount
4) Materials & Supplies - Include detailed breakdown when total amount
is over $1,000.
5) Travel - Identify travelers, dates, destination, purpose of trip,
and amount. Cite COA, if appropriate. List separately, domestic
travel, general scientific meeting travel, and foreign travel.
6) Consultant Fees - Identify individuals and amounts.
7) Subcontracts - Attach subcontractor invoice(s).
8) Other Direct Costs - Provide breakdown when total amount is over
$1,000.
9) Equipment - Cite authorization and amount.
10) G&A - Cite rate and amount.
11) Total Cost
12) Fixed Fee
13) Total Amount Claimed
14) Adjustments
15) Grand Totals
e. Invoices must include the cumulative total expenses to date, adjusted (as
applicable) to reflect any amounts suspended by the Government.
e. THE CONTRACTOR AGREES TO IMMEDIATELY NOTIFY THE CONTRACTING OFFICER, IN
WRITING, IF THERE IS AN ANTICIPATED OVERRUN (ANY AMOUNT) OR UNEXPENDED
BALANCE (GREATER THAN 10 PERCENT) OF THE AMOUNT CURRENTLY ALLOTTED TO THE
CONTRACT AND THE REASONS FOR THE VARIANCE. Also, refer to the requirements
of FAR 52.232-20, Limitation of Cost, referenced in the contract.
f. Invoices/financing requests shall be submitted in the form of an ORIGINAL
AND TWO COPIES to the following designated BILLING office:
Contracting Officer
Contract Management Branch, DEA
National Institute of Allergy and Infectious Diseases, NIH
6700-B Rockledge Drive, Room 2230, MSC 7612
11
<PAGE>
CONTRACT NO1-A1-95381
BBI - BIOTECH RESEARCH LABORATORIES, INC.
Bethesda, Maryland 20892-7612
g. Inquiries regarding approval of invoices should be directed to the
designated BILLING office, (301) 496-0612.
h. The Contractor shall include the following certification on every invoice
for reimbursable costs incurred with Fiscal Year funds subject to the
salary rate limitation provisions as specified in ARTICLE H.5. of this
contract. For billing purposes, certified invoices are required for the
billing period during which the applicable Fiscal Year funds were
initially charged through the final billing period utilizing the
applicable Fiscal Year funds:
"I hereby certify that the salaries charged in this invoice are in
compliance with the Public Law (P.L.) cited for the applicable
Fiscal Year as stated in ARTICLE H.5. of the above referenced
contract."
ARTICLE G.4. INDIRECT COST RATES
In accordance with Federal Acquisition Regulation (FAR) (48 CFR Chapter 1)
Clause 52.216-7 (d)(2), Allowable Cost and Payment incorporated by reference in
this contract in Part II, Section I, the cognizant Contracting Officer
responsible for negotiating provisional and/or final indirect cost rates is
identified as follows:
Director, Division of Financial Advisory Services
Office of Contracts Management
National Institutes of Health
6100 Building, Room 6B05
6100 EXECUTIVE BLVD MSC-7540
BETHESDA MD 20892-7540
Please see Article B.4. Advance Understandings, paragraph b., Indirect Costs.
These rates are hereby incorporated without further action of the Contracting
Officer. The above information notwithstanding, the notification required to be
submitted to the Contracting Officer pursuant to FAR 52.232-22, "Limitation of
Funds," of this contract shall remain in effect.
ARTICLE G.5. GOVERNMENT PROPERTY
a. In addition to the requirements of the clause, GOVERNMENT PROPERTY,
incorporated in Section I of this contract, the Contractor shall comply
with the provisions of DHHS Publication, CONTRACTOR'S GUIDE FOR CONTROL OF
GOVERNMENT PROPERTY, (1990), which is incorporated into this contract by
reference. Among other issues, this publication provides a summary of the
Contractor's responsibilities regarding purchasing authorizations and
inventory and reporting requirements under the contract. A copy of this
publication is available upon request to the Contract Property
Administrator.
This contract's Contract Property Administrator is:
Charles Varga
Contracts Property Administrator
Research Contracts Property Administration, NIH
6011Building, Room 641E
6011 EXECUTIVE BLVE MSC 7670
BETHESDA MD 20852-7670
(301) 496-6466
12
<PAGE>
CONTRACT NO1-A1-95381
BBI - BIOTECH RESEARCH LABORATORIES, INC.
b. CONTRACTOR-ACQUIRED GOVERNMENT PROPERTY - SCHEDULE I-A
Pursuant to the clause, GOVERNMENT PROPERTY, incorporated in this
contract, the Contractor is hereby authorized to acquire the property
listed in Schedule I-A below for use in direct performance of the
contract. Title of this property shall vest in the Government
SCHEDULE I-A - (Year 1)
<TABLE>
<CAPTION>
Item No. Quantity Description Est. Cost
-------- -------- ----------- ---------
<S> <C> <C> <C>
1-15 15 -70 degrees freezers @ $7,550 each $ 113,250
16-19 4 LN2 freezers (XLC-1830) @ $20,450 each $ 81,800
17 1 Racking System for LN2 $ 4,740
18 1 Additional LN2 Vacuum Piping $ 9,500
19-25 7 Racking System for -70c @ $3,388 each $ 23,716
26-28 3 Bar Coding Scanner @ $1,300 each $ 3,900
29-32 4 Computers @ $887 each $ 3,548
33 1 T1 Line for Computer System $ 1,000
----------
TOTAL $ 241,454
</TABLE>
c. CONTRACTOR-ACQUIRED GOVERNMENT PROPERTY - SCHEDULE I-B
Pursuant to the clause, GOVERNMENT PROPERTY, incorporated in this
contract, the Contractor will be authorized to acquire the property listed
in Schedule I-B for use in direct performance of the contract, following
receipt of the Contracting Officer's written approval, based on
contractor-furnished prices and evidence of competition.
SCHEDULE I-B -- (Years 2-7)
<TABLE>
<CAPTION>
Description Yr.2 Yr.3 Yr.4 Yr.5 Yr.6 Yr.7 Total (Yrs. 2-7)
----------- ---- ---- ---- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
-70(degree)freezer & 8 units 13 units 13 units 13 units 13 units 13 units 73 units
racking system $ 90,129 $147,259 $151,677 $156,228 $160,914 $165,741 $871,948
LN2 freezer & 1 unit 2 units 1 unit 1 unit 1 unit 2 units 8 units
racking system $25,946 $53,447 $27,526 $28,352 $29,202 $60,157 $224,630
Total $116,075 $200,706 $179,203 $184,580 $190,116 $225,898 $1,096,578
</TABLE>
d. GOVERNMENT FURNISHED PROPERTY - SCHEDULE II-A
Pursuant to the clause, GOVERNMENT PROPERTY, incorporated in this contract,
the Contractor is hereby authorized to retain custody of the property
listed in Attachment 5, Schedule II-A for use in direct performance of this
contract. Accountability for the items listed in Schedule II-A is hereby
transferred to this contract from predecessor Contract No. NO1-AI-45204 ,
under which these items were provided by the Government. Title to this
property shall remain in the Government.
13
<PAGE>
CONTRACT NO1-A1-95381
BBI - BIOTECH RESEARCH LABORATORIES, INC.
ARTICLE G.6. POST AWARD EVALUATION OF PAST PERFORMANCE
Interim and final evaluations of contractor performance will be prepared on
this contract in accordance with FAR 42.15. The final performance evaluation
will be prepared at the time of completion of work. In addition to the final
evaluation, interim evaluations will be prepared annually to coincide with
the anniversary date of the contract.
Interim and final evaluations will be provided to the Contractor as soon as
practicable after completion of the evaluation. The Contractor will be
permitted thirty days to review the document and to submit additional
information or a rebutting statement. Any disagreement between the parties
regarding an evaluation will be referred to an individual one level above the
Contracting Officer, whose decision will be final.
Copies of the evaluations, contractor responses, and review comments, if any,
will be retained as part of the contract file, and may be used to support
future award decisions.
SECTION H - SPECIAL CONTRACT REQUIREMENTS
ARTICLE H.1. REIMBURSEMENT OF COSTS FOR INDEPENDENT RESEARCH AND DEVELOPMENT
PROJECTS
The primary purpose of the Public Health Service (PHS) is to support and
advance independent research within the scientific community. This support is
provided in the form of contracts and grants totaling approximately 7 billion
dollars annually. PHS has established effective, time tested and well
recognized procedures for stimulating and supporting this independent
RESEARCH by selecting from multitudes of applications those research projects
most worthy of support within the constraints of its appropriations. The
reimbursement through the indirect cost mechanism of independent research and
development costs not incidental to product improvement would circumvent this
competitive process.
To ensure that all research and development projects receive similar and
equal consideration, all organizations may compete for direct funding of
independent research and development projects they consider worthy of support
by submitting those projects to the appropriate Public Health Service grant
office for review. Since these projects may be submitted for direct funding,
the Contractor agrees that no costs for any independent research and
development project, including all applicable indirect costs, will be claimed
under this contract.
ARTICLE H.2. HUMAN SUBJECTS
It is hereby understood and agreed that research involving human subjects
shall not be conducted under this contract, and that no material developed,
modified, or delivered by or to the Government under this contract, or any
subsequent modification of such material, will be used by the Contractor or
made available by the Contractor for use by anyone other than the Government,
for experimental or therapeutic use involving humans without the prior
written approval of the Contracting Officer.
ARTICLE H.3. CONTINUED BAN ON FUNDING OF HUMAN EMBRYO RESEARCH
a. Pursuant to Public Law(s) cited in paragraph b. , below, NIH is prohibited
from using appropriated funds to support human embryo research. Contract
funds may not be used for (1) the creation of a human embryo or embryos
for research purposes; or (2) research in which a human embryo or embryos
are destroyed, discarded, or knowingly
14
<PAGE>
subjected to risk of injury or death greater than that allowed for
research on fetuses in utero under 45 CFR 46.208(a)(2) and Section 498(b)
of the Public Health Service Act (42 U.S.C. 289g(b)). The term "human
embryo or embryos" includes any organism, not protected as a human
subject under 45 CFR 46 as of the date of the enactment of this Act,
that is derived by fertilization, parthenogenesis, cloning, or any
other means from one or more human gametes or human diploid cells.
Additionally, in accordance with a March 4, 1997 Presidential Memorandum,
Federal funds may not be used for cloning of human beings.
<TABLE>
<CAPTION>
b. PUBLIC LAW AND SECTION NO. FISCAL YEAR PERIOD COVERED
<S> <C> <C>
105-297, Section 511 1999 10/1/98 - 9/30/99
</TABLE>
ARTICLE H.4. NEEDLE EXCHANGE
a. Pursuant to Public Law(s) cited in paragraph b., below, contract funds
shall not be used to carry out any program of distributing sterile needles
or syringes for the hypodermic injection of any illegal drug.
<TABLE>
<CAPTION>
b. PUBLIC LAW AND SECTION NO. FISCAL YEAR PERIOD COVERED
<S> <C> <C>
105-277, Section 505 1999 10/1/98 - 9/30/99
</TABLE>
ARTICLE H.5. SALARY RATE LIMITATION LEGISLATION PROVISIONS
a. Pursuant to Public Law(s) cited in paragraph b., below, no NIH Fiscal Year
funds for the applicable fiscal year(s) and periods cited in paragraph b.,
below may be used to pay the direct salary of an individual through this
contract at a rate in excess of applicable amount shown for the fiscal year
and period covered. Direct salary is exclusive of overhead, fringe benefits
and general and administrative expenses. The per year salary rate limit
also applies to individuals proposed under subcontracts. If this is a
multi-year contract, it may be subject to unilateral modifications by the
Government if an individual's salary rate exceeds any salary rate ceiling
established in future DHHS appropriation acts.
<TABLE>
<CAPTION>
DOLLAR AMOUNT OF
b. PUBLIC LAW NO. FISCAL YEAR PERIOD COVERED SALARY LIMITATION
<S> <C> <C> <C>
105-277 1999 10/1/98 - 9/30/99 $125,900
</TABLE>
ARTICLE H.6. EPA ENERGY STAR REQUIREMENTS
In compliance with Executive Order 12845 (requiring Agencies to purchase
energy efficient computer equipment) all microcomputers, including personal
computers, monitors, and printers that are deliverables under the procurement
or are purchased by the contractor using Government funds in performance of a
contract shall be equipped with or meet the energy efficient low-power
standby feature as defined by the EPA Energy Star program unless the
equipment always meets EPA Energy Star efficiency levels. The microcomputer,
as configured with all components, must be Energy Star compliant.
