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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1999
Commission File Number 000-21930
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BIOSOURCE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 77-0340829
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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<S> <C>
820 Flynn Road, Camarillo, California 93012
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (805) 383-5200
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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
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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 no disclosure of delinquent filers in response to
Item 405 of regulation S-K is 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 20, 2000 was $120,351,014.50.
The number of shares of the Registrant's common stock outstanding as of
March 20, 2000 was 8,180,352.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement for the annual meeting
to be held on July 14, 2000 (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
biomedical research that are instrumental in the development of new drug
therapies and medical diagnostic methods. Our products enable scientists and
biomedical researchers to better understand biochemistry, immunology and cell
biology of the human body, as well as disease processes. We offer over 3,200
products that we group into the following product lines: Assays; Antibodies;
Bioactive Proteins and Peptides; Oligonucleotides; and Serum, Buffers and
Media. Through acquisitions and internal growth, we believe we have grown to
include a unique combination of technological, production, and research and
development skills resulting in a full spectrum of products and services for
the worldwide pharmaceutical and biotechnology industries.
We believe we have a strong scientific research staff, a broad product line
and an established trade name, giving us a strong presence in the biomedical
research market. We intend to continue our focus on new product development,
and to aggressively seek to acquire businesses, products and technologies
complementary to our current business.
Industry Overview
The biomedical research industry has seen significant advances in the
understanding of physiological processes at the cellular and molecular level.
In particular, the biotechnology industry has seen a substantial amount of
growth over the last year as efforts to sequence the human genetic structure,
or genome, have accelerated. Researchers have identified thousands of
previously unknown genes that potentially play key roles in physiological
systems in the human body. These genes are of significant interest to the
pharmaceutical industry, since they can be used as the basis of new
therapeutic discovery and development. The increase in biomedical research
resulting from the sequencing of the human genome has resulted in the need for
methods and products to accelerate and assist this research. The core
competencies we have developed in molecular and cellular biology, immunology
and custom services address this need.
Biomedical researchers around the world are constantly in search of
specialty research products and services, 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 high quality biological reagents and
custom services, including the types of assay kits, antibodies, biologically
active proteins, molecular probes and serums that we develop, manufacture and
sell.
Strategy
Our goal is to capitalize on the growth of the biotechnology industry by
creating research tools and test kits that are not subject to the volatility
inherent in developing pharmaceuticals. Our strategy includes the following
elements:
Focus on the Strategic Direction of Biomedical Research. Our continued
success depends, in part, on our strong commitment to use innovative
technologies and research techniques to service the growing research product
needs. Academic institutions, as well as pharmaceutical and biotechnology
companies, are increasingly relying on biomedical research companies such as
ours to provide innovative tools to further their basic research and screen
their drug candidates. We believe we are uniquely positioned to have a strong
impact on the research community with our enabling user-friendly technologies.
Commitment to Product Development. We offer over 3,200 products in five
major product lines. We believe our industry is diverse and fragmented, and by
offering a broad range of 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. We focus on the introduction of new products to meet the
needs of our customers and the rapid changes that are taking place in
biomedical research. For example, in 1999, we introduced over 250 new products
that targeted the growing cellular biology research area.
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Create Superior Value. We seek to create superior value for our customers.
For instance, our staff have written many application booklets that provide an
overview of the technology we provide in various areas, the types of
performance that can be expected using our products and troubleshooting
guidelines. Our communications with customers are highly technical, fostering
the understanding that our products are from scientists to scientists. We also
believe we offer greater affordability and convenience to our customers than
do our competitors.
Acquire Complementary Businesses, Products and Technologies. We
continuously evaluate potential acquisition candidates for complementary
products and businesses and have successfully completed five acquisitions in
the last seven years, which include: TAGOImmunologics, Medgenix, Keystone
Laboratories, Biofluids and QCB.
Provide Superior Customer Service. 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. We believe this creates loyalty and pride,
which translates into greater product quality and enhanced customer service.
Products
We offer over 3,200 different products, which we group into the following
product lines:
. assays
. antibodies
. bioactive proteins and peptides
. oligonucleotides
. serum, buffers and media
Assays
Enzyme-Linked ImmunoSorbent Assay test kits. We have developed
methodologies for the measurement of cytokines and chemokines in blood or
other biological samples. ELISA test kits are a combination of 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. The quantitation of these cytokines and chemokines
has been shown to be an excellent way for scientists to determine the status
of the immune system. Since many of the current targets of pharmaceutical
intervention are designed to modulate the immune system, using these
quantitation markers as a means for gauging the effectiveness of treatment is
becoming a key monitor.
In a typical ELISA test kit, an antibody is immobilized or "bound" on a
microtiter well of the kit's test plate. A sample containing the antigen that
is to be measured is added by the researcher and allowed to react with the
bound antibody. After the well is washed, a second antibody with a specific
enzymatic tag is added and allowed to react with the bound antigen. After
washing away any remaining free antibody, the researcher adds a substrate that
produces a colored reaction. The amount of color is proportional and thereby
indicates the amount of antigen present, which can be measured even in minute
concentrations, using common laboratory instruments. This method of
quantitation of these antigens 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.
Our ELISA tests produce results in a few hours, compared to days or even
weeks with bioassays. We offer kits for human, mouse, rat, monkey and swine
proteins. The diversity of species is important to allow investigators to
establish numerous measurements in pre-clinical animal model systems. We offer
over 70 types of ELISA kits and we believe we are the leader in sales of rat,
monkey and swine cytokine ELISA kits. Detection of fluctuations in cytokine
levels by ELISA tests, whether in an in vitro cell culture experiment of a new
drug or in a patient's serum, provide researchers and scientists with valuable
information in understanding disease progression, therapy and diagnosis.
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Of the more than 70 kits we offer, the following table illustrates a few of
the more common applications of our ELISA test kits:
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Test Kit Characteristics/Application
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MIP-4 This kit tests for the presence of human macrophage inflammatory
protein-4, a chemokine which is an important regulator of white
blood cell migration to areas of inflammation and has been
associated with human neurodegenerative diseases, such as
Alzheimer's Disease, autoimmune diseases and infections. MIP-4 was
discovered by a major pharmaceutical company in connection with
its human genome research. From this discovery, we were able to
develop antibodies and create a kit to measure the presence of
MIP-4.
Eotaxin This test kit measures the chemokine, Eotaxin, which is an
important molecule in the origin of allergic responses. We
developed this kit in response to the demand from researchers
studying the physiology of white blood cells. Our kits are used in
the process of drug development to determine the effect of the
target drug on white blood cell function.
Beta amyloid This test kit measures for beta amyloid, an important molecule in
the study of Alzheimer's Disease.
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Radioimmuno assays. We produce and market RIAs, which are used
internationally in clinical laboratories for the measurement of hormones and
proteins important in growth, reproductive and thyroid disease. These assays
utilize radioisotopically labeled molecules to compete with non-isotopically
labeled molecules for sites on known antibody concentrations. RIA is a mature
technology used primarily in European and other foreign countries and is not
widely used in the United States.
Other assays. We have combined our oligonucleotide and ELISA technologies
to develop a portfolio of other assay kits that measure the quantity of
messenger RNA, the type of RNA that serves as a template for protein
synthesis, of various cytokines in blood, cultured cells or tissues. Our
molecular analysis kit product line permits detection of the individual genes,
and quantitates the amount of the gene that encodes for a specific protein. We
also have developed kits that allow researchers to measure multiple genes at
the same time from a single sample.
Antibodies
Antibodies are used as detector systems in the research of normal and
abnormal proteins. Antibodies are proteins generated by immune cells in
response to foreign substances, which are called antigens. Antibodies have
specific amino acid sequences which cause them to interact only with the
antigen that induced their creation. Antibodies circulate in the blood and
assist the body's immune system by searching out and neutralizing or
eliminating antigens. Antibodies are used by researchers in a variety of
applications, including neutralization studies in bioassay systems, as capture
and detection molecules for protein quantitation and for cellular
differentiation. Antibodies used in research are generally produced by
injecting an antigen into animals, which cause the animals' immune system to
produce an antibody specific to that antigen.
Our TAGOImmunologics 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. In addition, other
companies use our TAGO products as a component of their test kits.
We also have developed a significant catalog of innovative tools which
enable customers to more readily understand the complex signals which control
cellular processes. Many of these tools are antibodies that recognize
specific, activated or inactivated forms of proteins containing one or more
molecules of phosphate at specific sites. Such an addition of phosphate
molecules, which is referred to as phosphorylation, or removal of phosphate
molecules, which is referred to as dephosphorylation, control most of the
signaling within and between cells. Diseases such as cancer, heart disease and
Alzheimer's 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 altered phosphorylation.
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We offer over 2,000 antibody products. The following table illustrates some
of the uses for the antibodies we offer:
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Uses Description
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Flow Cytometry In order to identify specific cell types by the
nature of the antigens expressed on their surface,
antibodies are bound to cells and visualized by
labeling the antibody molecules with a fluorescent
dye or "fluorochrome." The result is examined with
an instrument known as a flow cytometer.
ELISA Test Kits Antibodies are used in our ELISA test kits to detect
and measure proteins in biological fluids. An
antibody coupled with an enzyme reacts with a
colorless substrate in the presence of a sample
containing the antigen of interest to generate a
colored reaction product. The color produced is
proportional to, and thereby indicates the amount
of, antigen present in the sample.
High Throughput Screening High throughput screening permits the researcher to
test thousands of drug candidates in a short period
of time for their effect on target molecules. In
order to be used in this manner, we conjugate our
antibodies to different dyes or enzymes.
Immunoblotting Immunoblotting uses antibodies to identify a
specific protein in a complex mixture. In this
process, a protein of interest is separated by
molecular weight using gel electrophoresis. A
specific antibody is then passed over the mixture,
and any protein that binds to the antibody is
visibly detected.
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The research conducted by our customers often requires that we manufacture
unique, specific peptides or antibodies for custom research projects.
Previously unidentified genes and proteins are being identified at a rapid
rate, which often precedes the introduction of catalog offerings by many
months to years. Through our QCB subsidiary we engage in the manufacture of
these custom peptides and antibodies thus allowing customers to perform timely
research on these new or proprietary targets. The capabilities to provide
custom peptides and antibodies as well as innovative catalog products further
strengthens our strategic relationships with our customers and has led to the
development of new catalog products and expanded sales opportunities.
Bioactive Proteins and Peptides
Proteins, which are chains of amino acids in particular sequences, and
their interactions are responsible for all of the biochemical and physical
properties of a cell, as well as variations among different types of cells.
Proteins take various forms, including enzymes, hormones, antibodies,
receptors, cytokines and chemokines. Proteins are ideal for use in basic
research, drug discovery, enzymology, high throughput screening, in vivo
studies, x-ray crystallography or as antigens for antibody production. Our
primary protein products are cytokines and chemokines, which are regulatory
molecules that control growth and differentiation of cells.
Cytokines. The development of an effective immune response involves complex
cell-to-cell communications, which are mediated by a group of small hormone-
like soluble secreted proteins collectively called cytokines. Cytokines, like
growth factors, interact with specialized target receptors on the surface of
the cells and stimulate a chain of secondary messengers leading to a
biological response. These responses result from changes in both the molecular
capabilities and behaviors of cells. For example, cytokines can activate cells
to recognize and eliminate harmful bacteria and viruses. They carry vital
signals to the cell's genetic machinery that can trigger it to grow or stop
growing. Cytokines can also signal a cell to differentiate, that is, to
acquire the features necessary for it to take on more specialized tasks.
Specific cytokines play a key role in stimulating cells surrounding a wound to
grow and divide and also in attracting migratory cells to the site. Some
cytokines have a regulatory function, and other cytokines exert direct effects
of their own.
Cytokines are extracted from natural sources, such as human and animal
platelets, white blood cells and lymphatic cells, or are produced through
genetic engineering, also known as recombinant DNA technology. Cytokines
coordinate and orchestrate the proper functioning of the immune system. In
addition to producing the human cytokines, we also produce the equivalent
proteins from mice, rats, swine and monkeys. Many cytokines
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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.
Chemokines. Chemokines are specific proteins that regulate the recruitment
and activation of white blood cells 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 development of HIV.
Other Proteins. To date we have focused on cytokines, chemokines and growth
factors; however, with the progress of the human genome project, protein
discoveries will expand beyond these proteins. Signal transduction proteins,
of which it is hypothesized that only a fraction have been discovered, will be
important in high throughput screens of drug candidates since the irregular
functioning of these proteins is involved in substantially all diseases.
Additionally, researchers will want reagents to the nuclear proteins,
cytoskeletal proteins and others that will be discovered to study their role
in various diseases. Reagents to these markers can be created using our core
competencies.
We offer over 70 protein products. The following table shows examples of
different cytokines we produce and use:
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Cytokine Research Uses
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IL-4 Interleukin 4 is a protein that has been observed to have direct
growth-suppressive activity on a variety of malignancies. IL-4 is
used in cancer research.
VEGF Vascular Endothelial Growth Factor regulates angiogenesis, the
process of new blood vessel growth. VEGF is used in drug development,
cancer research and as a growth factor for endothelial cells.
TNF Tumor Necrosis Factor is a protein that plays a vital role in the
regulation of the immune system. TNF is used to study immunological
processes, cancer, inflammation and septic shock.
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Peptides. Bioactive peptides are subsections of proteins or small proteins
that are synthetically created. These peptides represent the active or
inhibitory site of a particular protein, and are used to study the activity of
various proteins. Some bioactive peptides, such as beta amyloid peptides, have
been shown to play a major role in the development of Alzheimer's Disease. We
sell a significant amount of beta amyloid peptides as well as many other
bioactive peptides through our QCB subsidiary.
Oligonucleotides
The production of oligonucleotides is a custom service we provide for
researchers engaged in 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,
essentially as templates for nucleic acid and protein synthesis, and more
recently, as the therapeutic agents for the inhibition of gene expression or
as a diagnostic agent to identify disease. DNA is used by almost every
discipline in biomedical research in both academic and commercial areas,
including molecular biology and cell biology departments of major universities
and biomedical companies developing gene therapy products. These researchers
use synthetic oligonucleotides to determine the exact sequence of a gene, or
to perform experiments leading to the potential development of pharmaceutical
drugs. The primary use of the oligonucleotides we develop and sell are for DNA
sequencing and polymerase chain reaction, or PCR, priming.
In DNA sequencing, we synthesize oligonucleotides pursuant to customer
specifications, which they use to initiate a process of sequencing a DNA
strand. DNA sequencing is used in a wide range of biomedical research
applications to identify the makeup of particular strands of DNA.
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In PCR priming, our synthesized oligonucleotides are used by our customers
in combination with other reagents to amplify a specific genetic sequence
isolated from a cell sample. After PCR amplification, gel electrophoresis is
used to identify and even to quantitate a specific DNA or RNA sequence from
that sample. PCR is an extremely powerful tool in molecular biology research
because it can amplify genetic information from a single copy of DNA or RNA.
Using PCR technology, the presence of the genetic message used to code for the
production of protein can be identified, thereby offering numerous
possibilities in the detection of genetic disorders, monitoring disease
progression, and in understanding cellular functions.
Genomics research requires large quantities of oligonucleotides. DNA arrays
for expression profiling and single nucleotide polymorphism, or SNP, analysis
all require the use of synthetic DNA oligonucleotides. In addition, high
throughput screening techniques, used in drug discovery are incorporating the
use of fluorescent modified DNA oligonucleoticle probes to detect and quantify
target gene expression. We have developed technologies to rapidly produce and
manufacture large number of high quality DNA oligonucleotides for DNA array
construction and developed proprietary processes to produce fluorescent
probes.
The following table illustrates some of the uses for the DNA
oligonucleotide services we offer:
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Uses Applications
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Primers Oligonucleotides are used in the initiation of the PCR process.
Probes DNA oligonucleotides are used in hybridization reactions to search and
detect specific genetic sequences. Our FRET, or Forster Resonance
Energy Transfer, probes are fluorescent probes used in real time PCR
quantitation and diagnostic molecular analysis.
Arrays Oligonucleotides are used on a solid matrix to profile gene expression
or single nucleotide polymorphisms, or SNPS.
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Serum, Buffers and Media
We manufacture over 140 varieties of serum, buffers and media. These
products are vital in growing specialized cell cultures. In most cases, cell
cultures are a primary testing method for the effectiveness of vaccines and
drugs for a variety of diseases.
Customers
We have over 3,000 customers worldwide, including the customers of our
distributors. No single customer accounted for 10% or more of our total
revenue during any of the last three years. Our customers include:
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Pharmaceutical Biotechnology Universities Government
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American Home Products Amgen Brigham and Women's Hospital Centers for Disease Control
Aventis Pharmaceuticals Berlex Laboratories Georgetown University Food and Drug Administration
Baxter Biogen Johns Hopkins University National Cancer Institute
Boehringer Ingelheim Chiron UCLA National Institutes of Health
Glaxo Wellcome Human Genome Sciences UC San Francisco Veterans Administration Medical Centers
Johnson & Johnson Hyseq University of Michigan US Army Research
Merck & Company Icos University of Pennsylvania
Pfizer IDEC Pharmaceuticals University of Texas MD Anderson
Pharmacia & Upjohn Rigel Pharmaceuticals Cancer Research Center
Schering-Plough
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Research and Development
Traditionally we have focused our research and development in the area of
cytokine biology. Cytokines are soluble proteins that act as chemical
communicators between cells. As we have extended our product lines into
cellular communication, or signal transduction, the following three areas of
biomedical research have been impacted dramatically by recent trends and
technology: (1) apoptosis, which is related to programmed cell death, (2)
angiogenesis, which involves blood vessel growth factors important in wound
healing and tumor
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development, and (3) degenerative neurological diseases such as Alzheimer's
Disease. We have focused our research and development efforts aggressively
into the generation of products for these areas. Our sales people, who have
education and backgrounds in the biological sciences, discuss issues and ideas
with our customers, which serves as an additional source for identifying,
creating and developing some of our new products.
Our current research and development activities are focused in four major
areas:
. expansion of current and novel methodologies into the areas of
angiogenesis, cardiovascular, inflammation, neurology and tumor
development;
. selective addition of new cytokine, chemokine and growth factors to our
existing product offerings;
. development of ELISA kits for detection of site-specific phosphorylation
and site-specific cleavage of important signal pathways proteins; and
. maintenance of our position in the rat, swine and monkey ELISA test kit
markets.
Currently we employ 32 research scientists, ten of whom 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 the year ended
December 31, 1999, we introduced over 250 new products, of which approximately
95% were developed by our scientists. In addition, as of February 29, 2000, we
had approximately 50 products under development. We spent approximately
$2,648,300 in 1998, excluding $4,222,000 of purchased in-process technology,
and approximately $3,315,400 in 1999 on research and development.
