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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
_______________________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
Commission File Number 000-21930
_______________________
BIOSOURCE INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
Delaware 77-0340829
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
820 Flynn Road, Camarillo, California 93012
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (805) 987-0086
_______________________
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value
Preferred Stock purchase rights
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter periods that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
Indicate by check mark if there is no disclosure of delinquent filers
in response to Item 405 of regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of the Form 10-K or
any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock (based on the last sale
price of such stock as reported by the National Association of Securities
Dealers Automated Quotation National Market System) held by non-affiliates of
the registrant as of March 31, 1999 was $26,317,000.
The number of shares of the Registrant's common stock outstanding as of
March 31, 1999 was 7,181,925.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement for the annual
meeting to be held on July 16, 1999 (the "Proxy Statement") are incorporated by
reference into Part III of this Form 10-K.
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PART I
Item 1. Description of Business
Overview
We develop, manufacture, market and distribute products used worldwide
in disease related biomedical research and clinical diagnostics, principally in
the fields of immunology and molecular biology. Our products include ELISA assay
test kits, clinical diagnostic kits, bioactive proteins, antibodies, bioactive
peptides, oligonucleotides and related products. These products enable
scientists to better understand the biochemistry, immunology and cell biology of
the human body. Some examples would include certain diseases such as cancer,
aging, arthritis and other inflammatory diseases, AIDS and certain other
infectious diseases.
We were originally incorporated as a California corporation in October
1989, and we reincorporated as a Delaware corporation in May 1993 in connection
with the acquisition of TAGO Immunologicals, Inc. ("TAGO"). TAGO developed and
manufactured immunological reagents derived from antibodies produced in goats
and other animals.
Since we acquired TAGO in May 1993, we have concentrated on internal
development of new products, and we currently offer over 2,800 products to more
than 2,300 medical laboratories and research centers in universities, government
institutions and pharmaceutical and biotechnology companies. In November, 1995,
we further expanded our product lines by acquiring Keystone Laboratories, Inc.
("Keystone"), which enabled us to manufacture oligonucleotides (DNA) both as a
new product line and for our own internal use in the production of cytokines and
ELISA test kits.
In June 1996, we acquired certain assets and assumed selected
liabilities of Medgenix Diagnostics, S.A. ("Medgenix"), located in Fleurus,
Belgium. The Medgenix assets consisted of certain product lines, primarily
diagnostic and research assay kits, and included manufacturing and distribution
facilities, research and development laboratories, customer accounts, and an
existing employee base. Our European headquarters is located in Nivelles,
Belgium and we have sales offices in Germany and the Netherlands. Since the
acquisition, we continue to manufacture and sell the Medgenix product line and
also distribute the BioSource product line to our European customer base and
other international locations.
On December 10, 1998, we acquired Quality Controlled Biochemicals,
Inc. ("QCB"). QCB was founded in 1992 and is a leading manufacturer of
phosphopeptides, phosphorylation state-specific antibodies, custom peptides and
custom antibodies.
On December 15, 1998 we acquired substantially all the assets and selected
liabilities of Biofluids, Inc. Biofluids was founded in 1974 and is a leader in
the manufacture and sale of high quality serum, media and buffers.
Industry Overview
The biomedical research industry has seen major advances in the
understanding of physiological processes at the cellular and molecular level.
New research technologies require the use of qualitative and quantitative
analysis to monitor the way in which tissues and cells communicate with each
other and how cells respond when stimulated. Biomedical researchers around the
world are constantly in search of specialty research products, which are
necessary to conduct both basic and clinical research. This research is
conducted in settings that range from university and medical school laboratories
to pharmaceutical and biotechnology research and development groups. The success
of this type of research depends upon the availability of biological reagents,
including the types of biological proteins, antibodies, serums and immunoassay
kits that we manufacture and sell.
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Biomedical research is a large and growing segment of the biotechnology
industry. The biotechnology industry consists of large and highly capitalized
biotechnology and pharmaceutical companies which have concentrated their efforts
on the development of human therapeutics and high volume diagnostic tests as
well as smaller specialized biotechnology company's which focus on specific
areas of research or product development for FDA approval. We supply these
companies with the tools to assist them in achieving their scientific goals.
Most industrialized nations, led by the United States, Japan and the
countries of Western Europe, support some level of biomedical research. Our
products are used by thousands of research scientists who are employed by or
affiliated with universities, medical schools, research institutes and private
industry. The biomedical research industry is highly fragmented with no dominant
companies.
Strategy
Our goal is to capitalize on the growth of the biotechnology industry by
creating "building block" reagents and test kits which are not subject to
regulatory overview or the risk and volatility inherent in developing
pharmaceuticals, and to grow through the selective acquisition of complementary
businesses. Our strategy includes the following elements:
Focus on the Strategic Direction of Biomedical Research. Our continued
success, in part, depends on staying abreast of new trends and technologies in
the medical research industry. We use various methods to address current market
trends, current trends in the scientific community and the broader scope of
overall biomedical product research. These methods include reviewing trends
published in scientific journals, attending trade shows and scientific meetings,
which discuss new research technologies and collaborations with the scientific
community. In addition, our sales people, who have educational backgrounds and
have been trained in the biological sciences, discuss issues and ideas with our
customers which creates an additional source for creating some of our new
products under consideration and development.
Develop Broad Product Lines. We now offer over 2,800 products in four
major product lines. We believe our industry is diverse and fragmented, and by
offering many products we more fully address the needs of researchers, thereby
offering them the ability to look to us first to satisfy many of their needs.
Commitment to Product Development. We have historically invested 9% to 12%
of our revenues in research and development. The introduction of new products is
essential to meet the needs of our customers and the rapid changes that are
taking place in biomedical research.
Offer Products of Exacting Capability. We continually strive to offer
products with the greatest sensitivity, precision, accuracy and reproducibility
available on the market. For example, our products are generally capable of
measuring picogram (one-trillionth of a gram) levels of a protein more quickly
than products available from many of our competitors.
Create Superior Value. We seek to create superior value for our customers.
For instance, we include two ELISA test plates in most of our ELISA test kit
packages. This provides our customer with double the number of tests, at a
comparable price, than the test kits of most of our competitors. We offer
greater affordability and convenience to our customers, and foster more
economical research.
Acquire Complementary Businesses, New Products and Technologies. We
evaluate potential acquisitions of complementary products and businesses from
time to time and have a proven track record of profiting from these business
acquisitions.
Esprit de Corps. We seek to create a team spirit among all of our
employees, fostering awareness of our objectives and strategies at all levels
within our company, and rewarding meritorious performance with compensation and
other incentives. We believe this creates loyalty and pride, which translates
into greater quality and enhanced customer service.
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Products
We have over 2,800 different products in our inventory. We group our
products into the following product lines, ELISA test kits, monoclonal and
polyclonal antibodies, oligonucleotides, bioactive proteins, bioactive peptides,
custom peptides and antibodies and clinical diagnostic radioimmunoassays (RIA).
ELISA Test Kits. We have developed methodologies for the measurement
of cytokines and chemokines in blood or other body fluids. ELISA test kits are a
combination of certain cytokines, their antibodies and other chemical reagents,
and are used to measure the presence or quantity of a particular bioactive
protein in serum, plasma or other biological sample. In a typical ELISA test
kit, an antibody is bound in the well of the kit's test plate. Quantitation of
these proteins has become an integral tool both in research and diagnostic
applications as it provides a relatively inexpensive, accurate and rapid method
for the evaluation of immune status.
We offer kits for human, mouse, rat, monkey and swine proteins. The
diversity of species is important to allow investigators to establish such
measurements in preclinical animal model systems. We offer over 70 types of
ELISA kits and we believe we are the leader in rat cytokine ELISA kits.
In addition, we have combined our oligonucleotide and ELISA
technologies to develop a portfolio of assay kits which measure the quantity of
messenger RNA of various cytokines in blood, cultured cells or tissues.
Our European subsidiary produces a line of RIA assays, which are used
internationally in clinical laboratories for the measurement of hormones
important in growth, reproductive and thyroid disease.
Antibodies. Antibodies are used as detector systems in the research of
normal and abnormal proteins. Antibodies are molecules generated by a particular
group of immune cells in response to foreign antigens. They have specific amino
acid sequences by virtue of which they interact only with the antigen that
induced their creation. They are classified according to their mode of action.
In vivo (with in the body) secreted antibodies circulate in the blood and serve
as the effects of immunity by searching out and neutralizing or eliminating
foreign antigens. Antibodies are also used in in vitro (outside the body) for
neutralization studies in bioassay systems. Antibodies are generally produced by
injecting a particular protein or fragment of that protein into animals (usually
goats, chickens, rabbits or mice) which cause the animals' immune system to
produce an antibody specific to that antigen. The polyclonal or monoclonal
antibodies derived from these animals are critical reagents for research and for
the development of analytical assays such as ELISA, Immunohistochemistry and
Flow Cytometry.
Our TagoImmunologics (TAGO) product line provides researchers and
biotechnology companies with a broad array of secondary antibodies. These
products are used in the development of analytical signals in various assays.
Many other companies use our TAGO products as a component of their test kits.
The acquisition of Quality Controlled Biochemicals has added a
portfolio of antibodies that are specifically engineered to bind to proteins
when they are in specific states of phosphorylation. Phosphorylation is the
process of adding or removing molecules of phosphate from a protein that turns
on or off many of the key molecules within cells. These molecules control most,
if not all, of the key processes that regulate the inner workings of all cells
as well as their interaction(s) with other cells. Disease states such as
cancer, Alzheimer's Disease, and many other pathological conditions have been
shown to be at least in part due to the malfunctioning of key molecules within
cells, in many cases due to alterations in their activity through
phosphorylation.
Oligonucleotides. The production of oligonucleotides is a custom
service we provide for investigators doing molecular biology. An oligonucleotide
is a synthesized polymer made up of the same building blocks that form DNA.
Synthetic oligonucleotides have been used in molecular biology for over twenty
years, basically to act as templates for nucleic acid and protein synthesis, and
more recently, as the therapeutic agents for the inhibition of either DNA
transcription of RNA translation or as a diagnostic agent to identify disease.
DNA is used by almost every discipline in biomedical research in both academic
and
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industry areas, including molecular biology and cell biology departments of
major universities, and biomedical companies developing gene therapy products.
Bioactive Proteins. The development of an effective immune response
involves complex cell-to-cell communications, which are mediated by a group of
secreted proteins collectively called cytokines. Many cytokines are being
investigated for their ability to activate or suppress host immunity. Cytokines
and other similar growth factors and adhesion molecules are instrumental in the
body's defense against cancer, AIDS and other life-threatening disorders.
Through recombinant DNA technology, we have developed a broad offering of these
regulatory molecules, which control growth and differentiation of cells.
Cytokines are small, hormone-like, soluble proteins secreted by
activated cells of the immune system. Through their activities, cytokines
coordinate and orchestrate the proper functioning of the immune system. Growth
factors are proteins that stimulate the multiplication and differentiation of
various types of immature precursor cells. Adhesion molecules enable cells to
interact for the purpose of cell communication and are involved in such
processes as wound healing and tumor metastasis. We have produced not only the
human cytokines, but also the equivalent proteins from mice, rats, swine and
monkeys.
Chemokines are specific proteins that regulate the recruitment and
activation of leukocytes and other sites of inflammation. Chemokines function by
binding to receptors on the surface of affected cells. Tremendous interest in
chemokines exists due to recent studies linking chemokines and their receptors
to the pathogeneses of HIV, the causative agent of AIDS.
Bioactive Peptides. Bioactive peptides are subsections of proteins that are
synthetically created. These peptides represent the active site of a particular
protein and are utilized to study the activity of various proteins. Our
acquisition of Quality Controlled Biochemicals has added a significant catalog
of bioactive peptides to our product offerings.
Serum, Buffers and Media. Research in the arena of life science generally
requires the use of a variety of serums, buffers and media to grow cell
cultures. Our new Biofluids division manufactures and sells a wide variety of
serum, buffers and media and adds an important complimentary line of products
and services for life science researchers.
Custom Peptides and Antibodies. The research of our customers sometimes
requires the creation of unique, specific peptides or antibodies to carry out a
research project. With the acquisition of Quality Controlled Biochemicals we
have expanded our scope of our business to include custom manufacturing of
peptides and antibodies. We feel that providing custom manufacturing services
allows us to be of greater service to our customers and furthers our strategic
relationships.
Sales and Marketing
The principal markets for our products are in the United States, Japan
and Western Europe. We have a direct sales force strategically located in major
metropolitan areas in the United States, we advertise in various scientific
trade journals, and we distribute our own product catalog to all current and
selected potential customers. The use of a direct sales force also provides us
with an opportunity to discuss directly with researchers and scientists new
developments and trends in the industry. We sell to our international markets
directly through our European subsidiary, and we use highly respected
international distributors that specifically target the foreign medical market.
Our sales people hold biological sciences undergraduate degrees and
undergo training in the nature and application of our products and proven
selling techniques. We believe that by investing in the scientific training of
our sales force, we are able to determine the needs of researchers and
scientists in the biomedical community. Our sales force is used not only as a
traditional marketing group, but also to provide valuable feedback for product
development.
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Our network of international distributors are both exclusive and non-
exclusive, but we generally grant exclusive distribution rights only where the
distributor maintains direct field representatives proportionate to the
potential for sales of our products in a defined geographical area. We also try
to establish mutually acceptable annual sales goals. All of our distributors are
required to limit their primary sales focus to the biomedical research market.
We offer all of our distributors annual training to enhance their knowledge of
our products as well as their respective applications, solicit requests for new
products and ultimately to increase sales.
Research and Development
We develop most of the products we sell. Currently we employ 15
research scientists who hold Ph.D.'s. Among these professionals are experts in
peptide chemistry, molecular biology, immunology, and signal transduction. In
particular their knowledge is fundamental to the development of peptides,
oligonucleotides, proteins, antibodies, and assay kits. Our research
laboratories are located in Camarillo, California; Hopkinton, Massachusetts and
Nivelles, Belgium. In 1998 we introduced over 300 products, of which
approximately 50% were developed by our scientists. In addition, at December
31, 1998 we have approximately 100 products under development.
Availability of Raw Materials
The principal raw materials for our oligonucleotides are the chemicals
that comprise DNA which are available from numerous sources. Oligonucleotides
are used to produce genes. Genes are then used to manufacture cytokines, which
are in turn used to make antibodies. We also purchase some cytokines, which are
in turn used to make antibodies, and some antibodies, from third party suppliers
in order to offer our customers a full array of products.
ELISA test kits are manufactured from antibodies, proteins, enzymes
and various buffers, and utilize plastic test well plates. We develop most of
our cell lines internally. When we cannot develop a cell line internally we
obtain a license to the cell line. We believe that we have adequate supplies of
materials on hand to continue to manufacture almost all of our products and meet
customer demand, and that those materials that we do not produce internally are
readily available from multiple sources.
Seasonality of Business
We typically do not experience material seasonality of sales. However,
we do experience a slowing of sales in Europe during the summer months and
worldwide during the Christmas holidays.
Significant Customers
No single customer accounted for more than 10% of net sales
during any of our last three years.
Competition
We are engaged in a segment of the health care products industry that
is highly competitive. Our primary competitors include biotechnology companies
such as Techne Corporation, Southern Biotechnology, Endogen, Inc., Jackson
Labs, Dako Corporation and Genosys Biotechnologies. Many of our competitors
have been involved in the health care industry significantly longer than us and
benefit from greater name recognition. In addition, many of our competitors
have greater resources to devote to research and development, sales and
marketing and occasionally engage in price cutting measures to achieve
leadership in their field.
We believe that by offering a very broad and complete product line
that enables the end user to obtain many of products from one source we gain a
competitive advantage. In addition, we compete by producing high quality
products with exacting capabilities at reasonable prices, and by maintaining an
aggressive marketing and sales effort. We also believe that the biomedical
research market is highly fragmented, and that no one has a dominant share of
any of the market segments.
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Patents and Trademarks
We do not own any patents and do not believe that patent protection is
available for any of our processes. We license from third parties a number of
products that are incorporated in some of our products, resulting in our
receiving quasi or derivative patent protection from some of those products.
"TAGOImmunologicals", "Cytoscreen", "Primescreen", "ICScreen",
"Cytosets", and "Dynamix" are product trademarks used for some of our products,
but are only of limited importance to our business. We seek to protect our
interests by treating technologies and know-how as trade secrets and by
requiring all employees and contractors to execute invention and assignment
agreements with us which include confidentiality provisions.
Government Regulation
Approval by the FDA is not required for the sale of any of our
products in the United States because our products are marketed and sold for
research use only. Research products are not currently required to comply with
the lengthy FDA approval process associated with diagnostics or therapeutics.
Some of our products, however, are used by certain of our customers as raw
materials or intermediates in the production of diagnostics. In the past we did
not need an approval from the FDA to sell our products to these customers.
Starting in 1999, however, we will need to register some products with the FDA
as analyte specific reagents. This registration will be focused on the
consistency of our manufacturing, in order to continue to supply these customers
with products.
We believe that we are materially in compliance with the Occupational
Safety and Health Act, the Environmental Protection Act, the Toxic Substances
Control Act, and other similar laws of general application.
Our European subsidiary's clinical products are produced in facilities
that have achieved ISO 9001 certification, and are eligible to be used as
clinical diagnostics. These products are subject to much less stringent
regulatory requirement than that of the United States.
In the event the Company develops products for the diagnostic market,
it may be required to obtain FDA approval prior to selling them. Such approval,
if required, could be time consuming and costly. In such event, the Company
would also be subject to the FDA Good Manufacturing Practices that include
testing, control and documentation requirements enforced by periodic site
inspections.
Employees
As of December 31, 1998, we employed 186 individuals, 181 of
whom were full time employees.
Business Segments
The information required by this item is incorporated herein by
reference to Note 12 in the Notes to Consolidated Financial Statements.
Item 2. Properties
Description of Properties
Our executive offices and manufacturing facilities consist of
approximately 29,000 square feet in Camarillo, California. The property is
subject to a mortgage through June 2016.
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Our Keystone division leases facilities in Foster City, California,
which consist of approximately 3,000 square feet of laboratory space under a
lease which expires in May 2003.
Our QCB division leases facilities in Hopkinton, Massachusetts, which
consist of approximately 7000 square feet of laboratory space under a lease
which expires in May 2001.
Our Biofluids division leases facilities in Rockville, Maryland, which
consist of approximately 11,500 square feet of warehouse, manufacturing, and
office space under a lease which expires in May 2001.
In January 1998, we entered into a new lease for approximately 30,000
square feet of manufacturing, laboratory and office space located in Nivelles,
Belgium. The lease expires in March 2007. Additional small sales offices are
leased in Ratingen, Germany and Amersfoort, Holland.
We believe that all of our facilities are in good condition, are
adequately covered by insurance and will be adequate for our occupancy needs for
the foreseeable future.
Item 3. Legal Proceedings
We are not a party, nor is any of our property subject, to any
material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of our security holders during the
fourth quarter of our last year.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
PRICE RANGE OF COMMON STOCK
The Company's Common Stock commenced trading on the NASDAQ National
Market on April 29, 1996 under the symbol "BIOI". Prior to that time, the
Company's Common Stock traded on the NASDAQ Small Cap Market under the same
symbol. The following table sets forth, for the periods indicated, the high and
low closing sales prices of the common stock on the Nasdaq National Market as
reported by the National Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
High Low
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<S> <C> <C>
Year Ended December 31, 1997
First Quarter .................................................. $ 9 1/8 $ 6 5/8
Second Quarter ................................................. 8 1/8 6 5/8
Third Quarter .................................................. 7 1/8 5 5/8
Fourth Quarter ................................................. 7 15/16 4 13/16
<CAPTION>
High Low
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<S> <C> <C>
Year Ended December 31, 1998
First Quarter .................................................. $ 7 $ 5 7/16
Second Quarter ................................................. 7 5 1/2
Third Quarter .................................................. 6 1/4 3 1/16
Fourth Quarter ................................................. 3 7/8 2 13/32
</TABLE>
As of March 31, 1999, BioSource International had 7,181,925 shares
outstanding and 629 shareholders of record.
DIVIDEND POLICY
BioSource has never paid cash dividends on its common stock and does
not currently anticipate that it will do so in the foreseeable future. We plan
to retain earnings to finance the Company's operations.
On February 16, 1999, our Board of Directors declared a dividend of
one preferred share purchase right for each of share of common stock outstanding
on March 2, 1999. The purchase rights are subject to the terms and conditions
of, the Right Agreement dated February 25, 1999, filed with the Securities and
Exchange Commission on March 1, 1999, on Form 8-A. The purchase rights are not
represented by separate certificates, but, instead, initially will be evidenced
by the certificates representing our outstanding common stock.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Selected Statement of Operations Data for the Years
Ended December 31, (1) (4)
------------------------------------------------------
1998(5) 1997 1996 1995 1994(2)
-------- -------- -------- -------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales $21,859 $20,572 $15,913 $ 8,608 $ 7,367
Gross profit 8,670 13,642 10,345 5,612 4,234
Net income (loss) (5,136) 3,186 2,767 1,160 (210)
Net income (loss) per share:
Basic (0.68) 0.38 0.38 0.20 (0.04)
Diluted (0.68) 0.36 0.35 0.20 (0.04)
</TABLE>
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<TABLE>
<CAPTION>
Selected Statement of Operations Data for the Years
Ended December 31, (1) (4)
------------------------------------------------------
1998 1997 1996 1995 1994(2)
-------- -------- -------- -------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Working capital $ 8,239 $24,430 $18,088 $ 4,996 $ 3,485
Total assets (3) 41,400 33,157 33,795 7,388 5,968
Long-term debt 13,666 1,292 1,314 64 150
Total stockholders' equity(4) 17,696 28,658 28,161 5,897 4,673
</TABLE>
(1) The data reflects the acquisition of Keystone, effected on November 21,
1995, which was accounted for as a pooling of interests. Additionally,
Quality Controlled Biochemicals (QCB) was acquired as of December 10, 1998
and assets of Biofluids, Inc. were acquired as of December 15, 1998. Both
QCB and Biofluids were accounted for as purchase transactions and,
accordingly, their results are reflected in BioSource's results subsequent
to the acquisition dates. See Note 2 of the Notes to Consolidated Financial
Statements for further discussion.
(2) BioSource recognized compensation expense of $577,452 in 1994 related to
the release from escrow of 469,180 shares of common stock held by
directors, officers and others deemed to the able to affect the financial
results of the Company. No expense was recognized with respect to 635,763
shares of common stock held by other stockholders which were also released
from escrow. In addition, BioSource incurred a one-time charge in 1994 of
$312,000 in connection with the closure of its Northern California
facility. These charges affect the comparability of operating results
during 1994 and 1995.
(3) Certain assets and liabilities of Medgenix were acquired concurrently with
the completion of a second primary offering of BioSource common stock.
(4) Reflects the sale in 1996 of 2,362,000 shares of common stock in connection
with the secondary public offering and the application of proceeds received
from the offering. See Note 6 of the Notes to Consolidated Financial
Statements for further discussion.
(5) BioSource incurred a one-time charge in 1998 of $4,222,000 in connection
with the purchase of In-process technology related to the acquisition of
Quality Controlled Biochemicals. See Note 2 of the Notes to Consolidated
Financial Statements for further discussion.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Product sales were $21,858,600 in 1998, an increase of $1,286,800 or 6.3% over
1997. In 1997, product sales were 20,571,800, an increase of $4,658,500 or 29.3%
over 1996.
Product sales in the United States were $8,844,100 in 1998, an increase of
$1,392,000 or 18.7% over 1997. The increase in sales was driven by increases in
sales of assays and oligos. Product sales in the United States were $7,452,100
in 1997, an increase of $660,600 or 9.7% as compared to 1996. The increase in US
sales for 1997 was driven by increases in assay kits.
Product Sales to European customers were $9,692,400 in 1998, a decrease of
$292,200 or 2.9% over 1997. The decline in sales was driven primarily by reduced
sales of radioimmunoassay (RIA) kits. These kits are facing strong competition
from non radioactive assays and as a result we are realizing a decline in
revenue and market share. Product sales to European customers were $9,984,600 in
1997, an increase of $2,582,100 or 34.9% over 1996. 1997 was the first full
year of operations subsequent to the acquisition of Medgenix Diagnostics in
June, 1996. The increased sales in 1997 reflect the benefit derived from this
acquisition in increased sales of our RIA and ELISA immunoassay kits.
Product Sales in Japan were $2,634,700 in 1998, an increase of $181,300 or
7.4% over the prior year. The increase in sales was driven primarily by
increases in sales of our ELISA kits to both new and existing Japanese
customers. However, Japanese sales in the December 1998 quarter were affected by
the current economic climate in Asia. We expect this issue to impact sales to
Japan throughout 1999. Product sales in Japan were $2,453,400 in 1997, an
increase of $1,301,400 or 113.0% over the prior year. The increase in sales was
due to the acquisition of new distributors in Japan and an aggressive expansion
of our product lines into the Japanese markets.
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A large portion of our sales are derived from foreign sales, representing
59.5%, 63.8% and 57.3% of our net sales in 1998, 1997 and 1996, respectively.
Although the percentage of domestic sales to total net sales has remained
relatively constant, domestic sales volume has increased by 18.7%, 9.7% and 9.5%
in 1998, 1997 and 1996, respectively, as compared to the prior year.
Gross profit Gross profit for the years ended December 31, 1998, 1997 and 1996
was $8,670,000, $13,641,700 and $10,345,300 or 39.7%, 66.3% and 65.0%,
respectively. The decline in gross profit of $4,971,700 or 36.4% in 1998 as
compared to 1997 is primarily the result of charges of approximately $4,966,000
related to (1) the establishment of a valuation reserve for our current antibody
inventory and (2) the reduction of standard costs for on hand ELISA test kits
and products manufactured in Europe. Our strategy is to maintain a broad base of
products available for sale to our customers. With regard to the antibody
product inventory, we offer over 1,000 antibodies for sale and find it to be
more cost efficient to produce large quantities of the antibody product during
each production run, however, this inventory turns slowly. Attempts have been
made to reduce the quantity of antibody inventory maintained in stock in order
to increase the inventory turnover, however, this approach did not allow us to
maintain proper strategic levels of inventory necessary to service our customer
needs. As a result, in order to reduce the financial risk of excess or slow
moving inventory resulting from the large production runs, the proper financial
management policy with regard to the antibody inventory was determined to be one
of expensing the cost of production as incurred as a component of cost of sales.
Also, contributing to the reduced gross profit is an increased percentage of
sales of lower profit oligonucleotides as compared to the prior year and costs
relating to the sale of custom antibodies, custom peptides, sera, and
buffers/media resulting from our acquisitions of Quality Controlled Biochemicals
(QCB) and Biofluids in December 1998. The increased gross profit of $3,296,400
in fiscal 1997 compared to 1996 is primarily due to increased sales of
$4,658,500 resulting in additional gross profit of $3,028,400 combined with cost
controls both in the United States and European facilities.
Operating expenses:
Research and development - Research and development expense for the years ended
December 31, 1998, 1997 and 1996 amounted to $2,648,300, $2,077,700 and
$1,420,900, respectively. The increased research and development expense of
$570,600 in 1998 as compared to 1997 is primarily due to increased staffing
costs, expenditures related to the development of new product lines and
additions to current product lines, a reduction in grant funds received in the
current fiscal year and research and development expenditures related to QCB for
the month of December 1998. The increased research and development costs of
$656,800 in 1997 as compared to 1996 was due primarily to incremental expenses
associated with our acquisition of BioSource Europe. Additionally, we also
recognized incremental expenses in 1997 in the United States in connection with
the expansion of our core product lines including new ELISA assay test kits, and
other biomedical research and clinical diagnostic products.
Sales and marketing - Sales and marketing expense for the years ended December
31, 1998, 1997 and 1996 amounted to $4,337,500, $4,043,000 and $2,761,600,
respectively. The increased sales and marketing expense of $294,500 or 7.3% in
1998 as compared to 1997 is primarily due to increased staffing costs, costs
related to the repatriation of a United States employee that had been assigned
to an overseas position, and increased advertising and other marketing programs.
The increased sales and marketing expense of $1,281,400 or 46.4% in 1997 as
compared to 1996 is primarily due to incremental expenses associated with the
acquisition of BioSource Europe. Additionally, costs for the United States
operations reflect increased staffing costs and increased marketing and
promotional expenditures.
General and administrative - General and administrative expense for the years
ended December 31, 1998, 1997 and 1996 amounted to $4,468,900, $3,552,000 and
$2,702,500, respectively. The increased general and administrative expense of
$916,900 or 25.8% in 1998 as compared to 1997 is primarily due to increased
staffing costs, the settlement of a claim by our former landlord of our Belgian
facility, costs associated with the closure of overseas offices, costs related
to the repatriation of a United States employee that had been assigned to an
overseas position, and costs related to operating QCB and Biofluids for the
period from the acquisition dates to December 31, 1998. The increased general
and administrative expense
<PAGE>
of $849,500 or 31.4% in 1997 as compared to 1996 is primarily due to incremental
costs associated with the acquisition of BioSource Europe. Additionally, costs
increased in the United States predominantly due to increased staffing costs
required to support BioSource's domestic growth.
Amortization of intangible assets - Amortization of intangible assets for the
years ended December 31, 1998, 1997 and 1996 amounted to $95,100, $30,700 and
$0, respectively. The increase of $64,400 in 1998 as compared to 1997 was due to
the amortization of intangible assets acquired in conjunction with the
acquisitions of QCB and Biofluids in December 1998. The $30,700 increase in 1997
compared to 1996 is the result of intangible assets acquired with the
acquisition of BioSource Europe.
Purchased in-process technology - Purchased in-process technology for the years
ended December 31, 1998 was $4,222,000 as compared to zero in both 1997 and
1996. The purchased in-process technology charge in 1998 relates to the portion
of the QCB purchase price that was allocated to products in development which
had not yet reached technological feasibility as of the acquisition date and did
not have alternative future uses and in accordance with applicable accounting
rules, purchased in-process technology is required to be expensed. See Note 2 of
the Notes to Consolidated Financial Statements for further discussion.
Interest income, net - Net interest income for the years ended December 31,
1998, 1997 and 1996 amounted to $297,500, $627,400 and $274,700, respectively.
The decline in net interest income for the year ended December 31, 1998 of
$329,900 or 52.6% as compared to 1997 is primarily due to reduced interest rates
earned on invested cash, the use of our cash to fund the two acquisitions
completed in 1998, the share repurchase program, and interest expense on the
debt incurred to fund the acquisitions. The increased net interest income of
$352,700 or 128.4% for the year ended December 31 ,1997 as compared to 1996 is
due to income derived from investing, for a full year, excess cash received
through our second primary offering of common stock which was completed in June
1996.
Provision for (benefit from) income taxes - The income tax benefit for the year
ended December 31, 1998 was $1,534,600. The provisions for income taxes for the
years ended December 31, 1997 and 1996 were $1,460,000 and $696,000,
respectively. The income tax benefit recorded in 1998 is primarily due to the
book versus tax timing differences relating to the inventory valuation reserves
and purchased in-process technology charges recorded in 1998 for financial
statement purposes but will be deductible on our tax returns in future periods.
The increase in the income tax provision in 1997 as compared to 1996 relates to
both increased pre-tax income in 1997 and a reduction of a valuation reserve in
1996 which provided a tax benefit in 1996.
Trends and Uncertainties:
The Company consummated two acquisitions in December 1998. These acquisitions
are primarily intended to broaden our product portfolio, increase sales to
current and new customers, and provide new strategic locations for the
manufacture and sale of products. Implementation of these strategic transactions
has resulted in charges and write-downs having an adverse effect on our
financial results for the year ended December 31, 1998. In addition, there are
business risks associated with acquisitions, including the successful
integration of the acquired companies in an efficient and timely manner, the
coordination of research and development and sales efforts, the retention of key
personnel, and the integration of acquired products. There can be no assurance
that these efforts will be successful, or if successful, will produce the
desired results.
Year 2000:
The following statements constitute a "Year 2000 Readiness Disclosure" under
the Year 2000 Information and Readiness Disclosure Act.
BioSource's review of accounting and business systems in order to ensure Year
2000 compliance is proceeding on schedule. Phase I of this project is the
assessment and identification phase. Phase II is the
<PAGE>
completion of necessary modifications and upgrades identified during phase I. We
expect to complete both phase I and phase II during the first half of 1999. As
part of phase I, the Company has engaged an outside consulting firm to assess
issues surrounding our desktop computer and telephone systems. Additionally, we
have assessed our accounting systems. To date, we have identified that one of
our accounting systems is not currently Year 2000 compliant and, during phase
II, a normal conversion and upgrade path is in progress which will provide us
with the Year 2000 compliant current release of the accounting system. We expect
to complete this conversion during the first half of 1999.
Also as part of phase I, the Company is assessing other business and
operational systems and contacting suppliers and customers in an effort to
identify additional Year 2000 issues. We expect to complete modifications
identified as part of this effort during the first half of 1999.