This low-power feature must already be activated when the computer equipment
is delivered to the agency and be of equivalent functionality of similar
power managed models. If the equipment will be used on a local area network,
the vendor must provide equipment that is fully compatible with the network
environment. In addition, the equipment will run commercial off-the-shelf
software both before and after recovery from its energy conservation mode.
15
<PAGE>
CONTRACT NO1-A1-95381
BBI - BIOTECH RESEARCH LABORATORIES, INC.
ARTICLE H.7. PUBLICATION AND PUBLICITY
The contractor shall acknowledge the support of the National Institutes of
Health whenever publicizing the work under this contract in any media by
including an acknowledgment substantially as follows:
"This project has been funded in whole or in part with Federal funds from
the National Institute of Allergy and Infectious Diseases, National
Institutes of Health, under Contract No. NO1-AI-95381."
ARTICLE H.8. PRESS RELEASES
a. Pursuant to Public Law(s) cited in paragraph b., below, the contractor
shall clearly state, when issuing statements, press releases, requests for
proposals, bid solicitations and other documents describing projects or
programs funded in whole or in part with Federal money: (1) the percentage
of the total costs of the program or project which will be financed with
Federal money; (2) the dollar amount of Federal funds for the project or
program; and (3) the percentage and dollar amount of the total costs of the
project or program that will be financed by nongovernmental sources.
<TABLE>
<CAPTION>
b. PUBLIC LAW AND SECTION NO. FISCAL YEAR PERIOD COVERED
<S> <C> <C>
105-277, Section 507 1999 10/1/98-9/30/99
</TABLE>
ARTICLE H.9. REPORTING MATTERS INVOLVING FRAUD, WASTE AND ABUSE
Anyone who becomes aware of the existence or apparent existence of fraud,
waste and abuse in NIH funded programs is encouraged to report such matters
to the HHS Inspector General's Office in writing or on the Inspector
General's Hotline. The toll free number is 1-800-HHS-TIPS (1-800-447-8477).
All telephone calls will be handled confidentially. The e-mail address is
[email protected] and the mailing address is:
Office of Inspector General
Department of Health and Human Services
TIPS HOTLINE
P.O. Box 23489
Washington, D.C. 20026
Information regarding procedural matters is contained in the NIH Manual
Chapter 1754, which is available on (http://www1.od.nih.gov/oma/oma.htm)
ARTICLE H.10. YEAR 2000 COMPLIANCEARTICLE H.10. YEAR 2000 COMPLIANCE
In accordance with FAR 39.106, Information Technology acquired under this
contract must be Year 2000 compliant as set forth in the following clause(s):
1. SERVICE INVOLVING THE USE OF INFORMATION TECHNOLOGY
YEAR 2000 COMPLIANCE--SERVICE INVOLVING THE USE OF INFORMATION TECHNOLOGY
The Contractor agrees that each item of hardware, software, and firmware
used under this contract shall be able to accurately process date data
(including, but not limited to, calculating, comparing and sequencing)
from, into and between the twentieth and twenty-first centuries and the
Year 1999 and the Year 2000 and leap year calculations.
(End of Clause)
16
<PAGE>
CONTRACT NO1-A1-95381
BBI - BIOTECH RESEARCH LABORATORIES, INC.
2. NONCOMMERCIAL SUPPLY ITEMS WARRANTY
YEAR 2000 WARRANTY--NONCOMMERCIAL SUPPLY ITEMS
The contractor warrants that each noncommercial item of hardware, software,
and firmware delivered or developed under this contract and listed below
shall be able to accurately process date data (including, but not limited
to, calculating, comparing and sequencing) from, into and between the
twentieth and twenty-first centuries and the Year 1999 and the Year 2000
and leap year calculations, when used in accordance with the item
documentation provided by the contractor, provided that all listed or
unlisted items (e.g., hardware, software and firmware) used in combination
with such listed item properly exchange date data with it. If the contract
requires that specific listed items must perform as a system in accordance
with the foregoing warranty, then that warranty shall apply to those listed
items as a system. The duration of this warranty and the remedies available
to the Government for breach of this warranty shall be as defined in, and
subject to, the terms and limitations of any general warranty provisions of
this contract provided that notwithstanding any provision to the contrary
in such warranty provision(s), or in the absence of any such warranty
provision(s), the remedies available to the Government under this warranty
shall include repair or replacement of any listed item whose noncompliance
is discovered and made known to the contractor in writing within ninety
(90) days after acceptance. Nothing in this warranty shall be construed to
limit any rights or remedies the Government may otherwise have under this
contract with respect to defects other than Year 2000 performance.
YEAR 2000 COMPLIANT ITEMS
Any database or software programs developed under this contract.
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
(end of clause)
3. COMMERCIAL SUPPLY PRODUCTS WARRANTY
YEAR 2000 WARRANTY--COMMERCIAL SUPPLY ITEMS
The contractor warrants that each hardware, software and firmware product
delivered under this contract and listed below shall be able to accurately
process date data (including, but not limited to, calculating, comparing,
and sequencing) from, into, and between the twentieth and twenty-first
centuries and the Year 1999 and the Year 2000 and leap year calculations,
when used in accordance with the product documentation provided by the
contractor, provided that all listed or unlisted products (e.g., hardware,
software, firmware) used in combination with such listed product properly
exchange date data with it. If the contract requires that specific listed
products must perform as a system in accordance with the foregoing
warranty, then that warranty shall apply to those listed products as a
system. The duration of this warranty and the remedies available to the
Government for breach of this warranty shall be as defined in, and subject
to, the terms and limitations of the contractor's standard commercial
warranty or warranties contained in this contract, provided that
notwithstanding any provision to the contrary in such commercial warranty
or warranties, the remedies available to the Government under this warranty
shall include repair or replacement of any listed product whose
non-compliance is discovered and made known to the contractor in writing
within ninety (90) days after acceptance. Nothing in this warranty shall be
construed to limit any rights or remedies the Government may otherwise have
under this contract with respect to defects other than Year 2000
performance.
YEAR 2000 COMPLIANT ITEMS ANY
Database or software programs developed under this contract.
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
(end of clause)
17
<PAGE>
CONTRACT NO1-A1-95381
BBI - BIOTECH RESEARCH LABORATORIES, INC.
PART II - CONTRACT CLAUSES
SECTION I - CONTRACT CLAUSES
ARTICLE I.1. GENERAL CLAUSES FOR A COST-REIMBURSEMENT SERVICE CONTRACT - FAR
52.252-2, CLAUSES INCORPORATED BY REFERENCE (FEBRUARY 1998)
This contract incorporates the following clauses by reference, with the same
force and effect as if they were given in full text. Upon request, the
Contracting Officer will make their full text available. Also, the full text
of a clause may be accessed electronically at this address:
http://www.arnet.gov/far/.
a. FEDERAL ACQUISITION REGULATION (FAR) (48 CFR CHAPTER 1) CLAUSES:
<TABLE>
<CAPTION>
FAR CLAUSE
NO. DATE TITLE
- ----------- --------- -----
<S> <C> <C>
52.202-1 Oct 1995 Definitions
52.203-3 Apr 1984 Gratuities (Over $100,000)
52.203-5 Apr 1984 Covenant Against Contingent Fees (Over $100,000)
52.203-6 Jul 1995 Restrictions on Subcontractor Sales to the Government (Over $100,000)
52.203-7 Jul 1995 Anti-Kickback Procedures(Over $100,000)
52.203-8 Jan 1997 Cancellation, Recission, and Recovery of Funds for Illegal or Improper Activity (Over
$100,000)
52.203-10 Jan 1997 Price or Fee Adjustment for Illegal or Improper Activity (Over $100,000)
52.203-12 Jun 1997 Limitation on Payments to Influence Certain Federal Transactions (Over $100,000)
52.204-4 Jun 1996 Printing/Copying Double-Sided on Recycled Paper (Over $100,000)
52.209-6 Jul 1995 Protecting the Government's Interests When Subcontracting With Contractors Debarred,
Suspended, or Proposed for Debarment (Over $25,000)
52.215-2 Jun 1999 Audit and Records - Negotiation (Over $100,000)
52.215-8 Oct 1997 Order of Precedence - Uniform Contract Format
52.215-10 Oct 1997 Price Reduction for Defective Cost or Pricing Data
52.215-12 Oct 1997 Subcontractor Cost or Pricing Data (Over $500,000)
52.215-14 Oct 1997 Integrity of Unit Prices (Over $100,000)
</TABLE>
18
<PAGE>
CONTRACT NO1-A1-95381
BBI - BIOTECH RESEARCH LABORATORIES, INC.
<TABLE>
<CAPTION>
FAR CLAUSE
NO. DATE TITLE
- ----------- --------- -----
<S> <C> <C>
52.215-15 Dec 1998 Pension Adjustments and Asset Reversions
52.215-18 Oct 1997 Reversion or Adjustment of Plans for Post-Retirement Benefits (PRB) other than
Pensions
52.215-19 Oct 1997 Notification of Ownership Changes
52.215-21 Oct 1997 Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data
- Modifications
52.216-7 Apr 1998 Allowable Cost and Payment
52.216-8 Mar 1997 Fixed Fee
52.219-8 Jun 1999 Utilization of Small Business Concerns (Over $100,000)
52.219-9 Jan 1999 Small Business Subcontracting Plan (Over $500,000)
52.219-16 Jan 1999 Liquidated Damages - Subcontracting Plan (Over $500,000)
52.222-2 Jul 1990 Payment for Overtime Premium (Over $100,000) (Note: The dollar amount in paragraph
(a) of this clause is $0 unless otherwise specified in the contract.)
52.222-3 Aug 1996 Convict Labor
52.222-26 Feb 1999 Equal Opportunity
52.222-35 Apr 1998 Affirmative Action for Disabled Veterans and Veterans of the Vietnam Era
52.222-36 Jun 1998 Affirmative Action for Workers with Disabilities
52.222-37 Jan 1999 Employment Reports on Disabled Veterans and Veterans of the Vietnam Era
52.223-2 Apr 1984 Clean Air and Water (Over $100,000)
52.223-6 Jan 1997 Drug-Free Workplace
52.223-14 Oct 1996 Toxic Chemical Release Reporting
52.225-11 Aug 1998 Restrictions on Certain Foreign Purchases
52.227-1 Jul 1995 Authorization and Consent
52.227-2 Aug 1996 Notice and Assistance Regarding Patent and Copyright Infringement (Over $100,000)
52.227-3 Apr 1984 Patent Indemnity
52.227-14 Jun 1987 Rights in Data - General
52.232-9 Apr 1984 Limitation on Withholding of Payments
52.232-17 Jun 1996 Interest (Over $100,000)
52.232-20 Apr 1984 Limitation of Cost
52.232-23 Jan 1986 Assignment of Claims
52.232-25 Jun 1997 Prompt Payment
</TABLE>
19
<PAGE>
CONTRACT NO1-A1-95381
BBI - BIOTECH RESEARCH LABORATORIES, INC.
<TABLE>
<CAPTION>
FAR CLAUSE
NO. DATE TITLE
- ----------- --------- -----
<S> <C> <C>
52.232-34 May 1999 Payment by Electronic Funds Transfer--Other Than Central Contractor Registration
52.233-1 Dec 1998 Disputes
52.233-3 Aug 1996 Protest After Award, Alternate I (Jun 1985)
52.242-1 Apr 1984 Notice of Intent to Disallow Costs
52.242-3 Oct 1995 Penalties for Unallowable Costs (Over $500,000)
52.242-4 Jan 1997 Certification of Final Indirect Costs
52.242-13 Jul 1995 Bankruptcy (Over $100,000)
52.243-2 Aug 1987 Changes - Cost Reimbursement, Alternate I (Apr 1984)
52.244-2 Aug 1998 Subcontracts, Alternate II (Aug 1998) *If written consent to subcontract is required,
the identified subcontracts are listed in ARTICLE B, Advance Understandings.
