<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 1997
REGISTRATION NO. 333-17657
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BIOSITE DIAGNOSTICS INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3826 33-0288606
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
11030 ROSELLE STREET
SAN DIEGO, CALIFORNIA 92121
(619) 455-4808
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
KIM D. BLICKENSTAFF
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BIOSITE DIAGNOSTICS INCORPORATED
11030 ROSELLE STREET
SAN DIEGO, CALIFORNIA 92121
(619) 455-4808
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE OF PROCESS)
------------------------
COPIES TO:
<TABLE>
<S> <C>
THOMAS E. SPARKS, JR., ESQ. ALAN C. MENDELSON, ESQ.
JOHN L. DONAHUE, ESQ. D. BRADLEY PECK, ESQ.
GEORGE A. GUCKER, ESQ. NANCY E. DENYES, ESQ.
PILLSBURY MADISON & SUTRO LLP COOLEY GODWARD LLP
P.O. BOX 7880 4365 EXECUTIVE DRIVE, SUITE 1100
SAN FRANCISCO, CA 94120-7880 SAN DIEGO, CA 92121-2128
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
[ ] If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
[ ] If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF ANY OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Dated January 7, 1997
2,000,000 SHARES
LOGO
COMMON STOCK
------------------------
All of the 2,000,000 shares of Common Stock, $.01 par value per share (the
"Common Stock"), offered hereby are being sold by Biosite Diagnostics
Incorporated ("Biosite" or the "Company"). Prior to this offering, there has
been no public market for the Common Stock of the Company. It is estimated that
the initial public offering price will be between $11.00 and $13.00 per share.
See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. Application has been made to have
the Common Stock approved for quotation on the Nasdaq National Market under the
symbol "BSTE."
------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=================================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $ $ $
Total (3)......................... $ $ $
=================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated to be $700,000.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase an aggregate of up to 300,000
additional shares at the Price to Public less Underwriting Discounts and
Commissions to cover over-allotments, if any. If all such additional shares
are purchased, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------------
The Common Stock is offered by the several Underwriters named herein when,
as and if received and accepted by them, subject to their right to reject orders
in whole or in part and subject to certain other conditions. It is expected that
delivery of certificates for the shares will be made at the offices of Cowen &
Company, New York, New York on or about , 1997.
------------------------
COWEN & COMPANY ALEX. BROWN & SONS
INCORPORATED
, 1997
<PAGE> 3
LOGO
IMMEDIATE RESPONSE DIAGNOSTICS(TM)
TRIAGE(R) PANEL
FOR DRUGS OF ABUSE
EMERGENCY ROOM SCREENING
TRIAGE(R) TRIAGE(R) PLUS TCA
PANEL FOR EMERGENCY ROOM SCREENING
DRUGS OF ABUSE
TRIAGE(R) INTERVENTION
WORKPLACE SCREENING
MERCK TRIAGE(R)
INTERNATIONAL MARKETS
[PHOTOGRAPHS SHOWING TRIAGE DOA TEST DEVICE AND VARIOUS TRIAGE DOA PRODUCT
CONFIGURATIONS]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
Biosite(R) and Triage(R) are registered trademarks of the Company.
Immediate Response Diagnostics(TM), ExpressTest(SM), Triage CareLink(TM) and the
Company's logo are servicemarks or trademarks of the Company. This Prospectus
also includes trade names and trademarks of companies other than Biosite.
<PAGE> 4
IMMEDIATE RESPONSE DIAGNOSTICS(TM) BIOSITE'S TRIAGE
PANELS AND TRIAGE CARELINK SYSTEM
PRODUCT ATTRIBUTES
TRIAGE(R)
PANEL FOR DRUGS OF ABUSE
IS USED IN A VARIETY OF
SETTINGS FOR RAPID DRUG SCREENING
RAPID RESULTS
EASE OF USE
HIGH ANALYTICAL ACCURACY
MULTIPLE ANALYTE DETECTION
RELIABILITY
COST EFFECTIVENESS
[PHOTOGRAPHS OF CERTAIN SETTINGS IN WHICH TRIAGE DOA IS USED (HOSPITAL
LABORATORIES, EMERGENCY ROOMS AND WORKPLACE SCREENING)]
<PAGE> 5
PRODUCTS UNDER DEVELOPMENT
TRIAGE(R) PANELS
TRIAGE(R) O & P
(PARASITE SCREENING)
TRIAGE(R) C.DIFF
(PATHOGEN DETECTION)
TRIAGE(R) ENTERIC
(PATHOGEN SCREENING)
TRIAGE(R) CARELINK SYSTEM
TRIAGE(R) CARDIAC
(ACUTE MYOCARDIAL
INFARCTION DETECTION)
TRIAGE(R) TRANSPLANT
(CYCLOSPORIN MONITORING)
[PHOTOGRAPHS SHOWING THE COMPANY'S PRODUCTS UNDER DEVELOPMENT]
THE COMPANY'S PRODUCTS IN DEVELOPMENT ARE IN VARIOUS STAGES OF RESEARCH OR
DEVELOPMENT AND HAVE NOT BEEN APPROVED BY THE UNITED STATES FOOD AND DRUG
ADMINISTRATION FOR COMMERCIAL SALE. THERE CAN BE NO ASSURANCE THAT THE COMPANY'S
PRODUCTS IN DEVELOPMENT WILL BE SUCCESSFULLY DEVELOPED OR APPROVED BY REGULATORY
AUTHORITIES FOR COMMERCIAL SALE.
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes appearing elsewhere in this
Prospectus. Except as set forth in the financial statements and notes thereto or
otherwise as specified herein, all information in this Prospectus (i) assumes no
exercise of the Underwriters' over-allotment option, (ii) reflects the
conversion of all outstanding shares of Preferred Stock of the Company into
shares of Common Stock upon the closing of this offering and (iii) includes
92,222 shares which will be issued upon conversion of a $1.0 million debenture
into shares of Common Stock upon the closing of this offering, assuming an
initial public offering price of $12.00 per share and accrued interest on the
debenture through January 31, 1997. See "Description of Capital Stock,"
"Underwriting" and Notes 1, 6 and 7 of Notes to Financial Statements.
THE COMPANY
Biosite Diagnostics Incorporated ("Biosite" or the "Company") develops,
manufactures and markets rapid, accurate and cost-effective diagnostic products
that improve the quality of patient care and simplify the practice of laboratory
medicine. The Company believes that its Immediate Response Diagnostics can have
an important impact on medical decisions, patient care and the cost of medical
treatment. The Company's first product, Triage Panel for Drugs of Abuse ("Triage
DOA"), a small self-contained test capable of detecting a broad spectrum of
commonly overdosed prescription and illicit drugs in approximately 10 minutes,
is used by over 2,600 hospitals and emergency departments. Since its
introduction in 1992, over 4.2 million Triage DOA panels have been sold
worldwide for use in hospital emergency department screening and workplace
testing. The Company is developing several additional products for applications
where the Company believes its Immediate Response Diagnostics can play an
important role in improving patient care. Products under development include
tests that are intended to aid in the diagnosis of heart attacks, the dosing of
certain therapeutic drugs, the management of certain chronic diseases and the
detection of certain bacterial and parasitic infections.
In 1995, the worldwide market for immunoassay tests exceeded $5.1 billion.
Although early manual immunoassay tests provided high levels of sensitivity for
analyte detection, these tests suffered from short shelf lives, long reaction
times, a need for radioactive labels and inconsistent results. In response to
these limitations, automated immunoassay analyzers have been developed to
simplify the performance of antibody-based tests. However, these machines are
large and complex, have lengthy turnaround times and require high volumes of
sample throughput to justify the significant investment in equipment and
technical staff.
In recent years, there has been a continuing shift from the use of such
analyzers to more technologically advanced point-of-care tests that can be
performed in a matter of minutes. Although certain simple single analyte
diagnostic tests have been developed, such tests have remained incapable of
precise, multi-analyte detection or highly sensitive quantitative measurements.
As a result, medical tests that require multiple analytes or precise
quantitation of the target analyte have remained the domain of immunoassay
analyzers. The Company believes that there is significant market potential for
advanced point-of-care diagnostic products that provide quick and accurate
diagnosis during a patient visit, shortening the decision time to medical
intervention and minimizing the need for additional patient follow-up, thereby
reducing overall health care delivery costs.
Biosite's Immediate Response Diagnostics technology is based on proprietary
advances in several core scientific and engineering disciplines, including
antibody development and engineering, analyte cloning and synthesis, signaling
chemistry and micro capillary fluidics, which make possible the development and
manufacture of rapid, accurate and cost-effective point-of-care diagnostics. The
Company has utilized its core technologies to develop two distinct product
platforms: the Triage Panel for qualitative visual readings and the Triage
CareLink System for quantitative measurements. The Company's products are
designed to measure either a single analyte or multiple analytes simultaneously
and to allow for the qualitative or quantitative analysis of various samples,
including urine, serum, plasma, whole blood and stool. Both of the Company's
product platforms are designed to provide rapid results, ease of use, high
analytical accuracy and the capability of performing multiple analyses in a
reliable and cost-effective testing device.
3
<PAGE> 7
Triage DOA, based on the Company's Triage Panel platform, is a qualitative,
single sample urine screen that identifies eight commonly abused prescription
and illicit drugs or drug classes and provides results in approximately 10
minutes. Emergency physicians have estimated that drug abuse is implicated in 5%
to 10% of the emergency department visits in the United States each year. The
Company believes that it is a leading provider of immunoassays for drug
screening in hospitals. In 1995, sales of Triage DOA product lines exceeded
$25.1 million. The Company has additional Triage Panel products under
development for the qualitative detection of bacterial and parasitic infections.
The Triage CareLink System under development is designed to provide rapid,
quantitative results for immunoassay tests. The Triage CareLink System consists
of two parts: a small single-use test cartridge and a proprietary portable
fluorescent meter designed to read the sample at the point-of-care. The Company
currently is developing two applications using this technology: Triage Cardiac,
to quantify a panel of cardiac markers implicated in acute myocardial infarction
("AMI"), and Triage Transplant, to monitor the concentration of cyclosporine, an
immunosuppressant drug prescribed for organ transplant recipients to prevent
organ rejection.
The Company has entered into several strategic arrangements with major
pharmaceutical and diagnostic companies, including Novartis Pharma Inc.
("Novartis," formerly Sandoz Pharma Ltd.) for the development of Triage
Transplant; LRE Relais + Electronik GmbH ("LRE") for the development of the
fluorescent meter used in the Triage CareLink System; and Merck KGaA ("Merck")
and ARKRAY KDK Corporation, formerly known as Kyoto Dai-ichi Kagaku Co., Ltd.
("KDK"), for the development of Triage Cardiac. In addition, the Company uses
Curtin Matheson Scientific, Inc., a subsidiary of Fisher International Inc.
("CMS"), to distribute Triage DOA to U.S. hospital-based laboratories and
emergency departments and has built a small direct sales force to address the
workplace testing segment of the market for Triage DOA. Merck is the exclusive
distributor of Triage DOA in certain countries in Europe, Latin America, the
Middle East, Asia and Africa.
The Company was incorporated in Delaware in 1988. The Company's executive
offices are located at 11030 Roselle Street, San Diego, California 92121, and
its telephone number is (619) 455-4808.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 2,000,000 shares
Common Stock to be outstanding after the
offering................................... 11,885,168 shares(1)
Use of proceeds.............................. For expansion of sales and marketing
activities, research and development,
expansion and development of manufacturing
capabilities, working capital and general
corporate purposes.
Proposed Nasdaq symbol....................... BSTE
</TABLE>
- ---------------
(1) Excludes 1,180,204 shares reserved for issuance upon exercise of stock
options outstanding at November 30, 1996. See "Capitalization,"
"Management -- Executive Compensation" and Note 7 of Notes to Financial
Statements.
4
<PAGE> 8
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales............................... $ -- $ 2,920 $ 9,866 $16,320 $25,147 $18,236 $20,225
Cost of sales........................... -- 1,612 3,268 4,416 5,649 3,781 4,318
------- ------- ------- ------- ------- ------- -------
Gross profit............................ -- 1,308 6,598 11,904 19,498 14,455 15,907
Research and development................ 2,793 2,593 2,796 3,836 6,553 4,602 6,515
Selling, general and administrative..... 1,771 3,622 4,841 5,960 7,134 5,203 6,116
------- ------- ------- ------- ------- ------- -------
Total operating expenses................ 4,564 6,215 7,637 9,796 13,687 9,805 12,631
Income (loss) from operations........... (4,564) (4,907) (1,039) 2,108 5,811 4,650 3,276
Interest and other income, net.......... 260 630 613 649 1,647 1,253 1,441
Settlement of patent matters............ -- -- -- (338) (1,217) (743) (2,368)
------- ------- ------- ------- ------- ------- -------
Income (loss) before benefit (provision)
for income taxes...................... (4,304) (4,277) (426) 2,419 6,241 5,160 2,349
Benefit (provision) for income taxes.... -- -- -- (63) 1,667 (132) 264
------- ------- ------- ------- ------- ------- -------
Net income (loss)....................... $(4,304) $(4,277) $ (426) $ 2,356 $ 7,908 $ 5,028 $ 2,613
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share............. $ (0.61) $ (0.49) $ (0.04) $ 0.22 $ 0.74 $ 0.47 $ 0.24
======= ======= ======= ======= ======= ======= =======
Common and common equivalent shares used
in computing per share amounts(1)..... 7,058 8,754 10,098 10,553 10,766 10,721 10,832
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------
ACTUAL AS ADJUSTED(2)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.............................. $10,169 $ 31,789
Working capital................................................................ 13,967 35,667
Total assets................................................................... 28,968 50,588
Notes payable and capital lease obligations, less current portion.............. 3,234 2,234
Stockholders' equity........................................................... 21,181 43,881
</TABLE>
- ---------------
(1) Computed on the basis described in Note 1 of Notes to Financial Statements.
(2) Adjusted to reflect the sale by the Company of 2,000,000 shares of Common
Stock offered hereby at an assumed initial public offering price of $12.00
per share and the application of the estimated net proceeds therefrom. See
"Use of Proceeds" and "Capitalization."
5
<PAGE> 9
The discussion in this Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed here. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed in the
sections entitled "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," as well as those
discussed elsewhere in this Prospectus.
RISK FACTORS
In evaluating the Company's business, prospective investors should consider
carefully the following risk factors in addition to the other information
presented in this Prospectus.
DEPENDENCE ON DEVELOPMENT AND INTRODUCTION OF NEW PRODUCTS
Except for Triage DOA, all of the Company's products are still under
development, and there can be no assurance that such products will be
successfully developed or commercialized on a timely basis, if at all. The
Company believes that its revenue growth and profitability will substantially
depend upon its ability to complete development of and successfully introduce
these new products. In addition, the successful development of some of these new
products will depend on the development of new technologies, including the
Triage CareLink System's fluorescent meter and assay devices. The Company will
be required to undertake time-consuming and costly development activities and
seek regulatory approval for these new products. There can be no assurance that
the Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of these new products, that
regulatory clearance or approval of any new products will be granted by the U.S.
Food and Drug Administration ("FDA") or foreign regulatory authorities on a
timely basis, if at all, or that the new products will be successfully
commercialized. The Company has limited resources to devote to the development
of all its products and consequently a delay in the development of one product
may delay the development of other products. In order to successfully
commercialize any new products, the Company will be required to establish and
maintain reliable, cost-efficient, high-volume manufacturing capacity for such
products. If the Company is unable, for technological or other reasons, to
complete the development, introduction or scale-up of manufacturing of any new
product or if any new product is not approved for marketing or does not achieve
a significant level of market acceptance, the Company's business, financial
condition and results of operations would be materially and adversely affected.
See "Business -- Products and Products Under Development," "-- Manufacturing"
and "-- Government Regulation."
FUTURE OPERATING RESULTS AND QUARTERLY FLUCTUATIONS
The Company first achieved profitability in fiscal 1994 and prior to that
time incurred significant operating losses. There can be no assurance that the
Company will remain profitable on a quarterly or annual basis in the future. The
Company believes that future operating results will be subject to quarterly
fluctuations due to a variety of factors, including whether and when new
products are successfully developed and introduced by the Company, market
acceptance of current or new products, regulatory delays, product recalls,
manufacturing delays, shipment problems, seasonal customer demand, the timing of
significant orders, changes in reimbursement policies, competitive pressures on
average selling prices, changes in the mix of products sold and patent
conflicts. Operating results would also be adversely affected by a downturn in
the market for the Company's current and future products, if any, order
cancelations or order rescheduling. Because the Company is continuing to
increase its operating expenses for personnel and new product development, the
Company's operating results would be adversely affected if its sales did not
correspondingly increase or if its product development efforts are unsuccessful
or subject to delays. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
NEAR-TERM DEPENDENCE ON TRIAGE DOA; RISK OF OBSOLESCENCE; CONCENTRATION OF
PRODUCT SALES
Sales of Triage DOA have to date accounted for all of the Company's sales.
The Company expects its revenue and profitability will substantially depend on
the sale of Triage DOA for the foreseeable future. A
6
<PAGE> 10
reduction in demand for Triage DOA would have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
believes that growth in sales of Triage DOA will slow as the available U.S.
market becomes saturated. Competitive pressures could also erode the Company's
profit margins for Triage DOA. The Company's continued growth will depend on its
ability to successfully develop and commercialize other products and to gain
additional acceptance of Triage DOA. There can be no assurance that the Company
will be able to successfully develop and commercialize new products or that the
Company will be able to maintain or expand its share of the drug testing market.
Technological change or the development of new or improved diagnostic
technologies could result in the Company's products becoming obsolete or
noncompetitive. See "Business -- Products and Products Under Development."
DEPENDENCE ON OTHERS
Biosite's strategy for the research, development, commercialization and
distribution of certain of its products entails entering into various
arrangements with corporate partners, licensors, licensees and others, and is
dependent upon the success of these parties in performing their
responsibilities. There can be no assurance that such parties will perform their
obligations as expected or that any revenue will be derived from such
arrangements.
The Company relies upon distributors and its own sales force to distribute
Triage DOA and may rely upon distributors to distribute products under
development. Triage DOA is currently marketed pursuant to exclusive distribution
agreements in the U.S. medical market by CMS (which accounted for 80% of product
sales in the first nine months of 1996) and in certain countries in Europe,
Latin America, the Middle East, Asia and Africa by Merck. The CMS distribution
agreement has minimum quarterly sales milestones which, if the milestones are
not met, allows the Company to terminate the agreement, obligates CMS to pay
Biosite a penalty and allows the Company to appoint a new distributor or to sell
Triage DOA directly in the U.S. medical market. The Company anticipates that it
may enter into additional distribution agreements with respect to its products
currently under development and products that it develops in the future, if any
of such products receive the requisite regulatory clearance or approvals. There
can be no assurance that the Company will be able to enter into such agreements
on acceptable terms, if at all.
Biosite has also entered into agreements with, among others, Merck,
Novartis and KDK for the development and marketing of products. The agreements
are subject to certain rights of termination, and there can be no assurance that
any such agreement will not be terminated. There also can be no assurance that
the Company's collaborators will abide by their contractual obligations or will
not discontinue or sell their current lines of business. As part of its decision
to refocus away from certain aspects of the human diagnostics business, Merck
has informed the Company that Merck is considering assigning its rights
concerning the marketing of Triage Cardiac either to a third party or back to
the Company. There also can be no assurance that any of the research for which
the Company receives or provides funding will lead to the development of
products. The Company intends to enter into additional development and marketing
agreements. However, there can be no assurance that the Company will be able to
enter into such agreements on acceptable terms, if at all.
If any of the Company's distribution or marketing agreements are terminated
and the Company is unable to enter into replacement agreements or if the Company
elects to distribute new products directly, the Company would have to invest in
additional sales and marketing resources, including additional field sales
personnel, which would significantly increase future sales and marketing
expenses. The Company currently has limited experience in direct sales,
marketing and distribution of its products. There can be no assurance that the
Company's direct sales, marketing and distribution efforts would be successful
or that revenue from such efforts would exceed expenses. Further, there can be
no assurance that Biosite would be able to enter into new distribution or
marketing agreements on satisfactory terms, if at all.
The Company is developing with LRE a hand-held point-of-care fluorescent
meter for use in Triage CareLink System products. The meter will be programmed
to run a specific test through the use of changeable proprietary software which
is also under development by LRE. There can be no assurance that LRE will
develop the hardware or software on schedule, if at all, or that new software
will be developed to permit the meter to be used for another Triage CareLink
System product. See "Business -- Strategic and Distribution Arrangements."
7
<PAGE> 11
INTENSELY COMPETITIVE INDUSTRY; RAPID TECHNOLOGICAL CHANGE
The market in which the Company competes is intensely competitive.
Biosite's competitors include health care companies that manufacture
laboratory-based tests and analyzers, as well as clinical and hospital-based
laboratories. Currently, the majority of diagnostic tests used by physicians and
other health care providers are performed by independent clinical and
hospital-based laboratories. The Company expects that these laboratories will
compete vigorously to maintain their dominance of the testing market. In order
to achieve market acceptance for its products, the Company will be required to
demonstrate that its products are an attractive alternative to testing performed
by clinical and hospital-based laboratories. This will require physicians to
change their established means of having such tests performed. There can be no
assurance that the Company's products will be able to compete with the testing
services provided by these laboratories. In addition, companies with a
significant presence in the diagnostic market, such as Abbott Laboratories,
Boehringer Mannheim GmbH ("Boehringer Mannheim"), Chiron Diagnostics, Clinical
Diagnostic Systems, a division of Johnson & Johnson, DADE International, and
Roche Biosciences, Inc., have developed or are developing diagnostic products
that do or will compete with the Company's products. These competitors have
substantially greater financial, technical, research and other resources and
larger, more established marketing, sales, distribution and service
organizations than the Company. Moreover, such competitors offer broader product
lines and have greater name recognition than the Company, and offer discounts as
a competitive tactic. In addition, several smaller companies are currently
making or developing products that compete with or will compete with those of
the Company. There can be no assurance that the Company's competitors will not
succeed in developing or marketing technologies or products that are more
effective or commercially attractive than the Company's current or future
products, or that would render the Company's technologies and products obsolete.
Moreover, there can be no assurance that the Company will have the financial
resources, technical expertise or marketing, distribution or support
capabilities to compete successfully in the future. In addition, there can be no
assurance that competitors, many of which have made substantial investments in
competing technologies that may be more effective than the Company's
technologies, will not prevent, limit or interfere with the Company's ability to
make, use or sell its products either in the United States or in international
markets. See "Business -- Products and Products Under Development,"
"-- Technology" and "-- Competition."
UNCERTAINTY OF PATENT AND PROPRIETARY TECHNOLOGY PROTECTION; LICENSE OF
TECHNOLOGY OF THIRD PARTIES
The Company's ability to compete effectively will depend in part on its
ability to develop and maintain proprietary aspects of its technology, and to
operate without infringing the proprietary rights of others or to obtain rights
to such proprietary rights. Biosite has U.S. and foreign issued patents and is
currently prosecuting patent applications in the United States and with certain
foreign patent offices. There can be no assurance that any of the Company's
pending patent applications will result in the issuance of any patents, that the
Company's patent applications will have priority over others' applications, or
that, if issued, any of the Company's patents will offer protection against
competitors with similar technologies. There can be no assurance that any
patents issued to the Company will not be challenged, invalidated or
circumvented in the future or that the rights created thereunder will provide a
competitive advantage.
Litigation may be necessary to enforce any patents issued to the Company,
to protect trade secrets or know-how owned by the Company or to determine the
enforceability, scope and validity of the proprietary rights of others. In March
1996, the Company settled a potential patent infringement claim by obtaining a
license to the contested patent in return for a one-time payment of $2.2
million. In September 1996, the Company settled a patent infringement lawsuit
filed by Abbott Laboratories and obtained a license to the contested patent in
return for the payment of $5.5 million and the agreement to pay certain
royalties. There can be no assurance that the Company will not in the future
become subject to patent infringement claims and litigation or interference
proceedings conducted in the U.S. Patent and Trademark Office ("USPTO") to
determine the priority of inventions. The defense and prosecution of
intellectual property suits, USPTO interference proceedings, and related legal
and administrative proceedings will result in substantial expense to the Company
and significant diversion of effort by the Company's technical and management
personnel. An adverse determination in litigation or interference proceedings to
which the Company may become a party
8
<PAGE> 12
could subject the Company to significant liabilities to third parties. Further,
either as the result of such litigation or proceedings or otherwise, the Company
may be required to seek licenses from third parties which may not be available
on commercially reasonable terms, if at all.
Triage DOA and products under development may incorporate technologies that
are the subject of patents issued to, and patent applications filed by, others.
The Company has obtained licenses for certain technologies. However, there can
be no assurance that the Company will be able to obtain licenses for technology
patented by others on commercially reasonable terms, if at all, that it will be
able to develop alternative approaches if unable to obtain licenses or that the
Company's current and future licenses will be adequate for the operation of
Biosite's business. The failure to obtain necessary licenses or to identify and
implement alternative approaches would prevent the Company from commercializing
certain of its products under development and would have a material adverse
effect on the Company's business, financial condition and results of operations.
Biosite is aware of a U.S. patent owned by Celltech Limited ("Celltech")
relating to the manufacture of antibodies, such as those developed or being
developed by Biosite for several products, including Triage Cardiac. Biosite is
also aware that this patent is the subject of an interference proceeding in the
USPTO which was initiated in February 1991 with a patent application filed by
Genentech, Inc. ("Genentech"). In June 1996, the European Patent Office ("EPO")
invalidated, following an opposition, certain claims under Celltech's
corresponding EPO-granted patent which may be relevant to Biosite's products and
products under development. Celltech has indicated that it will appeal such
decision. If it is determined that aspects of the manufacturing of Biosite's
antibodies are covered by patent claims stemming from the interference or if
Celltech were to have such claims upheld on appeal, Biosite may be required to
obtain a license under such patents and corresponding patents in other
countries. There can be no assurance that a license would be made available to
Biosite on commercially reasonable terms, if at all. If such license is required
and not obtained the Company might be prevented from using certain of its
manufacturing technologies. The Company's failure to obtain any required
licenses could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company also relies upon trade secrets, technical know-how and
continuing invention to develop and maintain its competitive position. There can
be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets or disclose such technology, that the Company can
meaningfully protect its trade secrets, or that the Company will be capable of
protecting its rights to its trade secrets.
Others may have filed and in the future are likely to file patent
applications that are similar or identical to those of the Company. To determine
the priority of inventions, the Company may have to participate in interference
proceedings declared by the USPTO that could result in substantial cost to the
Company. No assurance can be given that any patent application of another will
not have priority over patent applications filed by the Company.
The commercial success of the Company also depends in part on the Company
neither infringing patents or proprietary rights of third parties nor breaching
any licenses that may relate to the Company's technologies and products. The
Company is aware of several third-party patents that may relate to the Company's
technology. There can be no assurance that the Company does not or will not
infringe these patents, or other patents or proprietary rights of third parties.
In addition, the Company has received and may in the future receive notices
claiming infringement from third parties as well as invitations to take licenses
under third party patents. Any legal action against the Company or its
collaborative partners claiming damages and seeking to enjoin commercial
activities relating to the Company's products and processes affected by third
party rights, in addition to subjecting the Company to potential liability for
damages may require the Company or its collaborative partner to obtain a license
in order to continue to manufacture or market the affected products and
processes. There can be no assurance that the Company or its collaborative
partners would prevail in any such action or that any license (including
licenses proposed by third parties) required under any such patent would be made
available on commercially acceptable terms, if at all. There are a significant
number of U.S. and foreign patents and patent applications in the Company's
areas of interest, and the Company believes that
9
<PAGE> 13
there may be significant litigation in the industry regarding patent and other
intellectual property rights. If the Company becomes involved in such
litigation, it could consume a substantial portion of the Company's managerial
and financial resources, which could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Proprietary Technology and Patents."
GOVERNMENT REGULATION
The testing, manufacture and sale of the Company's products are subject to
regulation by numerous governmental authorities, principally the FDA and
corresponding state and foreign regulatory agencies. Pursuant to the Federal
Food, Drug, and Cosmetic Act, and the regulations promulgated thereunder, the
FDA regulates the preclinical and clinical testing, manufacture, labeling,
distribution and promotion of medical devices. The Company will not be able to
commence marketing or commercial sales in the United States of new products
under development until it receives clearance or approval from the FDA, which
can be a lengthy, expensive and uncertain process. Noncompliance with applicable
requirements can result in, among other things, fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to grant premarket clearance or premarket
approval for devices, withdrawal of marketing clearances or approvals, and
criminal prosecution. The FDA also has the authority to request recall, repair,
replacement or refund of the cost of any device manufactured or distributed by
the Company.
Any devices manufactured or distributed by the Company pursuant to FDA
clearance or approvals are subject to pervasive and continuing regulation by the
FDA and certain state agencies. Before a new device can be introduced in the
market, the manufacturer must generally obtain FDA clearance of a 510(k)
notification or FDA approval of a pre-market approval ("PMA") application. The
PMA approval process is more expensive, uncertain and lengthy than the 510(k)
clearance process. The Company is uncertain of the regulatory path to market
that the FDA will ultimately apply to the Company's products currently in
development. Although Triage DOA received 510(k) clearance, a PMA may be
required for Triage Cardiac and Triage Transplant products now in development.
There can be no assurance that with respect to any of the Company's products in
development, the FDA will not determine that the Company must adhere to the more
costly, lengthy and uncertain PMA approval process. Modifications to a device
that is the subject of an approved PMA application, its labeling or
manufacturing process may require approval by the FDA of a PMA supplement or a
new PMA application. For any devices that are cleared through the 510(k)
process, modifications or enhancements that could significantly affect safety or
effectiveness, or constitute a major change in the intended use of the device,
will require new 510(k) submissions.
There can be no assurance that the Company will be able to obtain necessary
regulatory approvals or clearances for its products on a timely basis, if at
all, and delays in receipt of or failure to receive such approvals or
clearances, the loss of previously received approvals or clearances, limitations
on intended use imposed as a condition of such approvals or clearances, or
failure to comply with existing or future regulatory requirements would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Before the manufacturer of a device can submit the device for FDA clearance
or approval, it generally must conduct a clinical investigation of the device.
Although clinical investigations of most devices are subject to the
investigational device exemption ("IDE") requirements, clinical investigations
of in vitro diagnostic ("IVD") tests, such as all of the Company's products and
products under development, are exempt from the IDE requirements, including the
need to obtain the FDA's prior approval, provided the testing is noninvasive,
does not require an invasive sampling procedure that presents a significant
risk, does not intentionally introduce energy into the subject, and is not used
as a diagnostic procedure without confirmation by another medically established
test or procedure. In addition, the IVD must be labeled for research use only
("RUO") or investigational use only ("IUO"), and distribution controls must be
established to assure that IVDs distributed for research or clinical
investigation are used only for those purposes.
The Company intends to conduct clinical investigations of its products
under development, which will entail distributing them in the United States on
an IUO basis. There can be no assurance that the FDA would agree that the
Company's IUO distribution of its IVD products under development will meet the
requirements
10
<PAGE> 14
for IDE exemption. Furthermore, failure by the Company or the recipients of its
products under development to maintain compliance with the IDE exemption
requirements could result in enforcement action by the FDA, including, among
other things, the loss of the IDE exemption or the imposition of other
restrictions on the Company's distribution of its products under development,
which would adversely affect the Company's ability to conduct the clinical
investigations necessary to support marketing clearance or approval.
Manufacturers of medical devices for marketing in the United States are
required to adhere to applicable regulations setting forth detailed current Good
Manufacturing Practices ("cGMP") requirements, which include testing, control
and documentation requirements. Manufacturers must also comply with Medical
Device Reporting ("MDR") requirements that a manufacturer report to the FDA any
incident in which its product may have caused or contributed to a death or
serious injury, or in which its product malfunctioned and would be likely to
cause or contribute to a death or serious injury upon recurrence. Labeling and
promotional activities are subject to scrutiny by the FDA and, in certain
circumstances, by the Federal Trade Commission. Current FDA enforcement policy
prohibits the marketing of approved medical devices for unapproved uses.
The Company is subject to routine inspection by the FDA and certain state
agencies for compliance with cGMP requirements, MDR requirements and other
applicable regulations. The FDA has recently finalized changes to the cGMP
requirements, including the addition of design controls, that will likely
increase the cost of compliance. There can be no assurance that the Company will
not incur significant costs to comply with laws and regulations in the future or
that such laws and regulations will not have a material adverse effect upon the
Company's business, financial condition and results of operation.
The use of Biosite's products is also affected by the Clinical Laboratory
Improvement Amendments of 1988 ("CLIA") and related federal and state
regulations which provide for regulation of laboratory testing. The scope of
these regulations includes quality control, proficiency testing, personnel
standards and federal inspections. CLIA categorizes tests as "waived,"
"moderately complex" or "highly complex," on the basis of specific criteria.
There can be no assurance that any future amendment of CLIA or the promulgation
of additional regulations impacting laboratory testing would not have a material
adverse effect on the Company's ability to market its products or on its
business, financial condition and results of operations.
DEPENDENCE ON SOLE-SOURCE SUPPLIERS
Certain key components and raw materials used in the manufacture of Triage
DOA are currently provided by single-source vendors. Although the Company
believes that alternative sources for such components and raw materials are
available, any supply interruption in a sole-sourced component of raw material
would have a material adverse effect on the Company's ability to manufacture
Triage DOA until a new source of supply is qualified and, as a result, would
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, an uncorrected impurity or supplier's
variation in a raw material, either unknown to the Company or incompatible with
the Company's Triage DOA manufacturing process, could have a material adverse
effect on the Company's ability to manufacture products. The Company currently
has under development products other than Triage DOA which, if developed, may
require that the Company enter into additional supplier arrangements. There can
be no assurance that the Company will be able to enter into additional supplier
arrangements on commercially reasonable terms, if at all. Failure to obtain a
supplier for the manufacture of its future products, if any, would have a
material adverse effect on the Company's business, financial condition and
results of operations.
If successfully developed, the Company expects to rely upon LRE for
production of the fluorescent meter to be used in connection with its Triage
CareLink System platform of products currently under development. The Company's
dependence upon LRE for the manufacture of such a meter may adversely affect the
Company's profit margins, its ability to develop and manufacture products on a
timely and competitive basis, the timing of market introductions and subsequent
sales of products incorporating the LRE meter. See "Business -- Strategic and
Distribution Arrangements."
11
<PAGE> 15
LIMITED MANUFACTURING EXPERIENCE; RISK OF MANUFACTURING SCALE-UP
To be successful, the Company must manufacture its current and future
products in compliance with regulatory requirements, in sufficient quantities
and on a timely basis, while maintaining product quality and acceptable
manufacturing costs. The Company has limited experience manufacturing products
other than Triage DOA. To achieve the level of production necessary for
commercialization of Biosite's products under development, the Company will need
to scale-up current manufacturing capabilities. Significant additional work will
be required for the scaling-up of each potential Biosite product prior to
commercialization, and there can be no assurance that such work can be completed
successfully. In addition, although the Company expects that certain of its
products under development will share certain production attributes with Triage
DOA, production of such products may require the development of new
manufacturing technologies and expertise. There can be no assurance that such
products can be manufactured by the Company or any other party at a cost or in
quantities to make such products commercially viable. If the Company is unable
to develop or contract for manufacturing capabilities on acceptable terms for
its products under development, the Company's ability to conduct preclinical and
clinical testing will be adversely affected, resulting in the delay of
submission of products for regulatory clearance or approval and initiation of
new development programs, which would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Manufacturing."
The Company anticipates making significant expenditures to develop high
volume manufacturing capabilities required for each of its products currently
under development, if such products are successfully developed. There can be no
assurance that manufacturing and quality control problems will not arise as the
Company attempts to scale-up its manufacturing or that such scale-up can be
achieved in a timely manner or at a commercially reasonable cost, if at all.
The Company's manufacturing facilities and those of its contract
manufacturers are or will be subject to periodic regulatory inspections by the
FDA and other federal and state regulatory agencies and such facilities are
subject to cGMP requirements of the FDA. There can be no assurance that the
Company or its contractors will satisfy such regulatory requirements, and any
failure to do so would have a material adverse effect on the Company's business,
financial condition and results of operations.
UNCERTAINTY RELATING TO THIRD PARTY REIMBURSEMENT AND POTENTIAL COST CONSTRAINTS
In the United States, health care providers that purchase Triage DOA and
other diagnostic products, such as hospitals and physicians, generally rely on
third party payors, principally private health insurance plans, federal Medicare
and state Medicaid, to reimburse all or part of the cost of the procedure. Such
third party payors can affect the pricing or the relative attractiveness of the
Company's products by regulating the maximum amount of reimbursement provided by
such payors for testing services. In addition, the tests performed by public
health departments, corporate wellness programs and other large volume users in
the drug screening market are generally not subject to reimbursement. Further,
certain health care providers are moving towards a managed care system in which
such providers contract to provide comprehensive health care for a fixed cost
per patient. The Company is unable to predict what changes will be made in the
reimbursement methods utilized by third party payors. The Company could be
adversely affected by changes in reimbursement policies of governmental or
private health care payors, particularly to the extent any such changes affect
reimbursement for procedures in which the Company's products are used. Third
party payors are increasingly scrutinizing and challenging the prices charged
for medical products and services. Decreases in reimbursement amounts for tests
performed using the Company's products may decrease amounts physicians and other
practitioners are able to charge patients, which in turn may adversely affect
the Company's ability to sell its products on a profitable basis. Failure by
physicians and other users to obtain reimbursement from third party payors, or
changes in government and private third party payors' policies toward
reimbursement of tests utilizing the Company's products could have a material
adverse effect on the Company's business, financial condition or results of
operation. Given the efforts to control and reduce health care costs in the
United States in recent years, there can be no assurance that currently
available levels of reimbursement will continue to be available in the future
for the Company's existing products or products under development.
12
<PAGE> 16
In addition, market acceptance of the Company's products in international
markets is dependent, in part, upon the availability of reimbursement within
prevailing health care payment systems. Reimbursement and health care payment
systems in international markets vary significantly by country, and include both
government sponsored health care and private insurance.
The Company believes that the overall escalating cost of medical products
and services has led to and will continue to lead to increased pressures on the
health care industry, both foreign and domestic, to reduce the cost of products
and services, including products offered by the Company. There can be no
assurance that third party reimbursement and coverage will be available or
adequate in either U.S. or foreign markets, that current reimbursement amounts
will not be decreased in the future or that future legislation, regulation or
reimbursement policies of third party payors will not otherwise adversely affect
the demand for the Company's products or its ability to sell its products on a
profitable basis.
POSSIBLE FUTURE CAPITAL REQUIREMENTS
While the Company believes that its available cash, cash from operations
and funds from existing credit arrangements, together with the proceeds of this
offering, will be sufficient to satisfy its funding needs for at least the next
24 months, there can be no assurance the Company will not require additional
capital. The Company's future liquidity and capital funding requirements will
depend on numerous factors, including the extent to which the Company's products
under development are successfully developed and gain market acceptance, the
timing of regulatory actions regarding the Company's potential products, the
costs and timing of expansion of sales, marketing and manufacturing activities,
procurement and enforcement of patents important to the Company's business,
results of clinical investigations and competition. There can be no assurance
that such additional capital, if needed, will be available on terms acceptable
to the Company, if at all. Certain funding arrangements may require the Company
to relinquish its rights to certain of its technologies, products or marketing
territories. Furthermore, any additional equity financing may be dilutive to
stockholders, and debt financing, if available, may include restrictive
covenants. The failure by the Company to raise capital on acceptable terms when
needed could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
MANAGEMENT OF GROWTH; DEPENDENCE ON KEY PERSONNEL
The Company anticipates increased growth in the number of its employees,
the scope of its operating and financial systems and the geographic area of its
operations as new products are developed and commercialized. This growth will
result in an increase in responsibilities for both existing and new management
personnel. The Company's ability to manage growth effectively will require it to
continue to implement and improve its operational, financial and management
information systems and to train, motivate and manage its employees. There can
be no assurance that the Company will be able to manage its expansion, and a
failure to do so could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company's future success depends in part on the continued service of
its key technical, sales, marketing and executive personnel, and its ability to
identify and hire additional qualified personnel. Competition for such personnel
is intense and there can be no assurance that the Company can retain existing
personnel or identify or hire additional personnel.
PRODUCT LIABILITY
The testing, manufacturing and marketing of medical diagnostic devices such
as Triage DOA, as well as the Company's products currently under development,
entail an inherent risk of product liability claims. To date, the Company has
not experienced any material product liability claims, but any such claims
arising in the future could have a material adverse effect on the Company's
business, financial condition and results of operations. Potential product
liability claims may exceed the amount of the Company's insurance coverage or
may be excluded from coverage under the terms of the policy. There can be no
assurance that the Company's
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<PAGE> 17
existing insurance can be renewed at a cost and level of coverage comparable to
that presently in effect, if at all. In the event that the Company is held
liable for a claim against which it is not indemnified or for damages exceeding
the limits of its insurance coverage, such claim could have a material adverse
effect on the Company's business, financial condition and result of operations.
LACK OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after this offering. The initial public
offering price will be determined through negotiations between the Company and
the Underwriters. See "Underwriting." In addition, the securities markets have
from time to time experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. The market
prices of the common stock of many publicly held medical device companies have
in the past been, and can in the future be expected to be, especially volatile.
Announcements of technological innovations or new products by the Company or its
competitors, clinical investigation results, release of reports by securities
analysts, developments or disputes concerning patents or proprietary rights,
regulatory developments, changes in regulatory or medical reimbursement
policies, economic and other external factors, as well as period-to-period
fluctuations in the Company's financial results, may have a significant impact
on the market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by existing stockholders under Rules 144 and
701 of the Securities Act of 1933, as amended (the "Securities Act") or through
the exercise of outstanding registration rights or otherwise could have an
adverse effect on the price of the Common Stock. The 2,000,000 shares offered
hereby will be eligible for resale in the public market immediately following
this offering. Upon the commencement of this offering, an additional 418,030
shares will be eligible for resale in the public market, in reliance upon Rule
144(k) under the Securities Act. In addition, 225,525 shares of Common Stock
will be eligible for resale in the public market 90 days from the effective date
of the Registration Statement of which this Prospectus is a part (the "Effective
Date"), in reliance upon Rule 701 under the Securities Act. Additionally,
1,400,212 and 7,749,179 shares of Common Stock will be eligible for sale in the
public market 120 days and 180 days, respectively, from the Effective Date, upon
expiration of lockup agreements, in reliance on Rule 144 or Rule 701 under the
Securities Act. The Company intends to register approximately 2,215,960 shares
of Common Stock reserved for issuance under its stock plans as soon as
practicable following the date of this Prospectus. Stockholders who, after
consummation of this offering, will hold over 8,400,000 shares of Common Stock
have rights to require the Company to register their shares for future sale. See
"Description of Capital Stock -- Registration Rights" and "Shares Eligible for
Future Sale."
BROAD DISCRETION OF MANAGEMENT TO ALLOCATE OFFERING PROCEEDS
The Company anticipates that the proceeds of this offering will be used to
fund expansion of sales and marketing activities, to fund research and
development activities, to expand and develop manufacturing capabilities, and to
finance working capital and general corporate requirements. The amounts
identified for the foregoing uses under "Use of Proceeds" in this Prospectus are
estimates, and the amounts actually expended for each such purpose and the
timing of such expenditures may vary depending upon numerous factors. The
Company's management will have broad discretion in determining the amount and
timing of expenditures and in allocating the proceeds of this offering. Such
discretion will be particularly broad with respect to that portion of the
proceeds available for working capital and general corporate purposes. See "Use
of Proceeds."
CONTROL BY DIRECTORS, EXECUTIVE OFFICERS, PRINCIPAL STOCKHOLDERS AND AFFILIATED
ENTITIES
The Company's directors, executive officers, principal stockholders and
entities affiliated with them will, in the aggregate, beneficially own
approximately 63.0% of the Company's outstanding Common Stock following the
completion of this offering. These stockholders, if acting together, would be
able to control substantially all matters requiring approval by the stockholders
of the Company, including the election of
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<PAGE> 18
directors and the approval of mergers or other business combination
transactions. See "Principal Stockholders."
EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS AND DELAWARE LAW
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of making it more difficult for a third party to acquire, or
of discouraging a third party from attempting to acquire control of the Company.
Such provisions could limit the price that certain investors might be willing to
pay in the future for shares of the Company's Common Stock. Certain of these
provisions allow the Company to issue Preferred Stock without any vote or
further action by the stockholders, provide for a classified board of directors,
eliminate the right of stockholders to call special meetings of stockholders or
to act by written consent without a meeting. These provisions may make it more
difficult for stockholders to take certain corporate actions and could have the
effect of delaying or preventing a change in control of the Company. See
"Management" and "Description of Capital Stock."
DILUTION; ABSENCE OF DIVIDENDS
Purchasers of shares of Common Stock in this offering will incur immediate,
substantial dilution in net tangible book value per share. The Company has never
paid cash dividends on its capital stock and does not anticipate paying any cash
dividends in the foreseeable future. See "Dilution" and "Dividend Policy."
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<PAGE> 19
USE OF PROCEEDS
The proceeds to the Company from the sale of the shares of Common Stock
offered by the Company hereby are estimated to be approximately $21,620,000
($24,968,000 if the Underwriters' over-allotment option is exercised in full),
at an assumed initial public offering price of $12.00 per share, and after
deducting estimated underwriting discounts and commissions and estimated
offering expenses.
The Company anticipates that it will use approximately $7.0 million of the
net proceeds of this offering to expand sales and marketing activities (which
are expected to include the development of direct sales capabilities in selected
markets), approximately $2.0 million to fund the Company's research and
development efforts, and approximately $4.0 million for expansion and
development of manufacturing capabilities in connection with the launch of the
Company's products currently under development. The Company anticipates using
the remaining net proceeds for working capital and general corporate purposes.
The Company also may use a portion of the net proceeds to acquire businesses,
technologies or products complementary to the Company's business, although the
Company currently has no specific plans or commitments in this regard. The
amounts actually expended for each purpose may vary significantly depending upon
numerous factors, including the progress of the Company's research and
development, and the costs and timing of expansion of marketing, sales and
manufacturing activities, and hence the Company's management will retain broad
discretion in the allocation of a substantial portion of the net proceeds.
Pending such uses, the Company intends to invest the net proceeds of this
offering in interest-bearing, investment grade securities. The Company believes
that its available cash, cash from operations and funds from existing credit
arrangements, together with the proceeds of this offering, will be sufficient to
satisfy its funding needs for at least the next 24 months.
DIVIDEND POLICY
The Company has never declared or paid dividends on its capital stock and
does not anticipate paying any dividends in the foreseeable future. The Company
currently intends to retain its earnings, if any, for the operation of its
business.
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<PAGE> 20
CAPITALIZATION
The following table sets forth as of September 30, 1996 (i) the
capitalization of the Company, (ii) the pro forma capitalization of the Company,
after giving effect to the conversion of all series of Preferred Stock into
Common Stock and the conversion of a $1.0 million debenture and related interest
thereon through January 31, 1997 into 92,222 shares of Common Stock at the
assumed initial public offering price of $12.00 per share upon the closing of
this offering, and (iii) the pro forma capitalization of the Company, as
adjusted to give effect to the receipt of the net proceeds from the sale of the
2,000,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $12.00 per share and the application of the estimated net
proceeds therefrom.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable, less current portion(1)......................... $ 3,234 $ 2,234 $ 2,234
------- ------- -------
Stockholders' equity:
Preferred Stock, $.01 par value; 8,328,847 shares authorized
and 8,328,847 shares outstanding actual; 5,000,000 shares
authorized and no shares outstanding, pro forma and pro
forma as adjusted......................................... 83 -- --
Common Stock, $.01 par value; 12,000,000 shares authorized
and 1,460,093 outstanding actual; 25,000,000 shares
authorized and 9,881,162 shares outstanding pro forma;
25,000,000 shares authorized and 11,881,162 shares
outstanding pro forma as adjusted(2)...................... 15 99 119
Additional paid-in capital................................... 21,686 22,792 44,392
Unrealized net loss on marketable securities, net of related
tax....................................................... (10) (10) (10)
Deferred compensation........................................ (48) (48) (48)
Accumulated deficit.......................................... (545) (572) (572)
------- ------- -------
Total stockholders' equity........................... $21,181 $22,261 $43,881
------- ------- -------
Total capitalization................................. $24,415 $24,495 $46,115
======= ======= =======
</TABLE>
- ---------------
(1) See Note 6 of Notes to Financial Statements for a description of the
Company's long-term commitments.
(2) Excludes 1,180,204 shares of Common Stock reserved for issuance upon
exercise of stock options outstanding at November 30, 1996. See
"Management -- Executive Compensation" and Note 7 of Notes to Financial
Statements.
17
<PAGE> 21
DILUTION
The pro forma net tangible book value of the Company's Common Stock as of
September 30, 1996 was approximately $17,803,000, or $1.80 per share. Pro forma
net tangible book value per share represents the amount of the Company's total
tangible assets less total liabilities, divided by the number of shares of
Common Stock outstanding, after giving effect to the conversion of all series of
Preferred Stock into Common Stock and the conversion of a $1.0 million debenture
and related interest through January 31, 1997 into 92,222 shares of Common Stock
at the assumed initial public offering price of $12.00 per share upon the
closing of this offering. After giving effect to the sale of the 2,000,000
shares of Common Stock offered hereby by the Company at an assumed initial
public offering price of $12.00 per share and after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company, the pro forma net tangible book value of the Company at September 30,
1996 would have been approximately $39,423,000 or $3.32 per share. This
represents an immediate increase in pro forma net tangible book value of $1.52
per share to existing stockholders and an immediate dilution of $8.68 per share
to new investors purchasing shares of Common Stock in this offering, as
illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $12.00
Pro forma net tangible book value per share at September 30,
1996............................................................ $ 1.80
Increase per share attributable to investors in the offering....... 1.52
-----
Pro forma net tangible book value per share after the offering....... 3.32
------
Dilution per share to new investors.................................. $ 8.68
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1996, the number of shares of Common Stock purchased from the Company, the total
consideration paid, and the average price per share by existing stockholders and
by purchasers of shares offered by the Company hereby, based upon an assumed
initial public offering price of $12.00 per share (before deducting the
estimated underwriting discounts and commissions and offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 9,881,162 83.2% $22,956,884 48.9% $ 2.32
New investors........................ 2,000,000 16.8 24,000,000 51.1 12.00
---------- ------ ---------- ------
Total.............................. 11,881,162 100.0% $46,956,884 100.0%
========== ====== ========== ======
</TABLE>
The foregoing calculations assume no exercise of outstanding options. As of
November 30, 1996, there were outstanding options to purchase an aggregate of
1,180,204 shares of Common Stock at a weighted average exercise price of $3.24
per share. To the extent such options are exercised, there will be further
dilution to investors in this offering. See "Management -- Executive
Compensation" and Note 7 of Notes to Financial Statements.
18
<PAGE> 22
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
statement of income data for each of the three years in the period ended
December 31, 1995 and the nine months ended September 30, 1996 and the balance
sheet data at December 31, 1994 and 1995 and September 30, 1996 are derived from
the financial statements audited by Ernst & Young LLP, independent auditors,
which are included elsewhere in this Prospectus and are qualified by reference
to such financial statements. The selected financial data with respect to the
statement of income data for the two years ended December 31, 1992 and the
balance sheet data at December 31, 1991, 1992 and 1993 are derived from the
financial statements audited by Ernst & Young LLP which are not included in this
Prospectus. The selected financial data with respect to the statement of income
for the nine months ended September 30, 1995 are derived from unaudited
financial statements included elsewhere in this Prospectus. The unaudited
financial statements include all adjustments, consisting only of normal
recurring adjustments, that the Company considers necessary for a fair
presentation of the financial position and results of operations for these
periods. Operating results for the nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1996. The data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's financial statements and notes thereto included
elsewhere in this Prospectus.
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales........................................... $ -- $ 2,920 $ 9,866 $ 16,320 $ 25,147 $ 18,236 $ 20,225
Cost of sales....................................... -- 1,612 3,268 4,416 5,649 3,781 4,318
-------- -------- -------- --------- --------- --------- ---------
Gross profit........................................ -- 1,308 6,598 11,904 19,498 14,455 15,907
Research and development............................ 2,793 2,593 2,796 3,836 6,553 4,602 6,515
Selling, general and administrative................. 1,771 3,622 4,841 5,960 7,134 5,203 6,116
-------- -------- -------- --------- --------- --------- ---------
Total operating expenses............................ 4,564 6,215 7,637 9,796 13,687 9,805 12,631
Income (loss) from operations....................... (4,564) (4,907) (1,039) 2,108 5,811 4,650 3,276
Interest and other income, net...................... 260 630 613 649 1,647 1,253 1,441
Settlement of patent matters........................ -- -- -- (338) (1,217) (743) (2,368)
-------- -------- -------- --------- --------- --------- ---------
Income (loss) before benefit (provision) for income
taxes............................................. (4,304) (4,277) (426) 2,419 6,241 5,160 2,349
Benefit (provision) for income taxes................ -- -- -- (63) 1,667 (132) 264
-------- -------- -------- --------- --------- --------- ---------
Net income (loss)................................... $(4,304) $(4,277) $ (426) $ 2,356 $ 7,908 $ 5,028 $ 2,613
======== ======== ======== ========= ========= ========= =========
Net income (loss) per share......................... $ (0.61) $ (0.49) $ (0.04) $ 0.22 $ 0.74 $ 0.47 $ 0.24
======== ======== ======== ========= ========= ========= =========
Common and common equivalent shares used in
computing per share amounts(1).................... 7,058 8,754 10,098 10,553 10,766 10,721 10,832
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
------ ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities................. $4,869 $ 6,435 $ 5,129 $ 5,916 $13,979 $10,169
Working capital.................................................. 4,746 7,049 6,407 7,974 14,428 13,967
Total assets..................................................... 6,725 10,287 10,269 14,364 27,935 28,968
Long-term obligations............................................ 237 668 634 772 2,739 3,234
Stockholders' equity............................................. 5,887 8,573 8,155 10,512 18,526 21,181
</TABLE>
- ---------------
(1) Computed on the basis described in Note 1 of Notes to Financial Statements.