To date, we have spent an immaterial amount on the compliance program, and we
do not expect the cost associated with required modifications and capital
expenditures to become Year 2000 compliant to exceed $100,000. The foregoing
costs do not include our internal costs (principally the payroll costs for those
person's working on the project), which costs we do not track.
The reasonably likely "worst case" scenario of BioSource's failure to correct
a material Year 2000 problem would likely be an interruption in, or a failure
of, certain normal business activities or operations. These failures could
adversely affect our results of operations, liquidity, and financial condition.
Due to the general uncertainty inherent in the Year 2000 problem, resulting in
part from the uncertainty of the Year 2000 readiness of third-party suppliers
and customers (which we have not fully assessed), we are unable to determine at
this time whether the consequences of Year 2000 failures will have a material
impact on our results of operations, liquidity, or financial condition. The Year
2000 project is expected to reduce our level of uncertainty about the Year 2000
problem. We do not generally rely on sole source suppliers, and consequently we
believe that we will have alternative sources of supply available as a
contingency in the event any of our suppliers suffer material Year 2000
problems. We do not anticipate material problems with our power supply or
telecommunications. We believe that, with the implementation of the new business
systems and completion as scheduled, the possibility of significant
interruptions of normal operations should be reduced. Subsequent to the
completion of our upgrade efforts and the determination of our customer and
vendor compliance with Year 2000, we will ascertain the need for a formal Year
2000 contingency plan.
Stockholder Rights Plan:
On February 16, 1999, our Board of Directors declared a dividend of one
preferred share purchase right for each of share of common stock outstanding on
March 2, 1999. The purchase rights are subject to the terms and conditions of,
the Right Agreement dated February 25, 1999, and filed with the Securities and
Exchange Commission on March 1, 1999, on Form 8-A. The purchase rights are not
represented by separate certificates, but, instead, initially will be evidenced
by the certificates representing our outstanding common stock.
Recently Issued Accounting Standards:
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
is effective for fiscal years beginning after June 15, 1999. SFAS No. 133
addresses the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities. The
Statement standardizes the accounting for derivative instruments by requiring
that an entity recognize those items as assets or liabilities in the statement
of financial position and measure them at fair value. We are evaluating the
Statement's provisions to determine the effect on its financial statements. In
addition, the impact of SFAS No. 133 will depend on the terms of future
transactions.
In March 1998, the American Institute of Certified Public Accountants
Accounting Standards Executive Committee issued a Statement of Position 98-1
(SOP 98-1), "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." BioSource will adopt SOP 98-1 effective on January 1, 1999.
The adoption of SOP 98-1 will require us to modify our method of accounting for
<PAGE>
software. Based on information currently available, we do not expect the
adoption of SOP 98-1 to have a significant impact on our financial position or
results of operations.
Liquidity and Capital Resources:
Cash and cash equivalents and short term investments as of December 31, 1998
of $7,076,900 decreased by $7,369,300 or 51.0% from $14,446,200 at December 31,
1997. Working capital, which is the excess of current assets over current
liabilities, at December 31, 1998 was $8,239,300 as compared to $24,430,000 at
December 31, 1997 representing a decrease of $16,190,600 or 66.4%. The reduction
in cash and working capital resulted primarily from the use of cash to acquire
QCB and Biofluids, the purchase of the Company's stock under the stock
repurchase program, and the charges associated with the creation of the
inventory valuation reserves in 1998. Also affecting working capital during 1998
is an accounts receivable increase of $921,500 which is primarily due to
$378,000 of accounts receivable acquired with QCB and Biofluids and an increase
of $472,700 in the Company's European operation. The increase in the European
accounts receivable is due to a slowdown in collection efforts during 1998 due
to both the Company's simultaneous move to new facilities in Belgium and the
conversion to a new computer system. BioSource's policy is to maintain liquidity
in its investments to provide working capital and have the ability to react to
future potential long term investment opportunities in complementary businesses,
products or technologies.
Capital expenditures of $1,390,000 were primarily for the purchases of
laboratory, manufacturing and computer equipment.
In April 1997, the Board of Directors authorized us to repurchase up to
200,000 shares of our outstanding common stock at market price. In December
1997, the Board of Directors authorized us to repurchase up to 1,000,000
additional shares of its outstanding common stock at market price and in August
1998 we were authorized to repurchase up to an additional 250,000 shares of the
outstanding common stock at market price. During the year ended December 31,
1998, we have repurchased 996,200 shares of the Company's common stock for
$6,309,800, an average price of $6.33. As of December 31, 1998, we have
repurchased a total of 1,279,500 shares of the Company's common stock for
$8,054,300, an average price of $6.29 per share since the inception of the
repurchase program in April 1997.
In December, 1998, we executed a loan agreement with Union Bank of California,
N.A. and borrowed $14,000,000 which was to be used to finance the acquisitions
of Quality Controlled Biochemicals, Inc. and all of the assets and selected
liabilities of Biofluids, Inc. The principal amount outstanding as of December
31, 1998 was $14,000,000. Principal repayments are to be made at approximately
$166,700 per month for the seven year term of the loan. Interest is provided at
a rate which is 2% per annum in excess of either the bank's adjusted treasury
rate, or the bank's LIBOR rate, in each case, for a term we select. The actual
interest rate at December 31, 1998 was 7.19%. The loan matures on December 5,
2005. The terms of this loan require us to maintain a minimum cash balance of
$3,500,000 as of December 31, 1998 and beginning January 1, 1999 to maintain
minimum cash balances of $4,000,000. Additionally, we must maintain a minimum
ratio of total liabilities to tangible net assets, achieve minimum net profit
levels, and comply with specified ratios of earnings before interest, taxes,
depreciation and amortization to debt service costs. We are also required to
comply with certain non-financial covenants. At December 31, 1998, we are in
compliance or have obtained waivers with regard to these covenants.
QCB had six loans outstanding aggregating $1,394,700 with MetroWest Bank
which we assumed upon completion of the acquisition of QCB in December 1998.
The loans mature from April 17, 1999 through 2003 with rates between 8.75% and
9.00%. Under the terms of these loans we must meet certain financial covenants
which include, a minimum tangible net worth covenant, debt to tangible net
worth, current ratio covenant, and other non financial covenants. At December
31, 1998, we are in compliance with or have obtained waivers with regard to
these covenants.
<PAGE>
RISK FACTORS
Many of the matters discussed in this Report are forward-looking statements
that inherently involve risks and uncertainties. Factors associated with such
forward-looking statements which could cause actual results to differ materially
from those projected in the statements appear below. In addition to the other
information contained in this Report, prospective investors should carefully
consider the following risk factors and cautionary statements.
We Rely on Raw Materials for our Manufacturing. Our manufacturing process
relies on the continued availability of high-quality raw materials, many of
which we currently receive from specific vendors. It is possible that a change
in vendors, or in the quality of the raw materials supplied to us, could have an
adverse impact on our manufacturing process and, ultimately, on the sale of our
finished products. We have from time to time experienced a disruption in the
quality or availability of certain key raw materials, which has created minor
delays in our ability to fill orders for certain test kits. This could occur
again in the future, resulting in significant delays, and could have a
detrimental impact on the sale of our products.
We are Engaged in a Competitive Industry. We are engaged in a segment of
the human health care products industry that is highly competitive. Many of our
competitors, both in the United States and elsewhere, are major pharmaceutical,
chemical, and biotechnology companies, and many of them have substantially
greater capital resources, marketing experience, research and development
staffs, and facilities than we do. Any of these companies could succeed in
developing products that are more effective than any that we have or may
develop, and may also be more successful than us in producing and marketing
their products. Not only do we face intense competition in the marketplace
against our competitors, but we also must compete with these same companies for
the services of personnel.
We expect competition to continue and intensify in the future. Increased
competition could result in price reductions for our products, reduced margins
and loss of market share, any of which could adversely impact our business.
Our industry has also seen substantial consolidation in recent years. We
believe that the success that others have had in our industry will attract new
competitors. Some of our current and future competitors may join forces to
better compete against us. We may be not be able to compete effectively against
current or future competitors, and competitive pressures may have an adverse
effect on our business, financial condition and results of operations.
We Rely on International Sales. International sales accounted for
approximately 63.8% and 59.5% of our revenues in 1997 and 1998, respectively.
International sales can be subject to certain inherent risks, including
unexpected changes in regulatory requirements and tariffs, difficulties in
staffing and managing foreign operations, longer payment cycles, problems in
collecting accounts receivable, and potentially adverse tax consequences. We
also depend on third-party distributors for a material portion of our
international sales. If we lose or suffer any significant reduction in sales to
any material distributor, our business could be materially adversely affected.
In addition, approximately 40% of our sales are made in Belgian Francs. In
the past, gains and losses on the conversion of our accounts receivable arising
from international operations have contributed to fluctuations in our results of
operations, although the impact of foreign exchange conversions were not
significant during 1998. In general, increases in the exchange rate of the
United States dollar to foreign currencies cause our products to become
relatively more expensive to customers in those countries, leading to a
reduction in sales or profitability in some cases.
We Depend on Key Management. Our success will continue to depend to a
significant extent on the members of our management team and, in particular, on
our Chief Executive Officer, James H. Chamberlain. As is the case with any
company, we may not be able to retain the services of our executive officers and
key personnel or attract additional qualified members to management in the
future. The loss of
<PAGE>
services of Mr. Chamberlain, or of any key employee, could have a material
adverse effect upon our business.
Our Stock Price has been Volatile. Our common stock is quoted on The
Nasdaq National Market System, and there has been substantial volatility in the
market price of our common stock. The trading price of the common stock has
been, and is likely to continue to be, subject to significant fluctuations in
response to variations in quarterly operating results, the gain or loss of
significant contracts, changes in management, announcements of technological
innovations or new products by us or our competitors, legislative or regulatory
changes, general trends in the industry, recommendations by securities industry
analysts, and other events or factors. In addition, the stock market has
experienced extreme price and volume fluctuations which have affected the market
price of our common stock, as well as the stock of many technology companies.
Often, price fluctuations are unrelated to operating performance of the specific
companies whose stock is affected.
We Are Subject to Extensive Government Regulation. We operate in a highly
regulated industry. Our business is subject to extensive regulation,
supervision and licensing by federal, state and local governmental authorities.
Also, from time to time we must expend significant resources to comply with
newly adopted regulations as well as changes in existing regulations. If we
fail to comply with these regulations, we could be subject to certain
disciplinary actions or administrative enforcement actions. Such actions could
result in penalties, including fines.
Protection of our Trademarks and Propriety Rights is Uncertain. We regard
our trademarks, trade secrets and similar intellectual property as important to
our success. We rely on trademark law and trade secret protection and
confidentiality and/or license agreements with employees, customers, partners
and others to protect our proprietary rights. We have pursued the registration
of our trademarks in the U.S. and internationally. Effective trademark and
trade secret protection may not be available in every country in which our
products are available. We cannot be certain that we have taken adequate steps
to protect our proprietary rights, especially in countries where the laws may
not protect our rights as fully as in the United States. In addition, third
parties may infringe or misappropriate our proprietary rights, and we could be
required to incur significant expenses in preserving them.
Year 2000 Issues. The Year 2000 issue is the result of computer programs
being written using two digits rather than four to define the applicable year.
In other words, date-sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000. This could result in system failures or
miscalculations causing disruptions of operations, including, among others, a
temporary inability to process transactions, send invoices, manufacture
product, or engage in similar normal business activities.
Our own information systems correctly define the year 2000. We are
currently analyzing the extent to which the Year 2000 issue affects our major
suppliers' systems, insofar as they relate to our business. We cannot currently
predict the extent to which the year 2000 issue will affect our suppliers, or
the extent to which we would be vulnerable to the suppliers' failure to remedy
any Year 2000 issues on a timely basis.
<TABLE>
<CAPTION>
Item 8. Financial Statements and Supplementary Data
Page
-----
<S> <C>
Report of KPMG LLP, Independent Auditors ..................................................... F-1
Consolidated Balance Sheets at December 31, 1998 and 1997 .................................... F-2
Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997 and 1996.... F-3
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996......................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996.... F5
Notes to Consolidated Financial Statements for the Years Ended
December 31, 1998, 1997 and 1996......................................................... F6-17
Schedule II Valuation and Qualifying Accounts................................................ F-18
</TABLE>
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The current directors, executive officers and key employees of the Company
are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
James H. Chamberlain 51 Chairman of the Board, President and
Chief Executive Officer
Larry A. May 49 Chief Financial Officer, Executive
Vice President - Finance
Gus E. Davis 51 Chief Operating Officer, Executive Vice
President - Sales and Marketing
Leonard M. Hendrickson* 51 Director
David J. Moffa, Ph.D.* 56 Director
John R. Overturf, Jr.** 38 Director
Robert D. Weist** 59 Director
Key Employees
Richard O. Buford 50 Vice President Human Resources,
Secretary
Cirilo D. Cabradilla, Jr., Ph.D. 50 Vice President Molecular Biology
Kevin J. Reagan, Ph.D. 46 Vice President Immunology Products
Jordan B. Fishman, Ph.D. 41 Vice President Cellular Biology
Jef Vangenechten, Ph.D. 44 General Manager BioSource Europe, S.A.
</TABLE>
* Member of the Compensation Committee
** Member of the Audit Committee
James H. Chamberlain has served as Director, President and Chief Executive
Officer of the Company and its predecessor, BioSource Industries, Inc. since it
was founded in October 1989, and elected as its Chairman of the Board in
November 1993. Previously, Mr. Chamberlain was Manager for Business Development
for Amgen, Inc., where he started and managed the Amgen Biologicals Division.
Mr. Chamberlain has held various executive positions with Browning Ferris
Industries and Amersham Corporation, a biomedical company, and was a research
biochemist for Wm. H. Rorer Pharmaceutical, a major pharmaceutical company. He
received his Bachelor of Arts degree from West Virginia University and studied
biochemistry at the University of Pittsburgh.
Larry A. May became Executive Vice President Finance and Chief Financial
Officer of the Company on June 1, 1998. Prior to joining BioSource, Mr. May
served in various capacities at Amgen, the world's largest biotechnology
company, from 1983 to May, 1998. From 1997 to May 1998, Mr. May served as
Treasurer of Amgen, and from 1988 to 1997, served as its Corporate
Controller/Chief Accounting Officer, and from 1983 to 1988, Mr. May served as
Corporate Controller of Amgen. Mr. May has also served as Vice President of
Finance West Coast Operations for IDC Services, a company providing payroll and
accounting services to major advertising agencies, motion picture and television
production companies (1978-1983). Mr. May holds a Bachelor of Science degree in
Business Administration and Accounting from the University of Missouri.
<PAGE>
Gus E. Davis became Executive Vice President Sales and Marketing and Chief
Operating Officer of the Company in June 1995. From February 1994 to June 1995,
Mr. Davis served as Vice President of Sales and Marketing of the Company. Prior
to that time, since February 1993, Mr. Davis was employed as Vice President of
Sales and Marketing at Genosis BioTechnology, a company engaged in the
manufacturing of oligonucleotides. From January 1983 to January 1993, Mr. Davis
was employed as the Midwestern Area Manager for Pharmacia BioTechnology, a
company involved in the sale of reagents and capital equipment used to purify
samples. Mr. Davis received his Bachelor of Science and Masters degree in
Biology and Chemistry from Sam Houston State University.
Leonard M. Hendrickson has been a Director of the Company since October
1993. Mr. Hendrickson is the President of Isotope Products Laboratories, a
privately held company, a position he has held since February 1992. From
February 1990 to January 1992, Mr. Hendrickson served as the principal
consultant for Microchemics, a marketing and business development consulting
firm which he founded. Prior to that time, Mr. Hendrickson served as Director of
Marketing for Scicor, a diagnostics laboratory in Indianapolis, Indiana, and
held various executive positions with Amersham Corporation. Mr. Hendrickson has
also held positions with Marion Laboratories, a pharmaceutical company, and
Standard Oil Company. Mr. Hendrickson holds a Bachelor of Science degree from
the University of Pennsylvania and a Masters in Business Administration from
American University in Washington, D.C.
David J. Moffa, Ph.D. has been a Director of the Company since April 1995.
Dr. Moffa serves: as the Regional Director and as special projects director for
Lab Corporation of America, Inc. (Fairmont, WV), positions he has held since
1982 and 1984, respectively; as Director of Medical Arts Lab/RBL, a position he
has held since 1985; and as Director of Lab Corporation of America, Inc.
(Altoona, PA), a position he has held since 1990. Dr. Moffa also serves as an
advisor and consultant to various diagnostic, scientific and health care
facilities, and is an owner and developer of GM Realty and Moffa Properties.
Prior to serving in his current positions, Dr. Moffa has served as a Director
and General Manager of BioMedical Reference and Roche Biomedical Labs, as
President, Chief Executive Officer and a Director of BioPreps Laboratories,
Inc., as Assistant Professor of Medical Biochemistry and Director of Dental
Biochemistry Programs at the West Virginia University School of Medicine, as NIH
Post Doctoral Fellow and Instructor in Medical Biochemistry as well as a
Graduate Research Assistant at the West Virginia University School of Medicine.
Dr. Moffa also serves on a number of committees and boards of directors of
various privately held companies and governmental offices. Dr. Moffa has
completed a post doctoral fellowship in Clinical Biochemistry at the West
Virginia University National Institutes of Health, holds a Ph.D. in Medical
Biochemistry from the West Virginia School of Medicine, a Masters of Science
degree in Biochemistry from West Virginia University and a Bachelor of Arts
degree in Pre-Medicine from West Virginia University.
John R. Overturf, Jr. has been a Director of the Company since September 1993.
Mr. Overturf serves: as the President of R.O.I., Inc., a private investment
company, a position he has held since July 1993; and as President of the
Combined Penny Stock Fund, Inc., a closed-end stock market fund, a position he
has held since September 1996. From September 1993 until September 1996, Mr.
Overturf served as Vice-President of the Rockies Fund, Inc., a closed-end stock
market fund. From June 1984 until February 1992, Mr. Overturf served as Vice
President of Colorado National Bank. Mr. Overturf holds a Bachelor of Science
degree in Finance from the University of Northern Colorado.
Robert D. Weist has been Director of the Company since April 1996. Mr. Weist has
been President of Weist Associates (a management consulting firm) since April
1992. From January 1986 through April 1992, Mr. Weist was a consultant to and
Senior Vice President, Administration, General Counsel and Secretary of Amgen,
Inc., having served as Vice President, General Counsel and Secretary from March
1982 through January 1986. Mr. Weist holds a Juris Doctor degree from New York
University and a Masters in Business Administration from the University of
Chicago.
Key Employees
The Company also considers the following individuals to be key to its
operations.
<PAGE>
Richard O. Buford became Vice President of Human Resources of the Company in
February 1993. From 1989 to 1992, Mr. Buford served as Vice President of
Operations for The Office Mart, a California regional commercial furniture and
office supply distributor. From 1978 to 1989, Mr. Buford held various
operational and administrative management positions with Schwabacher/Frey, an
office supply distribution unit of Hanson Industries, most recently as Director
of Finance and Administration from 1984-1989. Mr. Buford received a Bachelor of
Arts and a Masters degree in English from the University of California at Santa
Barbara.
Cirilo D. Cabradilla, Jr., Ph.D. became President of the Keystone subsidiary in
November 1995. From 1992 to 1995, Dr. Cabradilla served as President of Keystone
Laboratory, Inc.. Prior to that time, from 1988 to 1992, Dr. Cabradilla was Vice
President, Product Development, of Vascor, a pharmaceutical company. Dr.
Cabradilla received a Bachelor of Science and a Ph.D. degree in Biochemistry
from the University of California Davis.
Kevin J. Reagan, Ph.D. became Vice President, Immunology in December, 1996. From
1991 to December 1996, Dr. Reagan served as the first Director of Development
Laboratories and then Vice President, Laboratory Operations at Specialty
Laboratories, Inc., a clinical reference lab. From 1990 to 1991, Dr. Reagan was
the Associate Director of AIDS/Hepatitis R&D at Ortho Diagnostics, Inc., a
Johnson & Johnson Company. Prior to that time, from 1984 to 1990, he was a
Research Virologist, Senior Research Virologist, Research Associate and Group
Leader in the Biomedical Products Department of E.I. Dupont de Nemours & Co.,
Inc. From 1981 to 1984, he was employed at the Wistar Institute of Anatomy and
Biology. Dr. Reagan received his Bachelor of Arts in Biological Sciences from
the University of Delaware. Dr. Reagan received both his Masters and Ph.D.
degrees in Microbiology and Immunology from Hahnemann Medical College.
Jozef Vangenechten, Ph.D. became Managing Director of BioSource Europe, S.A. in
February, 1998. From 1988 to February 1998, Dr. Vangenechten worked for Societe
Generale de Surveillance, n.v. ("SGS"), an international provider of
environmental compliance services, most recently as Managing Director of the
SGS's EcoCare Environmental Services division. Prior to that time, from 1988 to
1992, he served as Manager and Assistant Director of EcoCare. From 1981 to 1988,
Dr. Vangenechten worked for the Belgian Nuclear Energy Research Center, most
recently as Research Scientist and Group Leader within its Department of
Radiobiology.
Jordan Fishman, Ph.D. became President of the Quality Controlled Biochemicals
subsidiary in December 1998. From 1993 to 1998, Dr. Fishman served as the Senior
Vice-President and Chief Scientific Officer of Quality Controlled Biochemicals,
Inc. From 1988 until 1992, Dr. Fishman was an Assistant Professor of
Pharmacology at the University of Massachusetts Medical School. From 1985 until
1988, Dr. Fishman was an Assistant Professor of Biochemistry at Boston
University School of Medicine and a Research Neurochemist at the Edith Nourse
Rogers Memorial VA Hospital in Bedford, MA. Dr. Fishman received his Ph.D. in
Biochemistry and Toxicology/Carcinogenesis from the University of Tennessee at
Oak Ridge, and his Bachelor of Science from Washington University, St. Louis,
MO.
Item 11. Executive Compensation
Information relating to executive compensation is contained in the
Company's Proxy Statement for its 1999 Annual Stockholders meeting and is hereby
incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information relating to security ownership of directors and executive
officers and certain beneficial owners is contained in the Company's Proxy
Statement for its Annual Stockholders meeting and is hereby incorporated by
reference.
Item 13. Certain Relationships and Related Transactions
<PAGE>
Information relating to certain transactions is contained in the Company's
Proxy Statement for its 1999 Annual Stockholders meeting is hereby incorporated
by reference.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) The financial statements listed below are included as part of this
report:
Independent Auditors' Report
Consolidated Balance Sheets December 31, 1998 and 1997
Consolidated Statements of Operations Years ended December 31, 1998,
1997, and 1996
Consolidated Statements of Stockholders' Equity Years ended December
31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows Years ended December 31, 1998,
1997, and 1996
Notes to Consolidated Financial Statements
(a)(2) The following schedule supporting the financial statements of the
Company is included herein:
Schedule II Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, not
required or because the required information is included in the consolidated
financial statements or notes thereto.
(a)(3) Exhibits
See Exhibit Index immediately following signature page.
(b) Reports on Form 8-K:
Filed as an exhibit to the Company's Current Report on Form 8-K dated
December 31, 1998, and incorporated herein by reference.
Filed as an exhibit to the Company's Current Report on Form 8-K dated
December 24, 1998, and incorporated herein by reference.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: April 13, 1999 By: /s/ LARRY A. MAY
--------------------------------
Larry A. May
Executive Vice President Finance,
Chief Financial Officer
Date: April 13, 1999 By: /s/ JAMES H. CHAMBERLAIN
--------------------------------
James H. Chamberlain
Chairman of the Board,
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following person on behalf of the registrant and in the capacities and on the
date indicated:
Signature Title Date
--------- ----- ----
/s/ LEONARD M. HENDRICKSON Director April 13, 1999
- - ---------------------------------
Leonard M. Hendrickson
/s/ DAVID J. MOFFA, Ph.D. Director April 13, 1999
- - ---------------------------------
David J. Moffa, Ph.D.
/s/ JOHN R. OVERTURF, JR. Director April 13, 1999
- - ---------------------------------
John R. Overturf
/s/ ROBERT D. WEIST Director April 13, 1999
- - ---------------------------------
Robert D. Weist
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
BioSource International, Inc.:
We have audited the accompanying consolidated balance sheets of BioSource
International, Inc. and subsidiaries as of December 31, 1998 and 1997 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BioSource
International, Inc. and subsidiaries as of December 31, 1998 and 1997 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998 in conformity with generally accepted
accounting principles.
KPMG LLP
Los Angeles, California
March 26, 1999
F-1
<PAGE>
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
(Amounts in thousands, except for share and per share amounts)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,076.9 $ 9,477.5
Short-term investments - 4,968.7
Accounts receivable, less allowance for doubtful accounts
of $301.0 at December 31, 1998 and $203.0 at December 31, 1997 4,381.0 3,459.5
Inventories, net (note 3) 4,970.6 7,883.4
Prepaid expenses and other current assets 726.2 1,599.3
Deferred income taxes (note 10) 1,123.4 248.0
---------- ----------
Total current assets 18,278.1 27,636.4
Property and equipment, net (note 4) 5,513.6 4,560.1
Intangible assets, net of $125.8 of accumulated amortization at December 31, 14,451.2 429.3
1998 and $30.7 at December 31, 1997 (note 2)
Other assets 1,318.0 308.3
Deferred income taxes (note 10) 1,839.2 223.0
---------- ----------
$ 41,400.1 $ 33,157.1
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,643.0 $ 1,446.4
Accrued expenses 4,143.9 1,472.7
Notes payable to banks, current portion (note 5) 3,024.2 34.5
Deferred income 625.9 -
Income tax payable 601.7 252.8
---------- ----------
Total current liabilities 10,038.7 3,206.4
Notes payable to banks, less current portion (note 5) 13,665.6 1,292.4
---------- ----------
Total liabilities 23,704.3 4,498.8
Commitments and contingencies (notes 5 and 13)
Stockholders' equity:
Preferred stock, $.001 par value. Authorized 1,000,000 shares; - -
none issued or outstanding
Common stock, $.001 par value. Authorized 20,000,000
shares: issued 7,469,925 shares and outstanding 7,178,925
shares at December 31, 1998 and 8,147,715 shares
at December 31, 1997 7.2 8.1
Additional paid-in capital 21,186.8 27,304.8
Retained earnings (accumulated deficit) (2,629.3) 2,506.5
Accumulated other comprehensive loss (868.9) (1,161.1)
---------- ----------
Net stockholders' equity 17,695.8 28,658.3
---------- ----------
$ 41,400.1 $ 33,157.1
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1998, 1997 and 1996
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $21,858.6 $20,571.8 $15,913.3
Cost of sales 13,188.6 6,930.1 5,568.0
------------ ------------ ------------
Gross profit 8,670.0 13,641.7 10,345.3
------------ ------------ ------------
Operating expenses:
Research and development 2,648.3 2,077.7 1,420.9
Sales and marketing 4,337.5 4,043.0 2,761.6
General and administrative 4,468.9 3,552.0 2,702.5
Purchased In-process technology 4,222.0 - -
Amortization of intangibles 95.1 30.7 -
--------- --------- ---------
Total operating expenses 15,771.8 9,703.4 6,885.0
--------- --------- ---------
Operating income (loss) (7,101.8) 3,938.3 3,460.3
Interest income, net 297.5 627.4 274.7
Other income (expense), net 133.9 80.6 (271.8)
--------- --------- ---------
Income (loss) before income taxes (6,670.4) 4,646.3 3,463.2
Provision for (benefit from) income taxes (note 10) (1,534.6) 1,460.0 696.0
--------- --------- ---------
Net income (loss) $(5,135.8) $ 3,186.3 $ 2,767.2
========== ========== =========
Net income (loss) per share:
Basic $ (0.68) $ 0.38 $ 0.38
--------- --------- ---------
Diluted $ (0.68) $ 0.36 $ 0.35
--------- --------- ---------
Shares used to compute net income (loss) per share:
Basic 7,508.8 8,318.0 7,271.8
--------- --------- ---------
Diluted 7,508.8 8,965.2 8,008.5
--------- --------- ---------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-3
<PAGE>
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Retained
Common stock Additional earnings Accumulated Net
------------------
Number of paid-in (accumulated comprehensive stockholders'
shares Amount capital deficit) loss equity
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 5,845.3 $ 5.8 $ 9,338.5 $(3,447.0) - $ 5,897.3
Issuance of common stock 2,362.0 2.4 19,299.0 - - 19,301.4
Exercise of stock options 80.7 0.1 140.1 - - 140.2
Exercise of warrants 31.0 - 59.5 - - 59.5
Net income - - - 2,767.2 - 2,767.2
Foreign currency translation adjustments - - - - (5.0) (5.0)
----------------------------------------------------------------------------
Total comprehensive income
Balance at December 31, 1996 8,319.0 8.3 28,837.1 $(679.8) (5.0) 28,160.6
Exercise of stock options 77.0 - 147.2 - - 147.2
Exercise of warrants 35.0 - 64.8 - - 64.8
Purchases of treasury stock (283.3) (0.2) (1,744.3) - - (1,744.5)
Net income - - - 3,186.3 - 3,186.3
Foreign currency translation adjustments - - - - (1,156.1) (1,156.1)
----------------------------------------------------------------------------
Total comprehensive income
Balance at December 31, 1997 8,147.7 8.1 27,304.8 $ 2,506.5 (1,161.1) 28,658.3
Issuance of stock options to non employees - - 110.4 - - 110.4
Exercise of stock options 27.4 0.1 59.9 - - 60.0
Income tax benefit from exercise of stock options - 20.5 - - 20.5
Purchases of treasury stock (996.2) (1.0) (6,308.8) - - (6,309.8)
Net loss - - - (5,135.8) - (5,135.8)
Foreign currency translation adjustments - - - - 292.2 292.2
Total comprehensive income
----------------------------------------------------------------------------
Balance at December 31, 1998 7,178.9 $ 7.2 21,186.8 $ (2,629.3) (868.9) 17,695.8
============================================================================
</TABLE>
<TABLE>
<CAPTION>
Comprehensive
income (loss)
-------------
<S> <C>
Balance at December 31, 1995
Issuance of common stock
Exercise of stock options
Exercise of warrants
Net income 2,767.2
Foreign currency translation adjustments (5.0)
----------
Total Comprehensive income 2,762.2
==========
Balance at December 31, 1996
Exercise of stock options
Exercise of warrants
Purchases of treasury stock
Net income 3,186.3
Foreign currency translation adjustments (1,156.1)
----------
Total comprehensive income 2,030.2
==========
Balance at December 31, 1997
Issuance of stock options to non employees
Exercise of stock options
Income tax benefit from exercise of stock options
Purchases of treasury stock
Net loss (5,135.8)
Foreign currency translation adjustments 292.2
----------
Total comprehensive income (4,843.6)
==========
Balance at December 31, 1998
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-4
<PAGE>
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(5,135.8) $ 3,186.3 $ 2,767.2
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 959.8 712.0 457.6
Net (gain) loss on sale of property and - - -
equipment 31.5 (6.3) 57.5
Gain on sale of investments - - (9.0)
Purchased In-process technology 4,222.0 - -
Non-cash stock compensation 110.4 - -
Non-cash write-down of inventory 4,966.0
Other 28.0 (110.0) (5.0)
Changes in assets and liabilities, net of effects
of acquisition:
Accounts receivable (386.1) 413.0 (230.0)
Inventories (1,048.3) (1,177.3) (1,155.9)
Prepaid expenses and other current assets 888.0 (549.7) (476.1)
Deferred income taxes (2,491.6) (56.0) (501.0)
Other assets (1,001.1) 142.5 (333.8)
Accounts payable (62.0) (318.9) 704.1
Accrued expenses 2,592.3 (581.3) 1,025.9
Deferred income 3.9 - -
Income taxes payable 348.9 194.0 (264.4)
---------------------------------------
Net cash provided by operating activities 4,025.9 1,848.3 2,037.1
----------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (1,390.0) (659.0) (2,349.6)
Purchase of Medgenix Business - - (6,868.0)
Purchase of Quality Controlled Biochemicals (15,193.9) - -
Purchase of net assets from Biofluids (2,822.5) - -
Proceeds from sale of property and equipment 3.1 21.4 -
Purchases of investments (7,614.8) (23,028.0) (19,954.7)
Proceeds from sale of investments 12,583.5 29,387.9 8,635.2
---------------------------------------
Net cash provided by (used in) investing activities (14,434.6) 5,722.3 (20,537.1)
---------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock - - 19,301.4
Proceeds from the exercise of options 60.0 147.2 140.2
Proceeds from the exercise of warrants - 64.8 59.5
Borrowings from bank 14,000.0 - 1,957.0
Repayments to bank (31.1) (28.5) (721.3)
Payments on capital lease obligations (3.0) (2.3) (23.0)
Payments to acquire treasury stock (6,309.8) (1,744.5) -
----------------------------------------
Net cash provided by (used in) financing activities 7,716.1 (1,563.3) 20,713.8
----------------------------------------
Net increase (decrease) in cash and cash equivalents (2,692.6) 6,007.3 2,213.8
Effect of exchange rates on cash and cash equivalents 292.0 (136.7) -
Cash and cash equivalents at beginning of year 9,477.5 3,606.9 1,393.1
---------------------------------------
Cash and cash equivalents at end of year $ 7,076.9 $ 9,477.5 $ 3,606.9
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 117.2 $ 136.4 $ 97.5
Income taxes 1,117.6 1,477.7 1,109.3
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
1. Summary of Significant Accounting Policies
Description of Business
We develop, manufacture, market and distribute products used worldwide in
disease related biomedical research and clinical diagnostics, principally in the
fields of immunology and molecular biology. Our products include ELISA assay
test kits, clinical diagnostic kits, bioactive proteins, antibodies, bioactive
peptides, oligonucleotides and related products. These products enable
scientists to better understand the biochemistry, immunology and cell biology of
the human body. Some examples would include certain diseases such as cancer,
aging, arthritis and other inflammatory diseases, AIDS and certain other
infectious diseases.