Manufacturing
Our reagent products and ELISA test kits are currently manufactured at our
laboratories located in Camarillo, California. We manufacture oligonucleotides
at our laboratories located at the facilities of our Keystone subsidiary in
Foster City, California. Our custom antibodies are manufactured at the
laboratory facilities of our QCB subsidiary in Hopkinton, Massachusetts. Our
serum, buffers and media are manufactured at the facilities of our Biofluids
division in Rockville, Maryland. We also manufacture antibodies and assay kits
at the facilities of our European subsidiary in Nivelles, Belgium.
Labeling, packaging, and shipping are carried out independently at each
facility. We purchase our packaging components from outside suppliers who
follow our own custom packaging designs. We have an internal graphic arts
department located at our Camarillo, California facility that designs and
produces our packaging and marketing materials. We believe there are numerous
available suppliers for our packaging components.
We believe that we have adequate supplies of raw 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.
Sales and Marketing
We have 17 sales representatives worldwide. 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. The use of a direct sales force provides us with an opportunity to
discuss directly with researchers and scientists new developments and trends
in the industry. We advertise in various scientific trade journals and
distribute our own product catalog to all current and selected potential
customers. We sell to our international markets directly through our European
subsidiary, and we use international distributors that specifically target
selected foreign medical markets.
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
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product development. Each representative is responsible for the maintenance of
existing accounts as well as the generation of new business. Representatives
are paid a base salary and commissions. The commissions are based upon sales
growth over previous years' sales levels.
Besides the United States, we sell directly to Germany, Belgium, Holland
and the United Kingdom, and use a network of international distributors
covering 41 other countries. We utilize a network of both exclusive and non-
exclusive international distributors, 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. In order to serve as our exclusive distributor, the
distributor must generally meet 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.
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, Pharmingen, New England Biolabs, and Life
Technologies. 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.
However, we believe that by offering a very broad and complete product line
that enables the end user to obtain many products from one source we gain a
competitive advantage. In addition, competition in our markets generally
focuses on the following factors:
. quality;
. speed of delivery;
. application/customer support;
. breadth of product offerings; and
. price.
Patents and Trademarks
We do not own any patents and do not believe that patent protection is
available for any of our products or processes. 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.
"TAGOImmunologicals," "Cytoscreen," "Primescreen," "ICScreen" and
"Cytosets" are unregistered product trademarks used for some of our products,
but are only of limited importance to our business. "Biofluids" is also a
registered trademark we acquired as part of our acquisition of Biofluids in
December 1998.
Government and Environmental Regulation
Except as we indicate in the following paragraph, approval by the Food and
Drug Administration 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 diagnostic or therapeutic products. In
the event we develop products directly for the diagnostic market in the United
States, we will be required to obtain FDA approval prior to selling them. This
approval, if required, could be time consuming and costly.
Some of our products, however, are used by our customers as raw materials
or intermediates in the production of diagnostic products. As such, we
received clearance by the State of California and the FDA to manufacture our
TAGOImmunologics product line as Analyte Specific Reagents. These reagents are
classified as Class I biologics that are manufactured in compliance with the
FDA's Quality System Regulation, also known as cGMP. This registration allows
us to market these products to clinical laboratories and manufacturers of
in vitro diagnostic products.
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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 in Europe
for clinical diagnostics. In all of our markets in which we sell through
distributors, our distributors are responsible for compliance with the
applicable governmental regulations.
Except as we indicated above, we are not subject to direct governmental
regulation other than the laws and regulations generally applicable to
businesses in the jurisdictions in which we operate, including those governing
the handling and disposal of hazardous wastes and other environmental matters.
Our research and development activities involve the controlled use of small
amounts of hazardous materials, chemical and radioactive compounds. Although
we believe that our safety procedures for handling and disposing of such
materials comply with applicable regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated.
In the event of such an accident, we could be held liable for resulting
damages. This liability could have a material adverse effect on us.
Employees
As of February 29, 2000, we employed 207 individuals, 200 of whom were full
time employees. Sixteen of our employees at that date had doctoral degrees.
None of our employees in the United States is represented by a labor union.
As of February 29, 2000, 48 of our 207 employees worked for our BioSource
Europe subsidiary, which is located in Nivelles, Belgium. As is customary
under Belgian labor law, employees of our Belgian subsidiary, BioSource Europe
S.A., are represented by three national unions who represent employee
interests to the national chemistry industry employer organization. Pursuant
to Belgian law, we have been subject to heightened restrictions regarding
severance obligations applicable to companies with more than 50 employees.
Because we now employ less than 50 employees at our Belgian facility, union
representation for works councils and safety councils will terminate in April
2000 for this facility. Accordingly although we remain subject to other
severance obligations applicable generally to companies in Belgium, the
additional severance benefits that currently apply to our Belgian facility
will terminate in November 2000. We believe we are in compliance with these
Belgian legal restrictions. We consider our current employee relations to be
good.
Recent Developments
On March 16, 2000, we announced that we had filed a registration statement
with the Securities and Exchange Commission covering a public offering of
4,000,000 shares of common stock (4,600,000 shares if the underwriters' over-
allotment option is exercised in full). Of the shares to be offered, we are
offering to sell 3,350,000 newly issued shares (3,450,000 if the underwriters'
over-allotment option is exercised in full). If consummated as proposed, the
net proceeds to us will vary depending upon market conditions at the time of
the offering, but are currently estimated to be $48.2 million. The Company
will not receive any of the net proceeds from the sale of shares by the
selling stockholders. The net proceeds will be used to acquire complementary
businesses, products, services and technologies; for research and development;
working capital; and other general corporate purposes. There can be no
assurance that the offering will actually be consummated.
Item 2. Properties
Our principal executive offices are located in Camarillo, California,
approximately 50 miles northwest of Los Angeles, California, in our 29,000
square foot facility. We purchased this property on March 28, 1996 and own it
subject to a first trust deed mortgage that was made by the lender pursuant to
the Small Business Administration's Loan Guarantee Program, with an
outstanding principal balance of $688,000, due on April 1, 2016. The property
is subject to a second trust deed loan with the California Statewide
Development Corp. with
10
<PAGE>
an outstanding principal balance of $561,500, due approximately June 1, 2016.
Our payments under these mortgages are unconditionally guaranteed by James H.
Chamberlain, our Chief Executive Officer and President.
On March 8, 2000 we entered into a lease for a new facility in Camarillo,
California, and we intend to relocate our Camarillo offices and laboratories
to this new location on or about May 1, 2000. Our new building contains
approximately 51,821 square feet and is situated in an industrial park
approximately two blocks from our current facility. The lease will commence on
May 1, 2000 and run through June 30, 2005, with the option to continue the
lease for two additional five-year terms. The new facility has three
laboratory areas, including molecular biology facilities, a protein
purification facility and an assay development and manufacturing facility, as
well as ELISA development and manufacturing space and cold storage rooms
sufficient to accommodate our current and anticipated future needs.
Our Keystone subsidiary leases facilities in Foster City, California,
approximately 20 miles south of San Francisco, which consists of approximately
3,500 square feet, of which approximately 3,000 square feet is our
oligonucleotide laboratory, under a lease that expires in May 2003.
Our QCB subsidiary leases facilities in Hopkinton, Massachusetts,
approximately 25 miles west of Boston, which consist of approximately 11,500
square feet, of which approximately 7,000 square feet is laboratory space,
under a lease that expires in April 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 that expires in May 2001.
Our European subsidiary leases facilities in Nivelles, Belgium, which
consist of approximately 30,000 square feet of manufacturing, laboratory and
office space, under a lease that expires in March 2007.
Additional small sales offices are leased in Germany, Holland and the
United Kingdom.
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
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.
11
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Our common stock is traded on the Nasdaq National Market under the symbol
"BIOI." The following table sets forth, for the periods indicated, the high
and low sales price per share of our common stock as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
High Low
------ -----
<S> <C> <C>
1998 Fiscal Year
First Quarter................................................. $ 7.00 $5.44
Second Quarter................................................ 7.00 5.50
Third Quarter................................................. 6.25 3.06
Fourth Quarter................................................ 3.88 2.41
1999 Fiscal Year
First Quarter................................................. $ 4.75 $2.50
Second Quarter................................................ 5.38 3.63
Third Quarter................................................. 6.13 3.75
Fourth Quarter................................................ 9.69 3.25
2000 Fiscal Year
First Quarter, through March 15, 2000......................... $32.00 $6.06
</TABLE>
On March 20, 2000, the last reported sale price of our common stock on the
Nasdaq National Market was $15.50. As of March 20, 2000, there were 8,180,352
shares of our common stock outstanding held by approximately 569 holders of
record.
On January 10, 2000, we entered into a securities purchase agreement with
Genstar Capital Partners II, L.P. and Stargen II LLC, both of which are
accredited investors as such term is defined in Rule 501 of Regulation D of
the Securities Act of 1933. Pursuant to this agreement, we sold Genstar and
Stargen a total of 371,300 shares, including 364,244 to Genstar and 7,056 to
Stargen, of our Series B Preferred Stock for $9,000,312 in the aggregate.
These shares are convertible into 1,485,200 shares, including 1,456,976 for
Genstar and 28,244 to Stargen, of our common stock. In addition, we issued
Genstar and Stargen warrants to purchase a total of 1,287,000 shares of common
stock, including 1,262,542 to Genstar and 24,458 to Stargen, exercisable at
$7.77 per share. Under the investor rights agreement among Genstar, Stargen
and us, executed in connection with the securities purchase agreement, Genstar
and Stargen also have the right to appoint two out of our seven directors to
our board of directors as long as they beneficially own, in the aggregate, at
least 750,000 shares of common stock, or one director if they beneficially own
at least 495,000 shares. Pursuant to the investor rights agreement, we
appointed Jean-Pierre L. Conte, a Managing Director of Genstar Capital LLC,
and Robert J. Weltman, a Vice President of Genstar Capital LLC, to our board
of directors. Genstar and Stargen also have the right of first refusal to
purchase additional shares and the right to require us to register the shares
of our common stock underlying the preferred stock and the warrants. The
consummation of the securities purchase agreement, including the issuance of
the shares of Series B Preferred Stock and the warrants, occurred on February
15, 2000. Pursuant to the securities purchase agreement, we paid a $270,009
transaction fee to Genstar Capital LLC and reimbursed all of the fees and
expenses of approximately $195,426, incurred by Genstar Capital Partners and
its affiliates in connection with the securities purchase agreement. This sale
was exempt from the registration requirements of the Securities Act of 1993
based on Rule 506 of Regulation D. In accordance with Regulation D, there were
no general solicitations made.
The shares of Series B Preferred Stock are convertible, and the holder is
entitled to be credited with a non-cash dividend of additional Series B shares
on the first day of each year at the dividend rate of 8% per year. Series B
Preferred Stock also has a liquidation preference of $6.06 per share. This
preferred stock also is automatically convertible upon any of the following
events: (1) a public offering of common stock of not less
12
<PAGE>
than $15 per share, which results in proceeds to us of at least $40,000,000
before commissions or discounts, (2) the date we specify to the holders, if
the last reported sale price of our stock is above $20 per share for
20 consecutive trading days on the Nasdaq National Market, or (3) the holders
of greater than 50% of the shares of the Series B inform us in writing of
their desire to convert the shares. Holders of Series B Preferred Stock have
the right to require us to redeem the Series B Preferred Stock at the original
liquidation value plus accrued dividends after February 15, 2004, or as early
as February 15, 2001, if various stock price thresholds, as defined, are not
met.
In connection with a proposed offering of our common stock described in
"Item 1. Description of Business--Recent Developments," we expect Genstar and
Stargen to convert an aggregate 127,500 shares of the Series B Preferred Stock
that they own into 510,000 shares of common stock that they will sell in the
proposed offering. If the underwriters for the offering exercise their over-
allotment option in full, we expect Genstar and Stargen to convert an
additional aggregate 125,000 shares of the Series B Preferred Stock into
500,000 shares of common stock that they will sell pursuant to the option.
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 our operations.
On February 16, 1999, our Board of Directors declared a dividend of one
preferred share purchase right for each share of common stock outstanding on
March 2, 1999. The purchase rights are subject to the terms and conditions of
the Rights 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.
13
<PAGE>
Item 6. Selected Financial Data
The selected data presented below under the captions "Consolidated
Statement of Operations Data" and "Consolidated Balance Sheet Data" for, and
as of the end of, each of the years in the five-year period ended December 31,
1999, are derived from our consolidated financial statements that have been
audited by KPMG LLP, independent certified public accountants. You should read
the selected consolidated financial data together with our historical
financial statements and related notes to our audited reports, as well as the
section included herein entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- ------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations
Data:
Net sales............................ $29,257 $21,859 $20,572 $15,913 $8,608
Cost of sales...................... 11,071 13,189 6,930 5,568 2,996
------- ------- ------- ------- ------
Gross profit......................... 18,186 8,670 13,642 10,345 5,612
Operating expenses:
Research and development........... 3,315 2,648 2,078 1,421 1,074
Sales and marketing................ 4,737 4,338 4,043 2,762 1,290
General and administrative......... 4,460 4,469 3,552 2,703 1,633
Purchased in-process technology.... -- 4,222 -- -- --
Amortization of intangibles........ 1,061 95 31 -- --
------- ------- ------- ------- ------
Operating income (loss).............. 4,613 (7,102) 3,938 3,460 1,615
Interest and other income
(expense), net.................... (1,016) 432 708 3 (4)
------- ------- ------- ------- ------
Income (loss) before income taxes.... 3,597 (6,670) 4,646 3,463 1,611
Income tax expense (benefit)....... 20 (1,535) 1,460 696 451
------- ------- ------- ------- ------
Net income (loss).................... $ 3,577 $(5,136) $ 3,186 $ 2,767 $1,160
======= ======= ======= ======= ======
Net income (loss) per share:
Basic.............................. $ 0.49 $ (0.68) $ 0.38 $ 0.38 $ 0.20
Diluted............................ $ 0.46 $ (0.68) $ 0.36 $ 0.35 $ 0.20
Weighted average shares outstanding:
Basic.............................. 7,235 7,509 8,318 7,272 5,827
Diluted............................ 7,833 7,509 8,965 8,009 5,946
<CAPTION>
As of December 31,
----------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- ------
(in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Current assets....................... $18,325 $18,278 $27,636 $22,407 $6,317
Total assets......................... 40,222 41,400 33,157 33,795 7,388
Current liabilities.................. 7,340 10,039 3,206 4,320 1,321
Long term debt, less current
portion............................. 11,459 13,666 1,292 1,314 64
Total stockholders' equity........... 21,422 17,696 28,658 28,161 5,897
</TABLE>
14
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
We develop, manufacture, market and distribute products used worldwide in
biomedical research that are instrumental in the development of new drug
therapies and medical diagnostic methods. Our products enable scientists and
biomedical researchers to better understand biochemistry, immunology and cell
biology of the human body, as well as disease processes. Through acquisitions
and internal growth, we believe we have grown to include a unique combination
of technological, production, and research and development skills resulting in
a full spectrum of products and services for the worldwide pharmaceutical and
biotechnology industries.
BioSource was originally incorporated as a California corporation in
October 1989, and was reincorporated as a Delaware corporation in May 1993 in
connection with the acquisition of TAGO Immunologicals, Inc., a manufacturer
of immunological reagents derived from antibodies produced in goats and other
animals. In November 1995, we acquired Keystone Laboratories, Inc., a
manufacturer of oligonucleotides. In June 1996, we acquired assets and assumed
selected liabilities of Medgenix Diagnostics, S.A. located in Fleurus,
Belgium. The Medgenix assets consisted of diagnostic and research assay kits,
and included manufacturing and distribution facilities, research and
development laboratories, customer accounts and an existing employee base. In
December 1998, BioSource acquired Quality Controlled BioChemicals, Inc., a
manufacturer of peptides and antibodies. In December 1998, we also acquired
substantially all the assets and selected liabilities of Biofluids, Inc., a
manufacturer of serum, buffers and media.
In 1998, we incurred a net loss of $5,135,800. The loss was primarily the
result of charges of approximately (1) $4,966,000 related to the establishment
of valuation reserves for our antibody inventories, and the reduction of our
inventory value for Enzyme-Linked ImmunoSorbent Assay, or ELISA, test kits and
products manufactured in Europe and (2) $4,222,000 related to purchased in-
process technology in connection with our acquisition of QCB in December 1998.
As a result of the 1998 net loss, we had net operating losses that benefited
our income tax provision in 1999. All of our net operating losses have been
recognized as of December 31, 1999.
We currently manufacture products for inventory and ship products shortly
after receipt of orders and anticipate that we will continue to do so in the
future. Accordingly, we have not developed a significant backlog of products
and do not anticipate we will develop a material backlog of products in the
future.
Consolidated Results of Operations
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net sales. Net sales were $29,257,000 in 1999 compared to $21,858,600 in
1998, an increase of $7,398,400 or 33.8%. $5,501,200 of the increase is
attributable to the revenues generated from the QCB and Biofluids acquisitions
in December 1998. The remaining increase is related to the increase in the
volume of sales of assay kits and oligonucleotides. Foreign sales represented
47.0% of total sales in 1999 and 59.5% of total sales in 1998. Net sales in
the United States were $15,518,000 in 1999 compared to $8,844,100 in 1998, an
increase of $6,673,900 or 75.5%. $5,501,200 of the increase is attributable to
the revenues generated from the QCB and Biofluids acquisitions in December
1998. The additional increase was generated primarily from the increase in the
sales of assay kits and oligonucleotides. Net sales to Japan were $2,790,000
in 1999, an increase of $155,300, or 5.9%, over the prior year. European sales
were $10,139,400 in 1999, an increase of $447,000 or 4.6%. This increase was
primarily due to an increase in sales of assay kits.
Gross profit. Gross profit in 1999 was $18,186,500, or 62.2% of net sales,
compared to $8,670,000 or 39.7% of sales for 1998. The increased gross margin
is primarily the result of a 1998 charge of approximately $4,966,000 related
to (1) the establishment in 1998 of valuation reserves for antibody
inventories and (2) the reduction of inventory value for ELISA test kits and
products manufactured in Europe.
Research and development. Research and development expense in 1999 was
$3,315,400 and in 1998 was $2,648,300. Increased costs in domestic
expenditures of approximately $1,002,000 were due to the additional
expenditures of our QCB subsidiary acquired in December 1998. These costs were
offset by a reduction of $297,000 in our European expenses related to staff
and other cost reductions in Europe.