19
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion in this Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed here. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed in the
sections entitled "Risk Factors" and "Business," as well as those discussed
elsewhere in this Prospectus.
OVERVIEW
Since the Company's inception in 1988, the Company has been primarily
involved in the research, development, manufacturing and marketing of
point-of-care diagnostic tests. The Company began commercial sales of Triage DOA
in February 1992 and currently markets the product worldwide primarily through
distributors supported by a small direct sales force. The Company is engaged in
research and development of additional point-of-care diagnostic products in the
microbiology, cardiology and therapeutic drug monitoring fields. See "Business."
Funding for operations was provided primarily from equity financings from
the Company's inception through launch of Triage DOA in 1992. Additional funding
has come from corporate partners in the form of debt and equity financing,
license fees and other corporate funding. The Company has a limited history of
operations and first achieved profitability in fiscal 1994. All of the Company's
sales to date have been due to sales of the Triage DOA product line.
Triage DOA is currently marketed pursuant to exclusive distribution
agreements in the U.S. medical market by CMS (which accounted for 80% of product
sales in the first nine months of 1996) and in certain countries in Europe,
Latin America, the Middle East, Asia and Africa by Merck. The CMS distribution
agreement has minimum quarterly sales milestones which, if the milestones are
not met, allows the Company to terminate the agreement, obligates CMS to pay
Biosite a penalty and allows the Company to appoint a new distributor or to sell
Triage DOA directly in the U.S. medical market. If the Company chooses to
terminate the CMS distribution agreement, the Company may appoint a new
distributor or it may have to invest in additional sales and marketing resources
including additional field sales personnel which could significantly increase
future sales and marketing expenses and may adversely affect sales of Triage
DOA.
Since the launch of Triage DOA in fiscal 1992, the Company has experienced
significant revenue growth primarily as a result of greater demand and more
recently, the introduction of Triage Plus TCA Panel for Drugs of Abuse ("Triage
DOA Plus TCA"). In order to support increased levels of sales in the future and
to augment its long-term competitive position, the Company anticipates that it
will be required to make significant additional expenditures in manufacturing,
research and development, sales and marketing and administration, both in
absolute dollars and as a percentage of sales. In addition, the Company
anticipates higher administrative expenses resulting from its obligations as a
public reporting company upon completion of this offering.
The Company anticipates that its results of operations may fluctuate for
the foreseeable future due to several factors, including whether and when new
products are successfully developed and introduced by the Company, market
acceptance of current or new products, regulatory delays, product recalls,
manufacturing delays, shipment problems, seasonal customer demand, the timing of
significant orders, changes in reimbursement policies, competitive pressures on
average selling prices, changes in the mix of products sold and patent
conflicts. Operating results would also be adversely affected by a downturn in
the market for the Company's current and future products, if any, order
cancelations or order rescheduling. Because the Company is continuing to
increase its operating expenses for personnel and new product development, the
Company's operating results would be adversely affected if its sales did not
correspondingly increase or if its product development efforts are unsuccessful
or are subject to delays. The Company's limited operating history makes accurate
prediction of future operating results difficult or impossible. Although the
Company has experienced growth in recent years, there can be no assurance that,
in the future, the Company will sustain revenue growth
20
<PAGE> 24
or remain profitable on a quarterly or annual basis or that its growth will be
consistent with predictions made by securities analysts.
The Company currently manufactures and ships product shortly after receipt
of orders and anticipates that it will do so in the future. Accordingly, the
Company has not developed a significant backlog and does not anticipate it will
develop a material backlog in the future.
RESULTS OF OPERATIONS
The following table sets forth certain operating data as a percentage of
net sales:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- ----------------------
1993 1994 1995 1995 1996
---- ---- ---- ----------- ----
<S> <C> <C> <C> <C> <C>
Net sales.............................. 100% 100% 100% 100% 100%
Cost of sales.......................... 33 27 22 21 21
---- ---- ---- ---- ----
Gross profit........................... 67 73 78 79 79
Operating expenses:
Research and development............... 28 24 26 25 32
Selling, general and administrative.... 49 37 29 29 30
---- ---- ---- ---- ----
Total operating expenses............... 77 61 55 54 62
Income (loss) from operations.......... (10) 12 23 25 17
Other income, net...................... 6 4 7 7 7
Settlement of patent matters........... -- (2) (5) (4) (12)
---- ---- ---- ---- ----
Income (loss) before benefit
(provision) for income taxes......... (4) 14 25 28 12
Benefit (provision) for income taxes... -- -- 7 -- 1
---- ---- ---- ---- ----
Net income (loss)...................... (4)% 14% 32% 28% 13%
==== ==== ==== ==== ====
</TABLE>
Nine months ended September 30, 1996 and 1995
Revenues. Revenues increased 11% to $20.2 million in the first nine months
of 1996 from $18.2 million in the first nine months of 1995. The increase was
primarily attributable to the Company's expansion of its Triage DOA product line
to include Triage DOA Plus TCA, which was launched in February 1995, and
continued growth of the Company's overall market share of abused drug testing
worldwide.
Gross Profit. Gross profit increased 10% to $15.9 million in the first
nine months of 1996 as a result of increased sales of the Triage DOA product
line. Gross margin was constant at 79% in the first nine months of 1996 and
1995.
Research and Development Expenses. Research and development expenses
increased 42% to $6.5 million in the first nine months of 1996 from $4.6 million
in the first nine months of 1995. This increase resulted from the expansion of
the Company's research and development and manufacturing scale-up efforts on its
microbiology, cardiac and therapeutic drug monitoring assays under development.
The Company expects its research and development expenses to increase
significantly in 1996 and 1997, reflecting increased expenditures primarily
related to hiring additional personnel.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 18% to $6.1 million in the first nine months
of 1996. This increase was a result of the cost of expanding the Company's
direct sales force and in-house marketing and administrative functions to
support the Company's expanded operations. The Company expects selling, general
and administrative costs to increase in absolute dollars as the Company's level
of sales and manufacturing operations increase and as the Company increases its
finance and administrative expenditures to meet its obligations as a public
reporting entity.
21
<PAGE> 25
Other Income. Contract revenues from a related party increased $469,000 in
the first nine months of 1996 as compared to the first nine months of 1995. This
increase was primarily due to higher expenditures relating to the Triage Cardiac
development program with Merck which resulted in higher revenues to the Company.
Contract revenues from an unrelated party decreased $300,000 in the first nine
months of 1996. The decrease was attributable to the timing of the achievement
of milestones under the Company's development agreement with KDK.
Settlement of Patent Matters. In September 1996, the Company reached a
settlement with Abbott Laboratories, with respect to all claims set forth in a
lawsuit filed by Abbott Laboratories in May 1994. The lawsuit alleged that
Triage DOA infringed a patent licensed to Abbott Laboratories. The Company
vigorously defended the lawsuit. However, to avoid protracted litigation, the
Company settled the patent matter in September 1996, paid $2.0 million as a
settlement of the litigation and, for an additional $3.5 million and the
agreement to pay certain royalties, obtained a license to certain technology.
Future amortization of the license fee will be charged to cost of sales over the
life of the license. The $2.0 million litigation settlement payment, as well as
the amortization related to prior fiscal years and related legal defense costs
were charged to Settlement of Patent Matters in the nine months ended September
30, 1996. Settlement of Patent Matters expenses for the first nine months of
1995 consisted solely of legal expenses associated with the defense of the
patent litigation.
Benefit (Provision) for Income Taxes. The Company's benefit for income
taxes increased to $264,000 for the nine months ended September 30, 1996 from a
provision for income taxes of $132,000 for the nine months ended September 30,
1995. The increase in the benefit for income taxes resulted primarily from a
reduction in the valuation allowance for deferred taxes of $1.1 million in the
nine months ended September 30, 1996, as the realization of such assets became
probable.
Years ended December 31, 1995 and 1994
Revenues. Revenues increased 54% to $25.1 million for the year ended
December 31, 1995 from $16.3 million in 1994. The increase was primarily
attributable to the Company's commercialization of Triage DOA Plus TCA which was
launched in February 1995, and continued acceptance and expansion of Triage DOA.
Gross Profit. Gross profit increased $7.6 million to $19.5 million for the
year ended December 31, 1995 as a result of increased sales of the Triage DOA
product line. Gross margin increased to 78% for the year ended December 31, 1995
from 73% in 1994. The Company increased its manufacturing efficiency during 1995
and, with increased manufacturing volumes, covered its fixed overhead expenses
more efficiently. The Company included in cost of sales $405,000 in license
amortization for 1995 relating to the technology license agreement signed in
March 1996.
Research and Development Expenses. Research and development expenses
increased 71% to $6.6 million for the year ended December 31, 1995 from $3.8
million in 1994. This increase resulted from the expansion of the Company's
research and development and manufacturing scale-up efforts on the microbiology,
cardiac and therapeutic drug monitoring assays.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 20% to $7.1 million for the year ended
December 31, 1995 from $6.0 million in 1994. During the year ended December 31,
1995, the Company expanded its direct sales force and its in-house marketing and
administrative functions to support the Company's higher level of operations as
compared to 1994.
Other Income. Contract revenues from related parties increased $217,000 as
a result of progress in the development of Triage Cardiac. Contract revenues
from unrelated parties increased by $300,000 for the year ended December 31,
1995 from 1994. The increase was attributable to the timing of the achievement
of milestones under the Company's development agreement with KDK which was
signed in February 1995. Interest income increased $366,000 as a result of
income received on increased cash balances in 1995.
Settlement of Patent Matters. Settlement of patent matters expenses
increased primarily due to increased legal defense costs related to the patent
litigation described above. Additionally, in December 1995,
22
<PAGE> 26
the Company accrued a one-time payment of $2.2 million for a worldwide license
to technology related to the Triage Panel products. Amortization of this license
payment related to fiscal years prior to 1995 of $440,000 was charged to
settlement of patent matters in 1995.
Benefit (Provision) for Income Taxes. The Company's benefit for income
taxes increased to $1.7 million for the year ended December 31, 1995 from a
provision for income taxes of $63,000 in 1994. The increase in the benefit for
income taxes resulted primarily from a reduction in the valuation allowance for
deferred tax assets in 1995 of $1.8 million. The Company utilized $2.2 million
in net operating loss carryforwards in fiscal 1995. As of December 31, 1995, the
Company had net operating loss carryforwards of approximately $3.1 million for
federal income tax purposes. The Company's ability to utilize its net operating
loss carryforwards and tax credit carryforwards in future years will be subject
to an annual limitation pursuant to the "change in ownership rules" under
Section 382 of the Internal Revenue Code of 1986, as amended. However, any
annual limitation is not expected to have a material adverse effect on the
Company's ability to utilize its net operating loss and tax credit
carryforwards.
Years ended December 31, 1994 and 1993
Revenues. Revenues increased 65% to $16.3 million for the year ended
December 31, 1994 from $9.9 million in 1993. The increase was primarily
attributable to the continued acceptance of the Company's Triage DOA product
line.
Gross Profit. Gross profit increased $5.3 million to $11.9 million for the
year ended December 31, 1994 from gross profit levels for the year ended
December 31, 1993 as a result of increased sales of Triage DOA. Gross margin
increased to 73% for the year ended December 31, 1994 from 67% in 1993. The
Company increased its manufacturing efficiency during 1994 and, with increased
manufacturing volumes, covered its fixed overhead expenses more efficiently.
Research and Development Expenses. Research and development expenses
increased 37% to $3.8 million for the year ended December 31, 1994 from $2.8
million in 1993. This increase resulted from the expansion of the Company's
research and development and manufacturing scale-up efforts on Triage DOA Plus
TCA and research and development on Triage Cardiac.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 23% to $6.0 million for the year ended
December 31, 1994 from $4.8 million in 1993. During the year ended December 31,
1994, the Company's expanded the direct sales force and the in-house marketing
and administrative functions to support the Company's higher level of operations
as compared to 1993.
Other Income. Contract revenues from related parties increased $344,000 in
1994 as compared to such revenues in 1993 as a result of entering into a
collaborative agreement in June 1994 with Merck, which is sharing in the
development expenses of Triage Cardiac. Decreases in licensing fee income in
1994 as compared to such income in 1993 resulted from the completion of a
license agreement with a third party during 1994.
Settlement of Patent Matters. Settlement of patent matters expense in 1994
consisted solely of legal defense costs related to the patent litigation
described above.
Benefit (Provision) for Income Taxes. The Company utilized $3.2 million in
net operating loss carryforwards in fiscal 1994 which reduced the provision for
income taxes to $63,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through private
placements of equity securities, revenues from operations, debt and capital
lease financing and interest income earned on the net proceeds from the private
placements. Since its inception, the Company has raised over $21.7 million in
net cash proceeds from the private placement of equity securities and $1.0
million from the issuance of convertible debentures.
23
<PAGE> 27
During the nine months ended September 30, 1996, the Company generated $1.1
million in cash from operating activities. Cash generated from sales were offset
primarily by the payments totaling $6.2 million for licenses to certain
technologies. In addition, the Company paid $2.0 million to settle patent
litigation with Abbott Laboratories. During 1995 and 1994, the Company generated
$7.9 million and $1.9 million of cash from operating activities, respectively.
The Company financed through promissory notes and capital leases $2.3 million
and $900,000 in equipment purchases in 1995 and 1994, respectively. At September
30, 1996, the Company had cash and cash equivalents totaling $1.4 million,
marketable securities of $8.8 million and working capital of $14.0 million.
The Company believes that its available cash, cash from operations and
funds from existing credit arrangements, together with the proceeds of this
offering, will be sufficient to satisfy its funding needs for at least the next
24 months.
24
<PAGE> 28
BUSINESS
BACKGROUND
Biosite develops, manufactures and markets rapid, accurate and
cost-effective diagnostic products that improve the quality of patient care and
simplify the practice of laboratory medicine. The Company believes that its
Immediate Response Diagnostics can have an important impact on medical
decisions, patient care and the cost of medical treatment. The Company's first
product, Triage DOA, a small self-contained test capable of detecting a broad
spectrum of commonly overdosed prescription and illicit drugs in approximately
10 minutes, is used by over 2,600 hospitals and emergency departments. Since its
introduction in 1992, over 4.2 million Triage DOA panels have been sold
worldwide for use in hospital emergency department screening and workplace
testing. The Company is developing several additional products for applications
where the Company believes its Immediate Response Diagnostics can play an
important role in improving patient care. Products under development include
tests that are intended to aid in the diagnosis of heart attacks, the dosing of
certain therapeutic drugs, the management of certain chronic diseases and the
detection of certain bacterial and parasitic infections.
The Company has two product platforms that are designed to provide rapid
results through either qualitative visual readings or quantitative meter
readings. These platforms are based upon the Company's proprietary technologies
in the areas of reagent development, signaling chemistry and micro capillary
fluidics. The Company's testing formats are designed to measure single or
multiple analyte targets simultaneously, and to allow for the analysis of
various sample sources, including urine, serum, plasma, whole blood and stool.
The Company has entered into strategic arrangements with major pharmaceutical
and diagnostic companies, including Novartis for the development of a product to
monitor the concentrations of the immunosuppressant drug, cyclosporine; Merck
and KDK for the development of a cardiac marker product used in the diagnosis of
heart attacks; and LRE for the development of a fluorescent meter. In addition,
the Company uses CMS to distribute Triage DOA to hospital-based laboratories and
emergency departments in the United States and Merck to distribute Triage DOA in
certain countries in Europe, Latin America, the Middle East, Asia and Africa.
INDUSTRY OVERVIEW
In 1995, the worldwide market for immunoassay tests exceeded $5.1 billion,
consisting primarily of testing related to infectious disease, endocrinology,
therapeutic drug monitoring, drugs of abuse testing, immunology/allergy, tumor
markers and blood typing. The global market for immunoassay tests continues to
expand as new disease states are identified, new therapies become available, and
worldwide standards of living and access to health care improve. Such tests are
performed primarily in hospital-based laboratories and commercial laboratories,
which account for approximately 80% of all diagnostic tests performed annually.
In recent years, diagnostic tests that can be performed nearer to the point of
patient care have emerged as an important tool in disease diagnosis and
management. It has been estimated that the market for point-of-care tests,
primarily hospitals and physician office/satellite facilities, will grow at
approximately 27% annually through the year 2000.
Immunoassay tests were first developed based on technology developed in the
1960s. Although early immunoassay tests offered unprecedented levels of
sensitivity for the detection of low concentration analytes, they suffered from
relatively short shelf-lives, long reaction times, a need for radioactive labels
to detect completed reactions and lack of consistent results among products from
different suppliers. Over time, technological advancements such as the
introduction of monoclonal antibodies, enzyme and fluorescent labels and various
solid phase mechanisms shortened immunoassay test reaction times, provided
higher specificity and allowed development of tests with longer shelf-lives and
greater consistency.
Such advancements also led to the development of immunoassay analyzers,
testing systems utilizing automated liquid handling mechanisms and
reagent-adding pipetting systems. Modern immunoassay analyzers are capable of
storing and selecting multiple reagents for a variety of analytes, including
drugs, hormones and cancer antigens. They also provide accurate and highly
sensitive test results and help to simplify the
25
<PAGE> 29
performance of antibody-based tests. However, immunoassay analyzers are large
and complex, have lengthy turnaround times and require high volumes of sample
throughput to justify the investment in equipment, training, staffing and the
costs required to operate and support the system.
In recent years, there has been a continuing shift from the use of such
conventional analyzer systems to more technologically advanced point-of-care
tests that can be performed in minutes by less highly trained personnel. Simple,
rapid immunoassay tests are capable of detecting a single analyte target with a
color change that can be visually interpreted. Formats such as dipsticks, test
tubes and wicking membrane test cartridges have been used to provide fast
non-instrument read results for conditions where a single analyte target is
present in high concentrations and where a simple yes/no non-numeric answer is
clinically relevant. Rapid color change test formats are widely available for
pregnancy, strep throat and ovulation prediction. Until recently, simple test
formats have remained incapable of precise, multi-analyte detection or highly
sensitive, quantitative measurements. As a result, medical conditions where the
detection of one or more analytes is required or where the precise quantitation
of the target analyte is required have remained the domain of immunoassay
analyzers.
The Company believes that there is significant market potential for
advanced point-of-care diagnostic products. Point-of-care testing helps to
reduce overall health care delivery costs and can improve patient outcomes by
providing diagnosis during the patient visit, thereby minimizing the time to
medical intervention and reducing the need for additional patient follow-up.
Patients undergoing emergency procedures can benefit from more timely and
accurate testing results, both to ensure correct decision making and to avoid
unnecessary use of costly inpatient care. Disease management programs such as
therapeutic drug monitoring programs can benefit from real-time, point-of-care
evaluations that enable care-givers to optimize drug dosing. Quicker diagnosis
of infectious agents can also permit earlier prescription of appropriate
medications, shortening the duration of illness.
TECHNOLOGY
Biosite's Immediate Response Diagnostics technology is based on several
proprietary advances in the biological and physical sciences that make practical
the development and manufacture of rapid, accurate and cost-effective
point-of-care diagnostics. The Company's products integrate its expertise in
several core scientific and engineering disciplines, including antibody
development and engineering, analyte cloning and synthesis, signaling chemistry
and micro capillary fluidics, each of which is described below. Biosite's
research and development program is supported by 60 full time professionals,
including 15 Ph.D.s with expertise in the Company's core technologies. By
combining research capabilities in each of these areas, Biosite is able to
create novel single and multi-analyte diagnostics which overcome the limitations
of traditional rapid diagnostic technologies and seek to address the significant
unmet need for effective point-of-care diagnostic information.
Antibody Development and Engineering
Biosite believes that its internal antibody development and engineering
capabilities allow rapid identification and development of antibodies with
optimal specificity, affinity and stability characteristics. The Company
initially utilized hybridoma technology for the selection and production of its
novel antibodies. Two disadvantages of hybridoma technology are the length of
time required to develop antibody candidates and the need to restart the
antibody development process when unwanted characteristics such as cross
reactivities are discovered. The Company has developed a proprietary process
that enables the selection and production of antibodies more rapidly and
efficiently than is possible using hybridoma technology. In addition, Biosite
has isolated the genes encoding the antibodies that permit the genetic
engineering of antibodies. As a result, Biosite can alter or add specific amino
acids or polypeptides in an antibody in order to improve the antibody's
specificity and to facilitate purification of the antibody. This technology
accelerates the antibody selection process by rapidly eliminating unwanted cross
reactivities discovered in product development.
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<PAGE> 30
Analyte Cloning and Synthesis
The Company has molecular biology capabilities that include the cloning and
identification of specific proteins useful in the development of immunoassays.
Biosite has developed proprietary expression vectors that enable the production
and purification of these proteins for the development of antibodies and for use
as calibrators and controls in its immunoassay products. In addition, the
Company has considerable expertise in synthetic organic chemistry which allows
the synthesis of targets and useful derivatives. The Company develops products
for which the targeted analyte can be small (i.e., haptens, such as drugs) or
large (i.e., proteins, such as cardiac enzymes). The Company believes that the
ability to develop, stabilize and manufacture the target analyte or its
analogues is key to the development of highly accurate immunoassays.
Color/Photochemical Signaling
Immunoassays require the attachment of a detectable label to an antibody or
target analyte. The Company has developed a variety of labels for the
development of its products. For yes/no tests, a visual label that produces
color is attached to antibodies or analytes through either non-covalent or
covalent chemical methods. For its quantitative products, the Company has
developed novel fluorescent dyes which are attached to antibodies or analytes
using both noncovalent and covalent chemical means. Although fluorescence is a
potentially powerful label for use in immunoassays, its potential has been
limited by the lack of available dyes that are stable and have no sample
interference, and the requirement of a complex instrument for detection. The
Company's novel fluorescent dyes are stable and exhibit properties that permit
their use in complex biological samples such as serum, plasma and whole blood
without interference from the sample. Furthermore, these novel dyes absorb light
at wavelengths where a simple instrument can be used to excite and detect
fluorescence for quantitative measurements.
Micro Capillary Test Device Technology
Biosite has developed proprietary technology to design, develop and
manufacture devices containing micro capillaries to control the flow of fluids
in immunoassay processes. The qualitative device format uses micro capillaries
to draw fluids through a membrane that contains immobilized antibody zones for
the detection of specific substances. The quantitative device format uses
several different micro capillary designs to control the contact of sample with
reagents and to control the flow of fluid throughout the device. When sample is
added to the quantitative device, a filter contained within the device separates
blood cells from plasma which is further directed by capillary forces into a
chamber that contains dried immunoassay reagents. After an incubation time that
is determined by another micro capillary element of the device, the volume of
sample that contacted the reagents flows down a capillary path that brings it
into contact with immobilized antibody zones. The binding of fluorescent
reagents at these zones is detected by an instrument and is related to the
concentration of the substance being tested for in the sample. The Company has
also developed the engineering capability to design unique micro capillary
structures in plastic parts and to fabricate them in commercial scale quantities
using injection molding processes.
Sample Handling
The Company has developed proprietary technology relating to sample
handling and preparation, including technology that allows whole blood to be
passively separated into its plasma component or to be passively lysed to
release the target analyte. The Company has also developed technologies for the
handling of stool samples which concentrate and purify the target analytes or
organisms from solid stool materials. In addition, the Triage Panel platform can
be used to assay urine samples.
PRODUCT PLATFORMS
The Company has used its core technologies to develop two product
platforms: the Triage Panel and the Triage CareLink System. Both of the
Company's product platforms utilize the Company's expertise in antibody
engineering, analyte cloning, signaling chemistry, micro capillary fluidics and
sample handling technologies.
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<PAGE> 31
Triage Panel
The Triage Panel platform is designed for rapid, qualitative screening of
multiple analytes in a small single-use hand-held device. The Triage Panel has a
visual (yes/no) display containing simultaneous tests for up to eight analytes
and two control standards, can be performed in a simple multi-step process, and
is capable of performing tests on both urine and stool. Triage DOA, the first
product developed on this platform, tests for up to eight drugs of abuse in
approximately 10 minutes. Triage Panel products under development include tests
for the detection of microorganisms which cause severe gastrointestinal disease.
Triage CareLink System
The Triage CareLink System platform is designed to provide rapid
quantitative results for immunoassay tests of whole blood, serum and plasma. The
Triage CareLink System consists of two parts: a small single-use disposable test
cartridge and a proprietary hand-held point-of-care fluorescent meter. After
blood is applied to the cartridge, the cartridge is inserted into the meter,
which is designed to automatically detect up to six analytes simultaneously and
display the results on a numerical electronic read-out. The meter incorporates
proprietary software in erasable programmable read-only memory ("EPROM") chips
which are intended to be plugged into each meter to perform multiple types of
tests and automatically determine which test is being run. In addition, the
EPROM chips are designed to automatically calibrate the meter on a lot specific
basis. The software may also provide important information regarding the analyte
measured, such as normal or abnormal levels of a marker which could then be used
to initiate therapy or manage patient disease. The Company believes that the
analyte measuring sensitivity of the Triage CareLink System products under
development will match or exceed the sensitivity levels of the conventional
immunoassay analyzers. The Company is currently developing two applications for
this platform, Triage Cardiac, a device for the quantification of three cardiac
markers associated with AMI, and Triage Transplant, a product for the monitoring
of the concentration of cyclosporine, an immunosuppressant drug prescribed for
organ transplant recipients to prevent transplant rejection.
PRODUCT ATTRIBUTES
Although the current products and products under development are based upon
the Triage Panel and Triage CareLink System platforms and utilize different
technologies, they share common attributes which the Company believes make them
superior to conventional immunoassay analyzers:
- RAPID RESULTS: Triage DOA and the Company's products under development
are designed to offer complete results in a STAT timeframe, and to have
room temperature stability, making them immediately available for use.
- EASE OF USE: Triage DOA and the Company's products under development are
designed to be simple to use. Triage DOA has only three steps while
Triage Cardiac and Triage Transplant are expected to require only one
step.
- HIGH ANALYTICAL ACCURACY: The Company develops and uses high quality
biological and chemical reagents to yield highly specific, accurate and
reproducible analytical results.
- CAPABILITY OF PERFORMING MULTIPLE ANALYSES: Triage DOA and the Company's
products under development are designed to measure one or more target
analytes simultaneously, including reagent controls, without sacrificing
the quality of the individual analysis. This simultaneous detection
capability can provide significant time and cost savings compared to
current technologies.
- RELIABILITY: Biosite's use of internal thresholds, built-in controls,
lockouts and other controlling mechanisms are intended to make its
current and future products extremely reliable in any hospital or
clinical laboratory setting.
- COST EFFECTIVENESS: Triage DOA and the Company's products under
development are designed to eliminate the need for highly trained
technicians and significant outlays for testing equipment acquisition and
maintenance, making them cost-effective alternatives to conventional
immunoassay analyzers.
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<PAGE> 32
PRODUCTS AND PRODUCTS UNDER DEVELOPMENT
Triage DOA was introduced in 1992 and has been used by hospital emergency
departments to screen for up to eight commonly abused prescription and illicit
drugs or drug classes. The Company is developing five additional products which
apply the Company's Immediate Response Diagnostics technologies to a variety of
other medical testing needs. Triage DOA and the Company's five products under
development are described in the table below. The table also indicates the
Company's corporate partners with respect to Triage DOA and products under
development. The Company intends, where appropriate, to enter into additional
collaborative arrangements to develop and commercialize future products. There
can be no assurance that the Company will be able to negotiate collaborative
arrangements on favorable terms, if at all, in the future, or that its current
or future collaborative arrangements will be successful.
<TABLE>
<CAPTION>
=====================================================================================================================
STATUS/EXPECTED
U.S. REGULATORY CORPORATE
PRODUCTS APPLICATION ANALYTE TARGETS PATHWAY(1) PARTNER(2)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Triage Panel Drug Screening Phencyclidine On the Market/ CMS, Merck
for Drugs of Benzodiazepines 510(k) cleared
Abuse Cocaine
(Triage DOA) Amphetamine
Tetrahydrocannabinol
Opiates
Barbiturates
T Tricyclic
R antidepressants
I Methadone
A ----------------------------------------------------------------------------------------------------------
G Triage Panel Parasite Giardia lamblia In Development/ --
E for Parasitology Screening Entamoeba 510(k)
(Triage O&P) histolytica
P Cryptosporidium
A parvum
N ----------------------------------------------------------------------------------------------------------
E Triage Panel for Pathogen C. difficile Antigen In Development/ --
L Clostridium Detection C. difficile Toxin A 510(k)
S difficile
(Triage C. diff)
----------------------------------------------------------------------------------------------------------
Triage Panel Pathogen Salmonella In Development/ --
for Enteric Screening Shigella 510(k)
Pathogens Campylobacter
(Triage Enteric) jejuni/coli
- ---------------------------------------------------------------------------------------------------------------------
T C S Triage Acute CK-MB In Development/ Merck(3),
R A Y Cardiac Myocardial Troponin I 510(k) KDK, LRE
I R S Infarction Myoglobin
A E T Detection
G L E ----------------------------------------------------------------------------------------------------------
E I M Triage Drug Monitoring Cyclosporine In Development/ Novartis,
N S Transplant PMA LRE
K
=====================================================================================================================
</TABLE>
(1) The FDA regulatory approval process requires many steps before a product can
be approved for marketing. The terms "510(k)" and "PMA" indicate the
regulatory approval pathway the Company believes will be applicable to a
product, although there can be no assurance that the FDA will agree that the
pathway noted is the appropriate pathway for the specific product. See "Risk
Factors -- Government Regulation." For a description of the terms 510(k) and
PMA see "-- Government Regulation."
(2) For a description of the Company's collaboration arrangements, see
"-- Strategic and Distribution Arrangements."
(3) As part of its decision to refocus away from certain aspects of the human
diagnostics business, Merck has informed the Company that Merck is
considering assigning its rights under its agreements with the Company
concerning the marketing of Triage Cardiac either to a third party or back
to the Company.
<PAGE> 33
Triage Panel for Drugs of Abuse
The Company believes the worldwide market for abused drug testing is
approximately $350 million annually, the majority of which is accounted for by
testing performed in the United States. The U.S. market can be divided into
three major categories:
- MEDICAL TESTING: The medical testing segment represents testing
typically performed in a hospital laboratory. Such tests have the highest
need for rapid turnaround of results, and generally have the highest cost
per result. The results are generally reported to emergency physicians
and psychiatrists.
- NON-MEDICAL TESTING: The non-medical testing market consists of testing
performed for industry, as well as in the criminal justice setting and
drug rehabilitation centers. Testing may be performed on-site but
generally samples are sent to independent reference laboratories.
Typically, the demands for a rapid result are not quite as great as in
the medical segment. Additionally, the cost per result is slightly
reduced.
- REFERENCE LABORATORY TESTING: The reference laboratory testing market
accounts for a sizable portion of the total drug testing market. The
majority of samples come from the non-medical testing market, although
some smaller hospitals in the medical testing market also send their
samples to reference laboratories. In general, results are not available
for at least 24 hours from the time the specimen is collected. Despite
relatively long turnaround times, the reference laboratory market has
remained substantial because of its ability to produce results on a low
cost per panel basis.
Emergency Department Screening
A 1988 Substance Abuse and Mental Health Services Administration ("SAMHSA")
survey concluded that over 14.5 million Americans had used an illicit drug at
least once in the prior month. Emergency physicians have indicated that drug
abuse plays a role in 5% to 10% of the emergency medicine cases occurring
annually in the United States, either as a primary cause such as an overdose, or
as a contributing factor such as in the case of an accident. A diagnostic
dilemma confronts physicians when a patient is presented with symptoms that
could either be drug related or non-drug related. A patient brought to a
hospital emergency department in a coma may be under the influence of narcotics
or sedatives, which may require one type of treatment or intervention.
Conversely, the same patient may have had a stroke or suffered some form of
trauma, requiring a completely different type of care. The ability to have a
differential diagnosis in a timely manner greatly aids the course of treatment.
Prior to the introduction of Triage DOA, drug or toxicology screening was
accomplished by several technologies, primarily Gas Chromatography/Mass
Spectroscopy ("GC/MS") and automated immunoassays. Although GC/MS is the most
specific identification method commercially available, it is time consuming
(requiring an average of approximately three hours per test), complex and
expensive, and is generally reserved for final confirmation of specimens that
have been screened positive by an immunoassay. Automated immunoassay tests,
although less expensive than those performed by GC/MS, also require significant
amounts of time (approximately one to two hours) because of the necessity of
performing analyses of several drugs sequentially on each patient specimen.
Additionally, in many cases the equipment required to perform an immunoassay is
not accessible on an immediate or STAT basis.
Triage DOA is a rapid qualitative urine screen that analyzes a single test
sample for up to eight different illicit and prescription drugs or drug classes
and provides results in approximately 10 minutes. Triage DOA is instrument
independent, contains built-in controls for accuracy and is capable of a high
degree of specificity. Illicit drugs tested for by Triage DOA include
Amphetamines/Methamphetamines (speed, crystal), Cocaine (crack), Opiates
(heroin), Phencyclidine (angel dust), Tetrahydrocannabinol (pot, marijuana),
while prescription drugs tested by Triage DOA include Barbiturates
(Phenobarbital), Benzodiazepines (Valium, Librium, Halcion), Tricyclic
Antidepressants (Elavil, Tofranil) and Methadone. Triage DOA can be configured
to test various combinations of the foregoing drugs. In February 1995, the
Company launched Triage DOA Plus TCA, a configuration which includes a test for
Tricyclic Antidepressants ("TCA") that otherwise requires a separate blood test.
Since its introduction in February 1992, the Company has sold over
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<PAGE> 34
4.2 million Triage DOA panels worldwide, and over 2,600 hospitals and emergency
departments in the United States are users of the product. The graphic below
summarizes Triage DOA testing process:
LOGO
The Company distributes Triage DOA and Triage DOA Plus TCA to the U.S.
medical market through CMS. Merck is the exclusive distributor of Triage DOA and
Triage DOA Plus TCA in certain countries in Europe, Latin America, the Middle
East, Asia and Africa.
Workplace Screening
It is estimated that in 1996 over 33% of new hires in the U.S. workforce
will be screened for drug usage as part of pre-employment physicals. The
majority of these test samples are sent to centralized reference laboratories
that can provide both the initial immunoassay screening result and the
confirmation of presumptive positive results by an alternate method, such as
GC/MS. Testing of government and certain government regulated employees and
contractors must be performed at SAMHSA certified reference laboratories.
Employers that are not government contractors send their drug screens to their
laboratory of choice or perform on-site testing. Non-SAMHSA testing is estimated
to account for over eight million tests performed annually.
The majority of employers with drug screening programs have chosen not to
implement "on-site" testing in their facilities due to costly personnel and
regulatory burdens on an employer's in-house testing laboratory. These
industrial testers, however, still have a need for rapid results since many
employment decisions hinge on an employee's ability to pass physical and other
examinations that include a test for illegal drugs. Despite this need for rapid
results, there is a 24 to 48 hour wait based on the sample transportation and
testing process used by all major reference laboratories. Additionally, it is
estimated that approximately 90% of all employee tests have negative results.
Therefore, an immunoassay test that provides rapid results, such as Triage DOA,
can get employees back to work quickly and save employers money.
In January 1996, the Company established the ExpressTest One-Hour Drug
Screen service, a marketing program in conjunction with regional suppliers of
occupational health services, as a means of expanding the market for Triage DOA.
The ExpressTest program incorporates the Company's "near-site" testing strategy
of providing the benefits of rapid drug test results using Triage Intervention
(a test for five illicit drugs or drug classes) without the burdens that would
be imposed on employers setting up an on-site laboratory. Participating
occupational health clinics provide rapid results to industrial clients that
send prospective employees to them for pre-employment physicals and drug
screens. Biosite's sales force actively supports these selected occupational
health clinics in their marketing of the ExpressTest program to potential
industrial
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<PAGE> 35
clients in their regional area. Biosite currently has six sales professionals
actively establishing select providers to be a part of the ExpressTest program.
Triage Cardiac
In 1992, over 6.0 million people in the United States visited hospital
emergency departments exhibiting symptoms of a heart attack. Of those,
approximately 650,000 were diagnosed with AMI and approximately 800,000 were
diagnosed with unstable angina. In total, approximately 1.9 million of the
patients who presented with chest pain were admitted to coronary care units. Of
these, approximately 30,000 to 60,000 patients were misdiagnosed as not having
an AMI. Additionally, approximately 500,000 of these patients who had not had an
AMI were admitted to hospitals and ultimately released within two days. The
Company believes that rapid, quantitative results for multiple cardiac markers
provided at the point-of-care may have a positive impact on misdiagnosed AMI,
and may provide substantial benefits to patients and savings to the hospital.
AMI is generally caused by the blocking or "occlusion" of an artery
providing oxygen-carrying blood to the heart. Without oxygen, the heart muscle
is destroyed, and a prolonged occlusion results in additional muscle damage. The
destruction of such cells in the heart muscle results in the release of several
markers into the bloodstream, including creatinine kinase ("CK-MB"), Troponin I
and Myoglobin.
In general, for early diagnosis of AMI clinicians rely on
electrocardiograms and on the measurement, over time, of CK-MB. Troponin I and
Myoglobin are also emerging as useful adjuncts to CK-MB in the detection of
heart attacks. The Company believes that the concentrations of these three
markers typically peak and fall over different time periods and that the
simultaneous measurement of these markers is a more accurate diagnostic
technique for AMI than the measurement of any one single marker. Studies have
shown that serum concentrations of Myoglobin are elevated most quickly post-AMI.
Additionally, serial quantitative measurement of Myoglobin has demonstrated a
significantly higher sensitivity in diagnosing AMI than CK-MB in patients
presenting within 12 hours of AMI symptom onset. Troponin I has been shown to
maintain an elevated concentration for a longer period of time than CK-MB and
Myoglobin.
Several diagnostic tests have recently been developed to quantitatively
measure the blood levels of such markers. Unfortunately, the measurement of
multiple markers currently requires large, centralized immunoassay systems that
cannot directly analyze whole blood and are not always available on a STAT
basis. Additionally, these systems require multiple reagent packs, frequent
standardization and quality control. Since turnaround time for such test results
is critical, current immunoassay systems may not satisfy physician needs.
The Company believes that a point-of-care test capable of quantitatively
measuring multiple markers of an AMI would have a positive impact on patient
care. Accordingly, the Company's Triage Cardiac product under development is
being designed to quantitatively measure the level of CK-MB, Troponin I and
Myoglobin in a single test device from a sample consisting of two drops of whole
blood. The hand-held Triage CareLink meter under development is being designed
to provide quantitative results of such measurements at or near the
point-of-care. Triage Cardiac may aid in the detection of AMI by providing
point-of-care quantitative results in approximately 10 minutes, providing
physicians with the ability to make treatment decisions in a timely manner.
Triage Cardiac is in the late stages of development with clinical
investigations expected to begin in the first half of 1997. If successfully
developed and cleared for marketing, the Company anticipates selling Triage
Cardiac directly in the United States and through KDK in Japan. The Company
currently has an agreement with Merck regarding distribution of Triage Cardiac
in certain countries in Europe and Latin America and in South Africa. However,
as part of its decision to refocus away from certain aspects of the human
diagnostics business, Merck has informed the Company that Merck is considering
assigning its rights concerning the marketing of Triage Cardiac either to a
third party or back to the Company.
Triage C. diff
Clostridium difficile ("C. difficile") is an opportunistic pathogen of the
intestinal tract that may thrive as a result of broad spectrum antibiotic
treatment. The bacteria may be found in asymptomatic carriers or may
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<PAGE> 36
be spread among hospital patients that are immunocompromised or receiving
antibiotics. Cytotoxins produced by the bacteria mediate C. difficile-associated
disease ("CDAD"), which may include antibiotic-associated diarrhea and
antibiotic-associated pseudo-membranous colitis. Due to the contagiousness of
CDAD, patients identified as possibly having CDAD are usually placed in
isolation until the infection is controlled. Symptoms of CDAD include diarrhea
as well as fluid and weight loss. It has been estimated that in 1995,
approximately 3.0 million rapid tests for C. difficile were performed in the
United States. This number is expected to continue to rise due to the expected
increase in the number of patients who are immunocompromised.
Until recently, the use of a cytotoxic test, which takes 48 to 72 hours to
produce diagnostic results, was the only means to identify the toxin associated
with C. difficile. More recently, in response to the need for more rapid
identification of the C. difficile toxin, several manufacturers have developed
and marketed enzyme-linked immunosorbent assay ("ELISA") tests that can be
performed in one to two hours. These ELISA test formats are used by the majority
of the hospitals testing for the toxin.
Although the ELISA technology has been a great improvement over the
cytotoxic test, it still requires several precisely timed steps as well as
multiple standards every time the test is performed, making it unlikely the
testing will be done whenever an individual specimen is sent to the laboratory.
The multiple standards and quality controls required with each run make the
processing of individual specimens expensive. As a result, specimens are
generally only processed in "batch" mode, delaying the time to a diagnostic
result, and the time by which a physician receiving the information can take
therapeutic measures.
Triage C. diff is designed to simplify the laboratory procedure and improve
time to result to the physician by enabling laboratories to complete testing for
the bacteria and toxin in approximately 10 minutes. Because the test is being
designed with built-in controls and standards, the test may be able to be
performed individually or in batches, by any laboratory technician, without
compromising the quality of the result. Triage C. diff may thus reduce time to
initiate therapy and minimize time in isolation. Rapid, accurate diagnosis of
the bacteria and toxin should enable earlier treatment, which may reduce length
of stay in the hospital and reduce cost.
Triage C. diff is in the late stages of development with clinical
investigations expected to begin in the first half of 1997. If successfully
developed and cleared for marketing, the Company expects to market this product
directly in the United States.
Triage O&P
Parasitic infection is a common cause of gastrointestinal disease and
diarrhea. Some of the more common parasites responsible for such infection are
Giardia lamblia ("Giardia"), Cryptosporidium parvum ("C. parvum"), Entamoeba
histolytica and Microsporidia species. According to the U.S. Centers for Disease
Control and Prevention ("CDC"), more than 900,000 people in the United States
become ill each year from waterborne parasites. Additionally, with the increase
in world travel, it is probable that the number of cases diagnosed in the United
States will rise. Further, parasites frequently infect immunocompromised
patients, especially HIV infected patients, which has lead to an increase in the
incidence of infection by Microsporidia species.
The most commonly employed method of detecting parasites from stool samples
is by manual ova and parasite ("O&P") microscopic examination, typically of
three consecutive stool specimens from the patient. The preparation of the
sample by a laboratory technologist involves stool specimen dilution and the
preparation of multiple microscope slides. Each slide must then be observed via
microscope by a technologist trained in the identification of parasites. The
time to diagnose parasitic infection is prolonged due to the need for manual
microscopic examination of multiple stool specimens per patient. The prolonged
time to obtain results may delay the treatment of patients, and ultimately
increase the cost of health care for such patients.
It is estimated that in 1997 over six million O&P microscopic examinations
will be performed in the United States. Because of the cumbersome procedure and
limited test menu of the current ELISA test formats, these tests have had
limited success in hospitals that perform larger volumes of tests in batches.
Recently, several manufacturers have developed and marketed ELISA tests for the
more rapid identification
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<PAGE> 37
of two of the more common parasites Giardia and C. parvum. Such tests are,
however, subject to numerous limitations, including the requirement of multiple
timed steps, two hour time to result, a need to run additional standards and
controls with patient specimen and availability of tests for two parasites only.
Triage O&P is designed to replace the standard O&P microscopic detection
method for three of the most commonly encountered parasites: Giardia, C. parvum
and Entamoeba histolytica in a single test device. Future versions of Triage O&P
may include a test for Microsporidia species. Because each test device includes
standards and controls, the product may be able to be used for any volume of
tests. If successfully developed and approved for marketing, Triage O&P may make
rapid results (approximately 10 minutes) available to hospitals of any size,
including facilities that previously sent such testing to a reference lab. The
Company expects that Triage O&P will have sensitivity comparable to the current
O&P microscopic examination, but will require only a single patient specimen.
This should greatly reduce the collection burden for the patient, and reduce the
amount of labor for the laboratory technician, thereby reducing costs.
Additionally, the length of time physicians wait for results may be reduced.
Triage O&P is in the late stages of preclinical development.
Triage Enteric
Gastroenteritis, commonly described as "food poisoning," often occurs among
individuals who have consumed contaminated foods or been exposed to stool
contaminated with microorganisms such as Salmonella, Campylobacter jejuni/coli,
Shigella and E. coli 0157. Eight to 24 hours after such exposure, individuals
may experience abdominal pain, nausea and diarrhea. It is estimated that in the
United States over 14 million stool cultures are performed annually for the
diagnosis of food poisoning. Microorganisms are often implicated in such cases.
According to the CDC, there are over six million cases of foodborne disease
annually in the United States.
Stool culture, currently the primary method of diagnosing food poisoning,
involves the inoculation of multiple culture plates with stool specimen. After
24 to 48 hours, culture plates that exhibit bacterial growth are subjected to
biochemical tests that typically take an additional 24 hours. As a result of
such a prolonged testing procedure, physicians generally wait 48 to 72 hours for
test results.
Triage Enteric is being developed for identification of three of the most
common enteric bacteria responsible for food poisoning, Salmonella,
Campylobacter jejuni/coli and Shigella. Future versions of Triage Enteric may
include a test for E. coli 0157. Triage Enteric would enable the laboratory
technician to rapidly detect from a stool specimen the presence of such enteric
bacteria. This should greatly reduce the amount of labor required of laboratory
technicians, thereby reducing costs. Additionally, the length of time by which
results can be returned to the physician would be improved.
Triage Enteric is in the development stage.
Triage Transplant
Transplants of human organs generally require suppression of the immune
system of the organ recipient. Cyclosporine is the most widely used
pharmaceutical for such purposes, with annual worldwide sales in excess of $1.0
billion. Novartis is the developer and leading supplier of cyclosporine, and is
involved in several collaborations in the organ transplant field that include
health care management, xenotransplantation, and near-patient testing in an
effort to support the use of organ transplantation. Cyclosporine is chronically
administered to patients who have received an organ transplant. Over 18,000
patients undergo organ transplantation in the United States annually. In excess
of 200,000 organ recipients worldwide take immunosuppressant drugs on a daily
basis.
The blood level of cyclosporine must be monitored to ensure that a patient
receives the appropriate therapeutic dose while minimizing toxicity. Patients
receiving cyclosporine must maintain a minimum concentration of the drug for it
to be effective, yet maintain a level that is low enough not to be toxic. This
range is often referred to as the therapeutic window. Physicians primarily rely
on large, centralized laboratories to measure cyclosporine blood levels. The
physician typically does not receive test results for at least 24 to 48
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<PAGE> 38
hours, requiring a call back to the patient if the dose of the drug needs to be
adjusted. A smaller share of cyclosporine testing is performed by high
performance liquid chromatography ("HPLC"). The current worldwide market for
cyclosporine testing by immunoassay is estimated to be over 4.0 million tests
per year. Patients are monitored frequently in the immediate post-transplant
time-frame with reduced but continued testing, an average of four times per
year, for the remainder of the patient's lifetime.
Triage Transplant is designed to utilize the Triage CareLink meter to
enable a physician to easily, rapidly and accurately measure cyclosporine
levels. Triage Transplant is being developed to provide physicians with a
cost-effective means of determining cyclosporine levels at the point-of-care
which provides the physician with the ability to optimize drug therapy during
the patient's visit. As part of its research and development collaboration with
Novartis, Biosite has obtained licenses to certain technology that makes rapid
analysis of cyclosporine levels possible. See "-- Strategic and Distribution
Arrangements."
Triage Transplant is in the preclinical development stage. If successfully
developed and approved for marketing, the Company expects Sandoz to support the
promotion of Triage Transplant worldwide.
RESEARCH AND DEVELOPMENT
As of November 30, 1996, the Company had 60 employees in research and
development, of which 15 have Ph.D.s. The Company's research and development
organization is dedicated to the discovery and development of new technologies
which can be applied to future products and the development of new products in
its existing platform technologies.
The Company has research staff dedicated to the development and production
of antibodies through a variety of techniques. Recombinant techniques are used
to express proteins for use as diagnostic targets. The Company's staff of
chemists and biochemists synthesize drug targets and compounds for use as
diagnostic labels as well as seek to perfect techniques for coupling these
compounds to biological reagents such as antibodies. The Company's development
engineering staff is involved in the design and development of new diagnostic
device technologies as well as processes for their fabrication and interface
with biological and chemical reagents. The Company's product development group
completes final optimization of assays and the Company's regulatory affairs
group controls all in-house and external clinical trials of the Company's
products and prepares applications to the FDA for pre-market clearance or
approval.
MANUFACTURING
As of November 30, 1996, the Company had 42 employees in manufacturing
involved in reagent production, device assembly, engineering, quality
assurance/quality control and materials management.
Biosite maintains worldwide manufacturing rights to all current and future
products. A key strategy of the Company is to provide high quality analytical
results in an efficient manner. To this end, the Company invests in the design
and development of manufacturing systems and technologies that can produce a
high quality product using controlled, cost-effective manufacturing processes
and equipment. Triage C. diff, Triage O&P, and Triage Enteric are being
developed to utilize the same or similar processes and equipment as Triage DOA.
The Company believes that the experience it has acquired in manufacturing Triage
DOA will provide benefits in product quality and cost in manufacturing for its
products under development. The Company expects its manufacturing capacities
will allow such potential products and Triage DOA to be manufactured
concurrently in the same facility.
All raw materials required to manufacture Triage DOA are obtained from
outside suppliers. All antibodies used in the manufacture of Triage DOA were
developed by Biosite and the cell lines are owned by Biosite. Production
quantities of most of the antibodies are produced by two vendors. In addition,
Biosite maintains its own in-house antibody production capability.
The Company manufactures Triage DOA at its facility in San Diego,
California. The facility has received its registration as a diagnostic product
manufacturer from the FDA and from the California Department of Health Services.
The Company has also been licensed and certified to manufacture products using
controlled substances by the U.S. Drug Enforcement Agency. There can be no
assurance that the Company can continue
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to comply with all government requirements and regulations which may lead to the
suspension or revocation of its right to manufacture. See "Risk
Factors -- Government Regulation" and "-- Government Regulation."
The Company is also developing novel and sophisticated processes and
equipment for the future production of its Triage Cardiac and Triage Transplant
products. LRE will manufacture and supply the meter used in conjunction with the
Company's Triage CareLink System platform products. The Company is increasing
its manufacturing space at its San Diego facility to accommodate production of
Triage Cardiac.
SALES AND MARKETING
As of November 30, 1996, the Company has 31 employees in various sales and
marketing functions. The Company markets its Triage DOA to hospital laboratories
and emergency departments in the United States through CMS, a laboratory
products distributor, and in certain countries in Europe, Latin America, the
Middle East, Asia and Africa through Merck. The Company anticipates it may
directly market in the United States its cardiac, microbiology and therapeutic
drug monitoring products under development. In geographic markets outside the
United States, the Company intends to establish relationships with marketing
partners, where appropriate, for these potential products. The Company believes
it has the management resources necessary to significantly expand its sales
force for the promotion of its potential products. There can be no assurance
that any of the Company's products under development will be successfully
developed and approved for marketing.
STRATEGIC AND DISTRIBUTION ARRANGEMENTS
Biosite's strategy for the research, development, commercialization and
distribution of certain of its products entails entering into various
arrangements with corporate partners, licensors, licensees and others, and is
dependent upon the success of these parties in performing their
responsibilities. There can be no assurance that such parties will perform their
obligations as expected or that any revenue will be derived from such
arrangements.
Curtin Matheson Scientific, Inc.
In November 1991, the Company entered into a distribution agreement (the
"CMS Agreement") with CMS pursuant to which the Company granted to CMS an
exclusive right to distribute Triage DOA to hospitals, non-industrial
laboratories and certain other health and medical organizations within the
United States. In March 1996, the parties executed an amendment to the CMS
Agreement, setting forth certain purchase and cumulative sales targets which if
not met gives Biosite the option to terminate the CMS Agreement and further
obligates CMS to pay to Biosite a penalty if it fails to meet such purchase and
cumulative sales targets for 1996. Since the amendment of the CMS Agreement, CMS
has missed certain of these purchase and cumulative sales targets. In August
1996, Biosite agreed to forgive a portion of the penalty each year that CMS
meets additional sales milestones through 1999. There can be no assurance that
the additional targets will be met. The CMS Agreement provides for a six-month
transition period in the event of termination. If Biosite elects to terminate
the CMS Agreement, it may appoint a new distributor or expand its own sales
force to sell Triage DOA directly in the United States.
Merck KGaA
In July 1992, the Company entered into a distribution agreement with Merck,
pursuant to which the Company granted to Merck an exclusive right to market and
distribute Triage DOA in certain countries in Europe, Latin America, the Middle
East, Asia and Africa. In June 1994, the Company entered into two additional
agreements with Merck, a collaborative development agreement and a supply and
distribution agreement, in connection with the Company's development of Triage
Cardiac. Under the terms of such agreements, the Company and Merck agreed to
jointly develop, perform clinical testing of, and obtain regulatory approval for
Triage Cardiac. The agreement further provides that the Company is to be
responsible for the design, development and manufacturing scale-up of Triage
Cardiac and the reagents used in connection therewith, and for the clinical
trials and regulatory approval of Triage Cardiac for use in the AMI diagnosis
field in Japan and the United States. Merck is obligated to perform clinical
trials and obtain regulatory approval for the product for use in the AMI
diagnosis field in certain countries in Europe and Latin America and in South
Africa. Additionally, Biosite is obligated to fund 60% and Merck is obligated to
fund the remaining 40% of the costs incurred by both parties in developing,
manufacturing and obtaining regulatory
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<PAGE> 40
approval for the product, subject to certain maximum aggregate expenditure
limitations and subject further to a reduction in Merck's funding obligations of
40% of payments which Biosite receives from KDK in connection with the
development and commercialization of Triage Cardiac in Japan. The agreements
further specify that Merck is to be the exclusive distributor of Triage Cardiac
for use in the AMI diagnosis field in certain countries in Europe and Latin
America and in South Africa, while the Company is to retain distribution rights
to the product in the remainder of the world and for uses other than the
diagnosis of AMI. As part of its decision to refocus away from certain aspects
of the human diagnostics business, Merck has informed the Company that Merck is
considering assigning its rights under its agreements with the Company
concerning the marketing of Triage Cardiac either to a third party or back to
the Company.