Principles of Consolidation
The consolidated financial statements include the accounts of BioSource
International, Inc. and its wholly owned subsidiaries (see note 2). All
significant intercompany accounts and transactions have been eliminated.
Cash and cash equivalents
Cash and cash equivalents includes all cash balances and highly liquid
investments with original maturities of three months or less.
Investments
We account for investments using Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". We had no investments at December 31, 1998. At December 31, 1997,
we had investments in U.S. Treasury securities that were classified in the
consolidated balance sheet as short term (matured in more than 91 days but less
than one year). These investments were categorized as held to maturity when
purchased and were carried at cost since BioSource had both the intent and the
ability to hold them until they matured.
Financial Instruments
The carrying value of financial instruments such as cash and cash
equivalents, trade receivables, payables and short-term debt approximates their
fair value at December 31, 1998 and 1997 due to the short-term nature of these
instruments. The carrying value of the short-term investments and the long-term
debt also approximates fair value as of December 31, 1997. However, due to
interest rate reductions during 1998, the interest rate on the Heller Financial
mortgage is approximately 2% higher than the fair value of similar currently
available debt instruments. Assuming interest rates remain constant at the
current level, this interest rate differential would cost BioSource
approximately $114,000 in additional interest over the remaining life of the
loan. See Note 5 for further description of this Note Payable.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
(net realizable value) for raw materials and work in process and the average-
cost method for finished goods.
Depreciation and Amortization
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment and goodwill is provided using the straight-line method
over the estimated useful lives of the related assets which generally range from
three to fifteen years. Real property is depreciated over thirty nine years.
Leasehold
F-6
<PAGE>
improvements are amortized using the straight-line method over their estimated
useful lives or the lease term, whichever is shorter.
License Agreements
License agreements are recorded at cost and are amortized using the
straight-line method over the shorter of the estimated useful lives of the
license or the license term (generally five to ten years). These costs are
included with other assets in the accompanying consolidated balance sheets.
Accumulated amortization at December 31, 1998 and 1997 was approximately
$201,000 and $152,000.
Revenue Recognition
Sales and related cost of goods sold are recognized upon shipment of
products. Our customers frequently prepay for sera or media and buffer product
and request shipment of the product at future dates. Also, our customers pay for
custom antibodies and custom peptides while the product is being manufactured.
Under both circumstances, deferred revenue is recorded by the Company until such
time as a product is shipped to our customer. Upon shipment, the appropriate
sale and cost of goods sold are recognized.
Research and Development Costs
Research and development costs are charged to expense as incurred. Such
costs amounted to $2,648,300, $2,077,700, and $1,420,900 in 1998, 1997 and 1996,
respectively.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
Long-Lived Assets
It is our policy to account for long-lived assets, including intangibles,
at amortized cost. As part of an ongoing review of the valuation and
amortization of long-lived assets, management assesses the carrying value of
such assets if facts and circumstances suggest that it may be impaired. If this
review indicates that the long-lived assets will not be recoverable, as
determined by a non-discounted cash flow analysis over the remaining
amortization period, the carrying value of the Company's long-lived assets would
be reduced to its estimated fair market value based on discounted cash flows. As
a result, we have determined that our long-lived assets are not impaired as of
December 31, 1998 and 1997.
Stock Compensation
We account for stock-based compensation under the provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). Under the provisions of SFAS 123, the Company has
elected to continue to measure compensation cost under APB No. 25 and comply
with the pro forma disclosure requirements.
Comprehensive Income
We adopted SFAS No. 130, "Reporting Comprehensive Income" in 1998. SFAS No.
130 establishes standards to measure all changes in equity that result from
transactions and other economic events other than transactions with owners.
Comprehensive income is the total of net earnings and all other non-owner
changes in equity. Except for net earnings and foreign currency translation
adjustments, the Company does not have any transactions and other economic
events that qualify as comprehensive income as defined under SFAS No. 130.
F-7
<PAGE>
Business Segment Reporting
We adopted SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information," effective in 1998. SFAS No. 131 establishes new standards
for reporting information about business segments and related disclosures about
products and services, geographic areas and major customers, if applicable.
Management of the Company has determined its reportable segments are strategic
business units that offer both sales to external customers from geographic
company facilities and sales to external customers in certain geographic
regions. Significant reportable business segments are the United States and
European facilities and sales to external customers located in the United
States, Europe and Japan. Information related to these segments is summarized in
Note 12.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. This affects the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentrations of Credit Risk
Financial instruments which potentially subject us to concentrations of
credit risk consist primarily of short-term investments and trade accounts
receivable. As of December 31, 1998 we had no short-term investments. The credit
risk associated with trade accounts receivable is mitigated by our credit
evaluation process, reasonably short collection terms and the geographical
dispersion of sales transactions.
Foreign Currency Translation
The assets and liabilities of BioSource's foreign subsidiary, whose
functional currency is Belgian francs, are translated at the rate of exchange at
the balance sheet date, and related revenues and expenses are translated at the
average exchange rate in effect during the period. Resulting translation
adjustments are recorded as a component of stockholders' equity. Gains and
losses from foreign currency transactions are included in net income. Foreign
currency translation gain (loss) was $(39,400), $59,600 for 1998 and 1999,
respectively and was immaterial for 1996.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
2. Business Combinations
On December 10, 1998, BioSource acquired Quality Controlled Biochemicals,
Inc. (QCB). QCB is a leading manufacturer of phosphopeptides, phosphorylation
state-specific antibodies, custom peptides and custom antibodies. The
transaction was accounted for as a purchase. The results of operations of QCB
are included in the accompanying financial statements from the date of
acquisition. The purchase price was $15,193,900, including related acquisition
costs, and was financed through cash on hand and bank borrowings. The purchase
price exceeded the fair value of net assets acquired by approximately
$16,034,500 of which $4,222,000 was allocated to in-process technology. The
remaining $11,812,500, which is included in intangible assets in the
consolidated balance sheet at December 31, 1998, was allocated to identifiable
intangible assets and goodwill with useful lives ranging from 5 to 15 years and
is summarized as follows:
<TABLE>
<S> <C>
Developed technology $ 7,655,400
Core technology 665,300
Assembled workforce 408,100
Tradename 257,000
Goodwill 2,826,700
-----------
11,812,500
===========
</TABLE>
The purchased in-process technology charge of $4,222,000 in 1998 relates to
the portion of the QCB purchase price that was allocated to products in
development which had not yet reached technological feasibility as of the
acquisition date and did not have alternative future uses and in accordance with
applicable accounting rules, purchased in-process technology is required to be
expensed.
The acquisition of Quality Controlled Biochemicals (QCB) has added a
portfolio of antibodies that are specifically engineered to bind to proteins
when they are in specific states of phosphorylation. Phosphorylation is the
process of adding or removing molecules of phosphate from a protein that turns
on or off many of the key molecules within cells. These molecules control most,
if not all, of the key processes that regulate the inner workings of all cells
as well as their interaction(s) with other cells. Disease states such as
cancer, Alzheimer's Disease, and many other pathological conditions have been
shown to be at least in part due to the malfunctioning of key molecules within
cells, in many cases due to alterations in their activity through
phosphorylation. At the date of acquisition QCB had approximately 100 unique
phoshphorylated antibodies under development, most of these antibodies were in
the final phase of development. We estimate that on a overall basis these
antibodies are approximately 75% complete. The balance of the development work
to be completed is primarily outside testing. We expect the development of these
products will be complete by the end of 1999. Since the acquisition date
approximately 6 antibodies have been introduced into the market. The expected
cost to complete the development of these products will range between $100,000
and $200,000.
On December 15, 1998, BioSource purchased certain assets and liabilities of
Biofluids, Inc. for $2,822,500 in cash, including related acquisition costs.
Biofluids is involved in the manufacture and sale of sera, media and buffers
utilized in biomedical research. The acquisition was accounted for as a
purchase. Accordingly, the assets and liabilities of the acquired business are
included in the consolidated balance sheet as of December 31, 1998. The results
of Biofluids operations from the date of the acquisition to December 31, 1998
were not significant. The acquisition was financed through cash on hand and bank
borrowings. The excess purchase price over the fair value of net assets acquired
of $2,355,300 represents goodwill, is being amortized over a 15 year period, and
is included in intangible assets in the consolidated balance sheet at December
31, 1998.
F-8
<PAGE>
The following summarized unaudited pro forma financial information assumes
the acquisitions of QCB and Biofluids, Inc. had occurred on January 1 of each
year:
<TABLE>
<CAPTION>
PRO FORMA INFORMATION
(in thousands, except per share data) 1998 1997
-----------------------
<S> <C> <C>
Net sales $27,752.9 $26,395.4
Net income (loss) (3,073.7) 2,583.1
Net income (loss) per share - diluted (0.49) 0.29
</TABLE>
These amounts are based upon certain assumptions and estimates, and do not
reflect any benefit from economies which might be achieved from combined
operations. Additionally, for comparability purposes, the 1998 net loss
excludes the effect of the $4,222,000 in-process technology charge in 1998. The
pro forma results do not necessarily represent results which would have occurred
if the acquisitions had taken place on the basis assumed above, nor are they
indicative of the results of future combined operations.
3. Inventories
Inventories at December 31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Raw materials $ 4,115.0 $2,567.5
Work in process 750.4 2,029.9
Finished goods 3,972.4 3,660.7
--------- --------
8,837.8 8,258.1
Inventory reserve (3,867.2) (374.7)
--------- --------
Net inventory $ 4,970.6 $7,883.4
========= ========
</TABLE>
4. Property and Equipment
Property and equipment at December 31, 1998 and 1997 are summarized as
follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Land $ 360.0 $ 360.0
Building and improvements 2,283.5 1,913.7
Machinery and equipment 3,749.1 2,899.5
Office furniture and equipment 1,596.8 1,115.0
Leasehold improvements 87.2 19.5
--------- ---------
$ 8,076.6 $ 6,307.7
Less accumulated depreciation and amortization (2,563.0) (1,747.6)
--------- ---------
$ 5,513.6 $ 4,560.1
========= =========
</TABLE>
5. Notes Payable to Banks
In December, 1998, BioSource executed a loan agreement with Union Bank of
California, N.A. and borrowed $14,000,000 which was to be used to finance the
acquisitions of Quality Controlled Biochemicals, Inc. and all of the assets and
selected liabilities of Biofluids, Inc. The principal amount outstanding as of
December 31, 1998 was $14,000,000. Principal repayments are to be made at
approximately $166,700 per month for the seven year term of the loan. Interest
is provided at a rate which is 2% per annum in excess of either the bank's
adjusted treasury rate for a term selected by BioSource or the bank's LIBOR rate
for a term also selected by the Company. The actual interest rate at December
31, 1998 was 7.19%. The loan matures on December 5, 2005. The terms of this loan
require the Company to maintain a minimum cash balance of $3,500,000 as of
December 31, 1998 and beginning January 1, 1999 to maintain minimum cash
balances of $4,000,000. Additionally, BioSource must maintain a minimum ratio of
total liabilities to tangible net assets, achieve minimum net profit levels, and
comply with specified ratios of earnings
F-9
<PAGE>
before interest, taxes, depreciation and amortization to debt service costs. We
are also required to comply with certain non-financial covenants. At December
31, 1998, BioSource was in compliance or had obtained waivers with regard to
these covenants.
In June, 1996, BioSource secured financing from Heller Financial Corp. in
order to finance the purchase of BioSource's corporate headquarters. The loan
principal was $745,000 and is secured by a first trust deed on the property. The
loan bears interest at a rate of 9.4% and has a 20 year term. The outstanding
principal balance at December 31, 1998 was $705,300.
In June, 1996, a loan was obtained from the Small Business Administration
to finance the purchase of the corporate headquarters building. The original
loan principal was $616,000 and is secured by a first trust deed on the
property. The loan bears interest at a rate of 7.6% and has a 20 year term. The
outstanding principal balance at December 31, 1998 was $578,100.
Payments to both Heller Financial Corp. and the Small Business
Administration are guaranteed by the chairman of the board of the Company.
Quality Controlled Biochemicals, Inc. had six loans outstanding aggregating
$1,394,700 at December 31, 1998 with MetroWest Bank which were assumed by
BioSource upon completion of the acquisition of QCB in December, 1998.
Description of the loans follow:
<TABLE>
<CAPTION>
Amount
Outstanding at
Type of loan Maturity Date Interest Rate December 31, 1998
------------ ------------- ------------- -----------------
<S> <C> <C> <C>
Term loan January 31, 2002 8.75% $ 123,300
Term loan April 17, 1999 8.75% 53,500
Term loan April 17, 2003 8.75% 385,700
Term loan August 22, 2000 9.00% 66,700
Line of credit December 31, 1999 8.75% 562,000
Line of credit April 17, 1999 8.75% 203,500
----------
$1,394,700
==========
</TABLE>
Under the terms of the MetroWest Bank loan agreement, BioSource must meet
certain financial covenants which include, a minimum tangible net worth
covenant, debt to tangible net worth, current ratio covenant, and other non
financial covenants. BioSource was in compliance or had obtained temporary
forbearance relating to these covenants through July 1, 1999.
BioSource leases certain equipment under a capital lease. As of December
31, 1998, the unpaid principal on the lease is approximately $9,500. Payments
continue through February, 2001. Interest is paid at a rate of approximately 6%.
Maturities of the notes payable outstanding as of December 31, 1998 are:
<TABLE>
<S> <C>
Year ending December 31:
1999...................................................... $ 3,024,200
2000...................................................... 2,199,500
2001...................................................... 2,169,000
2002...................................................... 2,135,700
2003...................................................... 2,076,900
Thereafter................................................ 5,084,500
-----------
$16,689,800
===========
</TABLE>
6. Common Stock and Treasury Stock
In June, 1996, the Company completed a second primary offering of 2,362,000
shares of its common stock resulting in net proceeds to the Company of
$19,301,400. A portion of the net proceeds of $19,301,400 was used to fund the
acquisition of the Medgenix Business, repay an installment note outstanding
under the Company's credit facility and repay a capital lease obligation.
F-10
<PAGE>
In April 1997, the Board of Directors authorized us to repurchase up to
200,000 shares of our outstanding common stock at market price. In December
1997, the Board of Directors authorized us to repurchase up to 1,000,000
additional shares of its outstanding common stock at market price and in 1998 we
were authorized to extend the repurchase program up to 1,500,000 shares of the
Company's stock. During the year ended December 31, 1998, we have repurchased
996,200 shares of the Company's common stock for $6,309,800, an average price of
$6.33. As of December 31, 1998, we have repurchased a total of 1,279,500 shares
of the Company's common stock for $8,054,300, an average price of $6.29 per
share since the inception of the repurchase program in April 1997.
7. Stock Option and Purchase Plans
The Company currently has one stock option plan in place - the 1993 Stock
Incentive Plan (the 1993 Plan) - and several stock option agreements with
certain officers in effect.
Under the 1993 Plan, stock options may be granted to full-time employees,
part-time employees, directors and consultants of the Company to purchase a
maximum of 2,000,000 shares of common stock. Options granted under the 1993 Plan
are exercisable at the rate of 25% beginning one year from the date of grant.
The stock options generally expire ten years from the date of grant.
In August, 1998, the Board of Directors approved the repricing of options
granted under this plan to an exercise price of $4.625 per share for all
optionees. As part of the repricing, 395,500 options were canceled and 355,950
new options were granted at the new exercise price.
The per share weighted average fair value of stock options granted during
1998, 1997 and 1996 was $2.40, $5.27 and $3.82, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------
<S> <C> <C> <C>
Expected dividend yield 0% 0% 0%
Risk-free interest rate 4.75% 6.4% 6.4%
Expected volatility 60% 60% 30%
Expected option life (years) 8.8 9 9
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its plan, and
accordingly, no compensation cost has been recognized for its stock options in
the consolidated financial statements. Had the Company determined compensation
cost based upon the fair value at the grant date for its stock options under
SFAS No. 123, the Company's net income (loss) would have changed to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
(in thousands, except per share data)
1998 1997 1996
------------------------------------
<S> <C> <C> <C>
Net income (loss):
As reported $(5,135.8) $3,186.3 $2,767.2
Pro forma $(6,135.0) $2,774.6 $2,321.6
Net income (loss) per share:
As reported
Basic $ (0.68) $ 0.38 $ 0.38
Diluted (0.68) 0.36 0.35
Pro forma
Basic $ (0.82) $ 0.33 $ 0.32
Diluted (0.82) 0.31 0.29
====================================
</TABLE>
Pro forma net income (loss) reflects compensation expense related to the
vested portion of options granted during the periods 1995 through 1998.
F-11
<PAGE>
To the extent that BioSource derives a tax benefit from options exercised
by employees, such benefit is credited to additional paid-in capital when
realized on the Company's income tax return. Tax benefits realized totaling
$20,500, $0 and $0 were credited to additional paid-in capital in fiscal 1998,
1997 and 1996, respectively.
The following summarizes the stock option transactions under the 1993 Plan
during the periods presented:
<TABLE>
<CAPTION>
Weighted
average
Shares exercise price
--------- --------------
<S> <C> <C>
Options outstanding at December 31, 1995 829,105 $2.15
Options granted 368,500 7.69
Options exercised (80,665) 1.74
Options canceled (121,534) 2.91
--------- --------------
Options outstanding at December 31, 1996 995,406 4.15
Options granted 194,000 7.21
Options exercised (77,044) 1.98
Options canceled (119,239) 6.88
--------- --------------
Options outstanding at December 31, 1997 993,123 4.57
Options granted 1,254,950 3.78
Options exercised (27,410) 2.19
Options canceled (505,517) 7.05
--------- --------------
Options outstanding at December 31, 1998 1,715,146 $3.30
========= ==============
</TABLE>
At December 31, 1998, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $1.28 - $8.94 and 8.8
years, respectively.
At December 31, 1998, 1997 and 1996, the number of options exercisable was
1,031,730, 592,435 and 412,632, respectively, and the weighted average exercise
price of those options was $3.30, $4.57 and $2.59, respectively.
As discussed previously, the Company has several stock option agreements
with certain officers. The outstanding agreements expire from May 2003 through
December 2008.
The following summarizes transactions outside the option plan during the
periods presented:
<TABLE>
<CAPTION>
Weighted
average
Shares exercise price
------- --------------
<S> <C> <C>
Options outstanding at December 31, 1995 255,500 $1.85
Options granted 147,500 5.33
Options exercised - -
Options canceled - -
------- --------------
Options outstanding at December 31, 1996 402,500 3.13
Options granted - -
Options exercised - -
Options canceled - -
------- --------------
Options outstanding at December 31, 1997 402,500 3.13
Options granted - -
Options exercised - -
Options canceled - -
------- --------------
Options outstanding at December 31, 1998 402,500 $3.13
======= ==============
</TABLE>
At December 31, 1998, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $1.50 - $6.44 and 6 years,
respectively.
F-12
<PAGE>
At December 31, 1998, 1997 and 1996, the number of options exercisable was
365,259, 330,884 and 265,000, respectively, and the weighted average exercise
price of those options was $3.13, $3.13 and $2.03, respectively.
Effective April 7, 1995, the Company adopted an Employee Stock Purchase
Plan to provide substantially all full-time employees, excluding officers, an
opportunity to purchase shares of its common stock through payroll deductions.
In addition, the Company provides a matching contribution equal to 50% of the
participant's contribution. All contributions are invested in the Company's
common stock, which is purchased on the open market at prevailing market prices.
Participants have a fully vested interest in the shares purchased with payroll
deductions and become fully vested in the shares purchased with Company matching
contributions after two years. The Company's matching expense for the years
ended December 31, 1998, 1997 and 1996 was approximately $14,000, $10,000 and
$3,000, respectively.
8. Common Stock Warrants
In June, 1996, the Company granted warrants to purchase 59,050 shares of
the Company stock to each of Cruttenden Roth, Inc. and Commonwealth Associates
in connection with the second primary stock offering with an exercise price of
$11.10 per share and an expiration date of May 29, 2001.
In September, 1996, Commonwealth Associates assigned warrants to purchase
11,810 shares of the Company stock to a Commonwealth Associates' employee. The
term and conditions of these warrants remained unchanged.
In February, 1996, the Company granted warrants to purchase 100,000 shares
of the Company stock to Nordion International, Inc. in connection with the
Medgenix acquisition, with an exercise price of $7.50 per share and an
expiration date of February 1, 2001.
In January, 1994, the Company granted warrants to purchase 24,000 shares of
the Company stock to The Equity Group, Inc., with an exercise price of $2.25 per
share and an expiration date of January 17, 1999. On July 12, 1994, 18,000 of
the warrants were canceled. The remaining 6,000 warrants were exercised
concurrently with the Company's June 1996 second primary offering.
Proceeds from the sale of common stock issued under outstanding warrant
arrangements are credited to common stock at the time the warrants are
exercised. The Company recorded no charge to operations with respect to these
warrants since the warrants were issued at amounts approximating or exceeding
fair market value.
9. Stockholder Rights Plan
On February 16, 1999, we adopted a stockholders' rights plan to protect the
Company and its stockholders from unsolicited attempts or inequitable offers to
acquire our stock. The rights plan has no immediate dilutive effect and does not
diminish our ability to accept an offer to purchase the Company that is approved
by the board. The stockholder rights plan was implemented through a dividend of
one preferred share purchase right on each outstanding share of our common stock
outstanding on March 2, 1999. Each right will entitle stockholders to buy
preferred stock at an exercise price of $24.50 which will have a value of
approximately two times the exercise price at the time of exercise. The rights
will become exercisable (with certain limited exceptions provided in the rights
agreement) following the 10th day after: (a) a person or group announces
acquisition of 15 percent or more of our common stock, (b) a person or group
announces commencement of a tender offer the consummation of which would result
in ownership by the person or group of 15 percent or more of our common stock,
(c) the filing of a registration statement for any such exchange offer under the
Securities Act of 1933, or (d) our board determining that a person is an
"adverse person," as defined in the rights plan. The buyer or any "adverse
person" would not be entitled to exercise rights under the rights plan. The
effect of the rights plan is to discourage acquisitions of more than 15 percent
of our common stock without negotiations with our board. We can redeem the
rights for $.001 per right at certain times as provided in the rights agreement.
The rights expire on January 31, 2009.
10. Income Taxes
The summarized provision for (benefit from) income taxes is as follows:
F-13
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ------------- -----------------
<S> <C> <C> <C>
Current:
Federal $ 802.6 $ 1,092.0 $ 885.0
State and local 155.0 172.0 222.0
Foreign (0.6) 140.0 90.0
Deferred:
Federal (2,014.0) 61.0 (508.0)
State and local (447.6) (5.0) 7.0
--------------- -------------- ---------------
$ (1,534.6) $ 1,460.0 $ 696.0
=============== ============= ===============
</TABLE>
Actual income tax expense (benefit) differs from that obtained by applying
the Federal income tax rate of 34% to income before income taxes as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $(2,267.9) $1,580.0 $1,177.0
Nondeductible items 10.9 9.0 21.0
State taxes (net of Federal benefit) (212.9) 110.0 151.0
Reduction of valuation allowance - (607.0)
Tax credits (66.0) (111.0) (40.0)
Tax-exempt interest - - (36.0)
Tax effect resulting from foreign sales
corporation activities (94.2) (63.0) 63.0
Prior year adjustment to provision 116.5
Effect of foreign operations 923.4
Other 55.6 (65.0) (33.0)
--------- -------- --------
Total $(1,534.6) $1,460.0 $ 696.0
========= ======== ========
</TABLE>
The primary components of temporary differences which give rise to deferred
taxes at December 31, 1998 and 1997 are:
<TABLE>
<CAPTION>
1998 1997
-------- ------
<S> <C> <C>
Deferred tax assets:
Accruals for salary and bonus $ 21.6 $112.0
Reserves for inventory 1,084.4 53.0
Purchased in-process technology/goodwill 1,752.2 -
Net operating loss carryforwards 317.4 400.0
-------- ------
Total deferred tax assets $3,175.6 $565.0
======== ======
Deferred tax liability:
Depreciation $ 103.4 $ 94.0
State taxes 109.6 -
-------- ------
Total deferred tax liability $ 213.0 $ 94.0
======== ======
</TABLE>
In assessing the realizability of deferred tax assets, the Company
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the projected future taxable income and tax planning strategies in
making this assessment.
Based on the level of historical taxable income and projections for future
taxable income over the periods in which the level of deferred tax assets are
deductible, management believes it is more likely than not that the Company will
realize all of the benefits related to these deductible temporary differences at
December 31, 1998, accordingly, there is no valuation allowance at either
December 31, 1998 or 1997.
As of December 31, 1998, the Company has a net operating loss (NOL)
carryforward of approximately $933,400 for Federal income tax purposes. The
Federal NOL has a carryover period of 15 years and is available to offset future
taxable income, if any, through 2005, subject to an annual statutory limitation.
F-14
<PAGE>
11. 401(k) Benefit Plan
The Company has a 401(k) profit sharing plan which covers substantially all
domestic employees of the Company. Plan participants may make voluntary
contributions up to 20% of their earnings up to the statutory limitation. The
Company's contribution to the Plan is discretionary and no contributions were
made in fiscal years 1998, 1997 or 1996.
12. Business Segments
BioSource is engaged in a single industry, the licensing, development,
manufacture, marketing and distribution of immunological reagents, test kits and
oligonucleotides used in biomedical research and human diagnostics. The
Company's customers are not concentrated in any specific geographic region and
no single customer accounts for a significant amount of our sales.
Our accounting policies of the segments below are the same as those
described in the summary of significant accounting policies, except that we are
only able to track net sales for the geographic "Sales-to" segments. We evaluate
performance for the "Sales-from" segments on net revenues and profit or loss
from operations. The Company's reportable segments are strategic business units
that offer geographic product availability. They are managed separately because
each business requires different marketing and distribution strategies. Business
segment information is summarized as follows:
F-15
<PAGE>
Sales-from Segments:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net sales to external customers from:
United States:
Domestic $ 8,844.1 $ 7,452.1 $ 6,791.5
Export 4,270.3 4,220.7 3,213.8
--------- --------- ---------
Total United States 13,114.4 11,672.8 10,005.3
Europe 8,744.2 8,899.0 5,908.0
--------- --------- ---------
Consolidated $21,858.6 $20,571.8 $15,913.3
========= ========= =========
Operating income (loss):
United States $(4,459.4) $ 3,244.7 $ 3,137.9
Europe (2,642.4) 693.6 322.4
--------- --------- ---------
Consolidated $(7,101.8) $ 3,938.3 $ 3,460.3
========= ========= =========
Net interest expense (income):
United States $ (315.6) $ 575.0 $ 274.7
Europe 18.1 52.4 -
--------- --------- ---------
Consolidated $ (297.5) $ 627.4 $ 274.7
========= ========= =========
Depreciation and amortization:
United States $ 502.3 $ 371.7 $ 251.6
Europe 457.5 340.3 206.0
--------- --------- ---------
Consolidated $ 959.8 $ 712.0 $ 457.6
========= ========= =========
Capital expenditures:
United States $ 608.2 $ 398.3 $ 2,203.4
Europe 781.8 260.7 146.2
--------- --------- ---------
Consolidated $ 1,390.0 $ 659.0 $ 2,349.6
========= ========= =========
Identifiable assets at end of year:
United States $33,762.7 $24,259.1
Europe 7,637.4 8,898.0
--------- ---------
Consolidated $41,400.1 $33,157.1
========= =========
</TABLE>
Sales-to Segments:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net Sales to external customers:
United States $ 8,844.1 $ 7,452.1 $ 6,791.5
Europe 9,692.4 9,984.6 7,402.5
Japan 2,634.7 2,453.4 1,152.0
Other 687.4 681.7 567.3
--------- --------- ---------
Consolidated $21,858.6 $20,571.8 $15,913.3
========= ========= =========
</TABLE>
13. Commitments and Contingencies
The Company leases certain of its facilities and equipment under various
noncancelable operating leases expiring through March 2007. Total rental expense
was approximately $453,400, $385,000 and $303,000 for the years ended December
31, 1998, 1997 and 1996, respectively.
At December 31, 1998, the future minimum payments under these leases are as
follows:
F-16
<PAGE>
<TABLE>
<S> <C>
Year ending December 31:
1999 $ 629.8
2000 558.1
2001 415.3
2002 338.9
2003 285.5
Thereafter 786.7
--------
$3,014.3
========
</TABLE>
14. Earnings Per Share
The Company accounts for earnings per share under the provisions of SFAS
No. 128, "Earnings per Share". SFAS 128 specifies the computation, presentation
and disclosure requirements for earnings (loss) per share (EPS).
The reconciliations of basic to diluted weighted average shares are as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Net earnings (loss) used for basic and
diluted earnings (loss) per share $(5,135.8) $3,186.3 $2,767.2
========= ======== ========
Weighted average shares used in basic
computation 7,508.8 8,318.0 7,271.8
Dilutive stock options and warrants - 647.2 736.7
--------- -------- --------
Weighted average shares used for diluted
computation 7,508.8 8,965.2 8,008.5
========= ======== ========
</TABLE>
Options to purchase 292,936 shares of common stock at prices ranging from
$5.25 to $8.94 were outstanding during 1998, but were not included in the
computation of diluted loss per share because the options' exercise price was
greater than the average market price of the common shares. Options to purchase
1,824,710 shares of common stock at prices ranging from $1.28 to $4.63 per share
were outstanding during 1998, but were not included in the computation of
diluted loss per share because the options were anti-dilutive, as the Company
has incurred a net loss for the year.
Options to purchase 367,079 and 117,000 shares of common stock at prices
ranging from $7.06 to $9.06 and $7.75 to $9.25 were outstanding during 1997 and
1996, respectively, but were not included in the computation of diluted EPS
because the options' exercise price was greater than the average market price of
the common shares.
F-17
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Balance at Provision Deductions Balance of
Beginning Charged Accounts End of
of Year to Income Written off Year
----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
1998
Allowance for doubtful accounts $ 203.0 $ 178.3 $ 80.3 $ 301.0
Inventory reserve 347.7 5,240.8 1,748.3 3,867.2
1997
Allowance for doubtful accounts $ 49.0 $ 154.0 $ - $ 203.0
Inventory reserve 65.5 309.2 - 374.7
1996
Allowance for doubtful accounts $ 29.0 $ 20.0 $ - $ 49.0
Inventory reserve 95.0 - 29.5 65.5
</TABLE>
F-18
<PAGE>
EXHIBIT INDEX
FOR FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Exhibit
Number Description
- - ------- -----------
<C> <S>
2.1 Asset Purchase Agreement dated April 30, 1996, by and among Registrant,
Nordion International, Inc. and Medgenix Diagnostics, S.A.(7)
2.2 Stock Purchase Agreement dated as of December 9, 1998 by and among
BioSource International, Inc., Quality Controlled Biochemicals, Inc.,
the stockholders of Quality Controlled Biochemicals, Inc. and the
stockholders of Javelle Pharmaceuticals, Inc.(9)
2.3 Asset Purchase Agreement dated as of December 14, 1998 by and among
BioSource International, Inc., a Delaware Corporation and Biofluids,
Inc., a Maryland Corporation and the Biofluids stockholder.