15
<PAGE>
Purchased in-process technology. The purchased in-process technology charge
in 1998 of $4,222,000 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. In accordance with applicable accounting rules,
purchased in-process technology is required to be expensed. You should read
Note 2 of the Notes to Consolidated Financial Statements for further
discussion on this item.
Sales and marketing. Sales and marketing expense was $4,736,900 in 1999
compared to $4,337,500 in 1998. The increased sales and marketing expense of
$399,400, or 9.2%, is primarily due to additional costs associated with sales
and marketing activities of our QCB subsidiary and Biofluids division acquired
in December 1998 as well as overall increased advertising and other marketing
programs.
General and administrative. General and administrative expenses were
$4,460,300 in 1999 and $4,468,900 in 1998. General and administrative expenses
decreased as a result of a 1998 settlement of a legal claim by the former
landlord of our Belgium facility and costs associated with the transition and
relocation of our Belgium subsidiary, offset by an increase of additional
costs related to the acquisitions of QCB and Biofluids in December 1998.
Amortization of intangibles. Amortization of intangible assets was
$1,060,700 in 1999 and $95,100 in 1998. The increase was due to the full year
amortization of intangible assets acquired in connection with the acquisitions
of QCB and Biofluids in December 1998.
Interest income and expense. Interest expense of $1,367,300 in 1999 and
$215,900 in 1998 was related to the interest expense on the note used to
finance the acquisition of QCB and Biofluids in December 1998. Interest income
of $397,200 in 1999 and $513,400 in 1998 was derived from interest income on
invested cash.
Income tax expense (benefit). The income tax expense in 1999 was $19,600
while the income tax benefit in 1998 was $1,534,600. The effective income tax
rate of 0.5% for 1999 reflects the benefit of the utilization of all prior net
operating losses in our Belgium and other European subsidiaries. The effective
rate of 23.0% for 1998 reflects non-deductible foreign losses of approximately
$923,400.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net sales. Net sales were $21,858,600 in 1998, an increase of $1,286,800 or
6.3% over 1997. Net 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 oligonucleotides. Net 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 radioimmuno
assay kits. These kits were facing strong competition from non-radioactive
assays and as a result we were realizing a decline in revenue and market
share. Net 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 adverse economic climate in Asia. A large portion of our sales are
derived from foreign sales, representing 59.5% of our net sales in 1998 and
63.8% of our net sales in 1997. Although the percentage of domestic sales to
total net sales has remained relatively constant, domestic sales volume has
increased by 18.7% in 1998 and 9.7% in 1997 as compared to the prior year.
Gross profit. Gross profit was $8,670,000, or 39.7%, in 1998 and
$13,641,700, or 66.3%, in 1997. The decline in gross profit of $4,971,700, or
36.4%, in 1998 as compared to 1997 was primarily the result of charges of
approximately $4,966,000 related to (1) the establishment of a valuation
reserve for our antibody inventory and (2) the reduction of inventory value
for 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
16
<PAGE>
customer needs. As a result, in order to properly account for excess or slow
moving inventory resulting from large production runs, the appropriate
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, buffers and media resulting from our acquisitions of QCB and
Biofluids in December 1998.
Research and development. Research and development expense was $2,648,300
in 1998 and $2,077,700 in 1997. 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.
Purchased in-process technology. Purchased in-process technology was
$4,222,000 in 1998 as compared to zero in 1997. 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. In accordance with applicable accounting rules,
purchased in-process technology is required to be expensed. You should read
Note 2 of the Notes to Consolidated Financial Statements for further
discussion on this item.
Sales and marketing. Sales and marketing expenses were $4,337,500 in 1998
and $4,043,000 in 1997. 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.
General and administrative. General and administrative expenses were
$4,468,900 in 1998 and $3,552,000 in 1997. 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 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 was
$95,100 in 1998 and $30,700 in 1997. The increase of $64,400 was due to the
amortization of intangible assets acquired in conjunction with the
acquisitions of QCB and Biofluids in December 1998.
Interest income and expense. Interest expense of $215,900 in 1998 was
related to the interest expense on the note used to finance the acquisition of
QCB and Biofluids. Interest expense of $133,000 in 1997 was related to
interest expense on the notes used to finance the purchase of our current
facilities in Camarillo, California. Interest income of $513,400 in 1998 and
$760,400 in 1997 was derived from interest income on invested cash.
Income tax expense (benefit). Our income tax benefit for the year ended
December 31, 1998 was $1,534,600. Our income tax expense for the year ended
December 31, 1997 was $1,460,000. The income tax benefit recorded in 1998 is
primarily due to the inventory valuation reserves and purchased in-process
technology charges recorded in 1998.
17
<PAGE>
Quarterly Results
The following table sets forth various unaudited statement of income data
for the last eight quarters, has been prepared on the same basis as the annual
information and, in management's opinion, includes all adjustments necessary
to present fairly the information for each of the quarters below.
<TABLE>
<CAPTION>
Dec. 31, Sept. 30, June 30, March 31, Dec. 31, Sept. 30, June 30, March 31,
1999 1999 1999 1999 1998 1998 1998 1998
-------- --------- -------- --------- -------- --------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $6,880 $7,470 $7,588 $7,319 $ 5,520 $ 5,714 $5,324 $5,301
Cost of goods sold...... 2,380 2,914 2,928 2,849 2,767 6,689 1,952 1,781
------ ------ ------ ------ -------- ------- ------ ------
Gross profit (loss)... 4,500 4,556 4,660 4,470 2,753 (975) 3,372 3,520
Research and
development............ 954 802 765 794 729 679 678 562
Sales and marketing..... 1,378 1,124 1,164 1,071 1,380 1,134 993 831
General and
administrative
expense................ 1,238 1,053 1,133 1,036 1,525 997 904 1,043
Purchased in-process
technology............. -- -- -- -- 4,222 -- -- --
Amortization of
intangibles............ 303 267 242 249 71 8 8 8
------ ------ ------ ------ -------- ------- ------ ------
Income (loss) from
operations........... 627 1,310 1,356 1,320 (5,174) (3,793) 789 1,076
Interest income
(expense), net......... (231) (253) (247) (239) (46) 72 111 162
Other income (expense),
net.................... (179) 67 80 (14) 32 96 39 (35)
------ ------ ------ ------ -------- ------- ------ ------
Income (loss) before
income taxes......... 217 1,124 1,189 1,067 (5,188) (3,625) 939 1,203
Income tax expense
(benefit).............. (633) 223 184 246 (1,096) (964) 137 387
------ ------ ------ ------ -------- ------- ------ ------
Net income (loss)..... $ 850 $ 901 $1,005 $ 821 $ (4,092) $(2,661) $ 802 $ 816
====== ====== ====== ====== ======== ======= ====== ======
</TABLE>
Liquidity and Capital Resources
Cash and cash equivalents as of December 31, 1999 of $4,644,500 decreased
by $2,432,400, or 34%, from $7,076,900 at December 31, 1998. The decrease in
cash resulted primarily from the use of cash to reduce outstanding borrowings.
Working capital, which is the excess of current assets over current
liabilities, at December 31, 1999, was $10,984,900 as compared to $8,239,400
at December 31, 1998 representing an increase
of $2,745,500 or 33%. 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 and technologies.
Capital expenditures of $1,077,000 for the year ended December 31, 1999,
were primarily for the purchases of laboratory, manufacturing and computer
equipment. The funding for these expenditures was obtained from our working
capital.
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 our outstanding common stock at market price and in
August 1998 we were authorized to repurchase up to an additional 300,000
shares of our outstanding common stock at market price. No shares were
repurchased during the year ended December 31, 1999, or for the period from
January 1, 2000, through March 15, 2000. As of December 31, 1999, we have
repurchased a total of 1,279,500 shares of our common stock for $8,054,300, an
average price of $6.29 per share, since the inception of the repurchase
program in April 1997.
18
<PAGE>
In December 1998, we executed a loan agreement with Union Bank of
California, N.A. and borrowed $14,000,000 which was used to finance the
acquisitions of the stock of QCB and all of the assets and selected
liabilities of Biofluids. As of December 31, 1999, the balance was
$12,000,000. On February 16, 2000, we repaid $8,100,000 of our borrowings
under the loan agreement with the proceeds of our Series B Preferred Stock and
warrants financing. On March 11, 2000, we amended this loan agreement to
convert our balance of $3,400,000 to a line of credit and on March 13, 2000,
we repaid $3,000,000 of the line of credit. Our line of credit provides for
borrowings of up to $3,400,000 and expires on February 26, 2001. Interest on
the line of credit is payable monthly at LIBOR plus 2%. Covenants in the loan
agreement require us to 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
various non-financial covenants. As of December 31, 1999, we were in
compliance 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.
These loans were refinanced with Union Bank of California, N.A in January
2000. As of January 20, 2000, we had completely repaid each of these loans
with the proceeds received from the sale of warrants.
On February 15, 2000, we issued 371,300 shares of our Series B Preferred
Stock with an initial aggregate liquidation value of $9,000,312. The Series B
Preferred Stock is initially convertible into 1,485,200 shares of our common
stock at an effective price of $6.06 per share of common stock. The Series B
Preferred Stock will be entitled to receive in-kind dividends at a rate of 8%
of the original issue price. Unless all dividends on the outstanding shares of
Series B Preferred Stock have been paid, no dividends or other distributions
shall be paid to common stockholders. The Series B Preferred Stock has a
liquidation preference to the common stock. This preferred stock also is
automatically convertible upon any of the following events: (1) a public
offering of common stock of not less than $15 per share, which results in
proceeds to us of at least $40,000,000 before commissions or discounts, (2)
the date we specify to the holders, if the last reported sale price of our
stock is above $20 per share for 20 consecutive trading days on the Nasdaq
National Market, or (3) the holders of greater than 50% of the shares of the
Series B inform us in writing of their desire to convert the shares. Holders
of Series B Preferred Stock have the right to require us to redeem the Series
B Preferred Stock at the original liquidation value plus accrued dividends
after February 15, 2004, or as early as February 15, 2001, if various stock
price thresholds are not met.
In connection with the issuance of Series B Preferred Stock, the holders
received detachable stock purchase warrants. The warrants are exercisable for
1,287,000 shares of common stock at an exercise price of $7.77 per share. We
allocated the net proceeds of $8,385,000 based on the relative fair value of
the warrants and the Series B Preferred Stock. The book value of the Series B
Preferred Stock of $5,581,600 will accrete to its liquidation value
immediately by $995,100 related to the beneficial conversion feature, then
through February 2004 or earlier upon accelerated conversion, under the
interest method. This accretion will not have an effect on net income, but
will reduce the income available to common stockholders used to calculate
basic earnings per share.
On March 8, 2000, we entered into a lease for a new facility in Camarillo,
California. The lease will commence on May 1, 2000, and expires on June 30,
2005, with the option to continue the lease for two additional five-year
terms. Annual lease payments in the initial five-year period ended December
31, 2005, range from $342,000 at inception to $411,000 at termination.
We currently estimate that we will use the net proceeds from an offering of
our common stock to acquire complementary businesses, products, services and
technologies; for research and development; working capital; and other general
corporate purposes. From time to time, we evaluate potential acquisitions of
complementary businesses, products or technologies and expect that we may
likely undertake one or more such acquisitions during 2000. We believe that
the net proceeds from the offering, together with our current cash, cash
equivalents and short-term investments will be sufficient to meet our
anticipated cash needs for working capital and capital expenditures for at
least the next twelve months.
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Year 2000
The following statements constitute a "Year 2000 Readiness Disclosure"
under the Year 2000 Information and Readiness Disclosure Act.
Prior to the end of 1999, we completed our systems assessment and installed
a new version of our business system software that is purported to be Year
2000 compliant by the software vendor. We have implemented the software as
well as some other less significant software, and fully tested the software to
ensure Year 2000 compliance. Software for one piece of laboratory equipment
was determined to require an upgrade in order to be Year 2000 compliant which
was subsequently implemented.
To date, we have not experienced any material failures of any of our
systems related to the failure of Year 2000 compliance. In addition, to date,
we have not been made aware of any Year 2000 compliance failures involving our
customers and suppliers.
To date, we have spent an immaterial amount on the compliance program, and
we do not expect to incur any material additional amounts. The costs discussed
above do not include our internal costs, principally the payroll costs for
those persons working on the project, which costs we do not track.
Recently Issued Accounting Standards
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" is effective for fiscal years beginning after June 15, 2000. 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 our financial
statements. In addition, the impact of SFAS No. 133 will depend on the terms
of future transactions.
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RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this report before purchasing shares of our common
stock. Investing in our common stock involves a high degree of risk. If any of
the following events or outcomes actually occur, our business, operating
results and financial condition would likely suffer. As a result, the trading
price of our common stock could decline, and you may lose all or part of the
money you paid to purchase our common stock.
Risks Related to Our Business
Failure to manage our growth and expansion could impair our business.
We historically have sought, and will continue to seek, to increase our
sales and profitability primarily through the acquisition or internal
development of new product lines, additional customers and new businesses. Our
historical revenue growth is primarily attributable to our acquisitions and
new product development and, to a lesser extent, to increased revenues from
our existing products. We expect that future acquisitions, if successfully
consummated, will create increased working capital requirements, which will
likely precede by several months any material contribution of an acquisition
to our net income. Our ability to achieve our expansion objectives and to
manage our growth effectively and profitably depends upon a variety of
factors, including:
. our ability to internally develop new products;
. our ability to make profitable acquisitions;
. integration of new facilities into existing operations;
. hiring, training and retention of qualified personnel;
. establishment of new relationships or expansion of existing relationships
with customers and suppliers; and
. availability of capital.
In addition, the implementation of our growth strategy will place
significant strain on our administrative, operational and financial resources
and increased demands on our financial systems and controls. Our ability to
manage our growth successfully will require us to continue to improve and
expand these resources, systems and controls. If our management is unable to
manage growth effectively, our operating results could be adversely affected.
Moreover, there can be no assurance that our historic rate of growth will
continue, that we will continue to successfully expand or that growth or
expansion will result in profitability.
We cannot guarantee that our future acquisitions will be successful.
We compete for acquisition and expansion opportunities with companies which
have significantly greater financial and management resources than us. There
can be no assurance that suitable acquisition or investment opportunities will
be identified, that any of these transactions can be consummated, or that, if
acquired, these new businesses can be integrated successfully and profitably
into our operations. These acquisitions and investments may also require a
significant allocation of resources, which will reduce our ability to focus on
the other portions of our business, including many of the factors listed in
the prior risk factor.
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Reduction or delays in research and development budgets and in government
funding may negatively impact our sales.
Our customers include researchers at pharmaceutical and biotechnology
companies, academic institutions and government and private laboratories.
Fluctuations in the research and development budgets of these researchers and
their organizations could have a significant effect on the demand for our
products. Research and development budgets fluctuate due to numerous factors
that are outside our control and are difficult to predict, including changes
in available resources, spending priorities and institutional budgetary
policies. Our business could be seriously damaged by any significant decrease
in life sciences research and development expenditures by pharmaceutical and
biotechnology companies, academic institutions or government and private
laboratories.
A significant portion of our sales has been to researchers, universities,
government laboratories and private foundations whose funding is dependent
upon grants from government agencies such as the U.S. National Institutes of
Health and similar domestic and international agencies. Although the level of
research funding has increased during the past several years, we cannot assure
you that this trend will continue. Government funding of research and
development is subject to the political process, which is inherently fluid and
unpredictable. Our revenues may be adversely affected if our customers delay
purchases as a result of uncertainties surrounding the approval of government
budget proposals. Also, government proposals to reduce or eliminate budgetary
deficits have sometimes included reduced allocations to the NIH and other
government agencies that fund research and development activities. A reduction
in government funding for the NIH or other government research agencies could
seriously damage our business.
Many of our customers receive funds from approved grants at particular
times of the year, as determined by the federal government. Grants have, in
the past, been frozen for extended periods or have otherwise become
unavailable to various institutions without advance notice. The timing of the
receipt of grant funds affects the timing of purchase decisions by our
customers and, as a result, can cause fluctuations in our sales and operating
results.
We rely on raw materials for our manufacturing, which we may not always be
able to obtain on favorable terms.
Our manufacturing process relies on the continued availability of high-
quality raw materials. 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 key raw materials, which has created minor delays in our
ability to fill orders for specific 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 and our results of operations.
Our ability to raise the capital necessary to expand our business is
uncertain.
In the future, in order to expand our business through internal development
or acquisitions, we may need to raise substantial additional funds through
equity or debt financings, research and development financings or
collaborative relationships. However, this additional funding may not be
available or, if available, it may not be available on economically reasonable
terms. In addition, any additional funding may result in significant dilution
to existing stockholders. If adequate funds are not available, we may be
required to curtail our operations or obtain funds through collaborative
partners that may require us to release material rights to our products.
Our research and development efforts for new products may be unsuccessful.
We incur significant research and development expenses to develop new
products and technologies. There can be no assurance that any of these
products or technologies will be successfully developed or that if developed,
will be commercially successful. In the event that we are unable to develop
commercialized products from our research and development efforts or we are
unable or unwilling to allocate amounts beyond our currently anticipated
research and development investment, we could lose our entire investment in
these new products and technologies.
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Failure to license new technologies could impair our new product development.
Our business model of providing products to researchers working on a
variety of genetic projects requires us to develop a wide spectrum of
products. To generate broad product lines it is advantageous to sometimes
license technologies from others rather than depending exclusively on our own
employees. As a result, we believe our ability to license new technologies
from third parties is and will continue to be important to our ability to
offer new products.
In addition, from time to time we are notified or become aware of patents
held by third parties that are related to technologies we are selling or may
sell in the future. After a review of these patents, we may decide to obtain a
license for these technologies from these third parties. We are currently in
the process of negotiating several of these licenses and expect that we will
also negotiate these types of licenses in the future. There can be no
assurances that we will be able to negotiate these licenses on favorable
terms, or at all.
Our ability to gain access to technologies needed for new products and
services also depends in part on our ability to convince licensors that we can
successfully commercialize their inventions. We cannot assure you that we will
be able to continue to identify new technologies developed by others. Even if
we are able to identify new technologies of interest, we may not be able to
negotiate a license on favorable terms, or at all.
If we fail to introduce new products, or our new products are not accepted by
potential customers, we may lose market share.
Rapid technological change and frequent new product introductions are
typical for our market. Our future success will depend in part on continuous,
timely development and introduction of new products that address evolving
market requirements. We believe successful new product introductions provide a
significant competitive advantage because customers make an investment of time
in selecting and learning to use a new product, and then are reluctant to
switch. To the extent we fail to introduce new and innovative products, we may
lose market share to our competitors, which will be difficult or impossible to
regain. An inability, for technological or other reasons, to successfully
develop and introduce new products could reduce our growth rate or damage our
business.