52.244-5 Dec 1996 Competition in Subcontracting (Over $100,000)
52.245-5 Jan 1986 Government Property (Cost-Reimbursement, Time and Material, or Labor-Hour Contract)
52.246-25 Feb 1997 Limitation of Liability - Services (Over $100,000)
52.249-6 Sep 1996 Termination (Cost-Reimbursement)
52.249-14 Apr 1984 Excusable Delays
52.253-1 Jan 1991 Computer Generated Forms
</TABLE>
b. DEPARTMENT OF HEALTH AND HUMAN SERVICES ACQUISITION REGULATION (HHSAR)
(48 CFR CHAPTER 3) CLAUSES:
<TABLE>
<CAPTION>
HHSAR
CLAUSE NO. DATE TITLE
- ----------- --------- -----
<S> <C> <C>
352.202-1 Apr 1984 Definitions - Alternate I (Apr 1984)
352.228-7 Dec 1991 Insurance - Liability to Third Persons
352.232-9 Apr 1984 Withholding of Contract Payments
352.233-70 Apr 1984 Litigation and Claims
352.242-71 Apr 1984 Final Decisions on Audit Findings
352.270-5 Apr 1984 Key Personnel
352.270-6 Jul 1991 Publication and Publicity
352.270-7 Apr 1984 Paperwork Reduction Act
</TABLE>
[End of GENERAL CLAUSES FOR A COST-REIMBURSEMENT SERVICE
CONTRACT - Rev. 7/1999].
20
<PAGE>
CONTRACT NO1-A1-95381
BBI - BIOTECH RESEARCH LABORATORIES, INC.
ARTICLE I.2 AUTHORIZED SUBSTITUTION OF CLAUSES
ARTICLE I.1. of this SECTION is hereby modified as follows:
FAR Clause 52.219-9, SMALL BUSINESS SUBCONTRACTING PLAN (JANUARY 1999), and
FAR Clause 52.219-16, LIQUIDATED DAMAGES--SUBCONTRACTING PLAN (JANUARY 1999)
are deleted in their entirety.
FAR Clause 52.225-3, BUY AMERICAN ACT - SUPPLIES (JANUARY 1994) is deleted in
its entirety and FAR Clause 52.225-7 BALANCE OF PAYMENTS PROGRAM (APRIL 1984)
is substituted therefor.
FAR Clause 52.232-20, LIMITATION OF COST, is deleted in its entirety and FAR
Clause 52.232-22, LIMITATION OF FUNDS (APRIL 1984) is substituted therefor.
FAR Clause 52.243-1, CHANGES, FIXED PRICE, ALTERNATE I (AUGUST 1987) is
hereby deleted in its entirety and FAR Clause 52.243-1, CHANGES, FIXED PRICE,
ALTERNATE II (AUGUST 1987) is substituted therefor.
ARTICLE I.3. ADDITIONAL CONTRACT CLAUSES
This contract incorporates the following clauses by reference, with the same
force and effect, as if they were given in full text. Upon request, the
contracting officer will make their full text available.
a. FEDERAL ACQUISITION REGULATION (FAR) (48 CFR CHAPTER 1) CLAUSES
(1) FAR 52.215-17, Waiver of Facilities Capital Cost of Money
(OCTOBER 1997).
(2) FAR 52.219-6, Notice of Total Small Business Set-Aside (JULY 1996).
(3) FAR 52.219-14, Limitation on Subcontracting (DECEMBER 1996).
(4) FAR 52.223-3, Hazardous Material Identification and Material Safety
Data (JANUARY 1997), ALTERNATE I (JULY 1995).
(5) FAR 52.223-11, Ozone-Depleting Substances (JUNE 1996).
(6) FAR 52.223-12, Refrigeration Equipment and Air Conditioners
(MAY 1995).
(7) FAR 52.237-3, Continuity of Services (JANUARY 1991).
(8) FAR 52.245-19, Government Property Furnished "As Is" (APRIL 1984).
(9) FAR 52.247-63, Preference for U.S. Flag Air Carriers (JANUARY 1997).
(10) FAR 52.247-64, Preference for Privately Owned U.S. Flag Commercial
Vessels (JUNE 1997).
(11) FAR 52.251-1, Government Supply Sources (APRIL 1984).
b. DEPARTMENT OF HEALTH AND HUMAN SERVICES ACQUISITION REGULATION/PUBLIC
HEALTH SERVICE ACQUISITION REGULATION (HHSAR)/(PHSAR) (48 CHAPTER 3)
CLAUSES:
(1) PHS 352.223-70, Safety and Health (Deviation) (AUGUST 1997).
21
<PAGE>
CONTRACT NO1-A1-95381
BBI - BIOTECH RESEARCH LABORATORIES, INC.
(2) HHSAR 352.224-70, Confidentiality of Information (APRIL 1984).
c. NATIONAL INSTITUTES OF HEALTH (NIH) RESEARCH CONTRACTING (RC) CLAUSES:
The following clauses are attached and made a part of this contract:
(1) NIH (RC)-7, Procurement of Certain Equipment (APRIL 1984) (OMB
Bulletin 81-16).
ARTICLE I.4. ADDITIONAL FAR CONTRACT CLAUSES INCLUDED IN FULL TEXT
This contract incorporates the following clauses in full text.
FEDERAL ACQUISITION REGULATION (FAR)(48 CFR CHAPTER 1) CLAUSES:
a. FAR CLAUSE 52.225-9, TRADE AGREEMENTS ACT (DEVIATION)
(a) This clause implements the Trade Agreements Act of 1979 (19 U.S.C.
2501-2582) by providing a preference for U.S. made end products,
North American Free Trade Agreement (NAFTA) country end products,
designated country end products, and Caribbean Basin country end
products over other products.
"CARIBBEAN BASIN COUNTRY END PRODUCTS," as used in this clause,
means an article that: (1) is wholly the growth, product, or
manufacture of a Caribbean Basin country (as defined in section
25.401 of the Federal Acquisition Regulation (FAR), or (2) in the
case of an article which consists in whole or in part of materials
from another country or instrumentality, has been substantially
transformed into a new and different article of commerce with a
name, character, or use distinct from that of the article or
articles from which it was so transformed. The term refers to a
product, offered for purchase under a supply contract, but for
purposes of calculating the value of the end product includes
services (except transportation services) incidental to its supply;
provided that the value of those incidental services does not exceed
that of the product itself. The term excludes products that are
excluded from duty-free treatment for Caribbean countries under the
Caribbean Basin Economic Recovery Act (19 U.S.C. 2703(b)). These
exclusions presently consist of (I) textiles and apparel articles
that are subject to textile agreements; (ii) footwear, handbags,
luggage, flat goods, work gloves, and leather wearing apparel not
designated as eligible articles for the purpose of the Generalized
System of Preferences under title V of the Trade Act of 1974; (iii)
tuna, prepared or preserved in any manner in airtight containers;
(iv) petroleum; and (v) watches and watch parts (including cases,
bracelets and straps) of whatever type including, but not limited
to, mechanical, quartz digital or quartz analog, if such watches or
watch parts contain any material that is the product of any country
to which the Tariff Schedule of the United States (TSUS) column 2
rates of duty apply.
"DESIGNATED COUNTRY END PRODUCT," as used in this clause, means an
article that (1) is wholly the growth, product, or manufacture of
the designated country (as defined in section 25.401 of the Federal
Acquisition Regulation (FAR), or (2) in the case of an article which
consists in whole or in part of materials from another country or
instrumentality, has been substantially transformed into a new and
different article of commerce with a name, character, or use
distinct from that of the article or articles from which it was so
transformed. The term refers to a product offered for purchase under
a supply contract, but for purposes of calculating the value of the
end product includes services (except transportation services)
incidental to its supply; provided that the value of those
incidental services does not exceed that of the product itself.
"ELIGIBLE PRODUCT," as used in this clause, means a designated,
North American Free Trade Agreement (NAFTA), or Caribbean Basin
country end product.
22
<PAGE>
CONTRACT NO1-A1-95381
BBI - BIOTECH RESEARCH LABORATORIES, INC.
"END PRODUCTS," as used in this clause, means those articles,
materials, and supplies to be acquired under this contract for
public use.
"NAFTA COUNTRY END PRODUCT," as used in this clause, means an
article that (1) is wholly the growth, product, or manufacture of a
NAFTA country, or (2) in the case of an article which consists in
whole or in part of materials from another country or
instrumentality, has been substantially transformed in a NAFTA
country into a new and different article of commerce with a name,
character, or use distinct from that of the article or articles from
which it was transformed. The term refers to a product offered for
purchase under a supply contract, but for purposes of calculating
the value of the end product includes services (except
transportation services) incidental to its supply; provided, that
the value of those incidental services does not exceed that of the
product itself.
"U.S. MADE END PRODUCT" as used in this clause, means an article
which (1) is wholly the growth, product or manufacture of the United
States, or (2) in the case of an article which consists in whole or
in part of materials from another country or instrumentality, has
been substantially transformed in the United States into a new and
different article of commerce with a name, character, or use
distinct from that of the article or articles from which it was so
transformed.
"NONDESIGNATED COUNTRY END PRODUCTS," as used in this clause, means
any end product which is not a U.S. made end product or a designated
country end product.
"UNITED STATES," as used in this clause, means the United States,
its possessions, Puerto Rico, and any other place which is subject
to its jurisdiction, but does not include leased bases or trust
territories.
(b) The Contractor agrees to deliver under this contract only U.S. made
end products, designated country end products, Caribbean Basin
country end products, or, if a national interest waiver is granted
under section 302 of the Trade Agreements Act of 1979, nondesignated
country end products. Only if such waiver is granted may a
nondesignated country end product be delivered under this contract.
(c) Offers will be evaluated in accordance with the policies and
procedures of Part 25 of the FAR except that offers of U.S. made end
products shall be evaluated without the restrictions of the Buy
American Act or Balance of Payments Program.
b. FAR CLAUSE 52.244-6, SUBCONTRACTS FOR COMMERCIAL ITEMS AND COMMERCIAL
COMPONENTS (OCTOBER 1998)
(a) Definition.
Commercial item, as used in this clause, has the meaning contained
in the clause at 52.202-1, Definitions.
Subcontract, as used in this clause, includes a transfer of
commercial items between divisions, subsidiaries, or affiliates of
the Contractor or subcontractor at any tier.
(b) To the maximum extent practicable, the Contractor shall incorporate,
and require its subcontractors at all tiers to incorporate,
commercial items or nondevelopmental items as components of items to
be supplied under this contract.
(c) Notwithstanding any other clause of this contract, the Contractor is
not required to include any FAR provision or clause, other than
those listed below to the extent they are applicable and as may be
required to establish the reasonableness of prices under Part 15, in
a subcontract at any tier for commercial items or commercial
components:
(1) 52.222-26, Equal Opportunity (E.O. 11246);
(2) 52.222-35, Affirmative Action for Disabled Veterans and
Veterans of the Vietnam Era (38 U.S.C.
23
<PAGE>
CONTRACT NO1-A1-95381
BBI - BIOTECH RESEARCH LABORATORIES, INC.
4212(a));
(3) 52.222-36, Affirmative Action for Workers with Disabilities
(29 U.S.C. 793); and
(4) 52.247-64, Preference for Privately Owned U.S.-Flagged
Commercial Vessels (46 U.S.C. 1241) (flow down not required
for subcontracts awarded beginning May 1, 1996).
(d) The Contractor shall include the terms of this clause, including
this paragraph (d), in subcontracts awarded under this contract.
PART III
SECTION J - LIST OF ATTACHMENTS
The following documents are attached and incorporated in this contract:
1) Statement of Work, (8/16/99).
2) Invoice/Financing Request and Financial Reporting Instructions for
NIH Cost-Reimbursement Type Contracts, NIH(RC)-4, (5/97).
3) Safety and Health (Deviation), PHSAR Clause 352.223-70, (8/97).
4) Procurement of Certain Equipment, NIH(RC)-7, (4/1/84).
5) Government Property - Schedule II-A, (8/16/99).
PART IV
SECTION K - REPRESENTATIONS AND CERTIFICATIONS
The following documents are incorporated by reference in this contract:
Representations and Certifications, dated November 6, 1998.
END OF THE SCHEDULE
(CONTRACT)
24
<PAGE>
WORK STATEMENT
DIVISION OF AIDS SPECIMEN REPOSITORY
Independently, and not as an agent of the Government, the contractor shall
furnish services, qualified professional and technical personnel, material,
equipment, and facilities not otherwise provided by the Government under the
terms of this contract to perform the work set forth below.