3.1 Certificate of Incorporation of Registrant(1)
3.2 Bylaws of Registrant(1)
10.1 Registrant's 1992 Stock Incentive Plan(1)
10.2 Registrant's 1993 Stock Incentive Plan(4)
10.3 Licensing Agreement dated May 1, 1990, by and between TAGO, Inc., as
licensee, and St. Jude's Children's Hospital, as licenser(1)
10.4 License Agreement dated February 14, 1991, by and between Registrant and
Schering Corporation(1)
10.5 Warrant Agreement dated May 19, 1993, by and between Registrant and
Immunoplex, Inc.(2)
10.7 Warrant Agreement dated February 1, 1996, by and between Registrant and
Nordion International, Inc.(7)
10.8 Business Loan Agreement dated October 12, 1993, by and between
Registrant, as borrower, and Silicon Valley Bank as lender, together
with Commercial Security Agreement dated October 12, 1993 and
promissory note dated October 12, 1993(3)
10.9 License Agreement dated October 1, 1993, by and between Registrant, as
licensee, and Schering Corporation, as licensor(2)
10.10 Employment Agreement between Registrant and James H. Chamberlain dated
January 2, 1998
10.11 License Agreement dated February 7, 1994, by and between Registrant, as
licensee and Fundacio Clinic(4)
10.12 Form of Indemnification Agreement for Directors and Executive
Officers(7)
10.13 List of Indemnities relating to Form of Indemnification Agreement
previously filed as Exhibit 10.12(7)
10.14 Purchase Agreement dated December 20, 1995 between Registrant and
Pacific Ranch Company(5)
10.15 Promissory Note dated March 25, 1996 in the principal amount of $745,000
payable to Heller Financial, Inc., Small Business Lending Division(5)
10.16 Promissory Note dated March 25, 1996 in the principal amount of $596,000
payable to Heller Financial, Inc., Small Business Lending Division;
Loan Agreement dated March 11, 1996 between California Statewide
Certified Development Corporation and Registrant(5)
10.17 Stockholder Rights Plan dated February 16, 1999 and filed with the
Securities and Exchange Commission on Form 8-A March 1, 1999(10)
10.18 Loan agreement and Promissory Note dated November 27, 1998 in the
principal amount of $14,000,000 payable to Union Bank of California,
N.A.
10.19 Registrant's Employee Stock Purchase Plan(8)
</TABLE>
<PAGE>
EXHIBIT INDEX-(Continued)
<TABLE>
<CAPTION>
Exhibit
Number Description
- - ------- -----------
<C> <S>
16-1 Changes in Registrant's Certifying Accountant(6)
21 Subsidiaries of the Company:
<CAPTION>
State/Country of
Name Incorporation
---- ----------------
<S> <C>
BioSource Europe S.A. ................. Belgium
Keystone Laboratories, Inc. ........... California
BioSource V.I. FSC., LTD............... U.S. Virgin Islands
BioSource France sarl.................. France
BioSource B.V.......................... Holland
BioSource Gmbh......................... Germany
Medgenix Diagnostici Italia, srl....... Italy
<CAPTION>
<C> <S>
23.1 Consent of KPMG LLP
27 Financial Data Schedule
</TABLE>
- - ----------------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-4 as filed with the Securities and Exchange Commission on October 22,
1992, as amended.
(2) Incorporated by reference to the Company's Form 10KSB for the year ended
December 31, 1992.
(3) Incorporated by reference to the Company's Form 10KSB for the year ended
December 31, 1993.
(4) Incorporated by reference to the Company's Form 10KSB for the year ended
December 31, 1994.
(5) Incorporated by reference to the Company's Form 10KSB for the year ended
December 31, 1995.
(6) Incorporated by reference to the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on August 15, 1994.
(7) Incorporated by reference to the Company's Registration Statement on Form
SB-2 (SEC No. 333-3336) as filed with the Securities and Exchange
Commission on May 31, 1996, as amended.
(8) Incorporated by reference to the Company's Registration Statement on Form
S-8 (SEC No. 33-91838) as filed with the Securities and Exchange Commission
on May 4, 1995.
(9) Incorporated by reference to the Company's Current Report on Form 8-K/A
filed with the Securities and Exchange Commission on February 19, 1999.
(10) Incorporated by reference to the Company's Current Report on Form 8-A
filed with the Securities and Exchange Commission on March 1, 1999.
<PAGE>
EXHIBIT 2.3
ASSET PURCHASE AGREEMENT
BY AND AMONG
BIOSOURCE INTERNATIONAL, INC.,
A DELAWARE CORPORATION
AND
BIOFLUIDS, INC.,
A MARYLAND CORPORATION
AND
THE BIOFLUIDS STOCKHOLDER
DECEMBER 14, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
1. DEFINITIONS...........................................................1
1.1 Definitions...............................................1
-----------
SECTION 2. SALE AND TRANSFER OF ASSETS...................................6
2.1 Purchased Assets..........................................6
----------------
2.2 Excluded Assets...........................................6
---------------
2.3 Delivery of Possession....................................6
----------------------
2.4 Right of Endorsement; Payment.............................6
-----------------------------
SECTION 3. CONSIDERATION.................................................6
3.1 Purchase Price............................................6
--------------
3.2 Allocation of Purchase Price..............................7
----------------------------
3.3 Prorations/Adjustments....................................7
----------------------
3.4 Form of Payments..........................................7
----------------
SECTION 4. ASSUMPTION OF LIABILITIES....................................7
4.1 Assumed Liabilities.......................................7
-------------------
4.2 Liabilities Not Assumed...................................8
-----------------------
4.3 Right of Enforcement and Settlement.......................8
-----------------------------------
SECTION 5. CLOSING......................................................8
5.1 The Closing Date..........................................8
----------------
5.2 Actions and Deliveries by Seller at the Closing...........8
-----------------------------------------------
5.3 Actions and Deliveries by Purchaser at the Closing........9
--------------------------------------------------
SECTION 6. REPRESENTATIONS AND WARRANTIES OF BIOFLUIDS
AND THE BIOFLUIDS STOCKHOLDER.......................................9
6.1 Organization, Standing and Corporate Power................9
------------------------------------------
6.2 Authority and Capacity...................................10
----------------------
6.3 Title to the Assets......................................10
-------------------
6.4 Rights of First Refusal on Assets........................10
---------------------------------
6.5 Effect of Agreement......................................11
-------------------
6.6 Contracts, Agreements, Arrangements, Etc.................11
----------------------------------------
6.7 Consents.................................................13
--------
6.8 Financial Statements.....................................14
--------------------
6.9 Litigation...............................................14
----------
6.10 Compliance with the Law and Other Instruments............14
---------------------------------------------
6.11 Absence of Certain Changes or Events.....................15
------------------------------------
<PAGE>
6.12 Operation of the Business ....................................16
-------------------------
6.13 Suppliers; Raw Materials .....................................16
------------------------
6.14 Absence of Certain Business Practices.........................16
-------------------------------------
6.15 Intellectual Property ........................................16
---------------------
(a) Title ...........................................16
-----
(b) Transfer ........................................16
--------
(c) No Infringement .................................17
---------------
(d) Licensing Arrangements ..........................17
----------------------
(e) No Intellectual Property Litigation .............17
-----------------------------------
(f) Due Registration, Etc ...........................17
---------------------
(g) Use of Name and Mark ............................17
--------------------
6.16 Environmental Matters ........................................18
---------------------
6.17 Employees ....................................................18
---------
6.18 Employee Benefit Plans, Etc...................................18
---------------------------
6.19 Customers ....................................................18
---------
6.20 Inventory ....................................................18
---------
6.21 Purchase and Sale Obligations.................................19
-----------------------------
6.22 Accounts Receivable ..........................................19
-------------------
6.23 Tax Returns ..................................................19
-----------
6.24 Insurance ....................................................19
---------
6.25 Powers of Attorney ...........................................20
------------------
6.26 Prepaid Expenses .............................................20
----------------
6.27 No Unrelated Liabilities .....................................20
------------------------
6.28 No Change of Control Provisions...............................20
-------------------------------
6.29 No Finder's Fee ..............................................20
---------------
6.30 Accuracy of Other Information; Disclosure.....................20
-----------------------------------------
SECTION 7. REPRESENTATIONS AND WARRANTIES OF BIOSOURCE......................20
7.1 Organization, Standing and Corporate Power....................21
------------------------------------------
7.2 Authorization of Agreement....................................21
--------------------------
7.3 Execution, Delivery and Performance...........................21
-----------------------------------
7.4 Effect of Agreement ..........................................21
-------------------
7.5 No Consents Required .........................................21
--------------------
7.6 No Finder's Fee ..............................................21
---------------
7.7 Accuracy of Other Information; Disclosure.....................21
-----------------------------------------
SECTION 8. CONDUCT AND TRANSACTIONS PRIOR TO CLOSING .......................22
8.1 Investigations ...............................................22
--------------
8.2 Operation of the Business Pending Closing.....................22
-----------------------------------------
8.3 Advice of Changes ............................................24
-----------------
8.4 Non-Disclosure or Use of Information..........................24
------------------------------------
8.5 Governmental and Third Party Consents and Approvals...........24
---------------------------------------------------
8.6 8-K Financial Statements .....................................25
------------------------
<PAGE>
SECTION 9. CONDITIONS OF PURCHASE AND SALE..................................25
9.1 Conditions to Obligations of Purchaser........................25
--------------------------------------
(a) Representations and Warranties of Biofluids
-------------------------------------------
and the Biofluids Stockholder To Be True............25
----------------------------------------
(b) No Proceedings......................................25
--------------
(c) No Adverse Change...................................25
-----------------
(d) Statutory Requirements..............................26
----------------------
(e) Certificates........................................26
------------
(f) Opinion of Counsel for Biofluids....................26
--------------------------------
(g) Audit...............................................26
-----
(h) Releases of Security Interests......................26
------------------------------
(i) Consents............................................26
--------
(j) Authorization.......................................26
-------------
(k) Receipt of Right of Endorsement.....................26
-------------------------------
(l) Employment Agreement................................26
--------------------
(m) Non-Compete Agreement...............................26
---------------------
(n) Escrow Instrument...................................26
-----------------
(o) Other Matters.......................................27
-------------
9.2 Conditions to Obligations of Biofluids...........................27
--------------------------------------
(a) Representations and Warranties of Purchaser
-------------------------------------------
To Be True..........................................27
----------
(b) Certificates........................................27
------------
(c) Authorization.......................................27
-------------
(d) Opinion of Counsel for Purchaser....................28
--------------------------------
(e) No Proceedings......................................28
--------------
(f) Delivery of Purchase Price..........................28
--------------------------
(g) Escrow Instrument...................................28
-----------------
(h) Statutory Requirements..............................28
----------------------
(i) Other Matters.......................................28
-------------
SECTION 10. FURTHER AGREEMENTS OF THE PARTIES...............................28
10.1 Further Agreements of Biofluids...............................28
-------------------------------
10.2 Confidentiality...............................................28
---------------
10.3 Access to Books and Records...................................29
---------------------------
SECTION 11. NATURE AND SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNITY; OFFSET RIGHTS....................................30
11.1 Nature and Survival of Representations and Warranties.........30
-----------------------------------------------------
11.2 Indemnification by Biofluids and the Biofluids Stockholder....30
----------------------------------------------------------
11.3 Indemnification by Purchaser..................................31
----------------------------
11.4 Notice of Claim...............................................31
---------------
11.5 Direct Claims.................................................31
-------------
11.6 Third Party Claims............................................32
------------------
<PAGE>
11.7 Settlement of Third Party Claims..............................32
--------------------------------
11.8 Cooperation...................................................33
-----------
11.9 Adjustment to Indemnification Payments;
---------------------------------------
Insurance; Subrogation........................................33
----------------------
11.10 Basket on Indemnity...........................................33
-------------------
11.11 Limitation of Biofluids' Indemnification Liability............33
--------------------------------------------------
11.12 Release of Escrow Funds.......................................33
-----------------------
SECTION 12. TAXES...........................................................33
12.1 Payment of Taxes, Filing of Returns...........................33
-----------------------------------
12.2 Sales Taxes...................................................33
-----------
SECTION 13. ARBITRATION.....................................................34
13.1 Submission to Jurisdiction....................................34
--------------------------
13.2 Waiver of Immunity and Inconvenient Forum.....................34
-----------------------------------------
13.3 Arbitration Procedures........................................34
----------------------
13.4 Final Arbitration Decisions...................................34
---------------------------
13.5 Claims for Unpaid Balance.....................................35
-------------------------
SECTION 14. TERMINATION.....................................................35
14.1 Termination...................................................35
-----------
SECTION 15. MISCELLANEOUS...................................................35
15.1 Notices.......................................................35
-------
15.2 Entire Agreement..............................................37
----------------
15.3 Successors and Assigns........................................37
----------------------
15.4 Waiver and Amendment..........................................37
--------------------
15.5 Governing Law.................................................37
-------------
15.6 Captions; Certain Terms.......................................37
-----------------------
15.7 Counterparts..................................................37
------------
15.8 Costs and Attorneys' Fees.....................................38
-------------------------
15.9 Expenses......................................................38
--------
15.10 Severability..................................................38
------------
15.11 Rights Cumulative.............................................38
-----------------
15.12 Purchase from Tysan...........................................38
-------------------
15.13 Publicity.....................................................38
---------
15.14 Specific Performance..........................................38
--------------------
15.15 No Third Party Beneficiaries..................................39
----------------------------
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
---------
on the 14th day of December, 1998, by and among BioSource International, Inc. a
Delaware corporation ("BioSource"), Biofluids, Inc., a Maryland corporation
---------
("Biofluids") and Robert R. Rafajko, Ph.D (the "Biofluids Stockholder").
- - -----------
Biofluids is sometimes referred to herein as "Seller." BioSource is sometimes
------
referred to herein as "Purchaser."
RECITALS
--------
WHEREAS, subject to the terms and conditions set forth in this Agreement,
Seller desires to sell and transfer to BioSource, and BioSource desires to
purchase and acquire from Seller the Business (as defined below).
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises herein made, and in consideration of the representations, warranties
and covenants herein contained, the parties agree as follows:
SECTION 1. DEFINITIONS
1.1 Definitions. As used in this Agreement, the following terms shall
-----------
have the following meanings:
"Accounts Receivable" has the meaning set forth in Section 622.
-------------------
"Affiliate" means with respect to any particular Person, any Person
---------
controlling, controlled by or under common control with, such Person.
"Agreement" means this Agreement and includes each Exhibit and
---------
Schedule delivered pursuant to the terms of this Agreement.
"Arbitration Notice" has the meaning set forth in Section 133(b).
------------------
"Arbitration Panel" has the meaning set forth in Section 133(a).
-----------------
"Assumed Liabilities" has the meaning set forth in Section 41.
-------------------
<PAGE>
"Balance Sheet Date" means the date of the Biofluids Balance Sheet,
------------------
October 31, 1998.
"Basket Amount" has the meaning set forth in Section 11.10.
-------------
"Biofluids Balance Sheet" has the meaning set forth in Section 68.
-----------------------
"Biofluids Financial Statements" has the meaning set forth in Section
------------------------------
68.
"Biofluids Stockholder" means Robert R. Rafajko, Ph.D.
---------------------
"Business" means the manufacture and sale of high quality serum, media
--------
and buffers.
"Claim" has the meaning set forth in Section 114.
-----
"Closing" has the meaning set forth in Section 51.
-------
"Closing Date" has the meaning set forth in Section 51.
------------
"Direct Claim" has the meaning set forth in Section 114.
------------
"Disclosure Schedule" has the meaning set forth in Section 6.
-------------------
"Employees" has the meaning set forth in Section 617.
---------
"Escrow Agent" means Union Bank of California, N.A.
------------
"Escrow Funds" has the meaning set forth in Section 31.
------------
"Escrow Instrument" has the meaning set forth in Section 9.1(n).
-----------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Excluded Assets" means those properties and assets listed on Schedule
--------------- --------
2.2.
- - ---
"GAAP" means generally accepted accounting principles.
----
"Governmental Approval" means any consent of any Governmental
---------------------
Authority.
"Governmental Authority" means any nation or government, any state or
----------------------
other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, including, without limitation, any multilateral authority or any
government authority, agency, department, board, commission or
2
<PAGE>
instrumentality of the United States, any State of the United States or any
political subdivision thereof, and any tribunal or arbitrator(s) of competent
jurisdiction, and any self-regulatory organization.
"Hazardous Substances" means any natural or artificial substance,
--------------------
preparation or article which if generated, transported, stored, treated, used or
disposed of (alone or combined with any other substance, preparation or article)
is harmful to water, air or land or any living organism.
"Indemnified Party" has the meaning set forth in Section 11.4.
-----------------
"Indemnifying Party" has the meaning set forth in Section 11.4.
------------------
"Intellectual Property" means any and all United States and foreign:
---------------------
(a) patents (including design patents, industrial designs and utility models)
and patent applications (including docketed patent disclosures awaiting filing,
reissues, divisions, continuations-in-part and extensions), patent disclosures
awaiting filing determination, inventions and improvements thereto; (b)
trademarks, service marks, trade names, trade dress, logos, business and product
names, slogans, and registrations and applications for registration thereof; (c)
copyrights (including software) and registrations thereof; (d) inventions,
processes, designs, formulae, trade secrets, know-how, industrial models,
confidential and technical information, manufacturing, engineering and technical
drawings, product specifications and confidential business information; (e)
intellectual property rights similar to any of the foregoing; and (f) copies and
tangible embodiments thereof (in whatever form or medium, including electronic
media).
"Intellectual Property Assets" has the meaning set forth in Section
----------------------------
6.15(a).
"Inventory" means all raw material, work in process and finished
---------
goods inventory of the Business located at the premises or at other facilities
of Seller which is usable by the Business in the ordinary course of its
business, and including all such inventory set forth on Schedule 6.20, less only
------------
those items listed therein sold by Biofluids in the ordinary course of its
business.
"Knowledge" of Biofluids means actual knowledge of the Biofluids
---------
Stockholder, or any officer or director of Biofluids, after reasonable
investigation.
"Leases" means any real or personal property leases, subleases,
------
licenses and occupancy agreements pursuant to which Biofluids is the lessee,
sublessee, licensee or occupant other than real property leases, subleases,
licenses and occupancy agreements included in Excluded Assets.
"Liens" shall include any encumbrance, lien, charge, hypothecation,
-----
pledge, mortgage, title retention agreement, security interest of any nature,
adverse claim, exception, reservation, easement, right of occupation, any matter
capable of registration against title, option,
3
<PAGE>
right-of-preemption, privilege or any agreement, indenture, contract, lease,
deed of trust, license, option, instrument or other commitment to create any of
the foregoing.
"Losses" means any and all costs, demands, claims, liabilities, fines,
------
penalties, assessments, damages and expenses (including the burden and expense
of defending against all of the foregoing even if the assertions therein are
groundless, false or fraudulent), or amounts paid in settlement thereof, and
court costs (including court-awarded interest) and reasonable attorneys' fees
and disbursements of counsel (including legal or other expenses reasonably
incurred in connection with investigating or defending the same); provided, that
--------
the term "Losses" shall not include costs, demands, claims, liabilities, fines,
penalties, assessments, damages and expenses which are indirect or consequential
in nature.
"Material Adverse Effect" means any event, occurrence, fact,
-----------------------
condition, change or effect that is materially adverse to the business,
operations, prospects, results of operations, condition (financial or
otherwise), properties (including intangible properties), assets (including
intangible assets) or liabilities of the Business, not otherwise disclosed,
permitted or reflected in this Agreement.
"Material Contracts" has the meaning set forth in Section 6.6(b).
------------------
"Notices" has the meaning set forth in Section 15.1.
-------
"Other Material" has the meaning set forth in Section 15.2.
--------------
"Permit" means any license, permit, order, approval or Governmental
------
Approval from any Governmental Authority.
"Permitted Liens" means
---------------
(i) liens for taxes, assessments and governmental charges due and
being contested in good faith and diligently by appropriate proceedings
(and for the payment of which adequate provision has been made);
(ii) servitudes, easements, restrictions, rights-of-way and other
similar rights in real property or any interest therein, including without
limitation, those existing at the Closing Date in favor of Biofluids;
provided the same are not of such nature as to materially adversely affect
--------
the use of the property subject thereto;
(iii) liens for taxes either not due and payable or due but for
which notice of assessment has not been given;
(iv) undetermined or inchoate liens, charges and privileges
incidental to current construction or current operations and statutory
liens, charges, adverse claims, security
4
<PAGE>
interests or encumbrances of any nature whatsoever claimed or held by any
governmental authority that have not at the time been filed or registered
against the title to the asset or served upon the Seller pursuant to law or
that relate to obligations not due or delinquent;
(v) liens or rights reserved in any lease for rent or for
compliance with the terms of such lease;
(vi) security given in the ordinary course of the Business to any
public utility, municipality or government or to any statutory or public
authority in connection with the operations of the Business, other than
security for borrowed money;
(vii) statutory liens in favor of a seller of personal property,
mechanic's liens or other statutory liens in favor of a provider of a
service; provided, that obligations to a secured party are not overdue or
--------
delinquent; and
(viii) the Liens described on Schedule 6.3.
------------
"Person" means any individual, corporation, trust, estate,
------
partnership, joint venture, joint stock company, association, unincorporated
organization, governmental bureau or other entity of whatsoever kind or nature.
"Plans" has the meaning set forth in Section 6.18.
-----
"Purchase Price" has the meaning set forth in Section 3.1.
--------------
"Purchased Assets" has the meaning set forth in Section 2.1
----------------
"Records" has the meaning set forth in Section 10.3.
-------
"Regulation S-X" has the meaning set forth in Section 8.6.
--------------
"Rules of Arbitration" has the meaning set forth in Section 13.3.
--------------------
"Third Party" has the meaning set forth in Section 11.6.
-----------
"Third Party Claim" has the meaning set forth in Section 11.4.
-----------------
"Tysan" has the meaning set forth in Section 15.12.
-----
5
<PAGE>
SECTION 2. SALE AND TRANSFER OF ASSETS
2.1 Purchased Assets. On the terms and subject to the conditions set
----------------
forth in this Agreement, on the "Closing Date" (as that term is defined in
------------
Section 51 of this Agreement) Seller agrees to sell, convey, assign, transfer
and deliver to Purchaser, free and clear of any and all Liens of any type, kind
or nature (other than Permitted Liens and those which Purchaser expressly agrees
to assume pursuant to Section 41 of this Agreement), all of the properties,
assets, powers and rights, wherever located, including, but not limited to, the
name "Biofluids," held by Seller or used or usable by Seller in connection with
the operation and conduct of the Business, other than the Excluded Assets
referred to in Section 22 below (the "Purchased Assets"), as of and as the same
----------------
shall exist on the Closing Date, and Purchaser agrees to purchase and acquire
the Purchased Assets from Seller, for the Purchase Price provided in Section 31
of this Agreement.
2.2 Excluded Assets. Notwithstanding anything to the contrary contained
---------------
in Section 2.1 hereof, the Purchased Assets shall not include, and Seller shall
retain for its own use and benefit those other properties and assets of Seller
listed on Schedule 2.2 to this Agreement (the "Excluded Assets").
------------ ---------------
2.3 Delivery of Possession. At the Closing, Seller shall, at Seller's
----------------------
expense, deliver to Purchaser physical possession of the Purchased Assets, at
Biofluids' facilities in Rockville, Maryland.
2.4 Right of Endorsement; Payment. After the Closing Date, Purchaser
-----------------------------
shall have the absolute and unconditional right and authority (subject to
promptly providing to Seller a full accounting) to endorse, without recourse,
the name of Seller on any check or any other evidence of indebtedness received
by Purchaser on account of any Purchased Asset, and Seller shall deliver to
Purchaser at the Closing a letter of instruction executed by Seller sufficient
to permit Purchaser to deposit such checks or other evidences of indebtedness in
bank accounts in the name of Purchaser. In addition, if after the Closing Date,
Seller receives any payment on account of the Purchased Assets, Seller will,
each business day, remit all payments to Purchaser. To the extent Seller
receives, by direct deposit into its bank accounts, any payment after the
Closing Date on account of the Purchased Assets, Seller shall, at the end of
each business day, deliver to Purchaser an accounting of all payments received
and shall, at the end of each week, transfer to Purchaser the aggregate amounts
so received during the week. To the extent Purchaser receives a check or other
evidence of indebtedness unrelated to the Purchased Assets, Purchaser will
promptly return such payment to Biofluids.
SECTION 3. CONSIDERATION
3.1 Purchase Price. The Purchased Assets shall be purchased by Purchaser
--------------
from Seller for an aggregate purchase price (the "Purchase Price") consisting of
--------------
$2,700,000 in cash payable to Seller as follows: (i) $1,680,000 at Closing, (ii)
$750,000 on January 4, 1999 and (iii) $270,000 (the "Escrow Funds") to be held
------------
and paid or offset pursuant to Section 11.12 below and pursuant to the
6
<PAGE>
terms of the Escrow Instrument, at the conclusion of the period ending eighteen
(18) months following the Closing. The Escrow Funds shall be held in an interest
bearing account, such interest accruing on a pro rata basis to the party
receiving the Escrow Funds.
3.2 Allocation of Purchase Price. BioSource and Biofluids shall agree on
----------------------------
the allocation of the Purchase Price among the Purchased Assets as soon as
practicable following the Closing.
3.3 Prorations/Adjustments. Rent, utility charges, common area charges
----------------------
and other costs and expenses, including personal property taxes payable with
respect to Leases included in the Purchased Assets shall be prorated as of the
Closing Date, and payable, to the extent possible, by a dollar-for-dollar
adjustment to the Purchase Price on the Closing Date, and if not paid on the
Closing Date, then paid within 30 days of the Closing Date.
3.4 Form of Payments. All amounts to be paid by any party pursuant to
----------------
this Agreement at the Closing shall be paid by banker's check or by irrevocable
wire transfer to a bank account established by the payee, such payment to be in
Los Angeles Clearinghouse or equivalent "next day" funds.
SECTION 4. ASSUMPTION OF LIABILITIES
4.1 Assumed Liabilities. Subject to the provisions of this Agreement,
-------------------
Purchaser agrees that upon transfer of the Purchased Assets on the Closing Date,
it shall assume, pay, satisfy, discharge, perform and fulfill, to the extent not
paid, satisfied, performed, discharged or fulfilled by Seller on or before the
Closing Date only the following obligations of Seller (collectively, the
"Assumed Liabilities"), and none other:
- - --------------------
(a) the contracts, agreements, arrangements, etc. described in
Schedules 6.6 except that those contracts, agreements, arrangements, etc.
- - -------------
referred to in Section 6.6 which are not set forth on Schedule 6.6 because they
------------
require payments, discounts or expenditures in amounts less than the amounts set
forth in such sections shall also constitute Assumed Liabilities;
(b) the Permits, agreements or arrangements described in Schedules
---------
6.10 and 6.15(d);
- - ----------------
(c) the agreements entered into by Seller in the ordinary course of
the Business for the provision of services or goods to Seller including, without
limitation, agreements with suppliers listed in Schedule 6.13;
-------------
(d) the agreements entered into by Seller in the ordinary course of
the Business for the sale of Inventory by Seller; and
(e) all liabilities for employee compensation, benefits, vacation pay,
sick leave, severance payments, social security, and payroll taxes, whether
under individual or collective labor
7
<PAGE>
agreements or under the Plans (as defined in Section 6.18), existing at or
accruing from and after the Closing Date which relate to employees of Seller
employed by Purchaser after the Closing Date and involved in the Business.
It is not the intention of either Purchaser or Seller that the
assumption by Purchaser of the Assumed Liabilities shall in any way enlarge the
rights of third Persons under any agreements or arrangements with Purchaser or
Seller. Nothing contained herein shall in any way prevent Purchaser from
contesting in good faith any of the Assumed Liabilities with any third Person
obligee; provided no contestation shall relieve Purchaser of its obligations
--------
hereunder to Seller with respect thereto.
4.2 Liabilities Not Assumed. Purchaser shall not and does not assume any
-----------------------
liabilities, obligations or commitments of Seller of any kind, known or unknown,
contingent or otherwise, of whatsoever kind or nature, not specifically included
within the Assumed Liabilities, and the same shall remain the sole
responsibility of Seller.
4.3 Right of Enforcement and Settlement. From and after the Closing Date,
-----------------------------------
Purchaser shall have complete control over the payment, settlement or other
disposition of the Assumed Liabilities and the right to commence, conduct and
control all negotiations and proceedings with respect thereto. Seller shall
notify Purchaser promptly of any claim made with respect to any such Assumed
Liability and shall not, except with Purchaser's prior written consent, which
may arbitrarily be withheld by Purchaser, voluntarily make any payment of,
settle or offer to settle, or consent to any compromise or admit liability with
respect to, any such Assumed Liability. Seller shall cooperate with Purchaser
in any reasonable manner requested by Purchaser in connection with any
negotiations or proceedings involving any Assumed Liabilities.
SECTION 5. CLOSING
5.1 The Closing Date. The Closing of the purchase and sale of the
----------------
Business (the "Closing") shall take place at 9:00 a.m. on December __, 1998, or
-------
at such time as the parties hereto agree, at the offices of Troop Steuber Pasich
Reddick & Tobey, LLP, 2029 Century Park East, Los Angeles, CA 90067. The date
and time of the Closing is herein referred to as the "Closing Date."
5.2 Actions and Deliveries by Seller at the Closing. At the Closing,
-----------------------------------------------
Seller shall deliver to Purchaser the following instruments in form and
substance satisfactory to Purchaser:
(a) such bills of sale, endorsements, assignments, subleases, and
other good and sufficient instruments of conveyance, transfer and assignment,
including without limitation, a Bill of Sale in the form of Exhibit 5.2 to this
-----------
Agreement, as shall be necessary or appropriate to vest in Purchaser, good title
in and to the Purchased Assets, free and clear of any and all Liens (other than
Permitted Liens and Assumed Liabilities);
8
<PAGE>
(b) any terminations of Liens or other security interests necessary
for the consummation of the transactions contemplated by this Agreement or as
may be required to permit Seller to deliver the Purchased Assets free and clear
of any and all Liens (other than Permitted Liens and Assumed Liabilities); and
(c) the documents, instruments and evidences of the satisfaction of
all of the conditions precedent set forth in Section 91 of this Agreement.
5.3 Actions and Deliveries by Purchaser at the Closing. At the Closing,
--------------------------------------------------
Purchaser shall deliver:
(a) to Seller or as it may otherwise direct in writing, the cash
portion of the Purchase Price due at Closing as set forth in Section 3.1 above;
and
(b) to Seller, the following instruments in form and substance
reasonably satisfactory to or for the account of Seller:
(i) any acceptances of assignments required in connection with
the transfer and delivery of the Purchased Assets and the assumption of the
Assumed Liabilities; and
(ii) the documents, instruments and evidences of the satisfaction
of the conditions precedent provided for in Section 9.2 of this Agreement.
(c) to the Escrow Agent, the Escrow Funds.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF BIOFLUIDS
AND THE BIOFLUIDS STOCKHOLDER
As a material inducement to Purchaser to enter into this Agreement and to
perform its obliga tions hereunder and thereunder Biofluids and the Biofluids
Stockholder jointly and severally represent and warrant to and agree with
Purchaser as follows, except as set forth in the disclosure schedule attached
hereto (the "Disclosure Schedule"). The Disclosure Schedule shall be initialed
-------------------
by Purchaser and Biofluids and the Biofluids Stockholder and shall be arranged
in paragraphs corresponding to the numbered and lettered paragraphs contained in
this Section 6 and the disclosure in any paragraph of the Disclosure Schedule
shall qualify only the corresponding paragraph in this Section 6 to the extent
apparent on its face.
6.1 Organization, Standing and Corporate Power. Biofluids is a
------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Maryland, and has full power and authority (corporate and other)
to own its properties and assets and carry on its business as presently
conducted. Biofluids is duly qualified to conduct business and is in good
standing in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification
necessary and where the failure to be so
9
<PAGE>
qualified would be reasonably expected to have a Material Adverse Effect on
Biofluids. Biofluids has all approvals, permits and licenses necessary for the
conduct of its business and operations as currently conducted which approvals,
permits and licenses are valid and in full force and effect.
6.2 Authority and Capacity. Biofluids has full power and authority
----------------------
(corporate and other) to enter into, execute and deliver this Agreement and to
perform its respective obligations hereunder. The execution and delivery of this
Agreement, and the consummation of the transactions contemplated hereby, have
been duly authorized by the Board of Directors of Biofluids, and no other
corporate proceedings on the part of either are necessary to authorize this
Agreement and the trans actions contemplated hereby. This Agreement has been
duly executed and delivered by Biofluids, and constitutes the valid and binding
obligations of Biofluids, enforceable against Biofluids in accordance with its
terms.
6.3 Title to the Assets.
-------------------
(a) Except as set forth in Schedule 6.3, Biofluids has good and
------------
marketable title to all of the Purchased Assets, including, but not limited to,
all of the properties and assets reflected on the Biofluids Balance Sheet,
wherever located, free and clear of all Liens other than Permitted Liens, other
than properties or assets held under valid Leases which are in full force and
effect and not in default.
(b) Except as set forth in Schedule 6.3, the Purchased Assets to be
------------
transferred to Purchaser hereunder are adequate for the operation of the
Business as presently conducted, constitute all of the properties and assets,
tangible and intangible, applicable to or used in connection with the operation
of the Business as it is being conducted on the date hereof, and are in good
operating condition and repair, ordinary wear and tear excepted, and in the
stated maintenance, repair and operating condition reasonably required for the
proper operation and use thereof in the ordinary course of the Business.