In the past we have experienced, and are likely to experience in the
future, delays in the development and introduction of products. We cannot
assure you that we will keep pace with the rapid rate of change in life
sciences research, or that our new products will adequately meet the
requirements of the marketplace or achieve market acceptance. Some of the
factors affecting market acceptance of new products include:
. availability, quality and price relative to competitive products;
. the timing of introduction of the product relative to competitive
products;
. scientists' opinion of the product's usefulness;
. citation of the product in published research; and
. general trends in life sciences research.
The expenses or losses associated with unsuccessful product development
activities or lack of market acceptance of our new products could materially
adversely affect our business, operating results and financial condition.
Failure to attract and retain qualified scientific or production personnel or
loss of key management or key personnel could hurt our business.
Recruiting and retaining qualified scientific and production personnel to
perform research and development work and product manufacturing is critical to
our success. Because the industry in which we compete is very competitive, we
face significant challenges attracting and retaining this qualified personnel
base. Although we believe we have been and will be able to attract and retain
these personnel, there can be no assurance that we will be able to continue to
successfully attract qualified personnel. In addition, our anticipated growth
and expansion into areas and activities requiring additional expertise, such
as clinical testing, government approvals, production and marketing, will
require the addition of new management personnel and the development of
additional expertise by existing management personnel. The failure to attract
and retain these personnel or, alternatively, to develop this expertise
internally would adversely affect our business.
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Our success also will continue to depend to a significant extent on the
members of our management team and, in particular, on our Chief Executive
Officer and President, James H. Chamberlain. Except for an employment
agreement with Mr. Chamberlain, which has a term expiring on December 31,
2000, and an employment agreement with Jordan Fishman, Ph.D., our Vice
President, Cellular Biology, which has a term expiring on November 30, 2001,
we do not have employment agreements with any of our executive officers or key
employees or maintain any "key man" insurance policies regarding any of these
individuals. 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 services of Mr. Chamberlain, Dr. Fishman
or of any of our other key management or employees, could have a material
adverse effect upon our business.
Many of our customers are obtaining our products through new distribution
channels and methods that may adversely impact our results of operations and
financial condition.
Many of our customers have developed purchasing initiatives to reduce the
number of vendors they purchase from in order to lower their supply costs.
These activities force us to supply the large distributors with our products
at a discount to reach those customers. For similar reasons, many larger
customers, including the federal government, have special pricing
arrangements, including blanket purchase agreements. These agreements may
limit our pricing flexibility with respect to our products, which could
adversely impact our business, financial condition and results of operations.
In addition, although we accept and process some orders through our Internet
website, we also implement sales through third-party Internet vendors.
Internet sales through third parties will negatively impact our gross margins
because we pay commission on these Internet sales.
We rely on international sales, which are subject to additional risks.
International sales accounted for approximately 47.0% of our revenues in
1999 and 59.5% of our revenues in 1998. International sales can be subject to
many inherent risks that are difficult or impossible for us to predict or
control, including:
. unexpected changes in regulatory requirements and tariffs;
. difficulties in staffing and managing foreign operations, including
foreign distributor relationships;
. longer payment cycles;
. adverse economic or political changes;
. potential trade restrictions, exchange controls and import and export
licensing requirements;
. problems in collecting accounts receivable; and
. potentially adverse tax consequences.
We intend to continue to generate revenues from sales outside the United
States in the future. Future distribution of our products outside the United
States also may be subject to greater governmental regulation. These
regulations, which include requirements for approvals or clearance to market,
additional time required for regulatory review and sanctions imposed for
violations, as well as the other risks indicated in the bullets listed above,
vary by country. We may not be able to obtain regulatory approvals in the
countries in which we currently sell our products or in countries where we may
sell our products in the future. In addition, we may be required to incur
significant costs in obtaining necessary regulatory approvals. Failure to
obtain necessary regulatory approvals or any other failure to comply with
regulatory requirements could result in a material reduction in our revenues
and earnings.
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.
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In addition, approximately 22% of our sales are made in foreign currencies,
primarily Belgian francs, British pounds, and German marks. Although a
significant portion of the foreign currencies in which we conduct our business
is currently, or is anticipated in the future to be, denominated in Euros as a
result of the European Monetary Union, we are not certain about the effect of
the Euro on our business, financial condition or results of operations. In the
past, gains and losses on the conversion of our accounts receivable arising
from international operations have contributed to negative fluctuations in our
results of operations. 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 historically have not,
and currently are not, using hedging transactions or other means to reduce our
exposure to fluctuations in the value of the United States dollar as compared
to the foreign currencies in which many of our sales are made.
We may be unable to protect our trademarks, trade secrets and other
intellectual property rights that are important to our business.
We regard our trademarks, trade secrets and other intellectual property as
a component of 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 intellectual property. 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 intellectual property, especially in countries
where the laws may not protect our rights as fully as in the United States. In
addition, our third-party confidentiality agreements can be breached and, if
they are, there may not be an adequate remedy available to us. If our trade
secrets become known, we may lose our competitive position.
Intellectual property or other litigation could harm our business.
Litigation regarding patents and other intellectual property rights is
extensive in the biotechnology industry. We are aware that patents have been
applied for, and in some cases issued to others, claiming technologies that
are closely related to ours. As a result, and in part due to the ambiguities
and evolving nature of intellectual property law, we periodically receive
notices of potential infringement of patents held by others. Although to date
we have successfully resolved these types of claims, we may not be able to do
so in the future.
In the event of an intellectual property dispute, we may be forced to
litigate. This litigation could involve proceedings declared by the U.S.
Patent and Trademark Office or the International Trade Commission, as well as
proceedings brought directly by affected third parties. Intellectual property
litigation can be extremely expensive, and these expenses, as well as the
consequences should we not prevail, could seriously harm our business.
If a third party claimed an intellectual property right to technology we
use, we might need to discontinue an important product or product line, alter
our products and processes, pay license fees or cease our affected business
activities. Although we might under these circumstances attempt to obtain a
license to this intellectual property, we may not be able to do so on
favorable terms, or at all.
In addition to intellectual property litigation, other substantial, complex
or extended litigation could result in large expenditures by us and
distraction of our management. For example, lawsuits by employees,
stockholders, collaborators or distributors could be very costly and
substantially disrupt our business. Disputes from time to time with companies
or individuals are not uncommon in our industry, and we cannot assure you that
we will always be able to resolve them out of court.
Accidents related to hazardous materials could adversely affect our business.
Portions of our operations require the controlled use of hazardous and
radioactive materials. Although we believe our safety procedures comply with
the standards prescribed by federal, state, local and foreign regulations, the
risk of accidental contamination of property or injury to individuals from
these materials cannot be completely eliminated. In the event of an accident,
we could be liable for any damages that result, which could seriously damage
our business and results of operations.
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Our sales are subject to seasonality, which means that we have less revenue in
some months.
We experience a slowing of sales in Europe during the summer months and
worldwide during the Christmas holidays. Generally, our fourth quarter
revenues are significantly lower than our revenues in each of the first three
quarters of the year. We believe that period to period comparisons of our
operating results may not necessarily be reliable indicators of our future
performance. It is likely that in some future period our operating results
will not meet your expectations or those of public market analysts, which
could result in reductions in the market price of our common stock.
Potential product liability claims could affect our earnings and financial
condition.
We face a potential risk of liability claims based on our products and
services, and we have faced such claims in the past. We carry product
liability insurance coverage which is limited in scope and amount but which we
believe to be adequate. We cannot assure you, however, that we will be able to
maintain this insurance at reasonable cost and on reasonable terms. We also
cannot assure you that this insurance will be adequate to protect us against a
product liability claim, should one arise.
The labor laws applicable to our employees in Europe may restrict the
flexibility of our management.
As of February 29, 2000, 48 of our 207 employees worked for our BioSource
Europe subsidiary, which is located in Nivelles, Belgium. As a result of
Belgian labor laws, we are required to make specified severance payments in
the event we reduce the number of our employees working at this facility.
Accordingly, our management may be limited by the application of the Belgian
labor laws in the determination of staffing levels, and may have less
flexibility in making such determinations than our competitors whose employees
are not subject to similar labor laws.
Risks Associated With Our Industry
The biomedical research products industry is very competitive, and we may be
unable to continue to compete effectively in this industry in the future.
We are engaged in a segment of the biomedical research 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 the products that we have or may develop and may also be more successful
than us in producing and marketing their products. We expect this competition
to continue and intensify in the future.
Our industry has also seen substantial consolidation in recent years, which
has led to the creation of competitors with greater financial and intellectual
property resources than us. In addition, we believe that the success that
others have had in our industry will attract new competitors. Some of our
current and future competitors also may cooperate to better compete against
us. We may not be able to compete effectively against these current or future
competitors. 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, financial condition and results of operations.
As a result of consolidation in the pharmaceutical industry, we may lose
existing customers or have greater difficulty obtaining new customers.
In recent years, the United States pharmaceutical industry has undergone
substantial consolidation. As part of many business combinations, companies
frequently reduce the number of suppliers used and we may not be selected as a
supplier after any business combination. Further, mergers or corporate
consolidations in the pharmaceutical industry could cause us to lose existing
customers and potential future customers, which could have a material adverse
effect on our business, financial condition and results of operations.
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We are currently subject to government regulation.
Our business is currently subject to regulation, supervision and licensing
by federal, state and local governmental authorities. Also, from time to time
we must expend 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 disciplinary actions or administrative enforcement
actions. These actions could result in penalties, including fines.
Risks Associated With Our Common Stock
Our stock price has been volatile.
Our common stock is quoted on the Nasdaq National Market, and there has
been substantial volatility in the market price of our common stock. The
trading price of our common stock has been, and is likely to continue to be,
subject to significant fluctuations due to a variety of factors, including:
. variations in our 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;
. biological or medical discoveries;
. developments concerning intellectual property, including patents and
litigation matters;
. public concern as to the safety of new technologies;
. developments in our relationships with current or future customers and
suppliers; and
. general economic conditions, both in the United States and abroad.
As a result of these factors, and potentially others, the sales price of
our common stock has ranged from $2.41 to $32.00 per share from January 1,
1998 through March 15, 2000 and from $6.06 to $32.00 per share from January 1,
2000 through March 15, 2000. For additional information regarding the price
range of our common stock, see "Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters."
In addition, the stock market in general has experienced extreme price and
volume fluctuations that have affected the market price of our common stock,
as well as the stock of many biotechnology companies. Often, price
fluctuations are unrelated to operating performance of the specific companies
whose stock is affected.
In the past, following periods of volatility in the market price of a
company's stock, securities class action litigation has occurred against the
issuing company. If we were subject to this type of litigation in the future,
we could incur substantial costs and a diversion of our management's attention
and resources, each of which could have a material adverse effect on our
revenue and earnings. Any adverse determination in this type of litigation
could also subject us to significant liabilities.
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Anti-takeover provisions in our governing documents and under applicable law
could impair the ability of a third party to take over our company.
We are subject to various legal and contractual provisions that may impede
a change in our control, including the following:
. our adoption of a stockholders' rights plan, which could result in the
significant dilution of the proportionate ownership of any person that
engages in an unsolicited attempt to take over our company; and
. the ability of our board of directors to issue additional shares of our
preferred stock, which shares may be given superior voting, liquidation,
distribution and other rights as compared to our common stock.
These provisions, as well as other provisions in our certificate of
incorporation and bylaws and under the Delaware General Corporations Law, may
make it more difficult for a third party to acquire our company, even if the
acquisition attempt was at a premium over the market value of our common stock
at that time.
Our principal stockholders and management own a significant percentage of our
capital stock and will be able to exercise significant influence over our
affairs.
After the completion of our offering, for which we filed a Registration
Statement on March 16, 2000, our executive officers, directors and principal
stockholders will continue to beneficially own 22.3% of our outstanding common
stock, based upon the beneficial ownership of our common stock as of March 1,
2000. In addition, these same persons also hold options to acquire additional
shares of our common stock, which may increase their percentage ownership of
the common stock further in the future. Accordingly, these stockholders:
. will be able to significantly influence the composition of our board of
directors;
. will significantly influence all matters requiring stockholder approval,
including change of control transactions; and
. will continue to have significant influence over our affairs.
This concentration of ownership of our common stock could have the effect
of delaying or preventing a change of control of us or otherwise discouraging
a potential acquirer from attempting to obtain control of us. This in turn
could have a negative effect on the market price of our common stock. It could
also prevent our stockholders from realizing a premium over the market prices
for their shares of common stock.
Absence of dividends could reduce our attractiveness to you.
Some investors favor companies that pay dividends, particularly in general
downturns in the stock market. We have never declared or paid any cash
dividends on our common stock. We currently intend to retain any future
earnings for funding growth and we do not currently anticipate paying cash
dividends on our common stock in the foreseeable future. Because we may not
pay dividends, your return on this investment likely depends on your selling
our stock at a profit.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We conduct business in various foreign currencies, including Belgian
francs, British pounds and German marks, and are therefore subject to the
transaction exposures that arise from foreign exchange rate movements between
the dates that foreign currency transactions are initiated and the dates that
they are converted. We are also subject to exchange rate exposures arising
from the translation and consolidation of the financial results of our foreign
subsidiaries. Although a significant portion of the foreign currencies in
which we conduct our business is currently, or is anticipated in the future to
be, denominated in Euros as a result of the European Monetary Union, we are
not certain about the effect of the Euro on our business, financial condition
or results of operations. There can be no assurance that actions taken to
manage our exchange rate exposures will continue to be successful or that
future changes in currency exchange rates will not have a material impact on
our future cash collections and operating results. We do not currently hedge
either our translation risk or our economic risk associated with the exchange
of foreign currencies into U.S. dollars.
Our exposure to market risks for changes in interest rates relates
primarily to outstanding commercial debt. Due to the recent paydown of our
commercial debt, we anticipate no material market risk exposure for changes in
interest rates. Accordingly, we have not included quantitative tabular
disclosures.
Item 8. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Page
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<S> <C>
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets at December 31, 1999 and December 31, 1998... F-3
Consolidated Statements of Operations for years ended December 31, 1999,
1998 and 1997........................................................... F-4
Consolidated Statements of Stockholders' Equity for years ended December
31, 1999, 1998 and 1997................................................. F-5
Consolidated Statements of Cash Flows for years ended December 31, 1999,
1998 and 1997........................................................... F-6
Notes to Consolidated Financial Statements for December 31, 1999, 1998
and 1997................................................................ F-7
Financial Statement Schedule--Valuation and Qualifying Accounts.......... F-20
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
29
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth information with respect to our directors,
executive officers and key employees as of March 1, 2000:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
James H. Chamberlain.............. 52 Chairman of the Board, President and
Chief Executive Officer
Charles C. Best................... 40 Chief Financial Officer, Executive
Vice President, Finance
Gus E. Davis...................... 52 Chief Operating Officer, Executive
Vice President, Sales & Marketing
Richard O. Buford................. 52 Vice President, Human Resources,
Secretary
Cirilo D. Cabradilla, Jr., Ph.D... 52 Vice President, Molecular Biology
Jordan B. Fishman, Ph.D........... 42 Vice President, Cellular Biology
Kevin J. Reagan, Ph.D............. 48 Vice President, Immunology
Jozef Vangenechten, Ph.D. ........ 45 General Manager, BioSource Europe, S.A
Jean-Pierre L. Conte.............. 36 Director
Leonard M. Hendrickson*........... 52 Director
David J. Moffa, Ph.D.*............ 57 Director
John R. Overturf, Jr.**........... 39 Director
Robert D. Weist**................. 60 Director
Robert J. Weltman................. 34 Director
</TABLE>
- - --------
* Member of the Compensation Committee.
** Member of the Audit Committee.
James H. Chamberlain has served as Director, President and Chief Executive
Officer of BioSource and its predecessor, BioSource Industries, Inc., since it
was founded in October 1989, and was 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 also serves on the board of directors of Biopool
International, Inc. He received his Bachelor of Arts degree from West Virginia
University and studied biochemistry at the University of Pittsburgh.
Charles C. Best joined BioSource in December 1999 as Chief Financial
Officer. Prior to his employment at BioSource, Mr. Best served four and a half
years as Vice President and Chief Financial Officer of Cogent Light
Technologies, Inc., a company engaged in the manufacture of surgical lighting
instruments. From 1989 to 1995, Mr. Best worked in various positions including
Corporate Controller for 3D Systems, Inc., a company engaged in the
manufacture and sale of high tech rapid prototyping equipment. Mr. Best is a
CPA and holds a Bachelor of Science degree in Business Administration and
Accounting from San Diego State University.
Gus E. Davis became our Executive Vice President Sales and Marketing and
Chief Operating Officer 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 Genosys Biotechnologies, a company engaged in the
manufacturing of oligonucleotides. Mr. Davis received his Bachelor of Science
and Masters degree in Biology and Chemistry from Sam Houston State University.
Richard O. Buford became Vice President of Human Resources of BioSource 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. Mr. Buford received a Bachelor of Arts and a
Masters degree in English from the University of California at Santa Barbara.
30
<PAGE>
Cirilo D. Cabradilla, Jr., Ph.D. became President of our Keystone
subsidiary in November 1995. From 1991 to 1995, Dr. Cabradilla served as
President of Keystone Laboratories, Inc. From 1988 to 1991, Dr. Cabradilla was
Vice President, Product Development, of Vascor, a pharmaceutical company.
Dr. Cabradilla was an Assistant Professor of Viral Oncology from 1996-1997 at
the University of Pennsylvania, School of Veterinary Medicine. He did his
postdoctoral training at the National Cancer Institute from 1974-1977.
Dr. Cabradilla received a Bachelor of Science and a Ph.D. degree in
Biochemistry from the University of California at Davis.
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,
Massachusetts. 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, Missouri.
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. 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., an international provider of
environmental compliance services, most recently as Managing Director of SGS's
EcoCare Environmental Services division.
Jean-Pierre L. Conte has served as a director of BioSource since February
2000. Mr. Conte is a Managing Director of Genstar Capital LLC, which is the
sole general partner of Genstar Capital Partners II, L.P., a private equity
investment firm. Prior to joining Genstar in 1995, he was a principal for six
years at the NTC Group, Inc., a private equity investment firm. He is a
director of several private companies, including NEN Life Science Products,
Inc. Mr. Conte earned a Masters of Business Administration from Harvard
University Graduate School of Business and a Bachelor of Arts from Colgate
University. Mr. Conte has been appointed to the Board of Directors pursuant to
an investor rights agreement among Genstar, Stargen and us, which is described
under "Item 13. Certain Relationships and Related Transactions."
Leonard M. Hendrickson has been a director of BioSource since October 1993.