In general, the Contractor shall: (1) secure, receive, catalog, process,
store, and disburse clinical specimens from human immunodeficiency virus
(HIV)-infected patients, cohort participants, recipients of candidate HIV
vaccines and other biomedical interventions in studies sponsored by the
National Institute of Allergy and Infectious Diseases (NIAID), Division of
AIDS (DAIDS); (2) provide a computerized specimen inventory management system
in a format identified and approved by DAIDS; (3) provide adequate
cold-storage facilities for clinical specimens, and provide experienced
professional personnel (formally trained in dangerous goods biosafety) to
support specimen handling and repository management; (4) provide labeling and
shipping procedure training and oversight to study sites; (5) report progress
to the Project Officer and provide specimen availability summaries as
requested by the Project Officer; (6) complete the development and the
execution of a DAIDS Repository Management Plan which may include, but is not
limited to: systematic effort to discard identified specimens with low
research potential, reduce the numbers of duplicate specimens, discard
specimens with missing key clinical data, and/or expand the freezer capacity
of the repository as requested by the Project Officer; and (7) ensure an
orderly and safe transition of the Repository from the incumbent Contractor,
and to a successor contractor, if necessary. Transition to a successor
contractor shall include all Repository data including all source codes.
Specifically, the Contractor shall:
1. Secure, receive, process as necessary, catalog, store and ship clinical
specimens to and from both domestic and international DAIDS study sites,
and distribute clinical specimens to other investigators at the request of
the Project Officer. Currently the specimen repository supports these
DAIDS studies: MACS, WITS, WIHS, HIVNET, AACTG, PACTG, AVEG, DATRI, and
maintains specimens from other completed DAIDS studies such as the Jump
Start Project, the HATS, and the San Francisco Men's Health Study. These
specimens may include, but are not limited to, peripheral blood
mononuclear cells, serum, plasma, tissue specimens, and other bodily
fluids or substances such as cervical-vaginal lavage (CVL), breast milk,
semen, saliva, urine, feces, mucosal, autopsy and biopsy materials, and
specimen spots dried on filter paper.
A. Advise investigators from study sites on procedures required for
maintaining proper specimen temperature and ensuring specimen
identification in the shipment of samples; provide appropriate
packaging material (e.g., shipping containers which comply with U.S.
DOT or IATA regulations for infectious substances, styrofoam boxes,
liquid nitrogen shipping containers, labeling material, shipping
forms, etc.) to maintain appropriate environmental safeguards and
desired refrigeration levels for specific specimens in transit;
provide concise shipping instructions appropriate to the types of
specimens and packaging materials; and cover costs for all shipments
to the Repository. (See section 4 for information on training the
study sites in the above procedures.) All shipments shall be
coordinated by the Contractor to preserve sample integrity and
utility. The contractor shall operate in accordance with the basic
references and other modifications by the Public Health Service
which include but are not limited to:
(1) Title 49 CFR Part 100-199 Transportation
(2) Title 42 CFR Part 71.54 and 72.3 Etiologic Agents, Hosts and
Vectors; Interstate Shipment of Etiologic Agents
Statement of Work (N01-AI-95381) ATTACHMENT 1
08/16/99 Page 1 of 3
<PAGE>
(3) Title 39 CFR Part 124 Postal Services
(4) International Air Transport Association (IATA), Dangerous
Goods Regulations 36th Edition 1995, and 1997 changes to the
IATA Dangerous Good Regulations
(5) International Civil Aviation Organization (ICAO) Technical
Instructions for the Safe Transportation of Dangerous Good by
Air 1995-1996
(6) United Nations Recommendations on the Transport of Dangerous
Good 8th Edition
B. Arrange for the shipping of specimens to the repository from all
designated Domestic study sites WITHIN 24 HOURS of pickup and by
overnight express shipment. Assist the NIAID in efforts to establish
SOPs/guidelines for shipping of specimens to the repository from
International study sites. This service shall be performed by an
established carrier with a proven record for handling
medical/clinical specimens on dry ice and in liquid nitrogen
shipping container. Obtain appropriate shipping licenses and permits
from local, state, Federal and international authorities for the
safe import, storage and distribution of biohazardous materials.
C. Provide protective garments, equipment, and supplies to conduct work
in Biosafety Level 2 containment facilities under aseptic and/or
sterile conditions as appropriate and in accordance with all
applicable Federal, state, and local laws, codes, ordinances, and
regulations. It is expected that the contractor will operate in
accordance with the following basic references and other related
modifications by the Public Health Service, which include but are
not limited to:
(1) Title 29 CFR 1910.1030 OSHA Bloodborne Pathogen Standard
(2) Health & Safety Guidelines for Grantees and Contractors, NIH
Guide, Vol. 24, No. 33, dated September 22, 1995
(3) Biosafety in the Laboratory: Prudent Practices for Handling
and Disposal of Infectious Materials; National Academy Press,
Wash., D.C.
(4) Biosafety in Microbiological and Biomedical Laboratories, U.S.
Department of Health and Human Services, Centers for Disease
Control and Prevention and National Institutes of Health, HHS
Pub. No. (CDC) 93-8395 published by the U.S. Government
Printing Office. (Website:
WWW.NIEHS.NIH.GOV/ODHSB/BIOSAFE/BMBL/BMBL-1.HTM)
(5) Recommendations for Prevention of HIV transmission in Health
Care Settings, Morbidity and Mortality Weekly Report, Vol. 36,
No. 2-S, dated August 21, 1987.
(6) Agent Summary Statement for Human Immunodeficiency Virus and
Report on Laboratory-Acquired Infection with Human
Immunodeficiency virus, Morbidity and Mortality Weekly Report,
Vol. 37, No.S-4, pp. 1-22, dated April 1, 1988.
D. Receive, catalog, process, and store incoming samples according to
Standard Operating Procedures approved by the Project Officer, which
shall include but not be limited to a 15% random inspection of tubes
within each freezer box received, and a detailed quality assurance
plan for ascertaining sample and shipment condition, validation of
key information, criteria for specimen rejection, and guidelines for
handling leaking or broken specimens. All problems and corrective
action for each shipment shall be discussed with the Project Officer
and study site staff and documented within 3 days of shipment
receipt,
Statement of Work (N01-AI-95381) ATTACHMENT 1
08/16/99 Page 2 of 3
<PAGE>
and noted in the Quarterly Progress Reports. Pertinent information
(such as originating site, specimen number, quantity, shipping date,
and/or other information as required) shall be maintained in the
Specimen Inventory System. (See number 2 in this attachment for
details.) The contractor shall support NIAID's efforts in the
design, certification, and subsequent periodic re-certification
of government-sponsored and owned DOD or commercial shipping
containers for use under this contract.
E. Retrieve specimens from the repository; prepare aliquots, when
necessary; disburse samples to national and/or international
destinations upon specific written authorization from the Project
Officer; provide for the return shipment of unused specimen portions
and empty shipping containers and packing materials. Costs
associated with such shipments are the responsibility of the
Repository Contractor. Pertinent information (such as "shipped to"
code, specimen number, quantity, shipping date, and/or other
information as required) shall be maintained using the Specimen
Inventory system. (See section 2.B for details.) Mention of these
requests and resulting action shall be detailed in the Quarterly
Progress Report.
F. Upon direction of the Project Officer, provide technical support to
DAIDS staff in the practical application and execution in continuing
the development and implementation of a Repository Management Plan
(as noted below) (see Appendix for additional info).
2. Provide and maintain a computer facility and Specimen Inventory Database
Management System to track samples and activities in the Repository. This
system shall be adaptable/programmable to include the capability to print
and scan specimen labels that are bar-coded. (Approximately 4% of all
Repository specimens stored/disbursed currently are bar-coded.)
A. Provide for the security of the Specimen Inventory Database with
confidential access codes. The Project Officer will determine the
level of information to be disseminated and to whom it shall be made
available.
B. Perform complete weekly back-up of database files and programs and
store in a location separate from the computer facility. Perform
daily back-up of database files and programs and store on-site.
C. Provide the Project Officer read/print-only access to the repository
database system via modem as requested.
D. Maintain (and update as necessary) the existing database management
system (ORACLE RDBMS on a Hewlett-Packard 9000/800 G40 with the
HP-UNIX operating system) on government furnished or approved
central automated data processing system to integrate specimen
information from all NIAID study sites and the specimen repository
site.
E. Support and manage the NARDS system and database hardware and
software. Utilize and/or modify the current data entry software
modules for data entry of specimen specifications at the repository.
Specifications include, but are not limited to: type of storage
(i.e., mechanical freezer or liquid nitrogen); freezer, rack, and
box numbers; sample position within the box; subject and site
identification numbers; specimen collection date; type and volume of
specimen; aliquot tracking; shipment or disbursement information;
shipping problems; sample condition on receipt; and other data as
requested by the Project Officer. Study sites shall provide both
hard copy and electronic manifests for each shipment.
F. Maintain communications between the repository, study sites, data
centers, central laboratories and Project Officer regarding
reliability and timeliness of specimen identification, shipment,
storage, and retrieval details.
Statement of Work (N01-AI-95381) ATTACHMENT 1
08/16/99 Page 3 of 3
<PAGE>
3. Provide facilities and resources to store/handle/package specimens.
A. Provide sufficient floor space or vertical storage stacking system
as needed in a single facility to accommodate up to 90 ADDITIONAL
thirty-six cubic foot storage chest freezers (or their equivalent)
and 45 ADDITIONAL liquid nitrogen freezers (added to those that will
transfer from the incumbent contractor: see Offeror NOTE 10); a
repair and spare-parts storage area measuring at least 200 square
feet; a designated laboratory work area for handling HIV specimens
under Biosafety Level 2 containment conditions (as per regulations
in section 1.C); a receiving area and a packaging area measuring at
least 200 square feet; and an office for system and data management
activities.
B. Maintain and operate controlled freezers for -100 to -200 Celsius
[C], -700 to -900 C, and -1200 to -1950 C (vapor phase, liquid
nitrogen conditions). The Project Officer shall designate the
specimen types stored in each temperature range. Three (3) spare,
readily usable mechanical freezers and two (2) Liquid Nitrogen
freezers which can be charged and ready for use shall be available
for transfer of contents within 2 hours of the malfunction of an
operating freezer.
C. Provide a central alarm system to monitor each freezer. This alarm
system shall automatically contact a Refrigeration Engineer by
telephone, and have an on-site audible alarm to alert personnel in
the repository of a freezer malfunction. After notification, the
engineer shall respond by being present to correct the alarm
situation at the repository within one hour. Weekly tests shall be
performed on the alarm system and the results included in the
Quarterly Progress Report. Permanent printed records of storage
temperatures and alarm condition reports noting events and actions
taken shall be maintained at the facility.
D. Provide adequate electrical power to accommodate all mechanical
freezers, the central alarm system, and the air conditioning system.
There shall be a generator or generators on-site to handle the
complete backup power supply in case of electrical power failure.
All freezers, air conditioners and the central alarm system shall be
electrically hooked-up so that should the power fail, complete power
(capable of continuous operation for up to 48 hours) shall be
immediately available from the generator(s).
E. Perform regular operational quality assurance maintenance for all
cold storage equipment, the central alarm system, the air
conditioning system, and the backup power system according to a
Standard Operating Procedure approved by the Project Officer.
Maintain a log of regular inspections and include inspection
records/problems encountered/action taken results in the Quarterly
Progress Report.
F. Provide security measures that ensure the facility and equipment
against fire and personal intrusion.
4. Provide training, instruction and oversight for all aspects of interaction
between the repository and study sites.
A. Utilize and/or modify the current Standard Operating Procedures
(SOPs) for all aspects of specimen handling as needed by study
sites, including but not limited to, labeling, freezing, storing and
shipping (at the request of the Project Officer).
B. Develop/update and maintain a User Manual that includes the SOPs and
other guidance and reference materials relevant to specimen handling
/shipping and their logging into the inventory database. The
contents and format of the Manual shall be approved by the Project
Officer prior to distribution. Development/update and distribution
to study sites will be designated by the Project Officer to occur
Statement of Work (N01-AI-95381) ATTACHMENT 1
08/16/99 Page 4 of 3
<PAGE>
within 120 days of the contract award date.