LRE Relais + Elektronik GmbH
In September 1994, the Company entered into an agreement with LRE (the "LRE
Agreement") for the development of a hand-held meter to be used in all Triage
CareLink System products currently under development, including Triage Cardiac
and Triage Transplant. Under the terms of the LRE Agreement, LRE is obligated to
develop and produce the fluorescent meter according to specifications provided
by Biosite. In return, the Company agreed to compensate LRE for certain
development and tooling expenses incurred in connection therewith, based upon
LRE's successful completion of certain feasibility, prototype and preproduction
milestones. In addition, the agreement specifies that LRE is to be the Company's
exclusive supplier of the Triage CareLink meter during the term of the LRE
Agreement, unless LRE is incapable of satisfying Biosite's needs or is
prohibited from producing such meters for a specific immunoassay application.
ARKRAY KDK Corporation
In February 1995, the Company entered into a development, supply and
distribution agreement with KDK, pursuant to which the parties agreed to
collaborate in the development and marketing of Triage Cardiac. Under the terms
of the agreement, KDK is obligated to provide certain funding of up to $2.0
million for the Company's development of Triage Cardiac, $500,000 of which has
been paid and the remainder of which is to be paid based upon the Company's
achievement of certain milestones. In exchange for this funding, the Company has
granted KDK the exclusive right to distribute Triage Cardiac in Japan and in
certain countries of Asia, the Middle East and Pacific Island countries. The
Company is responsible for costs associated with performing clinical trials on
and obtaining regulatory approval of Triage Cardiac in the United States, while
KDK is responsible for such costs in Japan and in certain countries of Asia, the
Middle East and Pacific Island countries. KDK can terminate this agreement at
any time.
Novartis Pharma Inc.
In September 1995, the Company entered into two license agreements with
Novartis relating to the Company's development of Triage Transplant. The first
license is for cyclosporine antibodies and the second license is for certain
antibody-based assays. Under the terms of the agreements, and upon the Company's
successful completion of certain feasibility requirements, the Company has the
right to make, have made, use and sell Triage Transplant using the licensed
Novartis antibodies and related technologies. Upon entering into the two
licenses, the Company made certain initial payments to Novartis and is obligated
to make payments to Novartis based upon the achievement of certain product
development milestones, and to pay royalties on sales of products developed by
the Company using such antibodies or related technologies. In connection with
the agreement, Novartis purchased $1.0 million of five-year 8% convertible
debentures which convert into 92,222 shares of Common Stock of the Company upon
the closing of this offering (based upon interest through January 31, 1997 and
an assumed initial public offering price of $12.00 per share). The Company is
obligated to sell to Novartis up to $1.0 million additional five-year 8%
convertible debentures upon the attainment of certain milestones. The debentures
will be convertible, at the sole option of the Company, into shares of Biosite
Common Stock at the initial offering price.
PROPRIETARY TECHNOLOGY AND PATENTS
The Company's ability to compete effectively will depend in part on its
ability to develop and maintain proprietary aspects of its technology, and to
operate without infringing the proprietary rights of others or to obtain rights
to such proprietary rights. Biosite has U.S. and foreign issued patents and is
currently prosecuting
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patent applications in the United States and with certain foreign patent
offices. There can be no assurance that any of the Company's pending patent
applications will result in the issuance of any patents, that the Company's
patent applications will have priority over others' applications, or that, if
issued, any of the Company's patents will offer protection against competitors
with similar technology. There can be no assurance that any patents issued to
the Company will not be challenged, invalidated or circumvented in the future or
that the rights created thereunder will provide a competitive advantage.
Litigation may be necessary to enforce any patents issued to the Company,
to protect trade secrets or know-how owned by the Company or to determine the
enforceability, scope and validity of the proprietary rights of others. In March
1996, the Company settled a potential patent infringement claim by obtaining a
license to the contested patent in return for a one-time payment of $2.2
million. In September 1996, the Company settled a patent infringement lawsuit
filed by Abbott Laboratories and obtained a license to the contested patent in
return for the payment of $5.5 million and the agreement to pay certain
royalties. There can be no assurance that the Company will not in the future
become subject to patent infringement claims and litigation or interference
proceedings conducted in the USPTO to determine the priority of inventions. The
defense and prosecution of intellectual property suits, USPTO interference
proceedings, and related legal and administrative proceedings will result in
substantial expense to the Company and significant diversion of effort by the
Company's technical and management personnel. An adverse determination in
litigation or interference proceedings to which the Company may become a party
could subject the Company to significant liabilities to third parties. Further,
either as the result of such litigation or proceedings or otherwise, the Company
may be required to seek licenses from third parties which may not be available
on commercially reasonable terms, if at all.
Triage DOA and products under development may incorporate technologies that
are the subject of patents issued to, and patent applications filed by, others.
The Company has obtained licenses for certain technologies. However, there can
be no assurance that the Company will be able to obtain licenses for technology
patented by others on commercially reasonable terms, if at all, that it will be
able to develop alternative approaches if unable to obtain licenses or that the
Company's current and future licenses will be adequate for the operation of
Biosite's business. The failure to obtain necessary licenses or to identify and
implement alternative approaches would prevent the Company from commercializing
certain of its products under development and would have a material adverse
effect on the Company's business, financial condition and results of operations.
Biosite is aware of a U.S. patent owned by Celltech relating to the
manufacture of antibodies, such as those developed or being developed by Biosite
for Triage Cardiac, Triage O&P, Triage C. diff and Triage Enteric. Biosite is
also aware that this patent is the subject of an interference proceeding in the
USPTO which was initiated in February 1991 with a patent application filed by
Genentech. In June 1996, the EPO invalidated, following an opposition, certain
claims under Celltech's corresponding EPO-granted patent which may be relevant
to Biosite's products and products under development. Celltech has indicated
that it will appeal such decision. If it is determined that aspects of the
manufacturing of Biosite's antibodies are covered by patent claims stemming from
the interference or if Celltech were to have such claims upheld on appeal,
Biosite may be required to obtain a license under such patents and corresponding
patents in other countries. There can be no assurance that a license would be
made available to Biosite on commercially reasonable terms, if at all. If such
license is required and not obtained the Company might be prevented from using
certain of its manufacturing technologies. The Company's failure to obtain any
required licenses could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company also relies upon trade secrets, technical know-how and
continuing invention to develop and maintain its competitive position. There can
be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets or disclose such technology, or that the Company can
meaningfully protect its trade secrets, or that the Company will be capable of
protecting its rights to its trade secrets.
Others may have filed and in the future are likely to file patent
applications that are similar or identical to those of the Company. To determine
the priority of inventions, the Company may have to participate in interference
proceedings declared by the USPTO that could result in substantial cost to the
Company. No assurance can be given that any patent application of another will
not have priority over patent applications filed by the Company.
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The commercial success of the Company also depends in part on the Company
neither infringing patents or proprietary rights of third parties nor breaching
any licenses that may relate to the Company's technologies and products. The
Company is aware of several third-party patents that may relate to the Company's
technology. There can be no assurance that the Company does not or will not
infringe these patents, or other patents or proprietary rights of third parties.
In addition, the Company has received and may in the future receive notices
claiming infringement from third parties as well as invitations to take licenses
under third party patents. Any legal action against the Company or its
collaborative partners claiming damages and seeking to enjoin commercial
activities relating to the Company's products and processes affected by third
party rights, in addition to subjecting the Company to potential liability for
damages, may require the Company or its collaborative partner to obtain a
license in order to continue to manufacture or market the affected products and
processes. There can be no assurance that the Company or its collaborative
partners would prevail in any such action or that any license (including
licenses proposed by third parties) required under any such patent would be made
available on commercially acceptable terms, if at all. There are a significant
number of U.S. and foreign patents and patent applications in the Company's
areas of interest, and the Company believes that there may be significant
litigation in the industry regarding patent and other intellectual property
rights. If the Company becomes involved in such litigation, it could consume a
substantial portion of the Company's managerial and financial resources, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
COMPETITION
The market in which the Company competes is intensely competitive.
Biosite's competitors include health care companies that manufacture
laboratory-based tests and analyzers, as well as clinical and hospital-based
laboratories. Currently, the majority of diagnostic tests used by physicians and
other health care providers are performed by independent clinical and
hospital-based laboratories. The Company expects that these laboratories will
compete vigorously to maintain their dominance of the testing market. In order
to achieve market acceptance for its products, the Company will be required to
demonstrate that its products are an attractive alternative to testing performed
by clinical and hospital-based laboratories. This will require physicians to
change their established means of having such tests performed. There can be no
assurance that the Company's products will be able to compete with the testing
services provided by these laboratories. In addition, companies with a
significant presence in the diagnostic market, such as Abbott Laboratories,
Boehringer Mannheim, Chiron Diagnostics, Clinical Diagnostic Systems, a division
of Johnson & Johnson, DADE International, and Roche Biosciences, Inc., have
developed or are developing diagnostic products that do or will compete with the
Company's products. These competitors have substantially greater financial,
technical, research and other resources and larger, more established marketing,
sales, distribution and service organizations than the Company. Moreover, such
competitors offer broader product lines and have greater name recognition than
the Company, and offer discounts as a competitive tactic. In addition, several
smaller companies are currently making or developing products that compete with
or will compete with those of the Company. There can be no assurance that the
Company's competitors will not succeed in developing or marketing technologies
or products that are more effective or commercially attractive than the
Company's current or future products, or that would render the Company's
technologies and products obsolete. Moreover, there can be no assurance that the
Company will have the financial resources, technical expertise or marketing,
distribution or support capabilities to compete successfully in the future. In
addition, there can be no assurance that competitors, many of which have made
substantial investments in competing technologies that may be more effective
than the Company's technologies will not prevent, limit or interfere with the
Company's ability to make, use or sell its products either in the United States
or in international markets. See "-- Products and Products under Development"
and "-- Technology."
GOVERNMENT REGULATION
The testing, manufacture and sale of the Company's products are subject to
regulation by numerous governmental authorities, principally the FDA and
corresponding state and foreign regulatory agencies. Pursuant to the Federal
Food, Drug, and Cosmetic Act, and the regulations promulgated thereunder, the
FDA regulates the preclinical and clinical testing, manufacture, labeling,
distribution and promotion of medical devices. The Company will not be able to
commence marketing or commercial sales in the United States of
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new products under development until it receives clearance or approval from the
FDA, which can be a lengthy, expensive and uncertain process. Noncompliance with
applicable requirements can result in, among other things, fines, injunctions,
civil penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to grant premarket clearance or premarket
approval for devices, withdrawal of marketing clearances or approvals and
criminal prosecution. The FDA also has the authority to request recall, repair,
replacement or refund of the cost of any device manufactured or distributed by
the Company.
In the United States, medical devices are classified into one of three
classes (i.e., Class I, II or III) on the basis of the controls deemed necessary
by the FDA to reasonably ensure their safety and effectiveness. Class I devices
are subject to general controls (e.g., labeling, premarket notification and
adherence to cGMP) and Class II devices are subject to general and special
controls (e.g., performance standards, postmarket surveillance, patient
registries and FDA guidelines). Generally, Class III devices are those which
must receive premarket approval by the FDA to ensure their safety and
effectiveness (e.g., life-sustaining, life-supporting and implantable devices or
new devices which have been found not to be substantially equivalent to legally
marketed devices).
Before a new device can be introduced in the market, the manufacturer must
generally obtain FDA clearance or approval through either clearance of a 510(k)
notification or approval of a PMA application. A PMA application must be filed
if a proposed device is a new device not substantially equivalent to a legally
marketed Class I or Class II device, or if it is a preamendment Class III device
for which the FDA has called for PMAs. A PMA application must be supported by
valid scientific evidence to demonstrate the safety and effectiveness of the
device, typically including the results of clinical investigations, bench tests,
laboratory and animal studies. The PMA application must also contain a complete
description of the device and its components and a detailed description of the
methods, facilities and controls used to manufacture the device. In addition,
the submission must include the proposed labeling, advertising literature and
any training materials. The PMA approval process can be expensive, uncertain and
lengthy, and a number of devices for which FDA approval has been sought by other
companies have never been approved for marketing.
Upon receipt of a PMA application, the FDA makes a threshold determination
as to whether the application is sufficiently complete to permit a substantive
review. If the FDA determines that the PMA application is complete, the FDA will
accept the application for filing. Once the submission is accepted, the FDA
begins an in-depth review of the PMA. The FDA review of a PMA application
generally takes one to three years from the date the application is accepted,
but may take significantly longer. The review time is often significantly
extended by the FDA asking for more information or clarification of information
already provided in the submission. During the review period, an advisory
committee, typically a panel of clinicians, will likely be convened to review
and evaluate the application and provide recommendations to the FDA as to
whether the device should be approved. The FDA is not bound by the
recommendation of the advisory panel. Toward the end of the PMA review process,
the FDA generally will conduct an inspection of the manufacturer's facilities to
ensure that the facilities are in compliance with applicable cGMP requirements.
If FDA evaluations of both the PMA application and the manufacturing facilities
are favorable, the FDA may issue either an approval letter or an approvable
letter, which usually contains a number of conditions that must be met in order
to secure final approval of the PMA. When and if those conditions have been
fulfilled to the satisfaction of the FDA, the agency will issue a PMA approval
letter, authorizing commercial marketing of the device for certain indications.
If the FDA's evaluation of the PMA application or manufacturing facilities is
not favorable, the FDA will deny approval of the PMA application or issue a
non-approvable letter. The FDA may determine that additional clinical
investigations are necessary, in which case the PMA may be delayed for one or
more years while additional clinical investigations are conducted and submitted
in an amendment to the PMA. Modifications to a device that is the subject of an
approved PMA, its labeling or manufacturing process may require approval by the
FDA of PMA supplements or new PMAs. Supplements to an approved PMA often require
the submission of the same type of information required for an initial PMA,
except that the supplement is generally limited to that information needed to
support the proposed change from the product covered by the original PMA.
A 510(k) clearance will be granted if the submitted information establishes
that the proposed device is "substantially equivalent" to a legally marketed
Class I or Class II medical device or a preamendment Class
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III medical device for which the FDA has not called for PMAs. The FDA recently
has been requiring more rigorous demonstration of substantial equivalence than
in the past, including in some cases requiring submission of clinical data. It
generally takes from four to 12 months from submission to obtain 510(k)
premarket clearance but may take longer. The FDA may determine that a proposed
device is not substantially equivalent to a legally marketed device or that
additional information is needed before a substantial equivalence determination
can be made. A "not substantially equivalent" determination, or a request for
additional information, could prevent or delay the market introduction of new
products that fall into this category. For any devices that are cleared through
the 510(k) process, modifications or enhancements that could significantly
affect safety or effectiveness, or constitute a major change in the intended use
of the device, will require new 510(k) submissions.
The Company has made modifications to Triage DOA since receipt of initial
510(k) clearance. With respect to several of these modifications, the Company
has filed new 510(k) notices describing the modifications, and has received FDA
clearance of those 510(k) notices. The Company has made other modifications to
Triage DOA which the Company believes do not require the submission of new
510(k) notices. There can be no assurance, however, that the FDA would agree
with any of the Company's determinations not to submit a new 510(k) notice for
any of these modifications, or would not require the Company to submit a new
510(k) notice for any of these modifications made to Triage DOA. If the FDA
requires the Company to submit a new 510(k) notice for any device modification,
the Company may be prohibited from marketing the modified Triage DOA until the
510(k) notice is cleared by the FDA.
The Company is uncertain of the regulatory path to market that the FDA will
ultimately apply to the Company's products currently in development. Although
Triage DOA received 510(k) clearance, a PMA may be required for Triage
Transplant or other products now in development. There can be no assurance that
the FDA will not determine that the Company must adhere to the more costly,
lengthy and uncertain PMA approval process for any of the Company's products in
development.
There can be no assurance that the Company will be able to obtain necessary
regulatory approvals or clearances for its products on a timely basis, if at
all, and delays in receipt of or failure to receive such approvals or
clearances, the loss of previously received approvals or clearances, limitations
on intended use imposed as a condition of such approvals or clearances, or
failure to comply with existing or future regulatory requirements would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Before the manufacturer of a device can submit the device for FDA approval
or clearance, it generally must conduct a clinical investigation of the device.
Although clinical investigations of most devices are subject to the IDE
requirements, clinical investigations of IVD tests, such as all of the Company's
products and products under development, are exempt from the IDE requirements,
including the need to obtain the FDA's prior approval, provided the testing is
noninvasive, does not require an invasive sampling procedure that presents a
significant risk, does not intentionally introduce energy into the subject, and
is not used as a diagnostic procedure without confirmation by another medically
established test or procedure. In addition, the IVD must be labeled for RUO or
IUO, and distribution controls must be established to assure that IVDs
distributed for research or clinical investigation are used only for those
purposes.
The Company intends to conduct clinical investigations of its products
under development, which will entail distributing them in the United States on
an IUO basis. There can be no assurance that the FDA would agree that the
Company's IUO distribution of its IVD products under development will meet the
requirements for IDE exemption. Furthermore, failure by the Company or the
recipients of its products under development to maintain compliance with the IDE
exemption requirements could result in enforcement action by the FDA, including,
among other things, the loss of the IDE exemption or the imposition of other
restrictions on the Company's distribution of its products under development,
which would adversely affect the Company's ability to conduct the clinical
investigations necessary to support marketing clearance or approval.
Any devices manufactured or distributed by the Company pursuant to FDA
clearance or approvals are subject to pervasive and continuing regulation by FDA
and certain state agencies. Manufacturers of medical devices for marketing in
the United States are required to adhere to applicable regulations setting forth
detailed cGMP requirements, which include testing, control and documentation
requirements. Manufacturers
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must also comply with MDR requirements that a manufacturer report to the FDA any
incident in which its product may have caused or contributed to a death or
serious injury, or in which its product malfunctioned and, if the malfunction
were to recur, it would be likely to cause or contribute to a death or serious
injury. Labeling and promotional activities are subject to scrutiny by the FDA
and, in certain circumstances, by the Federal Trade Commission. Current FDA
enforcement policy prohibits the marketing of approved medical devices for
unapproved uses.
The Company is subject to routine inspection by the FDA and certain state
agencies for compliance with cGMP requirements, MDR requirements and other
applicable regulations. The FDA has recently finalized changes to the cGMP
requirements, including the addition of design controls that will likely
increase the cost of compliance. Changes in existing requirements or adoption of
new requirements could have a material adverse effect on the Company's business,
financial condition and results of operation. There can be no assurance that the
Company will not incur significant costs to comply with laws and regulations in
the future or that laws and regulations will not have a material adverse effect
upon the Company's business, financial condition and results of operations.
The Company also is subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. There can be no assurance that the Company
will not incur significant costs to comply with laws and regulations in the
future or that such laws or regulations will not have a material adverse effect
upon the Company's business, financial condition and results of operations.
The use of Biosite's products is also affected by CLIA and related federal
and state regulations which provide for regulation of laboratory testing. The
scope of these regulations includes quality control, proficiency testing,
personnel standards and federal inspections. CLIA categorizes tests as "waived,"
"moderately complex" or "highly complex," on the basis of specific criteria.
There can be no assurance that any future amendment of CLIA or the promulgation
of additional regulations impacting laboratory testing will not have a material
adverse effect on the Company's ability to market its products or on its
business, financial condition or results of operations.
EMPLOYEES
As of November 30, 1996, Biosite employed 162 individuals. Of these, 17
hold Ph.D.s and 13 hold other advanced degrees. None of the Company's employees
is covered by collective bargaining agreement. The Company believes that it
maintains good relations with its employees.
FACILITIES
The Company currently leases approximately 83,000 square feet of space in
five buildings in the Sorrento Valley area in San Diego under leases that expire
from September 1997 through September 1998 with renewal options through 2001.
The Company believes these facilities are adequate for its current needs and
that suitable additional or alternative space will be available in the future on
commercially reasonable terms as needed. The Company's current facilities are
used for its administrative offices, research and development facilities and
manufacturing operations.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company, their positions with
the Company and ages as of September 30, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------
<S> <C> <C>
Kim D. Blickenstaff................. 44 President, Chief Executive Officer, Treasurer, Secretary
and Director
Gunars E. Valkirs, Ph.D. ........... 44 Vice President, Research and Development, Chief
Technical Officer and Director
Thomas M. Watlington................ 41 Senior Vice President
Charles W. Patrick.................. 42 Vice President, Sales and Marketing
Christopher J. Twomey............... 37 Vice President, Finance and Chief Financial Officer
S. Nicholas Stiso, Ph.D. ........... 52 Vice President, Operations
Kenneth F. Buechler, Ph.D. ......... 42 Vice President, Research
Timothy J. Wollaeger(1)(2).......... 53 Chairman of the Board
Thomas H. Adams, Ph.D. ............. 53 Director
Frederick J. Dotzler(1)(2).......... 51 Director
Howard E. Greene, Jr. .............. 53 Director
Stephen K. Reidy.................... 46 Director
Jesse I. Treu, Ph.D. ............... 49 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
KIM D. BLICKENSTAFF, a founder of the Company, has been a director and the
Company's President, Chief Executive Officer, Treasurer and Secretary since
April 1988. He previously held various positions in finance, operations,
research management, sales management, strategic planning, and marketing with
Baxter Travenol, National Health Laboratories, and Hybritech Incorporated
("Hybritech"). Mr. Blickenstaff holds an M.B.A. from the Graduate School of
Business, Loyola University, Chicago.
GUNARS E. VALKIRS, PH.D., a founder of Biosite and a co-inventor of certain
of its proprietary technology has been a director since April 1988 and Vice
President, Research and Development and Chief Technical Officer since 1988.
Prior to forming Biosite, he was a Scientific Investigator with the Diagnostics
Research & Development Group at Hybritech, where he was the primary inventor of
Hybritech's patented ICON technology. Dr. Valkirs holds a Ph.D. in Physics from
the University of California at San Diego.
THOMAS M. WATLINGTON joined the Company as Senior Vice President in
December 1996. He was formerly Vice President, Marketing for the Diabetes Care
Division for Boehringer Mannheim. From 1982 to December 1996, Mr. Watlington
held various positions in marketing, strategic analysis and product development
with Boehringer Mannheim. Mr. Watlington holds a B.S. degree from the University
of Maryland.
CHARLES W. PATRICK joined the Company in August 1990 as Vice President,
Sales and Marketing. From 1978 to August 1990, Mr. Patrick held various
positions in sales, sales management and product and marketing management with
Abbott. From 1987 to August 1990, he was Group Marketing Manager for the Abused
Drug Business Unit of Abbott where he managed the worldwide product launch of
Abbott's TDx and ADx bench top testing systems. Mr. Patrick holds a B.A. from
the University of Central Florida.
CHRISTOPHER J. TWOMEY joined the Company as Director of Finance in March
1990 and was promoted to Vice President of Finance and Chief Financial Officer
in 1993. From 1981 to March 1990, Mr. Twomey was employed by Ernst & Young LLP,
where from October 1985 to March 1990, he served as Audit Manager.
43
<PAGE> 47
Mr. Twomey holds a B.A. in Business Economics from the University of California
at Santa Barbara.
S. NICHOLAS STISO, PH.D. joined the Company as Vice President, Operations
in November 1989. Prior to joining Biosite, he was with Syntex Medical
Diagnostics, a division of SYVA Co., where from April 1980 to April 1989, he was
Manufacturing Director for the AccuLevel line of quantitative, non-instrumented,
therapeutic drug assays. Dr. Stiso holds a Ph.D. in Physical Chemistry from
Michigan State University in East Lansing, Michigan.
KENNETH F. BUECHLER, PH.D., a founder of Biosite and a co-inventor of
certain of Biosite's proprietary technology, has been Vice President, Research
since January 1994. From April 1988 to January 1994, he was Director of
Chemistry. Prior to forming Biosite, he was a Senior Scientist in the
Diagnostics Research and Development Group at Hybritech. Dr. Buechler holds a
Ph.D. in Biochemistry from Indiana University.
TIMOTHY J. WOLLAEGER has served as Chairman of the Board of Directors since
the Company's inception. He is the general partner of Kingsbury Associates,
L.P., a venture capital firm he founded in December 1993. From May 1990 until
December 1993, he was Senior Vice President and a director of Columbia Hospital
Corporation (now Columbia/HCA Healthcare Corporation). From October 1986 until
July 1993, he was a general partner of the general partner of Biovest Partners,
A California Limited Partnership ("Biovest"), a seed venture capital firm. From
1983 to 1986, Mr. Wollaeger served as Senior Vice President and Chief Financial
Officer of Hybritech. He is a director of Amylin Pharmaceuticals, Inc.
("Amylin") and Phamis, Inc., and a founder and director of several privately
held medical products companies. He received an M.B.A. from Stanford University.
THOMAS H. ADAMS, PH.D. joined the Board of Directors in September 1988. Dr.
Adams was a founder of Genta Incorporated, a biotechnology company, and has been
Chairman of the Board and Chief Executive Officer of Genta since February 1989.
He previously served as Chairman of the Board and Chief Executive Officer of
Gen-Probe Incorporated ("Gen-Probe"), which he co-founded in 1984. Prior to
joining Gen-Probe, he held the positions of Senior Vice President of Research &
Development and Chief Technical Officer at Hybritech. He had previously held
senior scientific management positions with Technicon Instruments Corp., the
Hyland Laboratories Division of Baxter Travenol, and DuPont. Dr. Adams is a
director of Genta Incorporated, Life Technologies, Inc., La Jolla Pharmaceutical
Company and two private biotechnology companies. He received his Ph.D. in
Biochemistry from the University of California at Riverside.
FREDERICK J. DOTZLER joined the Board of Directors in July 1989. Mr.
Dotzler is General Partner of Medicus Venture Partners, a venture capital firm
he founded in 1989. Prior to founding Medicus, Mr. Dotzler was a general partner
of Crosspoint Venture Partners. Previously he held management positions with
Millipore Corporation, G.D. Searle & Co., and IBM. He is a director of several
privately held companies. Mr. Dotzler received a B.S. in Industrial Engineering
from Iowa State University, an M.B.A. from the University of Chicago, and a
degree in Economics from the University of Louvain, Belgium.
HOWARD E. GREENE, JR. joined the Board of Directors in June 1989. Mr.
Greene is a founder and Chairman of the Board of Amylin, a biotechnology company
in late stage development of a drug candidate for diabetes, and he was Chief
Executive Officer of Amylin from inception in September 1987 to July 1996. From
October 1986 until July 1993, Mr. Greene was a general partner of the general
partner of Biovest. From March 1979 to March 1986, he was Chief Executive
Officer of Hybritech, and he was a co-inventor of Hybritech's monoclonal
antibody assay technology. Prior to joining Hybritech, he was an executive with
the medical diagnostics division of Baxter Healthcare Corporation from 1974 to
1979 and a consultant with McKinsey & Company from 1967 to 1974. He is Chairman
of the Board of Cytel Corporation, a director of Allergan, Inc., Neurex
Corporation and The International Biotechnology Trust plc, a foreign
biotechnology investment company. Mr. Greene received an M.B.A. from Harvard
University.
STEPHEN K. REIDY joined the Board of Directors in July 1989. Since 1987,
Mr. Reidy has been affiliated with Euclid Partners Corporation, a company
engaged in venture capital investments in the health care and information
technology industries. Mr. Reidy is a general partner of the General Partner of
Euclid Partners III, L.P. and Euclid Partners IV, L.P. He is a director of
Zynaxis, Inc., a drug delivery company,
44
<PAGE> 48
Chairman of the Board of a privately held neurological company and a director of
a privately-held hospital software company. Mr. Reidy has an M.B.A. from
Columbia University.
JESSE I. TREU, PH.D. joined the Board of Directors in June 1990. He has
been a general partner of Domain Associates, a venture capital firm specializing
in life sciences, since 1986. Before joining Domain Associates in 1986, he was a
principal of Channing, Weinberg and Company, Inc., and its venture capital
spin-off CW Ventures, and was a director of Technicon Corporation responsible
for marketing strategy and new product development in immunology and
histopathology and previously held research and development, management and
corporate staff positions at General Electric Company. Dr. Treu is a director of
DNX Corporation, a pharmaceutical testing company, Geltex Pharmaceuticals, Inc.,
a developer of polymer based pharmaceuticals, and Lumisys, Inc., an
electro-optical systems company. Dr. Treu received a Ph.D. in Physics from
Princeton University.
The Company currently has authorized eight directors. Upon the closing of
this offering, the Company will have three classes of directors serving
staggered three-year terms. All directors are elected to hold office until the
next annual meeting of stockholders of the Company in which their three-year
term expires and until their successors have been elected. The Company's
officers are appointed by the directors and serve at the discretion of the Board
of Directors. There are no family relationships among any of the directors or
executive officers of the Company.
BOARD COMMITTEES
The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee, which consists of Mr. Dotzler and
Mr. Wollaeger, reviews the results and scope of the annual audit and the
services provided by the Company's independent accountants. The Compensation
Committee, which consists of Mr. Dotzler and Mr. Wollaeger, makes
recommendations to the Board of Directors with respect to general and specific
compensation policies and practices of the Company and administers the Amended
and Restated 1989 Stock Plan of Biosite (the "1989 Stock Plan"), the 1996 Stock
Incentive Plan of Biosite (the "1996 Stock Plan") and the Biosite Employee Stock
Purchase Plan (the "ESPP").
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee during 1995 were Mr.
Dotzler and Mr. Wollaeger. There were no interlocks or other relationships among
the Company's executive officers and directors that are required to be disclosed
under applicable executive compensation disclosure regulations.
COMPENSATION OF DIRECTORS
Directors do not receive any fees for service on the Board of Directors.
Directors are reimbursed for their expenses for each meeting attended. Directors
are eligible to participate in the 1996 Stock Plan described below, although as
of the date of this Prospectus, no options have been granted to non-employee
directors.
45
<PAGE> 49
EXECUTIVE COMPENSATION
The following table sets forth compensation paid or awarded by the Company
during the fiscal year ended December 31, 1995 to the Company's Chief Executive
Officer and the Company's four most highly compensated executive officers other
than the Chief Executive Officer whose salary and bonus exceeded $100,000 during
the fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------------------- SECURITIES
OTHER UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($)(1) BONUS ($) COMPENSATION ($) OPTIONS
- --------------------------------------- ---- ------------- --------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Kim D. Blickenstaff.................... 1995 $ 169,633 $78,462 $ 900 40,000
President and Chief Executive Officer
Charles W. Patrick..................... 1995 151,000 27,002 59,290(2) 5,000
Vice President, Sales and Marketing
Gunars E. Valkirs...................... 1995 139,208 36,244 793 25,000
Vice President, Research and
Development
Kenneth F. Buechler.................... 1995 125,823 36,244 709 25,000
Vice President, Research
S. Nicholas Stiso...................... 1995 134,554 27,002 1,787 20,000
Vice President, Operations
</TABLE>
- ---------------
(1) Includes amounts deferred by each individual under the Company's 401(k) plan
for the years in which earned.
(2) Includes forgiveness of a $36,000 relocation loan made in August 1990 which
was forgiven in August 1995 and $22,776 related to income taxes associated
with the forgiveness of the loan.
The following tables set forth certain information as of December 31, 1995
and for the fiscal year then ended with respect to stock options granted to and
exercised by the individuals named in the Summary Compensation Table above.
OPTION GRANTS IN FISCAL YEAR 1995
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
PERCENTAGE OF OF STOCK PRICE
TOTAL OPTIONS APPRECIATION
GRANTED TO EXERCISE OR FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION --------------------------
NAME GRANTED (1) FISCAL YEAR ($/SH)(2) DATE 5% ($) 10% ($)
- -------------------------------- ----------- ------------- ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Kim D. Blickenstaff............. 40,000 13.3% $3.00 4/19/05 $10,312 $ 87,499
Charles W. Patrick.............. 5,000 1.7 3.00 4/19/05 1,289 10,937
Gunars E. Valkirs............... 25,000 8.3 3.00 4/19/05 6,445 54,687
Kenneth F. Buechler............. 25,000 8.3 3.00 4/19/05 6,445 54,687
S. Nicholas Stiso............... 20,000 6.7 3.00 4/19/05 5,156 43,750
</TABLE>
- ---------------
(1) These options vest daily over a four-year period commencing on the date of
grant, except that no options are exercisable for the first six months after
grant.
(2) The exercise price of each option was equal to 150% of the fair market value
of the Common Stock on the date of grant, as determined by the Compensation
Committee of the Board of Directors.
(3) The potential realizable value of each grant of options has been calculated,
pursuant to the regulations promulgated by the Securities and Exchange
Commission, assuming that the market price of the Common Stock appreciates
in value from the date of grant to the end of the option term at the
annualized rates of 5% and 10%, respectively. These values do not represent
the Company's estimate or projection of future Common Stock value. There can
be no assurance that any of the value reflected in the table will be
achieved.
46
<PAGE> 50
AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1995
AND OPTION VALUES AT END OF FISCAL 1995
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT
OPTIONS AT FISCAL
FISCAL YEAR-END(#) YEAR-END($)
------------------ ----------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------ --------------- ----------- ------------------ ----------------
<S> <C> <C> <C> <C>
Kim D. Blickenstaff................. -- $ -- 60,755/42,445 $135,580/$30,620
Charles W. Patrick.................. 25,000 44,000 39,412/ 7,988 105,803/ 9,847
Gunars E. Valkirs................... 10,000 27,000 47,946/30,254 105,378/ 25,572
Kenneth F. Buechler................. 4,000 11,800 47,977/36,223 99,819/ 30,431
S. Nicholas Stiso................... 11,838 11,838 5,383/20,179 4,620/ 12,895
</TABLE>
- ---------------
(1) Calculated on the basis of the fair market value of the underlying
securities at December 31, 1995, the fiscal year-end, minus the exercise
price.
Amended and Restated 1989 Stock Plan
In July 1989, the Company's Board of Directors adopted the 1989 Stock Plan.
The 1989 Stock Plan was amended at various times from its adoption to the date
of this Prospectus to increase the number of shares available under the 1989
Stock Plan. A total of 1,692,000 shares of Common Stock is currently reserved
for issuance under the 1989 Stock Plan pursuant to the direct award or sale of
shares or the exercise of options granted under the 1989 Stock Plan. If any
option granted under the 1989 Stock Plan expires or terminates for any reason
without having been exercised in full, then the unpurchased shares subject to
that option will once again be available for additional option grants.
Unpurchased shares pursuant to options that expire or terminate under the 1989
Stock Plan shall be available for awards under the 1996 Stock Plan.
Under the 1989 Stock Plan, all employees (including officers) and directors
of the Company or any subsidiary and any independent contractor or advisor who
performs services for the Company or a subsidiary are eligible to purchase
shares of Common Stock and to receive awards of shares or grants of nonstatutory
options. Employees are also eligible to receive grants of incentive stock
options ("ISOs") intended to qualify under Section 422 of the Internal Revenue
Code. The 1989 Stock Plan is administered by a committee of the Board of
Directors of the Company, which selects the persons to whom shares will be sold
or awarded or options will be granted, determines the number of shares to be
made subject to each sale, award or grant, and prescribes other terms and
conditions, including the type of consideration to be paid to the Company upon
sale or exercise and vesting schedules, in connection with each sale, award or
grant.
The exercise price under the nonstatutory options generally must be at
least 85% of the fair market value of the Common Stock on the date of grant. The
exercise price under ISOs cannot be lower than 100% of the fair market value of
the Common Stock on the date of grant and, in the case of ISOs granted to
holders of more than 10% of the voting power of the Company, not less than 110%
of such fair market value. The term of an option cannot exceed 10 years, and the
term of an ISO granted to a holder of more than 10% of the voting power of the
Company cannot exceed five years. Options generally expire not later than 90
days following a termination of employment or six months following the
optionee's death or permanent disability. The purchase price of shares sold
under the 1989 Stock Plan generally must be at least 85% of the fair market
value of the Common Stock and, in the case of a holder of more than 10% of the
voting power of the Company, not less than 110% of such fair market value. Under
the 1989 Stock Plan, options granted pursuant to the 1989 Stock Plan will
generally vest ratably over a period of four years.
As of November 30, 1996, the Company had outstanding options to purchase an
aggregate of 1,180,204 shares of Common Stock at exercise prices ranging from
$0.24 to $8.25 per share, or a weighted average per share exercise price of
$3.24. At November 30, 1996, a total of 35,756 shares of Common Stock was
available for future issuance under the 1989 Stock Plan.
47
<PAGE> 51
1996 Stock Incentive Plan
The 1996 Stock Plan was adopted by the Board of Directors on December 5,
1996, to be effective December 1, 1996, and was approved by the stockholders in
December 1996. The 1996 Stock Plan replaces the Company's 1989 Stock Plan.
Although all future awards will be made under the 1996 Stock Plan, awards made
under the 1989 Stock Plan will continue to be administered in accordance with
the 1989 Stock Plan. However, except as otherwise noted, the outstanding options
under the 1989 Plan contain substantially the same terms and conditions
specified below for option grants under the 1996 Stock Plan.
The 1996 Stock Plan is administered by the Board of Directors or its
delegate. The Board, or its delegate, selects the employees of the Company who
will receive awards, determines the size of any award and establishes any
vesting or other conditions. Employees, directors, consultants and advisors of
the Company (or any subsidiary of the Company) are eligible to participate in
the 1996 Stock Plan, although incentive stock options may be granted only to
employees. No individual may receive options or stock appreciation rights
("SARs") covering more than 250,000 shares in any calendar year. The
participation of the outside directors of the Company is limited to 20% of
shares available under the 1996 Stock Plan.
The 1996 Stock Plan provides for awards in the form of restricted shares,
stock units, options or SARs, or any combination thereof. No payment is required
upon receipt of an award, except that a recipient of newly issued restricted
shares must pay the par value of such restricted shares to the Company.
Restricted shares are shares of Common Stock that are subject to repurchase
by the Company at the employee's purchase price in the event that the applicable
vesting conditions are not satisfied, and they are nontransferable prior to
vesting (except for certain transfers to a trustee). Restricted shares have the
same voting and dividend rights as other shares of Common Stock.
A stock unit is an unfunded bookkeeping entry representing the equivalent
of one share of Common Stock, and is nontransferable prior to the holder's
death. A holder of a stock unit has no voting rights or other privileges as a
stockholder but may be entitled to receive dividend equivalents equal to the
amount of dividends paid on the same number of shares of Common Stock. Dividend
equivalents may be converted into additional stock units or settled in the form
of cash, Common Stock or a combination of both. Stock units, when vested, may be
settled by distributing shares of Common Stock or by a cash payment
corresponding to the fair market value of an equivalent number of shares of
Common Stock, or a combination of both. Vested stock units will be settled at
the time determined by the Compensation Committee. If the time of settlement is
deferred, interest or additional dividend equivalents may be credited on the
deferred payment.
The recipient of restricted shares or stock units may pay all projected
withholding taxes relating to the award with Common Stock rather than cash.
Options may include nonstatutory stock options ("NSOs") as well as ISOs
intended to qualify for special tax treatment. The term of an ISO cannot exceed
10 years (five years for 10% stockholders), and the exercise price of an ISO
must be equal to or greater than the fair market value of the Common Stock on
the date of grant (or 110% of fair market value at the date of grant for 10%
stockholders). The exercise price of an NSO must be equal to or greater than the
par value of the Common Stock on the date of grant.
The exercise price of an option may be paid in any lawful form permitted by
the Compensation Committee, including (without limitation) the surrender of
shares of Common Stock or restricted shares already owned by the optionee. The
Compensation Committee may likewise permit optionees to satisfy their
withholding tax obligation upon exercise of an NSO by surrendering a portion of
their option shares to the Company. The 1996 Stock Plan also allows the optionee
to pay the exercise price of an option by giving "exercise/sale" or
"exercise/pledge" directions. If exercise/sale directions are given, a number of
option shares sufficient to pay the exercise price and any withholding taxes is
issued directly to a securities broker selected by the Company who, in turn,
sells these shares in the open market. The broker remits to the Company the
proceeds from the sale of these shares, and the optionee receives the remaining
option shares. If exercise/ pledge directions are given, the option shares are
issued directly to a securities broker or other lender selected by the Company.
The broker or other lender will hold the shares as security and will extend
credit for up to 50% of their market value. The loan proceeds will be paid to
the Company to the extent necessary to pay
48
<PAGE> 52
the exercise price and any withholding taxes. Any excess loan proceeds may be
paid to the optionee. If the loan proceeds are insufficient to cover the
exercise price and withholding taxes, the optionee will be required to pay the
deficiency to the Company at the time of exercise.
An SAR permits the participant to elect to receive any appreciation in the
value of the underlying stock from the Company, either in shares of Common Stock
or in cash or a combination of the two, with the Compensation Committee having
the discretion to determine the form in which such payment will be made. The
amount payable on exercise of an SAR is measured by the difference between the
market value of the underlying stock at exercise and the exercise price. SARs
may, but need not, be granted in conjunction with options. Upon exercise of an
SAR granted in tandem with an option, the corresponding portion of the related
option must be surrendered and cannot thereafter be exercised. Conversely, upon
exercise of an option to which an SAR is attached, the SAR may no longer be
exercised to the extent that the corresponding option has been exercised. All
options and SARs are nontransferable prior to the optionee's death.
As noted above, the Compensation Committee determines the number of
restricted shares, stock units, options or SARs to be included in the award as
well as the vesting and other conditions. The vesting conditions may be based on
the employee's service, his or her individual performance, the Company's
performance or other appropriate criteria. In general, the vesting conditions
will be based on the employee's service after the date of grant. Vesting may be
accelerated in the event of the employee's death, disability or retirement or in
the event of a change in control with respect to the Company.
For purposes of the 1996 Stock Plan, the term "change in control" does not
include this Offering or the consequences of this Offering but thereafter means
that (i) any person is or becomes the beneficial owner, directly or indirectly,
of at least 50% of the combined voting power of the Company's outstanding
securities ordinarily having the right to vote at elections of directors (ii)
approval by the stockholders of the Company of a merger or consolidation of the
Company with or into another corporation or entity or any other corporate
reorganization in which over 50% of the combined voting power of the continuing
or surviving entity immediately after the merger, consolidation or
reorganization is owned by persons who were not stockholders of the Company
immediately prior to the merger, consolidation or reorganization; or (iii) a
change in the composition of the Board of Directors in which fewer than half of
the incumbent Directors had been Directors 24 months prior to the change or were
elected or nominated with the affirmative votes of Directors 24 months prior to
the change.
Awards under the 1996 Stock Plan may provide that if any payment (or
transfer) by the Company to a recipient would be nondeductible by the Company
for federal income tax purposes, then the aggregate present value of all such
payments (or transfers) will be reduced to an amount which maximizes such value
without causing any such payment (or transfer) to be nondeductible.
The Board is authorized, within the provisions of the 1996 Stock Plan, to
amend the terms of outstanding restricted shares or stock units, to modify or
extend outstanding options or SARs or to exchange new options for outstanding
options, including outstanding options with a higher exercise price than the new
options.
Members of the Company's Board of Directors who are not employees of the
Company are eligible for awards under the 1996 Stock Plan. However, such outside
directors are not eligible for ISO grants. Total shares available to outside
directors is limited to 20% of total shares available under the 1996 Stock Plan.
As of December 1, 1996, no awards had been made under the 1996 Stock Plan.
The total number of restricted shares, stock units, options and SARs available
for grant under the 1996 Stock Plan is 900,000 (subject to anti-dilution
provisions), increased by the amount of all remaining shares available for grant
under the 1989 Stock Plan as of December 1, 1996. If any restricted shares,
stock units, options or SARs are forfeited, or if options or SARs terminate for
any other reason prior to exercise (other than the exercise of a related SAR or
option, and including any forfeiture or termination under the 1989 Stock Plan),
then they again become available for awards under the 1996 Stock Plan.
49
<PAGE> 53
Employee Stock Purchase Plan
The ESPP was adopted by the Board of Directors on December 5, 1996,
effective upon the completion of this Offering. The ESPP provides employees of
the Company with an opportunity to purchase Common Stock at a discount and pay
for their purchases through payroll deductions. All expenses incurred in
connection with the implementation and administration of the ESPP will be paid
by the Company. A pool of 100,000 shares of Common Stock has been reserved for
issuance under the ESPP (subject to anti-dilution provisions). Each regular
full-time and part-time employee who works an average of over 20 hours per week
will be eligible to participate in the ESPP at the beginning of the first
participation period after the employee's date of hire.
Eligible employees may elect to contribute up to 10% of their cash
compensation under the ESPP. Each calendar year is divided into two six-month
"purchase periods," except that the entire period from the date of this offering
to June 30, 1997, will be a single purchase period. At the end of each purchase
period, the Company will apply the amount contributed by the participant during
that period to purchase shares of Common Stock for him or her. The purchase
price will be equal to 85% of the lower of (a) the market price of Common Stock
immediately before the beginning of the applicable "offering period" or (b) the
market price of Common Stock on the last business day of the purchase period. In
general each offering period is 24 months long, but a new offering period begins
every six months. Thus up to four overlapping periods may be in effect at the
same time. If the market price of Common Stock is lower when a subsequent
offering period begins, the subsequent offering period automatically becomes the
applicable offering period. No participant may purchase more than 2,500 shares
per purchase period, and the value of the Common Stock purchased each year
(measured at the beginning of the purchase periods) may not exceed $25,000 per
participant. Participants may withdraw their contributions at any time before
the close of the purchase period.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Certificate of Incorporation that
limit the liability of its directors for monetary damages for breach of their
fiduciary duty as directors, except for liability that cannot be eliminated
under the Delaware General Corporation Law (the "Delaware Law"). The Delaware
Law provides that directors of a company will not be personally liable for
monetary damages for breach of their fiduciary duty as directors, except for
liability (i) for any breach of their duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful payment
of dividend or unlawful stock repurchase or redemption, as provided in Section
174 of the Delaware Law, or (iv) for any transaction from which the director
derived an improper personal benefit.
The Company's By-Laws also provide that the Company shall indemnify its
directors and officers to the fullest extent permitted by the Delaware Law. The
Company intends to enter into separate indemnification agreements with its
directors and officers that could require the Company, among other things, to
indemnify them against certain liabilities that may arise by reason of their
status or service as directors and to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified. The
Company believes that the limitation of liability provision in its Certificate
of Incorporation and the indemnification agreements will facilitate the
Company's ability to continue to attract and retain qualified individuals to
serve as directors and officers of the Company.
50
<PAGE> 54
CERTAIN TRANSACTIONS
In June 1994, the Company entered into two agreements with Merck, a
collaborative development agreement and a supply and distribution agreement, in
connection with the Company's development of Triage Cardiac. Merck beneficially
owns more than 5% of the Company's Common Stock and distributes the Triage DOA
in certain counties in Europe, Latin America, the Middle East, Asia and Africa.
See "Business -- Strategic and Distribution Arrangements" and Note 1 and 3 of
Notes to Financial Statements.
The Company believes that the foregoing transaction was in its best
interests. As a matter of policy this transaction was, and all future
transactions between the Company and its officers, directors or principal
shareholders will be, approved by a majority of the independent and
disinterested members of the Board of Directors, on terms no less favorable to
the Company than could be obtained from unaffiliated third parties and in
connection with bona fide business purposes of the Company.
51
<PAGE> 55
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of December 1, 1996 and as adjusted
to reflect the sale by the Company of the shares offered hereby, by: (i) each
person who is known by the Company to beneficially own more than 5% of the
Company's Common Stock, (ii) each of the Company's directors, (iii) each of the
Company's officers named under "Management -- Summary Compensation Table," and
(iv) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED(1)
SHARES -----------------------
NAME AND ADDRESS BENEFICIALLY BEFORE AFTER
OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- ---------------------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
Medicus Venture Partners(2)............................... 1,662,559 16.8% 14.0%
2180 Sand Hill Road
Suite 400
Menlo Park, CA 94025
Kleiner, Perkins, Caufield & Byers V(3)................... 1,485,476 15.0 12.3
2750 Sand Hill Road
Menlo Park, CA 94025
Merck KGaA................................................ 1,041,667 10.5 8.8
Frankfurter Strasse 250
D-6100 Darmstadt 1
Federal Republic of Germany
Euclid Partners III, L.P. ................................ 1,005,869 10.2 8.5
50 Rockefeller Plaza
New York, NY 10020
Kingsbury Capital Partners, L.P. ......................... 635,417 6.4 5.4
3655 Nobel Drive, Suite 490
San Diego, CA 92122
Frederick J. Dotzler(2)................................... 1,662,559 16.8 14.0
Stephen K. Reidy(4)....................................... 1,005,869 10.2 8.5
Timothy J. Wollaeger(5)................................... 707,015 7.2 6.0
Jesse I. Treu, Ph.D.(6)................................... 329,167 3.3 2.8
Howard E. Greene, Jr.(7).................................. 297,927 3.0 2.5
Thomas H. Adams, Ph.D. ................................... 53,833 * *
Gunars E. Valkirs(8)(9)................................... 290,512 2.9 2.4
Kim D. Blickenstaff(8).................................... 288,232 2.9 2.4
Kenneth F. Buechler(8).................................... 280,478 2.8 2.4
S. Nicholas Stiso(8)...................................... 81,582 * *
Charles W. Patrick(8)..................................... 73,030 * *
All directors and executive officers as a group (12
persons)(8)(10)......................................... 5,120,557 50.5% 42.2%
</TABLE>
- ---------------
* Less than 1%.
(1) To the Company's knowledge, the persons named in the table have sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable and the information contained in the footnotes to this table.
(2) Includes (i) 704,225 shares held by Medicus Venture Partners 1989, (ii)
520,833 shares held by Medicus Venture Partners 1990, (iii) 333,334 shares
held by Medicus Venture Partners 1991 and
52
<PAGE> 56
(iv) 104,167 shares held by Medicus Venture Partners 1992 (collectively,
the "Medicus Entities"). A limited partnership affiliated with The Hillman
Company and a limited partnership with general partners Frederick J.
Dotzler and John Reher are each general partners of each of the Medicus
Entities, and therefore may be deemed to be the beneficial owner of these
shares because they share the power to vote and dispose of these shares.
The Hillman Company is controlled by Henry L. Hillman, Elsie Hilliard
Hillman and C.G. Grefenstette, trustees (the "HLH Trustees") of the Henry
L. Hillman Trust U/A dated November 18, 1985 (the "HLH Trust"), which three
trustees share the power to vote and dispose of shares representing a
majority of the voting shares of The Hillman Company. Does not include
50,409 shares held directly by the HLH Trust or 134,423 shares held
directly by Wilmington Interstate Corporation, an indirect, wholly-owned
subsidiary of The Hillman Company. Also does not include an aggregate of
20,164 shares held by four irrevocable trusts for the benefit of members of
the Hillman family (the "Family Trusts"), as to which shares the HLH
Trustees (other than Mr. Grefenstette) disclaim beneficial ownership. C.G.
Grefenstette and Thomas G. Bigley are trustees of the Family Trusts and
share voting and dispositive power over the assets of the Family Trusts.
(3) Includes 56,044 shares held by KPCB Zaibatsu Fund I.
(4) Includes 1,005,869 shares held by Euclid Partners III, L.P. Mr. Reidy is a
general partner of the general partner of Euclid Partners III, L.P., and as
such, may be deemed to share voting and investment power with respect to
such shares. Mr. Reidy disclaims beneficial ownership of such shares except
to the extent of his pecuniary interest in such partnership.
(5) Includes 635,417 shares held by Kingsbury Capital Partners I, L.P. Mr.
Wollaeger is a general partner of the general partner of Kingsbury Capital
Partners I, L.P., and as such, may be deemed to share voting and investment
power with respect the shares held by the partnership. Mr. Wollaeger
disclaims beneficial ownership of such shares, except to the extent of his
pecuniary interest in such partnership. Includes 6,722 shares held in a
trust for the benefit of Mr. Wollaeger's family as to which Mr. Wollaeger
has shared voting and investment power.
(6) Includes 329,167 shares held by Domain Partners, L.P. Dr. Treu is a general
partner of the general partner of Domain Partners, L.P., and as such, may
be deemed to share voting and investment power with respect to such shares.
Dr. Treu disclaims beneficial ownership except to the extent of his
pecuniary interest in such partnership. Excludes 429,167 shares
beneficially held by Biotechnology Investments Ltd. ("BIL"). Dr. Treu is a
general partner of Domain Associates, the United States venture capital
advisor to BIL pursuant to a contractual arrangement. Domain Associates has
no voting or investment power over BIL. Dr. Treu disclaims beneficial
ownership of the shares held by BIL.
(7) Includes 297,927 shares held in a trust for the benefit of Mr. Greene's
family as to which Mr. Greene has shared voting and investment power.
(8) Includes shares which may be acquired pursuant to the exercise of options
within 60 days of December 1, 1996 as follows: Mr. Blickenstaff, 61,565,
Dr. Valkirs, 54,678, Dr. Buechler, 65,644, Dr. Stiso, 14,744, Mr. Patrick,
44,696 and all directors and executive officers as a group (12 persons),
263,105.
(9) Includes 235,834 shares held of record by the Valkirs Family Trust.
(10) Includes shares held by entities referenced in footnotes 2, 3, 5, 6, 7 and
8 which are affiliated with certain directors, except for shares excluded
in footnote 6.
53
<PAGE> 57
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company, after giving effect to the conversion of all outstanding Preferred
Stock into Common Stock, and the amendment of the Company's Certificate of
Incorporation, will consist of 25,000,000 shares of Common Stock, $.01 par
value, and 5,000,000 shares of Preferred Stock, $.01 par value.
COMMON STOCK
As of November 30, 1996 there were 9,885,168 shares of Common Stock
outstanding held by approximately 165 stockholders of record. Such figures
assume the conversion of each outstanding share of Preferred Stock and the
conversion of convertible debt issued to Novartis (at the assumed offering price
of $12.00 per share) upon the closing of this offering.
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any then outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of the Company, holders of the Common Stock and the Preferred Stock
are entitled to share ratably on an as-converted basis in all assets remaining
after payment of liabilities and the liquidation preference of any then
outstanding Preferred Stock. The Common Stock has no preemptive or conversion
rights or other subscription rights and there are no redemptive or sinking funds
provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and the Common Stock to be outstanding upon completion of this
offering will be, fully paid and nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of Preferred
Stock will be converted into Common Stock. See Note 7 of Notes to Financial
Statements for a description of the currently outstanding Preferred Stock.