Mr. Hendrickson is the President of Isotope Products Laboratories, 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 that he founded. Mr. Hendrickson also
serves on the board of directors of Isotope Products Laboratories, a
subsidiary of Eckert & Ziegler AG. 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 BioSource since April 1995.
Dr. Moffa serves: as the Regional Director and as special projects director
for Lab Corporation of America, Inc. located in Fairmont, West Virginia,
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. located in Altoona, Pennsylvania, 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. Dr. Moffa also serves
31
<PAGE>
on a number of committees and boards of directors of various privately held
companies and governmental offices, including One Valley Bank, Inc. 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 BioSource 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. He also serves as
President of the Combined Penny Stock Fund, Inc., a closed-end stock market
fund, a position he has held since August 1996. From September 1993 until
September 1996, Mr. Overturf served as Vice President of the Rockies Fund,
Inc., a closed-end stock market fund. Mr. Overturf holds a Bachelor of Science
degree in Finance from the University of Northern Colorado.
Robert D. Weist has been a director of BioSource 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.
Robert J. Weltman has served as a director of BioSource since February
2000. He is currently a Vice President of Genstar Capital LLC, the sole
general partner of Genstar Capital Partners II, L.P., a private equity
investment firm. Mr. Weltman joined Genstar in August 1995. Prior to joining
Genstar, from July 1993 to July 1995, Mr. Weltman was an Associate with
Robertson, Stephens & Company, an investment banking firm. In addition, Mr.
Weltman is a director of NEN Life Science Products, Inc. Mr. Weltman holds an
AB degree in chemistry from Princeton University. Mr. Weltman has been
appointed to the Board of Directors pursuant to an investor rights agreement
among Genstar, Stargen and us, which is described under "Item 13. Certain
Relationships and Related Transactions."
The information regarding directors and executive officers of the Company
required by Item 405 of Regulation S-K is contained in the Company's Proxy
Statement for its 2000 Annual Stockholders meeting and is hereby incorporated
by reference.
Item 11. Executive Compensation
Information relating to executive compensation is contained in the
Company's Proxy Statement for its 2000 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
Information relating to certain transactions is contained in the Company's
Proxy Statement for its 2000 Annual Stockholders meeting is hereby
incorporated by reference.
32
<PAGE>
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 at December 31, 1999 and 1998
Consolidated Statements of Operations for the Years ended December 31,
1999, 1998, and 1997
Consolidated Statements of Stockholders' Equity for the Years ended
December 31, 1999, 1998 and
1997
Consolidated Statements of Cash Flows for the Years ended December 31,
1999, 1998, and 1997
Notes to Consolidated Financial Statements
(a)(2) The following schedule supporting the financial statements of the
Company is included herein:
Financial Statment Schedule--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:
None.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: March 21, 2000 /s/ Charles C. Best
By: _________________________________
Charles C. Best
Chief Financial Officer
Date: March 21, 2000 /s/ James H. Chamberlain
By: _________________________________
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:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ David J. Moffa, Ph.D. Director March 21, 2000
____________________________________
David J. Moffa, Ph.D.
/s/ John R. Overturf, Jr. Director March 21, 2000
____________________________________
John R. Overturf, Jr.
/s/ Robert D. Weist Director March 21, 2000
____________________________________
Robert D. Weist
/s/ Jean-Pierre L. Conte Director March 21, 2000
____________________________________
Jean-Pierre L. Conte
/s/ Robert J. Weltman Director March 21, 2000
____________________________________
Robert J. Weltman
</TABLE>
34
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets at December 31, 1999 and December 31, 1998... F-3
Consolidated Statements of Operations for years ended December 31, 1999,
1998 and 1997........................................................... F-4
Consolidated Statements of Stockholders' Equity for years ended December
31, 1999, 1998 and 1997................................................. F-5
Consolidated Statements of Cash Flows for years ended December 31, 1999,
1998 and 1997........................................................... F-6
Notes to Consolidated Financial Statements for December 31, 1999, 1998
and 1997................................................................ F-7
Financial Statement Schedule--Valuation and Qualifying Accounts.......... F-20
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
BioSource International, Inc.:
We have audited the consolidated financial statements of BioSource
International, Inc. and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule 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, 1999 and 1998 and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999 in conformity with generally
accepted accounting principles. Also, in our opinion, the related 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.
KPMG LLP
Los Angeles, California
March 10, 2000
F-2
<PAGE>
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
(Amounts in thousands, except for share amounts)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 4,644.5 $ 7,076.9
Accounts receivable, less allowance for doubtful
accounts of $328.1 at December 31, 1999 and $301.0 at
December 31, 1998 .................................... 5,088.9 4,381.0
Inventories, net (note 3).............................. 6,015.3 4,970.6
Prepaid expenses and other current assets.............. 578.7 726.2
Deferred income taxes (note 9)......................... 1,997.8 1,123.4
--------- ---------
Total current assets.................................. 18,325.2 18,278.1
Property and equipment, net (note 4)..................... 5,392.6 5,513.6
Intangible assets, net of accumulated amortization of
$1,186.4 at December 31, 1999 and $125.8 at December 31,
1998 (note 2)........................................... 13,816.3 14,451.2
Other assets............................................. 819.3 1,318.0
Deferred income taxes (note 9)........................... 1,868.4 1,839.2
--------- ---------
$40,221.8 $41,400.1
========= =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Notes payable to banks, current portion (note 5)....... $ 2,754.4 $ 3,012.5
Accounts payable....................................... 2,067.6 1,643.0
Accrued expenses....................................... 1,923.8 4,155.6
Deferred income........................................ 369.0 625.9
Income taxes payable................................... 225.5 601.7
--------- ---------
Total current liabilities............................. 7,340.3 10,038.7
Notes payable to banks, less current portion (note 5).... 11,459.3 13,665.6
--------- ---------
Total liabilities..................................... 18,799.6 23,704.3
Commitments and contingencies (notes 5 and 12)
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 7,711,716 shares and outstanding
7,425,716 shares at December 31, 1999; issued
7,469,925 shares and outstanding 7,178,925 shares at
December 31, 1998..................................... 7.4 7.2
Additional paid-in capital............................. 22,025.9 21,186.8
Retained earnings (accumulated deficit)................ 948.1 (2,629.3)
Accumulated other comprehensive loss................... (1,559.2) (868.9)
--------- ---------
Total stockholders' equity............................ 21,422.2 17,695.8
--------- ---------
$40,221.8 $41,400.1
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1999, 1998 and 1997
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net sales...................................... $29,257.0 $21,858.6 $20,571.8
Cost of sales.................................. 11,070.5 13,188.6 6,930.1
--------- --------- ---------
Gross profit................................. 18,186.5 8,670.0 13,641.7
--------- --------- ---------
Operating expenses:
Research and development..................... 3,315.4 2,648.3 2,077.7
Sales and marketing.......................... 4,736.9 4,337.5 4,043.0
General and administrative................... 4,460.3 4,468.9 3,552.0
Purchased in-process technology.............. -- 4,222.0 --
Amortization of intangibles.................. 1,060.7 95.1 30.7
--------- --------- ---------
Total operating expenses................... 13,573.3 15,771.8 9,703.4
--------- --------- ---------
Operating income (loss)........................ 4,613.2 (7,101.8) 3,938.3
Interest income.............................. 397.2 513.4 760.4
Interest expense............................. (1,367.3) (215.9) (133.0)
Other income (expense), net.................. (46.1) 133.9 80.6
--------- --------- ---------
Income (loss) before income taxes.............. 3,597.0 (6,670.4) 4,646.3
Income tax expense (benefit)................. 19.6 (1,534.6) 1,460.0
--------- --------- ---------
Net income (loss).......................... $ 3,577.4 $(5,135.8) $ 3,186.3
========= ========= =========
Net income (loss) per share:
Basic........................................ $ 0.49 $ (0.68) $ 0.38
========= ========= =========
Diluted...................................... $ 0.46 $ (0.68) $ 0.36
========= ========= =========
Weighted average shares outstanding:
Basic........................................ 7,234.7 7,508.8 8,318.0
========= ========= =========
Diluted...................................... 7,832.9 7,508.8 8,965.2
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1999, 1998 and 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
Common stock Retained
---------------- Additional earnings Accumulated Net
Number of paid-in (accumulated comprehensive stockholders' Comprehensive
shares Amount capital deficit) loss equity income (loss)
--------- ------ ---------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 $ 3,186.3
Foreign currency
translation
adjustments............ -- -- -- -- (1,156.1) (1,156.1) (1,156.1)
------- ---- --------- --------- --------- --------- ---------
Total comprehensive
income................. $ 2,030.2
=========
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) $(5,135.8)
Foreign currency
translation
adjustments............ -- -- -- -- 292.2 292.2 292.2
------- ---- --------- --------- --------- --------- ---------
Total comprehensive
loss................... $(4,843.6)
=========
Balance at December 31,
1998................... 7,178.9 7.2 21,186.8 (2,629.3) (868.9) 17,695.8
Issuance of stock
options to non
employees.............. -- -- 13.5 -- -- 13.5
Exercise of stock
options................ 246.8 .2 609.0 -- -- 609.2
Income tax benefit from
exercise of stock
options................ -- -- 216.6 -- -- 216.6
Net income.............. -- -- -- 3,577.4 -- 3,577.4 $ 3,577.4
Foreign currency
translation
adjustments............ -- -- -- -- (690.3) (690.3) (690.3)
---------
Total comprehensive
income................. $ 2,887.1
------- ---- --------- --------- --------- --------- =========
Balance at December 31,
1999................... 7,425.7 $7.4 $22,025.9 $ 948.1 $(1,559.2) $21,422.2
======= ==== ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998 and 1997
(Amounts in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
--------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................... $ 3,577.4 $ (5,135.8) $ 3,186.3
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization............ 1,990.9 959.8 712.0
Net (gain) loss on sale of property and
equipment............................... -- 31.5 (6.3)
Purchased in-process technology.......... -- 4,222.0 --
Non-cash stock compensation.............. 13.5 110.4 --
Non-cash write-down of inventory......... -- 4,966.0 --
Other.................................... -- 28.0 (110.0)
Changes in assets and liabilities, net of
effects of acquisitions:
Accounts receivable...................... (1,175.2) (386.1) 413.0
Inventories.............................. (1,356.5) (1,048.3) (1,177.3)
Prepaid expenses and other current
assets.................................. (90.6) 888.0 (549.7)
Deferred income taxes.................... (903.6) (2,491.6) (56.0)
Other assets............................. 314.2 (1,001.1) 142.5
Accounts payable......................... 327.8 (62.0) (318.9)
Accrued expenses......................... (2,255.7) 2,592.3 (581.3)
Deferred income.......................... (256.9) 3.9 --
Income taxes payable..................... 215.5 348.9 194.0
--------- ---------- ----------
Net cash provided by operating
activities............................ 400.8 4,025.9 1,848.3
--------- ---------- ----------
Cash flows from investing activities:
Purchase of property and equipment........ (1,077.0) (1,390.0) (659.0)
Purchase of Quality Controlled
Biochemicals............................. -- (15,193.9) --
Purchase of net assets from Biofluids..... -- (2,822.5) --
Proceeds from sale of property and
equipment................................ 25.6 3.1 21.4
Purchases of investments.................. -- (7,614.8) (23,028.0)
Proceeds from sale of investments......... -- 12,583.5 29,387.9
--------- ---------- ----------
Net cash provided by (used in)
investing activities.................. (1,051.4) (14,434.6) 5,722.3
--------- ---------- ----------
Cash flows from financing activities:
Proceeds from the exercise of options..... 609.2 60.0 147.2
Proceeds from the exercise of warrants.... -- -- 64.8
Borrowings from bank...................... -- 14,000.0 --
Repayments to bank........................ (2,466.6) (31.1) (28.5)
Payments on capital lease obligations..... (9.6) (3.0) (2.3)
Payments to acquire treasury stock........ -- (6,309.8) (1,744.5)
--------- ---------- ----------
Net cash provided by (used in)
financing activities.................. (1,867.0) 7,716.1 (1,563.3)
--------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents...................... (2,517.6) (2,692.6) 6,007.3
Effect of exchange rates on cash and cash
equivalents................................ 85.2 292.0 (136.7)
Cash and cash equivalents at beginning of
year....................................... 7,076.9 9,477.5 3,606.9
--------- ---------- ----------
Cash and cash equivalent at end of year..... $ 4,644.5 $ 7,076.9 $ 9,477.5
========= ========== ==========
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest................................. $ 1,171.4 $ 117.2 $ 136.4
========= ========== ==========
Income taxes............................. $ 286.2 $ 1,117.6 $ 1,477.7
========= ========== ==========
</TABLE>
In 1999, additional paid-in capital increased by $216.6 in connection with
the tax benefit associated with the exercise of employee stock options.
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
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. (Company) and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
Cash and cash equivalents
Cash and cash equivalents include all cash balances and highly liquid
investments with original maturities of three months or less.
Financial Instruments
The carrying value of financial instruments such as cash and cash
equivalents, trade receivables, and payables approximates their fair value at
December 31, 1999 and 1998 due to the short-term nature of these instruments.
The carrying value of the long-term debt also approximates fair value as of
December 31, 1999 and 1998 based on the terms the Company could obtain for
similar debt instruments with similar maturity. However, due to interest rate
fluctuations, the recorded value of 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 improvements are amortized using the straight-line method
over their estimated useful lives or the lease term, whichever is shorter.
Goodwill and other intangibles are amortized on the straight-line basis
over periods of 5 to 15 years. Accumulated amortization at December 31, 1999
and 1998 was $1,186,400 and $125,800, respectively.
F-7
<PAGE>
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Advertising, Marketing and Promotion Costs
Advertising, marketing and promotion costs are expensed as incurred. These
expenses charged to operations for the years ended 1999, 1998 and 1997 were
$1,212,600, $1,004,700, and $805,300, respectively.
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, 1999 and 1998 was approximately
$205,500 and $110,400, respectively.
Revenue Recognition
Sales and related cost of goods sold are recognized upon shipment of
products. Certain customers prepay for sera or media and buffer product and
request shipment of the product at future dates. The Company records deferred
revenue 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 $3,315,400, $2,648,300, and $2,077,700, in 1999, 1998 and
1997, 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, 1999 and 1998.
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 Accounting Practice
Board Opinion No. 25 and comply with the pro forma disclosure requirements.
F-8
<PAGE>
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 (loss) 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.
Business Segment Reporting
We adopted SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information," 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 are summarized as those
located in the United States, Europe, Japan and other. Information related to
these segments is summarized in Note 11.
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 cash equivalents and trade accounts
receivable. The credit risk associated with trade accounts is mitigated by our
credit evaluation process; reasonably short collection terms and the
geographical dispersion of sales transactions mitigate credit risk.
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 transaction gains and losses were insignificant to the operating
results for each of the years in the three-year period ended December 31,
1999.
Other Assets
Included in other assets at December 31, 1998 and 1999 is a note receivable
from an officer of $350,000. The note bears interest at 5.9% and is due on
demand. Management does not expect to demand payment within the 12 months
subsequent to December 31, 1999.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
F-9
<PAGE>
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 consolidated financial statements from the
date of acquisition. The purchase price was $15,193,900, including related
acquisition costs. 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 being amortized on a
straight-line basis, 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............................................. $ 7,655.4
Core technology.................................................. 665.3
Assembled workforce.............................................. 408.1
Trade name....................................................... 257.0
Goodwill......................................................... 2,826.7
---------
$11,812.5
=========
</TABLE>
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.
At the date of acquisition QCB had approximately 100 unique phosphorylated
antibodies under development, with most of these antibodies in the final phase
of development. We estimate that on an overall basis these antibodies were
approximately 75% complete when acquired. The balance of the development work
was completed by the end of 1999.
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. Intangible assets were acquired in the
amount of $2,348,700 and are being amortized over a 15-year period and
included in intangible assets in the consolidated balance sheet at December
31, 1998 and 1999.
The following summarized unaudited pro forma financial information assumes
the acquisition had occurred on January 1, 1998:
<TABLE>
<CAPTION>
1998
----------------------
(in thousands,
except per share data)
<S> <C>
PRO FORMA INFORMATION
Net sales........................................... $27,752.9
Net loss............................................ $(6,731.8)
Net loss per share.................................. $ (0.90)
</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. The pro forma results do not necessarily represent results that
would have occurred if the acquisition had taken place on the basis assumed
above, nor are they indicative of the results of future combined operations.
F-10
<PAGE>
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Inventories
Inventories at December 31, 1999 and 1998 are summarized as follows
(000's):
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Raw materials........................................ $ 4,060.0 $ 4,115.0
Work in process...................................... 598.6 750.4
Finished goods....................................... 5,040.7 3,972.4
--------- ---------
Subtotal............................................. 9,699.3 8,837.8
Inventory reserve.................................... (3,684.0) (3,867.2)
--------- ---------
Net inventory........................................ $ 6,015.3 $ 4,970.6
========= =========
</TABLE>
4. Property and Equipment
Property and equipment at December 31, 1999 and 1998 are summarized as
follows (000's):
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Land................................................. $ 360.0 $ 360.0
Building and improvements............................ 2,255.0 2,283.5
Machinery and equipment.............................. 4,157.4 3,749.1
Office furniture and equipment....................... 1,883.1 1,596.8
Leasehold improvements............................... 107.9 87.2
--------- ---------
8,763.4 8,076.6
Less accumulated depreciation and amortization....... (3,370.8) (2,563.0)
--------- ---------
$ 5,392.6 $ 5,513.6
========= =========
</TABLE>
5. Long Term Debt and 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 used to finance the
acquisitions of Quality Controlled Biochemicals, Inc. and all of the assets
and selected liabilities of Biofluids, Inc. The principal amounts outstanding
as of December 31, 1998 and 1999 were $14,000,000 and $12,000,000,
respectively. 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, 1999 was
8.12%. 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, 1999. 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 before interest, taxes, depreciation
and amortization to debt service costs. We are also required to comply with
certain non-financial covenants. At December 31, 1999, BioSource was in
compliance with 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 balances at December 31, 1998 and 1999 were $705,300 and
$688,000 respectively.
F-11
<PAGE>
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 balances at December 31, 1998 and 1999 were $578,100 and
$561,500 respectively.