(c) Schedule 6.3 sets forth the address, name of landlord and term of
------------
the lease of Biofluids' facilities. The Lease with respect to such property is
valid, enforceable and effective in accordance with its terms; all rentals,
royalties and other monetary obligations thereunder payable have been fully
paid; there is not under the Lease any existing or claimed default by Biofluids
or, to the Knowledge of Biofluids, of any other party thereto; there is not
under the Lease any event or condition which with or without notice or the
passage of time, or both, would constitute a default by Biofluids or, to the
Knowledge of Biofluids, of any other party thereto; and Biofluids enjoys
peaceable and undisturbed possession under the Lease. The Lease is not
encumbered by any Liens, other than Permitted Liens.
6.4 Rights of First Refusal on Assets. Neither Biofluids nor the
---------------------------------
Purchased Assets are subject to any right of first refusal of any third party
relating to the sale of any of the Purchased Assets or the Business.
10
<PAGE>
6.5 Effect of Agreement. The sale by Biofluids of the Purchased Assets to
-------------------
Purchaser at the Closing, the performance by each of its respective obligations
pursuant to the terms of this Agreement, and the consummation of the
transactions contemplated hereby, do not and will not, with or without the
giving of notice or passage of time, or both:
(a) violate or conflict with any term of the certificate of
incorporation, bylaws or other organizational documents of Biofluids;
(b) violate any provision of law, statute, rule, regulation or
executive order of any Governmental Authority relating to the Business to which
Biofluids is subject or by which the Purchased Assets are bound or affected;
(c) violate any judgment, order, writ or decree of any court or
administrative body applicable to the Business or by which the Purchased Assets
are bound or affected;
(d) require on the part of Biofluids any filing with, or any permit,
authorization, consent or approval of, any court, arbitrational tribunal,
administrative agency or commission or other governmental or regulatory
authority or agency;
(e) accelerate or constitute an event entitling the holder of any
indebtedness related to the Business and assumed hereunder by Purchaser to
currently accelerate the maturity of any such indebtedness or increase the rate
of interest presently in effect with respect to such indebtedness; or
(f) result in the breach of, constitute a default under, constitute an
event which with notice or passage of time, or both, would become a default
under, or result in the creation of any mortgage, Lien, security interest,
charge or encumbrance upon any of the Purchased Assets under any agreement,
commitment, contract (written or oral) or other instrument to which Biofluids is
a party, or by which the Purchased Assets are bound or affected.
6.6 Contracts, Agreements, Arrangements, Etc.
-----------------------------------------
(a) Except as set forth on Schedule 6.6, neither Biofluids is a party
------------
to, nor are any of the Purchased Assets bound by, any:
(i) license agreement, assignment or contract (whether as
licensor or licensee, assignor or assignee) relating to trademarks, trade names,
patents or copyrights (or applications therefor), know-how or technical
assistance, or other proprietary rights (other than trademark agreements which
are entered into in the ordinary course of Biofluids' business) which relates to
the Business;
(ii) agreement or other arrangement for the sale of goods or
services by the Business to any government or Governmental Authority (other than
pursuant to open purchase
11
<PAGE>
orders issued by such entities) at an aggregate price per agreement or
arrangement in excess of $10,000;
(iii) agreement with any labor union or otherwise relating to
employees of Biofluids;
(iv) agreement with any vendor, distributor, dealer, sales
agent or representative relating to the Business other than contracts or orders
for the purchase or sale of goods at an aggregate price per contract or order of
more than $10,000;
(v) agreement with any distributor or customer of the Business
with respect to discounts (other than those reflected on Biofluids' current
price lists or in distribution or sale agreements duly disclosed under this
Agreement) or allowances or extended payment terms, where each such discount,
allowance or extended payment term has a value in excess of $5,000;
(vi) joint venture or partnership agreement with any other
Person which relates to the Business;
(vii) agreement guaranteeing, indemnifying or otherwise
becoming liable for the obligations or liabilities of another in connection with
the Business;
(viii) agreement appointing any Person as a distributor or
subdistributor with respect to the Business;
(ix) agreement for the making of any capital expenditure
relating to the Business in excess of $10,000;
(x) agreement giving any customer of the Business the right to
require a reduction in prices or the repayment of any amount previously paid
other than discounts in the ordinary course or agreements disclosed under this
Agreement;
(xi) any agreement (or group of related agreements) for the
lease of personal property from or to third parties with annual payments
exceeding $25,000;
(xii) any agreement concerning noncompetition;
(xiii) any written arrangement (or group of related written
arrangements) under which it has (A) created, incurred, assumed, or guaranteed
(or may create, incur, assume or guarantee) indebtedness in excess of $25,000 or
(B) imposed (or may impose) a Lien (other than Permitted Liens) on any of its
assets, tangible or intangible;
(xiv) any other contract or group of related contracts with the
same party requiring payments after the date hereof to or by Biofluids of more
than $20,000;
12
<PAGE>
(xv) any contract with any stockholder or Affiliate of any
stockholder;
(xvi) other agreement, not included in or expressly excluded
from the terms of the foregoing clauses (i) through (xv), which would have a
Material Adverse Effect on the Purchased Assets or the Business; or
(xvii) other agreement, not included in or expressly excluded
from the terms of the foregoing clauses (i) through (xvi), which would require
the payment by BioSource of an amount in excess of $20,000.
(b) Correct and complete copies of all agreements, indentures,
mortgages, plans, policies, arrangements and other instruments and written
amendments thereto (or, where they are oral, written summaries of the material
terms thereof), required to be shown on Schedule 6.6 or which, except for their
------------
inclusion on other Schedules to this Agreement, would have been shown on
Schedule 6.6 (collectively referred to herein as the "Material Contracts") have
- - ------------ ------------------
been separately delivered to Purchaser prior to the date hereof.
(c) Each of the Material Contracts is valid, in full force and effect
and is enforceable against Biofluids and, to the Knowledge of Biofluids, against
the other party thereto in accordance with its terms.
(d) There has not occurred any default by Biofluids or any event
which, with notice or the passage of time and/or the election of any person
other than Biofluids will become a default, nor to the Knowledge of Biofluids
has there occurred any default by others or any event which, with notice or the
passage of time and/or the election of Biofluids, will become a default under
any of the Material Contracts, nor, to the Knowledge of Biofluids has there
occurred any default by any other party to any of the Material Contracts, except
defaults, if any, which (i) have not resulted and will not result in any
material loss to or liability of the Business, or (ii) have been indicated on
Schedule 6.6 or on Schedule 6.24.
- - ------------ -------------
(e) Except as set forth on Schedule 6.7 referred to below, each of the
------------
Material Contracts is assignable by Biofluids to Purchaser without the consent
of the other parties thereto.
6.7 Consents. Schedule 6.7 sets forth a complete and accurate list of all
-------- ------------
approvals, authorizations, consents, orders or other actions of, or filings
with, any Person that are required to be obtained or made by Seller in
connection with the execution of, and the consummation of the transactions
contemplated under, this Agreement, including, without limitation, the effective
transfer and conveyance to the Purchaser of the Purchased Assets.
13
<PAGE>
6.8 Financial Statements.
--------------------
(a) Attached as Schedule 6.8 to this Agreement are the unaudited
------------
balance sheets and supporting schedules of Biofluids as of December 31, 1996 and
December 31, 1997 and the related statement of operations and statement of cash
flows for the periods then ended; and the unaudited balance sheet of Biofluids
as of October 31, 1998 (the "Biofluids Balance Sheet"). All of the financial
-----------------------
statements, including the notes thereto, referred to in the preceding sentence
are sometimes collectively referred to herein as the "Biofluids Financial
-------------------
Statements".
- - ----------
(b) All of the Biofluids Financial Statements:
(i) are in accordance with the books and records of Biofluids;
(ii) present fairly the financial condition of Biofluids as of
the date of such Biofluids Financial Statements and the results of its
operations and its cash flows for the periods therein specified; and
(iii) were prepared in accordance with GAAP and the valuation
rules adopted by the Board of Directors of Biofluids applied on a basis
consistent with prior accounting periods.
(c) As of the dates of the Biofluids Financial Statements, Biofluids
did not have any liabilities or obligations, either accrued, absolute,
contingent or otherwise, which have not been reflected, and which are required
to be reflected in accordance with GAAP and the valuation rules adopted by the
Board of Directors of Biofluids, in the Biofluids Financial Statements, other
than liabilities or obligations which are disclosed in Schedule 6.8.
------------
6.9 Litigation. Except as set forth in Schedule 6.9 to this Agreement,
---------- ------------
there is no claim, legal action, suit, arbitration, investigation or hearing,
notice of claims or other legal, administrative or governmental proceedings
relating to the Business or the Purchased Assets pending or, to the Knowledge of
Biofluids, threatened against Biofluids or any of the Purchased Assets (or in
which Biofluids is plaintiff or otherwise a party thereto), and, to the
Knowledge of Biofluids, there are no facts existing which are likely to result
in any such claim, action, suit, arbitration, investigation, hearing, notice of
claim or other legal, administrative or governmental proceeding. Biofluids has
not waived any statute of limitations or other affirmative defense with respect
to any of the Assumed Liabilities. There is no continuing order, injunction or
decree of any court, arbitrator or Governmen tal Authority relating to the
Business to which Biofluids is a party or to which it or any of the Purchased
Assets is subject.
6.1 Compliance with the Law and Other Instruments. The operation of the
---------------------------------------------
Business has been and is being conducted in accordance with all material
applicable laws, ordinances, rules and regulations, judgments and decrees of all
Governmental Authorities applicable to the Business. No investigations by any
Governmental Authorities asserting or alleging any violation of or
14
<PAGE>
noncompliance with any such material applicable laws, ordinances, rules and
regulations, judgments and decrees are pending or, to the Knowledge of
Biofluids, threatened. To the Knowledge of Biofluids, Schedule 6.10 sets forth a
-------------
true and complete list of all Permits necessary to the conduct of the Business
as currently conducted. Biofluids has obtained all of such Permits, each of
which is in full force and effect. No violation of any Permit has occurred which
is continuing and no proceeding is pending or, to the Knowledge of Biofluids,
threatened to revoke or limit any such Permit.
6.1 Absence of Certain Changes or Events. Since the Balance Sheet Date,
------------------------------------
there has not been any change in, or event affecting, the condition (financial
or otherwise), business, properties, assets, liabilities, operations or
prospects of the Business other than changes in the ordinary course of its
Business, none of which has (either when taken by itself or when taken in
conjunction with any other or all such other changes) had a Material Adverse
Effect on the Business. Except as set forth in Schedule 6.11, since the Balance
-------------
Sheet Date, the Business has not:
(a) suffered any adverse change in, and no events have occurred which,
individually or in the aggregate, have had, or may have, any Material Adverse
Effect on the Business;
(b) incurred damage to or destruction of any of the Purchased Assets
of the Business by casualty, whether or not covered by insurance, which,
individually or in the aggregate, exceeded $10,000 in value;
(c) made or granted any wage or salary increase to any employee or
paid any bonus, for which Purchaser shall be obligated, to any employee (other
than as required by law or contract existing at the date of this Agreement)
since the date of the payroll listing set forth on Schedule 6.11 hereto; entered
-------------
into any employment agreement with any officer or employee which is not
terminable on thirty days notice; or entered into or instituted any new Plans
(as defined herein);
(d) made any loans which have not been repaid to its employees other
than travel advances made in the ordinary course of business and consistent with
past practice and any individual salary advance not in excess of $5,000 made to
nonmanagement employees in the ordinary course of business and consistent with
past practice;
(e) mortgaged, pledged or subjected to Lien or any other encumbrance
any of the Purchased Assets other than the Assumed Liabilities and Permitted
Liens;
(f) amended or terminated any of its contracts, agreements, leases or
arrangements which otherwise would have been set forth on Schedule 6.6 to this
------------
Agreement if such termination would have a Material Adverse Effect;
(g) waived or released any other rights with a value over $10,000;
15
<PAGE>
(h) entered into any transaction that has not been disclosed in a
Schedule to this Agreement and which is not in the ordinary course of business;
or
(i) agreed to do any of the actions described in the preceding
subsections (a) through (h).
6.12 Operation of the Business. Except as set forth in Schedule 6.12, (a)
------------------------- -------------
Seller currently conducts the Business only through Biofluids and not through
any other divisions or any other Affiliate of Biofluids and (b) no part of the
Business is operated by Biofluids through any entity other than Biofluids.
6.13 Suppliers; Raw Materials. Schedule 6.13 sets forth (a) the names and
------------------------ -------------
addresses of all suppliers from which Biofluids ordered raw materials, supplies,
merchandise and other goods and services with an aggregate purchase price for
each such supplier of $25,000 or more during the twelve-month period ended
October 31, 1998 and (b) the amount for which each such supplier invoiced
Biofluids in such period.
6.14 Absence of Certain Business Practices. To the Knowledge of
-------------------------------------
Biofluids, neither Biofluids nor any officer, employee or agent of Biofluids,
nor any other person acting on their behalf, has, directly or indirectly, since
January 1, 1997 given or agreed to give any gift or similar benefit to any
customer, supplier, governmental employee or other person who is or may be in a
position to help or hinder the Business (or assist Biofluids in connection with
any actual or proposed transaction relating to the Business) (i) which subjected
Biofluids to any damage or penalty in any civil, criminal or governmental
litigation or proceeding, (ii) which if not given in the past, might have had a
Material Adverse Effect, (iii) which if not continued in the future, might have
a Material Adverse Effect or subject Biofluids to suit or penalty in any private
or governmental proceeding, or (iv) for the purpose of establishing or
maintaining any concealed fund or concealed bank account.
6.15 Intellectual Property.
---------------------
(a) Title. Schedule 6.15(a) contains a complete and correct list of
----- ----------------
all Intellectual Property that is owned by Biofluids and primarily related to,
currently used in, held for current use in connection with, or currently
necessary for the conduct of, or otherwise material to the Business (the
"Intellectual Property Assets") other than Intellectual Property that is both
- - -----------------------------
not registered or subject to application or registration and not material to the
Business as currently conducted. The Intellectual Property Assets comprise all
of the Intellectual Property necessary for Purchaser to conduct and operate the
Business as it is now being conducted by Biofluids.
(b) Transfer. Immediately after the Closing, Purchaser will own all
--------
of the Intellectual Property Assets free from any Liens (other than Permitted
Liens) subject to any notices or transfer filings or registrations which
Biofluids will effect or support pursuant to Section 10.1.
16
<PAGE>
(c) No Infringement. Except as set forth on Schedule 6.15(c), the
--------------- ----------------
conduct of the Business does not infringe or otherwise conflict with any rights
of any Person in respect of any Intellectual Property. To the Knowledge of
Biofluids, none of the Intellectual Property Assets is being infringed or
otherwise used or available for use by any other Person.
(d) Licensing Arrangements. Schedule 6.15(d) sets forth all
---------------------- ----------------
agreements or arrangements (i) pursuant to which Biofluids has licensed
Intellectual Property Assets to, or the use of Intellectual Property Assets has
been otherwise permitted (through settlement or similar agreements) by, any
other Person and (ii) pursuant to which Biofluids has had Intellectual Property
licensed to it or has otherwise been permitted to use Intellectual Property
(through settlement or similar agreements). All of the agreements or
arrangements set forth on Schedule 6.15(d) (x) are in full force and effect in
----------------
accordance with their terms and no default exists thereunder by Biofluids, or to
the Knowledge of Biofluids, by any other party thereto, (y) are free and clear
of all Liens, other than Permitted Liens and Assumed Liabilities and (z) do not
contain any change in control or other terms or conditions that will become
applicable or inapplicable as a result of the transactions contemplated by the
Agreement. Biofluids has delivered to Purchaser true and complete copies of all
licenses and arrangements (including amendments) set forth on Schedule 6.15(d).
----------------
(e) No Intellectual Property Litigation. Except as set forth on
-----------------------------------
Schedule 6.15(e), no claim or demand of any Person has been made nor is there
- - ----------------
any proceeding that is pending or to the Knowledge of Biofluids, threatened,
which (i) challenges the rights of Biofluids in respect of any Intellectual
Property Assets, (ii) asserts that Biofluids is infringing or otherwise in
conflict with, or is, except as set forth in Schedule 6.15(d), required to pay
----------------
any royalty, license fee, charge or other amount with regard to any Intellectual
Property, or (iii) claims that any default exists under any agreement or
arrangement listed on Schedule 6.15(d). None of the Intellectual Property Assets
----------------
is subject to any outstanding order, ruling, decree, judgment or stipulation by
or with any court, arbitrator, or administrative agency, or has been the subject
of any litigation within the last five years, whether or not resolved in favor
of Biofluids.
(f) Due Registration, Etc. Schedule 6.15(f) sets forth the
--------------------- ----------------
Intellectual Property Assets and the filing offices, domestic or foreign, where
such Intellectual Property Assets have been registered, issued or filed.
Biofluids has taken such other actions that Biofluids considers reasonably
necessary to ensure full protection under any applicable laws or regulations,
and such registrations, filings, issuances and other actions remain in full
force and effect, in each case to the extent material to the Business.
(g) Use of Name and Mark. Except as set forth in Schedule 6.15(g),
-------------------- ----------------
there are, and immediately after the Closing will be, no contractual restriction
or limitations pursuant to any orders, decisions, injunctions, judgments, awards
or decrees of any Governmental Authority on Purchaser's right to use the name
and mark "Biofluids" in the conduct of the Business as presently carried on by
Biofluids.
17
<PAGE>
6.16 Environmental Matters. Biofluids has obtained all necessary permits
---------------------
for the storage, production and use of all Hazardous Substances which have been
and are in its possession or under its control. Such storage, production and
use have not resulted in the release or discharge into the environment (which
for the avoidance of doubt includes the soil and sub-soil) of any Hazardous
Substances in a manner which would give rise to liability to Purchaser under
environmental laws currently in effect.
6.17 Employees. Schedule 6.17 is a true and complete list of all current
--------- -------------
employees (the "Employees") of Biofluids who primarily perform services in
---------
connection with the operation or conduct of the Business, together with their
current rates of compensation, all written employment contracts and collective
bargaining agreements and all other agreements or arrangements providing for
compensation to Employees, to which Biofluids is a party or by which Biofluids
is bound. At the Closing, Schedule 6.17 will also contain, for each employee,
-------------
all accrued but unpaid vacation and sick pay earned by such employee. Biofluids
has delivered to Purchaser accurate and complete copies of all such contracts,
agreements and arrangements and all handbooks, manuals and other writings
describing Biofluids' employment policies applicable to the Employees. There
are no commissions due and owing to any Employee which are currently due and
payable and which have not been paid in full. Except as set forth on Schedules
---------
6.17 and 6.18, Biofluids is not a party to, or subject to any present obligation
- - -------------
(statutory or otherwise), liability or commitment with respect to, any written
employment, compensation, consulting, severance pay or similar agreement
relating to any Employee, and Biofluids is not now, nor will be liable in the
future for any material termination payment or benefit payable to any Employee
as a consequence of the transaction contemplated by this Agreement.
6.18 Employee Benefit Plans, Etc. Schedule 6.18 contains a true and
--------------------------- -------------
complete list of each employee benefit plan, fringe benefit plan, vacation plan,
sick leave plan, retiree health plan, bonus plan, deferred compensation plan and
any other compensation agreements or plan or funding arrangement (collectively,
the "Plans") sponsored, maintained or contributed to by Biofluids or by any
-----
member of a group or organization of which Biofluids is a member under which any
Employee may be entitled to benefits. Biofluids has delivered to Purchaser
accurate and complete copies of all documents embodying or relating to the
Plans, including a list of the Employees eligible for coverage and the benefits
available under each such Plan. Except as disclosed on Schedule 6.18, all Plans
-------------
have in the past been, and are now, in all respects maintained, funded and
administered in compliance with all applicable law.
6.19 Customers. Schedule 6.19 contains a correct and complete list of each
--------- -------------
of the customers of the Business who have purchased from Biofluids products
and/or services in excess of 10% of Biofluids' revenues during the twelve months
ended October 31, 1998, and indicates the dollar value of the products and/or
services purchased by each such customer.
6.20 Inventory. Set forth on Schedule 6.20 is a correct and complete list
--------- -------------
as of October 31, 1998, of all items which constitute Inventory on such date,
indicating for each item of Inventory where it is located. All of the Inventory
is of a quality and quantity saleable at regular prices or
18
<PAGE>
usable by Purchaser in the ordinary course of business of Purchaser, net of
reserves reflected on the balance sheet of Biofluids as of October 31, 1998.
6.21 Purchase and Sale Obligations. Since the Balance Sheet Date, all
-----------------------------
purchase and sales orders and all other commitments for purchases and sales made
by or on behalf of Biofluids relating to the Business have been made in the
usual and ordinary course of business in accordance with Biofluids' normal
practices.
6.22 Accounts Receivable. Attached hereto as Schedule 6.22 is a true and
------------------- -------------
complete schedule of the accounts receivable of Biofluids as of October 31, 1998
(the "Accounts Receivable"), setting forth a description of the Accounts
-------------------
Receivable including the names and, at the Closing, the addresses of the account
debtors, the balance amount and aging as of the date indicated therein. The
Accounts Receivable and all books, records and documents relating to the
Accounts Receivable were genuine and accurate as of October 31, 1998. As of
October 31, 1998, each of the Accounts Receivable represented an undisputed,
bona fide sale and delivery of goods or services rendered or to be rendered,
subject to any reserve or allowance taken or made in respect thereof in
accordance with Biofluids' normal practices. As of October 31, 1998, Biofluids
was the lawful owner of the Accounts Receivable.
6.23 Tax Returns. Biofluids has paid in full all ad valorem property taxes
-----------
and other assessments levied on its assets and properties which have heretofore
become due and payable. Biofluids has withheld all proper and accurate amounts
from its employees and made provisions, deposited or paid over such withheld
amounts in full and complete compliance with the tax laws of the United States
and other applicable State or local laws, and has filed proper and accurate
Federal, State and local returns and reports and has paid all related taxes or
assessments (including penalties and interest) for all years and periods (and
portions thereof) for which any such returns and reports were due with respect
to corporate income, franchise, sales and use, personal property, local business
license, employee income, withholding, old age pension, unemployment, and all
other taxes.
6.24 Insurance. Set forth on Schedule 6.24 is a correct and complete list
--------- -------------
of (a) all currently effective insurance policies and fidelity and surety bonds
covering the Purchased Assets, and (b) for the three-year period ending on the
date hereof, (i) all accidents, casualties or damage occurring on or to the
Purchased Assets or relating to the Business or its products, and (ii) claims
for damages, contribution or indemnification and settlements (including pending
settlement negotiations) relating thereto. Except as set forth on Schedule
--------
6.24, as of the date hereof there are no disputes with underwriters of any such
- - ----
policies or bonds, and all premiums due and payable have been paid. To the
Knowledge of Biofluids, there are no pending or threatened terminations or
premium increases with respect to any of such policies or bonds and, to the
Knowledge of Biofluids, there is no condition or circumstance applicable to the
Business, other than the sale of the Purchased Assets and assumption of the
Assumed Liabilities pursuant to this Agreement, which is likely to result in
such termination or increase. The Business and the Purchased Assets are in
compliance with all conditions contained in such policies or bonds, which are
included in the Purchased Assets, except
19
<PAGE>
for non-compliance which, individually or in the aggregate, would not have a
Material Adverse Effect on the Business or the Purchased Assets.
6.25 Powers of Attorney. Except for powers of attorney given in the
------------------
ordinary course of business to officers and directors of Biofluids and except as
set forth on Schedule 6.25, no person has been granted and currently holds any
-------------
power of attorney to act on behalf of Biofluids in connection with any of the
Purchased Assets or the Business.
6.26 Prepaid Expenses. Set forth on Schedule 6.26 is a true, complete and
---------------- -------------
accurate list of all prepaid expenses, trade deposits, security deposits and
other similar assets of the Business, which in each case is in excess of
$10,000, and existing as of October 31, 1998.
6.27 No Unrelated Liabilities. As of the Closing Date, Purchaser will not
------------------------
by reason of the transactions contemplated by this Agreement assume, acquire,
succeed to or be subject in any way to, any liability arising out of or in
connection with the Business other than the Assumed Liabilities or otherwise as
results from this Agreement.
6.28 No Change of Control Provisions. Biofluids is not a party nor subject
-------------------------------
to any agreement or contract which would require under the terms of such
agreement or contract the making by Purchaser or the Business of any payment,
other than payments contemplated by this Agreement, to any employee of the
Business or to any other Person as a result of the consummation of the
transactions contemplated herein.
6.29 No Finder's Fee. Except as set forth on Schedule 6.30, Biofluids has
--------------- -------------
not retained any finder, broker, agent or other party or incurred any liability
or is otherwise obligated for any brokerage fees, commissions, finder's fees or
investment banking fees in connection with this Agreement or the transactions
contemplated hereby.
6.30 Accuracy of Other Information; Disclosure. None of the information
-----------------------------------------
contained in any certificate delivered or to be delivered by Biofluids to
Purchaser at the Closing, or contained in this Agreement, contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made or will be made, not materially misleading. Biofluids has
disclosed to Purchaser all information known to it which it reasonably believes
to be material to a decision by Purchaser to acquire the Purchased Assets and
Assumed Liabilities hereunder.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF BIOSOURCE
As a material inducement to Biofluids to enter into this Agreement and to
perform its obligations hereunder and thereunder, BioSource represents and
warrants to and agrees with Biofluids as follows:
20
<PAGE>
7.1 Organization, Standing and Corporate Power. BioSource is a
------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, with adequate corporate power and authority to own its
properties and carry on its business as presently conducted. BioSource has the
corporate power to enter into, execute and deliver this Agreement and to
consummate the transactions contemplated hereby in accordance with its terms.
7.2 Authorization of Agreement. The execution and delivery of this
--------------------------
Agreement and the performance by BioSource of its obligations and agreements
under this Agreement will prior to the Closing have been duly and validly
authorized and approved by BioSource's Board of Directors. BioSource has taken,
and shall take prior to the Closing Date, all other actions required on its part
by law and its Certificate of Incorporation and Bylaws in order to consummate
the transactions contemplated hereby.
7.3 Execution, Delivery and Performance. This Agreement constitutes the
-----------------------------------
valid and binding obligations of BioSource, enforceable in accordance with its
terms.
7.4 Effect of Agreement. The execution and delivery of this Agreement do
-------------------
not, and compliance by BioSource with the provisions hereof will not, (i)
conflict with or result in a breach or default under any of the terms,
conditions, or provisions of any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation (including, without limitation,
BioSource's Certificate of Incorporation or Bylaws) to which BioSource is a
party or by which it may be bound; or (ii) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to BioSource, which conflict,
breach, default or violation could have a Material Adverse Effect on BioSource,
or BioSource's ability to fulfill its obligations pursuant to this Agreement.
7.5 No Consents Required. There are no approvals, authorizations,
--------------------
consents, orders or other actions of, or filings with, any Governmental
Authority required to be filed by BioSource in connection with the consummation
of the transactions contemplated under this Agreement.
7.6 No Finder's Fee. BioSource has not retained any finder, broker, agent
---------------
or other party or incurred any liability or is otherwise obligated for any
brokerage fees, commissions, finder's fees or investment banking fees in
connection with this Agreement or the transactions contemplated hereby.
7.7 Accuracy of Other Information; Disclosure. None of the information
-----------------------------------------
contained in any certificate delivered or to be delivered by BioSource to
Biofluids at the Closing, or contained in this Agreement, contains any untrue
statement of a material fact or omits to state any material fact necessary in
order to make the statements therein, in light of the circumstances under which
they were made or will be made, not materially misleading. BioSource has
disclosed to Biofluids all information known to it which it reasonably believes
to be material to a decision by Biofluids to sell the Business hereunder.
21
<PAGE>
SECTION 8. CONDUCT AND TRANSACTIONS PRIOR TO CLOSING
8.1 Investigations. Between the date of this Agreement and the Closing
--------------
Date, Biofluids shall give to Purchaser and its representatives full access to
all of Biofluids' premises, books, records, employees, bankers, independent
public accountants and other agents possessing any information relating in any
manner to the Business, and shall furnish Purchaser with such financial and
operating data and other information with respect to the business and properties
of the Business as Purchaser shall from time to time request; provided, however,
-------- -------
that any such investigation shall not affect any of the representations and
warranties hereunder; and provided, further, that any such investigation shall
-------- -------
be conducted in such manner as not to interfere unreasonably with the operation
of the Business. If this Agreement is terminated without the transactions
contemplated hereby having been effected, Purchaser and Biofluids shall each
return to the other all documents, working papers and other materials obtained
from the other party pursuant to this Agreement, and the confidentiality
provisions of Section 10.2 of this Agreement shall continue to apply.
8.2 Operation of the Business Pending Closing. Between the date hereof
-----------------------------------------
and the Closing Date, unless Purchaser consents in writing to the contrary,
other than as provided for herein, Biofluids shall:
(a) conduct the Business in the ordinary course in accordance with
prior practice;
(b) make, amend and terminate contracts and operate only in the
ordinary course of business;
(c) not create or incur indebtedness except current liabilities in the
ordinary course of business;
(d) not suffer, create or incur any mortgage, security interest, Lien,
Lease, encumbrance or restriction on any of the Purchased Assets (other than
Permitted Liens);
(e) duly comply with all laws, ordinances, rules and regulations
applicable to Biofluids and to the conduct of the Business;
(f) not make or agree to make any capital expenditures in excess of
$10,000 in the aggregate;
(g) not sell, lease, dispose of, convey or transfer or agree to sell,
lease, dispose of, convey or transfer any Purchased Assets, except sales from
Inventory in the ordinary course of business;
(h) not incur any fixed or contingent obligation or enter into any
agreement, commitment or other transaction or arrangement relating to the
Business which (i) may not be
22
<PAGE>
terminated by Biofluids on 30 days' notice or less without cost or liability,
and (ii) which is not in the ordinary course of the Business, and (iii) which is
not transferrable or assignable to Purchaser;
(i) use its best efforts to preserve its business organization, retain
its employees and preserve good relationships with suppliers, customers and
other persons having significant business relationships with the Business;
(j) use its best efforts to keep available for possible retention by
Purchaser the services of the Employees;
(k) not enter into any agreement, arrangement or undertaking with
respect to any Employee relating to the payment of any bonus, profit-sharing or
special compensation or any increase in the compensation payable to an Employee
(other than as required by law or contract) if any such payment will be incurred
by Purchaser;
(l) maintain in full force and effect all existing insurance policies
and keep the Purchased Assets insured in accordance with present practice;
(m) maintain the Purchased Assets in a good condition and state of
repair, except for reasonable wear and tear;
(n) not sell, assign, license or transfer or agree to sell, assign,
license or transfer (with or without consideration) any of the Intellectual
Property Assets or any interest therein;
(o) use its best efforts not to commit any act or omit to do any act
which would be or result in a breach of any of its obligations, duties,
agreements or representations under any agreement, contract or commitment to
which it is a party or to which it enters into subsequent to the date of this
Agreement which would have a Material Adverse Effect;
(p) bear the risk of loss or damage to the Purchased Assets on and
prior to the Closing Date, and maintain all properties necessary for the conduct
of the Business, whether owned or leased, in substantially the same condition as
they now are, reasonable wear and tear excepted; and, in the event that any
Purchased Asset is damaged on or prior to the Closing Date by any casualty,
Biofluids shall give Purchaser immediate written notice of such damage, and, if
such damage or destruction has a Material Adverse Effect on the Business, shall
afford Purchaser, in its sole and absolute discretion, the right to cancel,
terminate or delay the Closing under this Agreement without further liability.
(q) maintain the books, records and accounts of Biofluids in the
usual, regular and ordinary manner, on a basis consistent with prior periods;
23
<PAGE>
(r) not enter into any agreement of any kind or nature with any
Affiliate of Biofluids with respect to the Purchased Assets or the Business
other than transactions required to give effect to this Agreement;
(s) not enter into any transaction or perform any act which would make
any of the representations, warranties or agreements contained in this Agreement
false or misleading in any material respect if made again immediately after such
transaction or act; and
(t) not, directly or indirectly, sell, transfer or otherwise dispose
of, solicit any offer for the purchase or acquisition of, or engage in any
negotiations, discussions or agreements with any Person other than Purchaser the
purpose or result of which would be the sale, transfer or disposition of the
Business or any Purchased Assets, excepting only sales from Inventory and other
dispositions in the ordinary course of business.
8.3 Advice of Changes. If Biofluids becomes aware of any fact or facts
-----------------
which, if known at the date of this Agreement, would have been required to be
set forth or disclosed in or pursuant to this Agreement or which, individually
or in the aggregate, materially adversely affects the Business, Biofluids shall
promptly advise Purchaser in writing thereof.
8.4 Non-Disclosure or Use of Information. BioSource agrees that, unless
------------------------------------
this Agreement is terminated, subject to Section 10.2, from and after the date
hereof, BioSource shall not use or disclose to any third party, other than in
the ordinary course of business, any information proprietary to Biofluids and
held by Biofluids or used by Biofluids in the Business, including, without
limitation, Biofluids's customer lists, except for the benefit of Purchaser and
with the prior written consent of Purchaser.