Following the conversion, the Company's Certificate of Incorporation will be
restated to delete all references to the prior series of Preferred Stock, and
5,000,000 shares of undesignated Preferred Stock will be authorized. The Board
of Directors has the authority, without further action by the stockholders, to
issue from time to time the Preferred Stock in one or more series and to fix the
number of shares, designations, preferences, powers, and relative,
participating, optional or other special rights and the qualifications or
restrictions thereof. The preferences, powers, rights and restrictions of
different series of Preferred Stock may differ with respect to dividend rates,
amounts payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions, and purchase funds and other matters. The
issuance of Preferred Stock could decrease the amount of earnings and assets
available for distribution to holders of Common Stock or affect adversely the
rights and powers, including voting rights, of the holders of Common Stock, and
may have the effect of delaying, deferring or preventing a change in control of
the Company. The Company has no present plan to issue any shares of Preferred
Stock.
REGISTRATION RIGHTS
After this offering, the holders of 6,870,513 shares of Common Stock issued
upon conversion of the Company's Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock (collectively,
"Registrable Shares") or their permitted transferees, are entitled to certain
rights with respect to the registration of such shares under the Securities Act
of 1933, as amended (the "Securities Act"). If the Company proposes to register
any of its securities under the Securities Act, either for its own account or
for the account of other security holders, holders of Registrable Shares are
entitled to notice of such registration and are entitled to include Registrable
Shares therein, provided, among other conditions, that the underwriters of any
such offering have the right to limit the number of shares included in such
registration. Holders of the 1,458,334 shares of Common Stock issued upon
conversion of the Company's Series E Preferred Stock and holders of shares of
Common Stock issued upon conversion of the convertible debt issued to Novartis
are entitled to similar "piggyback" rights, on no more than two occasions,
commencing
54
<PAGE> 58
two years after the effective date of this offering. In addition, commencing 180
days after the effective date of this offering, holders of at least 30% of the
Registrable Shares may require the Company to prepare and file a registration
statement under the Securities Act, at the Company's expense covering at least
30% of the shares entitled to registration rights and with an offering price
(net of underwriting discounts and commissions) of more than $7,500,000, and the
Company is required to use its best efforts to effect such registration, subject
to certain conditions and limitations. The Company is not obligated to effect
more than two of these stockholder-initiated registrations. Further, holders of
Registrable Shares may require the Company to file additional registration
statements on Form S-3, subject to certain conditions and limitations.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
Law, an anti-takeover law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a business combination with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. A "business combination"
includes a merger, asset sale or other transaction resulting in financial
benefit to the stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior, did
own) 15% or more of the corporation's voting stock.
Upon the closing of this offering, the Company's Certification of
Incorporation will be amended to require that any action permitted to be taken
by stockholders of the Company must be effected at a duly-called annual or
special meeting of stockholders and will not be able to be effected by a consent
in writing. The Board of Directors will be composed of a classified board where
only one-third of the directors are eligible for election in any given year. The
Company's Certificate of Incorporation will also be amended to require the
approval of at least two-thirds of the total number of authorized directors in
order to adopt, amend or repeal the Company's Bylaws. In addition, the Company's
Certificate of Incorporation will similarly be amended to permit the
stockholders to adopt, amend or repeal the Company's Bylaws only upon the
affirmative vote of the holders of at least two-thirds of the voting power of
all then outstanding shares of stock entitled to vote. Lastly, the foregoing
provisions of the Certificate of Incorporation and certain other provisions
pertaining to the limitation of liability and indemnification of directors will
be able to be amended or repealed only with the affirmative vote of the holders
of at least two-thirds of the voting power of all then outstanding shares of
stock entitled to vote. These provisions may have the effect to deterring
hostile takeovers or delaying changes in control or management of the Company.
Upon the closing of this offering, the Company's Bylaws will also be
amended to contain certain of the above provisions found in the Company's
Certificate of Incorporation. The Company's Bylaws, as amended (the "Restated
Bylaws"), will not permit stockholders to call a special meeting. In addition,
the Company's Restated Bylaws will establish an advance notice procedure with
regard to the nomination, other than by or at the direction of the Board of
Directors, of candidates for election as directors and with regard to certain
matters to be brought before an annual meeting of stockholders of the Company.
Also, a director will be removable only for cause. In addition, the Restated
Bylaws will provide that the business permitted to be conducted in any annual
meeting or special meeting of stockholders will be limited to business properly
brought before the meeting.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is The First National
Bank of Boston.
55
<PAGE> 59
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for the Common Stock
of the Company, and no predictions can be made regarding the effect, if any,
that market sales of shares or the availability of shares for sale will have on
the market price prevailing from time to time. As described below, a limited
number of shares will be available for sale shortly after this offering due to
certain contractual and legal restrictions on resale. Nevertheless, sales of
substantial amounts of Common Stock of the Company in the public market after
the restrictions lapse could adversely affect the prevailing market price.
Upon completion of this offering, the Company will have outstanding
11,885,168 shares of Common Stock. The 2,000,000 shares of Common Stock being
sold hereby will be freely tradable (other than by an "affiliate" of the Company
as such term is defined in the Securities Act) without restriction or
registration under the Securities Act. All remaining shares were issued and sold
by the Company in private transactions ("Restricted Shares") and are eligible
for public sale if registered under the Securities Act or sold in accordance
with Rule 144 or Rule 701 thereunder.
Upon the commencement of this offering, an additional 418,030 shares will
be eligible for immediate sale without restriction under Rule 144(k). In
addition, approximately 225,525 shares will be eligible for resale under Rule
701, beginning 90 days from the Effective Date. Certain stockholders, who
collectively hold an aggregate of 1,400,212 shares of Common Stock, have agreed
pursuant to certain agreements with the Company that they will not sell such
Common Stock for a period of 120 days from the Effective Date. Following the
expiration of such 120-day lockup period, all such shares will be available for
resale without restriction under Rule 144(k). The Company's directors, executive
officers and certain other stockholders, who collectively hold an aggregate of
7,749,179 shares of Common Stock, have agreed pursuant to certain agreements
that they will not sell any Common Stock owned by them without the prior written
consent of the Representatives of the Underwriters for a period of 180 days from
the Effective Date. Following the expiration of such lockup period, all such
shares will be available for sale in the public market subject to compliance
with Rule 144 or Rule 701, including approximately 2,891,727 shares eligible for
the sale under Rule 144(k). See "Underwriting."
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an affiliate of the Company, or a holder of
Restricted Shares who owns beneficially shares that were not acquired from the
Company or an affiliate of the Company within the previous two years, would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of 1% of the then outstanding shares of Common Stock
(approximately 118,851 shares immediately after this offering, assuming no
exercise of the Underwriters' over-allotment option) or the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
date on which notice of the sale is filed with the Securities and Exchange
Commission (the "Commission"). Sales under Rule 144 are subject to certain
requirements relating to manner of sale, notice and availability of current
public information about the Company. However, a person (or persons whose shares
are aggregated) who is not deemed to have been an affiliate of the Company at
any time during the 90 days immediately preceding the sale and who owns
beneficially Restricted Shares is entitled to sell such shares under Rule 144(k)
without regard to the limitations described above; provided that at least three
years have elapsed since the later of the date the shares were acquired from the
Company or from an affiliate of the Company. The foregoing is a summary of Rule
144 and is not intended to be a complete description of it.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisers prior to the closing of this
offering, pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons. In addition, the Commission has
indicated that Rule 701 will apply to stock options granted by the Company
before this offering, along with the shares acquired upon exercise of such
options. Securities issued in reliance on Rule 701 are deemed to be Restricted
Shares and, beginning 90 days after the Effective Date (unless subject to the
contractual restrictions described above), may be sold by persons other than
affiliates subject only to the
56
<PAGE> 60
manner of sale provisions of Rule 144 and by affiliates under Rule 144 without
compliance with its two-year minimum holding period requirements.
The Company intends to file a registration statement under the Securities
Act covering approximately 2,215,960 shares of Common Stock reserved for
issuance under the stock plans. Such registration statement is expected to be
filed soon after the date of this Prospectus and will automatically become
effective upon filing. Accordingly, shares registered under such registration
statement will be available for sale in the open market, unless such shares are
subject to vesting restrictions with the Company or the contractual restrictions
described above.
In addition, after this offering, the holders of approximately 6,870,513
shares of Common Stock will be entitled to certain rights to demand that the
Company to register the sale of such shares under the Securities Act. Such
holders and holders of 1,458,334 shares of Common Stock and 92,222 shares issued
upon conversion of convertible debt issued to Novartis (at the assumed offering
price of $12.00 per share) are also entitled to be included in certain Company
registrations. Registration of such shares under the Securities Act would result
in such shares becoming freely tradable without restriction under the Securities
Act (except for shares purchased by affiliates of the Company) immediately upon
the effectiveness of such registration. See "Description of Capital
Stock -- Registration Rights."
57
<PAGE> 61
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Underwriters named below (the "Underwriters"), through their
representatives, Cowen & Company and Alex. Brown & Sons Incorporated, have
severally agreed to purchase from the Company the following respective number of
shares at the initial public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
------------------------------------------------------------------ ---------
<S> <C>
Cowen & Company...................................................
Alex. Brown & Sons Incorporated...................................
--------
Total................................................... 2,000,000
========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow and such dealers may
re-allow a concession not in excess of $ per share to certain other
dealers. The Underwriters have informed the Company that they do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
After the initial public offering of the shares, the offering price and other
selling terms may from time to time be varied by the Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the Effective Date, to purchase up to 300,000 additional
shares of Common Stock at the initial public offering price, less the
underwriting discounts and commissions, set forth on the cover page of this
Prospectus, to cover over-allotments, if any. If the Underwriters exercise such
over-allotment option, the Underwriters have severally agreed, subject to
certain conditions, to purchase approximately the same percentage thereof that
the number of shares of Common Stock to be purchased by each of them shown in
the foregoing table bears to the total number of shares of Common Stock offered
hereby. The Underwriters may exercise such option only to cover over-allotments
made in connection with the sale of shares of Common Stock offered hereby.
The Company's officers and directors and certain other stockholders of the
Company holding in the aggregate approximately 7,749,179 shares of Common Stock
have agreed that they will not, without the prior written consent of Cowen &
Company, offer, sell or otherwise dispose of any shares of Common Stock,
options, rights or warrants to acquire shares of Common Stock, or securities
exchangeable for or convertible into shares of Common Stock owned by them during
the 180-day period commencing on the Effective Date. Other stockholders of the
Company holding in the aggregate approximately 1,400,212 shares of Common Stock
have agreed that they will not sell or otherwise transfer or dispose of any such
shares of Common Stock owned by them during the 120-day period commencing on the
Effective Date. In addition, the Company has agreed that it will not, without
the prior written consent of Cowen & Company, offer, sell or otherwise dispose
of any shares of Common Stock options, rights or warrants to acquire shares of
Common Stock, or securities exchangeable for or convertible into shares of
Common Stock during such 180-day period except in certain limited circumstances.
58
<PAGE> 62
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock will be determined
by negotiation among the Company and the Representatives. Among the factors
considered in determining the initial public offering price will be prevailing
market and economic conditions, market valuations of other companies engaged in
activities similar to the Company, estimates of the business potential and
prospects of the Company, the present state of the Company's business
operations, the Company's management and other factors deemed relevant. The
estimated initial public offering price range set forth on the cover of this
Prospectus is subject to change as a result of market conditions and other
factors.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Pillsbury Madison & Sutro
LLP, San Francisco, California. A member of Pillsbury Madison & Sutro LLP owns
18,360 shares of Common Stock. Cooley Godward LLP, San Diego, California, is
acting as counsel for the Underwriters in connection with certain legal matters
relating to the sale of the Common Stock offered hereby.
EXPERTS
The financial statements of Biosite at December 31, 1994 and 1995, and
September 30, 1996 and for each of the three years in the period ended December
31, 1995 and the nine months ending September 30, 1996, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and the Common Stock offered hereby, reference is hereby
made to such Registration Statement, exhibits and schedules. Statements
contained in this Prospectus regarding the contents of any contract or other
document are not necessarily complete; with respect to each such contract or
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the matter involved, and each
such statement shall be deemed qualified in its entirety by such reference. A
copy of the Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the principal office of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of such
material may be obtained from such office upon payment of the fees prescribed by
the Commission. In addition, the Commission maintains a World Wide Web site on
the Internet at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent certified public
accountants and quarterly reports containing unaudited financial information for
the first three quarters of each fiscal year.
59
<PAGE> 63
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Balance Sheets at December 31, 1994 and 1995 and September 30, 1996................... F-3
Statements of Income for each of the three years in the period ended December 31, 1995
and the nine months ended September 30, 1995 (unaudited) and 1996................... F-4
Statements of Stockholders' Equity for each of the three years in the period ended
December 31, 1995 and the nine months ended September 30, 1996...................... F-5
Statements of Cash Flows for each of the three years in the period ended December 31,
1995 and the nine months ended September 30, 1995 (unaudited) and 1996.............. F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 64
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Biosite Diagnostics Incorporated
We have audited the accompanying balance sheets of Biosite Diagnostics
Incorporated as of December 31, 1994 and 1995 and September 30, 1996, and the
related statements of income, stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1995 and the nine months ended
September 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Biosite Diagnostics
Incorporated at December 31, 1994 and 1995 and September 30, 1996, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995 and the nine months ended September 30, 1996 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
November 12, 1996, except for Note 7,
as to which the date is December 5, 1996
F-2
<PAGE> 65
BIOSITE DIAGNOSTICS INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, LIABILITIES AND
-------------------------- SEPTEMBER 30, STOCKHOLDERS'
1994 1995 1996 EQUITY AT
------------ ----------- ------------------ SEPTEMBER 30,
1996
------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 392,433 $ 2,276,403 $ 1,410,620
Marketable securities, available-for-sale......... 5,523,160 11,702,607 8,758,654
Accounts receivable............................... 3,175,899 3,801,755 4,153,326
Receivable from stockholder....................... 471,000 141,000 620,000
Inventory......................................... 1,137,830 1,689,124 1,709,016
Deferred income taxes............................. -- 1,073,000 1,279,000
Prepaid expenses and other current assets......... 353,302 413,917 589,675
------------ ----------- -----------
Total current assets........................ 11,053,624 21,097,806 18,520,291
Property, equipment and leasehold improvements,
net............................................... 1,859,573 3,599,969 3,941,520
Deferred income taxes............................... -- 754,000 884,000
Patents and license rights, net..................... 472,060 1,759,809 4,458,074
Deposits and other assets........................... 978,347 723,349 1,164,199
------------ ----------- -----------
$ 14,363,604 $27,934,933 $ 28,968,084
============ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 608,085 $ 776,393 $ 1,345,799 $ 1,345,799
Accrued salaries and other........................ 591,393 912,259 898,320 818,320
Accrued contract payable.......................... 423,807 1,053,052 1,281,276 1,281,276
Accrued settlement of patent matters.............. -- 2,200,000 -- --
Contract advance.................................. 500,000 -- -- --
Deferred revenue from stockholder................. 316,330 615,282 -- --
Current portion of long-term obligations.......... 640,453 1,112,712 1,027,579 1,027,579
------------ ----------- ----------- -----------
Total current liabilities................... 3,080,068 6,669,698 4,552,974 4,472,974
Long-term obligations............................... 771,563 2,739,473 3,233,643 2,233,643
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, $.01 par value,
8,328,847 shares authorized (5,000,000 pro
forma); 8,328,847 shares issued and outstanding
(no shares pro forma), liquidation value,
$21,662,030..................................... 83,288 83,288 83,288 --
Common stock, $.01 par value, 12,000,000 shares
authorized (25,000,000 shares pro forma);
1,154,066, 1,369,595, and 1,460,093 shares
issued and outstanding at December 31, 1994,
1995, and September 30, 1996, respectively
(9,881,162 shares pro forma).................... 11,541 13,696 14,601 98,812
Additional paid-in capital........................ 21,483,800 21,570,516 21,686,698 22,792,442
Unrealized net gain (loss) on marketable
securities, net of related tax effect of $11,058
and $(6,754) at December 31, 1995 and September
30, 1996, respectively.......................... -- 16,588 (10,131) (10,131)
Deferred compensation............................. -- -- (48,023) (48,023)
Accumulated deficit............................... (11,066,656) (3,158,326) (544,966) (571,633)
------------ ----------- ----------- -----------
Total stockholders' equity.................. 10,511,973 18,525,762 21,181,467 22,261,467
------------ ----------- ----------- -----------
$ 14,363,604 $27,934,933 $ 28,968,084 $ 28,968,084
============ =========== =========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 66
BIOSITE DIAGNOSTICS INCORPORATED
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1993 1994 1995 1996
----------- ----------- ----------- 1995 -----------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales....................... $ 9,866,297 $16,319,752 $25,146,540 $18,235,729 $20,224,976
Cost of sales................... 3,268,030 4,415,344 5,648,786 3,781,316 4,317,648
----------- ----------- ----------- ----------- -----------
Gross profit.................... 6,598,267 11,904,408 19,497,754 14,454,413 15,907,328
Operating expenses:
Research and development...... 2,796,248 3,835,649 6,553,454 4,601,467 6,515,097
Sales and marketing........... 3,390,201 3,851,933 4,943,392 3,625,541 3,894,885
General and administrative.... 1,450,755 2,109,150 2,190,246 1,577,951 2,221,599
----------- ----------- ----------- ----------- -----------
7,637,204 9,796,732 13,687,092 9,804,959 12,631,581
----------- ----------- ----------- ----------- -----------
Operating income (loss)......... (1,038,937) 2,107,676 5,810,662 4,649,454 3,275,747
Other income (expense):
Interest income............... 217,610 238,990 605,002 380,851 579,073
Contract revenue-related
party...................... -- 343,678 561,048 388,261 856,880
Contract revenue.............. -- -- 300,000 300,000 --
Licensing and other income.... 395,201 66,207 181,683 184,057 5,942
Settlement of patent
matters.................... -- (338,004) (1,217,065) (743,173) (2,368,282)
----------- ----------- ----------- ----------- -----------
612,811 310,871 430,668 509,996 (926,387)
Income (loss) before benefit
(provision) for income
taxes......................... (426,126) 2,418,547 6,241,330 5,159,450 2,349,360
Benefit (provision) for income
taxes......................... -- (63,000) 1,667,000 (132,000) 264,000
----------- ----------- ----------- ----------- -----------
Net income (loss)............... $ (426,126) $ 2,355,547 $ 7,908,330 $ 5,027,450 $ 2,613,360
=========== =========== =========== =========== ===========
Net income (loss) per share..... $ (.04) $ .22 $ .74 $ .47 $ .24
=========== =========== =========== =========== ===========
Shares used in calculating per
share amounts................. 10,098,000 10,553,000 10,766,000 10,721,000 10,832,000
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 67
BIOSITE DIAGNOSTICS INCORPORATED
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
PREFERRED STOCK COMMON STOCK ADDITIONAL NET GAIN (LOSS)
------------------- --------------------- PAID-IN ON MARKETABLE
SHARES AMOUNT SHARES AMOUNT CAPITAL SECURITIES
--------- ------- --------- ------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993....... 8,328,847 $83,288 1,138,069 $11,381 $21,474,142 $ --
Issuance of common stock........ -- -- 14,298 143 8,146 --
Net loss........................ -- -- -- -- -- --
---------- ------- ---------- ------- ----------- ---------
Balance at December 31, 1993...... 8,328,847 83,288 1,152,367 11,524 21,482,288 --
Issuance of common stock........ -- -- 1,699 17 1,512 --
Net income...................... -- -- -- -- -- --
---------- ------- ---------- ------- ----------- ---------
Balance at December 31, 1994..... 8,328,847 83,288 1,154,066 11,541 21,483,800 --
Issuance of common stock........ -- -- 215,529 2,155 86,716 --
Change in unrealized net gain
(loss) on marketable
securities, net of income
taxes of $11,058.............. -- -- -- -- -- 16,588
Net income...................... -- -- -- -- -- --
---------- ------- ---------- ------- ----------- ---------
Balance at December 31, 1995...... 8,328,847 83,288 1,369,595 13,696 21,570,516 16,588
Issuance of common stock........ -- -- 90,498 905 67,397 --
Change in unrealized net gain
(loss) on marketable
securities, net of income
taxes of $6,754............... -- -- -- -- -- (26,719)
Deferred compensation related
to issuance of stock options.. -- -- -- -- 48,785 --
Amortization of deferred
compensation.................. -- -- -- -- -- --
Net income...................... -- -- -- -- -- --
---------- ------- ---------- ------- ----------- ---------
Balance at September 30, 1996..... 8,328,847 $83,288 1,460,093 $14,601 $21,686,698 $ (10,131)
========== ======= ========== ======= =========== =========
<CAPTION>
TOTAL
DEFERRED ACCUMULATED STOCKHOLDERS'
COMPENSATION DEFICIT EQUITY
------------ ------------ -------------
<S> <C> <C> <C>
Balance at January 1, 1993....... $ -- $(12,996,077) $ 8,572,734
Issuance of common stock........ -- -- 8,289
Net loss........................ -- (426,126 ) (426,126)
---------- ------------- -----------
Balance at December 31, 1993...... -- (13,422,203 ) 8,154,897
Issuance of common stock........ -- -- 1,529
Net income...................... -- 2,355,547 2,355,547
---------- ------------- -----------
Balance at December 31, 1994..... -- (11,066,656 ) 10,511,973
Issuance of common stock........ -- -- 88,871
Change in unrealized net gain
(loss) on marketable
securities, net of income
taxes of $11,058.............. -- -- 16,588
Net income...................... -- 7,908,330 7,908,330
---------- ------------- -----------
Balance at December 31, 1995...... -- (3,158,326 ) 18,525,762
Issuance of common stock........ -- -- 68,302
Change in unrealized net gain
(loss) on marketable
securities, net of income
taxes of $6,754............... -- -- (26,719)
Deferred compensation related
to issuance of stock options.. (48,785) -- --
Amortization of deferred
compensation.................. 762 -- 762
Net income...................... -- 2,613,360 2,613,360
---------- ------------- -----------
Balance at September 30, 1996..... $ (48,023) $ (544,966 ) $21,181,467
========== ============= ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 68
BIOSITE DIAGNOSTICS INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................ $ (426,126) $ 2,355,547 $ 7,908,330 $ 5,027,450 $ 2,613,360
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization.............. 524,984 544,332 1,787,386 658,468 1,861,614
Amortization of deferred compensation...... -- -- -- -- 762
Deferred income taxes...................... -- -- (1,827,000) -- (336,000)
Changes in operating assets and
liabilities:
Accounts receivable...................... (535,453) (1,712,708) (625,856) (644,571) (351,571)
Receivable from stockholder.............. (59,000) (412,000) 330,000 211,660 (479,000)
Inventory................................ (161,701) (402,193) (551,294) (526,981) (19,892)
Prepaid expenses and other current
assets................................. (340,948) 147,309 (71,673) (19,764) (157,946)
Accounts payable......................... 216,486 50,979 168,308 (31,849) 569,406
Accrued liabilities...................... 282,026 487,385 950,111 853,692 (1,985,715)
Contract advance......................... -- 500,000 (500,000) (500,000) --
Deferred revenue from a stockholder...... -- 316,330 298,952 471,739 (615,282)
----------- ----------- ----------- ----------- ------------
Net cash provided by (used in) operating
activities................................. (499,732) 1,874,981 7,867,264 5,499,844 1,099,736
INVESTING ACTIVITIES
Proceeds from sales and maturities of
marketable securities...................... 4,373,730 4,531,676 8,189,035 6,041,413 11,605,384
Purchase of marketable securities............ (7,731,313) (5,712,424) (14,340,836) (8,968,435) (8,705,962)
Purchase of property, equipment and leasehold
improvements............................... (142,972) (1,063,418) (2,682,315) (2,061,707) (1,378,923)
Patents, license rights, deposits and other
assets..................................... (155,232) (409,423) 321,782 254,752 (3,963,357)
----------- ----------- ----------- ----------- ------------
Net cash used in investing activities........ (3,655,787) (2,653,589) (8,512,334) (4,733,977) (2,442,858)
FINANCING ACTIVITIES
Proceeds from issuance of convertible
debentures................................. -- -- 1,000,000 1,000,000 --
Proceeds from issuance of equipment loans
payable.................................... -- 919,988 2,290,561 1,832,653 1,364,137
Principal payments under long-term
obligations................................ (516,684) (536,769) (850,392) (596,714) (955,100)
Proceeds from issuance of stock, net......... 8,289 1,529 88,871 69,170 68,302
----------- ----------- ----------- ----------- ------------
Net cash provided by (used in) financing
activities................................. (508,395) 384,748 2,529,040 2,305,109 477,339
----------- ----------- ----------- ----------- ------------
Increase (decrease) in cash and cash
equivalents................................ (4,663,914) (393,860) 1,883,970 3,070,976 (865,783)
Cash and cash equivalents at beginning of
period..................................... 5,450,207 786,293 392,433 392,433 2,276,403
----------- ----------- ----------- ----------- ------------
Cash and cash equivalents at end of period... $ 786,293 $ 392,433 $ 2,276,403 $ 3,463,409 $ 1,410,620
========== ========== ========== ========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid.............................. $ 139,022 $ 172,512 $ 208,623 $ 145,593 $ 212,329
========== ========== ========== ========== ===========
Income taxes paid.......................... $ 987 $ 38,800 $ 171,243 $ 176,412 $ 103,874
========== ========== ========== ========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Accrued liability for license rights
acquired................................. $ -- $ -- $ 2,200,000 $ -- $ --
========== ========== ========== ========== ===========
Capital lease obligations entered into for
equipment................................ $ 417,260 $ -- $ -- $ -- $ --
========== ========== ========== ========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 69
BIOSITE DIAGNOSTICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT POLICIES
ORGANIZATION AND BUSINESS ACTIVITY
Biosite Diagnostics Incorporated (the "Company") was established in 1988.
The Company has been primarily involved in the research, development,
manufacturing and marketing of point-of-care assays. The Company's first product
is Triage DOA, a urine test for the rapid detection of common drugs of abuse.
The Company began commercial sales of Triage DOA in February 1992 and currently
markets the product worldwide primarily through distributors supported by a
small direct sales force. The principal markets of the Company are hospital
laboratories and emergency departments. The Company is also engaged in research
and development of several additional point-of-care diagnostic products in the
microbiology, cardiology and therapeutic drug monitoring fields.
REVENUE RECOGNITION AND SIGNIFICANT CUSTOMERS
The Company recognizes sales upon shipment. The Company's U.S. distributor
accounted for 87%, 85% and 88% of the product sales in 1993, 1994 and 1995,
respectively, and 88% and 80% for the nine months ended September 30, 1995 and
1996, respectively.
The Company's agreement with its U.S. distributor contains sales milestones
based on the U.S. distributor's sales performance that allows the Company, if
the milestones are not met by the U.S. distributor, to terminate the agreement,
collect a penalty payment based on sales levels actually achieved in 1996, and
appoint a new distributor or sell the product directly in the U.S. medical
market.
Export sales to international customers amounted to $943,000, $1,457,000
and $1,944,000 in 1993, 1994 and 1995, respectively, and $1,362,000 and
$2,248,000 for the nine months ended September 30, 1995 and 1996, respectively.
Sales to a stockholder amounted to approximately $838,000, $1,242,000 and
$1,345,000 in 1993, 1994 and 1995, respectively, and $978,000 and $1,652,000 for
the nine months ended September 30, 1995 and 1996, respectively. Accounts
receivable from a stockholder were approximately $471,000, $141,000, and
$378,000 at December 31, 1994 and 1995, and September 30, 1996, respectively.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid debt
investments with maturities of 90 days or less when purchased.
MARKETABLE SECURITIES
Effective January 1, 1994 the Company adopted Financial Accounting
Standards Board ("FASB") Statement No. 115, "Accounting for Certain Investments
in Debt and Equity Securities", which requires that investments in equity
securities that have readily determinable fair values and investments in debt
securities be classified in three categories: held-to-maturity, trading and
available-for-sale. Based on the nature of the assets held by the Company and
management's investment strategy, the Company's investments have been classified
as available-for-sale. Management determines the appropriate classification of
debt securities at the time of purchase and reevaluates such designation as of
each balance sheet date.
Securities classified as available-for-sale are carried at estimated fair
value, as determined by quoted market prices, with unrealized gains and losses,
net of tax, reported in a separate component of stockholders' equity. At
September 30, 1996, the Company had no investments that were classified as
trading or held-to-maturity as defined by the Statement.
The amortized cost of debt securities classified as available-for-sale is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in interest income. Realized
F-7
<PAGE> 70
BIOSITE DIAGNOSTICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
gains and losses are included in interest income. The cost of securities sold is
based on the specific identification method. Interest on securities classified
as available-for-sale is included in interest income.
INVENTORY
Inventories are carried at the lower of cost (first-in, first-out) or
market.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements are stated at cost.
DEPRECIATION AND AMORTIZATION
Depreciation of property and equipment is computed using the straight-line
method over five years. Amortization of leased equipment is computed using the
straight-line method over the estimated useful lives of the assets or the lease
term. Amortization of leasehold improvements is computed using the straight-line
method over the shorter of the estimated useful lives of the assets or the
remaining lease term.
PATENTS AND LICENSE RIGHTS
The Company has been issued patents covering its threshold immunoassay and
other related technologies. Capitalized patent costs associated with issued
patents are amortized over five to seventeen years. License rights related to
products for sale are amortized to cost of sales over the life of the license
using a systematic method based on the estimated revenues generated from
products during such license period.
STOCK OPTIONS
In October 1995, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," effective
for fiscal years beginning after December 15, 1995. SFAS No. 123 establishes the
fair value-based method of accounting for stock-based compensation arrangements,
under which compensation is determined using the fair value of the stock option
at the grant date and the number of options vested, and is recognized over the
periods in which the related services are rendered. The Company has made the
decision to continue with the current intrinsic value-based method, as allowed
by SFAS No. 123, and will be required to disclose the pro forma effect of
adopting the fair value-based method in future fiscal years beginning with the
fiscal year ending December 31, 1996.
CONCENTRATION OF CREDIT RISK
The Company sells its products primarily to its U.S. distributor. Credit is
extended based on an evaluation of the customer's financial condition, and
generally collateral is not required. Credit losses have been minimal and within
management's expectations.
The Company invests its excess cash in debt instruments of financial
institutions and corporations with strong credit ratings. The Company has
established guidelines relative to diversification and maturities that maintain
safety and liquidity. These guidelines are periodically reviewed and modified to
take advantage of trends in yields and interest rates. The Company has not
experienced any realized losses on its marketable securities.
ASSET IMPAIRMENT
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which
requires impairment losses to be recorded on long-lived
F-8
<PAGE> 71
BIOSITE DIAGNOSTICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
assets used in operations when indicators of impairment are present and the
estimated undiscounted cash flows to be generated by those assets are less than
the assets' carrying amount. SFAS No. 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company adopted the
provisions of SFAS No. 121 effective January 1, 1996. There was no effect of
such adoption on the Company's financial position or results of operations.
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 and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATION
Certain amounts in the 1993, 1994 and 1995 financial statements have been
reclassified to conform to the September 30, 1996 presentation.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number
of common shares and common equivalent shares outstanding during each period.
Common equivalent shares are computed using the treasury stock method and
consist of common stock which may be issuable upon exercise of outstanding
common stock options, when dilutive. Pursuant to the requirements of the
Securities and Exchange Commission, common stock issued by the Company during
the twelve months immediately preceding the initial public offering, plus the
number of common equivalent shares which became issuable during the same period
pursuant to the grant of stock options, have been included in the calculation of
the shares used in computing net income (loss) per share as if these shares were
outstanding for all periods presented using the treasury stock method. In
addition, the calculation of the shares used in computing net income (loss) per
share also includes the convertible preferred stock which will convert into
8,328,847 shares of common stock and an outstanding $1.0 million convertible
debenture and related accrued interest through January 31, 1997 which will
convert into 92,222 common shares (based on the assumed initial public offering
price of $12.00 per share) upon the completion of the initial public offering
contemplated by this Prospectus, as if they were converted into common stock as
of the original dates of issuance.
INTERIM FINANCIAL INFORMATION
The accompanying financial statements for the nine months ended September
30, 1995 are unaudited but include all adjustments (consisting only of normal
recurring adjustments) which the Company considers necessary for a fair
statement of the financial position at such dates and the operating results and
cash flows for those periods. Results for the interim periods are not
necessarily indicative of results for the entire year or future periods.
PRO FORMA LIABILITIES AND STOCKHOLDERS' EQUITY
In December 1996, the Board of Directors authorized management of the
Company to file a Registration Statement with the Securities and Exchange
Commission for the Company to sell shares of its common stock in an initial
public offering. If the initial public offering contemplated by this Prospectus
is consummated under the terms presently anticipated, all outstanding shares of
convertible preferred stock at September 30, 1996 will automatically convert
into 8,328,847 common shares and an outstanding $1.0 million convertible
F-9
<PAGE> 72
BIOSITE DIAGNOSTICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
debenture and related interest through January 31, 1997 will convert into 92,222
common shares. Unaudited pro forma stockholders' equity as of September 30,
1996, as adjusted for the assumed conversion of the preferred stock and the
convertible debenture, is disclosed in the accompanying balance sheet.
2. LICENSING AGREEMENTS
The Company has entered into licensing agreements to utilize certain
antibodies and/or technologies in exchange for up-front, annual milestone, or
royalty payments or a combination thereof. Certain of the upfront and annual
payments are creditable towards future royalties payable. Royalties may be
payable at rates up to 5% of product sales derived from the licensed
technologies.
The Company purchased license rights for technologies utilized in products
for sale of $2.2 million and $3.5 million during the year ended December 31,
1995 and the nine months ended September 30, 1996, respectively. Accumulated
amortization of license rights at December 31, 1995, and September 30, 1996, was
$845,467 and $1,666,488 respectively.
3. COLLABORATIVE AGREEMENTS
In September 1994, the Company entered into a collaborative development and
distribution agreement with a preferred stockholder for the development and
marketing of a new diagnostic product (the "European development and
distribution agreement"). In exchange for distribution rights to the product in
Europe, the stockholder has agreed to fund 40% of the Company's product
development costs, subject to certain maximum limits, plus certain clinical
trial costs. The total cost of the project is estimated to be approximately
$10.0 million. The stockholder's obligation to fund its share of the development
costs of the product is reduced by 40% of the consideration received from other
parties for the development of the new product and marketing rights in Japan.
The stockholder paid $660,000 in 1994 and paid an additional $660,000 in 1995.
At September 30, 1996, the Company has a receivable from the stockholder of
$242,000 under the agreement. Additionally, the stockholder will directly incur
certain of the clinical trial costs. The Company recognizes revenue under this
agreement on the percentage of completion basis as costs are incurred. For the
years ended December 31, 1994 and 1995, the Company incurred $962,000 and
$2,453,000, respectively, in expenses under this agreement and recognized
$344,000 and $561,000, respectively, as contract revenue. For the nine months
ended September 30, 1995 and 1996, the Company incurred $1,781,000 and
$1,940,000, respectively, in expenses under the agreement and recognized
$388,000 and $857,000, respectively, as contract revenue.
In February 1995, the Company entered into a collaborative development and
distribution agreement that included the Asian marketing rights to a new
diagnostic product being developed. Under this agreement, the Company will
receive up to $2,000,000 upon the completion of certain milestones. Recognition
of revenue under this agreement will occur as the milestones are attained. As of
September 30 1996, the Company has received $500,000, of which $300,000 was
recognized as contract revenue in 1995 and in accordance with the European
development and distribution agreement, the remaining $200,000 was applied
against the stockholder's obligation to fund its share of the development costs.
F-10
<PAGE> 73
BIOSITE DIAGNOSTICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
4. CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
The following is a summary of cash, cash equivalents and available-for-sale
securities by balance sheet classification at December 31, 1994:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents:
Cash..................................... $ 119,646 $ -- $ -- $ 119,646
Money market fund........................ 22,729 -- -- 22,729
Corporate debt securities................ 250,058 -- -- 250,058
----------- ------- -------- -----------
392,433 -- -- 392,433
Marketable securities:
Commercial paper......................... 493,669 -- -- 493,669
Corporate debt securities................ 5,029,491 -- -- 5,029,491
----------- ------- -------- -----------
5,523,160 -- -- 5,523,160
----------- ------- -------- -----------
Total cash, cash equivalents and
marketable securities.......... $ 5,915,593 $ -- $ -- $ 5,915,593
=========== ======= ======== ===========
</TABLE>
The following is a summary of cash, cash equivalents and available-for-sale
securities by balance sheet classification at December 31, 1995:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents:
Cash..................................... $ 964,854 $ -- $ -- $ 964,854
Money market fund........................ 915,359 -- -- 915,359
Commercial paper......................... 396,190 -- -- 396,190
----------- ------- -------- -----------
2,276,403 -- -- 2,276,403
Marketable securities:
Commercial paper......................... 1,662,383 -- (1,337) 1,661,046
Corporate debt securities................ 10,012,578 52,109 (23,126) 10,041,561
----------- ------- -------- -----------
11,674,961 52,109 (24,463) 11,702,607
----------- ------- -------- -----------
Total cash, cash equivalents and
marketable securities.......... $13,951,364 $ 52,109 $ (24,463) $13,979,010
=========== ======= ======== ===========
</TABLE>
F-11
<PAGE> 74
BIOSITE DIAGNOSTICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
The following is a summary of cash, cash equivalents and available-for-sale
securities by balance sheet classification at September 30, 1996:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents:
Cash..................................... $ 341,948 $ -- $ -- $ 341,948
Money market fund........................ 1,068,672 -- -- 1,068,672
----------- ------ -------- -----------
1,410,620 -- -- 1,410,620
Marketable securities:
Certificates of deposit.................. 898,503 1,497 -- 900,000
Commercial paper......................... 386,683 -- (1,603) 385,080
Corporate debt securities................ 7,490,353 -- (16,779) 7,473,574
----------- ------ -------- -----------
8,775,539 1,497 (18,382) 8,758,654
----------- ------ -------- -----------
Total cash, cash equivalents and marketable
securities............................... $10,186,159 $1,497 $ (18,382) $10,169,274
=========== ====== ======== ===========
</TABLE>
The amortized cost and estimated fair value of available-for-sale
securities at September 30, 1996, by contractual maturity, are as follows:
<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
---------- ----------
<S> <C> <C>
Marketable securities:
Due in one year or less................................... $7,581,858 $7,569,462
Due after one year through two years...................... 1,193,681 1,189,192
---------- ----------
$8,775,539 $8,758,654
========== ==========
</TABLE>
5. BALANCE SHEET INFORMATION
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1994 1995 1996
---------- ---------- -------------
<S> <C> <C> <C>
Raw materials................................. $ 521,889 $ 645,097 $ 417,302
Work in process............................... 526,787 965,925 1,102,610
Finished goods................................ 89,154 78,102 189,104
---------- ---------- ----------
$1,137,830 $1,689,124 $ 1,709,016
========== ========== ==========
</TABLE>
F-12
<PAGE> 75
BIOSITE DIAGNOSTICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
Property, equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
--------------------------- 30,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Machinery and equipment..................... $ 3,623,954 $ 5,666,978 $ 6,868,726
Furniture and fixtures...................... 376,084 548,824 631,570
Leasehold improvements...................... 185,784 652,335 746,764
----------- ----------- -----------
4,185,822 6,868,137 8,247,060
Less accumulated depreciation and
amortization.............................. (2,326,249) (3,268,168) (4,305,540)
----------- ----------- -----------
$ 1,859,573 $ 3,599,969 $ 3,941,520
=========== =========== ===========
</TABLE>
6. DEBT AND LEASE COMMITMENTS
Debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER
------------------------- 30,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Convertible debenture, payable on September 29,
2000, including interest at 8% per annum..... $ -- $1,000,000 $1,000,000
Equipment financing notes, payable $122,687
monthly including interest at 8.1% to 11.8%,
due October 1996 to November 2001 secured by
equipment.................................... 963,538 2,648,272 3,261,222
Capital lease obligations...................... 448,478 203,913 --
---------- ---------- ----------
1,412,016 3,852,185 4,261,222
Less current portion........................... 640,453 1,112,712 1,027,579
---------- ---------- ----------
$ 771,563 $2,739,473 $3,233,643
========== ========== ==========
</TABLE>
At the sole option of the Company, the debenture is convertible into shares
of common stock of the Company upon consummation of a public offering of common
stock with aggregate proceeds in excess of $7,500,000 and at a price of not less
than $9.00 per share. The debenture is convertible at the public offering price.
In the event a public offering is not consummated on or before December 31,
1996, the debenture is convertible, at the sole option of the Company, into
shares of the Company's preferred stock, at the initial issue price for such
shares in connection with a private placement of the Company's preferred stock.
Under a licensing agreement, the Company is obligated to issue up to a maximum
of $1,000,000 of additional convertible debentures with five-year terms upon the
attainment of certain milestones. The debentures are convertible, at the option
of the Company, into shares of common stock at the initial public offering
price.
As of September 30, 1996, approximate future principal payments of the
equipment financing notes are due as follows: 1996 - $275,000; 1997 - $957,000;
1998 - $740,000; 1999 - $635,000; 2000 - $506,000 and 2001 - $148,000.
The Company leases its office and research facilities and certain equipment
under operating and capital leases. The minimum annual rent on the facilities is
subject to increases based on changes in the Consumer Price Index, taxes,
insurance and operating costs, subject to certain minimum and maximum annual
increases. The Company has options to renew certain of the facilities leases for
a period of two years. Included in deposits and other assets in the accompanying
balance sheets is approximately $728,000, $367,000 and $271,000 of security
deposits in conjunction with operating lease and equipment financing agreements
at December 31, 1994, 1995 and September 30, 1996, respectively.
F-13
<PAGE> 76
BIOSITE DIAGNOSTICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
Approximate annual future minimum lease payments as of September 30, 1996
are as follows:
<TABLE>
<CAPTION>
OPERATING
YEAR LEASES
---- ----------
<S> <C>
1996............................................................. $ 247,000
1997............................................................. 949,000
1998............................................................. 105,000
----------
Total minimum lease payments........................... $1,301,000
==========
</TABLE>
Rent expense for the years ended December 31, 1993, 1994 and 1995 was
approximately $392,000, $550,000 and $734,000, respectively. Rent expense for
the nine months ended September 30, 1995 and 1996 was $527,000 and $628,000,
respectively. Equipment under equipment financing notes and capital leases was
approximately $2,443,000, $4,407,000 and $4,832,000 at December 31, 1994 and
1995, and September 30, 1996, respectively. Accumulated depreciation of
equipment under equipment loans and capital leases at December 31, 1994 and 1995
and September 30, 1996 was approximately $945,000, $1,465,000 and $1,643,000,
respectively.
7. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
A summary of the convertible preferred stock issued and outstanding is as
follows:
<TABLE>
<CAPTION>
SHARES PREFERENCE
ISSUED AND IN
OUTSTANDING PAR VALUE LIQUIDATION
---------- --------- -----------
<S> <C> <C> <C>
Series A......................................... 610,000 $ 6,100 $ 610,000
Series B......................................... 2,156,336 21,563 3,061,997
Series C......................................... 2,204,167 22,042 5,290,000
Series D......................................... 1,900,010 19,000 5,700,030
Series E......................................... 1,458,334 14,583 7,000,003
--------- ------- ------------
8,328,847 $ 83,288 $21,662,030
========= ======= ============
</TABLE>
The Series A, Series B, Series C, Series D and Series E preferred stock is
convertible on a one to one basis into a total of 8,328,847 shares of the
Company's common stock, respectively, subject to certain antidilution
adjustments. Additionally, outstanding preferred stock will automatically
convert into common stock immediately upon the closing of an underwritten public
offering of the common stock of the Company at an offering price of at least
$9.00 per share and having an aggregate offering price to the public of at least
$7.5 million. The holder of each share of preferred stock is entitled to one
vote for each share of common stock into which it would convert.
On or after September 7, 1997, upon consent of at least two thirds of the
existing Series A, Series B, Series C, Series D and Series E preferred
stockholders, the preferred stock may be redeemed, at the option of the Board of
Directors, for $1.10, $1.56, $2.64, $3.30 and $5.28 per share for the Series A,
Series B, Series C, Series D and Series E preferred stock, respectively, plus
any accrued and unpaid dividends.
Annual dividends of $.08, $.1278, $.216, $.27 and $.432 per share of Series
A, Series B, Series C, Series D and Series E preferred stock, respectively, are
payable whenever funds are legally available when and as declared by the Board
of Directors. No dividends have been declared to date.
F-14
<PAGE> 77
BIOSITE DIAGNOSTICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
COMMON STOCK
1989 Stock Plan
The Company has adopted a stock plan which provides for both the direct
sale of common stock and for the grant of options to purchase common stock to
employees, directors, consultants and advisors of the Company. A total of
1,692,000 shares have been reserved for issuance under the plan. As of September
30, 1996, 144,476 shares have been sold directly under the plan.
Information with respect to the Company's option activity is as follows:
<TABLE>
<CAPTION>
SHARES PRICE
--------- -------------
<S> <C> <C>
Balance at December 31, 1992............................. 413,300 $0.24 -- 1.00
Granted................................................ 252,800 $1.00 -- 2.00
Exercised.............................................. (15,514) $0.24 -- 1.00
Cancelled.............................................. (37,686) $0.24 -- 1.00
--------- ------------
Balance at December 31, 1993............................. 612,900 $0.24 -- 2.00
Granted................................................ 109,150 $2.00
Exercised.............................................. (1,699) $0.50 -- 2.00
Cancelled.............................................. (5,701) $0.50 -- 2.00
--------- ------------
Balance at December 31, 1994............................. 714,650 $0.24 -- 2.00
Granted................................................ 300,750 $2.00 -- 3.25
Exercised.............................................. (215,529) $0.07 -- 2.00
Cancelled.............................................. (11,616) $0.24 -- 2.00
--------- ------------
Balance at December 31, 1995............................. 788,255 $0.24 -- 3.25
Granted................................................ 819,700 $3.25 -- 9.00
Exercised.............................................. (90,498) $0.24 -- 3.25
Cancelled.............................................. (353,590) $0.50 -- 9.00
--------- ------------
Balance at September 30, 1996............................ 1,163,867 $0.24 -- 8.25
========= ============
</TABLE>
The options are generally subject to four year vesting and expire ten years
from the date of grant. At September 30, 1996, 454,411 shares were exercisable
and 56,099 shares were available for future issuance of common stock or grant of
options to purchase common stock under the 1989 Stock Plan.
During the period of May 17, 1996 to September 6, 1996, the Company granted
options to purchase 331,950 shares of common stock at $8.25 to $9.00 per share.
On September 6, 1996, these stock options were repriced to $5.50 per share.
1996 Stock Incentive Plan
In December 1996, the Company adopted the 1996 Stock Incentive Plan (the
"1996 Stock Plan") effective as of December 1, 1996. The 1996 Stock Plan
replaces the Company's 1989 Stock Plan. Although all future awards will be made
under the 1996 Stock Plan, awards made under the 1989 Stock Plan will continue
to be administered in accordance with the 1989 Stock Plan. The 1996 Stock Plan
provides for awards in the form of restricted shares, stock units, options or
stock appreciation rights or any combination thereof. A pool of 900,000 shares,
increased by the amount of all unpurchased shares of common stock pursuant to
expired or terminated options, as of November 30, 1996, under the 1989 Stock
Plan, has been reserved for issuance under the 1996 Stock Plan.
F-15
<PAGE> 78
BIOSITE DIAGNOSTICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
Deferred Compensation
The Company records and amortizes over the related vesting periods deferred
compensation representing the excess of the deemed value for accounting purposes
of the options granted over their aggregate exercise price.
In October, November and December 1996, the Company granted additional
options to purchase 128,350 shares of Common Stock at the exercise price of
$5.50 per share. The Company will record compensation expense of approximately
$390,225 over the vesting period of these options.
Employee Stock Purchase Plan
In December 1996, the Company adopted an Employee Stock Purchase Plan
("ESPP") which provides employees the opportunity to purchase common stock at a
discount and pay for such purchases through payroll deductions. A pool of
100,000 shares of common stock has been reserved for issuance under the ESPP
(subject to anti-dilution provisions).
8. INCOME TAXES
Significant components of the income tax benefit (provision) are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------ NINE MONTHS ENDED
1993 1994 1995 SEPTEMBER 30, 1996
-------- -------- ---------- ------------------
<S> <C> <C> <C> <C>
Current:
Federal....................... $ -- $(63,000) $ (150,000) $ (69,000)
State......................... -- -- (10,000) (3,000)
-------- -------- ---------- ---------
-- (63,000) (160,000) (72,000)
Deferred:
Federal....................... -- -- 1,668,000 454,000
State......................... -- -- 159,000 (118,000)
-------- -------- ---------- ---------
-- -- 1,827,000 336,000
-------- -------- ---------- ---------
$ -- $(63,000) $1,667,000 $ 264,000
======== ======== ========== =========
</TABLE>
The provision for income taxes for the nine months ended September 30, 1996
was determined utilizing an effective tax rate based on the estimated operating
results for 1996, expected utilization of net operating loss carryforwards and
other tax credits and changes in deferred tax assets including a reduction of
the valuation allowance for deferred tax assets of $1,119,000.
As of December 31, 1995, the Company had a federal net operating loss
carryforward of approximately $3,058,000 and no tax loss carryforward for
California. The Company also had federal and California research and development
credit carryforwards of approximately $906,000 and $92,000, respectively. The
difference between the federal and California tax loss carryforwards is
primarily attributable to the capitalization of research and development
expenses for California tax purposes and the fifty percent limitation on
California loss carryforwards. The federal tax loss and research credit
carryforwards will begin expiring in 2003 unless previously utilized. In 1995,
the Company utilized federal and state net operating loss carryforwards of
approximately $7,108,000 and $4,473,000, respectively, to offset taxable income.
F-16
<PAGE> 79
BIOSITE DIAGNOSTICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
Significant components of the Company's deferred tax assets as of December
31, 1994 and 1995 are shown below. For the year ended December 31, 1995, and the
nine months ended September 30, 1996, the Company decreased the valuation
allowance for deferred tax assets $1,827,000 and $1,119,000, respectively, as
the realization of such assets became probable.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Capitalized research expenses........................... $ 247,000 $ 154,000
Net operating loss carryforwards........................ 3,275,000 1,070,000
Research and development credits........................ 1,258,000 998,000
Other................................................... 338,000 854,000
---------- ----------
Total deferred tax assets....................... 5,118,000 3,076,000
Deferred tax liability:
Tax over book depreciation.............................. (80,000) (130,000)
---------- ----------
5,038,000 2,946,000
Valuation allowance for deferred tax assets............... (5,038,000) (1,119,000)
---------- ----------
Net deferred tax assets................................... $ -- $ 1,827,000
========== ==========
</TABLE>
The reconciliation of income tax computed at the federal statutory tax rate
to the (provision) benefit for income taxes is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1993 1994 1995 1996
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Tax at federal statutory rate..................... (35 )% 35 % 35 % 35%
Permanent tax differences......................... -- 5 1 1
Increase (decrease) of the valuation
allowance for deferred tax assets............... 35 % (36 ) (63 ) (25)
Other............................................. -- (1 ) -- --
---- ---- ---- ---
Effective rate.................................... -- 3 % (27 )% 11%
==== ==== ==== ==========
</TABLE>
Pursuant to Internal Revenue Code Section 382, use of the Company's net
operating loss and tax credit carryforwards may be limited if a cumulative
change in ownership of more than 50% occurs within any three year period.
However, any annual limitation is not expected to have a material adverse effect
on the Company's ability to utilize its net operating loss and tax credit
carryforwards.
9. EMPLOYEE SAVINGS PLAN
In 1991, the Company implemented a 401(k) program which allows all
qualifying employees to contribute up to a maximum of 20% of their annual
salary, subject to annual limits. The Board of Directors may, at its sole
discretion, approve Company contributions. No such contributions have been
approved or made.
10. SETTLEMENT OF PATENT MATTERS
In September 1996, the Company reached a settlement with a competitor with
respect to all claims in a lawsuit filed by the competitor in May 1994. The
complaint alleged that the Company's Triage Panel for
F-17
<PAGE> 80
BIOSITE DIAGNOSTICS INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)
Drugs of Abuse product infringed a patent licensed to the competitor. The
Company vigorously defended the lawsuit. However, to avoid protracted
litigation, the Company settled the patent matter in September 1996, and paid $2
million as a settlement of the litigation and, for an additional $3.5 million
and the agreement to pay certain royalties, obtained a license to certain
technology.
The Company has charged to settlement of patent matters in the accompanying
statements of income the $2 million litigation settlement, applicable license
costs related to prior years and the related legal defense costs. Legal defense
costs totaled $338,004 and $777,070 for the years ended December 31, 1994 and
1995, respectively, and $743,173 and $17,119 for the nine months ended September
30, 1995 and 1996, respectively.
Additionally, in December 1995, the Company was notified that it should
evaluate whether its current products infringe upon certain patent claims held
by another company. In March 1996, the Company settled this matter by obtaining
a world-wide license to the technology. The Company accrued the one-time license
fee of $2.2 million in December 1995. Amortization of this license related to
fiscal years prior to 1995 was charged to Settlement of Patent Matters in 1995.
F-18
<PAGE> 81
IMMEDIATE RESPONSE DIAGNOSTICS(TM)
BIOSITE(R)
DIAGNOSTICS
DEVELOPS,
MANUFACTURES
AND
MARKETS
IMMEDIATE
RESPONSE
DIAGNOSTICS(TM).