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 four loans outstanding
aggregating $964,100 at December 31, 1999 with MetroWest Bank which were
assumed by BioSource upon completion of the acquisition of QCB in December
1998. Description of all loans outstanding at December 31, 1998 and 1999
follows (000's):
<TABLE>
<CAPTION>
Amount Outstanding at
-------------------------
December 31, December 31,
Type of Loan Maturity Date Interest Rate 1999 1998
- - ------------ ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Term Loan............ January 31, 2002 9.25% $ 83.2 $ 123.3
Term Loan............ April 17, 1999 8.75% -- 53.5
Term Loan............ April 17, 2003 9.50% 296.7 385.7
Term Loan............ August 22, 2000 9.75% 22.3 66.7
Line of Credit....... April 17, 1999 8.75% -- 203.5
Line of Credit....... December 31, 1999 9.25% 562.0 562.0
-------- --------
$ 964.2 $1,394.7
======== ========
</TABLE>
Under the terms of the MetroWest Bank loan agreement, BioSource must meet
certain financial covenants that include a minimum tangible net worth
covenant, debt to tangible net worth, current ratio covenant, and other non-
financial covenants. BioSource was in compliance with these covenants as of
December 31, 1999.
Maturities of the notes payable outstanding as of December 31, 1999 are:
<TABLE>
<CAPTION>
Year ending December 31:
------------------------
<S> <C>
2000........................................................ $ 2,754,400
2001........................................................ 2,165,800
2002........................................................ 2,135,600
2003........................................................ 2,076,900
2004........................................................ 2,051,500
Thereafter.................................................. 3,029,500
-----------
$14,213,700
===========
</TABLE>
6. Common Stock and Treasury Stock
In 1997, the Board of Directors authorized us to repurchase up to 1,200,000
shares of our outstanding common stock at market price. In 1998 we were
authorized to extend the repurchase program up to 1,500,000 shares of the
Company's stock. During the years ended December 31, 1997 and 1998, we
repurchased 283,300 and 996,200 shares of the Company's common stock for
$1,744,500, and $6,309,800, an average price of $6.16, and $6.33,
respectively. As of December 31, 1999, 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.
F-12
<PAGE>
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. Stock Options, Purchase Plans and Warrants
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 generally exercisable at the rate of 25% each year 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 except for Officers and Board of Directors. As part of the
repricing, 395,500 shares were canceled and 355,950 new shares were granted at
the new exercise price.
The per share weighted average fair value of stock options granted during
1999, 1998 and 1997 was $3.43, $2.40 and $5.27, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected dividend yield.................................. 0% 0% 0%
Risk-free interest rate.................................. 6.40% 4.75% 6.4%
Expected volatility...................................... 69% 60% 60%
Expected option life (years)............................. 7.1 8.8 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>
1999 1998 1997
-------- --------- --------
(in thousands,
except per share data)
<S> <C> <C> <C>
Net income (loss):
As reported................................ $3,577.4 $(5,135.8) $3,186.3
Pro forma.................................. $2,194.5 $(6,135.0) $2,774.6
======== ========= ========
Net income (loss) per share:
As reported
Basic.................................... $ 0.49 $ (0.68) $ 0.38
Diluted.................................. $ 0.46 $ (0.68) $ 0.36
Pro forma
Basic.................................... $ 0.30 $ (0.82) $ 0.38
Diluted.................................. $ 0.28 $ (0.82) $ 0.31
======== ========= ========
</TABLE>
Pro forma net income (loss) reflects compensation expense related to the
vested portion of options granted during the periods 1995 through 1999.
To the extent that BioSource derives a tax benefit from options exercised
by employees, such benefit is credited to additional paid-in capital. Tax
benefits recognized totaling $216,600, $20,500 and $0, were credited to
additional paid-in capital in fiscal 1999, 1998 and 1997, respectively.
F-13
<PAGE>
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, 1996......... 998,406 $4.15
Options granted.................................. 192,000 7.21
Options exercised................................ (77,044) 1.98
Options canceled................................. (120,801) 6.88
--------- -----
Options outstanding at December 31, 1997......... 992,561 4.57
Options granted.................................. 1,256,950 3.78
Options exercised................................ (27,410) 2.19
Options canceled................................. (504,955) 7.05
--------- -----
Options outstanding at December 31, 1998......... 1,717,146 3.30
Options granted.................................. 291,000 4.56
Options exercised................................ (221,791) 2.58
Options canceled................................. (169,930) 4.69
--------- -----
Options outstanding at December 31, 1999......... 1,616,425 $3.48
========= =====
</TABLE>
At December 31, 1999, the range of exercise prices and weighted average
remaining contractual life of outstanding options was $1.28-$8.94 and 7.6
years, respectively.
At December 31, 1999, 1998 and 1997, the number of options exercisable was
1,142,279, 1,031,730, and 592,435, respectively, and the weighted average
exercise price of those options was $3.47, $3.30 and $4.57, respectively.
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, 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
Options granted.................................... -- --
Options exercised.................................. (25,000) 1.50
Options canceled................................... -- --
------- -----
Options outstanding at December 31, 1999........... 377,500 $3.24
======= =====
</TABLE>
At December 31, 1999, the range of exercise prices and weighted average
remaining contractual life of outstanding options under certain agreements was
$1.50-$6.44 and 5 years, respectively.
F-14
<PAGE>
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 1999, 1998 and 1997, the number of options under certain
agreements exercisable was 374,633, 365,259 and 330,884, respectively, and the
weighted average exercise price of those options was $3.22, $3.13 and $3.13,
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, 1997, 1998 and 1999 was approximately
$10,000, $14,000, and $17,700, respectively.
At December 31, 1999 the Company had outstanding warrants to purchase
218,100 shares of the Company's common stock originally issued in connection
with the second primary stock offering with exercise prices ranging from $7.50
to $11.10 per share and expiration dates between February 1, 2001 and May 29,
2001.
8. 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 one one-thousandth of a share of Series A preferred stock
at an exercise price of $24.50. 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.
9. Income Taxes
Income tax expense (benefit) is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- --------- --------
<S> <C> <C> <C>
Current:
Federal.................................... $ 720.0 $ 802.6 $1,092.0
State and local............................ 203.2 155.0 172.0
Foreign.................................... -- (0.6) 140.0
------- --------- --------
923.2 957.0 1,404.0
------- --------- --------
Deferred:
Federal.................................... 76.0 (2,014.0) 61.0
State and local............................ (7.2) (477.6) (5.0)
Foreign.................................... (972.4) -- --
------- --------- --------
(903.6) (2,491.6) 56.0
------- --------- --------
$ 19.6 $(1,534.6) $1,460.0
======= ========= ========
</TABLE>
F-15
<PAGE>
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The primary components of temporary differences which give rise to deferred
taxes at December 31, 1999 and 1998 are:
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
Deferred tax assets:
Accruals for salary and bonus........................ $ 31.8 $ 21.6
Reserves for inventory............................... 1,033.4 1,084.4
Purchased in-process technology/goodwill............. 1,622.2 1,752.2
Net operating loss carryforwards..................... 1,209.5 1,477.6
Allowance for doubtful accounts...................... 38.3 --
-------- ---------
Total deferred tax assets.............................. 3,935.2 4,335.8
Less valuation allowance............................. -- (1,160.2)
-------- ---------
Deferred tax assets net of valuation allowance......... 3,935.2 3,175.6
-------- ---------
Deferred tax liability
Depreciation......................................... 69.0 103.4
State taxes.......................................... -- 109.6
-------- ---------
Total deferred tax liability........................... 69.0 213.0
-------- ---------
Net deferred tax assets................................ $3,866.2 $ 2,962.6
======== =========
</TABLE>
Management has reviewed the recoverability of deferred income tax assets
and has determined that it is more likely than not that the deferred tax
assets will be fully realized through future taxable earnings. During 1999 the
Company completed an analysis of its net operating losses in Belgium and as a
result recognized a deferred tax asset of $1,160,200.
Actual income tax expense (benefit) differs from that obtained by applying
the Federal income tax rate of 34% to income (loss) before income taxes as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Computed "expected" tax expense
(benefit)............................... $ 1,223.0 $(2,267.9) $1,580.0
Nondeductible items...................... 16.2 10.9 9.0
State taxes (net of Federal benefit)..... 138.9 (212.9) 110.0
Reduction of valuation allowance......... (1,160.2) -- --
Tax credits.............................. (100.0) (66.0) (110.0)
Tax effect resulting from foreign sales
corporation activities.................. (75.6) (94.2) (63.0)
Prior year adjustment to provision....... -- 116.5 --
Effect of foreign operations............. 187.8 923.4 --
Other.................................... (210.5) 55.6 (65.0)
--------- --------- --------
Total.................................. $ 19.6 $(1,534.6) $1,460.0
========= ========= ========
</TABLE>
As of December 31, 1999, the Company has a net operating loss (NOL)
carryforward of approximately $756,701 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.
10. 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 is $0.25 for each $1.00 contributed by employees up to
the first $2,000. Company contributions have no vesting period. The Company's
contribution was $38,300 in 1999. There were no Company contributions made in
1998 and 1997.
F-16
<PAGE>
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. 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:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Sales-from Segments:
Net sales to external customers from:
United States:
Domestic................................... $15,518.0 $ 8,844.1 $ 7,452.1
Export..................................... 4,678.2 4,270.3 4,220.7
--------- --------- ---------
Total United States...................... 20,196.2 13,114.4 11,672.8
Europe....................................... 9,060.8 8,744.2 8,899.0
--------- --------- ---------
Consolidated............................. $29,257.0 $21,858.6 $20,571.8
========= ========= =========
Operating income (loss):
United States................................ $ 2,710.6 $(4,459.4) $ 3,244.7
Europe....................................... 1,902.6 (2,642.4) 693.6
--------- --------- ---------
Consolidated............................. $ 4,613.2 $(7,101.8) $ 3,938.3
========= ========= =========
Identifiable assets at end of year:
United States................................ $32,184.3 $33,762.7
Europe....................................... 7,804.6 7,637.4
--------- ---------
Consolidated............................. $39,988.9 41,400.1
========= =========
Net interest expense (income):
United States................................ $ 815.7 $ (315.6) $ (575.0)
Europe....................................... 154.4 18.1 (52.4)
--------- --------- ---------
Consolidated............................. $ 970.1 $ (297.5) $ (627.4)
========= ========= =========
Depreciation and amortization:
United States................................ $ 1,559.5 $ 502.3 $ 371.7
Europe....................................... 431.4 457.5 340.3
--------- --------- ---------
Consolidated............................. $ 1,990.9 $ 959.8 $ 712.0
========= ========= =========
Capital expenditures:
United States................................ $ 899.0 $ 608.2 $ 398.3
Europe....................................... 178.0 781.8 260.7
--------- --------- ---------
Consolidated............................. $ 1,077.0 $ 1,390.0 $ 659.0
========= ========= =========
</TABLE>
F-17
<PAGE>
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Sales-to Segments:
Net Sales to external customers:
United States.................................. $15,518.0 $ 8,844.1 $ 7,452.1
Europe......................................... 10,139.4 9,692.4 9,984.6
Japan.......................................... 2,790.0 2,634.7 2,453.4
Other.......................................... 809.6 687.4 681.7
--------- --------- ---------
Total........................................ $29,257.0 $21,858.6 $20,571.8
========= ========= =========
</TABLE>
12. Commitments and Contingencies
At December 31, 1999 the Company had leases for certain of its facilities
and equipment under various noncancelable operating leases expiring through
March 2007. Total rental expense was approximately $722,900, $453,400 and
$385,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
On March 8, 2000 the Company entered into a lease for a new facility in
Camarillo, California. The lease will commence on May 1, 2000 and expires on
June 30, 2005, with the option to continue the lease for two additional five-
year terms. Annual lease payments in the initial five-year period ended
December 31, 2005 range from $342,000 at inception to $411,000 at termination.
At December 31, 1999, the future minimum payments under these leases,
including the lease executed on March 8, 2000, are as follows:
<TABLE>
<S> <C>
2000.............................................................. $ 878.7
2001.............................................................. 882.9
2002.............................................................. 757.4
2003.............................................................. 676.8
2004.............................................................. 615.7
Thereafter........................................................ 685.7
--------
$4,497.2
========
</TABLE>
13. Earnings Per Share
The Company presents basic and diluted earnings (loss) per share ("EPS").
Basic EPS includes no dilution and is computed by dividing net income (loss)
available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
from securities that could share in the earnings of the Company.
The reconciliations of basic to diluted weighted average shares are as
follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------
1999 1998 1997
-------- --------- --------
<S> <C> <C> <C>
Net earnings (loss) used for basic and
diluted earnings (loss) per share......... $3,577.4 $(5,135.8) $3,186.3
======== ========= ========
Weighted average shares used in basic
computation............................... 7,234.7 7,508.8 8,318.0
Dilutive stock options and warrants........ 598.2 -- 647.2
-------- --------- --------
Weighted average shares used for diluted
computation............................... 7,832.9 7,508.8 8,965.2
======== ========= ========
</TABLE>
F-18
<PAGE>
BIOSOURCE INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Options to purchase 367,079, 292,936 and 404,849 shares of common stock at
prices ranging from $7.06 to $9.06, $5.25 to $8.94 and $4.13 to $8.94 were
outstanding during 1997, 1998 and 1999, respectively, but were not included in
the computation of diluted earnings (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 a prices ranging from
of $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
antidilutive, as the Company incurred a net loss for the year
14. Subsequent events
On February 15, 2000, the Company issued 371,300 shares of $0.001 par value
Series B Preferred Stock with an initial aggregate liquidation value of
$9,000,300. The Series B Preferred Stock is initially convertible into
1,485,200 shares of the Company's Common Stock or at an effective price of
$6.06 per share of Common Stock. The Series B Preferred Stock shares will be
entitled to receive dividends at a rate of 8% of the original issue price.
Unless all dividends on the outstanding Series B Preferred Stock shares have
been paid, no dividends or other distributions shall be paid to Common Stock
shareholders. The Series B Preferred Stock shareholders have liquidation
preference to the Common Stock shareholders. This preferred stock also is
automatically convertible upon any of the following events: (1) a public
offering of common stock of not less than $15 per share, which results in
proceeds to us of at least $40,000,000 before commissions or discounts (2) the
date we specify to the holders, if the last reported sales price of our stock
is above $20 per share for 20 consecutive trading days on the Nasdaq National
Market, or (3) the holders of greater than 50% of the shares of the Series B
inform us in writing of their desire to convert the shares. Holders of Series
B Preferred Stock have the right to require the Company to redeem the Series B
Preferred Stock at the original liquidation value plus accrued dividends after
February 15, 2004, or as early as February 15, 2001, if various stock price
thresholds, as defined, are not met.
In connection with the issuance of Series B Preferred Stock the holders
received detachable stock purchase warrants. The warrants are exchangeable for
1,287,000 shares of Common Stock at an exercise price of $7.77 per share. The
Company allocated the net proceeds of $8,385,000 based on the relative fair
value of the warrants and the Series B Preferred Stock. The book value of the
Series B Preferred Stock of $5,581,600 will accrete to its liquidation value
immediately by $995,100 related to the beneficial conversion feature then
through February 2004 or earlier upon accelerated conversion under the
interest method. Such accretion will not have an effect on net income, but
will reduce the income available to common shareholders used to calculate
basic earnings per share.
F-19
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Balance at Provision Deductions Balance at
Beginning Charged Accounts End of
of Year to Income Written Off Year
---------- --------- ----------- ----------
(000's)
<S> <C> <C> <C> <C>
1997
Allowance for doubtful accounts.... $ 49.0 $ 154.0 $ -- $ 203.0
Inventory reserve.................. 65.5 309.2 -- 374.7
1998
Allowance for doubtful accounts.... $ 203.0 $ 178.3 $ 80.3 $ 301.0
Inventory reserve.................. 374.7 5,240.8 1,748.3 3,867.2
1999
Allowance for doubtful accounts.... $ 301.0 $ 86.5 $ 59.4 $ 328.1
Inventory reserve.................. 3,867.2 1,455.3 1,638.5 3,684.0
</TABLE>
F-20
<PAGE>
EXHIBIT INDEX
FOR FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999
<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.(6)
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.(8)
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(10)
3.1 Certificate of Incorporation of Registrant(1)
3.2 Bylaws of Registrant(1)
4.1 Specimen Stock Certificate of Common Stock of Registrant(1)
4.2 Certificate of Designation of Series A Preferred Stock(9)
4.3 Certificate of Designation of Series B Preferred Stock(11)
4.4 Rights Agreement, dated as of February 25, 1999, between the Company
and U.S. Stock Transfer and Trust Corporation, as Rights Agent(9)
4.5 Form of Right Certificate(9)
4.6 Summary of Share Purchase Rights(9)
4.7 Form of Warrant Agreement to purchase Common Stock of the Company
issued to Cruttenden Roth Incorporated and to Commonwealth Associates
dated as of June 5, 1996(6)
4.8 Investor Rights Agreement dated February 15, 2000, by and among
BioSource International, Genstar Partners II, L.P. and Stargen II
LLC(11)
4.9 Warrant to Purchase Common Stock of the Company issued to Genstar
Capital Partners II, L.P. on February 15, 2000(12)
4.10 Warrant to Purchase Common Stock of the Company issued to Stargen II
LLC on February 15, 2000(12)
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.(6)
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)
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(6)
10.13 List of Indemnities relating to Form of Indemnification Agreement
previously filed as Exhibit 10.12(6)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
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 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)
10.18 Registrant's Employee Stock Purchase Plan(7)
10.19 Securities Purchase Agreement dated January 10, 2000, by and among
BioSource International, Genstar Capital Partners II, L. P. and
Stargen II LLC
21 Subsidiaries of the Company:
</TABLE>
<TABLE>
<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
</TABLE>
<TABLE>
<S> <C>
23.1 Consent of KPMG LLP, Independent Public Accountants
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 Registration Statement on Form
SB-2 (SEC No. 333-3336) as filed with the Securities and Exchange
Commission on May 31, 1996, as amended.
(7) 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.
(8) 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.
(9) Incorporated by reference to the Company's Current Report on Form 8-A
filed with the Securities and Exchange Commission on March 1, 1999.
(10) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1998.
(11) Incorporated by reference to the Company's Registration Statement on Form
S-3 as filed with the Securities and Exchange Commission on March 16,
2000.
(12) Incorporated by reference to Amendment No. 1 to the Company's
Registration Statement on Form S-3 as filed with the Securities and
Exchange Commission on March 22, 2000.
<PAGE>
EXHIBIT 10.19
SECURITIES PURCHASE AGREEMENT
-----------------------------
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of January 10,
2000, by and among BIOSOURCE INTERNATIONAL, INC., a corporation organized under
the laws of the State of Delaware (the "Company"), and the purchasers (each a
"Purchaser" and collectively the "Purchasers")) set forth on the execution page
hereof (the "Execution Page").