C. At the request of the Project Officer, provide operational
information, participation at study group meetings (and other
related group meetings), and training through telephone conference
calls, on-site instruction, training sessions at study meetings,
consultative interactions and periodic review.
5. Report on progress, anticipated or existing problems, and discuss the work
to be performed with the Project Officer.
6. Follow Reporting Requirements. (Refer to ARTICLE C.2. REPORTING
REQUIREMENTS)
7. Contractor's key personnel shall meet with the Project Officer at periodic
intervals after contract award to review Repository status.
8. Ensure an orderly and safe transition of the Repository from the incumbent
Contractor, at the beginning of the period of performance; and to a
successor Contractor, at the end of the period of performance. Transition
to a successor Contractor shall include all data files and source codes.
A. Provide, at the beginning of the contract term, for an orderly and
safe transition from incumbent Contractor to the successful offeror,
operate in accordance with approved SOPs and the contract Work
Statement, and assist in the transfer of the following items from
the incumbent:
(1) Government-owned equipment and property;
(2) Entire Repository inventory of stored specimens;
(3) National AIDS Repository Database System (NARDS);
(4) Supporting hardware and software documentation including
source codes;
(5) User manuals and training materials;
(6) Labeled and inventoried paper files.
B. No later than sixty (60) days after the beginning of this contract,
The Contractor shall meet with the Project Officer to present
recommendations for developing and/or implementing additional
Standard Operating Procedures and/or a plan for revising current
Standard Operating Procedures.
C. For an orderly and safe transition from this contract to the
Government or its designee at the conclusion of this contract,
deliver the following items by the expiration date of this contract:
(1) Government-owned equipment and property;
(2) National AIDS Repository Database System (NARDS);
(3) Supporting hardware and software documentation including
source codes;
(4) User manuals and training materials;
(5) Labeled and inventoried paper files, and
Statement of Work (N01-AI-95381) ATTACHMENT 1
08/16/99 Page 5 of 3
<PAGE>
(6) Entire Repository inventory of stored specimens.
INVOICE/FINANCING REQUEST AND CONTRACT FINANCIAL REPORTING
INSTRUCTIONS FOR NIH COST-REIMBURSEMENT CONTRACTS, NIH(RC)-4
General: The contractor shall submit claims for reimbursement in the manner
and format described herein and as illustrated in the sample
invoice/financing request.
Format: Standard Form 1034, "Public Voucher for Purchases and Services Other
Than Personal," and Standard Form 1035, "Public Voucher for Purchases and
Services Other Than Personal -- Continuation Sheet," or reproduced copies of
such forms marked ORIGINAL should be used to submit claims for reimbursement.
In lieu of SF-1034 and SF-1035, claims may be submitted on the payee's
letter-head or self-designed form provided that it contains the information
shown on the sample invoice/financing request.
Number of Copies: As indicated in the Invoice Submission Clause in the
contract.
Frequency: Invoices/financing requests submitted in accordance with the
Payment Clause shall be submitted monthly unless otherwise authorized by the
contracting officer.
Cost Incurrence Period: Costs incurred must be within the contract
performance period or covered by precontract cost provisions.
Billing of Costs Incurred: If billed costs include: (l) costs of a prior
billing period, but not previously billed; or (2) costs incurred during the
contract period and claimed after the contract period has expired, the amount
and month(s) in which such costs were incurred shall be cited.
Contractor's Fiscal Year: Invoices/financing requests shall be prepared in
such a manner that costs claimed can be identified with the contractor's
fiscal year.
Currency: All NIH contracts are expressed in United States dollars. When
payments are made in a currency other than United States dollars, billings on
the contract shall be expressed, and payment by the United States Government
shall be made, in that other currency at amounts coincident with actual costs
incurred. Currency fluctuations may not be a basis of gain or loss to the
contractor. Notwithstanding the above, the total of all invoices paid under
this contract may not exceed the United States dollars authorized.
Costs Requiring Prior Approval: Costs requiring the contracting officer's
approval, which are not set forth in an Advance Understanding in the contract
shall be so identified and reference the Contracting Officer's Authorization
(COA) Number. In addition, any cost set forth in an Advance Understanding
shall be shown as a separate line item on the request.
Invoice/Financing Request Identification: Each invoice/financing request
shall be identified as either:
(a) Interim Invoice/Contract Financing Request -- These are interim payment
requests submitted during the contract performance period.
(b) Completion Invoice -- The completion invoice is submitted promptly upon
completion of the work; but no later than one year from the contract
completion date, or within 120 days after settlement of the final
indirect cost rates covering the year in which this contract is
physically complete (whichever date is later). The completion invoice
should be submitted when all costs have been assigned to the contract and
all performance provisions have been completed.
(c) Final Invoice -- A final invoice may be required after the amounts owed
have been settled between the Government and the contractor (e.g.,
resolution of all suspensions and audit exceptions).
Statement of Work (N01-AI-95381) ATTACHMENT 1
08/16/99 Page 6 of 3
<PAGE>
Preparation and Itemization of the Invoice/Financing Request: The contractor
shall furnish the information set forth in the explanatory notes below. These
notes are keyed to the entries on the sample invoice/financing request.
(a) Designated Billing Office Name and Address -- Enter the designated
billing office and address, identified in the Invoice Submission Clause
of the contract, on all copies of the invoice/financing request.
(b) Invoice/Financing Request Number -- Insert the appropriate serial number
of the invoice/financing request.
(C) Date Invoice/Financing Request Prepared -- Insert the date the
invoice/financing request is prepared.
(d) Contract Number and Date -- Insert the contract number and the effective
date of the contract.
(e) Payee's Name and Address -- Show the contractor's name (as it appears in
the contract), correct address, and the title and phone number of the
responsible official to whom payment is to be sent. When an approved
assignment has been made by the contractor, or a different payee has been
designated, then insert the name and address of the payee instead of the
contractor.
(f) Total Estimated Cost of Contract -- Insert the total estimated cost of the
contract, exclusive of fixed-fee. For incrementally funded contracts,
enter the amount currently obligated and available for payment.
(g) Total Fixed-Fee -- Insert the total fixed-fee (where applicable). For
incrementally funded contracts, enter the amount currently obligated and
available for payment.
(h) Billing Period -- Insert the beginning and ending dates (month, day, and
year) of the period in which costs were incurred and for which
reimbursement is claimed.
(I) Incurred Cost - Current -- Insert the amount billed for the major cost
elements, adjustments, and adjusted amounts for the current period.
(j) Incurred Cost - Cumulative -- Insert the cumulative amounts billed for the
major cost elements and adjusted amounts claimed during this contract.
(k) Direct Costs -- Insert the major cost elements. For each element, consider
the application of the paragraph entitled "Costs Requiring Prior Approval"
on page 1 of these instructions.
(l) Direct Labor -- Include salaries and wages paid (or accrued) for
direct performance of the contract. For Key Personnel, list each
employee on a separate line. List other employees as one amount
unless otherwise required by the contract.
(2) Fringe Benefits -- List any fringe benefits applicable to direct
labor and billed as a direct cost. Fringe benefits included in
indirect costs should not be identified here.
(3) Accountable Personal Property -- Include permanent research
equipment and general purpose equipment having a unit acquisition
cost of $1,000 or more and having an expected service life of more
than two years, and sensitive property regardless of cost (see the
DHHS CONTRACTOR'S GUIDE FOR CONTROL OF GOVERNMENT PROPERTY). Show
permanent research equipment separate from general purpose
equipment. Prepare and attach Form HHS-565, "Report of Accountable
Property," in accordance with the following instructions:
List each item for which reimbursement is requested. A reference shall
be made to the following (as applicable):
- The item number for the specific piece of equipment listed in the
Property Schedule.
- The Contracting Officer's Authorization letter and number, if the
equipment is not covered by the Property Schedule.
NIH(RC)-4 ATTACHMENT 2
Rev. 5/97
<PAGE>
- Be preceded by an asterisk (*) if the equipment is below the
approval level.
(4) Materials and Supplies -- Include equipment with unit costs of less
than $1,000 or an expected service life of two years or less, and
consumable material and supplies regardless of amount.
(5) Premium Pay -- List remuneration in excess of the basic hourly rate.
(6) Consultant Fee -- List fees paid to consultants. Identify consultant
by name or category as set forth in the contract's Advance
Understanding or in the COA letter, as well as the effort (i.e.,
number of hours, days, etc.) and rate being billed.
(7) Travel -- Include domestic and foreign travel. Foreign travel is
travel outside of Canada, the United States and its territories and
possessions. However, for an organization located outside Canada,
the United States and its territories and possessions, foreign
travel means travel outside that country. Foreign travel must be
billed separately from domestic travel.
(8) Subcontract Costs -- List subcontractor(s) by name and amount
billed.
(9) Other -- List all other direct costs in total unless exceeding
$1,000 in amount. If over $1,000, list cost elements and dollar
amounts separately. If the contract contains restrictions on any
cost element, that cost element must be listed separately.
(l) Cost of Money (COM) -- Cite the COM factor and base in effect during the
time the cost was incurred and for which reimbursement is claimed.
(m) Indirect Costs--Overhead -- Identify the cost base, indirect cost rate,
and amount billed for each indirect cost category.
(n) Fixed-Fee Earned -- Cite the formula or method of computation for the
fixed-fee (if any). The fixed-fee must be claimed as provided for by the
contract.
(o) Total Amounts Claimed -- Insert the total amounts claimed for the current
and cumulative periods.
(p) Adjustments -- Include amounts conceded by the contractor, outstanding
suspensions, and/or disapprovals subject to appeal.
(q) Grand Totals
The contracting officer may require the contractor to submit detailed support
for costs claimed on one or more interim invoices/financing requests.
FINANCIAL REPORTING INSTRUCTIONS:
These instructions are keyed to the Columns on the sample invoice/financing
request.
Column A--Expenditure Category - Enter the expenditure categories required by
the contract.
Column B--Cumulative Percentage of Effort/Hrs.-Negotiated - Enter the
percentage of effort or number of hours agreed to doing contract negotiations
for each employee or labor category listed in Column A.
Column C--Cumulative Percentage of Effort/Hrs.-Actual - Enter the percentage
of effort or number of hours worked by each employee or labor category listed
in Column A.
Column D--Incurred Cost-Current - Enter the costs, which were incurred during
the current period.
NIH(RC)-4 ATTACHMENT 2
Rev. 5/97
<PAGE>
Column E--Incurred Cost-Cumulative - Enter the cumulative cost to date.
Column F--Cost at Completion - Enter data only when the contractor estimates
that a particular expenditure category will vary from the amount negotiated.
Realistic estimates are essential.
Column G--Contract Amount - Enter the costs agreed to during contract
negotiations for all expenditure categories listed in Column A.
Column H--Variance (Over or Under) - Show the difference between the
estimated costs at completion (Column F) and negotiated costs (Column G) when
entries have been made in Column F. This column need not be filled in when
Column F is blank. When a line item varies by plus or minus 10 percent, i.e.,
the percentage arrived at by dividing Column F by Column G, an explanation of
the variance should be submitted. In the case of an overrun (net negative
variance), this submission shall not be deemed as notice under the Limitation
of Cost (Funds) Clause of the contract.
Modifications: Any modification in the amount negotiated for an item since
the preceding report should be listed in the appropriate cost category.
Expenditures Not Negotiated: An expenditure for an item for which no amount
was negotiated (e.g., at the discretion of the contractor in performance of
its contract) should be listed in the appropriate cost category and all
columns filled in, except for G. Column H will of course show a 100 percent
variance and will be explained along with those identified under H above.