[PHOTOGRAPHS SHOWING TRIAGE DOA AND PERSONS PERFORMING TRIAGE DOA TESTING
PROCEDURE]
<PAGE> 82
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS OR BY ANY OTHER
PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY A SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY, TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
Use of Proceeds........................ 16
Dividend Policy........................ 16
Capitalization......................... 17
Dilution............................... 18
Selected Financial Data................ 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 20
Business............................... 25
Management............................. 43
Certain Transactions................... 51
Principal Stockholders................. 52
Description of Capital Stock........... 54
Shares Eligible for Future Sale........ 56
Underwriting........................... 58
Legal Matters.......................... 59
Experts................................ 59
Additional Information................. 59
Index to Financial Statements.......... F-1
</TABLE>
------------------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
================================================================================
================================================================================
2,000,000 SHARES
LOGO
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
COWEN & COMPANY
ALEX. BROWN & SONS
INCORPORATED
, 1997
================================================================================
<PAGE> 83
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the securities
being registered hereby, other than underwriting discounts and commissions. All
amounts are estimated except the Securities and Exchange Commission registration
fee, the Nasdaq listing fee and the National Association of Securities Dealers,
Inc. ("NASD") filing fee.
<TABLE>
<S> <C>
SEC registration fee...................................................... $ 9,061
NASD filing fee........................................................... 3,490
Nasdaq listing fee........................................................ 47,963
NASD expenses............................................................. 2,000
Accounting fees and expenses.............................................. 150,000
Legal fees and expenses................................................... 250,000
Printing and engraving expenses........................................... 150,000
Registrar and Transfer Agent's fees....................................... 25,000
Miscellaneous fees and expenses........................................... 62,486
--------
Total........................................................... $700,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). Article VII of the Registrant's
Restated Certificate of Incorporation (Exhibit 3.(i)3 hereto) and Article V of
the Registrant's Bylaws (Exhibit 3.(ii)2 hereto) provide for indemnification of
the Registrant's directors, officers, employees and other agents to the extent
and under the circumstances permitted by the Delaware General Corporation Law.
The Registrant has also entered into agreements with its directors and officers
that will require the Registrant, among other things, to indemnify them against
certain liabilities that may arise by reason of their status or service as
directors or officers to the fullest extent not prohibited by law.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by
the Underwriters of the Registrant, its directors and officers, and by the
Registrant of the Underwriters, for certain liabilities, including liabilities
arising under the Act, and affords certain rights of contribution with respect
thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since December 1, 1993, the Registrant has sold and issued the following
unregistered securities:
(a) On various dates through December 1, 1996, the Registrant issued
323,240 shares of its Common Stock to employees pursuant to the exercise of
options granted under its 1989 Stock Plan. The exercise prices per share
ranged from $0.24 to $3.25, for an aggregate consideration of $167,076. The
Registrant relied on the exemption provided by Rule 701 under the Act.
(b) In September 1995, the Company issued a $1,000,000 convertible
debenture to Novartis Pharma Inc. (formerly Sandoz Pharma Ltd.) relying on
the exemption provided by Section 4(2) under the Act.
The recipients of the above-described securities represented their
intention to acquire the securities for investment only and not with a view to
distribution thereof. Appropriate legends were affixed to the stock certificates
and debenture issued in such transactions. All recipients had adequate access,
through employment or other relationships, to information about the Registrant.
II-1
<PAGE> 84
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- -----------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.(i)1* Restated Certificate of Incorporation.
3.(i)2* Form of Certificate of Amendment of Restated Certificate of Incorporation to be
filed prior to the effective date of this Registration Statement.
3.(i)3* Form of Restated Certificate of Incorporation, to be filed upon closing of the
offering to which this Registration Statement relates.
3.(ii)1* Bylaws of the Registrant, as amended.
3.(ii)2* Proposed Amended and Restated Bylaws of the Registrant.
4.1 Form of Common Stock Certificate.
5.1* Legal opinion of Pillsbury Madison & Sutro LLP.
10.1* Amended and Restated 1989 Stock Plan of Biosite Diagnostics Incorporated.
10.2* 1996 Stock Incentive Plan of Biosite Diagnostics Incorporated ("1996 Stock Plan").
10.3* Form of Incentive Stock Option Agreement under the 1996 Stock Plan.
10.4* Form of Nonstatutory Stock Option Agreement under the 1996 Stock Plan.
10.5* Biosite Diagnostics Incorporated Employee Stock Purchase Plan.
10.6* Form of Indemnity Agreement between the Registrant and its officers and directors.
10.7 Sublease Agreement between the Registrant and General Atomics, dated February 17,
1992, as amended on August 10, 1992, January 21, 1993, October 29, 1993, March 1,
1995 and October 1, 1996.
10.8*(+) Antibody License Agreement between the Registrant and Sandoz Pharma Ltd.
(currently known as Novartis Pharma Inc.), dated September 22, 1995, as amended on
July 26, 1996.
10.9*(+) Easy Assay License Agreement between the Registrant and Sandoz Pharma Ltd.
(currently known as Novartis Pharma Inc.), dated September 22, 1995.
10.10*(+) Distribution Agreement between the Registrant and Curtin Matheson Scientific,
Inc., dated November 11, 1991, as amended on March 7, 1994, March 12, 1996 and
August 9, 1996.
10.11*(+) Development, Supply and Distribution Agreement between the Registrant and Kyoto
Dai-Ichi Kagaku Co., Ltd., dated as of February 14, 1995.
10.12*(+) Development and Supply Agreement between the Registrant and LRE Relais +
Elektronik GmbH -- Medical Technology, dated September 23, 1994.
10.13*(+) Distributorship Agreement between the Registrant and E. Merck KGaA, dated July 27,
1992, as amended on November 10, 1993, January 13, 1994 and December 11, 1995.
10.14*(+) Collaborative Development Agreement between the Registrant and Merck KGaA, dated
July 1, 1994.
10.15*(+) Supply and Distribution Agreement between the Registrant and E. Merck KGaA, dated
as of June 28, 1994.
10.16*(+) Research and Development Agreement between the Registrant and Ixsys, Inc., dated
July 1, 1992.
10.17* Stock Purchase Agreement dated as of October 30, 1991 between the Registrant and
certain purchasers of Series D Preferred Stock.
10.18* Stock Purchase Agreement dated as of November 25, 1992 between the Registrant and
Merck KGaA concerning Series E Preferred Stock.
10.19*(+) Debenture Purchase Agreement between the Registrant and Sandoz Pharma Ltd.
(currently known as Novartis Pharma Inc.), dated as of September 22, 1995.
10.20(+) Settlement and License Agreement & Agreement of Dismissal with Prejudice, dated as
of September 6, 1996, by and between the Registrant and Abbott Laboratories.
10.21* Lease Agreement between the Registrant and TCEP II Properties Limited Partnership
dated July 26, 1996.
10.22 Lease Agreement between the Registrant and Sorrento West Limited dated September
21, 1994.
</TABLE>
II-2
<PAGE> 85
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- ----------------------------------------------------------------------------------
<C> <S>
11.1* Statement of computation of earnings per share.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2* Consent of Pillsbury Madison & Sutro LLP (included in Exhibit 5.1).
24.1* Power of Attorney.
27.1* Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
(+) Confidential treatment requested.
(B) FINANCIAL STATEMENT SCHEDULES
Schedules other than those referred to above have been omitted because they
are not applicable or not required or because the information is included
elsewhere in the Financial Statements or the notes thereto.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) It will provide to the underwriters at the closing(s) specified in
the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
II-3
<PAGE> 86
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Diego,
State of California, on the 7th day of January, 1997.
BIOSITE DIAGNOSTICS INCORPORATED
By /s/ KIM D. BLICKENSTAFF
------------------------------------
Kim D. Blickenstaff
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ ------------------------------ ------------------
<C> <S> <C>
/s/ KIM D. BLICKENSTAFF President, Chief Executive January 7, 1997
- ------------------------------------------ Officer (Principal Executive
Kim D. Blickenstaff Officer) and Director
/s/ CHRISTOPHER J. TWOMEY Vice President and Chief January 7, 1997
- ------------------------------------------ Financial Officer (Principal
Christopher J. Twomey Financial Officer and
Accounting Officer)
* Chairman of the Board January 7, 1997
- ------------------------------------------
Timothy J. Wollaeger
* Director January 7, 1997
- ------------------------------------------
Gunars E. Valkirs, Ph.D.
* Director January 7, 1997
- ------------------------------------------
Thomas H. Adams, Ph.D.
* Director January 7, 1997
- ------------------------------------------
Howard E. Greene, Jr.
* Director January 7, 1997
- ------------------------------------------
Frederick J. Dotzler
* Director January 7, 1997
- ------------------------------------------
Stephen K. Reidy
* Director January 7, 1997
- ------------------------------------------
Jesse I. Treu, Ph.D.
*By /s/ KIM D. BLICKENSTAFF
----------------------------
Kim D. Blickenstaff
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 87
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- -------- ----------------------- ------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.(i)1* Restated Certificate of Incorporation.
3.(i)2* Form of Certificate of Amendment of Restated Certificate of Incorporation
to be filed prior to the effective date of this Registration Statement.
3.(i)3* Form of Restated Certificate of Incorporation, to be filed upon closing of
the offering to which this Registration Statement relates.
3.(ii)1* Bylaws of the Registrant, as amended.
3.(ii)2* Proposed Amended and Restated Bylaws of the Registrant.
4.1 Form of Common Stock Certificate.
5.1* Legal opinion of Pillsbury Madison & Sutro LLP.
10.1* Amended and Restated 1989 Stock Plan of Biosite Diagnostics Incorporated.
10.2* 1996 Stock Incentive Plan of Biosite Diagnostics Incorporated ("1996 Stock
Plan").
10.3* Form of Incentive Stock Option Agreement under the 1996 Stock Plan.
10.4* Form of Nonstatutory Stock Option Agreement under the 1996 Stock Plan.
10.5* Biosite Diagnostics Incorporated Employee Stock Purchase Plan.
10.6* Form of Indemnity Agreement between the Registrant and its officers and
directors.
10.7 Sublease Agreement between the Registrant and General Atomics, dated
February 17, 1992 as amended on August 10, 1992, January 21, 1993, October
29, 1993, March 1, 1995 and October 1, 1996.
10.8*(+) Antibody License Agreement between the Registrant and Sandoz Pharma Ltd.
(currently known as Novartis Pharma Inc.), dated September 22, 1995, as
amended on July 26, 1996.
10.9*(+) Easy Assay License Agreement between the Registrant and Sandoz Pharma Ltd.
(currently known as Novartis Pharma Inc.), dated September 22, 1995.
10.10*(+) Distribution Agreement between the Registrant and Curtin Matheson
Scientific, Inc., dated November 11, 1991, as amended on March 7, 1994,
March 12, 1996 and August 9, 1996.
10.11*(+) Development, Supply and Distribution Agreement between the Registrant and
Kyoto Dai-Ichi Kagaku Co., Ltd., dated as of February 14, 1995.
10.12*(+) Development and Supply Agreement between the Registrant and LRE Relais +
Elektronik GmbH -- Medical Technology, dated September 23, 1994.
10.13*(+) Distributorship Agreement between the Registrant and E. Merck KGaA, dated
July 27, 1992, as amended on November 10, 1993, January 13, 1994 and
December 11, 1995.
10.14*(+) Collaborative Development Agreement between the Registrant and E. Merck
KGaA, dated as of June 28, 1994.
10.15*(+) Supply and Distribution Agreement between the Registrant and E. Merck
KGaA, dated as of June 28, 1994.
10.16*(+) Research and Development Agreement between the Registrant and Ixsys, Inc.,
dated July 1, 1992.
10.17* Stock Purchase Agreement dated as of October 30, 1991 between the
Registrant and certain purchasers of Series D Preferred Stock.
</TABLE>
<PAGE> 88
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------- ----------------------- -------------
<S> <C> <C>
10.18* Stock Purchase Agreement dated as of November 25, 1992 between the
Registrant and Merck KGaA concerning Series E Preferred Stock.
10.19*(+) Debenture Purchase Agreement between the Registrant and Sandoz Pharma Ltd.
(currently known as Novartis Pharma Inc.), dated as of September 22, 1995.
10.20(+) Settlement and License Agreement & Agreement of Dismissal with Prejudice,
dated as of September 6, 1996, by and between the Registrant and Abbott
Laboratories.
10.21* Lease Agreement between the Registrant and TCEP II Properties Limited
Partnership dated July 26, 1996.
10.22 Lease Agreement between the Registrant and Sorrento West Limited dated
September 21, 1994.
11.1* Statement of computation of earnings per share.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2* Consent of Pillsbury Madison & Sutro LLP (included in Exhibit 5.1).
24.1* Power of Attorney.
27.1* Financial Data Schedule.
</TABLE>
- ---------------
* Previously filed.
(+) Confidential treatment requested.
<PAGE> 1
EXHIBIT 4.1
NUMBER SHARES
[Logo]
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFICATE IS TRANSFERABLE SEE REVERSE FOR CERTAIN DEFINITIONS AND A
IN THE CITY OF BOSTON, MA STATEMENT AS TO THE RIGHTS, PREFERENCES,
OR NEW YORK, NY PRIVILEGES AND RESTRICTIONS ON SHARES
CUSIP 090945 10 6
This Certifies That
is the record holder of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE,
OF
BIOSITE DIAGNOSTICS INCORPORATED
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
DATED:
/s/ Christopher J. Twomey [SEAL] /s/ Kim D. Blickenstaff
VICE PRESIDENT, FINANCE PRESIDENT AND CHIEF
AND CHIEF FINANCIAL OFFICER EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
THE FIRST NATIONAL BANK OF BOSTON
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Certificate of
Incorporation of the Corporation and by any certificate of determination, the
number of shares constituting each class and series, and the designations
thereof, may be obtained by the holder hereof upon request and without charge at
the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - ........................Custodian.........................
(Cust) (Minor)
under Uniform Gifts to Minors
Act......................................................
(State)
UNIF TRF MIN ACT - ....................Custodian (until age..................)
(Cust)
..........................under Uniform Transfers
(Minor)
to Minors Act..............................................
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _______________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
.........................................
.........................................
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Shares of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated________________________________________
X__________________________________
X__________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
By___________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 10.7
SUBLEASE
BY AND BETWEEN
GENERAL ATOMICS AND BIOSITE DIAGNOSTICS, INC.
1. PARTIES, RECITALS, AND GENERAL AGREEMENT. This Sublease, dated, for reference
purposes only, February 17, 1992, is made by and between General Atomics, a
California Corporation (herein called "Lessor") and Biosite Diagnostics, Inc.
(herein called "Lessee").
RECITALS:
Under terms of a Sublease dated December 1, 1988, Lessor subleased to Lessee
Suite D (5920 SF).
Under terms of a Sublease dated November 30, 1989, Lessor subleased to Lessee
Suite C (6520 SF); Lessor agreed to install and finance certain improvements
identified as Phase 1 - Suite D and Phase 2 - Suite C to be paid by the Lessee
as additional rent.
Under terms of Amendment 2 of the Sublease dated November 30, 1989, Lessor
subleased to Lessee Suite E (3880 SF) and agreed to finance Phase 3 improvements
to be paid by the Lessee as additional rent.
Under terms of a Sublease dated March 29, 1991, Lessor subleased to Lessee,
Suites A and B (3160 SF) and agreed to finance Phase 4 improvements to be paid
by the Lessee as additional rent.
Under terms of the Sublease dated November 30, 1989, and Amendment 3 dated
November 16, 1990, the rental period for Suites C, D, and E ends October 31,
1995.
Under terms of the Sublease dated March 29, 1991, the rental period for Suites A
and B ends June 30, 1992.
Lessee desires to add Suite G to its premises starting March 1, 1992.
Parties desire that all space blocks (Suites A, B, C, D, E, and G) covered under
this agreement have a concurrent term and blended base rental rate.
Lessee desires to have Lessor install and finance certain improvements
(identified as Phase 5 improvements) to Suites A, B, and G.
Lessee desires to extend the term of all space covered under this Sublease for a
period of five (5) years commencing with completion of Phase 5 improvements.
-1-
<PAGE> 2
PARTIES THEREFORE AGREE AS FOLLOWS:
All previous Subleases including the Sublease dated November 30, 1989, it.
Amendments 1 through 3, and the Sublease dated March 29, 1991, are replaced by
this restated Sublease dated February 17, 1992. Space covered herein includes:
Suites A & B 3160 SF
Suite C 6520 SF
Suite D 5920 SF
Suite E 3880 SF
Suite G 4420 SF
Total 23,900 SF
The term for all space blocks, Suites A, B, C, D, E, and G shall end
concurrently with a five year term commencing with substantial completion of
Phase 5 improvements.
Unamortized costs for improvements under terms of the superseded Subleases for
Suites A, B, C, D, and E shall be combined with cost of new improvements to
Suites A, B, and G, all to be amortized over a five year period.
Lessee shall take possession of Suite G, assume responsibility for security,
obtain appropriate insurance coverage, and transfer Suite G utility service
accounts to Lessee, all effective March 1, 1992.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES. Lessor hereby leases to Lessee and Lessee leases from
Lessor for the term, at the rental, and upon all of the conditions set forth
herein, real property situated in the County of San Diego, State of California
commonly known as Building 4, Sorrento West, 11030 Roselle Street, Suites A, B,
C, D, E and G, or approximately 23,900 square feet of office/industrial space
more specifically described on Exhibits A-1 and A-2 herein referred to as "the
Premises", including rights to the Common Areas as hereinafter specified but not
including any rights to the roof of the Premises or to any Building in the
Industrial Center. The Premises are a portion of the building herein referred to
as the "Building." The Premises, the Building, the Common Areas, the land upon
which the same are located, along with all other buildings and improvements
thereon, are herein collectively referred to as the "Industrial Center." Rider
#1
2.2 VEHICLE PARKING. Lessee shall be entitled to 72 vehicle parking
spaces of which a maximum of 4 spaces may be reserved, unreserved and
unassigned, on those porions of the Common Areas designated by Lessor for
parking. Lessee shall not use more parking spaces than said number. Said parking
spaces shall be used only for Parking by vehicles no larger than full size
passenger automobiles or pick-up trucks, herein called
-2-
<PAGE> 3
"Permitted Size Vehicles." Vehicles other than Permitted Size Vehicles are
herein referred to as "Oversized Vehicles."
2.2.1 Lessee shall not permit or allow any vehicles that
belong to or are controlled by Lessee or Lessee's employees, suppliers,
shippers, customers, or invitees to be loaded, unloaded, or parked in areas
other then those designated by Lessor for such activities.
2.2.2 If Lessee permits or allows any of the prohibited
activities described In paragraph 2.2 of this Lease, then Lessor shall have the
right, without notice. In addition to such other rights and remedies that it may
have, to remove or tow away the vehicle involved end charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.3 COMMON AREAS--DEFINITION. The term "Common Areas" is defined as all
erects end facilities outside the Premises and within the exterior boundary line
of the Industrial Center that are provided and designated by the Lessor from
time to time for the general non-exclusive use of Lessor. Lessee and of other
lessees of the Industrial Center end their respective employees, suppliers,
shippers, customers and invitees, including parking areas, loading and unloading
areas, trash areas, roadways, sidewalks, walkways, parkways, driveway, and
landscaped areas.
2.4 COMMON AREAS--LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, customers and
invitees, during the term of this Lease, the non-exclusive right to use. In
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center. Under no circumstances
shall the right herein granted to use the Common Areas be deemed to include the
right to store any property, temporarily or permanently, in the Common Areas.
Any such storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.5 COMMON AREAS--RULES AND REGULATIONS. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable rules and regulations with respect thereto. Lessee
agrees to abide by and conform to all such rules and regulations and to cause
its employees suppliers, shippers, customers, and invitees to so abide and
conform Lessor shell not
-3-
<PAGE> 4
be responsible to Lessee for the non-compliance with said rules and regulations
by other lessees of the Industrial Center.
2.6 COMMON AREAS--CHANGES. Lessor shall have the right in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas including without
limitation, changes in the location size shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas and walkways; (b) To close
temporarily any of the Common Areas for maintenance purposes so long as
reasonable access to the Premises remains available; (c) To designate other land
outside the boundaries of The Industrial Center to be a part of the Common
Areas; (d) To add additional buildings and improvements to the Common Areas; (e)
To use the Common Areas white engaged in making additional improvements, repair
or alterations to The Industrial Center, or any portion thereof; (f) To do and
perform such other acts end make such other changes in to or with respect to the
Common Areas and Industrial Center as Lessor may, in the exercise of sound
business judgment, deem to be appropriate.
2.6.1 Lessor shall at all times provide the parking facilities
required by applicable law and in no event shall the number of parking spaces
that Lessee is entitled to under paragraph 2.2 be reduced.
3. TERM.
3.1 TERM. The term of this Lease shall be for approximately five years
commencing on Refer to Paragraph 47 and ending on Refer to Paragraph 47 unless
sooner terminated pursuant to any provision hereof.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Lessee hereunder
or extend the term hereof.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
commencement date, such occupancy shell be subject to all provisions of this
Lease, such occupancy shall not advance the termination date, and Lessee shall
pay rent for such period at the initial monthly rates set forth below.
4. RENT.
4.1 BASE RENT. Lessee shall pay to Lessor, as Base Rent for the
Premises, without any offset or deduction, except as may be otherwise expressly
provided in this Lease, on the 1st day of each month of the term hereof, monthly
payments in advance of
-4-
<PAGE> 5
$15,820. Refer to Paragraph 48. Lessee shall pay Lessor upon execution hereof
$15,820 as Base Rent for March 1992. Rent for any period during the term hereof
which is for less than one month shall be a pro rata portion of the Base Rent.
Rent shall be payable in lawful money of the United States to Lessor at the
address stated herein or to such other persons or at such other places as Lessor
may designate in writing.
4.2 OPERATING EXPENSES. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined, of
all Operating Expenses, as hereinafter defined, during each calendar year of the
term of this Lease, in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease,
as 84.29 percent of building, 20.15% of industrial center.
(b) "Operating Expenses" is defined, for purposes of this
Lease, as all costs incurred by Lessor, if any for:
(i) The operation, repair and maintenance, in
neat, clean, good order and condition, of the following:
(aa) The Common Areas, including parking
areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities and fences and gates;
(bb) Trash disposal services;
(cc) Tenant directories;
(dd) Fire detection systems including
sprinkler system maintenance and repair;
(ee) Security services;
(ff) Any other service to be provided by
Lessor that is elsewhere in this Lease stated to be an
"Operating Expense;"
(ii) Any deductible portion of an insured loss
concerning any of the items or matters described in this
paragraph 4.2;
(iii) The cost of the premiums for the liability
and property insurance policies to be maintained by Lessor under
paragraph 8 hereof;
(iv) The amount of the real property tax to be
paid by Lessor under paragraph 10.1 hereof;
-5-
<PAGE> 6
(v) The cost of water, gas and electricity to
service the Common Areas. Rider #3
(c) The inclusion of the improvements, facilities and services
set forth in paragraph 4.2(b)(i) of the definition of Operating Expenses shall
not be deemed to impose an obligation upon Lessor to either have said
improvements or facilities or to provide those services unless the Industrial
Center already has the same, Lessor already provides the services, or Lessor has
agreed elsewhere in this Lease to provide the same or some of them.
(d) Lessee's Share of Operating Expenses shall be payable by
Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time of Lessee's Shares of annual
Operating Expenses and the same shall be payable monthly or quarterly, as Lessor
shall designate, during each twelve-month period of the Lease term, on the same
day as the Base Rent is due hereunder. In the event that Lessee pays Lessor's
estimate of Lessee's Share of Operating Expenses as aforesaid, Lessor shall
deliver to Lessee within sixty (60) days after the expiration of each calendar
year a reasonably detailed statement showing Lessee's Share of the actual
Operating Expenses incurred during the preceding year. If Lessee's payments
under this paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessee shall be entitled to credit the amount of
such overpayment against Lessee's Share of Operating Expenses next falling due.
If Lessee's payments under this paragraph during said preceding year were less
than Lessee's Share as indicted on said statement, Lessee shall pay to Lessor
the amount of the deficiency within ten (10) days after delivery by Lessor to
Lessee of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$33,000 as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may use,
apply or pertain all or any portion of said deposit for the payment of any rent
or other charge in default or for the payment of any other sum to which Lessor
may become obligated by reason of Lessee's default, or to compensate Lessor for
any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies
all or any portion of said deposit, Lessee shall within ten (10) days after
written demand therefor deposit cash with Lessor in an amount sufficient to
restore said deposit to the full amount then required of Lessee. If the monthly
rent shall, from time to time, increase during the term of this Lease, Lessee
shall, at the time of such increase, deposit with Lessor additional money as a
security deposit so that the total amount of the security deposit held by Lessor
shall at all times bear the same proportion to the then current Base Rent as the
initial
-6-
<PAGE> 7
security deposit bears to the initial Base Rent set forth in paragraph 4. Lessor
shall not be required to keep said security deposit separate from its general
accounts if Lessee performs all of Lessee's obligations hereunder, said deposit,
or so much thereof as has not theretofore been applied by Lessor, shall be
returned, without payment of interest or other increment for its use, to Lessee
(or, at Lessor's option, to the last assignee, if any, of Lessee's interest
hereunder) at the expiration of the term hereof, and after Lessee has vacated
the Premises. No trust relationship is created herein between Lessor and Lessee
with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for office, R&D,
and manufacturing for biomedical products, in compliance with M1A zoning under
the San Diego Municipal Code or any other use which is reasonably comparable and
for no other purposes.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to the
use for which Lessee will occupy the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term commencement date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such volition. In the event Lessee does not give to Lessor
written notice of the violation of this warranty within six months from the date
that the Lease term commences, the correction of same shall be the obligation of
the Lessee at Lessee's sole cost. The warrant contained in this paragraph 6.2(a)
shall be of no force or effect if, prior to the date of this Lease, Lessee was
an owner or occupant of the Premises and, in such event, Lessee shall correct
any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at
Lessee's expense, promptly comply with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements of any fire insurance underwriters or rating bureaus, now in effect
or which may hereafter come into effect, whether or not they reflect a change in
policy from that now existing, during the term or any part of the term hereof,
relating in any manner to the Premises and the occupation and use by Lessee of
the Premises and of the Common Areas. Lessee shall not use nor permit the use of
the Premises or the Common Areas in any manner that will tend to create waste or
a nuisance or shall tend to disturb other occupants of the Industrial Center.
Refer to Paragraph 51.
-7-
<PAGE> 8
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free
of debris on the Lease commencement date (unless Lessee is already in
possession) and Lessor warrants to Lessee that the plumbing, lighting, air
conditioning, heating, and loading doors that existed prior to installing tenant
improvements and remain after improvements in the Premises shall be in good
operating condition on the Lease commencement date. In the event that its
determined that this warranty has been violated, then it shall be the obligation
of Lessor, after receipt of written notice from Lessee setting forth with
specificity the nature of the violation, to promptly, at Lessor's sole cost,
rectify such violation. Lessee's failure to give such written notice to Lessor
within six months after the Lease commencement date shall cause the conclusive
presumption that Lessor has complied with all of Lessor's obligations hereunder.
The warranty contained in this paragraph 6.3(a) shall be of no force or effect
if prior to the date of this Lease, Lessee was an owner or occupant of the
Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises in their condition existing as of the Lease commencement
date or the date that Lessee takes possession of the Premises, whichever is
earlier, subject to all applicable zoning, municipal, county and state laws,
ordinances and regulations governing and regulating the use of the Premises, and
any covenants or restrictions of record, and accepts this Lease subject thereto
and to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business. Refer to Paragraph 49.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of paragraphs 4.2
(Operating Expenses), 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage or
Destruction) and except for damage caused by any negligent or intentional act or
omission of Lessee, Lessee;s employees, suppliers, shippers, customers, or
invitees, in which event Lessee shall repair the damage, Lessor, at Lessor's
expense, subject to reimbursement pursuant to paragraph 4.2, shall keep in good
condition and repair the foundations, exterior walls, structural condition of
interior bearing walls, and roof of the Premises, as well as the parking lots,
walkways, driveways, landscaping, fences, signs and utility installations of the
Common Areas and all parts thereof, as well as providing the services for which
there is an Operating Expense pursuant to paragraph 4.2. Lessor shall not,
however, be obligated to paint the exterior or interior surface of exterior
walls, nor shall Lessor be required to maintain, repair or replace windows,
doors or plate glass of the Premises.
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Lessor shall have no obligation to make repairs under this paragraph 7.1 until a
reasonable time after receipt of written notice from Lessee of the need for such
repairs. Lessee expressly waives the benefits of any statute now or hereafter in
effect which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Premises in good order, condition and repair. Lessor shall not be liable for
damages or loss of any kind or nature by reason of Lessor's failure to furnish
any Common Area Services when such failure is caused by accident, breakage,
repairs, strikes, lockout, or other labor disturbances or disputes of any
character, or by any other cause beyond the reasonable control of Lessor.
7.2 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of paragraphs 6 (Use), 7.1
(Lessor's Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's
expense, shall keep in good order, condition and repair the Premises and every
part thereof (whether or not the damaged portion of the Premises or the means of
repairing the same are reasonably or readily accessible to Lessee) including,
without limited the generality of the foregoing, all plumbing, heating,
ventilating and air conditioning systems (Lessee shall procure and maintain, at
Lessee's expense, a ventilating and air conditioning system maintenance
contract), electrical and lighting facilities and equipment within the Premises,
fixtures, interior walls and interior surfaces of exterior walls, ceilings,
windows, doors, plate glass, and skylights located within the Premises. Lessor
reserves the right to procure and maintain the ventilating and air conditioning
system maintenance contract and if Lessor so elects, Lessee shall reimburse,
upon demand, for the cost thereof.
(b) If Lessee fails to perform Lessee's obligations under this
paragraph 7.2 or under any other paragraph of this Lease, Lessor may enter upon
the Premises after ten (10) days' prior written notice to Lessee (except in the
case of emergency, in which no notice shall be required), perform such
obligations on Lessee's behalf and put the Premises in good order, condition and
repair, and the cost thereof together with interest thereon at the maximum rate
then allowable by law shall be due and payable as additional rent to Lessor
together with Lessee's next Base Rent Installment.
(c) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as received, ordinary wear and tear excepted, clean and free of debris. Any
damage or deterioration of the Premises shall not be deemed ordinary wear and
tear if the same could have been prevented by good maintenance practices. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade
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fixtures, alterations, furnishings and equipment. Notwithstanding anything to
the contract otherwise stated in this Lease, Lessee shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, space heaters,
air conditioning, plumbing and fencing on the Premises in good operating
condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent
make any alterations, improvements, additions, or Utility installations in, on
or about the Premises, or the Industrial Center, except for nonstructural
alterations to the Premises not exceeding $2,500 in cumulative costs, during the
term of this Lease. In any event, whether or not in excess of $2,5000 in
cumulative cost, Lessee shall make no change or alteration to the exterior of
the Premises nor the exterior of the Building nor the Industrial Center without
lessor's prior written consent. As used in this paragraph 7.3 the term "Utility
Installation" shall mean carpeting, window coverings, airlines, power panels,
electrical distribution systems, lighting fixtures, space heaters, air
conditioning, plumbing and fencing. Lessor may require that Lessee remove any or
all of said alterations, improvements, additions or Utility Installations at the
expiration of the term, and restore the Premises and the Industrial Center to
their prior condition. Lessor may require Lessee to provide Lessor, at lessor's
sole cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work. Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor. Lessor may, at any time
during the term of this Lease, require that Lessee remove any or all of the
same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises or the Industrial Center that Lessee
shall desire to make and which requires the consent of the lessor shall be
presented to Lessor in written form, with proposed detailed plans. If Lessor
shall give its consent, the consent shall be deemed conditioned upon Lessee
acquiring a permit to do so from appropriate governmental agencies, the
furnishing of a copy thereof to Lessor prior to the commencement of the work and
the compliance by Lessee of all conditions of said permit in a prompt and
expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use in the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, or the Industrial Center, or any
interest therein. Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of any work in the Premises, and
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Lessor shall have the right to post notices of non-responsibil- ity in or on the
Premises or the Building as provided by law. If Lessee shall, in good faith,
contest the validity of any such lien, claim or demand, then Lessee shall, at
its sole expense, defend itself and Lessor against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises or the Industrial Center,
upon the condition that if Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to such contested lien,
claim or demand indemnifying Lessor against liability for the same and holding
the Premises and the Industrial Center free from the effect of such lien or
claim. In addition, lessor may require lessee to pay Lessor's attorney's fees
and costs in participating in such action if Lessor shall decide it is to
lessor's best interest to do so.
(d) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made on the Premises, shall be the property of
Lessor and shall remain upon and be surrendered with the Premises at the
expiration of the Lease term, unless Lessor requires their removal pursuant to
paragraph 7.3(a). Notwithstanding the provisions of this paragraph 7.3(d),
Lessee's machinery and equipment, other than that which is affixed to the
Premises so that it cannot be removed without material damage to the Premises,
and other than Utility Installations, shall remain the property of Lessee and
may be removed by Lessee subject to the provisions of paragraph 7.2.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Building and the Common Areas for
the benefit of Lessor or Lessee, or any other lessee of the Industrial Center,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, security systems, communication systems, and fire protection and
detection systems, so long as such installations do not unreasonably interfere
with Lessee's use of the Premises.
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE--LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Combined
Single Limit Bodily Injury and Property Damage insurance insuring Lessee and
Lessor against any liability arising out of the use, occupancy or maintenance of
the Premises and the Industrial Center. Such insurance shall be in an amount not
less than $1,000,000 per occurrence. The policy shall insure performance by
lessee of the indemnity provisions of this paragraph 8. The limits of said
insurance shall not, however, limit the liability of Lessee hereunder.
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8.2 LIABILITY INSURANCE--LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Property Damage insurance, insuring Lessor, but not Lessee, against any
liability arising out of the ownership, use, occupancy or maintenance of the
Industrial Center in an amount not less than $1,000,000 per occurrence.
8.3 PROPERTY INSURANCE. Lessor shall obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or damage
to the Industrial Center improvements, but not Lessee's personal property,
fixtures, equipment or tenant improvements, in an amount not to exceed the full
replacement value thereof, as the same may exist from time to time, providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises), special extended perils
("all risk," as such term is used in the insurance industry), plate glass
insurance and such other insurance as Lessor deems advisable. In addition,
Lessor shall obtain and keep in force, during the term of this Lease, a policy
of rental value insurance covering a period of one year, with loss payable to
Lessor, which insurance shall also cover all Operating Expenses for said period.
In the event that the Premises shall suffer an insured loss as defined in
paragraph 9.1(g) hereof, the deductible amounts under the casualty insurance
policies relating to the Premises shall be paid by lessee.
8.4 PAYMENT OF PREMIUM INCREASE.
(a) After the term of this Lease has commenced, Lessee shall
not be responsible for paying Lessee's Share of any increase in the property
insurance premium for the Industrial Center specified by Lessor's insurance
carrier as being caused by the use, acts or omissions of any other lessee of the
Industrial Center, or by the nature of such other lessee's occupancy which
create an extraordinary or unusual risk.
(b) Lessee, however, shall pay the entirety of any increase in
the property insurance premium for the Industrial Center over what it was
immediately prior to the commencement of the term of this Lease if the increase
is specified by Lessor's insurance carrier as being caused by the nature of
Lessee's occupancy or any act or omission of Lessee.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most current issue of "Best's Insurance Guide." Lessee shall
not do or permit to be done anything which shall invalidate the insurance
policies carried by lessor. Lessee shall deliver to Lessor copies of liability
insurance policies required under
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paragraph 8.1 or certificates evidencing the existence and amounts of such
insurance within seven (7) days after the commencement date of this Lease. No
such policy shall be cancelable or subject to reduction of coverage or other
modification except after thirty (30) days' prior written notice to Lessor.
Lessee shall, at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with renewals or "binders" thereof. Lessee's insurance
policies shall name Lessor as additional insured.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
which perils occur in, on or about the Premises, whether due to the negligence
of Lessor or Lessee or their agents, employees, contractors and/or invitees.
Lessee and lessor shall, upon obtaining the policies of insurance required give
notice to the insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
8.7 INDEMNITY.
(a) Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Industrial Center,
or from the conduct of Lessee's business or from any activity, work or things
done, permitted or suffered by lessee in or about the Premises or elsewhere and
shall further indemnify and hold harmless Lessor from and against any and all
claims arising from any breach or default in the performance of any obligation
on Lessee's part to be performed under the terms of this Lease, or arising from
any act or omission of Lessee, or any such claim or any action or proceeding
brought thereon, and in case any action or proceeding be brought against Lessor
by reason of any such claim, Lessee upon notice from lessor shall defend the
same at Lessee's expense by counsel reasonably satisfactory to Lessor and lessor
shall cooperate with Lessee in such defense. Lessee, as a material part of the
consideration to lessor, hereby assumes all risk of damage to property of Lessee
or injury to persons, in, upon or about the Industrial Center arising from any
cause and lessee hereby waives all claims in respect thereof against Lessor.
(b) Rider #4.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Except as provided in Section
8.7 hereof, Lessee hereby agrees that Lessor shall not be liable for injury to
Lessee's business of any loss of income therefrom or for damage to the goods,
wares, merchandise or other property of Lessee, Lessee's employees, invitees,
customers, or any other person in or about the Premises or the Industrial
Center, nor shall Lessor be liable for injury to the person of Lessee, Lessee's
employees, agents
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or contractors, whether such damage or injury is caused by or results from fire,
steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Industrial Center, or from other sources or places and
regardless of whether the cause of such damage or injury or the means of
repairing the same is inaccessible to Lessee. Lessor shall not be liable for any
damages arising from any act or neglect of any other lessee, occupant or user of
the Industrial Center, nor from the failure of Lessor to enforce the provisions
of any other lease of the Industrial Center.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repair is less than fifty
percent of the then replacement cost of the Premises.
(b) "Premises Total Destruction" shall mean if the Premises
are damaged or destroyed to the extent that the cost of repair is fifty percent
or more of the then replacement cost of the Premises.
(c) "Premises Building Partial Damage" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is less than fifty percent of the then replacement cost
of the Building.
(d) "Premises Building Total Destruction" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is fifty percent or more of the then replacement cost of
the Building.
(e) "Industrial Center Buildings" shall mean all of
the buildings on the Industrial Center site.
(f) "Industrial Center Buildings Total Destruction" shall mean
if the Industrial Center Buildings are damaged or destroyed to the extent that
the cost to repair is fifty percent or more of the then replacement cost of the
Industrial Center Buildings.
(g) "Insured Loss" shall mean damage or destruction which was
covered by an event required to be covered by the insurance described in
paragraph 8. The fact that an Insured Loss has a deductible amount shall not
make the loss an unsecured loss.
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<PAGE> 15
(h) "Replacement Cost" shall mean the amount of money
necessary to be spent in order to repair or rebuild the damaged area to the
condition that existed immediately prior to the damage occurring excluding all
improvements made by lessees.
9.2 PREMISES PARTIAL DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4
and 9.5, if at any time during the term of this Lease there is damage which is
an Insured Loss and which falls into the classification of either Premises
Partial Damage or Premises Building Partial Damage, then lessor shall, at
Lessor's expense, repair such damage to the Premises, but not Lessee's fixtures,
equipment or tenant improvements, as soon as reasonably possible and this Lease
shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs
9.4 and 9.5, if at any time during the term of this Lease there is damage which
is not an Insured Loss and which falls within the classification of Premises
Partial Damage or Premises Building Partial Damage, unless caused by a negligent
or willful act of Lessee (in which event Lessee shall make the repairs at
Lessee's expense), which damage prevents Lessee from using the Premises, Lessor
may at Lessor's option either (i) repair such damage as soon as reasonably
possible at lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) give written notice to Lessee within thirty (30) days
after the date of the occurrence of such damage of Lessor's intention to cancel
and terminate this Lease as of the date of the occurrence of such damage. In the
event lessor elects to give such notice of Lessor's intention to cancel and
terminate this Lease, Lessee shall have the right within ten 910) days after the
receipt of such notice to give written notice to Lessor of lessee's intention to
repair such damage at Lessee's expense, without reimbursement from lessor, in
which event this Lease shall continue in full force and effect, and lessee shall
proceed to make such repairs as soon as reasonably possible. If Lessee does not
give such notice within such 10-day period this Lease shall be canceled and
terminated as of the date of the occurrence of such damage.
9.3 PREMISES TOTAL DESTRUCTION; PREMISES BUILDING TOTAL DESTRUCTION;
INDUSTRIAL CENTER BUILDINGS TOTAL DESTRUCTION.
(a) Subject to the provisions of paragraphs 9.4 and 9.5, if at
any time during the term of this lease there is damage, whether or not it is an
Insured Loss, and which falls into the classifications of either (i) Premises
Total Destruction, or (ii) Premises Building Total destruction, or (iii)
Industrial Center Buildings Total Destruction, then Lessor may at lessor's
option either (i) repair such damage or destruction, but not Lessee's fixtures,
equipment or tenant
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<PAGE> 16
improvements, as soon as reasonably possible at Lessor's expense, and this Lease
shall continue in full force and effect, or (ii) give written notice to Lessee
within thirty (30) days after the date of occurrence of such damage of Lessor's
intention to cancel and terminate this Lease, in which case this Lease shall be
canceled and terminated as of the date of the occurrence of such damage.
9.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 9.4(b), if at any time during the
last six months of the term of this Lease there is substantial damage, whether
or not an Insured Loss, which falls within the classification of Premises
Partial Damage, Lessor or Lessee may at Lessor's option cancel and terminate
this Lease as of the date of occurrence of such damage by giving written notice
to Lessee of the other party of the first party's election to do so within 30
days after the date of occurrence of such damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee
has an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such option,
if it is to be exercised at all, no later than twenty 920) days after the
occurrence of an Insured Loss falling within the classification of Premises
Partial Damage during the last six months of the term of this Lease. If Lessee
duly exercises such option during said twenty (20) day period, Lessor shall, at
Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option
during said twenty (20) day period, then Lessor may at lessor's option terminate
and cancel this Lease as of the expiration of said twenty (20) day period by
giving written notice to Lessee of Lessor's election to do so within ten (10)
days after the expiration of said twenty (20) day period, notwithstanding any
term or provision in the grant of option to the contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Premises
pursuant to the provisions of this paragraph 9, the rent payable hereunder for
the period during which such damage, repair or restoration continues shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of rent, if any, Lessee shall have no claim
against lessor for any damage suffered by reason of any such damage,
destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this paragraph 9 and shall not commence such
repair or restoration within ninety (0) days
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after such obligation shall accrue, Lessee may at Lessee's option cancel and
terminate this Lease by giving Lessor written notice of Lessee's election to do
so at any time prior to the commencement of such repair or restoration. In such
event this Lease shall terminate as of the date of such notice.
9.6 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Industrial Center subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 ADDITIONAL IMPROVEMENTS. Less shall not be responsible for paying
Lessee's Share of any increase in real property tax specified in the tax
assessor's records and work sheets as being caused by additional improvements
placed upon the Industrial Center by other lessees or by Lessor for the
exclusive enjoyment of such other lessees. Lessee shall, however, pay to Lessor
at the time that Operating Expenses are payable under paragraph 4.2(c) the
entirety of any increase in real property tax if assessed solely by reason of
additional improvements placed upon the Premises by Lessee or at Lessee's
request.
10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Industrial Center or any portion thereof by any
authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of lessor in the Industrial Center or in any portion
thereof, as against Lessor's right to rent or other income therefrom, and as
against Lessor's business of leasing the Industrial Center. The term "real
property tax" shall also include any tax, fee, levy, assessment or charge (i) in
substitution of, partially or totally, any tax,
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fee, levy, assessment or charge hereinabove included within the definition of
"real property tax," or (ii) the nature of which was hereinbefore included
within the definition of "real property tax," or (iii) which is imposed for a
service or right not charged prior to June 1, 1978, or, if previously charged,
has been increased since June 1, 1978, or (iv) which is imposed as a result of a
transfer, either partial or total, of Lessor's interest in the Industrial Center
or which is added to a tax or charge hereinbefore included within the definition
of real property tax by reason of such transfer, or (v) which is imposed by
reason of this transaction, any modifications or changes hereto, or any transfer
hereof.
10.4 JOINT ASSESSMENT. If the Industrial Center is not separately
assessed, Lessee's share of the real property tax liability shall be an
equitable proportion of the real property taxes for all of the land and
improvements included within the tax parcel assessed, such proportion to be
determined by Lessor from the respective valuations assigned in the assessor's
work sheets or such other information as may be reasonably available. Lessor's
reasonable determination thereof, in good faith, shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and all
other personal property to be assessed and billed separately from the real
property of Lessor.
(b) If any of Lessee's said personal property shall be assessed
with Lessor's real property, Lessee shall pay to Lessor the taxes attributable
to lessee within ten (10) days after receipt of a written statement setting
forth the taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to the
Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building. Rider #5.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not
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unreasonably withhold. Lessor shall respond to lessee's request for consent
hereunder in a timely manner and any attempted assignment, transfer, mortgage,
encumbrance or subletting without such consent shall be void, and shall
constitute a breach of this lease without the need for notice to Lessee under
paragraph 13.1.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate,"
provided that before such assignment shall be effect said assignee shall assume,
in full, the obligations of Lessee under this Lease. Any such assignment shall
not, in any way, affect or limit the liability of Lessee under the terms of this
Lease even if after such assignment or subletting the terms of this Lease are
materially changed or altered without the consent of Lessee, the consent of whom
shall not be necessary.
12.3 TERMS AND CONDITIONS OF ASSIGNMENT. Regardless of Lessor's
consent, no assignment shall release Lessee of Lessee's obligations hereunder or
alter the primary liability of Lessee to pay the Base Rent and Lessee's Shares
of Operating Expenses, and to perform all other obligations to be performed by
Lessee hereunder. Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment. Neither a delay in the
approval or disapproval of such assignment nor the acceptance of rental shall
constitute a waiver or estoppel of Lessor's right to exercise its remedies for
the breach of any of the terms or conditions of this paragraph 12 or this Lease.
Consent to one assignment shall not be deemed consent to any subsequent
assignment. In the event of default by any assignee of Lessee or any successor
of Lessee, in the performance of any of the terms hereof, Lessor may proceed
directly against Lessee without the necessity of exhausting remedies against
said assignee. Lessor may consent to subsequent assignments of this Lease or
amendments or modifications to this Lease with assignees of Lessee, without
notifying Lessee, or any successor of Lessee, and without obtaining its or their
consent thereto and such action shall not relieve Lessee of liability under this
Lease.
12.4 TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless of
Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be included in
subleases:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any
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sublease heretofore or hereafter made by lessee, and Lessor may collect such
rent and income and apply same toward Lessee's obligations under this Lease;
provided, however, that until a default shall occur in the performance of
Lessee's obligations under this Lease, Lessee may receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to lessor nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from lessor stating that a default
exists in the performance of Lessee's obligations under this Lease, to pay to
lessor the rents due and to become due under the sublease. Lessee agrees that
such sublessee shall have the right to rely upon any such statement and request
from Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by lessee shall be effective unless
and until it has been approved in writing by Lessor. In entering into any
sublease, Lessee shall use only such form of sublease as is satisfactory to
Lessor, and once approved by Lessor, such sublease shall not be changed or
modified without Lessor's prior written consent. Any sublessee shall, by reason
of entering into a sublease under this Lease, be deemed, for the benefit of
lessor, to have assumed and agreed to conform and comply with each and every
obligation herein to be performed by lessee other than such obligations as are
contrary to or inconsistent with provisions contained in a sublease to which
Lessor has expressly consented in writing.
(c) If Lessee's obligations under this Lease have been guaranteed
by third parties, then a sublease, and lessor's consent thereto, shall not be
effective unless said guarantors give their written consent to such sublease and
the terms thereof.
(d) The consent by Lessor to any subletting shall not release
Lessee from its obligations or alter the primary liability of lessee to pay the
rent and perform and comply with all of the obligations of Lessee to be
performed under this Lease.
(e) The consent by lessor to any subletting shall not constitute a
consent to any subsequent subletting by lessee or to any assignment or
subletting by the sublessee. However, Lessor may consent to subsequent
sublettings and assignments of the sublease or any amendments or modifications
thereto without
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notifying Lessee or anyone else liable on the Lease or sublease and without
obtaining their consent and such action shall not relieve such persons from
liability.
(f) In the event of any default under this Lease, Lessor may
proceed directly against Lessee, any guarantors or any one else responsible for
the performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) In the event lessee shall default in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to lessor, in which event lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to lessee or for any other prior defaults of Lessee under
such sublease.
(h) Each and every consent required of lessee under a sublease
shall also require the consent of Lessor.
(i) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(j) Lessor's written consent to any subletting of the Premises by
Lessee shall not constitute an acknowledgment that no default then exists under
this Lease of the obligations to be performed by Lessee nor shall such consent
be deemed a waiver of any then existing default, except as may be otherwise
stated by Lessor at the time.
(k) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within ten (10) days after service of such notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee.
12.5 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
lessee shall request the consent of Lessor for any act Lessee proposes to do
then lessee shall pay Lessor's reasonable attorney's fees incurred in connection
therewith, such attorney's fees not to exceed $350.00 for each such request.
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13. DEFAULT; REMEDIES.
13.1 DEFAULT. the occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(c) Except as otherwise provided in this Lease, the failure by
Lessee to observe or perform any of the covenants, conditions or provisions of
this Lease to be observed or performed by Lessee, other than described in
paragraph (b) above, where such failure shall continue for a period of thirty
(30) days after written notice thereof from Lessor to Lessee; provided, however,
that if the nature of Lessee's noncompliance is such that more than thirty (30)
days are reasonably required for its cure, then Lessee shall not be deemed to be
in default if lessee commenced such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion. to the extent
permitted by law, such thirty (30) day notice shall constitute the sole and
exclusive notice required to be given to Lessee under applicable Unlawful
Detainer statutes.
(d) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within sixty
(60) days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(d) is contrary to
any applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to
lessor by Lessee was materially false.
13.2 REMEDIES. In the event of any such material default by Lessee,
Lessor may at any time thereafter, with or without
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notice or demand and without limiting Lessor in the exercise of any right or
remedy which Lessor may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee all damages incurred by
Lessor by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have vacated or abandoned
the Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than thirty (30) days after the written notice by Lessee to
Lessor and to the holder of any first mortgage or deed of trust covering the
Premises whose name and address shall have theretofore been furnished to Lessee
in writing, specifying wherein Lessor has failed to perform such obligation;
provided,however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such thirty (30) day period and
thereafter diligently prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Base Rent, Lessee's Share of Operating Expenses or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. Such
costs
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include, but are not limited to, processing and accounting charges, and late
charges which may be imposed on lessor by the terms of any mortgage or trust
deed covering the Property. Accordingly, if any installment of Base Rent,
Operating Expenses, or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee within ten (10) days after such amount shall be due,
then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a
late charge equal to 6% of such overdue amount. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of late payment by Lessee. Acceptance of such late charge
by lessor shall in no event constitute a waiver of Lessee's default with respect
to such overdue amount, nor prevent Lessor from exercising any of the other
rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether or not collected, for three (3) consecutive
installments of any of the aforesaid monetary obligations of Lessee, then Base
Rent shall automatically become due and payable quarterly in advance, rather
than monthly, notwithstanding paragraph 4.1 or any other provision of this Lease
to the contrary.
14. CONDEMNATION. If the Premises or any portion thereof or the Industrial
Center are taken under the power of eminent domain, or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs. If more than ten
percent of the floor area of the Premises, or more than twenty-five percent of
that portion of the Common Areas designated as parking for the Industrial Center
is taken by condemnation. Lessee may, at Lessee's option, to be exercised in
writing only within ten (10) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority shall have taken possession) terminate this Lease
as of the date the condemning authority takes such possession. If Lessee does
not terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the premises remaining,
except that the rent shall be reduced in the proportion that the floor area of
the Premises taken bears to the total floor area of the Premises. No reduction
of rent shall occur if the only area taken is that which does not have the
Premises located thereon. Any award for the taking of all or any part of the
Premises under the Power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any award for loss of or damage to Lessee's trade fixtures
and removable personal property. In the event that this Lease is not terminated
by reason of such condemnation, Lessor shall to the extent of severance damages
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received by Lessor in connection with such condemnation, repair any damage to
the Premises caused by such condemnation except to the extent that Lessee has
been reimbursed therefor by the condemning authority.
15. BROKER'S FEE.
(a) Upon execution of this Lease by both parties, Lessor shall pay to
[N/A See Paragraph 50] Licensed real estate broker(s), a fee as set forth in a
separate agreement between Lessor and said broker(s), or in the event there is
no separate agreement between Lessor and said broker(s), the sum of $[none] for
brokerage services rendered by said broker(s) to Lessor in this transaction.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Premises or of the business
of the requesting party.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance, and (iii)
if Lessor is the requesting party, not more than one month's rent has been paid
in advance.
(c) If Lessor desires to finance, refinance, or sell the Property, or
any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three (3) years financial statements of Lessee. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence and shall
be used only for the purposes herein set forth.
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17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean ***Rider
6***.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease; provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expenses and insurance and tax expenses payable shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor or any employee or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of the Premises or the Property and Lessee acknowledges that Lessee
assumes all responsibility regarding the Occupational Safety Health Act, the
legal use and adaptability of the Premises and the compliance thereof with all
applicable laws and regulations in effect during the term of this lease except
as otherwise specifically stated in this Lease. Refer to Paragraph 52.
23. NOTICES. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified mail, and if given
personally or by mail, shall be deemed sufficiently given if addressed to Lessee
or to Lessor at the address noted below the signature of the respective parties,
as the case may be. Either party may by notice to the other specify a different
address for notice purposes except that upon Lessee's taking possession of the
Premises, the Premises shall constitute Lessee's address for notice purposes. A
copy of all notices required or permitted to
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be given to Lessor hereunder shall be concurrently transmitted to such party or
parties at such addresses as Lessor may from time to time hereafter designate by
notice to Lessee.
24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to or approval of any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. [INTENTIONALLY OMITTED].
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of the
Premises or any party thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all Options, if any, granted
under the terms of this Lease shall be deemed terminated and be of no further
effect during said month to month tenancy. Such continued occupancy shall be at
a rate of 125% of the amount being paid by the lessee the last month of the term
hereof.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Industrial Center is located and any litigation concerning this Lease
between the parties hereto shall be initiated in the county in which the
Industrial Center is located.
30. SUBORDINATION.
(a) This Lease, and any Option granted hereby, at Lessor's option, shall be
subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation or security now or hereafter placed upon the Industrial Center and
to any and all advances made on the security thereof and to all renewals,
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modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b). Refer to Paragraph 53.