R E C I T A L S
- - - - - - - -
A. The Company and the Purchasers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act").
B. The Purchasers desire to purchase subject to the terms and conditions
stated in this Agreement, (i) 371,300 shares of the Company's Series B
Convertible Preferred Stock, par value $.001 per share (the "Preferred Stock")
with the terms and conditions set forth in the Certificate of Designation of
Preferences, Rights and Limitations of Series B Preferred Stock of BioSource
International, Inc. in the form attached hereto as Exhibit A (the "Certificate
---------
of Designations"), and (ii) warrants in the form attached hereto as Exhibit B
---------
(including any warrants issued in replacement thereof, the "Warrants"), to
acquire 1,287,000 shares of the Company's common stock, par value $.001 per
share (the "Common Stock"). The shares of Common Stock issuable upon conversion
of or otherwise pursuant to the Preferred Stock are referred to herein as the
"Conversion Shares." The shares of Common Stock issuable upon exercise of or
otherwise pursuant to the Warrants are referred to herein as the "Warrant
Shares."
C. The exercise price of the Warrants shall be $7.77 per share of Common
Stock which represents a price of 112% of the market value of the Common Stock
(based on the closing price of the Common Stock of $6.9375 per share on January
7, 2000).
D. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering an Investor Rights Agreement in the
form attached hereto as Exhibit C (the "Investor Rights Agreement"), pursuant to
---------
which the Company has agreed to provide certain rights to the Purchasers,
including registration rights under the Securities Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, the Company and the Purchasers hereby agree as follows:
1. CERTAIN DEFINITIONS.
-------------------
For purposes of this Agreement, the following terms shall have the meanings
ascribed to them as provided below:
1
<PAGE>
"Business Day" shall mean any day on which the principal United States
securities exchange or trading market on which the Common Stock is listed or
traded as reported by NTMS (as defined below) is open for trading.
"Investment Amount" for each Purchaser shall mean the dollar amount to be
invested in the Company at the Closing pursuant to this Agreement by such
Purchaser, as set forth on the Execution Page hereto executed by such Purchaser.
"Material Adverse Effect" shall mean any event, condition or circumstance
that has had or is reasonably likely to have a material adverse effect on (i)
the Securities, (ii) the ability of the Company to perform its obligations
hereunder (including, without limitation, the issuance of the Shares and the
Warrants), under the Certificate of Designations (including, without limitation,
the issuance of the Conversion Shares), under the Warrants (including, without
limitation, the issuance of the Warrant Shares) or under the Investor Rights
Agreement or (iii) the business, operations, properties, prospects or financial
condition of the Company and its subsidiaries, taken as a whole.
"NTMS" shall mean the Research Service of Nasdaq Trading and Market
Services (or a comparable reporting service of national reputation if the
Research Service of Nasdaq Trading and Market Services is not then reporting
closing bid prices of such security).
"Securities" shall mean the Shares, the Conversion Shares, the Warrants and
the Warrant Shares.
"Shares" means the shares of Preferred Stock to be issued and sold by the
Company and purchased by the Purchasers at the Closing.
2. PURCHASE AND SALE OF SHARES AND WARRANTS.
----------------------------------------
a. Generally. Subject to the satisfaction (or waiver) of the conditions
---------
set forth in Section 6 and Section 7 below, the Purchasers shall purchase the
number of Shares and Warrants determined as provided in this Section 2, and the
Company shall issue and sell such number of Shares and Warrants to the
Purchasers for the Investment Amount as provided below.
b. Number of Closing Shares and Warrants; Form of Payment; Closing Date.
--------------------------------------------------------------------
i. On the Closing Date (as defined below), the Company shall sell and
the Purchasers shall buy (A) 371,300 shares of Preferred Stock at $24.24 per
share, and (B) Warrants to purchase 1,287,000 shares of Common Stock at an
exercise price of $7.77 per share.
ii. On the Closing Date, each Purchaser shall pay an amount in cash
equal to its Investment Amount against delivery of certificates representing the
Shares and duly executed Warrants being purchased by such Purchaser, and the
Company shall deliver to each Purchaser certificates representing the Shares
being purchased by such Purchaser and duly executed Warrants being purchased by
such Purchaser.
2
<PAGE>
iii. Subject to the satisfaction (or waiver) of the conditions set
forth in Section 6 and Section 7 below, the closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at 10:00 a.m. on
the date which is the earlier of (i) 30 days from the date hereof, or (ii) two
business days after the Purchasers have received all investment funds pursuant
to their call on investors (the "Closing Date"). The Closing shall occur at the
offices of Troop Steuber Pasich Reddick & Tobey, LLP, Los Angeles, California,
or at such other place as the Purchasers and the Company may otherwise mutually
agree.
3. THE PURCHASER'S REPRESENTATIONS AND WARRANTIES.
----------------------------------------------
The Purchasers represent and warrant to the Company as follows:
a. Purchase for Own Account. Each Purchaser is purchasing the Shares and
------------------------
Warrants for its own account and not with a present view towards the
distribution thereof. Each Purchaser understands that it must bear the economic
risk of this investment indefinitely, unless the Securities are registered
pursuant to the Securities Act and any applicable state securities or blue sky
laws or an exemption from such registration is available, and that the Company
has no present intention of registering any such Securities other than as
contemplated by the Investor Rights Agreement. Notwithstanding anything in this
Section 3(a) to the contrary, by making the foregoing representation, the
Purchasers do not agree to hold the Securities for any minimum or other specific
term and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption from
registration under the Securities Act and any applicable state securities laws.
b. Information. The Purchasers have been furnished all materials relating
-----------
to the business, finances and operations of the Company and its subsidiaries and
materials relating to the offer and sale of the Securities that have been
requested by them. The Purchasers have been afforded the opportunity to ask
questions of the Company and have received what they believe to be satisfactory
answers to any such inquiries. Each Purchaser understands that its investment in
the Securities involves a high degree of risk. Neither such inquiries nor any
other due diligence investigation conducted by the Purchasers or their counsel
or any of their representatives shall modify, amend or affect the Purchasers'
right to rely on the Company's representations and warranties contained in
Section 4 below.
c. Governmental Review. Each Purchaser understands that no United States
-------------------
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
d. Authorization; Enforcement. Each Purchaser has the requisite power and
--------------------------
authority to enter into and perform its obligations under this Agreement and to
purchase the Shares and the Warrants in accordance with the terms hereof. This
Agreement has been duly and validly authorized, executed and delivered on behalf
of such Purchaser and is a valid and binding agreement of such Purchaser
enforceable against such Purchaser in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other laws affecting creditors' rights and remedies generally and
to general principles of equity (regardless of whether enforcement is sought in
a proceeding at law or in equity).
3
<PAGE>
e. Transfer or Resale. Each Purchaser understands that (i) except as
------------------
provided in the Investor Rights Agreement, the Securities have not been and are
not being registered under the Securities Act or any state securities laws, and
may not be transferred unless (a) subsequently registered thereunder, or (b)
such Purchaser shall have delivered to the Company an opinion of counsel
reasonably acceptable to the Company (which opinion shall be in form, substance
and scope customary for opinions of counsel in comparable transactions) to the
effect that the Securities to be sold or transferred may be sold or transferred
under an exemption from such registration, or (c) sold under Rule 144
promulgated under the Securities Act (or a successor rule), or (d) sold or
transferred to an affiliate of such Purchaser or a partner or member of such
Purchaser pursuant to an exemption under the Securities Act; and (ii) neither
the Company nor any other person is under any obligation to register such
Securities under the Securities Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder, in each case, other
than pursuant to the Investor Rights Agreement.
f. Legends. Each Purchaser understands that the Shares and the Warrants
-------
and, until such time as the Shares (or the Conversion Shares) and the Warrants
(or the Warrant Shares) have been registered under the Securities Act as
contemplated by the Investor Rights Agreement or otherwise may be sold by the
Purchaser under Rule 144, the certificates for the Shares, Conversion Shares,
Warrants and Warrant Shares may bear a restrictive legend in substantially the
following form:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or the
securities laws of any state of the United States. The securities
represented hereby may not be offered or sold in the absence of an
effective registration statement for the securities under applicable
securities laws unless offered, sold or transferred under an available
exemption from the registration requirements of those laws.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if (a) the sale of such Security is registered under the Securities Act
or (b) in connection with the resale of such Security, such holder provides the
Company with an opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions, or a "no action" letter from the
staff of the SEC, in either case to the effect that a public sale or transfer of
such Security may be made without registration under the Securities Act or (c)
when such Security may be sold by a person who is not an "affiliate" of the
Company under Rule 144(k). Each Purchaser agrees to sell all Securities,
including those represented by a certificate(s) from which the legend has been
removed, pursuant to an effective registration statement or under an exemption
from the registration requirements of the Securities Act. The Company
acknowledges that the Purchasers may distribute the Shares or Warrants to their
respective partners or members in accordance with the terms of their respective
organizational documents and the legend set forth above shall be removed for
Securities held by holders who can sell such Securities pursuant to Rule 144(k).
g. Accredited Investor Status. Each Purchaser is an "accredited investor"
--------------------------
as that term is defined in Rule 501(a) of Regulation D. Neither the Purchasers
nor any of their
4
<PAGE>
respective affiliates is registered as a broker or dealer under Section 15(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), affiliated
with any broker or dealer registered under Section 15(a) of the Exchange Act, or
a member of the NASD (as defined below).
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
---------------------------------------------
The Company represents and warrants to the Purchasers as follows:
a. Organization and Qualification. The Company and each of its
------------------------------
subsidiaries is a corporation duly organized and existing under the laws of the
jurisdiction in which it is incorporated, and has the requisite corporate power
to own its properties and to carry on its business as now being conducted. The
Company and each of its subsidiaries is duly qualified as a foreign corporation
to do business and is in good standing in every jurisdiction in which the nature
of the business conducted by it makes such qualification necessary and where the
failure so to qualify would have, individually or in the aggregate, a Material
Adverse Effect. Schedule 4(a) sets forth the Company's jurisdiction of
-------------
incorporation and the name of each of the Company's subsidiaries and its
jurisdiction of incorporation. All of the outstanding equity securities of each
subsidiary is owned by the Company or one or more of its subsidiaries.
b. Authorization; Enforcement. (i) The Company has the requisite
--------------------------
corporate power and authority to enter into and perform its obligations under
this Agreement, the Certificate of Designations, the Warrants and the Investor
Rights Agreement, to issue and sell the Shares and the Warrants in accordance
with the terms hereof and to issue the Conversion Shares upon conversion of the
Shares and the Warrant Shares upon exercise of the Warrants in accordance with
the terms of the Certificate of Designations and Warrants, respectively; (ii)
the execution, delivery and performance of this Agreement, Certificate of
Designations, the Warrants and the Investor Rights Agreement by the Company and
the consummation by it of the transactions contemplated hereby and thereby
(including, without limitation, the reservation for issuance and issuance of the
Shares and the Conversion Shares and the issuance of the Warrants and the
reservation for issuance and issuance of the Warrant Shares) have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors or its shareholders is
required; (iii) this Agreement has been duly executed and delivered by the
Company; and (iv) this Agreement constitutes, and, upon execution and delivery
by the Company and the other parties thereto to the extent required of the
Investor Rights Agreement and the Warrants, such agreements will constitute,
valid and binding obligations of the Company enforceable against the Company in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and other laws
affecting creditors' rights and remedies generally and to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity). The Company has delivered to the Purchasers all correspondence and
filings between the Company and/or its representatives and the NASD with respect
to this Agreement and the transactions contemplated hereby. The Board of
Directors of the Company has taken all actions necessary under the Delaware
General Corporation Law to ensure that Section 203 does not and will not apply
to the transactions contemplated hereby or any "business combination" with any
"interested stockholder" after the date hereof. On or prior to the Closing, the
Company will file the Certificate of Designations with the Secretary of State of
the State of Delaware. The Board of
5
<PAGE>
Directors of the Company has taken all actions necessary under the terms of its
Shareholder Rights Plan to ensure that such Shareholder Rights Plan does not and
will not apply to the transactions contemplated hereby.
c. Capitalization. The capitalization of the Company as of the date
--------------
hereof is set forth on Schedule 4(c), including the authorized capital stock,
-------------
the number of shares issued and outstanding, the number of shares issuable and
reserved for issuance pursuant to the Company's stock option plans, the number
of shares issuable and reserved for issuance pursuant to securities exercisable
for, or convertible into or exchangeable for any shares of capital stock. All of
such outstanding shares of the Company's capital stock have been, or upon
issuance will be, validly issued, fully paid and nonassessable. Except as set
forth on Schedule 4(c), no shares of capital stock of the Company (including
-------------
the Shares, the Conversion Shares and the Warrant Shares) are subject to
preemptive rights or any other similar rights of the shareholders of the Company
or any liens or encumbrances. Except for the Securities and as disclosed in
Schedule 4(c), as of the date of this Agreement, (i) there are no outstanding
- - -------------
securities, options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever to which the Company is a party relating
to the issuance by the Company of securities or rights convertible into or
exercisable or exchangeable for, any shares of capital stock of the Company, or
arrangements by which the Company is or may become bound to issue additional
shares of capital stock of the Company, and (ii) there are no agreements or
arrangements under which the Company is obligated to register the sale of any of
its securities under the Securities Act (except the Investor Rights Agreement).
The Company has made available to the Purchasers through its filings with the
SEC true and correct copies of the Company's Certificate of Incorporation as in
effect on the date hereof ("Certificate of Incorporation"), the Company's By-
laws as in effect on the date hereof (the "By-laws") and all other instruments
and agreements governing securities convertible into or exercisable or
exchangeable for capital stock of the Company, except for stock options granted
under any employee benefit plan or director stock option plan of the Company.
d. Issuance of Shares. The Shares are duly authorized and when issued and
------------------
paid for in accordance with the terms hereof, will be validly issued, fully paid
and non-assessable, and free from all taxes, liens, claims and encumbrances
(other than those imposed through acts or omissions of the Purchaser thereof),
and will not be subject to preemptive rights, rights of first refusal or other
similar rights of shareholders of the Company and will not impose personal
liability upon the holder thereof. The Conversion Shares are duly authorized and
reserved for issuance, and, upon conversion of the Shares in accordance with the
terms of the Certificate of Designations, will be validly issued, fully paid and
non-assessable and free from all taxes and liens, claims and encumbrances (other
than those imposed through acts or omissions of the Purchaser thereof), and will
not be subject to preemptive rights or other similar rights of shareholders of
the Company and will not impose personal liability upon the holder thereof. The
Warrant Shares are duly authorized and reserved for issuance, and, upon exercise
of the Warrants in accordance with the terms thereof, will be validly issued,
fully paid and non-assessable and free from all taxes and liens, claims and
encumbrances (other than those imposed through acts or omissions of the
Purchaser thereof), and will not be subject to preemptive rights or other
similar rights of shareholders of the Company and will not impose personal
liability upon the holder thereof.
6
<PAGE>
e. No Conflicts. The execution, delivery and performance of this
------------
Agreement, the Investor Rights Agreement and the Warrants by the Company, and
the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the reservation for issuance and
issuance of the Shares, the Conversion Shares, the Warrant Shares and the
issuance of the Warrants) will not (i) conflict with or result in a violation of
the Certificate of Incorporation (as amended by the Certificate of Designations)
or By-laws or (ii) conflict with, or constitute a default (or an event which,
with notice or lapse of time or both, would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of any
agreement, indenture or instrument to which the Company is a party, or result in
a violation of any law, rule, regulation, order, judgment or decree (including
(assuming the accuracy of the representations and warranties of the Purchasers)
the United States federal and state securities laws and regulations) applicable
to the Company or by which any property or asset of the Company is bound or
affected (except, with respect to clause (ii), for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect). The
Company is not in violation of its Certificate of Incorporation, By-laws and
other organizational documents and is not in default (and no event has occurred
which, with notice or lapse of time or both, would put the Company in default)
under, nor has there occurred any event giving others (with notice or lapse of
time or both) any rights of termination, amendment, acceleration or cancellation
of, any agreement, indenture or instrument to which the Company is a party,
except for actual or possible violations, defaults or rights as would not,
individually or in the aggregate, have a Material Adverse Effect. The businesses
of the Company are not being conducted in violation of any law, ordinance or
regulation of any governmental entity, except for actual or possible violations,
if any, the sanctions for which either singly or in the aggregate would not have
a Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required under the Securities Act and any applicable state securities
laws, the Company is not required to obtain any consent, approval, authorization
or order of, or make any filing or registration with, any court or governmental
agency or any regulatory or self regulatory agency in order for it to execute,
deliver or perform any of its obligations under this Agreement including without
limitation the issuance and sale of the Shares and Warrants as provided hereby
and the issuance of the Conversion Shares upon conversion of the Shares, the
Warrants (including without limitation the issuance of the Warrant Shares) or
the Investor Rights Agreement, in each case in accordance with the terms hereof
or thereof. The Company is not in violation of the listing requirements of the
Nasdaq National Market ("NASDAQ") and does not reasonably anticipate that the
Common Stock will be delisted by NASDAQ in the foreseeable future based on its
rules (and interpretations thereof) as currently in effect.
f. SEC Documents; Financial Statements. The Company has timely filed all
-----------------------------------
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the Exchange Act, and has filed all registration
statements and other documents required to be filed by it with the SEC pursuant
to the Securities Act (all of the foregoing filed prior to the date hereof, and
all exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein, being hereinafter referred to
herein as the "SEC Documents"). The Company has made available to the Purchasers
true and complete copies of the SEC Documents. As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
Exchange Act or the Securities Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC
7
<PAGE>
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Any statements made in any such SEC Documents that are or were
required to be updated or amended under applicable law have been so updated or
amended. As of their respective dates, the financial statements of the Company
included in the SEC Documents complied in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
applicable with respect thereto. Such financial statements have been prepared in
accordance with United States generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company as of the
dates thereof and the results of their operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal and
recurring year-end audit adjustments which are not material). Except as set
forth in the SEC Documents, the Company has no liabilities, contingent or
otherwise, other than (i) liabilities incurred in the ordinary course of
business subsequent to the date of such SEC Documents and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in such
SEC Documents, which liabilities and obligations referred to in clauses (i) and
(ii), individually or in the aggregate, would not have a Material Adverse
Effect.
g. Absence of Certain Changes. Except as disclosed in the SEC Documents,
--------------------------
there has been no change or development which individually or in the aggregate
has had or could have a Material Adverse Effect.
h. Absence of Litigation. Except as disclosed in the SEC Documents, there
---------------------
is no action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
or, to the knowledge of the Company, threatened against or affecting the
Company, or any of their directors or officers in their capacities as such which
would have, individually or in the aggregate, a Material Adverse Effect.
i. Acknowledgment Regarding the Purchaser's Purchase of the Securities.