8.5 Governmental and Third Party Consents and Approvals. Prior to the
---------------------------------------------------
Closing, Biofluids shall take all such actions as are reasonable and necessary
to:
(a) prepare and file applications with any governmental agency or
multilateral body or other appropriate agency and any other necessary third
party for consent to the transactions contemplated by this Agreement or as may
be required to deliver the Purchased Assets in accordance with the terms and
subject to the conditions of this Agreement;
(b) prosecute such applications with diligence;
(c) diligently oppose any objections to, appeals from or petitions to
reconsider such governmental or third party approvals or consents; and
(d) take all such further action as reasonably may be necessary to
obtain and maintain such consents.
24
<PAGE>
8.6 8-K Financial Statements. Biofluids shall permit Purchaser access to
------------------------
its books and records sufficient to allow Purchaser to prepare audited financial
statements and pro forma financial statements of the Business sufficient to
--- -----
permit Purchaser to fully, completely and timely comply with Purchaser's
obligations, if any, to file financial statements relating to the Business under
and pursuant to the General Instructions to Form 8-K under the Exchange Act and
Rule 3-05 of Regulation S-X of the General Rules and Regulations under the
Exchange Act ("Regulation S-X"); provided that neither Biofluids nor any of its
-------------- --------
respective officers, directors or Affiliates shall have any liability to
Purchaser or any other Person in respect of or arising out of any financial
statements so prepared and filed, and Purchaser agrees to indemnify Biofluids
and its respective officers, directors and Affiliates in respect thereof in
accordance with the provisions of Section 11 herein.
SECTION 9. CONDITIONS OF PURCHASE AND SALE
9.1 Conditions to Obligations of Purchaser. Unless waived, in whole or in
--------------------------------------
part, in writing by Purchaser, the obligations of Purchaser to effect
consummation of the transactions contemplated by this Agreement shall be subject
to the fulfillment prior to or at the Closing Date of each of the following
conditions:
(a) Representations and Warranties of Biofluids and the Biofluids
-------------------------------------------------------------
Stockholder To Be True. The representations and warranties of Biofluids and the
- - ----------------------
Biofluids Stockholder (contained in this Agreement, any Exhibit or Schedule
hereto, or any certificate, instrument or other writing delivered to Purchaser
or its representatives by Biofluids, or any of its representatives) shall be
true and correct in all material respects on the Closing Date with the same
force and effect as though made on and as of the Closing Date (i.e., with
respect to a representation that a state of facts exists on or as of the date
hereof, it is a condition that such state of facts exists on or as of the
Closing Date, and with respect to a representation that a state of facts has or
has not changed between a date prior to the date hereof and the date hereof, it
is a condition that such state of facts has or has not changed between such
prior date and the Closing Date), except as affected by transactions
contemplated hereby and thereby and except that any such representation or
warranty made as of a specified date (other than the date of this Agreement)
shall only need to have been true on and as of such date. Biofluids shall have
performed all obligations and complied with all covenants required by this
Agreement to be performed or complied with by Biofluids on or prior to the
Closing Date.
(b) No Proceedings. No action, suit or proceeding before any court or
--------------
any governmental body or authority pertaining to the transactions contemplated
by this Agreement or to their consummation shall have been instituted or
threatened on or prior to the Closing Date.
(c) No Adverse Change. Since the date of this Agreement there shall
-----------------
not have been any change in the business, properties, prospects, results of
operations or condition (financial or otherwise) of the Business which,
individually or in the aggregate, is materially adverse.
25
<PAGE>
(d) Statutory Requirements. All consents and approvals of all United
----------------------
States, State and local Governmental Authorities, and any other person or
entity, required to be obtained to permit consummation by Biofluids of the
transactions contemplated by this Agreement or as may be required to deliver the
Purchased Assets free and clear of any Liens and encumbrances (not otherwise
permitted hereunder) shall have been obtained, and true and correct copies of
such consents and approvals shall have been delivered to Purchaser or its
counsel.
(e) Certificates. Biofluids shall have delivered to Purchaser a
------------
certificate, dated the Closing Date, certifying that the conditions specified in
Sections 9.1(a), 9.1(b), 9.1(c) and 9.1(d) of this Agreement have been
satisfied.
(f) Opinion of Counsel for Biofluids . Purchaser shall have received
---------------------------------
from counsel for Biofluids, an opinion, dated the Closing Date, in form and
substance substantially identical to Exhibit 9.1(f) attached hereto.
--------------
(g) Audit. A review of Biofluids' audit and accountant's work papers
-----
shall have been completed by KPMG Peat Marwick prior to the Closing Date.
(h) Releases of Security Interests. Biofluids shall have delivered
------------------------------
to Purchaser any required releases and/or termination statements, releasing all
security interests in favor of any third party in or to any of the Purchased
Assets except those which are in connection with the Assumed Liabilities and
Permitted Liens.
(i) Consents. Biofluids shall have delivered all consents of third
--------
parties necessary to the transfer of the Purchased Assets.
(j) Authorization. Biofluids shall have delivered to Purchaser
-------------
certified copies of resolutions adopted by its board of directors authorizing
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated herein.
(k) Receipt of Right of Endorsement. Purchaser shall have received a
-------------------------------
letter of instruction executed by Seller sufficient to permit Purchaser to
deposit checks or other evidences of indebtedness in bank accounts in the name
of Purchaser.
(l) Employment Agreement. Purchaser shall have entered into an
--------------------
employment agreement with Robert R. Rafajko, Ph.D. substantially in the form
attached hereto as Exhibit 9.1(l).
---------------
(m) Non-Compete Agreement. Purchaser shall have entered into a non-
---------------------
compete agreement with Robert R. Rafajko, Ph.D. substantially in the form
attached hereto as Exhibit 9.1(m).
--------------
(n) Escrow Instrument. Purchaser shall have entered into an escrow
-----------------
instrument (the "Escrow Instrument") with Biofluids substantially in the form
-----------------
attached hereto as Exhibit 9.1(n).
--------------
26
<PAGE>
(o) Other Matters. All corporate and other proceedings and actions
-------------
taken in connection with this Agreement and all certificates, opinions,
agreements, instruments and documents mentioned in this Agreement or incident to
any such transactions shall be reasonably satisfactory in form and substance to
Purchaser and its counsel.
If any of the conditions contained in this Section 91 shall not be
performed or fulfilled at or prior to the Closing to the satisfaction of
Purchaser, Purchaser may, by notice to Biofluids, terminate this Agreement and
the obligations of Biofluids and Purchaser under this Agreement, other than the
obligations contained in Sections 10.2 and 13; provided that Purchaser may also
--------
bring an action pursuant to Section 11 against Biofluids for damages, other than
incidental or consequential damages, suffered by Purchaser where the non-
performance or non-fulfillment of the relevant condition is as a result of a
breach of covenant, representation or warranty by Biofluids.
9.2 Conditions to Obligations of Biofluids. Unless waived, in whole or in
--------------------------------------
part, in writing by Biofluids, the obligations of Biofluids to effect the
consummation of the transactions contem plated by this Agreement shall be
subject to the fulfillment prior to or at the Closing Date of each of the
following conditions:
(a) Representations and Warranties of Purchaser To Be True. The
------------------------------------------------------
representations and warranties of Purchaser (contained in this Agreement, any
Exhibit or Schedule hereto, or any certificate, instrument or other writing
delivered to Biofluids or its representatives by Purchaser, or any of its
representatives) shall be true and correct on the Closing Date with the same
force and effect as though made on and as of the Closing Date (i.e., with
----
respect to a representation that a state of facts exists on or as of the date
hereof, it is a condition that such state of facts exists on or as of the
Closing Date, and with respect to a representation that a state of facts has or
has not changed between a date prior to the date hereof and the date hereof, it
is a condition that such state of facts has or has not changed between such
prior date and the Closing Date), except as affected by transactions
contemplated hereby and thereby and except that any such representation or
warranty made as of a specified date (other than the date of this Agreement)
shall only need to have been true on and as of such date. Purchaser shall have
performed all obligations and complied with all covenants required by this
Agreement to be performed or complied with by Purchaser on or prior to the
Closing Date.
(b) Certificates. Purchaser shall have delivered to Biofluids a
------------
certificate of Purchaser dated the Closing Date certifying that the conditions
specified in Section 92 of this Agreement shall have been fulfilled.
(c) Authorization. Purchaser shall have delivered to Biofluids
-------------
certified copies of resolutions adopted by its board of directors authorizing
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby.
27
<PAGE>
(d) Opinion of Counsel for Purchaser. Biofluids shall have received
--------------------------------
from Troop Steuber Pasich Reddick & Tobey, LLP, counsel for Purchaser, an
opinion, dated the Closing Date, in the form of Exhibit 9.2(d) attached hereto.
--------------
(e) No Proceedings. No action, suit or proceeding before any court or
--------------
any Governmental Authority pertaining to the transactions contemplated by this
Agreement or to their consummation shall have been instituted or threatened on
or prior to the Closing Date.
(f) Delivery of Purchase Price. Purchaser shall have delivered to
--------------------------
Biofluids that portion of the Purchase Price due and payable at the Closing.
(g) Escrow Instrument. Purchaser and Biofluids shall have entered
-----------------
into an Escrow Instrument substantially in the form attached hereto as Exhibit
-------
9.1(n).
- - ------
(h) Statutory Requirements. All consents and approvals of all United
----------------------
States, State and Governmental Authorities, and any other Person or entity,
required to be obtained to permit consummation by BioSource of the transactions
contemplated by this Agreement or as may be required to buy the Purchased Assets
shall have been obtained, and true and correct copies of such consents and
approvals shall have been delivered to Seller or its counsel.
(i) Other Matters. All corporate and other proceedings and actions
-------------
taken in connection with this Agreement and all certificates, opinions,
agreements, instruments and documents mentioned in this Agreement or incident to
any such transactions shall be reasonably satisfactory in form and substance to
Biofluids and its counsel.
If any of the conditions contained in this Section 9.2 shall not be
performed or fulfilled at or prior to the Closing to the satisfaction of
Biofluids acting reasonably, Biofluids may, by notice to Purchaser, terminate
this Agreement and the obligations of Biofluids and Purchaser under this
Agreement, other than the obligations contained in Sections 10.2 and 13;
provided that Biofluids may also bring an action pursuant to Section 11 against
- - --------
Purchaser for damages, other than indirect or consequential damages, suffered by
it where the non-performance or non-fulfillment of the relevant condition is as
a result of a breach of covenant, representation or warranty by Purchaser.
SECTION 10. FURTHER AGREEMENTS OF THE PARTIES
10.1 Further Agreements of Biofluids. Biofluids shall upon the request of
-------------------------------
Purchaser from time to time execute and deliver to Purchaser such further bills
of sale, endorsements and other good and sufficient instruments of title,
conveyance, transfer and assignment as may be necessary or desirable in order to
vest in Purchaser, free and clear of all Liens and encumbrances (other than
Permitted Liens), all right, title and interest in and to any and all of the
Purchased Assets.
10.2 Confidentiality. Purchaser and Biofluids hereby acknowledge to and
---------------
agree with the other that any and all information which has been disclosed by
one to the other, its employees,
28
<PAGE>
consultants, agents and, if applicable, stockholders during the discussions and
negotiations leading to the execution of this Agreement, and all information to
be disclosed by one to the other, its employees, consultants and agents and, if
applicable, stockholders, during the period commencing on the date of execution
of this Agreement through the Closing or termination of this Agreement, shall
constitute confidential information and trade secrets of the disclosing party,
and as such are secret, confidential and unique and constitute the exclusive
trade secrets and property of such party. Such information has been made known
and available to the other party and its respective employees, consultants and
agents strictly in connection with the negotiation and execution of this
Agreement and the consummation of the transactions provided for herein. Each
party hereby acknowledges and agrees that any use or disclosure of any such
confidential information or trade secrets, other than pursuant to this
Agreement, would be wrongful and would cause irreparable injury to the other.
Accordingly, each party hereby expressly agrees, for itself and on behalf of its
stockholders and directors, if any, and its principal officers, managers,
employees, agents, consultants and representatives, that it and they will not at
any time prior to the Closing or at any time thereafter, use or disclose, other
than in accordance with the terms and provisions of this Agreement, any of such
confidential information or trade secrets; provided, that either Purchaser or
--------
Biofluids may use or disclose such confidential information or secrets of the
other without restriction if such information or secrets (i) were or are
available to such party on a non-confidential basis from a source other than the
other party; or (ii) were or become generally available to the public (other
than as a result of an impermissible disclosure by such party or its
Affiliates); and provided, further, that if either party is requested or
-------- -------
required (by oral question, interrogatories, requests for information or
documents, subpoena or similar process) to disclose any of such information or
secrets of the other, such disclosure, be made without liability hereunder
(although notice of such request or requirement shall be given to the other
party so that, if practicable, the other party may seek a protective order
against such disclosure). Notwithstanding the foregoing, no provision of this
Section 10.2 shall in any manner whatsoever prevent or inhibit Purchaser from
using or disclosing any such confidential information relating to the Business
or the Purchased Assets including, without limitation, customer lists in any
manner Purchaser shall deem fit from and after the Closing. Each party
acknowledges that, in the event of a violation by the other of the terms and
provisions of this Section 10.2, the remedies at law would not be adequate; and
accordingly, in such event such party may proceed to protect and enforce its
rights under this Section 10.2 by a suit in equity for specific performance
hereof, or for an injunction against the violation hereof.
10.3 Access to Books and Records. After the Closing Date, Purchaser and
---------------------------
Biofluids shall grant to each other access to the books, records, papers and
documents relating to the Business (i) in the case of Purchaser, included in the
Purchased Assets, and (ii) in the case of Biofluids, not included in the
Purchased Assets which relate to the operation of the Business (the "Records").
-------
Such access shall be given upon the reasonable request of the requesting party
during normal business hours and upon five business days prior notice. Each
party shall maintain the Records in its possession for a period of four years
from and after the Closing Date, and each shall first offer to the other such of
the Records as it may hereafter desire to dispose of or destroy at least 30 days
prior to initiating any disposition or destruction whether prior to or following
the aforementioned four-year period.
29
<PAGE>
10.4 Mail and Remittances. After the Closing, all mail addressed to
--------------------
Biofluids and Purchaser relating to their respective businesses shall be
delivered promptly by each party to the other party.
10.5 Change of Name. Within 10 calendar days following the Closing,
--------------
Biofluids shall change its corporate name from Biofluids, Inc. to Bonheur, Inc.
10.6 Fetal Bovine Letters. Biofluids agrees to use its reasonable best
--------------------
efforts to obtain an agreement from each of its purchasers of fetal bovine serum
in the form of Exhibit 10.6.
SECTION 11. NATURE AND SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNITY; OFFSET RIGHTS
11.1 Nature and Survival of Representations and Warranties. Except as
-----------------------------------------------------
provided herein, all of the covenants, representations and warranties and
indemnification obligations of the parties herein and in any certificate,
document or instrument delivered in connection with this Agreement shall survive
the Closing of the transactions contemplated hereby, and shall be binding upon
the parties to this Agreement, their successors and assigns for a period of
eighteen (18) months following the Closing, notwithstanding any investigation
made by or on behalf of the party entitled to the benefit thereof.
Notwithstanding the foregoing, the representations and warranties of Biofluids
and the Biofluids Stockholder set forth in Sections 6.3, 6.16 and 6.23 shall
survive the Closing and continue in full force and effect until the expiration
of the applicable statute of limitations. No party will be liable for
indemnification pursuant to this Section 11 with respect to any breach of any
representation, warranty, covenant or obligation, unless such party is provided
with notice of a claim for indemnification with respect to such breach before
expiration of the applicable survival period described herein. So long as
Purchaser delivers the applicable notice of a claim for indemnification prior to
the expiration of the date which is 18 months following the Closing, the amount
of the claim shall be retained in the Escrow Account and only the balance which
is not subject to the claim shall be released to Biofluids on such date.
11.2 Indemnification by Biofluids and the Biofluids Stockholder.
----------------------------------------------------------
Biofluids and the Biofluids Stockholder hereby jointly and severally covenant
and agree with Purchaser that they shall indemnify and save harmless Purchaser
from, against and in respect of all Losses suffered or incurred by Purchaser as
a result of or arising directly or indirectly out of or in connection with:
(a) any material breach by Biofluids or the Biofluids Stockholder of
or any inaccuracy of any representation or warranty of Biofluids or the
Biofluids Stockholder contained in this Agreement or in any certificate
delivered pursuant hereto;
(b) any material breach or non-performance by Biofluids or the
Biofluids Stockholder of any covenant or agreement to be performed by it that is
contained in this Agreement or in any agreement or certificate delivered
pursuant hereto; and
30
<PAGE>
(c) the operations of the Business up to and including the Closing
Date.
11.3 Indemnification by Purchaser. Purchaser covenants and agrees with
----------------------------
Biofluids and the Biofluids Stockholder to indemnify and save harmless Biofluids
and the Biofluids Stockholder from, against and in respect of all Losses
suffered or incurred by Biofluids or the Biofluids Stockholder as a result of or
arising directly or indirectly out of or in connection with:
(a) any breach by Purchaser of or any inaccuracy of any representation
or warranty contained in this Agreement or in any certificate delivered pursuant
hereto;
(b) any breach or non-performance by Purchaser of any covenant or
agreement to be performed by it that is contained in this Agreement or in any
agreement or certificate delivered pursuant hereto; and
(c) the operations of the Business after the Closing Date including,
without limitation, any failure by Purchaser to pay, satisfy, discharge, perform
or fulfill any of the Assumed Liabilities.
11.4 Notice of Claim. In the event that a party (the "Indemnified Party")
--------------- -----------------
shall become aware of any claim, proceeding or other matter (a "Claim") in
-----
respect of which the other party (the "Indemnifying Party") agreed to indemnify
------------------
the Indemnified Party pursuant to this Agreement, the Indemnified Party shall
promptly give written notice thereof to the Indemnifying Party. Such notice
shall specify whether the Claim arises as a result of a claim by a person
against the Indemnified Party (a "Third Party Claim") or whether the Claim does
-----------------
not so arise (a "Direct Claim"), and shall also specify with reasonable
------------
particularity (to the extent that the information is available):
(a) the factual basis for the Claim;
(b) the basis for the Indemnified Party's right to indemnification;
and
(c) the amount of the Claim, if known.
If, through the fault of the Indemnified Party, the Indemnifying Party
does not receive notice of any Claim in time to effectively contest the
determination of any liability susceptible of being contested, the Indemnifying
Party shall be entitled to set off against the amount claimed by the Indemnified
Party the amount of any Losses incurred by the Indemnifying Party resulting from
the Indemnified Party's failure to give such notice on a timely basis.
11.5 Direct Claims. With respect to any Direct Claim, following receipt of
-------------
notice from the Indemnified Party of the Claim, the Indemnifying Party shall
have 45 days to make such investigation of the Claim as is considered necessary
or desirable. For the purpose of such investigation, the Indemnified Party
shall make available to the Indemnifying Party sufficient information to
substantiate the Claim, together with all such other non-privileged information
as the
31
<PAGE>
Indemnifying Party may reasonably request. If both parties agree at or prior to
the expiration of such 45-day period (or any mutually agreed upon extension
thereof) to the validity and amount of such Claim, the Indemnifying Party shall
immediately pay to the Indemnified Party the full agreed upon amount of the
Claim. If the parties have not so agreed to the validity and/or amount of the
Claim, then the parties shall proceed in the manner set forth in the following
sentence. If the Closing shall have occurred under this Agreement, the matter
shall be resolved pursuant to the arbitration provisions contained in Section
13; and if the Closing shall not have occurred under this Agreement, the
Indemnified Party may bring an action against the Indemnifying Party in any
court located in Los Angeles, California.
11.6 Third Party Claims. With respect to any Third Party Claim, the
------------------
Indemnifying Party shall have the right, at its expense, to participate in or
assume control of the negotiation, settlement or defense of the Claim. Until an
Indemnifying Party notifies the Indemnified Party that the Indemnifying Party is
assuming the defense thereof, then the Indemnified Party may defend against the
matter in any manner it reasonably may deem appropriate, without prejudice to
any of its rights hereunder. If the Indemnifying Party elects to assume such
control, the Indemnified Party shall have the right to retain counsel to act on
its behalf, provided that the fees and disbursements of such counsel shall be
paid by the Indemnified Party unless the Indemnifying Party consents to the
retention of such counsel or unless the named parties to any action or
proceeding include both the Indemnifying Party and the Indemnified Party and a
representation of both the Indemnifying Party and the Indemnified Party by the
same counsel would be inappropriate due to the actual or potential differing
interests between them (such as the availability of different defenses). If the
Indemnifying Party, having elected to assume such control, thereafter fails to
defend the Third Party Claim within a reasonable time, the Indemnified Party
shall be entitled to assume such control and the Indemnifying Party shall be
bound by the results obtained by the Indemnified Party with respect to such
Third Party Claim. If any Third Party Claim is of a nature such that the
Indemnified Party is required by applicable law to make a payment to any person
(a "Third Party") with respect to the Third Party Claim before the completion of
-----------
settlement negotiations or related legal proceedings, the Indemnified Party may
make such payment and the Indemnifying Party shall, forthwith after demand by
the Indemnified Party, reimburse the Indemnified Party for such payment. If the
amount of any liability of the Indemnified Party under the Third Party Claim in
respect of which such a payment was made, as finally determined, is less than
the amount that was paid by the Indemnifying Party to the Indemnified Party, the
Indemnified Party shall, forthwith after receipt of the difference from the
Third Party, pay the amount of such difference to the Indemnifying Party.
11.7 Settlement of Third Party Claims. If the Indemnifying Party fails to
--------------------------------
assume control of the defense of any Third Party Claim, the Indemnified Party
shall have the exclusive right to contest, settle or pay the amount claimed.
Whether or not the Indemnifying Party assumes control of the negotiation,
settlement or defense of any Third Party Claim, the Indemnifying Party shall not
settle any Third Party Claim without the written consent of the Indemnified
Party, which consent shall not be unreasonably withheld or delayed.
32
<PAGE>
11.8 Cooperation. The Indemnified Party and the Indemnifying Party shall
-----------
cooperate fully with each other with respect to Third Party Claims, and shall
keep each other fully advised with respect thereto (including supplying copies
of all relevant documentation promptly as it becomes available).
11.9 Adjustment to Indemnification Payments; Insurance; Subrogation. Any
--------------------------------------------------------------
payment made by an Indemnifying Party to an Indemnified Party pursuant to this
Section 11 in respect of any Claim (i) shall be net of any insurance proceeds
available to the Indemnified Party in respect of such claim and (ii) shall be
reduced by an amount equal to any Tax benefits attributable to such Claim. The
Indemnified Party shall use its reasonable efforts to make insurance claims
relating to any claim for which it is seeking indemnification pursuant to this
Section 11. The Indemnifying Party shall be subrogated to all rights of the
Indemnified Party in respect of any Losses borne by the Indemnifying Party.
11.10 Basket on Indemnity. No indemnity shall be payable to Purchaser with
-------------------
respect to any Losses under Section 11.2 unless the aggregate amount due
thereunder with respect to all Losses shall exceed Fifty Thousand Dollars
($50,000) (the "Basket Amount"), whereupon all amounts then or thereafter due
-------------
with respect to such Losses in excess of the Basket Amount shall be payable.
11.11 Limitation of Biofluids' Indemnification Liability. Biofluids'
--------------------------------------------------
liability under the indemnification provisions set forth in this Section 11 will
be limited to fifty percent (50%) of the Purchase Price.
11.12 Release of Escrow Funds. Subject to the terms and conditions of the
-----------------------
Escrow Instrument, to the extent the Escrow Funds are not used for purposes of
indemnification of Purchaser, then Purchaser shall release the Escrow Funds,
less any amounts used to satisfy Purchaser's indemnification claims, to
Biofluids on the date which is eighteen (18) months from the Closing Date.
SECTION 12. TAXES
12.1 Payment of Taxes, Filing of Returns. Biofluids shall remain liable
-----------------------------------
for the filing of all tax returns and reports and for the payment of all
Federal, State and local taxes (other than payroll taxes to the extent expressly
included as part of the Assumed Liabilities) of Biofluids relating to the
operation of the Business for any period ending on or prior to the Closing Date,
and for the payment of all taxes attributable to or relating to the consummation
of the transactions contemplated herein and shall indemnify and hold Purchaser
harmless from and against all liability in connection therewith.
12.2 Sales Taxes. Subject to Section 4.1 hereof, Biofluids shall bear all
-----------
responsibility for sales, use, value added or other similar taxes, if any,
arising out of the consummation of the transactions herein provided for and
shall be liable for the filing of all necessary tax returns and reports with
respect to such taxes.
33
<PAGE>
SECTION 13. ARBITRATION; CONSENT TO JURISDICTION
13.1 Submission to Jurisdiction. BioSource, Biofluids and the Biofluids
--------------------------
Stockholder each hereby agree that any and all disputes, legal actions, suits,
or proceedings arising out of or relating to this Agreement or the transactions
contemplated hereby may be brought in any state or federal court located in Los
Angeles County, State of California. By their signature to this Agreement,
BioSource, Biofluids and the Biofluids Stockholder each irrevocably submit to
the jurisdiction of the courts located in Los Angeles County, State of
California, in any dispute, legal action, suit, or proceeding arising out of or
relating to this Agreement or the transactions contemplated hereby.
13.2 Waiver of Immunity and Inconvenient Forum. BioSource and Biofluids
-----------------------------------------
each hereby irrevocably waives all immunity from jurisdiction, attachment and
execution, whether on the basis of sovereignty or otherwise, to which it might
otherwise be entitled in any legal action or proceeding brought in any state or
federal court located in Los Angeles County, State of California, and further
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to any dispute, legal action, suit, or proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby being brought in any federal or state court located in Los Angeles
County, State of California, and hereby further irrevocably waives any claim
that any such dispute, legal action, suit, or proceeding brought in any such
court has been brought in an inconvenient forum.
13.3 Arbitration Procedures.
----------------------
(a) Except as otherwise expressly provided in Section 13.5 below, all
disputes arising in connection with this Agreement or any contract of sale
hereunder shall be finally settled by arbitration in Los Angeles, California, in
accordance with the Arbitration Rules of the American Arbitration Association
(the "Rules of Arbitration"). Judgment on the award rendered by the arbitration
--------------------
panel (the "Arbitration Panel") may be entered in any court of competent
-----------------
jurisdiction.
(b) Any party which desires to initiate arbitration proceedings may do
so by delivering written notice to the other party (the "Arbitration Notice")
------------------
specifying (x) the nature of the dispute or controversy to be arbitrated; (y)
the name and address of the arbitrator appointed by the party initiating such
arbitration; and (z) such other matters as may be required by the Rules of
Arbitration. The party who receives an Arbitration Notice shall appoint an
arbitrator and notify the initiating party of such arbitrator's name and address
within 30 days after delivery of the Arbitration Notice; otherwise, a second
arbitrator shall be appointed by the American Arbitration Association at the
request of the party who delivered the Arbitration Notice. The two arbitrators
so appointed shall appoint a third arbitrator who shall be chairman of the
Arbitration Panel and the "neutral arbitrator" for purposes of the Rules of
Arbitration.
13.4 Final Arbitration Decisions. All decisions of the Arbitration Panel
---------------------------
shall be final, conclusive and binding on all parties and shall not be subject
to judicial review. The parties
34
<PAGE>
expressly waive the provisions of California Code of Civil Procedure Section
1285 insofar as it permits a party to an arbitration in which an award has been
made to petition a court of competent jurisdiction to vacate an arbitration
award.
13.5 Claims for Unpaid Balance. Notwithstanding anything to the contrary
-------------------------
contained in this Section 13, any claim by either party for a "provisional
remedy" as defined in Section 1281.8 of the Rules of Arbitration, may be brought
in any court of competent jurisdiction, and any judgment, order or decree
relating thereto shall have precedence over any arbitral award or proceeding.
SECTION 14. TERMINATION
14.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Closing:
(a) by the mutual agreement of Biofluids and Purchaser; provided,
--------
however, that such termination is set forth in a writing executed by both
- - -------
parties;
(b) by Purchaser, in a writing, if Biofluids or the Biofluids
Stockholder are in breach, in any material respect, of any material
representation, warranty or covenant contained in this Agreement;
(c) by Biofluids, in a writing, if Purchaser is in breach, in any
material respect, of any material representation, warranty or covenant contained
in this Agreement;
(d) by either Purchaser or Biofluids, in a writing, if the Closing
does not occur on or prior to December 31, 1998, other than by reason of a
breach of a covenant to be performed hereunder of the party electing to
terminate this Agreement; or
(e) by either Purchaser or Biofluids, in a writing, if any of the
conditions set forth in Section 9 are not met.
In the event of such termination, no party shall have any obligation
or liability to any other in respect to this Agreement, except for any breach of
this Agreement occurring prior to such termination, or except as may be provided
in Section 10.2 of this Agreement; provided, however, that Section 15.9
(Expenses) and Section 15.13 (Publicity) shall survive any such termination and
shall continue in full force and effect.
SECTION 15. MISCELLANEOUS
15.1 Notices. All notices, requests, demands and other communications
-------
(collectively, "Notices") given or made pursuant to this Agreement shall be in
-------
writing and shall be deemed to have been duly given if sent by registered or
certified mail, return receipt requested, postage and fees prepaid, by overnight
service with a nationally recognized "next day" delivery company such as
35
<PAGE>
Federal Express or United Parcel Service, by facsimile transmission, or
otherwise actually delivered to the addresses set forth below for Purchaser,
Biofluids and the Biofluids Stockholder. Any Notice shall be deemed duly given
when received by the addressee thereof, provided that any Notice sent by
registered or certified mail shall be deemed to have been duly given two
business days from the date of deposit in the United States mails, unless sooner
received. Any of the parties to this Agreement may from time to time change its
address for receiving notices by giving written notice thereof in the manner set
forth above.
(i) if to Purchaser, to:
BioSource International, Inc.
820 Flynn Road, Suite A
Camarillo, California 93012
Fax No. (805) 987-0296
Attn: James H. Chamberlain
President
with a copy (which shall not constitute notice) to:
Troop Steuber Pasich Reddick & Tobey, LLP
2029 Century Park East, Suite 2400
Los Angeles, California 90067
Fax No. (310) 728-2222
Attn: Scott W. Alderton
(ii) if to Biofluids or the Biofluids Stockholder
(prior to the Closing), to:
Biofluids, Inc.
1146 Taft Street
Rockville, MD 20850
Attn: Dr. Robert R. Rafajko
President
if to Biofluids or the Biofluids Stockholder
(after the Closing), to:
Dr. Robert R. Rafajko
12053 Weatherfield Lane
Potomac, MD 20854
with a copy (which shall not constitute notice) to:
Freedman, Levy, Kroll & Simonds
Washington Square
36
<PAGE>
1050 Connecticut Avenue, NW
Washington, DC 20036
Attn: Jay W. Freedman
15.2 Entire Agreement. This Agreement, including the other agreements and
----------------
schedules to be entered into in connection with the transactions contemplated by
this Agreement, constitutes and embodies the entire understanding and agreement
of the parties hereto relating to the subject matter hereof and there are no
other agreements or understandings, written or oral, in effect between the
parties relating to such subject matter except as expressly referred to herein.
The representations and warranties made by Biofluids and the Biofluids
Stockholder in this Agreement, and the schedules that accompany this Agreement,
supersede, replace and nullify in every respect the data set forth in any other
document, material or statement, whether written or oral, made available to
Purchaser (the "Other Material") and Purchaser shall not rely on any data
--------------
contained in the Other Material for any purpose whatsoever, including, without
limitation, as a promise, projection, guaranty, representation, warranty or
covenant.
15.3 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties hereto and their respective successors and
assigns. No party may assign any of its rights, or delegate any of its duties
or obligations (by operation of law or otherwise), under this Agreement without
the prior written consent of the other parties, and any such purported
assignment or delegation shall be void ab initio.
15.4 Waiver and Amendment. No provision of this Agreement may be waived
--------------------
unless in writing signed by all the parties to this Agreement, and the waiver of
any one provision of this Agreement shall not be deemed to be a waiver of any
other provision. This Agreement may be amended only by a written agreement
executed by the parties to this Agreement.
15.5 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED BOTH
-------------
AS TO VALIDITY AND PERFORMANCE AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF DELAWARE AND THE UNITED STATES OF AMERICA, WITHOUT REGARD TO THE
APPLICATION OF ANY STATE OR FEDERAL CONFLICTS OF LAWS RULES OR CHOICE OF LAW
PRINCIPLES THEREOF.
15.6 Captions; Certain Terms. The various captions and headings contained
-----------------------
in this Agreement are for reference only and shall not be considered or referred
to in resolving questions of interpretation of this Agreement. As used in this
Agreement, the term "including" means "including but not limited to" unless
otherwise specified; the word "or" means "and/or."