31. ATTORNEY'S FEES. If either party or the broker(s) named herein bring an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the court.
The provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are part as lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises or the Building any
ordinary "For Sale" signs and Lessor may at any time during the last 120 days of
the term hereof place on or about the Premises any ordinary "For Lease" signs.
All activities of Lessor pursuant to this paragraph shall be without abatement
of rent, nor shall Lessor have any liability to Lessee for the same.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained
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Lessor's prior written consent. Notwithstanding anything to the contrary in this
Lease, Lessor shall not be obligated to exercise any standard of reasonableness
in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises or the Industrial
Center without Lessor's prior written consent. Under no circumstances shall
Lessee place a sign on any roof of the Industrial Center.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the consent
of one party is required to an act of the other party such consent shall not be
unreasonably withheld or delayed.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Property.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Industrial Center or other property of
Lessor or the right of first offer to lease other space within the Industrial
Center or other property of Lessor; (3) the right or option to purchase the
Premises or the Industrial Center, or the right of first refusal to purchase the
Premises or the Industrial Center, or the right of first offer to purchase the
Premises or the Industrial Center, or the right or option to purchase other
property of Lessor, or the right of first refusal to purchase
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other property of Lessor or the right of first offer to purchase other property
of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this lease is
personal to the original lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee; provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
options to extend or renew this lease or later option cannot be exercised unless
the prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i) during
the time commencing from the date Lessor gives to Lessee a notice of default
pursuant to paragraph 13.1(b) or 13.1(c) and continuing until the noncompliance
alleged in said notice of default is cured, or (ii) during the period of time
commencing on the date after a monetary obligation to Lessor is due from Lessee
and unpaid (following written notice thereof to Lessee) and continuing until the
obligation is paid, or (iii) at any time after an event of default described in
paragraphs 13.1(a), 13.1(d) or 13.1(e) (without any necessity of Lessor to give
notice of such default to Lessee), nor (iv) in the event that Lessor has given
to Lessee three or more notices of default under paragraph 13.1(b), or paragraph
13.1(c), whether or not the defaults are cured, during the 12-month period of
time immediately prior to the time that Lessee attempts to exercise the subject
Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice
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thereof to Lessee), or (ii) Lessee fails to commence to cure a default specified
in paragraph 13.1(c) within thirty (30) days after the date that Lessor gives
notice to Lessee of such default and/or Lessee fails thereafter to diligently
prosecute said cure to completion, or (iii) Lessee commits a default described
in paragraph 13.1(a), 13.1(d) or 13.1(e) (following written notice of such
default to Lessee), or (iv) Lessor gives to Lessee three or more notices of
default under paragraph 13.1(b), or paragraph 13.1(c), whether or not the
defaults are cured.
40. SECURITY MEASURES. Lessee hereby acknowledges that Lessor shall have no
obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises or the Industrial Center. Lessee assumes all
responsibility for the protection of Lessee, its agents and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at lessor's sole option,
from providing security protection for the Industrial Center or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).
41. EASEMENTS. Lessor reserves to itself the right, from tie to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
43. AUTHORITY. If lessee is a corporation, trust or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership. Lessee shall, within thirty (30) days after execution of this
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<PAGE> 32
Lease, deliver to lessor evidence of such authority satisfactory to Lessor.
44. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.
45. OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease. This Lease shall become
binding upon Lessor and Lessee only when fully executed by lessor and lessee.
46. ADDENDUM. Attached hereto is an addendum or addenda containing paragraphs 47
through 55 which constitute a part of this Lease plus Exhibits A-1, A-2, A-3,
and an Addendum to the Sublease containing Riders 1 through 6 which constitutes
a part of the Sublease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
THIS LEASE HAS BEEN PREPARED FOR SUBMISSION
TO YOUR ATTORNEY FOR APPROVAL. NO REPRE-
SENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER OR ITS AGENTS
OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS
LEASE OR THE TRANSACTION RELATING THERETO.
THE PARTIES SHALL RELY SOLELY UPON THE
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<PAGE> 33
ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE
LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
GENERAL ATOMICS BIOSITE DIAGNOSTICS
By /s/ R.H. Dalry By /s/ Kim D. Blickenstaff
----------------------------- ------------------------------
R.H. Dalry, Director,
Facilities
By
By ------------------------------
-----------------------------
Executed on
----------------------
(Corporate Seal)
Executed on
----------------------
(Corporate Seal)
ADDRESS FOR NOTICES AND RENT ADDRESS
- --------------------------------- ----------------------------------
- --------------------------------- ----------------------------------
- --------------------------------- ----------------------------------
-33-
<PAGE> 34
47. TERM AND COMMENCEMENT DATE. The term for space Suite G shall commence March
1, 1992 and end concurrently with that for Suites A, B, C, D, and E. The rental
period for all space, Suites A, B, C, D, E, and G, shall end concurrently, five
years subsequent to the first day of the month following substantial completion
of tenant improvements in Suites A, B, and G. Substantial completion shall be
deemed to mean that Suites A, B, and G have been improved in accordance with
approved plans and specifications and final inspection and approval have been
obtained from the City of San Diego Building Inspection Department. The five
year term shall start no later than November 1, 1992. Parties agree to establish
the actual commencement date by executing Paragraph 54(g) once substantial
completion is established.
48. RENT SCHEDULE. The following rent schedule shall apply:
<TABLE>
<CAPTION>
SPACE BLOCK BASE RENT TENANT IMPROVEMENTS
----------- --------- -------------------
(Suites) (Monthly) (Monthly)
<S> <C> <C>
A & B $ 2,136 (Note 3) $ 380.70 (Note 1)
C, D, & E $11,032 (Note 3) $9,415.76 (Note 2)
G $ 2,652 (Note 4) None (Note 2)
</TABLE>
Note 1. Recovery for tenant improvements ends 6/30/92.
Note 2. The unamortized cost of improvements for Suites C, D, and E
will be added to cost for improvements in Suites A, B, and G.
Total cost will be amortized over a five year period at 12%
per annum.
Note 3. Rent will be adjusted at the start of the new five
year ten using the Consumer Price Index of the Bureau
of Labor Statistics of the U. S. Department of Labor
for Urban Wage Earners and Clerical Workers, Los
Angeles, Long Beach-Anaheim, California, "All Items."
New rent shall be calculated by multiplying the
current base rent ($11,032 and $2136) by a fraction,
the numerator being the most recent available data
published immediately prior to start of the five year
term and the denominator of which shall be the C.P.I.
for the month of March 1991.
Note 4. Rent ($2652) will be adjusted the same as in Note 3
except the C.P.I. for the denominator shall be for the
month of February 1992.
49. TENANT IMPROVEMENTS. The Parties agree that Lessor shall install certain
tenant improvements in Suites A, B, and G and make minor modifications in Suites
C, D, and E, all at a cost not to exceed $350,000. Lessee agrees to pay for said
improvements as added rent, amortized over the five year period at 12 percent
per annum. Parties further agree that unamortized costs for improvements,
previously installed in Suites C, D, and
-1-
<PAGE> 35
E, shall be amortized over the same five year period at 12 percent per annum.
The combined amortized amount, shall be paid as added monthly rent, starting
with the new five year Sublease term as determined by date of substantial
completion of Suites A, B, and G. Added rent for tenant improvements shall
continue for five years until paid in full and shall be payable under the same
terms and conditions as the base rent.
(a) Design and Construction. Lessor shall cause the construction of
tenant improvements to the premises including the working drawings, permits,
construction, and final city inspection.
Effective March 9, 1992, Lessee shall deliver to Lessor preliminary
drawings to be used by Lessor in the preparation of working drawings and
specifications. Within 30 business days after the March 9, 1992 date, Lessor
shall return preliminary programming drawings prepared by a licensed architect
selected by the Lessor. Promptly following receipt of comments from Lessee (not
to exceed five business days), Lessor shall have prepared the final working
drawings and specifications for submittal to the City Building Department.
Lessor will use best effort to obtain approval an building permits. Promptly
after obtaining permits, Lessor shall cause the construction of tenant
improvements based on competitive bids and selection of qualified contractors.
(b) Allowance. Lessor agrees to provide Lessee a tenant improvement,
allowance in the amount of Three Hundred Fifty Thousand Dollar ($350,000) for
design and construction applied toward expenditures against any and all costs
incurred in the construction of the tenant improvements, including without
limitation any and all fees, charges, costs, or expenses of any kind incurred by
the Lessor in connection with design, engineering, governmental processing and
approval, cost of equipment, materials, labor, construction overhead and fees,
utility hookup, equipment installation, testing, inspection, or any costs
directly related to the tenant improvements that improve the realty as reflected
on the approved drawings and specifications. Excluded from the allowance are
Lessor's direct applied proJect management costs, and cost of design, purchase,
relocation or setup of Lessee's fixtures, or excess costs incurred by Lessee as
covered below.
If the amount of the estimated costs for the tenant improvements
exceeds the allowance ("excess costs"), then not later than ten business days
after delivery of estimated costs to Lessee, Lessee shall deliver to Lessor
funds in the amount of the excess costs, which Lessor shall apply towards the
cost of completing the tenant improvements. In addition, if at any time during
the construction of the tenant improvements, the costs thereof incurred by
Lessor equals the amounts of the allowance plus any excess costs previously paid
by Lessee to Lessor, Lessor shall immediately prepare an estimate of the amounts
-2-
<PAGE> 36
reasonably required to complete the construction of the tenant improvements, and
Lessor shall not be obligated to incur any additional expenses or continue
construction of the tenant improvements until Lessee has deposited with Lessor
funds in the amount of the estimate so prepared by Lessor.
(c) Lessee Delays. In no event shall the substantial completion dates
of this Sublease be extended due to a delay or fault of Lessee. Delays "due to
the fault of Lessee" shall include, without limitation, delays caused by:
(i) Lessee's failure to timely prepare the preliminary plans
or review preliminary plans, or to timely approve the working plans or
the estimated costs, or to furnish information and cooperation to
Lessor for the preparation by the Lessor and approval by governmental
agencies of the final plans;
(ii) Lessee's request for or use of special materials, finishes
or installations which are different than specified on Lessee approved
drawings and specifications;
(iii) Lessee's failure to timely deposit with Lessor any funds
required for any excess costs or costs in excess of the allowance for
the completion of the tenant improvements;
(iv) Change orders requested by Lessee which actually result in a
delay; or
(v) Interference with Lessor's construction activities caused by
Lessee or Lessee's agents, employees, servants or independent
contractors.
(vi) Lessee's failure to surrender appropriate areas for
construction so Lessor can diligently complete said improvements
without undue delays.
Lessor shall give Lessee written notice of any delays due to the
fault of Lessee hereunder promptly (within five (5) business days)
after Lessor obtains knowledge of any such delays.
(d) Change Orders. Lessee may from time to time have need to obtain
change orders during the course of construction of the tenant improvements,
provided that:
(i) Each such request shall be in writing and signed by Lessee;
(ii) Each such request shall not result in any major or
structural change in the building or tenant improvements as reasonably
determined by Lessor; and
-3-
<PAGE> 37
(iii) All additional charges and costs, including without
limitation architectural and engineering costs, construction costs,
material costs, and governmental processing costs, shall be the sole
and exclusive obligation of Lessee.
Upon Lessee's written request for a change order, Lessor shall
as soon as reasonably possible submit to Lessee a written estimate of
the increased cost attributable to the requested change. Within five
business days of the date such estimated cost adjustment is delivered
to the Lessee, Lessee shall advise Lessor whether or not it wishes to
proceed with the change order. Unless Lessee includes in its initial
change order request that work in process at the time of the request be
halted pending approval and execution of a change order, Lessor shall
not stop construction of the tenant improvement, whether or not the
change order relates to work then in process or about to be started.
(e) Completion of Premises. Within five business days after
substantial completion, Lessee shall conduct a walk-through inspection of the
Premises with Lessor and complete a punch-list of items needing correction or
additional work, which punch-list shall be approved in writing by Lessor and
Lessee. Lessee shall submit to the Lessor a final punch-list within 60 days
after substantial completion, which shall include all items requiring correction
or additional work and which shall be approved in writing by Lessor and Lessee.
Neither punch-list shall include any damage to the Premises caused by Lessee or
by Lessee's agents, employees, servants, or independent contractors, which
damage shall be repaired or corrected by Lessee at its expense. If Lessee fails
to submit any punch-list to Lessor within such 60 day period, it shall be deemed
that there are no items needing additional work or repair (excluding latent
defects). Lessor's contractor shall complete all Lessor-approved punch-list
items within 30 days after submission of the final punch-list or as soon as
practicable thereafter. Upon completion of such punch-list items, Lessee shall
approve such corrected or completed items in writing to Lessor. If Lessee fails
to notify Lessor of its approval or disapproval of such items within ten
business days of completion, such items shall be deemed approved by Lessee.
50. BROKER'S FEE. Lessee represents and warrants to Lessor that it has not
engaged any broker, finder, or other person who would be entitled to any
commission or fees in respect of the negotiation, execution or delivery of this
Sublease and shall indemnify and hold harmless Lessor against any loss, cost,
liability, or expense incurred by Lessor as a result of any claim asserted by
any broker, finder, or other person on the basis of any arrangements made or
alleged to have been made by or on behalf of Lessee.
-4-
<PAGE> 38
51. Lessee agrees that use of Hazardous Materials is incidental
to its operations on the premises and is not the primary or
substantial purpose of its Tenancy.
(a) Lessee shall coordinate any permit application for use, storage,
handling, and disposal of Hazardous Substances with the Lessor and shall submit
updated copies of such permits, applications, and licenses to Lessor for
Lessor's files. At the request of the Lessor, Lessee shall submit a list and
material data sheet for all Hazardous Materials maintained in the Premises.
(b) Lessor, the Master Lessor, and their respective agents and Lenders
shall have the right to enter the Premises at reasonable times for the purpose
of inspecting the same for "Hazardous Materials" as defined in any Federal,
State, or local law or regulation, showing the same to prospective purchasers,
lenders, or lessees, and making such alterations, repairs, improvements, or
additions to the Premises as Lessor or Master Lessor may deem necessary or
desirable.
(c) Hazardous Substances used, produced, stored, processed, treated,
refined, generated, and disposed of by Lessee shall be the responsibility of
Lessee, and Lessee shall undertake and perform all such activities in accordance
with all applicable laws and regulations and in accordance with Lessor's
standard practices and in a safe and reasonable manner, during the term of the
Sublease, when required or appropriate, but in no event later than the date that
the Sublease is terminated.
52. This Sublease contains all agreements of the parties with respect to any
matter mentioned herein. All prior Subleases and Amendments, listed below, are
hereby replaced in their entirety and no prior agreement or understanding
pertaining to this matter, other than the agreements contained herein, shall be
effective.
Sublease dated November 30, 1989 (Suites C & D).
Sublease Amendment #1 dated December 1, 1989.
Sublease Amendment #2 dated May 30, 1990 (Suite E).
Sublease Amendment #3 dated November 16, 1990.
Sublease dated March 29, 1991 (Suites A & B).
53. Lessee shall execute the attached "Agreement of Subordination and
Attornment," Exhibit A-3, which constitutes part of this Sublease.
-5-
<PAGE> 39
ADDENDUM TO
STANDARD LEASE
DATED February 17, 1992
------------------------
BY AND BETWEEN General Atomics
---------------
Biosite Diagnostics, Inc.
------------------------------
54 RENT ESCALATIONS
(a) On each anniversary of this Sublease
base 48
the monthly base rent payable under paragraph 4 of the attached Lease shall be
adjusted by the increase, if any, from the date this Lease commenced, in the
Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of
Labor for Urban Wage Earners and Clerical Workers, Los Angeles-Long Beach-
Anaheim, California (1967=100), "All Items", herein referred to as "C.P I."
(b) The monthly rent payable in accordance with paragraph (a) of this
Addendum shall be calculated as follows: the rent payable for the first month of
the term of this Lease, as set forth in paragraph 4 of the attached Lease, shall
be multiplied by a fraction the numerator of which shall be the C.P.I. of the
calendar month during which the adjustment is to take effect, and the
denominator of which shall be the C.P.I. for the calendar month in which the
original Lease term commences. The sum so calculated shall constitute the new
monthly rent hereunder, but in no event, shall such new monthly rent be less
than the rent payable for the month immediately preceding the date for rent
adjustment.
(c) Pending receipt of the required C.P.I. and determination of the
actual adjustment, Lessee shall pay an estimated adjusted rental, as reasonably
determined by Lessor by reference to the then available C.P.I. information. Upon
notification of the actual adjustment after publication of the required C.P.I.,
any overpayment shall be credited against the next installment of rent due, and
any underpayment shall be immediately due and payable by Lessee. Lessor's
failure to request payment of an estimated or actual rent adjustment shall not
constitute a waiver of the right to any adjustment provided for in the Lease or
this addendum.
(d) In the event the compilation and/or publication of the C.P.I. shall
be transferred to any other governmental department or bureau or agency or shall
be discontinued, then the index most nearly the same as the C.P.I. shall be used
to make such calculation. In the event that Lessor and Lessee cannot agree
-6-
<PAGE> 40
on such alternative index, then the matter shall be submitted for decision to
the American Arbitration Association in accordance with the then rules of said
association and the decision of the arbitrators shall be binding upon the
parties. The cost of said Arbitrators shall be paid equally by Lessor and
Lessee.
(e) Annual rent adjustment determined under (a) shall be 4% minimum and
8% maximum.
(f) The base rent under (a) shall be calculated by indexing the current
base rent for 1 space blocks, Suites A, B, C, D, E, and G as covered in
Paragraph 48. This shall be identified as the "blended base rent" to be used as
the base rent payable the first month in Paragraph (b) above.
-7-
<PAGE> 41
ADDENDUM TO
STANDARD INDUSTRIAL LEASE
DATED February 12, 1992
-------------------------
BY AND BETWEEN General Atomics
----------------
Biosite Diagnostics, Inc.
------------------------------
55 OPTION TO EXTEND
A. Lessor hereby grants to Lessee the option to extend the term of this Lease
for a two year period commencing when the prior term expires upon each and all
of the following terms and conditions:
(i) Lessee gives to Lessor and Lessor receives written notice of the
exercise of the option to extend this Lease for said additional term * prior to
the time that the option period would commence if the option were exercised,
time being of the essence. If said notification of the exercise of said option
is not so given and received, this option shall automatically expire; * one year
(ii) The provisions of paragraph 39, including the provision relating
to default of Lessee set forth in paragraph 39.4 of this Lease are conditions of
this Option;
(iii) All of the terms and conditions of this Lease except where
specifically modified by this option shall apply;
(iv) The monthly rent for each month of the option period shall be
calculated as follows:
(a) As used herein, the term "C.P.I." shall mean the Consumer Price
Index of the Bureau of Labor Statistics of the U.S. Department of Labor for
Urban Wage Earners and Clerical Workers, Los Angeles-Long Beach-Anaheim,
California (1967=100), "All Items", herein referred to as "C.P.I."
(b) The rent payable for the first month of the Initial term of this
Lease, as set forth in paragraph 4 of the attached Lease, shall be multiplied by
a fraction the numerator of which shall be the C.P.I. of the month immediately
preceding the commencement date of the option period and the denominator of
which shall be the C.P.I. for the month in which the attached Lease was
executed. The sum so calculated shall constitute the new monthly rent during the
option period, but, in no event, shall such new monthly rent be less than the
rent payable for
-8-
<PAGE> 42
the month immediately preceding the commencement of the option period.
(c) In the event the compilation and/or publication of the C.P.I. shall
be transferred to any other governmental department or bureau or agency or shall
be discontinued, then the Index most nearly the same as the C.P.I. shall be used
to make such calculation. In the event that Lessor and Lessee cannot agree on
such alternative index, then the matter shall be submitted for decision to the
American Arbitration Association in accordance with the then rules of said
association and the decision of the arbitrators shall be binding upon the
parties. The cost of said Arbitrators shall be paid equally by Lessor and
Lessee.
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<PAGE> 43
ADDENDUM TO SUBLEASE
General Atomics
a California Corporation ("Lessor")
and
BIOSITE DIAGNOSTICS, INC.
a California Corporation ("Lease")
dated as of February 17, 1992
(the "Lease")
The following modifications and insertions numbered Riders #1 through 6, are
hereby made and incorporated into the Sublease and Exhibits thereto and shall be
deemed made at the respective places indicated in the Sublease and Exhibits. In
addition to the following Riders, certain deletions or insertions of language
have been made at the places indicated throughout the Lease. In the event of any
conflict between the Addendum and the printed provisions of the Sublease or the
Exhibits, the provisions of this Addendum are intended to govern and control,
and the Sublease and the Exhibits shall be construed accordingly. Any reference
to the Sublease in the following provisions of this Addendum shall be deemed to
include this Addendum, unless otherwise specified in such reference. Terms used
in this Addendum which are defined in the Sublease or the Exhibits shall have
the meaning given to them in the Sublease or the Exhibits.
RIDER 1: Insert to section 2.1.
Lessor is the tenant under a certain lease (the "Master Lease") with Sorrento
West Properties Inc. ("Master Lessor") of the Industrial Center. Lessor
covenants, represents, and warrants that Lessor is not in default under the
Master Lease, has not received any notice of termination by Master Lessor, of
the Master Lease, that the execution and performance by Lessor of the terms and
conditions of this Sublease will not violate any of the terms of the Master
Lease, and that Lessor will not willfully commit any act or omission which would
violate any term or condition of the Master Lease or cause the termination of
the Master Lease during the term of this Sublease.
RIDER 2: Delete in its entirety.
RIDER 3: Insert to section 4.2 (b).
Notwithstanding the foregoing, the term Operating Expenses shall not include any
cost or expense incurred with respect to any of the following:
-1-
<PAGE> 44
(i) Except for improvements as agreed to under this Sublease, any capital
improvements or replacements incurred from and after the date of this Sublease
for any alteration, addition or improvement to the Building or the Industrial
Center which would otherwise be considered an Operating Expense;
(ii) Interest or debt or amortization payments on any mortgages or deeds of
trust or any other borrowings of Lessor;
(iii) The cost of wages, salaries, and other labor costs for the operation,
repair and maintenance of the Industrial Center which are in excess of normally
acceptable industry standards.
RIDER 4: Insert to section 8.7.
(b) Lessor shall indemnify and hold harmless Lessee from and against any and all
claims arising from any work or things done, permitted or suffered by Lessor in
or about the Premises or arising from any act or omission of Lessor or any of
Lessor's agents, contractors, or employees, or arising from any breach or
default by Lessor under any of its obligations under this Sublease, and from and
against all costs, attorneys' fees, expenses, liabilities incurred in the
defense of any such claim or any action or
RIDER 5: Insert to section 11.
Lessor shall supply the Premises as an item of Operating Expense with city water
and sewer as a building service. Lessee shall be responsible for the prorata
share of water and sewage, cost of extraordinary water and sewage usage, and its
own janitorial, gas, electric, telephone, and security services for the
Premises.
RIDER 6: Insert to section 17.
***General Atomics, a California Corporation. Lessor herein
named (and in case of any subsequent transfer, then the grantor)
shall be relieved from and after the date of any transfer of
Lessor's interest in the Industrial Center. As used herein,
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<PAGE> 45
"Lease" means "Sublease", "Lessor" means "Sublessor" and
"Lessee" means "Sublessee."***
IN WITNESS WHEREOF, Lessor and Lessee have executed this Addendum to Lease
concurrent with the execution of the Lease.
GENERAL ATOMICS, a California Corporation
By /s/ R.H. Dalry
------------------------------------
Its Director, Facilities
------------------------------------
BIOSITE DIAGNOSTICS, INC., a California Corporation
By /s/ Kim D. Blickenstaff
------------------------------------
Its President
------------------------------------
-3-
<PAGE> 46
The ideal location
Sorrento West is strategically located just off U.S. Interstate 5 at
805, the major North/South highways that provide easy access to the West's major
markets. All major delivery firms provide regular service. San Diego's port
facilities and international airport are only 15 minutes away.
GRAPHIC OMITTED
DIRECTIONS [Graphic omitted]
FROM SAN DIEGO: Take the Sorrento Valley Exit off Interstate 5 (north).
Turn left on Roselle Street. Pass under Interstate 5 and follow Roselle to
Sorrento West site. OR
Take the Sorrento Valley Exit off Interstate 805 (north). Turn left on
Sorrento Valley Road. Follow Sorrento Valley Road to Intersection with Sorrento
Valley Blvd. Turn left over railroad tracks and bridge spanning flood control
channel. Turn right onto Roselle Street and follow Roselle north to Sorrento
West site. Approximately 1 block.
FROM LOS ANGELES: Take Carmel Valley Road Exit off Interstate 5
(south). Turn right onto Carmel Valley Road and then left onto Sorrento Valley
Road. Follow Sorrento Valley Road to intersection with Sorrento Valley
Boulevard. Turn right over railroad tracks and bridge spanning flood control
channel. Turn right onto Roselle Street and follow Roselle to Sorrento West
site.
For information contact:
-4-
<PAGE> 47
EXHIBIT A-2
GRAPHIC OF OUTLINE OF BUILDING
[OMITTED]
-1-
<PAGE> 48
SUBLEASE AMENDMENT #1
The Sublease between General Atomics "Sublessor" and Biosite Diagnostics, Inc.
"Sublessee" dated February 17, 1992, is amended effective this 10th day of
August, 1992. Except as hereby amended, all terms and conditions of said
Sublease shall remain unchanged and in full force and effect.
0.1 PREMISES. Add 1550 SF of Suite F, identified as Suite F (temporary
storage), to the premises for a new total of 25,450 SF. Refer to
Exhibit A-2, Sublease Amendment #1.
0.2 TERM. Space added in Suite F is leased on a month-to-month basis with
30 days written notice from either party required for termination.
0.3 BASE RENT. Starting August 17, 1992, Sublessee will pay $0.55 per
square foot for added 1550 square feet in Suite F or $853 (Eight
Hundred Fifty-Three Dollars) per month. Increase total monthly rent
from $15,820 (Fifteen Thousand Eight Hundred Twenty Dollars) to $16,673
(Sixteen Thousand Six Hundred Seventy-Three Dollars).
0.4 OPERATING EXPENSES.
(a) "Lessee's Share" is defined for purposes of this lease as
89.76% of building, 21.45% of industrial center.
0.5 SECURITY MEASURES. Add the following: Until Sublessor completely
vacates Suite F, Sublessor will control access. Sublessee will place
its own security access on fenced area Sublessee occupies in Suite F.
SUBLESSOR SUBLESSEE
GENERAL ATOMICS BIOSITE DIAGNOSTICS, INC.
By: /s/ R. H. Dalry By: /s/ Kim Blickenstaff
------------------------------- --------------------------------
R. H. Dalry, Director, President
- ---------------------- --------------------------------
Facilities
- ----------
-1-
<PAGE> 49
EXHIBIT A-2
GRAPHIC OF OUTLINE OF BUILDING
[OMITTED]
-1-
<PAGE> 50
SUBLEASE AMENDMENT #2
The Sublease between General Atomics "Sublessor" and Biosite Diagnostics, Inc.
"Sublessee" dated February 17, 1992, is amended effective this 21st day of
January, 1993. Except as hereby amended, all terms and conditions of said
Sublease shall remain unchanged and in full force and effect.
2.1 PREMISES. This Sublease Amendment shall apply to the following space:
<TABLE>
<CAPTION>
<S> <C>
Suites A & B 3,160 SF
Suite C 6,520 SF
Suite D 5,920 SF
Suite E 3,880 SF
Suite G 4,420 SF
------
Total 23,900 SF Note
</TABLE>
Note: Suite F is not included in this Amendment since it
is leased on a month-to-month basis.
3.1 & 47 TERM. Pursuant to the agreement made under "Term" of the above
referenced Sublease, change Sublease term for the premises to a period
of five (5) years starting January 1, 1993 and ending December 31,
1997.
48 RENT SCHEDULE. Pursuant to Note 2 of the Rent Schedule of
the above referenced Sublease, the unamortized balance of
payments for leasehold improvements for Suites C, D, and E
in the amount of $272,960.34 (Exhibit A), added to the cost
of leasehold improvements for Suites A, B, and G in the
amount of $352,836.55 or a total of $625,796.89, shall be
amortized over the new five year term. Accordingly, the
monthly rent attributable to leasehold improvements is
changed from $9,415.76 to $13,782.68 (Exhibit B).
Pursuant to Notes 3 and 4 of the Rent Schedule of the above referenced
Sublease, the base rent effective January 1, 1993 shall be changed by
an adjustment as follows:
Suites A, B, C, D & E - Adjusted Base Rent
Current Base Rent x CPI-UWE&CW LA Anaheim-Riverside Nov 1992
----------------------------------------
" " " " " Mar 1991
$13,168 x 424.2 = $13,971.65
-----
399.8
-1-
<PAGE> 51
Suite G - Adjusted Base Rent
Current Base Rent x CPI-UWE&CW LA Anaheim-Riverside Nov 1992
----------------------------------------
" " " " " Feb 1992
$2,652 x 424.2 = $2,712.75
-----
414.7
<TABLE>
<CAPTION>
LEASEHOLD
SPACE BLOCK BASE RENT (1/1/93) IMPROVEMENTS
----------- --------- ------------
(Suites) (Monthly) (Monthly)
<S> <C> <C>
A, B, C, D & E $13,971.65 ----
G 2,712.75 ----
All ----- $13,782.68
Total $16,684.40 $13,782.68
</TABLE>
49 TENANT IMPROVEMENTS. Change the Tenant Improvement
(leasehold improvement) allowance from $350,000 to
$352,836.55.
SUBLESSOR SUBLESSEE
GENERAL ATOMICS BIOSITE DIAGNOSTICS, INC.
By: /s/ R.H. Dalry By: /s/ Kim D. Blickenstaff
--------------------------- ---------------------------
R. H. Dalry, Director,
Facilities
-2-
<PAGE> 52
Exhibit A
BIOSITE LEASEHOLD IMPROVEMENTS
November 1, 1990 - December 31, 1992
<TABLE>
<CAPTION>
<S> <C>
Principal $427,519.00
Interest Rate 12.0%
Term (in months) 60
Monthly payment $9,415.77
</TABLE>
<TABLE>
<CAPTION>
Payment Date Payment Interest Balance
- ------------ ------- -------- -------
<S> <C> <C> <C>
$427,519.00
11/1/90 $9,415.76 0 418,103.24
12/1/90 9,415.76 4,181.03 412,868.51
1/1/91 9,415.76 4,128.69 407,581.44
2/1191 9,415.76 4,075.81 402,241.49
3/1/91 9,415.76 4,022.41 396,848 14
4/1/91 9,415.76 3,968.48 391,400.86
5/1/91 9,415.76 3,914.01 385,899.11
6/1/91 9,415.76 3,858.99 380,342.34
7/1/91 9,415.76 3,803.42 374,730.00
8/1/91 9,415.76 3,747.30 369,061.54
9/1/91 9,415.76 3,690.62 363,336.40
10/1/91 9,415.76 3,633.36 357,554.00
11/1/91 9,415.76 3,575.54 351,713.78
12/1/91 9,415.76 3,517.14 345,815.16
1/1/92 9,415.76 3,458.15 339,857.55
2/1/92 9,415.76 3,398.58 333,840.37
3/1/92 9,415.76 3,338.40 327,763.01
4/1/92 9,415.76 3,277.63 321,624.88
5/1/92 9,415.76 3,216.25 315,425.37
6/1/92 9,415.76 3,154.25 309,163.86
7/1/92 9,415.76 3,091.64 302,839.74
8/1/92 9,415.76 3,028.40 296,452.38
9/1/92 9,415.76 2,964.52 290,001.14
10/1/92 9,415.76 2,900.01 283,485.39
11/1/92 9,415.76 2,834.85 276,904.48
1/1/92 9,415.76 2,769.04 270,257.76
1/31/92 (Interest for month of December) 2,702.58 272,960.34
1/1/93 9,415.76 263,544.58
2/1/93 9,415.76 2,635.45 256,764.27
3/1/93 9,415.76 2,567.64 249,916.15
4/1/93 9,415.76 2,499.16 242,999.55
5/1/93 9,415.76 2,430.00 236,013.79
6/1/93 9,415.76 2,360.14 228,958.17
7/1/93 9,415.76 2,289.58 221,831.99
8/1/93 9,415.76 2,218.32 214,634.55
9/1/93 9,415.76 2,146.35 207,365.14
10/1/93 9,415.76 2,073.65 200,023.03
11/1/93 9,415.76 2,000.23 192,607.50
1/1/93 9,415.76 1,926.08 185,117.82
1/1/94 9,415.76 1,851.18 177,553.24
2/1/94 9,415.76 1,775.53 169,913.01
3/1/94 9,415.76 1,699.13 162,196.38
</TABLE>
-3-
<PAGE> 53
<TABLE>
<CAPTION>
Payment Date Payment Interest Balance
- ------------ ------- -------- -------
<S> <C> <C> <C>
4/1/94 9,415.76 1,621.96 154,402.58
5/1/94 9,415.76 1,544.03 146,530.85
6/1/94 9,415.76 1,465.31 138,580.40
7/1/94 9,415.76 1,385.80 130,550.44
8/1/94 9,415.76 1,305.50 122,440.18
9/1/94 9,415.76 1,224.40 114,248.82
10/1/94 9,415.76 1,142.49 105,975.55
11/1/94 9,415.76 1,059.76 97,619.55
12/1/94 9,415.76 976.20 89,179.99
1/1/95 9,415.76 891.80 80,656.03
2/1/95 9,415.76 806.56 72,046.83
3/1/95 9,415.76 720.47 63,351.54
4/1/95 9,415.76 633.52 54,569.30
5/1/95 9,415.76 545.69 45,699.23
6/1/95 9,415.76 456.99 36,740.46
7/1/95 9,415.76 367.40 27,692.10
8/1/95 9,415.76 276.92 18,553.26
9/1195 9,415.76 185.53 9,323.03
10/1/95 9,416.26 93.23 0.00
</TABLE>
Amor_Bio
-4-
<PAGE> 54
Exhibit B
BIOSITE LEASEHOLD IMPROVEMENTS
January 1, 1993
<TABLE>
<CAPTION>
Phase 5 Tls
- -----------
<S> <C>
Design Fees 41,747.57
Permit Fees 11,048.98
Base Construction Contract 280,000.00
Construction Change Orders 41,519.00
-----------
Subtotal 374,315.55
Less Biosite Direct Payment (9,288.00)
Less Suite F Fire Protection (12,191.00)
-----------
Total Phase 5 Leasehold Improvements 352,836.55
Remaining Balance - Old Note 272,960.34
-----------
Total - New Note $625,796.89
Principal Amount - New Note $625,796.89
Interest Rate 12.0%
Term (in months) 60
Monthly payment $ 13,782.68
</TABLE>
<TABLE>
<CAPTION>
Payment Date Payment Interest Balance
- ------------ ------- -------- -------
<S> <C> <C> <C>
Jan 1, 1993 $13,782.68 0 $625,014.21
Feb 1, 1993 13,782.68 6,120.14 604,351.67
Mar 1, 1993 13,782.68 6,043.52 596,612.51
Apr 1, 1993 13,782.68 5,966.13 588,795.96
May 1, 1993 13,782.68 5,887.96 580,901.24
Jun 1, 1993 13,782.68 5,809.01 572,927.57
Jul 1, 1993 13,782.68 5,729.28 564,874.17
Aug 1, 1993 13,782.68 5,648.74 556,740.23
Sep 1, 1893 13,782.68 5,567.40 548,524.95
Oct 1, 1993 13,782.68 5,485.25 540,227.52
Nov 1, 1993 13,782.68 5,402.28 531,847.12
Dec 1, 1993 13,782.68 5,318.47 523,382.91
Jan 1, 1994 13,782.68 5,233.83 514,834.06
Feb 1, 1994 13,782.68 5,148.34 506,199.72
Mar 1, 1994 13,782.68 5,062.00 497,479.04
Apr 1, 1994 13,782.68 4,974.79 488,671.15
May 1, 1994 13,782.68 4,886.71 479,775.18
Jun 1, 1994 13,782.68 4,797.75 470,790.25
Jul 1, 1994 13,782.68 4,707.90 461,715.47
Aug 1, 1994 13,782.68 4,617.15 452,549.94
Sep 1, 1994 13,782.68 4,525.50 443,292.76
Oct 1, 1994 13,782.68 4,432.93 433,943.01
Nov 1, 1994 13,782.68 4,339.43 424,499.76
Dec 1, 1994 13,782.68 4,245.00 414,962.08
Jan 1, 1995 13,782.68 4,149.62 405,329.02
Feb 1, 1995 13,782.68 4,053.29 395,599.63
Mar 1, 1995 13,782.68 3,956.00 385,772.95
Apr 1, 1995 13,782.68 3,857.73 375,848.00
May 1, 1995 13,782.68 3,758.48 365,823.80
Jun 1, 1995 13,782.68 3,658.24 355,699.36
Jul 1, 1995 13,782.68 3,556.99 345,473.67
</TABLE>
-5-
<PAGE> 55
<TABLE>
<CAPTION>
Payment Date Payment Interest Balance
- ------------ ------- -------- -------
<S> <C> <C> <C>
Aug 1, 1995 13,782.68 3,454.74 335,145.73
Sep 1, 1995 13,782.68 3,351.46 324,714.51
Oct 1, 1995 13,782.68 3,247.15 314,178.98
Nov 1, 1995 13,782.68 3,141.79 303,538.09
Dec 1, 1995 13,782.68 3,035.38 292,790.79
Jan 1, 1996 13,782.68 2,927.91 281,936.02
Feb 1, 1996 13,782.68 2,819.36 270,972.70
Mar 1, 1996 13,782.68 2,709.73 259,899.75
Apr 1, 1996 13,782.68 2,599.00 248,716.07
May 1, 1996 13,782.68 2,487.16 237,420.55
Jun 1, 1996 13,782.68 2,374.21 226,012.08
Jul 1, 1996 13,782.68 2,260.12 214,489.52
Aug 1, 1996 13,782.68 2,144.90 202,851.74
Sep 1, 1996 13,782.68 2,028.52 191,097.58
Oct 1, 1996 13,782.68 1,910.98 179,225.88
Nov 1, 1996 13,782.68 1,792.26 167,235.46
Dec 1, 1996 13,782.68 1,672 35 155,125.13
Jan 1, 1997 13,782.68 1,551.25 142,893.70
Feb 1, 1997 13,782.68 1,428.94 130,539.96
Mar 1, 1997 13,782.68 1,305.40 118,062.68
Apr 1, 1997 13,782.68 1,180.63 105,460.63
May 1, 1997 13,782.68 1,054.61 92,732.56
Jun 1, 1997 13,782.68 927.33 79.877.21
Jul 1, 1997 13,782.68 798.77 66,893.30
Aug 1, 1997 13,782.68 668.93 53,779.55
Sep 1, 1997 13,782.68 537.80 40,534.67
Oct 1, 1997 13,782.68 405.35 27,157.34
Nov 1, 1997 13,782.68 271.57 13,646.23
Dec 1, 1997 13,782.68 136.46 (00.0)
</TABLE>
Amor2Bio
-6-
<PAGE> 56
SUBLEASE AMENDMENT #3
BY AND BETWEEN
GENERAL ATOMICS AND BIOSITE DIAGNOSTICS INC.
1. PARTIES, RECITALS, AND GENERAL AGREEMENT. This Sublease between General
Atomics "Sublessor" and Biosite Diagnostics, Inc. "Sublessee" dated February 17,
1992 is amended effective this 29th day of October, 1993. Except as hereby
amended, all terms and conditions of said Sublease shall remain unchanged and in
full force and effect.
RECITALS:
Lessee desires to expand its premises at the Sorrento West Industrial Park
through lease of approximately 9817sf ("added premises") of Lessor's building at
3550 Dunhill Street (Building 3) which is located adjacent to Lessee's "current
premises" at Lessor's Building 4 located in the same commercial park. Refer to
Amendment #3, Exhibit A-1.
Lessee desires to have the lease for the added premises in Building 3 be
co-terminus with its current premises in Building 4.
Lessee desires to have Lessor finance certain leasehold improvements, part in
the added premises in Building 3 and the remainder in its existing premises in
Building 4.
Lessee desires to manage its own design, permitting, construction and
installation of Lessor financed leasehold improvements in the added and current
premises.
Lessee desires to obtain Right of First Offer (ROFO) for space in Lessor's
Buildings 3, 4, 5, and 6, when and if Lessor offers said space for lease to
others excluding Lessor's affiliates.
Lessor desires to accommodate Lessee's current expansion and finance said
leasehold improvements.
Lessor desires to accommodate Lessee's future expansion to the extent practical
and reasonable.
NOW, THEREFORE, in consideration of the foregoing, and in consideration of the
mutual covenants and agreements of the parties hereto, the parties mutually
covenant and agree as follows:
Immediately upon payment of the security deposit by the Lessee, Lessor shall
make available to Lessee, the added premises comprised of approximately 9817sf
of improved office space in Building 3.
-7-
<PAGE> 57
Lessee shall take possession of the premises in "as-is" condition and pay rent
and operating expenses starting November 1, 1993.
Lessor agrees to finance certain leasehold improvements in the amount not to
exceed a total of $300,000.
Lessee agrees to pay the $300,000 or actual cost of the leasehold improvements
whichever is less, as added rent over the remaining term of the base lease,
which terminates December 31, 1997.
2.1 PREMISES. This Sublease Amendment shall apply to the following space:
Current Premises - Building 4 (Refer to Exhibit A-2)
----------------------------------------------------
Suites A & B 3,160 SF
Suite C 6,520 SF
Suite D 5,920 SF
Suite E 3,880 SF
Suite G 4,420 SF
Subtotal 23,900 SF Note
Note: Suite F space is not included in this
amendment. A portion of Suite F space is leased on a
month-to-month basis under separate lease.
Added Premises - Building 3 (Refer to Exhibit A-3)
--------------------------------------------------
Suite B 9,817 SF
Total (Bldgs 3 & 4) 33,717 SF
6.0 USE. The added premises shall be used only for office and administrative
purposes in support of R&D and Manufacturing of biomedical products.
54. RENT ESCALATIONS
Refer to Paragraph (f) of original lease. Change to read as follows: The base
rent under (a) shall be calculated by using the "blended rental rate" comprised
of the rent for current space after adjustment (January 1, 1994) according to
the lease agreement in place prior to this amendment, plus the starting rent for
the added space included by this amendment.
56. RENT AND SECURITY DEPOSIT
For the purpose of avoiding confusion caused by tracking base rents for
different space blocks leased at different times, including space covered under
earlier leases that have been
-8-
<PAGE> 58
superseded as well as amendments to the subject lease, parties agree that a
blend rental rate shall be used to calculate base rent increases as follows:
56.1 Base Rent. The starting base rent for the added premises shall
be $0.65 per gross square foot per month, net of all operating expenses.
56.2 Rent Increases. On the next anniversary date of this Lease,
January 1, 1994, the base rent for the current premises shall be increased as
described in Paragraph 54 "Rent Escalations." On each anniversary of the lease
thereafter, the rent for current and added premises shall be increased as
described in Paragraph 54 as amended, using the blended rental rate effective
after the January 1, 1994 increase.
56.3 Leasehold Improvement Cost Recovery. Upon completion of leasehold
improvements and accumulation of cost, a new leasehold improvement payment
balance shall be determined. The new balance shall be comprised of the unpaid
principal remaining for leasehold improvements that were in effect prior to
completing leasehold improvements plus the leasehold improvement amount financed
on behalf of this lease amendment. Lessee shall make equal monthly payments as
added rent to amortize the new principal balance over the remaining term of the
lease at an interest rate of 12% per annum.
56.4 Lessee shall pay Lessor a security deposit in the amount
equivalent to one month's rent (9817 SF @ $0.65) plus two months' operating
expenses (2 x 9817 SF @ $0.15) or a total of $9326. The security deposit for all
space covered under this agreement, current plus added, shall be adjusted by a
lease amendment executed at the time the new leasehold improvement cost recovery
amortization schedule is determined. The adjusted security deposit shall be
comprised of the equivalent of one month's rent, two month's average operating
expense and one month's payment to amortize the new leasehold improvement
principal balance calculated as covered in Paragraph 56.3.
57. COMMENCEMENT DATE. TERM AND OPTIONS
(a) The term for the added premises shall commence on November 1, 1993.
(b) The term for added and current premises shall end concurrently on
December 31, 1997.
(c) Assuming the Lease is in full force and effect and Lessee is not in
default of terms of the Lease, as can be verified by Lessee via written notice
from Lessor, the two year option to extend the lease term for the current
premises shall likewise apply to the added premises.
-9-
<PAGE> 59
58. LEASEHOLD IMPROVEMENTS (TENANT IMPROVEMENTS)
Financing provided by the Lessor shall be applied only toward expenditures
against costs incurred in the construction of the leasehold improvements,
including any and all reasonable fees, charges, costs, or expenses incurred by
the Lessee in connection with design, engineering, governmental processing and
approval, cost of equipment, materials, labor, construction overhead and fees,
utility hookup, equipment installation, testing, inspection, or any costs
directly related to the leasehold improvements that improve value of the realty
as reflected on the approved drawings and specifications. Excluded from the
allowance is the cost of design, purchase, relocation or setup of Lessee's
fixtures, Lessee's project management costs, or excess costs incurred by Lessee
beyond the approved financing as covered in Paragraphs (a) and (b) below:
(a) Building 4 Funding Allowance: Parties agree that cost of leasehold
improvements to be financed by the Lessor, for laboratory space in Building 4,
shall not exceed $100,000 and shall be expended for interior improvements that
enhance utility of the space.
(b) Building 3 Funding Allowance: Parties agree that cost of leasehold
improvements to be financed by the Lessor, for administrative space in Building
3, shall not exceed $200,000 and shall be expended for interior improvements
that enhance utility of the space.
(c) Design, Construction Management and Contractor Payment: Lessee
shall be responsible for the design, permitting and construction of the
leasehold improvements and shall make direct payment for all services authorized
by the Lessee to cause the leasehold improvements to be installed. Lessor may at
its own discretion, file a "notice of nonresponsibility" giving notice to all
contractors that Lessor is not obligated for payment for cost of construction,
alterations or repairs needed to cause the leasehold improvements to be
installed.
(d) Design Review and Concurrence: Lessee shall submit to the Lessor,
for Lessor's review and concurrence, all appropriate design documents at the
schematic and detailed design stage of completion, all in advance of initiating
any leasehold improvements for which Lessor financing is to be used.
(e) Collaboration in Selection of Contractors: Lessee shall obtain
Lessor's concurrence on selection of architects, engineers, contractors and
others for which leasehold improvement funding will be used toward reimbursement
of labor, materials and services rendered for the purpose of installing said
improvements.
(f) Leasehold Improvement Cost Reimbursement: Reimbursement by the
Lessor to the Lessee for payment of fees,
-10-
<PAGE> 60
labor, material and services shall occur only after the Lessee has provided
Lessor sufficient backup information supporting request for payment.
Verification shall include a summary of the cost to complete, verification of
payment by Lessee and mechanics lien releases executed by the performing
contractor. In the event Lessee requests progress payments prior to completion
of all leasehold improvements, then Lessor shall be provided a schedule for
completion showing percentage complete as supporting data for reimbursement. The
summary shall be in the form of Construction Specification Institute (CSI)
breakdown identifying scope of work, performing contractor(s) and services
rendered.
(g) Lessor Delays: In no event shall the substantial completion dates
of the leasehold improvements be extended due to a delay or fault of Lessor.
Delays "due to the fault of Lessor" may include, without limitation, delays
caused by:
(i) Lessor's failure to timely respond to the schematic design
review, or to timely concur with the working plans or information requested by
permitting agencies, all to be submitted to the Lessor by written transmittal.
Lessee shall provide Lessor reasonable time to respond or five business days. If
response is not obtained from Lessor within the five business day period, Lessee
shall proceed on assumption that Lessor concurs with the submittal.
(ii) Lessor's failure to timely reimburse Lessee those funds
required for partial or full completion of the leasehold improvements. Lessor
shall have a minimum of forty five (45) days to reimburse Lessee, assuming
adequate supporting data is included with the request for reimbursement.
(e) Inspection of Premises: Lessor and Lessee representatives shall
make routine inspections of the Premises to verify workmanship, check general
compliance with design documents and to judge completion in support of request
for progress payments. Within five business days after substantial completion,
Lessee shall conduct a walk-through inspection of the premises with Lessor and
complete a punch-list of items needing correction or additional work to complete
the leasehold improvements. Lessor's contractor(s) shall complete all punch-
list items within 30 days after submission of the final punch-list or as soon
as practicable thereafter. Upon completion of such punch-list items, Lessee
shall notify Lessor in writing that the leasehold improvements have been
completed and forward to the Lessor verification of final City Building
Department inspection approval. At the option of the Lessor, Lessee shall file a
notice of completion and record said notice with the recorder's office.
-11-
<PAGE> 61
59. INSPECTION AND WARRANTY
Lessor's warranty under Paragraph 6.3(a) shall apply to "base building
improvements" only. For the purpose of interpreting obligations under this
paragraph of the lease, "base building improvements" are differentiated from
"leasehold improvements" as being those improvements that pre-existed the
installation of all "leasehold improvements" installed in the premises on behalf
of the Lessee.
To allay the Lessee's concerns regarding status of warranty items in the added
premises, Lessee shall perform its own inspection of building structure,
plumbing, electrical, heating and air conditioning systems and notify Lessor in
writing by December 1, 1993 of any needed repairs. Lessor shall take action to
repair said deficiencies which Lessor considers valid under terms of the
warranty, Paragraph 6.3(a), prior to Lessee's occupancy about January 1, 1993.
This inspection and repair shall not supersede the six month warranty covered in
section 6.3(a) of the lease taking effect starting the date of lease
commencement (November 1, 1993) for the added premises. Lessor shall not be
required to make major structural, plumbing, mechanical or electrical upgrades
that may be required to meet codes as a result of Lessee installing its planned
leasehold improvements.
60. RIGHT OF FIRST OFFER TO EXPAND
Provided that this lease continues in full force and effect without default by
Lessee, Lessee shall have the right to lease other space in Lessor's buildings
in Sorrento West Park designated as Buildings 3, 4, 5 and 6, Exhibit A-1. Other
space is classified as space which the Lessor may from time to time determine as
surplus to its needs or to the needs of its affiliates, or space that other
existing tenants occupy and surrender, for whatever reason, during the base term
of this lease. The right granted by this section is subject to the following
terms and conditions:
(a) If Lessor desires to offer such space for lease, Lessor shall
deliver to Lessee a written notice specifying terms of such offer.
(b) Lessee shall then have a period of thirty (30) days to accept the
offer and thereby lease such space pursuant to the terms of such offer.
(c) If Lessee fails to accept or reject such offer within the thirty
(30) day period, Lessor shall be entitled to lease such space on equivalent or
better terms and conditions to the Lessor than contained in the notice sent to
the Lessee with regard to such space. If the Lessee rejects the offer, the
response shall be in writing stating the reason for rejection.
-12-
<PAGE> 62
(d) The Right of First Offer shall terminate for the offered space for
a period of one year unless the Lessor decides to offer said space to a third
party under less favorable terms and conditions to the Lessor than previously
offered to the Lessee. If Lessor forwards a new offer to the Lessee as a result
of negotiations with a third party, then Lessee shall have five (5) business
days to accept or reject said offer. If the Lessee rejects the offer, the
response shall be in writing stating the reason for rejection.
(e) If the Lessee fails to respond in writing within the allowed time
period, after receiving an offer, Lessor shall assume Lessee has rejected the
offer and the Right of First Offer for the subject space shall terminate for the
entire term of the lease, including option periods.
(f) The Right of First Offer shall be granted only during the base term
of the lease and not during the option period.
(g) The Right of First Offer shall not apply to expansion space for
which rights have been granted to other tenants in the designated space.
(h) The Right of First Offer shall be granted only after Lessor's
review of Lessee's financial statement to establish Lessor's satisfaction that
Lessee has the ability to pay for leasing the offered space.
(i) The Right of First Offer shall be granted only upon consent of
property owner's lender relative to terms and conditions of the offered space as
it relates to use of the property, subordination, lease term and financial
consideration.
Lessor will make best effort to inform Lessee of available space in Sorrento
West whether or not it is included in Lessor's Right of First Offer designated
space.
SUBLESSOR SUBLESSEE
GENERAL ATOMICS BIOSITE DIAGNOSTICS, INC.
By /s/ Robert H. Dalry By /s/ Kim D. Blickenstaff
------------------------------ ------------------------------
Robert H. Dalry, Kim Blickenstaff,
Director, Facilities President
-13-
<PAGE> 63
THE IDEAL LOCATION
Sorrento West is strategically located just off U.S. Interstate 5 at
805, the major North/South highways that provide easy access to the West's major
markets. All major delivery firms provide regular service. San Diego's port
facilities and international airport are only 15 minutes away.
GRAPHIC OMITTED
DIRECTIONS
FROM SAN DIEGO: Take the Sorrento Valley Exit off Interstate 5
(north). Turn left on Roselle Street. Pass under Interstate 5
and follow Roselle to Sorrento West site. OR
Take the Sorrento Valley Exit off Interstate 805 (north). Turn left on Sorrento
Valley Road. Follow Sorrento Valley Road to intersection with Sorrento Valley
Blvd. Turn left over railroad tracks and bridge spanning flood control channel.
Turn right onto Roselle Street and follow Roselle north to Sorrento West site.
Approximately 1 block.
FROM LOS ANGELES: Take Carmel Valley Road Exit off Interstate 5 (south). Turn
right onto Carmel Valley Road and then left onto Sorrento Valley Road and then
left onto Sorrento Valley Road. Follow Sorrento Valley Road to intersection with
Sorrento Valley Boulevard. Turn right over railroad tracks and bridge spanning
flood control channel. Turn right onto Roselle Street and follow Roselle to
Sorrento West site.
For Information contact:
GRAPHIC OMITTED.