NIH(RC)-4 ATTACHMENT 2
Rev. 5/97
<PAGE>
SAMPLE INVOICE/FINANCING REQUEST AND CONTRACT FINANCIAL REPORT
<TABLE>
<S> <C>
(a) Billing Office Name and Address (b) Invoice/Financing Request No.__________________________
NATIONAL INSTITUTES OF HEALTH
National Institute of Allergy and Infectious (C) Date Invoice Prepared__________________________________
Diseases, CMB
6700-B Rockledge Drive, Room 2230, MSC 7612
Bethesda, MD 20892-7612 (d) Contract No.___________________________________________
(e) Payee's Name and Address Effective Date_________________________________________
ABC CORPORATION
100 Main Street (f) Total Estimated Cost___________________________________
Anywhere, USA zip code
(g) Total Fixed Fee________________________________________
Attn: Name, Title, & Phone Number of Official to
Whom Payment is Sent
(h) This invoice/financing request represents reimbursable costs for the period from _________ to _________
</TABLE>
<TABLE>
<CAPTION>
Expenditure Category* Cumulative Percentage Incurred Cost Cost at Contract Variance
A of Effort/Hrs. Completion Amount H
F G
---------------------- -------------------------------
Negotiated Actual (I) Current (j) Cumulative
B C D E
- ------------------------------ ---------- ------ ----------- --------------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(k) Direct Costs:
(1) Direct Labor
(2) Fringe Benefits
(3) Accountable Property
(attach HHS-565)
(4) Materials & Supplies
(5) Premium Pay
(6) Consultant Fees
(7) Travel
(8) Subcontracts
(9) Other
Total Direct Costs
(l) Cost of Money
(m) Overhead
G&A
(n) Fixed Fee
(o) Total Amount Claimed
(p) Adjustments
(q) Grand Totals
</TABLE>
I certify that all payments are for appropriate purposes and in accordance with
the contract.
--------------------------- --------------------
(Name of Official) (Title)
* Attach details as specified in the contract
NIH(RC)-4 ATTACHMENT 2
Rev. 5/97
<PAGE>
PHS 352.223-70 SAFETY AND HEALTH (DEVIATION) (AUGUST 1997)
(a) To help ensure the protection of the life and health of all persons, and
to help prevent damage to property, the Contractor shall comply with all
Federal, State and local laws and regulations applicable to the work being
performed under this contract. These laws are implemented and/or enforced
by the Environmental Protection Agency, Occupational Safety and Health
Administration and other agencies at the Federal, State and local levels
(Federal, State and local regulatory/enforcement agencies).
(b) Further, the Contractor shall take or cause to be taken additional safety
measures as the Contracting Officer in conjunction with the project or
other appropriate officer, determines to be reasonably necessary. If
compliance with these additional safety measures results in an increase or
decrease in the cost or time required for performance of any part of work
under this contract, an equitable adjustment will be made in accordance
with the applicable "Changes" Clause set forth in this contract.
(c) The Contractor shall maintain an accurate record of, and promptly report
to the Contracting Officer, all accidents or incidents resulting in the
exposure of persons to toxic substances, hazardous materials or hazardous
operations; the injury or death of any person; and/or damage to property
incidental to work performed under the contract AND all violations for
which the Contractor has been cited by any Federal, State or local
regulatory/enforcement agency. The report shall include a copy of the
notice of violation and the findings of any inquiry or inspection, and an
analysis addressing the impact these violations may have on the work
remaining to be performed. The report shall also state the required
action(s), if any, to be taken to correct any violation(s) noted by the
Federal, State or local regulatory/enforcement agency and the time frame
allowed by the agency to accomplish the necessary corrective action.
(d) If the Contractor fails or refuses to comply promptly with the Federal,
State or local regulatory/enforcement agency's directive(s) regarding any
violation(s) and prescribed corrective action(s), the Contracting Officer
may issue an order stopping all or part of the work until satisfactory
corrective action (as approved by the Federal, State or local
regulatory/enforcement agencies) has been taken and documented to the
Contracting Officer. No part of the time lost due to any stop work order
shall be subject to a claim for extension of time or costs or damages by
the Contractor.
(e) The Contractor shall insert the substance of this clause in each
subcontract involving toxic substances, hazardous materials, or
operations. Compliance with the provisions of this clause by
subcontractors will be the responsibility of the Contractor.
(End of clause)
Safety and Health Clause (Deviation) ATTACHMENT 3
PHS 352.223-70, (8/97)
<PAGE>
PROCUREMENT OF CERTAIN EQUIPMENT
Notwithstanding any other clause in this contract, the Contractor will not be
reimbursed for the purchase, lease, or rental of any item of equipment listed
in the following Federal Supply Groups, regardless of the dollar value,
without the prior written approval of the Contracting Officer.
67 - Photographic Equipment
69 - Training Aids and Devices
70 - General Purpose ADP Equipment, Software, Supplies and
Support (Excluding 7045-ADP Supplies and Support Equipment.)
71 - Furniture
72 - Household and Commercial Furnishings and Appliances
74 - Office Machines and Visible Record Equipment
77 - Musical Instruments, Phonographs, and Home-type Radios
78 - Recreational and Athletic Equipment
When equipment in these Federal Supply Groups is requested by the Contractor
and determined essential by the Contracting Officer, the Government will
endeavor to fulfill the requirement with equipment available from its excess
personal property sources, provided the request is made under a
cost-reimbursement contract. Extensions or renewals of approved existing
leases or rentals for equipment in these Federal Supply Groups are excluded
from the provisions of this article.
NIH(RC)-7 (4/1/84) ATTACHMENT 4
OMB Bulletin 81-16
<PAGE>
SCHEDULE II-A - GOVERNMENT FURNISHED PROPERTY
<TABLE>
<CAPTION>
ITEM DESCRIPTION MANUFACTURER MODEL NUMBER QUANTITY
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
GENERAL REPOSITORY EQUIPMENT
1 BIOLOGICAL SAFETY CABINET CCI 740 2
2 WATER BATHS ELEMCO 70 2
3 -70(DEGREE)MECHANICAL FREEZER WITH RACKS REVCO ULT2090EN 28
4 -70(DEGREE)MECHANICAL FREEZER WITH RACKS HARRIS HLT19LS85 17
5 LN2 FREEZER WITH RACKS MVE A4500 12
6 LN2 FREEZER WITH RACKS MVE XLC-1840 5
7 LN2 CRYOGENIC SHIPPER MVE TA-60 2
8 -70(DEGREE)MECHANICAL FREEZER WITH RACKS RUSH 3185 8
9 LN2 CRYOGENIC SHIPPER CUSTOM BIOGENICS DS-3 3
10 LN2 CRYOGENIC SHIPPER TAYLOR-WHARTON CP65 4
11 LN2 FREEZER WITH RACKS TAYLOR-WHARTON 33K 7
12 LN2 BULK STORAGE TANK MVE VVXC3000NC1 1
13 VACUUM JACKETED LN2 DISTRIBUTION PIPE MVE NONE 1
14 -70(DEGREE)MECHANICAL FREEZER WITH RACKS HARRIS HLT-36LS86 15
15 PLASTIC SHIPPING CASE FOR LN2 SHIPPER MVE NONE 1
16 LN2 FREEZER WITH RACKS TAYLOR-WHARTON 38KM21 7
17 DOT CERTIFIED DRY ICE SHIPPING CONTAINER U.S. ARMY FSSU-21 15 (APPROX.)
18 DOT CERTIFIED DRY ICE SHIPPING CONTAINER U.S. ARMY FSSU-4 5 (APPROX.)
COMPUTER HARDWARE, SOFTWARE AND DATA COMMUNICATIONS EQUIPMENT
1 9000/800 G40 BUSINESS SERVER WITH HEWLETT- 9000/G40 1
128 MB RAM, 7 GB HARD DISK STORAGE, PACKARD
DAT CARTRIDGE TAPE DRIVE, CD-ROM DRIVE, 16
PORT MUX, HP-IB INTERFACE
</TABLE>
Government Furnished Property ATTACHMENT 5
Schedule II-A (8/16/99) Page 2 of 3
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
2 HP-UNIX OPERATING SYSTEM SOFTWARE HEWLETT-PACKARD V10.20 1
3 ORACLE RDBMS SOFTWARE ORACLE V7.3 1
4 CASE DESIGNER 2000 SOFTWARE ORACLE NONE 1
5 CASE DEVELOPER 2000 SOFTWARE ORACLE NONE 1
6 ANSI C COMPILER HEWLETT-PACKARD NONE 1
7 POWERMON SOFTWARE SYSTEMS V1.3 1
ENHANCEMENT
CORPORATION
8 X-TERMINAL HEWLETT-PACKARD A1097C 1
9 ENVIZEX COMPUTER TERMINAL HEWLETT-PACKARD D1196A 4
10 ENTRIA WORKSTATION HEWLETT-PACKARD C3264A 1
11 COMPUTER TERMINAL DEC VT420-CA 2
12 UNINTERRUPTIBLE POWER SUPPLY FOR HP DEC NONE 1
13 GATEWAY 2000 PERSONAL COMPUTER WITH PENTIUM GATEWAY 4DX-33 1
OVERDRIVE CHIP, 32 MB RAM, 200 MB AND 1.6 GB
HDS, DUAL FLOPPY DRIVE, CD-ROM DRIVE, LAN
CARD, INTERNAL FAX-MODEM, AND COLOR MONITOR
14 COMPAQ PRESARIO PERSONAL COMPUTER WITH PENTIUM COMPAQ PRESARIO 1
CHIP, 32 MB RAM, 4.3 GB HD, FLOPPY DRIVES,
CD-ROM, LAN CARD, INTERNAL FAX-MODEM, AND
COLOR MONITOR
15 WINDOWS 95 SOFTWARE MICROSOFT WINDOWS 95 2
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
16 WORDPERFECT SUITE 7 COREL V7.0 2
17 DBMS/COPY SPSS, INC. V5.0 1
18 SMARTERM ESSENTIALS PERSOFT, INC. V7.0 2
19 PLATINUM DB MONITORING SW FOR HP G40 PLAT.TECHNOLOGIES V3.1 1
20 14400 BAUD EXTERNAL MODEM PRACTICAL PM14400FXMT
PERIPHERALS
21 POWER SURGE PROTECTOR TRIPPE ISOBAR 4 1
22 DOT MATRIX PRINTER DEC LA-424 1
23 PRINTER WITH POSTSCRIPT AND 4 MB RAM MODULES HEWLETT-PACKARD LASERJET 4 1
24 EXTERNAL CASSETTE TAPE DRIVE FOR COMPAQ IOMEGA DITTO EASY 3200 1
25 SMART 650VA UNINTERRUPTIBLE POWER SUPPLY FOR PC APC VS650 2
26 BAR CODE SCANNER AMERICAN 5310HP4342 1
MICROSYSTEMS
27 DELTA PLUS LABEL PRINTER ELTRON TLP2642PSA 1
28 LABEL WORKS SOFTWARE AMERICAN V2.0 1
MICROSYSTEMS
29 DESKPRO PERSONAL COMPUTER WITH 1 MB RAM, COMPAQ 286E 1
FLOPPY DRIVES, 40 MB HARD DRIVE, AND
MONOCHROME MONITOR
30 PAPER COPIER MINOLTA EP-2121 1
31 PLAIN PAPER FACSIMILE MACHINE MURATEC F-86 1
32 LASER JET COLOR PRINTER HEWLETT-PACKARD 5M 1
</TABLE>
Government Furnished Property ATTACHMENT 5
Schedule II-A (8/16/99) Page 4 of 3
<PAGE>
EXHIBIT 21.1
Subsidiaries of the Company
<TABLE>
<CAPTION>
Name Jurisdiction of Organization Location
- ---- ---------------------------- --------
<S> <C> <C>
BBI Clinical Laboratories, Inc. Massachusetts New Britain, CT
BBI Biotech Research Laboratories, Inc. Massachusetts Gaithersburg, MD
BBI Source Scientific, Inc. Massachusetts Garden Grove, CA
BBI BioSeq, Inc. Massachusetts Gaithersburg, MD
Panacos Pharmaceuticals, Inc. Delaware Gaithersburg, MD
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-3 and S-8 (File Nos. 333-24749, 333-94379, 333-30320) of
Boston Biomedica, Inc. and its subsidiaries (the "Company") of our report dated
February 29, 2000 relating to the financial statements and financial statement
schedule, which appears in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 29, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 314,923
<SECURITIES> 0
<RECEIVABLES> 7,193,115
<ALLOWANCES> 746,797
<INVENTORY> 6,917,916
<CURRENT-ASSETS> 14,958,300
<PP&E> 13,306,632
<DEPRECIATION> 5,011,608
<TOTAL-ASSETS> 26,162,340
<CURRENT-LIABILITIES> 4,904,976
<BONDS> 7,611,241
0
0
<COMMON> 47,734
<OTHER-SE> 13,598,389
<TOTAL-LIABILITY-AND-EQUITY> 26,162,340
<SALES> 14,056,657
<TOTAL-REVENUES> 29,271,088
<CGS> 7,267,273
<TOTAL-COSTS> 18,435,868
<OTHER-EXPENSES> 11,723,857
<LOSS-PROVISION> 119,236
<INTEREST-EXPENSE> 430,593
<INCOME-PRETAX> 1,313,084
<INCOME-TAX> 498,972
<INCOME-CONTINUING> 814,112
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 814,112
<EPS-BASIC> .17
<EPS-DILUTED> .17
</TABLE>
<PAGE>
Exhibit 99.1
BioSeq, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
AND FOR THE PERIOD FROM OCTOBER 17, 1994
(DATE OF INCEPTION) TO DECEMBER 31, 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of BioSeq, Inc.:
In our opinion, the accompanying balance sheets and the related statements of
operations, changes in stockholders' equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of BioSeq, Inc. (a
development stage enterprise) at December 31, 1997 and 1996 and the results of
its operations and its cash flows for each of the two years in the period ended
December 31, 1997 and for the period from October 17, 1994 (date of inception)
to December 31, 1997, in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Boston, Massachusetts
July 10, 1998, except as to certain
information in the second paragraph of Note I,
for which the date is September 30, 1998.