15.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
37
<PAGE>
15.8 Costs and Attorneys' Fees. If any action, suit or other proceeding
-------------------------
is instituted to remedy, prevent or obtain relief from a default in the
performance by any party of its obligations under this Agreement, the prevailing
party shall recover all of such party's costs and attorneys' fees incurred in
each and every such action, suit or other proceeding, including any and all
appeals or petitions therefrom. As used in this Section 15.8, attorneys' fees
shall be deemed to mean the full and actual costs of any legal services actually
performed in connection with the matters involved calculated on the basis of the
usual fee charged by the attorney performing such services and shall not be
limited to "reasonable attorneys' fees" as defined in any statute or rule of
court.
15.9 Expenses. Except as otherwise provided in this Agreement each of the
--------
parties shall pay its own costs and expenses, including, without limitation, the
fees and expenses of its counsel and financial advisors, incurred in connection
with the preparation of this Agreement and the consummation of the transactions
contemplated hereby and all documents reasonably necessary to effectuate the
terms and intent of this Agreement.
15.10 Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be or become
prohibited or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
15.11 Rights Cumulative. No right granted to the parties under this
-----------------
Agreement on default or breach is intended to be in full or complete
satisfaction of any damages arising out of such default or breach, and each and
every right under this Agreement, or under any other document or instrument
delivered hereunder, or allowed by law or equity, shall be cumulative and may be
exercised from time to time.
15.12 Purchase from Tysan. On the day following the Closing Date, Purchaser
-------------------
shall purchase from Tysan Serum, Inc. ("Tysan") 1,000 liters of fetal bovine
-----
fluid for a purchase price equal to the price paid by Tysan plus an amount equal
to five percent (5%) of such price. Tysan shall also deliver to Purchaser its
vendor lists. Purchaser shall have no further obligations or liabilities to
Tysan following the purchase of the fetal bovine fluid.
15.13 Publicity. Purchaser, Biofluids and the Biofluids Stockholder agree
---------
that press releases and other announcements with respect to the transactions
contemplated hereby shall be subject to mutual agreement; provided, however,
that either party may make such announcement as, in the opinion of its counsel,
such party is required to make pursuant to applicable law, but in such event
such party shall, to the extent practicable, give the other party reasonable
prior notice and an opportunity to comment on the proposed announcement.
15.14 Specific Performance. Each of the parties acknowledges and agrees
--------------------
that one or more of the other parties would be damaged irreparably in the event
any of the provisions of this Agreement are not performed in accordance with
their specific terms or otherwise are breached.
38
<PAGE>
Accordingly, each of the parties agrees that the other parties shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in any action instituted in any court of the United States or
any state hereof having jurisdiction over the parties and the matter, in
addition to any other remedy to which it may be entitled, at law or in equity.
15.15 No Third Party Beneficiaries. Nothing in this Agreement shall confer
----------------------------
any rights upon any person or entity other than the parties hereto.
IN WITNESS WHEREOF, each of the parties hereto has executed or caused this
Agreement to be executed on its behalf all as of the day and year first above
written.
<PAGE>
"SELLER"
BIOFLUIDS, INC.
By:__________________________
Its:_________________________
BIOFLUIDS STOCKHOLDER
-----------------------------
"PURCHASER"
BIOSOURCE INTERNATIONAL, INC.
By:__________________________
Its:_________________________
<PAGE>
SCHEDULES
---------
<TABLE>
<C> <S>
2.2 - Excluded Assets
6.3 - Title to Purchased Assets
6.6 - Contracts
6.7 - Biofluids Approvals, Authorizations, Consents
6.8 - Financial Statements of Biofluids
6.9 - Litigation
6.10 - Permits
6.11 - Absence of Changes; Payroll Listing
6.12 - Conduct of Business
6.13 - Suppliers Names & Addresses
6.15(a)- Intellectual Property
6.15(c)- Possible Infringements of Intellectual Property
6.15(d)- Licensing Arrangements
6.15(e)- Intellectual Property Litigation
6.15(f)- List of Intellectual Property Assets and Filing Offices
6.15(g)- Restrictions on Use of Name and Mark
6.17 - Employees
6.18 - Employee Benefit Plans
6.19 - Customer List
</TABLE>
<PAGE>
<TABLE>
<C> <S>
6.20 - Inventory
6.22 - Accounts Receivable
6.24 - Insurance Policies
6.25 - Powers of Attorney
6.26 - Prepaid Expenses
6.30 - Finders' Fee
7.5 - BioSource Approvals, Authorizations, Consents
</TABLE>
<PAGE>
EXHIBITS
--------
<TABLE>
<C> <S>
5.2 - Form of Bill of Sale
9.1(f) - Form of Opinion of Counsel for Biofluids
9.1(l) - Form of Employment Agreement
9.1(m) - Form of Non-Compete Agreement
9.1(n) - Form of Escrow Instrument
9.2(d) - Form of Opinion of Counsel for BioSource
10.6 - Form of Agreement from Fetal Bovine Serum Purchasers
</TABLE>
<PAGE>
EXHIBIT 10.10
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (this "Agreement") is made and entered
into as of this 2nd day of January, 1998, by and between BioSource
International, Inc., a Delaware corporation (the "Company") and James H.
Chamberlain ("Executive").
1. Engagement and Duties.
1.1 Upon the terms and subject to the conditions set forth in this
Agreement, the Company hereby engages and employs Executive as an officer of the
Company, with the title and designation of Chairman of the Board, President and
Chief Executive Officer of the Company. Executive hereby accepts such engagement
and employment.
1.2 Executive's duties and responsibilities shall be those which are
normally and customarily vested in the offices of Chairman of the Board,
President and Chief Executive Officer of a corporation, subject to the
supervision, direction and control of the Board of Directors (the "Board") of
the Company. In addition, Executive's duties shall include those duties and
services for the Company and its affiliates as the Board shall from time to time
reasonably direct. Executive shall report directly to the Board.
1.3 Executive agrees to devote his primary business time, energies,
skills, efforts and attention to his duties hereunder, and will not, without the
prior written consent of the Company, which consent will not be unreasonably
withheld, render any material services to any other business concern. Executive
will use his best efforts and abilities faithfully and diligently to promote the
Company's business interests.
1.4 Except for routine travel incident to the business of the
Company, Executive shall perform his duties and obligations under this Agreement
principally from an office provided by the Company in Camarillo, California, or
such other location in Ventura or Los Angeles County, California, as the Board
may from time to time determine.
2. Term of Employment. Executive's employment pursuant to this Agreement
shall commence on the date set forth above and shall terminate on the earliest
to occur of the following:
(a) the close of business on December 31, 2000;
(b) the death of Executive;
(c) delivery to Executive of written notice of termination by the
Company if Executive shall suffer a physical or mental disability which renders
Executive, in the reasonable
1
<PAGE>
judgment of the Board, unable to perform his duties and obligations under this
Agreement for 90 days in any 12-month period;
(d) delivery to Executive of written notice of termination by the
Company "for cause," by reason of: (i) any act or omission knowingly undertaken
or omitted by Executive with the intent of causing damage to the Company, its
properties, assets or business or its stockholders, officers, directors or
employees; (ii) any act of Executive involving a material personal profit to
Executive, including, without limitation, any fraud, misappro-priation or
embezzlement, involving properties, assets or funds of the Company or any of its
subsidiaries; (iii) Executive's consistent failure to perform his normal duties
or any obligation under any provision of this Agreement, in either case, as
directed by the Board; (iv) conviction of, or pleading nolo contendere to, (A)
---- ----------
any crime or offense involving monies or other property of the Company; (B) any
felony offense; or (C) any crime of moral turpitude; or (v) the chronic or
habitual use of drugs or consumption of alcoholic beverages;
(e) delivery to Executive of written notice of termination by the
Company "without cause;" or
(f) delivery to the Company of written notice of termination by
Executive upon the occurrence of a "change of control" (as defined below).
Promptly following any change of control, the Company shall provide written
notice of such fact to Executive. Executive shall have 30 days following his
receipt of such notice to elect to notify the Company that Executive is treating
such change of control as a termination of this Agreement.
For purposes of this Section 2, the following events shall
constitute a "change of control":
(g) any person or entity (or group of related persons or entities
acting in concert) shall acquire shares of capital stock of the Company entitled
to exercise 35% or more of the total voting power represented by all shares of
capital stock of the Company then outstanding; or
(h) the Company shall enter into an agreement to sell or otherwise
transfer all or substantially all of its assets or enter into an agreement to
merge, consolidate or reorganize with any other corporation or entity, as the
result of which less than 75% of the total voting power represented by the
capital stock or other equity interests of the corporation or entity to which
the Company's assets are sold or transferred or surviving such merger,
consolidation or reorganization shall be held by the persons and entities who
were holders of common stock of the Company on January 1, 1996; or
(i) the Company shall issue or otherwise than on a pro rata basis
additional shares of capital stock representing (after giving effect to such
issuance) more than 35% of the total voting power of the Company; or
2
<PAGE>
(j) the persons who were the directors of the Company as of January
1, 1996 shall cease to comprise a majority of the Board of Directors of the
Company.
3. Compensation; Executive Benefit Plans.
3.1 The Company shall pay to Executive a base salary at an annual
rate of $250,000 during each fiscal year of this Agreement. The base salary
shall be payable in installments throughout the year in the same manner and at
the same times the Company pays base salaries to other executive officers of the
Company. In the event that Executive's employment is terminated pursuant to
Section 2(e) or Section 2(f), above, the Company shall continue to pay
Executive's then-current base salary for a period of 12 months following the
effective date of such termination.
3.2 In addition to the base salary to be paid to Executive hereunder,
the Company shall pay a bonus to Executive (the "Bonus") determined in
accordance with the Company's management incentive plan for its executive
officers with such "corporate goals" and "individual goals" for Executive as the
Board shall from time-to-time approve; provided, that in no event shall the
--------
Bonus for any fiscal year during the term of this Agreement exceed $100,000. In
determining whether Executive has achieved any of the "corporate goals" or
"individual goals" established for Executive by the Board, the Board shall
consider any extraordinary events or circumstances which may occur, the impact
of those events on the "corporate goals" or "individual goals" established for
Executive by the Board, and the extent to which those events were out of the
control of Executive.
3.3 Executive shall be entitled each year to vacation for a minimum
of three calendar weeks, plus such additional period or periods as the Board may
approve in the exercise of its reasonable discretion, during which time his
compensation shall be paid in full.
3.4 Executive shall be entitled to reimbursement from the Company for
the reasonable costs and expenses which he incurs in connection with the
performance of his duties and obligations under this Agreement in a manner
consistent with the Company's practices and policies as adopted or approved from
time to time by the Board for executive officers, and for reimbursement for
executives' membership dues at North Ranch Country Club, or such other country
club as Executive shall choose to join.
3.5 The Company shall reimburse Executive and Executive's covered
dependents under any Company Executive Benefit Plan (as defined in Section 4
hereof) for the full amount of any cost, expense, deductible, co-payment or
other amount incurred or paid by Executive in connection with Executive's or any
of Executive's dependents' coverage under any such Executive Benefit Plan,
provided such amounts are not paid by carriers under such Executive Benefit
Plans. The Company further agrees to pay such costs directly if invoices or
other appropriate documentation for such costs are submitted in advance to the
Company for approval. Nothing contained in this Section 3.6 shall, in any manner
whatsoever, directly or indirectly, require or
3
<PAGE>
obligate the Company to adopt or implement, or to prevent, preclude or otherwise
prohibit the Company from amending, modifying, curtailing, discontinuing or
otherwise terminating, any Company Executive Benefit Plan at any time (whether
during or after the term hereof).
3.6 The Company shall provide for Executive's use during the Term of
this Agreement, a 1998 Lexis LS 400, or other comparable automobile, and shall
pay all expenses associated with the use of such automobile, including without
limitation, fuel, insurance and maintenance.
3.7 The Company may deduct from any compensation payable to Executive
the minimum amounts sufficient to cover applicable federal, state and/or local
income tax withholding, old-age and survivors' and other social security
payments, state disability and other insurance premiums and payments.
4. Other Benefits. During the term of his employment hereunder,
Executive shall be eligible to participate in all operative employee benefit and
welfare plans of the Company then in effect from time to time and in respect of
which all executive officers of the Company generally are entitled to
participate ("Company Executive Benefit Plans"), including, to the extent then
in effect, group life, medical, disability and other insurance plans, all on the
same basis applicable to employees of the Company whose level of management and
authority is comparable to that of Executive.
5. Confidentiality of Proprietary Information and Material.
5.1 Industrial Property Rights. For the purpose of this Agreement,
--------------------------
"Industrial Property Rights" shall mean all of the Company's patents,
trademarks, trade names, inventions, copyrights, know-how or trade secrets, now
in existence or hereafter developed or acquired by the Company or for its use,
relating to any and all products which are developed, formulated and/or
manufactured by the Company.
5.2 Trade Secrets. For the purpose of this Agreement, "Trade
-------------
Secrets" shall mean any formula, pattern, device, or compilation of information
which is used in the Company's business which gives the Company an opportunity
to obtain an advantage over its competitors who do not know and/or do not use
it. This term includes, but is not limited to, information relating to the
marketing of the Company's products, including price lists, pricing information,
customer lists, customer names, the particular needs of customers, information
relating to their desirability as customers, financial information, intangible
property and other such information which is not in the public domain.
5.3 Technical Data. For the purpose of this Agreement, "Technical
--------------
Data" shall mean all information of the Company in written, graphic or tangible
form relating to any and all products which are developed, formulated and/or
manufactured by the Company, as such
4
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information exists as of the date of this Agreement or is developed by the
Company during the term hereof.
5.4 Proprietary Information. For the purpose of this Agreement,
-----------------------
"Proprietary Information" shall mean all of the Company's Industrial Property
Rights, Trade Secrets and Technical Data. Proprietary Information shall not
include any information which (i) was lawfully in the possession of Executive
prior to Executive's employment with the Company, (ii) may be obtained by a
reasonably diligent businessperson from readily available and public sources of
information, (iii) is lawfully disclosed to Executive after termination of
Executive's employment by a third party which does not have an obligation to the
Company to keep such information confidential, or (iv) is independently
developed by Executive after termination of Executive's employment without
utilizing any of the Company's Proprietary Information.
5.5 Agreement Not To Copy Or Use. Executive agrees, at any time
----------------------------
during the term of his employment and for a period of ten years thereafter, not
to copy, use or disclose (except as required by law after first notifying the
Company and giving it an opportunity to object) any Proprietary Information
without the Company's prior written permission. The Company may withhold such
permission as a matter within its sole discretion during the term of this
Agreement and thereafter.
6. Return of Corporate Property and Trade Secrets. Upon any termination
of this Agreement, Executive shall turn over to the Company all property,
writings or documents then in his possession or custody belonging to or relating
to the affairs of the Company or comprising or relating to any Proprietary
Information.
7. Discoveries and Inventions.
7.1 Disclosure. Executive will promptly disclose in writing to the
----------
Company complete information concerning each and every invention, discovery,
improvement, device, design, apparatus, practice, process, method, product or
work of authorship, whether patentable or not, made, developed, perfected,
devised, conceived or first reduced to practice by Executive, whether or not
during regular working hours (hereinafter referred to as "Developments"), either
solely or in collaboration with others, (a) prior to the term of this Agreement
while working for the Company, (b) during the term of this Agreement or (c)
within six months after the term of this Agreement, if relating either directly
or indirectly to the business, products, practices, techniques or confidential
information of the Company.
7.2 Assignment. Executive, to the extent that he has the legal right
----------
to do so, hereby acknowledges that any and all Developments are the property of
the Company and hereby assigns and agrees to assign to the Company any and all
of Executive's right, title and interest in and to any and all of such
Developments; provided, however, that, in accordance with California Labor Code
-------- -------
Sections 2870 and 2872, the provisions of this Section 7.2 shall not apply to
any Development
5
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that the Executive developed entirely on his own time without using the
Company's equipment, supplies, facilities or trade secret information except for
those Developments that either:
(a) relate at the time of conception or reduction to practice of
the Development to the Company's business, or actual or demonstrably anticipated
research or development of the Company; or
(b) result from any work performed by Executive for the Company.
7.3 Assistance of Executive. Upon request and without further
-----------------------
compensation therefor, but at no expense to Executive, and whether during the
term of this Agreement or thereafter, Executive will do all reasonable lawful
acts, including, but not limited to, the execution of papers and lawful oaths
and the giving of testimony, that, in the reasonable opinion of the Company, its
successors and assigns, may be necessary or desirable in obtaining, sustaining,
reissuing, extending and enforcing United States and foreign Letters Patent,
including, but not limited to, design patents, on any and all Developments and
for perfecting, affirming and recording the Company's complete ownership and
title thereto, subject to the proviso in Section 7.2 hereof, and Executive will
otherwise reasonably cooperate in all proceedings and matters relating thereto.
7.4 Records. Executive will keep complete and accurate accounts,
-------
notes, data and records of all Developments in the manner and form requested by
the Company. Such accounts, notes, data and records shall be the property of
the Company, subject to the proviso in Section 7.2 hereof, and, upon request by
the Company, Executive will promptly surrender the same to it or, if not
previously surrendered upon its request or otherwise, Executive will surrender
the same, and all copies thereof, to the Company upon the conclusion of his
employment.
7.5 Obligations, Restrictions and Limitations. Executive understands
-----------------------------------------
that the Company may enter into agreements or arrangements with agencies of the
United States Government and that the Company may be subject to laws and
regulations which impose obligations, restrictions and limitations on it with
respect to inventions and patents which may be acquired by it or which may be
conceived or developed by employees, consultants or other agents rendering
services to it. Executive agrees that he shall be bound by all such obligations,
restrictions and limitations applicable to any such invention conceived or
developed by him during the term of this Agreement and shall take any and all
further action which may be required to discharge such obligations and to comply
with such restrictions and limitations.
8. Non-solicitation Covenant.
8.1 Nonsolicitation and Noninterference. During the term of this
-----------------------------------
Agreement and for a period of two years thereafter, Executive shall not (a)
induce or attempt to induce any employee of the Company to leave the employ of
the Company or in any way interfere adversely with the relationship between any
such employee and the Company, (b) induce or attempt to induce any
6
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employee of the Company to work for, render services or provide advice to or
supply confidential business information or trade secrets of the Company to any
third person, firm or corporation or (c) induce or attempt to induce any
customer, supplier, licensee, licensor or other business relation of the Company
to cease doing business with the Company or in any way interfere with the
relationship between any such customer, supplier, licensee, licensor or other
business relation and the Company.
8.2 Indirect Solicitation. Executive agrees that, during the term of
---------------------
this Agreement and the period covered by Section 8.1 hereof, he will not,
directly or indirectly, assist or encourage any other person in carrying out,
directly or indirectly, any activity that would be prohibited by the provisions
of Section 8.1 if such activity were carried out by Executive, either directly
or indirectly; and, in particular, Executive agrees that he will not, directly
or indirectly, induce any employee of the Company to carry out, directly or
indirectly, any such activity.
9. Injunctive Relief. Executive hereby recognizes, acknowledges and
agrees that in the event of any breach by Executive of any of his covenants,
agreements, duties or obligations contained in Sections 5, 6, 7 and 8 of this
Agreement, the Company would suffer great and irreparable harm, injury and
damage, the Company would encounter extreme difficulty in attempting to prove
the actual amount of damages suffered by the Company as a result of such breach,
and the Company would not be reasonably or adequately compensated in damages in
any action at law. Executive therefore covenants and agrees that, in addition to
any other remedy the Company may have at law, in equity, by statute or
otherwise, in the event of any breach by Executive of any of his covenants,
agreements, duties or obligations contained in Sections 5, 6, 7 and 8 of this
Agreement, the Company shall be entitled to seek and receive temporary,
preliminary and permanent injunctive and other equitable relief from any court
of competent jurisdiction to enforce any of the rights of the Company, or any of
the covenants, agreements, duties or obligations of Executive hereunder, and/or
otherwise to prevent the violation of any of the terms or provisions hereof, all
without the necessity of proving the amount of any actual damage to the Company
or any affiliate thereof resulting therefrom; provided, however, that nothing
-------- -------
contained in this Section 9 shall be deemed or construed in any manner
whatsoever as a waiver by the Company of any of the rights which the Company may
have against Executive at law, in equity, by statute or otherwise arising out
of, in connection with or resulting from the breach by Executive of any of his
covenants, agreements, duties or obligations hereunder.
10. Miscellaneous.
10.1 Notices. All notices, requests and other communications
-------
(collectively, "Notices") given pursuant to this Agreement shall be in writing,
and shall be delivered by personal service or by United States first class,
registered or certified mail (return receipt requested), postage prepaid,
addressed to the party at the address set forth below:
If to Company:
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BioSource International, Inc.
820 Flynn Road
Camarillo, California 93012
Attn: Board of Directors
If to Executive:
James H. Chamberlain
1753 St. Andrews Place
Thousand Oaks, California 91362
Any Notice shall be deemed duly given when received by the addressee thereof,
provided that any Notice sent by registered or certified mail shall be deemed to
have been duly given three days from date of deposit in the United States mails,
unless sooner received. Either party may from time to time change its address
for further Notices hereunder by giving notice to the other party in the manner
prescribed in this section.
10.2 Entire Agreement. This Agreement supersedes that certain
----------------
employment agreement entered into by and between the Company and Executive dated
as of January 1, 1995. This Agreement contains the sole and entire agreement and
understanding of the parties with respect to the entire subject matter of this
Agreement, and any and all prior discussions, negotiations, commitments and
understandings, whether oral or otherwise, related to the subject matter of this
Agreement are hereby merged herein. No representations, oral or otherwise,
express or implied, other than those contained in this Agreement have been
relied upon by any party to this Agreement.
10.3 Attorneys' Fees. If any action, suit or other proceeding is
---------------
instituted to remedy, prevent or obtain relief from a default in the performance
by any party of its obligations under this Agreement, the prevailing party shall
recover all of such party's costs and reasonable attorneys' fees incurred in
each and every such action, suit or other proceeding, including any and all
appeals or petitions therefrom.
10.4 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO
CONFLICTS OF LAW PRINCIPLES THEREOF.
10.5 Captions. The various captions of this Agreement are for
--------
reference only and shall not be considered or referred to in resolving questions
of interpretation of this Agreement.
8
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10.6 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
10.7 Business Day. If the last day permissible for delivery of any
------------
Notice under any provision of this Agreement, or for the performance of any
obligation under this Agreement, shall be other than a business day, such last
day for such Notice or performance shall be extended to the next following
business day (provided, however, under no circumstances shall this provision be
-------- -------
construed to extend the date of termination of this Agreement).
In witness whereof, the parties have executed this Agreement as of the date
first set forth above.
Company: Executive:
BIOSOURCE INTERNATIONAL, INC.
By:__________________________ _________________________
Anna Anderson, Chief James H. Chamberlain
Financial Officer
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[LOGO OF UNION BANK OF CALIFORNIA] EXHIBIT 10.18
LOAN AGREEMENT
THIS LOAN AGREEMENT ("Agreement") is made and entered into as of November
27, 1998 by and between BIOSOURCE INTERNATIONAL, INC., a Delaware corporation
("Borrower"), and UNION BANK OF CALIFORNIA, N.A., a national banking association
("Bank").
SECTION 1. THE LOAN
1.1 Term Loan. Bank will loan to Borrower the sum not to exceed
Fourteen Million Dollars ($14,000,000) (the "Term Loan") at Borrower's request,
in one disbursement on or before December 31, 1998 in accordance with the terms
of the Term Note, as defined below. In the event of a prepayment of principal
and payment of any resulting fees, any prepaid amounts shall be applied to the
scheduled principal payments on the Term Loan in the reverse order of their
maturity. The Term Loan shall be evidenced by a promissory note (the "Term
Note") on the standard form used by Bank for commercial loans.
1.2 Terminology. As used herein the following terms shall have the
following meanings:
(a) "Domestic Subsidiaries" shall mean, collectively, Keystone Laboratories,
---------------------
Inc., BioSource V.I. FSC, Ltd., and Quality Controlled Biochemicals, Inc.
(b) "Foreign Subsidiaries" shall mean, collectively, BioSource Europe S.A. and
--------------------
BioSource GmbH.
(c) "Loan" shall mean all the credit facilities described above.
----
(d) "Loan Documents" shall mean all documents executed in connection with this
--------------
Agreement.
(e) "Note" shall mean all the promissory notes described above.
----
1.3 Purpose of Loan. The proceeds of the Loan shall be used to
finance, in part, the acquisitions of (a) all of the issued and outstanding
capital stock of Quality Controlled Biochemicals, Inc. and (b) all of the assets
and certain liabilities of Biofluids, Inc.
1.4 Interest. The unpaid principal balance of the Loan shall bear
interest as specifically provided in the Note.
1.5 Loan Commitment Fee. Borrower shall pay in advance a commitment
fee of Thirty-Five Thousand Dollars ($35,000) on or before the date of execution
of this Agreement. No portion of this fee shall be reimbursable.
1.6 Balances. Borrower shall maintain its major depository accounts
with Bank until the Note and all sums payable pursuant to this Agreement have
been paid in full.
1.7 Disbursement. Upon execution hereof, Bank shall disburse the
proceeds of the Loan as provided in Bank's standard form Authorization for
Disbursement executed by Borrower.
1.8 Security. Prior to the disbursement of the Loan, Borrower shall
have executed a security agreement, on Bank's standard form, and a financing
statement, suitable for filling in the office of the Secretary of State of the
State of California and any other state designated by Bank, granting to Bank a
first priority security interest in such of Borrower's property as is described
in said security agreement. Exceptions to Bank's first priority, if any, are
permitted only as otherwise provided in this Agreement. At Bank's request,
Borrower will also obtain executed landlord's and mortgagee's waivers on Bank's
form covering all of Borrower's personal property located on leased or
encumbered real property.
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<PAGE>
1.9 Controlling Document. In the event of any such
inconsistency between the terms of this Agreement and the Note or any other Loan
Documents, the terms of this Agreement will prevail over the terms of the Note
and/or the other Loan Documents.
SECTION 2. CONDITIONS PRECEDENT
Bank shall not be obligated to disburse all or any portion of the
proceeds of the Loan unless at or prior to the time for the making of such
disbursement, the following conditions have been fulfilled to Bank's
satisfaction:
2.1 Compliance. Borrower shall have performed and complied
with all terms and conditions required by this Agreement to be performed or
complied with by it prior to or at the date of the making of such disbursement
and shall have executed and delivered to Bank the Note and the other Loan
Documents.
2.2 Guaranties. The Domestic Subsidiaries (collectively,
"Guarantors" and individually, a "Guarantor") other than BioSource V.I. FSC.,
Ltd. and Quality Controlled Biochemicals, Inc. shall have executed and delivered
to Bank their respective continuing guaranties in form and amount satisfactory
to Bank.
2.3 Borrowing Resolution. Borrower shall have provided Bank
with certified copies of resolutions duly adopted by the board of directors of
Borrower, authorizing the execution, delivery and performance of this Agreement
and the Loan Documents. Such resolutions shall also designate the persons who
are authorized to act on Borrower's behalf in connection with this Agreement and
to do the things required of Borrower pursuant to this Agreement.
2.4 Termination Statements. Borrower shall have caused its
existing secured creditors to provide Bank with UCC-2 termination statements
executed by such secured creditors as may be reasonably required by Bank
suitable for filing with the Secretary of State in each state designated by
Bank.
2.5 Continuing Compliance. At the time any disbursement is
to be made, there shall not exist any event, condition or act which constitutes
an Event of Default under Section 6 hereof or any event, condition or act which
with notice, lapse of time or both would constitute an Event of Default; nor
shall there be any such event, condition, or act immediately after the
disbursement were it to be made.
SECTION 3. CONDITIONS SUBSEQUENT
---------------------------------
Bank's obligation to continue extending credit to Borrower after the
date of this Agreement shall be subject to Bank's determination that the
following conditions have been satisfied:
3.1 Other Guaranties. Within sixty (60) days after the
funding of the Loan, BioSource V.I. FSC, Ltd. and Quality Controlled
Biochemicals, Inc. shall have executed and delivered to Bank their continuing
guarantees in form and amount satisfactory to Bank.
3.2 Pledge of Stock of Foreign Subsidiaries. Within sixty
(60) days after the funding of the Loan, Borrower shall have executed one or
more security agreements on Bank's standard form, pledging to Bank not less than
66% of all of the issued and outstanding stock of the Foreign Subsidiaries and
shall have executed and delivered all stock certificates, stock powers, and
other documents deemed necessary by Bank in connection therewith.
SECTION 4. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants that:
4.1 Business Activity. The principal business of Borrower
is the manufacturing and marketing of biomedical research products.
4.2 Affiliates and Subsidiaries. Borrower's affiliates and
subsidiaries (those entities in which Borrower has either a controlling interest
or at least a 25% ownership interest) and their addresses, and the names of
Borrower's principal shareholders, are as provided on a schedule delivered to
Bank on or before the date of this Agreement.
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<PAGE>
4.3 Authority to Borrow. The execution, delivery and performance of
this Agreement, the Note and all other Loan Documents are not in contravention
of any of the terms of any indenture, agreement or undertaking to which Borrower
is a party or by which it or any of its property is bound or affected.
4.4 Financial Statements. The financial statements of Borrower,
including both a balance sheet at September 30, 1998, together with supporting
schedules, and an income statement for the nine months ending September 30,
1998, have heretofore been furnished to Bank, and are true and complete and
fairly represent the financial condition of Borrower during the period covered
thereby. Since September 30, 1998, there has been no material adverse change in
the financial condition or operations of Borrower.
4.5 Title. Except for assets which may have been disposed of in the
ordinary course of business, Borrower has good and marketable title to all of
the property reflected in its financial statements delivered to Bank and to all
property acquired by Borrower since the date of said financial statements, free
and clear of all liens, encumbrances, security interests and adverse claims
except those specifically referred to in said financial statements.
4.6 Litigation. There is no litigation or proceeding pending or, to
Borrower's knowledge, threatened against Borrower or any of its property which
is reasonably likely to affect the financial condition, property or business of
Borrower in a materially adverse manner or result in liability in excess of
Borrower's insurance coverage.
4.7 Default. Borrower is not now in default in the payment of any of
its material obligations, and there exists no event, condition or act which
constitutes an Event of Default under Section 6 hereof and no condition, event
or act which with notice or lapse of time, or both, would constitute an Event of
Default.
4.8 Organization. Borrower is duly organized and existing under the
laws of the state of its organization, and has the power and authority to carry
on the business in which it is engaged and/or proposes to engage.
4.9 Power. Borrower has the power and authority to enter into this
Agreement and to execute and deliver the Note and all of the other Loan
Documents.
4.10 Authorization. This Agreement and all things required by this
Agreement have been duly authorized by all requisite corporate action of
Borrower.
4.11 Qualification. Borrower is duly qualified and in good standing
in any jurisdiction where such qualification is required.
4.12 Compliance With Laws. To Borrower's knowledge, Borrower is not
in violation with respect to any applicable laws, rules, ordinances or
regulations which materially affect the operations or financial condition of
Borrower.
4.13 ERISA. To Borrower's knowledge, any defined benefit pension
plans (as defined in the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")), of Borrower meet, as of the data hereof, the minimum funding
standards of Section 302 of ERISA, and no Reportable Event or Prohibited
Transaction (as defined in ERISA) has occurred with respect to any such plan.
4.14 Regulation U. No action has been taken or is currently planned
by Borrower, or any agent acting on its behalf, which would cause this Agreement
or the Note to violate Regulation U or any other regulation of the Board of
Governors of the Federal Reserve System or to violate the Securities Exchange
Act of 1934, in each case as in effect now or as the same may hereafter be in
effect. Borrower is not engaged in the business of extending credit for the
purpose of purchasing or carrying margin stock as one of its important
activities and none of the proceeds of the Loan will be used directly or
indirectly for such purpose.
4.15 Continuing Representations. These representations shall be
considered to have been made again at and as of the date of each disbursement of
the Loan and shall be true and correct as of such date or dates.
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<PAGE>
SECTION 5. AFFIRMATIVE COVENANTS
Until the Note and all sums payable pursuant to this Agreement and the Loan
Documents have been paid in full, unless Bank otherwise consents in writing,
Borrower agrees that:
5.1 Use of Proceeds. Borrower will use the proceeds of the Loan only
as provided in subsection 1.3 above.
5.2 Payment of Obligations. Borrower will pay and discharge promptly
all taxes, assessments and other governmental charges and claims levied or
imposed upon its property, or any part thereof, provided, however, that Borrower
shall have the right in good faith to contest any such taxes, assessments,
charges or claims and, pending the outcome of such contest, to delay or refuse
payment thereof provided that adequately funded reserves are established by it
to pay and discharge any such taxes, assessments, charges and claims.
5.3 Maintenance of Existence. Borrower will maintain and preserve
its existence and assets and all rights, franchises, licenses and other
authority necessary for the conduct of its business and will maintain and
preserve its property, equipment and facilities in good order, condition and
repair. Bank may, at reasonable times during normal business hours, visit and
inspect any of the properties of Borrower.