-14-
<PAGE> 64
EXHIBIT A-2
[GRAPHIC OF BUILDING 4 OMITTED]
-15-
<PAGE> 65
EXHIBIT A-3
[GRAPHIC OF BUILDING 3 OMITTED]
-16-
<PAGE> 66
AMENDMENT #4 TO THE SUBLEASE
BY AND BETWEEN
GENERAL ATOMICS AND BIOSITE DIAGNOSTICS, INC.
PARTIES, RECITALS AND GENERAL AGREEMENT
This Sublease Amendment #4, dated for reference purposes only, March 1, 1995 is
made by and between General Atomics (herein called "Lessor") and Biosite
Diagnostics, Inc. (herein called "Lessee").
RECITALS
A. WHEREAS, Parties to this Agreement entered into a Sublease dated
February 17, 1992, and Amendments #1, #2 and #3 dated August 10, 1992, January
21, 1993 and October 29, 1993 respectively:
B. WHEREAS, Parties executed Sublease Amendment #1 for the express
purpose of leasing to the Lessee, on a month-to-month basis, 1,550sf of 4,454sf
in Building 4, Suite F; (Refer to Exhibit A, Site Map and Exhibit B, Floor Plans
C. WHEREAS, Lessee desires to sublease all of Suite F, that 1,550sf
portion currently being leased month-to-month and the 2,904sf portion currently
retained by the Lessor (herein called "ADDED" space), for the same period as
Lessee's current Premises;
D. WHEREAS, Lessee has the "Right-of-First-Offer for Lessor's Sorrento
West Building 5 Premises at 11040 Roselle Street and a proposal for
"Right-of-First-Offer" to lease a portion of said Building was directed to the
Lessee;
E. WHEREAS, Lessee has requested that Lessor finance leasehold
improvements for Suite F and for certain existing laboratories of its current
Premises;
F. WHEREAS, parties desire to modify the Sublease in certain respects;
NOW THEREFORE, in consideration of the foregoing, and in consideration
of mutual covenants and agreements of the parties hereto, the parties mutually
covenant and agree as follows:
2.1. PREMISES. Add to the Lessee's Premises approximately 4,454gsf of space,
more specifically identified as "ADDED" space, which is comprised of that
portion of Suite F in Building 4 previously retained by the Lessor (2,904gsf)
and that portion currently leased month-to-month by the Lessee (1,550gsf).
Following is a summary of the Lessee's space blocks, date of possession,
approximate sizes and the leasehold improvement phase for all space blocks
covered under Terms of the Sublease.
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<PAGE> 67
<TABLE>
<CAPTION>
POSSESSION IMPROVEMENT
LOCATION SPACE SIZE (GSF) DATE PHASE(S)
- -------- ----- ---------- ---- --------
<S> <C> <C> <C> <C>
Bldg. 4 Suite D 5,920 03/10/90 #1 & 6
Suite C 6,520 07/01/90 #2 & 6
Suite E 3,880 10/01/90 #3
Suites A&B 3,160 05/01/91 #4 & 5
Suite G 4,420 03/01/92 #5
Bldg. 3 Suite A 9,817 11/01/93 #6
Bldg. 4 Suite F 4,454 03/01/95 #7
BLDGS. 3 & 4 TOTAL: 38,171
</TABLE>
3.0 TERM. The Term for the "ADDED" space shall start March 1, 1995 and end on
the same date as for "CURRENT" space, December 31, 1997. End of Term for all
space blocks shall be coterminous.
4.2(a) OPERATING EXPENSES. Lessee shall pay its pro rata share of operating
expenses for all space including the "ADDED" space. This Sublease Amendment
changes the Lessee's pro rata share of operating expenses for "CURRENT" and
"ADDED" Premises to: Building 3 - 47.16%; Building 4 - 100%; Park - 32.18%.
50. BROKER'S FEE. Applies to all space covered by the Sublease including that
added under this Amendment.
51. HAZARDOUS MATERIALS. Applies to all space covered by the Sublease including
that added under this Amendment.
52. PREVIOUS AGREEMENTS. Applies to all space covered by the Sublease including
that added under this Amendment.
53. AGREEMENT OF SUBORDINATION AND ATTORNMENT. Applies to all space covered by
the Sublease including that added under this Amendment.
54. RENT ESCALATIONS. Paragraph 54 is replaced in its entirety with the
Amendment #4 Paragraph 54, ADDENDUM TO STANDARD SUBLEASE attached herein.
ADDENDUM TO PRIOR AMENDMENT #3
The following paragraphs were deleted from Sublease Amendment #3 without
incorporating the word "DELETE."
47. TERM AND COMMENCEMENT DATE
48. RENT SCHEDULE
49. TENANT IMPROVEMENTS
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<PAGE> 68
The following paragraphs were added to Sublease Amendment #3 without
incorporating the word "ADD":
56. RENT AND SECURITY DEPOSIT
57. COMMENCEMENT DATE, TERM AND OPTIONS
58. LEASEHOLD IMPROVEMENTS (TENANT IMPROVEMENTS)
59. INSPECTION AND WARRANTY
60. RIGHT OF FIRST OFFER TO EXPAND
Parties agree that these omissions are hereby corrected by Sublease Amendment
#4.
55. OPTION TO EXTEND. This option applies to all space including that
added under Terms of this Sublease Amendment. Refer to ADDENDUM TO STANDARD
INDUSTRIAL LEASE of Base Lease.
56. RENT AND SECURITY DEPOSIT. Delete Amendment #3 Paragraph 56 in its
entirety and replace with the following:
56.1 Base Rent. The Base Rent for Building 4 "ADDED" space, net of all
operating expenses, shall be the rental rate the Lessee now pays on a
month-to-month basis ($0.55/gsf per month) adjusted as stipulated in Paragraph
56.2.
56.2 Rent Increases. Effective March 1, 1995, current rent, including
the month-to-month rent for Suite F, shall be adjusted by the latest available
CPI index for Urban Wage Earners and Clerical Workers, LA-Anaheim-Riverside.
Rent adjustment for the designated space blocks, using indices for December 1993
(146.7) and December 1994 (148.1), is as shown in the table below. Future rent
adjustments shall be as stipulated in Paragraph 54 included herein.
New total rent ($25,759), comprised of the current rent plus rent for
the "ADDED" space (adjusted for actual 1994 CPI), shall be used as the base rent
for calculating future rent increases under Paragraph 54:
<TABLE>
<CAPTION>
Building Space Block Rent
- -------- ----------- ----------------------------------------
CPI
Current Adjustment New
---------- ---------- ----------
<S> <C> <C> <C> <C>
3 Suite A $ 6,381.00 $ 60.90 $ 6,441.90
4 Suites A,B,C,D&E $13,971.65 $133.34 $14,104.99
4 Suite G $ 2,712.75 $ 25.89 $ 2,738.64
4 Suite F(1,550sf) $ 853.00 $ 8.14 $ 861.14
4 Suite F(2,904sf) $ 0.00 $ 0.00 $ 1,612.44
---------- ------- ----------
$23,918.40 $228.27 $25,759.11
</TABLE>
56.3 Leasehold Improvement Cost Recovery. Lessor has previously
financed six separate improvement projects over a period starting with the
Lessee's possession of the first space block, Building 4, Suite D. Lessor has
paid all the leasehold improvement costs for Phase 4. Costs for Phases 1, 2, 3,
and 5
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<PAGE> 69
are being paid on a payment schedule dated January 1, 1993 (Exhibit C). Payment
for Improvement Phase 6, which was comprised of improvements to Building 3,
Suite A, and certain rework of Building 4, Suites C & D, is being paid to the
Lessor by the Lessee, on a separate payment schedule dated April 1,
1994 (Exhibit D).
As part of this Sublease Amendment, Lessee requested and Lessor agrees
to finance, additional leasehold improvements to "ADDED" space, and to certain
upgrades for existing laboratories in "CURRENT" space. This financing shall be
identified as improvement Phase 7, with a total cost not to exceed $125k, the
final actual sum to be amortized over the remaining period of the base sublease
term, at 12% per annum. Parties agree that upon completion of Phase 7 funding,
Lessor has the option to combine the three financing schedules into one, the
principal amount of the new schedule to be determined by adding to the
unamortized balance of the two current payment schedules (Exhibits C and D) the
actual Phase 7 "debt" as determined below.
Lessee's requests for reimbursement of leasehold improvement
expenditures shall be limited to one request per month. Lessor's Project funding
shall be completed within four months from the first disbursement payment. In
the event the leasehold improvement cost reimbursement period exceeds three
months, Lessor has the option to accrue interest on the reimbursement amount, at
1% per month, to be added to the total amount funded to the Phase 7
improvements, the sum to be termed Phase 7 "debt." This debt shall be used as
the starting balance for the Phase 7 leasehold payment schedule for which
collection shall start no later than six months after the first reimbursement
payment.
56.4 Security Deposit. Lessee shall increase its Security Deposit to an
amount equivalent to one month's rent, two months' average operating expenses
and one month's payment for leasehold improvements. The following summarizes the
Security Deposit required upon execution of Sublease Amendment #4.
<TABLE>
<CAPTION>
<S> <C>
One Month's Rent (Paragraph 56.2) $25,579
One Month's Operating Expenses 38,171sf x
$0.15/sf x 2mos. $11,451
Monthly Leasehold Payment - January 1, 1993
Schedule $13,783
Monthly Leasehold Payment - April 1, 1994
Schedule $ 8,208
Security Deposit on Record $42,326
SECURITY DEPOSIT DUE UPON EXECUTION OF
THIS AMENDMENT: $16,695
</TABLE>
57. COMMENCEMENT DATE, TERM AND OPTIONS. Delete in its entirety. Information is
contained in other Paragraphs of the Sublease Amendment.
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<PAGE> 70
58. LEASEHOLD IMPROVEMENTS. Delete Amendment #3, Paragraph 58 in its
entirety and replace with the following:
Parties agree that Lessee shall cause to be installed certain leasehold
improvements in the "ADDED" space and in certain "CURRENT" space, Phase 7
improvements to be identified on working drawings and specifications prepared by
qualified design firms registered to practice in the State of California. Design
for said improvements shall be processed through the City of San Diego Building
Department and work shall be performed under valid permits with the City.
(a) Financing: Financing provided by the Lessor shall be applied only
toward expenses incurred in the preparation of design; for engineering,
governmental processing and approval; for construction of the leasehold
improvements, including any and all reasonable fees, charges, costs, or expenses
incurred by the Lessee in connection with cost of equipment, materials, labor,
construction, overhead and fees, utility hookup, equipment installation,
testing, inspections, or any costs directly related to the leasehold
improvements that improve the value of the realty as reflected on the approved
working drawings and specifications. Excluded from the financing is the cost of
design, purchase, relocation, installation and testing of Lessee's fixtures;
costs of Lessee's project management, overhead and fees, or excess costs
incurred by Lessee beyond the amount of approved financing stipulated in
Paragraph 56.3.
(b) Design, Construction Management and Contractor Payment: Lessee
shall be responsible for coordinating design, permitting and construction
management of the leasehold improvements. Lessee shall make direct payment for
all services authorized by the Lessee to cause the leasehold improvements to be
installed. Lessor may at its own discretion, file a "notice of non
responsibility" giving notice to all contractors that Lessor is not obligated
for payment of construction material, labor or services, or repairs needed to
cause the leasehold improvements to be installed.
(c) Design Review and Concurrence: Lessee shall submit to the Lessor,
for Lessor's review and concurrence, working drawings and specifications at the
schematic and detailed design stage of completion, all in advance of initiating
any leasehold improvements for which Lessor financing is to be used.
(d) Collaboration in Selection of Contractors: Lessee shall obtain
Lessor's concurrence on selection of architects, engineers, contractors and
others for which leasehold improvement funding will be used toward reimbursement
for payment of labor, materials and services rendered for the purpose of having
installed said improvements.
(e) Leasehold Improvement Cost Reimbursement: Reimbursement by Lessor
to the Lessee for payment of fees,
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<PAGE> 71
labor, material and services shall occur only after the Lessee has provided
Lessor sufficient backup information showing verification of payment with
supporting information. Supporting information shall include a summary of the
cost to complete and verification of payment by Lessee accompanied by
conditional or unconditional mechanics lien releases executed by the performing
contractor(s). Any request for reimbursement for progress payments (payments for
less than 100% completion) shall be supported with a schedule for project
completion showing percentage complete for those services for which
reimbursement is being requested. Cost summaries, supported by a project
schedule, shall be in the Construction Specification Institute (CSI) format,
identifying scope of work, respective performing contractor(s) and services
rendered.
(f) Lessor Delays: In no event shall the substantial completion
dates of the leasehold improvements be extended due to a delay or fault of
Lessor. Delays "due to the fault of Lessor" may include, without limitation,
delays caused by:
(i) Lessor's failure to timely respond to the schematic design
review, or to timely concur with the working plans or information requested by
permitting agencies, all to be submitted to the Lessor by written transmittal.
Lessee shall provide Lessor reasonable time to respond or a minimum of five (5)
business days. If response is not obtained from Lessor within the five (5)
business day period, Lessee shall proceed on assumption that Lessor concurs with
the submittal.
(ii) Lessor's failure to timely reimburse Lessee those funds
required for partial or full completion of the leasehold improvements. Lessor
shall have a minimum of thirty (30) days to reimburse Lessee, assuming adequate
supporting data is included in the request for reimbursement.
(g) Inspection of Premises: Lessor and Lessee representatives
shall make routine inspections of the Premises to verify workmanship, check
general compliance with design documents and to judge completion in support of
request for reimbursement for progress payments. Within five (5) business days
after substantial completion, Lessee shall conduct a walkthrough inspection of
the Premises with Lessor and complete a punch-list of items needing correction
or additional work to complete the leasehold improvements. Lessee's
contractor(s) shall complete all punch-list items within thirty (30) days after
submission of the final punch-list or as soon as practicable thereafter. Upon
completion of such punch-list items, Lessee shall notify Lessor in writing that
the leasehold improvements have been completed and forward to the Lessor.
verification of final City Building Department inspection approval. At the
option of the Lessor, Lessee shall file a notice of completion and record said
notice with the recorder's office.
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<PAGE> 72
59. INSPECTION AND WARRANTY. Delete Amendment #3, Paragraph 59 in its
entirety and replace with the following:
Lessor's warranty under Paragraph 6.3(a) shall apply to "base building
improvements" only. For the purpose of interpreting obligations under this
paragraph of the Sublease, "base building improvements" are differentiated from
"leasehold improvements" as being those improvements that pre-existed the
installation of "leasehold improvements" installed in the "ADDED" space block by
the Lessee.
Lessee shall perform its own inspection of building structure,
plumbing, electrical, heating and air conditioning systems and notify Lessor in
writing by April 1, 1995 of any needed repairs. Lessor shall take action to
repair said deficiencies which Lessor considers valid under terms of the
warranty, Paragraph 6.3(a). This inspection and repair shall not supersede the
six month warranty covered in section 6.3(a) of the Sublease taking effect
starting the date of possession, March 1, 1995 for the "ADDED" Premises. Lessor
shall not be required to make major structural, plumbing, mechanical or
electrical upgrades that may be required to meet codes as a result of Lessee
installing its planned leasehold improvements.
60. RIGHT OF FIRST OFFER TO EXPAND. Delete Amendment #3, Paragraph 60 in
its entirety and replace with the following:
Provided that this Sublease continues in full force and effect without
default by Lessee, Lessee shall have the "Right-of-First-Offer" ("ROFO") to
lease other space in Lessor's buildings in Sorrento West Park designated as
Buildings 3, 4, and 6 (Refer to Exhibit A, Site Map). "ROFO" space is classified
as space which the Lessor may from time to time determine as surplus to its
needs or to the needs of its affiliates, or space that other existing tenants
occupy and surrender, for whatever reason, during the base term of this
Sublease. The right granted to the Lessee by this section is subject to the
following terms and conditions:
(a) If Lessor desires to offer such space for lease, Lessor shall
deliver to Lessee a written notice specifying terms of such offer.
(b) Lessee shall then have a period of thirty (30) days to accept the
offer and thereby lease such space pursuant to the terms of such offer.
(c) If Lessee fails to accept or reject such offer within the thirty
(30) day period, Lessor shall be entitled to lease such space to other third
party. If the Lessee rejects the offer, the response shall be in writing stating
the reason for rejection.
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<PAGE> 73
(d) If the Lessee fails to respond in writing within the allowed time
period, after receiving an offer, Lessor shall assume Lessee has rejected the
offer and the "ROFO" for the subject space shall terminate for the entire term
of the Sublease, including the option periods.
(e) "ROFO" shall be granted only during the base term of the Sublease
and not during the option period.
(f) "ROFO" shall not apply to expansion space for which rights have
been granted to other tenants in the designated space.
(g) "ROFO" shall be granted only after Lessor's review of Lessee's
financial statement to establish Lessor's satisfaction that Lessee has the
ability to pay for leasing the offered space.
(h) "ROFO" shall be granted only upon consent of Property Owner and its
lender relative to terms and conditions of the offered space and as it relates
specifically to use of the property, subordination, sublease term and financial
consideration.
By letter dated, May 6, 1994, Lessor submitted a proposal to Lessee
extending to Lessee "ROFO" option for its expansion into a portion of Building 5
at 11040 Roselle Street, more specifically the 11,905gsf space block occupied by
Microelectronics Packaging America. Through lack of response from the Lessee,
said offer expired June 6, 1994. Parties acknowledge they have since discussed
Lessee's expansion needs relative to possible availability about the end of
first quarter 1995, of approximately 17,99Ogsf in Building 5, currently occupied
by "A" Company. Lessee informally notified Lessor that it would not execute a
"ROFO" option for the "A" Company space and by execution of this Sublease
Amendment, Lessee affirms its position of disinterest in said "ROFO" option.
Parties agree the Lessor's Building 5 is therefore removed for "ROFO"
consideration under this Sublease Agreement.
ADDENDUM TO SUBLEASE. Addendum attached to the base Sublease applies to all
space covered under terms of this Sublease Amendment.
EXCEPT AS HEREBY AMENDED, ALL OTHER TERMS AND CONDITIONS OF SAID LEASE SHALL
REMAIN UNCHANGED AND IN FULL FORCE AND EFFECT.
LESSOR: LESSEE:
GENERAL ATOMICS BIOSITE DIAGNOSTICS, INC.
By /s/ Robert H. Dalry By /s/ Kim D. Blickenstaff
---------------------------- ----------------------------
Robert H. Dalry Kim Blickenstaff
Director Facilities President
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<PAGE> 74
ADDENDUM TO
STANDARD SUBLEASE AMENDMENT #40
Dated: March 1, 1995
By and Between: General Atomics
Biosite Diagnostics, Inc.
54 RENT ESCALATIONS
(a) On January 1, 1996, 1997 and the same month and day of the option
period years, the monthly rent payable under paragraph (e) shall be adjusted by
the increase, if any, in the Consumer Price Index of the Bureau of Labor
Statistics of the U.S. Department of Labor for Urban Wage Earners and Clerical
Workers, Los Angeles-Long Beach-Anaheim, California (1967=100), "All Items,"
herein referred to as "C.P.I."
(b) The monthly rent payable in accordance with paragraph (a) of this
Addendum shall be calculated as follows: the rent payable (See paragraph (e)
below), shall be multiplied by a fraction the numerator of which shall be the
C.P.I. of the calendar month prior to the month the adjustment is to take
effect, and the denominator of which shall be the C.P.I. for December 1994
(148.1). The sum so calculated shall constitute the new monthly rent hereunder,
but in no event, shall such new monthly rent be less than the rent payable for
the month immediately preceding the date for rent adjustment.
(c) Pending receipt of the required C.P.I. and determination of the
actual adjustment, Lessee shall pay an estimated adjusted rental, as reasonably
determined by Lessor by reference to the then available C.P.I. information. Upon
notification of the actual adjustment after publication of the required C.P.I.,
any overpayment shall be credited against the next installment of rent due, and
any underpayment shall be immediately due and payable by Lessee. Lessor's
failure to request payment of an estimated or actual rent adjustment shall not
constitute a waiver of the right to any adjustment provided for in the Lease or
this addendum.
(d) In the event the compilation and/or publication of the C.P.I. shall
be transferred to any other governmental department or bureau or agency or shall
be discontinued, then the index most nearly the same as the C.P.I. shall be used
to make such calculation. In the event that Lessor and Lessee cannot agree on
such alternative index, then the matter shall be submitted for decision to the
American Arbitration Association in accordance with the then rules of said
association and the decision of the arbitrators shall be binding upon the
parties.
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<PAGE> 75
The cost of said Arbitrators shall be paid equally by Lessor and Lessee.
(e) The monthly rent under (a) shall be calculated by indexing the
March 1, 1995 rent or $25,579 as shown in paragraph 56.2 Rent Increases, of the
Sublease Amendment #4.
(f) Annual rent determined under (a) shall be increased 3% minimum and
8% maximum.
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<PAGE> 76
THE IDEAL LOCATION
Sorrento West is strategically located just off U.S. Interstate 5 at 805, the
major North/South highways that provide easy access to the West's major markets.
All major delivery firms provide regular service. San Diego's port facilities
and international airport are only 15 minutes away.
GRAPHICS OMITTED.
DIRECTIONS
FROM SAN DIEGO: Take the Sorrento Valley exit off Interstate 5 (north). Turn
left on Roselle Street. Pass under Interstate 5 and follow Roselle to Sorrento
West site.
OR
Take the Sorrento Valley Exit off Interstate 805 (north). Turn left on Sorrento
Valley Road. Follow Sorrento Valley Road to intersection with Sorrento Valley
Blvd., turn left over railroad tracks and bridge spanning flood control channel.
Turn right onto Roselle Street and follow Roselle north to Sorrento West site.
Approximately 1 block.
FROM LOS ANGELES: Take Carmel Valley Road exit off Interstate 5 (south). Turn
right onto Carmel Valley Road and then left onto Sorrento Valley Road. Follow
Sorrento Valley Road to intersection with Sorrento Valley Boulevard, turn right
over railroad tracks and bridge spanning flood control channel, turn right onto
Roselle Street and follow Roselle to Sorrento West site.
GRAPHICS OMITTED.
Exhibit A
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<PAGE> 77
BIOSITE LEASEHOLD IMPROVEMENTS
January 1, 1993
<TABLE>
<S> <C>
Phase 5 Tls
Design Fees 41,747.50
Permit Fees 11,048.98
Base Construction Contract 280,000.00
Construction Change Orders 41,519.00
-----------
Subtotal 374,315.55
Less Biosite Direct Payment (9,288.00)
Less Suite F Fire Protection (12,191.00)
-----------
Total Phase 5 Leasehold Improvements 352,836.55
Remaining Balance - Old Note 272,960.34
-----------
Total - New Note $625,796.89
Principal Amount - New Note $625,796.89
Interest Rate 12.0%
Term (in months) 60
Monthly payment $ 13,782.68
</TABLE>
<TABLE>
<CAPTION>
Payment Date Payment Interest Balance
- ------------ ----------- -------- -----------
<S> <C> <C> <C>
$625,796.89
Jan 1, 1993 $ 13,782.68 0 612,014.21
Feb 1, 1993 13,782.68 6,120.14 604,351.67
Mar 1, 1993 13,782.68 6,043.52 596,612.51
Apr 1, 1993 13,782.68 5,966.13 588,795.96
May 1, 1993 13,782.68 5,887.96 580,901.24
Jun 1, 1993 13,782.68 5,809.01 572,927.57
Jul 1, 1993 13,782.68 5,729.28 564,874.17
Aug 1, 1993 13,782.68 5,648.74 556,740.23
Sep 1, 1993 13,782.68 5,567.40 548,524.95
Oct 1, 1993 13,782.68 5,485.25 540,227.52
Nov 1, 1993 13,782.68 5,402.28 531,847.12
Dec 1, 1993 13,782.68 5,318.47 523,382.91
Jan 1, 1994 13,782.68 5,233.83 514,834.06
Feb 1, 1994 13,782.68 5,148.34 506,199.72
Mar 1, 1994 13,782.68 5,062.00 497,479.04
Apr 1, 1994 13,782.68 4,974.79 488,671.15
May 1, 1994 13,782.68 4,886.71 479,775.18
Jun 1, 1994 13,782.68 4,797.75 470,790.25
Jul 1, 1994 13,782.68 4,707.90 461,715.47
Aug 1, 1994 13,782.68 4,617.15 452,549.94
Sep 1, 1994 13,782.68 4,525.50 443,292.76
Oct 1, 1994 13,782.68 4,432.93 433,943.01
Nov 1, 1994 13,782.68 4,339.43 424,499.76
Dec 1, 1994 13,782.68 4,245.00 414,962.08
Jan 1, 1995 13,782.68 4,149.62 405,329.02
Feb 1, 1995 13,782.68 4,053.29 395,599.63
Mar 1, 1995 13,782.68 3,956.00 385,772.95
Apr 1, 1995 13,782.68 3,857.73 375,848.00
May 1, 1995 13,782.68 3,758.48 365,823.80
Jun 1, 1995 13,782.68 3,658.24 355,699.36
Jul 1, 1995 13,782.68 3,556.99 345,473.67
Aug 1, 1995 13,782.68 3,454.74 335,145.73
Sep 1, 1995 13,782.68 3,351.46 324,714.51
Oct 1, 1995 13,782.68 3,247.15 314,178.98
Nov 1, 1995 13,782.68 3,141.79 303,538.09
Dec 1, 1995 13,782.68 3,035.38 292,790.79
Jan 1, 1996 13,782.68 2,927.91 281,936.02
Feb 1, 1996 13,782.68 2,819.36 270,972.70
Mar 1, 1996 13,782.68 2,709.73 259,899.75
</TABLE>
Exhibit C
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<PAGE> 78
<TABLE>
<CAPTION>
Payment Date Payment Interest Balance
- ------------ ----------- -------- -----------
<S> <C> <C> <C>
Apr 1, 1996 13,782.68 2,599.00 248,716.07
May 1, 1996 13,782.68 2,487.16 237,420.55
Jun 1, 1996 13,782.68 2,374.21 226,012.08
Jul 1, 1996 13,782.68 2,260.12 214,489.52
Aug 1. 1996 13,782.68 2,144.90 202,851.74
Sep 1, 1996 13,782.68 2,028.52 191,097.58
Oct 1, 1996 13,782.68 1,910.98 179,225.88
Nov 1, 1996 13,782.68 1,792.26 167,235.46
Dec 1, 1996 13,782.68 1,672.35 155,125.13
Jan 1, 1997 13,782.68 1,551.25 142,893.70
Feb 1, 1997 13,782.68 1,428.94 130,539.96
Mar 1, 1997 13,782.68 1,305.40 118,062.68
Apr 1, 1997 13,782.68 1,180.63 105,460.63
May 1, 1997 13,782.68 1,054.61 92,732.56
Jun 1, 1997 13,782.68 927.33 79,877.21
Jul 1, 1997 13,782.68 798.77 66,893.30
Aug 1, 1997 13,782.68 668.93 53,779.55
Sep 1, 1997 13,782.68 537.80 40,534.67
Oct 1, 1997 13,782.68 405.35 27,157.34
Nov 1, 1997 13,782.68 271.57 13,646.23
Dec 1, 1997 13,782.69 136.46 (0.00)
</TABLE>
Exhibit C
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<PAGE> 79
BIOSITE LEASEHOLD IMPROVEMENT - PHASE 6 (1993-1994 PERIOD)
<TABLE>
<CAPTION>
GA Allowance
Reimbursement # Building Amount
--------------- -------- ------
<S> <C> <C>
1 3 $ 79,348.83
2 3 $116,970.62
3 4 $ 60,030.54
4 4 $ 42,876.69
-----------
$299,226.57
</TABLE>
<TABLE>
<S> <C>
Loan Amount $299,226.57
Interest Rate 12.0%
Term (in months) 45
Monthly payment $ 8,208.01
</TABLE>
<TABLE>
<CAPTION>
Payment Date Payment Interest Balance
- ------------ ----------- -------- -----------
<S> <C> <C> <C>
$299,226.57
April 1, 1994 $8,208.01 $ 0.00 $291,018.56
May 1, 1994 $8,208.01 2,910.19 285,720.74
June 1, 1994 $8,208.01 2,857.21 280,369.93
July 1, 1994 $8,208.01 2,803.70 274,965.62
August 1, 1994 $8,208.01 2,749.66 269,507.27
September 1, 1994 $8,208.01 2,695.07 263,994.33
October 1, 1994 $8,208.01 2,639.94 258,426.26
November 1, 1994 $8,208.01 2,584.26 252,802.52
December 1, 1994 $8,208.01 2,528.03 247,122.53
January 1, 1995 $8,208.01 2,471.23 241,385.75
February 1, 1995 $8,208.01 2,413.86 235,591.60
March 1, 1995 $8,208.01 2,355.92 229,739.50
April 1, 1995 $8,208.01 2,297.40 223,828.89
May 1, 1995 $8,208.01 2,238.29 217,859.16
June 1, 1995 $8,208.01 2,178.59 211,829.75
July 1, 1995 $8,208.01 2,118.30 205,740.03
August 1, 1995 $8,208.01 2,057.40 199,589.42
September 1, 1995 $8,208.01 1,995.89 193,377.31
October 1, 1995 $8,208.01 1,933.77 187,103.07
November 1, 1995 $8,208.01 1,871.03 180,766.09
December 1, 1995 $8,208.01 1,807.66 174,365.74
January 1, 1996 $8,208.01 1,743.66 167,901.39
February 1, 1996 $8,208.01 1,679.01 161,372.39
March 1, 1996 $8,208.01 1,613.72 154,778.11
April 1, 1996 $8,208.01 1,547.78 148,117.88
May 1, 1996 $8,208.01 1,481.18 141,391.05
June 1, 1996 $8,208.01 1,413.91 134,596.95
July 1, 1996 $8,208.01 1,345.97 127,734.91
August 1, 1996 $8,208.01 1,277.35 120,804.25
September 1, 1996 $8,208.01 1,208.04 113,804.28
October 1, 1996 $8,208.01 1,138.04 106,734.31
November 1, 1996 $8,208.01 1,067.34 99,593.65
December 1, 1996 $8,208.01 995.94 92,381.57
January 1, 1997 $8,208.01 923.82 85,097.38
February 1, 1997 $8,208.01 850.97 77,740.34
March 1, 1997 $8,208.01 777.40 70,309.74
April 1, 1997 $8,208.01 703.10 62,804.82
May 1, 1997 $8,208.01 628.05 55,224.86
June 1, 1997 $8,208.01 552.25 47,569.10
July 1, 1997 $8,208.01 475.69 39,836.78
August 1, 1997 $8,208.01 398.37 32,027.14
September 1, 1997 $8,208.01 320.27 24,139.40
</TABLE>
Exhibit D
-30-
<PAGE> 80
<TABLE>
<CAPTION>
Payment Date Payment Interest Balance
- ------------ ----------- -------- -----------
<S> <C> <C> <C>
October 1, 1997 $8,208.01 241.39 16,172.78
November 1, 1997 $8,208.01 161.73 8,126.50
December 1, 1997 $8,208.01 81.27 (0.24)
</TABLE>
Exhibit D
-31-
<PAGE> 81
AMENDMENT #5 TO THE SUBLEASE
BY AND BETWEEN
GENERAL ATOMICS AND BIOSITE DIAGNOSTICS, INC.
THIS SUBLEASE AMENDMENT #5 ("Amendment #5") dated for reference
purposes only, October 1, 1996 is made by and between GENERAL ATOMICS,
("Lessor") and BIOSITE DIAGNOSTICS, INC. ("Lessee").
RECITALS
Parties entered into a Sublease Agreement dated February 17, 1992, and
Amendments #1, #2, #3 and #4 dated August 10, 1992, January 21, 1993, October
29, 1993 and March 1, 1995 respectively for certain Building 3 and 4 Premises at
Lessor's Sorrento West Commercial Park;
Lessee has requested that the Option to Extend the Lease Term be
changed to provide for four one-year extension terms in lieu of the one two-year
extension term currently in the Sublease Agreement;
In acknowledgment by the Lessor of the Lessee's excellent rent payment
history and commendable performance under terms of the Sublease Agreement,
Lessor desires to accommodate Lessee's requested change;
NOW THEREFORE, in consideration of the foregoing, and in consideration
of mutual covenants and agreements of the Parties hereto, the Parties mutually
covenant and agree as follows:
Delete Paragraph 55, Option to Extend, in its entirety and
replace with a new Paragraph 55 attached herein:
Except as hereby amended, all other terms and conditions of
said sublease shall remain unchanged and in full force and
effect.
LESSOR: LESSEE:
GENERAL ATOMICS BIOSITE DIAGNOSTICS, INC.
By: /s/ Robert H. Dalry By: /s/ Chris Twomey
--------------------------- ---------------------------
Name: Robert H. Dalry Name: Chris Twomey
------------------------- -------------------------
Title: Director Facilities Title: V. P. Finance
------------------------ ---------------------------
Date: 11/4/96 Date: 10/4/96
------------------------- -------------------------
-32-
<PAGE> 82
ADDENDUM TO STANDARD INDUSTRIAL LEASE
Dated October 1, 1996 By and Between General Atomics and Biosite Diagnostics,
Inc.
55 OPTION TO EXTEND
- --
A. Lessor hereby grants to Lessee the option to extend the term of this
Lease for four one year periods commencing when the prior term expires upon each
and all of the following terms and conditions:
(i) Lessee gives to Lessor and Lessor receives written notice of the
exercise of the option to extend this Lease for said additional term no earlier
than nine months and no later than six months prior to the time that the option
period would commence if the option were exercised, time being of the essence.
If said notification of the exercise of said option is not so given and
received, this option shall automatically expire;
(ii) The provisions of paragraph 39, including the provision relating
to default of Lessee set forth in paragraph 39.4 of this Lease are conditions of
this Option;
(iii) All of the terms and conditions of this Lease except where
specifically modified by this option shall apply;
(iv) The monthly rent for each month of the option period shall be
calculated as follows:
In accordance with Paragraph 54, Rent Escalations, of Sublease
Amendment #4.
-33-
<PAGE> 1
EXHIBIT 10.20
[CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.]
SETTLEMENT AND LICENSE AGREEMENT &
AGREEMENT OF DISMISSAL WITH PREJUDICE
THIS SETTLEMENT AND LICENSE AGREEMENT & AGREEMENT OF DISMISSAL WITH
PREJUDICE ("Agreement") is made as of September 6, 1996 ("Effective Date"), by
and between Biosite Diagnostics, Inc., a Delaware corporation, having an office
and principal place of business at 11030 Roselle Street, San Diego, California
92121 ("Biosite") and Abbott Laboratories, an Illinois corporation, having an
office and principal place of business at 100 Abbott Park Road, Abbott Park,
Illinois 60064 ("Abbott").
WHEREAS, on May 5, 1994, Abbott filed a patent infringement suit
against Biosite in the United States District Court for the Northern District of
Illinois, with respect to United States Patent No. 5,073,484 (Case No. 94 C
2808);
WHEREAS, Biosite and Abbott wish to resolve the issues relating to such
action.
NOW, THEREFORE, in consideration of the mutual promises and obligations
set forth herein, Abbott and Biosite agree as follows;
ARTICLE I - DEFINITIONS
For purposes of this Agreement, the following definitions shall apply:
1.01 The term "Action" means the action presently pending in the
United States District Court for the Northern District of Illinois, Abbott
Laboratories v. Biosite Diagnostics, Inc., bearing the Case Number 94 C 2808.
1.02 The term "Affiliate" means with respect to a party, any other
business entity which directly or indirectly controls, is controlled by, or is
under common control with, such party. A business entity or party shall be
regarded as in control of another business entity if it owns, or directly or
indirectly controls, more than fifty percent (50%) of the voting stock or other
ownership interest of the other business entity.
1.03 The term "Combination Product" means a Product that is sold in
combination with one or more other products which have commercial utility other
than use in combination with a Product.
1.04 The term "DOA Diagnostics Field" means the following field:
[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]
1
<PAGE> 2
1.05 The term "[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY
WITH THE COMMISSION] Field" means the following field: [CONFIDENTIAL MATERIAL
REDACTED AND FILED SEPARATELY WITH THE COMMISSION]
1.06 The term "[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY
WITH THE COMMISSION] Field" means the following field: [CONFIDENTIAL MATERIAL
REDACTED AND FILED SEPARATELY WITH THE COMMISSION]
1.07 The term "Net Sales" means:
(A) the gross invoiced price for all Products sold or otherwise
transferred for tangible value by Biosite or its Affiliates or its sublicensees
(to the extent authorized under this Agreement) in arm's length transactions to
unrelated third parties for monetary or other valuable consideration, less
deductions for:
(i) quantity, trade and cash discounts or rebates, credits
or allowances and adjustments separately and actually credited to customers for
rejections and returns of Products;
(ii) charges for freight, postage, transportation, import
or export taxes, excise taxes and other similar taxes, insurance and other
delivery costs not otherwise charged to the customer; and
(iii) any tax or other government charges imposed on the
sale or use of Products (other than income tax) levied on its sale,
transportation or delivery and borne by Biosite or its Affiliates or its
sublicensees (to the extent authorized under this Agreement).
(B) With respect to Combination Products, the gross invoiced
price of such Combination Products billed to customers by Biosite or its
Affiliates or its sublicensees (to the extent authorized under this Agreement),
less: the allowances and adjustment referred to in subparagraph (A) above,
multiplied by a fraction the numerator of which shall be the gross selling price
of the Product as sold separately and the denominator of which shall be the sum
of the gross selling price(s) of each of the other products having commercial
utility in the Combination Product including the Product. If there is no
established current gross selling price for the Product or for other products
having commercial utility, then for purposes of calculating Net Sales the
standard costs in accordance with Generally Accepted Accounting Principles
("GAAP") of manufacturing of the Product with the other products having
commercial utility shall be used to determine the percentage of sales
attributable to Product.
(C) In the event that a Product sold by Biosite or its
Affiliates or its sublicensees (to the extent authorized under this Agreement)
is increased in price to include an amount to cover the amortized cost of an
instrument system and/or other equipment supplied to a customer by Biosite or
its Affiliates under a Reagent Agreement Plan, Reagent Rental Plan, or other
successor or similar plan (collectively referred to herein as "RAP"), the
2
<PAGE> 3
Net Sales for such Product on which royalty shall be calculated shall be
determined by reducing the total Net Sales of such Product (including the total
of sale of Product and instrument system RAP) by the amount of the price
increase attributable to RAP, in accordance with accounting procedures
consistent with GAAP, provided the minimum amount attributable to the Net Sales
of the Product shall be no less than the per unit current retail selling price
of the Product as sold alone to non-RAP customers.
1.08 The term "[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY
WITH THE COMMISSION] Field" means the following field: [CONFIDENTIAL MATERIAL
REDACTED AND FILED SEPARATELY WITH THE COMMISSION], excluding the DOA
Diagnostics Field.
1.09 The term "Patents" means (A) U.S. Patent No. 5,073,484 and
equivalent foreign patents or patent applications, as set forth in the attached
Exhibit A, and (B) all divisions, continuations, continuations-in-part,
reexaminations, reissues, additions, renewals and extensions of such patents.
1.10 The term "Product" means any rapid immunoassay devices (including
but not limited to those using the Triage(R) platform) which are manufactured
and sold by Biosite or its Affiliates or its sublicensees (to the extent
authorized under this Agreement) on the Effective Date or thereafter, and which
fall within the scope of the claims of any of the Patents or would infringe the
claims of any of the Patents but for the licenses granted under Section 3.01.
1.11 The term "Valid Claim" shall mean a claim of an issued and
unexpired Patent which neither has been held unenforceable or invalid by a
decision of a court or governmental agency of competent jurisdiction,
unappealable or unappealed within the time allowed for appeal, nor has been
admitted by the holder of the Patent to be invalid or unenforceable through
reissue, reexamination, disclaimer, abandonment or otherwise.
1.12 The term "[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY
WITH THE COMMISSION] Field" means the following field: [CONFIDENTIAL MATERIAL
REDACTED AND FILED SEPARATELY WITH THE COMMISSION]
ARTICLE II - RELEASE AND CONCLUSION OF CONTROVERSIES
2.01 As of the Effective Date, Abbott releases and forever discharges
Biosite and its Affiliates, and their respective agents, attorneys, directors,
officers and employees, from any and all claims and demands whatsoever in law
and equity, whether now known or unknown, arising from any infringement or
alleged infringement of one or more claim of any Patents by Biosite or its
Affiliates occurring prior to the Effective Date or arising out of or relating
to the Action or any claims or allegations asserted in the Action, except to the
extent any such claims and demands relate to the manufacture, sale or use of
Products in the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE
COMMISSION] Field after the Effective Date.
3
<PAGE> 4
2.02 As of the Effective Date, Biosite releases and forever discharges
Abbott and its Affiliates, and their respective agents, attorneys, directors,
officers and employees, from any and all claims and demands whatsoever in law
and equity, whether now known or unknown, arising out of or relating to the
Action or any claims or allegations asserted in the Action.
2.03 The parties shall enter into and promptly submit to the United
States District Court for the Northern District of Illinois ("Court") a Joint
Stipulation and Order of Dismissal in the form attached as Exhibit B. The
parties shall take all necessary steps to secure the entry of the Joint
Stipulation and Order of Dismissal. The Action will be finally terminated by the
entry of the Joint Stipulation and Order of Dismissal and no appeal shall be
taken by any party from such Order. This Agreement shall not be filed with the
Court.
2.04 Abbott and Biosite each expressly waives any right or claim it may
have to recover from the other party court costs or attorneys' fees arising from
or in connection with the Action.
2.05 The Protective Order entered in the Action, a copy of which is
attached as Exhibit C, shall remain in full force and effect indefinitely, and
Biosite and Abbott each shall continue to comply with its terms upon the
termination of the Action.
ARTICLE III - LICENSE GRANT
3.01 (A) Upon the date of receipt by Abbott of the sum set forth in
Section 4.01 hereof, Abbott, as of the Effective Date, grants to Biosite and its
Affiliates a fully paid-up, worldwide, non-exclusive license under the Patents,
to make, have made, use, import, offer to sell, sell and have sold Products in
the DOA Diagnostics Field, subject to the terms of Articles VI and VII hereof.
(B) As of the Effective Date, Abbott also grants to Biosite and
its Affiliates a royalty-bearing (at the rate specified in Section 4.03),
worldwide, non-exclusive license under the Patents to make, have made, use,
import, offer to sell, sell and have sold Products in the [CONFIDENTIAL MATERIAL
REDACTED AND FILED SEPARATELY WITH THE COMMISSION] Field, subject to the terms
of Articles VI and VII hereof,
(C) As of the Effective Date, Abbott also grants to Biosite and
its Affiliates a royalty-bearing (at the rate specified in Section 4.04),
worldwide, non-exclusive license under the Patents to make, have made, use,
import, offer to sell, sell and have sold Products in the [CONFIDENTIAL MATERIAL
REDACTED AND FILED SEPARATELY WITH THE COMMISSION] Field and the [CONFIDENTIAL
MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] Field, subject to
the terms of Articles VI and VII hereof.
(D) Biosite and its Affiliates [CONFIDENTIAL MATERIAL REDACTED AND
FILED SEPARATELY WITH THE COMMISSION] under the licenses granted pursuant to
Section 3.01(A), (B) or (C), except as provided in Section 3.01(E) and (F)
below.
4
<PAGE> 5
(E) Biosite and its Affiliates shall have the right to grant
sublicenses [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE
COMMISSION] to one or more third parties under the licenses granted pursuant to
Section 3.01(A), (B) and (C), only if all of the following requirements are met
for each such sublicense:
(i) Such sublicense shall be granted [CONFIDENTIAL MATERIAL
REDACTED AND FILED SEPARATELY WITH THE COMMISSION]
(ii) Such sublicense shall be [CONFIDENTIAL MATERIAL REDACTED
AND FILED SEPARATELY WITH THE COMMISSION]
(iii) Such sublicense shall be royalty-bearing in all fields,
with the following royalties being payable to Abbott based on the [CONFIDENTIAL
MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] at the following
rates: (a) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE
COMMISSION] of Net Sales in the DOA Diagnostics Field and the [CONFIDENTIAL
MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] Field, and (b)
[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] of Net
Sales in the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE
COMMISSION] Field and the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY
WITH THE COMMISSION] Field. Such royalty shall be payable in such countries in
the world in which a Valid Claim exists for as long as a Valid Claim exists in
such countries.
(F) Under the scope of the licenses granted pursuant to Section
3.01 (A), (B) and (C) (and without the necessity of granting sublicenses to any
third party), Biosite, its Affiliates and its sublicensees (to the extent
authorized under this Agreement) [CONFIDENTIAL MATERIAL REDACTED AND FILED
SEPARATELY WITH THE COMMISSION].
3.02 Biosite and its Affiliates shall not, except as may be required by
law or an order of a court or governmental agency, file, permit to be filed on
their behalf, cooperate with or assist any other party in the filing or taking
of any action before any court or governmental agency to [CONFIDENTIAL MATERIAL
REDACTED AND FILED SEPARATELY WITH THE COMMISSION]
3.03 Abbott hereby covenants that it will not, and it will cause its
Affiliates not to, file, permit to be filed on their behalf, or take any action
to [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]
3.04 No license or any other right is granted by implication or
otherwise with respect to any patent application or patent except as
specifically set forth herein. For the avoidance of doubt, no license is being
granted hereunder in the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY
WITH THE COMMISSION] Field.
5
<PAGE> 6
ARTICLE IV - PAYMENTS RECORD KEEPING AND REPORTS
4.01 Biosite shall pay to Abbott the amount of Five Million Five
Hundred Thousand U.S. Dollars ($5,500,000) within three (3) business days
following the date of the entry of the Dismissal With Prejudice, by
electronically transferring such funds to the following Abbott bank account:
City Bank of New York
(for Abbott Laboratories)
ABA #[CONFIDENTIAL MATERIAL REDACTED AND FILED
SEPARATELY WITH THE COMMISSION]
Account #[CONFIDENTIAL MATERIAL REDACTED AND FILED
SEPARATELY WITH THE COMMISSION]
Such payment shall be allocated as follows: (A) Two Million U.S. Dollars
($2,000,000) shall be a payment for Abbott's settlement of the Action and (B)
Three Million Five Hundred Thousand U.S. Dollars ($3,500,000) shall be a payment
for Abbott's license grant pursuant to Section 3.01(A).
4.02 If any of the Patents are held invalid or unenforceable by a court
of competent jurisdiction or any other governmental agency, bureau, commission,
authority or body, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE
COMMISSION]
4.03 In consideration of Abbott's license grant pursuant to Section
3.01(B), Biosite shall pay Abbott a royalty of [CONFIDENTIAL MATERIAL REDACTED
AND FILED SEPARATELY WITH THE COMMISSION] of Biosite's Net Sales of Products in
the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]
Field. Such royalty shall be payable in such countries in the world in which a
Valid Claim exists for as long as a Valid Claim exists in such countries.
4.04 In consideration of Abbott's license grant pursuant to Section
3.01(C), Biosite shall pay Abbott a royalty of [CONFIDENTIAL MATERIAL REDACTED
AND FILED SEPARATELY WITH THE COMMISSION] of Biosite's Net Sales of Products in
the [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION]
Field and [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE
COMMISSION] Field. Such royalty shall be payable in such countries in the world
in which a Valid Claim exists for as long as a Valid Claim exists in such
countries.
4.05 Royalty shall be payable only once with respect to the same unit
of Product irrespective of the number of Valid Claims covering such unit of
Product.
4.06 All royalties due to Abbott hereunder shall be paid in United
States Dollars. Biosite shall be responsible for making the payment to Abbott
which payment shall be made by check or wire transfer, at Biosite's discretion.
In the event that any Product is sold in a
6
<PAGE> 7
currency other than United States Dollars, the Net Sales of such Product for the
reporting period shall be converted (for the purpose of calculation of such
royalty) into its equivalent dollar value using standard Biosite financial
report procedures and conversion methodology, which shall be consistent with
GAAP. The royalty shall be paid in United States Dollars based on local sales
converted to United States Dollars. The Biosite conversion methodology for sales
shall be based on monthly averages (end of prior month spot rate plus end of
current month spot rate divided by two) using central bank fixing rates (such as
that in effect at the Chase Manhattan Bank) in countries where available and
open market rates otherwise.
4.07 Biosite shall keep and maintain full, true and accurate books of
account containing all particulars that may be necessary, for the purpose of
showing the amounts payable hereunder to Abbott. The books of account shall be
kept at Biosite's principal place of business. The books of account and the
supporting data shall be open once per year during the term of this Agreement at
reasonable times during normal business hours, for two (2) years following the
end of the calendar year to which they pertain, to the inspection of Abbott or
its representatives for the sole purpose of verifying Biosite royalty statement
or compliance in other respects with this Agreement. The costs and expenses
relating to such inspection shall be borne by Abbott. In the event that Biosite
royalties calculated for any semi-annual period are in error by greater than
[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] for
the period of time covered by the inspection, Biosite shall bear the reasonable
costs of any audit and review initiated by Abbott.
4.08 Biosite, [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH
THE COMMISSION], shall deliver to Abbott true and accurate reports, giving such
particulars of the business conducted by Biosite during the preceding six-month
period under this Agreement as shall be pertinent to a royalty accounting
hereunder. These shall include at least the following:
(A) number of Products manufactured and sold;
(B) total billings for Products manufactured, used and sold;
(C) deductions applicable as provided in Section 1.07 (Net Sales);
and
(D) total royalty due.
4.09 With each such report set forth in Section 4.08 submitted to
Abbott, Biosite shall pay to Abbott royalty due and payable under this
Agreement. If no royalty shall be due, Biosite shall so report.
4.10 The royalty payments set forth in this Agreement shall, if
overdue, bear interest until payment at a per annum rate of One Percent (1%)
above the prime rate in effect at Chase Manhattan Bank (N.A.) from the due date.
7
<PAGE> 8
ARTICLE V - ALTERNATE DISPUTE RESOLUTION
The parties recognize that a bona fide dispute as to certain matters
relating to either party's or their Affiliates' rights and obligations under
this Agreement may from time to time arise. In the event of the occurrence of
such a dispute, either party may, by written notice to the other party, have
such dispute referred to their respective officers designated below or their
successors, for attempted resolution by good faith negotiations within
twenty-eight (28) days after such notice is made as provided under Article X of
this Agreement. Said designated officers are as follows:
FOR ABBOTT: President, Diagnostics Division, or his designee.
FOR BIOSITE: President and Chief Executive Officer, or his designee.
In the event the designated officers are not able to resolve such
dispute within such twenty-eight (28) day period, or any agreed extension
thereof, either party may invoke binding Alterative Dispute Resolution (ADR) in
accordance with the attached Exhibit D.
ARTICLE VI - TERMINATION
6.01 This Agreement, unless earlier terminated as hereinafter provided,
shall expire upon [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE
COMMISSION]
6.02 In the event Biosite fails to pay the amount due Abbott under
Section 4.01 within the period of time provided therein, Abbott may terminate
this Agreement if such amount is not paid within ten (10) days following written
notice thereof to Biosite.
6.03 In the event Biosite breaches its obligations under Section 3.02,
Abbott may terminate this Agreement immediately upon written notice to Biosite.
6.04 In the event either party files or otherwise becomes subject to
bankruptcy or insolvency proceedings, the other party may terminate this
Agreement immediately upon written notice to the party filing or otherwise
becoming subject to bankruptcy or insolvency proceedings.
6.05 In the event Biosite has not made at least one commercial sale to
an unaffiliated third party of a Product in the [CONFIDENTIAL MATERIAL REDACTED
AND FILED SEPARATELY WITH THE COMMISSION] Field and/or the [CONFIDENTIAL
MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION] Field on or before
[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION],
Biosite's license under Section 3.01(C) in any such fields shall automatically
terminate.
8
<PAGE> 9
6.06 The following provisions shall survive termination or expiration
of this Agreement: Sections 2.01, 2.02, 2.03, 2.04, 2.05, 3.04, 14.01 and 14.02.
ARTICLE VII - ASSIGNABILITY
Neither this Agreement nor the license herein granted to Biosite shall
be assignable or otherwise transferable by Biosite [CONFIDENTIAL MATERIAL
REDACTED AND FILED SEPARATELY WITH THE COMMISSION]
(A) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE
COMMISSION]
(B) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE
COMMISSION]
(i) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY
WITH THE COMMISSION]; and
(ii) [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY
WITH THE COMMISSION].
ARTICLE VIII - WARRANTIES
8.01 Abbott represents and warrants to Biosite that:
(A) Abbott has the full right, power and authority to grant the
licenses to Biosite as set forth in Section 3.01 of this Agreement;
(B) this Agreement has been duly authorized, executed and
delivered by Abbott and constitutes a valid, binding and legally enforceable
agreement of Abbott;
(C) the execution and delivery of this Agreement and the
performance by Abbott of its covenants and agreements herein contained,
including the grant of the license to Biosite, are not restricted by and are not
in conflict with, any agreement binding on Abbott or any of its Affiliates;
(D) to the best of Abbott's knowledge, no claim in the Patents has
been held invalid; and
(E) other than the Action and the proceedings referenced in the
attached Exhibit E, to the best of Abbott's knowledge, there are not any legal
proceedings pending challenging the validity or enforceability of any Patents.
8.02 Biosite represents and warrants to Abbott that:
9
<PAGE> 10
(A) this Agreement has been duly authorized, executed and
delivered by Biosite and constitutes a valid, binding and legally enforceable
agreement of Biosite; and
(B) the execution and delivery of this Agreement and the
performance by Biosite of its covenants and agreements herein contained are not
restricted by and are not in conflict with, any agreement binding on Biosite or
any of its Affiliates.
ARTICLE IX - APPLICABLE LAW
This Agreement is acknowledged to have been made in and shall be
construed in accordance with the laws of the State of New York, U.S.A.; provided
that all questions concerning the construction or effect of the Patents shall be
decided in accordance with the laws of the country in which the particular
Patents have been filed or granted, as the case may be.
ARTICLE X - NOTICES
Services of all notices hereunder shall be in writing and shall be made
by courier, U.S. Mail, or by facsimile transmission (followed by courier or U.S.