<PAGE>
BioSeq, Inc.
(A Development Stage Enterprise)
BALANCE SHEETS
as of December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 336,598 $ 452,704
Contract receivable 11,000 --
Total current assets 347,598 452,704
Property and equipment, net (Note C) 219,611 75,395
----------- -----------
Total assets $ 567,209 $ 528,099
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities:
Accounts payable 40,125 7,895
Accrued expenses 150,911 35,500
Due to related party (Note G) 110,100 148,436
----------- -----------
Total current liabilities 301,136 191,831
Convertible notes payable (Note D) 625,000 --
Commitments and contingencies (Note G)
Stockholders' equity (deficit) (Note F):
Preferred stock, $.01 par value; 1,150 shares authorized:
Series A Convertible Preferred Stock, $.01 par value; 300
shares designated, issued and outstanding
(liquidation preference $700 per share) 3 3
Series B Convertible Preferred Stock, $.01 par value; 550
shares designated, issued and outstanding
(liquidation preference $950 per share) 6 6
Series C Convertible Preferred Stock, $.01 par value;
300 shares designated, 300 and zero shares issued and
outstanding at December 31, 1997 and 1996, respectively
(liquidation preference $2,500 per share) 3 --
Additional paid-in capital - Preferred stock 1,341,751 680,491
Common stock, no par value; 15,000 shares authorized,
4,762 shares issued and outstanding 352,143 352,143
Deficit accumulated during development stage (2,052,833) (696,375)
----------- -----------
Total stockholders' equity (deficit) (358,927) 336,268
----------- -----------
Total liabilities and stockholders' equity (deficit) $ 567,209 $ 528,099
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
2
<PAGE>
BioSeq, Inc.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
for the years ended December 31, 1997 and 1996 and for the period from
October 17, 1994 (date of inception) to December 31, 1997
<TABLE>
<CAPTION>
For the period from
October 17, 1994
(Date of Inception)
to December 31,
1997 1996 1997
---- ---- -------------------
<S> <C> <C> <C>
Contract research and development revenue $ 19,000 $ 19,000
Operating expenses:
Research and development 1,068,153 $ 390,974 1,702,755
General and administrative 294,127 45,300 357,657
----------- --------- -----------
1,362,280 436,274 2,060,412
----------- --------- -----------
Operating loss (1,343,280) (436,274) (2,041,412)
Interest income 26,100 1,757 27,857
Interest expense (39,278) -- (39,278)
----------- --------- -----------
Net loss $(1,356,458) $(434,517) $(2,052,833)
=========== ========= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
3
<PAGE>
BioSeq, Inc.
(A Development Stage Enterprise)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
for the period from October 17, 1994 (date of inception) to December 31, 1997
<TABLE>
<CAPTION>
Preferred Stock
-----------------------------------------------------------------------------
Series A Convertible Series B Convertible Series C Convertible Additional
------------------ ---------------- ---------------- Paid-in
Shares Amount Shares Amount Shares Amount Capital
------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to founders in
December 1, 1994
Net loss
Balance at December 31, 1994
Issuance of common stock to founders in
July 1, 1995
Net loss
Balance at December 31, 1995
Issuance of common stock to founders,
various dates April to August 1996
Issuance of common stock to related party for
repayment of note to related party March 1996
Issuance of common stock to related party in
exchange for services in April and July 1996
Issuance of common stock in August 1996
Issuance of common stock in exchange for
services in December 1996
Issuance of Series A convertible preferred stock
in October 1996 300 $ 3 $ 209,997
Issuance of Series B convertible preferred stock
in November 1996 550 6 522,494
Issuance costs related to stock (52,000)
Net loss
--- ----- --- --- ------------
Balance at December 31, 1996 300 $ 3 550 6 680,491
Issuance of Series C preferred
in April 1, 1997 $ 300 3 749,997
Issuance costs related to stock (88,737)
Net loss
--- ----- --- --- ----- --- ------------
Balance at December 31, 1997 300 $ 3 550 6 300 3 $ 1,341,751
=== ===== === === ===== === ------------
</TABLE>
<TABLE>
<CAPTION>
Common Stock Deficit Total
---------------- Accumulated Stockholders'
Shares Amount Since Inception Equity (Deficit)
------ ------ --------------- ---------------
<S> <C> <C> <C> <C>
Issuance of common stock to founders in
December 1, 1994 650 $ 65,000 $ 65,000
Net loss $ (63,397)
Balance at December 31, 1994 650 $ 65,000 (63,397) 1,603
----- -------- ------------ ----------
Issuance of common stock to founders in
July 1, 1995 936 436 436
Net loss (198,461)
----- -------- ------------ ----------
Balance at December 31, 1995 1,586 65,436 (261,858) (196,422)
Issuance of common stock to founders,
various dates April to August 1996 1,330 1,514 1,514
Issuance of common stock to related party for
repayment of note to related party March 1996 500 75,000 75,000
Issuance of common stock to related party in
exchange for services in April and July 1996 1,196 135,193 135,193
Issuance of common stock in August 1996 100 50,000 50,000
Issuance of common stock in exchange for
services in December 1996 50 25,000 25,000
Issuance of Series A convertible preferred stock
in October 1996 210,000
Issuance of Series B convertible preferred stock
in November 1996 522,500
Issuance costs related to stock (52,000)
Net loss (434,517) (434,517)
---- -------- ------------ ----------
Balance at December 31, 1996 4,762 352,143 (696,375) 336,268
Issuance of Series C preferred
in April 1, 1997 750,000
Issuance costs related to stock (88,737)
Net loss (1,356,458) (1,356,458)
---- -------- ------------ ----------
Balance at December 31, 1997 4,762 $352,143 $ (2,052,833) $ (358,927)
===== ======== ============ -=========
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE>
BioSeq, Inc.
(A Development Stage Enterprise)
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997 and 1996 and
for the period from October 17, 1994 (date of inception) to December 31, 1997
<TABLE>
<CAPTION>
For the Period From
October 17, 1994
(Date of Inception)
to December 31,
1997 1996 1997
---- ---- -------------------
<S> <C> <C> <C>
Cash flows for operating activities:
Net loss $(1,356,458) $ (434,517) $(2,052,833)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation 35,678 3,652 39,330
Stock issued for services -- 135,193 135,193
Changes in assets and liabilities:
Accounts receivable (11,000) -- (11,000)
Accounts payable and accrued expenses 159,305 21,669 268,636
----------- ----------- -----------
Net cash used in operating activities (1,172,475) (274,003) (1,620,674)
----------- ----------- -----------
Cash flows for investing activities:
Purchases of property and equipment (179,894) (79,047) (258,941)
----------- ----------- -----------
Net cash used in investing activities (179,894) (79,047) (258,941)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock -- 51,514 116,950
Proceeds from issuance of preferred stock 750,000 732,500 1,482,500
Issuance costs related to preferred stock (88,737) (27,000) (115,737)
Proceeds from related party loans -- 67,500 195,000
Principal payments of related party loans (50,000) (37,500) (87,500)
Proceeds from notes payable 625,000 -- 625,000
----------- ----------- -----------
Net cash provided by financing activities 1,236,263 787,014 2,216,213
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (116,106) 433,964 336,598
Cash and cash equivalents, beginning of period 452,704 18,740 --
----------- ----------- -----------
Cash and cash equivalents, end of period $ 336,598 $ 452,704 $ 336,598
=========== =========== ===========
Supplemental disclosures of noncash transactions:
Related party loans converted into common stock -- $ 75,000 $ 75,000
Interest paid -- -- --
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE>
BioSeq, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
A. Nature of Business:
BioSeq, Inc. (the "Company"), which began operations on October 17, 1994
and was incorporated on December 12, 1994, is a development stage
enterprise engaged in developing a platform technology for precise
bimolecular interaction control which enables faster, simpler, and
inherently lower cost products and services as compared to conventional
technologies. The Company's proprietary technology employs a unique
approach and has broad application in a number of emerging and
established industries. The Company plans to continue to develop its
broad-based enabling technology platform in order to establish an array
of patents covering numerous potential commercial applications. Since its
inception, the Company has devoted substantially all of its efforts to
establishing a new business and to carrying on research and development
activities. See Note I. Subsequent Events which describes that BioSeq,
Inc., was acquired by Boston Biomedica, Inc. in 1998.
The Company is subject to a number of risks similar to other companies
in the industry, including rapid technological change, uncertainty of
market acceptance of products, uncertainty of regulatory approval,
competition from substitute products and larger companies, customers'
reliance on third-party reimbursement, the need to obtain additional
financing, compliance with government regulations, protection of
proprietary technology, dependence on third-parties, product liability,
and dependence on key individuals.
B. Summary of Significant Accounting Policies:
Cash and Cash Equivalents
The Company considers all highly liquid investments with remaining
maturities of three months or less at the time of acquisition to be cash
equivalents. Cash equivalents, which are primarily money market accounts,
are stated at cost, which approximates market value.
Concentration of Credit Risk
Cash and cash equivalents are financial instruments, which potentially
subject the Company to concentrations of credit risk. At December 31,
1997 and 1996, substantially all of the Company's cash was invested in a
money market account at one financial institution.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally three to five years. The cost of maintenance and repairs is
charged to expense as incurred.
Research and Development Expense
Research and development costs are expensed as incurred.
Continued
6
<PAGE>
BioSeq, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
Income Taxes
The Company uses the liability method of accounting for income taxes.
Under the liability method, deferred tax assets and liabilities reflect
the impact of temporary timing differences between amounts of assets and
liabilities for financial reporting purposes and such amounts as measured
by tax laws. A valuation allowance is required to offset any net deferred
tax assets if, based upon the available evidence, it is more likely than
not that some or all of the deferred tax assets will not be realized.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," ("SFAS 123") encourages, but does not require
companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations. Accordingly, compensation
cost for stock options is measured as the excess, if any, of the fair
value of the Company's stock at the date of the grant over the amount an
employee must pay to acquire the stock. Had compensation cost for the
Company's stock-based compensation been determined based on the fair
value at the date of grant consistent with the method of SFAS 123, the
Company's net loss would not have been materially impacted.
Reclassifications
Certain reclassifications have been made in the prior year's financial
statements to conform with the 1997 presentation.
Continued
7
<PAGE>
BioSeq, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
C. Property and Equipment:
Property and equipment at December 31, 1997 and 1996 consists of:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Lab equipment $ 234,733 $ 79,047
Office equipment 24,208 --
--------- ---------
Property and equipment, gross 258,941 79,047
Less: accumulated depreciation (39,330) (3,652)
--------- ---------
Property and equipment, net $ 219,611 $ 75,395
========= =========
</TABLE>
D. Notes Payable:
On April 11, 1997, the Company issued $625,000 of convertible notes ( the
" Notes"). The notes bear interest at 8.25% per annum and both principal
and interest are due in April 1999. The outstanding principal and accrued
interest on this Note will be automatically converted without action of
the holder, upon the closing of an equity financing or series of related
equity financings for the same security of at least $2,000,000 in the
aggregate, into the security issued in that financing (the "Underlying
Security"), at a price equal to 80% of the average gross issue price
thereof (the "Conversion Price"). The holder of this Note, upon such
conversion, will receive such number of fully paid and nonassessable
shares of Underlying Securities as the outstanding principal and accrued
but unpaid interest on this Note to which such conversion relates as of
the Conversion date could purchase at the Conversion Price then in
effect.