5.4 Records. Borrower will keep and maintain full and accurate
accounts and records of its operations according to generally accepted
accounting principles and will permit Bank to have access thereto, to make
examination and photocopies thereof, and to make audits during regular business
hours. Costs for such audits shall be paid by Borrower.
5.5 Information Furnished. Borrower will furnish to Bank:
(a) Within fifty-five (55) days after the close of each fiscal
quarter, except for the final quarter of each fiscal year, its unaudited balance
sheet as of the close of such fiscal quarter, its unaudited consolidating income
and expense statement with supportive schedules and statement of retained
earnings for that fiscal quarter, prepared in accordance with generally accepted
accounting principles;
(b) Within ninety-five (95) days after the close of each fiscal
year, a copy of its consolidated statement of financial condition including at
least its balance sheet as of the close of such fiscal year, its income and
expense statement and retained earnings statement for such fiscal year, examined
and prepared on an audited basis by independent certified public accountants
selected by Borrower and reasonably satisfactory to Bank, in accordance with
generally accepted accounting principles applied on a basis consistent with that
of the previous fiscal year;
(c) Such other financial statements and information as Bank may
reasonably request from time to time;
(d) In connection with each fiscal year end statement required
hereunder, and at Bank's request, any management letter of Borrower's
independent certified public accountants;
(e) Within fifty-five (55) days after the close of each fiscal
quarter, a certification of compliance with all covenants under this Agreement,
executed by Borrower's chief financial officer or other duly authorized officer
of Borrower, in form acceptable to Bank;
(f) Promptly upon any senior officer of Borrower obtaining
knowledge thereof, written notice to Bank of all Events of Default under any of
the terms or provisions of this Agreement or of any default under any other
agreement, contract, document or instrument entered, or to be entered into with
Bank; and of any litigation which, if decided adversely to Borrower, would have
a material adverse effect on Borrower's financial condition; and of any other
matter which has resulted in, or is likely to result in, a material adverse
change in its financial condition or operations;
(g) Prior written notice to Bank of any changes in Borrower's
officers and other senior management; Borrower's name; and location of
Borrower's assets, principal place of business or chief executive office; and
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(h) Within thirty (30) days after the end of each calendar year, a
copy of Borrower's accounts receivable and accounts payable agings in form
acceptable to Bank.
5.6 Cash and Cash Equivalents. For the period commencing on the date of
this Agreement and ending on December 31, 1998, Borrower will at all times
maintain cash and Cash Equivalents of not less than Three Million Five Hundred
Thousand Dollars ($3,500,000). Beginning January 1, 1999, Borrower will at all
times maintain cash and Cash Equivalents of not less than Four Million Dollars
($4,000,000). "Cash Equivalents" shall mean (i) securities issued or directly
and fully guaranteed by the United States or any agency of instrumentality
thereof (provided that the full faith and credit of the United States is pledged
in support thereof), (ii) Dollar denominated time deposits and certificates of
deposit of any commercial bank having a long-term unsecured debt rating of at
least "A" or the equivalent thereof from Standard & Poor's Ratings Services,
(iii) commercial paper issued by any corporation in the United States rated at
least A- or the equivalent thereof by Standard & Poor's Rating Services or at
least P-1 or the equivalent by Moody's Investors Service, Inc., and (iv)
investments in money market funds substantially all of which are comprised of
securities of the types described in clauses (i) through (iii) above.
5.7 Total Liabilities to Tangible Net Worth. Borrower will at all times
until June 29, 1999 maintain a ratio of total liabilities to Tangible Net Worth
of not greater than 3.65:1.0. Beginning June 30, 1999, Borrower will at all
times maintain a ratio of total liabilities to Tangible Net Worth of not
greater than 2:00:1.00. "Tangible Net Worth" shall mean net worth increased by
indebtedness of Borrower subordinated to Bank and decreased by patents,
licenses, trademarks, trade names, goodwill and other similar intangible assets,
organizational expenses, and monies due from affiliates (including officers,
shareholders and directors).
5.8 Profitability. Borrower will achieve net profit, after provision for
income taxes, of not less than Two Hundred Thousand Dollars ($200,000) for the
fiscal quarter ended December 31, 1998 and Five Hundred Thousand Dollars
($500,000) for each fiscal quarter thereafter. Expenses created by the write-off
of assets acquired in corporate acquisitions contemplated by this Agreement and
shall be excluded from expenses in calculating net profit hereunder for the
first two fiscal quarters immediately following such acquisitions only.
5.9 EBITDA to Debt Service. For the period commencing on the date of this
Agreement and ending on December 31, 1998, Borrower will maintain a ratio of
EBITDA plus cash and Cash Equivalents in excess of Three Million Five Hundred
Thousand Dollars ($3,500,000) to Debt Service of not less that 1.50:1.00.
Beginning January 1, 1999, Borrower will maintain a ratio of EBITDA plus cash
and Cash Equivalents in excess of Four Million Dollars ($4,000,000) to Debt
Service of not less than 1.50:1.00. "EBITDA" shall mean earnings before
interest, taxes, depreciation, and amortization of the twelve (12) month period
immediately preceding the date of calculation. "Debt Service" shall mean the sum
of that portion of term obligations (including principal and interest) coming
due within the twelve (12) month period immediately preceding the date of
calculation plus Borrower's tax expense, plus unfinanced capital expenditures,
dividends and treasury stock during the twelve (12) months preceding the date of
calculation. Treasury stock transactions during the fiscal year ending December
31, 1998 only shall be excluded from this calculation. Compliance with this
subsection shall be measured as of the end of each fiscal quarter on a rolling
four quarter basis.
5.10 Insurance. Borrower will keep all of its insurable property, whether
real, personal or mixed, insured by companies approved by Bank in good faith
against fire and such other risks, and in such amounts, as is customarily
obtained by companies conducting similar business with respect to like
properties. Borrower will furnish to Bank statements of its insurance coverage
and hereby assigns to Bank, as security for Borrower's obligations to Bank,
the proceeds of any such insurance. Prior to any disbursement of the Loan, Bank
will be named loss payee on all policies insuring collateral and such policies
shall require at lease ten (10) days' written notice to Bank before any policy
may be altered or canceled. Borrower will maintain adequate worker's
compensation insurance and adequate insurance against liability for damage to
persons or property. Notwithstanding any of the foregoing, Bank agrees that the
amount of insurance held by Borrower on the date of this Agreement is deemed to
be in compliance with this subsection and approved by Bank.
5.11 Additional Requirements. Borrower will promptly, upon demand by Bank,
take such further action and execute all such additional documents and
instruments in connection with this Agreement as Bank in its reasonable
discretion deems necessary, and promptly supply Bank with such other information
concerning its affairs as Bank may request from time to time.
5.12 Litigation and Attorneys' Fees. Borrower will pay promptly to Bank
upon demand, reasonable attorneys' fees (including but not limited to the
reasonable estimate of the allocated costs and expenses
-5-
<PAGE>
of in-house legal counsel and staff) and all costs and other expenses paid or
incurred by Bank in collecting, modifying of compromising the Loan or in
enforcing or exercising its rights or remedies created by, connected with or
provided for in this Agreement or any of the Loan Documents, whether or not any
arbitration, judicial action or other proceeding is commenced. If such
proceeding is commenced, only the prevailing party shall be entitled to
attorneys' fees and court costs.
5.13 Bank Expenses. Borrower will pay or reimburse Bank for all
reasonable costs, expenses and fees incurred by Bank in preparing and
documenting this Agreement and the Loan, and all amendments and modifications
thereof, including but not limited to all filing and recording fees, costs of
appraisals, insurance and reasonable attorneys' fees.
5.14 Reports Under Pension Plans. Borrower will furnish to Bank, as
soon as possible and in any event within 15 days after Borrower knows or has
reason to know that any event or condition with respect to any defined benefit
pension plans of Borrower described in subsection 4.13 above has occurred, a
statement of an authorized officer of Borrower describing such event or
condition and the action, if any, which Borrower proposes to take with respect
thereto.
SECTION 6. NEGATIVE COVENANTS
Until the Note and all other sums payable pursuant to this Agreement and
the Loan Documents have been paid in full, unless Bank otherwise consents
in writing, Borrower agrees that:
6.1 Encumbrances and Liens. Borrower will not create, assume or
suffer to exist any mortgage, pledge, security interest, encumbrance, or lien
(other than for taxes not delinquent and for taxes and other items being
contested in good faith) on property of any kind, whether real, personal or
mixed, now owned or hereafter acquired, or upon the income or profits thereof,
except for (a) in connection with acquisitions contemplated by subsection 1.3
hereof, (b) liens in favor of Bank, (c) encumbrances and easements on real
property which do not materially and adversely affect its market value, and (d)
existing liens on Borrower's real and personal property and future purchase
money security interests encumbering only the real or personal property
purchased. All of such permitted real and personal property liens shall secure
indebtedness not exceeding in the aggregate principal amount at any one time
outstanding the sum of Two Hundred Thousand Dollars ($200,000).
6.2 Borrowings. Borrower will not sell, discount or otherwise transfer
any account receivable or any note, draft or other evidence of indebtedness,
except to Bank or except to a financial institution at face value for deposit or
collection purposes only and without any fee other than fees normally charged by
the financial institution for deposit or collection services. Borrower will not
borrow any money, become contingently liable to borrow money, nor enter any
agreement to directly or indirectly obtain borrowed money, except (a) in
connection with acquisitions contemplated by subsection 1.3 hereof, (b) pursuant
to agreements made with Bank, (c) refinancing of existing indebtedness of
Borrower, provided that the principal amounts of such indebtedness so refinanced
shall not increase, (d) existing and future purchase money indebtedness and (e)
other indebtedness not referred to hereinabove, so long as such indebtedness is
subordinated to the obligations owing to Bank on such terms and conditions as
may be reasonably acceptable to Bank, acting in good faith.
6.3 Sale of Assets, Liquidation or Merger. Borrower will not
liquidate, dissolve or enter into any consolidation, merger, partnership or
other combination, nor convey, sell or lease all or more than 75% of its assets
or business, nor purchase or lease all or more than 75% of the assets or
business of another.
6.4 Loans, Advances and Guaranties. Borrower will not, except in the
ordinary course of business as currently conducted, make any loans or advances,
become a guarantor or surety, pledge its credit or properties in any manner or
extend credit except that Borrower may make loans to any of its Domestic
Subsidiaries or Foreign Subsidiaries, provided that the aggregate principal
amount of all such loans to Foreign Subsidiaries at any one time outstanding
shall not exceed Three Million Dollars ($3,000,000).
6.5 Investments. Borrower will not purchase the debt or equity of
another person or entity except for (a) the acquisitions contemplated by this
Agreement, (b) savings accounts and certificates of deposit of Bank, and (c)
obligations in connection with borrowings and loans permitted under subsections
6.2 and 6.4 hereof, respectively and (d) direct U.S. Government obligations and
commercial paper issued by corporations with the top ratings of Moody's or
Standard & Poor's, provided all such permitted investments shall mature within
one year of purchase.
-6-
<PAGE>
6.6 Payment of Dividends. Borrower will not declare or pay
any dividends, other than a dividend payable in its own common stock, or
authorize or make any other distribution with respect to any of its stock now or
hereafter outstanding.
6.7 Retirement of Stock. Borrower will not acquire or
retire any share of its capital stock for value.
6.8 Lease Obligations. Borrower will not incur new lease
obligations as lessee which would result in aggregate lease payments for any
fiscal year exceeding Four Hundred Fifty Thousand Dollars ($450,000). Each said
lease shall be of equipment or real property needed by Borrower in the ordinary
course of its business.
SECTION 7. EVENTS OF DEFAULT
Upon the occurrence of any of the following events ("Events of
Default"), Bank, in its discretion, may cease extending credit hereunder and may
declare all obligations hereunder and under the Loan Documents immediately due
and payable; provided, however, that upon the occurrence of an Event of Default
described in subsection 7.4, 7.5, 7.6, 7.7 or 7.8 hereinbelow, all principal
and interest and any other amounts owing under the Loan Documents shall
automatically become immediately due and payable.
7.1 Payment Defaults. Borrower shall default in the due and
punctual payment of the principal of or the interest on the Note or any of the
other Loan Documents and such default shall continue for five (5) days; or
7.2 Breach of Representations or Warranties. Any
representation or warranty made or deemed made by Borrower under this Agreement
or any Loan Document to which it is a party shall prove to have been incorrect
in any material respect on and as of the date made or deemed made; or
7.3 Covenant Defaults. Borrower shall default in the due
performance or observance of any covenant or condition of any Loan Document to
which it is a party and, in the case of the covenants set forth in subsections
5.2, 5.3, 5.4, 5.5, 5.10, 5.11, 5.12, 5.13, 6.1, 6.4 and 6.5 only, but only if
such default is capable of being cured, shall fail to cure such default within
ten (10) days; or
7.4 Insolvency. Borrower shall become insolvent or fail to
pay its debts as such debts become due; or
7.5 Bankruptcy. Borrower shall commence any voluntary
proceeding under any laws relating to bankruptcy, insolvency, reorganization,
arrangement, debt adjustment or debtor relief or shall consent to any relief in
any involuntary proceeding under any laws relating to bankruptcy, insolvency,
reorganization, arrangement, debt adjustment or debtor relief; or any contested
involuntary proceeding under any laws relating to bankruptcy, insolvency,
reorganization, arrangement, debt adjustment or debtor relief shall be commenced
against Borrower and such involuntary proceeding shall not be dismissed or
discharged within sixty (60) days of commencement; or
7.6 Assignment for Benefit of Creditors. There shall be an
assignment by Borrower for the benefit of its creditors; or
7.7 Appointment of Receiver. Borrower shall apply for or
consent to the appointment, or commence any proceeding for the appointment, of a
receiver, trustee, custodian or similar official for all or substantially all
of Borrower's property; or any proceeding for the appointment of a receiver,
trustee, custodian or similar official for all or substantially all of
Borrower's property shall be commenced against Borrower or its property and
shall not be dismissed or discharged within sixty (60) days of commencement; or
7.8 Dissolution or Liquidation. Borrower shall be dissolved
or liquidated in full or in part; or any proceeding for the dissolution or
liquidation of Borrower shall be commenced against Borrower and not dismissed or
discharged within sixty (60) days of commencement; or
7.9 Failure to Comply. Borrower shall fail to comply with
any order, judgment, injunction, decree, writ or demand of any court or other
public authority and such order, judgment, injunction, decree, writ or demand
shall continue unsatisfied and in effect for a period of ten (10) days without
being vacated, discharged, satisfied or stayed or bonded pending appeal; or
-7-
<PAGE>
7.10 Legal Process. There shall be filed or recorded any notice of
levy, notice to withhold, or other legal process for taxes other than property
taxes against Borrower or against the property of Borrower and such notice or
other legal process shall not be released, stayed, vacated, bonded or otherwise
dismissed within thirty (30) days after the date of its filing or recording; or
7.11 Default Concerning Borrowing of Money. Borrower shall default on
any obligation for the borrowing of money which obligation involves an amount in
excess of One Hundred Fifty Thousand Dollars ($150,000) and which default causes
or permits the holder thereof to accelerate such obligation; or
7.12 Writs of Attachment, Etc. There shall be issued against Borrower,
or the property of Borrower, any writ of attachment, writ of execution or other
judicial lien and such writ or other judicial lien shall not be released,
stayed, vacated, bonded or otherwise dismissed within sixty (60) days after the
date of its issuance; or
7.13 Breach of Guaranties. Any guaranty required hereunder shall be
breached in any material respect or become ineffective (other than as a result
of any action on the part of Bank), or any Guarantor shall disavow or attempt to
revoke or terminate such guaranty; or
7.14 Insecurity. The financial condition of Borrower or any Guarantor
shall deteriorate such that Bank deems itself, reasonably and in good faith, to
be insecure.
SECTION 8. MISCELLANEOUS PROVISIONS
8.1 Additional Remedies. The rights, powers and remedies given to
Bank hereunder shall be cumulative and not alternative and shall be in addition
to all rights, powers and remedies given to Bank by law against Borrower or any
other person, including but not limited to Bank's rights of setoff or banker's
lien.
8.2 Nonwaiver. Any forbearance or failure or delay by Bank in
exercising any right, power or remedy hereunder shall not be deemed a waiver
thereof and any single or partial exercise of any right, power or remedy shall
not preclude the further exercise thereof. No waiver shall be effective unless
it is in writing and signed by an officer of Bank.
8.3 Inurement. The benefits of this Agreement shall inure to the
successors and assigns of Bank and the permitted successors and assigns of
Borrower, and any assignment by Borrower without Bank's consent shall be null
and void.
8.4 Applicable Law. This Agreement and all other agreements and
instruments required by Bank in connection therewith shall be governed by and
construed according to the laws of the State of California.
8.5 Severability. Should any one or more provisions of this Agreement
be determined to be illegal or unenforceable, all other provisions nevertheless
shall be effective. In the event of any conflict between the provisions of this
Agreement and the provisions of the Note or any other Loan Document, the
provisions of such Note or such other Loan Document shall prevail.
8.6 Integration Clause. Except for the Loan Documents, this Agreement
constitutes the entire agreement between Bank and Borrower regarding the Loan
and all prior communications, whether verbal or written, between Borrower and
Bank shall be of no further effect or evidentiary value.
8.7 Construction. The section and subsection headings herein are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
8.8 Amendments. This Agreement may be amended only in writing signed
by all parties hereto.
8.9 Counterparts. Borrower and Bank may execute one or more
counterparts to this Agreement, each of which shall be deemed an original, but
when together shall be one and the same instrument.
SECTION 9. SERVICE OF NOTICES
9.1 Any notices or other communications provided for or allowed
hereunder shall be effective only when given by one of the following methods and
addressed to the respective party at its address given with the signatures at
the end of this Agreement and shall be considered to have been validly given:
(a) upon delivery,
-8-
<PAGE>
if delivered personally; (b) upon receipt, if mailed, first class postage
prepaid, with the United States Postal Service; (c) on the next business day,
if sent by overnight courier service of recognized standing; and (d) upon
telephoned confirmation of receipt, if telecopied.
9.2 The addresses to which notices or demands are to be
given may be changed from time to time by notice delivered as provided above.
THIS AGREEMENT is executed on behalf of the parties by duly authorized
officers as of the date first above written.
UNION BANK OF CALIFORNIA, N.A. BIOSOURCE INTERNATIONAL, INC.
-------------------
By: /s/John C. Kase By: /s/Larry A. May
-------------------------------- --------------------------
John C. Kase Larry A. May
Title: Vice President Chief Financial Officer
Executive Vice President-
Finance
By: /s/Bita Ardalan By:
-------------------------------- ----------------------------
Bita Ardalan James H. Chamberlain
Title: Regional Vice President Chairman of the Board
Chief Executive Officer and
President
Address: Address:
Union Bank of California, N.A. BioSource International, Inc.
445 South Figueroa Street, 10th Floor 820 Flynn Road
Los Angeles, CA 90071 Camarillo, CA 93012
Attention: John C. Kase Attention Larry A. May
Vice President Chief Financial Officer
Telecopier: (213) 236-7637 Executive Vice President-
Finance
Telecopier: (805) 388-8295
-9-
<PAGE>
[LOGO OF UNION BANK OF CALIFORNIA]
PROMISSORY NOTE
(BASE RATE)
================================================================================
Borrower Name BIOSOURCE INTERNATIONAL, INC.
- - --------------------------------------------------------------------------------
Borrower Address Office 30361 Loan Number
820 FLYNN ROAD ----------------------------------------------------------
CAMARILLO, CA 93012 Maturity Date DECEMBER 5, 2005 Amount $14,000,000.00
================================================================================
$14,000,000.00 Date NOVEMBER 27, 1998
- - -------------- -----------------
FOR VALUE RECEIVED, on DECEMBER 5, 2005, the undersigned ("Debtor") promises to
----------------
pay to the order of UNION BANK OF CALIFORNIA, N.A. ("Bank"), as indicated below,
the principal sum of FOURTEEN MILLION AND NO/100 Dollars ($14,000,000.00), or so
--------------------------- -------------
much thereof as is disbursed, together with interest on the balance of such
principal from time to time outstanding, at the per annum rate or rates and at
the times set forth below. This note is being issued by Debtor in favor of Bank
pursuant to the terms and conditions of the Loan Agreement (as such term is
defined hereinbelow).
1. PAYMENTS.
PRINCIPAL PAYMENTS. Debtor shall pay principal in installments of ONE
---
HUNDRED SIXTY SIX THOUSAND SIX HUNDRED SIXTY SIX AND 66/100 Dollars
- - -----------------------------------------------------------
($166,666.66) each on the 5TH day of each MONTH, commencing JANUARY 5, 1999. The
---------- --- ----- ---------------
availability under this note shall be reduced on the same day and in the same
amount as each scheduled principal payment.
INTEREST PAYMENTS. Debtor shall pay interest on the 5TH day of each MONTH,
--- -----
commencing JANUARY 5, 1999). Should interest not be paid when due, it shall
---------------
become part of the principal and bear interest as herein provided. All
computations of interest under this note shall be made on the basis of a year of
360 days, for actual days elapsed.
a. BASE INTEREST RATE. At Debtor's option, amounts outstanding
hereunder in minimum amounts of at least $100,000.00 shall bear
interest at a rate, based on an index selected by Debtor, which is
2.00% per annum in excess of: (i) Bank's Adjusted Treasuries Rate for
----
the Interest Period selected by Debtor, of (ii) Bank's LIBOR-Rate for
the Interest Period selected by Debtor, in each case acceptable to
Bank.
No Base Interest Rate may be changed, altered or otherwise modified
until the expiration of the Interest Period selected by Debtor. The
exercise of interest rate options by Debtor shall be as recorded in
Bank's records, which records shall be prima facie evidence of the
amount borrowed under either interest option and the interest rate;
provided, however, that failure of Bank to make any such notation in
its records shall not discharge Debtor from its obligations to repay
in full with interest all amounts borrowed. In no event shall any
Interest Period extend beyond the maturity date of this note.
To exercise this option, Debtor may, from time to time with respect to
principal outstanding on which a Base Interest Rate is not accruing,
and on the expiration of any Interest Period with respect to principal
outstanding on which a Base Interest Rate has been accruing, select an
index offered by Bank for a Base Interest Rate Loan and an Interest
Period by telephoning an authorized lending officer of Bank located at
the banking office identified below prior to 10:00 a.m., Pacific time,
on any Business Day and advising that officer of the selected index,
the Interest Period and the Obligation Date selected (which
Origination Date, for a Base Interest Rate Loan based on the LIBOR-
Rate, shall follow the date of such selection by no more than two (2)
Business Days).
Bank will mail a written confirmation of the terms of the selection to
Debtor promptly after the selection is made. Failure to send such
confirmation shall not affect Bank's rights to collect interest at the
rate selected. If, on the date of the selection, the index selected is
unavailable for any reason, the selection shall be void. Bank reserves
the right to fund the principal from any source of funds
notwithstanding any Base Interest Rate selected by Debtor.
-1-
<PAGE>
b. VARIABLE INTEREST RATE. All principal outstanding hereunder which is
not bearing interest at a Base Interest Rate shall bear interest at a
rate per annum equal to the Reference Rate, which rate shall vary as and
when the Reference Rate changes.
Debtor shall pay all amounts due under this note in lawful money of the
United States at Bank's SAN FERNANDO VALLEY COMMERCIAL BANKING Office,
--------------------------------------
or such other office as may be designated by Bank, from time to time.
2. LATE PAYMENTS. If any payment required by the terms of this note shall
remain unpaid ten days after same is due, at the option of Bank, Debtor shall
pay a fee of $100 to Bank.
3. INTEREST RATE FOLLOWING DEFAULT. In the event of default, at the option of
Bank, and to the extent permitted by law, interest shall be payable on the
outstanding principal under this note at a per annum rate equal to five percent
(5%) in excess of the interest rate specified in paragraph 1.b, above,
calculated from the date of default until all amounts payable under this note
are paid in full.
4. PREPAYMENT.
a. Amounts outstanding under this note bearing interest at a rate based
on the Reference Rate may be prepaid in whole or in part at any time,
without penalty or premium. Debtor may prepay amounts outstanding under
this note bearing interest at a Base Interest Rate in whole or in part
provided Debtor has given Bank not less than five (5) Business Days
prior written notices of Debtor's intention to make such prepayment and
pays to Bank the liquidated damages due as a result. Liquidated Damages
shall also be paid, if Bank, for any other reason, including
acceleration or foreclosure, receives all or any portion of principal
bearing interest at a Base Interest Rate prior to its scheduled payment
date. Liquidated Damages shall be an amount equal to the present value
of the product of: (i) the difference (but not less than zero) between
(a) the Base Interest Rate applicable to the principal amount which is
being prepaid, and (b) the return which Bank could obtain if it used the
amount of such prepayment of principal to purchase at bid price
regularly quoted securities issued by the United States having a
maturity relevant Base Rate Maturity Date and such securities were held
by Bank until the relevant Base Rate Maturity Date ("Yield Rate"); (ii)
a fraction, the numerator of which is the number of days in the period
between the date of prepayment and the relevant Base Rate Maturity Date
and the denominator of which is 360; and (iii) the amount of the
principal so prepaid (except in the event that principal payments are
required and have been made as scheduled under the terms of the Base
Interest Rate Loan being prepaid, then an amount equal to the lesser of
(A) the amount prepaid or (B) 50% of the sum of (1) the amount prepaid
and (2) the amount of principal scheduled under the terms of the Base
Interest Rate Loan being prepaid to be outstanding at the relevant Base
Rate Maturity Date). Present value under this note is determined by
discounting the above product to present value using the Yield Rate as
the annual discount factor.
b. In no event shall Bank be obligated to make any payment or refund to
Debtor, nor shall Debtor be entitled to any setoff or other claim
against Bank, should the return which Bank could obtain under this
prepayment formula exceed the interest that Bank would have received if
no prepayment had occurred. All prepayments shall include payment of
accrued interest on the principal amount so prepaid and shall be applied
to payment of interest before application to principal. A determination
by Bank as to the prepayment fee amount, if any, shall be conclusive. In
the event of partial prepayment, such prepayments shall be applied to
principal payments in the inverse order of their maturity.
c. Bank shall provide Debtor a statement of the amount payable on
account of prepayment. Debtor acknowledges that (i) Bank establishes a
Base Interest Rate upon the understanding that it apply to the Base
Interest Rate Loan for the entire interest Period, and (ii) any
prepayment may result in Bank incurring additional costs, expenses or
liabilities; and Debtor agrees to pay these liquidated damages as a
reasonable estimate of the costs, expenses and liabilities of Bank
associated with such prepayment.
5. DEFAULT AND ACCELERATION OF TIME FOR PAYMENT. Default shall mean the
occurrence of an Event of Default under and as defined in the Loan Agreement.
Upon the occurrence of any such Event of Default, Bank, in its discretion, may
cease to advance funds hereunder and may declare all obligations under this note
immediately due and payable; provided, however, that upon the occurrence of an
Event of Default under subsections 7.4, 7.5, 7.6, 7.7, or 7.8 of the Loan
Agreement, all principal and interest shall automatically become immediately due
and payable.
6. ADDITIONAL AGREEMENTS OF DEBTOR. If any amounts owing under this note are not
paid when due, Debtor promises to pay all costs and expenses, including
reasonable attorneys' fees, incurred by Bank in the collection or enforcement of
this note. Debtor and any endorsers of this note, for the maximum period of time
and the full extent permitted by law, (a) waive diligence, presentment, demand,
notice of nonpayment, protest, notice of protest, and notice of every kind; (b)
waive the right to assert the defense of any statute of limitations to any debt
or obligation hereunder; and (c) consent to renewals and extensions of time for
the payment of any amounts due under this note. If this note is signed by more
than one party, the term "Debtor" includes each of the undersigned and any
successors in interest thereof; all of whose liability shall be joint and
several. Any married person who signs this note agrees that recourse may be had
against the separate property of that person for any obligations hereunder. The
receipt of any check or other item of payment by Bank, at its option, shall not
be considered a payment on account until such check or other item of payment is
honored when presented for payment at the drawee bank. Bank may delay the credit
of such payment based upon Bank's schedule of funds availability which shall in
no event exceed three days, and interest under this note shall accrue until the
funds are deemed collected. In any action brought under or arising out of this
note, Debtor and any Obligor, including their successors and assigns, hereby
consent to the jurisdiction of any competent court within the State of
California, as provided in any alternative dispute resolution agreement executed
between Debtor and Bank, and consent to service of process by any means
authorized by said state's law. The term "Bank" includes, without limitation,
any holder of this note. This note shall be construed in accordance with and
governed by the laws of the State of California. This note hereby incorporates
any alternative dispute resolution agreement previously, concurrently or
hereafter executed between Debtor and Bank.
7. DEFINITIONS. As used herein, the following terms shall have the meanings
respectively set forth below: "Adjusted Treasuries Rate" means a per annum rate
of interest based on the percentage yield on U.S. Treasury securities, plus a
margin, set by Bank in its discretion, related to the
-2-
<PAGE>
general cost of corporate borrowing for a term comparable to the term of Bank's
loan to Debtor, plus Bank's costs, including the costs, if any, of reserve
requirements and FDIC assessments. "Base Interest Rate" means a rate of interest
based on either the Adjusted Treasuries Rate or the LIBOR-Rate. "Base Interest
Rate Loan" means amounts outstanding under this note that bear interest at a
Base Interest Rate. "Base Rate Maturity Date" means the last day of the Interest
Period with respect to principal outstanding under a Base Interest Rate Loan.
"Business Day" means a day on which Bank is open for business for the funding of
corporate loans, and, with respect to the rate of interest based on the
LIBOR-Rate, on which dealings in U.S. dollar deposits outside of the United
States may be carried on by Bank. "Interest Period" means (i) with respect to
funds bearing interest at a rate based on the Adjusted Treasuries Rate, any
period of not less than 30 nor more than 270 days, or (ii) with respect to funds
bearing interest at a rate based on the LIBOR-Rate, any calendar period of one,
three, six, nine or twelve months. In determining an Interest Period, a month
means a period that starts on one Business Day in a month and ends on and
includes the day preceding the numerically corresponding day in the next month.
For any month in which there is no such numerically corresponding day, then as
to that month, such day shall be deemed to be the last calendar day of such
month. Any Interest Period which would otherwise and on a non-Business Day shall
end on the next succeeding Business Day unless that is the first day of a month,
in which event such Interest Period shall end on the next preceding Business
Day. "LIBOR Rate" means a per annum rate of interest (rounded upward, if
necessary, to the nearest 1/100 of 1%) at which dollar deposits, in immediately
available funds and in lawful money of the United States would be offered to
Bank, outside of the United States, for a term coinciding with the Interest
Period selected by Debtor and for an amount equal to the amount of principal
covered by Debtor's interest rate selection, plus Bank's costs, including the
cost, if any, of reserve requirements. "Loan Agreement" means that certain Loan
Agreement dated as of November 27, 1998, by and between Debtor and Bank, as at
any time amended, supplemented or otherwise modified or restated. "Obligor"
means Debtor and any guarantor, co-maker, endorser, or any person or entity
other than the Debtor providing security for this note under any security
agreement, guaranty or other agreement between Bank and such guarantor, co-
maker, endorser or person or entity, including their successors and assigns.
"Origination Date" means the first day of the Interest Period. "Reference Rate"
means the rate announced by Bank from time to time at its corporate headquarters
as its Reference Rate. The Reference Rate is an index rate determined by Bank
from time to time as a means of pricing certain extensions of credit and is
neither directly tied to any external rate or index nor necessarily the lowest
rate of interest charged by Bank at any given time.
BIOSOURCE INTERNATIONAL, INC.
By /s/ Larry A May
-------------------------------
Title Executive Vice President - Chief Financial Officer
---------------------------
BioSource Int'l. Inc.
By
-------------------------------
Title
----------------------------
-3-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
BioSource International, Inc.:
The audits referred to in our report dated March 26, 1999, included the related
financial statement schedules as of December 31, 1998, and for each of the years
in the three-year period ended December 31, 1998, included in the annual report
on Form 10-K of BioSource International, Inc. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits. In
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
We consent to incorporation by reference in the registration statements (No. 33-
65562 and 33-91838) on Form S-8 and (No. 333-05391) on Form S-3 of our report
dated March 26, 1999, relating to the consolidated balance sheets of BioSource
International, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1998,
which report appears in the December 31, 1998, annual report on Form 10-K of
BioSource International, Inc.
KPMG LLP
Los Angeles, California
April 14, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 7,077
<SECURITIES> 0
<RECEIVABLES> 4,682
<ALLOWANCES> (301)
<INVENTORY> 4,971
<CURRENT-ASSETS> 18,278
<PP&E> 8,077
<DEPRECIATION> (2,563)
<TOTAL-ASSETS> 41,400
<CURRENT-LIABILITIES> 10,039
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 17,689
<TOTAL-LIABILITY-AND-EQUITY> 41,400
<SALES> 21,859
<TOTAL-REVENUES> 21,859
<CGS> 13,189
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</TABLE>