Mail delivery), to the addresses below, and the effective date of giving of such
notices shall be the date on which such notice is actually received by the
recipient. Notices shall be addressed as follows:
If to Abbott:
Director, Technology Acquisition
Abbott Laboratories
D-9RK, AP6C
100 Abbott Park Road
Abbott Park, Illinois 60064-3500
With a copy to:
General Counsel
Abbott Laboratories
D-364, AP6D
100 Abbott Park Road
Abbott Park, Illinois 60064-3500
10
<PAGE> 11
If to Biosite:
Mr. Kim Blickenstaff
President and CEO
Biosite Diagnostics, Inc.
11030 Roselle Street
San Diego, California 92121
With a copy to:
Thomas E. Sparks, Jr., Esq.
Pillsbury Madison & Sutro LLP
235 Montgomery Street
San Francisco, California 94104
or to any other such address as may from time to time be designated by the
receiving party.
ARTICLE XI - ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties
concerning the subject matter hereof and supersedes any written or oral prior
agreements or understandings with respect thereto.
ARTICLE XII - WAIVER AND MODIFICATION
No variation or modifications of any of the terms or provisions of this
Agreement shall be valid unless in writing and signed by an authorized
representative of both parties hereto. Failure by either party to enforce any
rights under this Agreement shall not be construed as a waiver of such rights
nor shall a waiver by either party in one or more instances be construed as
constituting a continuing waiver or as a waiver in other instances.
ARTICLE XIII - HEADINGS
The headings contained in this Agreement are for convenience and
reference purposes only and shall not affect the meaning or interpretation of
this Agreement
ARTICLE XIV - CONFIDENTIALITY AND PUBLICITY
14.01 The existence of this Agreement and the terms thereof shall
remain confidential. None of the parties shall disclose to or discuss in any
manner with any third party the terms of this Agreement, or any other aspect of
the Action or their respective claims therein, except as provided in Section
14.02.
14.02 Unless mutually agreed upon by the parties, no party, including
its agents, attorneys, directors, officers, employees and Affiliates, shall
originate nor participate in any publicity, news release or other public
statement or announcement, written or oral, whether to
11
<PAGE> 12
the public, press, to stockholders or otherwise, relating to the subject matter
of this Action or issues raised during the Action or this Agreement, to any
amendment hereto or to performance hereunder, save only such announcement as in
the opinion of legal counsel to the party making such announcement is required
by applicable laws or regulations to be made. At least fifteen (15) business
days prior to such announcement, to the maximum extent practicable, the party
making such announcement shall give the other party an opportunity to review and
comment on the form of the announcement, and the party making such announcement
shall give due consideration to the other party's comments. To the extent giving
fifteen (15) business days notice is not practicable, the party making such
announcement shall use its best efforts to give the other party as much time as
possible in advance of such announcement to review and comment on the form of
the announcement.
ARTICLE XV - SEVERABILITY
If any provision of this Agreement shall hereafter be held to be
invalid or unenforceable for any reason, that provision shall be reformed to the
maximum extent permitted to preserve the parties' original intent, failing
which, it shall be severed from this Agreement with the balance of the Agreement
continuing in full force and effect, unless a party would thereby be deprived of
a substantial portion of its consideration. Such occurrence shall not have the
effect of rendering the provision in question invalid in any other jurisdiction
or in any other case or circumstance, or of rendering invalid any other
provisions contained herein to the extent that such other provisions are not
themselves actually in conflict with any applicable law.
ARTICLE XVI - COUNTERPARTS
This Agreement may be executed in counterparts, each of which shall be
deemed an original.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the Effective Date.
ABBOTT LABORATORIES BIOSITE DIAGNOSTICS, INC.
By: /s/ Miles D. White By: /s/ Kim D. Blickenstaff
---------------------------------- -----------------------------------
Title: SVP - President ADD Title: President & CEO
------------------------------- --------------------------------
Date: 9/6/96 Date: September 6, 1996
-------------------------------- ---------------------------------
12
<PAGE> 13
EXHIBIT A
[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE
COMMISSION]PATENTS
<TABLE>
<CAPTION>
COUNTRY PATENT/APPLICATION STATUS
NUMBER
<S> <C> <C>
Australia 560,552 Issued 4/9/87
Brazil 8,301,191 Issued 11/22/83
Canada 1,206,878 Issued 7/1/86
EPO Pub. No. 088,636 Granted 8/28/91
(Nationalized in:
Belgium, Germany,
France, United
Kingdom, Italy,
Luxembourg,
Netherlands, Sweden)
India 157,435 Issued 3/29/86
Israel 68,082 Issued 12/31/86
[CONFIDENTIAL [CONFIDENTIAL [CONFIDENTIAL
MATERIAL REDACTED MATERIAL REDACTED MATERIAL REDACTED
AND FILED AND FILED AND FILED
SEPARATELY WITH THE SEPARATELY WITH SEPARATELY WITH THE
COMMISSION] THE COMMISSION] COMMISSION]
South Africa 83/1617 Issued 3/28/84
United States 5,073,484 Issued 12/17/91
</TABLE>
<PAGE> 14
EXHIBIT E
PENDING LEGAL PROCEEDINGS INVOLVING
PATENT NO. 5,073,484
1. [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH
THE COMMISSION] is involved in an interference with [CONFIDENTIAL MATERIAL
REDACTED AND FILED SEPARATELY WITH THE COMMISSION] assigned to
[CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE
COMMISSION].
2. [CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH
THE COMMISSION] has been opposed by two parties. At this time, Abbott has not
received any documents relating to the opposition.
<PAGE> 1
EXHIBIT 10.22
STANDARD INDUSTRIAL LEASE - MULTI-TENANT
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. PARTIES. This Lease, dated, for reference purposes only, September 21,
1994, is made by and between Sorrento West Limited (herein called "Lessor") and
Biosite Diagnostics (herein called "Lessee").
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES. Lessor hereby leases to Lessee and Lessee leases from
Lessor for the term, at the rental, and upon all of the conditions set forth
herein, real property situated in the County of San Diego, State of California
commonly known as 11010 Roselle Street and described as a single story R&D
building approximating 13,849 square feet, herein referred to as the "Premises",
as may be outlined on an Exhibit attached hereto, including rights to the Common
Areas as hereinafter specified but not including any rights to the roof of the
Premises or to any Building in the Industrial Center. The Premises are a portion
of a building, herein referred to as the "Building". The Premises, the Building,
the Common Areas, the land upon which the same are located, along with all other
buildings and improvements thereon, are herein collectively referred to as the
"Industrial Center".
2.2 VEHICLE PARKING. Lessee shall be entitled to vehicle parking
spaces, unreserved and unassigned, on those portions of the Common Areas
designated by Lessor for parking. Lessee shall not use more parking spaces than
said number. Said parking spaces shall be used only for parking by vehicles no
larger than full size passenger automobiles or pick-up trucks, herein called
"Permitted Size Vehicles". Vehicles other than Permitted Size Vehicles are
herein referred to as "Oversized Vehicles".
2.2.1 Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
2.2.2 If Lessee permits or allows any of the prohibited activities
described in paragraph 2.2 of this Lease, then Lessor shall have the right,
without notice, in addition to such other rights and remedies that it may have,
to remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
2.3 COMMON AREAS - DEFINITION. The term "Common Areas" is defined as
all areas and facilities outside the Premises and within the exterior boundary
line of the Industrial Center that are provided and designated by the Lessor
from time to time for the general non-exclusive use of Lessor, Lessee and of
other lessees of the Industrial Center and their respective employees,
suppliers, shippers, customers and invitees, including parking
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<PAGE> 2
areas, loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways and landscaped areas.
2.4 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, customers and
invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center. Under no circumstances
shall the right herein granted to use the Common Areas be deemed to include the
right to store any property, temporarily or permanently, in the Common Areas.
Any such storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.5 COMMON AREAS - RULES AND REGULATIONS. Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and management
of the Common Areas and shall have the right, from to time, to establish,
modify, amend and enforce reasonable rules and regulations with respect thereto.
Lessee agrees to abide by and conform to all such rules and regulations, and to
cause its employees, suppliers, shippers, customers, and invitees to so abide
and conform. Lessor shall not be responsible to Lessee for the non-compliance
with said rules and regulations by other lessees of the Industrial Center.
2.6 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without limitation,
changes in the location, size, shape and number of driveway, entrances, parking
spaces, parking areas, loading and unloading areas, ingress, egress, direction
of traffic, landscaped areas and available; (b) To close temporarily any of the
Common Areas for maintenance purposes, so long as reasonable access to the
Premises remains available; (c) To designate other land outside the boundaries
of the Industrial Center to be a part of the Common Areas; (d) To add additional
buildings and improvements to the Common Area; (e) To use the Common Areas while
engaged in making additional improvements, repairs or alterations to the
Industrial Center, or any portion thereof; (f) To do and perform such other acts
and make such other changes in, to or with respect to the Common Areas and
Industrial Center as Lessor may, in the exercise of sound business judgment,
deem to be appropriate.
2.6.1 Lessor shall at all times provide the parking facilities required
by applicable law and in no event shall the number of parking spaces that Lessee
is entitled to under paragraph 2.2 be reduced.
3. TERM.
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<PAGE> 3
3.1 TERM. The term of this Lease shall be for three (3) years and zero
(0) months commencing on October 1, 1994 and ending on September 30, 1997 unless
sooner terminated pursuant to any provision hereof.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Lessee hereunder
or extend the term hereof, but in such case, Lessee shall not be obligated to
pay rent or perform any other obligation of Lessee under the terms of this
Lease, except as may be otherwise provided in this Lease, until possession of
the Premises is tendered to Lessee; provided, however, that if Lessor shall not
have delivered possession of the Premises within sixty (60) days from said
commencement date, Lessee may, at Lessee's option, by notice in writing to
Lessor within ten (10) days thereafter, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease shall terminate
and be of no further force or effect.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not advance the termination date, and Lessee shall
pay rent for such period at the initial monthly rates set forth below.
4. RENT.
4.1 BASE RENT. Lessee shall pay to Lessor, as Base Rent for the
Premises, without any offset or deduction, except as may be otherwise expressly
provided in this Lease, on the 1st day of each month of the term hereof, monthly
payments in advance of $8,032.42. Lessee shall pay Lessor upon execution hereof
$8,032.42 as Base Rent for October 1994. Rent for any period during the term
hereof which is for less than one month shall be a pro rata portion of the Base
Rent. Rent shall be payable in lawful money of the United States to Lessor at
the address stated herein or to such other persons or at such other places as
Lessor may designate in writing.
4.2 OPERATING EXPENSES. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined, of
all Operating Expenses, as hereinafter defined, during each calendar year of the
term of this Lease, in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease, as
49.5% (13,849 s.f./27,955 s.f.) percent.
(b) "Operating Expenses" is defined, for purposes of this Lease, as
all costs incurred by Lessor, if any, for:
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<PAGE> 4
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities and fences and gates;
(bb) Trash disposal services;
(cc) Tenant directories;
(dd) Fire detection systems including sprinkler system
maintenance and repair;
(ee) Security services;
(ff) Any other service to be provided by Lessor that
is elsewhere in this Lease stated to be an "Operating Expense".
(ii) Any deductible portion of an insured loss concerning any
of the items or matters described in this paragraph 4.2.
(iii) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof.
(iv) The amount of the real property tax to be paid by Lessor
under paragraph 10.1 hereof.
(v) The cost of water, gas and electricity to service the
Common Areas.
(c) The inclusion of the improvements, facilities and services set
forth in paragraph 4.2(b)(i) of the definition of Operating Expenses shall not
be deemed to impose an obligation upon Lessor to either have said improvements
or facilities or to provide those services unless the Industrial Center already
has the same, Lessor already provides the services, or Lessor has agreed
elsewhere in the Lease to provide the same or some of them.
(d) Lessee's Share of Operating Expenses shall be payable by Lessee
within ten (10) days after a reasonably detailed statement of actual expenses is
presented to Lessee by Lessor. At Lessor's option, however, an amount may be
estimated by Lessor from time to time of Lessee's Share of annual Operating
Expenses and the same shall be payable monthly or quarterly, as Lessor shall
designate, during each twelve-month period of the Lease term, on the same day as
the Base Rent is due hereunder. In the event that Lessee pays Lessor's estimate
of Lessee's Share of Operating Expenses as aforesaid, Lessor shall deliver to
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<PAGE> 5
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Operating
Expenses incurred during the preceding year. If Lessee's payments under this
paragraph 4.2(d) during said preceding year exceed Lessee's Share as indicated
on said statement, Lessee shall be entitled to credit the amount of such
overpayment against Lessee's Share of Operating Expenses next falling due. If
Lessee's payments under this paragraph during said preceding year were less than
Lessee's Share as indicated on said statement, Lessee shall pay to Lessor the
amount of the deficiency within ten (10) days after delivery by Lessor to Lessee
of said statement. If estimated operating expenses are due Lessee at the end of
the lease term, then this refund shall be paid to Lessee within sixty (60) days.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution
hereof $8,032.42 as security for Lessee's faithful performance of Lessee's
obligations hereunder. If Lessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Lease,
Lessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any other
sum to which Lessor may become obligated by reason of Lessee's default, or to
compensate Lessor for any loss or damage which Lessor may suffer thereby. If
Lessor so uses or applies all or any portion of said deposit, Lessee shall
within ten (10) days after written demand therefor deposit cash with Lessor in
an amount sufficient to restore said deposit to the full amount than required of
Lessee. If the monthly rent shall, from time to time, increase during the term
of this Lease, Lessee shall, at the time of such increase, deposit with Lessor
additional money as a security deposit so that the total amount of the security
deposit held by Lessor shall at all times bear the same proportion to the then
current Base Rent as the initial security deposit bears to the initial Base Rent
set forth in paragraph 4. Lessor shall not be required to keep said security
deposit separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not theretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for general
office and R&D use for medical products or any other use which is reasonably
comparable and for no other purposes.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to the
use for which Lessee will occupy the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term
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<PAGE> 6
commencement date. In the event it is determined that this warranty has been
violated, then it shall be the obligation of the Lessor, after written notice
from Lessee, to rectify promptly, at Lessor's sole cost and expense, any such
violation. In the event Lessee does not give to Lessor written notice of the
violation of this warranty within six months from the date that the Lease term
commences, the correction of same shall be the obligation of the Lessee at
Lessee's sole cost. The warranty contained in this paragraph 6.2(a) shall be of
no force or effect if, prior to the date of this Lease, Lessee was an owner or
occupant of the Premises and, in such event, Lessor shall correct any such
violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at
Lessee's expense, promptly comply with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements of any fire insurance underwriters or rating bureaus, now in effect
or which may hereafter come into effect, whether or not they reflect a change in
policy from that now existing, during the term or any part of the term hereof,
relating in any manner to the Premises and the occupation and use by Lessee of
the Premises and of the Common Areas. Lessee shall not use nor permit the use of
the Premises or the Common Areas in any manner that will tend to create waste or
a nuisance or shall tend to disturb other occupants of the Industrial Center.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free
of debris on the Lease commencement date (unless Lessee is already in
possession) and Lessor warrants to Lessee that the plumbing, lighting, air
conditioning, heating, and loading doors in the Premises shall be in good
operating condition on the Lease commencement date. In the event that it is
determined that this warranty has been violated, then it shall be the obligation
of Lessor, after receipt of written notice from Lessee setting forth with
specificity the nature of the violation, to promptly, at Lessor's sole cost,
rectify such violation. Lessee's failure to give such written notice to Lessor
within thirty (30) days after the Lease commencement date shall cause the
conclusive presumption that Lessor has complied with all of Lessor's obligations
hereunder. The warranty contained in this paragraph 6.3(a) shall be of no force
or effect if prior to the date of this Lease, Lessee was an owner or occupant of
the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises in their condition existing as of the Lease commencement
date or the date that Lessee takes possession of the Premises, whichever is
earlier, subject to all applicable zoning, municipal, county and state laws,
ordinances and regulations governing and regulating the use of the Premises, and
any covenants or restrictions of record, and accepts this Lease subject thereto
and to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
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<PAGE> 7
7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of paragraphs 4.2
(Operating Expenses), 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage or
Destruction) and except for damage caused by any negligent or intentional act or
omission of Lessee, Lessee's employees, suppliers, shippers, customers, or
invitees, in which event Lessee shall repair the damage. Lessor, at Lessor's
expense, subject to reimbursement pursuant to paragraph 4.2, shall keep in good
condition and repair the foundations, exterior walls, structural condition of
interior bearing walls, and roof of the Premises, as well as the parking lots,
walkways, driveways, landscaping, fences, signs and utility installations of the
Common Areas and all parts thereof, as well as providing the services for which
there is an Operating Expense pursuant to paragraph 4.2. Lessor shall not,
however, be obligated to paint the exterior or interior surface of exterior
walls, nor shall Lessor be required to maintain, repair or replace windows,
doors or plate glass of the Premises. Lessor shall have no obligation to make
repairs under this paragraph 7.1 until a reasonable time after receipt of
written notice from Lessee of the need for such repairs. Lessee expressly waives
the benefits of any statute now or hereafter in effect which would otherwise
afford Lessee the right to make repairs at Lessor's expense or to terminate this
Lease because of Lessor's failure to keep the Premises in good order, condition
and repair. Lessor shall not be liable for damages or loss of any kind or nature
by reason of Lessor's failure to furnish any Common Area Services when such
failure is caused by accident, breakage, repairs, strikes, lockout, or other
labor disturbances or disputes of any character, or by any other cause beyond
the reasonable control of Lessor.
7.2 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of paragraphs 6 (Use), 7.1
(Lessor's Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's
expense, shall keep in good order, condition and repair the Premises and every
part thereof (whether or not the damaged portion of the Premises or the means of
repairing the same are reasonably or readily accessible to Lessee) including,
without limiting the generality of the foregoing, all plumbing, heating,
ventilating and air conditioning systems (Lessee shall procure and maintain, at
Lessee's expense, a ventilating and air conditioning system maintenance
contract), electrical and lighting facilities and equipment within the Premises,
fixtures, interior walls and interior surfaces of exterior walls, ceilings,
windows, doors, plate glass, and skylights located within the Premises. Lessee
to provide a copy of Maintenance Agreement to Lessor.
(b) If Lessee fails to perform Lessee's obligations under this
paragraph 7.2 or under any other paragraph of this Lease, Lessor may enter upon
the Premises after ten (10) days' prior written notice to Lessee (except in the
case of emergency, in which no notice shall be required), perform such
obligations on Lessee's behalf and put the Premises in good order, condition and
repair, and the cost thereof together with interest thereon at the maximum rate
then allowable by law shall be due and payable as additional rent to Lessor
together with Lessee's next Base Rent installment.
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<PAGE> 8
(c) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as received, ordinary wear and tear excepted, clean and free of debris. Any
damage or deterioration of the Premises shall not be deemed ordinary wear and
tear if the same could have been prevented by good maintenance practices. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, alterations, furnishings and equipment.
Notwithstanding anything to the contrary otherwise stated in this Lease, Lessee
shall leave the air lines, power panels, electrical distribution systems,
lighting fixtures, space heaters, air conditioning, plumbing and fencing on the
Premises in good operating condition. Lessor will allow Lessee to remove
equipment outlined on Attachment A subject to the provisions of this section.
7.3 ALTERNATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent
make any alterations, improvements, additions, or Utility Installations in, on
or about the Premises, or the Industrial Center, except for nonstructural
alterations to the Premises not exceeding $10,000 in cumulative costs, during
the term of this Lease. In any event, whether or not in excess of $10,000 in
cumulative cost, Lessee shall make no change or alteration to the exterior of
the Premises nor the exterior of the Building nor the Industrial Center without
Lessor's prior written consent. As used in this paragraph 7.3 the term "Utility
Installation" shall mean carpeting, window coverings, air lines, power panels,
electrical distribution systems, lighting fixtures, space heaters, air
conditioning, plumbing, and fencing. Lessor may require that Lessee remove any
or all of said alterations, improvements, additions or Utility Installations at
the expiration of the term, and restore the Premises and the Industrial Center
to their prior condition. Lessor may require Lessee to provide Lessor, at
Lessee's sole cost and expense, a lien and completion bond in an amount equal to
one and one-half times the estimated cost of such improvements, to insure Lessor
against any liability for mechanic's and materialmen's liens and to insure
completion of the work. Should Lessee make any alterations, improvements,
additions or Utility Installations without the prior approval of Lessor, Lessor
may, at any time during the term of this Lease, require that Lessee remove any
or all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises or the Industrial Center that Lessee
shall desire to make and which requires the consent of the Lessor shall be
presented to Lessor in written form, with proposed detailed plans. If Lessor
shall give its consent, the consent shall be deemed conditioned upon Lessee
acquiring a permit to do so from appropriate governmental agencies, the
furnishing of a copy thereof to Lessor prior to the commencement of the work and
the compliance by Lessee of all conditions of said permit in a prompt and
expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use in the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises,
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<PAGE> 9
or the Industrial Center, or any interest therein. Lessee shall give Lessor not
less than ten (10) days' notice prior to the commencement of any work in the
Premises, and Lessor shall have the right to post notices of nonresponsibility
in or on the Premises or the Building as provided by law. If Lessee shall, in
good faith, contest the validity of any such lien, claim or demand, then Lessee
shall, at its sole expense, defend itself and Lessor against the same and shall
pay and satisfy any such adverse judgment that may be rendered thereon before
the enforcement thereof against the Lessor or the Premises or the Industrial
Center, upon the condition that if Lessor shall require, Lessee shall furnish to
Lessor a surety bond satisfactory to Lessor in an amount equal to such contested
lien claim or demand indemnifying Lessor against liability for the same and
holding the Premises and the Industrial Center free from the effect of such lien
or claim. In addition, Lessor may require Lessee to pay Lessor's attorneys fees
and costs in participating in such action if Lessor shall decide it is to
Lessor's best interest to do so.
(d) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made on the Premises, shall be the property of
Lessor and shall remain upon and be surrendered with the Premises at the
expiration of the Lease term, unless Lessor requires their removal pursuant to
paragraph 7.3(a). Notwithstanding the provisions of this paragraph 7.3(d),
Lessee's machinery and equipment, other than that which is affixed to the
Premises so that it cannot be removed without material damage to the Premises,
and other than Utility Installations, shall remain the property of Lessee and
may be removed by Lessee subject to the provisions of paragraph 7.2
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Building and the Common Areas for
the benefit of Lessor or Lessee, or any other lessee of the Industrial Center,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, security systems, communication systems, and fire protection and
detection systems, so long as such installations do not unreasonably interfere
with Lessee's use of the Premises.
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE -- LESSEE. Lessee shall, at Lessee's
expense, obtain and keep in force during the term of this Lease a policy of
Combined Single Limit Bodily Injury and Property Damage insurance insuring
Lessee and Lessor against any liability arising out of the use, occupancy or
maintenance of the Premises and the Industrial Center. Such insurance shall be
in an amount not less than $500,000.00 per occurrence. The policy shall
insure performance by Lessee of the indemnity provisions of this paragraph 8.
The limits of said insurance shall not, however, limit the liability of Lessee
hereunder.
8.2 LIABILITY INSURANCE -- LESSOR. Lessor shall obtain and keep in
force during the term of this Lease a policy of Combined Single Limit Bodily
Injury and Property Damage Insurance, insuring Lessor, but not Lessee, against
any liability arising out of the
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ownership, use, occupancy or maintenance of the Industrial Center in an amount
not less than $500,000 per occurrence.
8.3 PROPERTY INSURANCE. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss or
damage to the Industrial Center improvements, but not Lessee's personal
property, fixtures, equipment or tenant improvements, in an amount not to exceed
the full replacement value thereof, as the same may exist from time to time,
providing protection against all perils included within the classification of
fire, extended coverage, vandalism, malicious mischief, flood (in the event the
same is required by a lender having a lien on the Premises) special extended
perils ("all risk," as such term is used in the insurance industry), plate glass
insurance and such other insurance as Lessor deems advisable. In addition,
Lessor shall obtain and keep in force, during the term of this Lease, a policy
of rental value insurance covering a period of one year, with loss payable to
Lessor, which insurance shall also cover all Operating Expenses for said period.
In the event that the Premises shall suffer an insured loss as defined in
paragraph 9.1(g) hereof, the deductible amounts under the casualty insurance
policies relating to the Premises shall be paid by Lessee.
8.4 PAYMENT OF PREMIUM INCREASE.
(a) After the term of this Lease has commenced, Lessee shall
not be responsible for paying Lessee's Share of any increase in the property
insurance premium for the Industrial Center specified by Lessor's insurance
carrier as being caused by the use, acts or omissions of any other lessee of the
Industrial Center, or by the nature of such other lessee's occupancy which
create an extraordinary or unusual risk.
(b) Lessee, however, shall pay the entirety of any increase in
the property insurance premium for the Industrial Center over what it was
immediately prior to the commencement of the term of this Lease if the increase
is specified by Lessor's insurance carrier as being caused by the nature of
Lessee's occupancy or any act or omission of Lessee.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most current issue of "Best's Insurance Guide." Lessee shall
not do or permit to be done anything which shall invalidate the insurance
policies carried by Lessor. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
commencement date of this Lease. No such policy shall be cancellable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to
the expiration of such policies, furnish Lessor with renewals or "binders"
thereof.
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8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release
and relieve the other, and waive their entire right of recovery against the
other for loss or damage arising out of or incident to the perils insured
against which perils occur in, on or about the Premises, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. Lessee and Lessor shall, upon obtaining the policies of insurance
required hereunder, give notice to the insurance carrier or carriers that the
foregoing mutual waiver of subrogation is contained in this Lease.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor
from and against any and all claims arising from Lessee's use of the Industrial
Center, or from the conduct of Lessee's business or from any activity, work or
things done, permitted or suffered by Lessee in or about the Premises or
elsewhere and shall further indemnify and hold harmless Lessor from and against
any and all claims arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, or employees, and from and against all costs, attorney's fees,
expenses and liabilities incurred in the defense of any such claim or any action
or proceeding brought thereon; and in case any action or proceeding be brought
against Lessor by reason of any such claim. Lessee upon notice from Lessor shall
defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor
and Lessor shall cooperate with Lessee in such defense. Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property of Lessee or injury to persons, in, upon or about the Industrial Center
arising from any cause and Lessee hereby waives all claims in respect thereof
against Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damages to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises or the Industrial Center, nor shall Lessor be liable for injury to
the person of Lessee, Lessee's employees, agents or contractors, whether such
damage or injury is caused by or results from fire, steam, electricity, gas,
water or rain, or from the breakage, leakage, obstruction or other defects of
pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether said damage or injury results from
conditions arising upon the Premises or upon other portions of the Industrial
Center, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other lessee, occupant or user of the Industrial Center, nor from
the failure of Lessor to enforce the provisions of any other lease of the
Industrial Center.
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9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repair is less than fifty
percent of the then replacement cost of the Premises.
(b) "Premises Total Destruction" shall mean if the Premises
are damaged or destroyed to the extent that the cost of repair is fifty percent
or more of the then replacement cost of the Premises.
(c) "Premises Building Partial Damage" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is less than fifty percent of the then replacement cost
of the Building.
(d) "Premises Building Total Destruction" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is fifty percent or more of the then replacement cost of
the Building.
(e) "Industrial Center Buildings" shall mean all of the
buildings on the Industrial Center site.
(f) "Industrial Center Buildings Total Destruction" shall mean
if the Industrial Center Buildings are damaged or destroyed to the extent that
the cost of repair is fifty percent or more of the then replacement cost of the
Industrial Center Buildings.
(g) "Insured Loss" shall mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8. The fact that an Insured Loss has a deductible amount shall not
make the loss an uninsured loss.
(h) "Replacement Cost" shall mean the amount of money
necessary to be spent in order to repair or rebuild the damaged area to the
condition that existed immediately prior to the damage occurring excluding all
improvements made by Lessees.
9.2 PREMISES PARTIAL DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
(a) INSURED LOSS: Subject to the provisions of paragraphs 9.4
and 9.5, if at any time during the term of this Lease there is damage which is
an Insured Loss and which falls into the classification of either Premises
Partial Damage or Premises Building Partial Damage, then Lessor shall, at
Lessor's expense, repair such damage to the Premises, but not Lessee's fixtures,
equipment or tenant improvements, as soon as reasonable possible and this Lease
shall continue in full force and effect.
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<PAGE> 13
(b) UNINSURED LOSS: Subject to the provisions of paragraphs
9.4 and 9.5, if at any time during the term of this Lease there is damage which
is not an Insured Loss and which falls within the classification of Premises
Partial Damage or Premises Building Partial Damage, unless caused by a negligent
or willful act of Lessee (in which event Lessee shall make the repairs at
Lessee's expense), which damage prevents Lessee from using the Premises, Lessor
may at Lessor's option either (i) repair such damage as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) give written notice to Lessee within thirty (30) days
after the date of the occurrence of such damage of Lessor's intention to cancel
and terminate this Lease as of the date of the occurrence of such damage. In the
event Lessor elects to give such notice of Lessor's intention to cancel and
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's intention to
repair such damage at Lessee's expense, without reimbursement from Lessor, in
which event this Lease shall continue in full force and effect, and Lessee shall
proceed to make such repairs as soon as reasonably possible. If Lessee does not
give such notice within such 10-day period this Lease shall be cancelled and
terminated as of the date of the occurrence of such damage.
9.3 PREMISES TOTAL DESTRUCTION; PREMISES BUILDING TOTAL
DESTRUCTION; INDUSTRIAL CENTER BUILDINGS TOTAL DESTRUCTION.
(a) Subject to the provisions of paragraphs 9.4 and 9.5, if at
any time during the term of this Lease there is damage, whether or not it is an
Insured Loss, and which falls into the classifications of either (i) Premises
Total Destruction, or (ii) Premises Building Total Destruction, or (iii)
Industrial Center Buildings Total Destruction, then Lessor may at Lessor's
option either (i) repair such damage or destruction, but not Lessee's fixtures,
equipment or tenant improvements, as soon as reasonably possible at Lessor's
expense, and this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after the date of occurrence of
such damage of Lessor's intention to cancel and terminate this Lease, in which
case this Lease shall be cancelled and terminated as of the date of the
occurrence of such damage.
9.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 9.4(b), if at any time during the
last six months of the term of this Lease there is substantial damage, whether
or not an Insured Loss, which falls within the classification of Premises
Partial Damage, Lessor may at Lessor's option cancel and terminate this Lease as
of the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee
has an option to extend or renew this Lease, and the time within which said
option may be exercised has not yet expired, Lessee shall exercise such option,
if it is to be exercised at all, no later than twenty (20) days after the
occurrence of an Insured Loss falling within the
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classification of Premises Partial Damage during the last six months of the term
of this Lease. If Lessee duly exercises such option during said twenty (20) day
period, Lessor shall, at Lessor's expense, repair such damage, but not Lessee's
fixtures, equipment or tenant improvements, as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option during said twenty (20) day period, then Lessor may at Lessor's
option terminate and cancel this Lease as of the expiration of said twenty (20)
day period by giving written notice to Lessee of Lessor's election to do so
within ten (10) days after the expiration of said twenty (20) day period,
notwithstanding any term or provision in the grant of option to the contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Premises
pursuant to the provisions of this paragraph 9, the rent payable hereunder for
the period during which such damage, repair or restoration continues shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of rent, if any, Lessee shall have no claim
against Lessor for any damage suffered by reason of any such damage,
destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this paragraph 9 and shall not commence such
repair or restoration within ninety (90) days after such obligation shall
accrue, Lessee may at Lessee's option cancel and terminate this Lease by giving
Lessor written notice of Lessee's election to do so at any time prior to the
commencement of such repair or restoration. In such event this Lease shall
terminate as of the date of such notice.
9.6 TERMINATION -- ADVANCE PAYMENTS. Upon termination of this
Lease pursuant to this paragraph 9, an equitable adjustment shall be made
concerning advance rent and any advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's security deposit
as has not theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute
which relate to termination of leases when leased property is destroyed and
agree that such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Industrial Center subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for
paying Lessee's Share of any increase in real property tax specified in the tax
assessor's records and work sheets as being caused by additional improvements
placed upon the Industrial
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Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Lessee shall, however, pay to Lessor at the time that Operating
Expenses are payable under paragraph 4.2(c) the entirety of any increase in real
property tax if assessed solely by reason of additional improvements placed upon
the Premises by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX". As used herein, the term
"real property tax" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed on the Industrial Center or any portion
thereof by any authority having the direct or indirect power to tax, including
any city, county, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage or other improvement district thereof, as
against any legal or equitable interest of Lessor in the Industrial Center or in
any portion thereof, as against Lessor's right to rent or other income
therefrom, and as against Lessor's business of leasing the Industrial Center.
The term "real property tax" shall also include any tax, fee, levy, assessment
or charge (i) in substitution of, partially or totally, any tax, fee, levy,
assessment or charge hereinabove included within the definition of "real
property tax", or (ii) the nature of which was hereinbefore included within the
definition of "real property tax", or (iii) which is imposed for a service or
right not charged prior to June 1, 1978, or, if previously charged, has been
increased since June 1, 1978 or (iv) which is imposed as a result of a transfer,
either partial or total, of Lessor's interest in the Industrial Center or which
is added to a tax or charge hereinbefore included within the definition of real
property tax by reason of such transfer, or (v) which is imposed by reason of
this transaction, any modifications or changes hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the Industrial Center is not separately
assessed, Lessee's Share of the real property tax liability shall be an
equitable proportion of real property taxes for all of the land and improvements
included within the tax parcel assessed, such proportion to be determined by
Lessor from the respective valuations assigned in the assessor's work sheets or
such other information as may be reasonably available. Lessor's reasonable
determination thereof, in good faith, shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and all
other personal property to be assessed and billed separately from the real
property of Lessor.
(b) If any of Lessee's said personal property shall be
assessed with Lessor's real property, Lessee shall pay to Lessor the taxes
attributable to Lessee within ten (10) days after receipt of a written statement
setting forth the taxes applicable to Lessee's property.
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11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to the
Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease without the need for notice to Lessee under paragraph 13.1.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph
12.1 hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate",
provided that before such assignment shall be effective said assignee shall
assume, in full, the obligations of Lessee under this Lease. Any such assignment
shall not, in any way, affect or limit the liability of Lessee under the terms
of this Lease even if after such assignment or subletting the terms of this
Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.
12.3 TERMS AND CONDITIONS OF ASSIGNMENT. Regardless of Lessor's
consent, no assignment shall release Lessee of Lessee's obligations hereunder or
alter the primary liability of Lessee to pay the Base Rent and Lessee's Share of
Operating Expenses, and to perform all other obligations to be performed by
Lessee hereunder. Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment. Neither a delay in the
approval or disapproval of such assignment nor the acceptance of rent shall
constitute a waiver or estoppel of Lessor's right to exercise its remedies for
the breach of any of the terms or conditions of this paragraph 12 or this Lease.
Consent to one assignment shall not be deemed consent to any subsequent
assignment. In the event of default by any assignee of Lessee or any successor
of Lessee, in the performance of any of the terms hereof, Lessor may proceed
directly against Lessee without the necessity of exhausting remedies against
said assignee. Lessor may consent to subsequent assignments of this Lease or
amendments or modifications to this Lease with assignees of Lessee, without
notifying Lessee, or any successor of Lessee, and without obtaining its or their
consent thereto and such action shall not relieve Lessee of liability under this
Lease.
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<PAGE> 17
12.4 TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless of
Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be included in
subleases:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease heretofore
or hereafter made by Lessee, and Lessor may collect such rent and income and
apply same toward Lessee's obligations under this Lease; provided, however, that
until a default shall occur in the performance of Lessee's obligations under
this Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective
unless and until it has been approved in writing by Lessor. In entering into any
sublease, Lessee shall use only such form of sublease as is satisfactory to
Lessor, and once approved by Lessor, such sublease shall not be changed or
modified without Lessor's prior written consent. Any sublessee shall, by reason
of entering into a sublease under this Lease, be deemed, for the benefit of
Lessor, to have assumed and agreed to conform and comply with each and every
obligation herein to be performed by Lessee other than such obligations as are
contrary to or inconsistent with provisions contained in a sublease to which
Lessor has expressly consented in writing.
(c) If Lessee's obligations under this Lease have been
guaranteed by third parties, then a sublease, and Lessor's consent thereto,
shall not be effective unless said guarantors give their written consent to such
sublease and the terms thereof.
(d) The consent by Lessor to any subletting shall not release
Lessee from its obligations or alter the primary liability of Lessee to pay the
rent and perform and comply with all of the obligations of Lessee to be
performed under this Lease.
(e) The consent by Lessor to any subletting shall not
constitute a consent to any subsequent subletting by Lessee or to any assignment
or subletting by the sublessee. However, Lessor may consent to subsequent
sublettings and assignments of the sublease or any amendments or modifications
thereof without notifying Lessee or anyone else liable on
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<PAGE> 18
the Lease or sublease and without obtaining their consent and such action shall
not relieve such persons from liability.
(f) In the event of any default under this Lease, Lessor may
proceed directly against Lessee, any guarantors or anyone else responsible for
the performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefore to
Lessor, or any security held by Lessor or Lessee.
(g) In the event Lessee shall default in the performance of
its obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of Lessee under such sublease from
the time of the exercise of said option to the termination of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to Lessee or for any other prior defaults of
Lessee under such sublease.
(h) Each and every consent of Lessee under a sublease shall
also require the consent of Lessor.
(i) No sublessees shall further assign or sublet all or any
part of the Premises without Lessor's prior written consent.
(j) Lessor's written consent to any subletting of the Premises
by Lessee shall not constitute an acknowledgement that no default then exists
under this Lease of the obligations to be performed by Lessee nor shall such
consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Lessor at the time.
(k) With respect to any subletting to which Lessor has
consented, Lessor agrees to deliver a copy of any notice of default by Lessee to
the sublessee. Such sublessee shall have the right to cure a default of Lessee
within ten (10) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee.
12.5 ATTORNEYS' FEES. In the event Lessee shall assign or sublet
the Premises or request the consent of Lessor to any assignment or subletting or
if Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys' fees incurred in connection
therewith, such attorneys' fees not to exceed $350 for each such request.
13. DEFAULT; REMEDIES.
13.1 DEFAULT. The occurrence of any one or more of the following
events shall constitute a material default of this Lease by Lessee:
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(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due, where
such failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that lessor serves lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(c) Except as otherwise provided in this lease, the failure by
Lessee to observe or perform any of the covenants, conditions or provisions of
this Lease to be observed over performed by lessee, other than described in
paragraph (b) above, where such failure shall continue for a period of thirty
(30) days after written notice thereof from Lessor to Lessee; provided, however,
that if the nature of Lessee's noncompliance is such that more than thirty (30)
days are reasonably required for its cure, then Lessee shall not be deemed to be
in default if Lessee commenced such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion. To the extent
permitted by law, such thirty (30) day notice shall constitute the sole and
exclusive notice required to be given to Lessee under applicable Unlawful
Detainer statutes.
(d) (i) The making by Lessee of any general arrangement or
general assignment for the benefit of creditors; (ii) Lessee becomes a "debtor"
as defined by 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within sixty
(60) days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee with thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(d) is contrary to
any applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given
to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, was materially false.
13.2 REMEDIES. In the event of any such material default by Lessee,
Lessor may at any time thereafter, with or without notice or demand and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such default:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recovery from Lessee all damages incurred
by Lessor by reason of Lessee's default including, but not limited to, the cost
of recovering possession of the commission
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actually paid; the worth at the time of award by the court having jurisdiction
thereof of the amount by which the unpaid rent for the balance of the term after
the time of such award exceeds the amount of such rental loss for the same
period that Lessee proves could be reasonably avoided; that portion of the
leasing commission paid by Lessor pursuant to paragraph 15 applicable to the
unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have vacated or
abandoned the Premises. In such event Lessor shall be entitled to enforce all of
Lessor's rights and remedies under this Lease, including the right to recover
the rent as it becomes due hereunder.
(c) Pursue any other remedy nor or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located. Unpaid installments of rent and other unpaid monetary obligations
of Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless
Lessor fails to perform obligations required of Lessor within a reasonable time,
but in no event later than thirty (30) days after written notice by Lessee to
Lessor and to the holder of any firth mortgage or deed of trust covering the
Premises whose name and address shall have theretofore been furnished to Lessee
in writing, specifying wherein Lessor has failed to perform such obligation;
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such thirty (30) day period and
thereafter diligently prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of Base Rent, Lessee's Shares of operating Expenses or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to processing and accounting charges, and
late charges which may be imposed on Lessor by the terms of any mortgage or
trust deed covering the Property. Accordingly, if any installment of Base Rent,
Operating Expenses, or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee within ten (10) days after such amount shall be due,
then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a
late charge equal to 5% of such overdue amount. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of late payment by Lessee. Acceptance of such late charge
by Lessor shall in no event constitute a waiver of Lessee's default with respect
to such overdue amount, nor prevent Lessor from exercising any of the other
rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether or not collected, for three (3) consecutive
installments of any of the aforesaid monetary obligations of Lessee, then Base
Rent shall automatically become due and payable quarterly in advance, rather
than monthly, notwithstanding paragraph 4.1 or any other provision of this Lease
to the contrary.
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14. CONDEMNATION. If the Premises or any portion thereof or the Industrial
Center are taken under the power of eminent domain, or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs. If more than ten
percent (10%) of the floor area of the Premises, or more then twenty-five (25%)
of that portion of the Common Areas designated as parking for the Industrial
Center is taken by condemnation, Lessee may, at Lessee's option, to be exercised
in writing only within ten (10) days after Lessor shall have given Lessee
written notice of such taking (or in the absence of such notice, within ten (10)
days after the condemning authority shall have taken possession) terminate this
Lease as of the date the condemning authority takes such possession. If Lessee
does not terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the premises remaining,
except that the rent shall be reduced in the proportion that the floor area of
the Premises taken bears to the total floor area of the Premises. No reduction
of rent shall occur if the only area taken is that which does not have the
Premises located thereon. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any award for loss of or damage to Lessee's trade fixtures
and removable personal property. In the event that this Lease is not terminated
by reason of such condemnation, Lessor shall to the extent of severance damages
received by Lessor in connection with such condemnation, repair any damage to
the Premises caused by such condemnation except to the extent that Lessee has
been reimbursed therefor by the condemning authority, Lessee shall pay any
amount in excess of such severance damages required to complete such repair.
15. BROKER'S FEE.
(a) Upon execution of this Lease by both parties, Lessor shall pay to
per agreement __________, licensed real estate broker(s), a fee as set forth in
a separate agreement between Lessor and said broker(s), or in the event there is
no separate agreement between Lessor and said broker(s), the sum of $ per
agreement , for brokerage services rendered by said broker(s) to Lessor in this
transaction.
(b) Lessor further agrees that if Lessee exercises any Option, as
defined in paragraph 40.1 of this Lease, which is granted to Lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or if Lessee remains in possession of the Premises after
the expiration of the term of this Lease after having failed to exercise an
Option, or if said broker(s) are the procuring cause of any other lease or sale
entered into between the parties pertaining to the Premises and/or any adjacent
property in which Lessor has an interest, than as to any of said transactions,
Lessor shall pay said broker(s) a fee in
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accordance with the schedule of said broker(s) in effect at the time of
execution of this Lease.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also
on behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interests in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this paragraph 15. Said broker shall be a third party
beneficiary of the provisions of this paragraph 15.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Premises or of the business
of the requesting party.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance, and (iii)
if Lessor is the requesting party, not more than one month's rent has been paid
in advance.
(c) If Lessor desires to finance, refinance, or sell the Property, or
any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three (3) years' financial statements of Lessee. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence and shall
be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only
the owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Industrial Center, and except as expressly
provided in paragraph 15, in the event of any transfer of such title or
interest. Lessor herein named (and in case of any subsequent transfers then the
grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the than grantor at the time of such
transfer, in which lessee has an interest,s hall be delivered to the grantee.
The obligations contained in this Lease to be
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performed by Lessor shall, subject as aforesaid, be binding on Lessor's
successors and assigns, only during their respective periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law form the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease; provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expenses and insurance and tax expenses payable shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor or any employee or agents of any of said persons has made an oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of the Premises or the Property and Lessee acknowledges that Lessee
assumes all responsibility regarding the Occupational Safety Health Act, the
legal use and adaptability of the Premises and the compliance thereof with all
applicable laws and regulations in effect during the term of this Lease except
as otherwise specifically stated in this Lease.
23.NOTICES. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified mail, and if given
personally or by mail, shall be deemed sufficiently given if addressed to Lessee
or to Lessor at the address noted below the signature of the respective parties,
as the case may be. Either party may by notice to the other specify a different
address for notice purposes except that upon Lessee's taking possession of the
Premises, the Premises shall constitute Lessee's address for notice purposes. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other
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provision. Lessor's consent to, or approval of, any act shall not be deemed to
render unnecessary the obtaining of Lessor's consent to or approval of any
subsequent act by Lessee. The acceptance of rent hereunder by Lessor shall not
be a waiver of any preceding breach by Lessee of any provision hereof, other
than the failure of Lessee to pay the particular rent to accepted, regardless of
Lessor's knowledge of such preceding breach at the time of acceptance of such
rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all Options, if any, granted
under the terms of this Lease shall be deemed terminated and be of no further
effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Industrial Center is located and any litigation concerning this Lease
between the parties hereto shall be initiated in the county in which the
Industrial Center is located.
30. SUBORDINATION.
(a) This Lease, and any Option granted hereby, at Lessor's option,
shall be subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation or security now or hereafter placed upon the Industrial Center and
to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
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(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (1) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).
31. ATTORNEY'S FEES. If either party or the broker(s) named herein bring an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the court.
The provisions of this paragraph shall insure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purposes of inspecting the same,
showing the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises or the Building any
ordinary "For Sale" signs and Lessor may at any time during the last 120 days of
the term hereof place on or about the Premises any ordinary "For Lease" signs.
All activities of Lessor pursuant to this paragraph shall be without abatement
of rent, nor shall Lessor have any liability to Lessee for the same.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent.
34. SIGNS. Lessee shall not place any sign upon the Premises or the Industrial
Center without Lessor's prior written consent. Under no circumstances shall
Lessee place a sign on any roof of the Industrial Center.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, r a mutual
cancellation thereof, or a termination by Lessor, shall not work a merger, and
shall, at the option of Lessor, terminate all or any existing subtenancies or
may, at the option of Lessor, operate as an assignment to Lessor of any or all
of such subtenancies.
36. CONSENTS. Except for paragraph 33 hereof, wherever in this lease the consent
of one party is required to an act of the other party such consent shall not be
unreasonably withheld or delayed.
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37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Property.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Industrial Center or other property of
Lessor or the right of first offer to lease other space within the Industrial
Center or other property of Lessor; (3) the right or option to purchase the
Premises or the Industrial Center, or the right of first refusal to purchase the
Premises or the Industrial Center, or the right of first offer to purchase the
Premises or the Industrial Center, or the right or option to purchase other
property of Lessor, or the right of first refusal to purchase other property of
Lessor or the right of first offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease is
personal to the original lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily, or involuntarily, by or to any
person or entity other than Lessee, provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
options to extend or renew this Lease a later option cannot be exercise unless
the prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(b) or 13.1(c) and continuing until the noncompliance alleged in
said notice of default is cured, or (iii) during the period
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of time commencing on the date after a monetary obligation to Lessor is due from
Lessee and unpaid (without any necessity for notice thereof to Lessee) and
continuing until the obligation is paid, or (iii) at any time after an event of
default described in paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any
necessity of Lessor to give notice of such default to Lessee), or (iv) in the
event that Lessor has given to Lessee three or more notices of default under
paragraph 13.1(b), or paragraph 13.1(c), whether or not the defaults are cured,
during the 12 months period of time immediately prior to the time that Lessee
attempts to exercise the subject option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails t pay to Lessor a monetary obligation of Lessee for
a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(c), within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, or
(iii) Lessee commits a default described in paragraphs 13.1(a), 13.1(d) or
13.1(e) (without any necessity of Lessor to give notice of such default to
Lessee), or (iv) Lessor gives to Lessee three or more notices of default under
paragraph 13.1(b), or paragraph 13.1(c), whether or not the defaults are cured.
40. SECURITY MEASURES. Lessee hereby acknowledges that Lessor shall have no
obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises or the Industrial Center. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Industrial Center or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).
41. EASEMENTS. Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interface with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make
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payment "under protest" and such payment shall not be regarded as a voluntary
payment, and there shall survive the right ont he part of said party to
institute suit for recovery of such sum. If it shall be adjudged that there was
no legal obligation on the part of said party to pay such sum or any part
thereof, said party shall be entitled to recover such sum or so much thereof as
it was not legally required to pay under the provisions of this Lease.
43. AUTHORITY. If Lessee is a corporation, trust or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, delivery to Lessor evidence of such authority satisfactory to Lessor.
44. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.
45. OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease. This Lease shall become
binding upon Lessor and Lessee only when fully executed by Lessor and Lessee.
46. ADDENDUM. Attached hereto is an addendum or addends containing paragraph 47
through 51 which constitute a part of this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY
FOR APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY
THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE
REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION RELATING THERETO. THE PARTIES SHALL RELY
SOLELY UPON THE
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ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX
CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
Sorrento West Limited Biosite Diagnostics
- ------------------------------ -------------------------
By: John Burnham & Co. Manager
By: Nancy Green, Sr. Real Estate By: Kim D. Blickenstaff
---------------------------- --------------------
Mgr.
-----
Executed on October 4, 1994 Executed on
--------------- -------------------
ADDRESS FOR NOTICES AND RENT ADDRESS
- ------------------------------ -------------------------
- ------------------------------ -------------------------
- ------------------------------ -------------------------
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ADDENDUM TO LEASE
- --------------------------------------------------------------------------------
THIS ADDENDUM TO LEASE AGREEMENT DATED SEPTEMBER 21, 1994, BY AND BETWEEN
SORRENTO WEST LIMITED ("LESSOR") AND BIOSITE DIAGNOSTICS ("LESSEE")
- --------------------------------------------------------------------------------
47. RENTAL. Pursuant to all the provisions of Paragraph 4 of this Lease,
the minimum base monthly rental shall be paid as follows:
October 1, 1994 through September 30, 1996, the base monthly rental
shall be $8,032.42, NNN.
October 1, 1996 through September 30, 1997, the base monthly rental
shall be $8,586.38, NNN.
48. TENANT IMPROVEMENTS. Landlord shall provide up to $20,000 towards any
ADA (Americans with Disability Act) modifications that may be needed. All tenant
improvement work shall be done in a workmanlike manner in conformance with all
applicable codes, rules, ordinances and other governmental regulations and done
by a licensed general contractor approved by the Landlord. Any dollars spent in
excess of the $20,000 for ADA modifications shall be paid for by the Tenant.
Additionally, the existing Tenant, Conner Peripherals, shall provide an amount
of $4,000 directly to the Tenant for general building repairs and an amount of
$5,000 directly to the Owner as their part of the $20,000 ADA cost.
49. COMMON AREA MAINTENANCE/COMMON AREA EXPENSE. Notwithstanding anything
to the contrary contained in Paragraph 7 of this Lease, Lessor shall repair and
maintain the Common Area (as hereinafter defined) of the Premises and Lessee
shall reimburse Lessor for all expenses in connection with said Common Area
("Common Area Expenses"). The term 'Common Area' means the exterior of the
building (including the roof) and all exterior portions of the Premises lying
outside the building, including without limitation, automobile parking areas,
driveways, sidewalks and landscaped and planted areas. The term 'Common Area
Expenses' shall include, without limitation, all sums expended in connection
with said Common Area for the following items: all general maintenance and
repairs; resurfacing; painting; restriping; cleaning; trash removal; sweeping
services; maintenance and repair of sidewalks, curbs and signs; sprinkler
system; planting and landscaping; lighting and other utilities; directional
signs, markers and bumpers; maintenance and repair of any fire protection,
lighting, storm drainage and other utility systems; personnel to implement such
services; Real Property Taxes; premiums for the insurance required to be
maintained by Lessor pursuant to Paragraph 8 and an amount payable to Lessor for
accounting, bookkeeping and collection of expenses of the Common Area. Lessee
shall reimburse Lessor for all Common Area Expenses related to the Premises.
Said amounts shall be due
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and payable by Lessee as additional rent within ten (10) days from the date
Lessor delivers an invoice therefor to Lessee." Lessor will maintain the
building in a manner consistent with similar R&D buildings in the Sorrento
Valley area.
50. CONNER'S EXISTING LEASE. This lease document with Biosite is subject to
Landlords finalizing a lease buy out with Conner Peripherals. Landlord and
Conner are in agreement on the buy out amount and must now document and finalize
this agreement.
51. ACCESS FROM BIOSITE'S EXISTING BUILDING. Lessor will allow Lessee at
Lessee's expense to create an access from their parking lot to this lot. This
access will not be utilized by automobiles. Lessee shall provide Lessor more
details on this access prior to final approval. Lessee, if necessary, must also
have approval from Lessee's current Lessor.
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Attachment "A "
1. With respect to the tenant improvements that are to be completed at
11010 Roselle Street, Biosite Diagnostics reserves the right to remove all
equipment installed during their tenancy at the aforementioned address. These
improvements will include, but are not limited to:
A. All equipment associated with the dehumidification of the
assembly area.
B. Compressed air system
C. All cabinets that do not contain plumbing fixtures.
D. Fume hoods.
E. Any equipment related to the assembly of product.
F. Walk-in Cold Room
All duct work and piping will remain, which will allow future tenants the
ability to have a functional system by attaching equipment to the points of
connection that remain.
2. Further, with respect to Tenant Improvements to be completed at 11010
Roselle Street, Sorrento West, Limited hereby approves of the plan and provides
its authorization for Biosite Diagnostics to install the Tenant Improvements as
generally outlined on the plans submitted to Sorrento West, Limited. Any
significant changes to the plan should be disclosed to Sorrento West, Limited,
but barring any major changes to the concept, Biosite Diagnostics is allowed to
proceed with the installation of Tenant Improvements in conformance with
Paragraph 48 of this lease document.
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EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our report dated November 12, 1996,
except for Note 7, as to which the date is December 5, 1996, in Amendment No. 2
to Registration Statement (Form S-1 No. 333-17657) and related Prospectus of
Biosite Diagnostics Incorporated for the registration of 2,300,000 shares of its
common stock.
ERNST & YOUNG LLP
San Diego, California
January 7, 1997