-------------------------------------------------------------------
The Company acknowledges and agrees that the Purchasers are not acting as
financial advisors or, acting as fiduciaries of the Company (or in any similar
capacity) with respect to this Agreement or the transactions contemplated
hereby, and the relationship between the Company and the Purchasers is "arms
length" and that any statement made by the Purchasers or any of their respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely incidental
to the Purchasers' purchases of Securities and has not been relied upon by the
Company, its officers or directors in any way. The Company further represents to
the Purchasers that the Company's decision to enter into this Agreement has been
based solely on an independent evaluation by the Company and its
representatives.
8
<PAGE>
j. No Brokers. The Company has not engaged any person to which or to whom
----------
brokerage commissions, finder's fees, financial advisory fees or similar
payments are or will become due in connection with this Agreement or the
transactions contemplated hereby.
k. Form S-3 Eligibility. The Company is currently eligible to register
--------------------
the resale of its Common Stock on a registration statement on Form S-3 under the
Securities Act. There exist no facts or circumstances (including without
limitation any required approvals or waivers of any circumstances that may delay
or prevent the obtaining of accountant's consents) that would prohibit or delay
the preparation and filing of a registration statement on Form S-3 with respect
to the Registrable Securities (as defined in the Investor Rights Agreement).
l. Intellectual Property. The Company owns or possesses sufficient legal
---------------------
rights to all patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information and proprietary rights and processes necessary
for its business without any conflict with, or infringement of, the rights of
others. The Company has not received any communications alleging that the
Company has violated or, by conducting its business, would violate any of the
patents, trademarks, service marks, trade names, copyrights, trade secrets or
other proprietary rights or processes of any other person or entity. The Company
is not aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with the use of such employee's best efforts to
promote the interest of the Company or that would conflict with the Company's
business. Neither the execution or delivery of this Agreement, nor the carrying
on of the Company's business by the employees of the Company, nor the conduct of
the Company's business as proposed, will, to the Company's knowledge, conflict
with or result in a breach of the terms, conditions, or provisions of, or
constitute a default under, any contract, covenant or instrument under which any
such employee is now obligated. The Company does not believe it is or will be
necessary to use any inventions of any of its employees (or persons it currently
intends to hire) made prior to their employment by the Company. Set forth in
Schedule 4(l)_ is a listing of all patents, trademarks and licenses of the
Company.
m. Taxes. The Company has filed all tax returns and reports as required
-----
by law. These returns and reports are true and correct in all material respects.
The Company has paid all taxes and other assessments due.
n. Environmental Laws. The Company is not in violation of any applicable
------------------
statute, law or regulation relating to the environment or occupational health
and safety, and to its knowledge, no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
No Hazardous Materials (as defined below) are used or have been used, stored, or
disposed of by the Company or, to the Company's knowledge, by any other person
or entity on any property owned, leased or used by the Company. For the purposes
of the preceding sentence, "Hazardous Materials" shall mean (a) materials which
are listed or otherwise defined as "hazardous" or "toxic" under any applicable
local, state, federal and/or foreign laws and regulations that govern the
existence and/or remedy of contamination on property, the protection of the
environment from contamination, the control of hazardous wastes, or other
activities involving hazardous substances, including building materials or (b)
any petroleum products or nuclear materials.
9
<PAGE>
o. ERISA Compliance. The Company is in compliance in all material
----------------
respects with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"). The Company does not have and has never
had any "defined benefit plan" as defined under ERISA and is not and has never
been obligated to contribute to a "multi-employer plan" as defined in ERISA.
p. No Misrepresentations. No representation, warranty, acknowledgement or
---------------------
certification of the Company contained in this Agreement, any schedule, annex or
exhibit hereto or any certificate furnished by the Company to the Purchasers
pursuant to this Agreement, contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading.
5. COVENANTS.
---------
a. Satisfaction of Conditions. The parties shall use reasonable best
--------------------------
efforts to satisfy in a timely manner each of the conditions set forth in
Section 6 and Section 7 of this Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with
---------------------
respect to the Securities as required under Regulation D and to provide a copy
thereof to the Purchasers promptly after such filing. The Company shall, on or
prior to the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Purchasers
pursuant to this Agreement under applicable securities or "blue sky" laws of the
states of the United States or obtain exemption therefrom.
c. Reporting Status. So long as the Purchasers beneficially own any
----------------
Securities or have the right to acquire any Securities pursuant to this
Agreement, the Company shall timely file all reports required to be filed with
the SEC pursuant to the Exchange Act, and shall not terminate its status as an
issuer required to file reports under the Exchange Act even if the Exchange Act
or the rules and regulations thereunder would permit such termination.
d. Use of Proceeds. The Company shall not use the net proceeds from the
---------------
sale of the Shares and the Warrants to repurchase any outstanding equity
securities of the Company.
e. Upfront Fee; Expenses. At the Closing, the Company shall pay to
---------------------
Genstar Capital LLC a sum equal to three percent (3%) of the aggregate
Investment Amount and reimburse each Purchaser for the out-of-pocket expenses
reasonably incurred by it and its affiliates and advisors in connection with the
negotiation, preparation, execution and delivery of this Agreement, the Investor
Rights Agreement, the Warrants and the other agreements to be executed in
connection herewith, including, without limitation, its reasonable attorneys'
fees and expenses (the "Expenses").
f. Financial Information. So long as the Purchasers hold not less than
---------------------
20% of the aggregate amount of Shares and Warrants being purchased pursuant to
this Agreement, following the Closing, the Company agrees to send to the
Purchasers within ten days after the filing with the SEC, to the extent not
available through the SEC's EDGAR system, a copy of its
10
<PAGE>
Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, its proxy and
information statements and any Current Reports on Form 8-K and to send to the
Purchasers at such time as they are generally available to management month end
summary financial statements, but in no event later than 30 days after the end
of each month.
g. Reservation of Shares. The Company has and shall at all times have
---------------------
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the issuance of the Shares as provided in
Section 2 hereof, the full conversion of the Shares and the issuance of the
Conversion Shares, and the full exercise of the Warrants and the issuance of the
Warrant Shares in connection therewith and as otherwise required hereby and by
the Warrants. The Company shall not reduce the number of shares of Common Stock
reserved for issuance under this Agreement (except as a result of the issuance
of the Conversion Shares upon conversion of the Shares), the Warrants (except as
a result of the issuance of the Warrant Shares upon the exercise of the
Warrants) or the Investor Rights Agreement, without the consent of the
Purchaser, such consent not to be unreasonably withheld, conditioned or delayed.
h. Listing. On the Closing Date, the Company shall have applied for the
-------
listing of the Conversion Shares and Warrant Shares, in each case, upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed or quoted and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all
Conversion Shares from time to time issuable upon conversion of the Shares and
all Warrant Shares from time to time issuable upon exercise of the Warrants. The
Company shall use all commercially reasonable efforts to continue the listing
and trading of its Common Stock on NASDAQ and will comply in all respects with
the Company's reporting, filing and other obligations under the bylaws or rules
of NASDAQ and the NASD or any other exchanges, as applicable. The Company shall
use all commercially reasonable efforts to obtain from the NASD a letter
reasonably satisfactory to the Purchasers confirming that no shareholder
approval of the transactions contemplated hereby is required under the rules of
the NASD. The Company shall deliver to the Purchasers all correspondence and
filings between the Company and/or its representatives and the NASD with respect
to this Agreement and the transactions contemplated hereby.
i. Additional Equity Capital. The Company agrees that during the period
-------------------------
beginning on the date hereof and ending on the date which is 90 days following
the Closing Date (the "Lock-Up Period"), the Company will not, without the prior
written consent of the Purchasers or their designees, such consent not to be
unreasonably withheld, conditioned or delayed, contract with any party to obtain
additional financing in which any equity or equity-linked securities are issued
(including any debt financing with an equity component) (an "Equity Financing")
pursuant to any offering exempt from the registration requirements of the
Securities Act which grants any registration rights exercisable within six
months of the Closing Date. The limitations referred to in this Section 5(i)
shall not apply to (i) any transaction involving issuances of securities as
consideration in a merger, consolidation or acquisition of assets, or in
connection with any strategic partnership, collaboration or joint venture (the
primary purpose of which is not to raise equity capital), or as consideration
for the acquisition of a business, product or license by the Company, (ii) the
issuance of securities pursuant to an underwritten public offering, (iii) the
issuance of securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the date hereof as
set forth in Schedule
--------
11
<PAGE>
4(c) or (iv) the grant of additional options or warrants, or the issuance of
- - ----
additional securities, under any duly authorized Company stock option, stock
purchase or restricted stock plan for the benefit of the Company's employees,
consultants or directors.
j. Operations in the Ordinary Course. Between the date of this Agreement
---------------------------------
and the Closing Date, the Company shall, and shall cause its subsidiaries to,
conduct its business in all material respects in the ordinary course consistent
with past practice, and shall use reasonable best efforts to preserve intact its
business organization and maintain its existing relations and goodwill with
customers, suppliers, regulators, distributors, creditors, lessors and others
having business dealings with it.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
----------------------------------------------
The obligation of the Company hereunder to issue and sell Shares and
Warrants to the Purchasers at the Closing hereunder is subject to the
satisfaction, at or before the Closing Date, of each of the following conditions
thereto; provided, however, that these conditions are for the Company's sole
benefit and may be waived by the Company at any time in its sole discretion.
a. The representations and warranties of the Purchasers shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for representations and warranties that speak as of a specific
date, which representations and warranties shall be true and correct as of such
date), and the Purchasers shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Purchasers at or
prior to the Closing Date.
b. No statute, rule, regulation, executive order, decree, ruling,
injunction, action, proceeding or interpretation shall have been enacted,
entered, promulgated, endorsed or adopted by any court or governmental authority
of competent jurisdiction or any self-regulatory organization, or the staff of
any thereof, having authority over the matters contemplated hereby which
questions the validity of, or challenges or prohibits the consummation of, any
of the transactions contemplated by this Agreement.
7. CONDITIONS TO PURCHASERS' OBLIGATION TO PURCHASE SHARES AND WARRANTS.
--------------------------------------------------------------------
The obligation of the Purchasers hereunder to purchase Shares and Warrants
to be purchased by them hereunder is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions; provided, however that
these conditions are for the Purchasers' sole benefit and may be waived by the
Purchasers at any time in the Purchasers' sole discretion:
a. The Company shall have delivered to the Purchasers duly executed
certificates representing the number of Shares and duly executed Warrants as
provided in Section 2(b) above.
b. The representations and warranties of the Company shall be true and
correct as of the date when made and as of the Closing Date as though made at
that time (except for
12
<PAGE>
representations and warranties that speak as of a specific date, which
representations and warranties shall be true and correct as of such date) and
the Company shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Company at or prior
to the Closing Date. The Purchasers shall have received a certificate, executed
on behalf of the Company by its Chief Financial Officer, dated as of the Closing
Date, to the foregoing effect and attaching true and correct copies of the
resolutions adopted by the Company's Board of Directors authorizing the
execution, delivery and performance by the Company of its obligations under this
Agreement, the Certificate of Designations, the Warrants and the Investor Rights
Agreement.
c. No statute, rule, regulation, executive order, decree, ruling,
injunction, action, proceeding or interpretation shall have been enacted,
entered, promulgated, endorsed or adopted by any court or governmental authority
of competent jurisdiction or any self-regulatory organization, or the staff of
any thereof, having authority over the matters contemplated hereby which
questions the validity of, or challenges or prohibits the consummation of, any
of the transactions contemplated by this Agreement.
d. The Purchasers shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in the form of Exhibit D attached hereto.
---------
e. From the date of this Agreement through the Closing Date, there shall
not have occurred any Material Adverse Effect.
8. GOVERNING LAW; MISCELLANEOUS.
----------------------------
a. Governing Law; Jurisdiction. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of California applicable to
contracts made and to be performed in the State of California. Each of the
parties irrevocably consents to the jurisdiction of the United States federal
courts and the state courts located in the State of California in any suit or
proceeding based on or arising under this Agreement and irrevocably agrees that
all claims in respect of such suit or proceeding may be determined in such
courts. Each of the parties irrevocably waives the defense of an inconvenient
forum to the maintenance of such suit or proceeding. Each of the parties further
agrees that service of process upon such party mailed by first class mail to the
address set forth in Section 8(f) shall be deemed in every respect effective
service of process upon such party in any such suit or proceeding. Nothing
herein shall affect the right of the Purchasers to serve process in any other
manner permitted by law. Each of the parties, agrees that a final non-appealable
judgment in any such suit or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on such judgment or in any other lawful manner.
b. Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
In the event any signature is delivered by facsimile transmission, the party
using such means of
13
<PAGE>
delivery shall cause the manually executed Execution Page(s) hereof to be
physically delivered to the other party within five (5) days of the execution
hereof.
c. Headings. The headings of this Agreement are for convenience of
--------
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
------------
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments; Waiver. This Agreement and the
------------------------------------
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Purchasers
make any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing. Any waiver by the Purchasers, on the one hand, or the
Company, on the other hand, of a breach of any provision of this Agreement shall
not operate as or be construed to be a waiver of any other breach of such
provision of or any breach of any other provision of this Agreement. The failure
of the Purchasers, on the one hand, or the Company, on the other hand to insist
upon strict adherence to any term of this Agreement on one or more occasions
shall not be considered a waiver or deprive that party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Agreement.
f. Notices. Any notices required or permitted to be given under the
-------
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier or confirmed telecopy, in each case addressed to a party. The addresses
for such communications shall be:
If to the Company:
BioSource International, Inc.
820 Flynn Road
Camarillo, California 93012
Facsimile No.: (805) 383-5382
Attention: James Chamberlain, President and Chief Executive
Officer
With a copy, which shall not constitute notice, to:
Troop Steuber Pasich Reddick & Tobey, LLP
2029 Century Park East, 24th Floor
Los Angeles, CA 90067
Facsimile No.: (310) 728-2222
Attention: Scott W. Alderton, Esq.
14
<PAGE>
If to a Purchaser, to the address set forth under such Purchaser's name on the
Execution Page hereto executed by such Purchaser, with a copy, which shall not
constitute notice, to:
Latham & Watkins
505 Montgomery Street, Suite 1900
San Francisco, CA 94111-2562
Facsimile No.: (415) 395-8095
Attention: Scott Haber, Esq.
Each party hereto may from time to time change its address or facsimile
number for notices under this Section 8 by giving at least ten (10) days' prior
written notice of such changed address or facsimile number, in the case of the
Purchasers to the Company, and in the case of the Company to the Purchasers.
g. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their successors and assigns. The
Company shall not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers, such consent not to be
unreasonably withheld, conditioned or delayed. The Purchasers shall not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the Company, such consent not to be unreasonably withheld,
conditioned or delayed, except to an affiliate of such Purchaser, and provided
further, that any such assignee shall agree in writing with the Company to be
bound by the terms and conditions hereof and of the Investor Rights Agreement.
h. Third Party Beneficiaries. This Agreement is intended for the benefit
-------------------------
of the parties hereto and their respective permitted successors and assigns, and
is not for the benefit of, nor may any provision hereof be enforced by any other
person.
i. Survival. The representations and warranties of the Company shall
--------
survive for one (1) year following the Closing Date (other than Section 4(d)
which shall survive indefinitely), notwithstanding any due diligence
investigation conducted by or on behalf of the Purchasers. Moreover, none of the
representations and warranties made by the Company herein shall act as a waiver
of any rights or remedies the Purchasers may have under applicable federal or
state securities laws. The Company agrees to indemnify and hold harmless the
Purchasers and each of the Purchasers' respective officers, directors,
employees, partners, members, agents and affiliates for loss or damage relating
to the Securities purchased hereunder arising as a result of or related to any
breach by the Company of any of its representations or covenants set forth
herein, including advancement of expenses as they are incurred.
j. Publicity. The Company shall have the right to approve the issuance
---------
of any press releases or any other public statements with respect to the
transactions contemplated hereby. Within five days after the Closing Date, the
Company shall file a Current Report on Form 8-K or other appropriate form with
the SEC disclosing the transactions contemplated hereby. Nothing contained in
this Section 8(j) shall prevent the Company from satisfying its disclosure
obligations under the federal or state securities laws or pursuant to any rule
of any trading market that is a principal trading market for any of the
Company's securities.
15
<PAGE>
k. Further Assurances. Each party shall do and perform, or cause to be
------------------
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Closing shall not have occurred on
-----------
or before March 31, 2000, or such other date as the Company and the Purchasers
may mutually agree, this Agreement shall terminate at the close of business on
such date. Notwithstanding any termination of this Agreement, any party not in
breach of this Agreement shall preserve all rights and remedies it may have
against another party hereto for a breach of this Agreement prior to or relating
to the termination hereof.
l. California Corporate Securities Law. THE SALE OF THE SECURITIES THAT
-----------------------------------
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES
PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT
FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA
CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS EXEMPT.
16
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
COMPANY:
BIOSOURCE INTERNATIONAL, INC.
By: /s/ James Chamberlain
------------------------------------------
James Chamberlain
President and Chief Executive Officer
The Purchasers:
GENSTAR CAPITAL PARTNERS II, L.P.
By: Genstar Capital LLC
Its General Partner
By: /s/ Jean-Pierre L. Conte
------------------------------------------
Jean-Pierre L. Conte
Managing Director
Investment Amount: $8,829,270.00
Shares of Series B Preferred: 364,244
No. of Warrants: 1,262,542
Address: 555 California Street, Suite 4850
San Francisco, CA 94104
Telecopy No.: (415) 834-2383
Attention: Jean-Pierre L. Conte
STARGEN II LLC
By: /s/ Jean-Pierre L. Conte
------------------------------------------
Jean-Pierre L. Conte
Managing Director
Investment Amount: $171,042.00
Shares of Series B Preferred: 7,056
No. of Warrants: 24,458
Address: 555 California Street, Suite 4850
San Francisco, CA 94104
Telecopy No.: (415) 834-2383
Attention: Jean-Pierre L. Conte
17
<PAGE>
EXHIBIT 23.1
Independent Auditors' Consent
The Board of Directors
BioSource International, Inc.:
We consent to incorporation by reference in the registration statements
(No. 33-65562 and 33-91838) on Form S-8 and (No. 333-05391 and No. 333-32622)
on Form S-3 of BioSource International, Inc. of our report dated March 10,
2000, relating to the consolidated balance sheets of BioSource International,
Inc. and subsidiaries as of December 31, 1999, and 1998, 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, 1999, and the
related financial statement schedule, which report appears in the December 31,
1999, annual report on Form 10-K of BioSource International, Inc.
KPMG LLP
Los Angeles, California
March 22, 2000
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
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