E. Stockholders' Equity:
Capital Stock
The authorized capital stock of the Company consists of (i) 15,000 shares
of voting common stock authorized for issuance with no par value, 4,762
shares of which are issued and outstanding at December 31, 1997 and 1996,
(ii) 1,150 shares of preferred stock, with a par value of $.01, 300
shares of which are designated, issued and outstanding as Series A
Convertible Preferred Stock ("Series A Stock") at December 31, 1997 and
1996; 550 shares of which are designated, issued and outstanding as
Series B Convertible Preferred Stock ("Series B Stock") at December 31,
1997 and 1996; and 300 and zero shares of which are designated, issued
and outstanding as Series C Convertible Preferred Stock ("Series C
Stock") at December 31, 1997 and 1996, respectively. The holders of all
series of Preferred Stock are entitled to one vote for each share of
Common Stock, into which the Preferred Stock is then convertible. No
dividends may be paid on the Common
Continued
8
<PAGE>
BioSeq, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
Stock until all dividends, including accrued but unpaid dividends have
been paid to the holders of all series of preferred stock. The Company
has reserved 1,150 shares of common stock for the conversion of preferred
stock.
Under the terms of a preferred stock purchase agreement the holder of the
Series A and B stock had the right to purchase the designated shares of
Series C Stock for a per share price of $2,500 until December 31, 1997.
On April 10, 1997, the holder of the Series A and B stock exercised its
right under the stock purchase agreement to purchase 300 shares of Series
C Stock for $2,500 per share. Additionally, the preferred stock purchase
agreement requires 33% of the proceeds from the Series A Stock and 66% of
the proceeds from Series B and C Stock to be used to fund research and
development activities. The holder of the Series A, B and C Stock is an
unaffiliated corporation that, based upon the agreement, cannot purchase
in excess of 20% of the aggregate preferred and common stock of the
Company and is entitled to elect one director of the Company. The
agreement also required the Company to pay to the unaffiliated
corporation a minimum of $100,000 for research services by September 30,
1997. Upon the closing of the Series C Stock the minimum requirement
increases to $150,000 by December 31, 1998.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the
corporation, either voluntary or involuntary, the holders of the Series A
Stock, Series B Stock and Series C Stock shall be entitled to receive,
prior and in preference to any distribution of any of the assets or
surplus funds of the corporation to the holders of the Common stock by
reason of their ownership thereof, an amount equal to the original issue
prices of $700 per share of the Series A Stock, $950 per share of Series
B Stock and $2,500 per share Series C Stock, respectively.
Conversion Rights
The holder of the Series A Stock, Series B Stock and Series C Stock shall
have the following rights with respect to the conversion of the Preferred
Stock into shares of Common Stock:
a) Optional Conversion. Any shares of Preferred Stock may, at the
option of the holder, be converted at any time into shares of
Common Stock. Initially, the holder will be entitled upon
conversion to receive one share of common stock for each share of
Series A, B, or C stock. If prior to conversion, the Company
sells or issues any shares of common stock or securities
convertible into common stock, subject to certain conditions, for
consideration less than the respective issuance prices of the
Series A, B, or C stock, the conversion ratio will be reduced on
a weighted average basis.
b) Automatic Conversion. Each share of Preferred Stock shall
automatically be converted into shares of Common Stock, based on
each then-effective conversion ratio immediately upon the closing
of a firmly underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the
account of the Company in which (i) the share price is at least
$1,300, and (ii) and the gross cash proceeds to the Company are
at least $10,000,000.
Continued
9
<PAGE>
BioSeq, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
Warrants
In October 1996, the Company issued a stock purchase warrant to the
purchaser of Series A and B Stock, granting the warrant holder the right
to purchase, 300 shares at a per share price of $770, 550 shares at a per
share price of $1,045 and 300 shares at a per share price of $2,570,
shares of the Company's common stock for a period of five years. The
warrants are not exercisable if it would cause the holder's percentage
interest in the equity of the Company to exceed 20%. In the event the
Company sells any shares of common stock, warrants options or convertible
securities for consideration less than the warrant purchase price, the
warrant purchase price will be reduced. At date of issuance, the value of
these warrants was not material to the results of operations of the
financial statements.
Stock Options
In September and October of 1995, the Company issued options to purchase
27.5 shares of common stock with an exercise price of $1,000 per share to
advisors of the Company. The options vest over the following schedule:
25% after 6 months, 50% after 12 months, 75% after 24 months and 100%
after 36 months. There were 27.5 of these options outstanding at December
31, 1997 and 1996; 20 and 13 of these options were vested and exercisable
at December 31, 1997 and 1996, respectively.
1996 Stock Option Plan
In December 1996, the Company adopted the 1996 Stock Option Plan (the
"Option Plan"). The Option Plan is administered by a Committee of the
Company's Board of Directors (the "Committee"), and allows for the
granting of awards in the form of incentive stock options, nonstatutory
stock options, stock appreciation rights, and stock grants which may
include restricted stock for up to 1,086 shares of common stock to
eligible employees nonemployed directors, advisors and consultants to the
Company. Awards granted under the plan are subject to terms and
conditions as determined by the Committee, except that no incentive stock
options may be issued at less than the fair market value of the common
stock on the date of grant or have a term in excess of ten years. In
addition, no individual will be granted options in any calendar year for
the purchase of more than 200 shares. Stock option awards normally vest
over 48 months as follows: 12.5% after 6 months from the date of grant,
an additional 12.5% after 12 months from the date of grant, an additional
25% after 24 months from the date of grant, an additional 25% after 36
months from the date of grant and the remaining 25% after 48 months from
the date of grant. At December 31, 1997 and 1996, 1,086 shares were
available for the granting of awards. There were 781 and zero options
outstanding under the Option Plan at December 31, 1997 and 1996,
respectively. The options granted during the year ended December 31, 1997
have an exercise price ranging from $500 to $550 per share. The
weighted-average remaining contractual life of those options is 7.8
years.
Continued
10
<PAGE>
BioSeq, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
A summary of the Company's stock option activity and related information
for the years ended December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------- ---------------------------
Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Oustanding - beginning of year -- -- -- --
Granted 781 $ 516.01 -- --
Exercised -- -- -- --
Canceled -- -- -- --
Outstanding - end of year 781 516.01 -- --
Exercisable at end of year 66 $ 523.54 -- --
===== ========== ====== ======
</TABLE>
F. Income Taxes:
Since the Company has incurred net losses since inception, no provision
for income taxes has been recorded. Deferred income taxes consist
principally of deferred tax assets relating to net operating losses and
research and development credits offset by deferred tax liabilities
relating to depreciation. The net deferred tax asset is approximately
$805,000 and $180,000 at December 31, 1997 and 1996, respectively, for
which a full valuation allowance has been provided due to the uncertain
realization of the benefit.
The Company had approximately $1,738,000 and $406,000 of net operating
loss carryforwards at December 31, 1997 and 1996, respectively, and
$119,000 and $18,000 of federal and state tax credit carryforwards
available for income tax purposes at December 31, 1997 and 1996,
respectively. Of these net operating loss and credit carryforwards
$1,332,000 and $406,000 will expire in 2012 and 2011, respectively.
However, changes in the Company's ownership as defined in the Internal
Revenue Code may limit the Company's ability to utilize net operating
loss and tax credit carryforwards.
G. Related Party Transactions:
The Company is party to an agreement whereby it obtains substantially all
of its operating resources from a related corporation (the "Related
Entity") which is also a significant stockholder. At December 31, 1997
and 1996, respectively, the Related Entity owns approximately 40% and 42%
of the outstanding shares of the Company, respectively. During 1996, this
Related Entity provided the Company with all personnel (including
management), access to technology licenses, and operating facilities.
Under the terms of this agreement, the Company paid $290,974 for the
Continued
11
<PAGE>
BioSeq, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
year ended December 31, 1996 and has paid $534,602 for the period from
inception (October 17, 1994) through December 31, 1997. Due to the
related party nature of these entities, the amounts charged for these
services may not be recorded at fair market value.
Effective January 1, 1997, all of the employees of the Related Entity
became employees of the Company and the Company agreed to pay the Related
Entity $12,000 per month in exchange for all expenses related to certain
leased facilities and related furniture, fixtures and equipment. Under
the terms of this agreement, the Company paid $144,000 for the year ended
December 31, 1997 and for the period from inception (October 17, 1994) to
December 31, 1997.
Additionally, in October 1996, the Company entered into a technology
transfer agreement (the "Technology Agreement") with the Related Entity
for the transfer of certain patent applications and technology in
exchange for $100,000 which has been recorded as research and development
expense. Amounts totaling $50,000 were paid in the years ended December
31, 1997 and 1996.
Under the terms of the Technology Agreement, the Company has also agreed
to pay a royalty of 5% of net sales, if any, of developed products
covered by the Technology Agreement. Minimum annual royalty payments
under this Technology Agreement are $150,000 payable in equal
installments on a quarterly basis commencing in calendar year 1997. Upon
satisfactory completion of certain technical milestones, the minimum
royalty payments to this Related Entity will increase to $250,000
annually. Royalty payments totaling $75,000 and zero were paid in 1997
and 1996, respectively.
The Company has amounts due to related parties totaling $110,100 and
$148,436 at December 31, 1997 and 1996, respectively. Of the 1996 amount,
$56,857 relates to equipment and legal expenses paid by the Related
Entity on behalf of the Company and $82,500 relates to a loan from the
Related Entity. During the year ended December 31, 1996, the remaining
amount of $9,079 related to operating services provided by the Related
Entity for the Company. Of the 1997 amount, $75,000 relates to license
fees, $32,500 relates to the loan from the Related Entity and the
remaining $2,600 represents interest on the loan from the Related Entity.
The loan from the Related Entity is payable on demand. Beginning on
January 1, 1997, the loan bears interest at 8%. In addition, the unpaid
portion of the Note is convertible at the option of the Related Entity
into 217 shares of common stock.
H. License Agreement:
On October 7, 1996, the Company has entered into an agreement with the
holder of the Series A, B, and C Stock, which grants the exclusive
world-wide license under certain patents. The term of the agreement
commences with the earlier of the closing of the Series C Stock or
December 31, 1997 and corresponds with the life of the patents. The
license becomes nonexclusive upon the first commercial sale of an
instrument utilizing the patent by the Company. Under the terms of the
agreement, the Company shall receive a royalty on the unaffiliated
corporation's net revenues, if any, under the license. The royalty rate
is 5% of net revenues during the three year period
Continued
12
<PAGE>
BioSeq, Inc.
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
commencing at the earlier of the first commercial sale of services or the
end of the one year period following the commencement of the license
term. The royalty shall increase to 8% during the next two years and to
10% thereafter. Royalty rates are reduced by 50% for services provided in
countries where no patent rights have been granted and reduced to zero
upon the license becoming non-exclusive.
I. Subsequent Events:
On March 20, 1998, the Company entered into an agreement with the holder
of Series A, B and C stock which grants the sole and exclusive right and
license world-wide under the licensed patents to develop, market,
manufacture, maintain, repair, use, offer to sell and sell licensed
products and to use technical information. Under the terms of the
agreement, the holder of Series A, B and C stock will pay the Company a
license fee of $600,000. In addition, the holder of Series A, B and C
stock will pay the Company a royalty equal to 5% of net sales on sales to
nonaffiliate customers and 25% of net sales on sales to sublicensees
during the first year of the agreement or $50,000, whichever is greater.
For all subsequent years, the royalty will be equal to $50,000 and the
prior year's royalty plus 5% not to exceed $125,000. On September 30,
1998, the Company was acquired by Boston Biomedica, Inc. ("BBI") for
$879,000 in cash (net of cash acquired of $121,000), warrants to purchase
100,000 shares of BBI's stock at an exercise price of $2.50 per share,
minimum long-term royalty payments to the owners of the Company of
$424,000, debt and accrued interest owed by the Company at the time of
acquisition of approximately $736,000 and other acquisition costs. The
Company's stock options were exchanged for 46,623 BBI stock options with
an average exercise price of $2.74. The aggregate purchase price of the
Company, including the original 19% investment under the 1996 Purchase
Agreement of $1,482,000, was approximately $4,226,000.
13
